<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 11, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NEOPOINT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3663 33-0762531
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
4225 EXECUTIVE SQUARE, SUITE 600
LA JOLLA, CA 92037
(858) 458-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
WILLIAM Y. SON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEOPOINT, INC.
4225 EXECUTIVE SQUARE, SUITE 600
LA JOLLA, CA 92037
(858) 458-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
DAVID A. HAHN, ESQ. DAVID G. ODRICH, ESQ.
HOWARD L. ARMSTRONG, ESQ. ANNA RUIZ ROTHBART, ESQ.
LATHAM & WATKINS BROBECK, PHLEGER & HARRISON LLP
701 "B" STREET, SUITE 2100 TWO EMBARCADERO PLACE
SAN DIEGO, CALIFORNIA 92101 2200 GENG ROAD
(619) 236-1234 PALO ALTO, CA 94303
(650) 496-2885
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -------------------------------------------------------------------------------
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value... $75,000,000 $19,800
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 IT IS NOT SOLICITING AN OFFER TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 11, 2000
PROSPECTUS
SHARES
NEOPOINT, INC.
COMMON STOCK
-----------
This is NeoPoint, Inc.'s initial public offering of common stock.
We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. We have applied to have the
common stock approved for quotation on the Nasdaq National Market under the
symbol "NEOI."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price................................... $ $
Underwriting discount................................... $ $
Proceeds, before expenses, to NeoPoint, Inc............. $ $
</TABLE>
The underwriters may also purchase up to an additional shares at the
public offering price, less the underwriting discount, within 30 days from the
date of this prospectus to cover over-allotments.
At our request, the underwriters have reserved up to 5% of the shares of
our common stock offered by this prospectus for sale, at the initial public
offering price, to some of our employees, executive officers and directors and
to individuals designated by them. The number of shares of common stock
available for sale to the general public in this offering will be reduced to
the extent those persons purchase the reserved shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 2000.
-----------
MERRILL LYNCH & CO.
CHASE H&Q
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
-----------
The date of this prospectus is , 2000.
<PAGE>
INSIDE FRONT COVER
At the top center of the page is NeoPoint's logo, which consists of the
word "NeoPoint" followed by a TM symbol. Underneath the word "NeoPoint" are the
words "Simply More Intelligent." In the center of the page tilted at an angle
is an image of the NP1000 SmartPhone containing the graphic icon menu in the
LCD display of the phone. Surrounding the phone, in the background of the page,
are screened images of various information services. Clockwise, starting in the
upper left hand corner are sample flight information, a directional compass,
driving directions and a list of stock quotes. At the bottom of the page are
three small images of three SmartPhones. Starting from the left, the first
phone bears the NeoPoint brand, the second phone bears the Sprint brand, and
the third phone bears the NeoPoint brand and the Bell Mobility brand.
INSIDE FRONT COVER FOLD-OUT ARTWORK
A two-page fold-out layout containing two rows of five phones each,
separated by the following line of text, "Introducing the first smartphone that
can publish its own reviews." Each of the phones display a quote from a
previously published source.
Starting in the upper left-hand corner of the page, the quote in the
first phone reads, "The NeoPoint phone has Next Generation written all over it.
New York Times 4/15/99." The second phone reads "Look for this hot newcomer
from upstart Innovative Global Solutions (NeoPoint) to take rivals by surprise.
Business Week 5/3/99." The third phone reads, "The NeoPoint turns out to be the
first smartphone to really get it right. PCS Week 2/10/99." The fourth phone
reads, "That's why I predict the NeoPoint 1000 will be the runaway tech-toy of
the year. Eric Elia@Home Network, 7/25/99." The fifth phone reads, "Street Envy
Factor: High, sleek, design, affordable price. U.S. News & World Report,
6/14/99." The first phone in the second row is held in the palm of a hand with
the LCD display showing the graphic icon menu. The second phone in the row
reads, "The NeoPoint . . . is for road warriors and those craving a whole lot
less heft on their belts. Man, I can't wait. Wired, June 1999." The third phone
reads, "The PCS CDMA NeoPoint has all the data trappings . . . a big 11-line
screen displays it all, including e-mail. Fortune, Summer 1999." The fourth
phone reads, "The champagne silver NeoPoint 1000 is the most elegant
combination of wireless phone and personal organizer to date. GQ, December
1999." The fifth phone reads, "Five Stars.*****. The best blend of wireless
data and voice in a slick package. PC Computing, December 1999."
To the right of the phones at the top of the page is the trademarked
NeoPoint logo -- The word NeoPoint is followed by a TM symbol. Underneath, are
the words "Simply More Intelligent." Below this line in a column are three
graphic icons with descriptions below each. Starting from the top is the icon
of a planet that represents the Web as taken from the phone screen when it is
connected to the Internet. The description below the icon reads "Just say
"Internet' to quickly connect to the web for access to your e-mail, stock
quotes, weather, flight info, the yellow pages and more." The second icon in
the column is the Soft Sync Plus icon taken directly from the phone screen. The
description below reads "Soft Sync Plus TM lets you update contacts, "to-do'
items and schedules on your PC, then sync the new data directly into your
phone." The third icon in the column is the in-box icon taken directly from the
phone screen. The description below reads "Now you can read and send e-mail on
the fly without having to fuss with your laptop." At the bottom of the column
is the disclaimer that reads "Copyright 1999, 2000 NeoPoint, Inc. NeoPoint,
NeoPoint logo and Soft Sync Plus are trademarks of NeoPoint, Inc. All rights
reserved. All other trademarks are properties of their respective owners."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 5
Risk Factors............................................................. 10
Forward-Looking Statements............................................... 23
Use of Proceeds.......................................................... 24
Dividend Policy.......................................................... 24
Capitalization........................................................... 25
Dilution................................................................. 26
Selected Financial Data.................................................. 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 34
Management............................................................... 46
Certain Transactions..................................................... 54
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 59
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 64
Legal Matters............................................................ 66
Experts.................................................................. 66
Where You Can Find More Information...................................... 67
Index to Financial Statements............................................ F-1
</TABLE>
----------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY PERSON TO PROVIDE YOU
WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE
UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
----------------
Unless stated otherwise, all financial information and share and per
share data in this prospectus:
. assumes the exercise of warrants to purchase an aggregate of
2,200,000 shares of our Series C preferred stock at an exercise price
of $6.00, which would expire if not exercised prior to the closing of
this offering;
. assumes the exercise of warrants to purchase 650,000 shares of our
Series C preferred stock at an exercise price of $8.00, which would
expire if not exercised prior the closing of this offering;
. reflects the automatic conversion of all outstanding shares of our
preferred stock into an aggregate of 18,991,668 shares of common
stock upon the closing of this offering, including the shares of
Series C preferred stock to be issued upon the exercise of the
warrants described above;
. assumes that the underwriters do not exercise their over-allotment
option;
. does not include shares reserved for issuance under our stock option
plans or our employee stock purchase plan; and
. assumes the reincorporation of our company in Delaware prior to the
closing of this offering.
----------------
NeoPoint, myAladdin, myAladdin.com and SmartService are trademarks of
NeoPoint, Inc. This prospectus contains product names, trade names and
trademarks of NeoPoint and other organizations.
3
<PAGE>
(This page intentionally left blank)
4
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors and the financial statements
and related notes, before you decide whether to invest in our common stock.
OUR COMPANY
NeoPoint is a leading provider of advanced SmartPhones and intelligent
mobile portal services for users of wireless devices. Our SmartPhones integrate
high-quality voice capabilities with e-mail, Internet access and personal
digital assistant, or PDA, functionality into a single wireless device. Our
myAladdin.com SmartService is a wireless Internet portal designed to provide
intelligent information and customized content on a non-branded basis to
wireless carriers and other consumer-oriented businesses.
Our SmartPhones are among the first products to capitalize on the
convergence of wireless voice and data applications. We design our SmartPhones,
together with our myAladdin.com SmartService, to enable our customers to offer
compelling services that create additional revenue opportunities and build
brand recognition. We believe that our products and services allow our
customers to attract and retain subscribers and differentiate themselves from
their competitors.
Greater sophistication among subscribers has led to increased awareness
of alternative price and service offerings. As a result, subscribers have an
increasing tendency to switch from one wireless carrier to another in search of
new products and better or less expensive services. To meet these challenges,
wireless carriers are seeking new product and service offerings to attract and
retain subscribers as well as differentiate themselves from their competitors.
Due to a broad combination of factors, including the growth of the
Internet and the mobile wireless communication industry, a convergence of
mobile voice and data applications has begun. The emergence of multi-purpose
wireless devices, combined with the expansion of carrier networks' data
capabilities and the development of Wireless Application Protocol, or WAP, has
led to a large market opportunity to provide Internet-based products and
services that are interoperable.
In the past, wireless devices focused on meeting a primary need of users,
such as PDA functionality, e-mail and two-way paging capabilities, or voice
applications. We believe voice capability will continue to drive demand for
wireless devices. In addition, the large and growing installed base of mobile
phones provides a large market of consumers accustomed to upgrading their
mobile phones as technology improves. Accordingly, we believe that the mobile
phone is the most compelling platform for delivering advanced wireless data
functionalities.
OUR SOLUTION
SmartPhones. We believe that our SmartPhones are the first commercial
products to integrate Internet access, PDA functionality and data transmission
capability into a traditional wireless handset without sacrificing ease-of-use,
convenience, appearance, functionality or cost. Our SmartPhones:
. provide high-quality digital wireless voice capabilities;
. offer a wide range of data capabilities, such as Internet browser and
e-mail applications;
. incorporate PDA functionalities, including contact information, task
list and appointment calendar and personal computer synchronization;
5
<PAGE>
. dial or perform other functions using voice commands; and
. feature an 11 line x 24 character display that is significantly larger
than a traditional cellular telephone display.
myAladdin.com SmartService. We believe that our myAladdin.com
SmartService is the first wireless Internet portal that has the intelligence
necessary to allow wireless carriers and other consumer-oriented businesses to
provide compelling, convenient and useful services to their customers. We
intend to deliver personalized, localized and timely content that improves upon
customer personalization services currently in use. We begin with customer-
indicated preferences, which allow individuals to identify those services they
want to receive and when they want to receive them. We then add location
intelligence that uses global positioning system, or GPS, or other location
technologies to provide information and services based on the user's current
location. Most importantly, we use intelligent personalization, which is an
accumulation of the end user's request patterns learned over a period of time,
resulting in real-time customization of information and services. Because this
learned personalization increases over time and cannot be easily recreated, we
believe that our myAladdin.com SmartService will make the consumer less likely
to change service providers.
Our myAladdin.com SmartService will be offered to wireless carriers and
other consumer-oriented businesses, such as banks and brokerage firms. We
intend to provide both content and enabling technology that will allow our
customers to deploy branded and customized content and applications over the
Internet to their customers with wireless capabilities. We believe that
wireless carriers and other consumer-oriented businesses are searching for the
type of customer "stickiness" that our myAladdin.com SmartService can create.
Our strategy is to become a leading supplier of SmartPhones to wireless
carriers and other customers worldwide. We also intend to develop and expand
our myAladdin.com SmartService for sale to wireless carriers and other
consumer-oriented businesses for use as part of their own wireless Internet
portal strategies. Key elements of this strategy include accelerating
innovations related to our SmartPhones, expanding and enhancing our
myAladdin.com SmartService, developing and leveraging the NeoPoint brand and
extending our strategic alliances and relationships.
CORPORATE INFORMATION
We were incorporated in California in June 1997 and will be
reincorporated in Delaware prior to the consummation of this offering. Our
principal executive offices are located at 4225 Executive Square, Suite 600, La
Jolla, CA 92037, our telephone number is (858) 458-2800 and our website is
located at www.neopoint.com. Information in our website is not a part of this
prospectus.
6
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered........... shares
Common stock to be outstanding
after the offering............ shares
Use of proceeds................ For working capital and other general corporate purposes,
including research and development expenditures, sales
and marketing expenditures and potential acquisitions or
investments. See "Use of Proceeds."
Risk factors................... See "Risk Factors" for a discussion of factors you should
carefully consider before deciding whether to invest in
shares of our common stock.
Proposed Nasdaq National Market
symbol........................ NEOI
</TABLE>
The number of shares that will be outstanding after the offering is based
on the number of shares outstanding as of December 31, 1999 and excludes:
. 4,855,048 shares of common stock issuable upon exercise of options
outstanding at December 31, 1999 under our 1998 stock option plan,
with a weighted average exercise price of $0.24 per share; and
. 379,693 shares of common stock issuable upon exercise of warrants,
with an exercise price of $2.50 per share and 379,693 shares of common
stock issuable upon exercise of additional warrants, with an exercise
price of $4.00 per share.
7
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except share and per share data)
The following summary financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto included
elsewhere in this prospectus. The statement of operations data for the period
from June 27, 1997 (inception) through December 31, 1997 and the fiscal year
ended December 31, 1998 are derived from, and are qualified by reference to,
our audited financial statements included elsewhere in this prospectus. The
statement of operations data for the nine-month periods ended September 30,
1998 and 1999 are derived from, and are qualified by reference to, our
unaudited financial statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1997
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------
1997 1998 1998 1999
------------- ------------ ------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1)............... $ -- $ 651 $ 232 $ 23,619
Operating Expenses:
Cost of revenues............ -- 426 169 18,831
Marketing and selling....... 24 657 347 3,642
Research and development.... 148 3,544 2,404 6,232
General and administrative.. 792 2,966 1,757 2,658
Amortization of deferred
stock compensation and
other stock-based awards... -- 655 392 7,956
----- --------- ------- ----------
Total operating expenses...... 964 8,248 5,069 39,319
----- --------- ------- ----------
Loss from operations.......... (964) (7,597) (4,837) (15,700)
Interest income, net.......... 6 55 23 172
----- --------- ------- ----------
Net loss...................... (958) (7,542) (4,814) (15,528)
Imputed beneficial conversion
dividends on preferred
stock........................ -- -- -- (7,755)
----- --------- ------- ----------
Net loss applicable to common
stockholders................. $(958) $ (7,542) $(4,814) $ (23,283)
===== ========= ======= ==========
Basic and diluted net loss per
common share(2).............. n/a $ (8.34) $ (6.58) $ (12.95)
===== ========= ======= ==========
Weighted average shares used
in computation(2)............ -- 904,667 731,149 1,797,654
===== ========= ======= ==========
Pro forma basic and diluted
net loss per common
share(3)..................... $ (1.76) $ (1.25)
========= ==========
Weighted average shares used
in pro forma computation(3).. 4,275,862 12,374,124
========= ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
----------- ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities........................... $13,352 $61,952
Working capital....................... 6,626 55,226
Total assets.......................... 35,994 84,594
Capital lease obligations, net of
current portion...................... 101 101
Total stockholders' equity............ 11,715 60,315
</TABLE>
- --------
(1) The amount recorded for the nine months ended September 30, 1999 reflects a
reduction of $2.4 million related to the amortization of a deferred sales
discount recorded in connection with the issuance of warrants to Sprint
PCS. See Note 6 to our financial statements.
8
<PAGE>
(2) See Note 2 to our financial statements for a description of the computation
of basic and diluted net loss per common share on a regular and pro forma
basis, including a summary of the computation of weighted average shares.
(3) Gives pro forma effect to: i) the issuance of 3,775,000 shares of Series C
preferred stock and warrants to purchase 1,500,000 shares of Series C
preferred stock in December 1999 for aggregate proceeds of $30.2 million;
ii) the issuance of additional warrants to purchase 1,350,000 shares of
Series C preferred stock in October and December 1999; iii) the exercise of
these warrants, that will expire if not exercised prior to the closing of
this offering, to purchase an aggregate of 2,850,000 shares of Series C
preferred stock for aggregate proceeds of $18.4 million; and iv) the
conversion of all outstanding shares of preferred stock, including the
shares of preferred stock received upon exercise of these warrants, into an
aggregate of 18,991,668 shares of common stock.
(4) As adjusted to reflect the sale of shares of common stock in this
offering, at an assumed offering price of $ per share after deducting the
estimated underwriting discount and estimated offering expenses, and our
receipt and application of the net proceeds.
9
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following risks, as well as the other information
contained in this prospectus. If any of the following risks actually occur, our
business could be harmed. In that case, the trading price of our common stock
could decline, and you might lose all or part of your investment. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us, or that we currently see as
immaterial, may also harm our business.
OUR FUTURE RESULTS ARE UNCERTAIN BECAUSE WE HAVE A LIMITED OPERATING HISTORY
We only have a limited operating history on which you can base your
evaluation of our business. While we commenced operations in October 1997, we
shipped our first SmartPhones in late August 1999 and have shipped only a
limited number of phones to date. In addition, our myAladdin.com SmartService
was announced in November 1999 and has not yet commenced commercial operation.
Prior to September 1999, substantially all of our revenues were derived from
providing systems engineering and consulting work. Accordingly, you should
assess our prospects in light of the risks and difficulties frequently
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving industries.
WE HAVE HISTORICALLY INCURRED LOSSES AND WE MAY NOT ACHIEVE PROFITABILITY
We have not operated profitably to date. We incurred net losses of $7.5
million for the year ended December 31, 1998 and $15.5 million for the nine
months ended September 30, 1999. At September 30, 1999, we had an accumulated
deficit of $31.8 million. We intend to continue to make significant investments
in our research and development and sales and marketing operations and will
need to generate significant revenues to become profitable on a quarterly or
annual basis. We may not achieve or sustain our revenue or profit goals, and
our ability to do so depends on a number of factors beyond our control.
Accordingly, we cannot be certain that we will achieve profitability in the
future. Furthermore, if we do become profitable, we may not be able to sustain
or increase our profitability.
IF WIRELESS TELEPHONES DO NOT ACHIEVE WIDESPREAD MARKET ACCEPTANCE FOR MOBILE
DELIVERY OF E-MAIL AND OTHER INTERNET-BASED SERVICES AND FOR PDA FUNCTIONS, OUR
ABILITY TO SELL OUR SMARTPHONES AND OUR MYALADDIN.COM SMARTSERVICE WOULD BE
SIGNIFICANTLY LIMITED
Our future success depends significantly on our ability to increase
revenues from sales of our SmartPhones. If wireless telephones are not widely
adopted for mobile delivery of e-mail and other Internet-based services or for
PDA functionality, or if mobile delivery of these services and information does
not become widely accepted, our ability to sell our SmartPhones would be
materially impaired. Traditional wireless telephones that have no data
capability or only limited data capability currently have, and are expected to
continue to have, sales prices that are significantly less than the prices of
our SmartPhones. Moreover, our target customers currently use many competing
products--such as personal digital assistants, portable computers and other
hand-held devices, to perform functions similar to or, in some cases, better
than those of our SmartPhones. In addition, our myAladdin.com SmartService will
depend on wireless telephone users as an important potential customer base. If
mobile individuals do not adopt wireless telephones as a means of accessing e-
mail and other Internet-based services and for PDA functions, our ability to
sell our SmartPhones and our myAladdin.com SmartService would be significantly
limited.
WE FACE SIGNIFICANT COMPETITIVE PRESSURES, WHICH MAY HAVE A MATERIAL ADVERSE
EFFECT ON US
The market for our products and services is highly competitive and we
expect competition to increase significantly in the future. In addition,
because our industry is new and evolving and characterized by rapid
technological change, it is difficult for us to predict whether, when and by
whom new competing technologies, products or services may be introduced into
our markets. Currently, in the sale of our SmartPhones we compete against a
number of large, established companies, including, but not limited to,
Audiovox, DENSO, Ericsson,
10
<PAGE>
Kyocera, LG Information & Communications, or LGIC, Motorola, Nokia, QUALCOMM,
Samsung, SANYO, Siemens and Sony. Our SmartPhones also compete against a
variety of non-telephone products, such as PDAs and other hand-held computing
devices. Principal competitors producing these products currently include, but
are not limited to, Casio, 3Com/Palm Computing, Compaq, Handspring, Hewlett-
Packard, Motorola and Research in Motion.
Our myAladdin.com SmartService is expected to compete against a variety
of different types of companies, including wireless equipment manufacturers,
Internet service providers and portals and other content providers, Internet
software applications, electronic messaging applications and personal
information management software solutions. Our principal competitors for our
myAladdin.com SmartService currently are Internet service providers that target
mobile devices, including but not limited to InfoSpace.com, Phone.com and 724
Solutions and in-house solutions from network or wireless carriers. We believe
that we face potential additional competition from traditional Internet
portals, including but not limited to America Online, Excite@Home, The
Microsoft Network and Yahoo!.
We cannot assure you that we will be able to compete effectively against
any of our current or future competitors. In addition, increased competition or
other competitive pressures may result in price reductions, reduced margins or
loss of market share, any of which could have a material adverse effect on our
business, financial condition or results of operations. Many of our current and
potential competitors have longer operating histories and significantly greater
financial, technical, marketing, customer service and other resources than we
do. These competitors also have the advantages of greater name recognition,
more established relationships with wireless carriers and other industry
participants and a larger installed base of customers. As a result, these
competitors may be able to respond to new or emerging technologies and changes
in customer requirements faster and more effectively than we can. They may also
be able to devote greater resources to the development, promotion and sale of
products and services than we can.
In addition, we also compete against companies with whom we currently or
may in the future have strategic or other key relationships. For example, we
compete with LGIC in the sale of our SmartPhones. LGIC currently has exclusive
manufacturing rights for our first three CDMA-based SmartPhone models. We also
expect to compete against Siemens and GVC Corporation, or GVC, who we expect
will have manufacturing rights for some future models of our SmartPhones. See
"Business--Manufacturing." LGIC has, and GVC and Siemens are expected to have,
exclusive rights to sell some SmartPhone models in designated geographic
regions. LGIC has, and Siemens is expected to have, non-exclusive rights to
sell some SmartPhone models in other regions. In addition, we compete with
QUALCOMM in the sale of our SmartPhones and also license from QUALCOMM the CDMA
technology incorporated into our SmartPhones. We currently license Internet
browser technology from Phone.com, which has also recently introduced an
Internet portal service which competes with our myAladdin.com SmartService. We
also compete with InfoSpace.com, which is currently a content provider to our
myAladdin.com SmartService. Any such competition with these or other current or
future parties with whom we have strategic relationships could have a material
adverse effect on those strategic relationships and on our business.
SUBSTANTIALLY ALL OF OUR SALES OF SMARTPHONES TO DATE HAVE BEEN TO SPRINT PCS,
AND WE EXPECT TO CONTINUE TO RELY ON SALES TO A SMALL NUMBER OF CUSTOMERS FOR
THE FORESEEABLE FUTURE
Substantially all of our sales of SmartPhones to date have been to Sprint
PCS. For the nine months ended September 30, 1999, sales of SmartPhones to
Sprint PCS accounted for approximately 94% of our total net revenues. Our
purchase and supply contract with Sprint PCS expires on January 31, 2000. If
Sprint PCS does not extend that contract or if we do not enter into a new
contract with Sprint PCS or one or more other wireless carriers, it would have
a material adverse effect on our financial results and the market price of our
common stock.
We believe that for the foreseeable future we will continue to depend on
a limited number of customers, comprised primarily of wireless carriers, for a
significant portion of our revenues. If any significant customer discontinues
its relationship with us for any reason or reduces or postpones current or
expected
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purchase commitments for our products, it could have a material adverse effect
on our business, financial condition or results of operations.
OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND TO COMPETE
EFFECTIVELY, WE MUST CONTINUALLY INTRODUCE NEW SMARTPHONES AND SERVICES THAT
ACHIEVE MARKET ACCEPTANCE
The markets for our SmartPhones and myAladdin.com SmartService are
characterized by rapid technological change, frequent new product and service
introductions and enhancements, uncertain product life cycles and changing end-
user customer demands. The introduction of products or services embodying new
technologies and the emergence of new industry standards could render existing
products or services obsolete or unmarketable and cause us to incur significant
development costs. Our current SmartPhones utilize only CDMA technology. To the
extent that CDMA does not remain a widely adopted communications standard, our
business would suffer. Furthermore, to the extent that competing technologies
such as time division multiple access, or TDMA, or global system for mobile
telecommunications, or GSM, become more widely adopted than CDMA, and if we are
unable to develop and introduce products to be compatible with these or newer
technologies, our business will be harmed. We may not be able to develop and
introduce new products, services and enhancements that respond to technological
changes or evolving industry standards on a timely basis, in which case our
business would suffer. See "Business -- Technology."
We believe that our future business prospects depend in part on our
ability to maintain and improve our current SmartPhones and myAladdin.com
SmartService and to develop new products and services in a timely manner. Our
products and services will have to achieve market acceptance, maintain
technological competitiveness and meet an expanding range of customer
requirements. We may experience difficulties that could delay or prevent the
successful development, introduction or marketing of new products and services
and service enhancements. Additionally, our new products and services and
service enhancements may not achieve market acceptance. If we cannot
effectively maintain, improve and develop services, we may not be able to
recover our fixed costs or otherwise become profitable.
WE CURRENTLY RELY ON AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF
THIRD PARTIES TO MANUFACTURE AND SERVICE OUR PRODUCTS
We have no internal manufacturing capability and do not intend to develop
that capability for the foreseeable future. Accordingly, we expect to continue
to rely on a limited number of third parties to manufacture our products. The
manufacture of wireless phones is a complex and precise process involving
specialized manufacturing and testing of equipment and procedures, and we will
have little, if any, direct control over the manufacturing processes used by
these third parties. In addition, these third parties may also manufacture
wireless phones for themselves or others, and we cannot assure you that they
will not allocate production capacity or schedules to favor themselves or
others over us. In addition, if there is an earthquake or other natural
disaster affecting these third party manufacturers, they may be unable to
manufacture our SmartPhones. If these companies are unable to meet our
production, delivery and quality requirements, our business would be materially
harmed.
All of our SmartPhones are currently manufactured by LGIC under a
research, development and distribution agreement. Under that agreement, LGIC
has the right to be the exclusive manufacturer of our first three CDMA-based
SmartPhone models. See "Business -- Manufacturing." If, for whatever reason,
LGIC were to be unwilling or unable to manufacture these models of SmartPhones
or fail to manufacture them in sufficient quantities or of sufficient quality,
we would be unable to deliver these SmartPhones to our customers in a timely
manner and our business could be materially harmed. Although we currently have
a memorandum of understanding with GVC to manufacture a different model
SmartPhone and have a memorandum of understanding with Siemens to manufacture
some other future models of our SmartPhones, we cannot assure you that we would
be able to finalize alternative manufacturing arrangements in a timely manner
for the three SmartPhone models to be manufactured by LGIC.
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We currently rely on an affiliate of LGIC to service our products. This
company also services products made by many other companies, including LGIC and
certain of our competitors. We have limited direct control over the quality or
priority of service given to our products. If this company fails or is unable
to provide prompt and effective product service and support, our reputation and
business could be significantly harmed.
WE DEPEND ON WIRELESS CARRIERS TO PROVIDE AND ENHANCE THE WIRELESS NETWORKS
OVER WHICH OUR SMARTPHONES AND MYALADDIN.COM SMARTSERVICE OPERATE, TO PROVIDE
KEY DISTRIBUTION CHANNELS FOR OUR PRODUCTS AND SERVICES AND TO INTRODUCE AND
SUPPORT NEW SERVICES UTILIZING OUR PRODUCTS
Our ability to grow and achieve profitability depends significantly on
the business activities of wireless carriers. End-users will utilize our
products and services over the wireless networks these companies provide. As
such, our SmartPhones are dependent on these networks. If wireless carriers do
not provide uninterrupted and "bug-free" service at adequate capacity levels,
it may reflect poorly on our products and services and our reputation and
business will be harmed. Additionally, we expect to rely to some extent on
wireless carriers to provide appropriate levels of customer service and support
to their subscribers using our SmartPhones. If they do not do so, it may
reflect poorly on our SmartPhones and our reputation and business may be
harmed. Moreover, in order for us to accomplish our anticipated growth, the
wireless carriers will need to continue to increase the capacity and
reliability of their systems to handle increasing volumes of voice and data
transmission. In addition, our profitability could be adversely affected if
wireless carriers were to increase the prices of their services. At the present
time our SmartPhones are used only on the Sprint PCS wireless network. We
expect to commence shipments of SmartPhones to Bell Distribution in January
2000, and we expect that these SmartPhones will be used on the Bell Mobility
wireless network in Canada in the near future.
We intend to sell our SmartPhones to wireless carriers and through
distribution channels and a direct sales force. As such, wireless carriers
represent a key market for our SmartPhones. We will have little, if any,
control over the approach and level of effort wireless carriers will utilize in
selling our phones. Wireless carriers generally market phones manufactured by
several different companies, and they may adopt marketing strategies that favor
phones manufactured by other companies. If wireless carriers are unwilling or
unable to market our SmartPhones successfully to end-users, our reputation and
our ability to consummate additional sales of SmartPhones in the future will be
impaired.
Wireless carriers are also expected to be a key sales channel for our
myAladdin.com SmartService. If we are unsuccessful in marketing our
myAladdin.com SmartService to wireless carriers, our target market for the
service would be significantly limited. We do not have any agreements for the
sale of our myAladdin.com SmartService to any wireless carrier at this time. We
expect that wireless carriers will continue to develop and continue to use
their own service offerings that compete with our myAladdin.com SmartService.
If we are successful in marketing the myAladdin.com SmartService to wireless
carriers, we will have little, if any, control over the approach and level of
effort wireless carriers utilize in marketing the service to their subscribers.
Wireless carriers also face implementation and support challenges in
introducing Internet-based services via wireless telephones, which may slow
their rate of adoption or implementation of the services our products enable.
Historically, wireless carriers have been relatively slow to implement new
complex services such as Internet-based services. In addition, wireless
carriers may encounter greater customer service demands to support Internet-
based services via wireless telephones than they do for their traditional voice
services. We have limited or no control over the pace at which wireless
carriers implement these new services. The failure of wireless carriers to
introduce and support services utilizing our products in a timely and effective
manner could harm our business.
OUR QUARTERLY OPERATING RESULTS HAVE VARIED SIGNIFICANTLY AND, IF THEY CONTINUE
TO DO SO, THE MARKET PRICE OF OUR COMMON STOCK COULD BE AFFECTED
Our operating results have varied significantly from quarter to quarter
and may continue to do so in the future. Our quarterly financial results could
be impacted significantly by the timing of substantial orders and
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shipments as well as new releases of our products. Our operating expenses are
based on anticipated revenue levels in the short term, are relatively fixed,
and are incurred throughout the quarter. Additionally, our products are subject
to long sales cycles. As a result, if expected revenues are not realized as
anticipated, our quarterly financial results could be materially adversely
affected. Quarterly financial results in the future may also be influenced by
possible delays in the shipment of new products and entering into or failing to
enter into or renew a material contract or order. As a result, we believe that
period-to-period comparisons of our operating results are not necessarily
meaningful, and you should not rely on them as an indication of our future
performance. Although we do not have sufficient operating history to show
seasonality, we also expect that our revenues may experience seasonal increases
in the third and fourth quarters of the year, as wireless carriers and
distributors increase their inventories for year-end sales. In addition, our
operating results in a future quarter or quarters may fall below expectations
of securities analysts or investors and, as a result, the price of our common
stock may fluctuate.
AVERAGE SELLING PRICES OF OUR SMARTPHONES CAN BE EXPECTED TO DECREASE, WHICH
MAY REDUCE OUR GROSS MARGINS
Wireless telephones have historically experienced declines in average
selling prices over product life cycles. The average selling prices for our
SmartPhones can be expected to decline as a result of competitive pricing
pressures, promotional programs and customers who negotiate price reductions in
exchange for longer term purchase commitments. We expect competition to
increase in the future. The pricing of SmartPhones depends on the specific
features and functions of the products, purchase volumes and the level of sales
and service support. As we experience pricing pressure, we anticipate that the
average selling prices and gross margins for our SmartPhones will decrease over
product life cycles. We cannot assure you that we will be successful in
developing and introducing on a timely basis new products with enhanced
features, or that these products, if introduced, will enable us to maintain our
average selling prices and gross margins at current levels.
OUR STRATEGY FOR THE MYALADDIN.COM SMARTSERVICE IS SUBJECT TO SIGNIFICANT
UNCERTAINTIES, AND WE MAY NOT BE ABLE TO ACHIEVE MARKET ACCEPTANCE FOR THIS
SERVICE
Our myAladdin.com SmartService has not yet commenced commercial operation
and as a start-up enterprise is subject to significant risks and uncertainties.
We intend to offer our myAladdin.com SmartService to wireless carriers and
other consumer-oriented businesses to enable them to create branded mobile
Internet portals for their subscribers. We have limited experience in
developing mobile Internet portals, and we may not be successful in executing
our business strategy. The success of our myAladdin.com SmartService will
depend on a number of factors, including the adoption of the service by
wireless carriers and other consumer-oriented businesses, our ability to
establish strong relationships with content and information service providers,
our ability to provide applications and services and the acceptance by wireless
subscribers of the service. Developing these capabilities and commercializing
this service will require us to incur significant additional expenses,
including costs relating to operating the portal, as well as sales and
marketing and research and development expenses. We expect to incur these costs
and expenses in advance of generating revenues from this service. Furthermore,
our business model for our myAladdin.com SmartService is new and evolving. Even
if we are successful in executing this strategy, we cannot be certain that our
business model for the myAladdin.com SmartService will result in significant
revenues or profitability.
In order to increase the value of the myAladdin.com SmartService to our
customers, we must successfully promote the development of Internet-based
applications and content for this market. If content providers and application
developers fail to create sufficient applications and content for Internet-
based services via wireless communications devices, our business could suffer
materially. Our success in motivating content providers and application
developers to create and support content and applications that subscribers find
attractive will depend, in part, on our ability to develop a customer base
large enough to justify significant and continued investments in these
endeavors.
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Our myAladdin.com SmartService may also raise privacy concerns due to the
location technologies that track the location of the mobile device that
utilizes the service and the use of personal identifying information obtained
from individuals when accessing Internet content through the service. These
concerns could result in reduced use of the myAladdin.com SmartService or
potential claims for invasion of privacy by users of the service.
IF THE COMPUTER SYSTEMS THAT OPERATE OUR MYALADDIN.COM SMARTSERVICE MALFUNCTION
OR IF THE SECURITY OF THE SERVICE IS COMPROMISED, OUR REPUTATION AND ABILITY TO
SELL THE SERVICE COULD SUFFER
Our myAladdin.com SmartService is subject to various risks relating to
potential failures in service operations. We intend to operate the host
facilities for the myAladdin.com SmartService on computer systems that are
manufactured, housed and maintained by third parties. These systems could be
subject to outages that could result in delays in our subscribers' ability to
utilize the service. There can be no assurance that our myAladdin.com
SmartService will operate correctly if we experience a hardware or software
failure or if there is an earthquake, other natural disaster or
telecommunications system failure. Moreover, despite efforts to protect the
integrity of our service, a third party may be able to circumvent our security
measures and cause interruptions of our service or misappropriation of
proprietary information of ours or our customers. Any failure in our
myAladdin.com SmartService to operate properly or any security breach or
interference in the service could cause us to lose customers, incur significant
costs to address the system failure or security breach or subject us to claims
or litigation which could distract management from operating our business.
WE RELY ON A LICENSE FROM QUALCOMM FOR THE CDMA TECHNOLOGY INCORPORATED INTO
OUR SMARTPHONES
We license the CDMA technology incorporated into our SmartPhones from
QUALCOMM. This license allows us to manufacture our CDMA-based SmartPhones and
sell or distribute them in North America, Central America and South America. We
have the option to extend this license to the rest of the world. The license
does not have a specified term and may be terminated by QUALCOMM for cause or
upon the occurrence of other specified events. We believe that CDMA technology
is proprietary to and available only from QUALCOMM. Our business would be
materially harmed by any loss or termination of this license.
We have also granted to QUALCOMM a worldwide, royalty-free, non-
transferable license to use, in connection with wireless communications
applications, our intellectual property that is used in our products which
incorporate the CDMA technology licensed to us by QUALCOMM. This license to
QUALCOMM allows QUALCOMM to make, use, sell or dispose of such products and the
components therein. If QUALCOMM decides to utilize our intellectual property in
this manner, our business may be harmed.
WE DEPEND ON TECHNOLOGY AND CONTENT OBTAINED FROM THIRD PARTIES TO PROVIDE OUR
PRODUCTS AND SERVICES, AND IF WE DO NOT MAINTAIN EXISTING ARRANGEMENTS AND
DEVELOP NEW ARRANGEMENTS, OUR ABILITY TO DEVELOP AND MARKET OUR CURRENT AND
FUTURE PRODUCTS AND SERVICES MAY BE IMPAIRED
We depend on third parties to develop and provide many of the key
features used in our products and services. Our SmartPhones utilize an Internet
minibrowser, intuitive text technology, voice recognition capabilities,
synchronization software and other wireless data capabilities which we license
from third parties. Our myAladdin.com SmartService also will rely on agreements
with third parties to supply the content and other features for the service. We
intend to continue to rely on third parties to develop and provide key
technologies and content for our products and services. This technology and
content may not, however, continue to be available on commercially reasonable
terms, or at all. The loss of our existing technology licenses or content
agreements or the failure to obtain and maintain new licenses and agreements
could result in delays in the sale of our products and services until
equivalent technology or content, if available, is identified, licensed and
integrated. In addition, our relationships with these third party providers are
not exclusive and our competitors could obtain the same or similar technology
or content from these parties for incorporation into their products or
services. Moreover, some of our third party providers are also competitors or
potential competitors of ours, and we cannot assure you that we will be able to
maintain our relationships with these providers.
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WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS ADEQUATELY
Our success depends significantly on our ability to protect our
proprietary rights to the technologies used in our products and services. If we
are not able to protect our proprietary rights adequately, our competitors
could use the intellectual property that we have developed to enhance their
products and services, which could harm our business. We intend to rely on
patent protection, as well as a combination of copyright and trademark laws,
trade secrets, confidentiality provisions and other contractual provisions, to
protect our proprietary rights, but these legal means afford only limited
protection. While we have 21 patent applications pending in the United States,
two patent applications pending in South Korea, two patent applications pending
in Taiwan and two patent applications pending under the Patent Cooperation
Treaty, no patents have been issued to us to date. Failure to obtain one or
more of these patents could harm our business.
We anticipate that we will from time to time enter into strategic
partnerships or ventures with third parties for the development of technology
related to our business. We expect that we may need to contribute our
intellectual property to such partnerships or ventures and be required to
license any technology developed to our partners and other third parties. See
"--We rely on a license from QUALCOMM for the CDMA technology incorporated into
our SmartPhones."
WE MAY BE SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR PROPRIETARY RIGHTS
The wireless communications industry is characterized by the existence of
a large number of patents and frequent litigation based on allegations of
patent infringement or other violations of intellectual property rights. Among
other things, former employers of our current or future employees may assert
claims that our employees have, inadvertently or inappropriately, disclosed to
us or utilized trade secrets or other confidential or proprietary information
of those former employers or that our employees have otherwise violated
contractual obligations to those former employers. Accordingly, the possibility
of an intellectual property claim against us is significant. Any intellectual
property claims, with or without merit, could be time consuming and expensive
to litigate or settle and could divert management attention from administering
our core businesses.
WE MAY FAIL TO SUPPORT OUR ANTICIPATED GROWTH IN OPERATIONS
To succeed in the implementation of our business strategy, we must
further develop new SmartPhones and develop and expand our myAladdin.com
SmartService, while managing anticipated growth by implementing effective
planning and operating processes. If we fail to manage our growth effectively,
our business could suffer materially. To manage anticipated growth, we must:
. continue to implement and improve our operational, financial and
management information systems;
. hire, train and retain additional qualified personnel and retain
existing personnel;
. continue to expand and upgrade core technologies; and
. effectively secure and manage multiple relationships with various
wireless carriers, manufacturers, technology developers, content
providers and other third parties.
Our systems, procedures and controls may not be adequate to support our
operations, and our management may not be able to achieve the rapid execution
necessary to exploit the markets for our products and services.
WE DEPEND ON RECRUITING AND RETAINING KEY MANAGEMENT AND TECHNICAL PERSONNEL
WITH TELECOMMUNICATIONS AND INTERNET SOFTWARE EXPERIENCE
Because of the technical nature of our SmartPhones and myAladdin.com
SmartService and the dynamic markets in which we compete, our performance
depends on attracting and retaining key employees. In particular, our future
success depends in part on the continued services of William Son, our Chairman,
Chief Executive Officer and President, and each of our other current executive
officers. We currently maintain a
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$10 million key person life insurance policy on Mr. Son, but we do not have an
employment contract with Mr. Son. We do not maintain key person life insurance
on, or have an employment contract with, any other employee. If we were to lose
the services of Mr. Son or other key employees, or fail to attract and retain
additional key employees, it could harm our business. Competition for qualified
personnel in the wireless communication industry is intense, particularly for
those with relevant technical expertise. We believe that there are only a
limited number of persons with the requisite skills to serve in many key
positions, and it is becoming increasingly difficult to hire and retain these
persons. Competitors and others have in the past, and may in the future,
attempt to recruit our employees.
WE MAY PURSUE ACQUISITIONS THAT BY THEIR NATURE PRESENT RISKS AND THAT MAY NOT
BE SUCCESSFUL
In the future we may pursue acquisitions to complement or diversify our
SmartPhones or myAladdin.com SmartService or customer base or for other
strategic purposes. We have no prior history of making acquisitions, and we
cannot assure you that any future acquisitions will be successful. The
following are some of the risks associated with acquisitions that could have a
material adverse effect on our business, financial condition or results of
operations:
. we cannot ensure that any acquired businesses will achieve
anticipated revenues, earnings or cash flow;
. we may be unable to integrate acquired businesses successfully and
realize anticipated economic, operational and other benefits in a
timely manner, particularly if we acquire a business in a market in
which we have limited or no current expertise, or with a corporate
culture different from our own; and
. acquisitions could disrupt our ongoing business, distract management,
divert resources and make it difficult to maintain our current
business standards, controls and procedures.
WE INTEND TO EXPAND OUR INTERNATIONAL SALES EFFORTS BUT DO NOT HAVE SUBSTANTIAL
EXPERIENCE IN INTERNATIONAL MARKETS
Although our international sales have been immaterial to date, we intend
to expand our international sales efforts in the future. We have very limited
experience in marketing, selling and supporting our SmartPhones and services
abroad. If we are unable to grow our international operations successfully and
in a timely manner, our business and operating results could be seriously
harmed.
Our existing and contemplated manufacturing arrangements restrict our
ability to sell some SmartPhone models in some geographic regions, such as
South Korea, Taiwan and the People's Republic of China. In addition, our
memorandum of understanding with Siemens contemplates that Siemens will have
exclusive worldwide sales rights to a GSM version of a planned SmartPhone that
is currently under development, subject to our option to market this product in
North and South America. These arrangements, and any future similar
arrangements, may limit our international expansion opportunities. See
"Business -- Sales Channels and Marketing."
In addition, doing business internationally involves many risks,
particularly:
. unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;
. political instability;
. fluctuations in foreign currency exchange rates;
. increased expenses associated with establishing foreign repair and
support operations;
. differing intellectual property rights and protections; and
. differing labor regulations.
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WE MAY NEED ADDITIONAL CAPITAL AND WE MAY NOT BE ABLE TO OBTAIN IT, WHICH COULD
PREVENT US FROM CARRYING OUT OUR BUSINESS STRATEGY
Implementation of our growth strategy will likely require continued
access to capital. If we are unable to obtain sufficient financing, we may be
unable to implement our strategy. We currently anticipate that our available
cash resources combined with the net proceeds from this offering and cash flows
expected to be generated from our future operations will be sufficient to fund
our operating needs for approximately the next 12 months. Thereafter, we may
require additional financing in an amount that we cannot determine at this
time. If our plans or assumptions change or are inaccurate, we may be required
to seek capital sooner than anticipated. We may need to raise funds through
public or private debt or equity financings. In addition, we intend to obtain a
bank credit facility or other working capital credit line under which we may
borrow funds for working capital or other general corporate purposes.
If funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders may be reduced and the
holders of new equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. If additional funds are
raised through a bank credit facility or the issuance of debt securities, the
holder of this indebtedness would have rights senior to the rights of the
holders of our common stock and the terms of this indebtedness could impose
restrictions on our operations. If we need to raise additional funds, we may
not be able to do so on terms favorable to us, or at all. If we cannot raise
adequate funds on acceptable terms, we may be unable to continue to fund our
operations.
OUR SMARTPHONES AND MYALADDIN.COM SMARTSERVICE COULD HAVE DEFECTS FOR WHICH WE
ARE POTENTIALLY LIABLE AND WHICH COULD RESULT IN LOSS OF REVENUES, INCREASED
COSTS, LOSS OF OUR CREDIBILITY OR DELAY IN ACCEPTANCE OF OUR PRODUCTS OR
SERVICES IN THE MARKET
Our SmartPhones and myAladdin.com SmartService, including components
supplied by others, may contain errors or defects, including software errors,
especially when first introduced or when new versions are released. Errors in
new products, services or releases could be found after commencement of
commercial shipments or commercial service operations, and this could result in
additional development costs, diversion of technical and other resources from
our other development efforts or the loss of credibility with current or future
end-users. This could result in a loss of revenue or delay in market acceptance
of our products or services, which could have a material adverse effect upon
our business, financial condition or results of operations.
WE MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS WHICH COULD HARM OUR BUSINESS
Testing, manufacturing, marketing and use of our SmartPhones entail the
risk of product liability. While we currently have product liability insurance,
we cannot assure you that we will be able to continue to maintain such
insurance at a reasonable cost or in sufficient amounts to protect us against
losses due to product liability. Our inability to maintain insurance at an
acceptable cost or to otherwise protect against potential product liability
could prevent or inhibit the commercialization of our SmartPhones. In addition,
a product liability claim or product recall could have a material adverse
effect on our business, financial condition or results of operations.
HEALTH OR SAFETY CONCERNS REGARDING USE OF WIRELESS TELEPHONES COULD IMPAIR OUR
ABILITY TO SELL OUR SMARTPHONES
News reports have asserted that power levels associated with wireless
telephones may pose health risks. If it were determined that wireless
telephones do create a significant health risk, our ability to market and sell
our SmartPhones would be impaired. In addition, there may also be safety risks
associated with the use of hand-held wireless telephones while driving. If
these safety risks, or the perception of these risks, were to increase, or if
regulatory authorities were to adopt restrictions on the use of wireless
telephones to attempt to address these risks, our ability to sell our
SmartPhones could be impaired.
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OUR SMARTPHONES ARE SUBJECT TO GOVERNMENTAL APPROVALS, AND NEW LAWS AND
REGULATIONS THAT IMPACT OUR INDUSTRY COULD INCREASE OUR COSTS OR REDUCE OUR
OPPORTUNITIES TO GENERATE REVENUE
Our SmartPhones must be approved by the Federal Communications Commission
before they can be used in commercial quantities in the United States. The FCC
requires that access devices meet various standards, including safety standards
with respect to human exposure to electromagnetic radiation and basic signal
leakage. Regulatory requirements are similar in other jurisdictions. If we fail
to maintain regulatory approvals for our current products or fail to obtain
required regulatory approvals for any new products on a timely basis, it could
have a material adverse effect on our business, results of operations and
financial condition. Moreover, in the future our SmartPhones and our
myAladdin.com SmartService may become subject to further regulation by the FCC
or another regulatory agency. In addition, the wireless carriers who may
purchase our SmartPhones or myAladdin.com SmartService for resale to their
customers are subject to regulation by the FCC, and regulations that affect
them could increase our costs or reduce our ability to continue selling and
supporting our products and services.
OUR EXECUTIVE OFFICERS, DIRECTORS AND LARGE STOCKHOLDERS OWN A LARGE PERCENTAGE
OF OUR VOTING STOCK AND COULD CONTROL OR EXERT SIGNIFICANT INFLUENCE OVER
MATTERS REQUIRING STOCKHOLDER APPROVAL
Following completion of the offering, our executive officers, directors
and principal stockholders and their affiliates will beneficially own
approximately % of our common stock, based on their beneficial ownership
as of December 31, 1999. Accordingly, they collectively will have the ability
to determine the election of all of our directors and to determine the outcome
of corporate actions requiring stockholder approval. They may exercise this
ability in a manner that advances their best interests and not necessarily
those of other stockholders. This ownership concentration could have the effect
of delaying or preventing a change in control.
In particular, our stock ownership is concentrated among the lead
investors from our prior rounds of private financing. As of December 31, 1999,
LGIC, Transpac Capital, or Transpac, and Siemens owned 27%, 29% and 15% of our
voting stock, respectively. LGIC, Transpac and Siemens also have
representatives on our board of directors. LGIC also is currently the sole
manufacturer of our SmartPhones. None of these parties is a party to any
standstill or other agreement limiting its ability to acquire additional shares
of our capital stock and may in the future, through open market purchases or
otherwise, acquire additional shares of our common stock. These stockholders
may have interests that differ from those of our stockholders generally, and we
cannot assure you that these major stockholders will not utilize their
positions to advance their own best interests, not necessarily those of
NeoPoint.
FUTURE SALES OF OUR COMMON STOCK, INCLUDING THOSE PURCHASED IN THIS OFFERING,
MAY DEPRESS OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Shares issued upon the exercise of outstanding options may also be
sold in the public market, commencing 180 days after the date of this
prospectus. In addition, sales of our common stock in the public market could
create the perception to the public of difficulties or problems with our
products and services. As a result, these sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options after December 31,
1999. Of these shares, the shares sold in this offering are freely tradable
unless held by affiliates. The remaining shares will become eligible
for sale in the public market as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
----------------------------- ----------------
<S> <C>
, 2000 (180 days after the date of this
prospectus)............................................
At various times thereafter upon the expiration of one-
year holding periods...................................
</TABLE>
19
<PAGE>
The above table includes the effect of lock-up arrangements with the
underwriters and us which prevent our directors, officers and some existing
stockholders from selling or otherwise disposing of their shares of common
stock prior to 181 days after this offering. The underwriters may waive these
lock-up restrictions prior to 181 days after this offering without prior
notice. In addition, as of December 31, 1999, we had 4,855,048 outstanding
options with a weighted average exercise price of $0.24. Of these options,
1,516,490 are vested and exercisable as of December 31, 1999 and will be
available for resale 181 days after the offering. We intend to file one or more
registration statements on Form S-8 covering shares issuable upon exercise of
options granted under our equity incentive and option plans and issuable under
our employee stock purchase plan.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE, OR ANY, RETURN FOR US
The net proceeds of this offering are not allocated for specific uses
other than working capital and general corporate purposes. We may also use a
portion of the proceeds for possible future acquisitions or investments. Thus,
our management has broad discretion over how these proceeds are used and could
spend the proceeds in ways with which you may not agree. We cannot assure you
that the proceeds will be invested in a way that yields a favorable return, if
any, for us.
OUR STOCK PRICE, LIKE THAT OF MANY TECHNOLOGY COMPANIES, MAY BE VOLATILE
We expect that the market price of our common stock will be volatile. We
are involved in a highly competitive, rapidly changing industry and stock
prices in our and similar industries have risen and fallen in response to a
variety of factors, including:
. quarter-to-quarter variations in operating results;
. entering into, or failing to enter into or renew, a material contract
or order;
. announcements of new wireless communications products, services or
technologies;
. acquisitions of, or strategic alliances among, companies in the
wireless communications industry;
. changes in recommendations by securities analysts regarding the
results or prospects of providers of wireless communications products
and services; and
. changes in investor perceptions of the acceptance or profitability of
wireless communications.
The market price for our common stock may also be affected by our ability
to meet investors' or securities analysts' expectations. Any failure to meet
these expectations, even slightly, could have an adverse effect on the market
price of our common stock. In addition, the stock market is subject to extreme
price and volume fluctuations. This volatility has had a significant effect on
the market prices of securities issued by many companies for reasons unrelated
to the operating performance of these companies. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted against that company. If similar
litigation were instituted against us, it could result in substantial costs and
a diversion of our management's attention and resources, which could have an
adverse effect on our business, financial condition or results of operations.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK
Provisions of our restated certificate of incorporation and bylaws and
provisions of Delaware law could delay, defer or prevent an acquisition or
change of control of NeoPoint or otherwise adversely affect the price of our
common stock. These provisions include:
. authorizing the board to issue additional preferred stock;
. prohibiting cumulative voting in the election of directors;
. limiting the persons who may call special meetings of stockholders;
. prohibiting stockholder actions by written consent;
20
<PAGE>
. creating a classified Board of Directors pursuant to which our
directors are elected for staggered three-year terms; and
. establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
on by stockholders at stockholder meetings.
Please refer to "Description of Capital Stock" for a more detailed
discussion of these provisions.
YEAR 2000 MAY ADVERSELY AFFECT OUR BUSINESS
In the course of our business, we test and evaluate our SmartPhones and
service offerings for Year 2000 compliance. Based on this testing and
evaluation, we believe that our current SmartPhones are capable of adequately
distinguishing dates on or after January 1, 2000 from dates on or prior to
December 31, 1999. We also believe that the developed technologies and website
portals associated with our myAladdin.com SmartService are Year 2000
compliant. We have warranted that our SmartPhones are Year 2000 compliant. If
any of our customers experience Year 2000 problems as a result of their use of
our products or services, those customers could assert claims against us for
damages which, if successful, could materially adversely affect our business,
financial condition or results of operations. In addition, our products and
services have third-party technologies embedded in them and operate over
third-party wireless communications networks. We cannot adequately evaluate
these technologies or wireless networks for Year 2000 compliance.
We have identified most of our internal management information and other
critical business systems to determine if they are Year 2000 compliant. We
believe that most of those systems are Year 2000 compliant, and we do not
expect problems from these systems to materially affect us. We have also
contacted key suppliers and vendors about their Year 2000 readiness. To date,
we are not aware of any material suppliers or vendors with Year 2000 issues
that would materially affect us. However, we cannot guarantee that the systems
of other companies on which our operations rely will be timely converted or
that failure to timely convert would not have a material adverse effect on us.
We believe that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or upgrade their current software systems for Year 2000
compliance. These expenditures may reduce the funds available to purchase
products and services such as those we offer. To the extent Year 2000 issues
significantly disrupt decisions to purchase our services, our products or
business, financial condition or results of operations could be materially
adversely affected.
Our most reasonably likely worst case scenario for Year 2000 problems is
that:
. we could suffer a significant number of operational inconveniences
and inefficiencies;
. we could be subject to business disputes or claims, including product
warranty claims, due to Year 2000 problems experienced by our
customers or end-users of our SmartPhones, whether or not related to
the operation of our SmartPhones; and
. we could face a limitation on our ability to source necessary
products or accessories from LGIC or our other vendors, which could
adversely affect our ability to deliver SmartPhones to customers in a
timely manner.
Any of these scenarios could have a material adverse effect on our
business, financial condition or results of operations.
For a more detailed description of our Year 2000 assessment, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness Disclosure."
21
<PAGE>
INVESTORS WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AND MAY EXPERIENCE
FURTHER DILUTION
The assumed initial public offering price is substantially higher than
the pro forma net tangible book value per share of the outstanding common stock
immediately prior to this offering, which was $2.59 per share as of September
30, 1999. If you purchase our common stock in this offering, you will incur
immediate and substantial dilution in the pro forma net tangible book value per
share of common stock from the price you pay per share of common stock. We also
have outstanding a large number of options and warrants to purchase common
stock with exercise prices significantly below the assumed initial public
offering price of the common stock. To the extent these options or warrants are
exercised, there will be further dilution. We intend to continue to grant stock
options as part of our general compensation practices. See "Dilution."
22
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements relating to, among
other things, future results of operations, our plans and expectations
regarding our future products and services and general industry and business
conditions applicable to NeoPoint. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements are subject to a number of risks,
uncertainties and assumptions about NeoPoint, including those we describe in
the "Risk Factors" section of this prospectus. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
prospectus might not occur. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information
or future events.
We use market data and industry forecasts and projections throughout this
prospectus that we have obtained from internal surveys, market research,
publicly available information and industry publications. Industry publications
generally state that the information they provide has been obtained from
sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. The forecasts and projections are based on
industry surveys and the preparers' experience in the industry and there is no
assurance that any of the projected amounts will be achieved. Similarly, we
believe that the surveys and market research we or others have performed are
reliable, but we have not independently verified this information.
23
<PAGE>
USE OF PROCEEDS
We expect to receive approximately $ million from the sale of shares
of common stock by us at an assumed initial public offering price of $ per
share, after deducting the estimated underwriting discount of $ and estimated
expenses of $ to be paid by us. We expect to receive an additional $ of net
proceeds if the underwriters exercise their over-allotment option in full.
We intend to use the proceeds of this offering for working capital and
other general corporate purposes, including research and development
expenditures and sales and marketing expenditures. In addition, we may use a
portion of the net proceeds to fund acquisitions of, or investments in,
businesses, products or technologies that expand, complement or are otherwise
related to our current business. However, we have no current commitments or
agreements with respect to any of these types of acquisitions or investments.
Pending these uses, we intend to invest the net proceeds from this
offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain earnings, if any, to support the development of
our business and do not anticipate paying cash dividends for the foreseeable
future. Payment of future dividends, if any, will be at the discretion of our
board of directors after taking into account factors such as our financial
condition, operating results and current and anticipated cash needs.
24
<PAGE>
CAPITALIZATION
The table below sets forth our capitalization as of September 30, 1999:
. on an actual basis;
. on a pro forma basis, giving effect to: i) the issuance of 3,775,000
shares of Series C preferred stock and warrants to purchase 1,500,000
shares of Series C preferred stock in December 1999 for aggregate
proceeds of $30.2 million; ii) the issuance of additional warrants to
purchase 1,350,000 shares of Series C preferred stock in October and
December 1999; iii) the exercise of these warrants, that will expire
if not exercised prior to the closing of this offering, to purchase an
aggregate of 2,850,000 shares of Series C preferred stock for
aggregate gross proceeds of $18.4 million; and iv) the conversion of
all outstanding shares of preferred stock, including the shares of
preferred stock received upon exercise of these warrants, into an
aggregate of 18,991,668 shares of common stock; and
. on a pro forma basis, as further adjusted to reflect the sale of
shares of common stock in this offering, at an assumed offering price
of $ per share after deducting the estimated underwriting discount
and estimated offering expenses, and our receipt and application of
the net proceeds.
This information should be read in conjunction with our financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of capital lease
obligations............................... $ 241 $ 241 $ 241
======== ======== =======
Capital lease obligations, net of current
portion................................... $ 101 $ 101 $ 101
-------- -------- -------
Stockholders' equity
Convertible Preferred Stock, par value
$0.001 per share; 18,000,000 shares
authorized actual; no shares authorized
pro forma and pro forma as adjusted
Series C, no shares designated, issued
or outstanding, actual, pro forma and
pro forma as adjusted................. -- --
Series B, 6,000,000 shares designated,
issued and outstanding, actual; no
shares designated, issued or
outstanding pro forma and pro forma as
adjusted.............................. 6 --
Series A, 6,700,000 shares designated,
6,366,668 shares issued and
outstanding, actual; no shares
designated, issued or outstanding pro
forma and pro forma as adjusted....... 6 --
Common Stock, par value $0.001 per share,
35,000,000 shares authorized actual, pro
forma and pro forma as adjusted,
2,937,625 shares issued and outstanding,
actual; 21,929,293 shares issued and
outstanding pro forma; shares
issued and outstanding, pro forma as
adjusted................................ 3 22
Additional paid-in-capital............... 48,448 100,121
Deferred sales discount.................. (132) (132)
Deferred cost of revenues................ -- (1,462)
Notes receivable from stockholders....... (65) (65)
Deferred compensation.................... (4,768) (4,768)
Accumulated deficit...................... (31,783) (33,401)
-------- -------- -------
Total stockholders' equity............. 11,715 60,315
-------- -------- -------
Total capitalization................. $ 11,816 $ 60,416 $
======== ======== =======
</TABLE>
25
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of September
30, 1999 was approximately $56.7 million, or $2.59 per share. Pro forma net
tangible book value per share represents the amount of our total assets,
excluding net intangible assets, less our total liabilities, divided by the
total number of shares of common stock outstanding, after giving effect to: i)
the issuance of 3,775,000 shares of Series C preferred stock in December 1999
for aggregate proceeds of $30.2 million; ii) the issuance of additional
warrants to purchase 1,350,000 shares of Series C preferred stock in October
and December 1999; iii) the exercise of these warrants, that will expire if not
exercised prior to the closing of this offering, to purchase an aggregate of
2,850,000 shares of preferred stock for aggregate proceeds of $18.4 million;
and iii) the conversion of all outstanding shares of preferred stock, including
the shares of preferred stock received upon exercise of these warrants, into an
aggregate of 18,991,668 shares of common stock. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by investors in this offering and the net tangible book value per
share of our common stock immediately after the offering. After giving effect
to the sale of the shares of common stock by us in this offering, at an
assumed initial public offering price of $ per share, and after deducting the
estimated underwriting discount and estimated offering expenses payable by us,
the net tangible book value of our common stock would have been $ million, or
$ per share. This represents an immediate increase in net tangible book value
of $ per share to existing stockholders and an immediate dilution of $ per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
-----
Pro forma net tangible book value per share as of September 30,
1999........................................................... $2.59
-----
Increase per share attributable to new investors................ $
-----
Pro forma net tangible book value per share after this offering.... $
-----
Dilution per share to new investors................................ $
=====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the net
tangible book value per share after the offering would be $ per share, the
increase in pro forma net tangible book value per share to existing
stockholders would be $ per share and the dilution in pro forma net
tangible book value to new investors would be $ per share.
The following table summarizes, on a pro forma basis, as of September 30,
1999:
. the number of shares of common stock purchased from us;
. the total consideration paid to us;
. the average price per share paid by existing stockholders; and
. the average price per share paid by new investors, before deducting
the estimated underwriting discount and offering expenses payable by
us.
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
-------------- -------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. % $ % $
New investors......................
--- --- ----- --- ----
Total........................... % $ % $
=== === ===== === ====
</TABLE>
The information in the above table excludes 4,855,048 shares of common
stock issuable upon exercise of options outstanding at December 31, 1999 under
our 1998 Stock Option Plan, with a weighted average exercise price of $0.24 per
share, 379,693 shares of common stock issuable upon exercise of warrants, with
an exercise price of $2.50 per share and 379,693 shares of common stock
issuable upon exercise of warrants, with an exercise price of $4.00 per share.
Giving effect to the exercise of these warrants and to the full vesting and
exercise of all options outstanding as of December 31, 1999, the pro forma net
tangible book value per share as of September 30, 1999 would be $2.19, the
dilution per share to the new investors would be $ , and the consideration
paid by the existing stockholders and the new investors would represent % and
%, respectively, of the total consideration paid for all shares.
26
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except share and per share data)
You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto included elsewhere
in this prospectus. The statement of operations data set forth below for the
period from June 27, 1997 (inception) through December 31, 1997 and the fiscal
year ended December 31, 1998 and the balance sheet data as of December 31, 1997
and 1998 are derived from, and are qualified by reference to, our audited
financial statements included elsewhere in this prospectus. The statement of
operations data for the nine-month periods ended September 30, 1998 and 1999
and the balance sheet data as of September 30, 1999 are derived from, and are
qualified by reference to, our unaudited financial statements included
elsewhere in this prospectus. The unaudited financial statements include all
normal recurring adjustments that we consider necessary for a fair presentation
of our financial position and results of operations. The results of operations
for the nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the full fiscal year ending December 31,
1999, or any other future period.
<TABLE>
<CAPTION>
Period From
June 27, 1997 Nine Months Ended
(inception) to Year Ended September 30,
December 31, December 31, ------------------------
1997 1998 1998 1999
-------------- ------------ ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statement of Operations:
Net revenues(1)........................................... $ -- $ 651 $ 232 $ 23,619
-------- --------- -------- ----------
Operating expenses:
Cost of revenues....................................... -- 426 169 18,831
Marketing and selling.................................. 24 657 347 3,642
Research and development............................... 148 3,544 2,404 6,232
General and administrative............................. 792 2,966 1,757 2,658
Amortization of deferred stock compensation
and other stock-based awards.......................... -- 655 392 7,956
-------- --------- -------- ----------
Total operating expenses.................................. 964 8,248 5,069 39,319
-------- --------- -------- ----------
Loss from operations...................................... (964) (7,597) (4,837) (15,700)
Interest income, net................................... 6 55 23 172
-------- --------- -------- ----------
Net loss.................................................. (958) (7,542) (4,814) (15,528)
Imputed beneficial conversion dividends on preferred
stock.................................................... -- -- -- (7,755)
-------- --------- -------- ----------
Net loss applicable to common stockholders................ $ (958) $ (7,542) $ (4,814) $ (23,283)
======== ========= ======== ==========
Basic and diluted net loss per common share(2) ........... n/a $ (8.34) $ (6.58) $ (12.95)
======== ========= ======== ==========
Weighted average shares used in computation(2)............ -- 904,667 731,149 1,797,654
======== ========= ======== ==========
Pro forma basic and diluted net loss per common share(2).. $ (1.76) $ (1.25)
========= ==========
Weighted average shares used in pro forma computation(2).. 4,275,862 12,374,124
========= ==========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
----------------- At September 30,
1997 1998 1999
------- -------- ----------------
<S> <C> <C> <C>
(unaudited)
Balance Sheet Data:
Cash, cash equivalents and marketable
securities................................ $ 740 $ 10,195 $ 13,352
Working capital............................ 407 9,452 6,626
Total assets............................... 1,273 12,128 35,994
Capital lease obligations, net of current
portion................................... -- 171 101
Long-term debt............................. 1,775 100 --
Total stockholders equity (deficit)........ (958) 10,385 11,715
</TABLE>
- --------
(1) The amount recorded for the nine months ended September 30, 1999 reflects a
reduction of $2.4 million related to the amortization of a deferred sales
discount recorded in connection with the issuance of warrants to Sprint
PCS. See Note 6 to our financial statements.
(2) See Note 2 to our financial statements for a description of the computation
of basic and diluted net loss per common share on a regular and pro forma
basis, including a summary of the computation of weighted average shares.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following description of our financial condition and
results of operations in conjunction with our financial statements and the
related notes and the other financial information appearing elsewhere in this
prospectus. This section includes forward-looking information that involves
risks and uncertainties. Our actual results could differ materially from those
anticipated by forward-looking information due to factors discussed under "Risk
Factors," "Business" and elsewhere in this prospectus.
OVERVIEW
NeoPoint is a leading provider of advanced SmartPhones and intelligent
mobile portal services for users of wireless devices. Our SmartPhones integrate
high-quality voice capabilities with e-mail, Internet access and PDA
functionality into a single wireless device. Our myAladdin.com SmartService is
a wireless Internet portal designed to provide intelligent information and
customized content on a non-branded basis to wireless carriers and other
consumer-oriented businesses.
We were incorporated on June 27, 1997 and commenced operations in October
1997. From October 1997 through December 31, 1997, we focused primarily on
research activities related to the development of our SmartPhones and, during
that period of time, did not record any revenues. Expenditures during this
period consisted principally of research and development and general and
administrative expenditures associated with our early-stage operational
activities. On December 31, 1997, we had only 12 employees, whereas our
headcount subsequently increased to 70 employees on December 31, 1998 and 171
full and part-time employees on December 31, 1999. Given our minimal level of
operating history during 1997, we believe that comparisons between any period
in 1997 and the comparable period in 1998 would not be meaningful. Therefore,
those comparisons are not discussed below.
SOURCES OF REVENUE AND REVENUE RECOGNITION POLICIES
During 1998, our revenues were primarily derived from engineering and
consulting services performed on a contract basis for wireless carriers,
equipment vendors and infrastructure manufacturers. Three customers accounted
for approximately 81% of our total 1998 net revenues.
We began shipping SmartPhones in late August 1999 and, during the nine
months ended September 30, 1999, approximately 94% of our net revenues were
derived from sales of SmartPhones to Sprint PCS. Our remaining revenues during
this period were derived primarily from engineering and consulting service
contracts. Revenues derived from Sprint PCS during this period were offset by
the amortization of a portion of the value ascribed by us to two warrants that
were granted to Sprint PCS in June 1999, which we recorded as a sales discount,
as more fully described below.
SmartPhone and Service Revenues. We generally recognize revenues from
product sales upon shipment, net of accrued sales allowances. Through September
30, 1999, substantially all of our product revenues have been derived from
domestic sales of our NP-1000 SmartPhones to Sprint PCS in accordance with a
CDMA PCS subscriber unit supply agreement that terminates on January 31, 2000.
In accordance with this agreement, Sprint PCS is not afforded any general
return rights, other than a catastrophic defect right that allows Sprint PCS to
return product in the event that lots or batches of product contain defects
exceeding specified limits. To date, Sprint PCS has not rejected any material
quantities of product nor has it asserted any catastrophic defect claims.
We derive our engineering and consulting service revenues primarily under
time-and-material type contracts whereby we generally charge our customers
specified hourly rates for direct labor and associated project costs over the
contract periods. We recognize revenues associated with these arrangements as
the related services are performed.
myAladdin.com SmartService Revenues. To date, we have not generated any
revenues from our myAladdin.com SmartService, as it has yet to commence
commercial operations. We currently intend to offer myAladdin.com SmartService
to enable wireless carriers and other consumer-oriented businesses to create
28
<PAGE>
branded mobile Internet portals for their customers. Although the myAladdin.com
business model is new and evolving, we anticipate that our myAladdin.com
SmartService revenues will be generated primarily from subscription fees,
subscriber transaction fees and on-line advertising.
OPERATING EXPENSES
Cost of Revenues. Cost of revenues associated with our SmartPhones
consists primarily of the cost of handsets obtained from LGIC, our current
manufacturer, the cost of accessories obtained from other vendors, associated
freight, quality control, inventory management and support costs, and estimated
warranty costs. Cost of revenues relating to our engineering and consulting
service contracts consists primarily of engineer salaries and related expenses,
travel expenditures, payments to third-party consultants, costs of materials
and other direct project-related expenses.
Marketing and Selling Expenses. Marketing and selling expenses consist
primarily of salaries, commissions and related expenses for personnel engaged
in marketing, sales and customer support functions, external public relations
and advertising costs, promotional and trade show costs and travel
expenditures.
Research and Development Expenses. Research and development expenses
consist primarily of salaries and related expenses for engineers, design and
other technical personnel, prototype material costs, fees paid to consultants
and outside service providers, depreciation associated with test equipment, and
other expenses related to the design, development, testing and enhancement of
our products and services. We expense all research and development costs as
incurred. Since our inception, we have incurred significant expenses related to
the development of our SmartPhones and, beginning in 1999, related to the
development of our myAladdin.com SmartService.
General and Administrative Expenses. General and administrative expenses
include salaries and related expenses for personnel engaged in finance, human
resources, information technology, administrative and legal activities,
professional service fees, and other expenses associated with the general
operation of our corporate administrative facilities.
Amortization of Deferred Stock Compensation and Other Stock-Based
Awards. Amortization of deferred stock compensation relates to deferred
compensation recorded in connection with the grant of options and stock awards
to employees, where the option exercise price or the stock issuance price is
less than the estimated fair value of the underlying shares of common stock as
determined for financial reporting purposes, and in connection with option
grants to outside consultants whereby deferred compensation is recorded based
upon the estimated fair value of the respective awards. Through September 30,
1999, we recorded deferred compensation within stockholders' equity (deficit)
of $12.4 million which is being amortized over the vesting terms of the related
stock awards for employees or over the terms of the respective consulting
arrangements. The portion of deferred compensation that remains unamortized as
of September 30, 1999 is $4.8 million. The amount of deferred compensation
amortization actually recognized in future periods could decrease if awards for
which accrued but unvested compensation has been recorded are forfeited. Other
stock-based awards pertain to our issuance of common stock in connection with a
settlement agreement and an amendment to an assignment agreement. See Notes 6
and 9 to our financial statements.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
Net Revenues. Net revenues increased from $232,000 for the nine months
ended September 30, 1998 to $23.6 million for the nine months ended September
30, 1999. This increase is attributable primarily to the release of our initial
SmartPhone to the marketplace in late August 1999, and related sales to Sprint
PCS during August and September 1999. Net revenues derived from Sprint PCS
during the nine months ended September 30, 1999 totaled $22.3 million, which
reflects a reduction due to the amortization of a portion of the value ascribed
by us to two warrants that were granted to Sprint PCS in June 1999, which we
recorded as a deferred sales discount. We issued these warrants in connection
with the execution of the CDMA PCS subscriber unit supply agreement, and
ascribed a total value of $2.5 million to these warrants based upon our
29
<PAGE>
estimate of their fair value. We are amortizing this amount on a per-unit basis
over the minimum commitment under that agreement. We amortized $2.4 million of
this amount during the nine months ended September 30, 1999. The remaining
portion of the increase in our net revenues for the nine months ended September
30, 1999 is attributable primarily to increased revenues associated with
engineering and consulting service contracts.
Cost of Revenues. Cost of revenues increased from $169,000 for the nine
months ended September 30, 1998 to $18.8 million for the nine months ended
September 30, 1999. $18.4 million of this increase is attributable to the cost
of revenues associated with the sale of SmartPhones beginning in late August
1999. The remaining portion of this increase is primarily attributable to
direct costs associated with engineering and consulting services.
Marketing and Selling. Marketing and selling expenses increased from
$347,000 for the nine months ended September 30, 1998 to $3.6 million for the
nine months ended September 30, 1999. This increase is attributable primarily
to an increase in marketing and selling personnel, the utilization of outside
advertising and public relations firms beginning in 1999, expenses associated
with trade shows and other costs associated with the commercial release of our
first SmartPhone. We believe that continued investment in marketing and selling
is critical to the success of our relationships with carriers and other
customers and for the purpose of increasing market share for our SmartPhones
and myAladdin.com SmartService. We expect that our marketing and selling
expenditures will continue to increase in absolute dollars as we implement our
strategy.
Research and Development. Research and development expenses increased
from $2.4 million for the nine months ended September 30, 1998 to $6.2 million
for the nine months ended September 30, 1999. On the product side, this
increase is attributable primarily to an increase in the number of research and
development personnel, increased prototype and materials costs, compliance and
testing costs associated with the certification of our products for regulatory
and customer validation purposes, and increased outside service costs. This
increase is also due to development efforts associated with our myAladdin.com
SmartService which principally commenced during the nine months ended September
30, 1999 and which have to date consisted primarily of technical personnel
costs as well as outside content development costs. We believe that continued
investment in research and development is critical to our long-term success.
Accordingly, we expect to continue to devote substantial resources to research
and development and expect that these expenses will increase in absolute
dollars as we implement our strategy.
General and Administrative. General and administrative expenses increased
from $1.8 million for the nine months ended September 30, 1998 to $2.7 million
for the nine months ended September 30, 1999. This increase was attributable
primarily to the increased number of general and administrative personnel and
increased expenditures relating to professional services and other
administrative costs resulting from the growth of our operations. We expect
that general and administrative expenses will increase in future periods in
absolute dollars as we incur additional costs associated with our continued
growth and our planned operations as a public company.
Amortization of Deferred Stock Compensation and Other Stock-Based
Awards. Charges relating to the amortization of deferred stock compensation and
other stock-based awards increased from $392,000 for the nine months ended
September 30, 1998 to $8.0 million for the nine months ended September 30,
1999, primarily as a result of additional deferred stock compensation awards
granted to employees and consultants during the nine months ended September 30,
1999. Amortization of deferred stock compensation increased from $392,000 for
the nine-months ended September 30, 1998 to $6.4 million for the nine months
ended September 30, 1999. Additionally, during the nine months ended September
30, 1999, we recorded an aggregate charge of $1.6 million relating to the
issuance of common stock in connection with a settlement agreement and an
amendment to an assignment agreement. See Notes 6 and 9 to our financial
statements.
Interest Income, Net. Net interest income increased from $23,000 for the
nine months ended September 30, 1998 to $172,000 for the nine months ended
September 30, 1999. This increase primarily reflects additional interest income
earned on our cash, cash equivalents and marketable securities as a result of
higher cash reserves, offset by an increase in interest expense primarily
associated with new capital leases that we entered into during the nine months
ended September 30, 1999.
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Imputed Beneficial Conversion Dividends on Preferred Stock. In connection
with the issuance of Series A and B preferred stock during the nine months
ended September 30, 1999, we imputed beneficial conversion dividends
aggregating $7.8 million. This amount represents the aggregate excess of the
estimated fair value of the underlying common stock into which the preferred
stock was convertible over the issuance price of the preferred shares. This
amount has been recorded as a charge against our accumulated deficit during the
nine months ended September 30, 1999 and is being added to our net loss in
determining the net loss applicable to our common stockholders during this
period.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through the
issuance of preferred stock and convertible debt that was later converted into
preferred stock, to various investors, including LGIC, Transpac and Siemens.
Through September 30, 1999, we had raised aggregate gross proceeds of $24.5
million through the issuance of an aggregate of 12,366,668 shares of Series A
and Series B preferred stock. In addition, in December 1999 we raised an
additional $30.2 million of aggregate gross proceeds through the issuance of
3,775,000 shares of Series C preferred stock, and warrants to purchase
1,500,000 shares of Series C preferred stock.
Our operating activities resulted in net cash outflows of $562,000 during
the period from inception to December 31, 1997, $6.5 million in 1998 and $2.0
million during the nine months ended September 30, 1999. The operating cash
flows resulted principally from research and development, marketing and
selling, and general and administrative costs incurred during these periods,
offset in part by net cash inflows relating to the Company's engineering and
consulting service activities beginning in 1998 and, with respect to the nine
months ended September 30, 1999, net cash inflows relating to the shipment of
SmartPhones to Sprint PCS.
Our investing activities resulted in net cash outflows of $473,000 during
the period from inception to December 31, 1997, $456,000 during 1998 and $1.8
million during the nine months ended September 30, 1999. To date, our investing
activities have consisted primarily of capital expenditures related to property
and equipment, long-term deposits related to facility and capital leases, and
advance payments related to technology license arrangements which we executed
during the nine months ended September 30, 1999.
Our financing activities resulted in net cash inflows of $1.8 million
during the period from inception to December 31, 1997, $16.4 million during
1998 and $6.2 million during the nine months ended September 30, 1999. To date,
our financing activities have consisted primarily of the issuance of
convertible notes and preferred stock, offset primarily by the repayment of
capital lease obligations beginning in 1998. Other than our capital lease
obligations, we currently have no outstanding debt and do not have any credit
facilities at this time.
As of September 30, 1999, we had a total of $13.4 million in cash, cash
equivalents and marketable securities. In addition, we subsequently received
aggregate proceeds totaling $30.2 million through the issuance of Series C
preferred stock and warrants to purchase Series C preferred stock in December
1999. We believe that our existing sources of liquidity, together with the
expected net proceeds of this offering and cash flows expected to be generated
from our future operations, will be sufficient to meet our cash requirements
for working capital and capital expenditures for approximately the next twelve
months. Thereafter, we may require additional financing in an amount that we
cannot determine at this time. If our plans or assumptions change or are
inaccurate, we may be required to seek capital sooner than anticipated. Our
future capital requirements will depend on many factors, including the rate of
revenue growth and the timing and extent of spending to support development
efforts associated with our SmartPhones and our myAladdin.com SmartService and
the expansion of our sales and marketing efforts. We cannot assure you that
additional equity or debt financing, if required, will be available on terms
acceptable to us, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, collectively
referred to as derivatives, and for hedging activities. In May 1999, the FASB
voted to delay the effective date of
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SFAS No. 133 by one year, meaning that we will be required to adopt this
standard in 2001. The Company has not used any derivatives to date. Management
does not anticipate that the adoption of this new standard will have a
significant effect on our financial position or results of operations.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept only two-digit entries in date code fields. Beginning in the Year
2000, these date code fields will need to accept four-digit entries to
distinguish dates on or after January 1, 2000 from dates on or prior to
December 31, 1999. Computer programs or hardware that have date-sensitive
software or embedded chips and have not been upgraded to comply with these
"Year 2000" requirements may recognize a date using "00" as the year 1900
rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
General Readiness Assessment. The Year 2000 problem can affect the
computers, software and other equipment that we use in our operations. As a
result, we have instituted a Year 2000 compliance plan, implemented by a team
of our internal operations and information technology staff responsible for
monitoring the assessment and remediation of our Year 2000 projects and
reporting that status to our executive staff. We have also utilized a third-
party consultant to assist us with our assessment of Year 2000 risk exposures
although, to date, we have not obtained verification or validation from any
independent third parties of our processes to assess and correct any of our
Year 2000 problems.
Assessment of our Products and Services. We have assessed the ability of
our products to operate properly in the Year 2000 and believe that our current
products are Year 2000 compliant. Additionally, we have assessed the ability of
our myAladdin.com SmartService portal to operate properly in the Year 2000 and
believe that the developed technologies and website portals associated with
myAladdin.com are Year 2000 compliant. Accordingly, we do not believe that the
Year 2000 issue presents a material exposure as it relates to our products or
service offerings.
Assessment of Internal Infrastructure. We believe that we have identified
most of the major computers, software applications and related equipment used
in connection with our internal operations that need to be evaluated to
determine if they must be modified, upgraded or replaced to minimize the
possibility of a material disruption to our business. Since our business and,
consequently, our hardware and software systems are relatively new, we believe
that most of these systems are already Year 2000 compliant and, accordingly, we
do not expect internal Year 2000 problems to materially affect us.
Systems Other Than Information Technology Systems. In addition to
computers and related systems, the operation of office and facilities
equipment, such as fax machines, telephone switches, security systems and other
common devices, may be affected by the Year 2000 problem. We have assessed the
potential effect of the Year 2000 problem on our office and facilities
equipment and have determined that no problems exist that cannot be remediated
by the replacement of relatively inexpensive equipment.
Contract Manufacturer and Suppliers. As part of our review of the Year
2000 problem, we have contacted third-party suppliers and vendors of products
and accessories, including LGIC, our current manufacturer, to identify and, to
the extent possible, resolve issues involving the Year 2000 problem. We have
received written certifications from substantially all of our key suppliers and
vendors, including LGIC, acknowledging their Year 2000 compliance awareness and
states of readiness. However, we have limited or no control over the actual
readiness of third-party suppliers, vendors and manufacturers surrounding the
Year 2000 issue. Thus, while we expect that we will be able to resolve any
significant Year 2000 problems with these third parties, there can be no
assurance that these parties will resolve any or all Year 2000 problems before
the occurrence of a material disruption to the operation of our business. Any
failure on the part of these third parties to timely resolve Year 2000 problems
with their systems could have a material adverse effect on our business.
