<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 2000.
REGISTRATION NO. 333-30264
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
AMENDMENT NO. 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
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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)(2) PER SHARE(3) OFFERING PRICE(3) REGISTRATION FEE(4)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value................. 4,600,000 $15.00 $69,000,000.00 $18,216.00
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</TABLE>
(1) Includes 600,000 shares which the Underwriters have an option to purchase to
cover over-allotments, if any.
(2) Assumes a 1-for-2 reverse stock split of our common stock solely for the
purpose of determining the amount of the registration fee.
(3) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for the purpose of determining the amount of the
registration fee.
(4) $18,480 was previously paid at the time of the initial filing on February
11, 2000.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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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 MARCH 28, 2000
MOBILITY ELECTRONICS LOGO
MOBILITY ELECTRONICS, INC.
4,000,000 SHARES
COMMON STOCK
This is the initial public offering of Mobility Electronics, Inc. We are
offering 4,000,000 shares of common stock. We expect that the public offering
price will be between $13.00 and $15.00 per share.
We have filed an application for our common stock to be quoted on the Nasdaq
National Market under the symbol "MOBE".
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 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.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS MOBILITY
<S> <C> <C> <C>
Per Share $14.00 $0.98 $13.02
TOTAL $56,000,000 $3,920,000 $52,080,000
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 600,000
additional shares of common stock solely to cover over-allotments, if any. If
all such shares are purchased, the total price to public will be $64,400,000,
the total underwriting discount will be $4,508,000 and the total proceeds to us
will be $59,892,000. See "Underwriting."
The shares of common stock are offered, subject to prior sale, by the
underwriters on a firm commitment basis when, and as if delivered and accepted
by them, and subject to approval of certain legal matters by counsel to the
underwriters and certain other conditions. Delivery of the shares of common
stock offered by this prospectus to underwriters is expected to be made in New
York, New York on or about , 2000.
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
J.C. BRADFORD & CO.
The date of this Prospectus is , 2000
<PAGE> 3
[DESCRIPTION OF GRAPHICS ON INSIDE FRONT COVER PAGE AND GATEFOLD]
The top of the inside front cover will contain the phrase "Revolutionizing
the Remote Bus Industry through Split Bridge(TM) technology." A diagram of a
printed circuit board will appear below the text. The diagram will illustrate
the ability of the Mobility Split Bridge(TM) chip to interface with a remote
secondary PCI bus rather than a traditional secondary PCI bus. The bottom of the
inside front cover will include a Split Bridge(TM) logo depicting the cable for
a remote secondary PCI bus and a picture of the "PCWeek Best of COMDEX" award we
received, which declared our Split Bridge(TM) technology the "Best New
Technology" at the fall 1999 COMDEX trade show.
The left side of the gatefold will contain, in the center of the page, the
text "PCI bridges are commonplace. Mobility's Split Bridge(TM) technology,
because of its unique remote PCI bus architecture, opens up a whole new world of
PCI bus applications never before feasible. Some of the potential markets are
listed here but the possibilities are endless because PCI is everywhere."
Starting in the upper left hand corner of the gatefold, and moving clockwise and
across to the right side of the gatefold, there will be graphics representing
the notebook computer, desktop, 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.................................. 19
Use of Proceeds............................................. 19
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 23
Selected Consolidated Financial Data........................ 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 35
Management.................................................. 50
Principal Stockholders...................................... 58
Certain Transactions........................................ 60
Description of Capital Stock................................ 62
Shares Eligible For Future Sale............................. 70
Underwriting................................................ 72
Interests of Named Experts and Counsel...................... 75
Experts..................................................... 75
Additional Information Available To You..................... 75
Index to Consolidated Financial Statements.................. F-1
</TABLE>
Mobility Electronics(R), EASi(R), EasiDock(R), Split Bridge(TM) and our
stylized logo are trademarks of Mobility Electronics, Inc. All other tradenames
or trademarks appearing in this prospectus are the property of their respective
owners.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF OUR COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus including "Risk Factors" and the consolidated financial
statements, before making an investment decision.
OUR BUSINESS
Mobility Electronics designs, develops and markets technology and products
for the computer industry as well as for a broad range of related microprocessor
applications. These technologies and products allow the connection of the
computer to various peripherals using a remote peripheral component interface,
or PCI bus, technology. Our proprietary Split Bridge(TM) technology consists of
a Split Bridge(TM) link, typically two customized semiconductors, or chips, two
connectors and a high-speed cable. Our technology for the first time allows any
computer's primary PCI bus, which is the heart of the computer, to be extended
to a remote location of up to 15 feet with virtually no software requirements or
performance degradation. This enables architectural designs of computer systems
and applications that previously were not feasible.
Unlike traditional communication protocols such as universal serial bus, or
USB, firewire, or IEEE 1394, Ethernet and small computer systems interface, or
SCSI , Split Bridge(TM) offers a combination of simplicity, high performance,
and technological superiority. Since Split Bridge(TM) technology extends the PCI
bus, it can accommodate any of the traditional communication protocols in the
remote location as if they are attached to the primary PCI bus. Our Split
Bridge(TM) technology won PC Week's "Best New Technology" award at the fall 1999
COMDEX trade show, and was runner-up for the "Technology Achievement of the Year
Award" at the Mobile Insights 2000 Conference. We have numerous Split Bridge(TM)
patents pending and related claims, and have received notice of allowance from
the U.S. Patent and Trademark Office for our key patents.
Today the most prevalent computer architecture, which is incorporated into
virtually all computer systems and in many related microprocessor applications,
uses the PCI bus. However, the PCI bus cannot be extended more than a few
inches. This extension is necessary to alleviate the physical printed circuit
board, or PCB, space constraints on the computer motherboard, and restrictions
on the number of lines, or circuits, and electrical loads that can be attached
to the PCI bus. Consequently, the industry today faces a number of difficult
physical and electrical constraints when designing computer systems and
products. Additionally, traditional communication protocols, which attempt to
address these limitations, have numerous disadvantages when compared to our
Split Bridge(TM) technology since they generally require a processor, extensive
software and other related items.
Our Split Bridge(TM) technology eliminates many of these physical and
electrical constraints by allowing one or more Split Bridge(TM) chips to be
attached to a computer's primary PCI bus, with the mating Split Bridge(TM) chips
installed at a remote location along with an extended secondary PCI bus. Split
Bridge(TM) technology thus substantially reduces the need for available physical
space on the primary PCB by eliminating the requirement that all the circuitry
be on the main computer mother board, and by allowing the extension cable and
connectors to be small and flexible. Moreover, since all of the secondary PCI
bus loads and peripherals do not need to be physically attached to the primary
PCI bus, Split Bridge(TM) technology enables input/output devices, peripherals
and other technologies to be placed in multiple remote locations.
Our first major application for Split Bridge(TM) technology is the creation
of a new universal docking product category which allows users of portable
computers to configure a flexible, high performance docking solution that meets
their individual needs. More importantly, our universal docking products are
compatible with most makes and models of portable computers, thus, facilitating
the use of a portable computer as a true desktop replacement.
According to IDC, a leading industry source, the market for portable
computers, excluding handheld devices, is expected to grow at a compounded
annual growth rate of 13.8% from 15.5 million units in 1998 to approximately
29.6 million units in 2003. In addition, IDC forecasts that the handheld market
will grow at a compounded annual growth rate of over 39.8% from 6.6 million
units in 1998 to approximately
3
<PAGE> 6
35.2 million units by 2003. Coupled with this trend toward portability, there
has been an increased demand for computers that are smaller and lighter but have
processing functionality similar to that of the traditional desktop computer. To
make these smaller and lighter computers more convenient to use in the office
and home, docking stations are required to allow users to connect to networks,
peripheral devices and external power sources, providing users with all of the
features and functionality of a traditional desktop computer.
We believe that our Split Bridge(TM) docking station products, which offer
a combination of universality and expandability, create the basis for a
connectivity standard for the portable computer industry. This would allow the
user to replace the desktop computer with a fully integrated, customizable
mobile computing system and purchase docking solutions independent of the choice
of computer.
Our universal docking station product line further provides distributors,
retailers and value-added resellers with the ability to carry a limited number
of universal and expandable docking products, as opposed to many individual
docking stations that only work with one computer model. Thus, distributors,
retailers and value-added resellers can offer flexible choices to their
customers and have products readily available when new computer models are
launched, while at the same time simplifying their dock inventory requirements.
Finally, these products offer computer original equipment manufacturers, or
OEMs, the ability to use our standardized docking solution for all of their
portable computer models.
Our second major application for our Split Bridge(TM) technology is the
provision of additional lower cost expansion and backup capacity, remote access,
and enhanced communication among computers in the server, desktop, and
keyboard-video-mouse, or KVM, switch markets in partnership with Cybex Computer
Products Corporation. Potential future applications include business machines,
such as copiers and printers, test equipment, modular computers, computer data
storage, in-home remote computer extension, and any other application that can
benefit from extending the PCI bus or from enhanced communication among
computers.
In addition to our Split Bridge(TM) technology products, we also design,
develop and market a range of connectivity and power products for portable
computers. Our current major customers include Buy.com, Compaq, CompUSA,
Gateway, Hewlett-Packard, Hitachi, IBM, Ingram Micro, Merisel, Microwarehouse,
Mitsubishi, NEC, Pinacor, Targus, Tech Data and Toshiba. We also have important
strategic relationships with 3Com, Cybex, LSI Logic, Molex, Phillips, Silicon
Image, Solectron, Targus and others.
We were formed as a limited liability company under the laws of the State
of Delaware in May 1995, and were converted to a Delaware corporation by a
merger effected in August 1996, in which we were the surviving entity. We
changed our name from "Electronics Accessory Specialists International, Inc." to
"Mobility Electronics, Inc." on July 23, 1998. Our principal executive offices
are located at 7955 East Redfield Road, Scottsdale, Arizona 85260, and our
telephone number is (480) 596-0061. Unless otherwise indicated in this
prospectus, references to "Mobility," "us," "we" and "our" refer to Mobility
Electronics, Inc. and shall include our predecessor, Electronics Accessory
Specialists International, L.L.C. Our website is located at
www.mobilityelectronics.com. The information contained on our website does not
constitute part of this prospectus.
---------------------
Unless otherwise indicated, this prospectus assumes:
- that the underwriters have not exercised their option to purchase
additional shares;
- conversion of 60% of the outstanding convertible debentures into 6,190
shares of common stock, upon the completion of this offering;
- conversion of all shares of Series C preferred stock into approximately
1,684,459 shares of common stock, on a 1-to-0.68815 basis, upon
completion of this offering;
- conversion of all shares of Series D preferred stock into approximately
375,940 shares of common stock on a 1-to-0.75188 basis, upon the
completion of this offering;
- a 1-for-2 reverse split of our common stock to be effected on March 31,
2000; and
- an initial public offering price of $14.00 per share, which is the
mid-point of the range on the cover of this prospectus.
4
<PAGE> 7
THE OFFERING
Common stock offered by Mobility....4,000,000 shares
Common stock to be outstanding after
this offering.......................12,692,606 shares
Use of proceeds.....................For working capital and general corporate
purposes including the repayment of debt,
increased spending on sales and marketing,
research and development, potential
acquisitions and expansion of our
operational and administrative
infrastructure. See "Use of Proceeds" for
more detailed information.
Proposed Nasdaq National Market
Symbol.............................."MOBE"
The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of March 17, 2000,
assuming the conversion of 2,447,808 shares of Series C preferred stock into
1,684,459 shares of common stock, the conversion of 60% of the outstanding
convertible debentures ($47,850) into 6,190 shares of common stock and the
conversion of 500,000 shares of Series D preferred stock into 375,940 shares of
common stock. This number excludes as of March 17, 2000: (1) 818,276 shares
subject to outstanding options and 431,724 shares available for future option
grants under our Amended and Restated 1996 Long Term Incentive Plan, or the 1996
Plan; (2) 132,198 shares subject to non-plan options; and (3) 2,157,942 shares
subject to warrants to purchase common stock.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAY 5,
(INCEPTION) YEAR ENDED DECEMBER 31,
TO DECEMBER 31, ---------------------------------------------
1995 1996 1997 1998 1999
--------------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 118 $ 5,669 $12,744 $ 21,072 $ 14,052
Gross profit (loss)......................................... 36 1,217 (591) (2,458) 2,301
Total operating expenses.................................... 827 3,224 7,483 13,938 11,898
------ ------- ------- -------- --------
Loss from operations........................................ (791) (2,007) (8,075) (16,396) (9,597)
Other expense (income):
Interest expense, net..................................... (3) 112 676 1,638 6,470
Other, net................................................ -- (7) 24 (1) 126
------ ------- ------- -------- --------
Loss before provision for income taxes...................... (788) (2,112) (8,775) (18,033) (16,193)
Provision for income taxes.................................. -- -- -- -- --
------ ------- ------- -------- --------
Net loss before preferred
dividends................................................. (788) (2,112) (8,775) (18,033) (16,193)
Cumulative dividends on Series B preferred
stock..................................................... -- (160) (317) -- --
------ ------- ------- -------- --------
Net loss attributable to common stockholders................ $ (788) $(2,272) $(9,092) $(18,033) (16,193)
====== ======= ======= ======== ========
Loss per share:
Basic..................................................... $(0.39) $ (1.08) $ (3.45) $ (4.36) (3.24)
====== ======= ======= ======== ========
Diluted................................................... $(0.39) $ (1.08) $ (3.43) $ (4.20) (2.84)
====== ======= ======= ======== ========
Weighted average common shares outstanding:
Basic..................................................... 2,035 2,099 2,639 4,136 4,994
====== ======= ======= ======== ========
Diluted................................................... 2,035 2,099 2,650 4,293 5,707
====== ======= ======= ======== ========
</TABLE>
5
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<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4,792 $46,642
Working capital............................................. 5,583 48,426
Total assets................................................ 14,815 56,665
Long-term debt, less current installments................... 8,051 37
Total stockholders' equity.................................. 2,226 53,131
</TABLE>
See note 19 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 2,399,102 outstanding shares of Series C preferred stock into
1,650,942 shares of common stock as of December 31, 1999, on a 1-to-0.68815
basis and the conversion of 60% of outstanding convertible debentures to common
stock at $7.73 per share, upon completion of this offering and the application
of the net proceeds from the sale of 4,000,000 shares of common stock offered by
us at the initial public offering price of $14.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses. The pro
forma as adjusted data above does not reflect the issuance on March 6, 2000 of
the Series D preferred stock or conversion of those shares into common stock
upon the completion of this offering.
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
December 31, 1999, have an accumulated deficit of approximately $46.4 million.
We expect to continue to incur operating losses in fiscal 2000. If we do not
achieve continued revenue growth sufficient to absorb our recent and planned
expenditures, we could experience additional losses in future periods. These
losses or fluctuations in our operating results could cause the market value of
our common stock to decline.
We anticipate that in the future we will make significant investments in
our operations, particularly to support technological developments and sales
activities and, that as a result, operating expenses will continue to increase.
We intend to make such investments on an ongoing basis, primarily from cash
generated from operations and, to the extent necessary, funds available from our
lines of credit and this offering, as we develop and introduce new products and
expand into new markets such as international, direct and OEM markets. If net
sales do not increase with capital or other investments, we are likely to
continue to incur net losses and our financial condition could be materially
adversely affected. We have not yet achieved profitability, and there can be no
assurance that we will achieve or sustain profitability on a quarterly or annual
basis.
OUR FUTURE SUCCESS IS UNCERTAIN BECAUSE SPLIT BRIDGE(TM) TECHNOLOGY IS NEW TO
OUR BUSINESS.
We began developing the Split Bridge(TM) technology during the first
quarter of 1998, and in the fourth quarter of 1998, we changed our overall
strategy to pursue the application of the Split Bridge(TM) technology as our
primary focus. Prior to changing our business strategy, we developed and
manufactured port replicators and power products. Our new business focus and
strategy may not be successful. In addition, because we have only recently begun
to focus our business on the development and application of the Split Bridge(TM)
technology, we cannot be sure that our business model and future operating
performance will yield the results that we seek. Our operating results for
future periods are subject to all of the risks and uncertainties inherent in the
establishment of new business enterprises. Our future operating results will
depend upon, among other factors:
- computer OEM acceptance of our Split Bridge(TM) technology and products;
- the level of product technology and price competition for our universal
docking, server and Split Bridge(TM) products;
- our ability to defend our patents and patents pending;
- our success in establishing and expanding our direct and indirect
distribution channels with corporate and consumer portable computer
users;
- our success in establishing universal docking products as a retail
product line;
- our success in attracting and retaining strategic partners, joint
ventures and licensing opportunities;
7
<PAGE> 10
- our success in attracting and retaining motivated and qualified
personnel, particularly in the technical area; and
- our development and marketing of new products and Split Bridge(TM)
technology applications.
WE MAY NOT ACHIEVE ANTICIPATED REVENUES IF MARKET ACCEPTANCE OF OUR SPLIT
BRIDGE(TM) TECHNOLOGY IS NOT FORTHCOMING.
We believe that revenues from universal docking stations will account for a
material portion of our revenues for the foreseeable future. Our future
financial performance will depend on market acceptance of our Split Bridge(TM)
technology, including our universal connectivity station product line. The
market for docking stations is characterized by ongoing technological
developments, frequent new product announcements and introductions, evolving
industry standards and changing customer requirements. As a result, if our Split
Bridge(TM) technology and universal connectivity product line do not achieve
widespread market acceptance, we may not achieve anticipated revenues. Although
PCI is an industry standard, the operating systems used by our customers may not
be compatible with certain products in our universal docking product line and,
as a result, the available market for our products may be limited.
Our future financial performance also depends in large part on the
existence and continued growth of market demand for universal connectivity
stations. There can be no assurance that the market or demand for universal
connectivity stations, if any, will develop and continue to grow. Any failure of
this market to develop or grow or our failure to develop a universal
connectivity station that satisfies market needs or that works with all computer
makes or models could have a material adverse effect on us. In addition, demand
for our products is primarily driven by the underlying market demand for
portable computers. Should the growth in demand for portable computers be
inhibited, we may not achieve anticipated revenues.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND AN
UNANTICIPATED DECLINE IN REVENUES MAY CAUSE OUR STOCK PRICE TO FALL.
It is likely that in some future quarter or quarters our operating results
will be below the expectations of securities analysts and investors. If a
shortfall in revenues occurs, the market price for our common stock may decline
significantly. The factors that may cause our quarterly operating results to
fall short of expectations include:
- our ability to develop and market our new Split Bridge(TM) products in a
timely manner;
- the timing of our, and our competitors, new product or technology
introductions and product enhancements;
- market acceptance of our Split Bridge(TM) products and technology;
- the size and timing of customer orders;
- difficulties with new Split Bridge(TM) production implementation or
supply chain;
- seasonality of sales;
- product defects and other product quality problems due to the recent
development of our Split Bridge(TM) technology;
- our ability to attract and retain strategic partners to continue the
advances necessary for Split Bridge(TM) technology;
8
<PAGE> 11
- the degree and rate of growth of the markets in which we compete and the
accompanying demand for our products;
- our ability to expand our internal and external sales forces and build
the required infrastructure to meet anticipated growth; and
- our suppliers' ability to perform under their contracts with us.
Many of these factors are beyond our control. For these reasons, you should
not rely on period-to-period comparisons of our financial results to forecast
our future performance.
WE MAY NOT BE ABLE TO ADEQUATELY MANAGE OUR ANTICIPATED GROWTH, WHICH COULD
IMPAIR OUR EFFICIENCY AND NEGATIVELY IMPACT OUR OPERATIONS.
We may not be able to manage our growth effectively, which could impair our
efficiency, reduce the quality of our solutions, impair further growth and harm
our business, financial condition and operating results. If we do not
effectively manage this growth, we may not be able to operate efficiently or
maintain the quality of our products. Either outcome could harm our operating
results. In the past, we have experienced rapid growth, and we plan to continue
to expand our operations. This expansion is expensive and places a significant
strain on our personnel and other resources. For example, our universal
connectivity station product line is expected to result in a significant
increase in the number of shipments to and from our Scottsdale, Arizona
facility. To manage our expanded operations effectively, we will need to further
improve our operational, financial and management systems and successfully hire,
train, motivate and manage our employees.
OUR FAILURE TO RESPOND TO RAPID TECHNOLOGICAL CHANGES MAY IMPAIR OUR OPERATING
RESULTS.
The market for our universal connectivity station product line is new and
emerging, and is characterized by rapid technological advances, changing
customer needs and evolving industry standards. Accordingly, to realize our
expectations regarding our operating results, we depend on our ability to:
- develop, in a timely manner, new products and services that keep pace
with developments in technology;
- meet evolving customer requirements; and
- enhance our current product and service offerings and deliver those
products and services through appropriate distribution channels.
We may not be successful in developing and marketing, on a timely and
cost-effective basis, either enhancements to our Split Bridge(TM) technology
products or new products which respond to technological advances and satisfy
increasingly sophisticated customer needs. If we fail to introduce new products,
our operating results may suffer. In addition, if new industry standards emerge
that we do not anticipate or adapt to, our products could be rendered obsolete
and our business could be materially harmed. Alternatively, any delay in the
development of technology upon which our products are based could result in our
inability to introduce new products as planned. For example, certain products
that we are currently developing depend upon the availability of USB 2.0. The
success and marketability of technology developed by others is beyond our
control.
WE DEPEND ON LARGE PURCHASES FROM A FEW SIGNIFICANT CUSTOMERS, AND ANY LOSS,
CANCELLATION OR DELAY IN PURCHASES BY THESE CUSTOMERS COULD CAUSE A SHORTFALL IN
REVENUE.
We derive a substantial portion of our product sales through a relatively
small number of OEMs and third-party distributors. For the year ended December
31, 1998, OEMs and
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distributors represented 42.8% and 26.8%, respectively, of our sales during that
period. For the year ended December 31, 1999, OEMs and distributors represented
60.4% and 24.6%, respectively, of our sales during that period.
While our financial performance depends on large orders from a few
significant OEMs and third-party distributors, with the exception of Targus, our
contractual relationships are generally non-exclusive and cancelable upon notice
to us. In addition:
- our distributor agreements generally do not require minimum purchases;
- our customers can stop purchasing and our distributors can stop
distributing our products at any time; and
- our distributor agreements generally are not exclusive and are for one
year terms, with no obligation of the distributors to renew the
agreements.
Sales to Targus totaled 16.2% for the year ended December 31, 1998 and
26.4% for the year ended December 31, 1999. We primarily sell custom products to
Targus. The agreement is renewable in one year increments and does not allow
product returns. Targus is responsible for all costs incurred on custom products
built on their behalf.
Because our expenses are based on our revenue forecasts, a substantial
reduction or delay in sales of our products to, or unexpected returns from OEMs
and distributors, or the loss of any significant customer could harm our
business. Although our largest customers may vary from period-to-period and we
expect to diversify our customers in the future, our operating results for any
given period may continue to depend to a significant extent on large orders from
a small number of customers.
There can be no assurance that our distributors will continue their current
relationships with us or that they will not give higher priority to the sale of
other products, which could include products of our competitors. In addition,
effective distributors must devote significant technical, marketing and sales
resources to an often lengthy sales cycle. There can be no assurance that our
current and future distributors will devote sufficient resources to market our
products effectively or that economic or industry conditions will not adversely
affect such distributors. A reduction in sales efforts or a discontinuance of
distribution of our products by our distributors could lead to reduced sales. In
addition, because we sell a significant portion of our products through
distributors, it is difficult for us to monitor end user demand for our products
on a current basis. For example, third-party distributors may place large
initial orders which may not be indicative of long-term end user demand.
Our operating results could also be materially adversely affected by
changes in distributors' inventory strategies, which could occur rapidly and, in
many cases, may not be related to end user demand. New products may require
different marketing, sales and distribution strategies than those for our
current products. There can be no assurance that our distributors will choose or
be able to effectively market these new products or to continue to market our
products.
OUR RELIANCE ON SINGLE OR LIMITED SOURCES FOR KEY COMPONENTS MAY INHIBIT OUR
ABILITY TO MEET CUSTOMER DEMAND.
The principal components of our docking station products are purchased from
outside vendors. We buy components under purchase orders and generally do not
have long-term agreements with our suppliers. Any termination of or significant
disruption in our relationship with our component suppliers may prevent us from
filling customer orders in a timely manner, as we generally do not maintain
large inventories of our components. We purchase a number of the components for
our products from sole or a limited number of suppliers; for example, Philips
Semiconductors is our sole supplier of Split Bridge(TM) technology ASIC chips,
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Molex is our sole supplier of certain system connectors for use with our
universal docking products, EFA is the only manufacturer of our USB docking
stations and Solectron is the only company that produces our Split Bridge(TM)
universal docking stations for us. EFA and Solectron are located in the Far
East. We have occasionally experienced and may in the future experience delays
in delivery of such components. Although alternate suppliers are available for
most of the components and services needed to produce our products, the number
of suppliers of some components is limited, and qualifying a replacement
supplier and receiving components from alternate suppliers could take several
months.
We depend upon our suppliers to deliver components that are free from
defects, competitive in functionality and cost and in compliance with our
specifications and delivery schedules. Disruption in supply, a significant
increase in the cost of one or more components, failure of a supplier to remain
competitive in functionality or price, the failure of a supplier to comply with
any of our procurement needs or the financial failure or bankruptcy of a
supplier could delay or interrupt our ability to manufacture or deliver our
products to customers on a timely basis.
OUR RELIANCE ON THIRD-PARTY MANUFACTURING VENDORS TO MANUFACTURE OUR PRODUCTS
MAY CAUSE A DELAY IN OUR ABILITY TO FILL ORDERS.
We rely on third-party manufacturers for assembly and subassembly of our
products. Any termination of or significant disruption in our relationship with
the third-party manufacturers of our products may prevent us from filling
customer orders in a timely manner, as we generally do not maintain large
inventories of our products. Additionally, our use of third-party manufacturers
reduces control over product quality and manufacturing yields and costs. We
depend upon our third-party manufacturers to deliver our products that are free
from defects, competitive in functionality and cost and in compliance with our
specifications and delivery schedules. Moreover, although arrangements with such
manufacturers may contain provisions for warranty obligations on the part of
third-party manufacturers, we remain primarily responsible to our customers for
warranty obligations. Disruption in supply, a significant increase in the cost
of the assembly of our products, failure of a third-party manufacturer to remain
competitive in functionality or price, the failure of a third-party manufacturer
to comply with any of our procurement needs or the financial failure or
bankruptcy of a third-party manufacturer could delay or interrupt our ability to
manufacture or deliver our products to customers on a timely basis.
OUR SUCCESS DEPENDS IN PART UPON SALES TO OEMS, WHOSE UNPREDICTABLE DEMANDS AND
REQUIREMENTS MAY SUBJECT US TO POTENTIAL ADVERSE REVENUE FLUCTUATIONS.
We expect that we will continue to be dependent upon a limited number of
OEMs for a significant portion of our net sales in future periods, although no
OEM is presently obligated either to purchase a specified amount of products or
to provide us with binding forecasts of product purchases for any period. Our
products are typically one of many related products used by portable computer
users. Demand for our products is therefore subject to many risks beyond our
control, including, among others:
- competition faced by our OEM customers in their particular end markets;
- market acceptance of Split Bridge(TM) technology and products by our OEM
customers;
- technical challenges which may or may not be related to the components
supplied by us;
- the technical, sales and marketing and management capabilities of our OEM
customers; and
- the financial and other resources of our OEM customers.
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Certain divisions within our OEM customers have developed products intended
to compete with our products. There can be no assurance that we will not lose
sales in the future as a result of such competing products. The reduction, delay
or cancellation of orders from our significant OEM customers, or the
discontinuance of our products by our end users may subject us to potential
adverse revenue fluctuations.
WE HAVE IN THE PAST EXPERIENCED RETURNS OF OUR PRODUCTS, AND AS OUR BUSINESS
GROWS WE MAY EXPERIENCE INCREASED RETURNS, WHICH COULD HARM OUR REPUTATION AND
NEGATIVELY IMPACT OUR OPERATING RESULTS.
In the past, some of our customers have returned our products to us because
they felt that the product did not meet their expectations, specifications and
requirements. Historically, these returns have been approximately 6.6% of sales.
It is likely that we will experience some level of returns in the future and, as
our business grows, the amount of returns may increase despite our efforts to
minimize them. Also, returns may adversely affect our relationship with affected
customers and may harm our reputation. This could cause us to lose potential
customers and business in the future. We maintain a financial reserve for future
returns that we believe is adequate given our historical level of returns. If
returns increase, however, our reserve may not be sufficient and our operating
results could be negatively affected.
INTENSE COMPETITION IN THE MARKET FOR CONNECTIVITY PRODUCTS COULD PREVENT US
FROM INCREASING REVENUE AND SUSTAINING PROFITABILITY.
Although the market for our universal docking products is relatively new
and emerging and we presently have few direct competitors, we expect that the
markets for our products will become increasingly competitive. The market for
computer products in general is intensely competitive, subject to rapid change
and sensitive to new product introductions or enhancements and marketing efforts
by industry participants. We expect to experience significant and increasing
levels of competition in the future. The principal competitive factors affecting
the markets for our product offerings include:
- corporate and product reputation;
- innovation with frequent product enhancement;
- breadth of integrated product line;
- product design, functionality and features;
- product quality and performance;
- ease-of-use;
- support; and
- price.
Although we believe that our products compete favorably with respect to
such factors, there can be no assurance that we can maintain our competitive
position against current or potential competitors, especially those with greater
financial, marketing, service, support, technical or other competitive
resources.
We currently compete primarily with the internal design efforts of OEMs.
These OEMs, as well as a number of our potential non-OEM competitors, have
larger technical staffs, more established and larger marketing and sales
organizations and significantly greater financial resources than we do. We,
however, believe that we have a proprietary position with respect to our Split
Bridge(TM) technology and universal connectivity stations which may pose a
barrier to entry that could keep our competitors from developing similar
products or selling competing products in our markets. There can be, however, no
assurance that such competitors will not be able to respond more quickly to new
or emerging technologies and changes in customer requirements, devote greater
resources to the development, sale and
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promotion of their products than we do or develop products that are superior to
our products or that achieve greater market acceptance.
Our future success will depend, in part, upon our ability to increase sales
in our targeted markets. There can be no assurance that we will be able to
compete successfully with our competitors or that the competitive pressures we
face will not have a material adverse effect on us. Our future success will
depend in large part upon our ability to increase our share of our target market
and to sell additional products and product enhancements to existing customers.
Future competition may result in price reductions, reduced margins or decreased
sales. See "Business -- Competition."
IF WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY OR IF WE
LOSE KEY PERSONNEL, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS OR
ACHIEVE OUR OBJECTIVES.
We believe our future success will depend in large part upon our ability to
identify, attract and retain highly skilled managerial, engineering, sales and
marketing, finance and operations personnel. Competition for such personnel in
the computer industry is intense, and we compete for such personnel against
numerous companies, including larger, more established companies with
significantly greater financial resources than us. There can be no assurance we
will be successful in identifying, attracting and retaining such personnel.
Our success also depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, finance
and manufacturing personnel, many of whom would be difficult to replace. In
particular, we believe that our future success depends on Charles R. Mollo,
Chief Executive Officer, Jeffrey S. Doss, Executive Vice President, and Richard
W. Winterich, Chief Financial Officer. Except for Mr. Doss, we do not maintain
key person life insurance on any of our executive officers. Except for Messrs.
Doss, Mollo and Winterich and Donald W. Johnson, our new Executive Vice
President of Worldwide Sales, Marketing and Operations, we do not have
employment contracts covering any of our senior management. The loss of the
services of any of our key personnel, the inability to identify, attract or
retain qualified personnel in the future or delays in hiring required personnel
could make it difficult for us to manage our business and meet key objectives,
such as timely product introductions.
IF OUR PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES AND BE SUBJECT TO PRODUCT
LIABILITY CLAIMS.
Our products are based on new technology and are complex. As such, they may
contain undetected errors or performance problems, particularly during new or
enhanced product launches. Despite product testing prior to introduction, our
products have in the past, on occasion, contained errors that were discovered
after commercial introduction. Errors or performance problems may also be
discovered in the future. Any future defects discovered after shipment of our
products could result in loss of sales, delays in market acceptance or product
returns and warranty costs. We attempt to make adequate allowance in our new
product release schedule for testing of product performance. Because of the
complexity of our products, however, our release of new products may be
postponed should test results indicate the need for redesign and retesting, or
should we elect to add product enhancements in response to customer feedback. In
addition, third-party products, upon which our products are dependent, may
contain defects which could reduce or undermine the performance of our products.
In addition, although our sales agreements with our customers typically
contain provisions designed to limit our exposure to potential product liability
claims, there can be no assurance that such limitations of liability would be
enforceable or would otherwise protect us
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from liability for damages to a customer resulting from a defect in one of our
products. Although we maintain liability insurance covering certain damages
arising from implementation and use of our products, there can be no assurance
that such insurance would cover or be sufficient to cover any such claims sought
against us.
IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS AND ABILITY TO
COMPETE COULD SUFFER.
Our success and ability to compete are dependent upon our internally
developed technology and know-how. We rely primarily on a combination of patent
protection, copyright and trademark laws, trade secrets, nondisclosure
agreements and technical measures to protect our proprietary rights. While we
have certain patents and patents pending, there can be no assurance that patents
pending or future patent applications will be issued or that if issued, such
patents will not be challenged, invalidated or circumvented or that rights
granted thereunder will provide meaningful protection or other commercial
advantage to us. Moreover, there can be no assurance that any patent rights will
be upheld in the future or that we will be able to preserve any of our other
intellectual property rights. We typically enter into confidentiality,
noncompete or invention assignment agreements with our key employees,
distributors, customers and potential customers, and limit access to, and
distribution of, our product design documentation and other proprietary
information. Additionally, we believe that, due to the rapid pace of innovation
within the computer industry, factors such as:
- technological and creative skill of personnel;
- knowledge and experience of management;
- name recognition;
- maintenance and support of products;
- the ability to develop, enhance, market and acquire products and
services; and
- the establishment of strategic relationships in the industry
also represent important protections for our technology. There can be no
assurance that our confidentiality agreements, confidentiality procedures,
noncompetition agreements or other factors will be adequate to deter
misappropriation or independent third-party development of our technology or to
prevent an unauthorized third party from obtaining or using information that we
regard as proprietary. See "Business -- Proprietary Rights."
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT ARE COSTLY
TO DEFEND AND COULD LIMIT OUR ABILITY TO USE CERTAIN TECHNOLOGIES IN THE FUTURE.
The laws of some foreign countries do not protect or enforce proprietary
rights to the same extent as do the laws of the United States. There can be no
assurance that our competitors will not independently develop technology similar
to existing proprietary rights of others. We expect that computer products will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. There can be no assurance that third
parties will not assert infringement claims against us in the future or, if
infringement claims are asserted, that such claims will be resolved in our
favor. Any such claims, with or without merit, could be time-consuming, result
in costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms favorable to us, if at all. In addition,
litigation may be necessary in the future to protect our trade secrets or other
intellectual property rights, or to determine the validity and scope of the
proprietary rights of others.
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Such litigation could result in substantial costs and diversion of resources.
See "Business -- Proprietary Rights."
OUR ABILITY TO INCREASE INTERNATIONAL SALES AND MANAGE OUR INTERNATIONAL
OPERATIONS IS SUBJECT TO A NUMBER OF RISKS BEYOND OUR CONTROL.
Our success will depend, in part, on additional expansion of our sales in
foreign markets. We have established a relationship with a representative agency
that has exclusive rights to sell our products in Europe. We intend to expand
into other foreign markets. Our failure to expand international sales in a
timely and cost-effective manner could have a material adverse effect on us. In
addition, there can be no assurance we will be able to maintain or increase
international market demand for our products. Our international business
involves a number of risks, including:
- the impact of possible recessionary environments in foreign economies;
- political and economic instability;
- exchange rate fluctuations;
- longer receivable collection periods and greater difficulty in accounts
receivable collection from distributors and customers;
- difficulty in managing distributors or sales representatives;
- increased sales and marketing expense;
- difficulty in staffing foreign operations;
- unexpected changes in regulatory requirements;
- reduced or limited protection for intellectual property rights;
- export restrictions and availability of export licenses;
- tariffs and other trade barriers;
- seasonal reduction in business activities;
- complex foreign laws and treaties including employment laws; and
- potentially adverse tax consequences.
Our international sales are priced in both U.S. dollars and in foreign
currency, each of which presents certain risks and uncertainties. Currency
exchange fluctuations could have a material adverse effect on our sales
denominated in U.S. currency as a decrease in the value of foreign currencies
relative to the U.S. dollar could make our pricing more expensive than, or
non-competitive with, products priced in local currencies. Additionally, due to
the number of foreign currencies involved in our international sales and the
volatility of foreign currency exchange rates, we cannot predict the effect of
exchange rate fluctuations with respect to such sales on future operating
results. We have not engaged in hedging transactions with respect to our net
foreign currency exposure. To the extent we implement hedging activities in the
future with respect to foreign currency transactions, there can be no assurance
that we will be successful in such hedging activities.
Moreover, certain of our customer purchase agreements are governed by
foreign laws, which may differ significantly from U.S. laws. Therefore, we may
be limited in our ability to enforce our rights under such agreements and to
collect amounts owed to us should any customer refuse to pay such amounts. In
addition, we are subject to the Foreign Corrupt Practices Act which may place us
at a competitive disadvantage with respect to foreign companies that are not
subject to that act.
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In January 1999, the new "Euro" currency was introduced in European
countries that are part of the European Monetary Union, or EMU. During 2002, all
EMU countries are expected to completely replace their national currencies with
the Euro. Because a significant amount of uncertainty exists as to the effect
the Euro will have on the marketplace and because all of the final rules and
regulations have not yet been defined and finalized by the European Commission
regarding the Euro currency, we cannot determine the effect this will have on
our business.
RISKS RELATED TO THE OFFERING
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL
OVER OUR BUSINESS AFTER THE OFFERING WHICH COULD DELAY OR PREVENT A MERGER OR
OTHER CHANGE IN CONTROL OF US.
Upon completion of this offering, our principal stockholders, executive
officers, directors and affiliated individuals and entities together will
beneficially own approximately 19.66% of the outstanding shares of common stock
(18.80% if the underwriters' over-allotment option is exercised in full). As a
result, these stockholders, acting together, may be able to influence
significantly and possibly control most matters requiring approval by our
stockholders, including approvals of:
- amendments to our certificate of incorporation;
- mergers;
- sale of all or substantially all of our assets;
- going private transactions; and
- other fundamental transactions.
In addition, our certificate of incorporation does not provide for
cumulative voting with respect to the election of directors. Consequently, our
present directors, executive officers, principal stockholders and their
respective affiliates may be able to control the election of the members of the
board of directors. Such a concentration of ownership could have an adverse
effect on the price of the common stock, and may have the effect of delaying or
preventing a change in control, including transactions in which stockholders
might otherwise receive a premium for their shares over then current market
prices.
SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT
COULD DISCOURAGE A CHANGE IN CONTROL AND REDUCE THE MARKET PRICE OF OUR COMMON
STOCK.
Some provisions of our certificate of incorporation and bylaws could make
it more difficult for a third party to acquire us even if a change of control
would be beneficial to our stockholders. These provisions include:
- authorizing the issuance of preferred stock without common stockholder
approval;
- prohibiting cumulative voting in the election of directors; and
- limiting the persons who may call special meetings of stockholders.
See "Description of Capital Stock -- Delaware Anti-Takeover Law and Certain
Charter and Bylaw Provisions" for more information regarding anti-takeover
matters.
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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 $9.42 in net tangible book value per
share, or approximately 67.3% of the initial public offering price of $14.00 per
share. In contrast, existing stockholders paid an average price of $6.37 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 12,692,606 shares of common
stock outstanding. All the shares sold in this offering can be freely traded.
The remaining 8,692,606 shares of common stock outstanding after this offering
are subject to lock-up agreements that prohibit the sale of the shares for 180
days after the effective date of the registration statement filed pursuant to
this offering. Immediately after the 180 day lock-up period, 6,464,940 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.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements that involve risks and
uncertainties. These forward-looking statements include statements under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus. You should not rely on these
forward-looking statements which apply only as of the date of this prospectus.
These statements refer to our future plans, objectives, expectations and
intentions. We use words such as "believe," "anticipate," "expect," "will,"
"intend," "estimate" and similar expressions to identify forward-looking
statements. This prospectus also contains forward-looking statements attributed
to third parties relating to their estimates regarding the growth of certain
markets. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those discussed in these forward-looking
statements. Factors that could contribute to these differences include those
discussed in the preceding pages and elsewhere in this prospectus.
USE OF PROCEEDS
The net proceeds to us from the sale of the 4,000,000 shares being offered
by us at an assumed initial public offering price of $14.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be $50,857,295, or $58,669,295 if the
underwriters' over-allotment option is exercised in full. We expect to use the
net proceeds of this offering for working capital and general corporate
purposes, including repayment of approximately $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 fully repay
two revolving loan agreements and one term loan agreement with Bank of America,
N.A. These agreements with Bank of America all mature on March 31, 2001.
Borrowings under the revolvers bear interest at a floating rate of prime plus
2.5% per annum. The amounts outstanding under the revolvers at 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.
We are using a portion of the proceeds from this offering to fully repay
two term loans with Sirrom Capital Corporation, now known as Finova Capital
Corporation, or Finova, each bearing interest at 13.5% per annum and each
maturing on June 23, 2002. At December 31, 1999 the amounts outstanding under
the Finova loans were $1.6 million and $1.75 million.
We are using a portion of the proceeds from this offering to fully repay
two outstanding Bridge Note debt offerings. At March 31, 2000, the principal
amount outstanding under the offering that will mature on March 31, 2001,
bearing interest at 14% per annum, was approximately $1.4 million and the
principal amount outstanding under the offering that will mature on July 31,
2000, bearing interest at 13% per annum, was $550,000.
We have Convertible Debentures that bear interest at 12% per annum with an
aggregate principal amount outstanding as of December 31, 1999 of $79,750 that
will mature on dates
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ranging from October 2003 to May 2004. Assuming the holders of the Convertible
Debentures exercise their conversion rights prior to the closing of this
offering, we intend to convert 60% of the outstanding principal amount under the
Convertible Debentures into 6,190 shares of our common stock at the closing of
this offering. At such time, we plan to fully repay the remaining $31,900, or
whatever amount remains unconverted under the Convertible Debentures.
In connection with the acquisition of certain assets of Miram
International, Inc., we assumed a promissory note bearing interest at 8% per
annum and maturing on July 31, 2000. At December 31, 1999 $157,000 was
outstanding under this note, which amortizes in equal installments on January
31, 2000, April 30, 2000 and July 31, 2000. The January 31, 2000 installment has
been paid. We are using a portion of the proceeds from this offering to fully
repay this note.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and do not anticipate paying any cash dividends
in the foreseeable future. Furthermore, our loan agreements with Bank of America
prohibit the payment of cash dividends on common stock without the consent of
Bank of America. See Note 7 to our consolidated financial statements.
20
<PAGE> 23
CAPITALIZATION
The following table shows:
- our actual capitalization as of December 31, 1999 (taking into account,
however, the subsequent 1-for-2 reverse stock split of our common stock
to be effected on March 31, 2000, and the post-December 31, 1999 changes
in the number of our authorized shares of common and preferred stock);
- our capitalization as of that date on a pro forma basis to give effect to
the conversion of 2,399,102 shares of Series C preferred stock into
1,650,942 shares of common stock as of December 31, 1999, on a
1-to-0.68815 basis and the conversion of 60% of the outstanding
convertible debentures at $7.73 per share, upon completion of this
offering;
- our capitalization as of such date on a pro forma basis to give effect to
the 1-for-2 reverse stock split of our common stock to be effected on
March 31, 2000, and the post-December 31, 1999 changes in the number of
our authorized shares of common and preferred stock; and
- our capitalization on a pro forma as adjusted basis to reflect our
receipt of the net proceeds from the sale of common stock offered by us
at an assumed offering price of $14.00 per share, and after deducting
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
(IN THOUSANDS)
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........................ 2,729 2,729 --
Note payable -- Bank of America........................... 916 916 --
Notes payable -- Finova................................... 3,350 3,350 --
Convertible debt.......................................... 80 80 --
Note payable -- Moroz..................................... 157 157 --
Capital leases............................................ 173 173 173
-------- -------- --------
Total debt........................................ 9,180 9,180 173
Stockholders' equity (deficiency):
Preferred stock, $0.01 par value; 15,000,000 shares
authorized; 2,500 shares of which are designated Series
A preferred stock, none of which are issued and
outstanding; 4,186 shares of which are designated
Series B preferred stock, none of which are issued and
outstanding; 4,500,000 shares of which are designated
Series C preferred stock, 2,399,102 of which are issued
and outstanding........................................ 24 -- --
Common stock $0.01 par value; 90,000,000 shares
authorized; 5,978,679 issued and outstanding; 7,635,811
issued and outstanding pro forma; 11,642,017 issued and
outstanding pro forma as adjusted...................... 60 76 116
Additional paid-in capital.................................. 48,837 48,845 99,710
Accumulated deficit......................................... (46,395) (46,395) (46,395)
Stock subscription receivable............................... (300) (300) (300)
-------- -------- --------
Net stockholders' equity.................................... 2,226 2,226 53,131
-------- -------- --------
Total capitalization.............................. $ 11,406 $ 11,406 $ 53,304
======== ======== ========
</TABLE>
21
<PAGE> 24
The number of shares of capital stock referenced above excludes: (1)
143,284 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 132,198 shares of common stock outside the 1996 Plan at $3.52 per
share; (3) warrants to purchase 2,586,389 shares of common stock at a weighted
average exercise price of $3.26 per share; and (4) the issuance on March 6, 2000
of the Series D preferred stock or conversion of those shares into common stock
upon completion of this offering. See "Management -- Amended and Restated 1996
Long Term Incentive Plan" and note 11 to our consolidated financial statements.
See notes 10 and 11 to our consolidated financial statements for more
information regarding our equity structure.
22
<PAGE> 25
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 December 31, 1999, was
approximately $2.2 million, or $0.29 per share, based on 7,635,811 shares of our
common stock outstanding after giving effect to the conversion of 2,399,102
outstanding shares of our Series C preferred stock into 1,650,942 shares of
common stock as of December 31, 1999, on a 1-to-0.68815 basis and the conversion
of 60% of the outstanding convertible debentures at $7.73 per share, upon the
closing of this offering.
After giving effect to the sale of the 4,000,000 shares of common stock by
us at the assumed initial public offering price of $14.00 per share (less the
underwriting discounts and commissions and estimated offering expenses payable
by us), our pro forma as adjusted net tangible book value at December 31, 1999,
would be $53.3 million, or $4.58 per share. This represents an immediate
increase in the pro forma as adjusted net tangible book value of $4.29 per share
to existing stockholders and an immediate dilution of $9.42 per share to new
investors, or approximately 67.3% of the initial public offering price of $14.00
per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Net tangible book value per share before the offering..... $ 0.29
Increase per share attributable to new investors.......... 4.29
------
Pro forma net tangible book value per share after the
offering.................................................. 4.58
------
Dilution per share to new investors......................... $ 9.42
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
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
---------- ------- -------- -------- ---------
(000'S)
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 7,635,811 65.6% $48,669 48.9% $6.37
New investors..................... 4,000,000 34.4 50,857 51.1 12.71
---------- ---- ------- ----
Totals.................. 11,635,811 100% $99,526 100%
---------- ---- ------- ----
</TABLE>
The information in the table is based upon the initial public offering
price of $14.00 per share before deducting underwriting discounts and
commissions and offering expenses payable by us. The information concerning
existing stockholders is based on the number of shares of common stock
outstanding on December 31, 1999 and gives effect to the conversion of 2,399,102
outstanding shares of Series C preferred stock into 1,650,942 shares of common
stock, on a 1-to-0.68815 basis as of December 31, 1999 and the conversion of 60%
of the outstanding convertible debentures at $7.73 per share, upon completion of
this offering. The information presented with respect to existing stockholders
excludes as of December 31, 1999: (1) 827,728 shares subject to outstanding
options and 422,272 shares available for future option grants under our 1996
Plan; (2) 132,198 shares subject to non-plan options; (3) 2,586,389 shares
subject to warrants to purchase common stock; and (4) the issuance on March 6,
2000 of the Series D preferred stock or conversion of those shares into common
stock upon completion of this offering. 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.
23
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data should be read together
with our consolidated financial statements and notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other information contained in this prospectus. The selected financial data
presented below under the captions "Consolidated Statement of Operations Data"
and "Consolidated Balance Sheet Data" as of December 31, 1998 and 1999 and for
each of the years in the three-year period ended December 31, 1999, are derived
from our consolidated financial statements, which have been audited by KPMG LLP,
independent certified public accountants, included elsewhere in this prospectus.
We derived the consolidated financial data for the period ended December 31,
1995 (unaudited) and the year ended December 31, 1996 from our consolidated
financial statements that are not included in this prospectus.
<TABLE>
<CAPTION>
MAY 5,
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------------
1995 1996 1997 1998 1999
-------------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 118 $ 5,669 $12,744 $ 21,072 $ 14,052
Cost of sales............................................ 82 4,452 13,335 23,530 11,751
------ ------- ------- -------- --------
Gross profit (loss)...................................... 36 1,217 (591) (2,458) 2,301
Operating expenses:
General and administrative............................. 283 1,978 1,907 4,446 3,313
Research and development............................... 159 711 2,951 4,361 3,377
Marketing and sales.................................... 385 535 2,625 5,131 5,208
------ ------- ------- -------- --------
Total operating expenses......................... 827 3,224 7,483 13,938 11,898
------ ------- ------- -------- --------
Loss from operations..................................... (791) (2,007) (8,075) (16,396) (9,597)
Other expense (income):
Interest expense, net.................................. (3) 112 676 1,638 6,470
Other, net............................................. -- (7) 24 (1) 126
------ ------- ------- -------- --------
Loss before provision for income taxes................... (788) (2,112) (8,775) (18,033) (16,193)
Provision for income taxes(a)............................ -- -- -- -- --
------ ------- ------- -------- --------
Net loss before preferred dividends...................... (788) (2,112) (8,775) (18,033) (16,193)
Cumulative dividends on Series B preferred stock......... -- (160) (317) -- --
------ ------- ------- -------- --------
Net loss attributable to common stockholders............. $ (788) $(2,272) $(9,092) $(18,033) $(16,193)
====== ======= ======= ======== ========
Loss per share(b)(c):
Basic.................................................. $(0.39) $ (1.08) $ (3.45) $ (4.36) $ (3.24)
====== ======= ======= ======== ========
Diluted................................................ $(0.39) $ (1.08) $ (3.43) $ (4.20) $ (2.84)
====== ======= ======= ======== ========
Weighted average common shares outstanding(b)(c):
Basic.................................................. 2,035 2,099 2,639 4,136 4,994
====== ======= ======= ======== ========
Diluted................................................ 2,035 2,099 2,650 4,293 5,707
====== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $352 $ 290 $ 2,216 $ 2,433 $ 4,792
Working capital (deficit)................................... 424 388 1,928 (3,511) 5,583
Total assets................................................ 815 4,380 12,250 12,735 14,815
Long-term debt, less current installments................... -- 1,168 3,919 3,587 8,051
Total stockholders' equity (deficiency)..................... 568 607 430 (3,496) 2,226
</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.
24
<PAGE> 27
(b) See note 19 to our consolidated financial statements for an explanation of
the determination of the number of shares and share equivalents used in
computing per share amounts.
(c) As adjusted to reflect a 1-for-2 reverse stock split authorized by the
Board of Directors and to be approved by the stockholders on March 31,
2000. All share amounts, share prices and per share information have been
retroactively adjusted to reflect this 1-for-2 reverse split.
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read together with "Selected Consolidated
Financial Data" and our consolidated financial statements and notes thereto
contained in this prospectus. This discussion and analysis contains certain
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including but not
limited to those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
In the first quarter of 1998 we began to pursue a technology that would
enable us to create a new universal docking product category which allows
portable computer users to configure a flexible, high performance docking
solution that is compatible with essentially all makes and models of portable
computers. The fundamental technology that we developed has far reaching
applications. In the first quarter of 1999 we changed our overall business
strategy to pursue the application of our Split Bridge(TM) technology as our
primary focus.
Mobility was founded in May 1995 to develop products for the portable
computer market. Initial sales were generated primarily from reselling
third-party power products. In mid-1996 we began manufacturing and shipping our
first port replicator and monitor stand products to Toshiba. During 1997 we
expanded our product offering to include port replicators for other computer
original equipment manufacturers, or OEMs, to meet the growing end user demand
for such products. Sales grew from $118,000 in 1995, to $5.7 million in 1996, to
$12.7 million in 1997 and $21.1 million in 1998. Sales in 1999 declined to $14.1
million primarily due to the phase out of the mechanical port replicator product
line. Net losses increased from $788,000 in 1995, to $2.1 million in 1996, to
$8.8 million in 1997, to $18.0 million in 1998 and decreased slightly to $16.2
million in 1999.
After reviewing our financial performance relative to the mechanical port
replicator product line, we determined that we needed to discontinue this
product line. The then available technology required each port replicator to be
unique to each portable computer. It typically took two months to design a unit
and an additional month to implement production and have product available in
the market. Lifecycles of portable computers vary, but they average
approximately nine months. With one-third of the lifecycle consumed in design
and production implementation, it was difficult to generate sufficient unit
volume over the remaining life of the portable computer to amortize the design
and tooling costs. In addition, once the portable computer was replaced in the
market by a new model, we faced the economic issues associated with the
distribution channel's return of unsold product. This resulted in obsolete
inventory, as the unit was model specific to the discontinued portable computer.
In December 1998 we booked reserves for inventory obsolescence, product
returns and tooling equipment impairment. An additional inventory reserve was
established in the amount of $4.5 million, unamortized tooling in the amount of
$275,000 was written off and an additional reserve for product returns was
recorded in the amount of $235,000.
The product line abandonment plan called for an immediate stop to
mechanical port replicator development. The engineering staff supporting this
activity was dismantled in the first quarter of 1999. The port replicator
product offering was reduced to the finished goods on hand and the build out of
existing component inventory. The final build was completed in July 1999, and we
have continued to sell out of finished goods inventory throughout the year ended
December 31, 1999. During 1999 we booked an incremental $1.7 million of obsolete
inventory reserve to specifically reserve all remaining mechanical port
replicator inventory.
26
<PAGE> 29
The product line abandonment plan assumed a migration from the mechanical
port replicator product offering to a universal line of docking stations.
Universal docking stations are a natural application for the Split Bridge(TM)
technology. These docking stations will represent the first commercial
application of the technology. A line of products was designed around our Split
Bridge(TM) technology and existing USB technology. The universal nature of the
product line overcomes the issues that made the mechanical port replicator
financially unviable. Specifically, the products are not model specific to
portable computers and therefore provide leverage to the engineering and tooling
cost. In addition, the product is compatible with virtually all PCI-based
computers, which eliminates the inventory obsolescence issues, as the products
will be compatible with new portable computer models into the foreseeable
future.
We also evaluated our basic business strategy relative to the power
products and monitor stand product lines and determined that a fundamental
change was required. During the first half of 1999, we implemented a
manufacturing strategy that migrated in-house production to contract
manufacturers in Taiwan. This decision was made to take advantage of lower costs
offered by contract manufacturers and the ability to reduce in-house fixed
overhead expenses. Implementation of this strategy was completed in September
1999. The outsourcing of manufacturing allows us to concentrate our efforts on
technological development and application.
As a result of the product line abandonment plan and our outsourcing of
manufacturing, we experienced significant improvement in gross margins in the
third quarter of 1999. The new universal connectivity product line has been set
up to use our contract manufacturing partner in Malaysia and the cost of net
sales is predictable based upon committed price quotations.
We sell our products directly to OEMs and the retail channel, as well as
through distributors. We have also established a few select worldwide private
label accounts, most notably IBM, NEC and Targus. A substantial portion of our
sales are concentrated among a number of OEMs, including Compaq, Dell,
Hewlett-Packard, IBM, NEC, Targus and Toshiba. Direct sales to OEMs accounted
for approximately 60.4% of net sales in the twelve months ended December 31,
1999. Direct sales to OEMs have declined as a percentage of sales as we have
expanded our channels of distribution in the United States to include
distributors and resellers. We expect that we will continue to be dependent upon
a number of OEMs for a significant portion of our net sales in future periods,
although no OEM is presently obligated to purchase a specified amount of
products.
A portion of our sales to distributors and resellers is generally under
terms that provide for certain stock balancing return privileges and price
protection. Sales to this channel have increased and are expected to further
increase significantly. Accordingly, we make a provision for estimated sales
returns and other allowances related to those sales. Returns, which have been
netted in the sales presented herein, were approximately 6.6% of sales for 1999.
The major distributors are allowed to return up to 15.0% of their prior
quarter's purchases under the stock balancing programs, provided that they place
a new order for equal or greater dollar value of the stock balancing return.
Historically, the returns have been primarily mechanical port replicators that
are associated with portable computers that have been replaced in the market. It
is anticipated that the return activity will diminish significantly due to the
nature of the universal docking station and the reduced obsolescence issues.
We derive a significant portion of our sales outside the United States,
principally in France, Germany and the United Kingdom, to OEMs, retailers and a
limited number of independent distributors. On October 1, 1999 we sold Mobility
Electronics, L.L.C., our international sales subsidiary, which owned
subsidiaries in France, Germany and the United Kingdom, for nominal value to
Cameron Wilson, our former president. Mr. Wilson has
27
<PAGE> 30
resigned from Mobility to develop these former subsidiaries into an independent
representative agency that will market our products exclusively in Europe.
International sales accounted for approximately 17.9% of our net sales for the
twelve months ended December 31, 1999. We expect sales outside the United States
to continue to account for a large portion of our net sales. International sales
are generally denominated in the currency of our foreign customers. A decrease
in the value of foreign currencies relative to the U.S. dollar could result in a
significant decrease in U.S. dollar sales received by us for our international
sales. That risk may be increased as a result of the introduction in January
1999 of the new "Euro" currency in European countries that are part of the
European Monetary Union, or EMU. During 2002, all EMU countries are expected to
completely replace their national currencies with the Euro. However, we cannot
determine the impact this may have on our business because a significant amount
of uncertainty exists as to the effect the Euro will have on the marketplace and
because all of the final rules and regulations have not yet been defined and
finalized by the European Commission regarding the Euro currency. We intend to
develop and implement a plan to mitigate this risk once the final rules and
regulations are established. We recognized net foreign exchange gains of
approximately $17,368 in the twelve months ended December 31, 1999. We have not
engaged in hedging transactions with respect to our net foreign currency
exposure. To the extent that we implement hedging activities in the future with
respect to foreign currency transactions, there can be no assurance that we will
be successful in such hedging activities.
Various factors have in the past affected and may continue in the future to
affect our gross profits, including but not limited to, our product mix, lower
volume production and higher fixed costs for newly introduced product platforms
and technologies, market acceptance of newly introduced products and the
position of our products in their respective lifecycles. The initial stages of
our product introductions are generally characterized by lower volume production
which is accompanied by higher costs, especially for specific products which are
initially purchased in small volumes during the development lifecycle.
We were formed as Electronics Accessory Specialists International, L.L.C.
in May 1995 and converted to Electronics Accessory Specialists International,
Inc. by a merger effected in August 1996 in order to convert from a limited
liability company to a C-corporation. The Company purchased all the issued and
outstanding common stock of Mobility Electronics, L.L.C. in May 1996 for $500.
The purchase price approximated the fair value of the net assets acquired, and
thus no goodwill resulted from this acquisition. On July 29, 1997 we acquired
certain assets and assumed certain liabilities of Miram International, Inc., in
exchange for 55,000 (giving effect to the 1-for-2 reverse stock split) shares of
common stock valued at $425,000. The purchase price approximated the fair value
of the net assets acquired, and thus no goodwill resulted from this acquisition.
Each of these acquisitions was accounted for using the purchase method of
accounting. In October 1999 we sold Mobility Electronics, L.L.C. for $10,
resulting in a loss of approximately $134,000.
28
<PAGE> 31
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data for the
periods indicated expressed as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-------------------------
YEAR ENDED
DECEMBER 31,
-------------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 104.6 111.7 83.6
----- ----- ------
Gross profit (loss)....................................... (4.6) (11.7) 16.4
Operating expenses:
General and administrative................................ 15.0 21.1 23.6
Research and development.................................. 23.1 20.7 24.0
Marketing and sales....................................... 20.6 24.3 37.1
----- ----- ------
Total operating expenses.......................... 58.7 66.1 84.7
----- ----- ------
Loss from operations................................... (63.3) (77.8) (68.3)
Other expense:
Interest expense, net..................................... 5.3 7.8 46.0
Other, net................................................ .2 -- .9
----- ----- ------
Loss before provision for income taxes................. (68.8) (85.6) (115.2)
Provision for income taxes.................................. -- -- --
----- ----- ------
Net loss.......................................... (68.8)% (85.6)% (115.2)%
===== ===== ======
</TABLE>
Years Ended December 31, 1999 and 1998
Net sales. Net sales consist of sales of product net of returns and
allowances. We recognize sales at the time goods are shipped and the ownership
of the goods is transferred to the customer, and maintain a reserve for stock
rotation transactions with the distribution channel. Net sales declined 33.3% to
$14.1 million for the year ended December 31, 1999 from $21.1 million for the
year ended December 31, 1998. There were several factors that contributed to the
sales decline. We elected to migrate out of the mechanical port replicator
business. Sales in 1999 were limited to existing products, as all new mechanical
port replicator product development was terminated in the first quarter of 1999.
No new products were introduced in 1999 into a market that changes approximately
every nine months due to constant change of portable computer models. We also
terminated our exclusive distribution arrangement with Extended Systems in July
1998, which resulted in a charge to income of approximately $295,000, and
initiated relationships directly with the distribution channel. The volume sold
through the distribution channel increased monthly in the first quarter of 1999,
after relationships were established in the fourth quarter of 1998, but did not
reach the volumes previously sold through Extended Systems until the second
quarter of 1999. In addition, we had changed from in-house manufacturing to
contracted manufacturing. Product availability was negatively impacted during
the implementation of this transition.
Gross profit (loss). 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 year ended December 31, 1999 decreased 50.1% to $11.8 million from $23.5
million for the year ended December 31, 1998. The decrease in cost of sales was
primarily the result of the volume decrease in net sales. Gross profit (loss)
increased to 16.4% of net sales for the year ended December 31, 1999 from
(11.7)% of net sales for the year ended December 31, 1998. The gross profit for
the period ended December 31, 1998 was
29
<PAGE> 32
adversely affected by the inventory reserve provision of $4.5 million to reflect
obsolescence issues with the mechanical port replicator dock product line.
Additionally, during 1999 $5.3 million of inventory was scrapped and charged to
the inventory reserve. Although improved as a percentage of net sales, the gross
profit for the period ended December 31, 1999 was adversely affected by a
reduction in sales volume and the additional initial costs incurred as the shift
to contract manufacturing was implemented.
General and administrative. General and administrative costs 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 decreased 25.5% to $3.3 million for the year ended December
31, 1999 from $4.4 million for the year ended December 31, 1998. The cost
decrease was attributed to staffing cuts in the United States implemented due to
the decline in sales volume. We expect general and administrative costs to
increase in the future, in particular as we incur higher legal, accounting and
other expenses associated with being a public reporting company.
Research and development. Research and development expenses generally
consist of salaries and other personnel related costs, facilities, outside
consulting, lab costs and travel related costs of our product development group.
Research and development expenses decreased to $3.4 million for the year ended
December 31, 1999 from $4.4 million for the year ended December 31, 1998.
Expenses increased significantly in the product development efforts in
connection with our Split Bridge(TM) technology and its application to the
universal docking product line. This increase was more than offset by reductions
in research and development expenses associated with mechanical port replicator
products. We expect engineering costs to increase in the future as we continue
to develop next generation chips in order to keep us at the leading edge of
universal docking and remote PCI bus applications.
Marketing and sales. Marketing and sales 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 1.5% to $5.2 million for the
year ended December 31, 1999 from $5.1 million for the year ended December 31,
1998. The increase in costs was primarily due to the launch costs and packaging
development costs for the universal docking product line. We also incurred
incremental expenses to establish direct relationships with the U.S.
distribution channels. We expect marketing and sales costs to continue to
increase in the future as we continue to launch new product lines and as sales
increase.
Interest expense, net. Interest expense consists of interest on our bank
revolving lines of credit and promissory notes as well as our subordinated debt
and convertible debentures, partially offset by interest earned on our cash
balances and short-term investments. 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
$4.5 million relative to such warrants. Based upon normal amortization or the
conversion of the underlying debt, we expensed $5.0 million related to these and
other warrants for the year ended December 31, 1999. The warrants are amortized
over the life of the loan and are recorded as interest expense upon conversion.
Net interest expense increased by 274.0% to $6.5 million for the year ended
December 31, 1999 from $1.6 million for the year ended December 31, 1998. The
increase was primarily due to the non-cash expense associated with amortization
of the bridge loan warrants which totaled $4.5 million in the year ended
December 31, 1999. We expect to pay down substantially all of our debt with the
proceeds of the offering.
Income taxes. We have incurred losses from inception to date; therefore, no
provision for income taxes was required for the years ended December 31, 1999 or
1998.
30
<PAGE> 33
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 (loss). Cost of sales for the year ended December 31, 1998
increased 76.5% to $23.5 million from $13.3 million for the year ended December
31, 1997. The increase was due to the overall increase in sales volume and a
product mix shift to mechanical port replicators that had higher component costs
and start up issues. An incremental inventory reserve provision in the amount of
$4.5 million was recorded during the year ended December 31, 1998, reflective of
the excess and obsolete inventory and the write-off associated with our decision
to discontinue the mechanical port replicator product line. The short lifecycles
of the mechanical port replicators generated a significant obsolescence exposure
for components and finished goods which are returned under the stock balancing
contract provision with the major channel distributors. The gross profit (loss)
percent declined to (11.7)% of net sales for the year ended December 31, 1998
from (4.6)% of net sales for the year ended December 31, 1997.
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 in connection with the Miram acquisition and which represents 20.7%
of net sales in the year ended 1998 and 23.1% of net sales in the year ended
1997. The increased expense was the result of increased activity on the Split
Bridge(TM) technology program.
Marketing and sales. Marketing and sales expense increased 95.5% to $5.1
million for the year ended December 31, 1998 from $2.6 million in the year ended
December 31, 1997. In 1998 we canceled our distribution agreements with Extended
Systems and developed the internal infrastructure to distribute our products
directly through the established U.S. distribution channels. We also increased
sales and marketing expenses in anticipation of the launch of the universal
connectivity station products based upon the Split Bridge(TM) technology. The
delay in the ASIC development resulted in a twelve month delay in the launch
program.
Interest expense, net. Interest expense 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.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through debt and
equity financing, as the cost of our operating activities have exceeded our
sales. Our operating activities used cash of $8.9 million, $12.9 million and
$11.5 million for the years ended December 31, 1997, 1998 and 1999,
respectively. The increased cash used in operations was primarily due to our
increased operating losses.
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Our financing activities generated cash of $11.6 million, $14.1 million and
$14.6 million for the years ended 1997, 1998 and 1999, respectively. In March
1999 we issued an aggregate of $3.5 million of 13% Bridge Promissory Notes,
which were due and payable in March, 2000, and issued warrants for the purchase
of 525,000 shares of common stock. In June 1999 $2.3 million of the Bridge Notes
were converted to common stock at a price of $8.00 per share. In February 2000,
$1.2 million of the outstanding Bridge Loans, plus accrued interest thereon of
approximately $160,000, were extended to March 31, 2001, and we issued
additional warrants for the purchase of 138,502 shares of common stock in
connection therewith. In June through August 1999 we issued an additional
aggregate of $3.7 million of 13% Bridge Promissory Notes and issued warrants for
the purchase of 449,200 shares of common stock. $3.2 million of these Bridge
Notes were immediately converted to common stock at a price of $8.00 per share.
The balances are due and payable in July 2000. In November 1998 through January
1999 we sold 827,209 shares of Series C preferred stock for an aggregate of
approximately $5 million in a private placement. In April and May 1998 we sold
742,500 shares of common stock for an aggregate of $8.5 million in a private
placement, and in September 1997 we sold 1.25 million shares of common stock for
an aggregate of $10.0 million and issued warrants to purchase an additional
312,500 shares of common stock in a private placement. In late 1996 and early
1997 we issued an aggregate of approximately $2.2 million of 12% convertible
debentures. In December 1998 approximately $2.1 million of the convertible
debentures were converted to common stock at a price of $7.73 per share. We also
issued an aggregate of $3.4 million of 13.5% Secured Promissory Notes to Finova
in June 1997 and March 1998 (the "Finova Notes"), which are due and payable on
June 23, 2002. In connection with the issuance of the Finova Notes, we issued
warrants to Finova which are currently exercisable for an aggregate of 209,062
shares of common stock at an exercise price of $0.02 per share (the "Finova
Warrants"). The unconverted portion of the convertible debentures and the Finova
Notes will be repaid with part of the proceeds of this offering.
Our investing activities used cash of $805,000, $903,000 and $752,000 for
the years ended 1997, 1998 and 1999, respectively. From inception through
December 31, 1999, cash used in investing activities was primarily used for
capital purchases, including tooling and capital leases.
Our cash and cash equivalents increased to $4.8 million at December 31,
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 $5.6
million, $(3.5 million) and $1.9 million, respectively. At December 31, 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 $3.75
million. At December 31, 1999 the $3.0 million domestic line of credit and the
$750,000 foreign line of credit had outstanding balances of approximately $2.3
million and $0.5 million, respectively, bearing interest at 2.5% and 3.5%,
respectively, plus the bank's corporate base rate (11% and 12% at December 31,
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 Company was in violation of certain restrictive debt covenants with respect
to the lines of credit with Bank of America as of December 31, 1998 and 1999
which have been subsequently waived by the bank. The outstanding balances of
both lines of credit will be repaid with part of the proceeds of this offering.
At December 31, 1999 we had $32.0 million of federal net operating loss
carryforwards which expire at various dates. We anticipate that the sale of
common stock in this offering coupled with prior sales of common stock will
cause an annual limitation on the use of our net operating loss carryforwards
pursuant to the change in ownership provisions of
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Section 382 of the Internal Revenue Code of 1986, as amended. This limitation is
expected to have a material effect on the timing of our ability to use the net
operating loss carryforward in the future. Additionally, our ability to use the
net operating loss carryforward is dependent upon our level of profitability,
which cannot be determined.
We believe that our existing sources of liquidity and net proceeds to us
from this offering will be sufficient to satisfy our expected working capital,
debt repayment requirements and capital expenditures needs for at least the next
twelve months.
YEAR 2000 READINESS
In preparation for the year 2000, we engaged in efforts to ensure that our
products and business systems properly recognize date-sensitive information in
the year 2000 and beyond. These efforts and their costs are described below. We
have not experienced any significant "year 2000 problems" with our products and
business systems and do not expect that we will do so in the future.
State of Readiness. In 1999 we hired outside consultants to audit and
assess the ability of our hardware and software systems to operate properly in
the year 2000 and beyond. We investigated the year 2000 readiness of our
software, hardware and other significant vendors by requiring them to complete
questionnaires and submit internal year 2000 plans to insure no disruption would
occur in our supply chain. To date we have not encountered any material year
2000 issues or significant disruptions to our operations.
Cost of Assessment and Remediation. We have incurred direct costs of less
than $100,000 in assessing and remediating year 2000 problems, and we do not
expect to spend more than $100,000 in the aggregate to complete the process.
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.
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RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Prototype and beta
site units are also expensed. Production tooling and fixtures are capitalized.
Tooling and fixturing costs are accumulated as a prepaid asset in the financial
statements until the associated products are launched into production. At that
time the accumulated costs are amortized to expense over the estimated useful
life of the tool or fixture or the estimated life of the product, whichever is
shorter.
MARKET RISK
To date we have not utilized derivative financial instruments or derivative
commodity instruments. We do not expect to employ these or other strategies to
hedge market risk in the foreseeable future. We invest our cash in money market
funds, which are subject to minimal credit and market risk. We believe that the
market risks associated with these financial instruments are immaterial.
Our revolving lines of credit and certain other debt obligations are
subject to variable rate interest which could be adversely affected by increases
in rates, however, our intent is to pay off our debt from a portion of the
proceeds of this offering, which should minimize this interest rate risk.
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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 microprocessor applications.
The PCI bus is the electrical transmission path linking the computer's central
processing unit with its memory and other peripheral devices, such as modems,
disk drives and local area networks, or LANs. Our proprietary Split Bridge(TM)
technology consists of a Split Bridge(TM) link, typically two customized
semiconductors, known as application-specific integrated circuits, or ASIC
chips, two connectors and a high-speed, bi-directional cable. Our technology for
the first time allows the primary PCI bus of any computer to be extended to a
remote location, up to 15 feet, with virtually no software requirements or
performance degradation, thereby enabling architectural designs of computer
systems and applications that previously were not feasible. Unlike traditional
communication protocols such as universal serial bus, or USB, firewire, or IEEE
1394, Ethernet and small computer systems interface, or SCSI, Split Bridge(TM)
technology offers a combination of:
- high performance, bi-directional gigabit speeds;
- plug and play ease of use with no unique software requirements;
- flexible architectural design choices;
- minimal special size, heat and power requirements; and
- cost effective pricing.
Since Split Bridge(TM) technology extends the PCI bus, it can also
accommodate any of the traditional communication protocols in the remote
location as if they are attached to the primary PCI bus.
Split Bridge(TM) technology is suitable for many applications, including
universal docking stations for portable and handheld computers, desktop
expansion modules, servers, keyboard-video-mouse, or KVM, switches, and
potentially routers, business machines, such as copiers and printers, test
equipment, modular computers, computer data storage, in-home remote computer
extension and other applications that could benefit from extending the PCI bus
or from enhanced communication among computers.
Our first major application for Split Bridge(TM) technology is the creation
of a new universal docking product category which provides portable computer
users with the ability to configure a flexible, high performance docking
solution that meets their individual needs, and more importantly, is compatible
with most makes and models of portable computers.
Our second major application is the provision of additional lower cost
expansion and back up capacity, remote access and enhanced communication among
computers in the server, desktop and KVM switch markets in partnership with
Cybex Computer Products Corporation.
Our Split Bridge(TM) technology won PC Week's "Best New Technology" award
at the fall 1999 COMDEX trade show, the world's largest information technology
event in the computer industry. Our Split Bridge(TM) technology and its
universal docking application was also runner-up for the "Technology Achievement
of the Year Award" at the Mobile Insights 2000 Conference which was held in
March 2000. Mobile Insights is a professional services company that focuses on
the mobile computing and data communications market. Additionally, our flagship
EasiDock(R) 3000 universal docking product was runner-up for the Byte.com "Best
New Peripheral Award" at the fall 1999 COMDEX show.
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In addition to our Split Bridge(TM) technology products, we also design,
develop and market a range of connectivity and power products for portable
computers. Our current major customers include Buy.com, Compaq, CompUSA,
Gateway, Hewlett-Packard, Hitachi, IBM, Ingram Micro, Merisel, Microwarehouse,
Mitsubishi Electronics, NEC, Pinacor, Targus, Tech Data and Toshiba.
INDUSTRY BACKGROUND
PCI Computer Architecture
Today the most prevalent computer architecture, which is incorporated into
virtually all computer systems and in many related embedded processor
applications, uses the PCI bus. However, the PCI bus has a number of key
limitations, most notably a constraint on the number of lines, or circuits, and
loads that can be attached to it. Historically, these limitations have been
mitigated to some extent by attaching a bridge chip to the PCI bus, which in
turn permits a number of additional loads or peripherals to be attached to a
secondary PCI bus, which is also connected to the bridge chip. This procedure
has the major limitation of requiring the secondary PCI bus to be located on the
main PCI bus printed circuit board, or PCB, or attached physically by a
connector which enables extension of the secondary PCI bus to a maximum of
approximately three inches from the PCB. Consequently, the industry today faces
a number of physical and electrical constraints when designing a computer
system, and has been unable to move the secondary PCI bus more than a few inches
from the primary PCI bus. Additionally, traditional communication protocols,
which attempt to address these limitations, have numerous disadvantages since
they generally require a processor, extensive software and other related items.
Universal Docking
The portable computer market, which is a rapidly growing segment of the
personal computer industry, could benefit from solutions that address the
inherent limitations on PCI bus architecture. Demand in this market has been
fueled by advances in computer technology and the demand for computer mobility.
According to IDC, a leading industry source, the market for portable computers,
excluding handheld devices, is expected to grow at a compounded annual growth
rate of 13.8% from 15.5 million units in 1998 to approximately 29.6 million
units in 2003. In addition, IDC forecasts that the handheld market, which can
also benefit from Split Bridge(TM) technology, will grow at a compounded annual
growth rate of over 39.8% from 6.6 million units in 1998 to approximately 35.2
million units by 2003. Along with this unit growth, there is an increasing
dependence on portable computers. IDC reported that 65.3% of all notebook
computers sold in 1998 served as the user's primary computer.
Coupled with this trend toward portability, there has been an increased
demand for computers that are smaller and lighter but have processing
functionality similar to that of the traditional desktop computer. To meet this
demand, there has been an increased use of peripheral and external devices such
as hard drives, CD-ROM drives, networking connections, printers, tape backup
units and USB devices which enable the core laptop to be smaller and lighter. To
make these smaller and lighter computers more convenient to use in the office
and home, port replicators and docking stations have been developed to allow
users to connect to networks, peripheral devices and external power sources,
providing users with all of the features and functionality of a traditional
desktop computer. Port replicators are simple devices that provide users with a
cable management system for peripherals such as full-sized keyboards, power
cords, mice and monitors. Docking stations include basic port replicator
features, as well as more advanced capabilities such as networking, PC card
slots, storage devices and internal power supplies. Attaching and releasing a
portable computer from a port replicator or docking station is typically a
one-step procedure that takes seconds to complete compared to the burdensome
task of attaching or releasing each external device separately.
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When a portable computer is detached from a connectivity product, all external
devices connected to the connectivity product stay in place.
To date, there has not been a provider of a standardized, complete,
cost-effective, quick-to-market connectivity solution. Computer original
equipment manufacturers, or OEMs, have historically designed port replicators
and docking stations internally and subcontracted these products for assembly by
various vendors. Because computer OEMs primarily focus on providing portable
computers with the latest technological capabilities and strong price and
performance characteristics, their development of port replicators and docking
stations is a secondary focus and often lack state-of-the-art technology and
innovation. These OEM-developed port replicators and docking stations are
generally expensive, lack configuration flexibility and are often available only
well after the computer model is launched. Additionally, computer OEMs generally
retool each generation of portable computers and have not created standardized
port replicators and docking stations that are independent of manufacturer or
model.
Servers, Desktop Computers and KVM Switches
The server market, which is a rapidly growing segment of the computer
industry, is driven by the increasing demands of the Internet. According to
Dataquest, the server market is expected to grow at an annual compounded growth
rate of 15.1% from approximately 3.7 million units in 2000 to approximately 5.6
million units in 2003. The desktop PC market is expected to grow at an annual
compounded growth rate of 14.8% from approximately 110.5 million units in 2000
to approximately 167.2 million units in 2003.
Currently this growth is met by adding additional servers and PCs because
the main PCI bus can only support a fixed number of electrical loads.
Additionally, communication among servers, desktop computers and portable
computers is limited due to constraints of the PCI bus. These servers are often
operated with either an individual KVM switch, or with a dedicated local or, in
some cases, remote KVM switch. In all cases, due to current technical
limitations these servers operate independently from the desktop or portable
computer system, and are generally expensive to expand. Additionally, it is
often difficult or expensive to isolate related peripherals for expansion,
backup and security reasons.
THE MOBILITY SOLUTION
Split Bridge(TM) Technology
Our Split Bridge(TM) technology allows the primary PCI bus of any computer
to be extended to a remote location with virtually no software or performance
degradation. This technology enables architectural designs of computer systems
and applications that previously were not feasible. The implementation of such
new solutions can potentially include replacing current bridge chips with Split
Bridge(TM) chips, integrating Split Bridge(TM) technology into other chips and
technologies or using Split Bridge(TM) technology to create new products and
product categories in a variety of potential applications.
More specifically, Split Bridge(TM) technology eliminates many of the
physical and electrical constraints on a primary PCI computer bus and PCB, by
allowing one or more Split Bridge(TM) chips to be attached to the primary
computer PCI bus, with the mating Split Bridge(TM) chips installed at a remote
location along with the secondary PCI bus. As a result, all of the secondary PCI
bus loads and peripherals do not need to be attached to the primary PCI bus,
therefore eliminating their respective constraints on the primary PCI bus PCB.
Additionally, Split Bridge(TM) technology substantially reduces the physical
space requirements on the primary PCB by eliminating the need for multiple
traditional bridge chip connections and allows the connecting cable to be small
and flexible.
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Universal Docking
We believe that our universal Split Bridge(TM) docking station product line
will advance the state-of-the-art in docking capability by enabling the user to
configure a docking system which incorporates standard docking station
functionality with the user's preferred peripheral devices and PCI expansion
capability. Our universal Split Bridge(TM) docking station is capable of being
upgraded due to its modular design, providing the user with enhanced
flexibility. Our universal docking station is designed to work with most
standard notebook computers and PCI-based computing devices, regardless of the
manufacturer or model. Today Split Bridge(TM) technology allows the remote
universal docking station to be located up to 15 feet away from the computer.
These distances may be much greater as we complete the development of our next
generation ASIC chips.
Our universal docking station provides end users with the flexibility to
configure virtually any type of desired docking system, including the ability to
convert almost any PCI-based portable computer into a full desktop system. This
creates a basis for a connectivity standard for the portable computer industry
which would allow the user to replace the desktop computer with a fully
integrated, customizable mobile computing system. These universal docking
products also provide a range of docking options that were not previously
available for many of the existing installed base of portable computers. Our
solution further provides distributors, retailers and value-added resellers with
the ability to carry a limited number of universal and expandable docking
products, as opposed to many individual docking stations that only work with one
computer model. Thus, distributors, retailers and value-added resellers can
offer flexible choices to their customers and have products readily available
when new computer models are launched, while at the same time maintaining a
limited SKU count. Finally, these products offer OEMs the ability to create a
standardized docking solution for portable computer models, and to provide
creative docking solutions.
Servers, Desktop Computers and KVM Switches
Split Bridge(TM) technology enables servers, desktop computers,
input/output devices, peripherals and other technologies to be placed in
multiple remote locations. Thus, our Split Bridge(TM) technology will permit the
configuration of new ways to meet the server, desktop and portable computer
needs of corporate users. For example, by using our Split Bridge(TM) link, each
expansion slot of a server can be expanded to accommodate an additional four
loads. This allows the use of a physically smaller server without expansion
slots to be expanded as necessary with a Split Bridge(TM) connector, and allows
users to avoid adding additional servers until they require more processing
capacity. Alternatively, Split Bridge(TM) technology can be used to connect
servers, KVM switches, desktop PC computers and portable computers in various
locations within the office. This would allow a common connectivity station that
accesses any of the above computing devices with enhanced communication between
servers, desktop computers and portable computers at different times. With Split
Bridge(TM) technology, PCI peripherals can also be easily isolated for
expansion, backup and security reasons. Since servers are a rapidly growing
segment of the computer industry, and because they often already require
multiple bridges, the growth potential for Split Bridge(TM) technology in the
server segment could be quite large.
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TECHNOLOGY
The heart of most computing architecture today and into the foreseeable
future is the PCI bus or a derivative of PCI. A traditional PCI computer
architecture together with our Split Bridge(TM) chip alternative is shown in the
following figure:
[A diagram of a printed circuit board will appear here. This diagram will
illustrate the ability of the Mobility Split Bridge(TM) chip to interface with a
remote secondary PCI bus rather than a traditional secondary PCI bus.]
As shown above, the primary PCI bus is typically connected to a north
bridge chip, which in turn is connected to the central processing unit, or CPU,
memory and advanced graphic processor, or AGP, and various peripherals such as
audio peripherals, a card bus controller, LAN adapters, SCSI adapters, a bridge
chip and other devices. The bridge chip then connects to a secondary PCI bus
that can handle additional functions just like the primary PCI bus.
The key limitations of traditional technology and architecture are:
- the requirement that the primary and secondary PCI bus be on the same
PCB, or be physically attached via a connector which limits the distance
to approximately three inches; and
- the limited number of allowable lines and loads on the PCI bus.
Thus, substantial expansion requires many bridges on the PCB, creating a variety
of physical and loading constraints. These constraints are the reason bridges
were invented in the first place, but their limitation is that they take up a
load on the bus and the secondary bus is on the same PCB as the primary PCI bus.
Split Bridge(TM) chips are like any other bridge chip, except they are divided
into two halves separated by a high speed link. Consequentially, Split
Bridge(TM) technology eliminates the requirement of having the secondary PCI bus
on the
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primary PCI bus PCB. As a result, multiple secondary PCI buses can be created at
a number of remote locations. The first generation Split Bridge(TM) ASIC chips
have been designed for distances of up to 15 feet. We believe future generations
may extend this distance substantially.
The traditional and the Split Bridge(TM) approaches are shown in the figure
above. While a traditional bridge chip has many lines in and out of the chip,
typically over 60, on the same PCB, with Split Bridge(TM) technology, these
lines are reduced to four, sent over a high-speed link at gigabit speed and
returned to the full number of lines at the remote PCI bus location. An
additional benefit of this technology is that it is transparent to software. No
operating system or device drivers are required since we actually move the PCI
bus. Thus, Split Bridge(TM) technology can replace traditional bridge chips in
many applications.
Historically, the above limitations have been addressed by using a range of
communication protocols such as USB, IEEE 1394, Ethernet and SCSI. These
approaches are generally software intensive, require processors and are
applicable for only certain uses since they involve moving data as opposed to
extending the PCI bus. The following table illustrates the advantages of Split
Bridge(TM) architecture:
SPLIT BRIDGE(TM) TECHNOLOGY ADVANTAGES
<TABLE>
<CAPTION>
<S> <C>
- - Gigabit speed - No storage requirements
- - Bi-directional - Minimal size, heat and power requirement
- - PCI superset (transfers bus, not data) - Highly upgradeable technology migration path
- - Full PCI bus compatibility - Small, flexible cable
- - No processor requirements - Cost effective
- - No software requirement
</TABLE>
STRATEGY
Our objective is to be the leading provider of Split Bridge(TM) products
and technology. Key elements of our strategy include:
Leverage Technological Leadership. We intend to continue to accelerate
the development of Split Bridge(TM) technology and invest in research and
development of related advanced technologies.
Maximize Penetration in the Universal Docking Market. We intend to
capitalize on our current strategic position in the universal docking
market by continuing to introduce high-technology Split Bridge(TM) products
that suit the needs of a broad range of users. These products will provide
users with multiple configuration choices and will include a family of
universal docking products designed to provide customers with timely,
easy-to-use connectivity choices and solutions that meet individual
customer needs at optimal price and performance levels. One of our goals is
to eventually have Split Bridge(TM) technology installed on every PCI-based
computer motherboard for the purpose of providing a standard docking
solution. To achieve this goal, we have entered into a joint strategic
development agreement with Molex and Silicon Image to provide an integrated
Split Bridge(TM) and digital video, or DVI, universal, industry-wide
docking solution.
Establish Licensing and Strategic Partnerships. We intend to license
Split Bridge(TM) technology and enter into strategic partnerships in order
to fully realize the market potential of our Split Bridge(TM) technology.
These activities will specifically include exploiting the server, KVM
switch and desktop computer market with our strategic partner, Cybex, as
well as expanding current strategic partnerships and establishing a wide
variety of additional relationships.
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Expand Split Bridge(TM) Applications. We intend to pursue the further
commercialization of Split Bridge(TM) technology so that we are able to
expand our product offerings to include additional applications.
Broaden Distribution Capabilities Worldwide. We currently sell our
products worldwide through distributors, value-added resellers, retailers
and private label partners. We believe that broadening the distribution of
our products through strategic alliances with a variety of companies within
the computer industry is a critical element in establishing our technology
and products as industry standards.
Expand OEM Relationships. We intend to provide a broad range of OEM
products by partnering with OEMs globally in a manner that meets their
current and future connectivity and remote PCI bus requirements. We will
also work with both OEMs and other chip makers, such as DVI partners, card
bus controller partners, processor manufacturers and others, to design and
implement solutions that can meet the integrated requirements of OEMs.
Pursue Strategic Acquisitions. We intend to evaluate opportunities to
acquire complementary businesses, technologies and products that can
benefit from Split Bridge(TM) technology. We also plan to pursue
acquisitions that will enable us to offer products and features to better
serve our customers or to more fully realize the market potential of our
Split Bridge(TM) technology, to more rapidly develop and bring to market
advanced technology, to expand distribution capabilities and to penetrate
other targeted markets or geographic locations.
STRATEGIC RELATIONSHIPS
We have entered into a number of strategic relationships to develop and
enhance our existing and future technology, product lines and market
opportunities. We own all of the Split Bridge(TM) technology and do not pay
royalties to any of our strategic partners with which we have strategic
relationships. These relationships include the following:
Technology
Cybex Computer Products Corporation. Cybex is a leader in providing
KVM switches in the server market. In March 2000 we entered into a
strategic partnership agreement with Cybex to pursue the development of new
server, desktop and KVM switch systems, technology and products. As part of
this strategic partnership: (i) we entered into a private label agreement
with Cybex pursuant to which we have agreed to sell Cybex our universal
docking products; (ii) we have agreed with Cybex to cross-license certain
of our respective technologies for permitted applications; and (iii) Cybex
purchased $5 million of our Series D preferred stock. A major focus of our
strategic partnership with Cybex will be the potential substantial
extension of the distances over which Split Bridge(TM) technology can be
used.
LSI Logic Corporation. LSI is a major supplier of custom,
high-performance semiconductors and is focused on building complete systems
on a single chip. Pursuant to our strategic partnership, LSI has committed
to develop two next generation chips, at its expense, which will enhance
the universal docking solution by eliminating the need for an external
serialization/deserialization, or SerDes, chip. This development will
reduce our costs and provide us with a one-chip motherboard solution for
our OEM customers.
Molex Incorporated. Molex is a major developer and manufacturer of
connectors and cable. Together with Molex, we have developed our
proprietary connector and 1.25 gigabit bi-directional cable for use with
our Split Bridge(TM) and docking technology. Molex is our sole supplier of
certain system connectors for use with our universal docking
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products, has invested a significant amount of capital in this technology
and continues to support the development of our Split Bridge(TM)
technology. Further, Molex has agreed to support the development of a major
new integrated Split Bridge(TM)/DVI universal docking solution in
partnership with Silicon Image and us, as well as support Split Bridge(TM)
connector and cable requirements in other market areas. Molex is also one
of our investors.
Silicon Image, Inc. Silicon Image is the leading provider of DVI
technology. Silicon Image, Mobility and Molex have entered into a joint
strategic development agreement to develop and promote a new integrated
Split Bridge(TM)/DVI universal docking solution.
Philips Semiconductors. Philips, formerly VLSI Technology, Inc., is a
leading designer, developer and manufacturer of ASIC chips. Together with
Philips, we have developed our proprietary first generation digital ASIC
chip, which incorporates our Split Bridge(TM) technology. Until the next
generation chip is available from LSI, Philips is our sole supplier of
Split Bridge(TM) technology ASIC chips. Phillips has invested a significant
amount of capital in developing this technology and is one of our
investors.
Contract Manufacturers
Solectron Corporation. Solectron is a leading, high quality contract
manufacturer for the electronics industry. Solectron currently manufactures
all of our Split Bridge(TM) universal docking stations in its Malaysian
facility.
EFA Corporation. EFA is a leading, high quality Taiwanese contract
manufacturer for the electronics industry. EFA currently manufactures all
of our USB docking stations.
Private Labels and Arrangements With Key OEMs
3Com Corporation. 3Com is a leader in the Ethernet networking market.
Pursuant to our strategic partnership, 3Com provides us with their latest
10/100 base T Ethernet ASIC chip, which we incorporate into a range of our
connectivity products. Additionally, 3Com will promote our products as part
of the 3Com Connected(TM) partner program.
Targus, Inc. Targus is the largest worldwide provider of carrying
cases for portable computers. Targus distributes a range of our products,
on a private label basis, primarily to major retail outlets and certain OEM
fulfillment outlets worldwide. Unlike traditional U.S. distributors, Targus
is responsible for all stock balancing, advertising and other retail
oriented discounts and issues with their customers.
Cybex Computer Products Corporation. Cybex is a leading provider of
KVM switches for the server market. Cybex has entered into a private label
agreement with us to purchase a range of our universal docking products,
potentially including the integration of a Cybex KVM switch. Cybex will be
responsible for the marketing of such products through its distribution
channels at its cost.
PRODUCTS
Standard Split Bridge(TM) Products
We have designed and internally tested the Split Bridge(TM) products
described below. In March 2000 we began shipping commercial quantities of the
EasiDock(R) 1000E and completed the commercialization of the Split Bridge(TM)
link which is now available for sale pursuant to certain licensing agreements.
We expect to begin shipping commercial production quantities of all of the
remaining products described below in the second or third quarter of 2000.
Split Bridge(TM) Link. This product allows the extension of the primary PCI
bus. It includes two Split Bridge(TM) ASIC chips, two connectors and a 1.25
gigabit bi-directional, high-speed
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cable. The choice of connectors and chips depends on the application. We will
offer this Split Bridge(TM) link, which can be incorporated into a customer's
custom product, provided that the purchaser executes a license or royalty
arrangement with us similar to the Cybex agreement.
Split Bridge(TM) Universal Docking Products. We will offer a variety of
Split Bridge(TM) products which enable the user to connect a portable computer
to a universal docking station in the home or office, thereby expanding the
connectivity and capability of the portable computer. These products will
include the following:
- EasiDock(R) 1000 and 1000E Series. This product series enables the user
to connect most portable computers to a universal docking station at a
speed of 1.25 gigabits, which is 100 times faster than USB. The
EasiDock(R) 1000 provides key port replicator functions consisting of a
mouse, keyboard, serial and full parallel port and a USB hub with four
USB ports. Most notably, each two USB ports will have a full 12 Megabits
per second, or Mbs, bandwidth, as opposed to a total of only 12 Mbs
across all ports for a USB only product. The second product in this
category, the EasiDock(R) 1000E, includes the features listed above plus
10/100 base T Ethernet networking. The suggested retail price for this
product is $249 without Ethernet and $299 with Ethernet.
- EasiDock(R) 2000 Series/Desktop Expansion Products. The 2000 Series
products will allow the user to add two USB ports, three additional PCI
expansion cards and four additional enhanced integrated drive
electronics, or EIDE, drive bays to most portable computers, desktop
computers or servers. Thus, the user will have the capability to provide
almost unlimited expansion capacity in any of these applications. The
suggested retail price for this product line is expected to be $399.
- EasiDock(R) 3000 and 3000E Series. The EasiDock(R) 3000 will offer all
the functionality of the EasiDock(R) 1000 Series, except it will have two
USB ports versus four, and also will offer expansion options including
two EIDE expansion bays, which can be used for applications such as CD
ROMs, storage, drives, two standard PCI expansion slots and two of our
proprietary expansion card slots. The EasiDock(R) 3000E includes 3Com
10/100 base T Ethernet networking. The suggested retail price for this
product is expected to be $499 without Ethernet and $549 with Ethernet.
Custom Split Bridge(TM) Products
We have historically worked closely with OEMs to provide a wide variety of
unique products and programs that use traditional connectivity technology. We
are currently marketing these solutions to a number of OEMs. These products
include or will include:
Standard Card Bus Universal Dock Offering. These products will provide OEMs
with a docking solution for products that have no docking connector or no OEM
dock offering as well as a complementary dock offering for certain of these
products. Such products include all of the previously described Split Bridge(TM)
products, which may be privately labeled at an OEM's request.
Universal Expansion Modules. We will offer OEMs an expansion module option
that interfaces with a standard, low-end port replicator OEM product. This
module will provide OEMs with the opportunity to continue with a low cost,
standard port replicator that provides video, USB and other port replication
functions, while also offering a PCI expansion card and enhanced integrated
drive electronic drive bay capability. This solution will eliminate the need for
OEMs to design and develop an expensive high end docking station with such
expansion capability, while offering the customer such option.
Universal Desktop Expansion Module. These products will provide an
expansion module for desktop computers, providing PCI and drive bay expansion
capabilities.
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Chip On Board Programs. We will offer OEMs the possibility of installing
one of our ASIC chips on the computer motherboard, either independently or in
combination with DVI or other technologies. Also, OEMs or other chip technology
companies will be able to integrate our technology into other main motherboard
chips. These programs will generally take much longer to implement due to
computer design cycles.
USB Products
We currently offer two universal USB docking stations which provide the
portable computer user with basic connectivity in the home or office. These
products use standard industry technology, and thus operate at 12 Mbs, and
provide five USB ports as well as a PS/2 mouse, PS/2 keyboard, serial port and
printer port. The second of these products provides the above mentioned features
plus 10 base T Ethernet networking.
USB is not currently capable of handling higher performance items such as
video, 100 base T networking and PCI and EIDE drive bay expansion capability. It
does, however, provide a lower cost product that is well suited for the consumer
and small business market and other niche applications. The suggested retail
price for this product is currently $149 without Ethernet and $199 with
Ethernet. Our EasiDock(R) USB 200 won honorable mention in the peripheral
category at the Mobile Insights 2000 Conference which was held in March 2000.
Other Products
We also offer a range of in-car/in-air chargers and monitor stands. The
in-car/in-air chargers allow the user to power and charge a portable computer in
a car or in an airplane that supports the Empower standard, the airline
industry's on-board computer product power standard.
PRODUCTS UNDER DEVELOPMENT
We are currently in various stages of developing or planning the following
products:
Split Bridge(TM) Products
Next Generation EasiDock(R) 1000 and 1000E Series. We intend to expand
the current EasiDock(R) 1000 and 1000E series with a product series that is
expected to include all the current EasiDock(R) 1000 and 1000E features
plus the addition of video and a mini PCI card slot for user expansion. We
also plan to include additional USB capacity to provide for a full 12 Mbs
on each USB port as opposed to 12 Mbs for each two USB ports. Subsequently,
some of the USB ports will be replaced with USB 2.0 ports when USB 2.0
becomes available.
Next Generation EasiDock(R) 3000 Series. We intend to expand the
current EasiDock(R) 3000 series with the next generation EasiDock(R) 3000
Series when USB 2.0 becomes widely available. We plan to include all the
current EasiDock(R) 3000 features, plus integrated USB 2.0 with two full
bandwidth USB ports and a newly integrated docking chip.
ASIC Chips. We intend to offer several new ASIC chips. These
developments will help us stay at the leading edge of universal docking and
remote PCI bus applications. We intend to develop and market the following
chips:
- Chip On Board. We are currently working with LSI to combine our Split
Bridge(TM) technology with LSI's SerDes technology to develop a
single chip OEM solution for use on OEM motherboards and for
non-docking applications. This product will 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.
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- Integrated Dock Chip. We are also currently working with LSI to
combine our Split Bridge(TM) technology with LSI's SerDes technology
to develop a single docking chip for use in our range of docking
products. We expect that this product will allow us to replace the
need for an external SerDes, reducing cost and circuit board size
requirements.
- Dock on a Chip. We intend to develop a next generation chip which
integrates Split Bridge(TM) and SerDes technology into other docking
functions such as USB 2.0, networking, video, EIDE and other
functions. The specific items that will be included will be
determined based on the best information available at the time the
development program is initiated. We expect that this program will
substantially reduce the cost of all our Split Bridge(TM) docking
products and reduce space requirements for the docking circuit board.
- Other Chips. We are currently evaluating the potential of integrating
Split Bridge(TM) technology into other intellectual property blocks,
such as digital video, and expect to develop several of these
options.
All of the chips described above are intended to be used throughout our docking
product family, as well as in other applications, generally increasing
capability and reducing cost.
Next Generation EasiDock(R) USB Product. This product is planned for
introduction when USB 2.0 becomes available and is intended to replace the
current EasiDock(R) USB series. We plan to include all the EasiDock(R) USB
features, plus the addition of a full parallel port, a 100 base T networking
option, video and other unique features. Based on the acceptance of USB
peripherals by the time this product is released, legacy port replication ports
may or may not be included.
Retractable Cord Power Product. This product is a unique version of our
current in-car/in-air charger product line that can be used across all power
products. The Retractable Cord Power Product is expected to include an
innovative and unique mechanical feature, which will allow the user to store the
input and output cables of the user's adapter via a retractable cord system. It
is intended to be used in both model specific, which is 2 wire output, or
universal, which is 4 wire output, in-car/in-air charger configurations. Through
the use of creative industrial design, we believe this product will offer the
customer the smallest, self-contained in-car/in-air power adapter on the market.
This product would complement our current line of power products.
CUSTOMERS
Our major customers include:
<TABLE>
<CAPTION>
OEM CUSTOMERS DISTRIBUTION CHANNEL CUSTOMERS
- -------------------------- -------------------------------------------------------
<S> <C> <C>
- - Acer - Buy.com* - Merisel
- - Compaq - CDW* - Microwarehouse*
- - Gateway - Comark* - Mobile Planet*
- - Hewlett-Packard - CompUSA* - Pinacor
- - Hitachi - Computers for Sure* - Propeller Portable
- - IBM - Dell Computer*
- - Mitsubishi - Ingram Micro - Tech Data
- - NEC - Insight* - Value America*
- - Toshiba
- - Targus
</TABLE>
- ---------------
* these customers purchase from us through distributors
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As a group, the OEMs and distributors listed in the chart above accounted
for 53.0% and 24.0%, respectively, of sales for the year ended December 31,
1999. Targus accounted for 26.4% of our total sales for the same period. 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.
We also plan to aggressively pursue markets outside North America by
establishing strategic sales representatives and distribution or private label
arrangements in each significant geographic region. We plan to execute bundling
programs with major OEMs, drive manufacturers, selected related vendors and
synergistic suppliers to our market. We have also established an e-commerce
capability and marketing program, which will include in the future build to
order capability. Additionally, we plan to use website links to help maintain
relationships with related parties and OEMs, and will establish a "preferred
vendor" program for products that integrate into our universal docking products.
In Europe, we distribute our products through a sales representative
arrangement through a company operated by several of our former employees, which
primarily focuses on the marketing and sales of our products.
We also have entered into an agreement with Targus whereby Targus
distributes a range of our products in its worldwide distribution channels,
primarily to major retail outlets and certain OEM fulfillment outlets. This
agreement provides that we are the exclusive supplier to Targus for some of our
products, and that we will develop certain products for Targus on an exclusive
basis. Targus markets our products to its retail customers, which include Best
Buy Co., Circuit City Stores, CompUSA, Computer City, OfficeMax and Staples.
Marketing. We intend to implement a variety of marketing activities in 2000
to aggressively market our Split Bridge(TM) and our new range of other universal
docking products. Such activities include participation in major user groups and
trade shows, key OEM and distribution catalogs, distribution promotions,
value-added reseller and information technology manager advertising, on-line
advertising and banner ads, direct mail and telemarketing and bundle
advertisements with OEMs and related product partners. In addition, we intend to
implement a strong public relations program to continually educate the market
about us, our Split Bridge(TM) technology and our products, with a major
emphasis on timely product and news releases, speaking opportunities and feature
stories. Attending and speaking at key trade shows, such as PC Expo Mobile
Insights and COMDEX, will provide a forum to provide additional market education
about us, our Split Bridge(TM) technology and our products. We also intend to
leverage our web site as a major marketing and direct sales mechanism.