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Costs of Remediation. We estimate the total cost to us of assessing Year
2000 readiness and completing any required modifications, upgrades or
replacements of our internal systems will not exceed $50,000.
Most Likely Consequences of Year 2000 Problems. We believe that it is not
possible to determine with certainty that all Year 2000 problems affecting us
have been identified or corrected. The number of devices and systems that could
be affected and the interactions among these devices and systems are too
numerous to address. In addition, no one can accurately predict whether
failures will occur as a result of the Year 2000 problem or the severity,
timing, duration or financial consequences of these potential failures. As a
result, we believe that the following consequences are possible:
. a significant number of operational inconveniences and inefficiencies
for us, our current manufacturer, LGIC, and our customers that will
divert management's time and attention and financial and human
resources from ordinary business activities;
. possible business disputes and claims, including claims under product
warranty, due to Year 2000 problems experienced by our customers and
incorrectly attributed to our products, which we believe will be
resolved in the ordinary course of business;
. a few serious business disputes alleging that we failed to comply
with the terms of contracts or industry standards of performance,
some of which could result in litigation or contract termination.
This consequence could have a material adverse effect on our
financial position and results of operation; and
. a limitation of our ability to source necessary products and
accessories from our current manufacturer, LGIC, or other vendors,
which could adversely affect our ability to deliver products to our
customers in a timely manner. This consequence could have a material
adverse effect on our financial position and results of operations.
Contingency Plans. While we have not fully developed a comprehensive
contingency plan to address situations that may result if we are unable to
achieve Year 2000 readiness of our critical operations, such a plan is likely
to include the accelerated replacement of affected equipment or software and
the utilization of alternate third party manufacturers and suppliers if
necessary. However, notwithstanding these plans and the other efforts of our
Year 2000 team, we cannot assure you that we will be Year 2000 ready, or that
Year 2000 problems will not adversely affect our business, financial condition
and results of operations. See "Risk Factors -- Year 2000 may adversely affect
our business."
Qualitative and Quantitative Disclosure about Market Risk
In the normal course of business, we invest our excess cash reserves into
money market investments and bank certificates of deposit, and we may in the
future invest our excess cash reserves into other high-grade short-term
investments that are subject to interest rate risk. We do not use any form of
derivative financial instruments. As of September 30, 1999, we held cash, cash
equivalents and short-term marketable securities totaling $13.4 million. Due to
the short-term nature of our interest sensitive financial instruments, the
impact of a hypothetical 100 basis point change in interest rates along the
entire interest rate yield curve would not materially affect the fair value of
these instruments.
We are also subject to foreign currency exchange risk from time to time
as it relates to the denomination of receivables or payables in foreign
currencies, including the Korean won. To date, we have not experienced any
material foreign currency exchange rate gains or losses associated with
transactions denominated in foreign currencies. Additionally, we generally
maintain a small portion of our cash and cash equivalent reserves in time
deposits with Korean banks, in both United States dollar and Korean
won-denominated accounts. We generally attempt to limit amounts of cash and
cash equivalents maintained in Korean won-denominated accounts to ensure that
only minimal cash reserves are maintained for working capital requirements of
our Korean research and development office. To date, we have not experienced
any material exchange rate gains or losses related to deposits maintained in
Korean-won denominated accounts.
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BUSINESS
OVERVIEW
NeoPoint is a leading provider of advanced SmartPhones and intelligent
mobile portal services for users of wireless devices. Our SmartPhones integrate
high-quality voice capabilities with e-mail, Internet access and PDA
functionality into a single wireless device. Our myAladdin.com SmartService is
a wireless Internet portal designed to provide intelligent information and
customized content on a non-branded basis to wireless carriers and other
consumer-oriented businesses.
Our SmartPhones are among the first products to capitalize on the
convergence of wireless voice and data applications. We design our SmartPhones,
together with our myAladdin.com SmartService, to enable our customers to offer
compelling services that create additional revenue opportunities and build
brand recognition. We believe that our products and services allow our
customers to attract and retain subscribers and differentiate themselves from
their competitors.
INDUSTRY BACKGROUND
Growth of the Internet
The Internet has made rapid communication and information sharing
possible on a global scale. According to industry sources, the number of people
using the Internet is expected to increase from approximately 140 million at
the end of 1998 to approximately 400 million by the end of 2002. This growth is
fueling an expansion of Internet-based information and services, such as e-
mail, news and electronic commerce, entertainment and educational applications.
Growth of the Mobile Wireless Communication Industry
Worldwide use of wireless communication services has grown rapidly as
these services have become more widely available and affordable for the mass
market. It is estimated that the number of subscribers for wireless
communication services is expected to increase from approximately 306 million
at the end of 1998 to approximately 950 million by the end of 2003. We believe
that the primary factors driving this growth are advances in wireless
technology, deregulation and consolidation in the communication industry and
expanded coverage offered by operators of wireless networks, including a
significant expansion of digital communications networks.
As wireless communication services have proliferated, greater
sophistication among subscribers has led to an increase in subscriber awareness
of alternative price and service offerings. As a result, subscribers have an
increasing tendency to switch from one wireless carrier to another in search of
new products and better or less expensive services. To meet these challenges,
wireless carriers are seeking new product and service offerings to attract and
retain subscribers as well as differentiate them from their competitors.
Convergence of Mobile Voice and Data Applications
As people become more dependent on e-mail, Internet-based services and
corporate intranets, demand for wireless access to these resources is expected
to grow. We believe that three principal factors are driving the development of
the wireless access market:
Emergence of Multi-purpose Wireless Devices. In the past, wireless
devices focused on meeting a primary need of users, such as PDA
functionality, e-mail and two-way paging capabilities, or voice
applications. As mobile access to data has become more important to
consumers, the market has responded by expanding the capabilities of
traditional wireless devices to provide data capabilities. However,
producing a multi-purpose wireless device that combines high quality
voice applications with PDA functions and Internet capability with a
compelling form factor at a reasonable price has been elusive, as early
attempts were generally focused on adding data applications to a device
designed for voice communications, or adding voice capability to a
device designed for data applications.
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Build-out of Carrier Networks. Wireless carriers that have
traditionally focused on voice transmission are in the process of
installing or upgrading their networks worldwide to support data
transmission. Recently, these wireless carriers have launched or
announced the availability of data service in addition to their existing
voice service capabilities which has reduced the cost and complexity of
providing these services to subscribers.
Development of WAP Standard. Wireless Application Protocol, or WAP, is
an open standard that provides a common platform for delivering Internet
content to wireless devices. WAP allows a text version of a specially
formatted Web page to be displayed on wireless devices.
The emergence of multi-purpose wireless devices and the expansion of
carrier networks' data capabilities, combined with the development of WAP, has
led to a large market opportunity to provide Internet-based products and
services that are interoperable. This opportunity is being realized with the
introduction of SmartPhones and mobile data services.
SmartPhones. We believe voice capability will continue to drive demand
for wireless devices. In addition, the large and growing installed base of
mobile phones provides a large market of consumers accustomed to upgrading
their mobile phones as technology improves. Accordingly, we believe that the
mobile phone is the most compelling platform for delivering advanced wireless
data functionalities. The growing availability of Internet content and data
services aimed at the mobile user has begun a migration from traditional voice-
only wireless handsets to handsets that not only offer voice, but also
integrate advanced data applications. These advanced handsets are known as
SmartPhones. According to Datacomm Research, worldwide sales of SmartPhones are
forecast to grow from approximately 200,000 units in 1999 to 330 million in
2003. We believe that SmartPhones offering integrated voice and data
capabilities, combined with extended features and user-friendly interfaces,
will drive the growth of mobile voice and data communications.
Mobile Data Services. The introduction of data-capable wireless
networks has led to the recent development of services aimed at the mobile
consumer, such as e-mail, news and travel reservations. The development and
expansion of these services will help drive the demand for devices such as
SmartPhones, as well as providing additional revenue opportunities for these
service providers.
THE NEOPOINT SOLUTION
Our SmartPhones are among the first products to capitalize on the
convergence of voice and data applications. We believe that our SmartPhones,
together with our myAladdin.com SmartService, allow our customers to offer
compelling services that create additional revenue opportunities and build
brand recognition. Further, we believe our products and services will enable
our customers to attract and retain subscribers and differentiate them from
their competitors.
SmartPhones
We believe that our SmartPhones are the first commercial products to
integrate Internet access, PDA functionality and data transmission capability
into a traditional wireless handset without sacrificing ease-of-use,
convenience, appearance, functionality or cost. Our SmartPhones have the
following features:
. high-quality digital wireless voice communication capabilities;
. a wide range of data capabilities, such as Internet browser and e-
mail applications;
. a proprietary, easy to use interface;
. an 11 line X 24 character display that is significantly larger than a
traditional cellular telephone display;
. PDA functionalities, including contact information, task list and
appointment calendar;
. personal computer synchronization;
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. wireless modem functionality;
. voice-activated commands; and
. intuitive text entry based on predictive software that allows rapid
text input through the handset keypad.
myAladdin.com SmartService
We believe that our myAladdin.com SmartService is the first wireless
Internet portal that has the intelligence necessary to allow wireless carriers
and other consumer-oriented businesses to provide compelling, convenient and
useful services to their customers. Although most WAP-enabled portals allow
users to access information from the Internet on a "pull" basis, we believe
that demand for wireless Internet access will be primarily driven by the
development of portals that can anticipate user requirements and have
personalized information and services "pushed" to the user where and when they
are most useful.
We intend to deliver personalized, localized and timely content that
improves upon customer personalization services currently in use. We begin with
customer-indicated preferences, which allow individuals to identify those
services they want to receive and when they want to receive them. We then add
location intelligence that uses the global positioning system, or GPS, or other
location technologies to provide information and services based on the user's
current location. Most importantly, we use intelligent personalization, which
is an accumulation of the end user's request patterns learned over a period of
time, resulting in real-time customization of information and services. Because
this learned personalization increases over time and cannot be easily
recreated, we believe that our myAladdin.com SmartService will make the
consumer less likely to change service providers.
Our myAladdin.com SmartService will be offered to wireless carriers and
other consumer-oriented businesses, such as banks and brokerage firms. We
intend to provide both content and enabling technology that will allow our
customers to deploy branded and customized content and applications over the
Internet to their customers with wireless capabilities. We believe that
wireless carriers and other consumer-oriented businesses are searching for the
type of "stickiness" that our myAladdin.com SmartService can create.
BUSINESS STRATEGY
Our strategy is to become a leading supplier of SmartPhones to wireless
carriers and other customers worldwide. We also intend to develop and expand
our myAladdin.com SmartService for sale to wireless carriers and other
consumer-oriented businesses for use as part of their own wireless Internet
portal strategies. Key elements of this strategy include the following:
Accelerate SmartPhone Innovations. We intend to build on our position as
a leader in the SmartPhone market by:
. developing new products that will operate on existing and future
wireless air interface technologies;
. developing and acquiring applications that will support new
functionalities, such as advanced connectivity capabilities, improved
graphical and physical interfaces and enhanced data applications; and
. further shortening the development cycle and time-to-market of future
products.
Expand and Enhance our myAladdin.com SmartService. We intend to expand
the features and functionality of our myAladdin.com SmartService to offer
additional value-added services to our customers. We believe these additional
features and functionalities will enable us to capture a leading position in
the emerging wireless Internet portal market.
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Extend Strategic Alliances and Relationships. We intend to leverage our
existing strategic relationships with leading companies in the Internet and
wireless communications industries and create new strategic alliances with a
focus on:
. Sales Channels, developing relationships with wireless carriers,
distributors and other consumer-oriented businesses in domestic and
international markets to increase sales of our SmartPhones and our
myAladdin.com SmartService;
. Manufacturing Partners, expanding the number of manufacturing
partners to supply future SmartPhones; and
. Research and Development Partners, entering into alliances for the
development of new products and services.
Develop and Leverage the NeoPoint Brand. We believe that we are known
within the wireless industry as a leader in the SmartPhones market. We plan to
build on and extend this leadership and brand recognition through innovative
products, progressive product styling and creative marketing. We intend to
accomplish this by expanding the distribution of our products under our own
brand, as well as through co-branding initiatives with our customers and
partners.
PRODUCTS AND SERVICES
SmartPhones
Our SmartPhones integrate high-quality voice capabilities with e-mail,
Internet access and PDA functionality into a single wireless device without
sacrificing ease of use, convenience, appearance, functionality or cost. Our
current products include the following:
NeoPoint 1000. The NP-1000 SmartPhone has the following features:
. a 1900 MHz CDMA-based personal communications services, or PCS, air
interface;
. a built-in Web browser for Internet access;
. an 11 line X 24 character display that is significantly larger than a
traditional cellular telephone display;
. PDA functionality, such as a contact information, task list and
appointment calendar;
. synchronization software that allows NP-1000 users to synchronize
contact, scheduling and other data between the user's personal
computer and the SmartPhone.
. wireless 14.4 kbps modem capabilities;
. sleek form factor, weighing 6.4 ounces;
. voice recognition capabilities, that, among other things, enable
voice dialing and application initiation on voice command; and
. T-9(R) intuitive text entry technology, that uses predictive software
to allow rapid text input through the handset keypad through a
customizable database of common words.
We began shipping the NP-1000 SmartPhones in late August 1999 to Sprint
PCS. Sprint PCS currently resells the NP-1000 under the Sprint PCS brand. We
also have an agreement with Bell Distribution to resell the NP-1000 in Canada
under the NeoPoint brand. See "--Key Alliances and Relationships" and "--Sales
Channels and Marketing."
NeoPoint 1600. The NP-1600 SmartPhone contains similar features and
functionalities to the NP-1000, as well as:
. an 800 MHz CDMA/AMPS dual-mode cellular air interface;
. an analog short messaging service;
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. a vibrate alert function; and
. an earphone jack.
Accessories. We sell various accessories for our SmartPhones, including
hands-free kits, travel chargers, synchronization stations and data cables. We
currently purchase these accessories from NeoTel and resell them to our
customers. See "Certain Transactions--Transactions with Affiliates."
myAladdin.com SmartService
We currently can offer a variety of information and services through our
myAladdin.com SmartService, such as:
<TABLE>
<S> <C> <C>
.e-mail .stock quotes .messaging
.driving directions .traffic information .ATM locations
.Yellow pages directory .restaurant locations .hotel locations
.entertainment directory .golf tee time services .price comparisons
.personalized news .weather .travel information
.event information .sports .horoscopes
</TABLE>
Our myAladdin.com SmartService will be compatible with all WAP-enabled
wireless devices, including telephone handsets, two-way pagers and PDAs that
use wireless air interface technologies based on CDMA, GSM, TDMA, integrated
Digital Enhanced Network, or iDEN, and Cellular Digital Packet Data, or CDPD.
The location technology employed by myAladdin.com also interfaces with existing
telephone handset and network based location technology, including GPS.
We intend to offer our myAladdin.com SmartService to wireless carriers
and other consumer-oriented businesses, such as banks and brokerage services,
on a non-branded basis. As a result, we will provide our customers with all of
the services and technology required to enable them to offer their own branded
portal. We believe that we will be one of the few providers of mobile data
services that will offer these services on a non-branded basis.
We expect that revenues from our myAladdin.com SmartService will be
derived primarily from fees for services and advertising revenues. Wireless
carriers and other customers may bundle the myAladdin.com SmartService as part
of their service offering, or they may elect to charge their subscribers
additional fees for these services. Advertising revenues, which we initially
expect to be minimal, may be derived from delivering advertisements to WAP-
enabled devices.
Other SmartPhone Services
We provide radio frequency engineering and consulting services on a
contract basis to wireless network carriers, equipment vendors and
infrastructure manufacturers. These services are used by our customers in
connection with the planning and deployment of wireless telecommunications
networks, including data networks. We believe that these services provide a
significant benefit to our customers while allowing our engineers to gain
experience and skills with new technology and exposure to new markets. We
believe that these services enable us more effectively to assess our current
and potential customers' needs and strategic directions and play an important
role in our product development strategy. We also provide a Windows-based
network verification and optimization software tool used to monitor and record
in real time over-the-air CDMA voice and data call performance on cellular and
PCS networks. This software allows the user to display and analyze recorded
data, in addition to generating custom reports, maps and charts.
Sales Channels and Marketing
SmartPhones
We intend to sell our SmartPhones to wireless carriers and through other
distribution channels and a direct sales force. To date, all of our sales have
been in the U.S. However, we have recently signed agreements to distribute our
SmartPhones in Canada and Latin America.
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Carrier Relationships. To date, we have sold substantially all of our
SmartPhones to Sprint PCS. Shipment of the NP-1000 SmartPhone commenced in late
August 1999. Sprint PCS resells our SmartPhones through several distribution
channels, including Sprint PCS retail stores, national, regional and local
retailers and direct sales to corporate accounts. We recently signed a supply
agreement with Bell Distribution for sales of our NP-1000 Smart Phones in
Canada to Bell Mobility subscribers. Shipments under this agreement are
expected to commence in January 2000.
We intend to further expand our customer base by entering into
relationships with other wireless carriers, and are currently in discussion
with several large domestic carriers and potential distribution partners. As
these discussions are in the early stages, we cannot assure you that we will be
successful in reaching any agreements on terms acceptable to us, if at all.
Other Distribution Channels. We plan to evaluate and exploit selected
alternative distribution channels during 2000. These channels include on-line
consumer distribution, either through our own web site and/or in conjunction
with established e-commerce partners, traditional distributors who would
configure and ship our handsets to wireless agents, resellers and retailers,
and vertical market opportunities involving the customization of handset
software to support specific vertical applications such as sales force
automation.
Direct Sales Force. We currently have a small direct sales force in
place, tasked with selling and supporting the sales of our SmartPhones to
domestic and international wireless service providers such as carriers and on-
line wireless agents and resellers. We intend to continue adding to our direct
sales force as we increase our sales efforts to these customers, as well as to
explore additional distribution channels over the short term.
International Sales. We are in the process of establishing an
international sales presence. We have signed a distributorship agreement with
Spacetelecom Wireless to distribute our NP-1000 and NP-1600 SmartPhones in
various markets in Latin America in 2000. We are also in the process of
discussing other possible international relationships with carriers and
distributors. However, since we are in the early stages of these discussions,
we cannot assure you that we will be successful in reaching any such agreements
on terms acceptable to us, if at all.
Distribution Rights. Our agreement with LGIC grants LGIC exclusive rights
to distribute some of our CDMA-based SmartPhones in Korea and non-exclusive
rights with respect to the rest of the world. We retain exclusive distribution
rights for our SmartPhones in the U.S. and non-exclusive rights worldwide,
except Korea. Our memorandum of understanding with Siemens contemplates that
Siemens will have exclusive worldwide sales rights to the GSM version of a
future SmartPhone, except for North and South America where we expect to have
the option to market this product. Products marketed by Siemens may be under
the Siemens brand or co-branded with us. Additionally, our memorandum of
understanding with GVC contemplates granting GVC exclusive distribution rights
in Taiwan and the People's Republic of China to a SmartPhone aimed at the
international market that is currently under development.
Marketing. The NP-1000 SmartPhone is currently promoted by Sprint PCS in
their advertising and promotional activities as a Sprint-branded product. Our
sales and marketing efforts for our branded SmartPhones to date have included
advertising in industry publications, promotions at industry conventions, print
and online advertising and public relations and various joint promotional
efforts with Sprint PCS. We plan to build brand recognition of our products
through advertising in the mass media and point-of-sale presentations. We also
plan to begin using our name on our SmartPhones, either just as "NP" products
or co-branded with a wireless carrier. Establishing and developing long-term
relationships with potential customers will continue to be a key element in our
overall marketing strategy.
myAladdin.com SmartService
We have a sales and business development team focused on increasing the
scope of services offered through our myAladdin.com SmartService. We market
these services to wireless carriers through direct sales efforts, industry
events and trade shows and sales efforts through industry channels. We also
plan to leverage
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our SmartPhone relationships with wireless carriers as part of these efforts.
We also market our myAladdin.com SmartService to consumer-oriented businesses,
such as banks and brokerage firms, primarily through direct sales efforts.
Personnel
As of December 31, 1999, we had 32 sales and marketing professionals for
both the sale of our SmartPhones and our myAladdin.com SmartServices. We intend
to increase this staff over the next twelve months. Our senior management is
also actively involved in our sales and marketing efforts through extensive
customer contacts, speaking engagements and industry activities.
KEY ALLIANCES AND RELATIONSHIPS
Some of our strategic alliances and relationships are as follows:
LGIC. LGIC is a major manufacturer of wireless and electronic equipment
headquartered in Seoul, Korea. We have a research, development and distribution
agreement with LGIC in effect until February 2018, under which LGIC is the
exclusive manufacturer for our NP-1000 and NP-1600 SmartPhones, and will also
exclusively manufacture a planned future CDMA-based SmartPhone that is under
development. LGIC is also a significant stockholder in NeoPoint. See "Certain
Transactions--Relationship With LGIC " and "Principal Stockholders." We believe
that our relationship with LGIC has enabled us to create a shorter development
cycle and get our products to market on a cost-effective and timely basis.
Siemens. Siemens is a major manufacturer of GSM mobile phones and other
electronic and computer equipment and products headquartered in Germany. We
entered into a memorandum of understanding with Siemens in October 1999 for
joint development, manufacturing, marketing and sales of GSM-based and other
advanced SmartPhones. Subject to the terms of a definitive agreement, we expect
that Siemens will have manufacturing rights for certain GSM-based versions of
our SmartPhones and other advanced SmartPhones. Siemens is also a significant
stockholder in NeoPoint. See "Certain Transactions--Relationship With Siemens"
and "Principal Stockholders." We believe that our relationship with Siemens
will enable us to develop GSM-based SmartPhones and other products
incorporating multiple wireless technologies.
Sprint PCS. Sprint PCS is a major wireless carrier that operates a
significant U.S. PCS network. We have a supply agreement with Sprint PCS that
expires on January 31, 2000. Under this agreement, we supply Sprint PCS with
NP-1000 SmartPhones for resale to Sprint PCS subscribers under the Sprint PCS
brand name. In addition, we provide training and sales support to Sprint PCS
personnel with respect to our products. We have also granted Sprint PCS
warrants to purchase 759,386 shares of our common stock. See "Description of
Capital Stock--Warrants."
Bell Distribution. Bell Distribution is an affiliate of Bell Mobility, a
major wireless carrier in Canada. We recently signed a supply agreement with
Bell Distribution for the sale of our NP-1000 SmartPhones in Canada to Bell
Mobility subscribers under our brand name. We expect the first shipments to
commence in January 2000.
GVC Corporation. GVC is an international manufacturer and distributor of
electronic and other consumer products. We signed a memorandum of understanding
with GVC in July 1999. We expect that, subject to the terms of a definitive
agreement, GVC will be a manufacturer of a SmartPhone aimed at the
international market that is currently under development and that GVC will have
the exclusive right to market and sell this product in Taiwan and the People's
Republic of China. However, we cannot assure you that any definitive agreement
will be reached on terms acceptable to us, if at all. GVC is a stockholder in
NeoPoint.
MANUFACTURING
LGIC. LGIC has exclusive rights to manufacture our CDMA-based NP-1000 and
NP-1600 SmartPhones and will also exclusively manufacture a planned future
CDMA-based SmartPhone that is under development. As part of the manufacturing
process, LGIC performs tasks that include material procurement,
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assembly, testing, packaging and shipment. All finished handsets are currently
shipped from LGIC's facilities in Korea to our distribution center in the U.S.
for just-in-time delivery to our customers. We believe that LGIC is capable of
increasing capacity while maintaining the current high quality of the finished
products, and we expect that LGIC will be able to meet production requirements
for our SmartPhones in the future.
GVC. Our memorandum of understanding with GVC contemplates that GVC will
manufacture a SmartPhone aimed at the international market that is currently
under development.
Siemens. Our memorandum of understanding with Siemens contemplates that
Siemens will manufacture some GSM-based versions of our SmartPhones and other
advanced SmartPhones.
TECHNOLOGY
Digital Wireless Technologies.
CDMA. CDMA is an advanced digital wireless technology standard developed
by QUALCOMM. CDMA uses mathematical codes to distinguish between multiple
wireless transmissions, unlike GSM or TDMA which use frequencies or time slots.
CDMA assigns a code to all speech bits, sends a scrambled transmission of
encoded speech over the air and reassembles the speech in its original format.
CDMA technology allows several simultaneous conversations to share the same
frequency allocation. CDMA has been commercially deployed or is under
development in more than 35 countries, including the United States.
TDMA. TDMA is a digital wireless technology that uses time slots to
distinguish between multiple wireless transmissions. TDMA compresses voice bits
and transmits them in a fraction of a second, allowing several simultaneous
calls to be carried on the same frequency. TDMA has a significant market
presence in North, South, and Central America, and a smaller presence in Africa
and Asia.
GSM. GSM is a digital wireless technology that is a variant of TDMA. GSM
currently has the largest user base of all digital wireless technologies. GSM
is the predominant digital standard used throughout Europe and is used
extensively throughout Asia, Australia and New Zealand. GSM has a smaller
footprint in the U.S. and Latin America.
iDEN. iDEN is a digital wireless technology that is a variant of TDMA.
iDEN is optimized to operate in the 400 MHz SMR, or Specialized Mobile Radio
spectrum, and offers conventional 2-way radio-type services and self-contained
speakerphone functionality. iDEN has limited deployment in the U.S. and Canada
and is generally used in industrial environments.
CDPD. CDPD is a digital wireless technology that is an overlay to
existing analog, or AMPS, cellular networks. CDPD has been available since
1995, but with only limited deployment and acceptance in the U.S. and Canada.
SmartPhones
Technologies employed by our SmartPhones include:
WAP. WAP is an application environment and set of communication protocols
for wireless devices designed to enable manufacturer-, vendor- and technology-
independent access to the Internet and advanced telephony services. WAP is an
open standard that provides a common platform for delivering Internet content
to wireless devices, allowing a text version of a specially formatted Web page
to be easily displayed.
Synchronization. Our SmartPhones incorporate synchronization technology
licensed from Puma Technologies. This technology allows our SmartPhones to
synchronize information with many personal computer-based organizer
applications, including Microsoft Outlook, Lotus Organizer/Notes, ACT!,
Goldmine, Palm Desktop and IntelliPIM. This technology is modular in concept
and has the capacity to support other organizer applications and multiple
languages.
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Voice Recognition. Our SmartPhones incorporate voice recognition
technology licensed from Advanced Recognition Technologies. Voice recognition
technology allows users to "voice tag" some phone functions, allowing them to
be performed upon simple voice commands.
myAladdin.com SmartService.
System Infrastructure. The myAladdin.com server platform is built to be
a carrier-grade platform that is fault-tolerant, scaleable to millions of
users and based upon an open systems architecture. This platform is based on:
. BEA Systems' WebLogic application servers;
. NetraT1 servers;
. Sun Microsystems' Enterprise 450 and 4500 servers; and
. Sun Microsystems' Solaris Operating Environment.
We intend to provide all data processing, customization and record-
keeping services for our customers. All of our servers are hosted at Level 3
Communications, although we are responsible for their maintenance. We have the
ability to host our servers at our customers' data centers at their request.
Software. Our myAladdin.com platform uses the following software:
. Veritas Foundation Suite, which provides on-line storage management;
. Veritas FirstWatch, which provides failover management for our
website environment;
. Resonate Central Dispatch Distributed Traffic Management, which
provides e-business traffic;
. Sun Microsystems' Java Platform; and
. Oracle 8i database technology.
Intelligent Agent Technology. myAladdin.com's intelligent agent
technology is based upon our proprietary Adaptive Information Server. The
Adaptive Information Server sends content to myAladdin.com subscribers based
upon its relevance to them, which is learned over time. As a subscriber
accesses content, the system creates a statistical model of that subscriber's
interests that personalizes future transmissions.
We license Recommendation Engine technology developed by Net Perceptions
to power our Adaptive Information Server. As the Adaptive Information Server
interacts with subscribers, myAladdin.com transmits this information to the
Recommendation Engine. The engine then draws upon this information to make
predictive recommendations.
Location-Based Services. myAladdin.com supports multiple location
determination technologies, such as handsets with GPS, differentiated-GPS and
network-based approaches.
Device Independence. We have developed a real-time transcoding engine
that converts Internet content into formats that match the display capability
of any WAP-enabled device. This system, based on Java technology, can deliver
content as HTML, HDML, WML, SMS, e-mail or as a text page.
Research And Development
We believe that our success will depend, in part, on our ability to
develop and introduce new products and enhance our existing products. We have
made, and intend to continue to make, significant investments in research and
development. Our expenditures for research and development were approximately
$3.5 million in 1998 and $6.2 million for the nine months ended September 30,
1999. As of December 31, 1999 we had 84 engineers and other personnel engaged
in research and development activities.
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In addition to internal resources, we have entered into the following
agreements related to research and development activities:
. NexCom. We have a product development agreement with NexCom under
which they are assisting us to develop a SmartPhone aimed at the
international market.
. Siemens. Under our memorandum of understanding with Siemens, we
expect to engage in joint research and development activities with
Siemens for GSM-based and other advanced SmartPhones. We expect that
Siemens will pay research and development expenses relating to
development of a GSM-based version of a planned future SmartPhone
currently under development, and we expect to share research and
development expenses on other projects.
CUSTOMER SERVICE AND SUPPORT
SmartPhones
Our customer service group includes a team of technical service
representatives that respond to requests for general consumer and business
information relating to NeoPoint, our products, product availability and
services, including matters of public information as well as technical
questions. The customer service group also receives and processes purchase
orders for handsets and accessories.
Customer service and support for our NP-1000 SmartPhones is primarily
handled by Sprint PCS as part of the services they provide their PCS
subscribers. We assist in training Sprint PCS personnel on the advanced
features and functionalities of our SmartPhones and on service-related matters.
We outsource warranty and other product repairs to an affiliate of LGIC
that maintains a service center in Huntsville, Alabama. This service center
also provides repair and maintenance services for other wireless handheld
devices and electronic components. Carrier customers can also call a toll-free
hotline maintained by the service center to provide technical and other product
support information.
myAladdin.com SmartService
We maintain a toll-free telephone number to provide technical support for
our myAladdin.com SmartService. Additional information for customers is also
available on our NeoPoint and myAladdin.com websites, including troubleshooting
techniques, e-mail technical support, frequently asked questions and warranty
information.
COMPETITION
The markets for SmartPhones and services similar to our SmartServices are
highly competitive and we expect competition to increase significantly in the
future. We cannot assure you that we will be able to compete effectively
against current and future competitors. In the sale of our SmartPhones, we
compete against a number of large, well established companies, including but
not limited to Audiovox, DENSO, Ericsson, Kyocera, LGIC, Motorola, Nokia,
QUALCOMM, Samsung, SANYO, Siemens and Sony. Our SmartPhones also compete
against PDAs and other hand-held computing devices. Principal competitors
producing these products currently include Casio, 3Com/Palm Computing, Compaq,
Handspring, Hewlett-Packard, Motorola and Research in Motion.
In the market for services similar to our SmartServices, our principal
competitors currently are Internet service providers that target mobile
devices, including but not limited to, Phone.com, InfoSpace.com and
724 Solutions and in-house solutions from network or wireless carriers. We
believe that we may face additional potential competition from traditional
Internet portals such as America Online, The Microsoft Network, Yahoo! and
Excite@Home.
In addition, we may face competition from companies with which we
currently have or may in the future have strategic relationships. Any such
competition may have an adverse effect on the strategic
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relationships we have or may have with such competitors, or may preclude us
from access to future technological developments. See "Risk Factors--We face
significant competitive pressures, which may have a material adverse effect on
us."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
To protect our proprietary rights, we rely primarily on a combination of:
. trade secret, copyright, patent and trademark laws;
. confidentiality agreements with employees and third parties; and
. protective contractual provisions such as those contained in licenses
and other agreements with licensors, vendors, customers and other
third parties.
Although we generally enter into employee invention and proprietary
rights assignment agreements with our employees and generally limit the
distribution of our proprietary information, these steps may not be adequate to
deter misappropriation of our proprietary information. We also may be unable to
detect breaches of confidentiality or other protective provisions by other
parties, and even if we were aware of such breaches we may not have adequate
remedies for them.
We currently do not hold any patents. However, we have applied for 21
patents in the U.S., two patents in South Korea, two patents in Taiwan and two
patents under the Patent Cooperation Treaty for various aspects of our
proprietary technology.
We license the CDMA technology incorporated into our SmartPhones from
QUALCOMM. This license allows us to manufacture our CDMA-based SmartPhones and
sell or distribute them in North America, Central America and South America. We
have the option to extend this license to the rest of the world. The license
does not have a specified term and may be terminated by QUALCOMM for cause or
upon the occurrence of other specified events. We have also granted to QUALCOMM
a worldwide, royalty-free, non-transferable license to use, in connection with
wireless communications applications, our intellectual property that is used in
our products which incorporate the CDMA technology licensed to us by QUALCOMM.
This license to QUALCOMM allows QUALCOMM to make, use, sell or dispose of such
products and the components therein.
We rely on licenses from third parties for certain technologies
incorporated into our handsets, including Internet browser technology from
Phone.com, intuitive text input technology from Tegic Communications,
synchronization technology from Puma Technology and voice recognition
technology from Advanced Recognition Technologies.
We anticipate that we will from time to time enter into strategic
partnerships or ventures with third parties for the development of technology
related to our business. We expect that we may need to contribute our
intellectual property to such partnerships or ventures and be required to
license any technology developed to our partners and other third parties.
Additionally, under the terms of our memorandum of understanding with Siemens,
we expect to engage in joint research and development activities. Any
technology resulting from such activities may be required to be licensed to
Siemens.
See "Risk Factors--We depend on technology and content obtained from
third parties to provide our products and services" and "--We may be unable to
adequately protect our proprietary rights" for a discussion of other risks
associated with our use and dependence upon intellectual property.
EMPLOYEES
As of December 31, 1999, we had 171 full and part-time employees,
including 32 in sales and marketing and 84 in research and development. Of this
total number of employees, 63 hold engineering degrees and 19 employees are
located in Seoul, Korea. None of our employees is represented by a union or
subject to a collective bargaining agreement. We believe that our relations
with our employees are good.
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FACILITIES
Our La Jolla, California headquarters occupy approximately 33,600 square
feet under subleases expiring in July 2000. We have executed a six year lease
with a third party to occupy a new 51,000 square foot building commencing late
July 2000, with options for additional space, under a build-to-suit lease.
We also lease approximately 18,000 usable square feet for a research and
development facility in Seoul, Korea.
LEGAL PROCEEDINGS
In December 1999, Sprint PCS notified us that it had received a letter
claiming that products sold by Sprint PCS utilize technology covered by U.S.
patent 4,473,824 entitled "Price Quotation System." The letter did not
specifically refer to our SmartPhones. At the request of Sprint PCS, we have
assumed responsibility of responding to this letter in accordance with our CDMA
PCS subscriber unit supply agreement. We are currently evaluating the issue
with Sprint PCS and patent counsel.
On September 28, 1999, a former employee filed a lawsuit in Superior
Court of the State of California, County of San Diego, against us and William
Y. Son alleging various tort, contract and statutory claims arising out of an
employment dispute. The former employee claims that he is entitled to receive
an aggregate of 150,000 shares of our common stock and options to acquire an
additional 150,000 shares at an exercise price of $0.10 per share under the
terms of an alleged employment agreement. The complaint seeks monetary damages
of approximately $2.4 million, additional monetary penalties and punitive
damages. In October 1999 we filed a general denial and made affirmative
defenses to the former employee's complaint. We are currently in the process of
discovery.
On August 6, 1999, we filed a voluntary self-disclosure with the U. S.
Department of Commerce relating to inadvertent exports to Korea of software
requiring an export license for which no export license had been obtained. We
have obtained licenses for subsequent export of this software.
Although the ultimate outcome of these matters is not presently
determinable, we believe that the resolution of all such pending matters will
not have a material adverse affect on us. As of the date of this prospectus, we
are not engaged in any other legal proceeding.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of December 31,
1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William Y. Son............ 36 Chairman, Chief Executive Officer and President
Sanford P. Weisman........ 43 Senior Vice President, Sales and Marketing
Gregory M. Decker......... 43 Vice President, Finance & Administration
Matthew Gettinger......... 42 Vice President, General Counsel and Secretary
Mike H.P. Kwon............ 35 Vice President, Business Development
Gary M. Rogers............ 46 Vice President, Operations
Kevin M. Thornton......... 42 Vice President and General Manager, myAladdin.com
Yeoungjee Chung........... 41 Chief Technology Officer
Eric Campbell............. 35 Director
Swan Chen................. 48 Director
Pyoung Won Suh............ 57 Director
Peter Zapf................ 50 Director
</TABLE>
William Y. Son founded NeoPoint and has served as President and Chief
Executive Officer since we commenced operations in October 1997. Mr. Son has
served as a Chairman of the board of directors since October 1997. From March
1995 to September 1997, Mr. Son served as regional director for QUALCOMM in
Korea. From September 1993 to March 1995, he held various technical positions
at QUALCOMM.
Sanford P. Weisman has served as Senior Vice President, Sales and
Marketing since April 1999. From October 1997 to April 1999, Mr. Weisman held
the position of Interim Chief Executive Officer of AirAlert Technologies, a
firm focused on e-commerce and wireless notification applications, co-founded
by Mr. Weisman. From January 1996 to September 1997, Mr. Weisman held the
position of Vice President, General Manager for SkyTel Communications. From
January 1994 to January 1996, he served as Vice President of Marketing and
Channel Development for SkyTel.
Gregory M. Decker has served as Vice President, Finance & Administration
since November 1997. From May 1996 to November 1997, Mr. Decker was director of
finance for QUALCOMM's Subscriber Products Division. From December 1994 to May
1996, Mr. Decker served as Director of Finance for Ericsson Raynet.
Matthew Gettinger has served as Vice President and General Counsel since
July 1999 and as Secretary since November 1999. Prior to joining NeoPoint, Mr.
Gettinger served as Vice President and Group General Counsel for the Satellite
and Broadcast Network Systems Group of General Instrument Corporation from
January 1998 to June 1999. From January 1994 to December 1997, Mr. Gettinger
served as Vice President and General Counsel for the Satellite Data Networks
Group of General Instrument and as Assistant General Counsel for the GI
Communications Division of General Instrument.
Mike H. P. Kwon has served as Vice President, Business Development since
October 1999. From January 1999 to September 1999, Mr. Kwon served as an
independent consultant to us. From March 1998 to December 1998, Mr. Kwon served
as President of Digital Line, a supplier of cellular telephones and
accessories. From March 1996 to February 1998, Mr. Kwon served as President of
Mobilex Inc. International, a supplier of cellular telephones and accessories
and, International Sales for CDMA handsets of Norstar International. From April
1993 to February 1996, Mr. Kwon served as President of Doy International, an
international trading company.
Gary M. Rogers has served as Vice President of Operations since May 1999.
Prior to joining NeoPoint, Mr. Rogers served as Vice President of Operations
for Tandon Associates, a manufacturer of
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components for hard disk drives, from September 1996 to August 1998. From
August 1993 to September 1996, Mr. Rogers served as Director of Quality for
Reveal Computer Products, a manufacturer and distributor of computer
peripherals.
Kevin M. Thornton has served as Vice President and General Manager,
myAladdin.com since October 1999 and as Vice President, Business Development
from July 1999 to October 1999. From January 1997 to December 1998, Mr.
Thornton served as Vice President of Sales and Marketing for Racom Corporation,
a digital wireless carrier. From April 1994 to December 1996, Mr. Thornton
headed the Internet division for Premenos Corporation, an electronic commerce
software company.
Yeoungjee Chung has served as Chief Technology Officer since joining
NeoPoint in October 1999. From March 1995 to October 1999, Mr. Chung served as
Assistant Professor in the Department of Computer Engineering at Wonkwang
University in Korea. From March 1993 to February 1995, Mr. Chung served as
senior researcher at the Electronics and Telecommunications Research Institute.
Eric Campbell has served as a member of the board of directors since
December 1998. From July 1998 to May 1999, Mr. Campbell held the position of
General Counsel and also provided consulting services to us. Mr. Campbell is
the President and Chief Executive Officer of GRIP, Inc. d/b/a Select Tee Times,
and has held such positions since February 1998. Select Tee Times sells tee
times for golf courses through a Web-based listing service and call center.
From May 1993 to April 1997, Mr. Campbell was an associate attorney with the
law firm of Gray Cary Ware & Freidenrich, LLP.
Swan Chen has served as a member of the board of directors since December
1998. Mr. Chen has served as President of EverOn Technology Corp., a private
technology consulting company, since June 1996. From January 1994 to January
1996, Mr. Chen served as President of Accton Technology Corp. Mr. Chen is also
a director of several private companies. Mr. Chen is Transpac's representative
on our board of directors.
Pyoung Won Suh has served as a member of our board of directors since
November 1999. Mr. Suh has served as President of LGIC from March 1998. From
January 1995 through February 1998, Mr. Suh served as Chief Technical Officer
of LG Electronics, Inc, an affiliate of LGIC. From January 1994 to February
1998, Mr. Suh held various management positions with LGIC or its affiliates.
Mr. Suh is also a director of LGIC. Mr. Suh serves as LGIC's representative on
our board of directors.
Peter Zapf has served as a member of the board of directors since
December 1999. Mr. Zapf has served as President of the Communication Devices,
Information and Communication Products business unit of Siemens since April
1999. From October 1998 to April 1999, Mr. Zapf served as President of the
Mobile Phones business unit of Siemens. From October 1996 to September 1998,
Mr. Zapf served as President of Siemens' Digital Products business unit. From
January 1994 to September 1996, Mr. Zapf held various management and technical
positions within Siemens. Mr. Zapf serves as Siemens' representative on our
board of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The audit committee of our board of directors recommends the appointment
of our independent auditors, reviews our internal accounting procedures and
financial statements and consults with and reviews the services provided by our
independent auditors, including the results and scope of their audit. The audit
committee currently consists of Swan Chen and Pyoung Won Suh.
The compensation committee of our board of directors reviews and
recommends to the board of directors the compensation and benefits of all
executive officers of NeoPoint and establishes and reviews
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general policies relating to compensation and benefits of NeoPoint employees.
The current members of the compensation committee of the board of directors are
William Y. Son and Swan Chen.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William Y. Son, our Chairman, Chief Executive Officer and President, is a
member of the compensation committee. There are no compensation committee
interlocks.
COMPOSITION OF THE BOARD OF DIRECTORS
Our board of directors is currently fixed at seven directors. Messrs.
Campbell, Chen, Son, Suh and Zapf were elected to serve on our board of
directors pursuant to a voting agreement entered into in connection with sales
of our preferred stock. These agreements will terminate upon the closing of
this offering. Upon the closing of this offering, our restated certificate of
incorporation will provide that the terms of office of the members of the board
of directors will be divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 2001, Class II,
whose terms will expire at the annual meeting of stockholders to be held in
2002 and Class III, whose terms will expire at the annual meeting of
stockholder to be held in 2003. The Class I director will be Mr. , the
Class II directors will be Messrs. and , and the Class III
directors will be Messrs. and . At each annual meeting of
stockholders after the initial classification, the successors to directors
whose term will then expire will be elected to serve from the time of election
and qualification until the third annual meeting following their election. Our
nonemployee directors devote such time to our affairs as is necessary to
discharge their duties. There are no family relationships among any of our
directors, officers or key employees.
DIRECTOR COMPENSATION
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and discretionary grants of stock options,
directors are not currently compensated for their services as directors.
Directors who are employees are eligible to participate in our stock option
plans.
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation
received during the year ended December 31, 1999 by our chief executive officer
and the other executive officers whose aggregate compensation earned during the
year ended December 31, 1999 exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
SHARES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
------------------ --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
William Y. Son.......... $ 200,000 $61,667 $87,085 (1)
Chairman, Chief
Executive Officer and
President
Sanford P. Weisman...... 90,000 (2) 35,000 (3) 65,000 38,768 (4)
Senior Vice President,
Sales and Marketing
Gregory M. Decker....... 130,000 25,000
Vice President,
Finance &
Administration
Mike H.P. Kwon.......... 25,385 (5) 100,000 (3) 50,000
Vice President,
Business Development
</TABLE>
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- --------
(1) Includes $75,000 paid to Mr. Son in connection with an amendment to an
assignment agreement, $10,000 related to the issuance of 40,000 shares of
common stock to Mr. Son in connection with that amendment and a $2,085
automobile allowance.
(2) Represents partial year. Mr. Weisman was employed in April 1999.
(3) Amounts represent signing bonuses paid to Mr. Weisman and Mr. Kwon in
connection with the commencement of their employment.
(4) Includes $26,665 paid to Mr. Weisman as a relocation allowance and $12,013
paid as a housing allowance.
(5) Represents partial year. Mr. Kwon was employed in October 1999.
OPTION GRANTS
The following table sets forth information regarding grants of stock
options to each of the executive officers named in the executive compensation
table above during the year ended December 31, 1999. All of these options were
granted under our 1998 Stock Option Plan. The percentage of total options set
forth below is based on 1,664,200 options granted to employees during the year
ended December 31, 1999. All options were granted at the fair market value of
our common stock, as determined by the board of directors on the date of grant.
Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could be
achieved for the options if exercised at the end of the option term. The
assumed 5% and 10% rates of stock price appreciation are provided in accordance
with rules of the SEC and do not represent our estimate or projection of the
future common stock price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
NUMBER OF SHARES PERCENTAGE OF APPRECIATION FOR OPTION
UNDERLYING TOTAL OPTIONS EXERCISE TERMS($)
OPTIONS GRANTED TO PRICE PER EXPIRATION ------------------------
NAME GRANTED(#) EMPLOYEES SHARE($) DATE 5% 10%
---- ---------------- ------------- --------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
William Y. Son.......... -- -- -- -- -- --
Sanford P. Weisman...... 65,000 3.91% $0.25 5/3/09 $ 10,220 $ 25,898
Gregory M. Decker....... 25,000 1.50% 0.25 10/6/09 3,931 9,961
Mike H.P. Kwon.......... 50,000 3.00% 0.25 10/6/09 7,861 19,922
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information about the exercise of options
to acquire our common stock by the named executive officers during 1999 and
year-end option amounts and values. The value realized upon the exercise of
options is calculated based on the difference between the assumed initial
public offering price of $ per share and the option exercise price,
multiplied by the number of shares to which the exercise relates. The value of
unexercised in-the-money options at fiscal year-end is calculated based on the
difference between the assumed initial public offering price of $ per share
and the option exercise price, multiplied by the number of shares underlying
the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
SHARES END AT FISCAL YEAR-END
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William Y. Son.......... 182,000 599,250 718,750
Sanford P. Weisman...... 65,000
Gregory M. Decker....... 98,958 31,250 144,792
Mike H.P. Kwon.......... 50,000
</TABLE>
49
<PAGE>
401(K) PROFIT SHARING PLAN
Our 401(k) salary reduction and trust plan covers all eligible employees
and is intended to qualify as a tax-qualified plan under the Internal Revenue
Code. Employees are eligible to participate in the plan on the first day of the
month on or following one month of service at our company. The plan provides
that each participant may contribute up to 15% of his or her pre-tax gross
compensation up to a statutory limit, which is $10,500 in 2000. All amounts
contributed by participants and earnings on participant contributions are fully
vested at all times. We may make discretionary contributions to each
participant's account. We have made no discretionary contribution under the
plan to date.
1998 STOCK OPTION PLAN
We have adopted our 1998 Stock Option Plan to promote our long-term
growth and profitability, improve stockholder value, and attract, retain and
reward highly motivated and qualified employees and directors. Our board of
directors or a committee thereof administers the stock option plan.
The stock option plan authorizes the board to grant options to purchase
6,500,000 shares of our common stock from time to time. We can grant options to
employees, directors, officers and consultants in the form of incentive stock
options and nonstatutory stock options.
The stock option plan provides that the board of directors will interpret
and administer the stock option plan and all decisions are final. The board
therefore has the authority to select the persons to whom grants are to be
made, to designate the number of shares of common stock to be covered by such
grants, to determine the exercise price of options, and to make all other
determinations and to take all other actions necessary or advisable for the
administration of the plan.
The exercise price of incentive stock options granted under the stock
option plan must not be less than the fair market value of a share of the
common stock on the date of grant. In the case of nonstatutory stock options,
the exercise price must not be less than 85% of fair market value on the date
of grant. With respect to an incentive stock option granted to an optionee who
owns stock representing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of the option must be equal to at
least 110% of fair market value on the date of grant, and the term of the
option may not exceed five years. The terms of all other options may not exceed
ten years. The aggregate fair market value, which is determined as of the
option grant date, of the common stock for which incentive stock options may
become exercisable for the first time by any optionee may not exceed $100,000
in any calendar year.
Except as may be specifically provided for under a particular stock
option agreement, under the plan, in the event of a change of control, as
defined in the plan, the options will terminate unless the company acquiring us
assumes the option or substitutes a substantially equivalent option for stock
in the company acquiring us.
Under the plan, all options, to the extent unexercised and exercisable on
the date of the optionee's termination of employment, may be exercised at any
time prior to six months after termination of employment due to death or total
and permanent disability of the optionee and thirty days after the termination
of employment in all other cases.
The board of directors may terminate or amend the stock option plan or
the option agreement at any time; however, subject to certain exceptions, and
an optionee's consent must be obtained if it would impair the rights of that
optionee. Options granted under the stock option plan are not transferable
otherwise than by will or by the laws of descent and distribution, and may be
exercised during the optionee's lifetime only by the optionee or the optionee's
guardian or legal representative.
As of December 31, 1999, we have granted currently outstanding options to
purchase 4,855,048 shares of common stock under the stock option plan, at
exercise prices ranging from $0.10 to $6.00 per share. Options
50
<PAGE>
generally vest over four years, with 25% vesting after an optionee has worked
for us for twelve months and then ratably on a monthly basis thereafter, and
such options generally expire ten years from the date of grant.
2000 EQUITY INCENTIVE PLAN
Prior to the close of this offering, we intend to adopt the 2000 NeoPoint
Equity Incentive Plan to provide incentives for officers, key employees and
consultants through granting of options, restricted stock and other awards. In
addition to awards made to officers, key employees or consultants, the
Incentive Plan permits the granting of options to our independent non-employee
directors.
Under the Incentive Plan, not more than three million shares of common
stock, or the equivalent in other equity securities, are authorized for
issuance upon exercise of options, stock appreciation rights, or SARs, and
other awards, or upon vesting of restricted or deferred stock awards. The
maximum number of shares which may be subject to options or stock appreciation
rights granted under the Incentive Plan to any individual in any calendar year
cannot exceed .
Prior to the closing of the offering, the board of directors will
administer the Incentive Plan. After the closing of the offering, the
compensation committee or another committee of the board of directors will
administer the Incentive Plan with respect to grants to key employees or
consultants of the Company and the full board of directors will administer the
Incentive Plan with respect to director options. The committee will consist of
at least two members of the board of directors, each of whom is a "non-employee
director" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934
and, with respect to options and SAR's which are intended to constitute
performance-based compensation under Section 162(m) of the Internal Revenue
Code, or Code, an "outside director" for the purposes of Section 162(m) of the
Code. Subject to the terms and conditions of the Incentive Plan, the board of
directors or committee has the authority to select the persons to whom awards
are to be made, to determine the number of shares to be subject thereto and the
terms and conditions thereof, and to make all other determinations and to take
all other actions necessary or advisable for the administration of the
Incentive Plan. The board of directors or committee may delegate to certain
officers its authority to select the persons to whom awards are to be made, to
determine the number of shares to be subject thereto and the terms and
conditions thereof. In addition, the board of directors has discretion to
determine the terms and conditions of director options and to interpret and
administer the Incentive Plan with respect to director options. The committee
(and the board of directors) are also authorized to adopt, amend and rescind
rules relating to the administration of the Incentive Plan.
Options, SARs, restricted stock and other awards under the Incentive Plan
may be granted to individuals who are then officers or other key employees.
Awards also may be granted to consultants selected by the board of directors or
committee for participation in the Incentive Plan. Non-employee directors may
be granted options by the board of directors. The committee may grant or issue
stock options, SARs, restricted stock, deferred stock, dividend equivalents,
performance awards, stock payments and other stock related benefits, or any
combination thereof to key employees and consultants. Each award will be set
forth in a separate agreement with the person receiving the award and will
indicate the type, terms and conditions of the award.
Nonqualified stock options, or NQSOs, will provide for the right to
purchase common stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Code, may be less than fair market value on the date of grant, but not less
than par value, and usually will become exercisable, in the discretion of the
board of directors, in one or more installments after the grant date, subject
to the participant's continued employment and/or subject to the satisfaction of
individual or company performance targets. NQSOs may be granted for a term of
up to ten years, as specified by the board of directors.
Incentive Stock Options, or ISOs, will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of common stock on the date of grant, may
only be granted to employees, must expire within a specified period of time
following the optionee's termination of
51
<PAGE>
employment, and must be exercised within the ten years after the date of grant.
In the case of an ISO granted to an individual who owns, or is deemed to own,
at least 10% of the total combined voting power of all classes of our stock,
the Incentive Plan provides that the exercise price must be at least 110% of
the fair market value of a share of common stock on the date of grant and the
ISO must expire upon the fifth anniversary of the date of its grant.
Restricted stock may be sold to any key employee or consultant at various
prices, and made subject to such restrictions as may be determined by the
committee. Restricted stock, typically, may be repurchased by us at the
original purchase price if the conditions or restrictions are not met. In
general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and
will receive dividends prior to the time when the restrictions lapse.
Deferred stock may be awarded to any key employee or consultant,
typically without payment of consideration, but subject to vesting conditions
based on continued employment or on performance criteria established by the
committee. Like restricted stock, deferred stock may not be sold, or otherwise
transferred or hypothecated, until vesting conditions are removed or expire.
Unlike restricted stock, deferred stock will not be issued until the deferred
stock award has vested, and recipients of deferred stock generally will have no
voting or dividend rights prior to the time when vesting conditions are
satisfied.
SARs may be granted to any key employee or consultant in connection with
stock options or other awards, or separately. SARs granted by the committee in
connection with stock options or other awards will provide for payments to the
holder based upon increases in the price of our common stock over the exercise
price of the related option or other awards. Except as required by Section
162(m) of the Code with respect to an SAR intended to qualify as performance-
based compensation as described in Section 162(m) of the Code, there are no
restrictions specified in the Incentive Plan on the exercise of SARs or the
amount of gain realizable from SARs, although restrictions may be imposed by
the board of directors or committee in the SAR agreements. The committee may
elect to pay SARs in cash or in common stock or in a combination of both.
Dividend equivalents may be granted to any key employee or consultant by
the board of directors or the committee. The amount of the dividend equivalents
represent the value of the dividends per share paid by us, calculated with
reference to the number of shares covered by the stock options, deferred stock,
performance awards, SARs or other awards held by the participant.
Performance awards may be granted to any key employee or consultant by
the committee. Generally, these awards will be based upon specific performance
targets and may be paid in cash or in common stock or in a combination of both.
Performance awards may also include bonuses which may be granted by the
committee which may be payable in cash or in common stock or in a combination
of both.
Stock payments may be received by any key employee or consultant selected
by the committee in the manner determined from time to time by the committee.
The number of shares of common stock or an option or other right to purchase
common stock shall be determined by the committee, and may be based upon
performance criteria as determined by the committee.
The Incentive Plan prohibits any participant in the plan from, without
the prior written consent of the representatives of the Underwriters and
subject to certain exceptions, selling or otherwise disposing of any shares of
common stock or options to acquire shares of common stock during the 180-day
period following the date of this prospectus.
EMPLOYEE STOCK PURCHASE PLAN
Our board of directors intends to adopt the 2000 Employee Stock Purchase
Plan, or the Purchase Plan. The Purchase Plan is intended to be an "employee
stock purchase plan" as described in Section 423 of the Code. The Purchase Plan
will be administered by the compensation committee of our board of directors.
52
<PAGE>
A total of shares of our common stock will be reserved and available for
purchase under the Purchase Plan, subject to antidilution and other adjustment
provisions.
The Purchase Plan will permit eligible employee participants to purchase
our common stock through payroll deductions at a price per share equal to the
lesser of eighty-five percent (85%) of the fair market value of the common
stock on the first or the last day of an offering period. We anticipate that
the Purchase Plan will provide for two offering periods each calendar year. The
first is anticipated to be March 1 through August 31 and the second is
anticipated to be September 1 through February 28 (or, each leap year, February
29), except that the first offering period under the Purchase Plan will begin
on the effective date of this prospectus. On the last day of each offering
period, each participant's accrued payroll deductions will be automatically
applied to the purchase of common stock.
Employees eligible to participate in the Purchase Plan will consist of
all persons employed for at least 90 days by us or by certain of our
subsidiaries described in the Purchase Plan, except that the Purchase Plan will
exclude from participation any employee whose customary employment is for less
than 20 hours per week or for not more that 5 months during a calendar year and
any employee who owns stock representing 5% or more of the total combined
voting power or value of all classes of our stock or the stock of our
subsidiaries. No participant will be able to purchase shares of common stock in
any calendar year under the Purchase Plan with an aggregate fair market value
(generally determined as of the beginning of the plan year) in excess of
$25,000.
53
<PAGE>
CERTAIN TRANSACTIONS
RELATIONSHIP WITH LGIC
In October 1997, LGIC agreed to purchase 5,333,334 shares of Series A
preferred stock at a purchase price of $1.50 per share. We issued LGIC
2,666,667 shares on April 1998, 1,440,000 shares in September 1998, 160,000
shares in November 1998 and 1,066,667 shares in May 1999 for total
consideration of $8.0 million. In December 1999, we granted LGIC a warrant to
purchase 650,000 shares of our Series C preferred stock at an exercise price of
$8.00 per share that expires if not exercised prior to the closing of this
offering.
We have a research, development and distribution agreement with LGIC that
grants LGIC exclusive rights to manufacture and supply our first three CDMA-
based SmartPhones. Under the agreement, LGIC has the exclusive right to
distribute these CDMA-based SmartPhones in Korea and non-exclusive rights to
distribute these CDMA-based SmartPhones throughout the rest of the world, other
than the United States. In 1998 and during the nine months ended September 30,
1999, purchases from LGIC totaled $163,000 and $14.9 million, respectively,
under the agreement. We also have a relationship with an affiliate of LGIC to
provide us with warranty and product repair services in their service center in
Huntsville, Alabama.
Under the terms of a voting agreement entered into in connection with the
sale of our preferred stock, LGIC is entitled to elect one member to our board
of directors. This voting agreement will terminate upon the closing of this
offering. Pyoung Won Suh, a member of our board of directors, is also the
president and a member of the board of directors of LGIC.
RELATIONSHIP WITH TRANSPAC
In July 1998, Transpac purchased 666,667 shares of Series A preferred
stock at a purchase price of $1.50 per share for an aggregate consideration of
$1.0 million. In November 1998, Transpac purchased 4,000,000 shares of Series B
preferred stock at a purchase price of $2.50 per share for aggregate
consideration of $10.0 million. In June 1999, Transpac purchased an additional
1,200,000 shares of Series B preferred stock at a purchase price of $2.50 per
share for aggregate consideration of $3.0 million.
In September 1999, we entered into a consulting agreement with Transpac
to formalize an existing consulting relationship between us and to provide for
continued consulting services through December 31, 1999. We granted Transpac an
option to purchase 600,000 shares of our common stock at an exercise price of
$0.25 per share as consideration for its consulting services.
In October 1999, in connection with the termination of contractual rights
relating to the Series B preferred stock, we granted Transpac a warrant to
purchase 700,000 shares of Series C preferred stock at a purchase price of
$6.00 per share. This warrant expires if not exercised prior to the closing of
this offering.
Under the terms of a voting agreement entered into in connection with the
sale of our preferred stock, Transpac is entitled to elect one member to our
board of directors. This voting agreement will terminate upon the closing of
this offering.
RELATIONSHIP WITH SIEMENS
In October 1999, we entered into a memorandum of understanding with
Siemens for joint development, manufacturing, marketing and sales of GSM-based
and other advanced SmartPhones. The memorandum contemplates that Siemens will
have manufacturing rights to designated GSM-based versions of our SmartPhones
and other advanced SmartPhones. Further, the memorandum contemplates that
Siemens will have exclusive worldwide marketing and sales rights for the GSM
version of a planned SmartPhone that is currently under development, except in
North and South America where we expect to have the option to market that
product on a non-exclusive basis. We are negotiating a definitive agreement
with Siemens, but we cannot assure you that we will enter into a definitive
agreement or, if so, when it will be executed or on what terms.
54
<PAGE>
In December 1999, Siemens purchased 3,000,000 shares of Series C
preferred stock at a purchase price of $8.00 per share for aggregate
consideration of $24.0 million. In addition, we granted Siemens a warrant to
purchase 1,500,000 shares of Series C preferred stock at a purchase price of
$6.00 per share. This warrant expires if not exercised prior to the closing of
this offering.
Under the terms of a voting agreement entered in connection with the sale
of our preferred stock, Siemens is entitled to elect one member to our board of
directors. This voting agreement will terminate upon the closing of this
offering.
TRANSACTIONS WITH AFFILIATES
In February 1998, William Y. Son, our Chairman, Chief Executive Officer
and President, irrevocably assigned us all of his world-wide right, title and
interest in specified cellular telephone communications technology. In
addition, Mr. Son granted us an exclusive, irrevocable, world-wide royalty free
license to this technology. In consideration for the assignment and license we
paid Mr. Son $50,000 and issued him 58,000 shares of common stock. In September
1999 we amended this assignment agreement with Mr. Son to remove some
contingent obligations. In connection with this amendment, we paid Mr. Son
$75,000 and issued him 40,000 shares of common stock.
In April 1998, we entered into a founder stock purchase agreement with
Mr. Son under which he purchased 1,500,000 shares of common stock at $0.10 per
share for an aggregate purchase price of $150,000. Of these shares, 50% vested
upon the execution of the agreement and the remaining shares vest over three
years, at a rate of 20,833.33 shares per month from an initial vesting date of
November 7, 1997. As of December 31, 1999, a total of 1,270,833 of these shares
were vested.
In the event that Mr. Son's employment is terminated or if Mr. Son or his
legal representative attempts to dispose of any unvested shares, we may
repurchase the unvested shares at a repurchase price of $0.10 per share. The
board of directors may terminate this repurchase option upon designated change
of control transactions or otherwise as the board of directors deems
appropriate.
Mr. Son borrowed $75,000 from us under a promissory note at an interest
rate of 6% per annum in April 1998. In April 1999, he borrowed an additional
$50,000 under a promissory note at an interest rate of 8% per annum. As of
December 31, 1999, Mr. Son had repaid all amounts owed under the April 1999
promissory note and $30,000 in principal amount was outstanding under the April
1998 promissory note.
In September 1998 we granted Mr. Son options to purchase 1,500,000 shares
of our common stock at an exercise price of $0.11 per share. These options vest
at a rate of 31,250 shares per month. As of December 31, 1999, Mr. Son
exercised options to purchase 182,000 shares and options to purchase 599,250
shares were vested but unexercised.
NeoTel provides us with various accessories for our SmartPhones,
including travel chargers, softsync stations and data cables. The owner and
sole shareholder of NeoTel is the brother of Mike H.P. Kwon, our Vice
President, Business Development. NeoTel outsources the manufacturing of the
accessories. The accessories we purchase from NeoTel are either shipped by
NeoTel to LGIC for inclusion in our SmartPhone packaging for distribution to
our customers, or sold by NeoTel to us for our resale to our customers. In 1998
and during the nine months ended September 30, 1999, accessories purchased from
NeoTel totaled $70,000 and $2.9 million, respectively.
Eric Campbell, one of our directors, is the founder and president of
GRIP, Inc., d/b/a Select Tee Times, a corporation that sells tee times for golf
courses through a Web-based available tee time listing service and call center.
In September 1999, we entered into a strategic partnership agreement with
Select Tee Times. Under the agreement, Select Tee Times will pay us royalties
for each reservation booked for any NeoPoint customer, and we will pay Select
Tee Times a referral fee for SmartPhones purchased by Select Tee Time's members
under specified circumstances. No payments were made by either party under this
agreement in 1999.
55
<PAGE>
In consideration of consulting services provided by Mr. Campbell, we
granted Mr. Campbell an option to purchase 30,000 shares of common stock at an
exercise price of $0.25 per share in 1999. In 1999, we also granted to Mr.
Campbell an option to purchase 35,000 shares of common stock at an exercise
price of $0.25 per share in connection with his services as a member of our
board of directors.
In March 1999, we entered into a settlement agreement with Hen Suh Park,
a former member of our board of directors in connection with Dr. Park's
resignation from the board of directors. Under this agreement, we issued Dr.
Park 300,000 shares of common stock and repaid an outstanding balance of
$100,000 in connection with a promissory note held by Mr. Park.
REGISTRATION RIGHTS
LGIC, Transpac, Siemens and some of our other existing stockholders hold
registration rights pursuant to an investors rights agreement. See "Description
of Capital Stock-Registration Rights."
OTHER TRANSACTIONS
After our reincorporation, we intend to enter into indemnification
agreements with each of our directors and officers. These indemnification
agreements will require us to indemnify these individuals for certain acts or
omissions in connection with their activities as our directors or officers to
the fullest extent permitted by Delaware law.
BUSINESS RELATIONSHIPS
Mr. Son is the Chief Executive Officer, Chairman of the board of
directors and sole shareholder of IGS Korea, Inc., a Korean corporation. IGS
Korea provides logistic support services for us in Korea. We have not made any
payments to IGS Korea to date.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of December 31, 1999, and as
adjusted to reflect the sale of shares of common stock offered hereby,
the exercise of warrants to purchase an aggregate of 2,850,000 shares of Series
C preferred stock that will expire if not exercised prior to the closing of
this offering, and the automatic conversion of all shares of preferred stock,
including the shares of preferred stock received upon exercise of the foregoing
warrants, into an aggregate of 18,991,668 shares of common stock, as to:
. each person, or group of affiliated persons, known by us to own
beneficially more than 5% of our outstanding common stock;
. each of our directors;
. each of the executive officers named in the executive compensation
table; and
. all our directors and executive officers as a group.
<TABLE>
<CAPTION>
Percent
Beneficially
Owned(1)
-----------------
Number of Shares Before After
Beneficial Owner Beneficially Owned Offering Offering
---------------- ------------------ -------- --------
<S> <C> <C> <C>
William Y. Son(2)......................... 2,441,750 10.7
Sanford P. Weisman(3)..................... -- --
Gregory M. Decker(4)...................... 290,624 1.3
Mike H.P. Kwon(5)......................... -- --
Eric Campbell............................. 65,000 *
Swan Chen(6).............................. 9,479 *
Pyoung Won Suh(7)......................... 5,983,334 26.1
Peter Zapf(8)............................. 4,500,000 19.7
LG Information & Communications, Ltd.(9).. 5,983,334 26.1
Transpac Capital Pte Ltd.(10)............. 7,166,667 31.3
Siemens Aktiengesellschaft, Information
and Communication Products(11)........... 4,500,000 19.7
All executive officers and directors as a
group (12 persons)(12)................... 13,310,187 58.1
</TABLE>
- --------
*Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. All shares of common stock subject to options exercisable
within 60 days following December 31, 1999, are deemed to be outstanding
and beneficially owned by the person holding those options for the purpose
of computing the number of shares beneficially owned and the percentage of
ownership of that person. They are not, however, deemed to be outstanding
and beneficially owned for the purpose of computing the percentage
ownership of any other person. Accordingly, percent ownership in this
table is based on (i) before the offering, 3,902,233 shares of our common
stock outstanding as of December 31, 1999, plus the exercise of warrants,
that will expire if not exercised prior to the closing of this offering,
to purchase an aggregate of 2,850,000 shares of Series C preferred stock
and the automatic conversion of all shares of preferred stock, including
the shares of Series C preferred stock issuable upon exercise of these
warrants into 18,991,668 shares of common stock, and (ii) after this
offering, an additional shares to be issued by us in the
offering, assuming that the underwriters do not exercise their over-
allotment option. Except as indicated in the other footnotes to the table
and subject to applicable community property laws, based on information
provided by the persons named in the table, these persons have sole voting
and investment power with respect to all shares of the common stock shown
as beneficially owned by them. Unless otherwise indicated, the address of
each of the individuals and entities named below is: 4225 Executive
Square, 6th Floor, La Jolla, California 92037.
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<PAGE>
(2) Includes 661,750 shares issuable upon exercise of options exercisable
within 60 days following December 31, 1999.
(3) Excludes 65,000 shares of common stock issuable upon exercise of options
that are not exercisable within 60 days following December 31, 1999.
(4) Includes 41,666 shares issuable upon exercise of options exercisable
within 60 days following December 31, 1999.
(5) Excludes 50,000 shares of common stock issuable upon exercise of options
that are not exercisable within 60 days following December 31, 1999.
(6) Includes 9,479 shares issuable upon exercise of options exercisable within
60 days following December 31, 1999 held by Mr. Chen. Excludes 25,521
shares of common stock issuable upon exercise of options that are not
exercisable within 60 days following December 31, 1999.
(7) Includes 5,983,334 shares held by LGIC after (a) the automatic conversion
of 5,333,334 shares of Series A preferred stock, and (b) the assumed
exercise of a warrant, that will expire if not exercised prior to the
closing of the offering, to purchase 650,000 shares of Series C preferred
stock that will be automatically converted into 650,000 shares of common
stock upon the closing of the offering. Mr. Suh disclaims beneficial
ownership of all shares held by LGIC, of which Mr. Suh is president and a
member of the board of directors.
(8) Includes 4,500,000 shares held by Siemens after (a) the automatic
conversion of 3,000,000 shares of Series C preferred stock, and (b) the
assumed exercise of a warrant, that will expire if not exercised prior to
the closing of the offering, to purchase 1,500,000 shares of Series C
preferred stock that will be automatically converted into 1,500,000 shares
of common stock upon the closing of the offering. Mr. Zapf disclaims
beneficial ownership of all shares held by Siemens, of which Mr. Zapf is
president of the Communication Devices, Information and Communication
Products Division.
(9) Includes 5,983,334 shares held by LGIC after (a) the automatic conversion
of 5,333,334 shares of Series A preferred stock, and (b) the assumed
exercise of a warrant, that will expire if not exercised prior to the
closing of the offering, to purchase 650,000 shares of Series C preferred
stock that will be automatically converted into 650,000 shares of common
stock upon the closing of the offering. LGIC's address is LG Kang-Nam
Tower 11F, 679 Yoksam-dong, Kangnam-gu, Seoul, South Korea, 135-080.
(10) Includes 7,166,667 shares held by Transpac after (a) the automatic
conversion of 666,667 shares of Series A preferred stock and 5,200,000
shares of Series B preferred stock, (b) the assumed exercise of a warrant,
that will expire if not exercised prior to the closing of the offering, to
purchase 700,000 shares of Series C preferred stock that will be
automatically converted into 700,000 shares of common stock upon the
closing of the offering, and (c) 600,000 shares of common stock issuable
upon exercise of options exercisable within 60 days following December 31,
1999. Transpac's address is 1000 Fremont Avenue, Suite 120, Los Altos,
California, 94024.
(11) Includes 4,500,000 shares held by Siemens after (a) the automatic
conversion of 3,000,000 shares of Series C preferred stock, and (b) the
assumed exercise of a warrant, that will expire if not exercised prior to
the closing of the offering, to purchase 1,500,000 shares of Series C
preferred stock that will be automatically converted into 1,500,000 shares
of common stock upon the closing of the offering. Siemens' address is
Grillparzerstr, 10, 81675, Munich, Germany.
(12) Includes 703,416 shares issuable upon exercise of options exercisable
within 60 days following December 31, 1999; 5,983,334 shares held by LGIC
as to which Mr. Suh disclaims beneficial ownership; and 4,500,000 shares
held by Siemens as to which Mr. Zapf disclaims beneficial ownership. See
Notes 5 and 6 above.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will
consist of shares of common stock, $0.001 par value per share, and
shares of preferred stock, $0.001 par value per share.
The following is a summary of the material terms of our common stock and
preferred stock. Please see our restated certificate of incorporation, filed as
an exhibit to the registration statement of which this prospectus is a part,
for more detailed information.
COMMON STOCK
As of December 31, 1999, there were 22,893,901 shares of common stock
outstanding that were held of record by approximately 73 stockholders, after
giving pro forma effect to the exercise of warrants that if not exercised would
expire upon the closing of this offering and the conversion of our preferred
stock into common stock at a one-to-one ratio. There will be shares
of common stock outstanding (assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or other warrants)
after giving effect to the sale of the shares of common stock offered by this
prospectus.
Each holder of common stock is entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably any dividends that may be declared from time to
time by the board of directors out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of NeoPoint, the holders of
common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior rights of holders of preferred stock,
if any, then outstanding. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions available to the common stock. All outstanding shares of common
stock are fully paid and non-assessable.
PREFERRED STOCK
Upon the consummation of this offering, each currently outstanding share
of preferred stock will be converted into common stock, and these shares of
preferred stock will be automatically retired. Thereafter, up to 5,000,000
shares of undesignated preferred stock will be authorized for issuance. Our
board of directors has the authority, without further action by its
stockholders, to issue preferred stock in one or more series. In addition, the
board of directors may prescribe for each series of preferred stock it
establishes, the number of shares in that series, the number of votes, if any,
to which the shares in that series are entitled, the consideration to be
received for issuance of the shares in that series, and the designations,
powers, preferences and other rights, qualifications, limitations or
restrictions of the shares in that series.
We believe that the availability of the preferred stock will provide us
with increased flexibility in structuring possible future financings and in
meeting other corporate needs that may arise. The authorized shares of
preferred stock, as well as our common stock, will be available for issuance
without further stockholder action, unless action is required by applicable
law, the rules of any stock exchange on which our securities may be listed, any
then-existing contractual restrictions or unless we are restricted by the terms
of any then-outstanding preferred stock.
Depending upon the rights prescribed for a series of preferred stock, the
issuance of preferred stock could have an adverse effect on the voting power of
the holders of common stock and could adversely affect holders of common stock
by delaying or preventing a change in control of us, making removal of our
present management more difficult or imposing restrictions upon the payment of
dividends and other distributions to the holders of common stock.
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<PAGE>
REGISTRATION RIGHTS
The investors rights agreement between some of our stockholders and us
entitles these holders to registration rights with respect to an aggregate of
16,141,668 shares of common stock.
Beginning 180 days after the date of this prospectus, these holders will
have the right to require us, on not more than two occasions, to file a
registration statement under the Securities Act to register their shares at our
expense. Demand for this registration must be made by the holders of at least
20% of the shares that are entitled to these demand registration rights. These
stockholders also have the right to require us, not more frequently than twice
during any twelve month period, to file a registration statement on Form S-3
under the Securities Act to register their shares at our expense. In addition,
if we propose to register any of our securities under the Securities Act for
our own account or for the account of other security holders, these
stockholders are entitled to notice of that registration and have the right to
include some or all of their shares of common stock in that registration, at
our expense, subject to some limitations.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
Our restated certificate of incorporation and bylaws contain provisions
that are intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by our
board of directors. In addition, provisions of Delaware law may hinder or delay
an attempted takeover of NeoPoint other than through negotiation with our board
of directors. These provisions could have the effect of discouraging attempts
to acquire us or remove incumbent management even if some or a majority of our
stockholders believe this action to be in their best interest, including
attempts that might result in the stockholders receiving a premium over the
market price for their shares of common stock.
Removal and replacement of directors. Under our restated certificate of
incorporation and bylaws, a majority of the directors then in office can fill
board vacancies and newly-created directorships resulting from any increase in
the size of the board of directors, even if those directors do not constitute a
quorum or only one director is left in office. These provisions could prevent
stockholders, including parties who want to take over or acquire us, from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.
Classified Board. Our restated certificate of incorporation provides
that, upon the closing of this offering, the board of directors will be divided
into three classes of directors, with each class serving a staggered three-year
term. See "Management--Composition of the Board of Directors." The
classification system of electing directors may discourage a third party from
making a tender offer or otherwise attempting to obtain control of us and may
maintain the incumbency of the board of directors, because the classification
of the board of directors generally increases the difficulty of replacing a
majority of the directors.
Advance notice provisions for stockholder proposals and stockholder
nominations of directors. The bylaws establish an advance notice procedure
regarding stockholder proposals and nominations for director. The advance
notice procedure will not apply to proposals by our board of directors or
management. Any stockholder that wishes to make a proposal or nominate a
director for election at an annual meeting must deliver to us notice of the
proposal or the nomination not less than 45 days nor more than 90 days before
the first anniversary of the proxy statement for the preceding year's annual
meeting. For a special meeting, the notice must generally be delivered not less
than 70 days nor more than 90 days before a special meeting or ten days
following the day on which public announcement of the meeting is first made.
This advance notice procedure could prevent someone interested in acquiring us
from proposing actions that could facilitate a takeover.
Special meetings of stockholders and actions in lieu of a meeting. Our
restated certificate of incorporation and bylaws permit special meetings of the
stockholders to be called only by the board of directors, the chairman of the
board or the president. Additionally, our restated certificate of incorporation
60
<PAGE>
eliminates the right of stockholders to take action by written consent in lieu
of a meeting. These provisions may make it more difficult for stockholders to
take actions opposed by the board of directors.
Authorized but unissued shares. Without further stockholder approval, we
can issue shares of common stock and preferred stock up to the number of shares
authorized for issuance in our restated certificate of incorporation, except as
limited by Nasdaq rules. We could use these additional shares for a variety of
corporate purposes. These purposes include future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans. Our
ability to issue these shares of common stock and preferred stock could make it
more difficult, or discourage an attempt, to obtain control of NeoPoint by
means of a proxy contest, tender offer, merger or otherwise.
Amendment of bylaws. The Delaware General Corporation Law generally
provides that the affirmative vote of a majority of the shares entitled to vote
on any matter is required to amend a corporation's certificate of incorporation
or bylaws, unless the corporation's certificate of incorporation or bylaws, as
the case may be, requires a greater percentage. Our restated certificate of
incorporation and bylaws require the affirmative vote of the holders of at
least 66 2/3% of our outstanding voting stock to amend or repeal our bylaws.
Our bylaws may also be amended or repealed by a simple majority vote of the
board of directors.
Section 203 of Delaware Law. In addition to the foregoing provisions of
our restated certificate of incorporation and bylaws, we will be subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the statute 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 that the person became an interested stockholder unless,
with exceptions, the business combination or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale or
other transaction resulting in a financial benefit to the stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior, did own, 15% or more of the
corporation's outstanding voting stock. This provision may have the effect of
delaying, deferring or preventing a change in control of NeoPoint without
further action by the stockholders.
WARRANTS
We issued two warrants to purchase an aggregate of 759,386 shares of
common stock to Sprint PCS in connection with our CDMA PCS subscriber unit
supply agreement. The first warrant entitles the holder to purchase 379,693
shares of our common stock at $2.50 per share and expires June 4, 2004, and the
second warrant entitles the holder to purchase 379,693 shares of our common
stock at $4.00 per share and expires January 1, 2005, in each case subject to
adjustments.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock will be
.
LISTING
We have applied to have our common stock approved for listing on the
Nasdaq National Market under the trading symbol "NEOI."
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common
stock. A significant public market for the common stock may not develop or be
sustained after this offering. Future sales of substantial amounts of our
common stock in the public market, or the possibility of these sales occurring,
could adversely affect prevailing market prices for our common stock or our
future ability to raise capital through an offering of equity securities.
Upon completion of this offering, we will have outstanding
shares of common stock. Of these shares, the shares to be sold in
this offering, shares if the underwriters' over-allotment option is
exercised in full, will be freely tradable in the public market without
restriction under the Securities Act, unless the shares are held by
"affiliates" of NeoPoint, as that term is defined in Rule 144 under the
Securities Act.
The remaining shares outstanding upon completion of this
offering will be "restricted securities" as that term is defined under Rule
144. We issued and sold these restricted securities in private transactions in
reliance on exemptions from registration under the Securities Act. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701
under the Securities Act, as summarized below.
Pursuant to "lock-up" agreements, all executive officers and directors
and substantially all stockholders have agreed with the underwriters not to
offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of any of these shares for a period of 180 days from the date of this
prospectus. A total of outstanding shares are subject to these lock-up
agreements. We also have entered into an agreement with the underwriters that
we will not offer, sell or otherwise dispose of common stock for a period of
180 days from the date of this prospectus, subject to limited exceptions.
However, Merrill Lynch & Co. may in its sole discretion, at any time without
notice, consent to the release of all or any portion of the shares subject to
lock-up agreements.
Taking into account the lock-up agreements, and assuming Merrill Lynch &
Co. does not release stockholders from these agreements, the following shares
will be eligible for sale in the public market at the following times:
. on the date of this prospectus, the shares sold in the
offering will be immediately available for sale in the public market;
. 181 days after the date of the prospectus, approximately
shares will be eligible for sale, of which will be subject
to volume, manner of sale and other limitations under Rule 144; and
. the remaining shares will be eligible for sale under Rule
144 from time to time upon the expiration of various one-year holding
periods after the expiration of the lock-up period applicable to
those shares.
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person, or persons whose shares are aggregated, who has
beneficially owned restricted securities for at least one year would be
entitled to sell within any three-month period a number of shares not to exceed
the greater of (1) one percent of the then outstanding shares of common stock
or (2) the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale and notice
requirements, as well as to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been an
affiliate 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 is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
62
<PAGE>
As of December 31, 1999, we have outstanding options to purchase
4,855,048 shares of common stock to specified persons pursuant to our stock
option plan. Shares issued upon exercise of options granted by us prior to the
date of this prospectus will be available for sale in the public market under
Rule 701 of the Securities Act, following expiration of a 180-day lock-up
period contained in the option agreements. Rule 701 permits resales of these
shares in reliance upon Rule 144 but without compliance with various
restrictions, including the holding period requirement, imposed under Rule 144.
In addition, we intend to file, after the effective date of this offering, one
or more registration statements on Form S-8 to register (a) approximately
6,500,000 shares of common stock reserved for issuance under our 1998 Stock
Option Plan, (b) approximately 3,000,000 shares of common stock reserved for
issuance under the 2000 Incentive Plan we intend to adopt prior to the closing
of this offering, and (c) approximately shares of common stock reserved
for issuance under our employee stock purchase plan we intend to adopt prior to
the close of this offering. See "Management." The registration statement will
become effective automatically upon filing. Shares issued under the foregoing
plans, after the filing of a registration statement, may be sold in the open
market following expiration of a 180-day lock up period contained in the option
agreements, subject, in the case of some holders, to the Rule 144 limitations
applicable to affiliates and vesting restrictions imposed by us.
In addition, following this offering, the holders of 16,141,668 shares of
outstanding common stock will, under some circumstances, have rights to require
us to register their shares for future sale. See "Description of Capital
Stock--Registration Rights."
63
<PAGE>
UNDERWRITING
GENERAL
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Hambrecht & Quist
LLC, Donaldson, Lufkin & Jenrette Securities Corporation and U.S. Bancorp Piper
Jaffray Inc. are acting as representatives of each of the underwriters named
below. Subject to the terms and conditions set forth in the Underwriting
Agreement among us and the underwriters, we have agreed to sell to the
underwriters, and each of the underwriters severally has agreed to purchase
from us, the number of shares of common stock set forth opposite its name
below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................
Hambrecht & Quist LLC............................................
Donaldson, Lufkin & Jenrette Securities Corporation..............
U.S. Bancorp Piper Jaffray Inc...................................
---
Total.........................................................
===
</TABLE>
In the Underwriting Agreement, the several underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of our common stock being sold pursuant to the Underwriting Agreement if
any shares of our common stock are purchased. Under certain circumstances,
under the terms of the Underwriting Agreement, the commitments of the non-
defaulting underwriters may be increased or the Underwriting Agreement may be
terminated.
The representatives have advised us that they propose initially to offer
the shares of our common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of common stock on sales to certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
We have granted the underwriters a 30-day option to purchase up to an
aggregate of additional shares of our common stock, at the initial
public offering price set forth on the cover of this prospectus, less the
underwriting discount. The underwriters may exercise this option to cover over-
allotments, if any, made on the sale of our common stock offered by this
prospectus. To the extent that the underwriters exercise this option, each
underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares of our common stock proportionate to that
underwriter's initial amount reflected in the table above.
The following table shows the per share and total underwriting discounts
to be paid by us to the underwriters. This information is presented assuming
either no exercise or full exercise by the underwriters of their over-allotment
option.
<TABLE>
<CAPTION>
PER WITHOUT WITH
SHARE OPTION OPTION
----- ------- ------
<S> <C> <C> <C>
Public offering price................................. $ $ $
Underwriting discount................................. $ $ $
Proceeds, before expenses, to NeoPoint................ $ $ $
</TABLE>
The expenses of this offering are estimated at $ and are all payable
by us.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the
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<PAGE>
underwriters and certain other conditions. The underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part.
At our request, the underwriters have reserved up to 5% of the shares of
our common stock offered by this prospectus for sale, at the initial public
offering price, to some of our employees, executive officers and directors and
to some individuals designated by them. The number of shares of our common
stock available for sale to the general public in this offering will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered by this prospectus.
We, our directors and executive officers, and substantially all of our
existing stockholders have agreed for a period of 180 days after the date of
this prospectus, subject to certain exceptions, not to:
. directly or indirectly offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise
dispose of or transfer any shares of our common stock or any
securities convertible into or exchangeable or exercisable for our
common stock or file any registration statement under the Securities
Act with respect to any of the foregoing; or
. enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of our common stock,
whether any such swap or transaction described in the first or second bullet
point above is to be settled by delivery of common stock or other securities,
in cash or otherwise, without the prior written consent of Merrill Lynch on
behalf of the underwriters. However, these restrictions will not apply to:
. this offering;
. the issuance by us of any shares of our common stock upon the
exercise of an outstanding option or the conversion of an outstanding
security; or
. the issuance by us of any shares of our common stock or the grant by
us of options to purchase our common stock pursuant to our existing
stock option plans. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no market for our common stock.
The initial public offering price will be determined through negotiations among
us and the representatives. Among the factors considered in determining the
initial public offering price, in addition to prevailing market conditions,
will be the trading multiples of publicly traded companies that the
representatives believe to be comparable to us, certain of our financial
information, the history of, and the prospects for, us and the industry in
which we compete, an assessment of our management, our past and present
operations, the prospects for, and timing of, our future revenues, the present
state of our development, the percentage interest of our company being sold as
compared to the valuation for the entire company and the above factors in
relation to market values and various valuation measures of other companies
engaged in activities similar to ours. We cannot assure you that an active
trading market will develop for our common stock or that our common stock will
trade in the public market subsequent to this offering at or above the initial
public offering price.
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "NEOI."
The underwriters do not intend to confirm sales of our common stock to
any accounts over which they exercise discretionary authority. We have agreed
to indemnify the underwriters against certain liabilities, including certain
liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
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<PAGE>
Until the distribution of our common stock is completed, SEC rules may
limit the ability of the underwriters and certain selling group members to bid
for and purchase our common stock. As an exception to these rules, the
representatives are permitted to engage in certain transactions that stabilize
the price of our common stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing, or maintaining the price of our common
stock. If commenced, such transactions may be discontinued at any time without
notice.
If the underwriters create a short position in our common stock in
connection with this offering, that is, if they sell more shares of common
stock than are set forth on the cover page of this prospectus, the
representatives may reduce that short position by purchasing common stock in
the open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.
The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of our common stock to the extent
that it discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Latham & Watkins, San Diego, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1997 and 1998 and for the period from June 27, 1997
(inception) through December 31, 1997 and the year ended December 31, 1998, as
described in their report. We have included our financial statements in our
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
66
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1,
including the exhibits and schedules thereto, under the Securities Act with
respect to the shares to be sold in this offering. This prospectus does not
contain all the information set forth in the registration statement. For
further information about us and the shares to be sold in this offering, please
refer to the registration statement. Statements contained in this prospectus as
to the contents of any contract, agreement or other document referred to, are
not necessarily complete, and in each instance please refer to the copy of the
contract, agreement or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by this reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file with the SEC at the SEC's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the SEC located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You can request copies of these documents upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement will also be available to you on the SEC's
Web site. The address of this site is http://www.sec.gov.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
FINANCIAL STATEMENTS
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statement of Stockholders' Equity (Deficit)................................ F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NeoPoint, Inc,
We have audited the accompanying balance sheets of NeoPoint, Inc as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the period from June 27,
1997 (inception) to December 31, 1997 and the year ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of NeoPoint, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from June 27, 1997 (inception) through December 31, 1997
and the year ended December 31, 1998 in conformity with accounting principles
generally accepted in the United States.
San Diego, California
April 9, 1999 except for Note 12, as to which the date is
, 2000.
- --------------------------------------------------------------------------------
The foregoing is the form that will be signed upon the completion of
certain events as described in Note 12, to the financial statements
/s/ ERNST & YOUNG LLP
San Diego, California
January 10, 2000
F-2
<PAGE>
NEOPOINT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
----------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
---------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 740,000 $10,195,000 $12,640,000
Marketable securities.... -- -- 712,000
Accounts receivable...... 18,000 156,000 16,142,000
Inventory................ -- 40,000 194,000
Notes receivable from
officer................. 50,000 -- 53,000
Prepaid expenses and
other current assets.... 55,000 533,000 1,063,000
---------- ----------- -----------
Total current assets... 863,000 10,924,000 30,804,000
Property and equipment,
net...................... 383,000 1,034,000 1,491,000
Deferred license fees,
net...................... -- -- 3,615,000
Other assets.............. 27,000 170,000 84,000
---------- ----------- -----------
Total assets........... $1,273,000 $12,128,000 $35,994,000
========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable......... $ 301,000 $ 395,000 $ 999,000
Accounts payable to
related parties......... 83,000 14,585,000
License fees payable..... -- -- 3,300,000
Accrued sales
allowances.............. -- -- 1,422,000
Accrued compensation and
related expenses........ 147,000 424,000 376,000
Capital lease
obligations............. -- 220,000 241,000
Other accrued
liabilities............. 8,000 350,000 3,225,000
---------- ----------- -----------
Total current
liabilities........... 456,000 1,472,000 24,178,000
Capital lease obligations,
net of current portion... -- 171,000 101,000
Long-term debt............ 1,775,000 100,000 --
---------- ----------- -----------
Total liabilities...... 2,231,000 1,743,000 24,279,000
Commitments (Note 5)
Stockholders' equity
(deficit):
Preferred stock, voting,
$0.001 par value;
10,000,000, 18,000,000
and 18,000,000 shares
authorized at December
31, 1997, December 31,
1998 and September 30,
1999, 18,000,000 shares
authorized pro forma:
Series B, convertible,
no shares designated
at December 31, 1997;
6,000,000 shares
designated at December
31, 1998 and September
30, 1999, no shares
designated pro forma;
no shares outstanding
at December 31, 1997;
4,100,000 and
6,000,000 shares
issued and outstanding
at December 31, 1998
and September 30,
1999, no shares issued
or outstanding pro
forma; aggregate
liquidation preference
of $10,250,000 and
$15,000,000 at
December 31, 1998 and
September 30, 1999..... -- 4,000 6,000 $ --
Series A, convertible,
6,700,000 shares
designated at
December 31, 1997 and
1998 and at September
30, 1999, no shares
designated pro forma;
no shares outstanding
at December 31, 1997;
5,253,334 and
6,366,668 shares
issued and outstanding
at December 31, 1998
and September 30,
1999, no shares issued
or outstanding pro
forma; aggregate
liquidation preference
of $7,880,000 and
$9,550,000 at December
31, 1998 and September
30, 1999............... -- 5,000 6,000 --
Common stock, voting,
$0.001 par value;
20,000,000, 35,000,000
and 35,000,000 shares
authorized at December
31, 1997, December 31,
1998 and September 30,
1999, 35,000,000 shares
authorized pro forma;
no shares outstanding at
December 31, 1997;
2,158,000 and 2,937,625
shares issued and
outstanding at December
31, 1998 and September
30, 1999, 15,304,293
issued and outstanding
pro forma............... -- 2,000 3,000 15,000
Additional paid-in
capital................. -- 19,953,000 48,448,000 48,448,000
Deferred sales discount.. -- -- (132,000) (132,000)
Notes receivable from
stockholders............ -- (88,000) (65,000) (65,000)
Deferred compensation.... -- (991,000) (4,768,000) (4,768,000)
Accumulated deficit...... (958,000) (8,500,000) (31,783,000) (31,783,000)
---------- ----------- ----------- -----------
Total stockholders'
equity (deficit)...... (958,000) 10,385,000 11,715,000 $11,715,000
---------- ----------- ----------- ===========
Total liabilities and
stockholders' equity
(deficit)........... $1,273,000 $12,128,000 $35,994,000
========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NEOPOINT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, YEAR ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER SEPTEMBER 30,
DECEMBER 31, 31, -------------------------
1997 1998 1998 1999
-------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net revenues............ $ -- $ 651,000 $ 232,000 $ 23,619,000
---------- ----------- ----------- ------------
Operating expenses:
Cost of revenues...... -- 426,000 169,000 18,831,000
Marketing and
selling.............. 24,000 657,000 347,000 3,642,000
Research and
development.......... 148,000 3,544,000 2,404,000 6,232,000
General and
administrative....... 792,000 2,966,000 1,757,000 2,658,000
Amortization of
deferred stock
compensation and
other stock-based
awards............... -- 655,000 392,000 7,956,000
---------- ----------- ----------- ------------
Total operating
expenses............... 964,000 8,248,000 5,069,000 39,319,000
---------- ----------- ----------- ------------
Loss from operations.... (964,000) (7,597,000) (4,837,000) (15,700,000)
Interest income, net.... 6,000 55,000 23,000 172,000
---------- ----------- ----------- ------------
Net loss................ (958,000) (7,542,000) (4,814,000) (15,528,000)
Imputed beneficial
conversion dividends on
preferred stock........ -- -- -- (7,755,000)
---------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $ (958,000) $(7,542,000) $(4,814,000) $(23,283,000)
========== =========== =========== ============
Basic and diluted net
loss per common share.. n/a $ (8.34) $ (6.58) $ (12.95)
========== =========== =========== ============
Weighted average shares
used in computation of
basic and diluted net
loss per common share.. -- 904,667 731,149 1,797,654
========== =========== =========== ============
Pro forma basic and
diluted net loss per
common share .......... $ (1.76) $ (1.25)
=========== ============
Weighted average shares
used in computation of
pro forma basic and
diluted net loss per
common share........... 4,275,862 12,374,124
=========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
NEOPOINT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JUNE 27, 1997 (INCEPTION) TO DECEMBER 31, 1998
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SERIES B SERIES A
CONVERTIBLE CONVERTIBLE NOTES
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE
---------------- ---------------- ----------------- PAID-IN SALES FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DISCOUNT STOCKHOLDERS COMPENSATION
--------- ------ --------- ------ --------- ------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss during
the period June
27, 1997
(inception)
through
December 31,
1997........... -- $ -- -- $ -- -- $ -- $ -- $ -- $ -- $ --
--------- ------ --------- ------ --------- ------ ----------- ----------- -------- ------------
Balance at
December 31,
1997........... -- -- -- -- -- -- -- -- -- --
Issuance of
common stock
for cash and
stockholder
notes.......... -- -- -- -- 2,100,000 2,000 208,000 -- (118,000) --
Issuance of
common stock in
connection with
Assignment
Agreement...... -- -- -- -- 58,000 -- 6,000 -- -- --
Issuance of
Series A
preferred
stock.......... -- -- 3,470,000 3,000 -- -- 5,202,000 -- -- --
Conversion of
notes payable
into Series A
preferred
stock.......... -- -- 1,783,334 2,000 -- -- 2,673,000 -- -- --
Issuance of
Series B
preferred
stock, net of
issuance costs
of $28,000..... 4,100,000 4,000 -- -- -- -- 10,218,000 -- -- --
Deferred stock
compensation--
option grants.. -- -- -- -- -- -- 1,646,000 -- -- (1,646,000)
Amortization of
deferred stock
compensation... -- -- -- -- -- -- -- -- 655,000
Repayment of
stockholder
notes.......... -- -- -- -- -- -- -- -- 30,000 --
Net loss for the
period......... -- -- -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ ----------- ----------- -------- ------------
Balance at
December 31,
1998........... 4,100,000 4,000 5,253,334 5,000 2,158,000 2,000 19,953,000 (88,000) (991,000)
Issuance of
Series A
preferred stock
(Unaudited).... -- -- 1,113,334 1,000 -- -- 1,669,000 -- -- --
Issuance of
Series B
preferred stock
(Unaudited).... 1,900,000 2,000 -- -- -- -- 4,748,000 -- -- --
Imputed
beneficial
conversion
dividends on
preferred stock
(Unaudited).... -- -- -- -- -- -- 7,755,000 -- -- --
Issuance of
common stock
for stockholder
notes
(Unaudited).... -- -- -- -- 160,000 -- 16,000 -- (16,000) --
Issuance of
common stock in
connection with
Assignment
Agreement and
settlement
agreement
(Unaudited).... -- -- -- -- 340,000 1,000 1,568,000 -- -- --
Exercise of
stock options
(Unaudited).... -- -- -- -- 285,458 -- 31,000 -- -- --
Repurchase of
unvested common
stock at
original issue
price
(Unaudited).... -- -- -- -- (5,833) -- (1,000) -- -- --
Deferred stock
compensation
(Unaudited).... -- -- -- -- -- -- 10,751,000 -- -- (10,751,000)
Amortization of
deferred stock
compensation
(Unaudited).... -- -- -- -- -- -- -- -- -- 6,387,000
Forfeiture of
stock options--
reduction of
unamortized
deferred stock
compensation
(Unaudited).... -- -- -- -- -- -- (587,000) -- -- 587,000
Issuance of
warrants as
deferred sales
discount
(Unaudited).... -- -- -- -- -- -- 2,545,000 (2,545,000) -- --
Amortization of
deferred sales
discount
(Unaudited).... -- -- -- -- -- -- -- 2,413,000 -- --
Repayment of
stockholder
notes
(Unaudited).... -- -- -- -- -- -- -- -- 39,000 --
Net loss for the
period
(Unaudited).... -- -- -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ ----------- ----------- -------- ------------
Balance at
September 30,
1999
(Unaudited).... 6,000,000 $6,000 6,366,668 $6,000 2,937,625 $3,000 $48,448,000 $ (132,000) $(65,000) $ (4,768,000)
========= ====== ========= ====== ========= ====== =========== =========== ======== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
------------- -------------
<S> <C> <C>
Net loss during
the period June
27, 1997
(inception)
through
December 31,
1997........... $ (958,000) $ (958,000)
------------- -------------
Balance at
December 31,
1997........... (958,000) (958,000)
Issuance of
common stock
for cash and
stockholder
notes.......... -- 92,000
Issuance of
common stock in
connection with
Assignment
Agreement...... -- 6,000
Issuance of
Series A
preferred
stock.......... -- 5,205,000
Conversion of
notes payable
into Series A
preferred
stock.......... -- 2,675,000
Issuance of
Series B
preferred
stock, net of
issuance costs
of $28,000..... -- 10,222,000
Deferred stock
compensation--
option grants.. -- --
Amortization of
deferred stock
compensation... -- 655,000
Repayment of
stockholder
notes.......... -- 30,000
Net loss for the
period......... (7,542,000) (7,542,000)
------------- -------------
Balance at
December 31,
1998........... (8,500,000) 10,385,000
Issuance of
Series A
preferred stock
(Unaudited).... -- 1,670,000
Issuance of
Series B
preferred stock
(Unaudited).... -- 4,750,000
Imputed
beneficial
conversion
dividends on
preferred stock
(Unaudited).... (7,755,000) --
Issuance of
common stock
for stockholder
notes
(Unaudited).... -- --
Issuance of
common stock in
connection with
Assignment
Agreement and
settlement
agreement
(Unaudited).... -- 1,569,000
Exercise of
stock options
(Unaudited).... -- 31,000
Repurchase of
unvested common
stock at
original issue
price
(Unaudited).... -- (1,000)
Deferred stock
compensation
(Unaudited).... -- --
Amortization of
deferred stock
compensation
(Unaudited).... -- 6,387,000
Forfeiture of
stock options--
reduction of
unamortized
deferred stock
compensation
(Unaudited).... -- --
Issuance of
warrants as
deferred sales
discount
(Unaudited).... -- --
Amortization of
deferred sales
discount
(Unaudited).... -- 2,413,000
Repayment of
stockholder
notes
(Unaudited).... -- 39,000
Net loss for the
period
(Unaudited).... (15,528,000) (15,528,000)
------------- -------------
Balance at
September 30,
1999
(Unaudited).... $(31,783,000) $11,715,000
============= =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
NEOPOINT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1997 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1998 1998 1999
-------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(958,000) $(7,542,000) $(4,814,000) $(15,528,000)
Adjustments to
reconcile net loss to
net cash used by
operating activities:
Depreciation and
amortization......... 13,000 294,000 220,000 490,000
Amortization of
deferred stock
compensation and
other stock-based
awards............... -- 655,000 392,000 7,956,000
Non-cash sales
discount............. -- -- -- 2,413,000
Changes in operating
assets and
liabilities:
Accounts receivable.. (18,000) (138,000) (147,000) (15,986,000)
Inventory............ -- (40,000) -- (154,000)
Prepaid expenses and
other current
assets.............. (55,000) (478,000) (302,000) (530,000)
Accounts payable..... 301,000 94,000 171,000 604,000
Accounts payable to
related parties..... 83,000 -- 14,502,000
Accrued sales
allowances.......... -- -- -- 1,422,00
Accrued compensation
and related
expenses............ 147,000 277,000 185,000 (48,000)
Other accrued
liabilities......... 8,000 342,000 294,000 2,905,000
--------- ----------- ----------- ------------
Net cash used by
operating
activities......... (562,000) (6,453,000) (4,001,000) (1,954,000)
--------- ----------- ----------- ------------
Cash flows from
investing activities:
Purchases of property
and equipment......... (396,000) (363,000) (327,000) (747,000)
Purchases of held-to-
maturity marketable
securities............ -- -- -- (712,000)
Deferred license fee
payments.............. -- -- -- (373,000)
Other assets, net...... (77,000) (93,000) (117,000) 33,000
--------- ----------- ----------- ------------
Net cash used by
investing
activities......... (473,000) (456,000) (444,000) (1,799,000)
--------- ----------- ----------- ------------
Cash flows from
financing activities:
Proceeds from issuance
of long-term debt..... 1,775,000 1,000,000 1,000,000 --
Repayment of long-term
debt.................. -- -- -- (100,000)
Proceeds from issuance
of common stock....... -- 98,000 98,000 --
Proceeds from stock
option exercises...... -- -- -- 31,000
Net proceeds from
issuance of preferred
stock................. -- 15,427,000 4,965,000 6,420,000
Repurchase of common
stock................. -- -- -- (1,000)
Proceeds from repayment
of stockholder notes.. -- 30,000 16,000 39,000
Repayment of
obligations under
capital leases........ -- (191,000) (124,000) (191,000)
--------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 1,775,000 16,364,000 5,955,000 6,198,000
--------- ----------- ----------- ------------
Net increase in cash and
cash equivalents....... 740,000 9,455,000 1,510,000 2,445,000
Cash and cash
equivalents at
beginning of period.. -- 740,000 740,000 10,195,000
--------- ----------- ----------- ------------
Cash and cash
equivalents at end of
period................. $ 740,000 $10,195,000 $ 2,250,000 $ 12,640,000
========= =========== =========== ============
Supplemental cash flow
information:
Cash paid for
interest............. $ -- $ 27,000 $ 7,000 $ 38,000
Supplemental disclosure
of non-cash investing
and financing
transactions:
Issuance of common
stock for stockholder
notes................ -- 118,000 118,000 16,000
Conversion of notes
payable into
preferred stock...... -- 2,675,000 2,675,000 --
Property and equipment
acquired under
capital leases....... -- 583,000 280,000 142,000
Issuance of warrants
as deferred sales
discount............. -- -- -- 2,545,000
Imputed beneficial
conversion dividends
on
preferred stock...... -- -- -- 7,755,000
</TABLE>
See accompanying notes.
F-6
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
NOTE 1--DESCRIPTION OF BUSINESS
NeoPoint, Inc. (the "Company"), a California Corporation, was
incorporated on June 27, 1997. The Company designs, manufacturers under
subcontract, and markets wireless Internet "SmartPhones" for the mobile data
communications market and also provides engineering and consulting services to
wireless infrastructure equipment vendors and carriers. Additionally, through
its myAladdin.com website portal announced to the marketplace in November 1999,
the Company markets personalized data services that integrate wireless mobile
devices with the Internet.
During the nine months ended September 30, 1999, the Company emerged from
the development stage, as defined in Statement of Financial Accounting
Standards ("SFAS") No. 7.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the Company
and its branch research and development office located in Seoul, Korea.
Activities performed by the branch are a direct and integral extension of the
Company's primary business and are accounted for within the Company's corporate
records without consolidation. Accordingly, no foreign currency translation is
reflected in the accompanying financial statements as management considers the
functional currency of this branch to be that of the United States dollar.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 are unaudited. These unaudited
financial statements have been prepared on the same basis as the audited
financial statements, and in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, that are
necessary to state fairly the financial information for the interim periods, in
accordance with generally accepted accounting principles. The results of
operations for the interim period ended September 30, 1999 are not necessarily
indicative of the results which may be reported for any future interim period
or for the year ending December 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the financial statement
date, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, money market funds and
certificates of deposit having maturities of three months or less when
purchased.
MARKETABLE SECURITIES
Marketable securities at September 30, 1999 consist of a single
certificate of deposit that matures in May 2000, one year from its original
date of purchase. This investment is classified as held-to-maturity at
September 30, 1999 and is recorded at its amortized cost.
F-7
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment, net of accrued
sales allowances. Revenues derived under engineering service contracts,
consisting principally of time and material-type arrangements, are recognized
as the services are performed.
WARRANTY RESERVES
The Company provides a warranty on its SmartPhones for a period that
generally extends one year from the date of sale to final consumers. The
Company recognizes warranty expense as products are shipped based upon
management's estimate of future warranty returns and repair costs over the
warranty period. Warranty reserves are included within other accrued
liabilities in the accompanying balance sheet at September 30, 1999.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis. Inventories at December 31, 1998 and
September 30, 1999 consist principally of products and accessories that are
classified as finished goods.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets, generally
three to five years. Leasehold improvements are amortized using the straight-
line method over the shorter of their estimated useful lives or the term of the
lease. Expenditures for maintenance and repairs are charged to operations as
incurred.
LICENSE FEES
Up-front license fees paid in order to obtain rights to certain
technologies are deferred and amortized using the straight-line method over the
shorter of the related term of the license agreement or the estimated useful
life of the related licensed technology, currently ranging from two to five
years. Accumulated amortization of deferred license fees totaled $58,000 at
September 30, 1999. Through December 31, 1998, no license fees had been paid by
the Company. Certain of the license agreements to which the Company is party
also require the Company to pay per-unit royalties based on the number of
product units sold. Such fees are recorded as a component of cost of revenues
when the related sale occurs.
LONG-LIVED ASSETS
The Company investigates potential impairments of its long-lived assets
when there is evidence that events or changes in circumstances may have made
recovery of an asset's carrying value unlikely. An impairment loss is
recognized when the sum of the expected undiscounted future cash flows is less
than the carrying amount of the asset. The Company has not identified any such
losses.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
WEBSITE DEVELOPMENT COSTS
Costs relating to the development of the Company's myAladdin.com website
portal and corporate website are expensed as incurred.
F-8
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense totaled
$21,000 and $369,000 during 1998 and during the nine months ended September 30,
1999, respectively. No advertising costs were incurred during the period from
June 27, 1997 (inception) to December 31, 1997.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
marketable securities and trade accounts receivable. The Company's policy is to
place its cash and cash equivalents and marketable securities with high quality
financial institutions in order to limit its credit exposure. The Company
performs ongoing credit evaluations of its customers and assesses the need for
allowances based on factors surrounding the credit risk of specific customers,
historical trends and other information. Customer collateral is generally not
required. To date, the Company's customer base has been comprised principally
of companies concentrated within the cellular telephone subscriber and related
wireless industry segments. The Company has not provided for any anticipated
credit losses at December 31, 1997 and 1998, or at September 30, 1999, as all
accounts receivable amounts are considered by management to be fully
collectible.
To date, a relatively small number of customers have accounted for a
significant portion of the Company's revenues. During 1998, three customers
individually accounted for 30%, 26% and 25% of the Company's total net
revenues, and 25% of the Company's total net revenues were derived from
customers located outside the United States. During the nine months ended
September 30, 1999, one customer--Sprint PCS--accounted for 94% of the
Company's total net revenues, and 2% of the Company's total net revenues were
derived from customers located outside the United States.
At December 31, 1998, two customers individually comprised 73% and 18% of
the Company's total accounts receivable balance, respectively. At September 30,
1999, one customer--Sprint PCS--accounted for approximately 96% of the
Company's total accounts receivable balance.
SIGNIFICANT SUPPLIERS
To date, the Company has procured substantially all of its SmartPhone
handsets and related accessories from two entities that are also related
parties to the Company (Note 9). It is the opinion of Company management that
other suppliers could provide similar products on comparable terms. A change in
suppliers or disruption by existing suppliers, however, could cause delays in
service that could adversely affect the Company's financial position, results
of operations and cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts shown for cash and cash equivalents, marketable
securities and notes receivable from officer approximate their fair values
based upon the relatively short-term maturities of these instruments.
Management also believes that the carrying amounts shown for long-term debt,
consisting principally of convertible promissory notes at December 31, 1997,
also approximate their fair values based upon the relatively short-term
maturities of these instruments prior to their conversion into preferred stock
in 1998.
F-9
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," and
provides pro forma disclosures of net loss as if the minimum value method had
been applied in measuring compensation expense in accordance with SFAS 123,
"Accounting for Stock-Based Compensation." Under APB 25, compensation cost is
recognized over the vesting period based on the excess, if any, on the date of
grant of the estimated fair value of the Company's stock over the employee's
exercise price. When the exercise price of the employee stock options is less
than the fair value of the underlying stock on the grant date, deferred stock
compensation is recognized and amortized to expense in accordance with the
aggregation methodology prescribed by Financial Accounting Standards Board
("FASB") Interpretation No. 28 over the vesting period of the individual
options, which is generally four years. Stock-based awards issued to non-
employees are measured using fair value-based methods and are expensed over the
period services are provided.
INCOME TAXES
Current income tax expense or benefit is the amount of income taxes
expected to be payable or refundable for the current year. A deferred income
tax asset or liability is computed for the expected future impact of
differences between the financial reporting and tax basis of assets and
liabilities and for the expected future tax benefit to be derived from tax
credits and loss carryforwards. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
NET LOSS PER SHARE AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY (DEFICIT)
The Company calculates net loss per share in accordance with SFAS 128,
"Earnings Per Share." Basic earnings per share ("EPS") is calculated by
dividing the income or loss available to common stockholders by the weighted
average number of common shares outstanding for the period, without
consideration for common stock equivalents. Diluted EPS is computed by dividing
the income or loss available to common stockholders by the weighted average
number of common shares outstanding for the period in addition to the weighted
average number of common stock equivalents outstanding for the period. For
purposes of this calculation, common stock subject to repurchase by the
Company, convertible preferred stock, options, warrants and convertible debt
are considered to be common stock equivalents. Under the provisions of SEC
Staff Accounting Bulletin No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
The unaudited pro forma basic and diluted net loss per share calculations
assume the conversion of all outstanding shares of preferred stock into common
shares as if the shares had converted immediately upon their issuance. As a
result, imputed beneficial conversion dividends on preferred stock are not
reflected as an increase to net loss in the pro forma calculations. Unaudited
pro forma stockholders' equity at September 30, 1999, as adjusted for the
conversion of the preferred stock, is disclosed on the accompanying balance
sheet.
F-10
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1997 PRO FORMA NINE MONTHS ENDED SEPTEMBER 30,
(INCEPTION) TO YEAR ENDED YEAR ENDED ---------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, PRO FORMA
1997 1998 1998 1998 1999 1999
-------------- ------------ ------------ ----------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Net loss............... $(958,000) $(7,542,000) $(7,542,000) $(4,814,000) $(15,528,000) $(15,528,000)
Imputed beneficial
conversion dividends
on preferred stock.... -- -- -- -- (7,755,000) --
--------- ----------- ----------- ----------- ------------ ------------
$(958,000) $(7,542,000) $(7,542,000) $(4,814,000) $(23,283,000) $(15,528,000)
========= =========== =========== =========== ============ ============
Denominator:
Weighted average common
shares outstanding.... -- 1,460,000 1,460,000 1,211,778 2,377,428 2,377,428
Weighted average
unvested common shares
subject to
repurchase............ -- (555,333) (555,333) (480,629) (579,774) (579,774)
Assumed weighted
average number of
shares upon conversion
of preferred stock.... -- -- 3,371,195 -- -- 10,576,470
--------- ----------- ----------- ----------- ------------ ------------
-- 904,667 4,275,862 731,149 1,797,654 12,374,124
========= =========== =========== =========== ============ ============
Net loss per share
(basic and diluted).... $ -- $ (8.34) $ (1.76) $ (6.58) $ (12.95) $ (1.25)
========= =========== =========== =========== ============ ============
</TABLE>
The Company reported a net loss during the period from June 27, 1997
(inception) to December 31, 1997, 1998 and during the nine months ended
September 30, 1998 and 1999. Accordingly, common stock equivalents totaling
1,116,667 shares, 9,179,034 shares, 13,780,534 shares and 18,635,971 shares at
December 31, 1997, September 30, 1998, December 31, 1998 and September 30,
1999, respectively, have been excluded from the computation since their effect
would be antidilutive.
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the reporting and
display of comprehensive income (loss) and its components. The Company's
comprehensive loss is the same as its net loss for all periods presented.
SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS 131 establishes
standards for reporting information about operating segments in annual
financial statements and requires disclosure of selected information about
operating segments to stockholders. The statement also establishes standards
for related disclosures about products and services, geographic areas and
customer concentrations. Under SFAS 131, operating segments are determined
consistent with the way that management organizes and evaluates financial
information internally for making operating decisions and assessing
performance. The Company's operating segment
F-11
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
information is disclosed in Note 10, whereas significant customer and
geographic concentrations are disclosed under the caption "Concentration of
Credit Risk" elsewhere in this footnote.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current period presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for hedging
activities. In May 1999, the FASB voted to delay the effective date of SFAS
133 by one year, meaning that the Company will be required to adopt this
standard in 2001. The Company has not used any derivative instruments to date.
Management does not anticipate that the adoption of this new standard will
have a significant effect on the financial position or results of operations
of the Company.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software........... $160,000 $ 645,000 $1,121,000
Production and test equipment............. 236,000 682,000 980,000
Leasehold improvements.................... -- -- 45,000
Furniture, office equipment and other..... -- 15,000 85,000
-------- ---------- ----------
396,000 1,342,000 2,231,000
Less: accumulated depreciation and
amortization............................. (13,000) (308,000) (740,000)
-------- ---------- ----------
$383,000 $1,034,000 $1,491,000
======== ========== ==========
</TABLE>
NOTE 4--LONG-TERM DEBT
Long term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
---------- --------
<S> <C> <C>
Convertible promissory note bearing interest at 6.23%;
converted into Series A preferred stock in April 1998..... $ 175,000 $ --
Convertible promissory note bearing interest at 5.84%;
converted into Series A preferred stock in April 1998..... 1,500,000 --
Note payable to a member of the Board of Directors bearing
interest at 6.23%; payable in annual installments from
December 31, 2000 through December 31, 2002; prepaid in
May 1999 (Note 9)......................................... 100,000 100,000
---------- --------
$1,775,000 $100,000
========== ========
</TABLE>
F-12
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
In February 1998, the Company issued a convertible promissory note in
exchange for cash of $1,000,000. In April 1998, in connection with the private
placement of Series A preferred stock, this note along with previously
outstanding convertible promissory notes aggregating $2,675,000 were converted
into 1,783,334 shares of Series A preferred stock at $1.50 per share (Note 6).
NOTE 5--COMMITMENTS
The Company leases its facilities, vehicles and certain office equipment
under noncancelable operating leases that expire on various dates through 2003,
certain of which contain provisions for increasing minimum annual rental
amounts. The Company recognizes rent expense on a straight-line basis and
records the excess of cumulative rent expense over amounts paid as a deferred
rent liability. Rent expense under operating leases totaled $16,000 and
$332,417 during the period from July 27, 1997 (inception) to December 31, 1997
and during 1998, respectively.
The Company is also party to certain capital equipment leases that mature
on various dates through 2001. Such leases are generally collateralized by the
underlying equipment and deposits held by the leasing companies. The cost and
accumulated amortization of equipment under these capital leases at December
31, 1998 totaled $583,000 and $89,000, respectively. No capital leases existed
at December 31, 1997.
Future minimum lease payments under operating and capital leases are as
follows at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1999....................................................... $650,000 $258,000
2000....................................................... 196,000 165,000
2001....................................................... 39,000 18,000
2002....................................................... 27,000 --
2003....................................................... 13,000 --
-------- --------
Total minimum lease payments............................... $925,000 441,000
========
Less amount representing interest.......................... (50,000)
--------
Present value of minimum lease payments.................... 391,000
Less current portion of obligations under capital leases... (220,000)
--------
Long-term portion of obligations under capital leases...... $171,000
========
</TABLE>
NOTE 6--STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED STOCK
During 1998, the Company issued an aggregate of 5,253,334 shares of
Series A preferred stock for $1.50 per share, in exchange for cash totaling
$5,205,000 and the conversion of promissory notes totaling $2,675,000 (Note 4).
During the nine months ended September 30, 1999, the Company issued an
aggregate of 1,113,334 additional shares of Series A preferred stock for $1.50
per share.
During 1998, the Company issued an aggregate of 4,100,000 shares of
Series B preferred stock for $2.50 per share. During the nine months ended
September 30, 1999, the Company issued an aggregate of 1,900,000 additional
shares of Series B preferred stock for $2.50 per share.
F-13
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
The holders of Series A and B preferred stock are entitled to cumulative
preferred dividends when, as and if declared by the Company's Board of
Directors at the rate of $0.12 per share of Series A preferred stock and $0.20
per share of Series B preferred stock per annum. No dividends with respect to
any share of preferred stock shall be declared or paid unless at the same time
a proportionate dividend has been paid or declared with respect to the other
preferred stock series. Through December 31, 1998, no dividends have been
declared on any series of preferred stock. In the event of liquidation,
dissolution or winding up of the Company, the holders of preferred stock are
entitled to liquidating distributions, prior, and in preference to any
distributions to holders of common stock, of $1.50 per share with respect to
Series A preferred stock and $2.50 per share with respect to Series B preferred
stock, plus an amount equal to all declared but unpaid dividends. Each share of
preferred stock is convertible at the option of the holder into an equal number
of shares of common stock, subject to customary adjustments to protect against
dilution. Each share of preferred stock shall automatically be converted into
common stock upon the earlier of (i) the date specified by vote or written
consent of the holders of not less than two-thirds of the then-outstanding
shares of Series A and B preferred stock, or (ii) the closing of a firm
commitment underwritten public offering of common stock, as defined. The
holders of preferred stock are entitled to one vote for each common share into
which such preferred shares would convert.
Pursuant to a Series B Conversion Price Agreement (the "Conversion Price
Agreement") executed between the Company and the Series B stockholders, the
ratio of conversion of Series B preferred stock into common stock would have
been subject to adjustment in favor of the holders of the Series B preferred
stock if the Company did not meet certain pre-tax income requirements for
fiscal 1999 or for fiscal 1999 and 2000 combined. On October 1, 1999, the
Conversion Price Agreement was terminated (Note 12).
In connection with the issuance of Series A and B preferred stock during
the nine months ended September 30, 1999, the Company imputed beneficial
conversion dividends totaling $3,246,000 and $4,509,000, respectively,
representing the excess of the estimated aggregate fair value of the underlying
common stock into which the Series A and B preferred stock is convertible over
the aggregate issuance price of the Series A and B preferred shares. These
amounts have been recorded as a charge against the Company's accumulated
deficit in the accompanying financial statements.
COMMON STOCK
During 1998, the Company issued 2,100,000 shares of common stock to its
founder and certain employees for $0.10 per share. Additionally, the Company
issued 58,000 shares of common stock to its founder in exchange for the
founder's assignment of certain intellectual property rights to the Company
(Note 9).
During the nine months ended September 30, 1999, the Company sold 160,000
shares of common stock to certain employees for $0.10 per share. Additionally,
the Company issued 300,000 shares of common stock to a former member of the
Board of Directors in connection with a settlement agreement and 40,000 shares
of common stock to its founder in connection with an amendment to an assignment
agreement (Note 9).
Shares of common stock issued to the founder and certain employees during
1998 and during the nine months ended September 30, 1999 are subject to
repurchase by the Company pursuant to a vesting schedule which extends for a
period of three years from the stockholders' original employment dates. In the
event of termination of employment, the Company has the option to repurchase
the unvested shares at their original
F-14
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
issuance price. At December 31, 1998 and September 30, 1999, 676,389 and
457,361 of the outstanding common shares, respectively, remained subject to
repurchase by the Company.
The common stock that was issued to employees during the nine months
ended September 30, 1999 was issued below the estimated fair value, for
financial reporting purposes, of the stock at the time of issuance. As a
result, the Company recorded deferred compensation in the amount of $714,000
which is being amortized as a charge to expense over the vesting period of the
applicable shares using the aggregation methodology prescribed by FASB
Interpretation No. 28. Such amortization totaled $651,000 during the nine
months ended September 30, 1999.
STOCK OPTIONS
In March 1998, the Board of Directors adopted the Company's 1998 Stock
Option Plan (the "Plan"). The Plan, which is administered by the Board of
Directors, provides for the granting of incentive stock options and
nonstatutory stock options to purchase common stock to employees, members of
the Board of Directors and consultants to the Company. At December 31, 1998,
5,900,000 shares of common stock were issuable under the Plan and 1,472,800
shares of common stock remained available for grant. At September 30, 1999,
6,500,000 shares of common stock were issuable under the Plan, as amended, and
704,625 shares of common stock remained available for grant. Stock options may
be granted under the Plan at a price per share not less than the fair value of
the Company's common stock at the date of grant for incentive stock options
and not less than 85% of the fair value of the Company's common stock at the
date of grant for nonstatutory stock options, which fair values are determined
by the Board of Directors. Options granted under the Plan generally vest
ratably over a period of four years and expire ten years from the date of
grant.
The following table summarizes option activity under the Plan since its
adoption:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
1998 (UNAUDITED)
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period..... -- -- 4,427,200 $0.11
Granted................................ 4,450,200 $0.11 1,879,000 $0.25
Exercised.............................. -- -- (285,458) $0.11
Forfeited.............................. (23,000) $0.10 (510,825) $0.18
--------- ---------
Outstanding at end of period........... 4,427,200 $0.11 5,509,917 $0.15
========= =========
</TABLE>
The following table summarizes information about stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------------ ------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
NUMBER OF LIFE EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES SHARES (YEARS) PRICE SHARES PRICE
- ------------------------ --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.10-$0.11.................. 3,640,292 7.1 $0.10 1,397,886 $0.10
$0.25........................ 1,869,625 7.3 $0.25 725,000 $0.25
--------- ---------
5,509,917 2,122,886
========= =========
</TABLE>
F-15
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
STOCK BASED COMPENSATION
During 1998 and during the nine months ended September 30, 1999, the
Company's stock options were granted to employees with exercise prices below
the estimated fair value, for financial statement purposes, of the underlying
common stock on the date of grant. As a result, the Company recorded deferred
compensation in the amount of $1,532,000 and $5,269,000 during these periods,
respectively. These amounts are being amortized to expense over the vesting
periods of the applicable options using the aggregation methodology prescribed
by FASB Interpretation No. 28. Such amortization totaled $636,000 and
$1,962,000 during 1998 and during the nine months ended September 30, 1999,
respectively.
During 1998 and during the nine months ended September 30, 1999, the
Company granted options to various consultants. Deferred compensation related
to these options totaled $114,000 and $4,768,000 during these periods,
respectively. These amounts are being amortized to expense over the life of the
respective consulting arrangements using the aggregation methodology prescribed
by FASB Interpretation No. 28. Such amortization totaled $19,000 and $3,774,000
during 1998 and during the nine months ended September 30, 1999, respectively.
PRO FORMA DISCLOSURE
Had compensation cost for the Company's stock-based compensation awards
been determined based on the fair value at the grant dates for such awards,
consistent with SFAS 123, the Company's net loss and net loss per common share
would have been as follows for 1998:
<TABLE>
<S> <C>
Net loss:
As reported................................................ $(7,542,000)
Pro forma.................................................. $(7,616,000)
Net loss per common share (basic and diluted):
As reported................................................ $ (8.34)
Pro forma.................................................. $ (8.42)
</TABLE>
The reported results for 1997 would not be impacted as no stock-based
compensation awards were granted during that period. The fair value of each
option grant was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions: dividend yield
of 0%; expected volatility of 0%; risk-free interest rate of 6%; and an
expected option life of 4.0 years. The weighted average fair value of options
granted during 1998 was approximately $0.39 per option.
WARRANTS
On June 4, 1999, the Company granted to Sprint PCS two nonforfeitable
warrants to purchase an aggregate of 759,386 shares of the Company's common
stock in exchange for Sprint PCS' minimum purchase commitment as prescribed by
a CDMA PCS Subscriber Unit Supply Agreement executed between the Company and
Sprint PCS. The first warrant, which entitles Sprint PCS to purchase up to
379,693 shares of common stock at $2.50 per share, was immediately exercisable
on the date of grant and expires on June 4, 2004. The second warrant, which
entitles Sprint PCS to purchase up to 379,693 shares of common stock at $4.00
per share, is exercisable beginning January 1, 2000 and expires on January 1,
2005.
The fair value of the warrants issued to Sprint PCS was estimated to be
$2,545,000 using the Black-Scholes option pricing model with the following
assumptions: dividend yield of 0%; expected volatility of
F-16
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
60%; risk-free interest rate of 6%; and a term of 5 years. This amount is being
recognized on a per-unit basis as a sales discount in connection with the
Company's shipments of product pursuant to Sprint PCS' minimum purchase
commitment. Through September 30, 1999, $2,413,000 of this amount has been
recorded as a sales discount in connection with products shipped to Sprint PCS.
The remaining $132,000 of this amount has been recorded as a deferred sales
discount and will be amortized in connection with the shipment to Sprint PCS of
the remaining products under the minimum commitment.
NOTE 7--EMPLOYEE RETIREMENT PLAN
The Company sponsors an employee retirement plan that qualifies as a
deferred salary arrangement under section 401(k) of the Internal Revenue Code.
Under the retirement plan, participating employees may defer a portion of their
pretax earnings, up to specified limits. Additionally, the Company may elect to
make matching contributions into the retirement plan, subject to Board of
Director approval. To date, the Company has not made any matching contributions
into the retirement plan.
NOTE 8--INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- -----------
<S> <C> <C>
Net operating loss carryforwards.................... $344,000 $ 2,982,000
Research and development credit carryforwards....... 15,000 194,000
Other, net.......................................... 138,000 142,000
-------- -----------
497,000 3,318,000
Valuation allowance................................. (497,000) (3,318,000)
-------- -----------
Net deferred tax assets............................. $ -- $ --
======== ===========
</TABLE>
Based upon the lack of prior earnings history of the Company and based
upon other available evidence, management has recorded a full valuation
allowance against net deferred tax assets. Due to the cumulative losses of the
Company since inception and as a result of the full valuation allowance placed
against net deferred tax assets, no income tax provision or benefit was
recorded during the period from June 27, 1997 (inception) to December 31, 1997
or during 1998.
At December 31, 1998, the Company had federal and state tax net operating
loss carryforwards totaling $7,294,000 and $7,358,000, respectively, which
begin to expire in 2012 and 2005, respectively. The Company also has federal
and state research and development tax credit carryforwards totaling $143,000
and $77,000, respectively. The federal research and development credit
carryforwards will begin to expire in 2012 while the state research and
development credit carryforwards are not subject to an expiration date in
accordance with current state statute.
As a result of the Company's issuance of Series A and B preferred stock
during the nine months ended September 30, 1999, which resulted in a change in
ownership as defined by Sections 382 and 383 of the Internal Revenue Code, the
Company's utilization of net operating loss and research and development credit
carryforwards generated prior to the ownership change will be subject to an
annual limitation on a prospective basis.
F-17
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
NOTE 9--RELATED PARTY TRANSACTIONS
The Company is party to a supply agreement with LG Information &
Communications ("LGIC"), an existing holder of Series A preferred stock, under
which LGIC manufactures SmartPhone handsets for the Company. In accordance with
this agreement, under separately executed purchase orders, the Company procures
from LGIC product for resale to its customers. During the nine months ended
September 30, 1999, purchases from LGIC amounted to $14,905,000. Additionally,
during 1998, the Company paid to LGIC $163,000 for services performed on behalf
of the Company. At December 31, 1998 and September 30, 1999, amounts payable to
LGIC totaled $83,000 and $14,579,000, respectively. Committed future minimum
purchases from LGIC at September 30, 1999 amounted to $4,482,000. None of these
commitments extend beyond one year.
The Company procures substantially all of its SmartPhone handset
accessories from a Company whose sole stockholder and president is a relative
of one of the Company's officers. During the nine months ended September 30,
1999, purchases from this entity amounted to $2,894,000 and, at September 30,
1999, amounts payable to this entity totaled $3,000. During 1998, the Company
paid $70,000 to the entity as a deposit for inventory purchased in 1999. This
amount was included in other current assets at December 31, 1998. Committed
future minimum purchases from this entity at September 30, 1999 amounted to
$1,429,000. None of such commitments extend beyond one year. The Company also
subleases certain space to this entity on a month-to-month basis. Sublease
rental income received from this entity amounted to $22,000 during the nine
months ended September 30, 1999.
During the nine months ended September 30, 1999, the Company entered into
a settlement agreement with a former member of the Board of Directors in
connection with that member's resignation from the Board. In connection with
this agreement, the Company issued to the former Board member 300,000 shares of
common stock having an estimated fair market value for financial reporting
purposes of $1,332,000. This amount was recorded as a charge to operations
during the nine months ended September 30, 1999. The Company also repaid to the
former Board member the outstanding balance associated with a promissory note
(Note 4) in connection with the settlement agreement.
In September 1999, the Company granted to Transpac, an existing holder of
Series A and B preferred stock, a nonforfeitable option to purchase up to
600,000 shares of the Company's common stock at $0.25 per share in return for
certain strategic consulting services being provided by Transpac in connection
with a consulting arrangement that commenced on November 24, 1998 and extends
through December 31, 1999. The option was immediately exercisable on the date
of grant and expires on September 20, 2001. The fair value of this option was
measured on the date of grant and was estimated by management to be $3,425,000
using the Black-Scholes option pricing model with the following assumptions:
dividend yield of 0%; expected volatility of 60%; risk-free interest rate of
6%; and a term of 2 years. This amount is being amortized over the term of the
consulting arrangement as a charge to general and administrative expenses. This
amortization totaled $2,665,000 during the nine months ended September 30,
1999. At September 30, 1999, deferred compensation related to this option
amounted to $770,000.
During 1998, the Company executed an Assignment Agreement with its
founder and President, who is also a significant stockholder, pursuant to which
the Company paid $50,000 and issued 58,000 shares of common stock to the
founder in exchange for the founder's assignment of certain patent and
intellectual property rights to the Company. The Company ascribed $0.10 to
these shares, which approximated the founder's basis in the assigned assets. In
September 1999, the Company and the founder executed
F-18
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
an amendment to the Assignment Agreement in order to remove a contingent
obligation that existed pursuant to this agreement. As consideration for the
removal of the contingent obligation, the Company agreed to pay to the founder
$75,000 and issue to the founder 40,000 shares of common stock having an
estimated fair value for financial reporting purposes of $237,000. The total of
$312,000 was recorded as a charge to operations during the nine months ended
September 30,1999. As of September 30, 1999, the cash portion of this charge
had not yet been paid and is included within other accrued liabilities in the
accompanying balance sheet. The Company has no further obligations under the
Assignment Agreement, as amended.
NOTE 10--SEGMENT INFORMATION
The Company has identified two reportable operating segments based upon
the manner in which management organizes and evaluates financial information
internally for making operating decisions and assessing performance, as
follows:
Products and network services--consists principally of the design and
marketing of SmartPhones for use in mobile wireless networks. Within this
segment, the Company also provides engineering and consulting services to
wireless network carriers, equipment vendors and infrastructure
manufacturers.
myAladdin.com services--provides personalized mobile data information
services that integrate wireless devices with the Internet. This segment
commenced operations during the nine months ended September 30, 1999 and,
to date, has not generated any revenues.
The Company evaluates the performance of its operating segments based on
the determination of operating income or loss, excluding general and
administrative expenditures and expenditures related to the amortization of
deferred compensation and other stock-based awards that are not allocated
directly to the operating segments. The Company does not allocate corporate
assets among its operating segments. The table below presents information
relating to the Company's two reportable operating segments for the nine months
ended September 30, 1999. During the period from June 27, 1997 (inception) to
December 31, 1997 and during 1998, the Company had only one operating segment;
accordingly, disclosure of operating segment information for these periods is
not applicable.
<TABLE>
<CAPTION>
PRODUCTS AND
NETWORK MYALADDIN.COM
NINE MONTHS ENDED SEPTEMBER 30, 1999 SERVICES SERVICES TOTAL
- ------------------------------------ ------------ ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net Revenues........................ $ 23,619,000 $ -- $ 23,619,000
Operating expenditures, excluding
general and administrative
expenditures and expenditures
related to the amortization of
deferred compensation and other
stock-based awards................. (28,047,000) (658,000) (28,705,000)
------------ --------- ------------
Loss from operations, excluding
general and administrative
expenditures and expenditures
related to the amortization of
deferred compensation and other
stock-based awards................. $ (4,428,000) $(658,000) (5,086,000)
============ =========
General and administrative
expenditures and expenditures
related to the amortization of
deferred compensation and other
stock-based awards................. (10,614,000)
------------
Loss from operations................ $(15,700,000)
============
</TABLE>
F-19
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
NOTE 11--LEGAL PROCEEDINGS
In December 1999, Sprint PCS notified us that it had received a letter
claiming that products sold by Sprint PCS utilize technology covered by U.S.
patent 4,473,824 entitled "Price Quotation System." The letter did not
specifically refer to our SmartPhones. At the request of Sprint PCS, we have
assumed responsibility of responding to this letter in accordance with our CDMA
PCS Subscriber Unit Supply Agreement. We are currently evaluating the issue
with Sprint PCS and patent counsel.
On September 28, 1999, a former employee filed a lawsuit in Superior
Court of the State of California, County of San Diego, against the Company and
its president alleging various tort, contract and statutory claims arising out
of an employment dispute. The former employee claims that he is entitled to
receive an aggregate of 150,000 shares of the Company's common stock and
options to acquire an additional 150,000 shares of common stock at an exercise
price of $0.10 per share under the terms of an alleged employment agreement.
The complaint seeks monetary damages of approximately $2.4 million, additional
monetary penalties and punitive damages. In October 1999 the Company filed a
general denial and made affirmative defenses to the former employee's
complaint. We are currently in the process of discovery.
On August 6, 1999, the Company filed a voluntary self-disclosure with the
U. S. Department of Commerce relating to inadvertent exports to Korea of
software requiring an export license for which no export license had been
obtained. The Company has obtained licenses for subsequent export of this
software.
Although the ultimate outcome of the above matters is not presently
determinable, the Company believes that the resolution of all such pending
matters will not have a material adverse affect on the Company's financial
position, results of operations or liquidity; however, there can be no
assurance that the ultimate resolution of these matters will not have a
material impact on the Company's results of operations in any period.
NOTE 12--EVENTS SUBSEQUENT TO SEPTEMBER 30, 1999
On October 1, 1999, the Company terminated the Series B Conversion Price
Agreement (Note 6) upon the unanimous written consent of the Series B
stockholders relinquishing their conversion price rights under that agreement.
In connection with the termination of the Series B Conversion Price Agreement,
the Company issued to Transpac, the majority holder of the Series B preferred
stock, a warrant to purchase 700,000 shares of Series C preferred stock at
$6.00 per share. The warrant expires upon the earlier of January 31, 2001 or
upon the closing of a qualified initial public offering of the Company's
securities, as defined. The fair value of the warrant was measured on the date
of grant and was estimated by management to be $1,618,000 using the Black-
Scholes option pricing model with the following assumptions: dividend yield of
0%; expected volatility of 60%; risk-free interest rate of 6%; and a term of
1.3 years. This amount will be recorded as a beneficial conversion dividend and
charged against the Company's accumulated deficit in October 1999.
On October 7, 1999, in connection with the execution of a Series C
Preferred Stock Purchase Agreement, Siemens Aktiengesellschaft ("Siemens")
agreed to purchase 3,000,000 shares of Series C preferred stock and a warrant
to purchase an additional 1,500,000 shares of Series C preferred stock, for
aggregate consideration of $24,000,000. The warrant entitles Siemens to
purchase the additional shares of Series C preferred stock for $6.00 per share,
was immediately exercisable upon grant, and expires upon the earlier of January
31, 2001 or upon the closing of an initial public offering of the Company's
securities, as defined. On December 3, 1999, the Company consummated the sale
of these securities to Siemens, receiving gross proceeds of $24,000,000. The
Company ascribed $20,460,000 of the proceeds to the Series C preferred
F-20
<PAGE>
NEOPOINT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND
1999, AND INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999, HAS NOT BEEN AUDITED)
stock and $3,540,000 to the warrants, representing the estimated fair value of
the respective securities. The fair value of the warrant was estimated by
management using the Black-Scholes option pricing model with the following
assumptions: dividend yield of 0%; expected volatility of 60%; risk-free
interest rate of 6%; and a term of 1.2 years.
In December 1999, the Company issued to various investors an aggregate of
775,000 additional shares of Series C preferred stock for $8.00 per share,
receiving gross proceeds totaling $6,200,000.
On November 9, 1999, in contemplation of the sale of Series C preferred
stock, the Company amended its existing Articles of Incorporation to increase
the number of authorized shares of preferred and common stock to 30,000,000 and
45,000,000 shares, respectively, and to designate 10,000,000 of the authorized
preferred shares as Series C preferred stock.
On December 4, 1999, the Company granted to LGIC a warrant to purchase
650,000 shares of Series C preferred stock at $8.00 per share. The warrant was
immediately exercisable on the grant date and expires upon the earlier of
January 31, 2001 or upon the closing of an initial public offering of the
Company's securities, as defined. The warrant was granted as consideration for
an amendment to the supply agreement between the Company and LGIC. The fair
value of the warrant was measured on the date of grant and was estimated by
management to be $1,462,000 using the Black-Scholes option pricing model with
the following assumptions: dividend yield of 0%; expected volatility of 60%;
risk-free interest rate of 6%; and a term of 1.2 years. This amount will be
recorded as a deferred charge in December 1999 and will be amortized to cost of
revenues over a period of two years, which management believes to be the
estimated remaining useful term of the supply agreement with LGIC, as amended.
On December 14, 1999, the Company executed a six-year lease for new
corporate facility space, commencing in July 2000. Future minimum commitments
under this lease aggregate $8,436,000 over its term, which will expire in July
2006.
On December 20, 1999, the Company's Board of Directors authorized
management of the Company to file a Registration Statement with the Securities
and Exchange Commission for the Company to sell shares of its common stock in
an initial public offering. Prior to the effective date of the offering
contemplated by this Prospectus, the Company will reincorporate in Delaware.
The accompanying financial statements and related notes have been retroactively
restated to reflect the effect of the planned Delaware reincorporation.
F-21
<PAGE>
INSIDE BACK COVER ARTWORK
At the center of the page is the trademarked myAladdin.com logo -- The
word myAladdin.com is followed by a TM symbol. Underneath is the tagline,
mobile. local. magical. To the right of this line are the words a service of
NeoPoint TM. Centered vertically above this logo are the following partner
logos in order from top to bottom: RadioDigest.com, MasterCard/Cirrus, clickTV,
infospace.com. Centered below myAladdin.com logo are the following partner
logos from top to bottom: Powered by iii, SelectTeeTimes.com, NAVTECH ONBOARD,
GetThere.com, MAPQUEST.COM and onebox.com.
Each of the four corners of the page contain a header, a partial image of
a phone screen and a description. Starting in the upper left hand corner the
header reads entertainment. The phone screen displays a restaurant look-up with
the name of the restaurant, address, phone number and direction option. Text
reads, "JOE'S STEAKHOUSE 1212 Capital Drive Button, OR 90011 1-619-555-7878 2-
Directions." Below the image is the following description, "Whether you're
across town or across the country, myAladdin.com will make sure you feel right
at home." In the upper right hand corner the header reads "financial." The
phone screen displays an example of the closest ATM accepting MasterCard/Cirrus
followed by the name of the bank and address. The text reads "MasterCard ATM,
closest ATMs:, 1. SUN COUNTRY BANK 4309 Vail Place Starwood, NJ 98750 USA
Accepts Mastercard and Cirrus." The description below the image reads "Whether
you're trying to get to your money or get more of it, myAladdin.com can help."
In the lower right hand corner of the page the header reads "travel." The phone
screen is an image of flight information, the specific text reads "AA Flight
#100 ARRIVES: Los Angeles, CA (LAX) Gate: 46B Baggage Claim: 3 Sched. Arr.
Time: 8:35pm (on time)." The description under the image reads "These shortcuts
will take some of the hassle out of going on the road if you're a frequent
flyer." In the bottom left hand corner of the screen the header reads "e-mail"
and the phone image displays an e-mail message. The text on the screen reads
"myAladdin.com TM email, From: Barry Davis, Date: Sunday, 19 Sept, Subj:
Electronic Files--Meeting at 8am tomorrow in NY. Call me tonight." The
description below the image reads "Now you never have to miss a critical e-
mail. Plus you can utilize a host of special routing and reply options."
<PAGE>
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Through and including , (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
NEOPOINT, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
CHASE H&Q
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
, 2000
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by NeoPoint in connection with the distribution
of the securities being registered are as set forth in the following table:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Securities and Exchange Commission Fee.............................. $19,800
NASD Filing Fee..................................................... 8,000
Nasdaq National Market Listing Fee..................................
*Legal Fees and Expenses............................................
*Accounting Fees and Expenses.......................................
*Printing Expenses..................................................
*Blue Sky Fees and Expenses.........................................
*Registrar and Transfer Agent Fees and Expenses.....................
*Miscellaneous......................................................
-------
*Total............................................................ $
=======
</TABLE>
- --------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
NeoPoint's restated certificate of incorporation provides that, to the
fullest extent permitted by Delaware law, as it may be amended from time to
time, no director of NeoPoint shall be liable to NeoPoint or its stockholders
for monetary damages resulting from a breach of fiduciary duty as a director,
except for (i) liability resulting from a breach of the director's duty of
loyalty to NeoPoint and its stockholders, (ii) acts or omissions which are not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) unlawful payment of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law,
or (iv) a transaction from which the director derived an improper personal
benefit. While the restated certificate of incorporation provides directors,
officers, employees and agents with protection from awards for monetary damages
for breaches of their duty of care, it does not eliminate such duty.
Accordingly, the restated certificate of incorporation will have no effect on
the availability of equitable remedies such as an injunction or rescission
based on a breach of such person's duty of care.
NeoPoint's restated certificate of incorporation and the bylaws also
provide mandatory indemnification for the benefit of directors, officers,
employees and agents of NeoPoint to the fullest extent permitted by Delaware
law, as amended from time to time, including most circumstances under which
indemnification otherwise would be discretionary. In addition, NeoPoint has
entered into individual indemnification agreements with each of its directors
and officers providing indemnification benefits. Such indemnification rights
include reimbursement for expenses incurred by such person in advance of the
final disposition of a proceeding in accordance with the applicable provisions
of Delaware law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling NeoPoint pursuant to the foregoing provisions, NeoPoint has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. NeoPoint also will provide directors' and
officers' liability insurance coverage for its directors and officers.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since 1997, the Company has issued and sold unregistered securities as
follows:
(1) During the period from October 1997 to December 1997, NeoPoint
received proceeds totaling $1.5 million and $175,000 from the
issuance of convertible promissory notes to LGIC and Oriens,
respectively. Additionally, in February 1998, NeoPoint received $1
million in proceeds from the issuance of an additional convertible
promissory note to LGIC. These notes were converted into Series A
preferred stock as set forth in paragraphs 2 and 3 below.
(2) In October 1997, NeoPoint received a commitment from LGIC to
purchase an aggregate of 5,333,334 shares of Series A preferred
stock for $1.50 per share. In April 1998, NeoPoint issued to LGIC an
aggregate of 2,666,667 shares of Series A preferred stock in
exchange for cash totaling $1.5 million and the conversion of
promissory notes totaling $2.5 million. Additionally, NeoPoint
issued LGIC 1,440,000 million shares of Series A preferred stock in
September 1998, 160,000 shares of Series A preferred stock in
November 1998 and 1,066,667 shares of Series A preferred stock in
May 1999 for aggregate proceeds totaling $4.0 million.
(3) In June and July 1998, NeoPoint sold an aggregate of 916,667 shares
of Series A preferred stock to Transpac Capital Pte Ltd., Oriens
Investment & Advisory Ltd. and Platane Trust in exchange for cash
totaling $1.2 million and the conversion of promissory notes
totaling $175,000. Oriens Investment & Advisory Ltd. subsequently
purchased an additional 70,000 shares of Series A preferred stock in
August 1998 and 46,667 shares of Series A preferred stock in May
1999 for aggregate proceeds totaling $175,000.
(4) In April 1998, NeoPoint sold to certain employees an aggregate of
2.1 million shares of founders common stock for $0.10 per share, 1.5
million shares of which were sold to Mr. William Y. Son. In May
1999, NeoPoint sold to certain employees an additional 160,000
shares of founders common stock for $.10 per share. In September
1999, NeoPoint repurchased 5,833 shares of founders common stock for
$.10 per share.
(5) In February 1998, in connection with an Assignment Agreement between
NeoPoint and Mr. William Y. Son, NeoPoint issued to Mr. Son 58,000
shares of common stock. In September 1999, in connection with an
amendment to this agreement, NeoPoint issued an additional 40,000
shares of common stock to Mr. Son.
(6) In November 1998, NeoPoint issued to Transpac and another investor
an aggregate of 4.1 million shares of Series B preferred stock for
aggregate proceeds of $10.3 million. In June and July 1999, NeoPoint
issued an additional 1.9 million shares of Series B preferred stock
to Transpac Nominees Pte Ltd. and other investors for aggregate
proceeds totaling $4.8 million.
(7) In May 1999, in connection with a settlement agreement, the Company
issued to a former member of the board of directors 300,000 shares
of common stock in connection with that member's resignation from
the board of directors.
(8) In June 1999, in connection with the execution of the CDMA PCS
Subscriber Unit Supply Agreement with Sprint PCS, NeoPoint issued to
Sprint PCS two warrants to purchase an aggregate of 759,386 shares
of its common stock. The first warrant entitles Sprint PCS to
purchase 379,693 shares of common stock for $2.50 per share and the
second warrant entitles Sprint PCS to purchase 379,693 shares of
common stock for $4.00 per share.
(9) In October 1999, in connection with the termination of a Series B
Conversion price agreement with Transpac and other investors,
NeoPoint issued to Transpac a warrant to purchase an aggregate of
700,000 shares of Series C preferred stock for $6.00 per share.
(10) In December 1999, NeoPoint issued Siemens Aktengesellschaft
3,000,000 shares of Series C preferred stock and a warrant to
purchase 1.5 million shares of Series C preferred stock for
aggregate consideration of $24.0 million. This warrant entitles
Siemens to purchase an additional 1,500,000 shares of Series C
preferred stock for $6.00 per share.
II-2
<PAGE>
(11) In December 1999, NeoPoint issued an aggregate of 775,000
additional shares of Series C preferred stock to various investors
for aggregate proceeds of $6.2 million.
(12) In December 1999, in connection with the execution of an amendment
to the LGIC Research, Development and Distribution Agreement,
NeoPoint issued LGIC a warrant to purchase an aggregate of 650,000
shares of Series C preferred stock for $8.00 per share.
(13) As of December 31, 1999, NeoPoint has issued an aggregate of
1,250,066 shares of common stock through the exercise of stock
options. As of December 31, 1999, NeoPoint has outstanding stock
options to employees, officers, directors and consultants to
purchase an aggregate of 4,855,048 shares of common stock at a
weighted average exercise price of $0.24.
The sales of the securities listed in paragraphs (1) through (12) above
were made in reliance upon Section 4(2) of the Securities Act, which provides
exemptions for transactions not involving a public offering. The purchasers of
securities described above represented that they acquired them for their own
account and not with a view to any distribution thereof to the public. NeoPoint
made inquiries of purchasers of securities in these transactions and obtained
representations from such purchasers to establish that such issuances qualified
for an exemption from the registration requirements. The certificates
evidencing the securities bear legends stating that the shares 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 issuances of the options described in paragraph (13) above
were exempt from registration under the Securities Act pursuant to Rule 701
promulgated thereunder, on the basis that the stock options were issued
pursuant to the terms and conditions provided by Rule 701. NeoPoint did not
retain underwriters in connection with the issuance of any of the Company's
currently outstanding securities.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1(2) Form of Underwriting Agreement.
3.1(1) Certificate of Incorporation of NeoPoint, Inc.
3.2(1) Bylaws of NeoPoint, Inc.
4.1(2) Form of Specimen Common Stock Certificate for NeoPoint, Inc.
5.1(2) Opinion of Latham & Watkins.
10.1(1) 1998 Innovative Global Solution, Inc. Stock Option Plan
10.2(2) 2000 NeoPoint, Inc. Equity Incentive Plan
10.3(2) NeoPoint, Inc. Employee Stock Purchase Plan
10.4(1) CDMA PCS Subscriber Unit Supply Agreement by and between Sprint
Spectrum Equipment Company, L.P. and NeoPoint, Inc. dated as of June
4, 1999 *
10.5(1) Research, Development and Distribution Agreement by and between LG
Electronics Inc. and Innovative Global Solution, Inc. dated as of
February 17, 1998, as amended September 1, 1999 *
10.6(1) Subscriber Unit License Agreement by and between QUALCOMM
Incorporated and NeoPoint, Inc. dated as of September 23, 1999, as
amended September 23, 1999 *
10.7(1) Strategic Partnership Agreement by and between GRIP, Inc. d.b.a.
Select Tee Times and NeoPoint, Inc. dated as of September 10, 1999*
10.8(1) Consulting Agreement by and between Transpac Nominees Pte Ltd. and
the Company dated as of September 20, 1999
10.9(1) Stock Subscription Warrant by and between Sprint Spectrum L.P. and
NeoPoint, Inc. dated as of June 4, 1999
10.10(1) Stock Subscription Warrant by and between Sprint Spectrum L.P. and
NeoPoint, Inc. dated as of June 4, 1999
10.11(1) Series C Preferred Stock Purchase Warrant by and between Transpac
Nominees Pte Ltd. and NeoPoint, Inc. dated as of October 1, 1999
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.12(1) Series C Preferred Stock Purchase Warrant by and between Siemens
Aktiengesellschaft and NeoPoint, Inc. dated as of December 3, 1999
10.13(1) Series C Preferred Stock Purchase Warrant by and between LG
Information & Communications, Ltd. dated as of December 4, 1999
10.14(1) Founder Stock Purchase Agreement by and between William Y. Son and
Innovative Global Solution, Inc. dated as of April 28, 1998
10.15(1) Assignment Agreement by and between William Y. Son and Innovative
Global Solution, Inc. dated as of February 27, 1998
10.16(1) Promissory Note by and between William Y. Son and Innovative Global
Solution, Inc. dated as of April 6, 1998
10.17(1) Promissory Note by and between William Y. Son and Innovative Global
Solution, Inc. dated as of April 15, 1999
10.18(1) Second Amended and Restated Investors' Rights Agreement by and among
William Y. Son, the Investors (as defined in the Agreement) and
NeoPoint, Inc. dated as of October 7, 1999
10.19(1) Product Development Agreement by and between NexCom Korea and
NeoPoint, Inc. dated as of July 22, 1999*
23.1(1) Consent of Ernst & Young LLP
23.2(2) Consent of Latham & Watkins (included in Exhibit 5.1)
24.1(1) Powers of Attorney (contained on the signature page of this
Registration Statement)
27.1(1) Financial Data Schedule
</TABLE>
- --------
(1) Filed herewith.
(2) To be filed by amendment.
* The Company is seeking confidential treatment with respect to portions of
this exhibit.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit promptly 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
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San Diego,
state of California, on January 11, 2000.
NEOPOINT, INC.
By: /s/
William Y. Son
-----------------------------------
William Y. Son
Chairman, Chief Executive Officer
and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint William Y. Son and Matthew
Gettinger, and each of them, with full power of substitution and full power to
act without the other, his or her true and lawful attorney-in-fact and agent to
act for him or her in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, any and all registration statements
filed pursuant to Rule 462(b) of the Securities Act of 1933 (including post-
effective amendments) and to file this Registration Statement, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in order to effectuate
the same as fully, to all intents and purposes, as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by each of the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William Y. Son Chairman, Chief Executive Officer January 11, 2000
____________________________________ and President
William Y. Son
/s/ Gregory M. Decker Vice President, Finance & January 11, 2000
____________________________________ Administration (Principal
Gregory M. Decker Financial Officer and Principal
Accounting Officer)
/s/ Eric Campbell Director January 11, 2000
____________________________________
Eric Campbell
/s/ Swan Chen Director January 11, 2000
____________________________________
Swan Chen
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Pyoung Won Suh Director January 11, 2000
____________________________________
Pyoung Won Suh
/s/ Peter Zapf Director January 11, 2000
____________________________________
Peter Zapf
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1(2) Form of Underwriting Agreement
3.1(1) Certificate of Incorporation of NeoPoint, Inc.
3.2(1) Bylaws of NeoPoint, Inc.
4.1(2) Form of Specimen Common Stock Certificate for NeoPoint, Inc.
5.1(2) Opinion of Latham & Watkins
10.1(1) 1998 Innovative Global Solution, Inc. Stock Option Plan
10.2(2) 2000 NeoPoint, Inc. Equity Incentive Plan
10.3(2) NeoPoint, Inc. Employee Stock Purchase Plan
10.4(1) CDMA PCS Subscriber Unit Supply Agreement by and between Sprint
Spectrum Equipment Company, L.P. and NeoPoint, Inc. dated as of June
4, 1999 *
10.5(1) Research, Development and Distribution Agreement by and between LG
Electronics Inc. and Innovative Global Solution, Inc. dated as of
February 17, 1998, as amended September 1, 1999 *
10.6(1) Subscriber Unit License Agreement by and between QUALCOMM
Incorporated and NeoPoint, Inc. dated as of September 23, 1999, as
amended September 23, 1999 *
10.7(1) Strategic Partnership Agreement by and between GRIP, Inc. d.b.a.
Select Tee Times and NeoPoint, Inc. dated as of September 10, 1999*
10.8(1) Consulting Agreement by and between Transpac Nominees Pte Ltd. and
the Company dated as of September 20, 1999
10.9(1) Stock Subscription Warrant by and between Sprint Spectrum L.P. and
NeoPoint, Inc. dated as of June 4, 1999
10.10(1) Stock Subscription Warrant by and between Sprint Spectrum L.P. and
NeoPoint, Inc. dated as of June 4, 1999
10.11(1) Series C Preferred Stock Purchase Warrant by and between Transpac
Nominees Pte Ltd. and NeoPoint, Inc. dated as of October 1, 1999
10.12(1) Series C Preferred Stock Purchase Warrant by and between Siemens
Aktiengesellschaft and NeoPoint, Inc. dated as of December 3, 1999
10.13(1) Series C Preferred Stock Purchase Warrant by and between LG
Information & Communications, Ltd. dated as of December 4, 1999
10.14(1) Founder Stock Purchase Agreement by and between William Y. Son and
Innovative Global Solution, Inc. dated as of April 28, 1998
10.15(1) Assignment Agreement by and between William Y. Son and Innovative
Global Solution, Inc. dated as of February 27, 1998 as amended
September 20, 1990
10.16(1) Promissory Note by and between William Y. Son and Innovative Global
Solution, Inc. dated as of April 6, 1998
10.17(1) Promissory Note by and between William Y. Son and Innovative Global
Solution, Inc. dated as of April 15, 1999
10.18(1) Second Amended and Restated Investors' Rights Agreement by and among
William Y. Son, the Investors (as defined in the Agreement) and
NeoPoint, Inc. dated as of October 7, 1999
10.19(1) Product Development Agreement by and between NexCom Korea and
NeoPoint, Inc. dated as of July 22, 1999*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
23.1(1) Consent of Ernst & Young LLP
23.2(2) Consent of Latham & Watkins (included in Exhibit 5.1)
Powers of Attorney (contained on the signature page of this
24.1(1) Registration Statement)
27.1(1) Financial Data Schedule
</TABLE>
- --------
(1) Filed herewith.
(2) To be filed by amendment.
* The Company is seeking confidential treatment with respect to portions of
this exhibit.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NEOPOINT, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 9 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter the "Corporation")
-----
is
NEOPOINT, INC.
SECOND: The address, including street, number, city and county, of
------
the registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle; and the name of the registered
agent of the Corporation in the State of Delaware is Corporation Service
Company.
THIRD: The nature of the business and of the purposes to be
-----
conducted and promoted by the Corporation shall be to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation
------
shall have authority to issue is One Thousand (1,000). The par value of each
such share is One Cent ($.001). All such shares are of one class and are shares
of Common Stock.
FIFTH: The name and the mailing address of the incorporator are as
-----
follows:
NAME MAILING ADDRESS
---- ---------------
Daniel T. Howard 701 "B" Street, Suite 2100
San Diego, California 92101
SIXTH: The Corporation is to have perpetual existence.
-----
SEVENTH: In furtherance and not in limitation of the powers conferred
-------
by statute, the board of directors shall have the power, without the vote or
assent of the stockholders to adopt, amend or repeal the by-laws of the
Corporation.
EIGHTH: The personal liability of the directors of the Corporation
------
is hereby eliminated to the fullest extent permitted by paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
<PAGE>
NINTH: The Corporation shall, to the fullest extent permitted by
-----
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall 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 person.
TENTH: From time to time any of the provisions of this certificate
-----
of incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
certificate of incorporation are granted subject to the provisions of the
Article TENTH.
Signed on December 15, 1999.
/s/ Daniel Howard
-----------------
Daniel Howard, Incorporator
2
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
NEOPOINT, INC.
<PAGE>
BYLAWS
OF
NEOPOINT, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I................................................................. 1
Section 1. REGISTERED OFFICES............................................. 1
Section 2. OTHER OFFICES.................................................. 1
ARTICLE II................................................................ 1
Section 1. PLACE OF MEETINGS.............................................. 1
Section 2. ANNUAL MEETING OF STOCKHOLDERS................................. 1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF.................. 1
Section 4. VOTING......................................................... 2
Section 5. PROXIES........................................................ 2
Section 6. SPECIAL MEETINGS............................................... 3
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS............................... 3
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST................. 4
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........ 4
ARTICLE III............................................................... 5
Section 1. THE NUMBER OF DIRECTORS........................................ 5
Section 2. VACANCIES...................................................... 6
Section 3. POWERS......................................................... 6
Section 4. PLACE OF DIRECTORS' MEETINGS................................... 7
Section 5. REGULAR MEETINGS............................................... 7
Section 6. MEETINGS....................................................... 7
Section 7. QUORUM......................................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8. ACTION WITHOUT MEETING......................................... 8
Section 9. TELEPHONIC MEETINGS............................................ 8
Section 10. COMMITTEES OF DIRECTORS........................................ 8
Section 11. MINUTES OF COMMITTEE MEETINGS.................................. 9
Section 12. COMPENSATION OF DIRECTORS...................................... 9
ARTICLE IV................................................................. 10
Section 1. OFFICERS....................................................... 10
Section 2. ELECTION OF OFFICERS........................................... 10
Section 3. SUBORDINATE OFFICERS........................................... 10
Section 4. COMPENSATION OF OFFICERS....................................... 10
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES.......................... 11
Section 6. CHAIRMAN OF THE BOARD.......................................... 11
Section 7. PRESIDENT...................................................... 11
Section 8. VICE PRESIDENTS................................................ 12
Section 9. SECRETARY...................................................... 12
Section 10. ASSISTANT SECRETARY............................................ 12
Section 11. TREASURER...................................................... 13
Section 12. ASSISTANT TREASURER............................................ 13
ARTICLE V.................................................................. 14
ARTICLE VI................................................................. 18
ARTICLE VII................................................................ 19
Section 1. CERTIFICATES................................................... 19
Section 2. SIGNATURES ON CERTIFICATES..................................... 19
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES............. 19
Section 4. LOST CERTIFICATES.............................................. 20
Section 5. TRANSFERS OF STOCK............................................. 20
Section 6. FIXED RECORD DATE.............................................. 21
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7. REGISTERED STOCKHOLDERS......................................... 21
ARTICLE VIII............................................................... 22
Section 1. DIVIDENDS....................................................... 22
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES......................... 22
Section 3. CHECKS.......................................................... 22
Section 4. FISCAL YEAR..................................................... 22
Section 5. CORPORATE SEAL.................................................. 22
Section 6. MANNER OF GIVING NOTICE......................................... 23
Section 7. WAIVER OF NOTICE................................................ 23
Section 8. ANNUAL STATEMENT................................................ 23
ARTICLE IX................................................................. 23
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS.......................... 23
</TABLE>
iii
<PAGE>
BYLAWS
OF
NEOPOINT, INC.
ARTICLE I
OFFICES
-------
Section 1. REGISTERED OFFICES. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held
at any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority
of the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for
<PAGE>
the transaction of business except as otherwise provided by law, by the
Certificate of Incorporation, or by these Bylaws. A quorum, once established,
shall not be broken by the withdrawal of enough votes to leave less than a
quorum and the votes present may continue to transact business until
adjournment. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, a majority of the voting stock represented in
person or by proxy may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting, in all
matters other than the election of directors, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the statutes, or the Certificate of
Incorporation, or these Bylaws, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
Section 5. PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for
2
<PAGE>
him by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than three years prior to said meeting,
unless said instrument provides for a longer period. All proxies must be filed
with the Secretary of the corporation at the beginning of each meeting in order
to be counted in any vote at the meeting. Each stockholder shall have one vote
for each share of stock having voting power, registered in his name on the books
of the corporation on the record date set by the Board of Directors as provided
in Article VII, Section 6 hereof.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or the Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding, and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS. Whenever stockholders
are required or permitted to take any action at a meeting, a written notice of
the meeting shall be given which notice shall state the place, date and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given when
3
<PAGE>
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The
officer who has charge of the stock ledger of the corporation shall prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise provided in the Certificate of Incorporation, any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation by
4
<PAGE>
delivery to its registered office in Delaware, its principal place of business,
or to an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered in the
manner required by this Section 9 to the corporation, written consents signed by
a sufficient number of holders to take action are delivered to the corporation
by delivery to its registered office in Delaware, its principal place of
business or to an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
---------
Section 1. THE NUMBER OF DIRECTORS. The number of directors which
shall constitute the whole Board shall be seven (7). The directors need not be
stockholders. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified;
provided, however, that unless otherwise restricted by the Certificate of
Incorporation or by law, any director or the entire Board of Directors may be
removed, either with or without
5
<PAGE>
cause, from the Board of Directors at any meeting of stockholders by a majority
of the stock represented and entitled to vote thereat.