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MANUFACTURING
The proprietary components of our Split Bridge(TM) technology are
manufactured by our strategic partners. Philips supplies us with our Split
Bridge(TM) technology chips, and Molex supplies us with our high-speed cable and
connectors. In the future LSI will supply us with our next generation chips. Our
USB product line, power products and monitor stands are supplied by contract
manufacturers in Taiwan. We have selected Solectron as our primary contract
manufacturing source for the Split Bridge(TM)universal docking product line.
Solectron has begun commercial production of the EasiDock(R) 1000E and has
sourced components and built prototype units and customer evaluation units on
production lines that have been established for production of the EasiDock(R)
3000 Series, the EasiDock(R) 2000 Series and the EasiDock(R) 1000 Series
products.
In-house manufacturing activity has primarily been reduced to packaging and
fulfillment activity. Some product is shipped in bulk quantities which are not
packaged for delivery to our customers. These products are packaged in the
appropriate box with the corresponding operations manual and other product
documentation. We currently assemble one mechanical port replicator under a
contract with NEC. The volume levels on this product are too small to outsource
economically. We will continue to build this product in-house for the
foreseeable future.
COMPETITION
Competition for our Split Bridge(TM) technology primarily comes from
traditional communication protocols, such as USB, IEEE 1394, Ethernet and SCSI.
These protocols are generally well established, particularly in certain
applications, and thus will provide competition for our Split Bridge(TM)
technology depending upon the application.
The market for our universal docking products is relatively new and
emerging and we presently have few direct competitors. However, we expect that
the markets for our products will become increasingly competitive. The market
for computer products in general is intensely competitive, subject to rapid
change and sensitive to new product introductions or enhancements and marketing
efforts by industry participants. The principal competitive factors affecting
the markets for our product offerings include corporate and product reputation,
innovation with frequent product enhancement, breadth of integrated product
line, product design, functionality and features, product quality, performance,
ease-of-use, support and price. Although we believe that our products compete
favorably with respect to such factors, there can be no assurance that we can
maintain our competitive position against current or potential competitors,
especially those with greater financial, marketing, service, support, technical
or other competitive resources.
We currently compete primarily with the internal design efforts of OEMs.
These OEMs, as well as a number of our potential non-OEM competitors, have
larger technical staffs, more established and larger marketing and sales
organizations and significantly greater financial resources than we have. We
believe that we have a proprietary position with respect to our Split Bridge(TM)
and universal docking technology, which could pose a competitive barrier for
companies seeking to develop similar products or sell competing products in our
markets.
PROPRIETARY RIGHTS
Our success and ability to compete is dependent in part upon proprietary
technology. We rely primarily on a combination of patent protection, copyright
and trademark laws, trade secrets, nondisclosure agreements and technical
measures to protect our proprietary rights. Mobility has two key Split
Bridge(TM) patents pending. One patent covers Split Bridge(TM) technology in
general, and the other patent covers the application of Split Bridge(TM)
technology in universal docking. Notice of Allowance was mailed February 25,
2000 by the U.S. Patent
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and Trademark Office allowing all claims under both U.S. patent applications.
The respective issue fees have been duly paid and the patents will issue
shortly. Eighty-one claims were allowed in one patent application and 64 claims
were allowed in the other patent application.
Two international patent applications were also filed for the Split
Bridge(TM) patents under the Patent Cooperation Treaty designating all member
countries and thereby preserving the right to file patent applications in those
member countries. Multiple additional Split Bridge(TM) patents are planned to be
filed before the U.S. Patent and Trademark Office and cover, or will cover, a
host of other related follow-on items. Additionally, we have two issued patents
and three U.S. patent applications pending covering other related items.
We typically enter into confidentiality agreements with our employees,
distributors, customers and potential customers, and limit access to, and
distribution of, our product design documentation and other proprietary
information. Moreover, we enter into noncompetition agreements with employees,
whereby the employees are prohibited from working for and sharing confidential
information with our competitors for a period of two years after termination of
their employment. Additionally, we believe that, due to the rapid pace of
innovation within the computer industry, the following factors also represent
protection for our technology:
- technological and creative skill of personnel;
- knowledge and experience of management;
- name recognition;
- maintenance and support of products;
- the ability to develop, enhance, market and acquire products and
services; and
- the establishment of strategic relationships in the industry.
RESEARCH AND DEVELOPMENT
Our future success depends on our ability to enhance existing products and
develop new products that incorporate the latest technological developments. We
work with customers and prospects, as well as partners and industry standards
organizations, to identify and implement new solutions that meet the current and
future needs of our customers. Whenever possible, our products are designed to
meet and drive industry standards to ensure interoperability. We intend to
continue to support industry standards integral to our product strategy as well
as drive new initiatives relating to remote bus technology.
Our research and development efforts will focus on enhancing our current
technology for use in docking as well as other broad applications. These
enhancements will center on issues of speeds, distance, cost and integration. We
intend to develop internal and external resources to more fully integrate chip
design capabilities.
Currently, our Split Bridge(TM) technology group consists of 17 people who
are responsible for architecture, hardware, software and quality. This group is
active in industry committees, special interest groups and other activities that
provide industry knowledge and leadership. Additionally, we have substantial
resources dedicated to development efforts by our strategic partners, most
notably, Molex, LSI, Phillips and Silicon Image.
Amounts spent on research and development for the years ended December 31,
1997, 1998 and 1999 were $3.0 million, $4.4 million and $3.4 million,
respectively.
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EMPLOYEES
As of March 1, 2000 we had 47 full-time employees, all of whom are located
in the United States, including 7 employed in operations, 18 in engineering, 9
in sales and marketing and 13 in administration. We engage temporary employees
from time to time to augment our full time employees, generally in operations.
None of our employees are covered by a collective bargaining agreement. We
believe we have good relationships with our employees.
FACILITIES
Our executive offices and operations are located in Scottsdale, Arizona.
This facility consists of approximately 38,712 square feet of leased space
pursuant to a lease for which the current term expires on January 31, 2002.
Additionally, we lease an office in Scottsdale, Arizona, which was our former
executive office. This office has been sublet to a tenant for the balance of the
original lease term at a rate resulting in no net expense. We believe that our
facility is suitable and adequate for our current business activities for the
remainder of the term of our lease.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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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
Donald W. Johnson*..................... 52 Executive Vice President of Worldwide
Sales, Marketing and Operations
Scott Smith............................ 38 Vice President
Robert P. Dilworth(1).................. 57 Director
William O. Hunt(1)..................... 66 Director
Jeffrey R. Harris(2)................... 50 Director
Kenneth A. Steel, Jr.(2)............... 42 Director
</TABLE>
- ------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
* Will join us in April 2000
Charles R. Mollo is one of our founders and has been our Chief Executive
Officer and Chairman of our Board of Directors since our formation in May 1995,
and our President since July 1999, having previously served as our President
between March 1997 and June 1998. From September 1992 to May 1995 Mr. Mollo was
the director of the Wireless Telephone Products Division of Andrew Corporation,
a communications equipment services and systems company. From September 1986 to
July 1992 Mr. Mollo was the Vice President of Corporate Development of Alliance
Telecommunications Corporation, a wireless telecommunications company. Between
1980 and 1986 Mr. Mollo was a Vice President of Meadows Resources, Inc., where
he managed a venture capital and investment portfolio of approximately $150
million. In the past he has served on the boards of a number of companies,
including Alliance Telecommunications Corporation and he currently serves on the
board of an internet startup company, SuperGroups.com. Mr. Mollo has a B.S.E.E.
from Manhattan College, an M.S.E.E. from Newark College of Engineering and an
M.B.A. from the University of New Mexico.
Jeffrey S. Doss is one of our founders, served as our President from our
formation until March 1997 and has served as an Executive Vice
President -- Product Strategy & Development since that time. Mr. Doss has served
as a director since May 1995. From May 1994 to December 1999 Mr. Doss was the
owner of Doss Enterprises, which provided consulting services to various
companies in the consumer electronics industry. From March 1994 through May 1995
Mr. Doss served as a consultant for cellular accessories for Andrew Corporation,
a communications equipment company. From January 1991 to April 1994 Mr. Doss
held various positions, including Vice President of Operations, President and
Chief Executive Officer of Unitech Industries, Inc., a manufacturer of cellular
telephone accessories.
Richard W. Winterich has served as Vice President and our Chief Financial
Officer since January 1999. From 1993 to December 1998 Mr. Winterich served in
various capacities for Harbour Group, an industrial conglomerate. These
capacities included serving as Executive Vice President/General Manager from
1995 to December 1998 and as Chief Financial Officer from 1995 to 1997 of AEC,
Inc., a supplier of auxiliary capital equipment, and as Chief
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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 five years in public accounting with
predecessor firms of Ernst and Young. Mr. Winterich is a licensed Certified
Public Accountant in the State of Ohio and received a B.A. from Baldwin-Wallace
College.
Donald W. Johnson will join us as Executive Vice President of Worldwide
Sales, Marketing and Operations, in April 2000. From 1998 until March 2000 Mr.
Johnson served in various capacities for UNISYS Corporation, most recently as
Vice President and General Manager of the enterprise server business. From 1980
to 1998 Mr. Johnson served in various capacities for IBM, including Director of
Servers and Commercial Systems, Product Marketing, Brand Management and Product
Development in IBM's PC business, and worldwide sales manager and product
manager. Mr. Johnson has a B.S. Degree in Business Administration from the
University of California at Berkeley.
Scott Smith has been employed by us since September 1996 and has served in
the capacity of program manager, manager of the power product and monitor stand
business unit and since July 1999 has served as Vice President of Operations.
Prior to that time, he was an owner and partner of an industrial design
consultancy, Design Form, Inc. He has an undergraduate degree in Industrial
Design from Arizona State University.
Robert P. Dilworth has served as a director since May 1999. Prior to the
acquisition of VLSI by Royal Philips Electronics in June 1999, Mr. Dilworth was
a Senior Vice President of the Computer & Consumer Products Group at VLSI
Technologies, Inc. and also a member of VLSI's board of directors. Mr. Dilworth
was responsible for VLSI's businesses in Advanced Computing, ASIC's Consumer
Digital Entertainment and Local/Wide Area Networking. Mr. Dilworth also serves
as a director and is chairman of the board at Metricom. He also served as
Metricom's President and as Chief Executive Officer. Prior to joining Metricom,
Mr. Dilworth was President of Zenith Electronics Corp. He has served as
President of Morrow Designs, a microcomputer manufacturer, and Vice President of
Finance for Varian Data Machines. Mr. Dilworth is also a director of eOn
Communications Corporation and Graphon, Inc.
William O. Hunt has served as director since December 1999. Mr. Hunt is
currently chairman of the board of Intellicall, Inc., a diversified
telecommunications company providing products and services to pay telephone
networks on a worldwide basis. Mr. Hunt is also currently chairman of the board
of Internet America, Inc., an internet service provider. From 1992 to 1998 Mr.
Hunt served as Chief Executive Officer of Intellicall, Inc. From 1990 to 1996
Mr. Hunt served as chairman or vice chairman of the board and director of Hogan
Systems, Inc., a designer of integrated online application software products for
financial institutions. Prior to that time, Mr. Hunt served as chairman of the
board, Chief Executive Officer and President of Alliance Telecommunications
Corporation. He is also a director of American Homestar Corporation, Andrew
Corporation and Digital Convergence.com.
Jeffrey R. Harris has been a director since September 1995. Mr. Harris has
been employed by Public Service Company of New Mexico, a public utility company,
since 1972, and currently serves as Director, International Business
Development. Mr. Harris is President of New Vistas Investment Corporation, a
real estate development and management company, and was a founder of the Bright
Beginnings Child Development Centers, a child care chain in New Mexico.
Kenneth A. Steel, Jr. has served as a director since September 1997. Since
October 1999 Mr. Steel has been President and Chief Operating Officer of
COVALEX.com, a business-to-business, e-commerce web company servicing the
chemical process industry. Mr. Steel has
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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, he or she resigns, is removed or dies or until his or her successor is
duly elected and qualified. Our bylaws provide for a classified board of
directors. In accordance with the terms of our bylaws, our board is divided into
three classes whose terms expire at different times. The three classes are
comprised of the following directors:
- Class I consists of Mr. Steel, who will serve until the annual meeting of
stockholders to be held in 2001;
- Class II consists of Messrs. Dilworth, Harris and Hunt, who will serve
until the annual meeting of stockholders to be held in 2002; and
- Class III consists of Messrs. Doss and Mollo, who will serve until the
annual meeting of stockholders to be held in 2003.
At each annual meeting of stockholders beginning with the 2001 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified any additional directorships resulting from an increase in
the number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of an equal number of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The compensation committee of the board of directors consists of Messrs.
Dilworth and Hunt. The compensation committee makes recommendations to the board
concerning salaries and incentive compensation for our executive officers,
directors, employees and consultants and administers our 1996 Plan.
The audit committee of the board of directors consists of Messrs. Harris
and Steel. The audit committee aids management in the establishment and
supervision of our financial controls, evaluates the scope of the annual audit,
reviews audit results, makes recommendations to our board of directors regarding
the selection of independent auditors, consults with management and our
independent auditors prior to the presentation of financial statements to
stockholders and, as appropriate, initiates inquiries into aspects of our
financial affairs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither Messrs. Dilworth or Hunt, who are members of our compensation
committee, has at any time been one of our officers or employees. None of our
executive officers serves as a member of the board of directors or compensation
committee of any entity which has one or more executive officers serving as a
member of our board of directors or compensation committee. For a description of
the transactions between us and any member of the compensation committee and
entities affiliated with any compensation committee member, see "Certain
Transactions."
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<PAGE> 55
DIRECTOR COMPENSATION
Each director who is also our employee does not receive additional
compensation for serving as a director. Each non-employee director, upon initial
election to the board, will receive a non-qualified option to purchase 10,000
shares of common stock, which will be fully exercisable on the one-year
anniversary of the date of grant (if that director is then serving as a
director). In addition, each non-employee director will receive a non-qualified
option to purchase 15,000 shares of common stock at the annual meeting of our
stockholders following the initial year of service as a director, and every
fourth year thereafter, which option will vest 25% annually, commencing on the
date of grant of the option with vesting occurring only on continuous service.
At each annual meeting of our directors, each non-employee director who is
elected to serve on either the audit committee or the compensation committee
will receive an option to purchase 2,500 shares of common stock, which option
shall be fully exercisable at the end of the one-year term of that office (with
vesting occurring only on continuous service). Directors may also be reimbursed
for certain expenses in connection with attendance at board and committee
meetings.
We have entered into consulting agreements with Messrs. Hunt and Dilworth.
The agreement with Mr. Dilworth expires on May 21, 2001. The agreement with Mr.
Hunt expires on December 8, 2001. The agreements may be terminated by either
party to the agreement at any time as long as 30 days written notice is given to
the other party to the agreement. As compensation for entering these agreements,
we granted each of Messrs. Hunt and Dilworth the option to purchase 35,000
shares of our common stock under our 1996 Plan. Mr. Hunt's options were granted
at an exercise price of $4.00 per share. Mr. Dilworth's options were granted at
an exercise price of $8.00 per share. Mr. Dilworth's options expire on the
earlier of the date his consulting agreement is terminated or May 21, 2003. Mr.
Hunt's options expire on the earlier of the date his consulting agreement is
terminated or December 8, 2003. The consulting agreements provide that we will
reimburse Messrs. Hunt and Dilworth for all reasonable and necessary
out-of-pocket travel and other expenses they incur while performing their duties
and state that Messrs. Hunt and Dilworth are independent contractors.
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<PAGE> 56
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or
accrued for services rendered to us in all capacities during the years ended
December 31, 1997, 1998 and 1999 by our Chief Executive Officer and the two
other most highly compensated executive officers whose salary and bonus exceeded
$100,000 in fiscal 1999 (collectively, the "Named Executive Officers") for
services rendered in all capacities to us during the year ended December 31,
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
-------------------------------------- ---------------------------------
NAME AND PRINCIPAL OTHER ANNUAL STOCK SECURITIES UNDERLYING
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#)
- ------------------ ---- --------- -------- --------------- --------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Mollo.......................... 1999 $123,750 $1,923 -- $400,000 100,000
President, Chief Executive Officer 1998 116,346 -- -- 171,373 14,902
and Chairman of the Board 1997 116,657 -- -- -- --
Jeffrey S. Doss........................... 1999 120,366 1,731 -- 300,000 75,000
Executive Vice 1998 114,913 -- -- 171,373 14,902
President and Director 1997 100,000 -- -- -- --
Richard W. Winterich...................... 1999 185,711 3,557 -- 200,500 75,000
Vice President and 1998 -- -- 15,000 -- --
Chief Financial Officer 1997 -- -- -- -- --
</TABLE>
- ------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits which are available generally to all of our
salaried employees and certain perquisites and other personal benefits
received which do not exceed the lesser of $50,000 or 10% of any officer's
salary and bonus disclosed in this table.
OPTION GRANTS IN LAST FISCAL YEAR
Stock options were granted to the Named Executive Officers during the year
ended December 31, 1999. The following table summarizes the option grants.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
% OF TOTAL
NUMBER OPTIONS POTENTIAL REALIZABLE VALUE AT
OF GRANTED ASSUMED ANNUAL RATES OF
SECURITIES TO EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE MARKET OPTION TERM($)
OPTIONS IN FISCAL PRICE PRICE EXPIRATION -----------------------------
NAME GRANTED(#) YEAR(%) ($/SHARE) ($/SHARE) DATE 0% 5% 10%
---- ---------- ---------- --------- --------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles R. Mollo....... 100,000 16.47% $4.00 $4.00 12/01/04 $ -- $ 86,202 $185,640
Jeffrey S. Doss........ 75,000 12.35% 4.00 4.00 12/01/04 -- 64,652 139,230
Richard W. Winterich... 50,000 8.24% 4.00 4.00 4/12/04 -- 43,101 92,282
25,000 4.12% 0.02 4.00 4/12/10 99,500 162,389 258,874
</TABLE>
Both Messrs. Mollo and Doss have executed personal loan guarantees as
collateral for our revolving line of credit with Bank of America dated November
2, 1999. Each guaranteed a total of approximately $1,800,000. As affirmation and
compensation for the associated financial risk, we issued warrants to purchase
8,412 shares of our common stock to Mr. Mollo at a price of $4.00 per share and
warrants to purchase 7,010 shares of our common stock to Mr. Doss at a price of
$4.00 per share.
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<PAGE> 57
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides summary information regarding the stock
options exercised during 1999 and the stock options held as of December 31, 1999
by the Named Executive Officers. No stock options were exercised by the Named
Executive Officers during 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
DECEMBER 31, 1999 OPTIONS AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles R. Mollo....................... 37,704 106,568 $328,632 $1,016,421
Jeffrey S. Doss........................ 37,704 81,568 328,632 766,421
Richard W. Winterich................... -- 75,000 -- 849,500
</TABLE>
AMENDED AND RESTATED 1996 LONG TERM INCENTIVE PLAN
Our Amended and Restated 1996 Long Term Incentive Plan, or the 1996 Plan,
authorizes the granting of options intended to qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, options that do not so qualify ("non-qualified stock options") and
restricted stock awards to our directors, key employees and advisors. The 1996
Plan is administered by the compensation committee, which is, and shall be,
comprised of at least two non-employee directors as may be appointed by the
Board (the "Committee"). The Committee generally has the authority to fix the
terms and number of options and restricted stock awards to be granted and to
determine the employees or other persons who will receive awards; provided that
non-employee directors receive non-qualified stock options under the 1996 Plan
automatically upon election as a director and upon each annual meeting of the
stockholders thereafter while he or she continues to serve as an independent
director. The aggregate number of shares of common stock for which options may
be granted or for which stock grants may be made under the 1996 Plan is
1,250,000. The 1996 Plan will terminate in 2008, unless sooner terminated by the
board.
Each option granted pursuant to the 1996 Plan is exercisable at any time
upon or after vesting and expires on the date determined by the compensation
committee. In no event will any option expire later than ten years from the date
of grant. In no event will any option granted to a person who, on the date of
grant of the option, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of us, expire later than
five years from the date of grant. With respect to a participant who is an
employee or advisor, each option expires within three months after the date the
participant ceases to be an employee or advisor. During that three month period,
those options may only be exercised if they were exercisable immediately prior
to the time the employment was terminated. If the employee's, advisor's or
non-employee director's employment is governed by an employment agreement and is
terminated for "cause," the option will automatically expire. The exercise price
of each option granted will be determined by the compensation committee, but
shall not be less than 100% of the fair market value of the common stock at the
time such option is granted. In the case of an incentive stock option granted to
a person who, on the date of the grant owns more than 10% of us or our
subsidiary, the exercise price shall not be less than 110% of the fair market
value of the common stock at the time such incentive stock option is granted.
Options are not transferable other than by will or the laws of descent or
distribution or to a beneficiary, as defined in the plan, in the event of the
participant's death. Options may not be pledged, mortgaged, hypothecated or
otherwise encumbered, and shall not be subject to the claims of creditors.
Options may be exercised during the lifetime of the optionee only by the
optionee or the optionee's authorized representative. A vesting schedule for the
options is indicated in each option agreement as determined by the compensation
committee.
Shares of common stock awarded under restricted stock grants are subject to
restrictions prohibiting their sale, assignment, transfer or encumbrance for a
period of time specified by
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<PAGE> 58
the compensation committee and will revert to us if the participant's
relationship with us terminates during such period of restriction, unless the
compensation committee, by rule or regulation or in any award agreement,
provides otherwise.
As of December 31, 1999 we had outstanding options to purchase in the
aggregate 827,728 shares of common stock under the 1996 Plan, 143,284 of which
are vested and exercisable. We expect that options will continue to be granted
to eligible persons as part of our incentive-based compensation program.
FOUNDERS OPTIONS
Several key managers have received non-qualified options to purchase an
aggregate of 132,198 shares of common stock at a price per share of $3.52
outside the 1996 Plan. These options vested from August 23, 1996 to June 1,
1999.
EMPLOYMENT AGREEMENTS
We have entered into full-time employment agreements with Messrs. Mollo,
Doss, Winterich and Johnson. The agreements with Messrs. Mollo and Doss expire
on December 1, 2001. The agreement with Mr. Winterich expires on December 31,
2001. The agreement with Mr. Johnson expires April 1, 2003. When the agreements
have expired, they will be renewed on a year-to-year basis unless either party
to the agreement gives the other party notice of termination at least 90 days
prior to the end of the then current term, as defined in the agreement. The
employment agreements provide for increases in salary as determined by the board
of directors.
As of December 1, 1999 Mr. Mollo's base salary was $200,000. His salary
will automatically be increased $25,000 per year upon the completion of this
initial public offering. If we have positive net income for fiscal year 2000,
Mr. Mollo's salary must be increased by at least 7%, effective December 1, 2000.
Mr. Mollo is entitled to an annual cash bonus, for each fiscal year that the
agreement is in effect, of up to 50% of his then current base salary. Under the
terms of his employment agreement, we granted Mr. Mollo the option to purchase
100,000 shares of our common stock at $4.00 per share under our 1996 Plan. This
option expires on December 1, 2004 or one year following the termination of Mr.
Mollo's employment agreement.
As of December 1, 1999 Mr. Doss's base salary is $180,000. Mr. Doss is
entitled to an annual increase in salary of at least 7.0% which will take effect
each year on December 1. Mr. Doss is further entitled to an annual cash bonus
for each fiscal year that the agreement is in effect. Mr. Doss is entitled to
0.4% of actual margin contributions provided by all original equipment
manufacturer sales which consist of unique and chip on board sales (but not
standard product programs) for which Mr. Doss has had primary and direct
responsibility. We will also pay to Mr. Doss a cash bonus of either 15% of his
salary, as of the end of the fiscal year, if we attain at least 90.0% of our
budgeted gross profit margin for that particular fiscal year, or 25.0% of his
salary, as of the end of the fiscal year, if we attain 100.0% of our budgeted
margin for that particular fiscal year. Under the terms of his employment
agreement, we granted Mr. Doss the option to purchase 75,000 shares of our
common stock at $4.00 per share under our 1996 Plan. This option expires on the
earlier of March 31, 2003 or 180 days following the termination of Mr. Doss's
employment agreement; provided, however the option cannot expire prior to
September 22, 2000. Pursuant to Mr. Doss's employment agreement, we sold him
50,000 shares of our Series C preferred stock at a purchase price of $6.00 per
share and issued Mr. Doss a warrant to purchase 50,000 shares of our common
stock at an exercise price of $0.02 per share. In return, Mr. Doss provided us
with a promissory note and an agreement pledging his 50,000 shares of Series C
preferred stock and his warrant to purchase (and the underlying) 50,000 shares
of common stock to us.
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<PAGE> 59
If we terminate our employment agreement with Mr. Mollo or Mr. Doss for any
reason other than just cause, as defined in the agreement, within two years of
experiencing a change in control, as defined in the agreement, we will, in the
case of Mr. Mollo, pay a lump-sum payment equal to his then current salary for
the remainder of the then current term of the agreement or, in the case of Mr.
Doss, continue to pay his then current salary for the remainder of the then
current term of his employment agreement plus one year. If Mr. Mollo or Mr. Doss
terminates his employment agreement with us for constructive termination, as
defined in the agreement, within two years of the time that we experience a
change in control, as defined in the agreement, we will, in the case of Mr.
Mollo, also pay him a lump-sum payment equal to his then current salary for the
remainder of the then current term of his employment agreement or, in the case
of Mr. Doss, continue to pay his then current salary for the remainder of the
then current term of his employment agreement plus one year.
We have agreed to consult with Mr. Doss regarding any change of our current
chief executive officer. If Mr. Doss does not approve of the new chief executive
officer, he is entitled to terminate his employment with us within thirty days
of the time the new chief executive officer takes office. Mr. Doss will retain
the compensation he has earned until that point and we will pay to Mr. Doss a
lump-sum equal to three months of his then current salary.
As of January 1, 1999 Mr. Winterich's base salary is $185,000. Mr.
Winterich is entitled to an annual calendar year cash bonus of 25% of his then
current salary. Under the terms of his employment agreement, we granted Mr.
Winterich the option to purchase 50,000 shares of our common stock at $4.00 per
share under our 1996 Plan. This option vests and becomes exercisable over a
period of three years from the date of grant and expires on April 12, 2004,
unless it expires earlier due to Mr. Winterich terminating his employment with
us. Mr. Winterich also has the option to purchase 25,000 additional shares of
our common stock at a price of $0.02 per share which will vest when we
consummate this offering, experience a change-in-control, have a strategic
partner or investor invest $10.0 million in us or on December 31, 2007,
whichever occurs first. This option expires on April 12, 2009, unless it expires
earlier due to Mr. Winterich terminating his employment with us.
As of April 1, 2000 Mr. Johnson's base salary will become $220,000. Mr.
Johnson is entitled to an annual calendar year bonus of 40% of his then current
salary. If we terminate our employment agreement with Mr. Johnson for any reason
other than just cause, as defined in the agreement, or if Mr. Johnson terminates
the agreement with us for constructive termination, as defined in the agreement,
within two years of experiencing a change in control, as defined in the
agreement, we will pay a lump-sum payment equal to his then current salary for
the remainder of the then current term of the agreement.
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<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock and Series C preferred stock as of March 17, 2000,
and as adjusted to reflect the sale of common stock offered hereby, by:
- each person or entity known by us to beneficially own 5% or more of the
outstanding shares of common stock;
- each of our directors and the Named Executive Officers; and
- all of our executive officers and directors as a group.
Unless otherwise noted, the persons named below have sole voting and
investment power with respect to the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NUMBER OF SHARES OWNED AFTER OFFERING IF
BENEFICIALLY OWNED OVER-ALLOTMENT OPTION
PRIOR TO THE OFFERING(1) EXERCISED IN FULL(2)
------------------------- -----------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Charles R. Mollo(3)(4)........................... 1,171,513 13.38% 1,171,513 8.77%
Jeffrey S. Doss(3)(5)............................ 237,506 2.72% 237,506 1.78%
Jeffrey R. Harris(3)(6).......................... 880,394 10.06% 880,394 6.60%
Richard Winterich(3)(7).......................... 46,667 * 46,667 *
Robert P. Dilworth(3)(8)......................... 40,000 * 40,000 *
William O. Hunt(3)(9)............................ 63,039 * 63,039 *
Kenneth A. Steel, Jr. (3)(10).................... 113,686 1.30% 113,686 *
New Vistas Investment Corporation(11)............ 508,003 5.83% 508,003 3.82%
Janice L. Breeze-Mollo(12)....................... 906,506 10.37% 906,506 6.80%
Seligman Communications and Information
Fund, Inc.(13)................................. 679,207 7.54% 679,207 4.99%
Executive officers and directors as a group (nine
persons)....................................... 2,570,984 28.32% 2,570,984 18.80%
</TABLE>
- ------------
* Less than 1%
(1) "Beneficially" owned shares, as defined by the SEC, are those shares as to
which a person has voting or dispositive power, or both. "Beneficial"
ownership does not necessarily mean that the named person is entitled to
receive the dividends on, or the proceeds from the sale of, the shares.
(2) This calculation is the quotient of (a) the number of shares currently
beneficially owned by the named individual or group, plus the number of
shares, if any, for which options beneficially held by such person or group
are exercisable within 60 days or upon the closing of an initial public
offering, divided by (b) the total number of shares outstanding at March
17, 2000, plus the number of shares, if any, for which options or warrants
held by such person or group are exercisable within 60 days or upon the
closing of an initial public offering.
(3) The address for Messrs. Mollo, Doss, Harris, Winterich, Dilworth, Hunt and
Steel is 7955 East Redfield Road, Scottsdale, Arizona 85260.
(4) Includes 54,913 shares owned directly by Mr. Mollo; 116,047 shares owned by
Mollo Family LLC of which Mr. Mollo owns 10% and is a manager; 371,063
shares owned by New Vistas Investment Corporation of which Mr. Mollo owns
approximately 43%; 233,827 shares owned by New Horizons of which Mr. Mollo
owns 49%; 9,042 shares held at Delaware Trust FBO Charles R. Mollo; 107,986
shares held in the Charles R. Mollo Revocable Trust; 25,000 shares held in
the John R. Harris and Timothy D. Harris Irrevocable Trust of which Mr.
Mollo is trustee; 50,900 shares held in the Deanna L. and Kristen A.
Williams Irrevocable Trust of which Mr. Mollo is trustee; 22,483 shares
that may be received upon the conversion of 32,501 shares of Series C
preferred stock owned directly by Mr. Mollo; 98,431 shares that may be
received upon the conversion of 142,293 shares of Series C preferred stock
owned by New Vistas Investment Corporation; 6,250 shares that may be
purchased upon the exercise of warrants owned directly by Mr. Mollo; 16,823
shares that may be purchased upon the exercise of warrants owned by Mollo
Family LLC; 38,510 shares that may be purchased upon the exercise of
warrants owned by New Vistas Investment Corporation; and 20,238 shares that
may be purchased upon the exercise of options granted under the 1996 Plan.
Mr. Mollo is married to Ms. Breeze-Mollo, however, all shares owned by
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<PAGE> 61
Ms. Breeze-Mollo are held as separate property and Mr. Mollo has no
beneficial ownership rights thereto, and disclaims beneficial ownership of
the shares owned by Ms. Breeze-Mollo.
(5) Includes 135,017 shares owned directly by Mr. Doss; 5,000 owned by Nolton
Doss International, Inc. of which Mr. Doss owns 50% and is a director;
34,588 shares that may be received upon the conversion of 50,000 shares of
Series C preferred stock owned directly by Mr. Doss; 16,269 shares that may
be purchased upon the exercise of warrants owned directly by Mr. Doss; and
46,632 that may be purchased upon the exercise of options granted under the
1996 Plan.
(6) Includes 20,403 shares owned directly by Mr. Harris; 60,579 shares owned by
Harris Family LLC of which Mr. Harris owns 10% and is a manager; 6,742
shares held at Delaware Trust FBO Jeffrey R. Harris; 371,063 shares owned
by New Vistas Investment Corporation of which Mr. Harris owns approximately
20% and is a director; 233,827 shares owned by New Horizons of which Mr.
Harris owns 26% and is a director; 11,528 shares that may be received upon
the conversion of 16,666 shares of Series C preferred stock owned directly
by Mr. Harris; 2,884 shares that may be received upon conversion of 16,666
of Series C preferred stock held at Delaware Trust FBO Jeffrey R. Harris;
98,431 shares that may be received upon the conversion of 142,293 shares of
Series C preferred stock owned by New Vistas Investment Corporation; 4,250
shares that may be purchased upon the exercise of warrants owned directly
by Mr. Harris; 9,677 shares that may be purchased upon the exercise of
warrants owned by Harris Family LLC; 38,510 shares that may be purchased
upon the exercise of warrants owned by New Vistas Investment Corporation;
and 22,500 shares that may be purchased upon the exercise of options
granted under the 1996 Plan.
(7) Includes 5,000 shares owned directly by Mr. Winterich; and 41,667 shares
that may be purchased upon the exercise of options granted under the 1996
Plan.
(8) Includes 40,000 shares that may be purchased upon the exercise of options
granted under the 1996 Plan.
(9) Includes 28,039 shares owned by B&G Partners Limited of which Mr. Hunt has
a 100% interest and 35,000 shares that may be purchased upon the exercise
of options granted under the 1996 Plan.
(10) Includes 13,034 shares owned directly by Mr. Steel; 39,625 shares owned by
K.A. Steel Chemicals, Inc. of which Mr. Steel owns approximately 33% and is
a director; 24,527 shares that may be purchased upon the exercise of
warrants owned directly by Mr. Steel; 1,500 shares that may be purchased
upon the exercise of warrants owned by K.A. Steel Chemicals, Inc.; and
35,000 shares that may be purchased upon the exercise of options granted
under the 1996 Plan.
(11) Includes 371,063 shares owned directly by New Vistas Investment
Corporation; 98,430 shares that may be received upon the conversion of
142,293 shares of Series C preferred stock owned directly by New Vistas
Investment Corporation; and 38,510 shares that may be purchased upon the
exercise of warrants owned directly by New Vistas Investment Corporation.
The address for New Vistas Investment Corporation is 5528 Eubank Boulevard,
N.E., Suite #3, Albuquerque, New Mexico 87111.
(12) Includes 2,620 shares owned directly by Ms. Breeze-Mollo; 30,966 shares
held by Breeze LLC; 6,468 shares held at Alex Brown FBO Janice L. Breeze;
20,160 shares held in the Janice L. Breeze Revocable Trust; 75,000 shares
held in the Christine E. Mollo and Charles R. Mollo III Irrevocable Trust
of which Ms. Breeze-Mollo is Trustee; 371,063 shares owned by New Vistas
Investment Corporation of which Ms. Breeze-Mollo owns approximately 18.5%;
233,828 shares owned by New Horizons of which Ms. Breeze-Mollo owns 25%;
3,458 shares that may be received upon the conversion of 5,000 shares of
Series C preferred stock owned directly by Ms. Breeze-Mollo; 98,431 shares
that may be received upon the conversion of 142,293 shares of Series C
preferred stock owned by New Vistas Investment Corporation; 3,750 shares
that may be purchased upon the exercise of warrants owned directly by Ms.
Breeze-Mollo; 7,557 shares that may be purchased upon the exercise of
warrants owned by Breeze LLC; 38,510 shares that may be purchased upon the
exercise of warrants owned by New Vistas Investment Corporation; and 14,695
shares that may be purchased upon the exercise of options granted under the
1996 Plan. Ms. Breeze-Mollo is married to Mr. Mollo, however, all shares
owned by Mr. Mollo are held as separate property and Ms. Breeze-Mollo has
no beneficial ownership rights thereto, and disclaims beneficial ownership
of the shares owned by Mr. Mollo. The address for Ms. Breeze-Mollo is 5528
Eubank Boulevard, N.E., Suite #3, Albuquerque, New Mexico 87111.
(13) Includes 345,874 shares that may be received upon the conversion of 499,999
shares of Series C preferred stock owned directly by Seligman
Communications and Information Fund, Inc.; and 333,333 that may be
purchased upon the exercise of warrants owned directly by Seligman
Communications and Information Fund, Inc. The address for Seligman
Communications and Information Fund, Inc. is 125 University Avenue, Palo
Alto, California 94301.
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<PAGE> 62
CERTAIN TRANSACTIONS
The following is a description of transactions, for the last three years,
to which we have been a party, in which the amount involved in the transaction
exceeds $60,000 and in which any of our directors, executive officers or holders
of more than five percent of our capital stock had or will have a direct or
indirect material interest, other than compensation arrangements that are
otherwise required to be described under "Management."
From September 1996 through May 1997 we raised approximately $1.9 million
from our management and their affiliates (approximately $1.3 million of which
was in the form of common stock, at a purchase price of $7.73 per share, and
$565,000 of which was in the form of convertible subordinated debt (the
"Convertible Debentures")), and approximately $2.1 million from outside
investors ($846,458 of which was in the form of common stock, at a purchase
price of $7.73 per share, and approximately $1.3 million of which was in
Convertible Debentures). For a description of the Convertible Debentures, see
"Description of Capital Stock -- Convertible Debentures."
In November 1997 we completed a $10.0 million private placement, including
approximately $1.0 million of already outstanding preferred stock which was
converted to common stock at $8.00 per share and the sale of 1,124,500
newly-issued shares of common stock at $8.00 per share and 312,500 warrants to
purchase shares of common stock at $14.00 per share. Of these amounts,
management converted preferred stock of approximately $1.0 million and purchased
$16,000 of common stock, all at $8.00 per share.
In June 1998 we completed a private placement of approximately $8.5 million
and issued an aggregate of 742,500 shares of common stock at $11.50 per share.
Our management and their affiliates purchased an aggregate of 37,000 shares of
common stock ($425,000) in this private placement.
In December 1998 we offered to convert the principal of the Convertible
Debentures and accrued interest thereon to common stock at a price of $7.73 per
share. Of the approximately $2.1 million of principal outstanding, approximately
$2.0 million plus accrued interest of $62,448 was converted into 275,721 shares
of common stock. Our management and their affiliates converted $545,000 of
principal and $16,476 accrued interest into 72,730 shares of common stock.
In January 1999 we completed a private placement of approximately $5.0
million and issued an aggregate of 735,300 shares of Series C preferred stock at
$6.75 per share. Our management and their affiliates purchased an aggregate of
45,000 shares of Series C preferred stock ($303,750) in this private placement.
Pursuant to the terms of the Series C preferred stock, an additional 91,909
shares were issued to the investors in such private placement as a result of a
subsequent round of financing at the lower price of $6.00 per share and 5,625 of
such additional shares were issued to management and their affiliates. See
"Description of Capital Stock -- Series C Preferred Stock."
In March 1999 we raised $3.5 million in the form of 13% Bridge Promissory
Notes, of which $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 16,875 shares of common stock at a price of
$8.00 per share in June 1999. The offering also included the issuance of
warrants to purchase 525,000 shares of common stock at a price of $0.02 per
share, of which 146,250 were issued to our management and their affiliates. See
"Description of Capital Stock -- Registration Rights -- Private Placement of 13%
Bridge Promissory Notes and Warrants and Series C Preferred Stock."
In January 2000 we completed a private placement of approximately $7.4
million and issued an aggregate of 1,231,450 shares of Series C preferred stock
at $6.00 per share. For each share of Series C preferred stock purchased, an
investor received a warrant to purchase one share of common stock at a price of
$0.02 per share. Our management and their affiliates purchased an aggregate of
159,167 shares of Series C preferred stock ($955,006) in this private
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placement and received warrants for the purchase of 159,167 shares of common
stock at a price of $0.02 per share. See "Description of Capital Stock -- Series
C Preferred Stock."
In April 1998 in connection with the Bank of America line of credit,
certain stockholders including Messrs. Mollo and Doss executed personal
guarantees to guarantee a total of approximately $1.8 million each, and certain
of our other stockholders agreed to indemnify such guarantors against amounts
paid under such guarantees up to certain agreed upon levels. As part of such
guarantees and indemnification arrangements, such persons were issued an
aggregate of 112,500 warrants to purchase common stock at a price of $11.50 per
share. Our management of the Company and their affiliates received an aggregate
of 86,621 of such warrants.
When the Bank of America line of credit was amended in November 1999,
certain stockholders including Messrs. Mollo and Doss executed personal
guarantees to guarantee $1.8 million each, and certain other stockholders
continued to indemnify such guarantors against amounts paid under such
guarantees up to certain agreed upon levels. As part of such guarantees and
indemnification arrangements, such persons were issued an aggregate of 56,250
warrants to purchase common stock at a price of $4.00 per share. Of such
warrants, Mr. Mollo was issued warrants to purchase 8,412 shares and Mr. Doss
was issued warrants to purchase 7,010 shares of common stock. Our management and
their affiliates received an aggregate of 51,111 of such warrants.
We have entered into an employment agreement with Messrs. Doss, Mollo,
Winterich and Johnson. See "Management -- Employment Agreements."
As provided for in Mr. Doss's employment agreement, we have entered into a
promissory note in the principal sum of $300,000 in December 1999 with Mr. Doss,
our Executive Vice President, to finance his purchase of 50,000 shares of our
Series C preferred stock at a purchase price of $6.00 per share and a warrant to
purchase 50,000 shares of our common stock at an exercise price of $0.02 per
share (which was included in the January 2000 offering). This note provides for
6.0% per annum interest and is due in full on December 1, 2001, however, Mr.
Doss may prepay at any time without any penalty or premium. The principal amount
outstanding as of December 31, 1999 is $300,000. In connection with the note,
Mr. Doss and the Company have also entered into a pledge agreement granting a
security interest in the preferred stock and the warrant we sold to Mr. Doss.
New Vistas Investment Corporation, an entity owned in part by Mr. Mollo,
Ms. Breeze-Mollo and Mr. Harris, provided administrative services to us, for
which we reimbursed the direct costs of providing such services. The services
provided were in support of Mr. Mollo, primarily in connection with our previous
private financings. No contractual agreement exists between the parties. Amounts
reimbursed for the years ended December 31, 1997, 1998 and 1999 were $32,000,
$52,000 and $42,000, respectively.
We have granted options to certain of our directors and executive officers.
We have also entered into an indemnification agreement with each of our
directors and executive officers. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to our directors,
executive officers and controlling persons pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by one of our directors, executive officers or controlling persons in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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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.
As of April 1, 2000, our authorized capital stock will consist of
90,000,000 shares of common stock, par value $0.01 per share, and 15,000,000
shares of preferred stock, par value $0.01 per share.
COMMON STOCK
As of December 31, 1999 we had 5,978,679 shares of common stock outstanding
and approximately 495 holders of common stock. All issued and outstanding common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable. Holders of shares of common
stock are entitled to one vote per share on all matters submitted to a vote of
our stockholders. There is no right to cumulative voting for the election of
directors. Holders of shares of common stock are entitled to receive dividends,
if, as and when declared by the board of directors out of funds legally
available therefor, after payment of dividends required to be paid on any
outstanding shares of preferred stock. Upon our liquidation, holders of shares
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to the liquidation preferences of any
outstanding shares of preferred stock. Holders of shares of common stock have no
conversion, redemption or preemptive rights. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of preferred stock.
PREFERRED STOCK
The board of directors may, without further action of our common
stockholders, issue shares of preferred stock in one or more series and fix or
alter the rights and preferences thereof, including the voting rights,
redemption provisions (including sinking fund provisions), dividend rights,
dividend rates, liquidation preferences, conversion rights and any other rights,
preferences, privileges and restrictions of any wholly unissued series of
preferred stock. The board of directors may, without further action by our
common stockholders, issue shares of preferred stock which it has designated.
The rights of holders of common stock will be subject to, and may be adversely
affected by, the rights of holders of preferred stock. While the issuance of
preferred stock provides flexibility in connection with additional financing,
possible acquisitions and other corporate purposes, future issuances may have
the effect of delaying, deferring or preventing the change of control in us
without further action by the stockholders and may discourage bids for the
common stock at a premium over the market price. The board of directors may,
without stockholder approval, provide for the issuance of preferred stock that
could have voting, conversion or other rights superior to the rights of holders
of common stock.
We have no present plans to issue any new series of preferred stock.
SERIES C PREFERRED STOCK
As of 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-0.68815 as of December 31, 1999. The initial
conversion rate was one for one, but was subject to change if certain events
occur. Generally, the conversion rate will be adjusted if we issue any non-cash
dividends on our securities, split our securities or otherwise effect a change
to the number of our outstanding securities. The conversion rate will also be
adjusted if we issue additional securities at a price that is less than the
price that the Series C preferred stockholders paid for their shares. Such
adjustments will be made according to certain formulas that are designed to
prevent dilution of the Series C preferred stock. The Series C preferred stock
can be converted at any time at the option of the holder, and will convert
automatically, immediately prior to the consummation of a firm commitment
underwritten public offering of our common stock pursuant to a registration
statement filed with the SEC having a per share price equal to or greater than
$12.00 per share and a total gross offering amount of not less than $15.0
million. No fractional shares will be issued upon conversion.
If our board of directors declares a cash dividend payable on our
outstanding shares of common stock, the board of directors must also declare a
dividend payable on each share of Series C preferred stock equal to the amount
of the dividend payable on the number of shares of common stock into which each
such share could then be converted. Holders of shares of Series C preferred
stock are entitled to vote on all matters submitted for a vote of the holders of
common stock. Holders will be entitled to one vote for each share of common
stock into which one share of Series C preferred stock could then be converted.
In the event of our liquidation or dissolution, the holders of Series C
preferred stock will be entitled to receive the amount they paid for their
stock, plus accrued and unpaid dividends out of our assets legally available for
such payments prior to the time other holders of our securities will be entitled
to any payments. We are restricted from undertaking the following corporate
actions while any shares of Series C preferred stock remain outstanding: (i)
merging, selling all or substantially all of our assets or liquidating, unless
the holders of Series C preferred stock receive at least $15.00 per share; (ii)
purchasing any common stock, except for purchases of shares under contractual
arrangements; (iii) authorizing or issuing any equity securities senior to or on
parity with the Series C preferred stock; (iv) declaring or paying any dividends
on the common stock; or (v) increasing or decreasing the number of authorized
shares of preferred stock or common stock.
SERIES D PREFERRED STOCK
As of March 17, 2000, we had 500,000 shares of Series D preferred stock
authorized for issuance, all of which shares were outstanding and held by one
investor. All issued and outstanding Series D preferred stock is, and all shares
of common stock underlying the Series D preferred stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
The Series D preferred stock is convertible into shares of common stock. On
March 1, 2002, each share of Series D preferred stock will convert automatically
into a number of shares of common stock determined by dividing $10.00 by the
offering price per share used in the last round of equity private placement
financing prior to March 1, 2002; provided, however, immediately prior to the
consummation of this offering, each share of Series D preferred stock will
convert automatically into the number of shares of common stock determined by
dividing $10.00 by 95% of the offering price per share of the common stock used
in this offering.
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If our board of directors declares a cash dividend payable on our
outstanding shares of common stock, the board of directors must also declare a
dividend payable on each share of Series D preferred stock equal to the same
dividend per share paid on each share of common stock (as adjusted for any
common stock dividends, splits or the like). Holders of shares of Series D
preferred stock are entitled to vote on all matters submitted for a vote of the
holders of common stock. Holders will be entitled to one vote for each share of
Series D preferred stock (subject to adjustment for any common stock dividends,
splits or the like). In the event of our liquidation or dissolution, the holders
of Series D preferred stock will be entitled to receive the amount they paid for
their stock, plus accrued and unpaid dividends out of our assets legally
available for such payments after the holders of Series C preferred stock have
received their preferential payments, but prior to the time other holders of our
securities will be entitled to any payments. We are prohibited from paying any
cash dividends on our common stock while any shares of Series D preferred stock
remain outstanding.
WARRANTS AND OPTIONS
Finova Warrants. In connection with a $1.6 million loan made by Finova on
June 24, 1997 to us (the "Finova Loan"), we issued a Stock Purchase Warrant to
Finova (the "First Finova Warrant") to purchase 85,849 shares of common stock,
at $0.02 per share, subject to the following adjustments: if the Finova Loan
remains outstanding on June 24, 1999, Finova would have the right to purchase
115,644 shares of common stock; if the Finova Loan remains outstanding on June
24, 2000, Finova would have the right to purchase 146,088 shares of common
stock; and if the Finova Loan remains outstanding on June 24, 2001, Finova would
have the right to purchase 177,161 shares of common stock. The First Finova
Warrant is exercisable at any time until July 31, 2002. Pursuant to the terms of
the First Finova Warrant and the Second Finova Warrant (defined below)
(collectively with the First Finova Warrant, the "Finova Warrants"), Finova is
entitled to receive notice of and be entitled to attend or to send a
representative to attend all meetings of our board of directors in a non-voting
observation capacity, receive copies of all notices, packages and documents
provided to members of our board of directors for each board meeting and receive
copies of all actions taken by written consent of our board of directors, until
such time as the Finova Loan has been paid in full. Additionally, both Finova
Warrants contain certain provisions that protect the holder against dilution by
adjustment of exercise price and the number of shares of common stock subject to
the Finova Warrants in certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers or consolidations. We
also granted to Finova an option to sell (the "Put") to us the Finova Warrants
for a period of 30 days immediately preceding the expiration of the Finova
Warrants at a purchase price equal to fair market value (as defined therein);
however, upon consummation of this offering and full payment of the Finova Loan,
the Put will terminate. Additionally, we have granted certain registration
rights to Finova in connection with the Finova Warrants. See "-- Registration
Rights" below. Effective March 25, 1998 we entered into the First Amendment to
the Loan Agreement and Loan Documents with Finova Capital Corporation whereby
the principal amount of the loan was increased by approximately $1.8 million to
a total of approximately $3.4 million. In connection with the additional loan,
we issued a Stock Purchase Warrant to Finova (the "Second Finova Warrant") which
provides that Finova may purchase 93,418 shares of common stock, subject to the
following adjustment: if the Finova Loan remains outstanding on June 24, 2000,
Finova would have the right to purchase 141,572 shares of common stock; if the
Finova Loan remains outstanding on June 24, 2001, Finova would have the right to
purchase 190,728 shares of common stock; and if the Finova Loan remains
outstanding on June 24, 2002, Finova would have the right to purchase 240,920
shares of common stock. This warrant is exercisable at any time until July 31,
2002 and the exercise price is $0.02 per share of common stock.
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Other Warrants. To date we have issued and outstanding warrants to purchase
a total of 2,586,389 shares of common stock, at exercise prices ranging from
$0.02 per share to $14.00 per share.
Options. To date we have issued and outstanding options to purchase 959,926
shares of common stock. The exercise prices of these options range from $0.02 to
$11.50 per share. See "Management -- Option Grants in Last Fiscal Year,"
"-- Amended and Restated 1996 Long Term Incentive Plan," "-- Founders Options"
and "-- Employment Agreements" for a description of options granted by us.
CONVERTIBLE DEBENTURES
In late 1996 and early 1997 we issued approximately $2.2 million in
aggregate principal amount of 12% Convertible Debentures to various investors
(the "Convertible Debentures"). In December 1998 approximately $2.1 million was
converted to common stock at a price of $7.73 per share. The remaining
Convertible Debentures ($95,000) require the Company to pay interest quarterly
at a rate of 12% per annum. Beginning on the second anniversary of the date of
issuance of each Convertible Debenture, we are required to pay 20 equal
quarterly installments of principal and accrued but unpaid interest in an amount
necessary to fully amortize the notes by the twentieth installment, when all
remaining principal and accrued interest will be due. Each of the Convertible
Debentures may be prepaid at our option at any time upon 30 days' notice to the
holder. Unless prepaid by us, each Convertible Debenture also can be redeemed at
the holder's option in whole or in part upon the closing of this offering (the
"IPO Redemption Option"). Such redemption price would be equal to 100% of the
principal amount of the Convertible Debentures to be redeemed, plus accrued
interest, if any, to the date of the closing of this offering; provided,
however, that the IPO Redemption Option will terminate at the close of business
on the date of the closing of this offering and will be lost if not exercised by
that time. The IPO Redemption Option may be exercised separately or in
conjunction with the conversion right described below.
Unless the Convertible Debenture is prepaid by us, 60% of the outstanding
principal balance of each Convertible Debenture is convertible, at the option of
the holder, into common stock on the date of the closing of this offering at the
rate of one share of common stock for each $7.73 of principal of each
Convertible Debenture (but just the 60% convertible portion thereof); provided,
however, that the right to convert each Convertible Debenture will terminate at
the close of business on the date of the closing of this offering and will be
lost if not exercised prior to that time.
BRIDGE PROMISSORY NOTES
In March 1999, we issued an aggregate of $3.5 million principal amount of
13% Bridge Promissory Notes. The Bridge Notes provided for interest of 13% per
annum and were due and payable on March 5, 2000. Holders of an aggregate of $2.3
principal amount of the Bridge Notes converted such Bridge Notes into shares of
common stock in June 1999. In February 2000, we entered into a loan extension
agreement with each holder of then outstanding Bridge Notes. This loan extension
agreement: (i) increased the interest rate from 13% to 14% per annum; (ii)
extended the maturity date to the earlier of (a) March 31, 2001, (b) thirty days
following the closing of our initial public offering of common stock or (c)
thirty days following the closing of a private offering of our equity securities
with aggregate subscriptions of at least $10 million; (iii) made prepayment
optional and without penalty; and (iv) allowed conversion of the outstanding
principal balance of and interest on the Bridge Notes to be converted into
shares of common stock within fifteen days following the closing of our initial
public offering of common stock, at a price equal to 95% of the offering price
in the initial public offering. Concurrent with the execution of the loan
extension agreement, we issued to each participating Bridge Noteholder a warrant
to purchase 10,000 shares of
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common stock for each $100,000 of principal outstanding. These warrants may be
exercised at any time on or prior to April 30, 2001 at an exercise price equal
to 95% of the offering price in the initial public offering. In addition, the
Company agreed that commencing on October 1, 2000, and for each calendar quarter
thereafter, if any Bridge Note is not paid off, then the holder will receive a
warrant to purchase 2,500 shares of common stock for each $100,000 of principal
outstanding, which warrant would have an exercise period of one year and an
exercise price of $0.02 per share.
REGISTRATION RIGHTS
Finova Warrants. The Finova Warrants contain a registration rights
provision that allows Finova to request that we register all or any part of the
shares of common stock issuable upon exercise of the Finova Warrants as
described above (the "Finova Shares") in certain circumstances. Specifically,
Finova can request that we register the Finova Shares if we propose to file a
registration statement on a form suitable for a secondary offering of shares. We
are required to notify Finova of our intention to file such a registration
statement at least thirty days prior to such filing. If Finova requests that we
register some or all of the Finova Shares, we must include the Finova Shares in
such registration statement at our expense; provided, however, that if the
offering being registered is underwritten and the representative of the
underwriters certifies in writing that the inclusion of the Finova Shares would
materially and adversely affect the sale of the securities to be sold by us in
the offering, then we will be required to include in the offering only the
number of Finova Shares that the underwriters determine in their sole discretion
will not jeopardize the success of the offering.
Miram International, Inc. On July 29, 1997 we entered into a registration
rights agreement with Miram International, Inc., or Miram. Pursuant to this
agreement, we are obligated to register 93,500 shares of common stock (the
"Miram Shares") held by Miram in certain circumstances.
Miram can request that we register the Miram Shares if we propose to file
certain types of registration statements at any time after we become a reporting
company under the Exchange Act. If such a request is made, we are required to
use our best efforts to cause any managing underwriter of such a proposed
underwritten offering to permit Miram to include the Miram Shares in the
offering. However, no such registration will be required if the managing
underwriter for the proposed offering determines that the inclusion of the Miram
Shares could have an adverse effect on the marketability or the price of the
securities otherwise included in the offer. If the contemplated registration
does not involve an underwritten public offering, such determination shall be
made by us in our reasonable discretion. If requested by the managing
underwriter, Miram has agreed to use its best efforts not to effect any public
sale or distribution of the Miram Shares within 10 days before or 90 days after
the effective date of an underwritten public offering in which any Miram Shares
are included. Expenses incurred in connection with the registration of the Miram
Shares generally will be borne by us. These registration rights will terminate
upon the earlier of the sale of all or substantially all our assets or our
merger with and into another business entity or December 31, 2000.
Private Placement of Common Stock and Warrants. In November 1997 we
completed a private placement of 1,250,000 shares of common stock and 312,500
warrants to purchase shares of common stock, to various members of our
management, other individuals and institutional investors. In June 1998 we
completed a private placement of 742,500 shares of common stock to various
members of our management, other individuals and institutional investors.
Pursuant to purchase agreements executed by the holders of these securities, if
we propose to register any of our common stock or other securities in connection
with the public offering of such securities solely for cash, other than an
initial public offering or certain other types of offerings, we shall promptly
give each holder written notice of such proposed filing.
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Upon the timely request of each holder, we must, subject to certain exceptions,
cause such securities to be registered. If such offering is underwritten, we
will not be required to include any of these securities in the offering unless
the holder accepts the terms of the underwriting and then only in such quantity
as the underwriters determine in their sole discretion will not materially
jeopardize or in any way reduce the success of the offering. Expenses incurred
in connection with the registration of these securities will be borne by us.
Assignment of these registration rights is permitted in certain instances.
Additionally, each holder has agreed that it will not sell any of these
securities until 120 days after the earlier of the effective registration of
these securities or the effective date of a registration statement in which
these securities could have been included. These registration rights will
terminate three years after we become a public company.
Private Placement of 13% Bridge Promissory Notes and Warrants and Series C
Preferred Stock. In March 1999 we issued in a private placement approximately
$3.5 million of our 13% Bridge Promissory Notes together with warrants to
purchase 525,000 shares of our common stock (the "March Note Placement"). In
June 1999 holders of approximately $2.3 million of the 13% Bridge Promissory
Notes issued in connection with the March Note Placement converted their notes
and accrued interest thereon of approximately $96,000 to 296,342 shares of
common stock. In July 1999 we completed the private placement of approximately
$3.7 million of our 13% Bridge Promissory Notes together with warrants to
purchase 449,200 shares of our common stock (the "July Note Placement").
Additionally, in connection with the July Note Placement, holders of
approximately $3.2 million of such notes converted their notes into 394,063
shares of common stock. In January 2000 we completed the private placement of
1,231,450 shares of our Series C preferred stock and warrants to purchase
1,231,450 shares of our common stock. Pursuant to the note and warrant purchase
agreements executed in connection with the March Note Placement, the Series C
preferred stock purchase agreements and the Series C preferred stock and warrant
purchase agreements, beginning January 1, 2001, the holders of at least 66 2/3%
of the then outstanding shares of common stock issuable under these warrants or
upon the conversion of the Series C preferred stock, as the case may be, may
notify us that they desire to have such shares registered for sale to the
public. Promptly following receipt of such notice and after notifying all other
applicable holders of their right to participate in such offering, we will
prepare and file, and use our best efforts to prosecute to effectiveness, an
appropriate registration statement with the SEC which includes such securities.
We may delay such registration for not longer than 180 days if our board of
directors in good faith reasonably believes that the filing would materially
adversely affect certain pending or proposed offerings or certain other actions.
If less than $5.0 million of the common stock issuable pursuant to the note and
warrant purchase agreements executed in connection with the March Note Placement
or the Series C preferred stock and warrant purchase agreements or less than
$10.0 million of common stock issuable upon conversion of the Series C preferred
stock pursuant to the Series C preferred stock purchase agreements is to be sold
in such offering, we will not be obligated to register such securities. We are
obligated to make such a filing with regard to the common stock issuable
pursuant to the note and warrant purchase agreements executed in connection with
the March Note Placement or the Series C preferred stock and warrant purchase
agreements only once, and are obligated to make such a filing with regard to the
common stock issuable upon conversion of the Series C preferred stock pursuant
to the Series C preferred stock purchase agreements only one time in any twelve
month period and no more than three times in the aggregate, unless such
registration statement is not declared effective.
Even if the holders do not exercise these demand registration rights, once
we are eligible to effect a registration of our common stock on Form S-3, the
holders of the shares of common stock issuable under the warrants sold pursuant
to the March Note Placement and the July Note Placement and the shares of common
stock issuable upon conversion of the
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Series C preferred stock will have the right to request us to register such
securities on Form S-3 as long as the aggregate proposed offering price of such
securities is not less than $3.0 million. We are obligated to honor such a
request only once during a 12 month period. If such an offering is underwritten,
the holders' securities will not be included unless the holders accept the terms
of the underwriting agreement. We may delay such an S-3 offering for no longer
than 180 days if our board of directors in good faith reasonably believes that
the filing would materially adversely affect certain pending or proposed
offerings or other certain actions.
Finally, if we propose to register any of our securities in connection with
the public offering of such securities solely for cash, other than an initial
public offering or certain other types of offerings, we shall promptly give each
holder written notice of such proposed filing. Upon the timely request of each
holder, we must, subject to certain exceptions, cause such securities to be
registered.
Expenses incurred in connection with the registration of these securities
will be borne by us and assignment of these registration rights is permitted in
certain instances. Additionally, each holder has agreed that if requested by us
or the underwriters, it will not sell any of these securities until 180 days
after the effective date of an underwritten public offering of any our shares of
common stock without our prior written approval or the approval of the
underwriters. If the offering is an underwritten initial public offering, such a
request will not be required and the holders of the warrants or shares of common
stock have agreed to execute and deliver a lock-up letter to the underwriter if
requested to do so. These registration rights will terminate at the earlier of
(a) two years after we become a public company in the case of common stock
issuable under the warrants pursuant to the note and warrant purchase agreements
executed in connection with the March Note Placement and the July Note Placement
and four years after we become a public company in the case of common stock
issuable under the warrants or upon conversion of the Series C preferred stock
pursuant to the Series C preferred stock purchase agreements and the Series C
preferred stock and warrant purchase agreements, as the case may be, or (b) such
time as the holder is able to sell all of such holder's securities issued
pursuant to the note and warrant purchase agreements executed in connection with
the March Note Placement and the July Note Placement and the Series C preferred
stock purchase agreements in a single three-month period in compliance with Rule
144 of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
We are subject to the provisions of Section 203 of the DGCL. In general,
Section 203 of the DGCL prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock. This provision could
delay, discourage or prohibit transactions not approved in advance by the board
of directors, such as takeover attempts that might result in a premium over the
market price of the common stock.
Our certification of incorporation and bylaws provide that any action
required or permitted to be taken by our stockholders may be taken only at a
duly called annual or special meeting of stockholders, and that special meetings
of stockholders may be called only by our Chairman of the Board, the President
or the board of directors. Our certificate of incorporation does not allow for
action of the stockholders to be taken by written consent. These provisions
could have the effect of delaying until the next stockholders' meeting
68
<PAGE> 71
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.
69
<PAGE> 72
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market after
this offering could cause the market price of our common stock to decline.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of contractual and legal restrictions on
resale, sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 12,692,606
shares of common stock. Of these shares, the 4,000,000 shares sold in this
offering (and any shares issued upon exercise of the underwriters'
over-allotment option) will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of ours as that term is defined
in Rule 144 under the Securities Act. Affiliates generally include officers,
directors or 10% stockholders. Shares eligible to be sold by affiliates pursuant
to Rule 144 are subject to volume restrictions as described below.
The remaining 8,692,606 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 the registration statement filed
pursuant to this offering, only the shares sold in the offering will be
immediately available for sale in the public market;
- Beginning 180 days after the effective date, approximately 6,464,940
shares will be eligible for sale pursuant to Rules 701, 144 and 144(k),
of which all but 5,537,297 shares are held by affiliates;
- An additional 2,227,666 shares will be eligible for sale pursuant to Rule
144 on March 17, 2001.
70
<PAGE> 73
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 126,926 shares immediately after this offering;
or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Mobility.
RULE 144(k)
Under Rule 144(k), a person who was not an affiliate of Mobility at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, which includes the holding
period of any prior owner except an affiliate, is entitled to sell these shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
RULE 701
In general, under Rule 701, any of our employees, consultants or advisors,
other than affiliates, who purchases or receives shares from us in connection
with a compensatory stock purchase plan or option plan or other written
agreement will be eligible to resell these shares beginning 90 days after the
effective date of the registration statement of which this prospectus is a part,
subject only to the manner of sale provisions of Rule 144, and by affiliates
under Rule 144 without compliance with its holding period requirements.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 6,241,141 shares of common
stock or securities convertible into common stock will be entitled to
registration rights with respect to these shares under the Securities Act. When
these shares are registered under the Securities Act they will be freely
tradable unless held by affiliates.
STOCK OPTIONS
In addition, we intend to file a registration statement under the
Securities Act as promptly as possible upon the completion of this offering to
register 2,500,000 shares of common stock issued or to be issued pursuant to our
employee benefit plans or upon exercise of non-plan options. As a result, any
options or rights exercised under the 1996 Plan after the effectiveness of the
registration statement will be available for sale in the public market 180 days
after the effective date of this offering upon the expiration of lock-up
agreements. However, such shares held by affiliates will still be subject to the
volume limitation, manner of sale, notice and public information requirements of
Rule 144 unless otherwise resalable under Rule 701.
71
<PAGE> 74
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Deutsche Bank
Securities Inc., Banc of America Securities LLC and J.C. Bradford & Co., have
severally agreed to purchase from us the following respective numbers of shares
of common stock at a public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Deutsche Bank Securities Inc. .............................. 2,200,000
Banc of America Securities LLC.............................. 1,200,000
J.C. Bradford & Co.......................................... 600,000
---------
Total............................................. 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase the common stock is subject to the terms and conditions
set forth in the underwriting agreement. The underwriting agreement requires the
underwriters to purchase all of the shares of the common stock offered by this
prospectus, if any are purchased. The shares of common stock offered by the
underwriters pursuant to this prospectus are subject to prior sale, when, as and
if delivered to and accepted by the underwriters, and subject to the
underwriters' right to reject any order in whole or in part.
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public offering
price of $14.00 per share and to certain dealers at a price that represents a
concession not in excess of $0.98 per share. Any such securities dealers may
resell any shares purchased from the underwriters to certain other brokers or
dealers at a discount of up to $0.10 per share from the public offering price.
The underwriters may change the public offering price after the common stock is
released for sale to the public.
The underwriters may sell more shares than the total number set forth in
the table above. To cover these sales, we have granted the underwriters an
option to purchase up to an aggregate of 600,000 additional shares of common
stock at the initial public offering price, less the underwriting discounts and
commissions. The underwriters may exercise this option at any time within 30
days after the date of this prospectus only to cover these sales. To the extent
the underwriters exercise this option, each of the underwriters will purchase
shares in approximately the same proportion as the number of shares of common
stock to be purchased by it shown in the above table bears to 4,000,000 and we
will be obligated, pursuant to the option, to sell those shares to the
underwriters. If purchased, the underwriters will offer the additional shares on
the same terms as those on which the 4,000,000 shares are being offered. If the
underwriters exercise their over-allotment option in full, the total public
offering price will be $64,400,000, the total underwriting discount will be
$4,508,000 and the total proceeds to us will be $59,892,000.
The following table shows the per share and total offering expenses and
underwriting discounts and commissions we will pay. This information is
presented assuming either no exercise or full exercise by the underwriters of
the over-allotment option.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions to be paid by us..... $0.98 $0.98 $3,920,000 $4,508,000
Expenses payable by us............. $0.31 $0.27 $1,222,705 $1,222,705
</TABLE>
72
<PAGE> 75
We have engaged J.C. Bradford & Co. as our exclusive financial advisor to
assist us in connection with possible acquisitions. Fees payable under this
engagement are to be determined according to the structure of the transaction.
J.C. Bradford acted as our financial advisor in the Cybex transaction, for which
we paid them a fee of $250,000, and also reimbursed them for their expenses.
Bank of America, N.A., an affiliate of Banc of America Securities LLC, is
our primary lender. We intend to use a portion of the proceeds from this
offering to repay certain amounts outstanding under our loans from Bank of
America, N.A.
We have agreed to indemnify the underwriters with respect to certain
liabilities, including liabilities under the Securities Act.
To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the common stock. Specifically, the underwriters may over-allot shares of our
common stock in connection with this offering, thereby creating a short position
in the underwriters' account. A short position results when an underwriter sells
more shares of common stock than such underwriter is committed to purchase.
Additionally, to cover over-allotments or to stabilize the market price of the
common stock, the underwriters may bid for, and purchase, shares of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities, and, if they
do, they may discontinue doing so at any time. The underwriters also may reclaim
selling concessions allowed to an underwriter or dealer, if the underwriters
repurchase shares distributed by such underwriter or dealer. These stabilizing
and other transactions may cause the price of our common stock to be higher than
it otherwise would be in the absence of such transactions. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
We and our officers and directors and certain of our stockholders have
agreed not to offer, sell or make any other disposition of any shares of our
common stock or other securities convertible into or exchangeable or exercisable
for shares of our common stock or derivatives of our common stock for a period
of 180 days after the effective date of the registration statement filed
pursuant to this offering, directly or indirectly, without the prior written
consent of Deutsche Bank Securities Inc.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1,222,705.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 200,000 shares for our 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".
73
<PAGE> 76
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.
74
<PAGE> 77
INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the common stock offered hereby will be passed upon for
Mobility by Jackson Walker L.L.P., Dallas, Texas. Richard F. Dahlson, a partner
of Jackson Walker, is Secretary of Mobility. Willkie Farr & Gallagher, New York,
New York, is acting as counsel for the underwriters in connection with selected
legal maters related to the shares of common stock offered by this prospectus.
As of the date of this prospectus, Mr. Dahlson owns 164,452 shares of common
stock, warrants to purchase an additional 4,139 shares of common stock and
21,666 shares of Series C preferred stock, which will convert into 14,910 shares
of our common stock upon completion of this offering.
EXPERTS
The consolidated financial statements of Mobility Electronics, Inc. and
subsidiaries as of December 31, 1998 and 1999 and for each of the years in the
three-year period ended December 31, 1999, have been included herein and in the
registration statement filed in connection with this offering in reliance upon
the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION AVAILABLE TO YOU
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock in this offering. This prospectus, which constitutes
a part of the registration statement, does not contain all of the information
set forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
Mobility and the common stock, reference is made to the registration statement
and the exhibits and schedules thereto. You may read and copy any document we
file at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room. Our SEC filings are also available to the public from the
SEC's web site at www.sec.gov.
Upon completion of this offering, Mobility will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference room and the web site of the SEC referred to above.
75
<PAGE> 78
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and
1999................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999....................... F-4
Consolidated Statements of Stockholders' Equity
(Deficiency) and Comprehensive Income (Loss) for the
years ended December 31, 1997, 1998 and 1999........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mobility Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Mobility
Electronics, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficiency)
and comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mobility
Electronics, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Phoenix, Arizona
March 3, 2000, except for the
fourth and fifth paragraphs of Note 20,
which are as of March 13, 2000
and March 17, 2000, respectively
F-2
<PAGE> 80
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,432,703 4,792,313
Accounts receivable, net.................................. 2,796,787 3,092,014
Inventories............................................... 3,358,025 1,554,016
Prepaid expenses and other current assets................. 356,426 682,728
----------- -----------
Total current assets.............................. 8,943,941 10,121,071
----------- -----------
Property and equipment, net................................. 1,925,548 1,916,891
Other assets, net........................................... 1,865,230 2,776,633
----------- -----------
$12,734,719 14,814,595
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Lines of credit........................................... $ 5,130,855 --
Accounts payable.......................................... 5,557,303 2,298,946
Accrued expenses and other current liabilities............ 1,547,167 1,109,771
Current installments of long-term debt.................... 15,250 993,138
Current installments of capital lease obligations......... 204,314 136,326
----------- -----------
Total current liabilities......................... 12,454,889 4,538,181
----------- -----------
Lines of credit............................................. -- 2,728,538
Long-term debt, less current installments................... 3,587,221 5,285,750
Capital lease obligations, less current installments........ 188,972 36,636
----------- -----------
Total liabilities................................. 16,231,082 12,589,105
----------- -----------
Commitments, contingencies, and subsequent events (notes 7,
8, 12, 13, 14, 15, 17, 18, 19 and 20)
Stockholders' equity (deficiency):
Convertible preferred stock -- Series C, $.01 par value;
authorized 15,000,000 shares; 558,400 and 2,399,102
issued and outstanding at
December 31, 1998 and 1999, respectively............... 5,584 23,991
Common stock, $.01 par value; authorized 90,000,000
shares; 4,563,806 and 5,978,679 shares issued and
outstanding at December 31, 1998 and 1999,
respectively........................................... 45,638 59,787
Additional paid-in capital................................ 26,664,791 48,836,876
Accumulated deficit....................................... (30,202,415) (46,395,164)
Stock subscription receivable............................. -- (300,000)
Accumulated other comprehensive income (loss) -- foreign
currency translation adjustment........................ (9,961) --
----------- -----------
Total stockholders' equity (deficiency)........... (3,496,363) 2,225,490
----------- -----------
$12,734,719 14,814,595
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 81
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.......................................... $12,743,984 21,072,057 14,052,010
Cost of sales...................................... 13,335,273 23,529,822 11,750,705
----------- ----------- -----------
Gross profit (loss)........................... (591,289) (2,457,765) 2,301,305
----------- ----------- -----------
Operating expenses:
General and administrative....................... 1,907,051 4,445,731 3,313,494
Research and development......................... 1,985,750 4,361,365 3,377,215
Marketing and sales.............................. 2,625,560 5,130,955 5,207,503
Purchased research and development............... 965,081 -- --
----------- ----------- -----------
Total operating expenses................. 7,483,442 13,938,051 11,898,212
----------- ----------- -----------
Loss from operations..................... (8,074,731) (16,395,816) (9,596,907)
Other income (expense):
Interest expense................................. (711,245) (1,756,534) (6,569,922)
Interest income.................................. 34,977 118,439 100,136
Other, net....................................... (24,171) 1,053 (126,056)
----------- ----------- -----------
Loss before provision for income taxes... (8,775,170) (18,032,858) (16,192,749)
Provision for income taxes......................... -- -- --
----------- ----------- -----------
Net loss before preferred dividends...... (8,775,170) (18,032,858) (16,192,749)
Dividends declared on Series B preferred stock..... (317,365) -- --
----------- ----------- -----------
Net loss attributable to common stockholders....... $(9,092,535) (18,032,858) (16,192,749)
=========== =========== ===========
Loss per share:
Basic............................................ $ (3.45) (4.36) (3.24)
=========== =========== ===========
Diluted.......................................... $ (3.43) (4.20) (2.84)
=========== =========== ===========
Weighted average common shares outstanding:
Basic............................................ 2,638,577 4,135,575 4,994,283
=========== =========== ===========
Diluted.......................................... 2,650,474 4,293,045 5,706,583
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 82
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) AND COMPREHENSIVE
INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL STOCK CURRENCY
PREFERRED ------------------- PAID-IN ACCUMULATED SUBSCRIPTIONS TRANSLATION
STOCK SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE ADJUSTMENT
--------- --------- ------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996...... $ 42 2,293,764 $22,938 4,554,380 (2,928,277) (503,592) (5,145)
Conversion of preferred stock to
common stock as part of private
placement........................ (21) 125,500 1,255 (1,234) -- -- --
Redemption of preferred stock for
cash............................. (21) -- -- (995,479) -- -- --
Receipt of stock subscription
receivable....................... -- -- -- -- -- 503,592 --
Reclassification of par value of
common stock issued.............. -- 69,059 690 (690) -- -- --
Issuance of common stock through
private placement................ -- 1,124,500 11,245 7,849,958 -- -- --
Issuance of common stock for asset
purchase......................... -- 55,000 550 424,450 -- -- --
Issuance of common stock for
cash............................. -- 58,366 584 450,496 -- -- --
Issuance of warrants............... -- -- -- 669,308 -- -- --
Preferred stock dividends
declared......................... -- -- -- -- (317,365) -- --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- -- -- -- -- -- 1,050
Net loss......................... -- -- -- -- (8,775,170) -- --
Total comprehensive loss...
------- --------- ------- ---------- ----------- -------- --------
Balances at December 31, 1997...... -- 3,726,189 37,262 12,951,189 (12,020,812) -- (4,095)
Conversion of convertible
debentures to common stock....... -- 275,721 2,757 2,125,813 -- -- --
Issuance of common stock through
private placement................ -- 742,500 7,425 7,456,950 -- -- --
Issuance of preferred stock through
private placement................ 5,584 -- -- 3,348,358 -- -- --
Issuance of warrants............... -- -- -- 1,443,438 -- -- --
Repurchase of common stock......... -- -- -- -- -- -- --
Retirement of treasury stock....... -- (180,604) (1,806) (660,957) (148,745) -- --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- -- -- -- -- -- (5,866)
Net loss......................... -- -- -- -- (18,032,858) -- --
Total comprehensive loss...
------- --------- ------- ---------- ----------- -------- --------
Balances at December 31, 1998...... 5,584 4,563,806 45,638 26,664,791 (30,202,415) -- (9,961)
Conversion of convertible
debentures to common stock....... -- 690,405 6,904 5,400,549 -- -- --
Warrants exercised................. -- 681,093 6,811 183,056 -- -- --
Issuance of warrants............... -- -- -- 5,462,243 -- -- --
Issuance of preferred stock through
private placements............... 14,573 -- -- 8,070,226 -- -- --
Issuance of preferred stock for
cash............................. 1,667 -- -- 930,833 -- -- --
Issuance of preferred stock to VLSI
(note 10)........................ 1,667 -- -- 998,333 -- -- --
Issuance of common stock in
settlement agreement............. -- 38,500 385 230,615 -- -- --
Stock options granted.............. -- -- -- 577,443 -- -- --
Issuance of common stock to
consultant....................... -- 4,875 49 19,287 -- -- --
Preferred stock subscribed......... 500 -- -- 299,500 -- (300,000) --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- -- -- -- -- -- 9,961
Net loss......................... -- -- -- -- (16,192,749) -- --
Total comprehensive loss...
------- --------- ------- ---------- ----------- -------- --------
Balances at December 31, 1999...... $23,991 5,978,679 $59,787 48,836,876 (46,395,164) (300,000) --
======= ========= ======= ========== =========== ======== ========
<CAPTION>
NET
STOCKHOLDERS'
TREASURY EQUITY
STOCK (DEFICIENCY)
--------- -------------
<S> <C> <C>
Balances at December 31, 1996...... (533,158) 607,188
Conversion of preferred stock to
common stock as part of private
placement........................ -- --
Redemption of preferred stock for
cash............................. -- (995,500)
Receipt of stock subscription
receivable....................... -- 503,592
Reclassification of par value of
common stock issued.............. -- --
Issuance of common stock through
private placement................ -- 7,861,203
Issuance of common stock for asset
purchase......................... -- 425,000
Issuance of common stock for
cash............................. -- 451,080
Issuance of warrants............... -- 669,308
Preferred stock dividends
declared......................... -- (317,365)
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- 1,050
Net loss......................... -- (8,775,170)
-----------
Total comprehensive loss... (8,774,120)
--------- -----------
Balances at December 31, 1997...... (533,158) 430,386
Conversion of convertible
debentures to common stock....... -- 2,128,570
Issuance of common stock through
private placement................ -- 7,464,375
Issuance of preferred stock through
private placement................ -- 3,353,942
Issuance of warrants............... -- 1,443,438
Repurchase of common stock......... (278,350) (278,350)
Retirement of treasury stock....... 811,508 --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- (5,866)
Net loss......................... -- (18,032,858)
-----------
Total comprehensive loss... (18,038,724)
--------- -----------
Balances at December 31, 1998...... -- (3,496,363)
Conversion of convertible
debentures to common stock....... -- 5,407,453
Warrants exercised................. -- 189,867
Issuance of warrants............... -- 5,462,243
Issuance of preferred stock through
private placements............... -- 8,084,799
Issuance of preferred stock for
cash............................. -- 932,500
Issuance of preferred stock to VLSI
(note 10)........................ -- 1,000,000
Issuance of common stock in
settlement agreement............. -- 231,000
Stock options granted.............. -- 577,443
Issuance of common stock to
consultant....................... -- 19,336
Preferred stock subscribed......... -- --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- 9,961
Net loss......................... -- (16,192,749)
-----------
Total comprehensive loss... (16,182,788)
--------- -----------
Balances at December 31, 1999...... -- 2,225,490
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 83
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $(8,775,170) (18,032,858) (16,192,749)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for accounts receivable........................ 164,230 997,217 855,370
Provision for obsolete inventory......................... 837,635 4,469,481 1,733,463
Depreciation and amortization............................ 695,952 965,086 869,079
Amortization on deferred loan costs...................... 79,762 633,398 5,013,273
Loss on sale of assets................................... 28,537 -- --
Loss on sale of subsidiary............................... -- -- 133,972
Amortization of deferred compensation.................... 5,000 22,000 140,528
Purchased research and development....................... 965,081 -- --
Expense for stock granted to consultant.................. -- -- 19,336
Changes in operating assets and liabilities, net of
acquisition:
Accounts receivable.................................... (1,960,503) (1,145,534) (1,150,597)
Inventories............................................ (3,846,587) (3,128,926) 70,546
Prepaid expenses and other assets...................... 59,612 (518,463) 202,260
Accounts payable....................................... 2,518,295 1,936,508 (2,851,563)
Accrued expenses and other current liabilities......... 333,970 866,136 (341,656)
----------- ----------- -----------
Net cash used in operating activities................ (8,894,186) (12,935,955) (11,498,738)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment......................... (971,636) (902,951) (724,268)
Proceeds from sale of property and equipment............... 169,597 -- --
Purchase of patent......................................... (3,380) -- --
----------- ----------- -----------
Net cash used in investing activities................ (805,419) (902,951) (724,268)
----------- ----------- -----------
Cash flows from financing activities:
Cash received from lines of credit......................... 2,922,609 2,208,246 --
Repayment of lines of credit............................... (1,200,225) -- (2,402,317)
Borrowings under long-term debt............................ 2,635,000 1,750,000 8,202,500
Repayment of long-term debt and capital lease
obligations.............................................. (86,664) (436,677) (318,907)
Cash paid to acquire long-term debt........................ (128,287) -- --
Expenses related to conversion of debt into common stock... -- -- (115,787)
Net proceeds from issuance of preferred stock.............. -- 3,353,942 9,017,299
Cash paid to redeem preferred stock........................ (995,500) -- --
Proceeds from sale of common stock......................... 8,223,583 7,464,375 --
Proceeds for exercise of warrants.......................... -- -- 189,867
Cash paid for treasury stock............................... -- (278,350) --
Collection of stock subscription receivable................ 503,592 -- --
Dividends paid............................................. (249,635) -- --
----------- ----------- -----------
Net cash provided by financing activities............ 11,624,473 14,061,536 14,572,655
----------- ----------- -----------
Effects of exchange rates on cash and cash equivalents...... 1,050 (5,866) 9,961
----------- ----------- -----------
Net increase in cash and cash equivalents............ 1,925,918 216,764 2,359,610
Cash and cash equivalents, beginning of year................ 290,021 2,215,939 2,432,703
----------- ----------- -----------
Cash and cash equivalents, end of year...................... $ 2,215,939 2,432,703 4,792,313
=========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid.............................................. $ 601,054 1,230,890 1,223,722
=========== =========== ===========
Supplemental schedule of noncash investing and financing
activities:
Acquisition of property and equipment and assumption of
capital lease obligations................................ $ 374,461 216,215 --
=========== =========== ===========
Warrants issued in connection with the execution of
long-term debt........................................... $ 664,308 1,421,438 5,462,243
=========== =========== ===========
Conversion of 2,101 shares of Series B preferred stock into
125,500 shares of common stock........................... $ 2,489 -- --
=========== =========== ===========
Conversion of preferred dividends and interest on Series B
preferred stock to 11,088 shares of common stock......... $ 88,700 -- --
=========== =========== ===========
Issuance of stock subscribed for 69,059 shares of common
stock.................................................... $ 1,381 -- --
=========== =========== ===========
Stock issued in conjunction with acquisition............... $ 425,000 -- --
=========== =========== ===========
Conversion of debentures and accrued interest to 275,721
shares of common stock................................... $ -- 2,128,570 --
=========== =========== ===========
Conversion of bridge loans to 690,405 shares of common
stock.................................................... $ -- -- 5,523,240
=========== =========== ===========
Retirement of treasury stock............................... $ -- 811,508 --
=========== =========== ===========
Issuance of 166,666 shares of Series C preferred stock for
settlement of accounts payable and inventory purchases... $ -- -- 1,000,000
=========== =========== ===========
Issuance of 38,500 shares of common stock as settlement for
contingent purchase price................................ $ -- -- 231,000
=========== =========== ===========
Options issued for services................................ $ -- -- 577,443
=========== =========== ===========
Stock subscription receivable.............................. $ -- -- 300,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 84
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(1) NATURE OF BUSINESS
Mobility Electronics, Inc. (Mobility or the Company) formerly known as
Electronics Accessory Specialists International, Inc. was formed on May 4, 1995.
Mobility was originally formed as a limited liability corporation, however, in
August 1996 the Company became a C Corporation incorporated in the State of
Delaware.
Mobility designs, develops and markets connectivity and remote PCI bus
technology and products for the computer industry and a broad range of related
embedded processor applications. In addition, Mobility also manufactures and/or
distributes in-car and in/out DC power adapters, portable computer docking
stations, port replicators, and monitor stands. Mobility distributes products in
the U.S., Canada and Europe.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change include
valuation of accounts receivable and inventories, impairment of intangible
assets and valuation of deferred tax assets. Management believes that such
estimates have been appropriately established in accordance with generally
accepted accounting principles.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Mobility and
its wholly owned subsidiary, Mobility Electronics L.L.C. including its three
operating subsidiaries, up to October 1999, being the date of the sale of this
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Cash and Cash Equivalents
All short-term investments purchased with an original maturity of three
months or less are considered to be cash equivalents. Cash and cash equivalents
include cash on hand and amounts on deposit with financial institutions.
(d) Inventories
Inventories consist of component parts purchased partially and fully
assembled for computer accessory items. The Company has all normal risks and
rewards of its inventory held by contract manufacturers. Inventories are stated
at the lower of cost (first-in, first-out method) or market. Finished goods and
work-in-process inventories include material, labor and overhead costs. Overhead
costs are allocated to inventory manufactured in-house based upon direct labor.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment held under capital
leases is stated at the present value of future minimum lease payments.
Depreciation on furniture, fixtures and equipment is provided using the
straight-line method over the estimated useful lives of
F-7
<PAGE> 85
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the assets ranging from two to seven years. Tooling is capitalized at cost and
is depreciated over a two-year period. Equipment held under capital leases and
leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets.
(f) Deferred Loan Costs
Deferred loan costs are amortized over the term of the related debt.
(g) Licensing Fees and Noncompete Agreement
The cost of licensing fees and a noncompete agreement are included in other
assets and amortized on a straight-line basis over their estimated economic
lives of two to five years.
(h) Goodwill
Goodwill, which is included in other assets, represents the excess of
purchase price over fair value of net assets acquired, is amortized on a
straight-line basis over five years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
(i) Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(j) Revenue Recognition
Revenue from product sales is recognized upon shipment and transfer of
ownership from the Company or contract manufacturer to the customer. Provisions
for returns and credits are provided for in the same period the related sales
are recorded.
(k) Warranty Reserve
The Company provides limited warranties on certain of its products for
periods generally not exceeding three years. The Company accrues warranty costs
for potential product liability and warranty claims based on the Company's claim
experience. The Company's warranty accrual was $50,000, $174,071 and $294,071 as
of December 31, 1997, 1998 and 1999, respectively.
(l) Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying
F-8
<PAGE> 86
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(m) Net Loss Per Common Share
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted loss per share reflects the potential dilution that could occur
if securities or contracts to issue common stock were exercised or converted to
common stock or resulted in the issuance of common stock that then shared in the
earnings or loss of the Company. Nominal issuances of stock options and warrants
for all periods have been included in the calculations of diluted net loss per
common share in accordance with Staff Accounting Bulletin No. 98.
(n) Employee Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options and to adopt the
"disclosure only" alternative treatment under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123
requires the use of fair value option valuation models that were not developed
for use in valuing employee stock options. Under SFAS No. 123, deferred
compensation is recorded for the excess of the fair value of the stock on the
date of the option grant, over the exercise price of the option. The deferred
compensation is amortized over the vesting period of the option.
(o) Fair Value of Financial Instruments
The fair value of accounts receivable, accounts payable, and accrued
expenses approximates the carrying value due to the short-term nature of these
instruments. Management has estimated that the fair values of the line of credit
and notes payable approximate the current balances outstanding, based on
currently available rates for debt with similar terms.
(p) Research and Development
The cost of research and development is charged to expense as incurred.
(q) Foreign Currency Translation
The financial statements of the Company's foreign subsidiary are measured
using the local currency as the functional currency. Assets and liabilities of
this subsidiary are translated at exchange rates as of the balance sheet date.
Revenues and expenses are translated at average rates of exchange in effect
during the year. The resulting cumulative translation adjustments have been
recorded as comprehensive income (loss), a separate component of stockholders'
equity. Foreign currency transaction gains and losses are included in
consolidated net loss for the years ended December 31, 1997, 1998 and 1999.
F-9
<PAGE> 87
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(r) Segment Reporting
The Company has only one operating business segment, the sale of peripheral
computer equipment.
(s) Comprehensive Loss
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No.
130) which became effective for the Company January 1, 1998. SFAS No. 130
established standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The Company
adopted the provisions of SFAS No. 130 in 1998. Financial statements presented
for earlier periods have been reclassified in accordance with the requirements
of SFAS No. 130.
(t) Reclassification
Certain amounts included in the 1997 and 1998 consolidated financial
statements have been reclassified to conform to the 1999 financial statement
presentation.
(3) ACQUISITION AND SALE
(a) Acquisition
On July 29, 1997, the Company acquired certain assets and assumed certain
liabilities of Miram International, Inc. (Miram), a manufacturer of docking
stations, in exchange for 55,000 shares of common stock valued at $425,000, with
further consideration payable in future periods, contingent upon product sales
revenue during these periods. The transaction was accounted for in accordance
with the purchase method of accounting. During May 1999, the Company issued an
additional 38,500 shares of common stock valued at $231,000 to settle and
eliminate any contingent future consideration. This amount has been recorded as
goodwill and no additional payments to the seller will be required.
(b) Sale of Mobility Electronics LLC
On October 1, 1999, the Company sold its European subsidiary (Mobility
Electronics LLC, which maintained offices in the United Kingdom and France, and
offices and a warehouse/ distribution center in Germany through its three
operating subsidiaries, Mobility Electronics (U.K.), Mobility Electronics GMBH
and Mobility Electronics SARL). The stated value of net assets of approximately
$134,000 was sold for nominal consideration resulting in a loss on sale of the
subsidiary of approximately $134,000, which is recorded as a component of other
loss for 1999.
F-10
<PAGE> 88
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
---------- ---------
<S> <C> <C>
Raw materials............................................... $5,564,935 2,381,921
Work-in-process............................................. 175,185 16,344
Finished goods.............................................. 3,111,530 1,105,750
---------- ---------
8,851,650 3,504,015
Less reserve for obsolete inventories....................... 5,493,625 1,950,000
---------- ---------
$3,358,025 1,554,015
========== =========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
---------- ---------
<S> <C> <C>
Furniture and fixtures...................................... $ 173,631 135,480
Store, warehouse and related equipment...................... 383,121 364,382
Computer equipment.......................................... 687,418 672,102
Capital lease assets........................................ 590,676 581,641
Tooling..................................................... 1,563,396 2,209,813
Leasehold improvements...................................... 63,239 63,239
---------- ---------
3,461,481 4,026,657
Less accumulated depreciation and amortization.............. 1,535,933 2,109,766
---------- ---------
Property and equipment, net....................... $1,925,548 1,916,891
========== =========
</TABLE>
Capital lease assets consist of computers and furniture and fixtures.
(6) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
---------- ---------
<S> <C> <C>
Deferred loan costs......................................... $2,275,344 4,143,287
Deferred compensation expense............................... -- 577,443
Goodwill.................................................... 200,000 431,000
Patents and trademarks...................................... 68,321 126,871
Restricted cash............................................. -- 225,000
Other....................................................... 103,309 92,239
---------- ---------
2,646,974 5,595,839
Less accumulated amortization............................... 781,744 2,819,206
---------- ---------
Net other assets.................................. $1,865,230 2,776,633
========== =========
</TABLE>
F-11
<PAGE> 89
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LINES OF CREDIT
On May 6, 1998, the Company entered into a $1,500,000 line of credit with a
bank. The line bears interest at the bank's corporate base rate plus 1.5% (9.25%
at December 31, 1998), payable monthly, with final payment of interest and
principal on May 6, 1999. The line of credit is secured by the Company's
accounts receivable, inventory, and property and equipment. At December 31,
1998, $792,801 was outstanding under this line of credit. On May 6, 1999, the
Company extended the maturity date of this line of credit to August 1999. In
August 1999, the maturity date was further extended to October 30, 1999 and the
amount available under the line was reduced from $1,500,000 to $750,000. On
October 31, 1999, the maturity date was extended to March 31, 2000 and the
interest rate payable on the line increased to the bank's corporate base rate
plus 2.5%. On March 13, 2000, the bank agreed to extend the maturity date of
this line of credit to March 31, 2001 and increased the interest rate payable on
the line to the bank's corporate base rate plus 3.5% (12% at December 31, 1999).
At December 31, 1999, $466,082 was outstanding under this line of credit.
On July 21, 1998, the Company entered into a line of credit with the same
bank under which the Company may borrow up to the lesser of $4,500,000 or the
sum of 80% of the aggregate amounts of accounts receivable, 60% of the aggregate
amount of finished goods inventory and 40% of the aggregate amount of raw
materials inventory. The interest rate on amounts borrowed under the line of
credit is the bank's corporate base rate plus 1.5% (9.25% at December 31, 1998)
per annum, payable monthly. The line is secured by the Company's accounts
receivable, inventory, and property and equipment. At December 31, 1998,
$4,338,054 was outstanding under this line of credit. This line of credit is
guaranteed by certain stockholders of the Company. The line matured August 31,
1999.
On November 2, 1999, the Company approved the amended and restated business
loan agreement. Pursuant to the terms of this agreement, the outstanding
principal balance of the previously described $4,500,000 note was reduced to
$2,852,054 and then replaced by a revolving line of credit promissory note in
the face amount of $3,000,000. The interest rate on amounts borrowed under this
promissory note is 2.5% plus the bank's corporate base rate per annum (11% at
December 31, 1999), payable monthly and remaining principal and interest due
March 31, 2000. On March 13, 2000, the Company extended the maturity date of
this line of credit to March 31, 2001. At December 31, 1999, $2,262,456 was
outstanding under this line of credit.
The Company's loan agreements contain restrictive debt covenants some of
which include restrictions on officers' salaries, payment of dividends, purchase
of fixed assets and maintenance of financial ratios. The Company was in
violation of certain restrictive debt covenants with respect to the lines of
credit and business loan agreements (note 8) as of December 31, 1998 and through
1999 which have been subsequently waived.
F-12
<PAGE> 90
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) LONG-TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
---------- ---------
<S> <C> <C>
Notes payable............................................... $3,507,471 4,424,138
Convertible debentures...................................... 95,000 79,750
Bridge notes................................................ -- 1,775,000
---------- ---------
3,602,471 6,278,888
Less current installments................................... 15,250 993,138
---------- ---------
Long-term debt, excluding current installments.............. $3,587,221 5,285,750
========== =========
</TABLE>
During 1996 and 1997, the Company had issued $2,161,122 in aggregate
principal amount of Convertible Debentures (the "Debentures"), of which 60% of
the outstanding balance is convertible at the option of the holder into common
stock on or before the closing date of an Initial Public Offering of the
Company. The conversion price is equal to $7.73 per share. At December 31, 1997,
none of the Debentures had been converted. The annual interest rate on the
debentures is 12%. In December 1998, the Company amended the conversion term of
the debentures to allow the holders of the debentures to convert 100% (versus
60%) of the debentures to common stock. As a result, $2,066,122 of the
Debentures and related accrued interest of $62,448 were converted into 275,721
shares of common stock at a conversion price of approximately $7.73 during 1998.
The December 31, 1998 principal balance totaling $95,000 on the remaining
Debentures are due in quarterly installments of $3,813 plus interest, with any
unpaid principal and interest due at maturity dates ranging from October 2003 to
May 2004. At December 31, 1998 and 1999, $95,000 and $79,750 was outstanding
under these debentures, respectively.
On June 24, 1997, the Company signed a five-year promissory note with a
financial institution for $1,600,000. The interest rate is 13.5% per annum,
payable monthly with final payment due June 23, 2002. The note is secured by the
Company's inventory, property and equipment, and intangible assets. At December
31, 1998 and 1999, $1,600,000 was outstanding under this promissory note.
On March 25, 1998, the Company signed a promissory note with a financial
institution for $1,750,000. The interest rate is 13.5% per annum, payable
monthly, with final payment due June 23, 2002. The note is secured by the
Company's inventory, property and equipment, and intangible assets. At December
31, 1998 and 1999, $1,750,000 was outstanding under this promissory note.
In July 1997, the Company acquired certain assets by executing a $400,000
promissory note payable. The note accrues interest at 8% annually with quarterly
payments of $54,604 including interest that began on October 1, 1997 and
continue through July 1, 1999. The note is secured by a patent application and
other related patents. On May 21, 1999, the Company entered into a Settlement
Agreement, which extended the repayment date with principal and accrued interest
due and payable in equal installments on January 31, April 30 and July 31, 2000.
At December 31, 1998 and 1999, $157,471 was outstanding under this promissory
note.
On November 2, 1999, the Company signed new promissory notes with a bank
with face values of $1,500,000, $150,000 and $75,000 with interest rate on
amounts borrowed under these promissory notes ranging from 2.5% to 3.5% plus the
bank's corporate base rate per annum. The $1,500,000 promissory note is payable
in monthly payments of principal of
F-13
<PAGE> 91
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$83,333 and accrued interest, with $500,000 due at signing and any unpaid
principal and interest due March 31, 2000. On March 13, 2000, the bank agreed to
extend the maturity date of these promissory notes to March 31, 2001. At
December 31, 1999, $916,667 was outstanding under this promissory note. The
$150,000 and $75,000 promissory notes, which are secured by certificate of
deposits, are payable in monthly interest payments, with unpaid principal and
interest due September 15, 2000. At December 31, 1999, $150,000 and $75,000 were
available under these promissory notes.
During March 1999, the Company issued $3.5 million of 13% Bridge Promissory
Notes (the "Existing Bridge Notes") with interest at a rate of 13% per annum and
due and payable March 5, 2000. For each $100,000 of Existing Bridge Notes
subscribed, each subscriber received a warrant to purchase 15,000 shares of
Common Stock at an exercise price of $0.02 per share. This resulted in the
issuance of warrants to purchase 525,000 shares of common stock valued at
$3,150,000. The warrants are exercisable at any time after July 1, 1999 but on
or prior to March 5, 2002, and have certain registration rights. In May 1999,
the Company provided holders of the Existing Bridge Notes the right to convert
the principal and interest of such notes to common stock at a price of $8.00 per
share, provided such conversion was made by June 30, 1999. As of December 31,
1999, $2,275,000 of the Existing Bridge Notes and $95,740 of related accrued
interest was converted into 296,342 shares of common stock. At December 31,
1999, $1,225,000 was outstanding under these Existing Bridge Notes. On February
29, 2000, the Company extended the maturity date of the Existing Bridge Notes
and related accrued interest of approximately $160,000 to March 31, 2001 and
increased the interest rate to 14% per annum (note 20). In conjunction with the
extension of the maturity date, the Company issued warrants to purchase 138,502
shares of common stock. The warrants are exercisable at a purchase price equal
to the offering price used in the last round of equity private placement
financing prior to the note maturity date or if the Company has completed an
initial public offering of common stock prior to the note maturity date, then
the purchase price shall be ninety-five percent of the offering price of the
initial public offering.
During May 1999, the Company held a Private Placement to sell up to
$5,000,000 of 13% Bridge Notes. The Bridge Notes pay interest at the rate of 13%
per annum and are due and payable on July 31, 2000. Bridge Notes of $3,702,500
were issued during 1999. In conjunction with this issuance, the Company issued
449,200 warrants valued at $1,796,800 to purchasers of Bridge Notes based on the
principal amounts of notes subscribed. The warrants have an exercise price of
$0.02 per share and may be exercised on or after September 1, 1999, but on or
prior to May 31, 2002. In May 1999, the Company provided holders of the Existing
Bridge Notes the right to convert the principal and interest of such notes to
common stock at a price of $8.00 per share, provided such conversion was made by
June 30, 1999. During 1999, $3,036,713 was converted into 394,063 shares of
common stock, net of issuance costs of $115,787. At December 31, 1999, $550,000
was outstanding under these Bridge Notes.
F-14
<PAGE> 92
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000........................................................ $ 993,138
2001........................................................ 1,894,000
2002........................................................ 3,369,000
2003........................................................ 19,000
2004........................................................ 3,750
----------
$6,278,888
==========
</TABLE>
(9) CAPITAL LEASE OBLIGATIONS
The Company is obligated under various capital leases primarily for
computer equipment and office furniture that expire at various dates through
2001. These leases meet the various criteria of capital leases and are,
therefore, classified as capital lease obligations. Capital lease obligations
reflect the present value of future rental payments, discounted at the interest
rate implicit in each of the leases. A summary of the future minimum lease
payments required under the capital leases after December 31, 1999 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000........................................................ $157,366
2001........................................................ 39,503
--------
Total minimum capital lease payments...................... 196,869
Less amount representing interest (17.7% to 37.3%).......... 23,907
--------
Capital lease obligations................................. 172,962
Less current installments of capital lease obligations...... 136,326
--------
Capital lease obligations, less current installments...... $ 36,636
========
</TABLE>
The leased furniture and equipment has been included in property and
equipment at a total cost of $590,676 and $581,641 at December 31, 1998 and
1999, respectively.
(10) STOCKHOLDERS' EQUITY (DEFICIENCY)
In January 2000, the Board of Directors authorized the Company's
certificate of incorporation to increase the number of authorized shares of
common stock to 100,000,000 and increased the authorized shares of preferred
stock to 15,000,000 shares and in August 1997 the Board of Directors approved a
44-for-1 stock split. Additionally, in March 2000, the Company's Board of
Directors authorized and the Company's stockholders approved a 1-for-2 reverse
stock split and a post split adjustment of the number of authorized shares of
common stock to 90,000,000 shares. All share information included in the
accompanying consolidated financial statements has been retroactively adjusted
to reflect these amendments.
(a) Preferred Stock
As part of the Company's financing activities in 1997, 8% cumulative Series
B preferred stockholders were offered the opportunity to convert their Series B
shares into common stock or to redeem their Series B shares. The preferred stock
was converted into common stock at $8.00 per common share. During 1997, 2,101
shares of Series B preferred shares were
F-15
<PAGE> 93
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
converted into 125,500 shares of common stock with a face value of $1,004,000.
The remaining 2,085 Series B preferred shares were redeemed for $995,500 in
cash.
In addition, all dividends in arrears plus interest were paid on
outstanding Series B preferred shares prior to conversion or redemption. During
1997, Series B preferred stockholders used $88,700 of the dividends and interest
to purchase 11,088 shares of common stock. The remaining $249,635 (228,665
Series B and 20,970 Series A) was paid to preferred stockholders in cash.
During 1998, the Company issued 558,400 shares of Series C Preferred Stock
for $3,353,942, net of legal and issuance costs of $415,208 through a Private
Placement. During 1999, the remaining 176,900 shares relating to this Private
Placement were issued for $1,057,888, net of issuance costs of $136,241. An
additional 91,909 shares were issued as a result of repricing the Private
Placement from $6.75 per share to $6.00 per share and 5,804 shares were issued
as payment for broker commissions.
During 1999, the Company issued 1,182,744 shares of Series C Preferred
Stock at $6.00 per share for $7,026,911 million, net of legal and Private
Placement fees of $69,553, in conjunction with a Private Placement. In addition,
the Company issued a warrant for each share of Series C preferred stock to
purchase one share of common stock. In addition, the Company issued warrants to
purchase 72,584 shares of common stock as settlement of certain private
placement fees. The total warrants issued of 1,243,888 and 11,440 are
exercisable at $0.02 and $9.60, respectively, per common stock share and expire
December 2004.