Section 2. VACANCIES. Vacancies on the Board of Directors by reason
of death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. The
directors so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. POWERS. The property and business of the corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the
6
<PAGE>
Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
Section 4. PLACE OF DIRECTORS' MEETINGS. The directors may hold
their meetings and have one or more offices, and keep the books of the
corporation outside of the State of Delaware.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President on forty-eight hours' notice to each
director, either personally or by mail or by telegram; special meetings shall be
called by the President or the Secretary in like manner and on like notice on
the written request of two directors unless the Board consists of only one
director; in which case special meetings shall be called by the President or
Secretary in like manner or on like notice on the written request of the sole
director.
Section 7. QUORUM. At all meetings of the Board of Directors a
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at any meeting at which there is a quorum,
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these Bylaws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the
7
<PAGE>
meeting, until a quorum shall be present. If only one director is authorized,
such sole director shall constitute a quorum.
Section 8. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
Section 10. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or
8
<PAGE>
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
Section 11. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors
may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
9
<PAGE>
ARTICLE IV
OFFICERS
--------
Section 1. OFFICERS. The officers of this corporation shall be
chosen by the Board of Directors and shall include a Chairman of the Board of
Directors or a President, or both, and a Secretary. The corporation may also
have at the discretion of the Board of Directors such other officers as are
desired, including a Vice-Chairman of the Board of Directors, a Chief Executive
Officer, a Chief Financial Officer, one or more Vice Presidents, one or more
Assistant Secretaries and Assistant Treasurers, and such other officers as may
be appointed in accordance with the provisions of Section 3 hereof. In the
event there are two or more Vice Presidents, then one or more may be designated
as Executive Vice President, Senior Vice President, or other similar or
dissimilar title. At the time of the election of officers, the directors may by
resolution determine the order of their rank. Any number of offices may be held
by the same person, unless the Certificate of Incorporation or these Bylaws
otherwise provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at its
first meeting after each annual meeting of stockholders, shall choose the
officers of the corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint
such other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all officers
and agents of the corporation shall be fixed by the Board of Directors.
10
<PAGE>
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of
the corporation shall hold office until their successors are chosen and qualify
in their stead. Any officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority of the Board of
Directors. If the office of any officer or officers becomes vacant for any
reason, the vacancy shall be filled by the Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an officer be elected, shall, if present, preside at all meetings of the Board
of Directors and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
these Bylaws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article IV.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
11
<PAGE>
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to
time may be prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these Bylaws. He shall keep
in safe custody the seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors, or if there be no such determination, the Assistant Secretary
designated by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the
12
<PAGE>
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys, and other valuable effects in the name
and to the credit of the corporation, in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Chief Financial Officer and of the financial condition of the
corporation. If required by the Board of Directors, he shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 12. ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Chief Financial Officer, perform the duties and exercise
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the powers of the Chief Financial Officer and shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
(a) The corporation shall indemnify to the maximum extent permitted by
law 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 or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, 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.
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(b) The corporation shall indemnify to the maximum extent permitted by
law 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 or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise 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 such 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 to the extent
that the Court of Chancery of Delaware 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 such Court
of Chancery or such other court shall deem proper.
(c) To the extent that a director or officer of the corporation shall
be successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraphs (a) and (b), or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
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(d) Any indemnification under paragraphs (a) and (b) (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 director or officer is
proper in the circumstances because he has met the applicable standard of
conduct set forth in paragraphs (a) and (b). Such determination shall be made
(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) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders. The corporation, acting through
its Board of Directors or otherwise, shall cause such determination to be made
if so requested by any person who is indemnifiable under this Article V.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall 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 he is not entitled to be indemnified by
the corporation as authorized in this Article V.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Article V 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 his
official capacity and as to action in another capacity while holding such
office.
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(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article V.
(h) For the purposes of this Article V, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers so that any
person who is or was a director or officer of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article V with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director or officer of the corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its
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participants or beneficiaries; and a person who 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 "not opposed to the best interests of the corporation" as referred to in
this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The corporation shall be required to indemnify a person in
connection with an action, suit or proceeding (or part thereof) initiated by
such person only if the action, suit or proceeding (or part thereof) was
authorized by the Board of Directors of the corporation.
ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
---------------------------------------
The corporation may indemnify every person who was or is a party or is
or was threatened to be made a party to any action, suit, or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was an employee or agent of the corporation or, while an employee or agent
of the corporation, is or was serving at the request of the corporation as an
employee or agent or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
counsel fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
to the extent permitted by applicable law.
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ARTICLE VII
CERTIFICATES OF STOCK
---------------------
Section 1. CERTIFICATES. Every holder of stock of the corporation
shall be entitled to have a certificate signed by, or in the name of the
corporation by, the Chairman or Vice Chairman of the Board of Directors, or the
President or a Vice President, and by the Secretary or an Assistant Secretary,
or the Chief Financial Officer or an Assistant Treasurer of the corporation,
certifying the number of shares represented by the certificate owned by such
stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If
the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in section
202 of the General
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Corporation Law of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the corporation, or
the transfer agent of the corporation, of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
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Section 6. FIXED RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting. In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date which shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors.
Section 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
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ARTICLE VIII
GENERAL PROVISIONS
------------------
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before payment
of any dividend there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve fund to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interests of the corporation, and the directors may abolish any such
reserve.
Section 3. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal,
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Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the provisions
of the statutes or of the Certificate of Incorporation or of these Bylaws,
notice is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram.
Section 7. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
Section 8. ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
ARTICLE IX
AMENDMENTS
----------
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These Bylaws may
be altered, amended or repealed or new Bylaws may be adopted by the stockholders
or by the Board of Directors, when such power is conferred upon the Board of
Directors by the
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Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new Bylaws be contained in the notice of such special meeting. If the power
to adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the
Certificate of Incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal Bylaws.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of NEOPOINT, INC.,
a Delaware corporation; and
(2) That the foregoing bylaws constitute the bylaws of said
corporation as duly adopted by the written consent of the Incorporator of said
corporation as of December ___, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ____ day
of December 1999.
_______________________________
Secretary
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EXHIBIT 10.1
INNOVATIVE GLOBAL SOLUTION, INC.
1998 STOCK OPTION PLAN
1. Establishment, Purpose and Term of Plan.
---------------------------------------
1.1 Establishment. The Innovative Global Solution, Inc. 1998 Stock
Option Plan (the "Plan") is hereby established effective as of March 26, 1998.
1.2 Purpose. The purpose of the Plan is to advance the interests of
the Participating Company Group and its shareholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 Term of Plan. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the earlier of the date
the Plan is adopted by the Board or the date the Plan is duly approved by the
shareholders of the Company.
2. Definitions and Construction.
----------------------------
2.1 Definitions. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "Committee" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "Company" means Innovative Global Solution, Inc., a
California corporation, or any successor corporation thereto.
(e) "Consultant" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
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(f) "Director" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "Disability" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
(h) "Employee" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
-------------------
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(k) "Incentive Stock Option" means an Option intended to be (as
set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(l) "Insider" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(m) "Nonstatutory Stock Option" means an Option not intended to
be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
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(n) "Option" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(o) "Option Agreement" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "Optionee" means a person who has been granted one or more
Options.
(q) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "Participating Company Group" means, at any point in time,
all corporations collectively which are then Participating Companies.
(t) "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(u) "Securities Act" means the Securities Act of 1933, as
amended.
(v) "Service" means an Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, an Optionee's Service
with the Participating Company Group shall not be deemed to have terminated if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining vesting under the Optionee's Option
Agreement. The Optionee's Service shall be deemed to have terminated either upon
an actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
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(w) "Stock" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(x) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(y) "Ten Percent Owner Optionee" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. Administration.
--------------
3.1 Administration by the Board. The Plan shall be administered by
the Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 Administration with Respect to Insiders. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 Powers of the Board. In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or
other property;
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(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or
otherwise adjust the exercise price of, or grant a new Option in substitution
for, any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability
of any Option or the vesting of any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. Shares Subject to Plan.
----------------------
4.1 Maximum Number of Shares Issuable. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be five million nine hundred thousand
(5,900,000) and shall consist of authorized but unissued or reacquired shares of
Stock or any combination thereof. If an outstanding Option for any reason
expires or is terminated or canceled or if shares of Stock are acquired upon the
exercise of an Option subject to a Company repurchase option and are repurchased
by the Company at the Optionee's exercise price, the shares of Stock allocable
to the unexercised portion of such Option or such repurchased shares of Stock
shall again be available for issuance under the Plan. Notwithstanding the
foregoing, at any such time as the offer and
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sale of securities pursuant to the Plan is subject to compliance with Section
260.140.45 of Title 10 of the California Code of Regulations ("Section
260.140.45"), the total number of shares of Stock issuable upon the exercise of
all outstanding Options (together with options outstanding under any other stock
option plan of the Company) and the total number of shares provided for under
any stock bonus or similar plan of the Company shall not exceed thirty percent
(30%) (or such other higher percentage limitation as may be approved by the
shareholders of the Company pursuant to Section 260.140.45) of the then
outstanding shares of the Company as calculated in accordance with the
conditions and exclusions of Section 260.140.45.
4.2 Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options and in the exercise price per share
of any outstanding Options. If a majority of the shares which are of the same
class as the shares that are subject to outstanding Options are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event, as defined in Section 8.1) shares of another corporation (the "New
Shares"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price per share of,
the outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded up or down to the nearest whole number, as determined by the
Board, and in no event may the exercise price of any Option be decreased to an
amount less than the par value, if any, of the stock subject to the Option. The
adjustments determined by the Board pursuant to this Section 4.2 shall be final,
binding and conclusive.
5. Eligibility and Option Limitations.
----------------------------------
5.1 Persons Eligible for Options. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationship
with the Participating Company Group. Eligible persons may be granted more than
one (1) Option.
5.2 Option Grant Restrictions. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences Service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.
5.3 Fair Market Value Limitation. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any
6
<PAGE>
calendar year for stock having a Fair Market Value greater than One Hundred
Thousand Dollars ($100,000), the portion of such options which exceeds such
amount shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5.3, options designated as Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
stock shall be determined as of the time the option with respect to such stock
is granted. If the Code is amended to provide for a different limitation from
that set forth in this Section 5.3, such different limitation shall be deemed
incorporated herein effective as of the date and with respect to such Options as
required or permitted by such amendment to the Code. If an Option is treated as
an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by
reason of the limitation set forth in this Section 5.3, the Optionee may
designate which portion of such Option the Optionee is exercising. In the
absence of such designation, the Optionee shall be deemed to have exercised the
Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall be issued upon the exercise of the Option.
6. Terms and Conditions of Options.
-------------------------------
Options shall be evidenced by Option Agreements specifying the number
of shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Option Agreement.
Option Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
6.1 Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
6.2 Exercise Period. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such Option, (b) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
(c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences Service with a Participating Company, and
7
<PAGE>
(d) with the exception of an Option granted to an officer, Director or
Consultant, no Option shall become exercisable at a rate less than twenty
percent (20%) per year over a period of five (5) years from the effective date
of grant of such Option, subject to the Optionee's continued Service. Subject to
the foregoing, unless otherwise specified by the Board in the grant of an
Option, any Option granted hereunder shall have a term of ten (10) years from
the effective date of grant of the Option.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company, or attestation to the ownership,
of shares of Stock owned by the Optionee having a Fair Market Value (as
determined by the Company without regard to any restrictions on transferability
applicable to such stock by reason of federal or state securities laws or
agreements with an underwriter for the Company) not less than the exercise
price, (iii) by the assignment of the proceeds of a sale or loan with respect to
some or all of the shares being acquired upon the exercise of the Option
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "Cashless Exercise"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) Limitations on Forms of Consideration.
(i) Tender of Stock. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender, or attestation to the
ownership, of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company, or attestation to the ownership, of shares of Stock unless such
shares either have been owned by the Optionee for more than six (6) months or
were not acquired, directly or indirectly, from the Company.
(ii) Cashless Exercise. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(iii) Payment by Promissory Note. No promissory note shall
be permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the
8
<PAGE>
time the Option is granted. The Board shall have the authority to permit or
require the Optionee to secure any promissory note used to exercise an Option
with the shares of Stock acquired upon the exercise of the Option or with other
collateral acceptable to the Company. Unless otherwise provided by the Board, if
the Company at any time is subject to the regulations promulgated by the Board
of Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations.
6.4 Tax Withholding. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 Repurchase Rights. Shares issued under the Plan may be subject to
a right of first refusal, one or more repurchase options, or other conditions
and restrictions as determined by the Board in its sole discretion at the time
the Option is granted. The Company shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by the Company. Upon request by the
Company, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.
6.6 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the
Option as otherwise provided herein, an Option shall be exercisable after an
Optionee's termination of Service as follows:
(i) Disability. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such longer period of time as determined by the
Board, in its sole discretion) after the date on which the Optionee's Service
terminated, but in any event no
9
<PAGE>
later than the date of expiration of the Option's term as set forth in the
Option Agreement evidencing such Option (the "Option Expiration Date").
(ii) Death. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of six (6)
months (or such longer period of time as determined by the Board, in its sole
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service shall
be deemed to have terminated on account of death if the Optionee dies within
thirty (30) days after the Optionee's termination of Service.
(iii) Other Termination of Service. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within thirty (30) days (or such longer period of time
as determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth in Section 6.6(a) is prevented by the provisions of Section 11 below, the
Option shall remain exercisable until one (1) month after the date the Optionee
is notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
(c) Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. Standard Forms of Option Agreement.
----------------------------------
7.1 Incentive Stock Options. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.2 Nonstatutory Stock Options. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as a "Nonstatutory
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Nonstatutory
10
<PAGE>
Stock Option Agreement adopted by the Board concurrently with its adoption of
the Plan and as amended from time to time.
7.3 Authority to Vary Terms. The Board shall have the authority
from time to time to vary the terms of any of the standard forms of Option
Agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
any such new, revised or amended standard form or forms of Option Agreement are
not inconsistent with the terms of the Plan.
8. Change in Control.
-----------------
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the shareholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is
a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Change in Control" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "Transaction")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 Effect of Change in Control on Options. In the event of a Change
in Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation
11
<PAGE>
thereof, as the case may be (the "Acquiring Corporation"), may either assume the
Company's rights and obligations under outstanding Options or substitute for
outstanding Options substantially equivalent options for the Acquiring
Corporation's stock. For purposes of this Section 8.2, an Option shall be deemed
assumed if, following the Change in Control, the Option confers the right to
purchase in accordance with its terms and conditions, for each share of Stock
subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Change in Control nor exercised as
of the date of the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control. Notwithstanding the
foregoing, shares acquired upon exercise of an Option prior to the Change in
Control and any consideration received pursuant to the Change in Control with
respect to such shares shall continue to be subject to all applicable provisions
of the Option Agreement evidencing such Option except as otherwise provided in
such Option Agreement. Furthermore, notwithstanding the foregoing, if the
corporation the stock of which is subject to the outstanding Options immediately
prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a
Change in Control is the surviving or continuing corporation and immediately
after such Ownership Change Event less than fifty percent (50%) of the total
combined voting power of its voting stock is held by another corporation or by
other corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section 1504(b)
of the Code, the outstanding Options shall not terminate unless the Board
otherwise provides in its sole discretion.
9. Provision of Information.
------------------------
At least annually, copies of the Company's balance sheet and
income statement for the just completed fiscal year shall be made available to
each Optionee and purchaser of shares of Stock upon the exercise of an Option.
The Company shall not be required to provide such information to persons whose
duties in connection with the Company assure them access to equivalent
information.
10. Nontransferability of Options.
-----------------------------
During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.
11. Compliance with Securities Law.
------------------------------
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a
12
<PAGE>
registration statement under the Securities Act shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (b) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As a
condition to the exercise of any Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
12. Indemnification.
---------------
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
13. Termination or Amendment of Plan.
--------------------------------
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's shareholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's shareholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
14. Shareholder Approval.
--------------------
13
<PAGE>
The Plan or any increase in the maximum number of shares of Stock
issuable thereunder as provided in Section 4.1 (the "Maximum Shares") shall be
approved by the shareholders of the Company within twelve (12) months of the
date of adoption thereof by the Board. Options granted prior to shareholder
approval of the Plan or in excess of the Maximum Shares previously approved by
the shareholders shall become exercisable no earlier than the date of
shareholder approval of the Plan or such increase in the Maximum Shares, as the
case may be.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Innovative Global Solutions, Inc. 1998 Stock Option Plan was
duly adopted by the Board on March 26, 1998.
____________________________________
Secretary
14
<PAGE>
PLAN HISTORY
------------
March 26, 1998 Board adopts Plan, with an initial reserve of
5,900,000 shares.
December 16, 1998 Shareholders approve Plan, with an initial reserve of
5,900,000 shares.
<PAGE>
EXHIBIT 10.4
EXECUTION COPY
================================================================================
CDMA PCS SUBSCRIBER UNIT SUPPLY AGREEMENT
between
SPRINT SPECTRUM EQUIPMENT COMPANY, L.P.,
and
NEOPOINT, INC.,
Dated as of June 4, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Headings and Definitions............................................... 1
Section 2. Purpose and Term....................................................... 6
2.1 Purpose................................................................. 6
2.2 Term.................................................................... 7
Section 3. Product Testing........................................................ 7
3.1 Testing................................................................. 7
Section 4. Product Purchases...................................................... 8
4.1 Right to Purchase, Resell and Use....................................... 8
4.2 Availability of Subscriber Units and Accessories; Minimum Commitment.... 8
4.3 NeoPoint Grant of Warrant and Option.................................... 9
***
4.5 Payment Terms and Taxes................................................. 9
4.6 Delivery................................................................ 10
4.7 Pricing................................................................. 11
4.8 Product Warranty........................................................ 11
4.9 Consumer Warranty....................................................... 12
4.10 Year 2000 Warranty...................................................... 13
4.11 Repair and Replacement Services......................................... 13
4.12 Catastrophic Defects.................................................... 14
4.13 Right to Cease Supply of Obsolete Products.............................. 16
4.14 Mark, Logos and Labeling................................................ 16
4.15 Materials and Equipment................................................. 18
4.16 Applicable Law and Radio Frequency Energy Standards..................... 19
4.17 Change Orders........................................................... 19
Section 5. Lead Times and Delay................................................... 19
5.1 Lead Times.............................................................. 19
5.2 Delivery Delay.......................................................... 20
Section 6. Forecasts and Ordering................................................. 20
6.1 Forecasts............................................................... 20
6.2 Ordering................................................................ 20
Section 7. Marketing, Sales and Technical Support................................. 21
7.1 Sales Training and Promotional Efforts.................................. 21
Section 8. Intellectual Property and Licensing.................................... 22
8.1 Intellectual Property Rights Infringement............................... 22
8.2 NeoPoint's Obligation to Cure........................................... 23
</TABLE>
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-i-
<PAGE>
<TABLE>
<S> <C>
8.3 NeoPoint's Obligations................................................. 23
8.4 Sprint Spectrum's Obligations.......................................... 24
8.5 Software License and Ownership......................................... 25
8.6 Ownership of Intellectual Property Rights.............................. 25
8.7 Use of Name and Materials.............................................. 25
8.8 License to Use NeoPoint Patents........................................ 26
8.9 Source Code Escrow..................................................... 26
Section 9. Proprietary Information............................................... 27
9.1 Public Statements and Advertising...................................... 27
9.2 Confidentiality........................................................ 27
Section 10. Indemnification; Limitation on Liability............................. 29
10.1 NeoPoint Indemnity..................................................... 29
10.2 Sprint Spectrum Indemnity.............................................. 30
Section 11. Termination.......................................................... 31
11.1 Termination............................................................ 31
11.2 Termination For Cause.................................................. 32
11.3 Remedies............................................................... 32
11.4 Discontinuance of Supply............................................... 32
11.5 Payments............................................................... 33
11.6 Costs.................................................................. 33
11.7 Continuing Obligations................................................. 33
11.8 NeoPoint's Right to Terminate.......................................... 33
11.9 NeoPoint Remedies...................................................... 34
Section 12. Affiliates........................................................... 34
12.1 Affiliates............................................................. 34
12.2 Affiliate Orders....................................................... 34
12.3 Affiliate Rights....................................................... 35
Section 13. Representations and Warranties....................................... 35
13.1 Representations and Warranties of NeoPoint............................. 35
Section 14. General Provisions................................................... 36
14.1 Assignment............................................................. 36
14.2 Successors and Assigns................................................. 37
14.3 Survival of Obligations................................................ 37
14.4 Severability........................................................... 37
14.5 Non-waiver............................................................. 37
14.6 Compliance with United States Regulations.............................. 37
14.7 Notices................................................................ 37
14.8 Dispute Resolution and Tolling......................................... 38
14.9 Other Remedies......................................................... 39
14.10 GOVERNING LAW AND FORUMS............................................... 39
14.11 Entire Agreement....................................................... 39
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
14.12 Improvements, Inventions and Innovations............................... 40
14.13 Conflicts.............................................................. 40
14.14 Independent Contractors................................................ 40
14.15 Force Majeure.......................................................... 40
14.16 Change of Control of NeoPoint.......................................... 40
14.17 Offset................................................................. 41
14.18 Sprint Spectrum Liabilities............................................ 41
14.19 Counterparts........................................................... 41
</TABLE>
-iii-
<PAGE>
Schedules
- ---------
Schedule 1 - NeoPoint Outstanding Intellectual Property Issues
Schedule 2 - NeoPoint Repair Facilities
Schedule 3 - Initial Affiliates
Schedule 4 - Initial Sprint Spectrum Defined Features
Appendices
- ----------
Appendix 1 - Pricing
Appendix 2 - Consumer Warranty
Appendix 3 - NeoPoint Non-Warranty Repair Fees
Appendix 4A - Sprint Spectrum/Sprint PCS Marks
Appendix 4B - Patent Markings and Logos
Appendix 5 - Warrant
Exhibits
- --------
Exhibit A - Products/Features
Exhibit B1 - Design Verification Tests
Exhibit B2 - Interoperability Testing (Lucent Infrastructure Equipment)
Exhibit B3 - Interoperability Testing (Nortel Infrastructure Equipment)
Exhibit B4 - Interoperability Testing (Motorola Infrastructure Equipment)
Exhibit B5 - Qualification Test Plan
Exhibit B6 - Manufacturing Test Plan
Exhibit B7 - Accessory Test Plan
Exhibit B8 - Field Test Plan
-iv-
<PAGE>
This CDMA PCS Subscriber Unit Supply Agreement (the "Agreement") is
---------
entered into and is effective as of June 4, 1999 (the "Effective Date") among
--------------
NEOPOINT, INC., a California corporation, with offices at 4225 Executive Drive,
Suite 700, San Diego, California 92121 ("NeoPoint"), and SPRINT SPECTRUM
--------
EQUIPMENT COMPANY, L.P., a Delaware limited partnership, with offices at 4900
Main Street, Kansas City, Missouri 64112 ("Sprint Spectrum").
---------------
RECITALS:
WHEREAS, NeoPoint has certain rights to use certain proprietary Code
Division Multiple Access ("CDMA") technology;
----
WHEREAS, the Federal Communications Commission ("FCC") has defined six
---
spectral bands near 1.9 Ghz for use in Personal Communications Services ("PCS")
---
for auction to bidders;
WHEREAS, the FCC granted to Sprint Spectrum or certain of its
affiliates PCS licenses to build and operate PCS systems in specified geographic
areas in the United States; and
WHEREAS, NeoPoint wishes to manufacture and supply the Products (as
defined herein) for and to Sprint Spectrum pursuant to and in accordance with
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in this Agreement, Sprint Spectrum and NeoPoint hereby agree as
follows:
SECTION 1. HEADINGS AND DEFINITIONS
All headings used in this Agreement are inserted for convenience only and
are not intended to affect the meaning or interpretation of this Agreement or
any Section, subsection or clause of this Agreement. References to "third party"
or "third parties" will not mean either Party. The meanings given to terms
defined in this Agreement are equally applicable to both the singular and the
plural forms of such terms. Terms used and/or defined in the Exhibits,
appendices or Schedules attached hereto that are not otherwise defined in this
Agreement, will have the meanings set forth in those Exhibits, appendices or
Schedules for the purposes of those Exhibits, appendices or Schedules only. For
the purposes of this Agreement, the following definitions apply:
"Accessories" means the collective reference to the accessory Products set
-----------
forth on Appendix 1 or any other accessory Product added to this Agreement by
the mutual consent of the Parties. Each, an "Accessory."
---------
"Additional Affiliate Arrangement" means an agreement between Sprint
--------------------------------
Spectrum and/or any Initial Affiliate and a Person to be designated an
Additional Affiliate under the terms of this Agreement, which agreement will
include, but not be limited to, an agreement on marketing telecommunications
services under the "Sprint PCS" name, backhaul, common billing, resale
<PAGE>
agreements and/or revenue sharing but exclude any roaming arrangement that does
not also include at least one of the other characteristics listed herein.
"Additional Affiliates" has the meaning ascribed thereto in subsection
---------------------
12.1.
"Affiliates" means the collective reference to Initial Affiliates and
----------
Additional Affiliates.
"Agent" means Sprint Spectrum's and/or its affiliates' agent with resale
-----
capability in the Territory.
"Agreement" means this written contract together with all appendices,
---------
exhibits and schedules attached hereto (including any appendices, attachments,
exhibits and schedules thereto), as this Agreement may be amended, supplemented
or otherwise modified from time to time in accordance with the provisions of
subsection 14.11 of this Agreement.
"Applicable Laws" means, as to any Person, the certificate of incorporation
---------------
and by-laws or other organizational or governing documents of such Person, all
laws (including, but not limited to, any Environmental Laws), treaties,
ordinances, judgments, orders and stipulations of any court or governmental
agency or authority and statutes, rules, regulations, orders and interpretations
thereof of any federal, state, provincial, county, municipal, regional,
environmental or other Governmental Entity, instrumentality, agency, authority,
court or other body (i) applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject or (ii)
having jurisdiction over all or any part of the Products or otherwise in
connection with NeoPoint's obligations under this Agreement.
"Business Day" means any day of the year other than a Saturday or Sunday or
------------
a United States national public holiday.
"Catastrophic Defect" has the meaning ascribed thereto in subsection
-------------------
4.12(a).
"Catastrophic Defect Cure Period" has the meaning ascribed thereto in
-------------------------------
subsection 4.12(a).
"CDMA" has the meaning ascribed thereto in the first Recital.
----
"Change Order" has the meaning ascribed thereto in subsection 4.17.
------------
"Customer" means any customer of NeoPoint offering Subscriber Units for
--------
sale within the Territory or any customer of any of NeoPoint's affiliates or
subsidiaries offering Subscriber Units for sale within the Territory.
"Defects and Deficiencies," "Defects or Deficiencies" or "Defective" means
------------------------ ----------------------- ---------
when used with respect to any Products, such items that are not (i) new (unless
otherwise as specifically set forth in this Agreement) and of good quality and
free from defects or (ii) otherwise in conformance with the Specifications.
"Delivery Order" means a written order by Sprint Spectrum (or any of its
--------------
Affiliates) to have Products delivered to the FOB Point pursuant to and in
accordance with the terms of this
-2-
<PAGE>
Agreement, each of which will be deemed to incorporate all terms, conditions and
provisions of this Agreement unless the Parties expressly agree otherwise.
"Effective Date" has the meaning ascribed thereto in the prefatory
--------------
paragraph of this Agreement.
"End Date" has the meaning ascribed thereto in subsection 2.2.
--------
"Escrow Agreement" has the meaning ascribed thereto in subsection 8.9.
----------------
"Environmental Laws" means any and all federal, state, local or municipal
------------------
laws, rules, orders, regulations, statutes, ordinances, codes or requirements of
any Governmental Entity, or requirements of law within the Territory (including,
without limitation, common law) relating in any manner to contamination,
pollution, or protection of human health or the environment.
"Excess Delivery Order" has the meaning ascribed thereto in subsection
---------------------
6.2(a).
"Exchange Act" has the meaning ascribed thereto in subsection 14.16.
------------
"FCC" has the meaning ascribed thereto in the second Recital.
---
"FCC Rules and Regulations" has the meaning ascribed thereto in subsection
-------------------------
4.16.
"FOB Point" means NeoPoint's facility in Carson (Los Angeles), California
---------
to which the Products have been delivered by NeoPoint after fully clearing any
and all foreign customs export requirements and any and all United States'
customs import requirements for full free and clear distribution and/or import
in the United States or as otherwise mutually agreed between the Parties from
time to time.
"Forecast" has the meaning ascribed thereto in subsection 6.1.
--------
"Forecast Period" has the meaning ascribed thereto in subsection 6.1.
---------------
"GAAP" means United States generally accepted accounting principles,
----
consistently applied.
"Governmental Entity" means any nation or government, any state, province
-------------------
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government within the Territory.
"NeoPoint Assumed Feature" means any Sprint Spectrum Defined Feature with
------------------------
respect to which NeoPoint has performed patent research on Sprint Spectrum's
behalf and at Sprint Spectrum's request.
"NeoPoint Event of Default" has the meaning ascribed thereto in subsection
-------------------------
11.2.
"NeoPoint Indemnitees" has the meaning ascribed thereto in subsection
--------------------
10.2(a).
"NeoPoint Liabilities" has the meaning ascribed thereto in subsection
--------------------
10.2(a).
-3-
<PAGE>
"NeoPoint Patents" has the meaning ascribed thereto in subsection 8.8.
----------------
"NeoPoint's affiliate", "affiliate of NeoPoint" or "NeoPoint's affiliates"
-------------------- --------------------- ---------------------
or the like, means any Person that directly or indirectly controls, or is
controlled by, or is under common control with NeoPoint. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person.
"NeoPoint's Succeeding Entity" has the meaning ascribed thereto in
----------------------------
subsection 14.16.
"Indemnitees" has the meaning ascribed thereto in subsection 10.1(a).
-----------
"Independent Auditor" means any one of the "big five" accounting firms
-------------------
chosen by Sprint Spectrum; provided, however, that such Independent Auditor
-------- -------
shall not be engaged at such time by Sprint Spectrum or NeoPoint for the purpose
of auditing such Party's financial statements.
"Initial Affiliates" means those Persons listed on Schedule 3 and their
------------------ ----------
operating subsidiaries which operate in the Territory.
"Initial Term" has the meaning ascribed thereto in subsection 2.2.
------------
"Intellectual Property Rights" has the meaning ascribed thereto in
----------------------------
subsection 8.1.
"Liabilities" has the meaning ascribed thereto in subsection 10.1(a).
-----------
"Mark" has the meaning ascribed thereto in subsection 4.14(a).
----
"Minimum Commitment" has the meaning ascribed thereto in subsection 4.2(b).
------------------
"Nationwide Network" means all PCS Systems built, owned or to be owned
------------------
and/or operated by Sprint Spectrum or its affiliates in or within the Territory.
"New Product" has the meaning ascribed thereto in subsection 4.7.
-----------
"Non-Conforming Products" has the meaning ascribed thereto in subsection
-----------------------
3.1(b).
"NTF Products" or "No Trouble Found Products" means Products returned to
------------ -------------------------
NeoPoint or its designated and authorized repair facility pursuant to subsection
4.11(a) which NeoPoint has, in good faith and only after applicable testing,
found not to be in any way Defective.
"Parties" means, collectively, Sprint Spectrum and NeoPoint, and "Party"
-------
individually means Sprint Spectrum or NeoPoint.
"Patent License" has the meaning ascribed thereto in subsection 8.8.
--------------
"PCS" has the meaning ascribed thereto in the second Recital.
---
"PCS System" means all products and other equipment, tools and software,
----------
all system element sites and any property located therein necessary or desirable
to provide PCS in a given System Area.
-4-
<PAGE>
"Person" means an individual, partnership, limited partnership,
------
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity of whatever
nature.
"Previously Existing Products" has the meaning ascribed thereto in
----------------------------
subsection 4.13.
"Product Enhancements" means modifications or improvements made to the
--------------------
Products which improve performance of such Products.
"Products" means all of the Subscriber Units and the Accessories supplied
--------
to Sprint Spectrum by NeoPoint in accordance with the terms of this Agreement.
"Proprietary Information" has the meaning ascribed thereto in subsection
-----------------------
9.2(a).
"Purchaser" means a Person who purchases Products from Sprint Spectrum or
---------
an Agent as an initial end user of the Product or Products (provided that an
-------- ----
Agent that uses the Product will in no event be a Purchaser).
"RF Interference Condition" has the meaning ascribed thereto in subsection
-------------------------
4.16.
"Similar Products" means any subscriber unit manufactured by NeoPoint
----------------
pursuant to and/or based upon any Subscriber Unit platform which has
substantially all of the following: a look and feel, talk time, standby time,
memory or battery life, material features and functions, which are substantially
similar to the Products to be developed or sold pursuant to the terms of this
Agreement. Notwithstanding anything contained herein to the contrary, the
frequency of the product in question (i.e., 1.9 Ghz versus 800 MHz) will not be
----
deemed a material factor in determining whether or not the product is a Similar
Product and any product meeting the criteria in the immediately preceding
sentence which operates at the 800 MHz frequency will be deemed a Similar
Product for the purposes hereof.
"SSLP Proprietary Marks" has the meaning ascribed thereto in subsection
----------------------
4.14(b).
"Software" has the meaning ascribed thereto in subsection 8.5.
--------
"Software Enhancements" means modifications or improvements made to the
---------------------
Software relating to PCS Products which improve performance of the Software or
which provide additional functions to the Software.
"Source Code" means all intellectual information including, but not limited
-----------
to, all relevant documentation, software in human-readable form, flow charts,
schematics and annotations which comprise the pre-coding detailed design
specifications for software (excluding third party software) which are then
being maintained or developed by NeoPoint which constitutes the "embodiment of
the intellectual property" of the Software as such concept is referenced in
Section 365(n) of the United States Bankruptcy Code, as amended.
"Specifications" means the specifications and performance standards of the
--------------
Products contemplated by this Agreement, as more fully set forth in the Exhibits
A, B1, B2, B3, B4, B5, B6 and B7 and as such specifications, performance
standards and/or Exhibits may be expanded,
-5-
<PAGE>
altered, modified, supplemented or otherwise changed, in whole or in part,
pursuant to the terms of this Agreement.
"Sprint Spectrum Defined Features" means (a) the features listed on
--------------------------------
Schedule 4 and (b) any new feature, enhancement, modification or upgrade to any
Product, any component thereof and/or any Software which is directly developed
or proposed (in writing) by Sprint Spectrum or any of its Affiliates, which has
not already been developed by NeoPoint; each a "Sprint Spectrum Defined
Feature."
"Sprint Spectrum Event of Default" has the meaning ascribed thereto in
--------------------------------
subsection 11.8.
"Subscriber Unit" means the "NeoPoint 1000" 1.9 Ghz subscriber portable
---------------
phone and subsequent single and dual band portable phone models added to this
Agreement pursuant to the mutual agreement of the Parties, all in accordance
with and pursuant to the Specifications.
"System Area" means a geographic area in the Territory to which Sprint
-----------
Spectrum or any Affiliate has the right to operate or is operating PCS services.
"System Managers" means each of the managers designated by Sprint Spectrum
---------------
and NeoPoint, respectively, for the purposes of subsection 14.8.
"Term" has the meaning ascribed thereto in subsection 2.2.
----
"Territory" means the United States of America.
---------
"Testing Exhibits" means Exhibits B1, B2, B3, B4, B5, B6, B7 and B8.
----------------
"Training" has the meaning ascribed thereto in subsection 7.1(a).
--------
"United States" means the fifty states of the United States of America, the
-------------
District of Columbia and all United States of America territories and
possessions.
"UPC" means the Universal Product Code.
---
***
SECTION 2. PURPOSE AND TERM
2.1 Purpose.
-------
The purpose of this Agreement and the intent of the Parties is to have
NeoPoint supply "Sprint" branded Subscriber Units and Accessories that will be
manufactured by NeoPoint for Sprint Spectrum on an "other equipment
manufacturer" basis. Pursuant to the terms of this Agreement, the Parties will
work together to ensure the supply of "Sprint" branded Specification compliant
quality Subscriber Units and Accessories, all of which will add value to Sprint
Spectrum's Nationwide Network.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-6-
<PAGE>
2.2 Term.
----
This Agreement will commence on the date first set forth above and will
continue until January 31, 2000 (the "Initial Term"). The last day of the
------------
Initial Term shall hereinafter be referred to as the "End Date." The Initial
Term of this Agreement may be extended beyond the End Date for successive one-
year periods by mutual written agreement of the Parties (all such periods plus
the Initial Term, the "Term").
----
SECTION 3. PRODUCT TESTING
3.1 Testing.
-------
(a) NeoPoint will test the Products and verify to Sprint Spectrum in
writing that the Products perform in accordance with the Specifications pursuant
to and in accordance with the requirements and milestones set forth in the
Testing Exhibits. In addition to any rights Sprint Spectrum may have hereunder,
the failure of NeoPoint to verify the performance of the Products pursuant to
the requirements of the Testing Exhibits will result in Sprint Spectrum's having
the absolute right to suspend or cancel (in its sole and absolute discretion)
any then existing or future Delivery Orders for any such Products which have not
in fact complied with the requirements of the Testing Exhibits. Nothing
contained in nor the implementation of the requirements of the Testing Exhibits
will be deemed to diminish or otherwise limit NeoPoint's warranty obligations
pursuant to this Agreement.
(b) Notwithstanding anything stated herein to the contrary, to the extent
that Sprint Spectrum decides (in its sole and absolute discretion) to take, pay
for and place into service any such Products which have failed to pass the
testing required by any of the Testing Exhibits ("Non-Conforming Products"),
-----------------------
Sprint Spectrum will be deemed to have accepted any such Non-Conforming Products
with any such non-conformance; provided that, in such case, Sprint Spectrum will
-------- ----
in no way be deemed to have waived any of its rights to enforce NeoPoint's
complete conformance (including, but not limited to, conformance with any
requirement not otherwise met by such Non-Conforming Products) with the testing
requirements set forth in the Testing Exhibits and the Specifications on all
other Products already then delivered or yet to be delivered by NeoPoint
pursuant to the terms of this Agreement.
(c) In the event any of the Subscriber Units and/or Accessories fails to
comply with the requirements of the Testing Exhibits and any such failure lasts
for in excess of *** beyond the testing date provided for verification pursuant
to the terms of the Testing Exhibits, Sprint Spectrum will have the absolute
right, upon *** prior written notice to NeoPoint, to terminate this Agreement in
its entirety without any payment or penalty whatsoever. ***
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-7-
<PAGE>
***
SECTION 4. PRODUCT PURCHASES
4.1 Right to Purchase, Resell and Use.
---------------------------------
(a) Subject to and conditioned upon the terms of Section 3, from and after
the Effective Date and during the Term, Sprint Spectrum will pursuant to the
terms of this Agreement purchase Products from NeoPoint. NeoPoint understands
and agrees that any purchases of Products made by Sprint Spectrum pursuant to
this Agreement will be for the purpose of reselling such Products to Sprint
Spectrum's Agents and/or Purchasers in accordance with the applicable terms of
this Agreement. NeoPoint further acknowledges and agrees that any Products sold
hereunder will be used in and within the Nationwide Network.
(b) NeoPoint hereby grants to Sprint Spectrum a nonexclusive right to
resell any Products purchased hereunder within the Territory by means of (i)
Sprint Spectrum's own direct sales utilizing its outbound sales force and/or
through retail outlets owned or operated by Sprint Spectrum and/or its
Affiliates, and (ii) resales to Agents (who shall in turn, have the right to
resell such Products to Purchasers within the Territory), all upon the terms and
conditions set forth herein. NeoPoint represents that it has unencumbered title
to (except with respect to Sprint Spectrum's rights and interests as set forth
in Section 8) and right to sell any and all of the Products it may sell
hereunder.
4.2 Availability of Subscriber Units and Accessories; Minimum Commitment.
--------------------------------------------------------------------
(a) Notwithstanding anything contained herein to the contrary, the first
Delivery Order dated as of the date hereof and delivered by Sprint Spectrum to
NeoPoint in connection herewith (the "First Delivery Order") shall be for the
--------------------
entire Minimum Commitment which NeoPoint will have the obligation to deliver on
or prior to August 31, 1999, subject to any day for day delay caused by the
direct acts or omissions of Sprint Spectrum. Furthermore, Sprint Spectrum will
not submit any other Delivery Orders hereunder, other than the First Delivery
Order, for Products (beyond the Minimum Commitments) to be delivered prior to
August 31, 1999.
(b) Subject to and conditioned upon the design, development, testing and
manufacture of the Products, all as determined pursuant to the terms of this
Agreement (including, but not limited to, the requirements of Section 3 hereof),
during the Initial Term of this Agreement Sprint Spectrum and/or its Affiliates
will (subject to and conditioned upon the above listed conditions) purchase from
NeoPoint an aggregate of * * * Subscriber Units with accompanying Accessories
(the "Minimum Commitment").
------------------
(c) In no way limiting Sprint Spectrum's or NeoPoint's rights hereunder,
Sprint Spectrum will have the right, in its sole and absolute discretion, to
purchase at least (or an amount less than) *** Subscriber Units hereunder and
pursuant to the terms hereof.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-8-
<PAGE>
4.3 NeoPoint Grant of Warrant.
-------------------------
In consideration of the Minimum Commitment, NeoPoint hereby grants to
Sprint Spectrum (or its designee) two (2) warrants each substantially in the
form of Appendix 5 (the "Warrants") (i) the first of which is for three hundred
--------
seventy nine thousand six hundred ninety three (379,693) shares of NeoPoint
common stock (or 2% of NeoPoint fully diluted capitalization as determined on
the Effective Date whichever is greater) (the "Common Stock") at a purchase
------------
price per share of $2.50 which such warrant shall be exercisable by Sprint
Spectrum (or its designee) immediately on the Effective Date and (ii) the second
of which is for an additional three hundred seventy nine thousand six hundred
ninety three (379,693) shares of Common Stock (or 2% of NeoPoint fully diluted
capitalization as determined on the Effective Date whichever is greater) at a
purchase price per share of $4.00, provided that such second warrant shall not
be exercisable by Sprint Spectrum (or its designee) until January 1, 2000.
4.4 ***
4.5 Payment Terms and Taxes.
-----------------------
(a) Pursuant to and in accordance with the terms of this Agreement,
NeoPoint will invoice Sprint Spectrum for Products purchased upon delivery of
such Products to the FOB Point, and Sprint Spectrum will pay all such invoices
within thirty (30) days after the invoice date unless, Sprint Spectrum disputes
either NeoPoint's entitlement to, or the amount of, any such invoiced amount in
which event only the disputed amount shall be withheld. All amounts
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-9-
<PAGE>
stated herein and/or otherwise required to be paid under or pursuant to this
Agreement are stated in, and will be paid in, United States Dollars. All
undisputed sums not paid within sixty (60) days after receipt of the invoice by
Sprint Spectrum shall accrue interest at the rate of one percent (1%) per month.
If any undisputed sums remain unpaid ninety (90) days after receipt of the
invoice by Sprint Spectrum, then NeoPoint's obligation to ship Products within
twenty (20) Business Days of the date of any applicable Delivery Order pursuant
to subsection 6.2 shall be suspended until such time as Sprint Spectrum has paid
all such accrued and undisputed amounts that are past due to NeoPoint. In the
event disputed amounts are finally determined to be owed and payable, any late
fee that should have otherwise applied to such amounts shall be deemed to have
accrued from the date on which such fees would have accrued had such sums not
been disputed.
(b) The amounts to be paid by Sprint Spectrum under this Agreement do not
include any United States' state or local sales and use taxes, however
designated, which may be levied or assessed in the United States on the Products
to be sold hereunder. With respect only to such United States sales or use
taxes, Sprint Spectrum will either furnish NeoPoint with an appropriate
exemption certificate applicable thereto or pay to NeoPoint, upon presentation
of invoices therefor, such amounts as NeoPoint may by law be required to collect
or pay; provided that NeoPoint will use its reasonable efforts to minimize the
-------- ----
amount of any such taxes. Sprint Spectrum has no obligation to NeoPoint with
respect to any other taxes, including, but not limited to, those relating to
franchise, net or gross income or revenue, license, occupation, other real or
personal property, and fees in any way relating to importation or exportation of
the Products.
4.6 Delivery.
--------
(a) All deliveries of Products will be made to the FOB Point at NeoPoint's
sole cost and expense. Sprint Spectrum will specify the desired method of
shipping to any destination or delivery point beyond the FOB Point. Risk of loss
of Products will transfer to Sprint Spectrum upon NeoPoint's proper delivery of
such Products to the FOB Point pursuant to the terms of the applicable Delivery
Order. Unless otherwise agreed in writing, Sprint Spectrum will pay for all
shipping, freight, insurance and other similar charges incurred in connection
with any deliveries or transport requested by Sprint Spectrum beyond the FOB
Point.
(b) Sprint Spectrum will inspect and either accept or reject all Products
in whole or in part within ten (10) Business Days after the date of receipt at
the FOB Point pursuant to the terms of the applicable Delivery Order. If Sprint
Spectrum fails to reject any Product delivered by the end of such period, Sprint
Spectrum shall be deemed to have accepted such Product; provided that any such
-------- ----
acceptance will in no event limit, modify, waive or otherwise restrict Sprint
Spectrum's rights under the terms, including, without limitation, the warranty
provisions, of this Agreement.
(c) Sprint Spectrum may request in writing that NeoPoint provide
logistical and distribution capabilities to Sprint Spectrum, which capabilities
NeoPoint will use its commercially reasonable efforts to provide. If NeoPoint
agrees to provide such services, there may be, depending on the level and scope
of such services, additional charges to Sprint Spectrum on a per Product basis.
Any such charges will be mutually agreed upon by the Parties during
-10-
<PAGE>
negotiations between the Parties on the provision of any such additional
logistical and distribution services beyond those outlined in this subsection
4.6; provided that, in determining any such charges, ***
4.7 Pricing.
-------
(a) The "NeoPoint 1000" Products with accompanying Accessories purchased
from NeoPoint shall be purchased in accordance with the Product pricing set
forth on Appendix 1. Initial pricing for any 1.9 Ghz PCS CDMA subscriber units
(each as mutually agreed by the Parties, a "New Product") other than the
-----------
"NeoPoint", the "NeoPoint" or any other similar single or dual band product not
otherwise covered by Appendix 1 or the terms of this Agreement will be
established by mutual good faith agreement between the Parties. All such pricing
for such New Products will be determined in accordance with and pursuant to the
terms of this Agreement, including, but not limited to, ***
(b) Notwithstanding anything contained herein and/or in Appendix 1 to the
contrary, NeoPoint will provide to Sprint Spectrum, within thirty (30) days of
the Effective Date, the following:
***
The Products to be provided pursuant to this subsection 4.7(b) will not
count against the Minimum Commitment.
4.8 Product Warranty.
----------------
(a) NeoPoint warrants to Sprint Spectrum that each Product will be, during
the applicable Warranty Period, free from Defects or Deficiencies in material or
workmanship.
(b) In the event of any breach of the warranty set forth in subsection
4.8(a) during the applicable Warranty Period, NeoPoint will, in accordance with
the terms of this subsection 4.8, promptly repair or replace in its sole option
(in accordance with subsection 4.11) the Defective Product or otherwise cure any
Defects and Deficiencies so that the Defective Product or any replacement
therefor will be free from Defects and Deficiencies. If NeoPoint fails to
promptly repair or replace the Defective Product, NeoPoint will promptly refund
any monies paid by Sprint Spectrum for such Defective Product (such refund to be
made no later than the notice to
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-11-
<PAGE>
Sprint Spectrum that it will not repair and replace). Except as otherwise
expressly provided in this Agreement, such repair or replacement shall be Sprint
Spectrum's sole and exclusive remedy for any Defects or Deficiencies in the
Products.
(c) Repair may include, at NeoPoint's sole option, the replacement of
parts or boards with substantially equivalent reconditioned or new parts or
boards. Replaced parts, accessories, batteries or boards are warranted for the
balance of the original applicable Warranty Period.
(d) No warranty will extend to any Product that has been subject to
misuse, accident, neglect or improper storage or that has been used with
accessories other than Accessories provided by NeoPoint (or authorized by
NeoPoint for use with the subject Product) or any Product that has been opened,
repaired, modified or altered by anyone other than NeoPoint or NeoPoint's
authorized repair facilities (including, but not limited to, repair facilities
or personnel authorized by Sprint Spectrum) or any Product whose original
Product specific identification marks or serial numbers have been removed or
altered so as to be unreadable.
(e) During the Term, NeoPoint will provide, at NeoPoint's sole expense, to
Sprint Spectrum telephonic technical support, through NeoPoint's technical
support center in Huntsville, Alabama, which support will include a hotline
staffed from 8:00 a.m. to 6:00 p.m. Central time on each Business Day of the
year; provided that during any other time period NeoPoint will, starting upon
-------------
the Effective Date and during the Term, provide Sprint Spectrum access (by
beeper or otherwise) to NeoPoint personnel competent to address significant
problems relating to the Products.
4.9 Consumer Warranty.
-----------------
(a) In addition to the warranties provided in subsection 4.8, NeoPoint
will provide a warranty (the "Consumer Warranty") to Purchasers, on the terms
-----------------
and conditions set forth on Appendix 2; provided, that subject to the proof of
--------
purchase requirements set forth in Appendix 2, such Consumer Warranty will in no
event be for a term less than the applicable Warranty Period and will be for the
benefit of, and will be directly enforceable by, any such Purchaser. The
Consumer Warranty is made solely by NeoPoint, and Sprint Spectrum makes no
warranties with respect to the Products. In the event any such Purchaser
inadvertently or otherwise forwards Products subject to the Consumer Warranty to
Sprint Spectrum, Sprint Spectrum will have the right to forward such Products to
NeoPoint and NeoPoint will perform its obligations under the Consumer Warranty
as if such Purchaser forwarded such Products directly to NeoPoint.
(b) Notwithstanding anything to the contrary in Appendix 2, NeoPoint shall
----------
allow a Purchaser to return a Product to Sprint Spectrum or to NeoPoint's
technical support center in Huntsville, Alabama for replacement thereof by
NeoPoint in the event that such Product suffers from a Defect during the
Consumer Warranty Period. Upon Sprint Spectrum's receipt of a Defective Product
from a Purchaser, Sprint Spectrum will have the right to deliver any such
Defective Product to NeoPoint and NeoPoint will, within ten (10) days of its
receipt of such Defective Product from Sprint Spectrum, repair or replace such
Defective Product by sending a repaired or replacement Product directly to
Sprint Spectrum or its designated agents, or as otherwise mutually agreed by the
Parties.
-12-
<PAGE>
(c) Notwithstanding anything contained in subsections 4.8 and/or 4.9 to
the contrary, Accessories purchased separately from those Accessories made part
of the Subscriber Unit Package contemplated on Appendix 1A will only be
warranted for a period which is the lesser of ***
4.10 Year 2000 Warranty.
------------------
In no way limiting any other warranties set forth in this Agreement,
NeoPoint represents and warrants that any Products (and the software embedded
in, made a part of or necessary to operate any such Products) delivered by
NeoPoint to Sprint Spectrum and the Affiliates (i) are designed to be used prior
to, during and after the calendar year 2000 A.D., (ii) are designed to correctly
process date data representing or referencing different centuries or more than
one century and (iii) have been tested by NeoPoint with regards to such year
2000 A.D. compliance. NeoPoint hereby agrees that the warranties contained in
this subsection 4.10 shall survive until January 31, 2002 in order to cover
errors that arise as a result of or in connection with a "Year 2000 Defect."
----------------
"Year 2000 Defects" shall include, without limitation, the following: errors
- ------------------
relating to reading the year 2000 as the year 1900, and failure to correctly
process calculations, data values or date interface values that accommodate the
multi-century formulas. At Sprint Spectrum's request and upon reasonable notice,
NeoPoint will provide written evidence sufficient to demonstrate adequate
testing and conversion of Products to meet the foregoing requirements. If it is
determined by Sprint Spectrum that any Product has a Year 2000 Defect, then
NeoPoint will, at its expense, within twenty (20) days after notice thereof,
either correct such Year 2000 Defect or provide Sprint Spectrum with a
Specification- and Year 2000-compliant replacement for such Product. If neither
of the foregoing options is available, NeoPoint will promptly refund all amounts
paid by Sprint Spectrum pursuant to this Agreement for any such Product(s).
4.11 Repair and Replacement Services.
-------------------------------
(a) If Sprint Spectrum claims a breach of warranty under subsection 4.8 or
4.10, it must notify NeoPoint of the claimed breach within a reasonable time (in
any event during the applicable Warranty Period) after its determination that a
breach has in fact occurred. Sprint Spectrum will allow NeoPoint to inspect the
Products, at Sprint Spectrum's (or its agents') centralized logistics
facility(s) designated for such purpose. Upon NeoPoint's issuance of a return
authorization number, and at the expense of Sprint Spectrum, Sprint Spectrum
will return via ground transportation (or such other reasonable method of
transportation requested by NeoPoint) such Products to any of NeoPoint's
designated repair facilities located in the United States and listed on Schedule
2. Notwithstanding anything to the contrary in this subsection 4.11, Sprint
Spectrum agrees to pay to NeoPoint the prices set forth on Appendix 3 for NTF
Products and misused Products actually replaced with refurbished or new Products
by NeoPoint; Sprint Spectrum and NeoPoint will evenly split any costs for
repairing, replacing and/or refurbishing any such misused Product as such costs
are set forth in Appendix 3. Sprint Spectrum will have the right, but not the
obligation, to designate an Independent Auditor to verify NeoPoint's calculation
of the quantity of and NeoPoint's actual cost to refurbish and transport any
such NTF Products received by NeoPoint pursuant to this subsection 4.11. The
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-13-
<PAGE>
fees of such Independent Auditor shall be paid by the Party whose position is
not supported by the Independent Auditor.
(b) Upon the reasonable request by Sprint Spectrum for a return
authorization, pursuant to subsection 4.8 or 4.10, whether for replacement or
for repair of a Product, NeoPoint agrees that, within thirty (30) days of such
Sprint Spectrum request, it will either issue such return authorization number
or provide Sprint Spectrum in writing with reasons for refusing to issue such
return authorization number. In the event that NeoPoint fails to provide the
return authorization number, or provide written reasons for refusing to do so,
Sprint Spectrum will be permitted to offset the value of any amount paid for the
Product against any other amounts owed by Sprint Spectrum to NeoPoint; provided
--------
that in the event of any such offset NeoPoint may request the return of the
- ----
subject Product and, in the event of such request, Sprint Spectrum will return
such Product.
(c) NeoPoint will repair Products as soon as practicable after receipt of
the Defective Product giving rise to the warranty claim and will maintain a
maximum *** "turn-around" time to either repair or replace Products. "Turn-
around" time is the time between receipt by NeoPoint, at its repair facility in
Huntsville, Alabama, of the Defective Product and shipment for return by
NeoPoint, to Sprint Spectrum's (or its agents') centralized logistics
facility(s) designated for such purpose, of the repaired or replacement Product.
When repairing or replacing any Defective Product, NeoPoint will maintain the
quality of the Product and will not substitute any component thereof with a
component of lesser quality or with a component that has a lesser performance
standard or capability. Subject to the immediately preceding sentence, NeoPoint
will be entitled to repair or replace defective Products using refurbished
components and refurbished Products. * * *
4.12 Catastrophic Defects.
--------------------
(a) In the event that (i) within * * * of the first commercial shipment of
the Products to Sprint Spectrum, * * * of any lot, batch or other separately
distinguishable manufacturing run of Products delivered to Sprint Spectrum is
found to be Defective within such * * * or (ii), at any time after such * * *
but during the Term, in excess of * * * of any lot, batch or other separately
distinguishable manufacturing run of Products shipped to Sprint Spectrum is
found to be Defective within any consecutive * * * (any such defect, a
"Catastrophic Defect"), Sprint Spectrum will notify NeoPoint thereof. Upon
-------------------
receipt of such notification, NeoPoint will have * * * in which to determine the
cause of and to remedy such Defect (the "Catastrophic Defect Cure Period"). Upon
-------------------------------
such remediation, NeoPoint will promptly repair or replace any and all Products
that were subject to the same or similar condition(s) causing such Catastrophic
Defect (in (x) Sprint Spectrum's inventory, (y) Sprint Spectrum's distributing
channels including, without limitation, with Sprint Spectrum's Agents and (z)
any such Products sold by Sprint Spectrum to Purchasers) with repaired or
otherwise replaced Products at NeoPoint's sole expense (including, without
limitation, all freight and duty payments
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-14-
<PAGE>
applicable thereto). In order to accurately determine that any Catastrophic
Defect has in fact been cured by NeoPoint in accordance with the terms of this
subsection 4.12, Sprint Spectrum will not exercise any of its remedies under
this subsection 4.12 against NeoPoint until and unless the Defect percentages
for any such lot, batch or other separately distinguishable manufacturing run of
Products subject to such a Catastrophic Defect, as *** starting on the date
NeoPoint commences any such remediation, has failed to fall below the applicable
threshold percentage set forth above. Throughout the Term, Sprint Spectrum will
provide NeoPoint with quarterly Defect reports with respect to the Products
purchased hereunder.
(b) In the event that such Catastrophic Defect is not remedied within the
Catastrophic Defect Cure Period in accordance with this subsection 4.12, Sprint
Spectrum will have the right, but not the obligation, to terminate this
Agreement and to resell to NeoPoint for cash payment (at Sprint Spectrum's
original cost therefor) any and all Products which are then in Sprint Spectrum's
inventory or distribution channel(s) and which are subject to any such
Catastrophic Defect(s) at the price paid to NeoPoint by Sprint Spectrum, without
charge (including, without limitation, any restock charge) or penalty; provided
--------
that if NeoPoint is diligently pursuing a cure, prior to any such termination
- ----
Sprint Spectrum will allow NeoPoint an additional thirty (30) days to remedy
such Catastrophic Defect (provided further that any such resale will be
-------- -------
implemented at the end of the initial ninety (90) day cure period for such
Catastrophic Defect). Regardless of whether Sprint Spectrum exercises the rights
set forth in the immediately preceding sentence, in the event that such
Catastrophic Defect is not remedied, NeoPoint agrees to repurchase (at Sprint
Spectrum's original cost therefor) from Sprint Spectrum any Products repurchased
or otherwise recalled by Sprint Spectrum due to NeoPoint's failure to remedy any
such Catastrophic Defect. Sprint Spectrum will not recall any Products without
reasonable prior written notification to (but not the consent of) NeoPoint.
(c) In the event NeoPoint has failed to perform any of its warranty
obligations under the terms of this Agreement and if NeoPoint purchases or
subcontracts for the manufacture of any part of any Product to be provided
hereunder from a third party, the warranties given to NeoPoint by such third
party will inure, to the extent applicable or permitted by Applicable Law, to
the benefit of Sprint Spectrum, and Sprint Spectrum will have the right, to the
extent permitted by Applicable Law, in its sole discretion, to enforce such
warranties directly against such third party.
(d) Notwithstanding that the applicable Warranty Period in respect thereof
may have expired, NeoPoint will provide repair and maintenance (but not
replacement) services as set forth in subsection 4.11 with respect to any
Product purchased under this Agreement for a period of the longer of *** and the
useful life of the Product (but in no event to ***) following NeoPoint's written
notification to Sprint Spectrum of the discontinuance of production of the
particular model of Product at NeoPoint's standard commercial prices which will
be reasonable, unless (i) such Product has been subjected by a Person other than
NeoPoint (or any of its subcontractors or suppliers) to misuse, neglect or
improper storage, (ii) such Product is in such deteriorated or damaged condition
that it cannot reasonably be repaired or (iii) such Product has been repaired,
modified or altered by anyone other than NeoPoint or NeoPoint's authorized
repair facilities (including, but not limited to, repair facilities or personnel
authorized by Sprint Spectrum.). In the event that a Product is not repairable,
NeoPoint will return such
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-15-
<PAGE>
Product to Sprint Spectrum (at Sprint Spectrum's cost), with a statement
certifying the reasons why such Product cannot be repaired.
4.13 Right to Cease Supply of Obsolete Products.
------------------------------------------
If NeoPoint begins selling and making generally available New Products or
Products to replace or as a substitute for previously existing Products
("Previously Existing Products"), NeoPoint may, with Sprint Spectrum's prior
----------------------------
written consent, such consent not to be unreasonably withheld, cease supplying
the Previously Existing Products to Sprint Spectrum under this Agreement by
delivering six (6) months' prior written notice to Sprint Spectrum regarding
such cessation; provided that NeoPoint will offer to supply to Sprint Spectrum
-------- ----
such replacement or substitute Products on terms and conditions pursuant to and
in accordance with subsection 4.4 and the other terms and conditions of this
Agreement; and provided further that the New Products or replacement or
-------- ------- ----
substitute Products maintain performance and functionality equivalent to that
previously provided by the Previously Existing Products (unless any such lower
performance and/or functionality has been consented to by Sprint Spectrum, such
consent not to be unreasonably withheld). Notwithstanding anything stated
herein to the contrary, NeoPoint will not be required to provide Sprint Spectrum
notice under this subsection 4.13 or otherwise of any modification to a Product
or a component thereof which in no way affects the form, fit and/or
functionality of such Product. NeoPoint will under no circumstances be entitled
to cease supplying such Previously Existing Products which are covered under a
then unfilled Delivery Order from Sprint Spectrum. NeoPoint will have no right
to cease supplying Sprint Spectrum under this subsection 4.13 with any such
Previously Existing Products so long as NeoPoint continues to supply and make
available such Previously Existing Products to any other Customer.
4.14 Mark, Logos and Labeling.
------------------------
(a) The exterior of each Subscriber Unit and its packaging will bear the
marks, as specified in Appendix 4A, or such other substantially equivalent mark
or marks required by Sprint Spectrum (including any of the marks listed in
clause (i) of the fourth sentence of this subsection 4.14, a "Mark"). The Mark
----
will be positioned in accordance with Appendix 4A. Upon mutual agreement of the
Parties, and at NeoPoint's sole expense, and with appropriate lead times agreed
to by the Parties, each Subscriber Unit may be otherwise labeled and/or logoed
on the front of the Subscriber Unit below the key pad in accordance with the
Specifications. The Products will bear the "Sprint" Mark label or logo and/or
such other labels or logos as the Parties shall otherwise agree to from time to
time, in such size and position on the Products as Sprint Spectrum, or the
Parties, as the case may be, shall specify from time to time pursuant to and in
accordance with this subsection 4.14. Notwithstanding any other provision of
this Section 4.14, in no event shall the "touchpoint" mark, any other third
party name, mark or logo, or Sprint Spectrum (other than "Sprint" or "Sprint
PCS") name, mark or logo be placed on the Subscriber Units and related
literature, except (i) any of "NP[T] 1000," "NP[T] 1000 Phone," "Sprint,"
"Sprint PCS," "Sprint NP[T] 1000," "Sprint Phone NP[T] 1000," "Sprint PCS Phone
NP[T] 1000" "Sprint NeoPoint 1000" and/or any reasonable derivation of the Marks
referenced in this clause (i), (ii) any NeoPoint Mark (as defined below), or
(iii) any technology licensor mark (such as "QUALCOMM") as set forth in Section
4.14(e) below. To the extent Sprint Spectrum decides (in its sole and absolute
discretion) to use or to have NeoPoint apply the "Sprint" Mark, logo
-16-
<PAGE>
and/or trademark to or on any Product, Sprint Spectrum as a condition precedent
to any such use by or of NeoPoint will (i) endeavor to get Sprint Corporation's
prior approval of any such use and (ii) receive from Sprint Corporation such
approval in form and substance satisfactory to Sprint Spectrum.
(b) Any Mark and/or any other trademark, trade name, mark, logo, label,
name or reference (collectively, the "SSLP Proprietary Marks") provided by
----------------------
Sprint Spectrum to NeoPoint, pursuant to the terms of this Agreement are and
will continue to be the sole property of Sprint Spectrum (and/or its Affiliates,
as the case may be) and NeoPoint shall only be granted a limited use license
with respect thereto for the express purpose of applying such SSLP Proprietary
Marks to Products and Product packaging in accordance with the Specifications
which such Products may be sold or otherwise transferred exclusively to Sprint
Spectrum, its Agents and/or Purchasers pursuant to the terms of this Agreement.
NeoPoint agrees that it has no rights with respect to the SSLP Proprietary
Marks, except as expressly provided in this subsection 4.14, and will not use
any of the SSLP Proprietary Marks as part of the business name of NeoPoint. All
NeoPoint trademarks, tradenames, marks or logos set forth in Appendix 4A (the
"NeoPoint Marks") are the sole property of NeoPoint and NeoPoint grants to
--------------
Sprint Spectrum limited license to use the NeoPoint Marks in connection with the
distribution, resale and/or marketing of the Products. Sprint Spectrum agrees to
use the appropriate trademark symbol and clearly indicate NeoPoint's ownership
of the NeoPoint Marks whenever the product name is mentioned in any
advertisement, brochure or in any other manner in connection with the Products.
Upon NeoPoint's request, Sprint Spectrum shall promptly provide NeoPoint with
samples of all literature, labels and labeling prepared by Sprint Spectrum which
use the NeoPoint Marks to ensure compliance with this subsection 4.14. Sprint
Spectrum shall not combine the NeoPoint Marks with other marks so as to
effectively create a unitary composite mark. Sprint Spectrum shall not do or
cause to be done any act or anything contesting or in any way impairing or
reducing NeoPoint's right, title, and interest in the NeoPoint Marks, and
acknowledges NeoPoint's ownership of the NeoPoint Marks. All use of the NeoPoint
Marks by Sprint Spectrum will inure to the benefit of and be on behalf of
NeoPoint.
(c) Sprint Spectrum will participate and have review and consent rights
with respect to Product labeling and NeoPoint agrees to design Product labeling
to complement Sprint Spectrum's marketing efforts in accordance with Sprint
Spectrum's reasonable instructions.
(d) NeoPoint will cooperate with Sprint Spectrum in the development of
Product packaging that is fully integrated with Sprint Spectrum's branding
strategy and which supports Sprint Spectrum's marketing communication and
segmentation strategy, as communicated to NeoPoint by Sprint Spectrum from time
to time. Such cooperation will focus on the contents of Product packaging, the
configuration, physical dimensions and materials of such packaging,
communications, colors, graphics and descriptive language used in connection
with such Products and such other items as the Parties shall agree upon from
time to time. If NeoPoint is itself unable to meet Sprint Spectrum's packaging
needs as set forth herein or as otherwise communicated by Sprint Spectrum to
NeoPoint from time to time, NeoPoint agrees to supply the Products in specified
configurations and bulk packaging to Sprint Spectrum; provided that in such case
-------- ----
NeoPoint will credit Sprint Spectrum against the purchase price for the subject
Products with any amounts saved by NeoPoint for not having had to perform the
packaging services as required by the Specifications. Exhibit B includes Sprint
Spectrum's preliminary
-17-
<PAGE>
packaging requirements, as such requirements may be modified pursuant to the
mutual agreement of the Parties.
(e) The exterior of each Subscriber Unit (or the interior as permitted
under appropriate circumstances) shall bear the patent markings and logos as
required by NeoPoint's key component suppliers or technology licensors (such as
"QUALCOMM") as specified in Appendix 4B. The patent markings and logos shall be
--------
positioned in accordance with the terms of Appendix 4B.
(f) Notwithstanding any marking or branding requirements otherwise set
forth in this Agreement, Sprint Spectrum agrees take delivery from NeoPoint of
*** Subscriber Units branded with the "NeoPoint" mark, which will first be
applied by Sprint Spectrum to satisfy NeoPoint "seed-stock" Subscriber Unit
commitments set forth in Section 4.7 hereof and the balance shall be applied to
the Minimum Commitment.
4.15 Materials and Equipment.
-----------------------
Whenever materials are specified or described in this Agreement (including
the Specifications) by using the name of a proprietary item or the name of a
particular supplier, the naming of the item is intended to establish the type,
function and quality required, and substitute materials may nonetheless be used,
provided that such materials are equivalent or equal to those named. If
- -------- ----
NeoPoint wishes to furnish or use a substitute item, NeoPoint must first certify
that the proposed substitute will perform at least as well as the intended
functions and achieve the results called for by this Agreement (including but
not limited to the Specifications), will be substantially similar or of equal
substance to that specified and be suited for the same use as that specified.
Sprint Spectrum may require NeoPoint to furnish, at NeoPoint's expense,
additional data about the proposed substitute as required to evaluate the
substitution. Sprint Spectrum will be allowed a reasonable time within which to
evaluate each proposed substitute. Notwithstanding the foregoing, prior to the
shipment of Products pursuant to the terms of this Agreement, NeoPoint may at
any time without notice to or consent of Sprint Spectrum make changes in a
NeoPoint Product furnished pursuant to this Agreement, or modify the drawings
and published specifications relating thereto, or substitute Products of similar
or later design to fulfill its obligations under this Agreement or otherwise
fill an order, provided that any such changes, modifications or substitutions
-------- ----
will in no way have an adverse affect or otherwise adversely impact upon the
form, fit, or function of an ordered Product pursuant to and in accordance with
the applicable Specifications. With respect to changes, modifications and
substitutions which do in fact adversely affect the form, fit, or function of an
ordered Product pursuant to and in accordance with the Specifications, NeoPoint
must notify Sprint Spectrum in writing at least ninety (90) days prior to the
effective dates of any such changes, modifications or substitutions. In the
event that any such change, modification or substitution is not desired by
Sprint Spectrum (in its sole and absolute discretion), Sprint Spectrum will
notify NeoPoint within thirty (30) days from the date of notice and NeoPoint
will not furnish any such changed Products to Sprint Spectrum on any orders in
process at the time Sprint Spectrum is so notified; provided further, nothing
-------- -------
contained herein will otherwise modify NeoPoint obligations under the terms of
this Agreement.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-18-
<PAGE>
4.16 Applicable Law and Radio Frequency Energy Standards.
---------------------------------------------------
All Products must comply, to the extent applicable, with all Applicable
Law including, but not limited to, the requirements of the rules and regulations
promulgated by the FCC, as the same may be amended from time to time (the "FCC
---
Rules and Regulations"), including, without limitation, those provisions
- ---------------------
concerning the labeling of Products and the suppression of radio frequency and
electromagnetic radiation to specified levels. In the event that the Products
produce radio frequency interference, notwithstanding that such Products comply
with the FCC Rules and Regulations, NeoPoint will use its reasonable efforts to
provide Sprint Spectrum with technical information on the methods to suppress
such interference and will exercise reasonable efforts to isolate and remediate
any such radio frequency interference caused by the Products (an "RF
--
Interference Condition"), provided that Sprint Spectrum will cooperate to the
- ---------------------- -------- ----
extent reasonable with NeoPoint to achieve such remediation. Nothing in this
subsection 4.16 will be deemed to diminish or otherwise limit NeoPoint's
warranty obligations hereunder.
4.17 Change Orders.
-------------
From time to time Sprint Spectrum may request changes or modifications to
the Products or packaging and/or the Specifications, and any such request made
after the Effective Date, with respect to each affected Product, shall be deemed
a change order ("Change Orders"). All such Change Orders requested in writing
-------------
by Sprint Spectrum to NeoPoint will be subject to the reasonable good faith and
timely agreement (including, without limitation, agreement on terms such as one-
time charges, price increases and minimum purchase commitments) of NeoPoint and
Sprint Spectrum which agreement will be evidenced by a writing executed by an
authorized representative of each of the Parties. Notwithstanding anything
contained herein to the contrary, changes or modifications to the Products,
Specifications, packaging, standards or other requirements set forth in this
Agreement pursuant to and in accordance with the terms of Section 3 shall not
constitute Change Orders under this subsection 4.17.
SECTION 5. LEAD TIMES AND DELAY
5.1 Lead Times.
----------
Excluding the Minimum Commitment pursuant to subsection 4.2, provided that
-------- ----
Sprint Spectrum submits Forecasts to NeoPoint and places Delivery Orders for
Products in accordance with Section 6 below, NeoPoint will ship Products (other
than as specified in the last sentence of this subsection 5.1) ordered by Sprint
Spectrum against such Forecasts within the later of (i) *** after receipt and
NeoPoint's acknowledgement of Sprint Spectrum's Delivery Order therefor, and
(ii) the shipment date specified by Sprint Spectrum in such Delivery Order
pursuant to subsection 6.2(a); provided that NeoPoint has acknowledged receipt
-------- ----
of such Delivery Order, accepted any non-binding Forecasted Delivery Orders
pursuant to Section 6.2 hereof, and the time period from the date of NeoPoint's
acknowledgement and the specified shipment date is at least ***. NeoPoint shall
provide Sprint Spectrum with specific lead times *** applicable to each Delivery
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-19-
<PAGE>
Order for Products at the time NeoPoint receives, acknowledges and accepts (as
applicable) Sprint Spectrum's Delivery Order therefor.
5.2 Delivery Delay.
--------------
***
SECTION 6. FORECASTS AND ORDERING
6.1 Forecasts.
---------
Commencing within ten (10) Business Days after the Effective Date, and on
the first of each month thereafter, Sprint Spectrum will deliver to NeoPoint
written non-binding forecasts (a "Forecast") specifying its non-binding estimate
--------
of the quantity of each type of Product that Sprint Spectrum expects to purchase
on a month to month basis during the twelve (12) months following the date of
such Forecast (a "Forecast Period"). ***
-------- ------
6.2 Ordering.
--------
(a) In order to be effective, all orders by Sprint Spectrum for Products
will be made by Sprint Spectrum in the form of written Delivery Orders,
specifying the quantity of each type of Product to be purchased and the date or
dates on which such Products are required to be shipped to Sprint Spectrum, the
shipping method and the location to which such Products should be shipped;
provided that such shipment date will be no earlier *** after the date of such
- -------- ----
Delivery Order; and provided further that NeoPoint will use its reasonable
-------- -------
efforts to fulfill Delivery Orders up to *** in excess of forecasted quantities
that Sprint Spectrum is entitled to turn into firm Delivery Orders pursuant to
and in accordance with subsection 6.1 (each an "Excess Delivery Order"). All
Delivery Orders shall be issued for a minimum quantity of *** units. Each
Delivery Order and Excess Delivery Order will be submitted in writing to
NeoPoint at 4225 Executive Drive, Suite 600, La Jolla, California 92037 or any
other location of NeoPoint designated to Sprint Spectrum in writing by NeoPoint
from time to time, and will be subject to the acknowledgement by NeoPoint in
writing to the designated authorized representative of Sprint Spectrum within
five (5) Business Days of receipt of Delivery Orders. Failure of NeoPoint to
acknowledge to Sprint Spectrum in writing receipt of any Delivery Order or
Excess Delivery Order shall be deemed to render any such Delivery Order or
Excess Delivery Order acknowledged. Notwithstanding subsection 6.2(d) below, to
the extent that NeoPoint is actually aware that any Delivery Order in any way
contradicts or is not
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-20-
<PAGE>
otherwise in conformance with the terms of this Agreement, NeoPoint agrees
to promptly notify Sprint Spectrum of any such contradiction or non-conformance
as soon as possible upon becoming actually aware of such contradiction or non-
conformance so that Sprint Spectrum will have a reasonable opportunity to
correct any such contradiction or non-conformance and furthermore NeoPoint will
reasonably endeavor to fulfill any such non-conforming Delivery Order ignoring
any such non-conformity unless Sprint Spectrum, after notification from
NeoPoint, expressly refuses to accept the fulfillment of such Delivery Order
with any such correcting modification.
(b) Notwithstanding the provisions of subsection 6.1, up to *** of any
Delivery Order or Excess Delivery Order may, in Sprint Spectrum's sole and
absolute discretion, be postponed one time without penalty by written notice
from Sprint Spectrum to NeoPoint at any time *** immediately prior to the
initial shipment date established for such Delivery Order pursuant to the terms
of this Agreement for a period not in excess of *** from such initial shipment
date. In the event that Sprint Spectrum seeks to postpone more than *** of a
Delivery Order for a period not in excess of ***, then Sprint Spectrum shall pay
to NeoPoint a restocking fee equal to *** of the purchase price for the
additional Products being postponed. Sprint Spectrum shall have no right to
postpone any Delivery Order beyond ***.
(c) NeoPoint will cooperate with Sprint Spectrum, and/or any Person
designated by Sprint Spectrum for such purpose, (i) to utilize UPC stock control
numbering and other bar-coding requirements relating to inventory processes and
systems, and (ii) to develop processes and systems that will maximize delivery
logistics. Metric targets will be defined by the mutual good faith agreement of
the Parties for acceptable stock out percentages, delivery times and total
logistics costs.
(d) Unless the Parties otherwise expressly agree in writing, each Delivery
Order will be deemed to incorporate by reference all of the terms and conditions
of this Agreement. Should the terms of any Delivery Order conflict with the
terms of this Agreement, the terms of this Agreement shall govern. This
Agreement will continue to apply to a Delivery Order pursuant to the terms of
this Agreement until all obligations herein and thereunder are performed.
SECTION 7. MARKETING, SALES AND TECHNICAL SUPPORT
7.1 Sales Training and Promotional Efforts.
--------------------------------------
(a) NeoPoint will work with Sprint Spectrum, at NeoPoint's sole expense,
to provide a sales training program for the distribution channels used by Sprint
Spectrum for Subscriber Units. The goal of this program will be to provide
sales training ("Training") to Sprint Spectrum's personnel on the features of
--------
the Subscriber Units, as well as to provide appropriate Product related
collateral material. The training program will include, but will not be limited
to, the following topics: CDMA Product features and usage; Subscriber Unit
programming, installation and troubleshooting; and such other matters as the
Parties may reasonably agree upon from time to time. The target audiences for
the training will be Sprint Spectrum's and its Agent's marketing and sales
personnel. These training programs will take place at mutually agreeable
locations and times at least once a year for the first two (2) years after
introduction of the
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-21-
<PAGE>
respective models of Subscriber Units, with a total amount of training conducted
by NeoPoint personnel of up to *** per year, at no charge to Sprint Spectrum.
Sprint Spectrum will be responsible for the travel, per diem, hotel and all
other non-training expenses of Sprint Spectrum personnel with respect to such
NeoPoint training and NeoPoint will be responsible for any and all costs
associated with the training facilities, training materials and training
personnel and instructors. Such training program will last for a period of time
reasonably agreed upon by the Parties. NeoPoint anticipates that Sprint Spectrum
may want to influence aspects of the training and will design the training
program to complement Sprint Spectrum's marketing and sales effort.
(b) In order to assist Sprint Spectrum to promote sales of the Products,
NeoPoint will furnish Sprint Spectrum, on terms and conditions mutually
agreeable to the Parties: catalogs, point-of-sales literature, training
documentation, printed technical information, data sheets and other reasonable
advertising materials in such quantities and at such time as may be reasonably
agreed to by the Parties.
(c) If Sprint Spectrum reasonably requires customized NeoPoint sales and
training literature for Sprint Spectrum internal use, the content of NeoPoint's
appropriate existing literature will be provided to Sprint Spectrum, in Sprint
Spectrum's discretion at NeoPoint's sole expense, in electronic form, or CD-ROM
format to allow Sprint Spectrum to produce literature and promotional pieces
that are of Sprint Spectrum's style and name. The use of any such literature
will be subject to the guidelines established between the Parties pursuant to
subsection 9.2. In addition, NeoPoint hereby grants Sprint Spectrum a
Territory-wide, non-exclusive, royalty-free license to reprint any NeoPoint-
owned sales literature in connection with Sprint Spectrum's sales, advertising
and promotion of the Products subject to the terms of subsection 4.14(b). In
addition, NeoPoint hereby grants Sprint Spectrum a non-exclusive royalty-free
license to distribute within the Territory any of NeoPoint's own sales
literature in connection with Sprint Spectrum's sales, advertising and promotion
of the Products; provided that in the event any such literature is in fact
-------- ----
distributed outside of the Territory by any Person other than Sprint Spectrum,
NeoPoint will not, in such event, take any action for damages of any nature
against Sprint Spectrum under this Agreement or otherwise.
(d) Unless otherwise agreed by Sprint Spectrum and NeoPoint, NeoPoint will
not be responsible for any "MDF," "Co-op marketing" fees or other marketing
funds not otherwise set forth in this Agreement.
SECTION 8. INTELLECTUAL PROPERTY AND LICENSING
8.1 Intellectual Property Rights Infringement.
-----------------------------------------
NeoPoint will defend, at its own expense, all proceedings, suits and claims
against and/or affecting Sprint Spectrum (and/or the Products), its affiliates,
directors, officers, agents, employees and successors for infringement, breach
or violation (whether by use, sale or otherwise) of any patent, trademark,
copyright, trade secret or other intellectual property rights of any third party
within the Territory (collectively, "Intellectual Property Rights"), arising
----------------------------
under or in connection with Applicable Law covering, or alleged to cover, the
Products or any component thereof for its intended use, in the form furnished or
as subsequently modified by NeoPoint or
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-22-
<PAGE>
any of its agents or subcontractors. NeoPoint will pay all sums, costs, expenses
and liabilities, including, without limitation, all reasonable attorneys' fees
and other costs, incurred by Sprint Spectrum, its affiliates, directors,
officers, agents, employees or successors in connection with or otherwise
arising out of any such proceeding, suit or claim; provided that:
-------- ----
(a) NeoPoint will be given prompt written notice of all claims of any such
infringement or violation and of any suits or claims brought or threatened
against Sprint Spectrum or NeoPoint of which Sprint Spectrum has actual
knowledge;
(b) NeoPoint is given full authority to assume control of the defense
(including appeals) thereof through its own counsel at its sole expense and will
have the sole right to settle any suits or claims without the consent of Sprint
Spectrum; provided that NeoPoint will not agree to injunctive relief against
-------- ----
Sprint Spectrum or any other settlement or result which could otherwise
adversely affect Sprint Spectrum or its interests without Sprint Spectrum's
consent, such consent not to be unreasonably withheld; provided further that
-------- -------
NeoPoint will, during the preparation for and the pendency and prosecution of
any such defense, provide Sprint Spectrum regular, timely and detailed updates
on and status reports with respect to any such defense and will notify Sprint
Spectrum of any proposed settlement prior to NeoPoint's acceptance of such
settlement; and
(c) Sprint Spectrum will reasonably cooperate with NeoPoint (at NeoPoint's
expense) in the defense of such proceeding, suit or claim.