In April 1999, the Company entered into an agreement with Seligman
Communications and Information Fund, Inc. (Seligman) under which the Company
issued 166,666 shares of Series C preferred stock at $6.00 per share in exchange
for a $1,000,000 investment in the Company for a total of $1,000,000.
In April 1999, the Company entered into an agreement with VLSI Technology,
Inc. (VLSI) under which the Company issued 166,666 shares of Series C preferred
stock at $6.00 per share in exchange for the settlement of liabilities of
$406,000 with the Company and a prepayment for inventory purchases of $594,000,
net of issuance costs of $67,500. The prepayment of inventory is reflected in
other current assets at December 31, 1999.
(b) Common Stock
In July 1997, the Company acquired certain assets from an unrelated party
by issuing 55,000 shares of common stock valued at $7.73 per share for a total
of $425,000. During May 1999, the Company issued an additional 38,500 shares of
common stock valued at $6.00 per share for a total of $231,000 to settle the
purchase price (note 3).
During 1997, the Company issued 58,366 shares of common stock for $451,080
cash ($7.73 per share).
During 1997, the Company held a Private Placement and issued 1,250,000
shares of common stock for $10,000,000. The common shares were recorded as
follows: 1,124,500 shares were issued for $7,861,203 (which included the $88,700
of converted dividends and interest), net of legal and Private Placement fees of
$1,134,797; and 125,500 shares, valued at $1,004,000, were issued for converted
Series B preferred stock.
During 1998, the Company held a Private Placement and issued 742,500 shares
of common stock for $7,464,375, net of legal and Private Placement fees of
$1,074,377.
F-16
<PAGE> 94
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998, $2,066,122 of the Convertible Debentures and accrued interest
of $62,448 totaling $2,128,570 were converted into 275,721 common shares at a
conversion price of approximately $7.73.
During 1999, the Company issued 4,875 shares of common stock valued at
$19,336 for services performed by a third party consultant which was recorded as
compensation expense in 1999.
(c) Treasury Stock
During 1996, the Company entered into a non-cash transaction and reacquired
154,154 shares of common stock valued at $533,158 in exchange for a
distributor's outstanding trade receivable due to Mobility. During 1998, this
treasury stock was retired.
During 1998, the Company repurchased and retired 26,450 shares of common
stock valued at $278,350 for cash.
(d) Stock Subscription Receivable
In December 1999, the Company entered into a promissory note in the
principal sum of $300,000 with an executive of the Company to finance his
purchase of 50,000 shares of Series C preferred stock at a composite purchase
price of $6.00 for one share of preferred stock and one warrant for the purchase
of 50,000 shares of common stock at an exercise price of $0.02.
(11) INCENTIVE STOCK OPTION PLAN AND WARRANTS
In 1995, the Board granted stock options to employees to purchase 132,198
shares of common stock. Later in 1996, the Company adopted an Incentive Stock
Option Plan (the Plan) pursuant to the Internal Revenue Code. Common stock
reserved for grants to key employees of the Company under the Plan total 132,000
shares. The aggregate number of shares of common stock for which options may be
granted or for which stock grants may be made under the plan is 1,250,000.
Options become exercisable over varying periods up to five years and expire at
the earlier of termination of employment or up to seven years after the date of
grant. The options under both the Plan and pursuant to Board approval were
granted at the fair market value of the Company's stock at the date of grant as
determined by the Company's Board of Directors.
At December 31, 1998 and 1999, there were 903,984 and 422,272 shares,
respectively, available for grant under the Plan and pursuant to Board approval.
The per share weighted average fair value of stock options granted under the
Plan for the years ended December 31, 1997, 1998 and 1999 was $7.76, $8.12 and
$5.22, respectively, based on the date of grant using the minimum value method
with the following weighted average assumptions: expected dividend yield 0%,
risk free interest rate of 5.1% and an expected life of 5 years.
F-17
<PAGE> 95
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of options was $0.02 -- $11.50 and 5 years,
respectively.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
NUMBER PER SHARE
-------- ----------------
<S> <C> <C>
Outstanding, December 31, 1997........................... 187,438 $ 4.76
Granted................................................ 324,756 11.50
Canceled............................................... (33,980) 5.78
Exercised.............................................. -- --
-------- ------
Outstanding, December 31, 1998........................... 478,214 9.26
Granted................................................ 735,239 5.26
Canceled............................................... (253,527) 10.94
Exercised.............................................. -- --
-------- ------
Outstanding, December 31, 1999........................... 959,926 $ 5.74
======== ======
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.02 25,000 1.2 $ 0.02 -- $ 0.02
$3.52 132,198 0.6 $ 2.96 132,198 $ 3.52
$4.00 527,202 5.3 $ 4.00 1,400 $ 4.00
$7.72-$8.00 91,438 3.9 $ 7.96 29,518 $ 7.88
$11.50 184,088 4.1 $11.50 112,366 $11.50
------- --- ------ ------- ------
$0.02-$11.50 959,926 4.5 $ 5.74 275,482 $ 7.24
======= === ====== ======= ======
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net loss would have been increased to the pro forma
amount indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net loss:
As reported............................ $(8,775,170) (18,032,858) (16,192,749)
=========== ============ ============
Pro forma.............................. $(8,959,167) (18,267,627) (16,433,321)
=========== ============ ============
</TABLE>
Pro forma net loss reflects only options granted since 1996. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net loss amount presented above because
compensation cost is reflected over the options' vesting period of four to five
years.
During 1997 and 1998, the Company granted consultants 4,950 and 15,000,
respectively, incentive stock options for services performed. The options are
exercisable at $7.72 and
F-18
<PAGE> 96
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$11.50 per share and expire May 2004 and 2005, respectively. The options were
valued at $5,000 and $22,000 and were charged to compensation expense in 1997
and 1998, respectively.
During June 1997, the Company issued 81,268 warrants to purchase shares of
common stock in connection with long-term debt executed with a bank. The Company
issued an additional 4,581 warrants in September 1997 pursuant to the
anti-dilution clause of the loan agreement. The warrants are exercisable at
$0.02 per share and expire July 31, 2002. The warrants valued at $669,308 are
included in other assets. The value of the warrants is charged to interest
expense over the term of the related debt. In June 1999, the Company issued an
additional 34,795 warrants valued at $149,180 exercisable at $0.02 in connection
with the extension of this debt with the bank.
On October 7, 1997, the Company issued to the placement agents warrants to
purchase 111,354 shares of common stock exercisable at $9.60 per share which may
be exercised from November 10, 1998 and prior to the earlier date of (i)
November 10, 2001; or (ii) the sale of substantially all Company assets, merger
or liquidation, dissolution, winding-up or reorganization of the Company. The
Company issued additional warrants to purchase 27,839 shares of common stock.
The warrants are exercisable at $14.00 per share, subject to antidilution
provisions and are exercisable as defined above.
On October 8, 1997, the Company issued 312,500 warrants to purchase shares
of common stock (the "Warrants") in connection with the Private Placement. The
Warrants are exercisable at $14.00 per share, subject to antidilution
provisions. The Warrants may be exercised prior to the earlier of (i) September
30, 2001, (ii) eighteen months after the time that the Company becomes subject
to the reporting requirements of the Exchange Act of 1934, as amended or (iii)
the sale of substantially all Company assets, merger, or the liquidation,
dissolution, winding-up or reorganization of the Company.
During 1998, the Company issued 112,500 warrants to purchase shares of
common stock in connection with long-term debt executed with a bank. The
warrants were issued to certain stockholders as consideration of their personal
guarantees and indemnification arrangements for the long-term debt. The warrants
are exercisable at $11.50 per share and expire at April 20, 2003. The warrants
valued at $350,249 are included in other assets. The value of the warrants is
charged to interest expense over the term of the related debt.
During 1998, the Company issued 68,200 warrants to purchase common stock in
connection with the Private Placement of common stock. The warrants are
exercisable at $13.80 per share and expire after five years.
On March 25, 1998, the Company issued 93,418 warrants to purchase shares of
common stock in connection with long-term debt executed with a bank. The
warrants are exercisable at $0.02 per share and expire July 31, 2002. The
warrants valued at $1,071,189 are included in other assets. The value of the
warrants is charged to interest expense over the term of the related debt.
In January 1999, the Company issued 32,500 warrants to purchase common
stock in connection with the Private Placement of Series C Preferred Stock. The
warrants are exercisable at $12.00 per share and expire January 2004.
In March 1999, 525,000 warrants were issued to purchase common stock for an
exercise price of $0.02. The warrants valued at $3,150,000 are included in other
assets. The value of the warrants is amortized to interest expense over the term
of the related debt.
F-19
<PAGE> 97
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1999, 75,000 incentive stock options to purchase common stock at a
weighted average exercise price of $2.68 were issued to an officer. The Company
recorded $400,000 of deferred compensation, which represents the intrinsic value
of these stock options, related to the issuance of the options which are charged
to compensation expense over the vesting period through March 2002.
In May 1999, the Company granted a consultant 35,000 incentive stock
options for services performed. The options are exercisable at $8.00 per share
and expire in May 2003. The Company recorded $37,443 of deferred compensation
related to the issuance of the options. The unearned portion is amortized as
compensation expense over the term of the agreement through May 2001.
Compensation expense totaled $9,361 during 1999.
In May 1999, in conjunction with the issuance of Bridge Notes in a Private
Placement described in Note 8, 449,200 warrants were issued to purchase common
stock for an exercise price of $0.02. The warrants valued at $1,796,800 are
included in other assets. The value of the warrants is charged to interest
expense over the term of the related debt.
In September 1999, the Company issued 53,000 warrants to purchase common
stock in connection with the Bridge Note conversions described in Note 8. The
warrants are exercisable at $0.02 and expire after five years.
In December 1999, the Company granted a consultant 35,000 incentive stock
options for services performed. The options are exercisable at $4.00 per share
and expire in December 2003. The Company recorded $140,000 of deferred
compensation related to the issuance of the options. The unearned portion is
amortized as compensation expense over the term of the agreement through
December 2001. Compensation expense totaled $2,917 during 1999.
In December 1999, the Company issued 1,255,327 warrants to purchase common
stock in connection with the Private Placement of Series C preferred stock
described in Note 10(a). 1,243,888 and 11,439 warrants are exercisable at $0.02
and $9.60, respectively, and expire December 2004.
In November 1999, the Company issued 56,250 warrants to purchase common
stock in connection with the extension of its $4,500,000 line of credit. The
warrants were issued to certain stockholders as part of their personal
guarantees and indemnification arrangements for this line of credit. The
warrants valued at $224,000 are exercisable at $4.00, expire November 1, 2004,
are included in other assets and are being amortized over the term of the line
of credit.
In December 1999, the Company granted a consultant 50,000 warrants to
purchase common stock for services performed in connection with the purchase of
Series C preferred stock described in Note 10(d). The warrants are exercisable
at $0.02 and expire December 2004.
During 1999, 655,843 and 25,250 warrants were exercised at $0.02 and $7.00
per share, respectively, for a total of $189,867.
(12) OPERATING LEASE COMMITMENTS
The Company has entered into various non-cancelable operating lease
agreements for its facilities in Scottsdale, Arizona, automobile, and office
equipment. Existing facility leases require monthly rents plus payment of
property taxes, normal maintenance and insurance on facilities. Rental expense
for the operating leases was $394,950, $365,782 and $478,037 during the years
ended 1997, 1998, and 1999, respectively.
F-20
<PAGE> 98
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the minimum future lease payments for the years ending
December 31 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000........................................................ $ 483,037
2001........................................................ 505,113
2002........................................................ 479,937
----------
$1,468,087
==========
</TABLE>
(13) INCOME TAXES
The Company has generated net operating losses for both financial and
income tax reporting purposes since inception. At December 31, 1998 and 1999,
the Company had net operating loss carryforwards for federal income tax purposes
of approximately $11,842,000 and $31,985,000, respectively, which, subject to
annual limitations, are available to offset future taxable income, if any,
through 2019 and net operating loss carryforwards for state income tax purposes
of approximately $11,842,000 and $31,985,000, which are available to offset
future taxable income through 2004.
The temporary differences that give rise to deferred tax assets and
liabilities at December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward for federal income
taxes.................................................. $ 6,092,700 $ 12,941,231
Net operating loss carryforward for state income taxes.... 1,119,019 2,289,030
Depreciation and amortization............................. 57,224 90,395
Section 263A inventory.................................... 63,132 63,132
Accrued liabilities....................................... 272,295 201,563
Reserves.................................................. 215,465 218,836
Bad debts................................................. 263,117 255,749
Investment tax credits.................................... 161,022 180,557
Inventory obsolescence.................................... 2,366,033 791,603
------------ ------------
Total gross deferred tax assets................... 10,610,007 17,032,096
Deferred tax liabilities.................................... -- --
------------ ------------
Net deferred tax assets........................... 10,610,007 17,032,096
Less valuation allowance.................................... (10,610,007) (17,032,096)
------------ ------------
Net deferred tax assets........................... $ -- --
============ ============
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1998 and
1999 was $10,610,007 and $17,032,096, respectively. The net change in the total
valuation allowance for the years ended December 31, 1998 and 1999 was an
increase of $6,769,007 and $6,422,089, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon
generation of future taxable income during the periods in which those temporary
differences become deductible. In addition, due to the frequency of equity
transactions within the Company, it is
F-21
<PAGE> 99
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
possible the use of the net operating loss carryforward may be limited in
accordance with Section 382 of the Internal Revenue Code. A determination as to
this limitation will be made at a future date as the net operating losses are
utilized. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the deferred tax
assets are deductible, management believes it is more likely than not that the
Company will not realize the benefits of these deductible differences.
(14) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash with high credit quality financial
institutions and generally limits the amount of credit exposure to the amount of
FDIC coverage. However, periodically during the year, the Company maintains cash
in financial institutions in excess of the FDIC insurance coverage limit of
$100,000. The Company performs ongoing credit evaluations of its customers'
financial condition but does not typically require collateral to support
customer receivables. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information.
Two customers accounted for 29% and 18% of net sales for the year ended
December 31, 1997. Three customers accounted for 18%, 17% and 16% of net sales
for the year ended December 31, 1998. One customer accounted for 26% of net
sales for the year ended December 31, 1999.
(15) RELATED PARTY TRANSACTIONS
The Company has an agreement with a related entity under which this entity
provides management services. The Company paid the consultant approximately
$32,000, $52,000 and $42,000 for the years ended December 31, 1997, 1998 and
1999, respectively.
Certain officers/stockholders of the Company have personally guaranteed the
bank debt of the Company.
(16) EXPORT SALES
Export sales were approximately 31%, 34% and 18% of the Company's net sales
for the years ended December 31, 1997, 1998 and 1999, respectively. The
principal international market served by the Company was Europe.
(17) COMMITMENTS AND CONTINGENCIES
The Company has a defined contribution 401(K) plan for all employees. Under
the 401(K) plan, employees are permitted to make contributions to the plan in
accordance with IRS regulations. The Company may make discretionary
contributions as approved by the Board of Directors. There were no contributions
during 1997, 1998 and 1999.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, based on consultation
with legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity. Accordingly, the accompany-
F-22
<PAGE> 100
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ing consolidated financial statements do not include a provision for losses, if
any, that might result from the ultimate disposition of these matters.
(18) SUPPLEMENTAL FINANCIAL INFORMATION
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended December 31, 1997, 1998
and 1999 follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997... $ 10,000 $ 165,184 $ 954 $ 174,230
========== ========== ========== ==========
Year ended December 31, 1998... $ 174,230 $ 762,217 $ 288,295 $ 648,152
========== ========== ========== ==========
Year ended December 31, 1999... $ 648,152 $ 219,013 $ 237,165 $ 630,000
========== ========== ========== ==========
Allowance for sales returns:
Year ended December 31, 1997... $ 9,942 $ 223,242 $ 111,487 $ 121,697
========== ========== ========== ==========
Year ended December 31, 1998... $ 121,697 $ 235,000 $ -- $ 356,697
========== ========== ========== ==========
Year ended December 31, 1999... $ 356,697 $ 666,357 $ 778,054 $ 245,000
========== ========== ========== ==========
Reserve for obsolescence of
inventories:
Year ended December 31, 1997... $ 244,823 $ 921,409 $ 83,774 $1,082,458
========== ========== ========== ==========
Year ended December 31, 1998... $1,082,458 $4,469,481 $ 58,314 $5,493,625
========== ========== ========== ==========
Year ended December 31, 1999... $5,493,625 $1,733,463 $5,277,088 $1,950,000
========== ========== ========== ==========
</TABLE>
F-23
<PAGE> 101
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(19) NET LOSS PER SHARE
The computation of basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss............................................ $(8,775,170) (18,032,858) (16,192,749)
Less dividend declared on Series B preferred
stock............................................. (317,365) -- --
----------- ----------- -----------
Net loss attributable to common stockholders........ $(9,092,535) (18,032,858) (16,192,749)
=========== =========== ===========
Weighted average common shares outstanding --
basic............................................. 2,638,577 4,135,575 4,994,283
=========== =========== ===========
Basic loss per share................................ $ (3.45) (4.36) (3.24)
=========== =========== ===========
Weighted average common shares outstanding --
basic............................................. 2,638,577 4,135,575 4,994,283
Effect of dilutive securities....................... 11,897 157,470 712,300
----------- ----------- -----------
Weighted average common shares outstanding --
diluted........................................... 2,650,474 4,293,045 5,706,583
=========== =========== ===========
Diluted loss per share.............................. $ (3.43) (4.20) (2.84)
=========== =========== ===========
Stock options and warrants not included in diluted
EPS since antidilutive............................ 639,131 1,110,607 2,834,015
=========== =========== ===========
Convertible preferred stock not included in diluted
EPS since antidilutive............................ -- 279,200 1,199,550
=========== =========== ===========
</TABLE>
The dilutive securities used in the diluted weighted average common shares
outstanding represents issuances of options and warrants at a nominal value.
(20) SUBSEQUENT EVENTS
On March 3, 2000, the Company signed a Strategic Partner Agreement with
Cybex Computer Products Corporation (Cybex). The Company and Cybex have agreed
to license certain technology to each other and the Company has agreed to sell
certain of its products to Cybex on a private label basis. In conjunction with
this agreement, the Company sold Cybex 500,000 shares of $0.01 par value Series
D preferred stock for $5,000,000, or $10.00 per share. The Series D preferred
stockholders have voting rights consistent with common stockholders and have
liquidation preference over common stockholders but subordinate to Series C
preferred stockholders.
On February 29, 2000, the Company amended the certain Bridge Promissory
Notes to extend the maturity date of $1,225,000 of the Existing Bridge Notes and
related accrued interest of approximately $160,000 from March 31, 2000 to the
earlier of an initial public offering (IPO) or other equity infusion of
$10,000,000 or greater, or March 31, 2001. In addition, the annual interest rate
was increased to 14%. In conjunction with the extension of the maturity date,
the Company issued warrants to purchase 138,502 shares of common stock. The
warrants are exercisable at a purchase price equal to the offering price used in
the last round of equity private placement financing prior to the note maturity
date of March 31, 2001, or if the Company has completed an initial public
offering of common stock prior to the note maturity date, then the purchase
price shall be ninety-five percent of the offering price of the initial public
offering. However, if the outstanding principal balance due under these Bridge
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<PAGE> 102
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes are not paid by September 30, 2000, 2,500 warrants for every $100,000 of
extended and outstanding principal due shall be awarded per quarter until the
principal balance is paid. These warrants are exercisable to common stock at an
exercise price of $0.02.
During January 2000, the Company completed a Private Placement and issued
48,706 shares of Series C preferred stock at $6.00 per share for $292,240. In
conjunction with this Private Placement, the Company issued a warrant for each
share of Series C preferred stock to purchase two shares of common stock. The
total warrants issued of 97,412 are exercisable at $0.02 per common stock share
and expire December 2004.
On March 13, 2000, the Company entered into agreements to extend the
maturity date of the lines of credit and promissory note agreements from March
31, 2000 to March 31, 2001. As part of the extension agreement, the interest
rate on the $750,000 line of credit was increased from the bank's corporate base
rate plus 2.5% to the bank's corporate base rate plus 3.5%.
On March 17, 2000, the Company's Board of Directors authorized and on March
31, 2000 the Company's stockholders will approve a 1-for-2 reverse stock split,
and a post-split adjustment of the number of authorized shares of common stock
to 90,000,000 shares. All share information included in the accompanying
consolidated financial statements has been retroactively adjusted to reflect
this reverse split and post-split adjustment.
(21) QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the quarterly data for the years ended December 31, 1998 and
1999 follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Net sales........................... $ 5,568,430 $ 6,815,773 $ 5,723,055 $ 2,964,799
=========== =========== =========== ===========
Gross profit (loss)................. $ 851,359 $ 1,535,198 $(3,548,635) $(1,295,687)
=========== =========== =========== ===========
Operating expenses.................. $(2,459,162) $(2,581,094) $(3,420,381) $(5,477,414)
=========== =========== =========== ===========
Operating loss...................... $(1,607,803) $(1,045,896) $(6,969,016) $(6,773,101)
=========== =========== =========== ===========
Net loss attributable to common
stockholders..................... $(1,838,670) $(1,480,253) $(7,453,497) $(7,260,438)
=========== =========== =========== ===========
Loss per share:
Basic............................ $ (0.49) $ (0.35) $ (1.73) $ (1.67)
=========== =========== =========== ===========
Diluted.......................... $ (0.48) $ (0.34) $ (1.66) $ (1.60)
=========== =========== =========== ===========
Year ended December 31, 1999:
Net sales........................... $ 3,227,784 $ 3,560,417 $ 3,374,233 $ 3,889,576
=========== =========== =========== ===========
Gross profit........................ $ 432,909 $ 96,298 $ 823,676 $ 948,422
=========== =========== =========== ===========
Operating expenses.................. $(3,455,748) $(3,297,847) $(2,365,550) $(2,779,067)
=========== =========== =========== ===========
Operating loss...................... $(3,022,839) $(3,201,549) $(1,541,874) $(1,830,645)
=========== =========== =========== ===========
Net loss attributable to common
stockholders..................... $(3,606,179) $(6,889,828) $(2,897,690) $(2,799,052)
=========== =========== =========== ===========
Loss per share:
Basic............................ $ (0.79) $ (1.48) $ (0.60) $ (0.47)
=========== =========== =========== ===========
Diluted.......................... $ (0.74) $ (1.26) $ (0.50) $ (0.42)
=========== =========== =========== ===========
</TABLE>
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<PAGE> 103
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............ 19
USE OF PROCEEDS....................... 19
DIVIDEND POLICY....................... 20
CAPITALIZATION........................ 21
DILUTION.............................. 23
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 26
BUSINESS.............................. 35
MANAGEMENT............................ 50
PRINCIPAL STOCKHOLDERS................ 58
CERTAIN TRANSACTIONS.................. 60
DESCRIPTION OF CAPITAL STOCK.......... 62
SHARES ELIGIBLE FOR FUTURE SALE....... 70
UNDERWRITING.......................... 72
INTERESTS OF NAMED EXPERTS AND
COUNSEL............................. 74
EXPERTS............................... 74
ADDITIONAL INFORMATION AVAILABLE TO
YOU................................. 74
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. DEALERS
ARE ALSO OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
'MOBILITY ELECTRONICS LOGO'
Mobility Electronics, Inc.
4,000,000 Shares
Common Stock
Deutsche Banc Alex. Brown
Banc of America Securities LLC
J.C. Bradford & Co.
PROSPECTUS
, 2000
<PAGE> 104
[DESCRIPTION OF GRAPHICS ON INSIDE BACK COVER PAGE]
The upper left portion of the inside back cover page will contain the
phrase "Universal Docking Products" directly above smaller text which will read,
"Our first major application for Split Bridge(TM) technology is the creation of
a new universal docking product category which allows portable computer users to
configure a flexible, high performance docking solution that meets their
individual needs, and more importantly, is compatible with essentially all makes
and models of portable computers." To the right of and beneath that text will be
pictures of three of our products: the EasiDock(R) 1000, the EasiDock(R) 2000
and the EasiDock(R) 3000, each with captions indicating the name of the product.
Our company logo will be located in the bottom center of the inside back cover.
<PAGE> 105
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses paid or to be paid by the
Company (other than underwriting compensation expected to be incurred) in
connection with the offering described in this Registration Statement. All
amounts are estimates, except the SEC Registration Fee, the NASD Filing Fee and
the Nasdaq National Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 18,480.00
NASD Filing Fee............................................. 7,500.00
Nasdaq National Market Listing Fee.......................... 63,725.00
Blue Sky Qualification Fees and Expenses.................... 15,000.00
Printing Costs.............................................. 200,000.00
Legal Fees and Expenses..................................... 300,000.00
Accounting Fees and Expenses................................ 170,000.00
Directors and Officers Liability Insurance Premium.......... 275,000.00
Transfer Agent and Registrar Fees and Expenses.............. 20,000.00
Miscellaneous............................................... 153,000.00
------------
Total............................................. $ 1,222,705
============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only
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<PAGE> 106
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.
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<PAGE> 107
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of the Company provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except as
limited by the DGCL. If the DGCL is amended to authorize the further elimination
or limitation of the liability of directors, then the liability of a director of
the Company, in addition to the limitation on personal liability described
above, shall be limited to the fullest extent permitted by the amended DGCL.
Further, any repeal or modification of such provision of the Certificate of
Incorporation by the stockholders of the Company shall be prospective only, and
shall not adversely affect any limitation on the personal liability of a
director of the Company existing at the time of such repeal or modification.
BYLAWS
The Bylaws of the Company provide that the Company (i) shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by reason of the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director or officer of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan and
(ii) upon a determination by the Board of Directors that indemnification is
appropriate, the Company may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by reason of the fact that such person is or was an employee or agent of
the Company or at the request of the Company was serving as an employee or agent
of any other corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan, in the case of (i) and (ii) against reasonable expenses
(including attorneys' fees), judgments, fines, penalties, amounts paid in
settlement and other liabilities actually and reasonably incurred by such person
in connection with such action or suit if such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. However, in an action
or suit by or in the right of the Company to procure a judgment in its favor, no
indemnification shall be made in respect of any claim as to which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that a court of appropriate jurisdiction shall determine that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity of such expenses
which the court shall deem proper. Any indemnification shall be made by the
Company upon a determination that indemnification of such person is proper in
the circumstances because he has met the applicable standard of conduct set
forth above. Expenses incurred by a person who is or was a director or officer
of the Company in defending such actions or suits shall be paid by the Company
at reasonable intervals in advance of the final disposition of such action or
suit upon receipt of an undertaking by or on behalf of the director or officer
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Company. In addition, the Company shall pay or
reimburse expenses incurred by any person who is or was a director or officer of
the Company in connection with such person's appearance as a witness or other
participant in a proceeding in which such person or the Company is not a named
party to such proceeding, provided that such appearance or participation is on
behalf of the Company or by reason of his past or present capacity as a director
or officer of the Company. The Company intends these provisions to provide
indemnification for appropriate persons to the fullest extent permitted by law.
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<PAGE> 108
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 AND COMMON STOCK
From September 1996 to May 1997 the Company offered to certain accredited
investors the option of purchasing either common stock or 12% Convertible
Debentures (the "Convertible Debentures"). In this offering, we sold an
aggregate of 154,044 shares of common stock, at a price of $7.73 per share, and
approximately $2.2 million in aggregate principal amount of Convertible
Debentures. In December 1998, approximately $2.1 million of the Convertible
Debentures were converted to common stock at a price of $7.73 per share. The
remaining Convertible Debentures ($95,000) require the Company to pay quarterly
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<PAGE> 109
payments of interest at a rate of 12% per annum. Beginning on the second
anniversary of the date of issuance of each Convertible Debenture, the Company
shall be required to pay 20 equal quarterly installments of principal and
accrued but unpaid interest in an amount necessary to fully amortize the notes
by the twentieth installment, when all remaining principal and accrued interest
will be due.
PREFERRED STOCK CONVERSION
In 1996 the holders of Series A preferred stock converted such shares into
common stock and Convertible Debentures. As a result of this conversion, 2,500
shares of Series A preferred stock were converted into 88,836 shares of common
stock and $306,374 of Convertible Debentures and issued to individual and
institutional investors.
In 1997 the holders of Series B preferred stock converted such shares into
common stock. As a result of this conversion, 2,101 shares of Series B preferred
stock were converted into 125,500 shares of common stock. The remaining 2,085
shares of Series B preferred stock were redeemed by the Company. Furthermore,
Series B preferred stockholders used $88,700 of dividends and interest on such
shares to purchase 11,088 shares of common stock.
FINOVA CAPITAL CORPORATION
In June 1997 and March 1998 the Company issued an aggregate of $3.35
million of Secured Promissory Notes to Finova Capital Corporation (the "Finova
Notes"). Interest on the Finova Notes accrues at 13.5% per annum and is payable
monthly, and the principal is due and payable on June 23, 2002. In connection
with the Finova Notes, the Company issued warrants to Finova (the "Finova
Warrants") to purchase an aggregate of up to 209,062 shares of common stock, at
an exercise price of $0.02 per share. The Finova Warrants expire on July 31,
2002.
MIRAM ACQUISITION
In July 1997, Mobility issued 55,000 shares of common stock to Miram
International, Inc. in consideration for the purchase of certain assets. In
addition, in May 1999, Mobility issued an additional 38,500 shares to Miram and
its shareholders in settlement of a contingent earn-out and other matters.
BANK GUARANTEE
In April 1998 certain officers of the Company and other individual and
institutional investors guaranteed a total of approximately $2.5 million of the
Company's working capital line of credit with Bank of America. As consideration
for such guarantees, a total of 112,500 warrants were issued to these
individuals and entities. The warrants are exercisable at $11.50 per share and
expire on April 20, 2003.
In November 1999 Messrs. Mollo and Doss and certain other individuals
guaranteed a total of $7.2 million, or $1,800,000 each, of our working capital
line of credit with Bank of America. Certain other individuals and institutional
investors sub-guaranteed the primary guarantees. As consideration for the
guarantees, a total of 56,250 warrants were issued to these officers, directors,
individuals and entities. The warrants are exercisable at $4.00 per share and
expire on November 1, 2004.
PRIVATE PLACEMENTS
In November 1997 the Company completed a private placement of approximately
$10.0 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 1,124,500
shares of Common
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<PAGE> 110
Stock were issued for approximately $9.0 million, or $8.00 per share, and
125,500 shares were issued for converted Series B preferred stock referenced
above, for approximately $1.0 million. Additionally, warrants to purchase
139,193 shares of Common Stock were issued to the placement agents and 312,500
warrants were issued to members of management of the Company and other
individuals and institutional investors. The warrants issued to the placement
agents are exercisable at prices ranging from $9.60 to $14.00 per share and
expire on November 10, 2001. The warrants issued to members of management of the
Company and other individuals and institutional investors are exercisable at
$14.00 per share and expire on September 30, 2001.
In June 1998 the Company completed a private placement of approximately
$8.5 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 742,500
shares of Common Stock were issued at $11.50 per share. Additionally, warrants
to purchase 68,200 shares of Common Stock were issued to the placement agents.
These warrants are exercisable at $13.80 per share and expire on June 12, 2002.
In January 1999 the Company completed a private placement of approximately
$5.0 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 735,300
shares of Series C preferred stock was issued at a price of $6.75 per share
(this price was lowered to $6.00 per share as the result of a subsequent
issuance of Series C preferred stock at such price, and an additional 91,909
shares of Series C preferred stock were issued as a result of such price
reduction).
In January 2000 the Company completed a private placement of approximately
$7.4 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 1,231,450
shares of Series C preferred stock were issued at a price of $6.00 per share.
Additionally, warrants were issued to investors to purchase 1,231,450 shares of
Common Stock at $0.02 per share. These warrants expire October 1, 2002.
BRIDGE PROMISSORY NOTES
In March 1999 the Company issued an aggregate of $3.5 million of Bridge
Promissory Notes (the "Bridge Notes") to various members of management of the
Company, other individuals and institutional investors. Interest on the Bridge
Notes accrues at 13% per annum and was payable upon maturity of the notes on
March 5, 2000. In connection with the Bridge Notes, the Company issued warrants
to purchase an aggregate of 525,000 shares of Common Stock at a price of $0.02
per share, which will expire March 5, 2002. In June 1999 approximately $2.3
million of the Bridge Notes and accrued interest thereon of approximately
$96,000 were converted to 296,343 shares of Common Stock at $8.00 per share.
In February 2000, the outstanding balance of the Bridge Notes issued in
March 1999 of approximately $1.2 million and the accrued interest thereon of
approximately $160,000 were extended to March 31, 2001. The interest rate was
increased to 14% per annum and is payable on the first day of each calendar
quarter commencing on April 1, 2000 and continuing on the first day of each
calendar quarter thereafter until all interest has been paid in full. The
principal is due and payable on the earlier of (i) March 31, 2001; (ii) thirty
days following the closing of an initial public offering; or (iii) thirty days
following the closing of a private offering of equity securities with aggregate
subscriptions of at least $10.0 million. A conversion option was granted to
allow the Bridge Noteholder to convert the note to Common Stock at a price equal
to 95% of the IPO per share price. The conversion must be made within fifteen
days of the closing of the IPO. In conjunction with the Bridge Note extension,
the Company issued warrants to purchase 138,502 shares of Common Stock at a
price of 95% of the IPO per share price. In the event that the Bridge Notes
remain outstanding
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<PAGE> 111
as of October 1, 2000, the Company will issue 2,500 warrants for each $100,000
of principal outstanding on the first day of each calendar quarter until the
principal balance is paid in full. The warrants will be priced at $0.02 per
share.
In June through August 1999 the Company issued an additional aggregate of
approximately $3.7 million of Bridge Promissory Notes (the "Bridge Notes") to
various members of management of the Company, other individuals and
institutional investors. Interest on the Bridge Notes accrues at 13% per annum
and is payable upon maturity of the notes on July 31, 2000. In connection with
the Bridge Notes, the Company issued warrants to purchase an aggregate of
449,200 shares of Common Stock at a price of $0.02 per share. Immediately upon
issuance, approximately $3.2 million of the Bridge Notes were converted to
394,063 shares of Common Stock at $8.00 per share.
ISSUANCE TO STRATEGIC PARTNERS
In May 1999, the Company issued an aggregate of 333,332 shares of Series C
preferred stock to two strategic investors for aggregate consideration of $2
million ($6.00 per share).
ISSUANCE TO STRATEGIC PARTNER
In March 2000, the Company issued 500,000 shares of Series D preferred
stock to a strategic partner, at a price of $10.00 per share. This offer was
made in connection with the execution and delivery of certain strategic
agreements between the Company and such strategic partner.
ISSUANCE OF OTHER OPTIONS
In November 1996 the Company issued options to purchase 11,220 shares of
Common Stock at $7.73 per share, 4,048 of which are currently vested, to six
employees under the 1996 Plan. These options expire in November 2002.
In 1997 the Company issued options to purchase 37,640 shares of Common
Stock at prices ranging from $0.02 to $8.00 per share, 7,650 of which are
currently vested, to various directors, officers and employees under the 1996
Plan. These options expire on various dates from 2000 through 2004.
In 1998 the Company issued options to purchase 391,456 shares of Common
Stock at a price of $11.50 per share, 103,032 of which are currently vested, to
various directors, officers and employees under the 1996 Plan. These options
expire on various dates in 2004.
In 1999 the Company issued options to purchase 669,239 shares of Common
Stock at prices ranging from $0.02 to $11.50 per share, 28,554 of which are
currently vested, to various directors, officers and employees under the 1996
Plan. These options expire on various dates from 2002 to 2010.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of June 17, 1997.(1)
</TABLE>
II-7
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.3 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of September 10, 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
4.1 -- Specimen of Common Stock Certificate.(1)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company
and Miram International, Inc. dated July 29, 1997.(1)
4.4 -- Form of Unit Purchase Agreement used in 1998 Private
Placements for the Purchase of Up To 900 Units, Each
Consisting of 1,000 shares of the Company's common
stock.(1)
4.5 -- Form of Unit Purchase Agreement used in 1997 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's common stock
and warrants to purchase 500 shares of the Company's
Common Stock.(1)
4.6 -- Form of Warrant to Purchase Shares of common stock of the
Company used with the 13% Bridge Notes and Series C
Preferred Stock Private Placements.(1)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placement.(1)
4.10 -- 13% Bridge Note Conversion Notice expired June 30,
1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used
in 1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreement used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement dated May 3,
1999, between the Company, Philips Semiconductors VLSI,
Inc. (f/k/a VLSI Technology, Inc.) and Seligman
Communications and Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom
Capital Corporation) dated as of March 25, 1998.(1)
4.15 -- Stock Purchase Warrant issued by the Company to Finova
Capital Corporation (f/k/a Sirrom Capital Corporation)
dated as of March 25, 1998.(1)
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999, between the Company and Seligman
Communications and Information Fund, Inc.(1)
4.17 -- Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated April 20, 1998.(1)
</TABLE>
II-8
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.18 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated April 20, 1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated November 2, 1999.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company
issued in the 1997 Private Placement.(2)
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
4.23 -- Investor Rights Agreement dated October 29, 1999 by and
between the Company and Seligman Communications and
Information Fund, Inc. entered into in connection with
the Series C Preferred Stock and Warrant Purchase
Agreement dated October 29, 1999.(2)
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued
in connection with the Loan Extension Agreement dated
February 29, 2000.(2)
5.1 -- Opinion of Jackson Walker L.L.P.*
10.1 -- Lease by and between Monaghan Company, LLC and Colonial
Trust Company and the Company dated December 20, 1996.(1)
10.2 -- First Amendment to Lease dated January 29, 1999 by and
between Monaghan Company, LLC and Colonial Trust Company
and the Company dated December 20, 1996.(1)
10.3 -- Lease dated May 1, 1998 by and between Airpark Holdings
I, LLC and the Company.(1)
10.4 -- Asset Purchase Agreement and Plan of Reorganization
between Miram International, Inc., John Moroz, Mykola
Moroz and the Company dated July 29, 1997.(1)
10.5 -- Promissory Note made by Miram International, Inc. to
Mykola Moroz dated July 3, 1997 in the amount of
$400,000.(1)
10.6 -- Amended and Restated 1996 Long Term Incentive Plan, as
amended on January 13, 2000.(1)
10.7 -- Richard W. Winterich Employment Agreement dated November
20, 1998.(1)
10.8 -- Richard W. Winterich Option Agreement dated April 12,
1999.(1)
10.9 -- Richard W. Winterich Option Agreement dated April 12,
1999.(1)
10.10 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.(1)
10.11 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.(1)
10.12 -- Charles R. Mollo Employment Agreement dated December 1,
1999.(1)
10.13 -- Charles R. Mollo Option Agreement dated December 1,
1999.(1)
10.14 -- Jeffrey S. Doss Employment Agreement dated December 1,
1999.(1)
10.15 -- Jeffrey S. Doss Option Agreement dated December 1,
1999.(1)
10.16 -- Jeffrey S. Doss Pledge Agreement dated December 1,
1999.(1)
10.17 -- Jeffrey S. Doss Promissory Note in favor of the Company
dated December 1, 1999 in the principal amount of
$300,000.(1)
</TABLE>
II-9
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.18 -- First Amendment to Option Agreement dated December 1,
1999 between Jeffrey S. Doss and the Company.(1)
10.19 -- Robert P. Dilworth Consulting Agreement dated May 21,
1999.(1)
10.20 -- Robert P. Dilworth Nonqualified Stock Option Agreement
dated May 21, 1999.(1)
10.21 -- William O. Hunt Consulting Agreement dated December 8,
1999.(2)
10.22 -- William O. Hunt Non-qualified Stock Option Agreement
dated December 8, 1999.(2)
10.23 -- Amendment No. 3 to Letter of Credit, Loan and Security
Agreement and Promissory Note made by Company to Bank of
America dated October 31, 1999.(1)
10.24 -- Amended and Restated Business Loan Agreement (Receivables
and Inventory) dated as of November 2, 1999 between the
Company and Bank of America, N.A.(1)
10.25 -- Restated Promissory Note in the principal amount of
$3,000,000 dated as of November 2, 1999 between the
Company and Bank of America, N.A.(1)
10.26 -- Promissory Note in the principal amount of $1,500,000
dated as of November 2, 1999 between the Company and Bank
of America, N.A.(1)
10.27 -- Promissory Note in the principal amount of $150,000 dated
as of November 2, 1999 between the Company and Bank of
America, N.A.(1)
10.28 -- Promissory Note in the principal amount of $75,000 dated
as of November 2, 1999 between the Company and Bank of
America, N.A.(1)
10.29 -- Restated Continuing Guaranty of Janice Breeze dated
November 2, 1999.(1)
10.30 -- Restated Continuing Guaranty of Jeffrey S. Doss dated
November 2, 1999.(1)
10.31 -- Restated Continuing Guaranty of Charles R. Mollo dated
November 2, 1999.(1)
10.32 -- Restated Continuing Guaranty of Cameron Wilson dated
November 2, 1999.(1)
10.33 -- Secured Promissory Note made by the Company in favor of
Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated March 25, 1998 in the principal amount
of $1,750,000.(1)
10.34 -- First Amendment to Loan Agreement and Loan Documents by
and between the Company and Finova Capital Corporation
(f/k/a Sirrom Capital Corporation) dated as of March 25,
1998.(1)
10.35 -- Secured Promissory Note made by the Company in favor of
Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated June 24, 1997 in the principal amount
of $1,600,000.(1)
10.36 -- Settlement Agreement dated May 21, 1999 by and among John
Moroz, Peter Moroz, Mykola Moroz and the Company.(2)
10.37 -- Letter Agreement dated October 22, 1999 by and between J.
C. Bradford & Co., L.L.C. and the Company.(2)
10.38 -- Form of Loan Extension Agreement dated February 29, 2000
by and between the Company and holders of 13% Bridge
Notes issued in March 1999.(2)
10.39 -- Strategic Partner Agreement by and between the Company
and Cybex Computer Products Corporation dated March 6,
2000.(2)
10.40 -- Donald W. Johnson Employment Agreement dated March 20,
2000.(2)
10.41 -- Strategic Vendor Agreement dated August 10, 1998 by and
between the Company and Molex Incorporated.(2)
</TABLE>
II-10
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.42 -- Form of Indemnity Agreement by and between the Company
and its officers and directors.(2)
10.43 -- Loan Modification and Extension Agreement dated March 13,
2000 between Bank of America N.A. and the Company.(2)
10.44 -- Amended and Restated Promissory Note (Facility I) dated
March 13, 2000 in the aggregate principal amount of
$3,000,000.(2)
10.45 -- Amended and Restated Promissory Note (Facility II) dated
March 13, 2000 in the aggregate principal amount of
$1,500,000.(2)
10.46 -- Separation Agreement dated October 1, 1999 by and between
the Company, Cameron Wilson and C. Wilson Company.(2)
10.47 -- Private Label and Manufacturing Agreement dated May 11,
1998 by and between the Company and Targus Group
International, Inc.(2)
10.48 -- Design and Development Agreement dated May 12, 1998 by
and between VLSI Technology, Inc. and the Company.(2)
21.1 -- Subsidiaries.(1)
23.1 -- Consent of KPMG LLP.(2)
23.2 -- Consent of Jackson Walker L.L.P. (Contained in Exhibit
5.1).*
24.1 -- Power of Attorney.(1)
27.1 -- Financial Data Schedule.(2)
</TABLE>
- ------------
* To be filed by amendment.
(1) Previously filed.
(2) Filed herewith.
All other schedules and exhibits are omitted because they are not
applicable or because the required information is contained in the Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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
II-11
<PAGE> 116
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-12
<PAGE> 117
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 March 28, 2000.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
----------------------------------
Charles R. Mollo,
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ CHARLES R. MOLLO President, Chief Executive March 28, 2000
- ----------------------------------------------------- Officer and Chairman of the
Charles R. Mollo Board (Principal Executive
Officer)
* Chief Financial Officer and March 28, 2000
- ----------------------------------------------------- Vice President (Principal
Richard W. Winterich Financial and Accounting
Officer)
* Executive Vice President and March 28, 2000
- ----------------------------------------------------- Director
Jeffrey S. Doss
* Director March 28, 2000
- -----------------------------------------------------
Robert P. Dilworth
* Director March 28, 2000
- -----------------------------------------------------
William O. Hunt
* Director March 28, 2000
- -----------------------------------------------------
Kenneth A. Steel, Jr.
* Director March 28, 2000
- -----------------------------------------------------
Jeffrey R. Harris
*By: /s/ CHARLES R. MOLLO
------------------------------------------------
Charles R. Mollo,
Attorney-in-Fact
</TABLE>
II-13
<PAGE> 118
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of June 17, 1997.(1)
3.3 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of September 10, 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
4.1 -- Specimen of Common Stock Certificate.(1)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company
and Miram International, Inc. dated July 29, 1997.(1)
4.4 -- Form of Unit Purchase Agreement used in 1998 Private
Placements for the Purchase of Up To 900 Units, Each
Consisting of 1,000 shares of the Company's common
stock.(1)
4.5 -- Form of Unit Purchase Agreement used in 1997 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's common stock
and warrants to purchase 500 shares of the Company's
Common Stock.(1)
4.6 -- Form of Warrant to Purchase Shares of common stock of the
Company used with the 13% Bridge Notes and Series C
Preferred Stock Private Placements.(1)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placement.(1)
4.10 -- 13% Bridge Note Conversion Notice expired June 30,
1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used
in 1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreement used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement dated May 3,
1999, between the Company, Philips Semiconductors VLSI,
Inc. (f/k/a VLSI Technology, Inc.) and Seligman
Communications and Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom
Capital Corporation) dated as of March 25, 1998.(1)
4.15 -- Stock Purchase Warrant issued by the Company to Finova
Capital Corporation (f/k/a Sirrom Capital Corporation)
dated as of March 25, 1998.(1)
</TABLE>
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999, between the Company and Seligman
Communications and Information Fund, Inc.(1)
4.17 -- Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated April 20, 1998.(1)
4.18 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated April 20, 1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated November 2, 1999.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company
issued in the 1997 Private Placement.(2)
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
4.23 -- Investor Rights Agreement dated October 29, 1999 by and
between the Company and Seligman Communications and
Information Fund, Inc. entered into in connection with
the Series C Preferred Stock and Warrant Purchase
Agreement dated October 29, 1999.(2)
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued
in connection with the Loan Extension Agreement dated
February 29, 2000.(2)
5.1 -- Opinion of Jackson Walker L.L.P.*
10.1 -- Lease by and between Monaghan Company, LLC and Colonial
Trust Company and the Company dated December 20, 1996.(1)
10.2 -- First Amendment to Lease dated January 29, 1999 by and
between Monaghan Company, LLC and Colonial Trust Company
and the Company dated December 20, 1996.(1)
10.3 -- Lease dated May 1, 1998 by and between Airpark Holdings
I, LLC and the Company.(1)
10.4 -- Asset Purchase Agreement and Plan of Reorganization
between Miram International, Inc., John Moroz, Mykola
Moroz and the Company dated July 29, 1997.(1)
10.5 -- Promissory Note made by Miram International, Inc. to
Mykola Moroz dated July 3, 1997 in the amount of
$400,000.(1)
10.6 -- Amended and Restated 1996 Long Term Incentive Plan, as
amended on January 13, 2000.(1)
10.7 -- Richard W. Winterich Employment Agreement dated November
20, 1998.(1)
10.8 -- Richard W. Winterich Option Agreement dated April 12,
1999.(1)
10.9 -- Richard W. Winterich Option Agreement dated April 12,
1999.(1)
10.10 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.(1)
10.11 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.(1)
10.12 -- Charles R. Mollo Employment Agreement dated December 1,
1999.(1)
10.13 -- Charles R. Mollo Option Agreement dated December 1,
1999.(1)
10.14 -- Jeffrey S. Doss Employment Agreement dated December 1,
1999.(1)
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15 -- Jeffrey S. Doss Option Agreement dated December 1,
1999.(1)
10.16 -- Jeffrey S. Doss Pledge Agreement dated December 1,
1999.(1)
10.17 -- Jeffrey S. Doss Promissory Note in favor of the Company
dated December 1, 1999 in the principal amount of
$300,000.(1)
10.18 -- First Amendment to Option Agreement dated December 1,
1999 between Jeffrey S. Doss and the Company.(1)
10.19 -- Robert P. Dilworth Consulting Agreement dated May 21,
1999.(1)
10.20 -- Robert P. Dilworth Nonqualified Stock Option Agreement
dated May 21, 1999.(1)
10.21 -- William O. Hunt Consulting Agreement dated December 8,
1999.(2)
10.22 -- William O. Hunt Non-qualified Stock Option Agreement
dated December 8, 1999.(2)
10.23 -- Amendment No. 3 to Letter of Credit, Loan and Security
Agreement and Promissory Note made by Company to Bank of
America dated October 31, 1999.(1)
10.24 -- Amended and Restated Business Loan Agreement (Receivables
and Inventory) dated as of November 2, 1999 between the
Company and Bank of America, N.A.(1)
10.25 -- Restated Promissory Note in the principal amount of
$3,000,000 dated as of November 2, 1999 between the
Company and Bank of America, N.A.(1)
10.26 -- Promissory Note in the principal amount of $1,500,000
dated as of November 2, 1999 between the Company and Bank
of America, N.A.(1)
10.27 -- Promissory Note in the principal amount of $150,000 dated
as of November 2, 1999 between the Company and Bank of
America, N.A.(1)
10.28 -- Promissory Note in the principal amount of $75,000 dated
as of November 2, 1999 between the Company and Bank of
America, N.A.(1)
10.29 -- Restated Continuing Guaranty of Janice Breeze dated
November 2, 1999.(1)
10.30 -- Restated Continuing Guaranty of Jeffrey S. Doss dated
November 2, 1999.(1)
10.31 -- Restated Continuing Guaranty of Charles R. Mollo dated
November 2, 1999.(1)
10.32 -- Restated Continuing Guaranty of Cameron Wilson dated
November 2, 1999.(1)
10.33 -- Secured Promissory Note made by the Company in favor of
Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated March 25, 1998 in the principal amount
of $1,750,000.(1)
10.34 -- First Amendment to Loan Agreement and Loan Documents by
and between the Company and Finova Capital Corporation
(f/k/a Sirrom Capital Corporation) dated as of March 25,
1998.(1)
10.35 -- Secured Promissory Note made by the Company in favor of
Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated June 24, 1997 in the principal amount
of $1,600,000.(1)
10.36 -- Settlement Agreement dated May 21, 1999 by and among John
Moroz, Peter Moroz, Mykola Moroz and the Company.(2)
10.37 -- Letter Agreement dated October 22, 1999 by and between J.
C. Bradford & Co., L.L.C. and the Company.(2)
10.38 -- Form of Loan Extension Agreement dated February 29, 2000
by and between the Company and holders of 13% Bridge
Notes issued in March 1999.(2)
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.39 -- Strategic Partner Agreement by and between the Company
and Cybex Computer Products Corporation dated March 6,
2000.(2)
10.40 -- Donald W. Johnson Employment Agreement dated March 20,
2000.(2)
10.41 -- Strategic Vendor Agreement dated August 10, 1998 by and
between the Company and Molex Incorporated.(2)
10.42 -- Form of Indemnity Agreement by and between the Company
and its officers and directors.(2)
10.43 -- Loan Modification and Extension Agreement dated March 13,
2000 between Bank of America N.A. and the Company.(2)
10.44 -- Amended and Restated Promissory Note (Facility I) dated
March 13, 2000 in the aggregate principal amount of
$3,000,000.(2)
10.45 -- Amended and Restated Promissory Note (Facility II) dated
March 13, 2000 in the aggregate principal amount of
$1,500,000.(2)
10.46 -- Separation Agreement dated October 1, 1999 by and between
the Company, Cameron Wilson and C. Wilson Company.(2)
10.47 -- Private Label and Manufacturing Agreement dated May 11,
1998 by and between the Company and Targus Group
International, Inc.(2)
10.48 -- Design and Development Agreement dated May 12, 1998 by
and between VLSI Technology, Inc. and the Company.(2)
21.1 -- Subsidiaries.(1)
23.1 -- Consent of KPMG LLP.(2)
23.2 -- Consent of Jackson Walker L.L.P. (Contained in Exhibit
5.1).*
24.1 -- Power of Attorney.(1)
27.1 -- Financial Data Schedule.(2)
</TABLE>
- ------------
* To be filed by amendment.
(1) Previously filed.
(2) Filed herewith.
<PAGE> 1
EXHIBIT 3.8
CERTIFICATE OF THE DESIGNATIONS, PREFERENCES,
RIGHTS AND LIMITATIONS OF SERIES D 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
February 22, 2000, a resolution providing for the issuance of up to Five Hundred
Thousand (500,000) shares of Series D 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 Five Hundred Thousand (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:
Five Hundred Thousand (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 D Preferred Stock" (hereinafter called the "Series D
Stock") with the powers, preferences and rights hereinafter set forth.
1. Definitions. As used herein:
"Board of Directors" means the Board of Directors of the Corporation.
1
<PAGE> 2
"Certificate of Designations" means the Certificate of the Designations,
Preferences, Rights and Limitations of Series D Preferred Stock of the
Corporation.
"Common Stock" means (i) the class of stock designated as the common stock
of the Corporation as of February 22, 2000, 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.
"IPO" shall have the meaning ascribed thereto in Paragraph 5 below.
"Legally Available Funds" shall have the meaning ascribed thereto in
Paragraph 2 below.
"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 D 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.
"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 D Stock
outstanding immediately prior to such transaction will hold the same number of
shares of Series D Stock with substantially identical designations and
preferences after such transaction as they held 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 such transaction.
2. Dividends. 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 D
Stock equal to the same dividend per share paid on each share of Common Stock
(as appropriately adjusted for any Common Stock dividends, stock splits or the
like after February 22, 2000).
2
<PAGE> 3
3. Preference on Dissolution, Liquidation or Winding Up.
(a) In the event of the occurrence of a Liquidation Event, the holders of
Series D 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 D Stock with respect to the distribution of assets, but after the payment
of the full preferential amount to be paid to the holders of Series C Preferred
Stock of the Company pursuant to Paragraph 3 of the Certificate of the
Designations, Preferences, Rights and Limitations of Series C Preferred Stock of
the Company, an amount equal to the product of the number of shares of Series D
Stock held multiplied by $10.00, 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 D Stock on a pari passu basis (based on the number of shares of
Series D 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 D 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 D Stock in respect of the distribution of assets, unless there shall
likewise be paid at the same time to the holders of the Series D 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 D Stock shall be entitled to vote on all
matters submitted for a vote of the holders of Common Stock, for each share of
Series D Stock held by such holder, one vote (provided, however, that such
number of votes shall be increased or decreased appropriately for any Common
Stock dividends, splits or the like occurring after February 22, 2000), 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 D 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 D 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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<PAGE> 4
5. Conversion Rights. Each share of Series D Stock may be converted into
shares of Common Stock on the terms and conditions set forth in this Section 5:
(a) On March 1, 2002 (the "Automatic Conversion Date"), each share of
Series D Stock shall convert automatically, and without any action on the part
of the holder thereof, into a number of fully-paid and nonassessable shares of
Common Stock (rounded to the nearest whole number) determined by dividing $10.00
by the offering price per share used in the last round of equity private
placement financing prior to March 1, 2002 (with such price being appropriately
adjusted for any Common Stock dividends, stock splits or the like occurring
between the date of such offering and the date of conversion by a holder of
Series D Stock). In such event 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 D Stock so
affected at their last known address shown on the stock books of the
Corporation.
(b) Notwithstanding subparagraph (a) above, 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 (an "IPO"), each share of Series D Stock shall convert automatically,
and without any action on the part of the holder thereof, into the number of
fully-paid and non-assessable shares of Common Stock (rounded to the nearest
whole number) determined by dividing $10.00 by ninety five percent (95%) of the
offering price per share of the Common Stock sold by the Company in the IPO.
(c) Upon conversion of any Series D Stock, all accrued and unpaid dividends
on the Series D Stock so converted shall be paid in cash.
(d) Upon the occurrence of an IPO or the Automatic Conversion Date, the
Corporation shall prepare a notice stating that an IPO or the Automatic
Conversion Date (as the case may be) 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 D Stock at their last known address shown on the stock
books of the Corporation.
(e) Upon receipt of written notice as provided in subparagraph (d) above,
each holder of Series D Stock shall (i) surrender the certificate or
certificates therefor, duly endorsed, at the office of any transfer agent for
such Series D 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 D 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 IPO or the
Automatic Conversion Date (as the case may be), and the person or persons
entitled to receive the Common Stock issuable upon such
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<PAGE> 5
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock on said date.
(f) 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 D
Stock, the full number of shares of Common Stock deliverable upon the conversion
of all Series D Stock from time to time outstanding. The Corporation shall from
time to time in accordance with the Delaware General Corporation Law 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 D Stock outstanding from time to time.
(g) 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.
(h) 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 D 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 D 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. Restrictions on Corporate Actions. So long as any shares of Series D
Stock are outstanding, the Corporation shall not, without obtaining the prior
approval of the holders of a majority of the shares of Series D Stock
outstanding from time to time, 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.
7. Information Rights. So long as any Person continues to hold at least
100,000 shares of Series D Stock (as appropriately adjusted for any Common Stock
dividends, stock splits or the like after February 22, 2000), the Corporation
shall deliver to such Person audited annual financial statements within 120 days
after the end of each fiscal year and unaudited quarterly financial statements
within 60 days after the end of each fiscal quarter; provided, however, that
such information rights shall: (i) terminate at such time as 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 least 100,000 shares of Series D Stock (as appropriately adjusted
for any Common Stock dividends, stock splits or the like after February 22,
2000); provided, however, that the Corporation does not reasonably believe that
such transferee
5
<PAGE> 6
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 this certificate
to be signed by its Secretary this 3rd day of March, 2000.
MOBILITY ELECTRONICS, INC.
By: /s/ RICHARD F. DAHLSON
------------------------------------
Richard F. Dahlson, Secretary
6
<PAGE> 1
EXHIBIT 4.19
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 Two Dollars ($2.00)
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 November 1, 2004 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: November 1, 1999
ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC.
----------------------------------------
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 4.20
Warrant No._____
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
d/b/a Mobility Electronics
(A Delaware corporation)
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 Seven Dollars ($7.00) 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 the earlier of (i) September 30,2001, (ii) eighteen months after the
time that the Company becomes subject to the reporting requirements of the
Exchange Act of 1934, as amended or (ii) the consummation of a
<PAGE> 2
Sales Transaction (as hereinafter defined) ("the Exercise Period"), 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;
(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
<PAGE> 3
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 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.
<PAGE> 4
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 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
<PAGE> 5
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 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:
<PAGE> 6
(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 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 (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
<PAGE> 7
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 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
<PAGE> 8
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.
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: ____________, 1997.
<PAGE> 9
ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC.
--------------------------------------------------
Charles R. Mollo, President
<PAGE> 10
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 4.21
EXHIBIT A
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.
13% BRIDGE PROMISSORY NOTE
NO. BN - ____
$____________ _____________,1999
FOR VALUE RECEIVED, the undersigned, Mobility Electronics, Inc., a Delaware
corporation ("Maker"), hereby promises to pay to the order of
__________________________, or its successors or assigns ("Payee"), the
principal sum of ____________________ and No/100 Dollars ($_______________),
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 $2,500,000 (plus
an over-allotment option not to exceed $500,000), which are being issued from
time to time between February 24, 1999 and March 5, 1999, subject to a one-week
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 March 5, 2000. 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.
Mobility Electronics, Inc. 13% Bridge Promissory Note Page 1
<PAGE> 2
2. Prepayments. Neither the unpaid principal balance of this Note nor any
accrued but unpaid interest thereon may be prepaid in whole or in part without
the prior written consent of Payee (and in any event, subject to Section 1
above).
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
Mobility Electronics, Inc. 13% Bridge Promissory Note Page 2
<PAGE> 3
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 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.
Mobility Electronics, Inc. 13% Bridge Promissory Note Page 3
<PAGE> 4
9. Successors and Assigns. 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. 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.
Mobility Electronics, Inc. 13% Bridge Promissory Note Page 4
<PAGE> 5
EXECUTED as of the date set forth above.
MAKER:
MOBILITY ELECTRONICS, INC.
By:
---------------------------------
Charles R. Mollo,
Chief Executive Officer
Mobility Electronics, Inc. 13% Bridge Promissory Note Page 5
<PAGE> 1
EXHIBIT 4.23
MOBILITY ELECTRONICS, INC.
INVESTOR'S RIGHTS AGREEMENT
This Investor's Rights Agreement (the "Agreement") is made as of the 29th
day of October, 1999, by and between Mobility Electronics, Inc., a Delaware
corporation ("Mobility"), and Seligman Communications and Information Fund, Inc.
("Investor").
RECITALS
WHEREAS, the Company and Investor have entered into a Series C Preferred
Stock and Warrant Purchase Agreement, of even date herewith (the "Purchase
Agreement"), pursuant to which, among other things, the Company agreed to sell
to Investor, and the Investor agreed to purchase from the Company, 333,333
shares of the Company's Series C Preferred Stock, par value $0.01 per share (the
"Series C Preferred Stock") and a Warrant to purchase 666,666 shares of Common
Stock as defined below (the "Warrant"); and
WHEREAS, a condition of Investor's obligations under the Purchase Agreement
is that the Company and Investor enter into this Agreement in order to provide
Investor with (i) certain rights to register shares of the Company's common
stock, par value $0.01 per share (the "Common Stock"), upon conversion of the
Series C Preferred Stock and exercise of the Warrant held by Investor, and (ii)
certain rights to receive or inspect information pertaining to the Company;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Registration Rights. The Company and Investor covenant and agree as
follows:
1.1 Definitions. For purposes of this Section 1 and Section 2 below:
(a) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.11 hereof.
(b) The term "IPO" means a firm commitment underwritten public
offering by the Company of shares of Common Stock pursuant to a
registration statement on Form S-1 or Form SB-2 under the Securities Act of
1933, as amended (the "Act").
(c) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(d) The term "Public Company" means a corporation which has a class of
equity securities registered pursuant to Section 12 of the 1934 Act, or
which is required to file periodic reports pursuant to Section 15(d) of the
1934 Act.
<PAGE> 2
(e) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended
(the "Act"), and the declaration or ordering of effectiveness of such
registration statement or document.
(f) The term "Registrable Securities" means (i) the shares of Common
Stock issued or issuable upon the conversion of shares of Series C
Preferred Stock issued pursuant to the Purchase Agreement, (ii) the shares
of Common Stock issued or issuable upon exercise of the Warrant issued
pursuant to the Purchase Agreement, and (iii) 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) or
(ii) above, excluding in all cases, however, any Registrable Securities (I)
sold by a Holder in a transaction in which such Holder's rights under this
Section 1 are not assigned, or (II) registered under the Act, the
registration statement in connection therewith has been declared effective,
and such shares have been disposed by such Holder pursuant to such
registration statement; provided, however, that in either case of (i), (ii)
or (iii) above, any such securities shall cease to be Registrable
Securities if the registration rights granted hereunder are not transferred
in accordance with the provisions of Section 1.11 below.
(g) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock issued or
issuable upon (i) conversion of the shares of Series C Preferred Stock
issued pursuant to the Purchase Agreement or (ii) exercise of the Warrant
issued pursuant to the Purchase Agreement, in each case of (i) or (ii)
which are Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Demand Registration.
(a) From and after January 1, 2001, the Holders of at least 66 2/3% of
the then outstanding Registrable Securities may notify the Company in
writing that such Holders desire for the Company to cause all or a portion
of such notifying Holders' Registrable Securities to be registered for sale
to the public under the Act. Upon receipt of such written request, the
Company will promptly notify in writing all other Holders of Registrable
Securities of such request, which Holders shall within twenty days
following such notice from the Company notify the Company in writing
whether such persons desire to have Registrable Securities held by them
included in such offering. The Company will, promptly following the
expiration of such twenty day period, prepare and file subject to the
provisions of this Section 1, and use its best efforts to prosecute to
effectiveness, an appropriate filing with the SEC of a registration
statement covering such Registrable Securities and the proposed sale or
distribution thereof under the Act.
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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 delivers a certificate
signed by the Company's Chief Executive Officer or Chairman of the Board
stating that in the good faith judgment of the Board of Directors of the
Company that the filing thereof at the time requested, or the offering of
securities pursuant thereto (i) would materially adversely affect a pending
or proposed public offering of the Company's securities, or an acquisition,
merger, recapitalization, consolidation, reorganization or similar
transaction, negotiations, discussions or pending proposals with respect
thereto or (ii) would materially adversely affect the business or prospects
of the Company in view of the disclosures that may be required thereby of
information about the business, assets, liabilities or operations of the
Company not theretofore disclosed; provided, however, that the filing of a
registration statement, or any supplement or amendment thereto, by the
Company may be deferred pursuant to this Section 1.2 for no longer than 180
days (but only once in every twelve month period) after the delivery of
such demand notice.
(c) Notwithstanding anything in this Section 1.2 to the contrary: (i)
the Company shall not be required to effect the registration of the
Registrable Securities pursuant to this Section 1.2 more than one time in
any twelve month period and no more than three times in the aggregate; and
(ii) the Company shall not be required to effect any such registration
unless at least $5 million of Registrable Securities are to be sold in such
registration (with such amount being determined based on the market price
of the Common Stock on the date of the initiating Holder(s) request). If
any registration pursuant to this Section 1.2 is in the form of an
underwritten offering, the Company will select and obtain the investment
banker or investment bankers and manager or managers that will administer
the offering, which investment bankers must offer terms which are
reasonably competitive in the marketplace for similar size companies and
similar offerings. The Company shall (together with all Holders proposing
to distribute Registrable Securities through such underwriting) enter into
an underwriting agreement, containing usual and customary terms, with the
managing underwriter selected for such underwriting. If any holder of
Registrable Securities disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company and
the managing underwriter. The Registrable Securities so withdrawn shall
also be withdrawn from registration.
(d) If any registration statement under this Section 1.2 is not
declared effective (except as a result of Holders withdrawing Registrable
Securities), then the holders of Registrable Securities may request an
additional registration under this Section 1.2.
(e) No registrations effected under this Section 1.2 shall relieve the
Company of its obligations to effect any registrations under, and pursuant
to the terms of, Sections 1.3 and 1.4 hereof.
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1.3 S-3 Registrations.
(a) Once the Company is eligible to effect a registration of its
securities under Form S-3 (or successor form), the Holders will have the
right to request and have effected (but only one registration per twelve
month period) registrations of Registrable Securities on Form S-3 as long
as the aggregate proposed offering price is not less $3 million for any
such registration. Upon written request of Holders holding at least $3
million of Registrable Securities, the Company will promptly notify in
writing all other Holders of Registrable Securities of such request, which
Holders shall within twenty days following such notice from the Company
notify the Company in writing whether such persons desire to have
Registrable Securities held by them included in such offering. Following
the expiration of such twenty day period, the Company will use all
reasonable efforts to cause the registration of all Registrable Securities
proposed to be included in the offering on Form S-3 or such successor form
to the extent so requested. Notwithstanding the above, the Company shall
not be required under this Section 1.3 to include any of the Holders'
Registrable Securities in any offering on Form S-3 which involves an
underwriting unless such Holders accept the terms of such underwriting as
agreed upon between the Company and the underwriters selected by it.
Registrations effected pursuant to this Section 1.3 shall not be counted as
requests for registration effected pursuant to Sections 1.2.
(b) Notwithstanding anything in this Section 1.3 to the contrary, the
Company shall not be obligated to prepare or file any registration
statement pursuant to this Section 1.3 or to prepare or file any amendment
or supplement thereto, at any time when the Company delivers a certificate
signed by the Company's Chief Executive Officer or Chairman of the Board
stating that in the good faith judgment of the Board of Directors of the
Company that the filing thereof at the time requested, or the offering of
securities pursuant thereto (i) would materially adversely affect a pending
or proposed public offering of the Company's securities, or an acquisition,
merger, recapitalization, consolidation, reorganization or similar
transaction, negotiations, discussions or pending proposals with respect
thereto or (ii) would materially adversely affect the business or prospects
of the Company in view of the disclosures that may be required thereby of
information about the business, assets, liabilities or operations of the
Company not theretofore disclosed; provided, however, that the filing of a
registration statement, or any supplement or amendment thereto, by the
Company may be deferred pursuant to this Section 1.3 for no longer than 180
days (but only once in every twelve month period) after the delivery of
such demand notice.
1.4 Piggyback Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any Common Stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than an initial public offering, registration
relating solely to the sale of securities to participants in a Company stock
option, stock purchase or similar employee benefit plan, a registration on any
form which does not include substantially the same information as would be
required to be included in a registration
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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, and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty
(120) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed;
(b) Unless such registration is a firm commitment underwriting,
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Act with respect to the disposition of all Registrable Securities and other
securities covered by such registration statement for a period of 180 days.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or "blue sky" laws of such jurisdictions as the
underwriter or such sellers shall reasonably request and do any and all
other acts and things as may be reasonably necessary to consummate the
disposition in such jurisdictions of the Registrable Securities covered by
such registration statement, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in respect of doing business in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction.
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(e) Immediately notify each seller of Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing or if it is necessary, in the opinion of
counsel to the Company, to amend or supplement such prospectus to comply
with law, and at the request of any such seller prepare and to send such
seller a reasonable number of copies of a supplement to or any amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and
shall otherwise comply in all material respects with law and so that such
prospectus, as amended or supplemented, will comply with law.
(f) Otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, any make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering the period
of at least twelve (12) months, beginning with the first month of the first
fiscal quarter after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11 (a) of
the Act.
(g) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(h) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or automated trading
system on which similar securities issued by the Company are then listed.
(i) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of
such registration.
1.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
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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 and the reasonable fees and expenses of one counsel for
the selling Holders (as a group) (but excluding underwriter's commissions and
fees and any fees of others employed by a selling Holder) shall be borne by the
Company.
1.8 Underwriting Requirements; Cut-backs.
(a) In connection with any offering involving an underwriting of
shares of the Company's capital stock, the Company shall not be required to
include any Holders' Registrable Securities in such underwriting unless
they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled
to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not materially
jeopardize or in any way reduce the success of the offering by the Company
(with the securities being eliminated as provided in (b) below).
(b) The Company has previously granted "piggyback" registration rights
to certain of its securityholders (the "Other Holders"). Notwithstanding
anything in this Section 1 to the contrary, in the event of any request for
registration hereunder, the Company shall provide each Other Holder the
notice required with respect to their registration rights and will allow
such Other Holders to participate in any such registration to the extent of
such registration rights; it being acknowledged and agreed that if the
total amount of securities, including Registrable Securities, requested by
Holders and Other Holders to be included in such offering exceeds the
amount of securities that the underwriters determine in their sole
discretion is compatible with the success of the offering (excluding any
securities to be offered by the Company), then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters determine in their
sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Holders
and Other Holders according to the total amount of securities entitled to
be included therein owned by each selling Holder and Other Holder or in
such other proportions as shall mutually be agreed to by such selling
Holders and Other Holders).
1.9 Delay of Registration. No Holder shall have any right to obtain or seek
an injunction restraining or otherwise delaying any registration by the Company
of any securities as a result of any controversy that might arise with respect
to the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
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(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 delayed or
withheld), nor shall the Company be liable in any such case for any such
loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers
who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, and any agent
of the Company, against any losses, claims, damages, or liabilities joint
or several) to which any of the foregoing persons may become subject, under
the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(b) shall not apply
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to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder,
which consent shall not be reasonably withheld; provided, that, in no event
shall any indemnity under this subsection 1.10(b) exceed the net proceeds
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
1.10, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party receiving similar notice, to
assume the defense thereof with counsel reasonably satisfactory to the
parties; provided, however, that an indemnified party (together with all
other indemnified party which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding; otherwise, the indemnified party shall be
responsible for the fees and expenses of its counsel. The failure to
deliver written notice to the indemnifying party within a reasonable time
of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability
to the indemnified party under this Section 1.10 with respect to such
action, but not with respect to any other action.
(d) Except as provided in the last sentence of subsection 1.10(c)
above, if the indemnification provided for in this Section 1.10 is held by
a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim,
damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense
as well as any other relevant equitable considerations. The relative fault
of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in
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connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities
pursuant to a registration statement under this Section 1.
1.11 Reports Under the 1934 Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act ("Rule 144") and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after ninety (90) days after
the effective date of the IPO;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, promptly upon request (i) a written statement by the Company that it
has complied with the reporting requirements of Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company), the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC that permits the selling of any such
securities without registration or pursuant to such form.
1.12 Assignment of Registration Rights. The registration rights of the
Holders under this Section 1 may be assigned (but only with all related
obligations) by a Holder to a transferee or assignee of such securities who
purchases from such Holder at least 10,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1. 13 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.
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1.13 Lock-up Agreement. Each Holder hereby agrees that if requested by the
Company or the underwriters in any underwritten offering, such Holder shall not,
for the period of not more than 180 days (as specified by the managing
underwriter) after the effective date of an IPO (or any other underwritten
public offering of shares of Common Stock, if requested by the managing
underwriter), without the prior written approval of the Company or such
underwriters (as the case may be), directly or indirectly, sell, offer to sell,
contract to sell (including without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of any shares of Common
Stock underlying the Series C Preferred Stock legally or beneficially owned by
such Holder; provided, however, in the event of an initial public offering of
Common Stock, no request shall be necessary, with the consent of such Holder to
the above provisions in this Section 1.13 being hereby granted and accepted,
provided that if the managing underwriter in such initial public offering
requests that Holder execute and deliver a lock-up letter, Holder agrees to do
so, which lock-up letter shall be in such managing underwriter's customary form.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period. Notwithstanding the foregoing, the provisions of
this Section 1.13 shall only be applicable to the Holders if all officers and
directors and greater than two percent (2%) stockholders of the Company enter
into similar agreements.
1.14 Termination of Registration Rights. Notwithstanding anything in this
Section 1 to the contrary, no Holder shall be entitled to exercise any right
provided for in this Section 1: (i) at any time more than four (4) years
following the date of the Company's IPO or (ii) at such time as such Holder is
able to sell all of such Holder's Registrable Securities in a single three-month
period in compliance with Rule 144.
1.15 Limitations on Subsequent Registration Rights. From and after the date
of this Agreement and until Holder's registration rights terminate pursuant to
Section 1.14 above, the Company shall not, without the prior written consent of
the Holders of a majority of the Registerable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would grant to such holder or prospective holder registration rights which
are superior to those granted to the Holders hereunder (although pari passu
rights will be permissible).
2. Covenants of the Company
2.1 Delivery of Financial Statements. The Company shall deliver to each
Holder of a least 20,000 shares Registrable Securities (other than a Holder
reasonably deemed by the Company to be a competitor of the Company):
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash
flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and
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audited and certified by an independent public accounting form of
nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited income statement, statement of cash flows
for such fiscal quarter and an unaudited balance sheet as of the end of
such fiscal quarter;
(c) within thirty (30) days of the end of each month, an unaudited
income statement and a statement of cash flows and balance sheet for and as
of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30) days prior to
the end of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, including balance sheets, income
statements and statements of cash flows for such months, and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
(e) with respect to the financial statements called for in subsections
(b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer, Chief Executive Officer or President of the Company
certifying that such financials were prepared in accordance with GAAP
consistently applied with prior practice for earlier periods (with the
exception of footnotes that may be required by GAAP) and fairly present the
financial condition of the Company and its results of operation for the
period specified, subject to year-end audit adjustment. provided that the
foregoing shall not restrict the right of the Company to change its
accounting principles consistent with GAAP, if the Board of Directors
determines that it is in the best interest of the Company to do so.
2.2 Inspection. The Company shall permit each Holder of at least 20,000
shares of Registrable Securities, except for a Holder reasonably deemed by the
Company to be a competitor of the Company, at such Holder's expense, to visit
and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by such Holder;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
2.3 Termination of Covenants. The covenants set forth in Section 2.1 and
Section 2.2 above shall terminate as to each Holder and be of no further force
or effect on the earlier of (a) immediately prior to the consummation of an IPO
or (b) when the Company first becomes subject to the periodic reporting
requirements of Sections 13 or 15(d) of the Exchange Act.
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2.4 Subsequent Issuances of Preferred Stock. The Company shall not issue
any shares of Series A Preferred Stock or Series B Preferred Stock, or other
securities or rights convertible in Series A Preferred Stock or Series B
Preferred Stock, as the case may be.
3. Miscellaneous
3.1 Successors and Assigns. Except as otherwise provided in this Agreement,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective permitted successors and assigns of the parties
(including transferees of any Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Amendments and Waivers. Any term of this Agreement may be amended or
waived in writing and only with the written consent of the Company and the
holders of a majority of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this Section shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities and the Company.
3.3 Notices. Unless otherwise provided, any notice required or permitted by
this Agreement shall be in writing and shall be deemed sufficient upon delivery,
when delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth below or on Exhibit A hereto, or as
subsequently modified by written notice.
3.4 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, the (a) such provision
shall be excluded from this Agreement, (b) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (c) the balance of the
Agreement shall be enforceable in accordance with its terms.
3.5 Governing Law. This Agreement and all acts and transactions pursuant
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Delaware, without giving effect to principles of conflicts of
laws.
3.6 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
3.7 Aggregation of Stock. All shares of Series C Preferred Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
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3.8 Expenses. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, cost and necessary disbursements in addition to any
other relief to which such party may be entitled.
3.9 Entire Agreement. This Agreement (including the Exhibits hereto, if
any) constitutes the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof.
3.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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The parties have executed this Agreement as of the date first above
written.
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 ADVISOR
By: /s/ RICHARD R. SCHMALTZ
---------------------------------------
Name: Richard R. Schmaltz
-------------------------------------
Title: Managing Director
------------------------------------
Address: 125 University Ave.
Palo Alto, CA 94301
(650) 470-2670
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EXHIBIT 4.24
NO. EW-__
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)
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 equal to
the offering price used in the last round of equity private placement financing
(the "Last Private Placement") prior to March 31, 2001 (the "Note Maturity
Date"); provided, however, that if the Company has completed an initial public
offering (the "IPO") of Common Stock prior to the Note Maturity Date, then the
purchase price shall be ninety five percent (95%) of the offering price of the
IPO, 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 the earlier of the date of closing of an IPO by
the Company or the Note Maturity Date, but on or prior to April 30, 2001,
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.
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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 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 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
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in this Section 4 shall occur with respect to the Common Stock: (i) if the
Warrant Price has been determined by the Last Private Placement, at any time
after the Last Private Placement; or (ii) if the Warrant Price has been
determined by the IPO, at any time after the IPO:
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 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.
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
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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 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 Warrant 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 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.
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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 portion of this Warrant or the Shares issuable upon
the due exercise of
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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, 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.
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:
MOBILITY ELECTRONICS, INC.
By:
Charles R. Mollo,
Chief Executive Officer
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SUBSCRIPTION
MOBILITY ELECTRONICS, INC.
Attn: Chief Executive Officer
5528 Eubank Blvd., N.E. Suite 3
Albuquerque, New Mexico 87111
Ladies and Gentlemen:
The undersigned, ____________ hereby elects to purchase, pursuant to the
provisions of the foregoing Warrant held by the undersigned, ____________ shares
(the "Shares") of the common stock, par value $0.01 per share (the "Common
Stock"), of Mobility Electronics, Inc., a Delaware corporation.
Payment of the purchase price for the Shares being purchased, as required under
such Warrant, accompanies this subscription.
The undersigned hereby represents and warrants that the undersigned is acquiring
the Shares for the account of the undersigned and not for resale or with a view
to distribution of such Shares or any part hereof; that the undersigned is fully
aware of the transfer restrictions affecting restricted securities under the
pertinent securities laws; and the undersigned understands that the Shares
purchased hereby are restricted securities and that the certificate or
certificates evidencing the same will bear a legend to that effect.
DATED: _____________________.
Signature:
Printed:
Address:
<PAGE> 1
EXHIBIT 10.21
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into as
of the 8th day of December, 1999, by and between Mobility Electronics, Inc., a
Delaware corporation (the "Company"), and William O. Hunt ("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.
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
3
<PAGE> 4
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/ WILLIAM O. HUNT
----------------------------------
William O. Hunt
4
<PAGE> 1
EXHIBIT 10.22
HUNT, WILLIAM O.
MOBILITY ELECTRONICS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement (the "Agreement"), dated as
of December 8, 1999, is entered into by and between Mobility Electronics, Inc.,
a Delaware corporation (the "Company"), and William O. Hunt, 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 December
8, 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 $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 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 8th day of each month, commencing on January 8, 2000; 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.
<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
/s/ WILLIAM O. HUNT
-----------------------------------
William O. Hunt
-----------------------------------
Social Security Number of Optionee
<PAGE> 1
EXHIBIT 10.36
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Agreement") is made and entered into
as of the 21st day of May 1999, by and among John Moroz ("J. Moroz"), Peter
Moroz ("P. Moroz") and Mykola Moroz ("M. Moroz" and together with J. Moroz and
P. Moroz, the "Shareholders") and Mobility Electronics, Inc. (f/k/a Electronics
Accessory Specialists International, Inc), a Delaware corporation (the
"Company").
W I T N E S E T H :
WHEREAS, Miram International Inc., a Minnesota corporation ("Miram"),
has been liquidated, and its assets have been distributed to the Shareholders;
and
WHEREAS, an Event of Default has occurred under that certain Promissory
Note, dated July 3, 1997, payable by Miram to M. Moroz in the original principal
amount of $400,000 (the "Note"), which Note was assumed by the Company as an
assumed liability under that certain Asset Purchase Agreement and Plan of
Reorganization, dated July 29, 1997, by and among Miram, the Shareholders and
the Company (the "Purchase Agreement"); and
WHEREAS, the parties hereto have reached an agreement concerning the
waiver of the Event of Default, the terms upon which payment of the Note shall
be made and termination of that certain Preemptive Rights Agreement, dated as of
July 29, 1997, by and among Miram, the Shareholders and the Company executed in
connection with the Asset Purchase Agreement (the "Preemptive Rights
Agreement").
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Settlement Terms.
a. Waiver of Defaults. The Company failed to make required
payments under the Note on January 1, 1999 and April 1, 1999, which failures are
Events of Default (as that term is defined in the Note) under the Note. Miram
hereby waives such Events of Default, but such waiver shall not constitute a
waiver of any future Events of Default.
b. Amendments to the Note. The Note shall be amended as
follows:
(i) The Note shall continue to accrue interest at the
rate of 8% per annum until paid in full. All
principal and accrued but unpaid interest due and
payable under the Note shall be deferred until
January 31, 2000, and the principal and all accrued
but unpaid interest of the Note shall be due and
payable in three
<PAGE> 2
equal installments on January 31, 2000, April 30,
2000 and July 31, 2000; and
(ii) In the event the Company (i) closes an initial public
offering of its common stock, par value $.01 per
share ("Common Stock"), or (ii) closes on $10 million
or more in a single private offering of its stock
(which may have one or more closings) after the date
hereof, then the Company shall pay all of the
principal and accrued but unpaid interest of the Note
within 10 days of such closing.
c. Issuance of Common Stock. The parties agree that the rights
of Miram under Section 2.2(b) of the Purchase Agreement are hereby settled,
modified, amended and changed to provide that, upon execution of this Agreement
by the parties hereto, the Company will issue an aggregate of 77,000 shares of
Common Stock to the Shareholders upon the execution of this Agreement, in the
amounts set forth on Exhibit A attached hereto; and the Company shall have no
further obligations to Miram or the Shareholders under the Purchase Agreement
(including, without limitation, Section 2.2(b) of the Purchase Agreement).
d. Termination of Preemptive Rights Agreement. The parties
agree that the Preemptive Rights Agreement shall terminate upon the execution of
this Agreement by the parties hereto; and that any rights or obligations of the
parties thereunder (past, present or future) shall be deemed to have been waived
and terminated.
2. Representations and Warranties.
a. Representations and Warranties of the Shareholders. The
Shareholders hereby represent and warrant that the following are true and
correct as of the date hereof: (i) each Shareholder has the power and authority
to execute, deliver and perform his obligations under this Agreement, and this
Agreement constitutes the valid and binding obligation of each Shareholder
enforceable against him in accordance with the terms hereof; (ii) each
Shareholder has consulted or has had sufficient opportunity to discuss with any
person, including an attorney of his choice, all provisions of this Agreement,
that he has carefully read and fully understands all the provisions of this
Agreement, that he is competent to execute this Agreement, and that he is
voluntarily entering into this Agreement of his own free will and accord,
without reliance upon any statement or representation of any person or parties
released, or their representatives, concerning the nature and extent of the
damages and/or legal liability therefor; and (iii) Miram has been liquidated and
the Shareholders were the only shareholders of Miram at the time of such
liquidation. M. Moroz also represents and warrants that he is the holder of the
Note, and he covenants and agrees that: (i) he will attach a copy of this
Agreement to the Note; and (ii) he will not sell or otherwise transfer the Note
without the prior written consent of the Company, which consent shall not be
unreasonably withheld.
b. Representations and Warranties of the Company. The Company
hereby represents and warrants that the following are true and correct as of the
date hereof: (i) the Company
-2-
<PAGE> 3
is a corporation validly existing and in good standing under the laws of the
State of Delaware; (ii) the Company has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement, and the
execution, delivery and performance by it of this Agreement has been duly
authorized by all necessary action, and this Agreement constitutes the valid and
binding obligation of the Company, enforceable against it in accordance with the
terms hereof; and (iii) none of the Company Releasors have assigned, sold,
conveyed or otherwise transferred all or any portion of the Company Claims.
3. Amendment and Assignment. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto. This Agreement shall extend to and be binding upon each of the parties
and their respective heirs, successors, assigns, legal representatives and any
corporation or other entity into or with which any party hereto may merge or
consolidate. Notwithstanding the above, neither this Agreement nor any right
created hereby shall be assignable to any party hereto.
4. Notice. Any notice or communication 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 or by facsimile. Any such notice
or communication shall be deemed received, if not earlier received, on the third
business day following the date on which it is mailed, or on the day on which it
is hand delivered or delivered by facsimile, as the case may be. For purposes of
notice, the addresses of the parties shall be as set forth opposite in the
Purchase Agreement. Any party may change its address for notice by written
notice similarly given to the other parties.
5. 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, relating to the subject
matter hereof.
6. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, such
provisions shall be deemed severable and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provisions did not
comprise a part hereof unless the loss of such provision causes this Agreement
to fail of its essential purpose; 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 except as
aforesaid. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, the parties agree to meet to determine in good faith, or will ask the
court to determine, a provision as similar in its terms to such illegal, invalid
or unenforceable provision as may be possible and be legal, valid and
enforceable and such provision so determined shall then be added as part of this
Agreement.
7. 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.
-3-
<PAGE> 4
8. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
/s/ JOHN MOROZ
---------------------------------------
John Moroz
/s/ MYKOLA MOROZ
---------------------------------------
Mykola Moroz
/s/ PETER MOROZ
---------------------------------------
Peter Moroz
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
----------------------------------
Charles R. Mollo,
Chief Executive Officer
-4-
<PAGE> 5
Exhibit A
<TABLE>
<CAPTION>
Name of Shareholder Number of Shares
- ------------------- ----------------
<S> <C>
John Moroz 33,000
Peter Moroz 4,000
Mykola Moroz 40,000
Total
-------------
77,000
</TABLE>
-5-
<PAGE> 1
[J.C. BRADFORD & CO. LETTERHEAD]
EXHIBIT 10.37
October 22, 1999
Mr. Charles Mollo
President & Chief Executive Officer
Mobility Electronics, Inc.
7955 E. Redfield Road
Scottsdale, AZ 85260
Dear Charlie:
We are writing this letter to confirm that J.C. Bradford & Co., LLC
("Bradford") has been engaged to act as the exclusive financial advisor to
Mobility Electronics, Inc., together with its affiliates and subsidiaries, (the
"Company") in connection with its consideration of a possible Transaction (as
defined below). Bradford may also act as financial advisor to the Company, as
requested by the Company, in connection with the sale of an equity stake in the
Company, or the formation of a joint venture or similar transaction. This letter
is to confirm our understanding with respect to our engagement.
As used in this letter, "Transaction" means, whether effected in one
transaction or a series of transactions, (a) any merger, consolidation,
reorganization, or other business combination pursuant to which the business of
the Company or the universal docking business of the Company ("UDS") is combined
with that of a third party, (b) the acquisition, directly or indirectly, by a
third party by way of a tender or exchange offer, negotiated purchase, or
pursuant to a plan of reorganization or other means, of all or a majority of the
then outstanding capital stock of the Company, or (c) the acquisition, directly
or indirectly, by a third party of all or a material amount of the assets of, or
of any right to all or a material amount of the revenues or income of, the
Company or the UDS by way of a negotiated purchase, lease, exchange, or pursuant
to a plan or reorganization or other means.
SCOPE OF ENGAGEMENT
As we have discussed, in the course of our engagement, we will perform such
financial advisory and investment banking services for the Company in connection
with the proposed Transaction as are customary and appropriate for transactions
of this type and as you reasonably request including the delivery of a fairness
opinion, if requested.
In order to coordinate the efforts to effect a Transaction satisfactory to
the Company, during the period of our engagement hereunder, neither the Company
nor anyone acting on its behalf shall initiate any discussions regarding a
Transaction with any person or entity, except through Bradford or as otherwise
approved by Bradford. In the event the Company or any of its officers or
directors receives an inquiry regarding a potential Transaction, they will
promptly
<PAGE> 2
Mr. Charles Mollo
Mobility Electronics, Inc.
October 22, 1999
inform Bradford of such inquiry in order that Bradford may assist the Company in
any resulting negotiations.
FEES AND EXPENSES
As compensation for Bradford's services, the Company agrees to pay the
following cash fees to Bradford:
A. If a Transaction is consummated, Bradford will be paid at closing
according to the following formula:
<TABLE>
<CAPTION>
Aggregate Consideration Percentage
----------------------- ----------
<S> <C>
$0 - $1.0 million 5.0%
$1.0 - $2.0 million 4.0%
$2.0 - $3.0 million 3.0%
$3.0 - $4.0 million 2.0%
$4.0 million and greater 1.0%
</TABLE>
The above fee calculation shall be subject to a minimum fee of
$400,000 payable to Bradford at the closing of a Transaction,
provided, however, that any amounts paid under Items B or C below
shall be credited against this minimum fee.
B. If the Company receives an equity investment from a third party
contacted or referred by Bradford, Bradford shall receive 5.0% of the
capital raised from such party.
C. In the event of the formation of a joint venture, licensing
arrangement or similar agreement to facilitate the marketing and
production of the Company's products with a third party contacted or
referred by Bradford, Mobility and Bradford shall determine the
appropriate fee to be paid to Bradford, which fee shall be within
industry standards; provided, however, if such agreement is ancillary
or related to a Transaction, no fee shall be payable under this Item C
(with the fees being payable pursuant to Item A above).
D. If the Transaction described in A, the equity investment described in
B or the joint venture described in C above involve contingent
payments to be made at a subsequent date, then Bradford shall receive
compensation related to such payments at the time they are received by
the Company or its shareholders, in accordance with the terms outlined
in A, B and C, respectively.
2
<PAGE> 3
Mr. Charles Mollo
Mobility Electronics, Inc.
October 22, 1999
In addition to any fees that may be payable to Bradford under this letter,
the Company agrees to reimburse Bradford, upon request made from time to time,
for its travel and out-of-pocket expenses actually incurred in connection with
Bradford's activity under this letter, including the fees and disbursements of
its legal counsel.
The "aggregate consideration" for purposes of calculating Bradford's fee
shall be deemed to be the total amount of cash and the fair market value (on the
date of payment) of other property received or receivable (including amounts
paid into escrow) by the Company or the shareholders of the Company, from any
source in connection with the Transaction, with the value of securities being
calculated at fair market value (taking into account the fair market value of
all warrants, options, convertible securities and/or other common stock
equivalents received in the Transaction) plus, the aggregate amount of any
dividends or other distributions declared by the Company in contemplation of a
Transaction, other than normal quarterly dividends, plus, in the case of a sale
of the entire Company by means of a disposition of assets, the value of any net
current assets retained by the Company or a third party and/or the shareholders
of the Company or a third party, as applicable. The "aggregate consideration"
will also include the principal amount of any indebtedness of the Company or a
third party that is assumed or paid, directly or indirectly, by the Company or a
third party, as the case may be, and any payments to officers or shareholders of
the Company or a third party in connection with the Transaction, including
payments under non-competition agreements but excluding any consulting or
employment agreements. If such aggregate consideration may be increased by
payments related to future earnings, operations, or otherwise, the portion of
Bradford's fee relating thereto shall be calculated and paid when and as such
payments are made.
In the event that the consideration received in a Transaction is paid in
whole or in part in the form of securities of the Company or a third party, the
value of such securities, for purposes of calculating Bradford's fee, shall be
the fair market value thereof, as the parties hereto shall mutually agree on the
day prior to the consummation of the Transaction.
RIGHT OF FIRST REFUSAL
If the Company intends to offer equity securities in a public offering
within 12 months of the date first provided above, the Company will offer to
Bradford the role of co-managing underwriter in such transaction (with the
determination of lead-manager being at the Company's discretion).
3
<PAGE> 4
Mr. Charles Mollo
Mobility Electronics, Inc.
October 22, 1999
USE OF INFORMATION
The Company agrees to furnish or cause to be furnished to Bradford all
information and data that Bradford deems appropriate to its engagement hereunder
(the "Information") and will give Bradford access to the Company's officers,
directors, and employees, as well as access to the Company's independent
accountants and legal counsel. The Company hereby represents that the
Information so furnished to Bradford will be correct and complete in all
material respects and not misleading. The Company recognizes and confirms that
Bradford will be entitled to use the Information and other publicly available
information and information in reports and other materials provided by others,
including, without limitation, information provided by or on behalf of third
parties, and that Bradford does not assume responsibility for and may rely,
without independent verification, on the accuracy, completeness, reasonableness
and fairness of any such information. It is also understood that Bradford has
not made, and will not make, any physical inspection of the properties or assets
of any potential purchaser and with respect to any financial forecast that may
be furnished to or discussed with Bradford by the Company or any potential
purchaser, Bradford will assume that they have been reasonably prepared and
reflect the best then currently available estimates and judgments of the
Company's or the potential purchaser's management as to the expected future
financial performance of the Company or any potential purchaser. The Company
will notify Bradford promptly of any change that may be material in any
Information previously furnished, supplied, discussed with or otherwise made
available to Bradford or made publicly available by the Company and, to the best
knowledge of the Company, of any change that may be material in any Information
or other information furnished, supplied, discussed with or otherwise made
available to Bradford or made publicly available by a potential purchaser.
It is understood that any information or advice rendered by Bradford or any
of its representatives in connection with this engagement is for the
confidential use of the Board of Directors of the Company in considering the
terms of any Transaction and will not be reproduced, disseminated, summarized,
described, quoted or referred to or given to any other person at any time, in
any manner or for any purpose, without Bradford's prior written consent, which
consent shall not be unreasonably withheld. In addition, there shall be no
public references to Bradford without Bradford's prior written consent, which
consent shall not be unreasonably withheld.
4
<PAGE> 5
Mr. Charles Mollo
Mobility Electronics, Inc.
October 22, 1999
INDEMNITY
The Company agrees to indemnify and hold harmless Bradford and its
affiliates and their respective members, partners, directors, officers,
employees, agents, and controlling persons (Bradford and each such person being
an "Indemnified Party") from and against any and all losses, claims, damages,
judgments, assessments, costs and other liabilities, joint or several, to which
such Indemnified Party may become subject under any applicable federal or state
law, or otherwise, and related to or arising out of any transaction contemplated
by this letter or the engagement of Bradford pursuant to, and the performance by
Bradford of the services contemplated by, this letter and will reimburse any
Indemnified Party for all fees and expenses (including counsel fees and
expenses) as they are incurred in connection with the investigation of,
preparation for, or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party
and whether or not such claim, action, or proceeding is initiated or brought by
or on behalf of the Company. The Company will not be liable under the foregoing
indemnification and reimbursement provisions to the extent that any loss, claim,
damage, judgment, assessment, cost or any other liability, or related expenses,
is found in a final judgment by a court of competent jurisdiction to have
resulted primarily from an Indemnified Person's bad faith or gross negligence.
The Company also agrees that no Indemnified Party will have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company or
its security holders or creditors related to or arising out of the engagement of
Bradford pursuant to, or the performance by Bradford of the services
contemplated by, this letter except to the extent that any loss, claim, damage,
judgment, assessment, cost or any other liability, or related expenses, is
found in a final judgment by a court of competent jurisdiction to have resulted
primarily from an Indemnified Person's bad faith or gross negligence.
If the indemnification of an Indemnified Party provided for in this letter
is for any reason held unenforceable (other than primarily because of an
Indemnified Person's bad faith or gross negligence), the Company agrees to
contribute to the losses, claims, damages, judgments, assessments, costs and
other liabilities, and related expenses, for which such indemnification is held
unenforceable (i) in such proportion as is appropriate to reflect the relative
benefits to the Company and its shareholders, on one hand, and Bradford, on the
other hand, of the Transaction as contemplated (whether or not the Transaction
is consummated) or (ii) if (but only if) the allocation provided for in clause
(i) is for any reason held unenforceable, in such proportion as is appropriate
to relative benefits referred to in clause (i) but also the relative fault of
the Company, on the one hand, and Bradford, on the other hand, as well as any
other relevant equitable considerations; provided, however, that, to the extent
permitted by applicable law, in no event will the Indemnified Parties be
required to contribute an aggregate amount in excess of the aggregate fees
actually paid to Bradford under this letter. For purposes of this paragraph, the
5
<PAGE> 6
Mr. Charles Mollo
Mobility Electronics, Inc.
October 22, 1999
relative benefits to the Company and its shareholders, on one hand, and to
Bradford, on the other hand, of the Transaction shall be deemed to be in the
same proportion as (a) the total value paid or contemplated to be paid or
received or contemplated to be received by the Company or the Company's
shareholders, as the case may be, in the Transaction as contemplated (whether or
not the Transaction is consummated), bears to (b) the fees paid or contemplated
to be paid to Bradford under this agreement.
The Company agrees that, without Bradford's prior written consent, it will
not settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action, or proceeding in respect of which indemnification
could be sought under the indemnification provisions of this letter, whether or
not Bradford or any other Indemnified Party is an actual or threatened party to
such claim, action, or proceeding, unless such settlement, compromise, or
consent includes an unconditional release of each Indemnified Party from all
liability arising out of such claim, action, or proceeding.
The reimbursement, indemnity and contribution obligations of the Company
under the preceding paragraphs shall be in addition to any liability which the
Company may otherwise have, and shall be binding upon and inure to the benefit
of successors, assigns, heirs, and personal representatives of any Indemnified
Party.
In the event that an Indemnified Party is requested or required to appear
as a witness in any action brought by or on behalf of or against the Company or
any affiliate of the Company in a transaction contemplated by this letter in
which such Indemnified Party is not named as a defendant, the Company agrees to
reimburse Bradford for all expenses incurred by it in connection with such
Indemnified Party's appearing and preparing to appear as such a witness,
including, without limitation, the fees and disbursements of its legal counsel.
CERTAIN ACKNOWLEDGEMENTS
The Company acknowledges and agrees that Bradford has been retained to act
solely as financial advisor to the Board of Directors of the Company. In such
capacity, Bradford shall act as an independent contractor, and any duties of
Bradford arising out of its engagement pursuant to this letter shall be owed
solely to the Board of Directors of the Company. The Board of Directors and the
Company hereby acknowledge that Bradford has advised them that Bradford does not
believe that any person (including a shareholder of the Company) other than the
Board of Directors, in connection with the discharge of its fiduciary
obligations, has the legal right to rely on the Opinion, if any, for any claim
arising under state law and that, should any claim be brought against Bradford,
this assertion will be raised as a defense. Bradford may, at its own
6
<PAGE> 7
Mr. Charles Mollo
Mobility Electronics, Inc.
October 22, 1999
expense, place announcements or advertisements in financial newspapers and
journals describing its services hereunder.
TERMINATION OF EMPLOYMENT.
This agreement may be terminated by either the Company or Bradford upon
receipt of written notice to that effect by the other party. Upon termination,
Bradford will be entitled to prompt payment of all fees accrued prior to such
termination and reimbursement of all out-of-pocket expenses as described above.
Additionally, the termination of this agreement will not affect the matters set
out in this section or under the captions "Right of First Refusal", "Use of
Information," "Indemnity", "Certain Acknowledgments" and "Miscellaneous." In the
event that, at any time prior to 12 months following termination of this
engagement by either party, the Company enters into a Transaction (or executes a
definitive agreement which results in a Transaction), obtains an equity
investment from, or forms a joint venture with any third party contacted or
referred by Bradford during the term of this engagement, Bradford will be
entitled to full compensation with respect to such transaction as if this
engagement had not been terminated.
MISCELLANEOUS
This letter shall be governed by, and construed in accordance with, the
laws of the State of Tennessee applicable to contracts executed in and to be
performed in that state, and will be binding upon and inure to the benefit of
the successors and assigns of the Company and Bradford. The Company and Bradford
agree to waive trial by jury in any action, proceeding or counterclaim brought
by or on behalf of either party with respect to any matter whatsoever relating
to or arising out of any actual or proposed Transaction or the engagement of or
performance by Bradford hereunder. This agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute on and the same documents.
This agreement may not be waived, amended, modified or assigned, in any
way, in whole or in part, including by operation of law, without the prior
written consent of both parties hereto. The provisions hereof shall inure to the
benefit of and be binding upon the successors, assigns and personal
representatives of the Company and Bradford.
[Remainder of this Page Intentionally Left Blank]
7
<PAGE> 8
Mr. Charles Mollo
Mobility Electronics, Inc.
October 22, 1999
We are pleased to accept this engagement and look forward to working with
the Company. Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
letter, which shall thereupon constitute a binding agreement.
Very truly yours,
J.C. BRADFORD & CO., LLC
By: /s/ KIRK A. LUNDBLADE
--------------------------------
Kirk A. Lundblade
Partner - Managing Director
CONFIRMED
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES MOLLO
---------------------------
Charles Mollo
Title: President & Chief Executive Officer
Date: 10/22/99
--------------------------
8
<PAGE> 1
EXHIBIT 10.38
LOAN EXTENSION AGREEMENT
This Loan Extension Agreement (this "Agreement") is made as of February 29,
2000, by and between Mobility Electronics, Inc., a Delaware corporation
("Maker"), and __________________________ ("Payee").
W I T N E S S E T H:
WHEREAS, Payee has loaned to Maker the aggregate principal amount of
$_________, pursuant to the terms and provisions of that certain 13% Bridge
Promissory Note, dated _______ 1999 (the "Note"); and
WHEREAS, Maker desires to have Payee extend the term of the Note, and Payee
has agreed to do so, on the terms and conditions contained herein;
NOW, THEREFORE, in consideration of these premises, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged, the parties hereto agree
as follows:
1. Amendment to Note. The parties hereto hereby agree that the Note is
amended as follows:
A. All accrued but unpaid interest on the Note as of February 29, 2000
($_______) is hereby added to the principal balance of the Note, and the
principal of the Note is hereby amended to $___________.
B. The first paragraph of the Note is hereby amended by changing the
interest rate from thirteen percent (13%) per annum to fourteen percent
(14%) per annum, effective as of the date hereof.