8.2 NeoPoint's Obligation to Cure.
-----------------------------
If in any such suit so defended all or any part of the Products or the
Software or any component thereof is enjoined in any action charging
infringement, or if in respect of any claim of infringement or violation
NeoPoint deems it advisable to do so, NeoPoint will, within one hundred twenty
(120) days, at its sole cost and expense take one or more of the following
actions: (i) procure the right to continue the use of the same without
interruption for Sprint Spectrum; (ii) replace the infringing Product, Software
or component with a noninfringing product, noninfringing Software or a non-
infringing component, as applicable, that meets the Specifications; or (iii)
modify said Product, Software or any component thereof so as to be
noninfringing, provided that the Product, Software or any component thereof as
-------- ----
modified meets all of the Specifications. In the event that NeoPoint is not
able, using its reasonable and diligent efforts, to cure the infringement
pursuant to clause (i), (ii) or (iii) in the immediately preceding sentence,
NeoPoint will refund to Sprint Spectrum the full purchase price paid by Sprint
Spectrum for such infringing Products that are returned to NeoPoint by Sprint
Spectrum (which such return will be at NeoPoint's sole cost and expense).
8.3 NeoPoint's Obligations.
----------------------
NeoPoint's obligations under this Section 8 will not apply to (i) any
infringement or violation of Intellectual Property Rights caused by modification
of any Product, Software or any component thereof by any Person other than
NeoPoint, its employees, agents or subcontractors acting on NeoPoint's behalf or
at its direction (including, but not limited to, repair facilities or personnel
authorized by Sprint Spectrum), or (ii) any infringement or violation caused
directly by any such other Person's use and maintenance or repair of such
Product other than in
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<PAGE>
accordance with the Specifications and the purposes contemplated by this
Agreement for use in Sprint Spectrum's Nationwide Network, except as authorized
by NeoPoint. NeoPoint's indemnification obligations with respect to Products
purchased by Sprint Spectrum or its Affiliates pursuant to and in accordance
with the provisions of this Agreement specified in this Section 8 will not apply
to any intellectual property infringement caused directly and solely by a Sprint
Spectrum Defined Feature other than a NeoPoint Assumed Feature.
8.4 Sprint Spectrum's Obligations.
-----------------------------
Only with respect to Products purchased by Sprint Spectrum or its
Affiliates pursuant to and in accordance with the provisions of this Agreement,
Sprint Spectrum agrees that it will defend, at its own expense, and indemnify
and hold harmless NeoPoint, its affiliates, directors, officers, agents,
employees and successors, from and against all proceedings, suits and claims for
infringement, breach or violation (whether by use, sale or otherwise) of any
patent, trademark, copyright, trade secret or other intellectual property rights
of any third party within the Territory, arising under or in connection with
Applicable Law covering, or alleged to cover: (i) Sprint Spectrum's
modification, use or maintenance of any Product other than in accordance with
the Specifications and the terms of this Agreement or NeoPoint's written
authorization, (ii) related to any add-on accessory or other component not
provided and/or authorized by NeoPoint or its Subcontractors, (iii) to the
extent, but only to such extent, an intellectual property infringement claim
involving any Sprint Spectrum markings or logos or labeling, or (iv) to the
extent, but only to such extent, an intellectual property infringement claim
directly and solely involving a Sprint Spectrum Defined Feature other than a
NeoPoint Assumed Feature. Sprint Spectrum agrees that it will pay all sums,
including, without limitation, reasonable attorneys' fees, damages, losses,
liabilities, expenses and other costs, incurred by NeoPoint, its affiliates,
directors, officers, agents, employees or successors in connection with or
otherwise arising out of any such proceeding, suit or claim; provided that:
-------- ----
(a) Sprint Spectrum will be given prompt written notice of all claims of
any such infringement or violation and of any suits or claims brought or
threatened against NeoPoint or Sprint Spectrum of which NeoPoint has actual
knowledge;
(b) Sprint Spectrum is given full authority to assume control of the
defense (including appeals) thereof through its own counsel at its sole expense
and will have the sole right to settle any suits or claims without the consent
of NeoPoint, provided that Sprint Spectrum has no right to agree to injunctive
-------- ----
relief against NeoPoint; provided further that Sprint Spectrum will notify
-------- -------
NeoPoint of any proposed settlement prior to Sprint Spectrum's acceptance of
such settlement; and
(c) NeoPoint will cooperate fully with Sprint Spectrum in the defense of
such suit or claims and provide Sprint Spectrum, at Sprint Spectrum's expense,
such assistance as Sprint Spectrum may reasonably require in connection
therewith, including, but not limited to, implementation of modifications to
Products or other manufacturing fixes.
-24-
<PAGE>
8.5 Software License and Ownership.
------------------------------
Subscriber Units sold to Sprint Spectrum hereunder may contain software in
executable code form ("Software"), and, except as otherwise expressly provided
--------
herein, all references to "Subscriber Units" in this Agreement will be deemed to
include the accompanying Software. NeoPoint hereby grants to Sprint Spectrum a
non-exclusive, royalty-free, world-wide, perpetual license to use the Software
as such software is embedded in the Products. Sprint Spectrum will also have the
right to sublicense this right to its Agents' Purchasers or end-user customers.
In no event shall Sprint Spectrum or its agents reverse engineer, decompile,
modify or disassemble the Software.
8.6 Ownership of Intellectual Property Rights.
-----------------------------------------
(a) Except for licenses otherwise expressly granted under this Agreement,
the sale of Products and the license of Software to Sprint Spectrum do not
convey to Sprint Spectrum any intellectual property rights in such Products or
Software (other than Sprint Spectrum Defined Features) and Sprint Spectrum
acknowledges NeoPoint's exclusive rights thereto. Neither the sale of Products,
the license of any Software, nor any provision of this Agreement will be
construed to grant to Sprint Spectrum, either expressly, by implication or by
way of estoppel, any license under any patents or other intellectual property
rights of NeoPoint covering or relating to any other product or invention of
NeoPoint or any combination of Product or Software with any other product of
NeoPoint.
(b) Except as set forth in subsection 8.6 and for licenses otherwise
expressly granted under this Agreement, the development, modification, use,
notice or integration of any Sprint Spectrum Defined Feature(s) does not convey
to NeoPoint any intellectual property rights in any such Sprint Spectrum Defined
Feature(s) and NeoPoint acknowledges Sprint Spectrum's exclusive rights thereto.
Neither the development, modification, use, notice or integration of any Sprint
Spectrum Defined Feature(s), any license of any such Sprint Spectrum Defined
Feature, nor any provision of this Agreement will be construed grant to
NeoPoint, either expressly, by implication or by way of estoppel, any license
under any patents or other intellectual property rights of Sprint Spectrum
covering or relating to any other product or invention of NeoPoint or any
combination of any Sprint Spectrum Defined Feature(s) with any other product,
feature or right of Sprint Spectrum or any of its affiliates.
8.7 Use of Name and Materials.
------------------------
Subject to: (i) NeoPoint's then existing reasonable marketing policies, if
any, with respect to Products sold hereunder, and (ii) the provisions of
subsection 9.1(b) hereof, NeoPoint grants Sprint Spectrum rights to state that
it is using NeoPoint's Products in Sprint Spectrum's marketing, advertising or
promotion of the Nationwide Network, any PCS System, any part thereof or any
Product. Subject to NeoPoint's then existing reasonable marketing policies, if
any, and trademark policies set forth in subsection 4.14(b), with respect to
Products sold hereunder Sprint Spectrum has the right to use such marketing,
advertising or promotion NeoPoint's advertising and marketing materials
(including pamphlets and brochures) provided to Sprint Spectrum by NeoPoint
describing the Nationwide Network, any PCS System, any part thereof or any
Product.
-25-
<PAGE>
8.8 License to Use NeoPoint Patents.
------------------------------
NeoPoint hereby grants to Sprint Spectrum under any NeoPoint patents which
are necessary to enable Sprint Spectrum to use, sell or distribute the Products
(the "NeoPoint Patents"), a royalty-free, nonexclusive, perpetual license during
the term of this Agreement, to use, sell and distribute within the Territory the
Products in connection with Sprint Spectrum's provision of telecommunications
services. The Patent License includes the right to use not only the Products
licensed or purchased hereunder, but also combinations of the Products and the
Software therein with other equipment and software which are utilized by Sprint
Spectrum in the provision of such telecommunications services, but not to
manufacture, use or sell any derivatives of the Products. Except as otherwise
set forth in this Agreement, the scope of the Patent License will extend only to
the right to use and/or the right to sell, but not manufacture, or cause to be
manufactured, the Product or Products to which such Patent License relates. The
Patent License will continue for the entire unexpired term of the last to expire
of such NeoPoint Patents.
8.9 Source Code Escrow.
------------------
Upon ninety (90) days prior written notice from Sprint Spectrum NeoPoint
will become a party to a Source Code escrow agreement (the "Escrow Agreement")
----------------
which will enable Sprint Spectrum and its designated affiliates to obtain access
to the applicable Source Codes relating to any Sprint Spectrum Defined Feature
upon sixty (60) days prior written notice in the event that (a) an order for
relief under Chapter 7 or Chapter 11 of the United States Bankruptcy Code is
entered with respect to NeoPoint, (b), at any time during the Term, NeoPoint
shall cease to provide maintenance and/or support for the Products in accordance
with its obligations hereunder, (c) NeoPoint is unable or unwilling to pay the
escrow fees or expenses required under the Escrow Agreement or (d) any sale,
assignment or other transfer of NeoPoint's rights to the Products, without the
prior written consent of Sprint Spectrum, would prevent NeoPoint from
discharging its obligations hereunder. NeoPoint will pay all costs associated
with establishing a Source Code escrow arrangement; provided that Sprint
-------- ----
Spectrum will be responsible for all costs incurred in connection with the
maintenance of the Source Code escrow and the retrieval or withdrawal of Source
Code or related information from any such escrow, once established. NeoPoint
represents, warrants and agrees that (i) the Sprint Spectrum Defined Feature
Source Codes delivered into escrow in accordance with the Escrow Agreement will
comprise the full Source Code language statement of the software as used, or
required to be used, by NeoPoint to maintain or modify any such features without
the help of any other Person or reference to any other material, (ii) such
Source Codes will include all relevant versions thereof and upgrades and
enhancements thereto, and (iii) such Source Codes must be kept up to date,
including all updates needed to maintain compliance with the Specifications. In
addition, all parts of the Sprint Spectrum Defined Feature Source Codes and all
updates thereto (including, without limitation, those that are necessary to
maintain compliance with the Specifications) must be delivered into escrow in
accordance with the Escrow Agreement.
-26-
<PAGE>
SECTION 9. PROPRIETARY INFORMATION
9.1 Public Statements and Advertising.
---------------------------------
(a) Except as consented to by Sprint Spectrum or as otherwise specifically
set forth herein, NeoPoint will not issue any public statement relating to or in
any way disclosing any aspect of the work contemplated by this Agreement, the
Nationwide Network or any PCS System including the scope, the specific terms of
this Agreement, extent or value of the work contemplated by this Agreement
and/or the Nationwide Network or any PCS System. Except as otherwise consented
to by NeoPoint (such consent not to be unreasonably withheld), Sprint Spectrum
will not issue any public statement (or any private statement unless required in
the performance of the work contemplated by this Agreement) relating to or in
any way disclosing any aspect of the work contemplated by this Agreement,
including the scope, the specific terms of this Agreement, the extent or value
of the work contemplated by this Agreement. NeoPoint agrees not to use for
publicity purposes any photographs, drawings and/or materials describing any PCS
System or any part of the Nationwide Network, without obtaining the prior
written consent of Sprint Spectrum, such consent not to be unreasonably
withheld. The obligations of the Parties under this subsection 9.1 are in
addition to their respective obligations pursuant to subsection 9.2 but in no
way limit the exceptions to public disclosure specifically referred to in
subsection 9.2(a) clauses (i) through (vii). This subsection 91 will in no way
limit (i) either Party from responding to customary press inquiries or otherwise
making public or private statements not otherwise disclosing Proprietary
Information or the terms of this Agreement in the normal course of its business
and/or in connection with the obligations hereunder or (ii) the provision of
necessary information to prospective suppliers and NeoPoint's or Sprint
Spectrum's personnel, agents or consultants.
(b) Each Party will submit to the other proposed copies of all advertising
(other than public statements or press releases pursuant to and in accordance
with the last sentence of subsection 9.1(a) above) wherein the name, trademark
or service mark of the other Party or its affiliates is mentioned; and neither
Party will publish or use such advertising without the other Party's prior
written approval. Such approval will be granted as promptly as possible and will
not be unreasonably withheld. The Parties acknowledge that the obtaining of
prior written approval for each such use pursuant to this subsection 9.1(b) may
be an administrative burden. From time to time at the request of either Party,
the Parties will establish mutually acceptable guidelines that will constitute
pre-authorization for the uses specified therein. Such guidelines will be
subject to change from time to time subject to the mutual agreement of the
Parties.
9.2 Confidentiality.
---------------
(a) Except as provided below, all information, including, without
limitation, all oral and written information (including, but not limited to,
determinations or reports by arbitrators pursuant to the terms of this
Agreement), disclosed to the other Party is deemed to be confidential,
restricted and proprietary to the disclosing Party (hereinafter referred to as
"Proprietary Information"). Each Party agrees to use the Proprietary Information
-----------------------
received from the other Party only for the purpose of this Agreement. EXCEPT AS
SPECIFIED IN THIS AGREEMENT, NO OTHER RIGHTS, AND PARTICULARLY LICENSES, TO
TRADEMARKS, INVENTIONS, COPYRIGHTS, PATENTS, OR ANY OTHER
-27-
<PAGE>
INTELLECTUAL PROPERTY RIGHTS ARE IMPLIED OR GRANTED UNDER THIS AGREEMENT OR BY
THE CONVEYING OF PROPRIETARY INFORMATION BETWEEN THE PARTIES. Proprietary
Information supplied to another Party is not to be reproduced in any form except
as required to accomplish the intent of, and in accordance with the terms of,
this Agreement. The receiving Party must provide the same care to avoid
disclosure or unauthorized use of Proprietary Information as it provides to
protect its own similar proprietary information but in no event will the
receiving Party fail to use reasonable care under the circumstances to avoid
disclosure or unauthorized use of Proprietary Information. All Proprietary
Information must be retained by the receiving Party in a secure place with
access limited to only such of the receiving Party's employees, subcontractors,
suppliers or agents who need to know such information for purposes of this
Agreement and to such third parties as the disclosing Party has consented to by
prior written approval. All Proprietary Information, unless otherwise specified
in writing (i) remains the property of the disclosing Party, (ii) must be used
by the receiving Party only for the purpose for which it was intended, and (iii)
such Proprietary Information, including all copies of such information, must be
returned to the disclosing Party or destroyed after the receiving Party's need
for it has expired or upon request of the disclosing Party, and, in any event,
upon termination of this Agreement. At the request of the disclosing Party, the
receiving Party will furnish a certificate of an officer of the receiving Party
certifying that Proprietary Information not returned to the disclosing Party has
been destroyed. For the purposes hereof, Proprietary Information does not
include information that:
(i) is published or is otherwise in the public domain through no fault
of the receiving Party at the time of any claimed disclosure or
unauthorized use by the receiving Party;
(ii) prior to disclosure pursuant to this Agreement is properly within
the legitimate possession of the receiving Party as evidenced by reasonable
documentation to the extent applicable;
(iii) subsequent to disclosure pursuant to this Agreement is lawfully
received from a third party having rights in the information without
restriction of the third party's right to disseminate the information and
without notice of any restriction against its further disclosure;
(iv) is independently developed by the receiving Party or is otherwise
received through parties who have not had, either directly or indirectly,
access to or knowledge of such Proprietary Information;
(v) is transmitted to the receiving Party after the disclosing Party
has received written notice from the receiving Party, after termination or
expiration of this Agreement, that it does not desire to receive further
Proprietary Information;
(vi) is obligated to be produced under order of a court of competent
jurisdiction or other similar requirement, rule or regulation of a
Governmental Entity, so long as the Party required to disclose the
information provides the other Party with prior notice of such order or
requirement and its cooperation to the extent reasonable in preserving its
confidentiality; or
-28-
<PAGE>
(vii) the disclosing Party agrees in writing is free of such
restrictions.
Because damages may be difficult to ascertain, the Parties agree that,
without limiting any other rights and remedies specified herein, an injunction
may be sought against the Party who has breached or threatened to breach this
subsection 9.2. Each Party represents and warrants that it has the right to
disclose all Proprietary Information which it has disclosed to the other Party
pursuant to this Agreement, and each Party agrees to indemnify and hold harmless
the other from all claims by a third party related to the wrongful disclosure of
such third party's proprietary information. Otherwise, neither Party makes any
representation or warranty, express or implied, with respect to any Proprietary
Information.
SECTION 10. INDEMNIFICATION; LIMITATION ON LIABILITY
10.1 NeoPoint Indemnity.
------------------
(a) NeoPoint will indemnify and hold Sprint Spectrum and its Affiliates,
Partners, directors, officers, agents and employees (the "Indemnitees") harmless
-----------
from and against all third party claims, demands suits, proceedings, damages,
costs, expenses, liabilities, including, without limitation, reasonable legal
fees (collectively, "Liabilities") brought against or incurred by any Indemnitee
-----------
for (i) injury to persons, or (ii) loss or damage to any property (other than
any Product), or (iii) any other liability, in each instance resulting from or
in connection with any act or omission, of NeoPoint and/or any of its
affiliates, employees, agents or subcontractors in the performance of this
Agreement; provided, however, that Intellectual Property Rights infringement is
-------- -------
subject to the indemnification provisions of Section 8 hereof. If NeoPoint and
Sprint Spectrum jointly cause such Liabilities, the Parties will share the
liability in proportion to their respective degree of causal responsibility.
(b) NeoPoint's obligation to indemnify under subsection 10.1(a) with
respect to any Liability will not arise unless the Indemnitee (i) notifies
NeoPoint in writing of such potential Liability within a reasonable time after
the Indemnitee is aware of such potential Liability; provided that the lack of
-------- ----
providing such notice will not affect NeoPoint's obligation hereunder (A) if
NeoPoint otherwise has actual knowledge of such Liability and (B) unless such
lack of notice is the cause of NeoPoint being unable to adequately and
reasonably defend such Liability, (ii) gives NeoPoint the opportunity and
authority to assume the defense of and settle such Liability, subject to the
provisions set forth below, and (iii) furnishes to NeoPoint all such reasonable
information and assistance available to Sprint Spectrum (or other Indemnitees)
as may be reasonably requested by NeoPoint and necessary for the defense against
such Liability. NeoPoint will assume on behalf of the Indemnitee and conduct in
good faith the defense of such Liability with counsel (including in-house
counsel) reasonably satisfactory to the Indemnitee; provided that the Indemnitee
-------- ----
will have the right to be represented therein by advisory counsel of its own
selection and at its own expense. If the Indemnitee will have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to, or inconsistent with, those available to NeoPoint, the
Indemnitee will have the right to select separate counsel reasonably
satisfactory to NeoPoint to participate in the defense of such action on its own
behalf at such Indemnitee's expense. In the event NeoPoint fails, after written
demand by such Indemnitee, to defend any Liability as to which an indemnity
should be provided under subsection 10.1(a), then the Indemnitee may, at
NeoPoint's expense, contest or
-29-
<PAGE>
settle such matter without NeoPoint's consent. All payments, losses, damages and
reasonable costs and expenses incurred in connection with such contest, payment
or settlement controlled by such Indemnitee will be to NeoPoint's account.
NeoPoint will not settle any such Liability without the consent of the
Indemnitee, which consent will not be unreasonably withheld. This indemnity is
in lieu of all other obligations of NeoPoint, expressed or implied, in law or in
equity, to indemnify the Indemnitees (except those other indemnity obligations
expressly set forth in this Agreement).
(c) EXCEPT AS EXPRESSLY SET FORTH IN SUBSECTIONS 4.8, 4.10, 4.12 and 13.1
OF THIS AGREEMENT, NeoPoint MAKES NO WARRANTIES AS TO PRODUCTS, SOFTWARE,
TECHNOLOGY, MATERIALS, SERVICES, INFORMATION OR OTHER ITEMS IT FURNISHES TO
SPRINT SPECTRUM, AGENTS OR PURCHASERS, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
OR THAT SUCH ITEMS ARE FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY, BY WAY
OF INFRINGEMENT OR THE LIKE.
(d) EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN (INCLUDING, WITHOUT
LIMITATION, SECTION 8 HEREOF), NEITHER PARTY WILL BE LIABLE TO THE OTHER (ITS
AGENTS OR, IN THE CASE OF NeoPoint, THE PURCHASERS) FOR ANY INCIDENTAL,
CONSEQUENTIAL OR SPECIAL DAMAGES OR ANY OTHER INDIRECT LOSSES OR DAMAGES ARISING
OUT OF THIS AGREEMENT, THE DELIVERY OR THE FAILURE TO DELIVER ANY OF THE
PRODUCTS OR ANY COMPONENT THEREOF, ANY BREACH OF THIS AGREEMENT, THE FAILURE OF
THE PRODUCTS TO PERFORM AS WARRANTED OR OTHERWISE OR ANY RESULTING OBLIGATION,
OR THE USE OR INABILITY TO USE OF ANY PRODUCTS DELIVERED PURSUANT TO THIS
AGREEMENT, WHETHER IN AN ACTION FOR OR ARISING OUT OF BREACH OF CONTRACT, FOR
TORT, OR ANY OTHER CAUSE OF ACTION.
(e) Other than Sprint Spectrum's payment obligations set forth in
subsection 4.4 hereof, notwithstanding anything contained to the contrary in
this Agreement, in no event shall a Party's liability to the other in connection
with any particular Delivery Order or otherwise arising out of or relating to
this Agreement exceed the aggregate dollar amount actually paid under this
Agreement; provided, however, that foregoing limitation on liability shall not
-------- ------- ---
apply to any liabilities incurred in connection with subsections 8.1
(Intellectual Property Rights Infringement), 8.4 ("Sprint Spectrum's
Obligations"), 8.6 (Ownership of Intellectual Property Rights) and 10.2 ("Sprint
Spectrum Indemnity"), 9 (Proprietary Information), and the gross negligence
and/or willful misconduct of either Party.
10.2 Sprint Spectrum Indemnity.
-------------------------
(a) Sprint Spectrum will indemnify and hold NeoPoint and its affiliates,
partners, directors, officers, agents and employees (the "NeoPoint Indemnitees")
--------------------
harmless from and against all third party claims, demands, suits, proceedings,
damages, costs, expenses and liabilities, including, without limitation,
reasonable legal fees (collectively, "NeoPoint Liabilities") brought against or
--------------------
incurred by any NeoPoint Indemnitee for (i) injury to persons, or (ii) loss or
damage to any property (other than any Product), or (iii) any other liability,
in each
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<PAGE>
instance resulting from any act or omission of Sprint Spectrum and/or any of its
employees, agents or subcontractors in the performance of this Agreement;
provided, however, that Intellectual Property Rights infringement is subject to
- -------- -------
the indemnification provisions of Section 8 hereof. If NeoPoint and Sprint
Spectrum jointly cause such NeoPoint Liabilities, the Parties will share the
liability in proportion to their respective degree of causal responsibility.
(b) Sprint Spectrum's obligation to indemnify under subsection 10.2(a) with
respect to any NeoPoint Liability will not arise unless the NeoPoint Indemnitee
(i) notifies Sprint Spectrum in writing of such potential NeoPoint Liability
within a reasonable time after the NeoPoint Indemnitee is aware of such
potential NeoPoint Liability; provided that the lack of providing such notice
-------- ----
will not affect Sprint Spectrum's obligation hereunder (A) if Sprint Spectrum
otherwise has actual knowledge of such NeoPoint Liability and (B) unless such
lack of notice is the cause of Sprint Spectrum being unable to adequately and
reasonably defend such NeoPoint Liability, (ii) gives Sprint Spectrum the
opportunity and authority to assume the defense of and settle such NeoPoint
Liability, subject to the provisions set forth below, and (iii) furnishes to
Sprint Spectrum all such reasonable information and assistance (including, but
not limited to, reasonable manufacturing modifications at Sprint Spectrum's
expense) available to NeoPoint (or other NeoPoint Indemnitees) as may be
reasonably requested by Sprint Spectrum and necessary for the defense against
such NeoPoint Liability. Sprint Spectrum will assume on behalf of any NeoPoint
Indemnitee and conduct in good faith the defense of such Liability with counsel
(including in-house counsel) reasonably satisfactory to the NeoPoint Indemnitee;
provided that the NeoPoint Indemnitee will have the right to be represented
- -------- ----
therein by advisory counsel of its own selection and at its own expense. If the
NeoPoint Indemnitee reasonably concludes that there may be legal defenses
available to it which are different from or additional to, or inconsistent with,
those available to Sprint Spectrum, the NeoPoint Indemnitee will have the right
to select separate counsel reasonably satisfactory to Sprint Spectrum to
participate in the defense of such action on its own behalf at such NeoPoint
Indemnitee's expense. In the event Sprint Spectrum fails, after written demand
by such NeoPoint Indemnitee, to defend any NeoPoint Liability as to which an
indemnity should be provided under subsection 10.2(a), then NeoPoint Indemnitee
may, at Sprint Spectrum's expense, contest or settle such matter without Sprint
Spectrum's consent. All payments, losses, damages and reasonable costs and
expenses incurred in connection with such contest, payment or settlement by such
NeoPoint Indemnitee will be to Sprint Spectrum's account. Sprint Spectrum will
not settle any such NeoPoint Liability without the consent of NeoPoint
Indemnitee, which consent will not be unreasonably withheld. This indemnity is
in lieu of all other obligations of Sprint Spectrum, expressed or implied, in
law or in equity, to indemnify NeoPoint Indemnitees (except those other
indemnity obligations expressly set forth in this Agreement).
SECTION 11. TERMINATION
11.1 Termination.
-----------
This Agreement will terminate on the End Date, unless extended by mutual
agreement of the Parties hereto, in accordance with subsection 2.2, or unless
sooner terminated as provided herein. Any such termination in accordance with
the terms of this Section 11 will in no way terminate, modify, amend or
otherwise affect NeoPoint's warranties or indemnities hereunder or Sprint
Spectrum's indemnities hereunder (or, in either case, the enforceability
thereof).
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<PAGE>
11.2 Termination For Cause.
---------------------
In addition to any other termination right provided to Sprint Spectrum
pursuant to the terms of this Agreement, Sprint Spectrum has the right to
terminate this Agreement in its entirety without any penalty upon the occurrence
of any NeoPoint event of default (each an "NeoPoint Event of Default") as set
-------------------------
forth below. The occurrence of any of the following will constitute a NeoPoint
Event of Default:
(a) NeoPoint (i) files a voluntary petition in bankruptcy or has an
involuntary petition in bankruptcy filed against it that is not dismissed within
sixty (60) days of such involuntary filing, (ii) admits the material allegations
of any petition in bankruptcy filed against it, (iii) is adjudged bankrupt, or
(iv) makes a general assignment for the benefit of its creditors, or if a
receiver is appointed for all or a substantial portion of its assets and is not
discharged within sixty (60) days after his appointment; or
(b) NeoPoint commences any proceeding for relief from its creditors in any
court under any insolvency statutes; or
(c) NeoPoint violates any Applicable Law and the effect of such violation
materially impairs NeoPoint's ability to perform its obligations under this
Agreement; or
(d) NeoPoint breaches any other provision of this Agreement and the effect
of such breach materially impairs NeoPoint's ability to perform its obligations
under this Agreement.
11.3 Remedies.
--------
If any of NeoPoint Events of Default exists and is continuing, Sprint
Spectrum may, without prejudice to any other rights or remedies set forth in
this Agreement or at law or in equity (except as such legal or equitable
remedies may be limited by this Agreement), terminate this Agreement upon
written notice to NeoPoint; provided that Sprint Spectrum will have first
-------- ----
provided to NeoPoint the following periods of notice and opportunity to cure:
(i) in the case of an Event of Default specified in subsections
11.2(a) and 11.2(b), no notice or opportunity to cure will be required from
Sprint Spectrum; and
(ii) in the case of any other Event of Default by NeoPoint, Sprint
Spectrum will have provided thirty (30) days' prior written notice, and
NeoPoint will have failed to diligently pursue such cure and failed to
remedy the breach entirely by the end of said thirty (30) day notice
period.
11.4 Discontinuance of Supply.
------------------------
Upon such notification of termination, NeoPoint must, unless otherwise
notified by Sprint Spectrum, immediately discontinue all supply of Products.
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<PAGE>
11.5 Payments.
--------
When Sprint Spectrum terminates this Agreement pursuant to subsection 11.2,
notwithstanding anything herein to the contrary, Sprint Spectrum may withhold
payments in amounts that it reasonably believes are in dispute, if any, at such
time, to NeoPoint for the purposes of offset of amounts owed to Sprint Spectrum
pursuant to the terms of this Agreement, until such time as the exact amount of
damages due to Sprint Spectrum from NeoPoint is fully determined.
11.6 Costs.
-----
In the event of a termination due to a NeoPoint Event of Default, Sprint
Spectrum will be entitled to receive from NeoPoint reasonable out of pocket
increased costs incurred by Sprint Spectrum for products purchased from other
vendors to replace NeoPoint's Products to be purchased hereunder; provided that
-------- ----
such increased costs shall not exceed *** of the costs of the Products being so
replaced. The amount to be paid by NeoPoint pursuant to this subsection 11.6
will survive termination of this Agreement and will be subject to the
limitations of liability in this Agreement.
11.7 Continuing Obligations.
----------------------
Termination of this Agreement for any reason (i) will not relieve either
Party of its obligations with respect to the confidentiality of the Proprietary
Information as set forth in subsection 9.2, (ii) will not relieve either Party
of any obligation which applies to it and which expressly or by implication
survives termination, (iii) except as otherwise provided in any provision of
this Agreement expressly limiting the liability of either Party, will not
relieve either Party of any obligations or liabilities for loss or damage to the
other Party arising out of or caused by acts or omissions of such Party prior to
the effectiveness of such termination and (iv) will cause any undisputed
payments due to any Party to become payable immediately.
11.8 NeoPoint's Right to Terminate.
-----------------------------
NeoPoint has the right to terminate this Agreement in its entirety without
any penalty or payment obligations, upon the occurrence of any of the following
(each a "Sprint Spectrum Event of Default"):
--------------------------------
(a) Sprint Spectrum (i) files a voluntary petition in bankruptcy or has an
involuntary petition in bankruptcy filed against it that is not dismissed within
sixty (60) days of such involuntary filing, (ii) admits the material allegations
of any petition in bankruptcy filed against it, (iii) is adjudged bankrupt, or
(iv) makes a general assignment for the benefit of its creditors, or if a
receiver is appointed for all or a substantial portion of its assets and is not
discharged within sixty (60) days after his appointment; or
(b) Sprint Spectrum commences any proceeding for relief from its creditors
in any court under any state insolvency statutes; or
(c) Sprint Spectrum fails to make payments of amounts due to NeoPoint
pursuant to the terms of this Agreement, provided that such failure has
-------- ----
continued for at least forty-five (45) days
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
-33-
<PAGE>
after NeoPoint has provided Sprint Spectrum with written notice of its intent to
so terminate on account of such overdue amount; or
(d) Sprint Spectrum violates any Applicable Laws, and the effect of such
violation materially impairs Sprint Spectrum's ability to perform its
obligations under this Agreement; or
(e) Sprint Spectrum breaches any other provision of this Agreement and the
effect of such breach materially impairs Sprint Spectrum's ability to perform
its obligations under this Agreement.
11.9 NeoPoint Remedies.
-----------------
If any Sprint Spectrum Event of Default exists and is continuing, NeoPoint
may, without prejudice to any rights or remedies of NeoPoint in this Agreement
or at law or in equity (except as such legal or equitable remedies may be
limited by this Agreement), terminate this Agreement (i) immediately upon the
occurrence of any Sprint Spectrum Event of Default specified in subsection
11.8(a), 11.8(b) or, after failure to cure as specified therein, subsection
11.8(c), and (ii) after thirty (30) days' prior written notice upon the
occurrence of any other Sprint Spectrum Event of Default. All undisputed
amounts owed by Sprint Spectrum to NeoPoint prior to any such termination shall
be payable immediately upon termination.
SECTION 12. AFFILIATES
12.1 Affiliates.
----------
On a quarterly basis commencing on the Effective Date and during the Term
of this Agreement, Sprint Spectrum may, by written notice to NeoPoint, designate
any Person which has been licensed or otherwise has access to use PCS in or
within the Territory but which is not an Initial Affiliate as an "Additional
----------
Affiliate"; provided, that NeoPoint will have a fifteen (15) Business Day period
- --------- -------- ----
to consent or withhold consent to such designation (such consent not to be
unreasonably withheld) based upon (i) NeoPoint's reasonable credit criteria,
(ii) the fact that such proposed Additional Affiliate has not in the past
materially breached prior material agreements with NeoPoint or its affiliates,
(iii) the fact that the proposed Additional Affiliate is not, at the time of
such determination, a direct competitor of NeoPoint or its affiliates in the
wireless telecommunications business or (iv) the fact that the proposed
Additional Affiliate is not, at the time of such determination, otherwise
engaged with NeoPoint or its affiliates in an agreement for the purchase and/or
supply of any products from time to time licensed, sold, distributed or
otherwise made available by NeoPoint or any of their affiliates; and provided,
--------
further, that (x) Sprint Spectrum or any Initial Affiliate has at least a ten
- -------
percent (10%) equity ownership in such Person, (y) such Person is controlled by
or under the common control with Sprint Spectrum or any Initial Affiliate or (z)
there exists between Sprint Spectrum or any Initial Affiliate and such Person an
Additional Affiliate Arrangement.
12.2 Affiliate Orders.
----------------
During the Term of this Agreement, Sprint Spectrum will have the right, but
not the obligation, to require NeoPoint to fulfill (and NeoPoint will so
fulfill) signed Delivery Orders
-34-
<PAGE>
(which will specifically reference this Agreement) for forecasted amounts of
Products received from any Affiliate designated by Sprint Spectrum pursuant to
and in accordance with the same prices and the same terms and conditions as set
forth herein. Each such Delivery Order shall be governed by, and such Affiliate
will be bound by, the terms and conditions of this Agreement as if such
Affiliate were Sprint Spectrum, and NeoPoint shall have the right and/or ability
to enforce any rights hereunder against any such Affiliate.
12.3 Affiliate Rights.
----------------
Notwithstanding anything contained herein to the contrary, Affiliates will
not be deemed third party beneficiaries to this Agreement or otherwise have any
rights hereunder. Only Sprint Spectrum may designate a Person as an Affiliate
in accordance with the terms of this Section 12 and (except with respect to
specific Affiliate Delivery Orders made by an Affiliate pursuant to and in
accordance with the terms of this Section 12) only Sprint Spectrum has the right
and/or the ability to enforce any rights hereunder against NeoPoint. IN NO
EVENT WILL SPRINT SPECTRUM HAVE ANY LIABILITY WHATSOEVER FOR OR IN CONNECTION
WITH ANY AFFILIATE DELIVERY ORDER.
SECTION 13. REPRESENTATIONS AND WARRANTIES
13.1 Representations and Warranties of NeoPoint.
------------------------------------------
NeoPoint hereby represents and warrants to Sprint Spectrum as follows:
(a) NeoPoint is a corporation, validly existing and in good standing under
the laws of California and has all requisite power and authority to own and
operate its business and properties and to carry on its business as such
business is now being conducted and is duly qualified to do business in all
jurisdictions in which the transaction of its business in connection with the
performance of its obligations under this Agreement makes such qualification
necessary or required.
(b) NeoPoint has full corporate power and authority to execute and deliver
this Agreement and issue the Warrants and to perform its obligations hereunder
and thereunder, and the execution, delivery and performance of this Agreement
and the Warrants by NeoPoint have been duly authorized by all necessary
corporate action on the part of NeoPoint; this Agreement has been duly executed
and delivered by NeoPoint and is the valid and binding obligation of NeoPoint
enforceable in accordance with its terms, except as enforcement thereof may be
limited by or with respect to the following: (i) applicable insolvency,
moratorium, bankruptcy, fraudulent conveyance and other similar laws of general
application relating to or affecting the rights and remedies of creditors; (ii)
application of equitable principles (whether enforcement is sought in
proceedings in equity or at law); and (iii) provided the remedy of specific
enforcement or of injunctive relief is subject to the discretion of the court
before which any proceeding therefore may be brought.
(c) The execution, delivery and performance of this Agreement by NeoPoint
and the consummation of the transactions contemplated hereby do not and will not
contravene the corporate arrangements governing the conduct of NeoPoint and do
not and will not conflict with
-35-
<PAGE>
or result in (i) a breach of or default under any material indenture, mortgage,
instrument, judgment, decree, order or ruling to which NeoPoint is a party or by
which it or any of its properties is bound or affected, or (ii) a breach of any
Applicable Law.
(d) All material authorizations by, approvals or orders by, consents of,
notices to, filings with or other acts by or in respect of any Governmental
Entity or any other Person required in connection with the execution, delivery
and performance of this Agreement by NeoPoint have been obtained or will be
obtained in due course.
(e) Except as set forth on Schedule 1, there are no threatened or actual
claims or threatened or actual suits in connection with patents and other
intellectual property matters that would or could materially adversely affect
NeoPoint's ability to perform its obligations under this Agreement.
(f) NeoPoint has all requisite knowledge, know-how, skill, expertise and
experience to perform its obligations in accordance with the terms of this
Agreement.
(g) NeoPoint has the financial and management and has contracted to attain
the manufacturing capacity and capabilities to fulfill its obligations in a
timely manner in accordance with the terms of this Agreement.
SECTION 14. GENERAL PROVISIONS
14.1 Assignment.
----------
Except as otherwise permitted herein, neither this Agreement nor any
portion hereof may be assigned by either Party without the express prior written
consent of the other Party. Notwithstanding anything stated herein to the
contrary, Sprint Spectrum may assign its rights under this Agreement to any
entity controlled by or under common control with Sprint Corporation or Sprint
Spectrum Holding Company, L.P. Sprint Spectrum may, without the consent of
NeoPoint, collaterally assign its rights hereunder (including, but not limited
to, all licenses with respect to the Software) to the parties providing
financing for any part of the Nationwide Network under a collateral trust for
the benefit of one or more other entities providing financing for any part of
the Nationwide Network or similar arrangement for the benefit of the entities
providing for the financing for any part of the Nationwide Network, as the case
may be; provided, however, that no assignment shall, without the express prior
-------- -------
written consent of the non-assigning Party, relieve such assigning Party in any
way of any of its obligations or responsibilities under this Agreement. If
requested by Sprint Spectrum, NeoPoint, will within ten (10) Business Days of
such request, provide a written consent to any such assignment; provided that
-------- ----
such consent will permit reassignment if the financing parties exercise their
remedies under the documents for such financing subject to reasonable standards
as to (i) the creditworthiness of the assignee and (ii) the fact that the
assignee is not at such time a direct competitor of NeoPoint or of its
subsidiaries. The foregoing rights and obligations are in addition to those set
forth in subsection 14.2. Any attempted assignment in violation of the terms of
this Agreement will be null and void.
-36-
<PAGE>
14.2 Successors and Assigns.
----------------------
This Agreement will bind and inure to the benefit of the Parties to this
Agreement, their successors and permitted assigns.
14.3 Survival of Obligations.
-----------------------
Without limiting any other provision hereof, the Parties' rights and
obligations which, by their nature, would continue beyond the termination,
cancellation, or expiration of this Agreement, including but not limited to
those rights and obligations of the Parties set forth in subsections 4.8, 4.10,
11.6 and 11.9 and Section 8 (other than subsection 8.7), Section 9 and 10, will
survive such termination, cancellation or expiration.
14.4 Severability.
------------
If any provision in this Agreement will be held to be invalid or
unenforceable, the remaining portions will remain in effect. In the event such
invalid or unenforceable provision is considered an essential element of this
Agreement, the Parties will promptly negotiate a replacement provision.
14.5 Non-waiver.
----------
No waiver of the terms and conditions of this Agreement, or the failure of
either party strictly to enforce any such term or condition on one or more
occasions will be construed as a waiver of the same or of any other term or
condition of this Agreement on any other occasion.
14.6 Compliance with United States Regulations.
-----------------------------------------
Nothing contained in this Agreement will require or permit Sprint Spectrum
or NeoPoint to do any act inconsistent with the requirements of (a) the
regulations of the United States Department of Commerce, or (b) the foreign
assets controls or foreign transactions controls regulations of the United
States Treasury Department, or (c) any Applicable Law, regulation or executive
order as the same may be in effect in the Territory from time to time.
14.7 Notices.
-------
All notices, requests, demands, consents, agreements and other
communications required or permitted to be given under this Agreement will be in
writing and will be mailed to the party to whom notice is to be given, by
facsimile, and confirmed by first class mail, postage prepaid, and properly
addressed as follows (in which case such notice will be deemed to have been duly
given on the day the notice is first received by the party):
-37-
<PAGE>
If to Sprint Spectrum:
SPRINT SPECTRUM EQUIPMENT COMPANY, L.P.
4900 Main Street
Kansas City, Missouri 64112
Attention: Vice President, Business
Development (Subscriber Equipment)
Facsimile No.: (816) 559-6104
Telephone No.: (816) 559-6100
with a copy to:
SPRINT SPECTRUM L.P.
4900 Main Street
Kansas City, Missouri 64112
Attention: Vice President and General Counse
Facsimile No.: (816) 559-2591
Telephone No.: (816) 559-2500
If to NeoPoint:
NEOPOINT, INC.
4225 Executive Drive, Suite 700
San Diego, California 92121
Attention: William Son, President/CEO
Facsimile No.: (619) 458-9588
Telephone No.: (619) 678-3021
with a copy to:
Gray, Cary, Ware & Freidenrich
4365 Executive Drive, Suite 1600
San Diego, California 92121
Attention: Andrea Migdal, Esq.
Cameron Jay Rains, Esq.
Facsimile No.: (619) 677-1477
Telephone: No.:(619) 677-1497
The above addresses can be changed by providing notice to the other Party
in accordance with this subsection 14.7.
14.8 Dispute Resolution and Tolling.
------------------------------
In the event of a dispute or controversy arising hereunder the Parties will
use their good faith efforts to resolve such dispute or controversy amicably
without resorting to litigation. In the event such good faith dispute
resolution efforts do not result in a resolution mutually acceptable to the
Parties within sixty (60) days of the date of first written notice from one
Party to the other Party of such dispute or controversy, then all Parties or any
one Party will have the right, but not the obligation, to commence litigation or
seek such other legal redress in law,
-38-
<PAGE>
equity or otherwise, as it deems appropriate in connection with such dispute or
controversy. All applicable statutes of limitation will be tolled to the extent
permitted by Applicable Law while the dispute resolution specified herein is
pending, and nothing herein will be deemed to bar any Party from taking such
action as the Party may reasonably deem to be required to effectuate such
tolling. Nothing contained herein to the contrary will prevent any Party from
seeking immediate equitable relief in the event such relief is warranted
hereunder, at law or in equity.
14.9 Other Remedies.
--------------
Notwithstanding anything to the contrary herein contained, each Party
will be entitled to pursue any equitable rights and remedies that are available
at law or in equity.
14.10 GOVERNING LAW AND FORUMS.
------------------------
THIS AGREEMENT IS GOVERNED BY THE LAW OF THE STATE OF DELAWARE PERTAINING
TO CONTRACTS AND AGREEMENTS MADE AND/OR PERFORMED IN DELAWARE. THIS AGREEMENT
WILL BE DEEMED TO BE MADE, EXECUTED AND PERFORMED IN THE STATE OF DELAWARE.
NEOPOINT AND SPRINT SPECTRUM EACH HEREBY IRREVOCABLY (A) AGREES THAT ANY SUIT,
ACTION OR OTHER LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
MUST BE BROUGHT IN THE FEDERAL OR STATE COURTS OF DENVER, COLORADO WHICH COURT
WILL HAVE EXCLUSIVE JURISDICTION OVER ANY CONTROVERSY ARISING OUT OF THIS
AGREEMENT, (B) CONSENTS TO THE JURISDICTION OF SUCH COURT IN ANY SUCH SUIT,
ACTION OR PROCEEDING, (C) WAIVES ANY OBJECTION WHICH IT MAY HAVE TO THE LAYING
OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN SUCH COURT AND CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND;
(D) WAIVE A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF
PROCESS IN ANY SUIT, ACTION OR PROCEEDING SHOULD BE DEEMED EFFECTIVE IF MADE BY
MAILING OR DELIVERING A COPY OF SUCH PROCESS TO SPRINT SPECTRUM OR NEOPOINT, AS
THE CASE MAY BE, AT THE ADDRESSES INDICATED IN SUBSECTION 14.7 HEREOF AND IN THE
MANNER SET FORTH IN SUCH SUBSECTION 14.7. NOTHING IN THIS SUBSECTION 14.10 WILL
AFFECT THE RIGHT OF SPRINT SPECTRUM OR NEOPOINT TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
14.11 Entire Agreement.
----------------
This Agreement, together with all Appendices, Exhibits and Schedules
attached hereto, which are all incorporated herein by this reference,
constitutes the entire agreement between the Parties and supersedes all prior
oral or written negotiations and agreements between the Parties with respect to
the subject matter hereof. No modification, variation or amendment to this
Agreement will be effective unless made in writing and signed by duly authorized
representatives of each of the Parties. Except as otherwise provided in this
Agreement, any additional or inconsistent terms stated by Sprint Spectrum in any
Delivery Order issued hereunder will be of no force or effect other than to
express types and quantities of Products ordered and shipment destinations.
-39-
<PAGE>
14.12 Improvements, Inventions and Innovations.
----------------------------------------
All rights in any improvements, inventions, and innovations provided or
made by Sprint Spectrum will vest in Sprint Spectrum, and Sprint Spectrum and
its Affiliates will have the right to exploit such improvements, inventions, and
innovations. All rights in any improvements, inventions and innovations
provided or made by NeoPoint will vest in NeoPoint, and NeoPoint and its
affiliates will have the right to exploit such improvements, inventions and
innovations.
14.13 Conflicts.
---------
In the event of any conflict or inconsistency among the provisions of
this Agreement and the documents attached hereto and incorporated herein, such
conflict or inconsistency will be resolved by giving precedence to this
Agreement and thereafter to the Exhibits, Schedules and the Appendices.
14.14 Independent Contractors.
-----------------------
The relationship between NeoPoint and Sprint Spectrum pursuant to this
Agreement is that of independent contractors. NeoPoint and Sprint Spectrum are
not joint venturers, partners, principal and agent, master and servant, employer
or employee, and have no other relationship pursuant to this Agreement other
than independent contracting parties.
14.15 Force Majeure.
-------------
If the performance of this Agreement (including, without limitation, any
deliveries hereunder) is interfered with by reason of any unforeseen
circumstance beyond the reasonable control of the Party affected, including
fire, acts of God or the public enemy, riots and insurrections, fire, embargoes,
judicial action and acts of civil or military authorities, then the Party
affected will be excused from such performance (except for any payment
obligations hereunder) on a day-for-day basis to the extent of such interference
(and the other Party will likewise be excused from performance on a day-for-day
basis to the extent such Party's obligations relate to the performance so
interfered with); provided that the Party so affected will use its reasonable
-------- ----
efforts under the circumstances to remove such causes of nonperformance. In the
event of a force majeure claimed by either party which lasts in excess of one
hundred twenty (120) days from the commencement of any such claim by either
Party hereunder, the Party not so claiming force majeure hereunder will have the
right, but not the obligation, to terminate this Agreement. The Party claiming
the force majeure hereunder will not be liable to the other Party terminating
hereunder for any damages or other amounts caused solely and directly by any
such termination pursuant to this subsection 14.15.
14.16 Change of Control of NeoPoint.
-----------------------------
Sprint Spectrum shall have the right to terminate this Agreement in the
event NeoPoint shall consolidate with or merge into any other Person or convey,
transfer or lease all or substantially all of its assets to any Person, or in
the event NeoPoint permits any Person or group (as such term is defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) to own or
------------
acquire fifty percent (50%) of NeoPoint's voting equity interests where such
Person or group did not own as of the Effective Date in excess of ten percent
(10%) of such
-40-
<PAGE>
equity interests (any such Person will be referred to as the "NeoPoint's
----------
Succeeding Entity"), unless:
- -----------------
(i) NeoPoint's Succeeding Entity will agree to assume the
obligations of NeoPoint under this Agreement; and
(ii) Sprint Spectrum will have approved the transaction, based solely
on (x) the creditworthiness of NeoPoint's Succeeding Entity, (y) whether
NeoPoint's Succeeding Entity is a direct competitor of Sprint Spectrum or
its Affiliates and (z) whether in Sprint Spectrum's reasonable judgment,
NeoPoint's Succeeding Entity will be able to fulfill the obligations of
NeoPoint under this Agreement; or
(iii) the sale of debt or equity securities to an entity which is not
a direct competitor of Sprint Spectrum is solely for the purpose of
raising investment capital to finance the existing or proposed business
of NeoPoint.
Any termination pursuant to this subsection 14.16 will be Sprint Spectrum's sole
and exclusive remedy in the event of a change in control.
14.17 Offset.
------
With respect to matters, controversies or claims arising out of or
relating to Intellectual Property Rights, indemnification(s), warranties, repair
and/or return and/or Product Defects, either Party, upon providing the other
Party with reasonable notice and a reasonable opportunity to cure, may deduct or
retain out of any monies, which may be due or become due to the other Party
hereunder, any amounts such other Party owes to such first Party hereunder.
14.18 Sprint Spectrum Liabilities.
---------------------------
The Parties understand and agree that none of the partners, shareholders
or equity owners of Sprint Spectrum, nor any of their subsidiaries or
affiliates, has guaranteed or otherwise is now in any way liable with respect to
any obligations or liabilities of Sprint Spectrum or any of its subsidiaries
pursuant to or in connection with this Agreement. The Parties further understand
and agree that neither Sprint Spectrum nor any of its subsidiaries will
guarantee or otherwise be in any way liable for any obligations or liabilities
of any of any such partner, shareholder, equity owner or any Affiliate of Sprint
Spectrum pursuant to this Agreement unless, and only to the extent, Sprint
Spectrum expressly agrees in writing to guarantee or otherwise be liable for any
such liability.
14.19 Counterparts.
------------
This Agreement may be executed by one or more of the Parties to this
Agreement on any number of separate counterparts, and all of said counterparts
taken together will be deemed to constitute one and the same instrument.
* * *
-41-
<PAGE>
SPRINT SPECTRUM AND NEOPOINT HAVE READ THIS AGREEMENT INCLUDING ALL
APPENDICES, EXHIBITS AND SCHEDULES HERETO AND AGREE TO BE BOUND BY ALL THE TERMS
AND CONDITIONS HEREOF AND THEREOF.
IN WITNESS WHEREOF, the Parties hereto have caused their authorized
representatives to execute this Agreement effective as of the date first set
forth above.
SPRINT SPECTRUM EQUIPMENT
COMPANY, L.P.
By:__________________________________
Name:
Title:
NEOPOINT, INC.
By:__________________________________
Name:
Title:
<PAGE>
SCHEDULE 1
----------
NeoPoint Outstanding Intellectual Property Issues
-------------------------------------------------
None.
<PAGE>
SCHEDULE 2
----------
NeoPoint Repair Facilities
--------------------------
LG Electronics Alabama, Inc. (DBA LG Electronics Service USA)
201 James Record Road
Huntsville, Alabama 35824-0126
<PAGE>
Schedule 3
----------
Initial Affiliates
------------------
*** Two pages of text omitted pursuant to a confidential treatment request.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
SCHEDULE 4
----------
Sprint Spectrum Defined Features
--------------------------------
None as of the Effective Date.
<PAGE>
APPENDIX 1A
-----------
Pricing
-------
*** One page of text omitted pursuant to a confidential treatment request
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
APPENDIX 1B
-----------
Accessories
-----------
(not otherwise included with Subscriber Units)
----------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Model Name Model Number Description Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Docking Station NPDS1000 Desktop phone and battery holder for ***
dual charging and data synchronization
- -------------------------------------------------------------------------------------------------------------
Travel Charger NPTC1000 Connects phone to wall outlet for ***
simple plug-in charging
- -------------------------------------------------------------------------------------------------------------
Desktop Holder NPDC1000 Allows desktop charging using travel ***
charger and SoftSync cable,
respectively
- -------------------------------------------------------------------------------------------------------------
Vehicle Power NPVA1000 Connects phone to cigarette lighter ***
Adapter for charging and operation in car
- -------------------------------------------------------------------------------------------------------------
Hands Free Kit NPHFF1001 Connects phone to cigarette lighter ***
for charging and hands-free operation
in car (full-duplex)
- -------------------------------------------------------------------------------------------------------------
SoftSync Cable NPSC1000 Connects phone to PC for data ***
synchronization
- -------------------------------------------------------------------------------------------------------------
Leather Case NPLC1000 Wearable case to protect phone ***
- -------------------------------------------------------------------------------------------------------------
Slim Battery NPSBC1000 Slim, prismatic Lithium Ion battery ***
(Champagne)
- -------------------------------------------------------------------------------------------------------------
Extended Battery NPEBC1000 Larger, cylindrical Lithium Ion ***
battery (Champagne)
- -------------------------------------------------------------------------------------------------------------
SoftSync CD NPCD1000 Contains SoftSync program, ***
carrier-specific phone user manual
and release notes
- -------------------------------------------------------------------------------------------------------------
Documentation NPDP1001 Holds contents securely in inside of ***
Package kit box; includes carrier-specific
documentation about the phone,
services and support
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
APPENDIX 2
----------
Customer Limited Warranty
-------------------------
*** Two pages of text omitted pursuant to a confidential treatment request
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
APPENDIX 3
----------
NeoPoint Non-Warranty Repair Fees
---------------------------------
*** One page of text omitted pursuant to a confidential treatment request
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
APPENDIX 4A
-----------
Sprint Spectrum/Sprint PCS Marks
--------------------------------
[TO BE PROVIDED BY SPRINT SPECTRUM]
<PAGE>
APPENDIX 4B
-----------
Patent Markings and Logos
-------------------------
"Digital by QUALCOMM"(R)
<PAGE>
APPENDIX 5
----------
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THIS WARRANT (AND ANY SECURITIES ISSUABLE UPON
EXERCISE HEREOF) MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM. NO TRANSFER OF THIS WARRANT OR SUCH
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED.
______________
NEOPOINT, INC.
STOCK SUBSCRIPTION WARRANT
June 4, 1999
THIS CERTIFIES that SPRINT SPECTRUM L.P., a Delaware limited
partnership (the "Investor"), or its registered assigns, is entitled to
--------
subscribe for and purchase from NEOPOINT, INC., a California corporation (the
"Corporation"), 379,693 shares (the "Warrant Shares") of common stock of the
----------- --------------
Corporation (the "Common Stock"), at the price (the "Warrant Price") of $2.50
------------ -------------
per share, at any time or from time to time during the period commencing on the
date hereof and ending on the fifth anniversary of the date hereof (the
"Exercise Period"), on the terms and subject to the conditions hereof. The
---------------
Investor and any registered assigns thereof are referred to as the "Holder." The
number of Warrant Shares and the Warrant Price are subject to adjustment, as
provided in herein.
This Warrant is issued pursuant to the CDMA PCS Subscriber Unit Supply
Agreement dated as of June 4, 1999 between Sprint Spectrum Equipment Company,
L.P., a Delaware limited partnership, and the Corporation.
Section 1. Exercise of Warrant.
-------------------
(a) The rights represented by this Warrant may be exercised (a
"Warrant Exercise") by the Holder, in whole or in part at any time during the
----------------
Exercise Period, but not as to any fractional share of Common Stock, by the
surrender of this Warrant, accompanied by a properly completed and executed
Notice of Exercise in the form attached hereto and payment of the Warrant Price
at the offices of the Corporation set forth in Section 8. At the option of the
Holder, the Warrant Price shall be payable:
(i) in cash or by certified or official bank check payable to
the order of the Corporation; or
(ii) by delivery of this Warrant to the Corporation for
cancellation in accordance with the further provisions of this Section
1(a)(ii). In exchange for the portion of this Warrant that is being
exercised at such time, the Holder shall receive the number of shares of
Common Stock determined by multiplying (A) the number of shares of Common
Stock for which this Warrant is being exercised at such time by (B) a
fraction, (1) the numerator of which shall be the difference between (x)
current market price per share of Common Stock (as determined in good faith
by the Corporation's
<PAGE>
Board of Directors after giving affect to any applicable illiquidity and/or
minority interest discounts) at such time and (y) the Warrant Price per
share of Common Stock, and (2) the denominator of which shall be the
current market price per share of Common Stock at such time (as determined
in good faith by the Corporation's Board of Directors after giving affect
to any applicable illiquidity and/or minority interest discounts). The
Corporation shall issue a new warrant for the portion, if any, of this
Warrant not being exercised as provided in Section 1(c).
(b) The closing of any Warrant Exercise shall take place at the
offices of the Corporation on the date specified in the Notice of Exercise (the
"Exercise Date"), which shall be within five days after the delivery of such
-------------
Notice of Exercise. At such closing, (i) the Corporation shall issue and deliver
to the Holder or its designee a certificate or certificates for the Warrant
Shares to be issued upon such Warrant Exercise, registered in the name of the
Holder or such designee, and if such Warrant Exercise shall not have been for
all Warrant Shares, a new Warrant, registered in the name of the Holder, of like
tenor to this Warrant for the number of remaining Warrant Shares, and (ii) the
Holder shall deliver to the Corporation the aggregate Warrant Price.
(c) If this Warrant shall have been exercised only in part, the
Corporation shall, at the time of delivery of the certificate or certificates or
other evidence of ownership of the Common Stock, execute and deliver to the
Holder, without charge, a new warrant evidencing the rights of the Holder to
purchase the unpurchased Common Stock called for by this Warrant, which new
warrant shall in all other respects be identical to this Warrant.
Section 2. Record Date.
-----------
The person in whose name any certificate for shares of Common Stock is
issued upon any Warrant Exercise or Warrant Exchange shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the Warrant was surrendered and payment of the Warrant Price and any applicable
tax was made, irrespective of the date of such certificate; provided, however,
-------- -------
that if the date of such surrender and payment is a date when the stock transfer
books of the Corporation 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.
Section 3. Reservation of Common Stock; Covenants as to Common Stock.
---------------------------------------------------------
The Corporation has duly reserved, and shall at all times duly
reserve, a sufficient number of shares of authorized Common Stock for issuance
upon exercise or exchange of this Warrant. Upon issuance, sale and delivery of
any Warrant Shares, such Warrant Shares shall be validly issued and outstanding,
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issuance thereof, and shall not be subject to preemptive or any
similar rights of any person or entity. Without limiting the generality of the
foregoing, the Corporation shall take all such action as may be necessary to
ensure that the stated or par value per share of Common Stock is at all times
equal to or less than the Warrant Price then in effect. The Corporation
covenants and agrees that if any shares of capital stock to be reserved for the
purpose of the issuance of shares of Common Stock upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any
-2-
<PAGE>
Federal or state law before such shares may be validly issued or delivered upon
exercise, then the Corporation will in good faith and expeditiously as possible
endeavor to secure such registration or approval, as the case may be. If and so
long as the Common Stock issuable upon the exercise of this Warrant is listed on
any national securities exchange, the Corporation will, if permitted by the
rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of such capital stock.
Section 4. Adjustment of Warrant Price.
---------------------------
(a) If, at any time during the Exercise Period, the number of
outstanding shares of Common Stock is (i) increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, or (ii) decreased by a combination of shares of Common Stock, then,
following the record date fixed for the determination of holders of Common Stock
entitled to receive the benefits of such stock dividend, subdivision, split-up,
or combination, as the case may be, the Warrant Price shall be adjusted to a new
amount equal to the product of (A) the Warrant Price in effect on such record
date and (B) the quotient obtained by dividing (x) the number of shares of
Common Stock outstanding on such record date (without giving effect to the event
referred to in the foregoing clause (i) or (ii)) by (y) the number of shares of
Common Stock which would be outstanding immediately after the event referred to
in the foregoing clause (i) or (ii), if such event had occurred immediately
following such record date.
(b) If, at any time during the Exercise Period, the Corporation shall
issue or be deemed to have issued (as provided below) shares of Common Stock or
any warrant or other securities exercisable for shares of Common Stock without
consideration or for a consideration per share less than the Warrant Price in
effect immediately prior to such issuance or deemed issuance, then such Warrant
Price shall be lowered, effective as of the date of such issuance, to a price
equal to the quotient obtained by dividing (i) an amount equal to the sum of (A)
the product of (x) the number of shares of Common Stock outstanding immediately
prior to such issuance or deemed issuance and (y) the then existing Warrant
Price, and (B) the total consideration received or deemed received by the
Corporation upon such issuance or deemed issuance, by (ii) the total number of
shares of Common Stock outstanding immediately after such issuance or deemed
issuance. For the purposes of any adjustment of the Warrant Price pursuant to
this paragraph, the following provisions shall be applicable:
(i) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor
without deducting therefrom any discounts, commissions or other expenses
allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with such issuance.
(ii) In the case of the issuance of Common Stock for no
consideration, the consideration shall be deemed to be $.01 per share.
(iii) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
by the Board of Directors of the Corporation, irrespective of any
accounting treatment.
-3-
<PAGE>
(iv) In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable securities:
(A) The shares of Common Stock deliverable upon exercise of such
options to purchase, or rights to subscribe for, Common Stock shall be
deemed to have been issued at the time such options or rights were issued
and for a consideration equal to the consideration (determined in the
manner provided in clauses (i) through (iii) above), if any, received by
the Corporation upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the Common
Stock covered thereby.
(B) The shares of Common Stock deliverable upon conversion of,
or in exchange for, any such convertible or exchangeable securities or upon
the exercise of options to purchase, or rights to subscribe for, such
convertible or exchangeable securities and subsequent conversions or
exchanges thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the Corporation for
any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends) plus the
additional consideration, if any, to be received by the Corporation upon
the conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be determined
in the manner provided in clauses (i) through (iii) above).
(C) Upon any change in the exercise price or number of shares of
Common Stock deliverable upon exercise of any such options or rights of
conversion of, or exchange for, such convertible or exchangeable securities
(including any such change resulting from the termination of any such
options, rights, or securities), other than a change resulting from the
antidilution provisions thereof, the Warrant Price shall be readjusted to
such Warrant Price as would have obtained had the adjustment made upon the
issuance of such options, rights or securities not converted prior to such
change been made upon the basis of such change.
(D) No further adjustments of the Warrant Price shall be made
upon the actual issuance of such Common Stock or of such convertible or
exchangeable securities, upon exercise of such options or rights, or upon
the actual issuance of such Common Stock upon conversion or exchange of
such convertible or exchangeable securities.
(v) No adjustment shall be made to the Warrant Price for any issuance
of Common Stock to employees, officers, directors or consultants pursuant to the
Corporation's Board approved stock option plans.
(c) All calculations under this Section 4 shall be made to the nearest one
hundredths (1/100) of a cent.
-4-
<PAGE>
(d) Whenever the Warrant Price shall be adjusted as provided above, the
Corporation shall deliver to the Holder a statement, signed by its chief
financial officer, showing in detail the facts requiring such adjustment and the
Warrant Price that shall be in effect after such adjustment.
Section 5. Adjustment of Warrant Shares.
----------------------------
(a) Upon each adjustment of the Warrant Price as provided in Section
4, the Holder shall thereafter be entitled to subscribe for and purchase, at the
Warrant Price resulting from such adjustment, the number of Warrant Shares equal
to the product of (i) the number of Warrant Shares existing prior to such
adjustment and (ii) the quotient obtained by dividing (A) the Warrant Price
existing prior to such adjustment by (B) the new Warrant Price resulting from
such adjustment. No fractional shares of Common Stock shall be issued upon
exercise of this Warrant. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon exercise of this Warrant, the Holder may deduct
from the aggregate Warrant Price an amount equal to the product of (i) the fair
market value of one share of Common Stock as determined in good faith by the
Holder and (ii) such fractional interest.
(b) Following any recapitalization, reorganization, reclassification,
consolidation, merger or the conveyance of all or substantially all of the
assets of the Corporation pursuant to which the holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock (each, an
"Organic Change") during the Exercise Period, this Warrant shall represent the
--------------
right to subscribe for and purchase the kind and number of shares of capital
stock or other securities or property which the Holder would have owned or have
been entitled to receive with respect to each Warrant Share had this Warrant
been exercised immediately prior to such Organic Change. The foregoing provision
shall similarly apply to successive Organic Changes.
Section 6. Transfer, Division and Combination.
----------------------------------
(a) Subject to the restrictions on transfer set forth herein, this Warrant
and all rights hereunder are assignable and transferable, in whole or in part,
without the consent of the Corporation. Any transfer shall be effected by the
Holder in person or by duly authorized attorney by surrendering this Warrant,
properly endorsed, at the offices of the Corporation. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed, in blank, shall be deemed negotiable, and, when so
endorsed, the holder hereof may be treated by the Corporation and all other
persons dealing with this Warrant as the absolute owner hereof for any purposes
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Corporation, any notice to the
contrary notwithstanding; provided, however, that until such transfer is on such
-------- -------
books, the Corporation may treat the registered holder hereof as the owner
hereof for all purposes. Notwithstanding anything contained herein to the
contrary for the first two (2) years from and after the date hereof (and only
for such two (2) year period) the Investor and any subsequent Holder may not
assign, transfer or sell this Warrant or the Warrant Shares issuable hereunder
to any party other than a person or entity controlled by or under common control
with the ultimate corporate parent of the Investor.
-5-
<PAGE>
(b) This Warrant may be exchanged for, or combined with, other
warrants upon presentation of this Warrant and any other warrants with which
this Warrant is to be combined to the Corporation, together with a written
notice specifying the denominations in which a new Warrant or Warrants are to be
issued, signed by the Holder. The Corporation shall execute and deliver a new
warrant or warrants to the Holder in exchange for the warrant or warrants to be
divided or combined in accordance with such notice.
Section 7. Right of First Refusal.
----------------------
(a) Notice of Transfer. In the event that the Holder proposes to
------------------
sell, assign, pledge, encumber, transfer or otherwise dispose of ("Transfer")
the Warrant or any shares issued upon exercise of the Warrant (collectively, the
"Shares") during the third or fourth years from and after the date hereof to any
party other than a person or entity controlled by or under common control with
the ultimate corporate parent of the Holder, the Holder shall give the
Corporation written notice of its intention ("Transfer Notice"), describing the
offered Shares ("Offered Shares"), the identity of the prospective transferee,
the consideration and the material terms and conditions upon which the proposed
Transfer is to be made.
(b) Right of First Refusal. With respect to any proposed Transfer,
----------------------
the Corporation shall have an option to purchase all or none of the Offered
Shares (the "Right of First Refusal"). To exercise the Right of First Refusal,
the Corporation must notify the Holder in writing of its decision to exercise
such option before the expiration of the ten (10) business day period following
the delivery of the Transfer Notice to the Corporation. If the Corporation
elects to purchase the Offered Shares, it shall pay consideration for the
Offered Shares no less favorable in price and material terms and conditions than
are described in the Transfer Notice.
(c) Closing Procedures. If the Corporation exercises the Right to
------------------
First Refusal, the Corporation and the Holder shall consummate the sale of the
Offered Shares on the terms set forth in the Transfer Notice by the date ten
(10) business days after the delivery of the Transfer Notice to the Corporation.
If the Corporation fails to exercise in full the Right of First Refusal on a
timely basis, then the Holder may, conclude the Transfer on the terms and
conditions described in the Transfer Notice.
(d) Termination of Right. The Right of First Refusal shall
--------------------
terminate at such time as public market exists for the Corporation's Common
Stock (or any other stock issued by the Corporation, or any successor, in
exchange for the Stock). For the purpose of this Agreement, a "public market"
shall be deemed to exist if (i) such stock is listed on a national securities
exchange (as that term is used in the Securities Exchange Act of 1934) or (ii)
such stock is traded on the over-the-counter market and prices therefore are
published daily on business days in a recognized financial journal.
(e) Legends. All certificates representing any Shares subject to
-------
the provisions of this Warrant shall have endorsed thereon the following
legends:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION OR ITS
ASSIGNEE, AND OTHER RESTRICTIONS ON TRANSFER SET FORTH IN A STOCK
SUBSCRIPTION WARRANT ISSUED BY THE CORPORATION TO
-6-
<PAGE>
THE REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION."
(ii) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES,
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT OR IS OTHERWISE
EXEMPT FROM REGISTRATION."
(iii) Any legend required to be placed thereon by the
California Commissioner of Corporations.
Section 8. Office of the Corporation.
-------------------------
So long as this Warrant remains outstanding, the Corporation shall
maintain an office in the continental United States where the Warrant may be
presented for exercise, transfer, division or combination as provided in this
Warrant. Such office shall be at 4225 Executive Drive, Suite 600, La Jolla,
California 92037, unless and until the Corporation shall designate and maintain
some other office for such purposes and give notice thereof to the Holder.
Section 9. Lost, Stolen, Mutilated or Destroyed Warrant.
--------------------------------------------
If this Warrant is lost, stolen, mutilated or destroyed, the
Corporation shall, on such terms as to indemnity or otherwise as it may in its
reasonable discretion impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like denomination and
tenor as the Warrant so lost, stolen, mutilated or destroyed.
Section 10. Transfer Taxes; Expenses.
------------------------
The Corporation shall pay all transfer taxes, stamp duties, and
similar taxes or fees payable in connection with any exercise or exchange of
this Warrant.
Section 11. Limitation of Liability.
-----------------------
Except as otherwise provided herein, this Warrant does not entitle the
Holder to any voting rights or other rights of a shareholder of the Corporation.
No provision hereof, in the absence of affirmative action by the Holder to
purchase shares of the Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price or as a shareholder of the Corporation, whether
such liability is asserted by the Corporation, by any creditor of the
Corporation or any other person.
-7-
<PAGE>
Section 12. Capitalization Representation.
-----------------------------
The authorized capital stock of the Corporation is 35,000,000 shares
of Common Stock, of which 2,158,000 shares are issued and outstanding and
18,000,000 shares of Preferred Stock issuable in series, of which (i) 6,700,000
shares are designated Series A Preferred Stock, 6,366,667 shares of which are
issued and outstanding; and (ii) 6,000,000 shares are designated Series B
Preferred Stock, 4,100,000 shares of which are issued and outstanding. All such
issued and outstanding shares have been duly authorized and validly issued, are
fully paid and nonassessable, and were issued in compliance with all applicable
state and federal laws concerning the issuance of securities. The Corporation
has reserved 6,700,000 shares of Common Stock for issuance upon the conversion
of Series A Preferred Stock, 6,000,000 shares of Common Stock for issuance upon
the conversion of Series B Preferred Stock, 759,386 shares of Common Stock for
issuance pursuant to the exercise of outstanding Common Stock purchase warrants,
and 5,140,614 shares of Common Stock for issuance to employees, directors, and
consultants pursuant to its 1998 Stock Option Plan. Upon their issuance in
accordance with this Warrant, the Warrant Shares issuable hereunder shall be
duly authorized, validly issued, fully-paid and non-assessable shares of Common
Stock.
Section 13. Governing Law.
-------------
This Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to the principles governing
conflicts of laws.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant on the
date first above written.
NEOPOINT, INC.
By:_______________________________
Name: William Son
Title: President
<PAGE>
NOTICE OF EXERCISE
(To be executed by the Holder
in order to exercise the Warrant.)
The undersigned hereby irrevocably elects to exercise the right
to purchase shares of Common Stock of NEOPOINT, INC., covered by this Warrant
according to the conditions thereof. The undersigned desires to consummate such
purchase on
_______________.
Dated: _________________________________
Name of Holder
By:______________________________
<PAGE>
EXHIBIT A
---------
Products/Features
-----------------
*** Twenty-seven pages of text omitted pursuant to a confidential treatment
request
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT B1
----------
Design Verification Tests
-------------------------
*** Thirty-four pages of text omitted pursuant to a confidential treatment
request
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT B2
----------
Interoperability Testing (Lucent Infrastructure Equipment)
----------------------------------------------------------
*** Twenty-six pages of text omitted pursuant to a confidential treatment
request
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT B3
----------
Interoperability Testing (Nortel Infrastructure Equipment)
----------------------------------------------------------
*** Nineteen pages of text omitted pursuant to a confidential treatment request
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT B4
----------
Interoperability Testing (Motorola Infrastructure Equipment)
------------------------------------------------------------
*** Forty-seven pages of text omitted pursuant to a confidential treatment
request
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT B5
----------
Qualification Test Plan
-----------------------
<PAGE>
EXHIBIT B6
----------
Manufacturing Test Plan
-----------------------
<PAGE>
EXHIBIT B7
----------
Accessory Test Plan
-------------------
<PAGE>
EXHIBIT B8
----------
Field Test Plan
---------------
<PAGE>
EXHIBIT 10.5
RESEARCH, DEVELOPMENT AND DISTRIBUTION AGREEMENT
This Research, Development and Distribution Agreement (this "Agreement") is made
and entered into as of the 17th day of February, 1997 (the "Effective Date") by
and between Innovative Global Solution, Inc., a California corporation (the
"Company"), and LG Electronics Inc., a Korean company ("LGE").
RECITALS
WHEREAS, the Company is engaged, among other activities, in the
business of developing, marketing and servicing a certain wireless
telecommunications product commonly called an "Internet Phone" (hereinafter, the
"Product") in the United States and certain other international markets;
WHEREAS, LGE is engaged in the business of developing, manufacturing,
distributing, marketing and servicing the wireless telecommunication products in
Korea and certain other international markets;
WHEREAS, the parties hereto contemplate that the Products may
incorporate the IGS Technology and the LGE Technology (as hereinafter defined);
WHEREAS, in connection with the development of the Products, LGE
desires to grant, and the Company desires to receive, a license to use the LGE
Technology, on the terms and conditions set forth herein and IGS desires to
grant, and the Company desires to receive, a license to use the IGS Technology,
on the terms and conditions set forth herein; and
WHEREAS, LGE and the Company intend to exploit the tangible and the
intangible property developed under this Agreement in the respective territories
specified herein.
WHEREAS, LGE and IGS Development, Inc., a California corporation and a
predecessor-in-interest to the Company, entered into that certain Series A
Preferred Stock Purchase Agreement dated as of October 31, 1997 (the "Stock
Purchase Agreement").
WHEREAS, the execution of this Agreement is a condition precedent to
certain obligations contained in the Stock Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
intending to be legally bound, LGE and the Company hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
-----------
shall have the following meanings:
<PAGE>
1.1 "Acceptance" shall mean acceptance by LGE, pursuant to
----------
Section 2 hereof, of the Prototype Design or the Pilot Production Design
completed by the Company which operates substantially in conformance with the
Specifications for such Milestone. "Accept" and "Accepted" shall have corollary
meanings.
1.2 "Acceptance Certificate" shall mean a certificate to be
----------------------
delivered by LGE to Company upon Acceptance of the Milestones.
1.3 "Affiliate" shall mean, as to a party to this Agreement or
---------
any third party, any corporation or other person or entity directly or
indirectly controlling, controlled by, or under common control with such party
where the Company in control owns over fifty percent (50%) of the voting stock
of the company of which it directly or indirectly controls or, in the case of
LGE, any company designated as an "affiliated company" of the LG Group by the
Fair Trade Commission of the Republic of Korea; provided, however, that neither
party hereto shall be deemed an Affiliate of the other party hereto for purposes
of this Agreement.
1.4 "Business Day" shall mean any day other than a Saturday or
------------
Sunday, a Federal holiday or a public holiday in the State of California or the
Republic of Korea.
1.5 "Cellular Service Provider" shall mean cellular and PCS
-------------------------
operators and service providers who sell, lease or otherwise offer wireless
telecommunications products to consumers.
1.6 "Distribute" * * *.
----------
1.7 "End Customer" shall mean a consumer who purchases the
------------
Products for his/her own use.
1.8 "IGS Improvements" * * *.
----------------
1.9 "IGS Technology" shall mean the software, hardware and
--------------
related know-how and Technical Information which IGS shall use in the
development of or otherwise incorporate into the Products, along with all
patent, patent applications, copyrights, trademarks, trademark applications,
service marks, service mark applications, trade names, trade secrets, inventions
(whether or not patentable), drawings, designs, specifications, proprietary
know-how or information or other intellectual or industrial property rights
comprising, incorporated into or related thereto owned by or licensed to IGS
prior to the Effective Date.
1.10 "Improvements" shall mean any and all new releases and new
------------
versions of, modifications, alterations, adaptations, translations, enhancements
and additions to, and derivative works of any applicable technology or Product,
as the case may be, together with all patent, copyright, trademark, trade secret
or other intellectual or industrial property rights comprising, incorporated
into or related thereto.
1.11 "Jointly Developed Technology" shall mean any invention
----------------------------
(whether patentable or not) which is conceived, made, created, reduced to
practice or fixed in a tangible medium of expression jointly by Company and LGE
in the course of developing the Products under this Agreement.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
2
<PAGE>
1.12 "LGE Improvements" * * *.
----------------
1.13 "LGE Technology" shall mean certain software, technology
--------------
and/or technical know-how owned or has a right to use by LGE and identified on
Exhibit D hereto, along with all patent, copyright, trademark, trade secret or
- ---------
other intellectual or industrial property rights comprising, incorporated into
or related thereto.
1.14 "Milestone" shall mean the delivery of the Prototype Design
---------
and Pilot Production Design as specified in Exhibit C hereto.
---------
1.15 "Pilot Production Design" shall mean that manufacturing
-----------------------
stage design to be developed by Company substantially in accordance with the
Specifications as further described in the Product Statement of Work.
1.16 "Products" shall mean wireless telecommunications products
--------
commonly called an "Internet Phone" as more particularly described on Exhibit A
---------
hereto.
1.17 "Product Statement of Work" shall mean the document which
-------------------------
has been mutually agreed upon by LGE and the Company with respect to the
Products that sets forth a description of the Products, the development stages
and certain other matters related thereto, a copy of which is attached as
Exhibit A hereto (which may be amended from time to time by mutual agreement of
- ---------
the parties).
1.18 "Prototype Design" shall mean that certain prototype of the
----------------
Products to be developed by Company substantially in accordance with the
Specifications as further described in the Product Statement of Work.
1.19 "Specifications" shall mean the specifications which have
--------------
been mutually agreed upon for the Products as set forth in Exhibit B hereto.
---------
1.20 "Stock Purchase Agreement" shall have the meaning ascribed
------------------------
thereto in the Recitals.
1.21 "Target Dates" shall mean the dates by which the Milestones
------------
shall be completed as specified in Exhibit C hereto.
---------
1.22 "Technical Information" shall mean documentation, including,
---------------------
without limitation, drawings, schematics and other written descriptive materials
(or object code versions stored on magnetic or other media) for the Products,
including any technical information set forth in the Product Statement of Work
or otherwise in existence from time to time.
1.23 "NSP" (Net Selling Price) shall be * * *.
---
2. Development and Delivery of the Products.
----------------------------------------
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
3
<PAGE>
2.1 Development. Company shall develop the Products in
-----------
accordance with the provisions of this Agreement. Such Products shall meet, in
all material respects, the Specifications. The Company agrees to use all
reasonable commercial efforts to complete the Milestones and meet the Target
Dates set forth in the Product Statement of Work. The parties agree that time is
of the essence in the performance of this Agreement. The Company shall notify
LGE on a continuing basis of any event or occurrence that could cause a delay in
achieving any Milestones or in doing so by the Target Dates or otherwise delay
the development of the Products. The Company agrees to provide LGE with a
written report of any actual or anticipated problems (resolved or unresolved)
and any indication of delay promptly upon becoming aware of any such
circumstance. Approximately once every month, the parties shall meet in person
or convene by conference call for a formal progress presentation, during which
the Company shall describe the status of the work required under the Product
Statement of Work. Such presentation shall provide projections of the time of
completion of each stage of the Products, and the status of such stages, and
shall address any problems with the development of such stages that have come to
the Company's attention and the Company's views as to how such problems may be
resolved. To the extent there are Products described in the Product Statement of
Work for which milestones and Target Dates are not provided therein, Company
shall nevertheless develop such Products in accordance with this Agreement and
the Specifications, and the parties shall develop in good faith mutually agreed
upon milestones and Target Dates for delivery of all required items. * * *.
2.2 Assistance to be Provided by LGE. In order to assist in the
--------------------------------
development of the Products and any required transfer of the licensed IGS
Technology from the Company to LGE, LGE will be entitled to send an appropriate
number of employees as determined mutually by LGE and Company to the Company's
facilities. The Company will make available its engineers who will cooperate
closely with the employees dispatched from LGE for the smooth development of the
Products and the transfer of the licensed IGS Technology, facilities at any
given time during the development of the Products. LGE will be entitled to
maintain at least two (2) employees present at Company's facilities an any given
time during the development of the Products. Such employees from LGE will have
the right to participate in those activities deemed mutually beneficial to the
development of the Products, including, without limitation, Product definition.
The Company will provide sufficient office and working space and equipment for
such LGE's representatives. In addition, the Company may make available its
engineers, on a time and materials basis, for discrete projects unrelated to
work on the Products.
2.3 Delivery of the Products.
------------------------
2.3.1 Delivery of Prototype Design. In accordance with
----------------------------
the Target Dates set forth in Exhibit C, Company shall deliver to LGE one copy
---------
of the Prototype Design on the media designated by LGE, and shall deliver such
Technical Information and other documentation and materials, if any, required to
be provided in connection with such Prototype Design, as set forth in the
Product Statement of Work. LGE shall have * * * (the "Acceptance Period") to
Accept such Prototype Designs by submitting to Company an Acceptance Certificate
within such Acceptance Period or to reject the Prototype Design by submitting a
detailed description of its nonconformance. If the Prototype Design is rejected
by LGE, Company shall have * * * to resubmit a revised Prototype Design to LGE
for Acceptance.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
4
<PAGE>
2.3.2 Delivery of Pilot Production Design. In accordance
-----------------------------------
with the Target Dates set forth in Exhibit C, Company shall deliver to LGE one
----------
copy of the Pilot Production Design on the media designated by LGE, and shall
deliver such Technical Information and other documentation and materials, if
any, required to be provided in connection with such Pilot Production Design, as
set forth in the Product Statement of Work. LGE shall have * * * to Accept such
Pilot Production Design by submitting to Company an Acceptance Certificate
within such Acceptance Period or to reject the Pilot Production Design by
submitting a detailed description of its nonconformance. If the Pilot Production
Design is rejected by LGE, Company shall have * * * to resubmit a revised
Pilot Production Design to LGE for Acceptance.