C. Section 1 of the Note is hereby amended to read in its entirety
as follows:
1. Principal and Interest Payment. Interest on this Note from and
after March 1, 2000 shall be due and payable on the first day of each
calendar quarter, commencing on April 1, 2000 and continuing on the
first day of each calendar quarter thereafter until all interest on
this Note has been paid in full. The principal of this Note shall be
due and payable on the earlier of: (i) March 31, 2001; (ii) thirty
(30) days following the closing of an initial public offering (an
"IPO") by Maker of its common stock, par value $0.01 per share (the
"Common Stock"); or (iii) thirty (30) days following the closing by
Maker of a private offering of equity securities of Maker with
aggregate subscriptions of at least $10 million. 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 interest on all Bridge Notes at the
time of such payment.
1
<PAGE> 2
D. Section 2 of the Note is hereby amended to read in its entirety
as follows:
1. Prepayment. Maker may at its sole option prepay all or any
part of the principal of this Note, or interest thereon, before
maturity without premium or penalty. All such prepayments shall first
be applied to accrued but unpaid interest on this Note, and the
remaining balance of any such prepayments, if any, shall be applied to
the principal balance of this Note.
E. A new Section 14 is hereby added to the Note, which Section shall
read in its entirety as follows:
1. Conversion. Within fifteen (15) days following the closing of
an IPO by Maker (the "Conversion Expiration Date"), Payee may, at
Payee's option, convert any or all of the then outstanding principal
balance of, and accrued but unpaid interest on, the Note into shares
of Common Stock at a conversion price per share equal to ninety five
percent (95%) of the offering price of the IPO. In order to exercise
the above conversion right, Payee must deliver to the Chief Financial
Officer of Maker at Maker's executive offices in Scottsdale, Arizona,
on or prior to the Conversion Expiration Date: (i) the original Note;
and (ii) a completed Conversion Notice, a copy of which is attached
hereto as Exhibit A. Cash will be paid in lieu of fractional shares.
2. Issuance of Warrants. Concurrently with the execution and delivery of
this Agreement by the parties hereto, Maker shall deliver to Payee a Warrant, in
substantially the form of Exhibit B attached hereto, with the number of shares
purchasable thereunder being equal to 20,000 for each $100,000 of principal
outstanding on the Note on the date of this Agreement.
3. Potential Issuance of Penalty Warrants. Commencing on October 1, 2000,
and continuing on the first day of each calendar quarter thereafter, if any of
the principal of the Note continues to be outstanding, then Maker shall issue to
Payee a Warrant, in substantially the form of Exhibit C attached hereto, to
purchase 5,000 shares of Common Stock for each $100,000 of principal outstanding
on the Note on the first day of such calendar quarter.
4. Entire Agreement. This Agreement contains the entire understanding
between and among the parties hereto with respect to the subject matter hereof,
and shall be binding upon and inure to the benefit of such parties, and subject
to its terms, the respective successors, heirs, assigns and legal
representatives. Payee agrees that this Agreement shall be attached to the Note.
5. Governing Law. This Agreement is being delivered in and shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
6. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
2
<PAGE> 3
MAKER:
-----
MOBILITY ELECTRONICS, INC.
By:
Richard W. Winterich, Chief Financial Officer
PAYEE:
-----
If an individual:
Printed:
If an entity:
(name of entity)
By:
Title:
3
<PAGE> 4
EXHIBIT A
Form of Conversion Notice
To Mobility Electronics:
The undersigned owner of the enclosed 13% Bridge Promissory Note (the
"Note) of Mobility Electronics, Inc., a Delaware corporation ("Maker"), hereby
irrevocably exercises the option to convert the interest on and principal of the
Note, or portion hereof below designated, into shares of Common Stock of Maker
in accordance with the terms of the Note, and directs that the shares issuable
and deliverable upon the conversion, together with any check in payment for a
fractional share and any Note representing any unconverted principal amount
hereof, be issued and delivered to the undersigned at its address on the books
of Maker, unless a different name has been indicated below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto.
<TABLE>
<CAPTION>
<S> <C> <C>
Social Security or Other Taxpayer Principal Amount to be Converted (If Interest Amount to be converted (If
Identifying Number less than all is to be converted) less than all is to be converted)
- --------------------------------- ------------------------------------ --------------------------------------
</TABLE>
Dated:
If individual:
By:
Printed:
If an entity:
By:
(Name of entity)
By:
Title:
A-1
<PAGE> 5
Fill in for registration of shares of Common Stock and principal amount of Note
if to be issued otherwise than to the Holder at its Record Address.
(Name)
(Address)
Please print name and address
(including zip code)
A-2
<PAGE> 1
EXHIBIT 10.39
MOBILITY ELECTRONICS, INC.
STRATEGIC PARTNER AGREEMENT
WITH
CYBEX COMPUTER PRODUCTS CORPORATION
MARCH 6, 2000
<PAGE> 2
STRATEGIC PARTNER AGREEMENT
This Strategic Partner Agreement (the "Agreement") is made as of the 6th
day of March, 2000, by and between Mobility Electronics, Inc., a Delaware
corporation (the "Company"), and Cybex Computer Products Corporation, an Alabama
corporation (the "Cybex"). The Company and Cybex are sometimes each referred to
herein as a "Party" and collectively, as the Parties".
The Parties agree as follows:
1. STRATEGIC RELATIONSHIP.
1.1 BACKGROUND. The Parties have determined that a strategic business
relationship between them would be beneficial to both Parties. In forming such
business relationship Cybex has agreed to make an investment in the Company,
both parties have agreed to license certain technology to each other, and the
Company has agreed to sell certain of its products to Cybex on a private label
basis.
1.2 LICENSE AGREEMENTS AND PRIVATE LABEL AGREEMENT. At the Closing (as
defined below), the Parties agree to execute and deliver to each other: (i) a
Mobility License Agreement, in the form attached hereto as Exhibit A (the
"Mobility License Agreement"); (ii) a Cybex License Agreement, in the form
attached hereto as Exhibit B (the "Cybex License Agreement"); and (iii) the
Mobility Private Label Agreement, in the form attached hereto as Exhibit C (the
"Mobility Private Label Agreement"). The Mobility License Agreement, the Cybex
License Agreement and the Mobility Private Label Agreement are sometimes
collectively referred to herein as the "Other Agreements").
1.3 SALE AND ISSUANCE OF SERIES D 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 D Preferred Stock of the Company, a copy of which is
attached hereto as Exhibit D (the "Certificate of Designations").
(b) Subject to the terms and conditions of this Agreement, Cybex
agrees to purchase at the Closing and the Company agrees to sell and issue to
Cybex at the Closing 500,000 shares (the "Shares") of Series D Preferred Stock
(the "Series D Stock") at a purchase price of $10.00 per share.
1.4 CLOSING; DELIVERY.
(a) The purchase and sale of the Shares 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 Cybex
1
<PAGE> 3
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 Cybex a
certificate representing the Shares, against payment of $5,000,000 by wire
transfer to the Company's bank account.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Cybex that the following are true and correct as of
the date hereof:
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 Other Agreements (collectively, the
"Agreements") and (iii) issue and sell the Shares and the common stock, par
value $0.01 per share, of the Company (the "Common Stock") issuable upon
conversion of the Shares, 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.
2.2 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 Shares 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 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.
2.3 VALID ISSUANCE OF SECURITIES. The Shares that are being issued to
Cybex 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 Cybex in this
Agreement, the Shares will be issued in compliance with all applicable federal
and state securities laws. The Common Stock issuable upon conversion of the
Shares 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
<PAGE> 4
2.4 COMPLIANCE WITH OTHER INSTRUMENTS. 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) 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.
2.5 DISCLOSURE. The Company has provided Cybex a copy of the
registration statement on Form S-1 filed by the Company with the Securities and
Exchange Commission on February 11, 2000 (the "Registration Statement"). The
Registration Statement has been so provided solely for purposes of providing
information about the Company to Cybex, and not as an inducement to participate
in the potential offering provided therein. The Company has fully provided Cybex
with all the information that Cybex has requested for deciding whether to
acquire the Shares and all information that the Company believes is reasonably
necessary to enable the Cybex to make such a decision. Neither the Registration
Statement nor any representation or warranty of the Company contained in this
Agreement and the exhibits attached hereto or any certificate furnished or to be
furnished to Cybex at the Closing 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.
2.6 OFFERING. Subject in part to the truth and accuracy of Cybex's
representations and warranties set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Shares as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act of 1933, as
amended (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.
3. REPRESENTATIONS AND WARRANTIES OF CYBEX. Cybex hereby represents and
warrants to the Company that:
3.1 AUTHORIZATION. Cybex has full power and authority to enter into
the Agreements. The Agreements, when executed and delivered by Cybex, will
constitute valid and legally binding obligations of Cybex, enforceable in
accordance with their terms, except 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.
3
<PAGE> 5
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Agreements are made with
Cybex in reliance upon Cybex's representation to the Company, which by Cybex's
execution of this Agreement Cybex hereby confirms, that the Shares to be
acquired by Cybex will be acquired for investment for Cybex'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 Cybex has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Cybex further represents that Cybex 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 Shares.
3.3 DISCLOSURE OF INFORMATION. Cybex has had an opportunity to discuss
the Company's business, management, financial affairs and the terms and
conditions of the offering of the Shares with the Company's management and has
had an opportunity to review the Company's facilities. Cybex understands that
such discussions and any other written information delivered by the Company to
Cybex were intended to describe the aspects of the Company's business which it
believes to be material.
3.4 RESTRICTED SECURITIES. Cybex understands that the Shares 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 Cybex's representations as expressed herein. Cybex
understands that the Shares are "restricted securities" under applicable U.S.
federal and state securities laws and that, pursuant to these laws, Cybex must
hold the Shares 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. Cybex 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 Shares, and
on requirements relating to the Company which are outside of Cybex's control,
and which the Company is under no obligation and may not be able to satisfy.
Cybex is hereby granted certain registration rights as set forth on Exhibit E
attached hereto.
3.5 NO PUBLIC MARKET. Cybex 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 Shares.
3.6 LEGENDS. Cybex understands that the Shares 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
4
<PAGE> 6
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. Cybex 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 CYBEX'S OBLIGATIONS AT CLOSING. The obligations of
Cybex 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 Cybex 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. Cybex 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 F.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to Cybex under this Agreement are subject to the fulfillment, on or
before the Closing, of each of the following conditions, unless otherwise
waived:
5
<PAGE> 7
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Cybex 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 Cybex 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
Shares pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL. Unless otherwise set forth in this Agreement, the
warranties and representations of the Company and Cybex contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing for a period of one (1) year following the Closing.
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 fees payable by the Company to J.C.
Bradford & Co., each party represents that it neither is nor will be obligated
for any finder's fee or commission in connection with the Agreements. Cybex
agrees to indemnify and to hold harmless the Company from any liability for any
commission or
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compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which Cybex or any
of its officers, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless each Cybex 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.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
or waived only with the written consent of the Company and Cybex. Any amendment
or waiver effected in accordance with this Section 6.9 shall be binding upon
Cybex and each transferee of the Shares, each future holder of the Shares, 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
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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 Shares 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 RELIANCE. Cybex 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.
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<PAGE> 10
The parties have executed this Agreement as of the date first written
above.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
-------------------------------------
Title: President
----------------------------------
Address: 7955 East Redfield Road
Scottsdale, Arizona 85260
(480)596-0349
CYBEX COMPUTER
PRODUCTS CORPORATION
By: /s/ STEPHEN THORNTON
-------------------------------------
Title:
----------------------------------
Address: 4991 Corporate Drive
Huntsville, Alabama 35805
(256)430-4030
9
<PAGE> 1
EXHIBIT 10.40
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of the 20th day of March, 2000, by and between Mobility Electronics, Inc., a
Delaware corporation ("Employer"), and Don Johnson ("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
Executive Vice President, Worldwide Sales, Marketing and Operations 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, the Chief Executive Officer or the
President of Employer. As such, Employee shall report directly to the President
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 comparable business.
3. Term. The term of this Agreement shall commence as of April 1, 2000,
and shall continue, unless earlier terminated pursuant to Section 7 below, for a
period of three (3) 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 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:
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(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.
(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.
(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 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
2
<PAGE> 3
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 which is 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 (e) of the first paragraph
of Section 7 below; (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; or (iv) following any
termination of this Agreement, Employee may work with any personal
computer company in a capacity which is not competitive with the
Business.
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);
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<PAGE> 4
(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 six (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 Executive Vice President,
Worldwide Sales, Marketing and Operations 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.
"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
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<PAGE> 5
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 or the Chief Executive Officer or President of Employer which
have been communicated to Employee with respect to the operation of
Employer's businesses and affairs or Employee's failure to carry out
the reasonable instructions of the Board or the Chief Executive Officer
or President of Employer and following written notice thereof 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.
(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 receive a lump-sum payment equal
to the Employee's then current Salary for the remainder of the then
applicable Term.
(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
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<PAGE> 6
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: Don Johnson
--------------------------
--------------------------
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.
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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.
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
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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/ CHARLES R. MOLLO
--------------------------------------
Title: President
-----------------------------------
/s/ DON JOHNSON
-----------------------------------------
Don Johnson
8
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EXHIBIT A
A. Base Salary: Employee shall receive an annual Salary of
$220,000, payable bi-weekly in arrears, which
annual Salary shall be subject to increase from
time to time as may be determined by the Board.
B. Bonus Compensation: Employee shall be eligible to receive an annual
cash bonus, targeted at 40% of base salary, as
determined under a 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.
D. Additional Expenses: Employee shall receive a relocation
reimbursement to move to Scottsdale as mutually
agreed up to a maximum of $100,000.
E. Annual Raise: Employee shall be eligible for and receive an
annual raise as determined by the board of
directors.
A-1
<PAGE> 1
EXHIBIT 10.41
STRATEGIC VENDOR AGREEMENT
This Strategic Vendor Agreement (this "Agreement") is made as of August
10, 1998, by and between Mobility Electronics, Inc., a Delaware corporation
("Mobility"), and Molex Incorporated, a Delaware corporation ("Molex").
Mobility and Molex are sometimes each referred to herein as a "Party" and
collectively as the "Parties".
BACKGROUND
Molex is a developer and Manufacturer of connectors and cable for the
computer industry. Mobility is a manufacturer and distributor of portable
computer connectivity products. The Parties desire to form a strategic
relationship whereby Molex will develop a unique cable assembly interface
solution with a proprietary connector interface for the Universal Dock (as
defined below), all on the terms and conditions set forth in this Agreement.
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
following meanings unless the context clearly otherwise requires:
"Person" shall mean any individual, sole proprietorship, joint
venture, partnership, corporation, association, joint-stock company,
unincorporated organization, cooperative, trust, estate, or any other
entity of any kind or nature whatsoever.
"Product" shall mean a unique cable assembly interface solution with a
proprietary connector interface to be developed by Molex for Mobility. The
Product shall be designed from specifications provided by Mobility and
shall be for the exclusive use of Mobility and its customers; with any
other use requiring the prior written approval of Mobility.
"Universal Dock" shall mean Mobility's Universal Dock product, which
product is described in Exhibit A.
2. DEVELOPMENT OF THE PRODUCT; EXCLUSIVISITY.
(a) Development of the Product. Molex hereby agrees to develop, at its
primary cost and expense, the Product. The Product shall meet the specifications
required for the Universal Dock, which specifications are set forth in Exhibit
B, but which may be changed from time to time by Mobility in connection with the
development of the Universal Dock. Molex will use all reasonable commercial
efforts to meet Mobility's cable and connector requirements for the Universal
Dock with respect to cost, product development schedules and performance
criteria.
(b) Use of Technology. The patented technology utilized by Molex in
developing the Product shall be the exclusive property of Molex, and may be
utilized by Mobility without a license. In addition, Mobility shall have the
exclusive right to utilize the Product in the Universal
<PAGE> 2
Dock, and Molex hereby agrees not to offer, sell or otherwise market to any
Person, directly or indirectly, the Product, or any cable or connectors which
is, or could reasonably be expected to be, competitive with the Product.
Notwithstanding the above, Molex will have the right to use the patented and
proprietary technology in the Product in applications not related to, or
competitive with, the Universal Dock.
(c) Molex Exclusivity. Mobility agrees to utilize Molex as the exclusive
supplier for its initial and ongoing Universal Dock cable and connector
requirements; provided that Molex meets Mobility's quality, price and delivery
requirements as provided in Exhibit C, which Exhibit may be amended from time to
time by Mobility, upon sixty days prior written notice, as Mobility's needs
change. If Molex fails to meet the above requirements, Molex shall develop and
implement a plan of corrective action, reasonably acceptable to Mobility, within
thirty days after notice from Mobility (or such other period of time as agreed
to by the Parties). Notwithstanding the above, that Mobility shall be permitted
to second source up to 30% of its Product requirements for the Universal Dock
from a mutually agreeable other Person to the extent required by any significant
customer of Mobility provided that (i) Mobility purchases an agreed upon number
of products in calendar year 2000 and in any calendar year thereafter and (ii)
an appropriate license is granted to any such Person from Molex (which license
will be set forth in a separate document, but will be limited to a royalty of
not more than 5% of the Product sales price).
3. Term. The term of this Agreement shall commence as of the date first above
written, and shall remain in effect for an initial term ending on the later of
June 30, 2001 or whenever the volume commitments outlined in Exhibit B and C
have been fulfilled (the "Initial Term"), which Initial Term shall be deemed to
be extended for an additional one-year term (each, a "Renewal Term") at the end
of the Initial Term and any Renewal Term, unless either Party delivers to the
other Party written notice at least ninety (90) days before the end of the
Initial Term or the applicable Renewal Term of such Party's desire to terminate
this Agreement at the expiration of the Initial Term or Renewal Term (as the
case may be). As used herein, "Term" shall mean the Initial Term and any Renewal
Term. The Parties acknowledge that Exhibits B and C have not yet been completed,
and that the Parties shall use all reasonable commercial efforts to complete
such Exhibits as soon as possible (but no later than October 1, 1998), at which
time such Exhibits shall be attached to this Agreement. If the parties have not
agreed upon Exhibits B and C by October 1, 1998 either party may terminate this
agreement without additional obligation by providing written notice within
thirty (30) days to the other party.
4. PURCHASE ORDERS; FORECASTS.
(a) Purchase Orders. Mobility will issue to Molex from time to time in
writing purchase orders for Products (each, a "PO", and collectively, the
"POs"), which POs shall be in substantially the form of Exhibit D. The terms and
conditions of this Agreement shall govern in the event of any inconsistency
between any PO and the terms and conditions of this Agreement. POs may only be
changed, rescheduled or canceled as follows (i) POs may not be changed,
rescheduled or canceled within thirty (30) days or the requested date of
delivery; (ii) POs may be rescheduled. but not otherwise changed or canceled,
between thirty (30) days and sixty (60) days
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of the requested upon date of delivery; and (iii) POs may be changed,
rescheduled or canceled if the requested date of delivery is more that sixty
(60) days from the date of any notice of change, rescheduling or cancellation.
Upon completion of Exhibits B and C, Mobility agrees to place a PO for an
initial quantity of Products.
(b) Forecasts; Inventory. Mobility agrees that during the Term, it shall
provide Molex on or before the beginning of each month a six-month rolling
forecast (each, a "Forecast" and collectively, the "Forecasts") for the
Products, and any future products agreed to between the Parties. Molex agrees to
establish master production schedules for the Products in order to meet
Mobility's expected needs thereof provided in the Forecasts. The Forecasts shall
not be binding commitments of Mobility, but their sole purpose is to enable
Molex to plan its manufacturing and inventory requirements.
5. PRICING; PAYMENT.
(a) Pricing. The initial Products shall be marketed and sold by Molex to
Mobility for the prices set forth on Exhibit C. All Products shall be delivered
F.O.B. Molex's plant. Any future cables or connectors designed by Molex for
Mobility shall be priced as may be mutually agreed to by the Parties. Molex
agrees to use its best efforts to meet the targeted price reductions set forth
in Exhibit C.
(b) Payment Terms. The purchase price for any Products ordered by Mobility
from Molex pursuant to a PO shall be due and payable within forty-five (45)
days after the date of invoice from Molex. Molex shall invoice PO's upon
delivery of the ordered Products to Mobility.
6. WARRANTY AND; REMEDIES
(a) Warranty. Molex warrants that the Products shall be free from defects
in material and workmanship, and agrees to repair or replace any defective
Products for a period equal to any warranty period provided by Mobility to its
customers (but in no event, not to exceed (3) three years). This warranty is for
the benefit of Mobility and Persons purchasing or using a Universal Dock which
utilizes any Products. OTHER THAN THE WARRANTIES SET FORTH ABOVE MOLEX MAKES NO
OTHER WARRANTIES OR REPRESENTATIONS OF ANY KIND WHETHER EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR
PURPOSE, MERCHANTABILITY OR AS TO ANY OTHER MATTER.
(b) Remedies. EXCEPT FOR ACTIONS INSTITUTED BY THIRD PERSONS AGAINST
MOBILITY, MOBILITY'S SOLE AND EXCLUSIVE REMEDY AND MOLEX'S SOLE OBLIGATION FOR
ANY BREACH OF THE WARRANTIES CONTAINED IN THIS SUBSECTION SHALL BE LIMITED TO
THE REPAIR OR REPLACEMENT OF THE PRODUCTS, AS MOLEX IN ITS SOLE DISCRETION SHALL
DETERMINE. NEITHER PARTY SHALL BE LIABLE OR RESPONSIBLE TO THE OTHER PARTY FOR
ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE, DIRECT OR SPECIAL
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DAMAGES BASED UPON BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, OR
OTHERWISE OR ANY OTHER LEGAL THEORY.
7. DEFAULT.
(a) Default by Mobility. In the event that: (i) Mobility shall default in
the payment of any PO when due, and such default is not cured within thirty (30)
days after written notice from Molex to Mobility; or (ii) Mobility shall default
in the observance or performance of any other material covenant or agreement in
this Agreement, and such default shall continue for a period of thirty (30) days
after written notice from Molex to Mobility; then, and in any such event, Molex
may, by written notice to Mobility, terminate this Agreement, in addition to any
other rights Molex may have against Mobility at law or in equity.
(b) Default by Molex. In the event that Molex shall default in the
observance or performance of any other material covenant or agreement in this
Agreement or under any PO, and such default shall continue for a period of
thirty (30) days after written notice from Mobility to Molex; then, and in any
such event, Mobility may, by written notice to Molex, terminate this Agreement,
in addition to any other rights Mobility may have against Molex at law or in
equity.
5. CONFIDENTIALITY.
(a) Information. All information furnished by or on behalf of either Party
(the "Disclosing Party") to the other Party (the "Receiving Party") in
connection with the transactions contemplated hereby shall be deemed
confidential. As used herein, "Information" includes all confidential and
proprietary information of such party (including, without limitation, all
software or hardware product information, designs, trade secrets, customer
lists, pricing policies and patent applications pertaining or relating to such
products and marketing and promotion information with respect to such products,
business policies and practices), except information which (i) is or becomes
generally available to the public other than as a result of disclosure which is
in violation of this Agreement, (ii) was known by the Receiving Party on a
nonconfidential basis prior to its disclosure thereof, as evidenced by such
Receiving Party's records, (iii) was fully disclosed in a patent issued anywhere
in the world, or (iv) is acquired by the Receiving Party from a third party who
has no confidential commitment, directly or indirectly, to the Disclosing Party
with respect to same. As used herein, "Materials" shall mean all tangible
materials containing Information, including, without limitation, written or
printed documents and computer disks or tapes.
(b) Nondisclosure. Each Party agrees that it will keep all Information
confidential and, except as permitted by the remainder of this subsection (a) or
with the express prior written consent of the other Party, will not (i) disclose
or permit the disclosure of any of such Information to any person or entity
(including, without limitation, any of its employees, agents, representatives or
affiliates), (ii) use or permit the use of the Information in any way
detrimental to the other Party, or (iii) use or permit the use of the
Information for any purpose other than in connection with the transactions
contemplated hereby. Each Party is permitted to disclose the Information to such
of its employees, attorneys and advisors (the "Authorized Representatives") who
need to
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know such Information for the sole purpose of such Party's participation in the
Project. Each Party agrees to inform those of its Authorized Representatives to
whom it wishes to disclose any of the information of the existence of these
confidentiality provisions and will cause each of such persons to agree to be
bound by the terms of this letter. Each Party shall be responsible for the
breach of this Agreement by its Authorized Representatives.
(c) Return of Information. Each Party agrees that it will deliver to the
other Party, promptly upon the written request of the other Party, all written
or tangible information furnished by or on behalf of the other Party to such
Party in connection with the Project, including all Material and all copies or
extracts of such Information and all notes based upon Information. The Receiving
Party agrees to segregate all Materials from the confidential materials of
others in order to prevent commingling. The Receiving Party agrees not to
reverse engineer, decompile or disassemble any software disclosed to such
Receiving Party. Each Party may visit the other Party's premises, with
reasonable prior notice and during normal business hours, to review the other
Party's compliance with the terms of this Agreement.
(d) Remedies. Each Party agrees that money damages would not be a
sufficient remedy for any breach of the provisions of this Section 8 by the
other Party or its Authorized Representatives, and that each Party shall be
entitled to seek specific performance as a remedy for any breach hereof, in
addition to all other remedies available at law or in equity to the other Party.
9. MISCELLANEOUS.
(a) Assignment. This Agreement and the rights and obligations of the
Parties hereunder shall be binding upon and inure to the benefit of the Parties
and their respective successors and assigns. Neither Party shall assign this
Agreement or any rights or obligations hereunder without first obtaining the
written consent of the other Party, which consent shall not be unreasonably
withheld.
(b) Amendments; Entire Agreement. This Agreement may not be altered,
amended, changed, or terminated without a written agreement signed by the
Parties. This Agreement and the Exhibits represent the entire agreement between
the Parties with respect to the subject matter hereof, and supersedes any and
all existing and prior agreements between the Parties with respect thereto.
(c) Notices. Any notice required to be given hereunder by either party
shall be in writing and any be given by hand delivery, by delivery to a
nationally recognized overnight courier, or by sending the same by facsimile or
telex or by registered air mail, postage prepaid, addressed to the other at the
respective numbers, places or addresses set forth below, or to such other
facsimile number, telex number, address, place or places as the parties, or
either of them from time to time may designate in writing. All such notices,
demands and communications shall be deemed to have been duly given or made; (i)
on the date delivered if hand delivered or via overnight courier, charges
prepaid; (ii) three days after the date deposited via U.S. mail if mailed
certified mail, return receipt requested; or (iii) on the date sent if sent by
telex or facsimile
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transmission provided that (1) in the case of a telex transmission, the receipt
of the telex is confirmed by way of the callback signal; (2) in the case of a
facsimile transmission, receipt of confirmation from the facsimile transmitter
at the conclusion of the transmission of complete and uninterrupted transmission
of the facsimile, on the day of transmission at the place where the recipient is
located except when it is transmitted after 5:00 p.m. Arizona time at that
place, then on the next business day. All notices shall be sent to the following
addresses:
If to Mobility: Mobility Electronics
7955 East Redfield Road
Scottsdale, Arizona 85260
Attention: Charles R. Mollo
Telecopier No.: (602) 596-0349
With a copy to: Richard F, Dahlson, Esq.
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Telecopier No: (214) 953-6187
If to Molex: Molex Incorporated
222 Wellington Court
Lisle, IL 60532-1682
Attention: Gary Manchester
Telecopier No.: (630)969-1352
(d) Non-Waiver. No failure by either part to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by either party of any right hereunder preclude any
other further exercise thereof or the exercise of any other right.
(c) Headings. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
(f) Severability. If any term or other provision of this Agreement is held
to be invalid, illegal or unenforceable by any rule of law or public policy,
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 effected 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 terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to choice of
law principles.
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(h) Force Majeure. Neither Party shall be penalized under any
non-performance standards contained in this Agreement by reason, directly or
indirectly, from fire, explosion, strike, freight embargo, Act of God, or the
public enemy, war, civil disturbances, quarantine, or epidemic. Each Party
agrees, however, to use its best efforts to remedy such mishaps and restore
normal business activities within a reasonable period of time.
(i) No Agency Created. This Agreement shall not constitute either Party an
affiliate, joint venturer, partner, agent, employee or representative of the
other Party for any purpose.
(j) Counterparts. This Agreement may be executed in two 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 have caused this Agreement to be duly
executed and is effective as of the date and year first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO,
-------------------------------
Charles R. Mollo,
Chief Executive Officer
MOLEX INCORPORATED
By: /s/ JOHN STIPANUK
-------------------------------
Name: John Stipanuk
-----------------------------
Title: Vice President DataComm
----------------------------
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EXHIBIT A
Universal Dock means either a port replicator or a full docking station
with expansion bays and plug in PCI circuit cards that are used in conjunction
with portable or handheld computers. The unique characteristics of the universal
dock are its ability to interface to any PCI based portable computer directly
from the PCI bus or via the CardBus interface. The distinction between the
universal dock and a conventional dock is this high speed (gigabit) serial
interface consisting of an ASIC on each end, a proprietary 20 pin connector on
one or both ends and a special cable capable of transmitting these high speed
serial signals.
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EXHIBIT 10.42
INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement"), made as of the ___ day of
___________________, is by and between Mobility Electronics, Inc., a Delaware
corporation (the "Company"), and ____________________ ("Indemnitee"), a director
and/or officer of the Company.
W I T N E S S E T H :
WHEREAS, it is essential to the Company to attract and retain as
directors and officers the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance has been severely
limited; and
WHEREAS, the Company desires to indemnify its directors and officers so
as to provide to them the maximum protection permitted by law; and
WHEREAS, Indemnitee may not be willing to serve or continue to serve,
as a director and/or officer of the Company unless Indemnitee and the Company
enter into this Agreement, and the Company desires that Indemnitee serves, or
continues to, so serve as such;
NOW, THEREFORE, in consideration of the premises and the covenants
herein contained, the Company and Indemnitee hereby agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve, or continue to
serve, as a director and/or officer of the Company for so long as Indemnitee is
duly elected or appointed or until such time as Indemnitee tenders Indemnitee's
resignation in writing.
2. Definitions. As used in this Agreement:
(a) "Code" means the Internal Revenue Code of 1986, as amended.
(b) "Expenses" includes, without limitation, all costs, expenses and
obligations (including attorneys' fees and disbursements, court costs, travel
expenses and fees of experts) reasonably incurred or paid in connection with
investigating, defending, being a witness in or participating in, or preparing
to defend, be a witness or participate in any Proceeding, whether conducted by
the Company or otherwise, including without limitation any Proceeding, action or
process for the purpose of establishing Indemnitee's right to indemnification
under this Agreement and any amounts paid in settlement by or on behalf of
Indemnitee.
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Mobility Indemnity Agreement
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(c) "Independent Legal Counsel" means legal counsel who or which has
not provided or performed services for the Company, any of its directors,
officers, affiliates or Indemnitee for the last three years and is not
otherwise representing any party to any Proceeding, other than legal services
rendered as an independent legal counsel in any prior determination regarding
indemnification under this Agreement or any similar agreement with any other
director or officer.
(d) "Official Capacity" means the elective or appointive office in the
Company held by the director and/or officer.
(e) "Proceeding" includes any threatened, pending or completed action,
suit or proceeding, whether of a civil, criminal, administrative, arbitrative or
investigative nature (including all appeals therefrom), or any inquiry or
investigation that could lead to such an action, suit or proceeding in which
Indemnitee may be or may have been involved as a party or otherwise, because
Indemnitee is or was a director and/or officer of the Company, because of any
action taken by Indemnitee or of any inaction on Indemnitee's part while acting
as such director and/or officer, or because Indemnitee is or was serving at the
request of the Company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise, whether or not Indemnitee is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided under this Agreement.
(f) "Specified Interest Rate" means the applicable annual federal
mid-term rate, as that term is defined in Section 1274(d) of the Code, in effect
for the month in which the payment is to be made.
(g) References to "other enterprise" shall include employee benefit
plans; references to "fines" shall include any excise tax assessed with respect
to any employee benefit plan; references to "serving at the request of the
Company" shall include any service as a director, officer, employee or agent of
the Company that imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who is determined to have acted in
good faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "Indemnitee reasonably believed to be in or not opposed
to the best interests of the Company," as referred to in this Agreement.
3. Indemnity. The Company shall indemnify Indemnitee in accordance with
the provisions of this Section if Indemnitee is a party to or threatened to be
made a party to or otherwise involved (as a witness or otherwise) in any
Proceeding because Indemnitee is or was a director and/or officer of the Company
or is or was serving at the request of the Company as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust or other enterprise, against all Expenses, judgments,
fines and penalties (including excise and similar taxes) actually and reasonably
incurred by Indemnitee in connection with the defense or settlement of such
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Mobility Indemnity Agreement
<PAGE> 3
Proceeding, but only if it is determined pursuant to Section 4 that Indemnitee
acted in good faith and (i) in the case of conduct in his Official Capacity, in
a manner Indemnitee reasonably believed to be in the best interests of the
Company; (ii) in all other cases, in a manner he reasonably believed to be in
or not opposed to the best interests of the Company; and (iii) in the case of a
criminal proceeding, had no reasonable cause to believe that Indemnitee's
conduct was unlawful. Without limiting the foregoing, such indemnity shall apply
where the Expenses, judgments, fines and penalties arise in whole or in part
from the negligence of Indemnitee. However, if Indemnitee is found liable to the
Company or is found liable on the basis that personal benefit was improperly
received by Indemnitee, whether or not the benefit resulted from an action taken
in his Official Capacity, then no indemnification may be provided except in
respect of Expenses actually incurred by Indemnitee in connection with the
Proceeding. For purposes of the immediately preceding sentence only, Expenses
shall not include attorneys' fees. No indemnification will be made with respect
to any Proceeding in which Indemnitee shall have been found liable for willful
or intentional misconduct in the performance of Indemnitee's duty to the Company
or for any grossly negligent act or omission. 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, of itself, determine that
Indemnitee did not act in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal proceeding, that such person had reasonable cause to
believe that Indemnitee's conduct was unlawful. Indemnitee shall be deemed to
have been found liable in respect of any claim, issue or matter only after he
has been so adjudged by a court of competent jurisdiction after exhaustion of
all appeals therefrom.
4. Right of Indemnitee to Indemnification Upon Application; Procedure
Upon Application. Any indemnification under Section 3 shall be made or paid by
the Company no later than 30 days after receipt by the Company of the written
request of Indemnitee therefor, unless a determination is made within such
30-day period that Indemnitee has not met the relevant standards for
indemnification set forth in Section 3. Such determination shall be made (i) by
a majority vote of a quorum consisting of members of the Board of Directors who
are not parties to the Proceedings; (ii) if such a quorum cannot be obtained, by
a majority vote of a committee of the Board of Directors of the Company,
designated to act in the matter by a majority vote of all directors, consisting
solely of two or more directors who at the time of the vote are not parties to
the Proceedings; (iii) by Independent Legal Counsel selected by the Board of
Directors of the Company or a committee of the Board of Directors of the Company
by vote as set forth in Subsection (i) and (ii) of this Section, or, if such a
quorum cannot be obtained and such a committee cannot be established, by a
majority vote of all directors of the Company; or (iv) by the stockholders in a
vote that excludes the shares held by directors who are parties to the
Proceedings.
5. Additional Payments for Tax Liability of Indemnitee.
(a) In determining the amount owed by an indemnifying party pursuant to
this Agreement, the amount to be paid by the indemnifying party shall be (i)
decreased by an amount equal to the present value of any federal, state,
local or foreign tax benefit realized, or reasonably expected to be
realized, by the indemnified party by reason of such claims and
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Mobility Indemnity Agreement
<PAGE> 4
(ii) increased by an amount equal to the present value of any federal,
state, local or foreign tax detriment that is, or is reasonably expected to
be, incurred by the indemnified party as a consequence of the receipt of any
indemnity payment pursuant to this Agreement.
(b) For purposes of this Section, "present value" shall be calculated
using the Specified Interest Rate. For purposes of this Section, "tax
benefit" and "tax detriment" shall be calculated assuming payment of taxes
on the due date of the applicable return (without extensions) and using the
highest rate applicable or known to be applicable with respect to the tax
period or periods for which the tax benefit or the tax detriment, as the
case may be, is reasonably expected to be realized or incurred.
(c) Notwithstanding anything to the contrary in this Agreement, no
duplicate payments shall be made to the Company or to Indemnitee with
respect to any tax benefits and/or tax detriments pursuant to this
Agreement.
6. Indemnifcation of Expenses of Successful Party. To the extent that
Indemnitee has been wholly successful on the merits or otherwise in defense of
any Proceeding or in defense of any claim, issue or matter therein, including
the dismissal of an action without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. Advances of Expenses. The Expenses incurred by Indemnitee in
connection with any Proceeding shall be paid by the Company in advance of a
final disposition of such Proceeding at the written request of the Indemnitee,
if (i) the indemnification is pursuant to Section 3 and the Company receives a
written affirmation by the Indemnitee of his good faith belief that he has met
the necessary standard of conduct for indemnification; and (ii) Indemnitee
undertakes, in writing, to repay such amount if and to the extent that it is
ultimately determined that he is not entitled to Indemnification for such
Expenses pursuant to Section 3. Following such a request, statement and
undertaking by Indemnitee, the Company shall, subject to the provisions of
Section 4, pay all invoices, statements or bills reflecting such Expenses
submitted by or on behalf of Indemnitee and shall reimburse Indemnitee for all
Expenses paid by Indemnitee within 30 days.
If the Company does not timely make the payments or reimbursements
called for under Sections 3 and 5, the unpaid balance will accrue interest at
the Specified Interest Rate. Such late charges shall be due and payable on the
first day of each 30-day period thereafter.
The Company agrees to pay the fees of any Independent Legal Counsel
required by this Agreement and to indemnify such counsel against all expenses
(including attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
8. Selection of Counsel. In the event the Company shall be obligated
under Section 3 to pay the Expenses of any Proceeding against Indemnitee, the
Company, if appropriate, shall be entitled to assume the defense of such
Proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee
of written notice of its election so to do. After delivery of such notice,
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Mobility Indemnity Agreement
<PAGE> 5
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the same
Proceeding; provided that (i) Indemnitee shall have the right to employ
Indemnitee's own counsel in any such proceeding at Indemnitee's own expense; and
(ii) if (A) the employment of counsel by Indemnitee at the Company's expense has
been previously authorized by the Company, (B) Indemnitee has reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company has not, in
fact, employed counsel to assume the defense of such proceeding, then the fees
and expenses of Indemnitee's counsel shall be borne by the Company.
9. Court Ordered Indemnification; Fees and Expenses. The right to
indemnification or advances as provided by this Agreement shall be enforceable
by Indemnitee in any court of competent jurisdiction. Should any party hereto be
required to employ an attorney to enforce or defend the rights of such party
hereunder or in connection herewith, the prevailing party shall be entitled to
recover from the losing party such prevailing party's court costs and reasonable
attorneys' fees and expenses actually incurred in connection therewith.
10. Exceptions. The Company shall not be obligated pursuant to the
terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought in the Company's name or behalf, or to establish or
enforce a right to indemnification under this Agreement or any other statute
or law; but such indemnification or advancement of expenses may be provided
by the Company in specific cases if the Board of Directors has approved the
initiation or bringing of such suit; or
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that the material assertions made by Indemnitee in
such proceeding were not made in good faith or were frivolous; or
(c) Insured Claims. To indemnify Indemnitee for expenses or liabilities
of any type whatsoever (including, but not limited to, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) that have
been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company.
11. Indemnification Hereunder Not Exclusive. The indemnification
provided by this Agreement shall not be deemed exclusive of and shall be in
addition to (but shall not be duplicative of) any other rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, as
amended, or Bylaws, as amended, any agreement (including without limitation any
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Mobility Indemnity Agreement
<PAGE> 6
and all directors' and/or officers' insurance policies), any vote of
shareholders or disinterested directors, or otherwise, both as to action in his
Official Capacity and as to action in another capacity while holding such
office; provided that to the extent any prior agreements between the Company and
the Indemnitee conflict with, are more limiting than, or provide lesser rights
or protections to Indemnitee than this Agreement, this Agreement shall supersede
and control.
The indemnification under this Agreement shall continue as to
Indemnitee even though he may have ceased to be a director and/or officer and
shall inure to the benefit of his heirs and personal representatives.
12. Scope. The provisions of this Agreement shall be construed in
conformity with the Company's intention to agree to indemnify the Indemnitee to
the fullest extent permitted by applicable law, as amended from time to time,
notwithstanding that the form or manner of such indemnification might not be
authorized specifically by the other provisions of this Agreement, the Company's
Certificate of Incorporation, as amended, the Company's Bylaws, as amended, or
by statute.
13. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines or penalties actually and reasonably
incurred by him in the investigation, defense, appeal or settlement of any
Proceeding but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such Expenses, judgments,
fines or penalties to which Indemnitee is entitled.
14. Savings Clause. If this Agreement or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, the Company
shall nevertheless indemnify Indemnitee as to Expenses, judgments, fines and
penalties with respect to any Proceeding to the full extent permitted by any
applicable portion of this Agreement that shall not have been invalidated.
15. Notice. Indemnitee shall, as a condition precedent to his right to
be indemnified under this Agreement, give to the Company notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to the Company shall be directed to
Mobility Electronics, Inc., Attention: President, 7955 E. Redfield Road,
Scottsdale, Arizona 85260 (or such other address as the Company shall designate
in writing to Indemnitee). Notice shall be deemed received only upon actual
receipt. In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
16. Counterparts. This Agreement may be executed in any number of
counterparts, and upon the execution hereof by all parties hereto, in
counterparts or otherwise, each executed counterpart shall constitute an
original and all of such counterparts together shall constitute a single
original.
6
Mobility Indemnity Agreement
<PAGE> 7
17. 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.
18. Jurisdiction. The Company and Indemnitee each hereby irrevocably
consent to the jurisdiction of any court of competent jurisdiction and
appropriate venue in the State of Delaware for all purposes in connection with
any action or proceeding that arises out of or relates to this Agreement.
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. Gender and Number. When the context requires, the gender of all
words used herein shall include the masculine, feminine and neuter, and the
number of words shall include the singular and plural.
21. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MOBILITY ELECTRONICS, INC.
By:
-----------------------------
Charles R. Mollo, Chief
Executive Officer
By:
-----------------------------
7
Mobility Indemnity Agreement
<PAGE> 1
EXHIBIT 10.43
LOAN MODIFICATION AND EXTENSION AGREEMENT
EFFECTIVE DATE: March 13, 2000
- --------------
PARTIES: BANK OF AMERICA N.A. (hereinafter referred to
- ------- as the "Bank"); and
Mobility Electronics, Inc. a Delaware corporation
(hereinafter referred to as "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 note 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 ("Exim Bank Loan") in favor of Bank (the "Exim
Bank Note"). The Exim Bank Note is subject to the Export-Import Bank of the
United States Working Capital Guarantee Program (the "Exim Bank Guaranty").
Borrower also executed a Loan Agreement dated January 13, 1998, from Borrower to
Bank, and that certain Amended and Restated Business Loan Agreement (Receivables
and Inventory) dated November 2, 1999, by and between Bank and Borrower
(collectively 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 the Loan Agreement (as modified), (1) the
outstanding principal balance of Facility I Note was reduced to $2,852,054
("Facility I") and the Original Facility I Note was 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 was 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 was created and is 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")
(collectively the "Loans").
D. Borrower also executed an Arizona Uniform Commercial Code Financing Statement
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
<PAGE> 2
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 I Note, Facility II
Note, Facility III Note, Facility IV Note, the Exim Bank Note and the LC's,
including, without limitation, those listed above , those listed on Exhibit A
attached hereto and those which evidence, guaranty, secure or modify such loans,
as any or all of them may have been amended or modified to date, shall
hereinafter be collectively referred to as the "Existing Loan Documents". This
Loan Modification and Extension 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 Facility I Note and the Facility II Note are each scheduled to mature on
March 31, 2000.
H. On August 7, 1999, Borrower and Bank executed that certain Export-Import Bank
of the United States 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 February 1, 2000, Borrower was indebted to Bank under the Existing Loan
Documents in the aggregate principal amount of: $3,210,191.94, plus accrued
interest of $33,345.74 (the "Present Debt").
J. Borrower has requested that Bank modify Facility I and Facility II 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.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENTS:
1. Reaffirmation/No Impairment. Borrower reaffirms all of its
obligations under the Loan Documents and the Loans. Except as specifically
hereby amended, the Loan Documents shall each remain in full force and effect.
Borrower's payment and performance obligations pursuant to the Loan Documents,
including all extensions, amendments, renewals or
2
<PAGE> 3
replacements thereof, shall continue to be secured by the security interests and
liens arising under the Loan Documents.
2. Modifications. The Existing Loan Documents are hereby modified
and amended as described below. In the event of a conflict between terms of the
Existing Loan Documents and the terms of this Agreement, this Agreement shall
control:
2.1 Expiration Date. The expiration (i.e., maturity) dates of
Facility I and Facility II are hereby extended to March 31, 2001. All sums owing
under Facility I and Facility II shall be due and payable no later than this
extended expiration date.
2.2 The date "March 31, 2000" set forth in Section 2.1.1 of
the Loan Agreement is hereby deleted and the date "March 31, 2001" is hereby
inserted in its place.
2.3 The date "March 31, 2000" set forth in Section 2.2.1 of
the Loan Agreement is hereby deleted and the date "March 31, 2001" is hereby
inserted in its place.
2.4 Section 1.2 of the Loan Agreement is hereby amended by
adding the Tech DATA Group to the "Debtor" column at the end of such Section
with a "Concentration Limit" of 15%.
2.5 Section 2.2.3(a) of the Loan Agreement is hereby deleted
in its entirety, and in its stead, the following is hereby added: "Borrower will
pay accrued interest on March 1, 2000 (in arrears)" and then on the same date of
each month thereafter until payment in full of any principal outstanding under
Facility II. Borrower will repay in full all principal and any accrued and
unpaid interest or any other charges outstanding under Facility II no later than
the Facility II Expiration Date; provided that all principal and any accrued and
unpaid interest under Facility II shall be fully due and payable immediately
upon Borrower's receipt of not less than Seven Million Five Hundred Thousand
Dollars ($7,500,000) (in the aggregate) from one or more public or private
equity offerings and/or capital contributions from existing or future
shareholders in Borrower.
2.6 Section 5.4 of the Loan Agreement is hereby deleted.
2.7 Section 8.3 of the Loan Agreement is hereby deleted in its
entirety, and in its stead, the following is hereby added:
Current Ratio. To maintain on a consolidated basis a ratio of
current assets to current liabilities (the "Current Ration") of at least:
(a) 1.00:1 at 12/31/99 and 3/31/00; and
(b) 1.25:1 at 6/30/00 and thereafter.
The Current Ratio will be tested on a monthly basis.
2.8 Section 8.4 of the Loan Agreement is hereby deleted in its
entirety, and in its stead, the following is hereby added:
3
<PAGE> 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:
Date Amount
---- ------
12/31/99 $ 500,000
03/31/00 $2,000,000
06/30/00 $2,000,000
09/30/00 $2,500,000
12/31/00 $3,000,000*
*and on the last day of each calendar month thereafter.
Tangible Net Worth will be tested monthly.
"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, but excluding debt subordinated to the Borrower's
obligations to the Bank in a manner acceptable to the Bank using the Bank's
standard form. Tangible Net Worth will be tested on a monthly basis.
2.9 Section 8.7 of the Loan Agreement is hereby amended by
deleting the number $900,000 and inserting the number $2,000,000 in its place.
2.10 A new Section 8.4.1 is hereby inserted in the Loan
Agreement as follows:
Total Liabilities to Tangible Net Worth. To maintain on a consolidated
basis Total Liabilities to Tangible Net Worth not to exceed the ratios indicated
on each date specified below:
Date Ratio
---- -----
12/31/99 2.75:1
03/31/00 2.50:1
06/30/00 2.25:1
09/30/00 2.25:1
12/31/00* 2.00:1
*and on the last day of each calendar month thereafter.
Total Liabilities to Tangible Net Worth ratio shall be tested monthly.
4
<PAGE> 5
"Total Liabilities" means the sum of current liabilities plus long-term
liabilities excluding debt subordinated to the Borrower's obligations to the
Bank in a manner acceptable to the Bank, using the Bank's standard form.
2.11 Restated Notes. Concurrently with the execution of this Agreement,
Borrower shall execute and deliver to Bank a Restated Promissory Note (Facility
I) in the form attached hereto as Exhibit B and a Restated Promissory Note
(Facility II) in the form attached hereto as Exhibit C (the "Restated Notes").
The Restated Notes amend and restate the Facility I Note and the Facility II
Note. To the extent of any inconsistencies between the provisions of the
Restated Notes and this Agreement or any other Loan Documents, the provisions of
the Restated Notes shall control.
2.12 Corporate Certificate. Concurrently with the execution of this
Agreement, Borrower shall execute and deliver to Bank a Corporate Resolution
authorizing Borrower to enter into this Agreement, in a form acceptable to Bank
in Bank's sole discretion (the "Certificate").
3. Conditions Precedent. Before this Agreement becomes effective and any
party becomes obligated under it, all of the following conditions shall have
been satisfied at Borrower's sole cost and expense in a manner acceptable to
Bank in the exercise of Bank's sole judgment and discretion:
3.1 Receipt of Documents. Bank shall have received fully executed, and
where appropriate, acknowledged originals of the following:
(a) this Agreement;
(b) the Restated Notes;
(c) the Certificate;
(d) Borrower's counsel opinion letter (in a form acceptable to
the Bank);
(e) any other documents Bank may reasonably require or request
in accordance with this Agreement or the other Loan Documents, all in
such form as Bank may require in the exercise of Bank's sole judgment
and discretion.
3.2 Extension Fee. Bank shall have received a fully earned and
non-refundable extension fee in the amount of Twenty Two Thousand Five Hundred
Dollars ($22,500).
3.3 Reimbursement of Bank's Costs and Expenses. Bank shall have
received reimbursement, in immediately available funds, of all costs and
expenses incurred by Bank in connection with this Agreement, including charges
for recording, filing, and legal fees, costs and expenses of Bank's counsel.
Such costs and expenses may include the allocated costs for services for Bank's
in-house staffs, such as legal.
5
<PAGE> 6
4. Representations, Warranties and Acknowledgments. Borrower represents,
warrants and acknowledges to Bank as follows:
4.1 Recitals. The recitals set forth above are true, complete, accurate
and correct, and such recitals are incorporated herein by this reference.
4.2 No Default. No Event of Default has occurred and is continuing, and
no event has occurred and is continuing which, with notice or the passage of
time or both, would be an Event of Default.
4.3 Loan Documents. All representations and warranties made and given
by Borrower in the Loan Documents are true, complete, accurate and correct, as
if given as of the date of this agreement.
4.4 Property. Borrower lawfully possesses and holds a 100% ownership
interest in all of the Collateral granted by Borrower for the Loan, free and
clear of any defects, reservations of title or conditional sales contracts, and
also free and clear of any security interest or liens other than those in favor
of Bank.
4.5 Enforceable Loan Documents. The Loan Documents, including this
Agreement, to which Borrower is a party are legal, valid and binding agreements
of Borrower, enforceable in accordance with their respective terms, and any
instrument or agreement required hereunder or thereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
4.6 Financial Information. All financial and other information that has
been or will be supplied to Bank is: (a) sufficiently complete to give Bank
accurate knowledge of Borrower's financial condition; (b) in form and content
required by Bank and in accordance with Generally Accepted Accounting Practices
("GAAP"); and (c) in compliance with all applicable government regulations. No
material adverse change has occurred in the business assets, or financial
condition of Borrower since Borrower last supplied financial statements or
information to Bank.
4.7 No Claims or Defenses. The Present Debt is due and payable to Bank,
and Borrower has no claims, offsets, counterclaims or defenses with respect to:
(a) the payment of the Present Debt; (b) the payment of any other sums due under
the Loan Documents; (c) the performance of Borrower's obligations under the Loan
Documents; or (d) any liability under any of the Loan Documents.
4.8 No Breach by Bank. Bank (including all of its predecessors) has not
breached any duty to Borrower in connection with the Loan, and Bank (including
all of its predecessors) has fully performed all obligations it may have had or
now has to Borrower.