2.3.3 Manufacturing Assistance. In addition to the
------------------------
development and design assistance contemplated in the Product Statement of Work,
Company shall provide reasonable assistance to LGE, including reasonable
engineering support as needed to assist LGE in incorporating the Products into
LGE's manufacturing process.
2.3.4 Delivery of Improvements. Promptly upon
------------------------
completion of each Improvement, the Company shall deliver to LGE one copy of
such Improvement on the media in which the Product to which it relates is
licensed to LGE or, if different, any required media to implement such
Improvement, together with all related technical information and other
documentation and materials, if any, required to implement the Improvement.
2.4 Delivery Expenses. The Company shall be responsible, at its
-----------------
sole cost and expense, for the payment of all costs and expenses, including,
without limitation, any travel expenses of its employees, incurred in connection
with the delivery to LGE of each Milestone, or any materials required to be
approved by LGE hereunder.
3. Funding. Within ten (10) days of LGE's Acceptance of the Prototype
-------
Design, subject to the satisfaction of all applicable conditions precedent in
the Stock Purchase Agreement, Company shall sell to LGE and LGE shall pay to
Company the purchase price specified in Section 1.2 of the Stock Purchase
Agreement for 1,600,000 Preferred Shares, as such term is defined in the Stock
Purchase Agreement. Within ten (10) days following LGE's Acceptance of the Pilot
Production Design, subject to the satisfaction of all applicable conditions
precedent in the Stock Purchase Agreement, Company shall sell to LGE and LGE
shall pay to Company the purchase price set forth in Section 1.2 of the Stock
Purchase Agreement for 1,066,667 preferred shares. Other than the foregoing, LGE
shall have no obligation to make any payments to Company for Company's
development of the Products in accordance with the Statement of Work set forth
in Exhibit A hereto.
-------
4. Ownership of LGE and IGS Technology.
-----------------------------------
4.1 The LGE Technology. At all times hereunder, LGE shall remain
------------------
the sole and exclusive owner of the LGE Technology and LGE Improvements. LGE
shall be permitted to seek patent, copyright or other intellectual property
registration in its own name in relation to the LGE Improvements. LGE agrees to
give Company written notice of each LGE Improvement promptly (but in no event
more than thirty (30) days) following the creation
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
5
<PAGE>
thereof,Setting forth in reasonable detail the nature of such Improvement
including, without limitation, its use and the results of any tests thereof.
4.2 IGS Technology. At all times hereunder, IGS shall remain the
--------------
sole and exclusive owner of the IGS Technology and all IGS Improvements. The
Company shall be permitted to seek patent, copyright or other intellectual
property registration in its own name in relation to the IGS Improvements. The
Company agrees to give LGE written notice of each IGS Improvement promptly (but
in no event more than thirty (30) days) following the creation thereof, setting
forth in reasonable detail the nature of such Improvement including, without
limitation, its use and the results of any tests thereof.
4.3 Jointly Developed Technology. The parties contemplate that
----------------------------
Developed Technology. Based upon the nature of such technology and the
contributions of the parties thereto, the parties shall agree upon how such
Jointly Developed Technology should be owned by the parties, including
potentially as joint owners. In the event the parties are unable to reach such
agreement, either party will have the right to use the Jointly Developed
Technology on an non-exclusive basis without any obligation to account to or pay
royalty to the other party, provided that the party intending to use the Jointly
Developed Technology (I) provides a written notice to the other party thirty
(30) days prior to the commencement of such use and (ii) agrees to continue
negotiation in good faith with respect to the ownership of the Jointly Developed
Technology.
5. Licenses.
--------
5.1 * * *
5.1.1 LGE Technology * * *
5.1.2 * * *
5.2 Licenses Granted to LGE by the Company. Subject to the terms
--------------------------------------
and conditions of this Agreement, including Section 5.3 below, the
Company hereby grants to LGE for THE term of this Agreement, * * *.
Any sublicense granted by LGE hereunder shall be in
accordance with a sublicense agreement which shall incorporate the applicable
license terms and conditions set forth herein, including all confidentiality
obligations and applicable limitations on license grants specified herein;
except that Affiliates of LGE need not enter into separate written sublicense
agreements, as long as such Affiliates are provided a copy of this Agreement.
Acceptance of the IGS Technology, IGS Improvements, or the Products by an
Affiliate shall be deemed full acceptance by such Affiliate of the terms hereof.
5.3 Distribution Rights and Territorial Restrictions.
------------------------------------------------
5.3.1 Distribution Rights of Products. Notwithstanding
-------------------------------
anything to the contrary contained herein, the parties agree that with respect
to the distribution of the Products and any derivative products upon completion
of development of the Products, (i) the Company will have the exclusive right to
Distribute the Products and any derivative Products to
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
6
<PAGE>
cellular and PCS operators and service providers in the United States and in
such other countries as set forth on Exhibit E hereto; (ii) LGE will have the
---------
exclusive right to Distribute the Products and any derivative products in the
Republic of Korea and in such other countries as set forth on Exhibit E hereto;
---------
and (iii) the Company and LGE will each have the non-exclusive right, without
any obligation to account to the other party for any revenues derived therefrom,
to Distribute the Products and provide maintenance services relating thereto in
all other territories throughout the world. For purposes of this Agreement, a
person or entity to whom any party hereto Distributes the Products shall be
considered to be in the territory in which all end users of such Products are
located; provided, however, that each of LGE and the Company shall only be
permitted to enter into agreements with persons or entities who agree to
restrict use of the Products to the territories in which LGE or the Company, as
the case may be, has exclusive and/or non-exclusive rights. In no event shall
LGE or the Company Distribute or otherwise authorize or permit use of the
Products in any territory in which the other party hereto has exclusive rights
without such other party's prior written consent.
5.3.2 Product Branding. The parties agree that the Products
----------------
distributed by the Company may carry either IGS or LGE band names or be co-
branded with any cellular and PCS operators and service providers. * * *.
5.4 Manufacture. The parties agree as follows with respect to
-----------
the manufacture of the Products:
5.4.1 Exclusive Manufacturer and Supplier. LGE will be
-----------------------------------
the exclusive manufacturer and supplier of the Products to the Company and its
affiliates and the Company and its affiliates shall not manufacture any Product
or have any Product manufactured by a third party except as set forth under5
Section 5.4.2 below. LGE shall manufacture the Products, or (at LGE's option)
arrange for the manufacture of Products by third parties as subcontractors of
LGE, for the Company. Such manufacturing shall be in accordance with mutually
agreed commercial terms, which will include (I) forecasting requirements
covering the succeeding three (3) quarters and firm orders for the succeeding
first quarter delivered to LGE at the commencement of each fiscal quarter (ii)
prices for such Products which reflect the elements mentioned in Section 5.4.3
below, and LGE delivery and performance obligations. Such terms may also include
different or additional provisions, to the extent not inconsistent herewith,
relating to damages and other liabilities in connection with the Product
manufactured by LGE, including among other things, limitations of liability.
5.4.2 Terms of Exclusive Manufacturing Right. At any
--------------------------------------
time the Company desires to acquire a supply of Products for distribution, it
will create or designate final manufacturing design specifications from which
manufacture is feasible on a commercial scale and will supply such
specifications (commonly known as the successful completion of "the pilot
event") to LGE. The final manufacturing design specification mentioned herein
shall substantially conform to the Specifications set forth in Exhibit B or to
---------
any new specifications mutually agreed upon by the parties. LGE will cause the
commencement of the manufacturing of a Product on a commercial scale, in
conformance in all material respects with the applicable specifications, within
* * * of the Company's providing or designating and agreed by LGE, such
final manufacturing design specifications to LGE. In the event LGE does not
cause such manufacturing to begin within such * * * period for reasons
within LGE's control,
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
7
<PAGE>
then, immediately thereafter representatives from LGE and the Company will meet
to discuss the reasons for the manufacturing delay. At such meeting, the parties
will negotiate in good faith to agree upon a revised production plan. If, within
two (2) weeks after such meeting, the parties have been unable to agree upon a
new plan, then the Company will be permitted to contract with any third party
for the manufacture of such Product notwithstanding the exclusivity of LGE's
manufacturing rights in this Section 5.4.2. LGE will continue, however, to have
non-exclusive rights to manufacture and supply the particular Product to the
Company, and the foregoing termination of exclusivity will apply only to the
specific Product as to which the delay occurred. In addition, no such loss of
exclusivity will affect the exclusive license and distribution rights of LGE set
forth in Section 5.2. LGE's exclusivity hereunder shall also terminate in the
event of termination of this Agreement pursuant to Section 11 hereof.
5.4.3 Pricing Committee. LGE and the Company will form a
-----------------
pricing committee (the " Pricing Committee") composed of an equal number of
representatives from each party for the purpose of establishing and reviewing
the prices which LGE or its Affiliates will charge to the Company for the
manufacture and supply of the Products. The prices established by the Pricing
Committee will be commercially reasonable, permit the Company to compete
effectively in the U.S. market involving cellular and PCS operators and service
providers, provide LG Electronics with a commercially reasonable profit, and be
no higher than the prices charged by LGE to any third party outside of Korea for
whom it supplies and manufactures the same or similar products. The pricing
committee shall take into consideration that prices may include the fair market
value of goods and services provided by third parties to LGE.
5.4.4 Product Warranties and Indemnification.
--------------------------------------
* * *
6. Protection of Proprietary Rights.
---------------------------------
6.1 Protection of LGE's Proprietary Rights. The Company will not
--------------------------------------
remove any proprietary or confidential legends, markings or copyright or other
notices which LGE has placed upon or within the LGE Technology or LGE
Improvements and will reproduce such markings on any copies made by the Company
in accordance with this Agreement. LGE shall have the sole right and authority
to prepare, obtain, file, record and maintain, in any country or political
subdivision thereof, all applications and registrations, and renewals thereof,
that LGE may make to protect its rights in the LGE Technology and LGE
Improvements, whether such rights are in the nature of patent, copyright or
other intellectual or industrial property rights. Any such applications,
registrations or renewals shall be in the name of LGE or such other name as LGE
deems appropriate. At the request of LGE, the Company shall cooperate fully with
LGE, and shall execute all such documents as are necessary or desirable, to aid
LGE in preparing, obtaining, filing, recording or maintaining any such
application, registration or renewal.
6.2 Protection of the Company's Proprietary Rights. LGE will not
----------------------------------------------
remove any proprietary or confidential legends, markings or copyright or other
notices which the Company or its independent contractors have placed upon or
within the IGS Technology and
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
8
<PAGE>
IGS Improvements, the Products or any Improvements thereto, and will reproduce
such markings on any copies made by LGE in accordance with this Agreement. The
Company shall have the sole right and authority to prepare, obtain, file, record
and maintain, in any country or political subdivision thereof, all applications
and registrations, and renewals thereof, that the Company may make to protect
its rights in the above listed Technology, Products and Improvements thereto,
whether such rights are in the nature of patent, copyright or other intellectual
or industrial property rights. Any such applications, registrations or renewals
shall be in the name of the Company. At the request of the Company, and at the
Company's expense, LGE shall cooperate fully with the Company, and shall execute
all such documents as are necessary or desirable, to aid the Company in
preparing, obtaining, filing, recording or maintaining any such application,
registration or renewal.
7. Confidential Information.
------------------------
7.1 Protection of Confidential Information. Each party
--------------------------------------
acknowledges that it may have access to proprietary or confidential information
related to the LGE Technology, the IGS Technology, the Products, Improvements
and/or the business, business practices or marketing plans of the other party.
Each party shall protect the proprietary or confidential information of the
other party in the same manner as it would protect its own proprietary or
confidential information, and shall not use proprietary or confidential
information of the other party for its own benefit or the benefit of any other
person or entity, except as may be specifically permitted hereunder.
7.2 Exceptions to Confidential Treatment. The foregoing
------------------------------------
obligations of confidentiality and non-use shall not apply to any confidential
or proprietary information of one party which:
7.2.1 was known by the other party prior to its disclosure by
the disclosing party (whether prior or subsequent to the date of this Agreement)
and not obtained or derived, directly or indirectly, from such party or its
Affiliates, or if so obtained or derived, was lawfully obtained or derived and
is not held subject to any confidentiality or non-use obligations;
7.2.2 is or becomes publicly available other than through any
act or default of a party that has an obligation of confidentiality and non-use
with respect to such information;
7.2.3 is obtained or derived subsequent to the date of this
Agreement from a third party which, to the best knowledge of the party acquiring
such information, is lawfully in possession of such information and does not
hold such information subject to any confidentiality or non-use obligations;
7.2.4 is developed or derived by a party, prior or subsequent
to its disclosure by the disclosing party, independently and without reference
to the confidential or proprietary information which was disclosed by the
disclosing party; or
7.2.5 is required to be disclosed by one of the parties
pursuant to applicable law, or under a government or court order; provided,
however, that (i) the obligations of confidentiality and non-use shall continue
to the fullest extent not in conflict with such law or
9
<PAGE>
order, and (ii) if and when a party is required to disclose such confidential or
proprietary information pursuant to any such law or order, such party shall
promptly notify the other party and use reasonable best efforts to obtain a
protective order or take such other actions as shall prevent or limit, to the
fullest extent possible, public access to, or disclosure of, such confidential
or proprietary information.
8. Representations and Warranties; Indemnification; Limitations.
------------------------------------------------------------
8.1 Representations and Warranties of Company.
-----------------------------------------
8.1.1 Company represents and warrants to LGE that Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California; has full corporate power and authority to
conduct its business as now being conducted and as contemplated hereby; and
holds all necessary licenses and permits from all government entities for the
proper conduct of said business.
8.1.2 Company represents and warrants to LGE that Company has
the unrestricted right and the corporate power and authority to enter into this
Agreement and to perform its obligations hereunder and neither the execution and
delivery of this Agreement nor the consummation of the actions contemplated
hereby will (i) violate any provisions of its charter documents, (ii) violate,
conflict with or constitute a default under any contract to which it is a party
or (iii) violate any law binding on it.
8.1.3 * * *
8.2 Representations and Warranties of LGE. LGE represents and
-------------------------------------
warrants that:
8.2.1 LGE is a corporation duly organized, validly existing
and in good standing under the laws of the Republic of Korea; has full corporate
power and authority to conduct its business as now being conducted and as
contemplated hereby; and holds all necessary licenses and permits from all
government entities for the proper conduct of said business;
8.2.2 LGE has the unrestricted right and the corporate power
and authority to enter into this Agreement and to perform its obligations
hereunder and neither the execution and delivery of this Agreement nor the
consummation of the actions contemplated hereby will (i) violate any provisions
of its charter documents, (ii) violate, conflict with or constitute a default
under any contract to which it is a party or (iii) violate any law binding on
it;
8.2.3 * * *
8.2.4 The LGE Technology and the Company's use thereof as
permitted hereby will not infringe upon or violate any patent, trade secret,
copyright, trademark or any other intellectual property or proprietary right of
any person, firm or corporation.
8.3 Indemnification.
---------------
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
10
<PAGE>
8.3.1 Company's Indemnification. Company hereby agrees to
-------------------------
indemnify, defend and hold harmless LGE and its officers, directors, agents,
representatives, successors and assigns from and against any and all claims,
demands, losses, costs and expenses (including reasonable attorneys' fees),
investigations, damages, judgments, penalties and liabilities of any kind or
nature whatsoever, arising out of, resulting from, relating to or connected with
(i) a defect in the design of the Products, (ii) the Company's misuse or
modification of LGE Technology or any LGE Improvement; or (iii) Company's breach
of any representation, warranty or covenant herein. Company shall promptly upon
receipt of notice of any such claim defend such claim at the Company's sole cost
and expense; or in the event Company declines to assume the defense or does not
assume the defense within a period of time necessary to avoid material prejudice
to LGE, LGE may assume the defense and will be reimbursed for its reasonable,
out-of-pocket expenses incurred in connection therewith. No settlement of any
claim shall be made by Company without the prior written consent of LGE, such
consent not to be unreasonably withheld.
8.3.2 LGE's Indemnification. LGE hereby agrees to indemnify,
---------------------
defend and hold harmless Company and its officers, directors, agents,
representatives, successors and assigns from and against any and all claims,
demands, losses, costs and expenses (including reasonable attorneys' fees),
investigations, damages, judgments, penalties and liabilities of any kind or
nature whatsoever, arising out of, resulting from, relating to or connected with
LGE's breach of any representation, warranty or covenant herein. In the event
LGE declines to assume the defense or does not assume the defense within a
period of time necessary to avoid material prejudice to the Company, the Company
may assume the defense and will be reimbursed for its reasonable, out-of-pocket
expenses incurred in connection therewith. In the event LGE assumes the
defense, the Company may participate therein at its own expense. In no event
shall LGE's aggregate liability (inclusive of insurance proceeds) under this
Section 5.4 exceed the aggregate amount of payments received by LGE for the sale
of Products. No settlement of any claim shall be made by LGE without the prior
written consent of the Company, such consent not to be unreasonably withheld.
8.3.3 Infringement of Third Party Intellectual Property
-------------------------------------------------
Rights. If the indemnity obligations set forth in Sections 8.3.1 and 8.3.2 arise
- ------
from either party's infringement of third party intellectual property rights
with respect to the IGS Technology or LGE Technology, as applicable, such party
may, at its option, in addition to satisfying in full its indemnification
obligations in respect of all liabilities set forth above in Sections 8.3.1 and
8.3.2 as applicable, (i) replace or modify the infringing articles with non-
infringing ones which are functionally equivalent, (ii) obtain a license for the
non-infringing party to continue to develop, make, have made, use and sell the
infringing articles or (iii) request the return of the infringing articles and
return any fee paid by the non-infringing party for such articles less a
reasonable sum reflecting the time the infringing article has been used by the
non-infringing party.
8.3.4 Notice. Whenever any claim for indemnification shall
------
arise under this Section 8.3, the party seeking indemnification (the
"Indemnified Party") shall notify the party or parties (as the case may be)
against whom indemnification is sought (whether one party or more, the
"Indemnifying Party") in writing within thirty (30) days after the Indemnified
Party has actual knowledge of the facts constituting the basis for such a claim.
The Indemnified Party shall fully cooperate with and provide reasonable
assistance to the Indemnifying Party in
11
<PAGE>
the defense or settlement of such claim and shall provide information and
assistance in the defense thereof. The right to indemnification hereunder, as
set forth in such notice, shall be deemed agreed to by the Indemnifying Party
unless, within fifteen (15) days after the receipt of such notice, the
Indemnified Party is notified in writing that the Indemnifying Party disputes
the right to indemnification as set forth in such notice or elects to proceed
subject to a reservation of rights.
8.4 Limitations.
-----------
8.4.1 Consequential Damages. IN NO EVENT SHALL EITHER PARTY
---------------------
BE LIABLE TO THE OTHER FOR ANY SPECIAL, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL
DAMAGES (INCLUDING BUT NOT LIMITED TO, LOST PROFITS) WHICH MAY ARISE OUT OF OR
IN CONNECTION WITH THIS AGREEMENT WHETHER IN CONTRACT, TORT OR ANOTHER LEGAL
THEORY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THE REMEDIES SET FORTH IN SECTION 8.3 ABOVE ARE LGE'S AND COMPANY'S SOLE AND
EXCLUSIVE REMEDIES WITH RESPECT TO CLAIMS OF INFRINGEMENT OF THIRD PARTY RIGHTS
OF ANY KIND.
8.4.2 Limitation of Liability. * * *
-----------------------
8.5 Disclaimer. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN
----------
SECTIONS 5.4.4 AND 8 ABOVE, NEITHER PARTY MAKES ANY OTHER WARRANTIES OF ANY
KIND, EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR NON-INFRINGEMENT.
9. Infringement by Others. Each party agrees to promptly notify the
----------------------
other of any infringement, imitation or unauthorized use of the LGE Technology,
IGS Technology, the Improvements or the Products by others promptly following
such party's becoming aware of such event. The Company shall have the initial
right to determine whether or not to bring infringement or unfair competition
proceedings on account of any such infringement, limitation or unauthorized use
or variation or any other matter involving the IGS Technology, IGS Improvements
or the Products. LGE shall cooperate fully with the Company in any legal action
taken by the Company against any party alleged to be infringing upon the IGS
Technology, IGS Improvements or the Products. LGE shall have the initial right
to determine whether or not to bring infringement or unfair competition
proceedings on account of any such infringement, imitation or unauthorized use
or variation, or any other matter involving the LGE Technology and LGE
Improvements. The Company shall cooperate fully with LGE in any legal action
taken by LGE against any party alleged to be infringing upon the LGE Technology
and LGE Improvements. Any amount awarded with respect to any legal action shall
be first allocated between LGE and the Company in reimbursement of expenses and
the remainder shall be equitably apportioned between LGE and the Company
pursuant to their mutual agreement as to their respective damages. If either
party decides not to institute any suit or take any action in connection with
any potential infringement, imitation or unauthorized use, the other party may
institute such action, at its sole cost and expense, upon obtaining the prior
written consent of the
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
12
<PAGE>
other party to do so and such party shall be entitled to retain any and all
recoveries therefrom without any obligation to the other party.
10. * * *
11. Duration and Termination.
------------------------
11.1 Term. This Agreement shall become effective on the Effective
----
Date and shall continue in effect for a period of twenty (20) years thereafter,
unless terminated pursuant to Section 11.2, 11.3 or 11.4 below.
11.2 Termination by Either Party. Either party shall have the
---------------------------
right to terminate this Agreement, without prejudice to any other rights or
remedies which such party may have, whether under the provisions of this
Agreement, in law or in equity or otherwise, if the other party shall fail to
perform or breaches any of the material terms, conditions, agreements,
representations or covenants contained in this Agreement and such breach shall
continue uncured for a period of sixty (60) days after the other party's receipt
of written notice thereof.
11.3 Termination by LGE. Without limitation of any other rights
------------------
or this Agreement, effective upon delivery of written notice to the Company, in
the event that any Milestone is not completed within thirty (30) days after the
Target Date specified therefor (provided such default is not a result of LGE's
material failure to timely perform any LGE obligation set forth in the Product
Statement of Work) and should such default continue uncured for a period of
thirty (30) days after receipt of written notice from LGE thereof.
11.4 Termination by Company. Without limitation of any other
----------------------
rights or remedies to which the Company may be entitled, the Company shall have
the right to terminate this Agreement, effective upon delivery of written notice
to LGE, in the event that LGE elects not to purchase additional shares of the
Series A Preferred Stock of the Company pursuant to Section 2.1(g) of the Stock
Purchase Agreement.
11.5 Effect of Termination. The provisions of Sections 4, 5.4.4,
---------------------
6, 7, 8, and 12 shall survive any termination of this Agreement. All licenses
granted pursuant to this Agreement shall immediately terminate upon termination
of this Agreement for any reason.
11.6 Effect of Bankruptcy of the Company. All rights and licenses
------------------------------------
granted by the Company to LGE hereunder or pursuant to this Agreement are and
shall otherwise be deemed to be, for the purpose of Section 365(n) of the United
States Bankruptcy Code (the "Bankruptcy Code"), licenses or rights to
"intellectual property" as defined under Section 101(52) of the Bankruptcy Code.
The Company agrees that if the Company as a debtor-in-possession or if a trustee
in bankruptcy rejects this Agreement, LGE may elect to retain its rights under
this Agreement as provided under Section 365(n) of the Bankruptcy Code. Upon
written request of LGE to the Company or the trustee in bankruptcy, the Company
or such trustee shall allow LGE to exercise its rights under this Agreement and
shall not interfere with the rights of LGE as provided in this Agreement.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
13
<PAGE>
12. Miscellaneous.
-------------
12.1 Force Majeure. Each party shall be excused for failures or
-------------
delays in performing its obligations under this Agreement to the extent that
such delay or failure results from any cause beyond the reasonable control of
such party, including, but not limited to, delays or failures caused by the
other party, acts of God, strikes or other labor disturbances, federal, state,
local or foreign laws or regulations not existing at the time of execution of
this Agreement, public disorder, earthquakes, floods and catastrophes of fire or
explosion. In any circumstance described in the immediately preceding sentence,
the affected party shall undertake reasonable efforts to discharge its
obligations hereunder. Any failure or delay justified under this Section 12.1
shall extend the time for performance of the affected obligation by a period of
time equal to the length of time the condition excusing the performance has
lasted; provided, however, that should such delay continue for greater than
ninety (90) days, the party not seeking excuse from performance on account of
such condition shall, without penalty, have the right to terminate this
Agreement.
12.2 Notices. All notices, requests, waivers and other communications
-------
made to a party hereto pursuant to this Agreement shall be deemed to have been
duly given if given in writing and hand-delivered, sent by facsimile with
appropriate confirmation, mailed postage pre-paid, certified or registered,
return-receipt requested, or sent by prepaid air freight, express delivery of
which is guaranteed and acknowledgment of receipt of which is required, to the
address of the party set forth as follows, or to any other address that such
party may designate by written notice to the other:
If to LGE: LG Electronics Inc.
LG Twin Towers
20, Yoido-dong, Youngdungpo-gu
Seoul, Korea
Facsimile: 011-822-3777-5749
Attn: Mr. Stephen Juh, Executive Director
If to the Company: Innovative Global Solution, Inc.
4225 Executive Square, Suite 700
La Jolla, California 92037
Facsimile: (619) 458-9588
Attn: William Son, President
Notices delivered in person shall be effective when so delivered. Notices
delivered by courier shall be effective five (5) Business Days after delivery by
the sender to an air courier of national reputation who guarantees delivery
within such five (5) Business Day period. Facsimile notices shall be effective
when the sender's telecopy machine confirms that the transmission has been
received by the addressee. Notices sent by air mail shall be effective ten (10)
Business Days after the sender's deposit of such notice in the United States or
Korean mails, first class postage prepaid.
14
<PAGE>
12.3 Presumptions. Because each party hereto has participated in
------------
drafting this Agreement, there shall be no presumption against any party on the
ground that such party was responsible for preparing this Agreement or any part
hereof.
12.4 Injunctive Relief. Each party acknowledges that the other party
-----------------
will have no adequate remedy at law if such party breaches any provision of
Section 7 above, and that the non-breaching party shall have the right, in
addition to any other rights it may have, to obtain, in any court of competent
jurisdiction (notwithstanding Section 12.14 below), injunctive relief to
restrain any such breach or threatened breach, or otherwise to specifically
enforce, any of the provisions of such Section.
12.5 No Joint Venture. Nothing contained in this Agreement shall be
----------------
construed to place the parties in the relationship of partners or joint
venturers, or principal and agent or employer and employee, and no party shall
have the power to obligate or bind the other party in any manner whatsoever.
12.6 Governing Law. This Agreement has been negotiated and entered
-------------
into in the State of California and shall be governed by and construed in
accordance with the internal laws of the State of California as applied to
contracts executed and intended to be fully performed therein, including all
matters of validity, interpretation, construction and performance, regardless of
the choice of law provisions of California or any other jurisdiction.
12.7 Headings. The headings included in this Agreement are for the
--------
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
12.8 Entire Agreement. This Agreement (including the exhibits
----------------
hereto) contains the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes and cancels any
and all previous written or oral negotiations, commitments, understandings,
agreements and any other writings or communications in respect of such subject
matter, including that certain Memorandum of Understanding dated October 24,
1997 entered into by and between the Company and LGE.
12.9 Amendments. This Agreement may be modified, amended, superseded
----------
or terminated only by a writing duly signed by authorized representatives of
both parties.
12.10 Severability. Any provision of this Agreement which is
------------
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provision of this Agreement
invalid, illegal or unenforceable in any other jurisdiction. If any provision
of this Agreement shall be declared so broad as to be invalid or unenforceable,
such provision shall be interpreted to be only so broad as is necessary for it
to be valid or enforceable.
12.11 Waiver. No waiver of any rights under this Agreement or
------
default hereunder will be valid or effective unless in writing signed by the
party against whom enforcement of such waiver is sought. Any waiver by either
party of a breach of any provision
15
<PAGE>
of this Agreement or default hereunder shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any other
provision of this Agreement or any other default hereunder. The failure of
either party to insist upon strict adherence to any term of this Agreement on
one or more occasions shall not be considered a waiver or to deprive such party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement.
12.12 Successors and Assigns; Assignment. Except as otherwise
----------------------------------
expressly provided herein, this Agreement shall be binding upon, and inure to
the benefit of, the respective legal representatives, successors and permitted
assigns of the parties, but nothing contained in this Section shall be construed
as a consent to any assignment of this Agreement. Except as otherwise expressly
permitted herein, neither party may assign any rights or obligations under this
Agreement without the prior written consent of the other party.
12.13 Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same document.
12.14 Arbitration. Any controversy, dispute or claim arising out of,
-----------
in connection with or in relation to the interpretation, performance or breach
of this Agreement, or any action taken by any party or otherwise arising out of
the execution or performance thereof, including any claim based on a contract,
tort or statute, shall be determined in accordance with this Section 12.14.
12.14.1 Informal Dispute Resolution. Before making a demand for
---------------------------
arbitration of any dispute covered by this Section, the parties shall submit the
dispute for mediation before the American Arbitration Association ("AAA"), which
mediation shall involve at least one officer of each party involved having at
least the rank of Vice President or the equivalent. All submissions to the
mediator shall be in writing and supported by any documentary evidence which a
party wishes to attach to the submission. Said officers shall endeavor to
resolve the dispute within thirty (30) days after said submission. If they are
unable to resolve the dispute in such period, any party may thereafter submit
the matter to arbitration in accordance with Section 12.14.2. The submission of
a dispute to mediation shall toll the limitations period described in Section
12.14.2(i) below from the time of the submission until the mediator determines
an impasse exists.
12.14.2 Arbitration. If the parties are unable to resolve a
-----------
dispute pursuant to Section 12.14.1 above, then the dispute shall be determined
by arbitration to be conducted in the English language in Los Angeles,
California, under the Large Complex Case Program of the American Arbitration
Association ("LCCP") and in accordance with the AAA's Commercial Arbitration
Rules and Supplementary Procedures pertaining to the LCCP, as modified herein.
(i) Any party wishing to make a claim must file an
arbitration demand within 180 days from the date on which that party has actual
knowledge of the claim. The claim shall be deemed to have been discovered on the
date when the party discovers the essential facts giving rise to such claim.
This paragraph, together with the tolling
16
<PAGE>
provision set forth above, shall be a statute of limitation for any arbitration
claim and the failure of a party to file an arbitration demand as described
herein shall forever bar that party from making such claim. The arbitration
panel shall not have jurisdiction to hear or decide on the merits any claim for
which an arbitration demand is not filed within the limitations period unless
the parties agree in writing to extend or toll the limitation period.
(ii) The claim shall be arbitrated before three
arbitrators, each of whom have experience in resolving intellectual property
and/or commercial manufacturing disputes, and have committed to the parties in
advance that he/she will conduct a hearing in strict accordance with the
requirements of this Section.
(iii) The parties to the arbitration shall attempt to
select the arbitrators from names provided by the AAA at the administrative
conference conducted under the LCCP Supplementary Procedures. To the extent the
parties are unable to agree upon any arbitrators at the administrative
conference or within twenty days (20) thereafter, the arbitrator(s) shall be
chosen by the AAA in accordance with the Commercial Arbitration Rules, subject
to the qualification requirements specified herein.
(iv) The arbitrators shall have the following powers, in
addition to any powers and authority granted them pursuant to the applicable AAA
rules and procedures:
(A) The power to appoint expert witnesses, at the
parties' expense, to assist the arbitrators in understanding any issue to be
resolved in the dispute, provided that such expert provides the parties with any
documents created, referred to, or relied on in forming his/her opinion and is
subject to examination by the parties at the hearing;
(B) The power, at his/her discretion, to grant
interim or final equitable relief, including without limitation injunctive
relief and specific performance, provided that said relief bears a relationship
to the contract rights and obligations of the parties; and
(C) The power to impose sanctions, based upon the
failure of any party to comply with an arbitration order, rule or procedure
applicable to the arbitration.
(v) Each party shall have the right to take discovery in
accordance with the California Rules of Civil Procedure, limited to: (i) one
set of document requests (not to exceed fifteen (15) requests); (ii) one set of
requests for admissions (not to exceed five (5) requests without subparts); and
(iii) a maximum of five (5) depositions (provided that each party shall have the
right, without limitation, to take depositions to be used as evidence in the
arbitration hearing upon a satisfactory showing that the deponent is unavailable
to testify at the hearing).
(vi) Within a reasonable period prior to the arbitration
hearing and after the close of discovery, the parties shall meet informally to
attempt in good faith to agree on issues to be decided in the arbitration, facts
which will not be disputed in the arbitration, and whether any issues in the
dispute should be resolved prior to the hearing and
17
<PAGE>
determination of other issues. The agreed issues and undisputed facts and, if
applicable, order of issues shall be submitted in writing to the arbitrators no
later than five (5) days prior to the commencement of the hearing.
(vii) Failing agreement between the parties, any party
shall have the right and the arbitrators shall have the discretion to have an
issue heard and resolved prior to the hearing on other issues upon a showing
that early resolution of said issues will be likely to resolve the entire
dispute or substantially reduce the scope of the hearing. The arbitration
procedures set forth in this Section shall not vary with respect to any early
resolution of issues, except that the arbitrators shall have ten (10) days
decide any such issue before continuing with the arbitration hearing, in which
case the maximum length of the arbitration hearing shall be extended
accordingly.
(viii) No later than ten (10) days prior to the hearing,
either party shall have the right to make a formal written offer to resolve the
dispute on any basis which the party deems to be appropriate. The other party
shall have a period of five (5) days thereafter within which to reject or accept
the offer. In the event the offer is rejected, and the party making the offer
later obtains an arbitration award more favorable than the terms of the offer,
the offering party shall have the right to recover all costs, including expert
witness and arbitration fees, incurred in connection with the arbitration.
(ix) The arbitration hearing shall be held within one
hundred twenty (120) days of service of the arbitration demand. To the maximum
extent possible, the hearing shall run continuously during regular business days
for a maximum of ten (10) full business days, including opening statements,
presentations of evidence, motions and closing argument, provided that the
arbitration hearing shall be concluded no later than twenty (20) days after it
commences. The parties shall have the right to submit written briefs in
addition to or in lieu of closing arguments. The award shall include a decision
on damages, if any, and costs, expenses and attorney's fees in accordance with
the provisions of this contract. At the request of either party, the award
shall include a written statement of reasons supporting the award. The award
shall be final and binding on the parties and the basis for any party obtaining
an enforceable judgment from a court of appropriate jurisdiction.
(x) The arbitration proceeding, as well as the fact that
such proceedings have been instituted, shall be kept confidential by the parties
and may be disclosed to their officers, directors and employees only on a need-
to-know basis, to their representatives and advisors or as required by law and
insofar as is necessary to confirm, correct, vacate or enforce the award. In
the event of any breach of this provision following a final award by the
arbitrator, the aggrieved party may initiate a new arbitration proceeding
pursuant to this paragraph to obtain appropriate relief for the violation of
this provision.
(xi) Any party may, at its election, seek equitable relief
from a court of appropriate jurisdiction and venue located in California
contemporaneous with the filing or prosecution of any arbitration claim. Any
such action shall not be deemed a waiver by any party of its right to pursue
arbitration or to obtain any legal or equitable relief from the arbitrators as
specified herein, to the extent not inconsistent with any prior equitable relief
which a court might award.
18
<PAGE>
(xii) Subject to subparagraph (viii), the prevailing party
in any such arbitration shall be entitled to recover its costs, expenses
(including expert witness and arbitration expenses), and its reasonable
attorneys' fees. For this purpose, the prevailing party shall be determined
according to the following criteria: (i) if there are multiple claims, the
prevailing party shall be determined with respect to each claim separately; and
(ii) the prevailing party shall be the party who has obtained the greater relief
in connection with any particular claim, although with respect to any claim it
may be determined that there is no prevailing party.
12.15 Further Assurances. Each party hereto shall reasonably
------------------
cooperate and shall take such further action and shall execute and deliver such
further documents as may be reasonably requested by the other party in order to
carry out the provisions and purposes of this Agreement.
12.16 Government Approvals. The Company agrees to cooperate with LGE
--------------------
to allow LGE to obtain all requisite approval of the competent authorities of
the Republic of Korea and any financial institutions thereof.
This Agreement has been executed by each of the parties as of the date
first set forth above.
LG Electronics, Inc. Innovative Global Solution, Inc.
By:______________________________ By:________________________________
Its:_____________________________ Its:_______________________________
19
<PAGE>
EXHIBIT A
*** Twelve pages of text omitted pursuant to a Confidential Treatment Request.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT B
SPECIFICATIONS
--------------
*** One page of text omitted pursuant to a Confidential Treatment Request.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT C
*** One page of text omitted pursuant to a Confidential Treatment Request.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT D
*** Two pages of text omitted pursuant to a Confidential Treatment Request.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT E
TERRITORIES
-----------
To be mutually agreed markets.
<PAGE>
EXHIBIT F
ROYALTY PAYMENT
---------------
To be mutually agreed by the Pricing Committee.
<PAGE>
EXHIBIT G
PRODUCT PRICES
--------------
To be mutually agreed by the Pricing Committee.
<PAGE>
AMENDMENT NO. 1
TO
RESEARCH, DEVELOPMENT AND DISTRIBUTION AGREEMENT
This Amendment No. 1 to Research, Development and Distribution Agreement
(the "Amendment No. 1") amends that certain Research, Development and
Distribution Agreement (the "Agreement") dated as of February 7, 1998 and is
entered into by and between NeoPoint, Inc., a California corporation F/K/A
Innovative Global Solution, Inc. ("NeoPoint") and LG Information &
Communications, Ltd., a Korean corporation, and assignee of LG Electronics,
Inc.'s interests in the Agreement ("LGIC"). This Amendment is entered into as of
September 1, 1999.
The parties hereby agree to amend the Agreement, as follows:
1. Section 1.8 "IGS Improvements" is hereby deleted in its entirety and
replaced with the following:
1.8 "NeoPoint Improvements" shall mean * * *.
---------------------
2. Section 1.12 "LGE Improvements" is hereby deleted in its entirety and
replaced with the following:
1.12 LGIC Improvements shall mean * * *.
-----------------
3. Section 1.10 "Improvements" is hereby deleted in its entirety and replaced
------------
with the following:
1.10 "Improvements" shall mean any and all new releases and new versions
------------
of modifications, alterations, adaptations, translations, enhancements and
additions to the Products, together with all patent, copyright, trademark, trade
secret or other intellectual or industrial property rights comprising or
incorporated therein.
4. Section 1.16 "Products" is hereby deleted in its entirety and replaced with
--------
the following:
1.16 "Products" shall mean either a NeoPoint 1000, NeoPoint 1600 or
--------
NeoPoint 2000 (1000x) Class 1 wireless telecommunications product using code
division multiple access ("CDMA") technology as more particularly described on
Exhibit A hereto.
- ---------
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
5. Section 4.3 "Jointly Developed Technology" is hereby deleted in its
----------------------------
entirety and replaced with the following:
4.3 "Jointly Developed Technology". The parties acknowledge that as of
----------------------------
the effective date of Amendment No.1 there has not been any Jointly Developed
Technology, but that during the course of development of the Products, there may
be Jointly Developed Technology. At any time a party decides to develop any new
technology that may be considered Jointly Developed Technology, it shall provide
to the other party written notice describing in sufficient detail the proposed
development. The other party shall have thirty (30) days from receipt of such
notice to consider the proposal. If acceptable to the party receiving notice,
the parties agree the Jointly Developed Technology shall be owned jointly by
NeoPoint and LGIC, each party having an equal and undivided one half (1/2)
interest therein. Unless specifically proposed and agreed to, there shall be no
Jointly Developed Technology pursuant to the Agreement, including the
development and manufacture of Products.
6. The last sentence of Section 5.1.1 is hereby deleted in its entirety and
replaced with the following:
5.1.1 LGIC Technology. * * * LGIC hereby grants to Company a world wide,
---------------
non-exclusive license to use the LGIC Technology and LGIC Improvements for the
purposes of and during the term of this Agreement. Subject to the provisions of
this Section 5.1.1 and Section 12.12 below, the Company shall not sell, assign,
transfer, lease, sublease or sublicense the use of the LGIC Technology and LGIC
Improvements or any interest therein, without the prior written consent of LGIC,
which consent may be withheld in LGIC's sole discretion. Nothing in the
preceding two sentences shall preclude NeoPoint from selling and marketing
Products to NeoPoint's distributors, carriers, dealers and end-user customers,
except in the Republic of Korea.
7. Section 5.1.2 (iii) is hereby deleted in its entirety and replaced with the
following:
5.1.2 "(iii) so long as the Company is not dissolved by operation of law."
8. Section 5.2 (a) is deleted in its entirety and replaced with the following:
5.2 "(a) an exclusive license in the Republic of Korea; and"
9. Sections 5.2 (i) and (ii) are hereby deleted in their entirety and replaced
with the following:
5.2 "(a) an exclusive license in the Republic of Korea; and"
10. Section 5.3.1 (i) is deleted in its entirety and replaced with the
following:
5.3.1 "(i) the Company will have the exclusive right to Distribute the
Products (as defined herein) and Class 2 and Class 3 CDMA wireless
telecommunications
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
products, as described on Exhibit A to cellular and PCS operators and service
providers in the United States;"
11. Section 5.3.1 (ii) is deleted in its entirety and replaced with the
following:
5.3.1 "(ii) LGIC shall have the exclusive right to Distribute Products
(as defined herein) and the Class 2 and Class 3 CDMA wireless telecommunications
products, as described on Exhibit A, in the Republic of Korea; and"
12. Section 5.4.1 is deleted in its entirety and replaced with the following:
5.4.1 "Exclusive Manufacturer and Supplier. LGIC shall be the exclusive
-----------------------------------
manufacturer and supplier of the NeoPoint 1000, NeoPoint 1600 and NeoPoint 2000
(1000x) Products to Company and its affiliates and Company and its affiliates
shall not manufacture such Products or have such Products manufactured by a
third party. LGIC shall manufacture the Products, or (at LGIC's option) arrange
for the manufacture of such Products by third parties as subcontractors of LGIC,
for the Company. Such manufacturing shall be in accordance with mutually agreed
commercial terms, which will include (i) forecasting requirements covering the
succeeding three quarters and firm orders for the succeeding first quarter
delivered to LGIC at the commencement of each fiscal quarter (ii) prices for
such Products which reflect the elements mentioned in Section 5.4.3 below, and
LGIC delivery and performance obligations. Such terms may also include
different or additional provisions, to the extent not inconsistent herewith,
relating to damages and other liabilities in connection with the Product(s)
manufactured by LGIC, including among other things, limitations of liability.
13. A new Section 5.4.5 is hereby added as follows:
"5.4.5. Manufacture of the Products. LGIC shall continue to use best
---------------------------
efforts to timely manufacture the NeoPoint 1000, 1600 and 2000 (1000x) Products.
Company will receive top priority in terms of availability of such Products and
availability of production capacity to the exclusion of all third parties."
14. * * *
15. * * *
16. Exhibit A entitled "Product Statement of Work" is hereby deleted and
replaced in its entirety by that new Exhibit A entitled "Product Statement of
Work" attached to this Amendment No. 1, and incorporated herein by reference.
17. Exhibit E entitled "Territories" is hereby deleted and replaced in its
entirety by that new Exhibit E entitled "Territories" attached to this Amendment
No. 1, and incorporated herein by reference.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
18. Notwithstanding anything in this Amendment No. 1 to the contrary, this
Amendment No. 1 shall only take effect upon the closing of NeoPoint's planned
Series C Preferred Stock offering (the "Effective Date").
19. References to Company or IGS in the Agreement shall be deemed to refer to
NeoPoint and references to LGE in the Agreement shall be deemed to refer to
LGIC.
This Amendment No. 1 completely and exclusively states the terms of this
Amendment and it supersedes all prior proposals, oral or written regarding its
subject matter. Except as expressly set forth in this Amendment No. 1, all other
provisions of the Agreement shall remain in full force and effect. This
Amendment No. 1 shall be governed by and construed in accordance with the laws
of the State of California, without giving effect to its conflict of laws
provisions.
IN WITNESS WHEREOF, this Amendment No. 1 shall be effective as of the
Effective Date written above.
<PAGE>
NeoPoint, Inc. LG Information & Communications, Ltd.
By: ___________________________ By: _____________________________
Name: _________________________ Name: ___________________________
Title: ________________________ Title: __________________________
<PAGE>
EXHIBIT A
PRODUCT STATEMENT OF WORK
1. Product Descriptions.
--------------------
"Products" as defined in the Agreement shall mean the NeoPoint 1000,
NeoPoint 1600 and NeoPoint 2000 (1000x) Class 1 CDMA phones developed by
NeoPoint, but shall not include Class 2 or Class 3 products as hereinafter
defined.
1.1 Class 1 products:
Bitmapped Display (160x120), min 65 DPI with 11 lines and 24
chars horizontal
Unibody only
Data capability
PC Sync
UP Communicator
7.2 volt Battery (Dual Cell)
Single Mode PCS
1.2 Class 2 products: (Includes most or all of the following)
Bitmapped Display
Unibody or Clamshell
Packet Data capability
PC Sync and OTA Sync
UP Communicator
Stylus pen input
API for wireless application development
Local applications (i.e., email client)
ARM based processor
3.6 Volt Battery (Single Cell)
Dual Mode (CDMA/AMPS)
1.3 Class 3 products: (Includes most or all of the following)
Java Capability
Bitmapped Display
Clamshell or Unibody
High Data Rate (56k or higher)
PC Sync and OTA Sync
Stylus pen input (Option)
Voice Command and Synthesis
<PAGE>
2. Functional Specification
------------------------
2.1 Standards Compliance
a) Shall interoperate with Motorola, Nortel, Lucent, Qualcomm, LGIC
and Samsung infrastructure equipment.
b) Class 1 shall adhere to the following standards:
- ANSI J-STD-008 : Air Interface Standard for PCS
- ANSI J-SRD-018 : RF Performance Standard for PCS
- CDG Ref Doc # 27 : High Speed Speech Service Option for Wideband
Spread Spectrum Communication System (WSSCS)
- TIA/EIA IS-96A : Speech Service Option 1 for WSSCS
- TIA/EIA IS-126A : Mobile Service Loopback Service Option
- IS-637 : Short Message Service
- IS-707 : Circuit and Packet Switched Data (formerly IS-99 and
IS-657)
- IS-683 : Over the Air Service Provisioning and Enhanced Roaming
2.2 System Requirements
a) For PCS Smart Phone:
- Transmit Freq : 1850-1909.95 MHz
- Receive Freq : 1930-1989.95 MHz
b) Maximum RF Transmit Power : 200 mW (23dBm)
c) Voice Vocoder Rates:
- 8kbps and EVRC
- PureVoice TM 13kbps
d) Data Capabilities
<PAGE>
EXHIBIT E
Territories
1. For exclusive license purposes, Republic of Korea.
2. For non-exclusive licenses; all countries outside the United States and
Korea.
<PAGE>
EXHIBIT 10.6
SUBSCRIBER UNIT
LICENSE AGREEMENT
-----------------
This Subscriber Unit License Agreement (the "Agreement") is entered into on
September 23, 1999 by and between QUALCOMM Incorporated, a Delaware
Corporation, and NeoPoint, Inc., a California corporation, with respect to the
following facts:
RECITALS
WHEREAS, QUALCOMM has developed certain proprietary Code Division Multiple
Access ("CDMA") technology which may be useful in providing greater capacity and
improved quality and reliability compared to other cellular telephone
technologies, and QUALCOMM manufactures and sells CDMA components and equipment;
WHEREAS, LICENSEE desires to obtain a license of QUALCOMM's Intellectual
Property to enable LICENSEE to design, make, have made, manufacture and sell
Subscriber Units and * * * and to purchase certain components and equipment
from time to time under regular purchase orders, and QUALCOMM desires to grant
such license in exchange for the license fees, royalties and other provisions
hereof, and to sell such components and equipment to LICENSEE, each in
accordance with the terms and conditions set forth in this Agreement; and
WHEREAS, QUALCOMM desires to obtain a license of LICENSEE's Intellectual
Property (as defined below) to manufacture and sell Subscriber Units and * *
*, and LICENSEE desires to grant such license in accordance with the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW THEREFORE, the parties hereby agree as follows:
1. HEADINGS AND DEFINITIONS.
All headings used in this Agreement are inserted for convenience only and
are not intended to affect the meaning or interpretation of this Agreement or
any clause. Reference to "third party or third parties" shall not mean either
Party or their Affiliates. For the purpose of this Agreement, the following
definitions apply:
"Affiliates" means, as to a Party, any present or future Parent of the Party and
any present or future Subsidiary of the Party and/or its Parent, but only for so
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
1
<PAGE>
long as the Parent remains the Parent of the Party and the Subsidiary remains a
Subsidiary of the Party and/or its Parent. The term "Parent" means any
corporation or other legal entity that owns, directly or indirectly (i) more
than 50% of the shares or other securities of the Party entitled to vote for
election of directors (or other managing authority) of the Party or (ii) if such
Party does not have outstanding shares or securities, more than 50% of the
equity interest in such Party, but only for so long as such ownership or control
exists in (i) or (ii) above. The term "Subsidiary" of a Party means any
corporation or other legal entity (i) the majority (more than 50%) of whose
shares or other securities entitled to vote for election of directors (or other
managing authority) is now or hereafter owned or controlled by such Party either
directly or indirectly or (ii) which does not have outstanding shares or
security but the majority (more than 50%) of the equity interest in which is now
or hereafter owned or controlled by such Party either directly or indirectly,
but only for so long as such ownership or control exists in (i) or (ii) above.
"Authorized Licensees" shall have the meaning described in Section 6.3 below.
"CDMA Applications" means all communication applications (regardless of the
transmission medium) which operate using code division multiple access ("CDMA")
technology, whether or not based on IS-95, cdma2000 or W-CDMA, and irrespective
of frequency band.
"CDMA ASIC" means a mobile station modem (MSM) CDMA application specific
integrated circuit (including firmware thereon) sold by QUALCOMM, and any
revision, generation, improvements, modifications or integration to or of the
MSM.
"Chipset" means QUALCOMM's baseband analog ASIC, AGC Tx, AGC Rx ASIC, and CDMA
ASIC (and future evolutions, combinations or versions of any of the foregoing)."
* * *
"Commercially Necessary IPR" means those Intellectual Property Rights which (i)
the Party or its Affiliates has the right to license to the other Party without
payment of royalties or any other consideration to any third party, (ii) are not
essential to the manufacture, use or sale of Licensed Products and/or Components
that comply with the specifications of the CAI and (iii) provide Licensed
Products and/or Components with a competitive advantage (e.g., cost, lead-time
or quality advantages) or which add to Licensed Products or Components a feature
or other characteristic which may be reasonably required by the market place;
but the term Commercially Necessary IPR does not include
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
2
<PAGE>
any design patents, trade name, trademark, service mark, or similar symbols,
abbreviation, contractions or simulations identifying the Party and its
Affiliates (except as set forth in Section 8, if the Party is QUALCOMM).
"Common Air Interface" or "CAI" means the technical description of QUALCOMM's
CDMA digital air interface specification for communication between cell site or
other base station transceivers and Subscriber Units to the extent adopted as an
industry standard by the Telecommunications Industry Association ("TIA") or
other recognized international standards bodies. The term "CAI" includes (i) the
TIA's IS-95 digital cellular standard, (ii) other CDMA standards which specify
the same Physical Layer as IS-95 if approved by QUALCOMM and adopted by other
international standards bodies throughout the world, (iii) QUALCOMM's proposed
CDMA 2000 standard, including the multi-carrier mode of the IMT-2000
specification in all of its chip rates, and (iv) QUALCOMM's proposed HDR (High
Data Rate) standard.
"Communications Device" means a general purpose electronic device such as a
personal computer, personal digital assistant, facsimile machine, monitoring
device, multi-media terminal, data entry terminal, or point of sale terminal.
"Components" means application specific integrated circuits (ASICs), electronic
devices, integrated circuits, including firmware thereon, and/or families of
devices for use in Licensed Products for Wireless Applications.
"Dual Mode CDMA" means, as applied to Licensed Products, having a capability to
operate with CDMA technology in accordance with the CAI and existing analog FM
cellular technology for backward compatibility with analog FM cellular
infrastructure and subscriber units.
"Effective Date" means the date first set forth above.
"Ericsson" means Telefonaktiebolaget LM Ericsson (publ), a Swedish corporation
and any of its subsidiaries in which it owns or controls fifty percent (50%) or
more of the voting power.
"Future Commercially Necessary IPR" means all claims of any patents (foreign and
domestic) which fall within the definition of Commercially Necessary IPR, but
which do not fall within the definition of Included Commercially Necessary IPR.
"Have Made" means the right of LICENSEE under Ericsson's Patents to have a third
party make a Licensed Product for CDMA Applications for the use and benefit of
LICENSEE, provided that:
3
<PAGE>
(i) LICENSEE owns and supplies the designs, or specifications, or working
drawings to such third party;
(ii) such designs, specifications, and working drawings are in sufficient
detail that no substantial additional design by such third party is
required;
(iii) such third party is not allowed to sell such Licensed Product to
other third parties; and
(iv) each such Licensed Product sold by LICENSEE shall bear the
trademarks, trade names, or other commercial indicia of LICENSEE,
although such Licensed Products may be co-branded with the
trademarks, trade names, or other commercial indicia of the reseller
or distributor of such Licensed Products. The requirements of this
subparagraph (iv) shall not apply where a customer requires that the
Licensed Product bear only such customer's trademarks, trade names,
or other commercial indicia.
"Included Commercially Necessary IPR" means (1) with respect to the Intellectual
Property Rights being licensed by QUALCOMM, (a) all claims of any patents
(foreign and domestic) which were issued or applied for on or before January 1,
2002 and which constitute Commercially Necessary IPR and (b) all copyright,
trade secret, know-how, technical assistance and other intellectual property
rights which constitute Commercially Necessary IPR and which may be furnished by
QUALCOMM to LICENSEE pursuant to and during the term of this Agreement and (2)
with respect to the Intellectual Property Rights being licensed by LICENSEE, (a)
all claims of any patents (foreign and domestic) which are now issued or which
are applied for on or before January 1, 2002 and which constitute Commercially
Necessary IPR and (b) all copyright, trade secrets, know-how, technical
assistance and other intellectual property rights which constitute Commercially
Necessary IPR and which may be furnished by LICENSEE to QUALCOMM pursuant to and
during the term of this Agreement.
"Intellectual Property Rights" means patents, copyrights, trade secrets,
know-how and other intellectual property rights.
"InterDigital" means InterDigital Communications Corporation, InterDigital
Patents Corporation and/or InterDigital Technology Corporation.
"InterDigital's Excluded Patents" means those claims of each of InterDigital's
existing and future patents which cover (i) overlay, (ii) interference
cancellation, (iii) trellis, PASM and TASM coding/decoding and (iv) wireless
telephone debit card systems. As of November 2, 1994, existing patents of
InterDigital which have claims covering the subject matter of (i), (ii), (iii)
and (iv) (and are therefore
4
<PAGE>
InterDigital's Excluded Patents) are U.S. Patent Nos. 5,351,249; 4,849,974;
4,849,976; 5,359,182; 5,161,168; 5,333,191; 5,235,670; 5,072,308; 4,974,099;
4,953,197; 5,185,762; 5,228,053; 4,796,260 and their foreign counterparts.
"InterDigital's Five Patents" means U.S. Patent Nos. 5,228,056; 5,166,951;
5,093,840; 5,119,375; and 5,179,571 and any continuation, continuation-in-part
and divisional application based on such patents, and any foreign counterparts
of such patents, continuations, continuations-in-part or divisional
applications.
"InterDigital Included Patents" means, with the exclusion of InterDigital's
Excluded Patents, (i) every patent issued on or before March 7, 1995 (including
utility models, but excluding design patents and design registrations) in the
world owned or licensable by InterDigital (including but not limited to
InterDigital's Five Patents), and (ii) any subsequently issued patent (including
utility models, but excluding design patents and design registrations) (whether
issued to InterDigital or a third party) in the world owned or licensable by
InterDigital which claims or discloses an invention contained in a patent
application filed or acquired by InterDigital anytime prior to March 8, 1995
("Subsequently Issued InterDigital Patents"), and any counterparts (foreign or
domestic) to any such Subsequently Issued InterDigital Patents whenever such
counterparts are applied for, and (iii) any continuation, continuation-in-part
or divisional application based on any patent falling within (i) or (ii) above,
whether such continuation, continuation-in-part or divisional application is
filed during or after March 8, 1995. In the event of an acquisition of
InterDigital by a third party, InterDigital Included Patents shall not be
construed to cover any patents or patent applications owned by such third party
prior to the acquisition of InterDigital.
"InterDigital's Patents" means (i) with respect to those Licensed Products Sold
by LICENSEE which incorporate CDMA ASICs purchased from QUALCOMM, the
InterDigital Included Patents and (ii) with respect to those Licensed Products
Sold by LICENSEE which do not incorporate CDMA ASICs purchased from QUALCOMM,
InterDigital's Five Patents.
"Licensed Products" means * * *
"LICENSEE" means NeoPoint, Inc.
"LICENSEE's Intellectual Property" means LICENSEE's Technically Necessary IPR
and LICENSEE's Included Commercially Necessary IPR.
"Masks" and "Mask Sets" mean the mask sets for Components and/or the computer
output data used to generate the mask sets for Components.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
5
<PAGE>
"Net Selling Price", with respect to each Licensed Product Sold by LICENSEE,
shall mean one of the following, whichever is applicable:
(a) When Sold by LICENSEE to a Purchaser (a "Purchaser" being a person or
entity that does not control LICENSEE, is not controlled by LICENSEE or is not
in common control with LICENSEE; and the term "control" for the above purposes
shall mean the direct or indirect ownership or control of more than a twenty
five percent interest), the Net Selling Price shall be the Selling Price charged
by LICENSEE for Licensed Products Sold to such Purchaser;
(b) When Sold by LICENSEE to a person or entity that is not a Purchaser (a
"Related Buyer"), the Net Selling Price shall be the Selling Price charged by
the final vendee Related Buyer upon resale by the final vendee Related Buyer of
Licensed Products to a Purchaser but in no event less than the Selling Price
that would be realized in a sale to a Purchaser transacting at arm's length.
(c) When retained by LICENSEE for its own use or lease, or when Sold by
LICENSEE to a Related Buyer for its own use or lease, the Net Selling Price
shall be the Selling Price that would be realized in a sale to a Purchaser
transacting at arm's length.
"Party" shall individually mean QUALCOMM or LICENSEE and the term "Parties"
shall mean collectively QUALCOMM and LICENSEE.
"Philips" shall mean Philips Electronics N.V., a company existing under the laws
of the Netherlands.
"Philips' CDMA Technically Necessary Patents" means claims of any patents which
Philips (or any of its Affiliates) own or have the right to license that are
essential or claimed by Philips or any of its Affiliates to be essential to the
manufacture, use or sale of Subscriber Units (i.e., must necessarily be
infringed upon in order to comply with the CAI). Notwithstanding anything to the
contrary herein, the term "Philips CDMA Technically Necessary Patents" at a
minimum includes U.S. patent numbers: 4,633,509, 4,765,753, and 5,140,638, and
their foreign counterparts.
"Physical Layer" shall have the same meaning as given in the TIA's IS-95 digital
cellular standard.
"QUALCOMM" means QUALCOMM Incorporated, a Delaware corporation.
"QUALCOMM's Core IP" means QUALCOMM's Intellectual Property excluding
InterDigital's Patents.
6
<PAGE>
"QUALCOMM's Intellectual Property" means QUALCOMM's Technically Necessary IPR
and QUALCOMM's Included Commercially Necessary IPR and InterDigital's Patents.
"Qualifying Licensed Product" means a Licensed Product which contains and
incorporates a CDMA ASIC purchased by LICENSEE from QUALCOMM.
* * *
"Selling Price" means the gross selling price and/or value of other
consideration charged by the LICENSEE or its final vendee Related Buyer for each
Licensed Product in the form in which it is Sold (whether or not assembled and
without excluding therefrom any Components or subassemblies thereof which are
included with such Licensed Product) deducting therefrom only the following
items incurred upon the Sale and delivery of such Licensed Product to the extent
actually included and paid in the Sale price of each such Licensed Product and
properly documented by the LICENSEE: (i) packing costs, (ii) costs of insurance
and transportation, (iii) import, export, excise, sales and value added taxes
and custom duties levied or imposed directly upon the Sale of such Licensed
Product, and (iv) usual and customary trade discounts, rebates and other price
reduction programs. If Licensed Products are Sold in combination with other
separate and distinct products or services including, without limitation,
accessories, (the "Other Products"), the Selling Price for such Licensed
Products (the "Combined Licensed Products") shall be the average Selling Price
which LICENSEE charged to Purchasers for Licensed Products (of the same or
substantially the same quality and quantity) that were Sold without being
combined with other products or services in the most recent calendar quarter in
which such Sales were made. If no such Licensed Products have been Sold to a
Purchaser in the same or any previous calendar quarter to permit the fair
determination of an arm's length price, then the Selling Price for such Combined
Licensed Products shall be the Selling Price charged by LICENSEE for such
Combined Licensed Products multiplied by a ratio equal to (i) the actual
manufacturing cost of the Licensed Product divided by (ii) the sum of (a) the
actual manufacturing costs of the Licensed Product plus (b) the actual
manufacturing costs of the Other Products. Notwithstanding anything to the
contrary herein, in no case shall the Selling Price of the Licensed Product be
less than the fair market value of the Licensed Product. For the purpose of this
definition, "Sold in combination with" shall mean that two or more separate and
distinct products are sold together for a single price provided that such
separate and distinct products are not physically integrated into a single
product.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
7
<PAGE>
"Sold," "Sale," "Sell" means put into use, sold, leased or otherwise transferred
and a sale shall be deemed to have occurred upon first use, shipment or
invoicing, whichever shall first occur.
"Subscriber Unit" means a complete CDMA and/or Dual Mode CDMA telephone,
including but not limited to mobile, transportable and portable telephones,
which incorporates all or any part of QUALCOMM's Intellectual Property and can
be used, without any additional equipment or components being attached thereto,
to initiate and/or receive Wireless telecommunications transmissions in
accordance with the CAI.
"Technically Necessary IPR" means all claims of any patents (foreign and
domestic), issued on, prior to or after the Effective Date which (i) the Party
and/or its Affiliates has the right to license to the other Party without
payment of royalties or any other consideration to any third party and (ii) are
essential to the manufacture, use or sale of Licensed Products and/or Components
which comply with the specifications of the CAI (i.e., must be infringed upon in
order to comply with the CAI); but the term Technically Necessary IPR does not
include any trade name, trademark, service mark, or similar symbols,
abbreviation, contractions or simulations identifying the Party and its
Affiliates (except as set forth in Section 8, if the Party is QUALCOMM).
"Territory" means North America, Central America and South America only unless
and until LICENSEE exercises the option set forth in Section 5.11 of this
Agreement.
* * *
"Wireless" and "Wireless Applications" means terrestrial-based, land mobile,
wireless telecommunications applications, including but not limited to cellular,
personal communications services (PCS), wireless local loop and wireless PABX
applications which are based upon the CAI. Notwithstanding the foregoing, the
terms "Wireless" and/or "Wireless Applications" shall not include (i) satellite
applications (defined as any application which utilizes a direct connection
between any satellite and the (a) Subscriber Unit, or (b) Communications Device
containing a * * *), and/or (ii) Cordless Telephone Applications (defined as
applications not dependent on use of a switch, including but not limited to a
PABX switch, for interface to the public network).
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
8
<PAGE>
2. TERM OF AGREEMENT.
This Agreement shall commence upon the Effective Date and, unless otherwise
terminated or canceled as provided herein, shall continue in full, force and
effect thereafter.
3. LICENSE FEES TO QUALCOMM.
3.1 In partial consideration of the rights granted to LICENSEE under this
Agreement, LICENSEE shall pay * * *.
3.2 QUALCOMM hereby represents that during the eighteen months immediately
prior to the Effective Date (i) no third party has entered into a subscriber
unit license agreement with QUALCOMM that (a) is substantially similar to this
Agreement, (b) is effective within North America, Central America and South
America, and (c) required LICENSEE to pay an up-front license fee less than * *
*.
4. DOCUMENTATION AND OTHER DELIVERABLES; TECHNICAL ASSISTANCE.
4.1 Documentation. In full satisfaction of its obligations to deliver
-------------
documentation to LICENSEE, QUALCOMM shall promptly, but no later than seven (7)
days after the Effective Date, deliver to LICENSEE the documentation described
in Exhibit A, a copy of which is attached hereto. QUALCOMM may from time to time
deliver additional documentation at QUALCOMM's discretion. QUALCOMM shall bear
all costs incurred in preparing the documentation and delivering it to LICENSEE.
4.2 Limitation on Deliverables. Nothing herein shall require the delivery
--------------------------
of any documentation not otherwise specified, including but not limited to: (a)
any Mask Sets developed by QUALCOMM, (b) any micro-code for embedded processors
or (c) any of the detailed algorithms for the Components or the Licensed Product
microprocessor.
4.3 Representations and Limitations on Furnished Information. QUALCOMM
--------------------------------------------------------
shall use reasonable commercial efforts to verify the accuracy of the
information furnished by it hereunder, but QUALCOMM shall not be liable for
damages arising out of or resulting from anything made available hereunder or
the use thereof except to the extent attributable to QUALCOMM's intentional
misconduct or gross negligence nor be liable to LICENSEE for consequential,
special or incidental damages under any circumstances. The sole obligation of
QUALCOMM with respect to such information shall, subject to the other
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
9
<PAGE>
provisions herein or in other written agreements between the Parties, be to
furnish it to LICENSEE. QUALCOMM shall have no responsibility for the ability of
LICENSEE to use such information, the quality or performance of the products
produced therefrom by LICENSEE, or the claims of third parties arising from the
use of such products or information. QUALCOMM does not warrant and shall not be
responsible for any design, specification, drawing, blueprint, reproduced
tracing, or other data or information furnished by it to LICENSEE, except that
it shall furnish such in good faith to the best of QUALCOMM's knowledge and
ability.
4.4 Technical Meetings and Assistance. During the first year after the
---------------------------------
Effective Date of this Agreement, upon written request from LICENSEE with
reasonable advance written notice, QUALCOMM shall provide LICENSEE (a) up to an
aggregate of * * * man-hours of technical assistance at QUALCOMM's facilities in
San Diego to respond to LICENSEE's reasonable questions or comments, with no
more than two (2) meeting days in any thirty (30) day period. At LICENSEE's
request, an initial meeting shall be scheduled reasonably promptly after the
Effective Date. After such * man-hours of technical assistance have been used or
the first year has expired, QUALCOMM shall provide reasonable amounts of
technical assistance to LICENSEE on an as available basis and at QUALCOMM's then
standard rates for providing such technical assistance. In such event, QUALCOMM
shall be permitted to invoice LICENSEE for such charges on a bi-weekly basis. *
* *. QUALCOMM may terminate such additional technical assistance at any time
upon written notice to LICENSEE. This Agreement shall not require QUALCOMM to
provide any technical assistance relating to the design of Components or any
technical assistance not related to Licensed Products.
5. QUALCOMM LICENSE.
5.1 Grant of License From QUALCOMM. Subject to the terms and conditions
------------------------------
of this Agreement, including but not limited to timely payment of the license
fees and royalties set forth herein, QUALCOMM hereby grants to LICENSEE a
personal, nontransferable and nonexclusive license (without the right to
sublicense except as set forth in Section 5.4 below) under QUALCOMM's
Intellectual Property solely for Wireless Applications and solely within the
Territory to (a) make (and have made), import, use, offer for sale, and sell,
lease or otherwise dispose of Licensed Products, and (b) to make (and have made)
Components (provided such Components have been exclusively designed by or
exclusively for LICENSEE and which design is owned and used exclusively by
LICENSEE) and import, use and sell, lease and otherwise dispose of Components
but if such Components incorporate QUALCOMM's Intellectual Property, then such
Components may only be used, sold, leased or otherwise disposed of by
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
10
<PAGE>
LICENSEE if they are included as part of and within complete Licensed Products
Sold by LICENSEE (or as replacement parts for Licensed Products previously sold
by LICENSEE). No other, further or different license is hereby granted or
implied.
5.1.1 InterDigital's Patents. The license granted by QUALCOMM under
----------------------
Section 5.1 with respect to InterDigital's Patents is subject to all other
limitations set forth in this Agreement which are applicable to all of
QUALCOMM's Intellectual Property licensed hereunder and is also subject to the
following limitations:
a. No provision set forth herein shall be construed so as to
grant any right or license under InterDigital's Included Patents with respect to
time division multiple access (TDMA) technology; provided, however, that such
limitations shall not in any way limit any of the rights granted under this
Agreement to utilize InterDigital's Patents to implement the CDMA (or non-TDMA)
aspects of any Licensed Products, even if such Licensed Products include TDMA;
provided, however, in such case only the non-TDMA use of such Licensed Product
will be licensed under InterDigital's Patents. By way of example, if a Licensed
Product can operate in both IS-54 (TDMA) and IS-95 (CDMA) modes, the use of such
Licensed Product in the IS-54 TDMA mode would not be licensed.
b. With respect to those Licensed Products manufactured and
Sold by LICENSEE which do not incorporate CDMA ASICs purchased from QUALCOMM
(the "Non-CDMA ASIC Licensed Products"), the license granted by QUALCOMM under
InterDigital's Patents may terminate in accordance with the provisions set forth
below:
i. After November 2, 1996. If, at any time after November
----------------------
2, 1996, LICENSEE (or its Affiliate) initiates a CDMA patent infringement
lawsuit against InterDigital or its affiliates (or their customers) asserting
that any product manufactured and sold by InterDigital for use in non-IS-95
based wireless applications infringes any patents and LICENSEE (or its
Affiliate) does not prevail in such lawsuit, then the license under
InterDigital's Patents granted by QUALCOMM to LICENSEE under this Agreement,
with respect only to Non-CDMA ASIC Licensed Products, shall immediately
terminate.
ii. Licensed Products that Contain QUALCOMM's CDMA ASICs.
----------------------------------------------------
Notwithstanding whether or not the license under InterDigital's Patents
terminates as to Non-CDMA ASIC Licensed
11
<PAGE>
Products, as set forth in paragraph b. i. above, Licensed Products manufactured
and Sold by LICENSEE which do incorporate CDMA ASICs purchased from QUALCOMM
will remain licensed under InterDigital's Patents pursuant to Section 5.1.
c. The license under InterDigital's Patents is limited to use
in Wireless Applications which spread the CDMA signal over not more than a 10
MHz bandwidth.
5.2 Royalties. In partial consideration for such license from QUALCOMM,
---------
LICENSEE shall pay to QUALCOMM, * * * after the end of each calendar quarter,
an amount equal to the percentage of the Net Selling Price for each Licensed
Product set forth below that is Sold during such calendar quarter by LICENSEE.
The percentage of the Net Selling Price payable to QUALCOMM for each Licensed
Product Sold shall be determined each calendar quarter using the following
schedule:
* * *
5.3 Right To Sublicense Affiliates. LICENSEE shall have the right to
------------------------------
grant sublicenses only to Affiliates of LICENSEE with respect to any rights
conferred upon LICENSEE under this Agreement; provided, however, that any such
sublicense shall be subject in all respects to the restrictions, exceptions,
royalty and other payment obligations, reports, termination provisions, and
other provisions contained in this Agreement. LICENSEE shall also pay or cause
its Affiliates to pay the same royalties on all Licensed Products Sold by its
Affiliates as if LICENSEE had Sold such Licensed Products. All Licensed Products
Sold by LICENSEE's Affiliates shall be aggregated with all of the Licensed
Products Sold by LICENSEE for the purposes of determining the amount of Licensed
Products Sold upon which royalties are to be paid to QUALCOMM. LICENSEE shall
report to QUALCOMM the Net Selling Price for all Licensed Products Sold by each
such Affiliate. LICENSEE, in addition to its Affiliates, shall be responsible
and liable to QUALCOMM in the event that any of its Affiliates fails under any
such sublicense to honor and comply with all obligations of LICENSEE as though
said obligations were made expressly applicable to the Affiliate. Any sublicense
by LICENSEE to an Affiliate of LICENSEE shall terminate immediately if such
Affiliate ceases to be an Affiliate of LICENSEE. Except as set forth above,
LICENSEE shall have no right to sublicense any of QUALCOMM's Intellectual
Property or any of the rights conferred upon LICENSEE under this Agreement.
5.4 Most Favored Royalty Rate. Subject to the exceptions set forth below,
-------------------------
if QUALCOMM grants a license to a third party to manufacture and sell
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
12
<PAGE>
Licensed Products at a royalty rate less than the royalty payable by LICENSEE to
QUALCOMM, and, which license will permit such third party to manufacture and
sell Licensed Products for use within the scope of the license granted in this
Agreement, QUALCOMM shall (i) promptly notify LICENSEE of such license, and (ii)
extend to LICENSEE the lower royalty rates applicable for the territory granted
in the noticed license and, at QUALCOMM's election, any or all other terms and
conditions granted (whether more or less favorable than the other terms and
conditions granted under this Agreement) with respect to the third party license
effective as of the date on which they became effective in the third party
license. LICENSEE shall have up to thirty (30) days after the date of such
notice to notify QUALCOMM that it accepts a license from QUALCOMM at such lesser
royalty rate as was made available to any such other licensee, provided that
LICENSEE must also, at QUALCOMM's request (which will be conveyed by QUALCOMM to
LICENSEE concurrently with QUALCOMM's notification), accept and be bound by all
other material terms and conditions agreed to by QUALCOMM and such other
licensee (whether more or less favorable than the terms and conditions of this
Agreement).
The above paragraph shall not apply with respect to (i) any license or
legal commitments made by QUALCOMM prior to the Effective Date, (ii) any license
granted by QUALCOMM to its Affiliates or (iii) any license granted by QUALCOMM,
the consideration for which consists in whole or in part of patent rights or
other rights of such substantial value as, in the reasonable and good faith
judgment of QUALCOMM, to warrant (a) a reduction in royalty rates below the
rates provided in this Agreement, or (b) the acceptance of such rights in lieu
of royalties. This Section 5.4 shall not apply retroactively, nor shall it be
construed as entitling LICENSEE to the return of, or credit for, any money paid
by it prior to the grant of such third party license to such other licensee.
* * *
5.6 Taxes. Any taxes, duties or imposts other than income or profits
-----
taxes assessed or imposed upon the sums due hereunder in the United States,
shall be borne and discharged by LICENSEE and no part thereof shall be deducted
from the amounts payable to QUALCOMM under any clause of this Agreement, said
amounts to be net to QUALCOMM, free of any and all deductions. Notwithstanding
the foregoing, in the event sums payable under this Agreement (other than the
Up-Front License Fees payable under Section 3) become subject to income or
profits taxes under the tax laws of any country and applicable treaties between
the United States and such country, LICENSEE may, if and to the extent required
by law, withhold from each payment the amount of said income or profits taxes
due and required to be withheld from each payment. LICENSEE will furnish and
make available to QUALCOMM relevant receipts
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
13
<PAGE>
regarding the payment of any country taxes paid over to any country's government
on behalf of QUALCOMM. Such tax receipts will clearly indicate the amounts that
have been withheld from the gross amounts due to QUALCOMM. Any and all other
taxes, levies, charges or fees will be paid by LICENSEE for its own account.
5.7 Conversion to U.S. Dollars. Royalties shall be paid in U.S. dollars.
--------------------------
To the extent that the Net Selling Price for Licensed Products Sold by LICENSEE
outside of the United States is paid to LICENSEE other than in U.S. dollars,
LICENSEE shall convert the portion of the royalty payable to QUALCOMM from such
Net Selling Price into U.S. dollars at the official rate of exchange of the
currency of the country from which the Net Selling Price was paid, as quoted by
the U.S. Wall Street Journal (or the Chase Manhattan Bank or another agreed-upon
source if not quoted in the Wall Street Journal) for the last business day of
the calendar quarter in which such Licensed Products were Sold. If the transfer
of or the conversion into U.S. dollars is not lawful or possible, the payment of
such part of the royalties as is necessary shall be made by the deposit thereof,
in the currency of the country where the sale was made on which the royalty was
based to the credit and account of QUALCOMM or its nominee in any commercial
bank or trust company of QUALCOMM's choice located in that country, prompt
notice of which shall be given by LICENSEE to QUALCOMM.
5.8 Purchases by LICENSEE from QUALCOMM. LICENSEE hereby acknowledges and
-----------------------------------
agrees that the terms and conditions for the sale of any CDMA-related product
which QUALCOMM agrees to sell to LICENSEE and/or its Affiliates, including but
not necessarily limited to any Subscriber Unit and/or Component, shall be set
forth in an agreement (the "Supply Agreement") to be negotiated in good faith
between QUALCOMM and LICENSEE. LICENSEE and/or its Affiliates shall use any
Component purchased from QUALCOMM only in Licensed Products Sold by LICENSEE
and/or its Affiliates in accordance with this Agreement and such use of any
Component containing any of QUALCOMM's Intellectual Property shall require the
payment of royalties as set forth in Section 5.2 of this Agreement. If LICENSEE
or its Affiliates desires to purchase any such products, it shall issue a
purchase order (a "PO") to QUALCOMM. Each PO shall state the quantity of items
ordered, the price most recently quoted by QUALCOMM and the desired delivery
schedule. QUALCOMM shall accept or reject any such PO within ten (10) days after
receipt thereof. No PO shall be binding upon QUALCOMM until accepted by QUALCOMM
and in no event shall QUALCOMM or LICENSEE be bound by any terms contained in
any PO or acknowledgement which are in addition to or inconsistent with the
terms and conditions set forth in the Supply Agreement and any such additional
or inconsistent terms and conditions shall be of no force
14
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and effect, unless otherwise expressly agreed to in writing by authorized
officers of QUALCOMM and LICENSEE. Each PO accepted by QUALCOMM, excluding any
such additional or inconsistent terms and conditions, this Agreement and the
terms and conditions set forth in the Supply Agreement shall constitute the
entire agreement between LICENSEE and QUALCOMM with respect to the purchase,
sale and delivery of any such products.
5.9 Philips Covenant Not to Assert. QUALCOMM hereby represents and
------------------------------
warrants that Philips, on behalf of itself and its Affiliates, covenants that
Philips and its Affiliates will not assert any of the Philips' CDMA Technically
Necessary Patents against LICENSEE's (or, if sublicensed in accordance with
Section 5.3 of this Agreement, LICENSEE's Affiliates') manufacture, use, sale,
or importation of Qualifying Licensed Products solely for Wireless Applications;
provided, however, that Philips and/or its Affiliates may assert the Philips'
CDMA Technically Necessary Patents against LICENSEE if LICENSEE asserts any of
its patents against Philips or its Affiliates and any of their telephone
products or if LICENSEE initiates a declaratory judgment action, reexamination
proceedings or opposition proceedings challenging the validity of any of the
Philips' CDMA Technically Necessary Patents. Nothing in this Section 5.9 shall
prohibit, limit or covenant against Philips' rights to assert any of its patents
against LICENSEE or its Affiliates for infringement relating to any time
division multiple access (TDMA) equipment or system (including, without
limitation, GSM, IS-54, PCS-1800, and PCS-1900).
5.10 Ericsson Patents.
----------------
5.10.1 Ericsson Patents Sublicensed. The term "Ericsson's Patents"
----------------------------
means all of the following patents which are owned or sublicenseable by Ericsson
without payment of any royalty or other consideration to a third party: (a)
Ericsson's patents which, but for the sublicenses granted under Section 5.10.2
below, would be infringed by the use of QUALCOMM's Chipset for their intended
purposes and (b) Ericsson's Essential Patents which are, or are claimed by
Ericsson to be, essential to IS-95 Rev A or Rev B, whether or not such Essential
Patents are infringed by the use of QUALCOMM's Chipset. For example, by
incorporating QUALCOMM's existing Chipset into a Licensed Product Sold by
LICENSEE, the Ericsson's Patents sublicensed to LICENSEE would include, but not
necessarily be limited to all of the following patents that Ericsson asserted
against QUALCOMM in litigation: U.S. patent Nos. 5,088,108 (RE 36,017),
5,209,528 (RE 36,079), 5,148,485, 5,193,140, 5,230,003, 5,239,557, 5,282,250,
5,327,577 (RE 36,078), 5,390,245, 5,430,760, and 5,551,073, and their foreign
counterparts, reissuances, divisionals, continuations and continuations in part.
15
<PAGE>
The term "Essential Patents" means those patents (in any country of the
world) as to which it is, or is claimed by the patent owner to be, not possible
on technical (but not commercial) grounds, taking into account normal technical
practice and the state of the art generally available at the time of adoption or
publication of the relevant standard for CDMA Applications, to make, sell,
lease, otherwise dispose of, repair, use or operate equipment or methods which
comply with such standard without infringing such patent.
5.10.2 Sublicense Under Ericsson's Patents. The following sublicense
-----------------------------------
is granted subject to the terms and conditions of this Agreement (including but
not limited to the payment of royalties hereunder in accordance with Section
5.2) and Section 5.10.3 below: With respect only to those Licensed Products Sold
by LICENSEE and its Affiliates that contain the Chipset, QUALCOMM hereby grants
to LICENSEE a sublicense solely for CDMA Applications under all of Ericsson's
patents to make (and Have Made), use, sell, offer for sale, lease or otherwise
dispose of, and import Licensed Products into which QUALCOMM's Chipset is
incorporated. Notwithstanding the foregoing, no right or sublicense is being
granted for or may be extended under patents that apply to the portion of any
product that implements an air interface other than CDMA or analog (e.g., no
rights and sublicenses are granted for or may be extended under patents that
apply to the GSM part of any product).