4.9 Interest and Other Charges. All interest or other fees or charges
which have been imposed, accrued or collected by Bank (including all of its
predecessors) under the Loan Documents or in connection with the Loan through
the date of this Agreement, and the method of computing the same, were and are
proper and agreed to by Borrower and were properly computed and collected.
6
<PAGE> 7
4.10 Claims, Disputes, Impairments. Borrower has no pending litigation,
tax claims, proceedings or disputes that may adversely affect Borrower's
financial condition or impair Borrower's ability to perform under the Loan
Documents.
4.11 Borrowing Entity. Borrower is a corporation, which is duly
organized, validly existing and in good standing under the laws of the State of
Delaware. There have been no changes in the organization, composition,
ownership, structure or formation of documents of Borrower since the inception
of the Loans. In each state in which Borrower does business, it is properly
licensed and in good standing. This Agreement, and any instrument of agreement
required hereunder are within Borrower's powers, have been duly authorized, and
do not conflict with any of Borrower's organizational papers.
5. No Waiver. Except as specifically provided herein, by entering into
this Agreement, Bank does not waive any previous or existing default or any
default hereafter occurring, or become obligated to waive any condition or
obligation in any agreement between or among any of the parties hereto.
6. No Future Obligations. Bank has no obligation to make any additional
loan or extension of credit to or for the benefit of Borrower, and Bank has no
obligation to further extend the maturity date of any credit extended to
Borrower.
7. No Third Party Beneficiaries. This agreement is not intended for,
and shall not be construed to be for, the benefit of any person not a signatory
thereto.
8. Release of Bank. In consideration of the agreements and of Bank set
forth in this Agreement, Borrower, 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 from,
the Loan or the Loan Documents.
9. Incorporation. This agreement shall form a part of each of the Loan
Documents, and all references to one of the Loan documents shall mean that
document as hereby modified. This Agreement shall not prejudice any rights or
remedies of Bank under the Loan Documents.
10. Purpose and Effect of Bank's Approval. Bank's approval of any
matter in connection with the Loan shall be for the sole purpose of protecting
Bank's security and rights.
7
<PAGE> 8
No such approval shall result in a waiver of any default of Borrower or
Guarantor. In no event shall Bank's approval be a representation of any kind
with regard to the matter being approved.
11. Integration. The Loan Documents, including this Agreement,
constitute the entire agreement and final expression between the parties with
respect to the terms and conditions set forth in the Loan Documents, including
this Agreement. No supplement, modification or amendment of this Agreement or
the other Loan Documents shall be effective unless in writing and signed by Bank
and Borrower.
12. Counterparts/Construction/Time of Essence. This Agreement may be
executed in any number of counterparts, each of which, when so executed, shall
be deemed an original, but all of which shall constitute one and the same
agreement. Section headings and paragraph titles used in this Agreement are for
reference only and shall not affect or limit the interpretation of meaning of
any provisions of this Agreement. As used in this Agreement, the work
"include(s)" means "include(s), without limitation", and the word "including"
means "including, but not limited to". Time is of the essence of this Agreement
and the other Loan Documents.
13. Governing Law/Rights in Event of Litigation/Invalidity. This
Agreement shall be governed by and construed according to the laws of the State
of Arizona. Borrower hereby submits to jurisdiction and venue in Maricopa
County, Arizona, and agrees that any and all litigation or arbitration
proceeding shall be maintained in Maricopa County, Arizona. In the event of
judicial proceedings, Borrower agrees that all issues in such judicial
proceeding litigation (including defenses, cross-claims and counter-claims)
shall be resolved by a judge and not a jury and, therefore, Borrower waives its
rights to a jury trial which it otherwise would have had. If any court of
competent jurisdiction determines any provision of this Agreement or any
provision in any of the other Loan Documents to be invalid, illegal or
unenforceable, that portion shall be deemed severed from the rest, which shall
remain in full force and effect.
14. Attorneys' Fees. In any lawsuit or arbitration proceeding between
Bank and Borrower, which relates to, arises out of, or involves in any way this
Agreement or any of the other Loan Documents, the prevailing party shall be
entitled to recover all of its attorneys' fees (including any allocated fees of
in-house counsel) and costs (including but not limited to "taxable costs" as
defined by statute)associated with such suit or arbitration.
15. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns; provided, however, Borrower may not
transfer its rights under the Loan Documents without the prior written consent
of Bank. Bank may transfer its rights under the Loan Documents to any successor
in interest.
16. No Waiver/Cumulative Remedies/Survival. No failure to exercise or
no delay in exercising any right, power or remedy hereunder or under any of the
Loan Documents shall impair any right, power or remedy that Bank may have, nor
shall such delay be construed to be a waiver of any of such rights, powers or
remedies. Bank shall not be deemed to have waived any right, power or remedy
except in writing signed by an authorized officer of Bank expressly stating that
it is a waiver of same right, power or remedy. The rights, powers and remedies
of Bank under the Loan Documents are cumulative and not exclusive of any rights,
powers or
8
<PAGE> 9
remedies that Bank would otherwise have, and may be pursued at any time and from
time to time and in such order as Bank shall determine in its sole discretion.
The representations, warranties, acknowledgments and agreements set forth herein
shall survive the date of this Agreement.
17. Mutual Agreement. The parties hereto agree that the terms and provisions of
this Agreement embody their mutual intent and that such terms and provisions are
not to be construed more liberally in favor, nor more strictly against, any
party. This Agreement shall not be construed as if it had been prepared by one
of the parties, but rather as if it had been prepared by all of the parties.
18. Rights in the Event of Bankruptcy. If there shall be filed by or against
Borrower a petition (whether voluntary or involuntary) under any chapter of the
United States Bankruptcy Code (the "Code") on or after the date of this
Agreement, it is the intention of Borrower and Bank that the terms and
conditions of this Agreement with respect to Borrower shall be incorporated into
a plan of reorganization under Section 1129 of Code (a "Plan"). Borrower agrees
that under any potential Plan which may be filed in the future (i) this
Agreement shall represent a necessary element of such Plan, (ii) Borrower will
not seek to alter or amend any of terms and conditions of this Agreement, (iii)
such terms and conditions are necessary for Bank's adequate protection, and (iv)
such terms and conditions will remain binding upon Borrower in any such Plan. If
Borrower fails to obtain confirmation of a plan of reorganization incorporating
the terms of this Agreement within one hundred twenty (120) days after a
petition is filed, Bank is entitled to the automatic and absolute lifting of any
automatic stay as to the enforcement of any of the Loan Documents against the
collateral, including specifically, but not limited to, the stay imposed by
Section 362 of the Code. Borrower hereby consents to the immediate lifting of
any such automatic stay, and will not contest any motion by Bank to lift such
stay. Borrower acknowledges that Bank's interest in the collateral can be
adequately protected only if a plan of reorganization incorporating the terms of
this Agreement is confirmed within one hundred twenty (120) days after the
petition is filed. Bank reserves its right to seek all remedies available to
credits under the Code, including, but not limited to, the right to move for
relief from the automatic stay at any time.
19. Reference and Arbitration.
19.1 Mandatory Arbitration. Unless expressly prohibited by law, any
controversy or claim between or among the parties, including those arising out
of or relating to this Agreement or the Loan Documents 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 Agreement, and under the Commercial Rules of the 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.
9
<PAGE> 10
19.2 Provisional Remedies, Self-Help and Foreclosure. No provision of
this Section [21] shall limit the right of any party to this Agreement to
exercise self-help remedies such as setoff, foreclosure against or sale of any
real or personal property or collateral or security, or obtaining 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 or
reference. 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
by judicial foreclosure of the deed of trust or mortgage.
Arbitration.
20. Cross Default. Any default under this Agreement or an Event of Default under
any of the Loan Documents shall be an Event of Default under each and every of
the other Loan Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the dates set forth below to be effective as of the day and year set
forth above.
"BANK"
BANK OF AMERICA N.A.
Executed: March 16, 2000 By: /s/ KURT A. HUISMAN
-----------------------------
Name: Kurt A. Huisman
----------------------------
Title: Vice President
"BORROWER"
MOBILITY ELECTRONICS, a Delaware
corporation
Executed: March 13, 2000 By: /s/ RICHARD W. WINTERICH
-----------------------------
Name: Richard W. Winterich
----------------------------
Title: Vice President
10
<PAGE> 11
REVIEWED, ACKNOWLEDGED AND APPROVED:
/s/ CHARLES MOLLO
March 13, 2000 ------------------------------------
Charles Mollo, Guarantor
/s/ JEFFREY DOSS
March 13, 2000 ------------------------------------
Jeffrey Doss, Guarantor
/s/ CAMERON WILSON
March 13, 2000 ------------------------------------
Cameron Wilson, Guarantor
/s/ JANICE BREEZE
March 13, 2000 ------------------------------------
Janice Breeze, Guarantor
11
<PAGE> 1
EXHIBIT 10.44
Loan No.:_______________________________________________________
AMENDED AND RESTATED PROMISSORY NOTE
(FACILITY I)
$3,000,000 March 13, 2000
Phoenix, Arizona
Interest Rate: Prime Rate plus 250
Basis Points (see Section 3 below).
Maturity Date: March 31, 2001 (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 Amended and Restated Promissory Note
(this "Note") amends and restates that certain Restated Promissory Note in the
principal amount of $3,000,000 dated November 2, 1999 in favor of Bank and
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 November 2, 1999 as amended by that certain Loan Modification and
Extension Agreement dated of even date herewith (collectively, 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.
<PAGE> 2
4. Accrued interest shall be payable on the first day of each month in
arrears, commencing on April 1, 2000 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.
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, 2001.
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,
2
<PAGE> 3
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.
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.
3
<PAGE> 4
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.
Borrower: Mailing Address:
Mobility Electronics, Inc., f/k/a Electronics 7955 E. Redfield Road
Accessory Specialists International, Inc., a Scottsdale, AZ 85260
Delaware corporation ATTN: Charles Mollo
By: /s/ RICHARD W. WINTERICH
------------------------------------------
Name: Richard W. Winterich
----------------------------------------
Title: CFO
---------------------------------------
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 15 day of
March, 2000 by Richard Winterich. The CFO of Mobility Electronics, Inc., a(n)
__________________, on behalf of the corporation.
/s/ LISA WERNECKE
My commission expires: ------------------------
Notary Public
May 11, 2003
4
<PAGE> 1
EXHIBIT 10.45
AMENDED AND RESTATED PROMISSORY NOTE
(FACILITY II)
$1,500,000 March 13, 2000
Phoenix, Arizona
Interest Rate: Prime Rate plus 350
Basis Points (see Section 3 below).
Maturity Date: March 31, 2001 (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 Amended and Restated
Promissory Note (this "Note") amends and restates that certain Promissory Note
in the principal amount of $1,500,000 dated November 2, 1999 from Borrower in
favor of Bank and evidences a loan (the "Loan") from Bank to Borrower pursuant
to that certain Amended and Restated Business Loan Agreement dated November 2,
1999 as amended by that certain Loan Modification and Extension Agreement dated
of even date herewith (collectively the "Loan Agreement").
2. This Note is secured by a Security Agreement dated November 2 1999,
Pledge of Certificate of Deposit ($150,000) dated November 2, 1999, a Pledge of
Certificate of Deposit ($75,000) dated November 2, 1999, and a Patent Collateral
Assignment and Security Agreement dated November 2, 1999, (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
1
<PAGE> 2
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 interest commencing April 1, 2000 (in arrears) and on
the first day of each month thereafter through March 1, 2001. On March 31, 2001,
Borrower will repay the remaining principal balance plus any interest then due.
The amount of interest due will change from time to time if there are changes in
the Prime Rate.
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, 2001;
provided that all principal and any accrued and unpaid interest under Facility
II shall be fully due and payable immediately upon Borrower's receipt of not
less than Seven Million Five Hundred Thousand Dollars ($7,500,000) (in the
aggregate) from one or more public or private equity offerings and/or capital
contributions from existing or future shareholders in Borrower.
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
2
<PAGE> 3
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.
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
3
<PAGE> 4
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.
4
<PAGE> 5
Borrower: Mailing Address:
Mobility Electronics, Inc., f/k/a Electronics 7955 E. Redfield Road
Accessory Specialists International, Inc., a Scottsdale, AZ 85260
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 15 day of
March, 2000 by Richard Winterich, the CFO of Mobility Electronics, Inc., a(n)
Delaware corporation, on behalf of the corporation.
/s/ LISA WERNECKE
My commission expires: ------------------------
Notary Public
5-11-03
5
<PAGE> 1
EXHIBIT 10.46
SEPARATION AGREEMENT
This Separation Agreement (this "Agreement") is entered into as of October
1, 1999, by and among Mobility Electronics, Inc., a Delaware corporation
("Mobility"), Cameron Wilson ("Wilson"), and CWilson Company, a Delaware
corporation ("CWilson"). Mobility, and Wilson are sometimes referred to herein
as the "Parties".
WHEREAS, Wilson is currently an Executive Vice President and Director of
Mobility; and
WHEREAS, Mobility and Wilson have determined that it is in their mutual
interests to separate their business interests to the extent provided in this
Agreement; and
NOW, THEREFORE, IT IS AGREED that, in consideration of the mutual covenants
and obligations set forth herein, the Parties agree as follows:
1. CERTAIN AGREEMENTS. The Parties agree as follows:
(a) Effective as of the Closing (as hereinafter defined), Mobility
hereby assigns and transfer over to Wilson all membership interests owned
by Mobility in Mobility Electronics, L.L.C., a Delaware limited liability
company ("MELLC"), in consideration for the sum of ten dollars ($10.00).
Mobility hereby represents and warrants to Wilson that Mobility owns 100%
of the issued and outstanding membership interests in MELLC and that MELLC
owns the following percentage interests in the following entities: (i)
Mobility Electronics, SARL (90%); (ii) Mobility Electronics (U.K.) LTD.
(85%); and (iii) Mobility Electronics GMBH (85%) (collectively the
"Subsidiaries"). Effective as of the Closing, Mobility hereby transfers to
MELLC any and all options Mobility has to purchase any ownership interests
in the Subsidiaries.
(b) Mobility explicitly retains the ownership of all cash and cash
equivalents, inventory, and accounts receivable, which may be included in
MELLC, and will immediately transfer any and all such items to Mobility.
Additionally, at October 1, 1999, the Parties agree to cause the
intercompany account balance between the Corporation and each of its
subsidiaries to be set at zero. Mobility will be responsible for all
expenses incurred prior to October 1, 1999 by MELLC and its subsidiaries.
(c) Effective as of the Closing, Wilson hereby resigns as an officer
and employee of Mobility.
(d) Effective as of the Closing, Wilson and Mobility shall execute and
deliver that certain First Amendment to Stock Option Agreement, dated as of
the date hereof, the form of which is attached hereto as Exhibit A.
<PAGE> 2
(e) At the Closing, Mobility, on the one hAnd, and Wilson and each
member of management of the Subsidiaries who have options (collectively,
the "Options") to purchase common stock, par value $.01 per share (the
"Common Stock"), of Mobility (each, an "Optionee"), on the other hand,
shall execute and deliver Option Termination Agreements, the form of which
is attached hereto as Exhibit B, pursuant to which all outstanding Options
shall be canceled. At the Closing, Mobility shall deliver to each Optionee
a Nonqualified Stock Option of Mobility substantially similar to the
Options so terminated (except that such new options shall be nonqualified
stock options).
(f) At the Closing, Mobility and Wilson and MELLC shall execute and
deliver that certain Sales Representative and Operations Support Agreement,
the form of which is attached hereto as Exhibit C (the "Sales
Representative Agreement").
2. Books and Records. Following the Closing, Mobility and Wilson (on his
own behalf and on behalf of MELLC and the Subsidiaries) shall have reasonably
necessary access to the books and records of each other, and at the request of
the other, will make available to the requesting party its books and records
relating to the matters set forth in this Agreement or the Separation Documents
(as hereinafter defined), including, without limitation, all financial
information and records relating or pertaining to the matters discussed in this
Agreement and the Separation Documents. The terms and provisions of this Section
2 shall terminate upon the termination of the Sales Representative Agreement.
3. Closing and Closing Date. As used herein, the terms: (a) "Closing" shall
mean the closing of the transactions contemplated in this Agreement, which shall
occur at 10:00 a.m., local time, on the Closing Date in the offices of Jackson
Walker L.L.P., 901 Main Street, Suite 6000, Dallas, Texas 75202, or at such
other time and place as shall be mutually agreed in writing by the Parties; and
(b) "Closing Date" shall mean the date of this Agreement.
4. Representations and Warranties of the Parties.
(a) Mobility represents and warrants to Wilson as follows:
(i) Mobility 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 execute and
deliver this Agreement and the other documents, instruments and
agreements contemplated hereby (collectively, the "Separation
Documents") and to consummate the transactions contemplated hereby and
thereby.
(ii) The execution, delivery and performance by Mobility of this
Agreement and the Separation Documents, and the consummation of the
transactions contemplated hereby and thereby, have been duly
authorized by Mobility. This Agreement and the Separation Documents
have been duly executed and delivered by Mobility and constitute
legal, valid and binding obligations of Mobility, enforceable
2
<PAGE> 3
against Mobility 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.
(iii) Neither the execution, delivery or performance of this
Agreement or the Separation Documents nor the consummation of the
transactions contemplated hereby or thereby will: (1) conflict with,
or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under the Certificate of
Incorporation or Bylaws of Mobility or any agreement, indenture or
other instrument under which Mobility is bound or subject; or (2)
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court of any public, governmental or regulatory
agency or body having jurisdiction over Mobility.
(iv) There are no outstanding liens on Mobility's ownership
interests in MELLC or its subsidiaries.
(b) Wilson represents and warrants to Mobility as follows:
(i) Wilson is fully competent and authorized, empowered and
directed to execute, deliver and perform this Agreement.
(ii) This Agreement and the Separation Documents have been duly
executed and delivered by Wilson and constitute legal, valid and
binding obligations of Wilson, enforceable against Wilson 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.
(iii) Neither the execution, delivery or performance of this
Agreement or the Separation Documents nor the consummation of the
transactions contemplated hereby or thereby will: (1) conflict with,
or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under any agreement, indenture
or other instrument under which Wilson is bound or subject; or (2)
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court of any public, governmental or regulatory
agency or body having jurisdiction over Wilson.
5. Disclosure. The Parties agree that this Agreement and the Separation
Documents, the terms hereof and thereof and the negotiations or discussions
leading to the execution of this Agreement and the Separation Documents shall
remain strictly confidential to the Parties and shall not be made available to
any third party by any of the Parties, except the Parties may make any (i)
disclosure necessary to comply with any law or regulation (including without
limitation, securities laws), (ii) necessary disclosure to attorneys,
accountants and insurers, which disclosure shall be made on a confidential
basis, (iii) necessary disclosure to tax or other governmental authorities and
(iv)
3
<PAGE> 4
any disclosure required by court order; provided, however, that the Party
ordered to disclose information shall use its best efforts to give reasonable
advance notice of the order requiring disclosure.
6. Entire Agreement. This Agreement (including the Exhibits attached
hereto) contains the complete and entire agreement and understanding of the
Parties concerning the matters contained herein and may not be altered, amended,
modified or changed in any manner except by a writing duly executed by the
Parties. No statements, promises or representations have been made by any Party
to another, or are relied upon, and no consideration has been, or is, offered,
promised, expected or held out, other than as stated in this Agreement. No Party
is relying on any representations other than those expressly set forth herein.
There are no oral or written collateral agreements.
7. Severability. If any provision of this Agreement is held to be invalid
or unenforceable, all other provisions shall nevertheless continue in full
force and effect.
8. Fees and Expenses. Each Party shall pay its own fees and expenses in
connection with the negotiation, execution and delivery of this Agreement and
the Separation Documents. If any action at law or in equity, including an action
for declaratory or injunctive relief, is brought to enforce or interpret the
provisions of this Agreement, the prevailing Party shall be entitled to all of
its costs in prosecuting or defending said action, including a reasonable amount
for its attorney's fees and expenses, in addition to any other relief to which
the prevailing Party may be entitled.
9. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES 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
ARIZONA.
10. Assistance. Each Party agrees to execute any and all additional
documents or instruments reasonably necessary or desirable to complete the
transactions contemplated by this Agreement and the Separation Documents.
11. Counterparts. This Agreement may be executed in counterparts, which
taken together shall constitute one document, which shall become binding when
counterparts are executed that in total contain the signatures of all of the
undersigned.
4
<PAGE> 5
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the date first set forth above.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
------------------------------
Charles R. Mollo, President
/s/ CAMERON WILSON
------------------------------
Cameron Wilson
5
<PAGE> 1
EXHIBIT 10.47
PRIVATE LABEL AND MANUFACTURING AGREEMENT
This Private Label and Manufacturing Agreement (this Agreement) is made and
entered into as of May 11,1998, (the "Effective Date"), by and between
Electronics Accessory Specialists International, Inc. (d/b/a "Mobility
Electronics"), a Delaware corporation ("Mobility"), and Targus Group
International, Inc., a Delaware corporation ("Targus"). For purposes of this
Agreement, "Targus" shall include its subsidiaries; provided, however, that
Targus shall be responsible for the actions and/or inaction's of its
subsidiaries with respect to the performance of this Agreement. Targus and
Mobility are each sometimes referred to herein as a "Party" and collectively as
the "Parties".
1. DEFINITIONS
1.1 "Alternative Product" means a product of a manufacturer other than
Mobility, which possesses characteristics of quality, function, and
performance comparable to a Product.
1.2 "Commercially Reasonable Cost" means no greater than 120% of the cost
of an Alternative Product.
1.3 "Components" means parts, materials, assemblies, subassemblies or
components which Mobility purchases from third parties for
incorporation into the Products prior to delivery.
1.4 "Custom Components" means Components which are unique to and used only
in the Custom Products, which cannot be reasonably incorporated into
other products or sold profitably to third parties. Custom Components
for each Custom Product are identified on Attachments 2 and 3.
1.5 "Custom Products" means products, including unique plastics or other
differentiating features, developed specifically for Targus by
Mobility, which initial products shall be described on Attachments 2
and 3 to this Agreement.
1.6 "Long Lead Components" means the Components for a Custom Product which
are identified on Attachments 2 and 3.
1.7 "PO's" means Targus's purchase orders issued under this Agreement.
1.8 "Products" means, collectively, Custom Products and Standard Products.
1.9 "Standard Products" means the products of Mobility described on
Attachment 1 of this Agreement, other than Custom Products.
2. TERM
2.1 Subject to Section 2.2 below, this Agreement shall commence on the
Effective Date and shall continue for a period of one (1) year
thereafter (the "Initial Term"); provided, however, that the term of
this Agreement shall be renewed on a year-to-year basis thereafter
(each, a "Renewal Term"), unless either Party gives written notice to
the other Party, at least ninety (90) days prior to the end of the
then-current term, of such Party's desire to terminate this Agreement
at the expiration of the then-
Targus/Mobility Agreement May 13, 1998 Page 1
<PAGE> 2
current term. The Initial Term and any Renewal Term(s) are sometimes
collectively referred to herein as the "Term". Notwithstanding the
above, this Agreement shall continue after the expiration of the Term
with respect, and only with respect, to any Products on order pursuant
to "PO's" accepted by Mobility prior to or at the time of such
termination, and with respect to Targus's liabilities for Long Lead
Components and Custom Components as otherwise provided in this
Agreement.
2.2 This Agreement may be terminated by either Party upon the material
breach of this Agreement by the other Party, which breach is not cured
within sixty (60) days after delivery of written notice by the
non-breaching Party to the breaching Party.
2.3 At least thirty (30) days prior to the effective date of termination
of this Agreement, Mobility will submit its final bill to Targus for
any Long Lead Components and Custom Components, which final bill will
be equal to the amount paid or to be paid by Mobility for Long Lead
Components and Custom Components that have not or will not be utilized
in any outstanding "PO's" at the time.
3. CUSTOM PRODUCT DEVELOPMENT
3.1 Mobility agrees to use commercially reasonable efforts to develop any
Custom Product (including, without limitation, power or docking
station products) requested in writing by Targus, subject to the
remainder of this Section. Any Custom Product shall be developed and
manufactured pursuant to the terms and conditions of this Agreement
(including, without limitation, Section 3.2 below). In addition, prior
to commencing the development of any Custom Product, the Parties shall
have mutually agreed to a development program schedule, NRE and
Tooling Charges, quantity purchase minimum and a PO lead time, which
agreement shall be in writing in the form of Attachment 3 to this
Agreement. Mobility agrees that it will not market or sell any
Custom Product to any person or entity other than Targus.
3.2 Targus agrees that at the time Mobility begins to develop a Custom
Product, Targus will place a separate PO for NRE and Tooling Charges
for such Custom Product, with the terms of such PO being fifty percent
(50%) due and payable upon placement of the PO, and the remaining
fifty percent (50%) due and payable upon approval of first article.
3.3 Targus hereby agrees that Mobility shall be the exclusive manufacturer
and supplier to Targus of the Products, subject to Section 6.1 below.
Any material changes to any Custom Products will require the written
consent of both Parties pursuant to an amendment to Attachment 2 or
3 (as applicable). Mobility agrees to use all commercially reasonable
efforts to incorporate into the Products any changes reasonably
requested by Targus, which changes shall be incorporated as soon as
practicable after an amendment to Attachment 2 or 3 (as applicable)
has been executed by the Parties setting forth such change, as well as
the affect, if any, on the purchase price of such Product.
4. ORDERING AND DELIVERY
4.1 Targus will provide to Mobility on a calendar monthly basis a
six-month rolling forecast of anticipated purchases of Products by
Targus for the following six-month period. Based on such forecast,
Mobility intends to purchase the minimum required
Targus/Mobility Agreement May 13, 1998 Page 2
<PAGE> 3
Long Lead Components and Custom Components for such anticipated Custom
Products (taking into account the expected lead-time for delivery of
such Components).
4.2 Targus will order Products by issuing PO's. Mobility will use all
commercially reasonable efforts to fill any PO's within the lead-time
for such Products as set forth in Attachment 4. As part of this
agreement, Targus agrees to issue the PO attached as Attachment 5
hereto.
4.3 Mobility agrees to use all commercially reasonable efforts to deliver
the Products to Targus in a timely manner, as provided in the PO's; it
being acknowledged and agreed that Mobility will manufacture to PO's
provided by Targus and, at Mobility's sole discretion, will not
manufacture or inventory Products in excess of PO quantities, except
as provided in Section 4.1 above.
4.4 All deliveries of Products will be made F.O.B. Scottsdale, Arizona,
United States of America. Mobility will accommodate other delivery
requests made by Targus for an additional charge.
4.5 Each Product shall have affixed thereto an non-prominent label titled
"Manufactured by Mobility Electronics for ________" (i.e. Port or
Targus), which label shall be in form, and located on the Product in a
place, mutually agreeable to the parties. If the Parties in good faith
cannot mutually agree to such a label, then similar text will be
included in the packaging or manual for the Product.
5. MOBILITY WARRANTIES
5.1 Mobility shall manufacture the Standard Products in accordance with
the product specifications, which specifications may be changed from
time to time by Mobility upon thirty (30) days prior written notice to
Targus. Mobility shall manufacture Custom Products in accordance with
the specifications for such Custom Products (as set forth in
Attachment 2 or 3 (as applicable) for each of such Custom Product).
Mobility shall not make any material change in the Custom Products
without prior written approval of Targus. For each Custom Product,
Mobility will provide Targus with a "First Article" from its initial
production run for quality verification and approval.
5.2 Mobility warrants that all Products shall comply with all applicable
governmental laws and regulations, and be free from defects in design,
material, workmanship and performance for the period set forth in the
product specification. Targus will provide written notice of any
warranted defect promptly upon its discovery. Upon receipt of such
notice, Mobility shall arrange for the repair or replacement, at
Mobility's sole discretion, of the Product and shall bear all costs
necessary to complete such repair or replacement Targus shall not be
required to return failed Products to Mobility, unless specifically
requested by Mobility. At the request of Mobility, Targus shall use
its best efforts to deliver to Mobility, at Mobility's cost and
expense, any failed Products. Any Products returned shall be subject
to reasonable inspection by, and the concurrence of, Mobility.
Targus/Mobility Agreement May 13, 1998 Page 3
<PAGE> 4
5.3 Mobility warrants that it has the unrestricted worldwide right to
manufacture, sell and deliver the Products to Targus and that it has
in place proper authorizations and licenses from all parties as may be
necessary to deliver the Products to Targus.
5.4 Mobility warrants that no Products will infringe any patent,
copyright, trademark, trade secret or other proprietary or
intellectual property right of any third party. Mobility shall
indemnify, defend and hold harmless Targus, its parent, subsidiaries,
affiliates and Targus (each an "Indemnitee" and collectively, the
"Indemnities") from any damage, expense, liability, cost (including
attorney's fees and expenses) arising out of any suit, claim, action
or proceeding alleging any such infringement. Targus agrees to provide
prompt written notice to Mobility upon receipt by any Indemnitee of
any suit, claim, action or proceeding alleging such infringement, and
Mobility shall have the right to defend such suit, claim, action or
proceeding at its own expense. Such Indemnitee may participate in such
defense at its own expense and will reasonably cooperate with Mobility
in the defense there of, and such Indemnitee agrees that it will not
unreasonably withhold its consent to any settlement or compromise
thereof.
5.5 THE ABOVE WARRANTIES ARE IN LIEU OF ANY OTHER WARRANTY, WHETHER
EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHICH WARRANTIES
ARE SPECIFICALLY DENIED.
6. PRODUCT PRICING AND PAYMENT
6.1 In the event Targus believes that the cost of a Product is in excess
of a Commercially Reasonable Cost, Targus shall notify Mobility in
writing of such circumstance, and Mobility shall have thirty days to
provide a mutually acceptable written explanation as to how Mobility
plans to cure the situation. If Mobility fails to cure the situation
within ninety days thereafter, as to the Product in question, Targus
may purchase and sell an Alternative Product.
6.2 Each Product shall have a purchase price as provided in Attachment 4
to this Agreement and Mobility shall use its best efforts to meet the
Commercially Reasonable Cost requirements of Targus; provided,
however, Mobility shall have the final right to establish its purchase
prices. Mobility may change the purchase price of any Product upon
seventy-five (75) days prior written notice to Targus. Mobility shall
offer each Product to Targus at a purchase price that is not more than
the purchase price offered to any other customer of Mobility, given
similar volumes and timing of purchases and payment terms.
6.3 Deleted.
6.4 Mobility shall invoice Targus upon shipment. Payment for Product
invoices shall be subject to a credit limit as determined from time to
time in the sole discretion of Mobility, net twenty (20) days from
date of invoice.
6.5 Except provided in the next sentence, Mobility will not invoice
Targus separately for Long Lead Components or Custom Components, as
such Components will be included in Custom Products which shall be
invoiced as provided in Section 6.4 above. However, in the event
Targus does not purchase Custom Products in the
Torgus/Mobility Agreement May 13,1998 Page 4
<PAGE> 5
amounts set forth in the monthly forecast provided to Mobility, then
Mobility shall have the option, in its sole discretion, to invoice
Targus at any time thereafter for such Long Lead Components and/or
Custom Components. If so invoiced, the payment for such Long Lead
Components and Custom Components shall be due and payable net thirty
(30) days from date of invoice.
6.6 All amounts payable by Targus to Mobility under this Agreement and
under the PO's shall be paid in United States dollars.
7. CONFIDENTIAL INFORMATION AND COVENANT NOT-TO-COMPETE
7.1 All copies of any confidential information delivered by any Party to
the other Party pursuant to or as a result of this Agreement shall,
upon the written request of the Party delivering the same, be promptly
returned by the Party receiving the same, and each receiving Party
agrees that it will hold in confidence such confidential information
delivered from the other Party and shall use such confidential
information only in furtherance of and in connection with this
Agreement and its performance hereunder and not for any other purpose.
For purposes of the preceding sentence, "confidential information"
shall not include information which: (i) is or becomes generally
available to the public other than as a result of disclosure which is
in violation of this Section; (ii) was known by the receiving Party on
a non-confidential basis prior to the disclosure thereof; or (iii) is
acquired by the receiving Party from a third party who has not
confidential commitment to the delivering Party with respect to the
same.
7.2 During the Term, Targus will not acquire, manufacture, sell, or offer
to sell any product which is competitive with the Products, except as
provided for in section 6.1, unless there are extenuating
circumstances. Extenuating circumstances can include significant
technological, regulatory, performance, function, quality and other
differences between the Products and competitive products which
Mobility is unable or unwilling to address. If Targus believes that
extenuating circumstances exist, then Targus will notify Mobility in
writing of such circumstances and Targus will work in good faith with
Mobility for a period of four months to address such circumstances.
8. MARKETING PRODUCTS
8.1 Targus agrees to make a good faith effort to market and sell the
Products on a non-exclusive basis (exclusive basis for Custom
Products), world-wide through all of its distribution channels. Good
faith effort means that Targus will market and sell the Products
subject to local market conditions, the presence or absence of
competition, and product pricing.
9. PO CHANGES
9.1 Targus may, upon written notice, modify any PO, other than the Master
PO and Individual POs as described in Attachment 5, within the
following parameters:
1 PO's for Products to be delivered within thirty (30) days from
the date of any such notice are non-cancellable and may not be
rescheduled.
Targua/Mobility Agreement May 13,1998 Page 5
<PAGE> 6
2. PO's for Products to be delivered between thirty one (31) days
and sixty (60) days from the date of any such notice are not
cancellable, but can be rescheduled for a maximum of thirty (30)
days from the original delivery date.
PO's for Products to be delivered more than sixty (60) days from the
date of any such notice may be rescheduled or canceled prior to the
commencement of such sixty (60) day period and may be rescheduled
during such sixty (60) day period as provided in (2) above. PO's for
NRE and Tooling Charges are non-cancellable and cannot be rescheduled.
10. DISPUTES
10.1 The Parties will attempt to resolve disputes through ascending levels
of management. Disputes which cannot be resolved by negotiation
between the Parties may be referred to arbitration by an international
arbitration body acceptable to both Parties, provided no arbitrator
shall have authority to award any indirect or speculative damages
(including, without limitation, consequential, incidental, special or
punitive damages).
11. GOVERNING LAW
11.1 This Agreement, and PO's issued hereunder, shall be governed by and
interpreted in accordance with the substantive and procedural laws of
the State of Arizona, United States of America, and each Party hereby
submits to the jurisdiction and venue of the courts of the State of
Arizona county of Maricopa.
11.2 The United Nations Convention on the international Sale of Goods shall
not apply to this Agreement or any PO issued thereunder.
12. LIMITATION OF LIABILITY
12.1 Each Party hereby waives any right to recover any indirect or
speculative damages (including, without limitation, consequential,
incidental, special or punitive damages) from the other Party.
13. GENERAL PROVISIONS
13.1 The Parties agree that Mobility shall bear the loss for the
destruction of any completed or partially completed Products which may
occur prior to delivery thereof ("delivery" being defined as F.O.B.
point of shipment), and that Targus shall bear the loss from the
destruction or breakage of any Products after delivery thereof.
13.2 This Agreement is subject to strikes and lockouts or refusal of
employees to work, or the inability of Mobility to be able to cause
Products manufactured for Mobility outside of the United States of
America to be delivered into the United States of America, and for
such cause that portion of this Agreement affected thereby may be
suspended during the continuance thereof. Impossibility of performance
by reason of any legislative, executive or judicial act of any
government or state any other similar or dissimilar cause which cannot
be presented by either Party or by the
Targus/Mobility Agreement May 13,1998 Page 6
<PAGE> 7
exercise of proper diligence, shall excuse performance of this
Agreement. Bankruptcy of either Party shall allow the other Party, at
its sole discretion, to terminate this Agreement. The Parties agree
that the Party who is unable to perform its obligations hereunder
because of any of the reasons set forth in this Section 12.2 shall
give prompt written notice to the other Party of such inability to
perform.
13.3 This Agreement and all terms, covenants and conditions contained
herein shall inure to the benefit of and shall be binding upon the
undersigned Parties and their respective heirs' executors,
administrators, trustees, successors and assigns. Neither Party may
assign or transfer any of its rights or obligations hereunder without
prior written consent of the other Party, which consent shall not be
unreasonably withheld.
13.4 All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been delivered on the
date on which it is hand-delivered or delivered by facsimile, or on
the third business day following the date on which it is mailed,
first-class, postage prepaid, and registered or certified with return
receipt requested. For purposes of notice, the addresses of the
parties shall be:
If to Targus: Targus, Inc.
6180 Valley View
Buena Park, CA 90620
Ph: (714) 523-5429
Fax: (714) 523-0153
Attn: David Cartwright
Port, Inc.
66 Fort Point Street
Norwalk, CT 06855
Ph: (203) 852-1102
Fax: (203) 866-0221
Attn: Sean O'Connor
If to Mobility: Mobility Electronics
7955 Redfield Road
Scottsdale, AZ 85260
Ph: (602) 596-0061
Fax: (602) 596-0349
Attn: Cameron Wilson
Any Party may change its address for notice by written notice given
to the other Party in accordance with this Section.
13.5 Any debts, obligations, covenants or liabilities accrued hereunder
between the Parties hereto shall survive the expiration or termination
of this Agreement for whatever reason.
13.6 This Agreement (including the Attachments hereto) constitutes the
entire agreement between the Parties regarding the subject matter
hereof and supersedes all prior agreements and understandings, both
written and oral, between the Parties with
Targus/Mobility Agreement May 13,1998 Page 7
<PAGE> 8
respect to the subject matter hereof. Each of the Parties agrees to
take such actions as may be necessary or desirable to implement and
retain the intent and spirit of this Agreement, and omit to take such
actions which could hinder the furtherance of such intent and spirit.
13.7 If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws effective during the term,
such provision shall be fully severable and this Agreement shall be
construed and enforced as if such illegal invalid or unenforceable
provision never comprised a part hereof, and the remaining provisions
hereof shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or by its severance
here from. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of
this Agreement a provision as similar in its terms to such illegal,
invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
13.8 The headings in the Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning of this Agreement.
13.9 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of this shall constitute one
and the same instrument by only one of which need be produced.
Targus/Mobility Agreement May 13,1998 Page 8
<PAGE> 9
EXECUTED as of the date first above written.
TARGUS GROUP INTERNATIONAL, INC.
By: /s/ DAVE CARTWRIGHT
------------------------------------
Its: President
-----------------------------------
PORT, INCORPORATED
By: /s/ SEAN O'CONNER
------------------------------------
Its: CEO
-----------------------------------
ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC.
By: /s/ CAMERON WILSON
------------------------------------
Its: President
-----------------------------------
Targus/Mobility Agreement May 13,1998 Page 9
<PAGE> 1
EXHIBIT 10.48
[VLSI TECHNOLOGY LOGO]
DESIGN AND DEVELOPMENT AGREEMENT
================================================================================
THIS DESIGN AND DEVELOPMENT AGREEMENT ("Agreement") is entered into as of
May 12, 1998 ("Effective Date") by and between VLSI Technology, Inc., with
offices at 1109 McKay Drive, San Jose, California 95131 ("VLSI") and ELECTRONICS
ACCESSORY SPECIALISTS INTERNATIONAL, INC. (1) with offices at 7955 E. Redfield
Road, Scottsdale, AZ 85260 ("Buyer").
(1) DBA MOBILITY ELECTRONICS
WHEREAS, Buyer requires a design (the "Product Design") for a particular
integrated circuit (the "Product"), meeting the general specifications to be
established pursuant to the Statement of Work, attached hereto as EXHIBIT A (the
"Statement of Work"); and
WHEREAS, Buyer intends to market said Product in significant quantities;
and
WHEREAS, VLSI has expertise in the design of integrated circuits, and
believes it can produce a design for Product;
NOW THEREFORE, the parties hereto agree as follows:
1. DESIGN RESPONSIBILITIES
VLSI and Buyer agree to perform the activities set forth in the Statement of
Work and to complete each such activity by the Target Completion Date as set
forth therein. To the extent there is delay in completion of any activity
required by the Statement of Work, there shall be an equal extension of the
target completion date of all subsequent activities. Buyer and VLSI shall each
indicate acceptance of completion of each relevant design step by executing the
completion sign-off for such step on the Statement of Work, or a copy of the
Statement of Work. All executed copies of the Statement of Work shall be deemed
merged into and become a part of this Agreement. Any documents listed as
reference documents in the Statement of Work, including but not limited to,
specifications, description of training, or special requirements shall be deemed
incorporated herein, but only to the extent such documents are not in conflict
with other terms of this Agreement.
2. CHANGES TO SPECIFICATION
Any changes to the specifications of the Product requested by Buyer shall be
subject to mutual agreement by both parties and the Statement of Work and/or
Payment Schedules, attached hereto as EXHIBIT B, shall be adjusted accordingly,
as mutually agreed by VLSI and Buyer.
3. INSPECTION
During the term of this Agreement, each party shall keep the other advised of
the progress of its work and shall permit appropriate representatives to visit
its facilities upon reasonable notice during normal business hours.
4. EXCLUSIVE RIGHTS
A. Buyer shall have exclusive rights to the Product Design completed by VLSI
during the term of this Agreement. Such Product Design shall also include
any future versions of the Product designed by VLSI for Buyer. VLSI shall
retain title to and possession of photomasks and database tapes, but shall
not use any photomasks or database tapes unique to the Buyer's Product
Design for any purpose other than the manufacture of Product in accordance
with Buyer's instructions, and shall destroy such photomasks or tapes upon
Buyer's written request. VLSI agrees that it shall not sell the Product
(including any future versions of the Product) to any third party.
B. Buyer understands and agrees that the exclusive rights granted hereunder
are rights to the Product as a whole. Parts of the Product, excluding any
of Buyer's Confidential Information but including, but not
Design/Development Agreement
Page 1
<PAGE> 2
limited to, components commonly known as base arrays, standard cells, or
megacells, are the property of VLSI and may be used in other designs
completed by VLSI for itself or third parties. No rights are granted to
Buyer to use any part of the Product except to the extent it is part of the
complete Product.
C. Buyer has identified and disclosed to VLSI certain concepts and approaches
relative to the Product, the Statement of Work, and Buyers docking station
strategy, specifically including its approach to split a PCI bridge and
recreate the PCI bus at a remote location (i.e. in a dock) by means of
serializing the PCI bus and transmitting over a high speed, low wire count
cable (collectively the "Concepts"). Such Concepts shall be considered
Confidential Information and subject to the provisions of Section 9 hereto
and as such, VLSI agrees to adhere to such confidentiality restrictions
including, without limitation, the express prohibition against selling or
otherwise marketing any such Confidential Information received from Buyer.
5. PAYMENT
A. Buyer shall pay VLSI for Product design and development in accordance with
the Payment Schedule. Each payment shall be in U.S. dollars and is due
within thirty (30) days of receipt of invoice. Shipments, deliveries, and
performance of work shall at all times be subject to the approval of VLSI's
credit department which approval shall not be unreasonably withheld. VLSI
may at any time decline to make any shipments, deliveries or perform any
work except upon receipt of payment/security or upon terms and conditions
satisfactory to VLSI's credit department.
B. Design and development fees once paid are non-refundable.
6. TERM/TERMINATION
A. This Agreement will become effective as of the Effective Date and will
continue in full force and effect through the completion and sign-off of
the Statement of Work, unless earlier terminated as stated below, whereupon
it will expire without notice unless the parties agree in writing to renew
this Agreement prior to such expiration or termination. Notwithstanding
anything herein to the contrary, upon termination of this Agreement, the
terms and provisions of this Agreement shall be deemed to be terminated and
of no further force or effect, except the provisions of Sections 4, 9 and
11(M) hereof shall survive the termination of this Agreement.
B. Buyer may terminate this Agreement with thirty (30) days written notice to
VLSI. If this Agreement is terminated for any reason, except for a breach
hereof by VLSI, prior to acceptance of prototypes, Buyer shall pay VLSI at
the applicable rate set forth in the Payment Schedule for all services
provided by VLSI. In the event Buyer has agreed to pay by milestone, Buyer
shall pay for all milestones achieved in addition to the amount of the next
following milestone.
7. BUYER SPECIFIC MATERIALS
A. "Buyer Specific Materials" are those raw materials that have specifications
unique to Buyer's Product, including but not limited to, having unique
cavities, packages not authorized for use by other VLSI customers within
three (3) months, or Buyer specific silicon starting material.
B. VLSI will procure Buyer Specific Materials only after receipt of Buyer's
purchase order specifically requesting such Buyer Specific Materials.
Sufficient Buyer Specific Materials will be procured to cover only the
amount or quantity specified in Buyer's purchase order.
C. Standard manufacturing lead times do not include possible additional lead
time necessary for procurement of Buyer Specific Materials.
D. Buyer shall be liable for the actual cost of any Buyer Specific Materials
plus reasonable handling fee(s) incurred by VLSI in the event of
cancellation or termination by Buyer.
Design/Development Agreement
Page 2
<PAGE> 3
8. SHIPMENT OF PRODUCT
A. All Product shipped prior to prototype completion sign-off on the Statement
of Work shall be AS IS, WITHOUT WARRANTY OF ANY KIND. After prototype
completion sign-off, Product shall be shipped pursuant to applicable
production agreement warranty.
B. All shipments covered by this Agreement are Ex-works VLSI's facility,
freight collect. VLSI will follow Buyer's instructions on methods of
shipment if provided; otherwise VLSI shall select the carrier and shipment
methods.
C. Title and risk of loss or damage to the Products shall pass to Buyer upon
VLSI's delivery to the carrier. Buyer accepts full responsibility for
maintaining any insurance to cover any loss related to loss or damage to
Buyer's Products in transit.
9. CONFIDENTIAL INFORMATION
A. "Confidential Information" shall mean that information of either party
which is disclosed to the other party ("Recipient") by reason of the
parties' relationship hereunder, either directly or indirectly in any
written or recorded form, orally, or by drawings or inspection of parts or
equipment, and, either in writing and marked as confidential or
proprietary, or if oral, disclosed as such and reduced to writing similarly
marked within thirty (30) days of disclosure.
B. Recipient covenants and agrees that it will use or market the Confidential
Information only for performance of Recipient's obligations hereunder, and
shall not disclose such Confidential Information to any person or persons
who do not need to have knowledge of such Confidential Information in the
course of their employment with Recipient. Recipient shall use the same
degree of care as it employs with respect to its own confidential and
proprietary information and at a minimum to exercise reasonable care.
C. It is expressly understood that Recipient shall not be liable for
disclosure of any Confidential Information if the same:
i. was in the public domain at the time it was disclosed;
ii. was known to Recipient at the time of disclosure, as evidenced by
Recipient's written records;
iii. was independently developed by Recipient; or
iv. becomes known to Recipient, on a non-confidential basis, from a source
other than the other party hereto, without breach of this Agreement by
Recipient.
10. LIMITATION OF LIABILITY
In no event shall either party be liable for any indirect, special,
incidental or consequential damages resulting from its performance or
failure to perform under this Agreement, or the furnishing, performance, or
use of any goods or services sold pursuant hereto, whether due to a breach
of contract, breach of warranty, or such party's negligence. Neither
party's liability hereunder shall exceed the amount of monies paid
hereunder.
11. GENERAL
A. Neither party may assign its rights or obligations under this Agreement
without the prior consent of the other party, and any purported assignment
without such consent shall have no force or effect, except that a party may
assign this Agreement incident to the transfer of all or substantially all
of its business. Subject to the foregoing, this Agreement shall bind and
inure to the benefit of the respective parties hereto and their successors
and assigns.
B. Neither party is authorized to act for or on the behalf of the other party
under this Agreement. Each party is an independent contractor, and no
principal/agent or partnership relationship is created between them by this
Agreement.
Design/Development Agreement
Page 3
<PAGE> 4
C. No failure or delay by either party to enforce or take advantage of any
provision or right under this Agreement shall constitute a subsequent
waiver of that provision or right, nor shall it be deemed to be a waiver of
any of the other terms and conditions of this Agreement.
D. Neither party to this Agreement shall be liable for its failure to perform
any of its obligations hereunder during any period in which such
performance is prevented by any cause beyond its reasonable control. In the
event of any such delay the date of delivery or performance hereunder shall
be extended by a period equal to the time lost by reason of such delay.
E. This Agreement shall be governed by and interpreted in accordance with the
laws of the State of California, USA.
F. The prevailing party in any legal action arising out of, or related to this
Agreement shall be entitled, in addition to any other rights and remedies
it may have, to reimbursement for its expenses incurred in such action,
including court costs and reasonable attorney's fees.
G. Unless otherwise stated herein, amounts stated as payable under this
Agreement do not include customs duties or sales, use, excise or other
similar taxes payable hereunder, and the same shall be added to such
amounts.
H. Data and products provided hereunder may not be exported from the United
States, or re-exported from any other country, except in compliance with
United States Export Control Laws, and the parties agree to operate in full
compliance with these and all other applicable laws.
I. All notices or communications to be given under this Agreement shall be in
writing and shall be deemed delivered upon hand delivery, confirmed
facsimile communication, or three (3) days after deposit in mail of the
home country of the party, postage prepaid, by certified, registered or
first class mail, addressed to the parties at their addresses set forth
above.
J. In the event that any provision of this Agreement is prohibited by any law
governing its construction, performance or enforcement, such provision
shall be ineffective to the extent of such prohibition without invalidating
thereby any of the remaining provisions of the Agreement.
K. The terms and conditions of this Agreement may not be superseded, modified,
or amended except in writing which states that it is such a modification,
and is signed by an authorized representative of each party hereto.
However, VLSI may modify the specifications of Products sold hereunder, if
such modification does not change the Product's form, fit or function.
L. This Agreement, including exhibits, constitutes the entire Agreement
between the parties as to the subject matter hereof, and supersedes and
replaces all prior or contemporaneous agreements, written or oral,
regarding such subject matter, and shall take precedence over any
additional or conflicting terms which may be contained in either party's
purchase orders or order acknowledgment forms.
M. Each party agrees that money damages would not be a sufficient remedy for
any breach of this Agreement by the other party, and that each party shall
be entitled to specific performance as a remedy for a breach hereof, in
addition to all other remedies available at law or in equity to such party.
ACCEPTED AND AGREED BY:
VLSI TECHNOLOGY, INC. BUYER
Signature: /s/ NEIL SHEA Signature: /s/ JEFFERY S. DOSS
------------------------- ----------------------
Name: Neil Shea Name: Jeffery S. Doss
------------------------------ ---------------------------
Title: Vice President Title: V.P.
----------------------------- --------------------------
Date: 5/12/98 Date: 5/12/98
------------------------------ ---------------------------
Design/Development Agreement
Page 4
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mobility Electronics, Inc.
We consent to the use of our report dated March 3, 2000, except for the fourth
and fifth paragraphs of Note 20, which are as of March 13, 2000 and March 17,
2000, respectively, on the consolidated financial statements of Mobility
Electronics, Inc. and subsidiaries as of December 31, 1998 and 1999 and for each
of the years in the three-year period ended December 31, 1999, included herein
and to the reference to our firm under the headings "Selected Consolidated
Financial Data" and "Experts" in the prospectus.
/s/ KPMG LLP
Phoenix, Arizona
March 24, 2000
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE S-1.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,792,313
<SECURITIES> 0
<RECEIVABLES> 3,722,014
<ALLOWANCES> 630,000
<INVENTORY> 1,554,016
<CURRENT-ASSETS> 10,121,071
<PP&E> 4,026,657
<DEPRECIATION> 2,109,766
<TOTAL-ASSETS> 14,814,595
<CURRENT-LIABILITIES> 4,538,181
<BONDS> 5,322,386
0
23,991
<COMMON> 59,787
<OTHER-SE> 2,141,712
<TOTAL-LIABILITY-AND-EQUITY> 14,814,595
<SALES> 14,052,010
<TOTAL-REVENUES> 14,052,010
<CGS> 11,750,705
<TOTAL-COSTS> 11,750,705
<OTHER-EXPENSES> 11,898,212
<LOSS-PROVISION> 219,013
<INTEREST-EXPENSE> 6,569,922
<INCOME-PRETAX> (16,192,749)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,192,749)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,192,749)
<EPS-BASIC> (3.24)
<EPS-DILUTED> (2.84)
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