5.10.3 Non-Assertion Against Ericsson. The sublicense granted to
------------------------------
LICENSEE under Section 5.10.2 above shall continue only so long as LICENSEE and
its Affiliates do not assert, either in litigation or by a direct communication,
any Essential Patents for CDMA Applications against Ericsson's CDMA
infrastructure or test equipment products and LICENSEE does not dismiss such
litigation or withdraw such assertion or offer a royalty-free license under such
patents within thirty (30) days after QUALCOMM's receipt of notice from Ericsson
of such litigation or communication.
5.11 Option to Extend the Territory. LICENSEE, at its option, may
------------------------------
elect to expand the Territory of the licenses granted by QUALCOMM in Sections
5.1 and 5.10.2 to include the entire world. To exercise such option, LICENSEE
must, no later than eighteen (18) months after the Effective Date, deliver
written notice to QUALCOMM of its election to exercise such option. * * *.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
16
<PAGE>
6. LICENSEE'S LICENSE.
6.1 Grant of License from LICENSEE. Subject to the terms and
------------------------------
conditions of this Agreement, LICENSEE hereby grants to QUALCOMM a personal,
nontransferable, worldwide, nonexclusive, fully-paid and royalty free license (
without the right to sublicense except as set forth in Section 6.2 below) under
LICENSEE's Intellectual Property solely for Wireless Applications to make (and
have made), import, use, offer for sale, and sell, lease or otherwise dispose of
Licensed Products and Components. No other, further or different license is
hereby granted or implied.
6.2 Right To Sublicense Affiliates. In addition to Section 6.3,
------------------------------
QUALCOMM shall have the right to grant sublicenses only to Affiliates of
QUALCOMM with respect to any rights conferred upon QUALCOMM under this
Agreement; provided, however, that any such sublicense shall be subject in all
respects to the restrictions, exceptions, termination provisions, and other
provisions contained in this Agreement. QUALCOMM, in addition to its Affiliates,
shall be responsible and liable to LICENSEE in the event that any of its
Affiliates fails under any such sublicense to honor and comply with all
obligations of QUALCOMM as though said obligations were made expressly
applicable to the Affiliate. Except as set forth above, QUALCOMM shall have no
right to sublicense any of LICENSEE's Intellectual Property. Any sublicense by
QUALCOMM to an Affiliate of QUALCOMM shall terminate immediately if such
Affiliate ceases to be an Affiliate of QUALCOMM.
6.3 Covenant Not to Assert. LICENSEE hereby covenants that neither
----------------------
it nor its Affiliates will assert any of LICENSEE's or its Affiliates rights in
Technically Necessary IPR against any of QUALCOMM's other Subscriber Unit, * *
*, or ASIC licensees (the "Authorized Licensees") which (a) use any of
LICENSEE's Technically Necessary IPR to make, use and sell Subscriber Units, * *
* and/or Components for Wireless Applications and (b) have agreed with QUALCOMM
to a similar undertaking not to assert claims against LICENSEE and its
Affiliates. LICENSEE does not by this Section 6.3 agree, on behalf of itself or
its Affiliates, to waive its rights to assert any of its rights against any
Authorized Licensee for using any of LICENSEE's Commercially Necessary IPR. Any
Authorized Licensee that has agreed with QUALCOMM to a similar undertaking not
to assert claims against LICENSEE and its Affiliates shall be regarded as a
third party beneficiary of this Section 6.3. QUALCOMM will promptly notify
LICENSEE of any Authorized Licensees that have agreed to such a similar
undertaking.
6.4 License Of Future Commercially Necessary IPR. Each Party agrees
--------------------------------------------
that, to the extent it makes licenses of Future Commercially Necessary IPR
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
17
<PAGE>
generally available to third parties, it will, if requested by the other Party,
offer such licenses to the other Party on commercially reasonable terms and
conditions.
7. REASONABLE EFFORTS TO MARKET AND SELL.
LICENSEE shall use commercially reasonable efforts to market, promote and
sell Licensed Products within the Territory.
8. MARKING; LABEL.
8.1 Patent Markings. LICENSEE agrees to affix to the exterior or the
---------------
interior of the transceiver unit of each Licensed Product and the package
containing such Licensed Product a legible notice reading: "Licensed by QUALCOMM
Incorporated under one or more of the following Patents," followed by a list of
applicable patent numbers provided to LICENSEE by QUALCOMM upon request by
LICENSEE or as may otherwise be instructed by QUALCOMM.
8.2 Logo. Attached hereto as Exhibit B is the CDMA designated logo (the
----
"Logo"). The Parties agree that QUALCOMM is the owner of the Logo. QUALCOMM
claims all common law trademarks in the Logo and has filed, or will file,
applications to obtain trademark registration for the Logo. If, for whatever
reason, registrations are not granted or use of the Logo is deemed by QUALCOMM
to be inadvisable, QUALCOMM shall have the right to either designate a new logo,
subject to LICENSEE's approval, which approval shall not be unreasonably
withheld, or terminate LICENSEE's right to use the Logo, or continue LICENSEE's
right to use the Logo under QUALCOMM's common law rights. Until the Logo is
properly registered, LICENSEE shall acknowledge QUALCOMM's ownership of same by
displaying a superscript "TM" to the Logo (e.g., Logo (TM)), or stating that the
Logo is a trademark of QUALCOMM Incorporated.
8.3 Logo Display. Unless otherwise notified by QUALCOMM as set forth in
------------
Section 8.2 above, LICENSEE shall prominently display the Logo on the exterior
of each Licensed Product Sold by it. The exact exterior location and size shall
be subject to LICENSEE's reasonable discretion, provided that the Logo shall be
readable and shall be permanently affixed. The Logo shall be designed to remain
visibly displayed on the exterior of the Licensed Product.
8.4 Trademark Limitation. LICENSEE does not hereby acquire, and shall not
--------------------
attempt to acquire, by registration, use or otherwise, the Logo, or any
18
<PAGE>
confusingly similar mark, or any other trademark, service mark or trade name of
or used by QUALCOMM, or any confusingly similar mark.
9. QUALITY CONTROL.
9.1 General Quality of Licensed Products. Throughout the term of this
------------------------------------
Agreement, LICENSEE shall maintain, for the Licensed Products manufactured or
Sold by it, manufacturing, servicing and quality standards comparable to those
maintained generally by the CDMA Subscriber Unit industry.
9.2 Standards Compliance Testing. LICENSEE represents and warrants that
----------------------------
the Licensed Products and Components that it makes or has made will adhere with
and conform to, in all respects, the specifications contained in the CAI and
that LICENSEE shall comply with the rules, regulations or other requirements set
by such authorized standards body. LICENSEE shall, at QUALCOMM's reasonable
written request, permit QUALCOMM or entities designated by QUALCOMM and accepted
by LICENSEE, which acceptance shall not be unreasonably withheld or delayed, to
perform tests of LICENSEE's Licensed Products to ensure compliance and
conformity with the CAI. If such tests indicate material noncompliance or
nonconformity therewith, such tests shall be at LICENSEE's cost and LICENSEE
shall reimburse QUALCOMM for any such reasonable tests performed by QUALCOMM at
QUALCOMM's then standard rates for such services; provided that the total fees
for each such test performed shall not exceed $10,000 for each test.
Nonconforming Licensed Products, if any, shall not be sold or marketed by
LICENSEE until the non-conformity is corrected.
10. INFORMATION.
10.1 Restrictions on Disclosure and Use. All documentation and technical
----------------------------------
and business information and intellectual property in whatever form recorded
that a Party does not wish to disclose without restriction ("Information") shall
remain the property of the furnishing Party and may be used by the receiving
Party only as follows. Such Information (a) shall not be reproduced or copied,
in whole or part, except for use as expressly authorized in this Agreement; and
(b) shall, together with any full or partial copies thereof, be returned or
destroyed when no longer needed or upon any termination of this Agreement, and
(c) shall be disclosed only to employees or agents of a Party with a need to
know. Moreover, such Information shall be used by the receiving Party only for
the purpose of performing under this Agreement or in the exercise of its rights
it may receive under the provisions of this Agreement. Unless the furnishing
Party consents in this Agreement or otherwise in writing, such Information shall
be held in strict confidence by the receiving Party. The
19
<PAGE>
receiving Party may disclose such Information to other persons, upon the
furnishing Party's prior written authorization, but solely to perform acts which
this clause expressly authorizes the receiving Party to perform itself and
further provided such other person agrees in writing (a copy of which writing
will be provided to the furnishing Party at its request) to the same conditions
respecting use of Information contained in this clause and to any other
reasonable conditions requested by the furnishing Party. These restrictions on
the use or disclosure of Information shall not apply to any Information: (i)
which can be proven to be or have been independently developed by the receiving
Party or lawfully received free of restriction from another source having the
right to so furnish such Information; or (ii) after it has become generally
available to the public without breach of this Agreement by the receiving Party;
or (iii) which at the time of disclosure to the receiving Party was known to
such Party free of restriction and clearly evidenced by documentation in such
Party's possession; or (iv) which the disclosing Party agrees in writing is free
of such restrictions.
10.2 Scope of Information. Information is subject to this Section 10
--------------------
whether delivered orally or in tangible form and without regard to whether it
has been identified or marked as confidential or otherwise subject to this
Section 10. Each Party agrees to use its best efforts to mark or otherwise
identify proprietary all Information they desire to be subject to the terms of
this clause before furnishing it to the other Party. And, upon request, a Party
shall promptly identify whether specified information must be held by the
requesting Party subject to this clause.
10.3 Furnishing Information to Third Parties. Nothing herein shall be
---------------------------------------
deemed to bar disclosure of Information by a receiving Party to third parties,
with written consent of the furnishing Party, if such disclosure is reasonably
necessary for enjoyment of the disclosing Party's rights to use Intellectual
Property Rights licensed under this Agreement, and provided that each such third
party agrees in writing to protect the Information under terms and conditions
comparable, in all material respects, to the terms contained in this Section 10
and Section 18 with respect to survivability.
11. DISCLAIMER/ LIMITATION OF LIABILITY.
11.1 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, QUALCOMM MAKES NO
WARRANTIES IN THIS AGREEMENT AS TO PRODUCTS, TECHNOLOGY, MATERIALS, SERVICES,
INFORMATION OR OTHER ITEMS IT FURNISHES TO LICENSEE, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, OR THAT SUCH ITEMS ARE
20
<PAGE>
FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY, BY WAY OF INFRINGEMENT OR THE
LIKE.
EXCEPT FOR A BREACH BY QUALCOMM OF SECTION 10 OF THIS AGREEMENT, QUALCOMM
SHALL NOT BE LIABLE TO LICENSEE FOR ANY INCIDENTAL, CONSEQUENTIAL OR ANY OTHER
INDIRECT LOSS OR DAMAGE ARISING OUT OF THIS AGREEMENT OR ANY RESULTING
OBLIGATION OR THE USE OF ANY INTELLECTUAL PROPERTY RECEIVED HEREUNDER, WHETHER
IN AN ACTION FOR OR ARISING OUT OF BREACH OF CONTRACT, FOR TORT, OR ANY OTHER
CAUSE OF ACTION. LICENSEE SHALL BE PERMITTED TO ENJOIN THE UNAUTHORIZED USE BY
QUALCOMM OF ANY OF LICENSEE'S INFORMATION.
11.2 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSEE MAKES NO
WARRANTIES IN THIS AGREEMENT AS TO PRODUCTS, TECHNOLOGY, MATERIALS, SERVICES,
INFORMATION OR OTHER ITEMS IT FURNISHES TO QUALCOMM, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, OR THAT SUCH ITEMS ARE FREE FROM THE RIGHTFUL CLAIM OF ANY
THIRD PARTY, BY WAY OF INFRINGEMENT OR THE LIKE.
EXCEPT FOR A BREACH BY LICENSEE OF SECTION 10 OF THIS AGREEMENT, LICENSEE
SHALL NOT BE LIABLE TO QUALCOMM FOR ANY INCIDENTAL, CONSEQUENTIAL OR ANY OTHER
INDIRECT LOSS OR DAMAGE ARISING OUT OF THIS AGREEMENT OR ANY RESULTING
OBLIGATION OR THE USE OF ANY INFORMATION RECEIVED HEREUNDER, WHETHER IN AN
ACTION FOR OR ARISING OUT OF BREACH OF CONTRACT, FOR TORT, OR ANY OTHER CAUSE OF
ACTION. QUALCOMM SHALL BE PERMITTED TO ENJOIN THE UNAUTHORIZED USE BY LICENSEE
OF ANY OF QUALCOMM's INFORMATION.
11.3 QUALCOMM shall indemnify, defend and hold harmless LICENSEE from any
and all claims, judgments, liabilities, costs and expenses (including attorney's
fees) arising out of or related, directly or indirectly, to any third party
claims, actions or other proceedings that any technical information, data,
materials, or know-how, including without limitation QUALCOMM's Core IP,
furnished hereunder by QUALCOMM, infringes any copyright or trade secret.
11.4 Negation of Representation and Warranties. Except as expressly
-----------------------------------------
provided herein, nothing contained in this Agreement shall be construed as (a)
requiring the filing of any patent application, the securing of any patent or
the
21
<PAGE>
maintaining of any patent in force; (b) a warranty or representation by either
Party as to the validity or scope of any patent, copyright or other intellectual
property right; (c) a warranty or representation that any manufacture, sale,
lease, use or importation will be free from infringement of patents, copyrights
or other intellectual property rights of others, and it shall be the sole
responsibility of LICENSEE to make such determination as is necessary with
respect to the acquisition of licenses under patents and other intellectual
property of third parties; (d) an agreement to bring or prosecute actions or
suits against third parties for infringement; (e) an obligation to furnish any
manufacturing assistance; or (f) conferring any right to use, in advertising,
publicity or otherwise, any name, trade name or trademark, or any contraction,
abbreviation or simulation thereof (other than as set forth in Section 8).
12. INDEMNITY FOR DAMAGE TO PERSONS, PROPERTY OR BUSINESS.
12.1 Indemnification by LICENSEE. LICENSEE shall indemnify, defend and
---------------------------
hold QUALCOMM harmless from, any and all claims, judgments, liabilities, costs
and expenses (including attorneys' fees) arising out of or related, directly or
indirectly, to any injury, loss or damage to persons, property or business
arising from, relating to, or in any way connected with, any Licensed Products
or Components which LICENSEE or its Affiliates manufactures or has manufactured
and sells to a third party or its Affiliate, excepting therefrom any and all
claims, judgments, liabilities, costs and expenses (including attorney's fees)
in any infringement action brought by a third party arising (i) solely from
LICENSEE's use of QUALCOMM's Core IP, or (ii) from LICENSEE's use of QUALCOMM's
Core IP in combination with any other product, component or intellectual
property if such infringement would not have occurred but for the inclusion of
QUALCOMM's Core IP. LICENSEE agrees to indemnify and hold harmless QUALCOMM
against all liability or responsibility to LICENSEE or to others for any failure
in production, design, operation or otherwise of products manufactured by or on
behalf of LICENSEE and Sold to third parties, except if such liability or
responsibility is due to infringement claims with respect to QUALCOMM's
Intellectual Property.
12.2 Indemnification by QUALCOMM. QUALCOMM shall indemnify, defend and
---------------------------
hold LICENSEE harmless from, any and all claims, judgments, liabilities, costs
and expenses (including attorneys' fees) arising out of or related, directly or
indirectly, to any injury, loss or damage to persons, property or business
arising from, relating to, or in any way connected with, any Licensed Products
or Components which QUALCOMM manufactures or has manufactured and sells to a
third party or its Affiliate. QUALCOMM agrees to indemnify and hold harmless
LICENSEE against all liability or responsibility to QUALCOMM or to others for
any failure in production, design, operation or
22
<PAGE>
otherwise of products manufactured by or on behalf of QUALCOMM and Sold to third
parties, except if such liability or responsibility is due to infringement
claims with respect to LICENSEE's Intellectual Property.
12.3 Notice, Defense and Cooperation. The party seeking indemnification
-------------------------------
under Section 12.1 or 12.2 above shall provide the indemnifying party with
prompt notice of any claim within such provisions, shall give the indemnifying
party the full right to defend any such claim and shall cooperate fully in such
defense.
13. TERMINATION.
13.1 Termination Without Cause by LICENSEE. LICENSEE may for any reason,
-------------------------------------
at any time when it is not using any of QUALCOMM's Intellectual Property,
terminate this Agreement upon sixty (60) days' prior written notice to QUALCOMM
and LICENSEE's obligation to pay royalties to QUALCOMM under Section 5.2 shall,
upon the effective date of such termination, cease; provided that the full
amount of the Up-Front License Fee and all license fees and royalties which have
accrued under the terms of the Agreement shall be due and owing and all such
amounts and all previous amounts paid are and shall remain non-refundable. In
the event of such termination, the license granted under this Agreement by
LICENSEE to QUALCOMM under LICENSEE's Intellectual Property shall survive.
13.2 Termination For Cause by QUALCOMM. QUALCOMM may terminate this
---------------------------------
Agreement, by written notice to LICENSEE, if LICENSEE shall at any time default
in the payment hereunder or the making of any report hereunder, or shall commit
any material breach of any covenant, representation, warranty or agreement
herein contained, or shall make any false report to QUALCOMM; provided, however,
that in the case of any such breach which is capable of being cured, QUALCOMM
shall not have a right to terminate this Agreement for cause unless and until
LICENSEE shall have failed to remedy any such default, breach or report within
thirty (30) days after written notice thereof by QUALCOMM. LICENSEE shall be
able to effectuate such cure with respect to a default in the payment of any
royalty hereunder no more than three times during the term of this Agreement.
Upon termination of this Agreement for cause, LICENSEE shall duly account to
QUALCOMM for all royalties and other payments within thirty (30) days of such
termination.
13.3 Termination For Cause by LICENSEE. LICENSEE may terminate this
---------------------------------
Agreement, by written notice to QUALCOMM, if QUALCOMM shall commit any material
breach of any material covenant, representation, warranty or agreement herein
contained; provided, however, that in the case of any such
23
<PAGE>
breach which is capable of being cured, LICENSEE shall not have a right to
terminate this Agreement for cause unless and until QUALCOMM shall have failed
to remedy any such material breach within thirty (30) days after receipt by
QUALCOMM of written notice thereof by LICENSEE.
13.4 Termination Due to Force Majeure. In the event that Force Majeure set
--------------------------------
forth in Section 30 hereof occurs to a Party (the "Affected Party"), the non-
affected Party may terminate this Agreement by written notice unless the Force
Majeure event is removed within one hundred and eighty (180) days following the
occurrence of it.
13.5 Bankruptcy, Dissolution or Liquidation. Either Party shall also have
--------------------------------------
the right to terminate this Agreement with immediate effect by giving written
notice of termination to the other Party at any time upon or before sixty (60)
days after the occurrence of any of the following events with respect to such
other Party (unless such event ceases within such period): (a) insolvency,
bankruptcy or liquidation or filing of any application therefor, or other
commitment of an affirmative act of insolvency; (b) attachment, execution or
seizure of substantially all of the assets or filing of any application
therefor; (c) assignment or transfer of that portion of the business to which
this Agreement pertains to a trustee for the benefit of creditors; (d)
disposition, by sale or assignment of all of its rights, of that portion of the
business or the material assets to which this Agreement pertains; or (e)
termination of its business or dissolution.
13.6 Termination of Agreement in the Event of Litigation.
---------------------------------------------------
13.6.1 QUALCOMM at its option may terminate the license from QUALCOMM
to LICENSEE in the event that LICENSEE initiates any litigation against QUALCOMM
or its Affiliates which includes any claim for intellectual property
infringement and LICENSEE does not prevail on all such intellectual property
infringement claims.
* * *
13.7 Rights Upon Termination. Upon any expiration or termination of this
-----------------------
Agreement, whether for cause or not, all licenses granted hereunder shall also
terminate (except as expressly stated in Section 13.1), and each Party shall
immediately (i) cease using any of the other Party's Intellectual Property and
(ii) return or destroy all information and documentation furnished by the other
Party to such Party. Any termination or expiration of this Agreement under this
Section 13 shall not relieve LICENSEE from its obligation under Section 14
hereof to make a report or from its liability for payment of royalties on
Licensed
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
24
<PAGE>
Products Sold on or prior to the date of such termination or expiration and
shall not prejudice the right to recover the full amount of the Up-Front License
Fee and any royalties or other sums due or accrued at the time of such
termination or expiration and shall not prejudice any cause of action or claim
accrued or to accrue on account of any breach or default. Furthermore, any
termination or expiration of this Agreement under this Section shall not
prejudice the right of QUALCOMM to conduct a final audit of the records of
LICENSEE in accordance with the provisions of Section 14 hereof. No termination
hereunder shall limit the rights of LICENSEE to sell those Licensed Products in
inventory or in process at the time of termination, subject to payment of the
royalty applicable to the sale of such Licensed Products and continued
compliance with the other provisions of this Agreement.
14. RECORDS AND AUDITS.
14.1 Records. LICENSEE shall keep accurate and complete books and records
-------
concerning any Licensed Products it may sell under this Agreement. As
applicable, such books and records shall include the date of transaction
involving sales of Licensed Products, including the number of items Sold.
LICENSEE shall require in its agreements with sublicensees that each sublicensee
agree to record keeping and audits substantially the same as described in this
Section 14. LICENSEE hereby agrees to conduct periodic audits of its
sublicensees as requested by QUALCOMM. The results of such audits (together with
all supporting information) shall be included in the records described herein
and subject to audit by QUALCOMM as provided in this Section. QUALCOMM shall be
an intended third party beneficiary of LICENSEE's rights of audit with respect
to its sublicensees, with all proper authority to enforce such rights directly
against any such sublicensee. LICENSEE's agreements with its sublicensees shall
expressly state these third party beneficiary rights. LICENSEE shall furnish
QUALCOMM within forty-five (45) days after the end of each calendar quarter a
certificate, in the form attached hereto as Exhibit C, signed by a responsible
official of LICENSEE showing the transactions and corresponding amounts during
said calendar quarter and any other information as may be reasonably requested
by QUALCOMM.
14.2 Audits. QUALCOMM may, no more than once each calendar year during
------
LICENSEE's normal business hours, conduct (itself or through its agent) an audit
on reasonable notice of LICENSEE's applicable books and records solely for the
purpose of confirming the royalty paid or to be paid to QUALCOMM in accordance
with the terms and conditions set forth in Section 5.2 above. If an agent is
retained to conduct the audit, the agent shall treat any information obtained
during such audit as Information of LICENSEE. The cost of such audit shall be
borne by QUALCOMM, unless such audit determines that the
25
<PAGE>
LICENSEE has underpaid the royalties due hereunder by the lesser of (a) more
than five percent (5%) or (b) one hundred thousand dollars ($100,000); in which
case, LICENSEE shall, in addition to paying the deficiency plus late payment
charges, pay the reasonable cost of such audit. LICENSEE shall preserve and
maintain all such books and records required for audit for a period of five (5)
years after the calendar quarter for which the books and records apply.
15. ASSIGNMENT.
Except as provided in this clause, neither Party shall assign this
Agreement or any right or interest under this Agreement, nor delegate any work
or obligation to be performed under this Agreement (an "assignment"), without
the other Party's prior written consent. Upon the request by one Party (the
"Requesting Party") for the consent of the other Party (the "Responding Party")
to an assignment, the response by the Responding Party shall not be unreasonably
delayed; provided that the Responding Party may deny such consent in its sole
and absolute discretion. Any attempted assignment in contravention of this
Section 15 shall be void and ineffective.
16. COMPLIANCE WITH U.S. REGULATIONS.
Nothing contained in this Agreement shall require or permit LICENSEE or
QUALCOMM to do any act inconsistent with the requirements of (a) the regulations
of the United States Department of Commerce, or (b) the foreign assets controls
or foreign transactions controls regulations of the United States Treasury
Department, or (c) of any similar United States law, regulation or executive
order as the same may be in effect from time to time. To enable QUALCOMM to
export QUALCOMM's Intellectual Property or technical data to LICENSEE in
compliance with the requirements of the Export Administration Regulations (EAR),
LICENSEE hereby gives its assurance to QUALCOMM that LICENSEE will not re-export
or otherwise disclose, directly or indirectly, any of QUALCOMM's Intellectual
Property or "technical data" received from QUALCOMM, nor allow the direct
product thereof to be shipped directly or indirectly to any of the following
countries, unless permitted by U.S. law in effect at the time of such export:
Albania Libya
Armenia Lithuania
Azerbaijan Moldova
Belarus Mongolia
Bulgaria North Korea
Cambodia People's Republic Of China
Cuba Romania
26
<PAGE>
Estonia Russia
Georgia Sudan
Iran Syria
Iraq Tajikistan
Kazakhstan Turkmenistan
Kyrgystan Ukraine
Laos Uzbekistan
Latvia Vietnam
LICENSEE agrees that no products, proprietary data, know-how, software, or other
information received from QUALCOMM will be directly employed in missile
technology, sensitive nuclear, or chemical biological weapons end uses or by
such end users. The foregoing obligations are U.S. legal requirements, and
therefore, such obligations shall survive any termination of this Agreement.
17. PUBLICITY.
Each Party shall submit to the other proposed copy of all advertising
wherein the name, trademark, code, specification or service mark of the other
Party is mentioned; and neither Party shall publish or use such advertising
without the other's prior written approval. Such approval shall be granted or
withheld as promptly as possible (usually within ten (10) days), and may be
withheld only for good cause.
18. SURVIVAL OF OBLIGATIONS.
The Parties' rights and obligations which, by their nature, would continue
beyond the termination, cancellation, or expiration of this Agreement, including
but not limited to those rights and obligations of the parties set forth in
Section 10 entitled "INFORMATION," shall survive such termination, cancellation,
or expiration.
19. SEVERABILITY.
If any provision in this Agreement shall be held to be invalid or
unenforceable, the remaining portions shall remain in effect. In the event such
invalid or unenforceable provision is considered an essential element of this
Agreement, the Parties shall promptly negotiate a replacement provision.
20. NON-WAIVER.
No waiver of the terms and conditions of this Agreement, or the failure of
either Party strictly to enforce any such term or condition on one or more
27
<PAGE>
occasions shall be construed as a waiver of the same or of any other term or
condition of this Agreement on any other occasion.
21. NOTICES.
All notices, requests, demands, consents, agreements and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be mailed to the Party to whom notice is to be given, by
facsimile, and confirmed by first class mail, postage prepaid, and properly
addressed as follow (in which case such notice shall be deemed to have been duly
given on the day the notice is first received by the Party):
QUALCOMM Incorporated NeoPoint, Inc.
6455 Lusk Boulevard 4225 Executive Square, Suite 600
San Diego, CA 92121 La Jolla, CA 92037
Facsimile No.: (858) 658-2500 Facsimile No.: (858) 638-7002
Telephone No.: (858) 587-1121 Telephone No.: (858) 678-3030
Attn: President Attn: President
with a copy to: with a copy to:
General Counsel General Counsel
The above addresses can be changed by providing notice to the other Party
in accordance with this Section.
22. PUBLICATION OF AGREEMENT.
Except as may otherwise be required by law or as reasonably necessary for
performance hereunder, each Party shall keep this Agreement and its provisions
confidential, and shall not disclose this Agreement or its provisions without
first obtaining the written consent of the other Party, which consent shall not
be unreasonably withheld. The confidentiality obligations hereunder do not
apply to the existence of this Agreement or the fact that QUALCOMM and LICENSEE
have executed this Agreement, but do apply to the terms and conditions of this
Agreement. Any press release or other announcement by either Party concerning
the entering into of this Agreement shall be subject to the prior written
approval of other Party, which approval shall not be unreasonably withheld or
delayed. In case a press release or other public announcement to the effect of
the Parties' entering into of this Agreement is issued by either Party pursuant
to the preceding sentence, (i) QUALCOMM may thereafter make a press release or
other public announcement to the effect that LICENSEE is one of QUALCOMM's
licensees for Licensed Products without prior written approval
28
<PAGE>
of LICENSEE and (ii) LICENSEE may thereafter make a press release or other
public announcement to the effect that LICENSEE is licensed by QUALCOMM for
Licensed Products without prior written approval of QUALCOMM.
23. APPLICABLE LAW; VENUE.
This Agreement is made and entered into in the State of California and
shall be governed by and construed and enforced in accordance with the laws of
the State of California without regard to conflict of laws principles. Any
dispute, claim or controversy arising out of or relating to this Agreement, or
the breach or validity hereof, except for those disputes expressly addressed in
Section 24 hereof, shall be adjudicated only by a court of competent
jurisdiction in the county of San Diego, State of California.
24. DISPUTES RELATING TO FOREIGN PATENTS.
Any controversy, claim or dispute (separately or collectively, the
"Dispute") as to whether a product manufactured and/or sold by LICENSEE outside
the United States would, but for the license granted hereunder, infringe any
foreign patent of QUALCOMM licensed hereunder and therefore is subject to
royalties hereunder, shall be resolved in accordance with the procedures
specified in this Section 24 which shall be the sole and exclusive procedures
for the resolution of any such Dispute.
The Parties will attempt in good faith to resolve promptly any Dispute by
negotiations between senior executives of the Parties who have the authority to
settle the Dispute. If the Dispute is not resolved within thirty (30) days of a
party's written request for negotiation, either party may initiate arbitration
as hereinafter provided.
A Party desiring to commence arbitration shall provide written notice to
the other Party setting forth the Dispute(s) to be arbitrated. Within ten (10)
days of receipt of such written notice, the Parties will attempt in good faith
to reach agreement on an impartial arbitrator having as nearly as practicable
the following qualifications in order of importance: (1) at least ten years
experience in patent litigation, including substantial participation in at least
two patent trials, and/or ten years experience in patent prosecution in the
telecommunications field and/or at least three years experience as a Federal
Court of Appeals or District Court Judge, (2) expertise in the field of digital
spread spectrum communications as applied to the telecommunications industry,
and (3) some familiarity with the patent laws of the country or countries at
issue in the Dispute. In the event the Parties are unable to agree upon an
arbitrator within thirty (30) days of the above written notice, the arbitrator
shall be selected
29
<PAGE>
by Judicial Arbitration and Mediation Service/Endispute, Inc. (or some similar
company if the Judicial Arbitration and Mediation Service/Endispute, Inc. is not
available). The selected arbitrator shall be impartial and shall have, as nearly
as practicable, the qualifications set forth above. The Parties will share
equally the fees and expenses of the arbitrator.
The arbitration hearing shall commence in San Diego within 60 days of the
appointment of the arbitrator. The Parties shall be entitled to conduct
discovery prior to the arbitration hearing in accordance with Federal Rules of
Civil Procedure, subject to any limitations ordered by the arbitrator.
The arbitration hearing shall be conducted in accordance with the Federal
Rules of Civil Procedure and the Federal Rules of Evidence or such other
procedures and rules set by the arbitrator. The arbitrator shall be authorized
and empowered only to rule as to whether products manufactured and/or Sold by
LICENSEE in a foreign country or countries would, but for the license granted
hereunder, infringe any claim of the applicable foreign patent(s) of QUALCOMM,
and if so, the amount of the royalties owed by LICENSEE as to such product(s)
under Section 5.2 of this Agreement. The arbitrator shall award attorneys' fees
and costs to the prevailing Party. The arbitrator shall have no authority to
determine whether or not any product(s) of LICENSEE imported into or
manufactured and/or Sold in the United States is subject to the payment of
royalties under this Agreement or to determine any other issue except those
expressly set forth above. The arbitrator shall have no authority to make any
finding or award as to the validity or enforceability of any patent.
The final award of the arbitrator shall be rendered in writing and signed
by the arbitrator. The final award shall be entered within thirty (30) days of
the commencement of the arbitration hearing. Each Party agrees to abide by the
arbitration award, and to the enforcement of the arbitration award in the United
States. Each Party further agrees that judgment may be entered upon the award in
any court of competent jurisdiction in the United States.
25. LATE CHARGE.
* * *
26. ATTORNEYS' FEES.
In the event of any proceeding to enforce the provisions of this Agreement,
the prevailing Party (as determined by the court) shall be entitled to
reasonable attorneys' fees as fixed by the court.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
30
<PAGE>
27. ENTIRE AGREEMENT.
The terms and conditions contained in this Agreement supersede all prior
and contemporaneous oral or written understandings between the Parties with
respect to the subject matter thereof and constitute the entire agreement of the
Parties with respect to such subject matter. Such terms and conditions shall not
be modified or amended except by a writing signed by authorized representatives
of both Parties.
28. INDEPENDENT CONTRACTORS.
The relationship between QUALCOMM and LICENSEE is that of independent
contractors. QUALCOMM and LICENSEE are not joint venturers, partners, principal
and agent, master and servant, employer or employee, and have no other
relationship other than independent contracting parties.
29. U.S. DOLLARS.
All payments to be made hereunder shall be made in dollars of the United
States of America by wire-transfer and at a bank to be designated by the payee.
30. FORCE MAJEURE
Neither Party shall be in default or liable for any loss or damage
resulting from delays in performance or from failure to perform or comply with
terms of this Agreement (other than the obligation to make payments, which shall
not be affected by this provision) due to any causes beyond its reasonable
control, which causes include but are not limited to Acts of God or the public
enemy; riots and insurrections; war; fire; strikes and other labor difficulties
(whether or not the Party is in a position to concede to such demands);
embargoes; judicial action; lack of or inability to obtain export permits or
approvals, necessary labor, materials, energy, components or machinery; and acts
of civil or military authorities.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the Effective Date. This Agreement may be signed in counterpart.
QUALCOMM Incorporated NeoPoint, Inc.
BY:________________________ BY:_____________________________
TITLE:_____________________ TITLE:__________________________
31
<PAGE>
AMENDMENT TO THE SUBSCRIBER UNIT LICENSE AGREEMENT
QUALCOMM Incorporated, a Delaware corporation ("QUALCOMM"), and NeoPoint,
Inc., a California corporation ("LICENSEE"), hereby agree to amend that certain
Subscriber Unit License Agreement dated September 23, 1999 (the "License
Agreement") as follows:
1. Definitions. Unless otherwise defined in this Agreement, capitalized terms
-----------
used in this Amendment shall have the respective meanings given to them in the
License Agreement.
2. Grant of License From QUALCOMM. Section 5.1 of the License Agreement is
------------------------------
hereby deleted and replaced with the following:
Subject to the terms and conditions of this Agreement, including but not
limited to timely payment of the license fees and royalties set forth
herein, QUALCOMM hereby grants to LICENSEE a personal, nontransferable and
nonexclusive license (without the right to sublicense except as set forth
in Section 5.4 below) under QUALCOMM's Intellectual Property solely for
Wireless Applications to (a) make (and have made), anywhere in the world,
Licensed Products and Components (provided such Components have been
exclusively designed by or exclusively for LICENSEE and which design is
owned and used exclusively by LICENSEE), (b) to import, use, offer for
sale, and sell, lease or otherwise dispose of Licensed Products solely
within the Territory, and (c) to import, use and sell, lease and otherwise
dispose of Components solely within the Territory but if such Components
incorporate QUALCOMM's Intellectual Property, then such Components may only
be used, sold, leased or otherwise disposed of by LICENSEE if they are
included as part of and within complete Licensed Products Sold by LICENSEE
(or as replacement parts for Licensed Products previously sold by
LICENSEE). No other, further or different license is hereby granted or
implied.
3. Non-Assertion Against Ericsson. Section 5.10.3 of the License Agreement is
-------------------------------
hereby deleted and replaced with the following:
The sublicense granted to LICENSEE under Section 5.10.2 above shall
continue only so long as LICENSEE and its Affiliates do not assert, either
in litigation or by a direct communication, any Essential Patents for CDMA
Applications against Ericsson's CDMA subscriber, infrastructure or test
equipment products and LICENSEE does not dismiss such litigation or
withdraw such assertion or offer a royalty-free license under such patents
within thirty (30) days after QUALCOMM's receipt of notice from Ericsson of
such litigation or communication.
4. No Other Amendment Or Modification. Except as expressly set forth in this
----------------------------------
Amendment, the License Agreement remains in full force and effect without
modification. The terms and conditions of this Amendment and the License
Agreement shall not be modified or amended except by a writing signed by
authorized representatives of both Parties.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
effective as of September 23, 1999 (the "Effective Date").
QUALCOMM INCORPORATED NEOPOINT, INC.
By:___________________ By:___________________
Title:_______________ Title:________________
32
<PAGE>
EXHIBIT A
SUBSCRIBER UNIT DOCUMENTS
Document Description: Document
--------------------- --------
#:
- --
1) BBA2 Baseband Analog Processor Technical Users Manual 80-12612-1
2) CDMA ASIC Products Quality & Reliability Report 80-12202
3) MSM3000 Device Specification 93-24690-1
4) CDMA Capacity 2.1 Test Report 80-12200
5) CDMA Capacity 2.0 Test Report 80-10639
6) CDMA Digital Cellular DM Mobile Station Software HLD, EX60-10028
Executive Overview, Ver. 1.0, 07/02/92
7) CDMA Digital Cellular Technology Forum - March 1994 80-12370-1
8) CDMA Digital Cellular Technology Forum February 1993 80-10770
9) CDMA Digital Cellular Technology Forum January 1992 EX60-7735
10) CDMA Dual-Mode Mobile Cellular Telephone Operating 80-10040
Instructions
11) QUALCOMM Dual-Mode Mobile Phone Spec. Sheet, EX60-10071-1
Initial Release
12) QUALCOMM Dual-Mode Portable Phone Spec. Sheet EX60-10072-1
13) CDMA Portable Block Diagram and Architecture EX60-7327
14) CDMA System Engineering Training Handbook, Vol. 1 & 2 80-12015
15) Power Control Issues, 8/19/92 EX60-7415
16) QCELP Variable Rate Vocoder, Extended, 01/22/91 EX60-7716
17) Registration and Paging EX60-10091
33
<PAGE>
EXHIBIT A
SUBSCRIBER UNIT DOCUMENTS (Continued)
Document Description: Document
--------------------- --------
#:
- --
18) Vocoder Interface Doc. - DSP1616, 12/14/92 70-10412
19) QUALCOMM VLSI Foundry Quality and Reliability 80-3652
General Requirements
20) Quality Manual 80-3460-1
EXHIBIT B
[LOGO of Digital by Qualcomm]
34
<PAGE>
EXHIBIT C
CERTIFICATE
The undersigned official of Neopoint, Inc. ("LICENSEE") is providing the
following information to QUALCOMM pursuant to that certain Subscriber Unit
License Agreement entered into between LICENSEE and QUALCOMM (the "Agreement").
All capitalized terms used in this Certificate have the definitions ascribed to
them in the Agreement.
This Certificate reflects the Royalties payable by LICENSEE for the calendar
quarter ended:____________, 19__.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
DETERMINATION OF
GENERAL INFORMATION REGARDING "SALE" SELLING PRICE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date and Country of If Sold to Number of Licensed Selling Price paid
Sale by LICENSEE Related Buyer, Products Sold by Purchaser or
and Affiliates identity of charged by final
(e.g., if sold for Related Buyer. vendee Related
use in the United Buyer or, if
States, state "sold Licensed Product
for use in U.S.") is used by
LICENSEE, Selling
Price that would
be realized in a
sale to a Purchaser
- -------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------
DEDUCTIBLE ITEMS FROM
SELLING PRICE CALCULATION OF ROYALTIES
- --------------------------------------------------------
<S> <C> <C> <C>
Type of Amount of Applicable Applicable
Deductible Deduction Net Selling Royalty
Item Price Percentage
- --------------------------------------------------------
</TABLE>
TOTAL ROYALTIES
DUE AND PAYABLE $
The undersigned hereby certifies that the foregoing represents an accurate and
complete record of all royalties due and payable by LICENSEE for the calendar
quarter specified above.
Signature:________________________________
Title:____________________________________
Date:_____________________________________
35
<PAGE>
EXHIBIT 10.7
STRATEGIC PARTNERSHIP AGREEMENT
This Strategic Partnership Agreement ("Agreement") is made this 10th day of
September, 1999 (the "Effective Date") by and between GRIP, Inc., a California
corporation d.b.a. "Select Tee Times" located at 6210 Marindustry Drive, San
Diego, California 92121 ("STT") and NeoPoint, Inc., a California corporation
located at 4225 Executive Drive, Suite 600, La Jolla, California 92037
("NEOPOINT").
A. WHEREAS, STT derives income from selling tee times for golf courses
through a web-based available tee time listing service and call center and also
provides advertising, marketing and sales support to and on behalf of golf
course clients.
B. WHEREAS, NEOPOINT derives income from the sale of wireless
telecommunications products, services and data.
C. WHEREAS, NEOPOINT and STT have been in discussions regarding a
strategic partnership whereby NEOPOINT would assist STT in cross-promotional
marketing programs to purchasers of its products and services.
D. WHEREAS, STT and NEOPOINT would like to formalize a relationship
pursuant to this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises set
forth herein, the parties hereby agree as follows:
1. STT Convenants.
--------------
1.1 NEOPOINT Referral Fee.
---------------------
1.1.1 NEOPOINT Referred Members. STT agrees to pay NEOPOINT a
-------------------------
referral fee for every golf reservation booked by NEOPOINT members who book at
STT's Web Site after coming directly from NEOPOINT's web site(s) or from one of
NEOPOINT's mobile communication products or call center ("NEOPOINT Referred
Members").
1.1.2 Internet Bookings. * * *
-----------------
1.1.3 Call Center Commissions. * * *
-----------------------
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
1
<PAGE>
1.1.4 Maximum Annual Commissions. * * *
--------------------------
1.2 Advertising. STT agrees to provide advertising space and a hotlink
-----------
for NEOPOINT at www.selectteetimes.com ("STT Web Site") to promote NEOPOINT's
products and services. STT agrees to incorporate NEOPOINT literature in each of
its mailings to its registered members and golf course customers to promote the
strategic partnership between STT and NEOPOINT and NEOPOINT's products and
services.
1.3 Exclusivity. STT agrees not to work with any direct competitor of
-----------
NEOPOINT without the prior written consent of NEOPOINT.
2. NEOPOINT Covenants.
------------------
2.1 Golf Reservation Functionality. NEOPOINT agrees to place STT's logo
------------------------------
as an icon on the NeoSite sports page of its NeoPoint line of products to
promote STT's golf reservation services and to provide a hot link directly from
STT's icon to STT's Web Site.
2.2 Golf Reservations. NEOPOINT agrees to promote STT's golf reservation
-----------------
services to a majority of its current and future carrier and end user customers
and to utilize STT as its exclusive golf and reservation agent.
2.3 Promotion of NEOPOINT Membership Benefits. * * *
-----------------------------------------
2.4 STT Referral Fee. * * *
----------------
2.5 Advertising. NEOPOINT agrees to provide advertising and a hot link at
-----------
NEOPOINT's web site directly to the STT Web Site. * * *
2.6 Exclusivity. NEOPOINT agrees not to work with any direct competitor
-----------
of STT without the prior written consent of STT.
3. Mutual Covenants.
----------------
3.1 Reports. STT agrees to provide unaudited monthly summaries of all new
-------
potentially commissionable transactions to NEOPOINT by the 15/th/ day after each
calendar
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
2
<PAGE>
month. Each party agrees to review such reports and to attempt to promptly
reconcile any conflicts.
3.2 Payment. STT agrees to reconcile all amounts owed to NEEOPOINT and to
-------
promptly make payment of any balances due by the 30th day of each month for all
commissionable transactions for which STT has been paid by their golf course
customers during the prior month. NEOPOINT shall have the right to audit STT's
records at reasonable times, using its own financial personnel or an independent
auditor of its choice, to substantiate STT's payments to NEOPOINT.
3.3 Publicity. Each party agrees to use reasonable efforts to promote the
---------
relationship of the parties upon the execution of this Agreement. Each party
shall obtain the prior written consent of the other party as to form and a
content of any marketing materials which includes the other party's name or logo
which has not been previously approved.
3.4 Co-Marketing Efforts. Each party agrees to explore co-marketing
--------------------
opportunities throughout the United States. * * *
3.5 Discounted Products/Services. * * *
----------------------------
4. Intellectual Property Rights. Neither party shall have or obtain any
----------------------------
right or interest in or to any intellectual property rights of the other party
nor shall either party make any claim on any intellectual property rights of the
other party. Each party shall use best efforts to protect the intellectual
property rights of the other party including only using any trademarks or trade
names of the other party in a manner expressly authorized and approved by the
other party.
5. Confidential Information.
------------------------
5.1 Definition of Confidential Information. "Confidential Information" as
--------------------------------------
used in this Agreement shall mean any and all technical and non-technical
information including patent, copyright, trade secret, and proprietary
information, techniques, sketches, drawings, models, inventions, know-how,
processes, apparatus, equipment, algorithms, software programs, software source
documents, and formulae related to the current, future and proposed products and
services of either party, its suppliers and customers, and includes, without
limitation, its respective information concerning market research, product
development, design and specifications, financial information, customer lists,
business forecasts, pricing models, sales, merchandising and marketing plans.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
3
<PAGE>
5.2 Nondisclosure and Nonuse Obligations. Each party will use the other
------------------------------------
party's Confidential Information solely to perform their obligations pursuant to
this Agreement. Each party agrees that it shall treat all Confidential
Information of the other party with the same degree of care as it accords to its
own Confidential Information, but no less than reasonable care. Each party
agrees that it shall disclose Confidential Information of the other party only
to those employees who need to know such information and certifies that such
employees have previously agreed, either as a condition of employment or in
order to obtain the Confidential Information, to be bound by terms and
conditions substantially similar to those of this Agreement. Each party will
immediately give the other party notice of any unauthorized use or disclosure of
the Confidential Information and agrees to assist the other party in remedying
any such unauthorized use or disclosure of the Confidential Information.
5.3 Exclusions from Nondisclosure and Nonuse Obligations. Each party's
----------------------------------------------------
obligations under Paragraph 5.2 ("Nondisclosure and Nonuse Obligations") with
respect to any portion of Confidential Information shall terminate when such
party can document that: (a) it was in the public domain at or subsequent to the
time it was communicated to such party by the disclosing party through no fault
of the receiving party; (b) it was rightfully in the receiving party's
possession free of any obligation of confidence at or subsequent to the time it
was communicated to the receiving party independently of and without reference
to any information communicated to the recipient party by the disclosing party;
or (c) the communication was in response to a valid order by a court or other
governmental body, was otherwise required by law, or was necessary to establish
the rights of either party under this Agreement.
5.4 Disclosure of Third Party Information. Neither party shall
-------------------------------------
communicate any information to the other in violation of the proprietary rights
of any third party.
6. Term. The initial term of this Agreement shall be for a period of two (2)
----
years from the Effective Date. This Agreement shall automatically extend for an
additional term of one (1) year each unless either party provides written notice
of intent not to renew at least 90 days prior to expiration of the initial term.
7. Termination. Either party may terminate this Agreement for any material
-----------
breach by the other party which has not been substantially cured within 30 days
after such party's receipt of written notice of breach from the other party.
8. Limitation of Liability. Neither party shall be liable to the other party
-----------------------
for its failure or delay in performance of its obligations under this Agreement
due to circumstances beyond its reasonable control. In no event shall a party be
liable to the other party for any incidental or consequential damages including,
without limitation, loss of use, loss of profits or other consequential damages,
even though it may have been advised of the possibility of such damages.
4
<PAGE>
9. Miscellaneous Terms.
-------------------
9.1 Notices. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be delivered as follows with notice deemed given as
indicated: (i) by personal delivery when delivered personally; (ii) by overnight
courier upon written verification of receipt; (iii) by telecopy or facsimile
transmission upon acknowledgement of receipt of electronic transmission; or (iv)
by certified or registered mail, return receipt requested, upon verification of
receipt. Notice shall be sent to the address set forth below or such other
address as either party may specify in writing.
9.2 Successors and Assigns. Neither party may assign or subcontract any
----------------------
of their obligations under this Agreement without the other party's prior
written consent. Subject to the foregoing, this Agreement will be for the
benefit of each party's successors and assigns.
9.3 Survival. The rights and obligations set forth in Sections 3, 4, 5, 8
--------
and 9 hereof shall survive the expiration or earlier termination of this
Agreement.
9.4 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the United States of America and by the laws of the State of
California, as such laws are applied to agreements entered into and to be
performed entirely within California between California residents.
9.5 Binding Arbitration. Any dispute arising out of this Agreement shall
-------------------
be resolved by binding arbitration under the rules of Judicial Arbitration and
Mediation Services in San Diego, California (hereinafter "JAMS"). A single
arbitrator shall be selected according to JAMS rules within thirty (30) days of
submission of the dispute to JAMS. The arbitrator shall conduct the arbitration
in accordance with the California Evidence Code. The arbitrator shall have the
power to enter any award that could be entered by a judge sitting without a jury
other than punitive damages, treble damages or any other non compensatory
damages even if permitted under the laws of the Sate of California. The
arbitrator shall award the prevailing party its costs and its reasonable
attorneys' fees in an amount not to exceed 20% of the damages awarded. The
arbitration award may be enforced in any court having jurisdiction over the
parties and the subject matter of arbitration. Notwithstanding the foregoing,
the parties irrevocably submit to the non-exclusive jurisdiction of the Superior
Court of the State of California, San Diego County, and the United States
District Court for the Southern District of California, San Diego Branch and the
Superior and Municipal Courts of the Sate of California, San Diego County in any
action to enforce an arbitration award.
9.6 Waiver. The waiver by either party of a breach of any provision of
------
this Agreement by the other party shall not operate or be construed as a waiver
of any other or subsequent breach by the other party.
9.7 Relationship of Parties. Nothing in this Agreement is intended to, or
-----------------------
should be construed to, create a partnership, agency or joint venture between
the parties. Neither party is authorized to make any representation, contract
or commitment on behalf of the other party unless specifically authorized in
writing by the other party.
5
<PAGE>
9.8 Severability. Should any provisions of this Agreement be held by a
------------
court of law to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining provisions of this Agreement shall not be
affected or impaired thereby. Each party agrees to replace any invalid
provision with a modified provision that most closely approximates the intent
and economic effect of the invalid provision.
9.9 Entire Agreement. This agreement constitutes the entire agreement
----------------
between the parties relating to the subject matter hereof and supersedes all
prior or contemporaneous oral or written agreements concerning such subject
matter. 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. Facsimile signatures shall be deemed to be original
signatures.
In Witness Whereof, the parties hereto have executed this Agreement as of
the Effective Date.
STT: NEOPOINT:
GRIP, Inc. NeoPoint, Inc.
A California corporation a California corporation
d.b.a. "Select Tee Times"
By: ____________________________ By: ___________________________
Eric P. Campbell, President William Y. Son, President
Date: __________________________ Date: _________________________
Address: 6210 Marindustry Drive Address: 4225 Executive Square, Suite 600
San Diego, CA 92121 La Jolla, CA 92037
Tel. No.: (619) 638-4555 Tel. No.: (858) 678-3021
Fax No.: (619) 638-4556 Fax No.: (858) 458-9588
6
<PAGE>
EXHIBIT 10.8
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made as of the 20th day of
September 1999 (the "Effective Date") by and between NeoPoint, Inc., a
California corporation ("Company") and Transpac Nominees Pte Ltd.
("Consultant").
WHEREAS, Consultant has contacts with potential manufacturers, suppliers
and financing sources specializing in assisting wireless companies.
WHEREAS, Consultant is a holder of the Company's Series B Preferred Stock
and has been providing Company on an informal basis with certain consulting
services since its initial purchase of the Company's Series B Preferred Stock
and a representative of Consultant is a member of the Company's Board of
Directors (the "Director").
WHEREAS, the Board of Directors of the Company has recognized the value of
the services performed by Consultant to date and desires to induce Consultant to
continue performing such services through December 31, 1999.
WHEREAS, the Board has authorized the issuance to Consultant of an Option
to Purchase 600,000 shares of the Company's Series C Preferred Stock as sole and
complete consideration for the services performed to date and the additional
services to be performed pursuant to the terms of this Agreement.
1. Engagement of Services. Consultant shall perform certain financial
----------------------
consulting services to assist the Company in accessing financing and
manufacturing relationships in Asia (hereinafter, the "Services") to support the
Company's development and commercialization of wireless devices. The Services
shall be performed with promptness and diligence in a thorough and workmanlike
manner to the satisfaction of the Company. None of the Services shall be
provided by the Director.
2. Compensation. As exclusive payment for the Services during the term
------------
of this Agreement and as payment in full of all prior services performed by
Consultant on behalf of Company, Company shall issue to Consultant an option to
purchase 600,000 shares of Series C Preferred Stock on the terms and in
substantially the form attached hereto as Exhibit "A."
3. Independent Contractor Relationship. Consultant's relationship with
-----------------------------------
Company is that of an independent contractor, and nothing in this Agreement is
intended to, or should be construed to, create a partnership, agency, joint
venture or employment relationship. Consultant will not be entitled to any of
the benefits which Company may make available to its employees, including, but
not limited to, group health or life insurance, profit-sharing or retirement
benefits. Consultant is not authorized to make any representation, contract or
commitment on behalf of Company unless specifically requested or authorized in
writing to do so by a Company officer. Consultant is solely responsible for, and
will file, on a timely basis, all applicable tax returns and payments required
to be filed with, or made to, any U.S. or Taiwanese federal, state or local tax
authority with respect to the performance of services and receipt of
consideration under this Agreement. Consultant is solely responsible for, and
must maintain adequate records of, expenses incurred in the course of
1
<PAGE>
performing services under this Agreement. No part of Consultant's compensation
will be subject to withholding by Company for the payment of any U.S. or
Taiwanese social security, federal, state or any other employee payroll taxes.
4. Confidential Information.
------------------------
4.1 Non-Disclosure.
--------------
(a) Definition of Confidential Information. "Confidential Information" as
--------------------------------------
used in this Agreement shall mean any and all technical and non-technical
information including patent, copyright, trade secret, and proprietary
information, techniques, sketches, drawings, models, inventions, know-how,
processes, apparatus, equipment, algorithms, software programs, software source
documents, and formulae related to the current, future and proposed products and
services of Company, its suppliers and customers, and includes, without
limitation, its respective information concerning research, experimental work,
development, design details and specifications, engineering, financial
information, procurement requirements, purchasing, manufacturing, customer
lists, business forecasts, sales and merchandising and marketing plans and
information and provided specifically for the purposes of performing the
Services under this Agreement.
(b) Nondisclosure and Nonuse Obligations. Consultant acknowledges and
------------------------------------
agrees that Consultant will have access to certain Confidential Information of
Company and agrees to use the Confidential Information solely to perform the
Services for the benefit of Company. Consultant agrees that it shall treat all
Confidential Information of Company with the same degree of care as it accords
to its own Confidential Information, and Consultant represents that it exercises
reasonable care to protects its own Confidential Information. Consultant will
immediately give notice to Company of any unauthorized use or disclosure of the
Confidential Information. Consultant agrees to assist Company in remedying any
such unauthorized use or disclosure of the Confidential Information.
(c) Exclusions from Nondisclosure and Nonuse Obligations. Consultant's
----------------------------------------------------
obligations under Section 4.1(b) ("Nondisclosure and Nonuse Obligations") with
respect to any portion of Confidential Information shall terminate when
Consultant can document that: (a) it was in the public domain at or subsequent
to the time it was communicated to Consultant by the disclosing party through no
fault of Consultant; (b) it was rightfully in Consultant's possession free of
any obligation of confidence at or subsequent to the time it was communicated to
Consultant by the disclosing party; (c) it was developed by employees or agents
of Consultant independently of and without reference to any information
communicated to Consultant by the disclosing party; or (d) the communication was
in response to a valid order by a court or other governmental body, was
otherwise required by law, or was necessary to establish the rights of either
party under this Agreement.
4.2 Return of Company's Property. All Confidential Information,
----------------------------
equipment and other materials (including, without limitation, documents,
drawings, models, apparatus, sketches, designs and lists) furnished to
Consultant by Company, whether delivered to Consultant by Company in connection
with this Agreement or made by Consultant in the performance of services under
this Agreement (the "Company Property") are the sole and exclusive property of
Company or its
-2-
<PAGE>
suppliers or customers. Consultant agrees to promptly deliver the Company
Property to Company at any time upon Company's request or upon termination of
this Agreement.
5. Term and Termination.
--------------------
5.1 Term. This Agreement is effective as of the Effective Date
----
set forth above and will terminate on December 31, 1999.
5.2 Survival. The rights and obligations contained in Section 4
--------
("Confidential Information") and Section 6 ("Noninterference with Business")
will survive any termination or expiration of this Agreement.
6. Noninterference with Business. During the term of this Agreement and
-----------------------------
for a period of twelve (12) months thereafter, Consultant may not directly or
indirectly, without the prior written consent of Company, solicit, encourage,
hire or take any other action which is intended to induce or encourage, or has
the effect of inducing or encouraging, any employee or consultant of Company to
terminate his or her employment or consulting relationship with Company.
7. General Provisions.
------------------
7.1 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (i) by personal delivery when delivered personally; (ii) by
overnight courier upon written verification of receipt; (iii) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission; or (iv) by certified or registered mail, return receipt requested,
upon verification of receipt. Notice shall be sent to the addresses set forth
below or such other address as either party may specify in writing.
7.2 Successors and Assigns. Consultant may not subcontract or
----------------------
otherwise delegate its obligations under this Agreement without Company's prior
written consent. Subject to the foregoing, this Agreement will be for the
benefit of Company's successors and assigns, and will be binding on Consultant's
assignees.
7.3 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the United States of America and by the laws of the State of
California, as such laws are applied to agreements entered into and to be
performed entirely within California between California residents.
7.4 Choice of Forum. The parties hereby submit to the jurisdiction
---------------
of, and waive any venue objections against, the United States District Court for
the Southern District of California, San Diego Branch and the Superior and
Municipal Courts of the State of California, San Diego County, in any litigation
arising out of the Agreement.
7.5 Waiver of Jury Trial. In the event any litigation arising from
--------------------
or related to this Agreement ensues, each of the parties hereto expressly waives
any right to a jury trial to which each of the parties otherwise would have been
entitled.
-3-
<PAGE>
7.6 Severability. Should any provisions of this Agreement be held
------------
by a court of law to be illegal, invalid or unenforceable, the legality,
validity and enforceability of the remaining provisions of this Agreement shall
not be affected or impaired thereby.
7.7 Waiver. The waiver by Company of a breach of any provision of
------
Agreement by Consultant shall not operate or be construed as a waiver of any
other or subsequent breach by Consultant.
7.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties relating to this subject matter and supersedes
all prior or contemporaneous oral or written agreements concerning such subject
matter. The terms of this Agreement will govern all services undertaken by
Consultant for Company. This Agreement may only be changed by mutual agreement
of authorized representatives of the parties in writing.
Signature Page to Follow
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
COMPANY: CONSULTANT:
NEOPOINT, INC., TRANSPAC NOMINEES PTE LTD.
a California corporation
By:_________________________________ By:______________________________
Title:______________________________ Title:___________________________
Address: Address:
4225 Executive Square, 6/th/ Floor
San Diego, CA 92037
[Signature Page to Consulting Agreement]
-5-
<PAGE>
EXHIBIT 10.9
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THIS WARRANT (AND ANY SECURITIES ISSUABLE UPON
EXERCISE HEREOF) MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM. NO TRANSFER OF THIS WARRANT OR SUCH
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED.
______________
NEOPOINT, INC.
STOCK SUBSCRIPTION WARRANT
June 4, 1999
THIS CERTIFIES that SPRINT SPECTRUM L.P., a Delaware limited
partnership (the "Investor"), or its registered assigns, is entitled to
--------
subscribe for and purchase from NEOPOINT, INC., a California corporation (the
"Corporation"), 379,693 shares (the "Warrant Shares") of common stock of the
----------- --------------
Corporation (the "Common Stock"), at the price (the "Warrant Price") of $2.50
------------ -------------
per share, at any time or from time to time during the period commencing on the
date hereof and ending on the fifth anniversary of the date hereof (the
"Exercise Period"), on the terms and subject to the conditions hereof. The
---------------
Investor and any registered assigns thereof are referred to as the "Holder." The
number of Warrant Shares and the Warrant Price are subject to adjustment, as
provided in herein.
This Warrant is issued pursuant to the CDMA PCS Subscriber Unit Supply
Agreement dated as of June 4, 1999 between Sprint Spectrum Equipment Company,
L.P., a Delaware limited partnership, and the Corporation.
Section 1. Exercise of Warrant.
-------------------
(a) The rights represented by this Warrant may be exercised (a
"Warrant Exercise") by the Holder, in whole or in part at any time during the
----------------
Exercise Period, but not as to any fractional share of Common Stock, by the
surrender of this Warrant, accompanied by a properly completed and executed
Notice of Exercise in the form attached hereto and payment of the Warrant Price
at the offices of the Corporation set forth in Section 8. At the option of the
Holder, the Warrant Price shall be payable:
(i) in cash or by certified or official bank check payable to
the order of the Corporation; or
(ii) by delivery of this Warrant to the Corporation for
cancellation in accordance with the further provisions of this Section
1(a)(ii). In exchange for the portion of this Warrant that is being
exercised at such time, the Holder shall receive the number of shares of
Common Stock determined by multiplying (A) the number of shares of Common
Stock for which this Warrant is being exercised at such time by (B) a
fraction, (1) the numerator of which shall be the difference between (x)
current market price per share of Common Stock (as determined in good faith
by the Corporation's
<PAGE>
Board of Directors after giving affect to any applicable illiquidity and/or
minority interest discounts) at such time and (y) the Warrant Price per
share of Common Stock, and (2) the denominator of which shall be the
current market price per share of Common Stock at such time (as determined
in good faith by the Corporation's Board of Directors after giving affect
to any applicable illiquidity and/or minority interest discounts). The
Corporation shall issue a new warrant for the portion, if any, of this
Warrant not being exercised as provided in Section 1(c).
(b) The closing of any Warrant Exercise shall take place at the
offices of the Corporation on the date specified in the Notice of Exercise (the
"Exercise Date"), which shall be within five days after the delivery of such
-------------
Notice of Exercise. At such closing, (i) the Corporation shall issue and deliver
to the Holder or its designee a certificate or certificates for the Warrant
Shares to be issued upon such Warrant Exercise, registered in the name of the
Holder or such designee, and if such Warrant Exercise shall not have been for
all Warrant Shares, a new Warrant, registered in the name of the Holder, of like
tenor to this Warrant for the number of remaining Warrant Shares, and (ii) the
Holder shall deliver to the Corporation the aggregate Warrant Price.
(c) If this Warrant shall have been exercised only in part, the
Corporation shall, at the time of delivery of the certificate or certificates or
other evidence of ownership of the Common Stock, execute and deliver to the
Holder, without charge, a new warrant evidencing the rights of the Holder to
purchase the unpurchased Common Stock called for by this Warrant, which new
warrant shall in all other respects be identical to this Warrant.
Section 2. Record Date.
-----------
The person in whose name any certificate for shares of Common Stock is
issued upon any Warrant Exercise or Warrant Exchange shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the Warrant was surrendered and payment of the Warrant Price and any applicable
tax was made, irrespective of the date of such certificate; provided, however,
-------- -------
that if the date of such surrender and payment is a date when the stock transfer
books of the Corporation 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.
Section 3. Reservation of Common Stock; Covenants as to Common Stock.
---------------------------------------------------------
The Corporation has duly reserved, and shall at all times duly
reserve, a sufficient number of shares of authorized Common Stock for issuance
upon exercise or exchange of this Warrant. Upon issuance, sale and delivery of
any Warrant Shares, such Warrant Shares shall be validly issued and outstanding,
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issuance thereof, and shall not be subject to preemptive or any
similar rights of any person or entity. Without limiting the generality of the
foregoing, the Corporation shall take all such action as may be necessary to
ensure that the stated or par value per share of Common Stock is at all times
equal to or less than the Warrant Price then in effect. The Corporation
covenants and agrees that if any shares of capital stock to be reserved for the
purpose of the issuance of shares of Common Stock upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any
-2-
<PAGE>
Federal or state law before such shares may be validly issued or delivered upon
exercise, then the Corporation will in good faith and expeditiously as possible
endeavor to secure such registration or approval, as the case may be. If and so
long as the Common Stock issuable upon the exercise of this Warrant is listed on
any national securities exchange, the Corporation will, if permitted by the
rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of such capital stock.
Section 4. Adjustment of Warrant Price.
---------------------------
(a) If, at any time during the Exercise Period, the number of
outstanding shares of Common Stock is (i) increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, or (ii) decreased by a combination of shares of Common Stock, then,
following the record date fixed for the determination of holders of Common Stock
entitled to receive the benefits of such stock dividend, subdivision, split-up,
or combination, as the case may be, the Warrant Price shall be adjusted to a new
amount equal to the product of (A) the Warrant Price in effect on such record
date and (B) the quotient obtained by dividing (x) the number of shares of
Common Stock outstanding on such record date (without giving effect to the event
referred to in the foregoing clause (i) or (ii)) by (y) the number of shares of
Common Stock which would be outstanding immediately after the event referred to
in the foregoing clause (i) or (ii), if such event had occurred immediately
following such record date.
(b) If, at any time during the Exercise Period, the Corporation shall
issue or be deemed to have issued (as provided below) shares of Common Stock or
any warrant or other securities exercisable for shares of Common Stock without
consideration or for a consideration per share less than the Warrant Price in
effect immediately prior to such issuance or deemed issuance, then such Warrant
Price shall be lowered, effective as of the date of such issuance, to a price
equal to the quotient obtained by dividing (i) an amount equal to the sum of (A)
the product of (x) the number of shares of Common Stock outstanding immediately
prior to such issuance or deemed issuance and (y) the then existing Warrant
Price, and (B) the total consideration received or deemed received by the
Corporation upon such issuance or deemed issuance, by (ii) the total number of
shares of Common Stock outstanding immediately after such issuance or deemed
issuance. For the purposes of any adjustment of the Warrant Price pursuant to
this paragraph, the following provisions shall be applicable:
(i) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor
without deducting therefrom any discounts, commissions or other expenses
allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with such issuance.
(ii) In the case of the issuance of Common Stock for no
consideration, the consideration shall be deemed to be $.01 per share.
(iii) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
by the Board of Directors of the Corporation, irrespective of any
accounting treatment.
-3-
<PAGE>
(iv) In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable securities:
(A) The shares of Common Stock deliverable upon exercise of such
options to purchase, or rights to subscribe for, Common Stock shall be
deemed to have been issued at the time such options or rights were issued
and for a consideration equal to the consideration (determined in the
manner provided in clauses (i) through (iii) above), if any, received by
the Corporation upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the Common
Stock covered thereby.
(B) The shares of Common Stock deliverable upon conversion of,
or in exchange for, any such convertible or exchangeable securities or upon
the exercise of options to purchase, or rights to subscribe for, such
convertible or exchangeable securities and subsequent conversions or
exchanges thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the Corporation for
any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends) plus the
additional consideration, if any, to be received by the Corporation upon
the conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be determined
in the manner provided in clauses (i) through (iii) above).
(C) Upon any change in the exercise price or number of shares of
Common Stock deliverable upon exercise of any such options or rights of
conversion of, or exchange for, such convertible or exchangeable securities
(including any such change resulting from the termination of any such
options, rights, or securities), other than a change resulting from the
antidilution provisions thereof, the Warrant Price shall be readjusted to
such Warrant Price as would have obtained had the adjustment made upon the
issuance of such options, rights or securities not converted prior to such
change been made upon the basis of such change.
(D) No further adjustments of the Warrant Price shall be made
upon the actual issuance of such Common Stock or of such convertible or
exchangeable securities, upon exercise of such options or rights, or upon
the actual issuance of such Common Stock upon conversion or exchange of
such convertible or exchangeable securities.
(v) No adjustment shall be made to the Warrant Price for any issuance
of Common Stock to employees, officers, directors or consultants pursuant to the
Corporation's Board approved stock option plans.
(c) All calculations under this Section 4 shall be made to the nearest one
hundredths (1/100) of a cent.
-4-
<PAGE>
(d) Whenever the Warrant Price shall be adjusted as provided above, the
Corporation shall deliver to the Holder a statement, signed by its chief
financial officer, showing in detail the facts requiring such adjustment and the
Warrant Price that shall be in effect after such adjustment.
Section 5. Adjustment of Warrant Shares.
----------------------------
(a) Upon each adjustment of the Warrant Price as provided in Section
4, the Holder shall thereafter be entitled to subscribe for and purchase, at the
Warrant Price resulting from such adjustment, the number of Warrant Shares equal
to the product of (i) the number of Warrant Shares existing prior to such
adjustment and (ii) the quotient obtained by dividing (A) the Warrant Price
existing prior to such adjustment by (B) the new Warrant Price resulting from
such adjustment. No fractional shares of Common Stock shall be issued upon
exercise of this Warrant. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon exercise of this Warrant, the Holder may deduct
from the aggregate Warrant Price an amount equal to the product of (i) the fair
market value of one share of Common Stock as determined in good faith by the
Holder and (ii) such fractional interest.
(b) Following any recapitalization, reorganization, reclassification,
consolidation, merger or the conveyance of all or substantially all of the
assets of the Corporation pursuant to which the holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock (each, an
"Organic Change") during the Exercise Period, this Warrant shall represent the
--------------
right to subscribe for and purchase the kind and number of shares of capital
stock or other securities or property which the Holder would have owned or have
been entitled to receive with respect to each Warrant Share had this Warrant
been exercised immediately prior to such Organic Change. The foregoing provision
shall similarly apply to successive Organic Changes.
Section 6. Transfer, Division and Combination.
----------------------------------
(a) Subject to the restrictions on transfer set forth herein, this Warrant
and all rights hereunder are assignable and transferable, in whole or in part,
without the consent of the Corporation. Any transfer shall be effected by the
Holder in person or by duly authorized attorney by surrendering this Warrant,
properly endorsed, at the offices of the Corporation. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed, in blank, shall be deemed negotiable, and, when so
endorsed, the holder hereof may be treated by the Corporation and all other
persons dealing with this Warrant as the absolute owner hereof for any purposes
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Corporation, any notice to the
contrary notwithstanding; provided, however, that until such transfer is on such
-------- -------
books, the Corporation may treat the registered holder hereof as the owner
hereof for all purposes. Notwithstanding anything contained herein to the
contrary for the first two (2) years from and after the date hereof (and only
for such two (2) year period) the Investor and any subsequent Holder may not
assign, transfer or sell this Warrant or the Warrant Shares issuable hereunder
to any party other than a person or entity controlled by or under common control
with the ultimate corporate parent of the Investor.
-5-
<PAGE>
(b) This Warrant may be exchanged for, or combined with, other
warrants upon presentation of this Warrant and any other warrants with which
this Warrant is to be combined to the Corporation, together with a written
notice specifying the denominations in which a new Warrant or Warrants are to be
issued, signed by the Holder. The Corporation shall execute and deliver a new
warrant or warrants to the Holder in exchange for the warrant or warrants to be
divided or combined in accordance with such notice.
Section 7. Right of First Refusal.
----------------------
(a) Notice of Transfer. In the event that the Holder proposes to
------------------
sell, assign, pledge, encumber, transfer or otherwise dispose of ("Transfer")
the Warrant or any shares issued upon exercise of the Warrant (collectively, the
"Shares") during the third or fourth years from and after the date hereof to any
party other than a person or entity controlled by or under common control with
the ultimate corporate parent of the Holder, the Holder shall give the
Corporation written notice of its intention ("Transfer Notice"), describing the
offered Shares ("Offered Shares"), the identity of the prospective transferee,
the consideration and the material terms and conditions upon which the proposed
Transfer is to be made.
(b) Right of First Refusal. With respect to any proposed Transfer,
----------------------
the Corporation shall have an option to purchase all or none of the Offered
Shares (the "Right of First Refusal"). To exercise the Right of First Refusal,
the Corporation must notify the Holder in writing of its decision to exercise
such option before the expiration of the ten (10) business day period following
the delivery of the Transfer Notice to the Corporation. If the Corporation
elects to purchase the Offered Shares, it shall pay consideration for the
Offered Shares no less favorable in price and material terms and conditions than
are described in the Transfer Notice.
(c) Closing Procedures. If the Corporation exercises the Right to
------------------
First Refusal, the Corporation and the Holder shall consummate the sale of the
Offered Shares on the terms set forth in the Transfer Notice by the date ten
(10) business days after the delivery of the Transfer Notice to the Corporation.
If the Corporation fails to exercise in full the Right of First Refusal on a
timely basis, then the Holder may, conclude the Transfer on the terms and
conditions described in the Transfer Notice.
(d) Termination of Right. The Right of First Refusal shall
--------------------
terminate at such time as public market exists for the Corporation's Common
Stock (or any other stock issued by the Corporation, or any successor, in
exchange for the Stock). For the purpose of this Agreement, a "public market"
shall be deemed to exist if (i) such stock is listed on a national securities
exchange (as that term is used in the Securities Exchange Act of 1934) or (ii)
such stock is traded on the over-the-counter market and prices therefore are
published daily on business days in a recognized financial journal.
(e) Legends. All certificates representing any Shares subject to
-------
the provisions of this Warrant shall have endorsed thereon the following
legends:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION OR ITS
ASSIGNEE, AND OTHER RESTRICTIONS ON TRANSFER SET FORTH IN A STOCK
SUBSCRIPTION WARRANT ISSUED BY THE CORPORATION TO
-6-
<PAGE>
THE REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION."
(ii) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES,
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT OR IS OTHERWISE
EXEMPT FROM REGISTRATION."
(iii) Any legend required to be placed thereon by the
California Commissioner of Corporations.
Section 8. Office of the Corporation.
-------------------------
So long as this Warrant remains outstanding, the Corporation shall
maintain an office in the continental United States where the Warrant may be
presented for exercise, transfer, division or combination as provided in this
Warrant. Such office shall be at 4225 Executive Drive, Suite 600, La Jolla,
California 92037, unless and until the Corporation shall designate and maintain
some other office for such purposes and give notice thereof to the Holder.
Section 9. Lost, Stolen, Mutilated or Destroyed Warrant.
--------------------------------------------
If this Warrant is lost, stolen, mutilated or destroyed, the
Corporation shall, on such terms as to indemnity or otherwise as it may in its
reasonable discretion impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like denomination and
tenor as the Warrant so lost, stolen, mutilated or destroyed.
Section 10. Transfer Taxes; Expenses.
------------------------
The Corporation shall pay all transfer taxes, stamp duties, and
similar taxes or fees payable in connection with any exercise or exchange of
this Warrant.
Section 11. Limitation of Liability.
-----------------------
Except as otherwise provided herein, this Warrant does not entitle the
Holder to any voting rights or other rights of a shareholder of the Corporation.
No provision hereof, in the absence of affirmative action by the Holder to
purchase shares of the Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price or as a shareholder of the Corporation, whether
such liability is asserted by the Corporation, by any creditor of the
Corporation or any other person.
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<PAGE>
Section 12. Capitalization Representation.
-----------------------------
The authorized capital stock of the Corporation is 35,000,000 shares
of Common Stock, of which 2,158,000 shares are issued and outstanding and
18,000,000 shares of Preferred Stock issuable in series, of which (i) 6,700,000
shares are designated Series A Preferred Stock, 6,366,667 shares of which are
issued and outstanding; and (ii) 6,000,000 shares are designated Series B
Preferred Stock, 4,100,000 shares of which are issued and outstanding. All such
issued and outstanding shares have been duly authorized and validly issued, are
fully paid and nonassessable, and were issued in compliance with all applicable
state and federal laws concerning the issuance of securities. The Corporation
has reserved 6,700,000 shares of Common Stock for issuance upon the conversion
of Series A Preferred Stock, 6,000,000 shares of Common Stock for issuance upon
the conversion of Series B Preferred Stock, 759,386 shares of Common Stock for
issuance pursuant to the exercise of outstanding Common Stock purchase warrants,
and 5,140,614 shares of Common Stock for issuance to employees, directors, and
consultants pursuant to its 1998 Stock Option Plan. Upon their issuance in
accordance with this Warrant, the Warrant Shares issuable hereunder shall be
duly authorized, validly issued, fully-paid and non-assessable shares of Common
Stock.
Section 13. Governing Law.
-------------
This Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to the principles governing
conflicts of laws.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant on the
date first above written.
NEOPOINT, INC.
By:_______________________________
Name: William Son
Title: President
<PAGE>
NOTICE OF EXERCISE
(To be executed by the Holder
in order to exercise the Warrant.)
The undersigned hereby irrevocably elects to exercise the right
to purchase shares of Common Stock of NEOPOINT, INC., covered by this Warrant
according to the conditions thereof. The undersigned desires to consummate such
purchase on
_______________.
Dated: _________________________________
Name of Holder
By:______________________________
<PAGE>
EXHIBIT 10.10
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THIS WARRANT (AND ANY SECURITIES ISSUABLE UPON
EXERCISE HEREOF) MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM. NO TRANSFER OF THIS WARRANT OR SUCH
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED.
_____________
NEOPOINT, INC.
STOCK SUBSCRIPTION WARRANT
June 4, 1999
THIS CERTIFIES that SPRINT SPECTRUM L.P., a Delaware limited
partnership (the "Investor"), or its registered assigns, is entitled to
--------
subscribe for and purchase from NEOPOINT, INC., a California corporation (the
"Corporation"), 379,693 shares (the "Warrant Shares") of common stock of the
----------- --------------
Corporation (the "Common Stock"), at the price (the "Warrant Price") of $4.00
------------ -------------
per share, at any time or from time to time during the period commencing on and
after January 1, 2000 and ending on the January 1, 2005 (the "Exercise Period"),
---------------
on the terms and subject to the conditions hereof. The Investor and any
registered assigns thereof are referred to as the "Holder." The number of
Warrant Shares and the Warrant Price are subject to adjustment, as provided in
herein.
This Warrant is issued pursuant to the CDMA PCS Subscriber Unit Supply
Agreement dated as of June 4, 1999 between Sprint Spectrum Equipment Company,
L.P., a Delaware limited partnership, and the Corporation.
Section 1. Exercise of Warrant.
-------------------
(a) The rights represented by this Warrant may be exercised (a
"Warrant Exercise") by the Holder, in whole or in part at any time during the
----------------
Exercise Period, but not as to any fractional share of Common Stock, by the
surrender of this Warrant, accompanied by a properly completed and executed
Notice of Exercise in the form attached hereto and payment of the Warrant Price
at the offices of the Corporation set forth in Section 8. At the option of the
Holder, the Warrant Price shall be payable:
(i) in cash or by certified or official bank check payable to
the order of the Corporation; or
(ii) by delivery of this Warrant to the Corporation for
cancellation in accordance with the further provisions of this Section
1(a)(ii). In exchange for the portion of this Warrant that is being
exercised at such time, the Holder shall receive the number of shares of
Common Stock determined by multiplying (A) the number of shares of Common
Stock for which this Warrant is being exercised at such time by (B) a
fraction, (1) the numerator of which shall be the difference between (x)
current market price per share of Common Stock (as determined in good faith
by the Corporation's
<PAGE>
Board of Directors after giving affect to any applicable illiquidity and/or
minority interest discounts) at such time and (y) the Warrant Price per
share of Common Stock, and (2) the denominator of which shall be the
current market price per share of Common Stock at such time (as determined
in good faith by the Corporation's Board of Directors after giving affect
to any applicable illiquidity and/or minority interest discounts). The
Corporation shall issue a new warrant for the portion, if any, of this
Warrant not being exercised as provided in Section 1(c).
(b) The closing of any Warrant Exercise shall take place at the
offices of the Corporation on the date specified in the Notice of Exercise (the
"Exercise Date"), which shall be within five days after the delivery of such
-------------
Notice of Exercise. At such closing, (i) the Corporation shall issue and deliver
to the Holder or its designee a certificate or certificates for the Warrant
Shares to be issued upon such Warrant Exercise, registered in the name of the
Holder or such designee, and if such Warrant Exercise shall not have been for
all Warrant Shares, a new Warrant, registered in the name of the Holder, of like
tenor to this Warrant for the number of remaining Warrant Shares, and (ii) the
Holder shall deliver to the Corporation the aggregate Warrant Price.
(c) If this Warrant shall have been exercised only in part, the
Corporation shall, at the time of delivery of the certificate or certificates or
other evidence of ownership of the Common Stock, execute and deliver to the
Holder, without charge, a new warrant evidencing the rights of the Holder to
purchase the unpurchased Common Stock called for by this Warrant, which new
warrant shall in all other respects be identical to this Warrant.
Section 2. Record Date.
-----------
The person in whose name any certificate for shares of Common Stock is
issued upon any Warrant Exercise or Warrant Exchange shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the Warrant was surrendered and payment of the Warrant Price and any applicable
tax was made, irrespective of the date of such certificate; provided, however,
-------- -------
that if the date of such surrender and payment is a date when the stock transfer
books of the Corporation 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.
Section 3. Reservation of Common Stock; Covenants as to Common Stock.
---------------------------------------------------------
The Corporation has duly reserved, and shall at all times duly
reserve, a sufficient number of shares of authorized Common Stock for issuance
upon exercise or exchange of this Warrant. Upon issuance, sale and delivery of
any Warrant Shares, such Warrant Shares shall be validly issued and outstanding,
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issuance thereof, and shall not be subject to preemptive or any
similar rights of any person or entity. Without limiting the generality of the
foregoing, the Corporation shall take all such action as may be necessary to
ensure that the stated or par value per share of Common Stock is at all times
equal to or less than the Warrant Price then in effect. The Corporation
covenants and agrees that if any shares of capital stock to be reserved for the
purpose of the issuance of shares of Common Stock upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any
-2-
<PAGE>
Federal or state law before such shares may be validly issued or delivered upon
exercise, then the Corporation will in good faith and expeditiously as possible
endeavor to secure such registration or approval, as the case may be. If and so
long as the Common Stock issuable upon the exercise of this Warrant is listed on
any national securities exchange, the Corporation will, if permitted by the
rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of such capital stock.
Section 4. Adjustment of Warrant Price.
---------------------------
(a) If, at any time during the Exercise Period, the number of
outstanding shares of Common Stock is (i) increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, or (ii) decreased by a combination of shares of Common Stock, then,
following the record date fixed for the determination of holders of Common Stock
entitled to receive the benefits of such stock dividend, subdivision, split-up,
or combination, as the case may be, the Warrant Price shall be adjusted to a new
amount equal to the product of (A) the Warrant Price in effect on such record
date and (B) the quotient obtained by dividing (x) the number of shares of
Common Stock outstanding on such record date (without giving effect to the event
referred to in the foregoing clause (i) or (ii)) by (y) the number of shares of
Common Stock which would be outstanding immediately after the event referred to
in the foregoing clause (i) or (ii), if such event had occurred immediately
following such record date.
(b) If, at any time during the Exercise Period, the Corporation
shall issue or be deemed to have issued (as provided below) shares of Common
Stock or any warrant or other securities exercisable for shares of Common Stock
without consideration or for a consideration per share less than the Warrant
Price in effect immediately prior to such issuance or deemed issuance, then such
Warrant Price shall be lowered, effective as of the date of such issuance, to a
price equal to the quotient obtained by dividing (i) an amount equal to the sum
of (A) the product of (x) the number of shares of Common Stock outstanding
immediately prior to such issuance or deemed issuance and (y) the then existing
Warrant Price, and (B) the total consideration received or deemed received by
the Corporation upon such issuance or deemed issuance, by (ii) the total number
of shares of Common Stock outstanding immediately after such issuance or deemed
issuance. For the purposes of any adjustment of the Warrant Price pursuant to
this paragraph, the following provisions shall be applicable:
(i) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor
without deducting therefrom any discounts, commissions or other expenses
allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with such issuance.
(ii) In the case of the issuance of Common Stock for no
consideration, the consideration shall be deemed to be $.01 per share.
(iii) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
by the Board of Directors of the Corporation, irrespective of any
accounting treatment.
-3-
<PAGE>
(iv) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock, or options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(A) The shares of Common Stock deliverable upon exercise of
such options to purchase, or rights to subscribe for, Common Stock
shall be deemed to have been issued at the time such options or rights
were issued and for a consideration equal to the consideration
(determined in the manner provided in clauses (i) through (iii)
above), if any, received by the Corporation upon the issuance of such
options or rights plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby.
(B) The shares of Common Stock deliverable upon conversion
of, or in exchange for, any such convertible or exchangeable
securities or upon the exercise of options to purchase, or rights to
subscribe for, such convertible or exchangeable securities and
subsequent conversions or exchanges thereof shall be deemed to have
been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration
received by the Corporation for any such securities and related
options or rights (excluding any cash received on account of accrued
interest or accrued dividends) plus the additional consideration, if
any, to be received by the Corporation upon the conversion or exchange
of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner
provided in clauses (i) through (iii) above).
(C) Upon any change in the exercise price or number of
shares of Common Stock deliverable upon exercise of any such options
or rights of conversion of, or exchange for, such convertible or
exchangeable securities (including any such change resulting from the
termination of any such options, rights, or securities), other than a
change resulting from the antidilution provisions thereof, the Warrant
Price shall be readjusted to such Warrant Price as would have obtained
had the adjustment made upon the issuance of such options, rights or
securities not converted prior to such change been made upon the basis
of such change.
(D) No further adjustments of the Warrant Price shall be
made upon the actual issuance of such Common Stock or of such
convertible or exchangeable securities, upon exercise of such options
or rights, or upon the actual issuance of such Common Stock upon
conversion or exchange of such convertible or exchangeable securities.
(v) No adjustment shall be made to the Warrant Price for any
issuance of Common Stock to employees, officers, directors or consultants
pursuant to the Corporation's Board approved stock option plans.
(c) All calculations under this Section 4 shall be made to the
nearest one hundredths (1/100) of a cent.
-4-
<PAGE>
(d) Whenever the Warrant Price shall be adjusted as provided above,
the Corporation shall deliver to the Holder a statement, signed by its chief
financial officer, showing in detail the facts requiring such adjustment and the
Warrant Price that shall be in effect after such adjustment.
Section 5. Adjustment of Warrant Shares.
----------------------------
(a) Upon each adjustment of the Warrant Price as provided in Section
4, the Holder shall thereafter be entitled to subscribe for and purchase, at the
Warrant Price resulting from such adjustment, the number of Warrant Shares equal
to the product of (i) the number of Warrant Shares existing prior to such
adjustment and (ii) the quotient obtained by dividing (A) the Warrant Price
existing prior to such adjustment by (B) the new Warrant Price resulting from
such adjustment. No fractional shares of Common Stock shall be issued upon
exercise of this Warrant. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon exercise of this Warrant, the Holder may deduct
from the aggregate Warrant Price an amount equal to the product of (i) the fair
market value of one share of Common Stock as determined in good faith by the
Holder and (ii) such fractional interest.
(b) Following any recapitalization, reorganization, reclassification,
consolidation, merger or the conveyance of all or substantially all of the
assets of the Corporation pursuant to which the holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock (each, an
"Organic Change") during the Exercise Period, this Warrant shall represent the
--------------
right to subscribe for and purchase the kind and number of shares of capital
stock or other securities or property which the Holder would have owned or have
been entitled to receive with respect to each Warrant Share had this Warrant
been exercised immediately prior to such Organic Change. The foregoing provision
shall similarly apply to successive Organic Changes.
Section 6. Transfer, Division and Combination.
----------------------------------
(a) Subject to the restrictions on transfer set forth herein, this
Warrant and all rights hereunder are assignable and transferable, in whole or in
part, without the consent of the Corporation. Any transfer shall be effected by
the Holder in person or by duly authorized attorney by surrendering this
Warrant, properly endorsed, at the offices of the Corporation. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees that
this Warrant, when endorsed, in blank, shall be deemed negotiable, and, when so
endorsed, the holder hereof may be treated by the Corporation and all other
persons dealing with this Warrant as the absolute owner hereof for any purposes
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Corporation, any notice to the
contrary notwithstanding; provided, however, that until such transfer is on such
-------- -------
books, the Corporation may treat the registered holder hereof as the owner
hereof for all purposes. Notwithstanding anything contained herein to the
contrary for the first two (2) years from and after the date hereof (and only
for such two (2) year period) the Investor and any subsequent Holder may not
assign, transfer or sell this Warrant or the Warrant Shares issuable hereunder
to any party other than a person or entity controlled by or under common control
with the ultimate corporate parent of the Investor.
-5-
<PAGE>
(b) This Warrant may be exchanged for, or combined with, other
warrants upon presentation of this Warrant and any other warrants with which
this Warrant is to be combined to the Corporation, together with a written
notice specifying the denominations in which a new Warrant or Warrants are to be
issued, signed by the Holder. The Corporation shall execute and deliver a new
warrant or warrants to the Holder in exchange for the warrant or warrants to be
divided or combined in accordance with such notice.
Section 7. Right of First Refusal.
----------------------
(a) Notice of Transfer. In the event that the Holder proposes to
------------------
sell, assign, pledge, encumber, transfer or otherwise dispose of ("Transfer")
the Warrant or any shares issued upon exercise of the Warrant (collectively, the
"Shares") during the third or fourth years from and after the date hereof to any
party other than a person or entity controlled by or under common control with
the ultimate corporate parent of the Holder, the Holder shall give the
Corporation written notice of its intention ("Transfer Notice"), describing the
offered Shares ("Offered Shares"), the identity of the prospective transferee,
the consideration and the material terms and conditions upon which the proposed
Transfer is to be made.
(b) Right of First Refusal. With respect to any proposed Transfer,
----------------------
the Corporation shall have an option to purchase all or none of the Offered
Shares (the "Right of First Refusal"). To exercise the Right of First Refusal,
the Corporation must notify the Holder in writing of its decision to exercise
such option before the expiration of the ten (10) business day period following
the delivery of the Transfer Notice to the Corporation. If the Corporation
elects to purchase the Offered Shares, it shall pay consideration for the
Offered Shares no less favorable in price and material terms and conditions than
are described in the Transfer Notice.
(c) Closing Procedures. If the Corporation exercises the Right to
------------------
First Refusal, the Corporation and the Holder shall consummate the sale of the
Offered Shares on the terms set forth in the Transfer Notice by the date ten
(10) business days after the delivery of the Transfer Notice to the Corporation.
If the Corporation fails to exercise in full the Right of First Refusal on a
timely basis, then the Holder may, conclude the Transfer on the terms and
conditions described in the Transfer Notice.
(d) Termination of Right. The Right of First Refusal shall terminate
--------------------
at such time as public market exists for the Corporation's Common Stock (or any
other stock issued by the Corporation, or any successor, in exchange for the
Stock). For the purpose of this Agreement, a "public market" shall be deemed to
exist if (i) such stock is listed on a national securities exchange (as that
term is used in the Securities Exchange Act of 1934) or (ii) such stock is
traded on the over-the-counter market and prices therefore are published daily
on business days in a recognized financial journal.
(e) Legends. All certificates representing any Shares subject to the
-------
provisions of this Warrant shall have endorsed thereon the following legends:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE, AND
OTHER RESTRICTIONS ON TRANSFER SET FORTH IN A STOCK SUBSCRIPTION WARRANT
ISSUED BY THE CORPORATION TO
-6-
<PAGE>
THE REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION."
(ii) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT OR IS OTHERWISE EXEMPT FROM
REGISTRATION."
(iii) Any legend required to be placed thereon by the California
Commissioner of Corporations.
Section 8. Office of the Corporation.
-------------------------
So long as this Warrant remains outstanding, the Corporation shall
maintain an office in the continental United States where the Warrant may be
presented for exercise, transfer, division or combination as provided in this
Warrant. Such office shall be at 4225 Executive Drive, Suite 600, La Jolla,
California 92037, unless and until the Corporation shall designate and maintain
some other office for such purposes and give notice thereof to the Holder.
Section 9. Lost, Stolen, Mutilated or Destroyed Warrant.
--------------------------------------------
If this Warrant is lost, stolen, mutilated or destroyed, the
Corporation shall, on such terms as to indemnity or otherwise as it may in its
reasonable discretion impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like denomination and
tenor as the Warrant so lost, stolen, mutilated or destroyed.
Section 10. Transfer Taxes; Expenses.
------------------------
The Corporation shall pay all transfer taxes, stamp duties, and
similar taxes or fees payable in connection with any exercise or exchange of
this Warrant.
Section 11. Limitation of Liability.
-----------------------
Except as otherwise provided herein, this Warrant does not entitle the
Holder to any voting rights or other rights of a shareholder of the Corporation.
No provision hereof, in the absence of affirmative action by the Holder to
purchase shares of the Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price or as a shareholder of the Corporation, whether
such liability is asserted by the Corporation, by any creditor of the
Corporation or any other person.
-7-
<PAGE>
Section 12. Capitalization Representation.
-----------------------------
The authorized capital stock of the Corporation is 35,000,000 shares
of Common Stock, of which 2,158,000 shares are issued and outstanding and
18,000,000 shares of Preferred Stock issuable in series, of which (i) 6,700,000
shares are designated Series A Preferred Stock, 6,366,667 shares of which are
issued and outstanding; and (ii) 6,000,000 shares are designated Series B
Preferred Stock, 4,100,000 shares of which are issued and outstanding. All such
issued and outstanding shares have been duly authorized and validly issued, are
fully paid and nonassessable, and were issued in compliance with all applicable
state and federal laws concerning the issuance of securities. The Corporation
has reserved 6,700,000 shares of Common Stock for issuance upon the conversion
of Series A Preferred Stock, 6,000,000 shares of Common Stock for issuance upon
the conversion of Series B Preferred Stock, 759,386 shares of Common Stock for
issuance pursuant to the exercise of outstanding Common Stock purchase warrants,
and 5,140,614 shares of Common Stock for issuance to employees, directors, and
consultants pursuant to its 1998 Stock Option Plan. Upon their issuance in
accordance with this Warrant, the Warrant Shares issuable hereunder shall be
duly authorized, validly issued, fully-paid and non-assessable shares of Common
Stock.
Section 13. Governing Law.
-------------
This Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to the principles governing
conflicts of laws.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant on the
date first above written.
NEOPOINT, INC.
By:_____________________________________
Name: William Son
Title: President
<PAGE>
NOTICE OF EXERCISE
(To be executed by the Holder
in order to exercise the Warrant.)
The undersigned hereby irrevocably elects to exercise the right to
purchase shares of Common Stock of NEOPOINT, INC., covered by this Warrant
according to the conditions thereof. The undersigned desires to consummate such
purchase on _______________.
Dated: _________________________________
Name of Holder
By:______________________________
<PAGE>
EXHIBIT 10.11
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE
ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
NEOPOINT, INC.
SERIES C PREFERRED STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Transpac Nominees Pte Ltd.
("Holder") is entitled to purchase Seven Hundred Thousand (700,000) shares of
Series C Preferred Stock ("Warrant Shares") of NeoPoint, Inc., a California
corporation (the "Company"), at the Warrant Price (as defined in subsection 1(j)
below) of Six Dollars ($6.00), subject to adjustments and all other terms and
conditions set forth in this Warrant.
1. Definitions. As used herein, the following terms, unless the context
-----------
otherwise requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(b) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
(c) "Common Stock" shall mean shares of the Company's presently or
subsequently authorized Common Stock, and any stock into which such Common Stock
may hereafter be exchanged.
(d) "Company" shall mean NeoPoint, Inc., a California corporation,
and any corporation which shall succeed to or assume the obligations of
NeoPoint, Inc. under this Warrant.
(e) "Date of Grant" shall mean October 1, 1999.
(f) "Exercise Date" shall mean the effective date of the delivery of
the Notice of Exercise pursuant to Sections 3 and 10 below.
(g) "Holder" shall mean Transpac Nominees Pte Ltd. or any other
person or entity who shall at the time be the registered holder of this Warrant.
<PAGE>
(h) "Series C Preferred Stock" shall mean shares of the Company's
Series C Preferred Stock, as described in the Company's Amended and Restated
Articles of Incorporation.
(i) "Shares" shall mean shares of the Company's Series C Preferred
Stock, as described in the Company's Articles of Incorporation.
(j) "Warrant Price" shall mean $6.00 per share.
2. Term. The purchase right represented by this Warrant is exercisable
----
only during the period commencing upon the date hereof and ending on the earlier
of (i) January 31, 2001 or (ii) the closing of an initial public offering of the
Company's securities filed pursuant to a registration statement under the
Securities Act of 1933, as amended.
3. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in part, by
--------
the Holder hereof by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by the Holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company in the amount obtained by multiplying the
number of Warrant Shares for which this Warrant is being exercised by the
Warrant Price then in effect.
(b) Delivery of Certificate. In the event of any exercise of the
-----------------------
purchase right represented by this Warrant, certificates for the Warrant Shares
so purchased shall be delivered to the Holder within thirty (30) days of
delivery of the notice of exercise (the "Notice of Exercise") in the form of
Exhibit A attached hereto and, unless this Warrant has been fully exercised or
- ---------
has expired, a new warrant representing the portion of the Warrant Shares with
respect to which this Warrant shall not then have been exercised shall also be
issued to the Holder within such thirty (30) day period.
(c) No Fractional Shares. No fractional shares shall be issued in
--------------------
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Fair Market
Value of a share of Series C Preferred Stock as of the Exercise Date.
(d) Company's Representations.
-------------------------
(i) All Warrant Shares which may be issued upon the exercise of
the purchase right represented by this Warrant shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. During the period within
which the purchase right represented by this Warrant may be exercised, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of the purchase right represented by this Warrant, a
sufficient number of Shares to provide for the exercise of the purchase right
represented by this Warrant;
2
<PAGE>
(ii) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditors' rights;
(iii) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be inconsistent with the Articles of Incorporation, as the
same may be amended from time to time, or Bylaws, do not and will not contravene
any law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not conflict with or contravene any provision of,
or constitute a material default under, any material indenture, mortgage,
contract or other instrument of which the Company is a party or by which it is
bound or require the consent or approval of, the giving of notice to, the
registration or filing with or the taking of any action in respect of or by, any
federal, state or local government authority or agency (other than such
consents, approvals, notices, actions, filings, etc., as have already been
obtained or made, as the case may be).
4. Adjustment of Warrant Price and Number of Warrant Shares. The number
--------------------------------------------------------
of securities issuable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
---------------------------------
time to time the holders of Series C Preferred Stock of the Company (or any
shares of stock or other securities at the time receivable upon the exercise of
this Warrant) shall have received or, on or after the record date fixed for the
determination of eligible stockholders, shall have become entitled to receive,
without payment therefor, other or additional stock of the Company by way of
dividend then, and in each case, the Holder of this Warrant shall, upon the
exercise hereof, be entitled to receive, in addition to the number of Shares
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the Company which such
Holder would hold on the date of such exercise had it been the holder of record
of Shares on the date hereof and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and/or
all other additional stock receivable by it as aforesaid during such period,
giving effect to all adjustments called for during such period by subparagraphs
(b) and (c) of this Paragraph 5.
(b) Adjustment for Reclassification or Reorganization. In case of any
-------------------------------------------------
reclassification or change of the outstanding securities of the Company or of
any reorganization of the Company, then and in each such case the Holder of this
Warrant, upon the exercise hereof at any time after the consummation of such
reclassification, change, or reorganization, shall be entitled to receive, in
lieu of or in addition to the stock or other securities and property receivable
upon the exercise hereof prior to such consummation, the stock or other
securities to which such Holder would have been entitled upon such consummation
if such Holder had exercised this Warrant immediately prior thereto, all subject
to further adjustment as provided in subparagraphs (a) and (c); in each such
case, the terms of this Paragraph 5 shall be applicable to the shares of stock
or other securities and property receivable upon the exercise of this Warrant
after such consummation.
3
<PAGE>
(c) Stock Splits and Reverse Stock Splits. If the Company shall
-------------------------------------
subdivide its outstanding shares of Series C Preferred Stock into a greater
number of shares, the Warrant Price in effect immediately prior to such
subdivision shall thereby be proportionately reduced and the number of Shares
receivable upon exercise of this Warrant shall thereby be proportionately
increased; and, conversely, if the outstanding number of shares of Common Stock
shall be combined into a smaller number of shares, the Warrant Price in effect
immediately prior to such combination shall thereby be proportionately increased
and the number of Shares receivable upon exercise of the Warrant shall be
proportionately decreased.
5. Notices of Record Date, Etc. In the event of (a) any taking by the
---------------------------
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution (the "Distribution"), (b) any capital reorganization or
reclassification of the stated capital of the Company or any consolidation or
merger of the Company with any other corporation or corporations (other than a
wholly-owned subsidiary), or the sale or distribution of all or substantially
all of the Company's property and assets (the "Reorganization Event"), or (c)
any proposed filing of a registration statement under the Act in connection with
a primary public offering of the Company's Common Stock (the "Registration
Event"), the Company will mail or cause to be mailed to the Holder a notice
specifying (i) the date of any such Distribution stating the amount and
character of such Distribution, (ii) the date on which any such Reorganization
Event or Registration Event is expected to become effective, and (iii) the time,
if any, that is to be fixed as to when the holders of record of the Company's
securities shall be entitled to exchange their shares of the Company's
securities for securities or other property deliverable upon such Reorganization
Event. Such notice shall be mailed at least thirty (30) days prior to the date
therein specified.
6. Compliance with Act; Transferability and Negotiability of Warrant;
-----------------------------------------------------------------
Disposition of Shares.
- ---------------------
(a) Compliance with Act. The Holder, by acceptance hereof, agrees
-------------------
that this Warrant and the Shares to be issued upon the exercise hereof are being
acquired solely for its own account and not as a nominee for any other party and
not with a view toward the resale or distribution thereof and that it will not
offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon
the exercise hereof except under circumstances which will not result in a
violation of the Act. Upon the exercise of this Warrant, the Holder shall
confirm in writing, in a form satisfactory to the Company, that the Shares so
issued are being acquired solely for its own account and not as a nominee for
any other party and not with a view toward resale or distribution thereof in
violation of the Act. This Warrant and the Shares to be issued upon the exercise
hereof (unless registered under the Act and unless, in the case of the Shares,
such Shares may thereupon be sold pursuant to Commission Rule 144(k)) shall be
imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH
4
<PAGE>
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT.
In addition, this Warrant and the Shares to be issued upon the exercise
hereof shall bear any legends required by the securities laws of any applicable
states.
(b) Transferability and Negotiability of Warrant. This Warrant may
--------------------------------------------
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if requested by the
Company). Subject to the provisions of this Warrant with respect to compliance
with the Act, title to this Warrant may be transferred by endorsement and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery; provided, however, that prior to the Company's initial
public offering neither this Warrant nor the Shares purchasable with this
Warrant may be transferred to any entity or person which the Company reasonably
determines to be an actual competitor of the Company. The Company shall act
promptly to record transfers of this Warrant on its books, but the Company may
treat the registered holder of this Warrant as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(c) Disposition of Warrant Shares. With respect to any offer, sale,
-----------------------------
transfer or other disposition of any Shares acquired pursuant to the exercise of
this Warrant prior to registration of such Shares, the Holder and each
subsequent holder of this Warrant agrees to give written notice to the Company
prior thereto, describing briefly the manner thereof, together with a written
opinion of legal counsel for such holder, reasonably satisfactory to the Company
and its legal counsel, if requested by the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Act or any other federal or state securities laws) of
such Shares and indicating whether or not under the Act, certificates for such
Shares to be sold or otherwise disposed of require any restrictive legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify such Holder that such Holder may sell or otherwise dispose of such
Shares, all in accordance with the terms of the notice delivered to the Company.
If a determination has been made pursuant to this subsection (c) that the
opinion of legal counsel for the holder is not reasonably satisfactory to the
Company and its legal counsel, the Company shall so notify the holder promptly
after such determination has been made. Notwithstanding the foregoing, such
Shares may be offered, sold or otherwise disposed of in accordance with Rule
144, provided that the Company shall have been furnished with such information
as the Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 have been satisfied. Each certificate representing the
Shares thus transferred (except a transfer pursuant to Rule 144(k) or an
effective registration statement) shall bear a restrictive legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Act, unless in the aforesaid opinion of legal counsel for the holder, such
legend is not required in
5
<PAGE>
order to ensure compliance with the Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
7. Rights of Shareholders. No Holder shall be entitled to vote or receive
----------------------
dividends or be deemed the holder of Warrant Shares or any other securities of
the Company which may at any time be issuable on the exercise of this Warrant
for any purpose, nor shall anything contained herein be construed to confer upon
the Holder, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, consolidation, merger, transfer of assets or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Warrant Shares issuable upon exercise hereof shall have become
deliverable, as provided herein.
8. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
9. Exchange of Warrant. Subject to the other provisions of this Warrant,
-------------------
on surrender of this Warrant for exchange, properly endorsed and subject to the
provisions of this Warrant with respect to compliance with the Act, the Company
at its expense shall issue to or on the order of the Holder a new warrant or
warrants of like tenor, in the name of the Holder or as the Holder (on payment
by the Holder of any applicable transfer taxes) may direct, for the number of
Shares issuable upon exercise thereof.
10. Notices. All notices and other communications from the Company to the
-------
Holder, or vice versa, shall be deemed delivered and effective when given
personally or three days after being mailed by first-class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company or the Holder, as the case may be, in writing by the Company or such
Holder from time to time.
11. Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
12. Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California, as such laws are applied to
agreements entered into in California and to be performed solely by California
residents.
13. Titles and Subtitles; Forms of Pronouns. The titles of the Sections
---------------------------------------
and Subsections of this Warrant are for convenience only and are not to be
considered in construing this Warrant. All pronouns used in this Warrant shall
be deemed to include masculine, feminine and neuter forms.
6
<PAGE>
Dated: October 1, 1999
NEOPOINT, INC.
By: ____________________________________
William Y. Son, President
7
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
(To be signed only on exercise of Warrant)
TO: NEOPOINT, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, shares of
Series C Preferred Stock of NEOPOINT, INC. and herewith makes payment of
$ ________________ therefor in cash and requests that the certificates for such
shares be issued in the name of, and delivered to ______________________________
__________ whose address is ____________________________________________________
__________.
Dated: __________________________ ___________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
___________________________________
___________________________________
(Address)
<PAGE>
EXHIBIT 10.12
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE
ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
NEOPOINT, INC.
SERIES C PREFERRED STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Siemens Aktiengesellschaft
("Holder") is entitled to purchase One Million Five Hundred Thousand (1,500,000)
shares of Series C Preferred Stock ("Warrant Shares") of NeoPoint, Inc., a
California corporation (the "Company"), at the Warrant Price (as defined in
subsection 1(j) below) of Six Dollars ($6.00), subject to adjustments and all
other terms and conditions set forth in this Warrant.
1. Definitions. As used herein, the following terms, unless the context
-----------
otherwise requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(b) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
(c) "Common Stock" shall mean shares of the Company's presently or
subsequently authorized Common Stock, and any stock into which such Common Stock
may hereafter be exchanged.
(d) "Company" shall mean NeoPoint, Inc., a California corporation,
and any corporation which shall succeed to or assume the obligations of
NeoPoint, Inc. under this Warrant.
(e) "Date of Grant" shall mean December 3, 1999.
(f) "Exercise Date" shall mean the effective date of the delivery of
the Notice of Exercise pursuant to Sections 4 and 11 below.
(g) "Holder" shall mean Siemens Aktiengesellschaft or any other
person or entity who shall at the time be the registered holder of this Warrant.
<PAGE>
(h) "Series C Preferred Stock" shall mean shares of the Company's
Series C Preferred Stock, as described in the Company's Amended and Restated
Articles of Incorporation.
(i) "Shares" shall mean shares of the Company's Series C Preferred
Stock, as described in the Company's Articles of Incorporation .
(j) "Warrant Price" shall mean $6.00 per share.
2. Issuance of Warrant and Consideration Therefor. This Warrant is issued
----------------------------------------------
in consideration of the execution of that certain Series C Preferred Stock
Purchase Agreement dated October 7, 1999 and the purchase by Holder of the
Shares thereunder.
3. Term. The purchase right represented by this Warrant is exercisable
----
only during the period commencing upon the date hereof and ending on the earlier
of (i) January 31, 2001 or (ii) the closing of an initial public offering of the
Company's securities filed pursuant to a registration statement under the
Securities Act of 1933, as amended.
4. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in part, by
--------
the Holder hereof by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by the Holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company in the amount obtained by multiplying the
number of Warrant Shares for which this Warrant is being exercised by the
Warrant Price then in effect.
(b) Delivery of Certificate. In the event of any exercise of the
-----------------------
purchase right represented by this Warrant, certificates for the Warrant Shares
so purchased shall be delivered to the Holder within thirty (30) days of
delivery of the notice of exercise (the "Notice of Exercise") in the form of
Exhibit A attached hereto and, unless this Warrant has been fully exercised or
- ---------
has expired, a new warrant representing the portion of the Warrant Shares with
respect to which this Warrant shall not then have been exercised shall also be
issued to the Holder within such thirty (30) day period.
(c) No Fractional Shares. No fractional shares shall be issued in
--------------------
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Fair Market
Value of a share of Series C Preferred Stock as of the Exercise Date.
(d) Company's Representations.
-------------------------
(i) All Warrant Shares which may be issued upon the exercise
of the purchase right represented by this Warrant shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. During the period within
which the purchase right represented by this Warrant may be exercised, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon
2
<PAGE>
exercise of the purchase right represented by this Warrant, a sufficient number
of Shares to provide for the exercise of the purchase right represented by this
Warrant;
(ii) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditors' rights;
(iii) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be inconsistent with the Articles of Incorporation, as the
same may be amended from time to time, or Bylaws, do not and will not contravene
any law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not conflict with or contravene any provision of,
or constitute a material default under, any material indenture, mortgage,
contract or other instrument of which the Company is a party or by which it is
bound or require the consent or approval of, the giving of notice to, the
registration or filing with or the taking of any action in respect of or by, any
federal, state or local government authority or agency (other than such
consents, approvals, notices, actions, filings, etc., as have already been
obtained or made, as the case may be).
5. Adjustment of Warrant Price and Number of Warrant Shares. The number
--------------------------------------------------------
of securities issuable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
---------------------------------
time to time the holders of Series C Preferred Stock of the Company (or any
shares of stock or other securities at the time receivable upon the exercise of
this Warrant) shall have received or, on or after the record date fixed for the
determination of eligible stockholders, shall have become entitled to receive,
without payment therefor, other or additional stock of the Company by way of
dividend then, and in each case, the Holder of this Warrant shall, upon the
exercise hereof, be entitled to receive, in addition to the number of Shares
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the Company which such
Holder would hold on the date of such exercise had it been the holder of record
of Shares on the date hereof and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and/or
all other additional stock receivable by it as aforesaid during such period,
giving effect to all adjustments called for during such period by subparagraphs
(b) and (c) of this Paragraph 5.
(b) Adjustment for Reclassification or Reorganization. In case of any
-------------------------------------------------
reclassification or change of the outstanding securities of the Company or of
any reorganization of the Company, then and in each such case the Holder of this
Warrant, upon the exercise hereof at any time after the consummation of such
reclassification, change, or reorganization, shall be entitled to receive, in
lieu of or in addition to the stock or other securities and property receivable
upon the exercise hereof prior to such consummation, the stock or other
securities to which such Holder would have been entitled upon such consummation
if such Holder had exercised this Warrant immediately prior thereto, all subject
to further adjustment as provided in subparagraphs (a) and (c); in each such
case, the terms of this Paragraph 5 shall be applicable to the shares of
3
<PAGE>
stock or other securities and property receivable upon the exercise of this
Warrant after such consummation.
(c) Stock Splits and Reverse Stock Splits. If the Company shall
-------------------------------------
subdivide its outstanding shares of Series C Preferred Stock into a greater
number of shares, the Warrant Price in effect immediately prior to such
subdivision shall thereby be proportionately reduced and the number of Shares
receivable upon exercise of this Warrant shall thereby be proportionately
increased; and, conversely, if the outstanding number of shares of Common Stock
shall be combined into a smaller number of shares, the Warrant Price in effect
immediately prior to such combination shall thereby be proportionately increased
and the number of Shares receivable upon exercise of the Warrant shall be
proportionately decreased.
6. Notices of Record Date, Etc. In the event of (a) any taking by the
---------------------------
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution (the "Distribution"), (b) any capital reorganization or
reclassification of the stated capital of the Company or any consolidation or
merger of the Company with any other corporation or corporations (other than a
wholly-owned subsidiary), or the sale or distribution of all or substantially
all of the Company's property and assets (the "Reorganization Event"), or (c)
any proposed filing of a registration statement under the Act in connection with
a primary public offering of the Company's Common Stock (the "Registration
Event"), the Company will mail or cause to be mailed to the Holder a notice
specifying (i) the date of any such Distribution stating the amount and
character of such Distribution, (ii) the date on which any such Reorganization
Event or Registration Event is expected to become effective, and (iii) the time,
if any, that is to be fixed as to when the holders of record of the Company's
securities shall be entitled to exchange their shares of the Company's
securities for securities or other property deliverable upon such Reorganization
Event. Such notice shall be mailed at least thirty (30) days prior to the date
therein specified.
7. Compliance with Act; Transferability and Negotiability of Warrant;
------------------------------------------------------------------
Disposition of Shares.
- ---------------------
(a) Compliance with Act. The Holder, by acceptance hereof, agrees
-------------------
that this Warrant and the Shares to be issued upon the exercise hereof are being
acquired solely for its own account and not as a nominee for any other party and
not with a view toward the resale or distribution thereof and that it will not
offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon
the exercise hereof except under circumstances which will not result in a
violation of the Act. Upon the exercise of this Warrant, the Holder shall
confirm in writing, in a form satisfactory to the Company, that the Shares so
issued are being acquired solely for its own account and not as a nominee for
any other party and not with a view toward resale or distribution thereof in
violation of the Act. This Warrant and the Shares to be issued upon the exercise
hereof (unless registered under the Act and unless, in the case of the Shares,
such Shares may thereupon be sold pursuant to Commission Rule 144(k)) shall be
imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED
4
<PAGE>
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
In addition, this Warrant and the Shares to be issued upon the exercise
hereof shall bear any legends required by the securities laws of any applicable
states.
(b) Transferability and Negotiability of Warrant. This Warrant may
--------------------------------------------
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if requested by the
Company). Subject to the provisions of this Warrant with respect to compliance
with the Act, title to this Warrant may be transferred by endorsement and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery; provided, however, that prior to the Company's initial
public offering neither this Warrant nor the Shares purchasable with this
Warrant may be transferred to any entity or person which the Company reasonably
determines to be an actual competitor of the Company. The Company shall act
promptly to record transfers of this Warrant on its books, but the Company may
treat the registered holder of this Warrant as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(c) Disposition of Warrant Shares. With respect to any offer, sale,
-----------------------------
transfer or other disposition of any Shares acquired pursuant to the exercise of
this Warrant prior to registration of such Shares, the Holder and each
subsequent holder of this Warrant agrees to give written notice to the Company
prior thereto, describing briefly the manner thereof, together with a written
opinion of legal counsel for such holder, reasonably satisfactory to the Company
and its legal counsel, if requested by the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Act or any other federal or state securities laws) of
such Shares and indicating whether or not under the Act, certificates for such
Shares to be sold or otherwise disposed of require any restrictive legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify such Holder that such Holder may sell or otherwise dispose of such
Shares, all in accordance with the terms of the notice delivered to the Company.
If a determination has been made pursuant to this subsection (c) that the
opinion of legal counsel for the holder is not reasonably satisfactory to the
Company and its legal counsel, the Company shall so notify the holder promptly
after such determination has been made. Notwithstanding the foregoing, such
Shares may be offered, sold or otherwise disposed of in accordance with Rule
144, provided that the Company shall have been furnished with such information
as the Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 have been satisfied. Each certificate representing the
Shares thus transferred (except a transfer pursuant to Rule 144(k) or an
effective registration statement) shall bear a restrictive
5
<PAGE>
legend as to the applicable restrictions on transferability in order to ensure
compliance with the Act, unless in the aforesaid opinion of legal counsel for
the holder, such legend is not required in order to ensure compliance with the
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
8. Rights of Shareholders. No Holder shall be entitled to vote or receive
----------------------
dividends or be deemed the holder of Warrant Shares or any other securities of
the Company which may at any time be issuable on the exercise of this Warrant
for any purpose, nor shall anything contained herein be construed to confer upon
the Holder, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, consolidation, merger, transfer of assets or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Warrant Shares issuable upon exercise hereof shall have become
deliverable, as provided herein.
9. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
10. Exchange of Warrant. Subject to the other provisions of this Warrant,
-------------------
on surrender of this Warrant for exchange, properly endorsed and subject to the
provisions of this Warrant with respect to compliance with the Act, the Company
at its expense shall issue to or on the order of the Holder a new warrant or
warrants of like tenor, in the name of the Holder or as the Holder (on payment
by the Holder of any applicable transfer taxes) may direct, for the number of
Shares issuable upon exercise thereof.
11. Notices. All notices and other communications from the Company to the
-------
Holder, or vice versa, shall be deemed delivered and effective when given
personally or three days after being mailed by first-class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company or the Holder, as the case may be, in writing by the Company or such
Holder from time to time.
12. Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
13. Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California, as such laws are applied to
agreements entered into in California and to be performed solely by California
residents.
6
<PAGE>
14. Titles and Subtitles; Forms of Pronouns. The titles of the Sections
---------------------------------------
and Subsections of this Warrant are for convenience only and are not to be
considered in construing this Warrant. All pronouns used in this Warrant shall
be deemed to include masculine, feminine and neuter forms.
Dated: December 3, 1999
NEOPOINT, INC.
By: _______________________________
William Y. Son, President
7
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
(To be signed only on exercise of Warrant)
TO: NEOPOINT, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, shares of
Series C Preferred Stock of NEOPOINT, INC. and herewith makes payment of
$ ________________ therefor in cash and requests that the certificates for such
shares be issued in the name of, and delivered to ______________________________
___________ whose address is __________________________________________________
___________.
Dated: ________________________ ___________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
___________________________________
___________________________________
(Address)
<PAGE>
EXHIBIT 10.13
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE
ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
NEOPOINT, INC.
SERIES C PREFERRED STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, LG Information & Communications,
Ltd. ("LGIC" or "Holder") is entitled to purchase Six Hundred Fifty Thousand
(650,000) shares of Series C Preferred Stock ("Warrant Shares") of NeoPoint,
Inc., a California corporation (the "Company"), at the Warrant Price (as defined
in subsection 1(j) below) of Eight Dollars ($8.00), subject to adjustments and
all other terms and conditions set forth in this Warrant.
1. Definitions. As used herein, the following terms, unless the context
-----------
otherwise requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(b) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
(c) "Common Stock" shall mean shares of the Company's presently or
subsequently authorized Common Stock, and any stock into which such Common Stock
may hereafter be exchanged.
(d) "Company" shall mean NeoPoint, Inc., a California corporation, and
any corporation which shall succeed to or assume the obligations of NeoPoint,
Inc. under this Warrant.
(e) "Date of Grant" shall mean December 4, 1999.
(f) "Exercise Date" shall mean the effective date of the delivery of
the Notice of Exercise pursuant to Sections 4 and 11 below.
(g) "Holder" shall mean LG Information & Communications, Ltd. or any
other person or entity who shall at the time be the registered holder of this
Warrant.
<PAGE>
(h) "Series C Preferred Stock" shall mean shares of the Company's
Series C Preferred Stock, as described in the Company's Amended and Restated
Articles of Incorporation.
(i) "Shares" shall mean shares of the Company's Series C Preferred
Stock, as described in the Company's Articles of Incorporation.
(j) "Warrant Price" shall mean $8.00 per share.
2. Issuance of Warrant and Consideration Therefor. This Warrant is issued
----------------------------------------------
in consideration of the execution of that certain Amendment No. 1 to the
Research, Development and Distribution Agreement entered into as of September 1,
1999 which Amendment took effect on December 3, 1999 and limited LGIC's
exclusive manufacturing rights to the Products defined therein.
3. Term. The purchase right represented by this Warrant is exercisable
----
only during the period commencing upon the date hereof and ending on the earlier
of (i) January 31, 2001 or (ii) the closing of an initial public offering of the
Company's securities filed pursuant to a registration statement under the
Securities Act of 1933, as amended.
4. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in part, by
--------
the Holder hereof by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by the Holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company in the amount obtained by multiplying the
number of Warrant Shares for which this Warrant is being exercised by the
Warrant Price then in effect.
(b) Delivery of Certificate. In the event of any exercise of the
-----------------------
purchase right represented by this Warrant, certificates for the Warrant Shares
so purchased shall be delivered to the Holder within thirty (30) days of
delivery of the notice of exercise (the "Notice of Exercise") in the form of
Exhibit A attached hereto and, unless this Warrant has been fully exercised or
- ---------
has expired, a new warrant representing the portion of the Warrant Shares with
respect to which this Warrant shall not then have been exercised shall also be
issued to the Holder within such thirty (30) day period.
(c) No Fractional Shares. No fractional shares shall be issued in
--------------------
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Fair Market
Value of a share of Series C Preferred Stock as of the Exercise Date.
(d) Company's Representations.
-------------------------
(i) All Warrant Shares which may be issued upon the exercise of
the purchase right represented by this Warrant shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
2
<PAGE>
During the period within which the purchase right represented by this Warrant
may be exercised, the Company shall at all times have authorized, and reserved
for the purpose of issuance upon exercise of the purchase right represented by
this Warrant, a sufficient number of Shares to provide for the exercise of the
purchase right represented by this Warrant;
(ii) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditors' rights;
(iii) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be inconsistent with the Articles of Incorporation, as the
same may be amended from time to time, or Bylaws, do not and will not contravene
any law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not conflict with or contravene any provision of,
or constitute a material default under, any material indenture, mortgage,
contract or other instrument of which the Company is a party or by which it is
bound or require the consent or approval of, the giving of notice to, the
registration or filing with or the taking of any action in respect of or by, any
federal, state or local government authority or agency (other than such
consents, approvals, notices, actions, filings, etc., as have already been
obtained or made, as the case may be).
5. Adjustment of Warrant Price and Number of Warrant Shares. The
--------------------------------------------------------
number of securities issuable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) Adjustment for Dividends in Stock. In case at any time or
---------------------------------
from time to time the holders of Series C Preferred Stock of the Company (or any
shares of stock or other securities at the time receivable upon the exercise of
this Warrant) shall have received or, on or after the record date fixed for the
determination of eligible stockholders, shall have become entitled to receive,
without payment therefor, other or additional stock of the Company by way of
dividend then, and in each case, the Holder of this Warrant shall, upon the
exercise hereof, be entitled to receive, in addition to the number of Shares
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the Company which such
Holder would hold on the date of such exercise had it been the holder of record
of Shares on the date hereof and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and/or
all other additional stock receivable by it as aforesaid during such period,
giving effect to all adjustments called for during such period by subparagraphs
(b) and (c) of this Paragraph 5.
(b) Adjustment for Reclassification or Reorganization. In case of
-------------------------------------------------
any reclassification or change of the outstanding securities of the Company or
of any reorganization of the Company, then and in each such case the Holder of
this Warrant, upon the exercise hereof at any time after the consummation of
such reclassification, change, or reorganization, shall be entitled to receive,
in lieu of or in addition to the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities to which such Holder would have been entitled upon such
consummation if such Holder had exercised this
3
<PAGE>
Warrant immediately prior thereto, all subject to further adjustment as provided
in subparagraphs (a) and (c); in each such case, the terms of this Paragraph 5
shall be applicable to the shares of stock or other securities and property
receivable upon the exercise of this Warrant after such consummation.
(c) Stock Splits and Reverse Stock Splits. If the Company shall
-------------------------------------
subdivide its outstanding shares of Series C Preferred Stock into a greater
number of shares, the Warrant Price in effect immediately prior to such
subdivision shall thereby be proportionately reduced and the number of Shares
receivable upon exercise of this Warrant shall thereby be proportionately
increased; and, conversely, if the outstanding number of shares of Common Stock
shall be combined into a smaller number of shares, the Warrant Price in effect
immediately prior to such combination shall thereby be proportionately increased
and the number of Shares receivable upon exercise of the Warrant shall be
proportionately decreased.
6. Notices of Record Date, Etc. In the event of (a) any taking by the
---------------------------
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution (the "Distribution"), (b) any capital reorganization or
reclassification of the stated capital of the Company or any consolidation or
merger of the Company with any other corporation or corporations (other than a
wholly-owned subsidiary), or the sale or distribution of all or substantially
all of the Company's property and assets (the "Reorganization Event"), or (c)
any proposed filing of a registration statement under the Act in connection with
a primary public offering of the Company's Common Stock (the "Registration
Event"), the Company will mail or cause to be mailed to the Holder a notice
specifying (i) the date of any such Distribution stating the amount and
character of such Distribution, (ii) the date on which any such Reorganization
Event or Registration Event is expected to become effective, and (iii) the time,
if any, that is to be fixed as to when the holders of record of the Company's
securities shall be entitled to exchange their shares of the Company's
securities for securities or other property deliverable upon such Reorganization
Event. Such notice shall be mailed at least thirty (30) days prior to the date
therein specified.
7. Compliance with Act; Transferability and Negotiability of Warrant;
------------------------------------------------------------------
Disposition of Shares.
- ---------------------
(a) Compliance with Act. The Holder, by acceptance hereof, agrees
-------------------
that this Warrant and the Shares to be issued upon the exercise hereof are being
acquired solely for its own account and not as a nominee for any other party and
not with a view toward the resale or distribution thereof and that it will not
offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon
the exercise hereof except under circumstances which will not result in a
violation of the Act. Upon the exercise of this Warrant, the Holder shall
confirm in writing, in a form satisfactory to the Company, that the Shares so
issued are being acquired solely for its own account and not as a nominee for
any other party and not with a view toward resale or distribution thereof in
violation of the Act. This Warrant and the Shares to be issued upon the exercise
hereof (unless registered under the Act and unless, in the case of the Shares,
such Shares may thereupon be sold pursuant to Commission Rule 144(k)) shall be
imprinted with a legend in substantially the following form:
4
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
In addition, this Warrant and the Shares to be issued upon the exercise
hereof shall bear any legends required by the securities laws of any applicable
states.
(b) Transferability and Negotiability of Warrant. This Warrant
--------------------------------------------
may not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if requested by the
Company). Subject to the provisions of this Warrant with respect to compliance
with the Act, title to this Warrant may be transferred by endorsement and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery; provided, however, that prior to the Company's initial
public offering neither this Warrant nor the Shares purchasable with this
Warrant may be transferred to any entity or person which the Company reasonably
determines to be an actual competitor of the Company. The Company shall act
promptly to record transfers of this Warrant on its books, but the Company may
treat the registered holder of this Warrant as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(c) Disposition of Warrant Shares. With respect to any offer,
-----------------------------
sale, transfer or other disposition of any Shares acquired pursuant to the
exercise of this Warrant prior to registration of such Shares, the Holder and
each subsequent holder of this Warrant agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of legal counsel for such holder, reasonably satisfactory to the
Company and its legal counsel, if requested by the Company, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification (under the Act or any other federal or state securities laws) of
such Shares and indicating whether or not under the Act, certificates for such
Shares to be sold or otherwise disposed of require any restrictive legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify such Holder that such Holder may sell or otherwise dispose of such
Shares, all in accordance with the terms of the notice delivered to the Company.
If a determination has been made pursuant to this subsection (c) that the
opinion of legal counsel for the holder is not reasonably satisfactory to the
Company and its legal counsel, the Company shall so notify the holder promptly
after such determination has been made. Notwithstanding the foregoing, such
Shares may be offered, sold or otherwise disposed of in accordance with Rule
144, provided that the Company shall have been furnished with such information
as the
5
<PAGE>
Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 have been satisfied. Each certificate representing the
Shares thus transferred (except a transfer pursuant to Rule 144(k) or an
effective registration statement) shall bear a restrictive legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Act, unless in the aforesaid opinion of legal counsel for the holder, such
legend is not required in order to ensure compliance with the Act. The Company
may issue stop transfer instructions to its transfer agent in connection with
such restrictions.
8. Rights of Shareholders. No Holder shall be entitled to vote or receive
----------------------
dividends or be deemed the holder of Warrant Shares or any other securities of
the Company which may at any time be issuable on the exercise of this Warrant
for any purpose, nor shall anything contained herein be construed to confer upon
the Holder, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, consolidation, merger, transfer of assets or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Warrant Shares issuable upon exercise hereof shall have become
deliverable, as provided herein.
9. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
10. Exchange of Warrant. Subject to the other provisions of this Warrant,
-------------------
on surrender of this Warrant for exchange, properly endorsed and subject to the
provisions of this Warrant with respect to compliance with the Act, the Company
at its expense shall issue to or on the order of the Holder a new warrant or
warrants of like tenor, in the name of the Holder or as the Holder (on payment
by the Holder of any applicable transfer taxes) may direct, for the number of
Shares issuable upon exercise thereof.
11. Notices. All notices and other communications from the Company to the
-------
Holder, or vice versa, shall be deemed delivered and effective when given
personally or three days after being mailed by first-class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company or the Holder, as the case may be, in writing by the Company or such
Holder from time to time.
12. Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
13. Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California, as such laws are applied to
agreements entered into in California and to be performed solely by California
residents.
6
<PAGE>
14. Titles and Subtitles; Forms of Pronouns. The titles of the Sections
---------------------------------------
and Subsections of this Warrant are for convenience only and are not to be
considered in construing this Warrant. All pronouns used in this Warrant shall
be deemed to include masculine, feminine and neuter forms.
Dated: December 4, 1999
NEOPOINT, INC.
By:______________________________________
William Y. Son, President
7
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
(To be signed only on exercise of Warrant)
TO: NEOPOINT, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, shares of
Series C Preferred Stock of NEOPOINT, INC. and herewith makes payment of
$________________ therefor in cash and requests that the certificates for such
shares be issued in the name of, and delivered to _____________________________
________________ whose address is _____________________________________________
___________.
Dated: _______________________ ____________________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
____________________________________________
____________________________________________
(Address)
<PAGE>
EXHIBIT 10.14
INNOVATIVE GLOBAL SOLUTION, INC.
FOUNDER STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 28th day of April, 1998 ("Effective
Date"), by and between INNOVATIVE GLOBAL SOLUTION, INC., a California
corporation (the "Corporation"), and William Y. Son ("Purchaser").
WITNESSETH:
----------
WHEREAS, the Corporation desires to issue and the Purchaser desires to
acquire stock of the Corporation as herein described, on the terms and
conditions hereinafter set forth.
WHEREAS, the Purchaser is an employee of the Corporation.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. Subject to the terms and
------------------------------------
conditions herein, the Purchaser hereby agrees to purchase from the Corporation,
and the Corporation agrees to sell to the Purchaser one million five hundred
thousand (1,500,000) shares of the Corporation's Common Stock (the "Stock") for
an aggregate purchase price of $150,000 (the "Purchase Price") or $0.10 per
share. Such Purchase Price for the Stock will be paid in cash, by cancellation
of debt, or by execution and delivery to the Corporation by the Purchaser of a
full recourse Promissory Note, or even date herewith, made payable to the
Corporation, in a form acceptable to the Corporation.
2. Unvested Share Repurchase Option. In the event the Purchaser's
--------------------------------
employment with the Corporation is terminated, or if the Purchaser or the
Purchaser's legal representative attempts to sell, exchange, transfer, pledge or
otherwise dispose of any shares purchased pursuant to this Purchase Agreement
which have not vested in the Purchaser pursuant to Section 2(a) below (the
"Unvested Shares"), the Corporation shall have the right to reacquire the
Unvested Shares under the terms and subject to the conditions set forth in this
Section 2 (the "Unvested Share Repurchase Option").
(a) Vesting of Shares. The term "Initial Vesting Date" shall mean
-----------------
the Purchaser's initial date of employment. The shares of Stock purchased will
vest in the Purchaser and become "Vested Shares" on and after the Initial
Vesting Date in accordance with the following formula:
Date Vested Shares
---- -------------
On the Initial Vesting Date 750,000 shares of the Stock
1
<PAGE>
Six (6) Months After the Initial 20,833 shares of the remaining
Vesting Date Stock for each completed full
month of the Corporation's
employment of Purchaser
following the Initial Vesting
Date
Provided that the aggregate number of Vested Shares may not exceed one hundred
percent (100%) of the Stock.
(b) Exercise of Unvested Share Repurchase Option. Except as
--------------------------------------------
provided in Section 2(e) below, if the consultancy or employment (collectively
referred to herein as "employment") of the Purchaser is terminated, or if the
Purchaser or the Purchaser's legal representative attempts to dispose of any
Unvested Shares other than as allowed in this Agreement, the Corporation may
exercise the Unvested Share Repurchase Option by written notice to the Escrow
Agent (as defined in Section 9 below) and to the Purchaser or the Purchaser's
legal representative within sixty (60) days after such termination or after the
Corporation has received notice of the attempted disposition.
(c) Payment for Shares and Return of Shares. Payment by the
---------------------------------------
Corporation to the Escrow Agent on behalf of the Purchaser or the Purchaser's
legal representative shall be made in cash within sixty (60) days after the date
of the mailing of the written notice of exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any promissory
note of the Purchaser to the Corporation shall be treated as payment to the
Purchaser in cash to the extent of the unpaid principal and any accrued interest
canceled. The purchase price per share being purchased by the Corporation shall
be $0.10 per share (as adjusted for stock splits, stock dividends, stock
combinations and the like). Within thirty (30) days after payment by the
Corporation, the Escrow Agent shall give the shares which the Corporation has
purchased to the Corporation and shall give the payment received from the
Corporation to the Purchaser.
(d) Early Termination of Unvested Share Repurchase Option. The
-----------------------------------------------------
other provisions of Section 2 notwithstanding, the Corporation's Board of
Directors may terminate the Unvested Share Repurchase Option in the event of (1)
a merger in which the Corporation is not the surviving corporation; (2) a merger
or the sale or exchange by the stockholders of the Corporation of all or
substantially all of the stock of the Corporation where the stockholders before
such merger or sale or exchange do not retain, directly or indirectly, at least
a majority of the beneficial interest in the voting stock of the surviving
Corporation; (3) the sale or exchange of all or substantially all of the
Corporation's assets (other than a sale or transfer to a subsidiary of the
Corporation as defined in Section 425(f) of the Internal Revenue Code of 1986,
as amended (the "Code")); or (4) in such other event as the Corporation's Board
of Directors may determine to be appropriate.
(e) Transfers Not Subject to the Unvested Share Repurchase Option.
-------------------------------------------------------------
The Unvested Share Repurchase Option shall not apply to a transfer to the
Purchaser's ancestors, descendants or spouse or to a trustee for their benefit
or the benefit of the Purchaser, provided that such transferee shall agree in
writing (in a form satisfactory to the Corporation) to take the
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<PAGE>
stock subject to all the terms and conditions of this Section 2 providing for an
Unvested Share Repurchase Option.
(f) Assignment. In the event the Corporation is unable to exercise
----------
the Unvested Share Repurchase Option or the Right of First Refusal (as defined
below) pursuant to the provisions of the General Corporation Law of California,
or the corresponding provisions of other applicable law, the Corporation shall
have the right to assign the Unvested Share Repurchase Option or the Right of
First Refusal to one or more persons as may be selected by the Corporation.
3. Stock Dividends, etc. If, from time to time, there is any stock
--------------------
dividend, stock split or other change in the character or amount of any of the
outstanding stock of the Corporation, then in such event any and all new
substituted or additional securities to which Purchaser is entitled by reason of
Purchaser's ownership of the shares acquired pursuant to this Agreement shall be
considered Stock and shall be immediately subject to the Unvested Share
Repurchase Option and the Right of First Refusal and all other terms of this
Agreement with the same force and effect as the shares subject to the Unvested
Share Repurchase Option, the Right of First Refusal and all other terms of this
Agreement immediately before such event in accordance with the formula set forth
in Section 2(a) above.
4. Right of First Refusal.
----------------------
(a) Notice of Transfer. In the event that the Purchaser proposes to
------------------
sell, assign, pledge, encumber, transfer or otherwise dispose of ("Transfer")
any of his Vested Shares, he shall give the Corporation written notice of his
intention ("Transfer Notice"), describing the offered shares ("Offered Shares"),
the identity of the prospective transferee and the consideration and the
material terms and conditions upon which the proposed Transfer is to be made.
The Transfer Notice shall certify that the Purchaser has received a firm offer
from the prospective transferee and in good faith believes a binding agreement
for Transfer is obtainable on the terms set forth, and shall also include a copy
of any written proposal or letter of intent or other agreement relating to the
proposed Transfer.
(b) Right of First Refusal. With respect to any proposed Transfer,
----------------------
the Corporation shall have an option to purchase all or none of the Offered
Shares (the "Right of First Refusal"). To exercise such option, the Corporation
must notify the Purchaser in writing before the expiration of the thirty day
period following the delivery of the Transfer Notice to the Corporation. If the
Corporation elects to purchase the Offered Shares, it shall pay consideration
for the Offered Shares no less favorable in price and material terms and
conditions than are described in the Transfer Notice.
(c) Closing Procedures; Subsequent Transfers. If the Corporation
----------------------------------------
exercises the Right of First Refusal, the Corporation and the Purchaser shall
consummate the sale of the Offered Shares on the terms set forth in the Transfer
Notice by the date sixty (60) days after the delivery of the Transfer Notice to
the Corporation; provided, however, in the event the Transfer Notice provides
for the payment for the shares of Stock other than in cash, the Corporation
shall have the option of paying for the shares of Stock by the discounted cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Corporation. If
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<PAGE>
the Corporation fails to exercise in full the Right of First Refusal on a timely
basis, then the Purchaser may, not later than one hundred twenty (120) days
following delivery to the Corporation of the Transfer Notice, conclude the
Transfer subject to the Transfer Notice on the terms and conditions described in
such notice. Any proposed transfer on terms and conditions different from those
described in the Transfer Notice, as well as any subsequent proposed transfer by
the Purchaser, shall again be subject to the Corporation's Right of First
Refusal and shall require the Purchaser to deliver a new Transfer Notice to the
Corporation and to comply with the procedures described in this Section 4 with
respect to such different or new Transfer.
(d) Condition to Transfer. All transferees of shares of Stock or
---------------------
any interest therein other than the Corporation shall be required as a condition
of such transfer to agree in writing (in a form satisfactory to the Corporation)
that they will receive and hold such shares of Stock or interests subject to the
provisions of this Agreement, including the Right of First Refusal and the
restrictions set forth in Section 5 of this Agreement.
(e) Termination of Right. The Right of First Refusal shall
--------------------
terminate at such time as a public market exists for the Corporation's Common
Stock (or any other stock issued by the corporation, or any successor, in
exchange for the Stock). For the purpose of this Agreement, a "public market"
shall be deemed to exist if (i) such stock is listed on a national securities
exchange (as that term is used in the Securities Exchange Act of 1934) or (ii)
such stock is traded on the over-the-counter market and prices therefore are
published daily on business days in a recognized financial journal.
(f) Limitation on Right. The Right of First Refusal shall not apply
-------------------
to any transfer to the Purchaser's ancestors or descendants or spouse or to a
trustee for their benefit provided that in any case any such transferee shall
agree in writing (in a form satisfactory to the Corporation) to take the Stock
subject to all the terms of this Agreement, including the Right of First
Refusal.
5. No Transfers of Unvested Shares. The Purchaser may not sell, transfer,
-------------------------------
pledge or otherwise dispose of any Unvested Shares of the Stock still subject to
the Unvested Share Repurchase Option except as provided in Section 2(e) and
4(f).
6. Consent of Spouse. If the Purchaser is married on the date of this
-----------------
Agreement, the Purchaser's spouse shall execute a Consent of Spouse in the form
of Exhibit A hereto, effective on the date hereof. Such consent shall not be
---------
deemed to confer or convey to the spouse any rights in the Stock that do not
otherwise exist by operation of law or the agreement of the parties. If the
Purchaser should marry or remarry subsequent to the date of this Agreement, the
Purchaser shall within thirty (30) days thereafter obtain his or her new
spouse's acknowledgment of and consent to the existence and binding effect of
all restrictions contained in this Agreement by signing an additional Consent of
Spouse in the form of Exhibit A.
---------
7. Legends. All certificates representing any shares of Stock subject to
-------
the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
REPURCHASE OPTION, A RIGHT OF FIRST REFUSAL IN FAVOR OF
4
<PAGE>
THE CORPORATION OR ITS ASSIGNEE, AND OTHER RESTRICTIONS ON TRANSFER SET FORTH IN
AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR HIS OR HER
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
(b) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(c) Any legend required to be placed thereon by the California
Commissioner of Corporations.
8. Warranties and Representations. In connection with the proposed
------------------------------
purchase of the Stock, the Purchaser hereby agrees, represents and warrants as
follows:
(a) The Purchaser is purchasing the Stock solely for his or her own
account for investment and not with a view to, or for resale in connection with,
any distribution thereof within the meaning of the Securities Act of 1933 as
amended (the "Act"). The Purchaser further represents that he or she does not
have any present intention of selling, offering to sell or otherwise disposing
of or distributing the Stock or any portion thereof; and that the entire legal
and beneficial interest of the Stock he or she is purchasing is being purchased
for, and will be held for the account of, the Purchaser only and neither in
whole nor in part for any other person.
(b) The Purchaser is aware of the Corporation's business affairs
and financial condition and has acquired sufficient information about the
Corporation to reach an informed and knowledgeable decision to acquire the
Stock. The Purchaser further represents and warrants that he or she has
discussed the Corporation and its plans, operations and financial condition with
its officers, has received all such information as he or she deems necessary and
appropriate to enable him or her to evaluate the financial risk inherent in
making an investment in the Stock and has received satisfactory and complete
information concerning the business and financial condition of the Corporation
in response to all inquiries in respect thereof.
(c) The Purchaser realizes that his or her purchase of the Stock
will be a highly speculative investment, and he or she is able, without
impairing his financial condition, to hold the Stock for an indefinite period of
time and to suffer a complete loss on his or her investment.
(d) The Corporation has disclosed to the Purchaser that:
(i) The sale of the Stock has not been registered under the
Act, and the Stock must be held indefinitely unless a transfer of it is
subsequently registered under the Act
5
<PAGE>
or an exemption from such registration is available, and that the Corporation is
under no obligation to register the Stock;
(ii) The Corporation will make a notation in its records of
the aforementioned restrictions on transfer and legends.
(e) The Purchaser is aware of the provisions of Rule 144,
promulgated under the Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or an affiliate of such issuer), in a non-public offering subject to
the satisfaction of certain conditions, including among other things: the resale
occurring not less than one year from the date the Purchaser has purchased and
paid for the Stock; the availability of certain public information concerning
the Corporation; the sale being through a broker in an unsolicited "broker's
transaction" or in a transaction directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and that any sale of the
Stock may be made by him or her only in limited amounts during any three-month
period not exceeding specified limitations. The Purchaser further represents
that he or she understands that at the time he or she wishes to sell the Stock
there may be no public market upon which to make such a sale, and that, even if
such a public market then exists, the Corporation may not be satisfying the
current public information requirements of Rule 144, and that, in such event, he
or she would be precluded from selling the Stock under Rule 144 even if the one-
year minimum holding period had been satisfied. The Purchaser represents that he
or she understands that in the event all of the requirements of Rule 144 are not
satisfied, registration under the Act or compliance with an exemption from
registration will be required; and that, notwithstanding the fact that Rule 144
is not exclusive, the staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial burden
of proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
(f) Without in any way limiting the Purchaser's representations and
warranties set forth above, the Purchaser further agrees that he or she shall in
no event make any disposition of all or any portion of the Stock which he or she
is purchasing unless and until:
(i) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with said Registration Statement; or
(ii) The Purchaser shall have (1) notified the Corporation of
the proposed disposition and furnished the Corporation with a detailed statement
of the circumstances surrounding the proposed disposition, and (2) furnished the
Corporation with an opinion of his or her own counsel to the effect that such
disposition will not require registration of such shares under the Act, and such
opinion of his or her counsel shall have been concurred in by counsel for the
Corporation and the Corporation shall have advised the Purchaser of such
concurrence.
9. Escrow. As security for his or her faithful performance of the terms
------
of this Agreement and to insure the availability for delivery of the Stock upon
exercise of the Unvested Share Repurchase Option and the Right of First Refusal
herein provided for, the Purchaser agrees
6
<PAGE>
to deliver to and deposit with Gray Cary Ware & Freidenrich, LLP, counsel to the
Corporation (the "Escrow Agent"), as Escrow Agent in this transaction, two Stock
Assignments duly endorsed (with date and number of shares blank) in the form
attached hereto as Exhibit B, together with the certificate or certificates
---------
evidencing the Stock; such documents are to be held by the Escrow Agent pursuant
to the Joint Escrow Instructions of the Corporation and the Purchaser set forth
in Exhibit C attached hereto and incorporated by this reference, which
---------
instructions shall also be delivered to the Escrow Agent at the closing
hereunder.
10. Transfers in Violation of Agreement. The Corporation shall not be
-----------------------------------
required (i) to transfer on its books any shares of Stock of the Corporation
which shall have been sold or transferred in violation of any of the provisions
set forth in this Agreement or (ii) to treat as owner of such shares or to
accord the right to vote as such owner or to pay dividends to any transferee to
whom such shares shall have been so transferred.
11. Rights as Shareholder. Subject to the provisions of this Agreement,
---------------------
the Purchaser shall, during the term of this Agreement, exercise all rights and
privileges of a stockholder of the Corporation with respect to the Stock
deposited in escrow.
12. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
13. Notice. Any notice required or permitted hereunder shall be given in
------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to the other party hereto at the address
hereinafter shown below his or her signature or at such other address as such
party may designate by ten (10) days' advance written notice to the other party
hereto.
14. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
the successors and assigns of the Corporation and, subject to the restrictions
on transfer herein set forth, be binding upon the Purchaser, his or her heirs,
executors, administrators, successors and assigns.
15. Entire Agreement; Amendments. This Agreement, together with the
----------------------------
Exhibits hereto, shall be construed under the laws of the State of California
(as it applies to agreements between California residents, entered into and to
be performed entirely within California), and constitutes the entire agreement
of the parties with respect to the subject matter hereof superseding all prior
written or oral agreements, and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties hereto.
16. Right to Specific Performance. The Purchaser agrees that the
-----------------------------
Corporation shall be entitled to a decree of specific performance of the terms
hereof or an injunction restraining violation of this Agreement, said right to
be in addition to any other remedies available to the Corporation.
17. Separability. If any provision of this Agreement is held by a court of
------------
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless
7
<PAGE>
continue in full force and effect without being impaired or invalidated in any
way and shall be construed in accordance with the purposes and tenor and effect
of this Agreement.
18. Tax Election Notification. The Purchaser shall notify the Corporation
-------------------------
in writing if Purchaser files an election pursuant to Section 83(b) of the
Internal Revenue Code of 1954, as amended, to be filed with the Internal Revenue
Service within thirty (30) days of the date of the sale herein contemplated. The
Corporation intends, in the event it does not receive from Purchaser evidence of
such filing, to claim a tax deduction for any amount which would otherwise be
taxable to Purchaser in the absence of such an election.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PURCHASER" "CORPORATION"
INNOVATIVE GLOBAL SOLUTION, INC.
By:
- ----------------------------- ----------------------------
William Y. Son Gregory M. Decker, Secretary
Address: Address: 4225 Executive Square,
Suite 700
La Jolla, CA 92037
SIGNATURE PAGE FOR FOUNDER STOCK PURCHASE AGREEMENT
8
<PAGE>
EXHIBIT A
---------
CONSENT OF SPOUSE
-----------------
I, Jee Hee Han, spouse of William Y. Son, acknowledge that I have read the
Founder Stock Agreement dated as of April 28, 1998, to which this Consent is
attached as Exhibit A (the "Agreement") and that I know its contents. I am
---------
aware that by its provisions INNOVATIVE GLOBAL SOLUTION, INC. (the
"Corporation") has the option to purchase certain shares of Stock of the
Corporation which my spouse owns pursuant to the Agreement including any
interest I might have therein, upon termination of my spouse's employment under
circumstances set forth in the Agreement, and certain other restrictions are
imposed upon the sale or other disposition of the Stock during my spouse's
lifetime.
I hereby agree that my interest, if any, in the Stock subject to the
Agreement shall be irrevocably bound by the Agreement and further understand and
agree that any community property interest I may have in the Stock shall be
similarly bound by the Agreement.
I am aware that the legal, financial and related matters contained in the
-------------------------------------------------------------------------
Agreement are complex and that I am free to seek independent professional
- -------------------------------------------------------------------------
guidance or counsel with respect to this Consent. I have either sought such
- ----------------------------------------------------------------------------
guidance or counsel or determined after reviewing the Agreement carefully that I
- --------------------------------------------------------------------------------
will waive such right.
- ----------------------
Dated as of the 28th day of April, 1998.
Jee Hee Han
9
<PAGE>
EXHIBIT B
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, William Y. Son hereby sells, assigns and transfers unto
_____________________________, ________ (_____) shares of the Common Stock of
INNOVATIVE GLOBAL SOLUTION, INC., a California corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. ____________ herewith, and do hereby irrevocably constitute and appoint
_____________________ my attorney to transfer the said stock on the books of the
said corporation with full power of substitution in the premises.
Dated: , 19 By:
------------------ --- -------------------------------
10
<PAGE>
EXHIBIT C
---------
JOINT ESCROW INSTRUCTIONS
-------------------------
April 28, 1998
Gray Cary Ware & Freidenrich, LLP
4365 Executive Drive, Suite 1600
San Diego, California 92121-2189
Gentlemen:
As Escrow Agent for both INNOVATIVE GLOBAL SOLUTION, INC., a California
corporation ("Corporation"), and the undersigned purchaser of Common Stock (the
"Stock") of the Corporation ("Purchaser"), you are hereby authorized and
directed to hold the documents delivered to you pursuant to the terms of that
certain Stock Restriction Agreement ("Agreement"), dated as of the date hereof,
to which a copy of these Joint Escrow Instructions is attached as Exhibit C, in
accordance with the following instructions:
1. In the event the Corporation and/or any assignee of the Corporation
(referred to collectively for convenience herein as the "Corporation") shall
elect to exercise the Unvested Share Repurchase Option or the Right of First
Refusal set forth in the Agreement, the Corporation shall give to Purchaser and
you a written notice specifying the number of shares of Stock to be purchased,
the purchase price, and the time for a closing hereunder at the principal office
of the Corporation. Purchaser and the Corporation hereby irrevocably authorize
and direct you to close the transaction contemplated by such notice in
accordance with the terms of such notice.
2. At the closing of a transaction pursuant to Paragraph 1, you are
directed (a) to date the stock assignments necessary for the transfer in
question, (b) to fill in the number of shares of Stock being transferred, and
(c) to deliver same, together with the certificates evidencing the shares of
Stock to be transferred, to the Corporation against the simultaneous delivery to
you of the purchase price (by check) for the number of shares of Stock being
purchased pursuant to the exercise of the Unvested Share Repurchase Option or
the Right of First Refusal, as the case may be.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of Stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his or her
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all stock certificates, stock assignments, or other documents
necessary or appropriate to make such securities negotiable and complete any
transaction herein contemplated. Subject to the provisions of this paragraph 4,
Purchaser shall exercise all rights and privileges of a shareholder of the
Corporation while the Stock is held by you.
11
<PAGE>
4. This escrow shall terminate at such time as there are no longer any
shares of stock subject to the Unvested Share Repurchase Option or the Right of
First Refusal.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence to
such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary or proper to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be counsel to the Corporation or if you shall resign by written
notice to each party. In the event of any such termination, the Corporation
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instructions in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
12
<PAGE>
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or rights of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to any one all or any part of said securities until such
dispute shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree, or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United State Post, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
CORPORATION: INNOVATIVE GLOBAL SOLUTION, INC.
4225 Executive Square, Suite 700
La Jolla, CA 92037
PURCHASER: William Y. Son
12133 Oakview Way
San Diego, Ca 92128
ESCROW AGENT: Gray Cary Ware & Freidenrich, LLP
4365 Executive Drive, Suite 1600
San Diego, CA 92121-2189
Attn: Christian Waage
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
13
<PAGE>
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
Very truly yours,
INNOVATIVE GLOBAL SOLUTION, INC.
a California corporation
By:
------------------------------------
Gregory M. Decker, Secretary
PURCHASER:
William Y. Son
Agreed to and accepted as of the date set forth
above:
ESCROW AGENT:
GRAY CARY WARE & FREIDENRICH LLP
By:
------------------------------------
Scott Stanton
14
<PAGE>
EXHIBIT 10.15
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (the "Agreement") is by and between Mr. William Y. Son
("Assignor"), and Innovative Global Solution, Inc., a California corporation
("Company"), and is effective as of _______________ (the "Effective Date").
RECITALS
WHEREAS, Assignor has developed or otherwise has rights to certain
technology which is described in the Licensed Patents (as defined below), (the
"Technology"), which is applicable to the field of cellular telephone
communications components, equipment, systems, and methods (the "Field"); and
WHEREAS, Assignor owns or otherwise has certain Intellectual Property
Rights in and to said Technology, including patent, copyright, trade secrets and
moral rights in said Technology (collectively "Intellectual Property Rights");
and
WHEREAS, Company desires to acquire such Technology and all Intellectual
Property Rights therein from Assignor subject to the terms hereof for use in
said Field; and
WHEREAS, Assignor wishes to transfer such Technology and Intellectual
Property Rights to Company for use in such Field in exchange for the
consideration and mutual promises set forth herein;
NOW, THEREFORE, for good and valuable consideration as described herein,
the sufficiency of which is hereby acknowledged, and in exchange for the mutual
promises set forth herein, the parties agree as follows:
AGREEMENT
1. Definitions.
-----------
(a) "Assigned Technology" shall mean Technology which has applicability
substantially exclusively within the Field.
(b) "Licensed Technology" shall mean Technology which is not substantially
exclusively applicable to the Field, but has utility in other fields.
(c) "Licensed Patents" shall mean Korean Patent Application Nos. 52811,
52812 and 52813, filed October 15, 1997, and foreign counterpart applications,
and any patents granted on such applications in any country of the world.
1
<PAGE>
2. Assignment.
----------
Assignor hereby irrevocably assigns, transfers and conveys to Company all
its world-wide right, title and interest in the Assigned Technology and all
Intellectual Property Rights thereto, including the complete right to exploit or
otherwise use the Assigned Technology or any portion thereof in any form of
medium, expression or technology now known or hereafter known or developed, all
contract and licensing rights, and all claims and causes of action with respect
to any of the Assigned Technology, whether now known or hereafter become known,
including the right to sue for past infringement.
3. License.
-------
Assignor hereby grants and agrees to grant to Company an exclusive,
irrevocable, paid-up, world-wide, and royalty free license and right, in
perpetuity, under the Licensed Patents and its Intellectual Property Rights
including the right to sublicense through multiple tiers of sublicenses to make,
have made, use, sell, offer to sell, import, reproduce, distribute, copy, modify
and otherwise practice the Licensed Technology limited, however, to the Field.
Assignor also waives and agrees never to assert any moral rights, or the
equivalent thereof, against Company with respect to any of the rights described
above.
4. Assistance.
----------
(a) Assignor hereby agrees, on its own volition and at Company's request,
to execute, take all actions, and deliver any and all documents, agreements,
assignments, or transfers necessary or appropriate to perfect or implement this
assignment and license of the rights granted herein to the Company. In the event
that a Company is unable for any reason to secure Assignor's signature to any
document required to apply for or execute any patent, copyright or other
applications with respect to the Assigned Technology (including improvements,
renewals, extensions, continuations, divisions or continuations in part
thereof), Assignor hereby irrevocably designates and appoints Company and its
duly authorized officers and agents as Assignor's agent and attorney-in-fact to
act for and in its behalf, and instead of Assignor, to execute and file any such
applications and to do all other lawfully permitted acts to further the
perfection, prosecution and issuance of patents, copyrights or other rights
therein with the same legal force and effect as if executed by Assignor.
(b) Assignor agrees to reasonably assist Company in defending themselves
from any third party claims against Company which are directly related to
Company's use of the Assigned or Licensed Technology.
2
<PAGE>
5. Consideration
-------------
In consideration for the assignment and license of Assignor's Rights in the
Technology under this Assignment, the Company shall (i) on the Effective Date
pay to Assignor the sum of fifty thousand U.S. dollars ($50,000) and issue to
Assignor on or before June 30, 1998 58,000 shares of common stock of Company,
and (ii) if a U.S. patent of substantially the same scope as one or more of said
Korean Patent Applications issues, pay to Assignor within thirty (30) days of
such issuance and additional one hundred fifty thousand U.S. dollars ($150,000)
and issue to Assignor 80,000 additional shares of the common stock of Company.
Share of common stock issued to Assignor shall be fully paid and non-assessable
when issued.
6. License and Option.
------------------
In further consideration for the assignment and license of rights to the
Technology hereunder, Company hereby grants back to Assignor a non-exclusive,
perpetual, worldwide (excluding the Republic of Korea) royalty-free transferable
license (with the right to sublicense through multiple tiers of sublicenses) to
make, have made, use, sell, offer for sale, import, copy, reproduce, distribute
and practice the Assigned Technology assigned or licensed to Company hereunder;
provided that if Company shall fail to commercialize the Assigned Technology and
the license to the Licensed Technology in any country within five (5) years of
the Effective Date, then at Assignor's sole option, ownership of the Assignor
Technology with respect to that particular country shall revert to Assignor. For
purposes of implementing this Section 6, on or about forty-eight (48) months
after Effective Date, Company shall provide to Assignor a report detailing
Company's progress in the commercialization of the Assigned and Licensed
Technology and shall thereafter supply to Assignor such information as
reasonably requested by Assignor, to demonstrate Company's commercialization
obligations as set forth in this Section 6. The license granted back to Assignor
in this Section 6 shall survive, in the event of the bankruptcy of Company.
7. Warranties and Representations.
------------------------------
Assignor represents and warrants that:
(a) to the best of Assignors knowledge, Assignor is the owner of or has
the right to the Assigned and Licensed Technology assigned or licensed
hereunder and to the Intellectual Property Rights conveyed herein;
(b) to the best of Assignor's knowledge, the use, reproduction,
distribution, or modification of the Assignor Technology will not violate
the rights of any third parties in the Assigned Technology including, but
not limited to, trade secrets, publicity, privacy, copyrights, moral right
and patents; and
3
<PAGE>
(c) Assignor has full power and authority to make and enter into this
agreement.
8. Costs. Company agrees to reimburse Assignor for its reasonable costs in
-----
providing the assistance under Section 4 above. Additionally, Company agrees to
indemnify and hold harmless Assignor from any third party claims against
Assignor which are directly related to Company's use of the Assigned Technology,
but only for such claims which are not, in whole or in part, the result of any
act or omission of Assignor or related to the breach by Assignor of any
representation or warranty provided hereunder.
9. Miscellaneous. This Agreement shall be governed by the laws of the State of
-------------
California without reference to its conflicts of law principles. Any legal
proceedings arising out of or relating to this Agreement shall be conducted in
the State of California. If any one or more provisions of this Agreement shall
be determined to be invalid, illegal or unenforceable, in whole or in part, the
validity, legality and enforceability of any of the remaining provisions or
portions thereof shall not in any way be affected or impaired thereby and shall
nevertheless be binding between the parties hereto. Any such invalid, illegal or
unenforceable provisions or portion thereof shall be changed and interpreted so
as to best accomplish the objectives of such provision or portion thereof within
the limits of applicable law or applicable court decisions. This Agreement,
together with any attachments and appendices hereto, constitutes the entire
agreement between the parties with respect to the subject matter of the
Agreement, and supersedes any and all other agreements, written or oral, that
the parties heretofore may have had with respect to the subject matter herein.
IN WITNESS WHEREOF, the Assignor and Company have executed this Agreement.
COMPANY: ASSIGNOR:
Innovative Global Solution, Inc. Mr. William Y. Son
By: ____________________________ By: ______________________________
Its: ____________________________
4
<PAGE>
FIRST AMENDMENT TO ASSIGNMENT AGREEMENT
First Amendment to Assignment Agreement (the "First Amendment") is made as of
the 20th day of September, 1999 by and between Mr. William Y. Son ("Assignor")
and NeoPoint, Inc., a California corporation f/k/a Innovative Global Solution,
Inc. ("Company").
RECITALS
WHEREAS, Assignor and Company entered into an Assignment Agreement dated as of
February 27, 1998 (the "Original Agreement");
WHEREAS, it is in the best interests of the Company and Assignor to modify the
consideration to Assignor in connection with the assignment and license of
Assignor's Rights in the Technology; and
WHEREAS, Assignor and Company wish to amend the Original Agreement as set forth
below;
NOW, THEREFORE, in consideration of the premises set forth above and the mutual
promises hereinafter set forth, the parties agree to amend the Original
Agreement as follows:
1) Section 5(ii) is deleted in its entirety and replaced with the following:
"(ii) On September 20, 1999 pay to Assignor seventy-five thousand U.S.
Dollars ($75,000) and issue to Assignor 40,000 additional shares of the
common stock of Company."
2) All capitalized terms not otherwise defined in this First Amendment shall
have the meanings ascribed to them in the Original Agreement
3) Except as hereinabove stated, all of the terms and conditions of the
Original Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have entered into this First Amendment on the
day and year first written above.
NEOPOINT, INC. ASSIGNOR
Mr. William Y. Son
By:___________________________ ___________________________________
Name:_________________________
Title:________________________
Amendment
5
<PAGE>
EXHIBIT 10.16
Promissory Note
April 6, 1998 San Diego, California
$75,000
For value received, the undersigned jointly and severally promises to pay to the
order of Innovative Global Solution, Inc., the sum of &75,000 (Seventy Five
Thousand & 00/100 Dollars), with interest at the rate of 6% per annum on the
unpaid balance.
Said sum shall be payable in the manner following:
$75,000 plus interest due April 6, 2001.
The undersigned shall have the right to prepay without penalty. In the event any
payment due hereunder is not made when due, the entire balance shall be
immediately due at the option of the holder.
In the event of default, the undersigned agrees to pay all reasonable attorney
fees and costs of collection.
_________________
William Son
<PAGE>
EXHIBIT 10.17
Promissory Note
San Diego, California
Date: April 15, 1999
Loan Amount: $ 50,000.00
For value received, the undersigned jointly and severally promises to pay to the
order of Innovative Global Solution, Inc., the sum of $ 50,000.00 (Fifty
Thousand Dollars), with interest at the rate of 8% per annum on the unpaid
balance.
Said sum shall be payable in the manner following:
$ 50,000.00 plus interest due October 30,1999.
The undersign shall have the right to prepay without penalty. In the event any
payment due hereunder is not made when due, the entire balance shall be
immediately due at the option of the holder.
In the event of default, The undersigned agrees to pay all reasonable attorney
fees and costs of collection.
__________________
William Son
<PAGE>
EXHIBIT 10.18
NEOPOINT, INC.
SECOND
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
__________________________________
<PAGE>
NEOPOINT, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is entered
into as of October 7, 1999, by and among NeoPoint, Inc., a California
corporation (the "Company"), Mr. William Son ("Founder") and the holders of the
Company's Series A Preferred Stock and Series B Preferred Stock and the entities
and individuals listed on Exhibit A attached hereto (collectively, the
---------
"Investors") which Exhibit may be updated to add additional purchasers of equity
securities from the Company including, but not limited to purchasers of Series C
Preferred Stock pursuant to that certain Series C Preferred Stock Purchase
Agreement of even date herewith as the same may be amended to reflect purchasers
under subsequent closings pursuant to the terms of such agreement (the "Series C
Agreement").
RECITALS:
Concurrently herewith, the Company and certain of the Investors are
entering into a Series C Preferred Stock Purchase Agreement pursuant to which
the Investors are purchasing from the Company shares of the Company's Series C
Preferred Stock (the "Series C Shares").
The Company has previously issued 6,366,668 shares of its Series A
Preferred Stock (the "Series A Shares") to certain of the Investors (the "Series
A Holders") and 6,000,000 shares of its Series B Preferred Stock (the "Series B
Shares") to certain of the Investors (the "Series B Holders").
The Company and the Series A Holders were parties to that certain
Investors' Rights Agreement dated October 31, 1997 (the "First Rights
Agreement") which First Rights Agreement was amended and restated in its
entirety pursuant to the terms of that certain Amended and Restated Investors'
Rights Agreement dated November 24, 1998 (the "Prior Rights Agreement") by and
among the Company and the holders of the Series A Shares and the Series B Shares
(the Series A Holders and the Series B Holders to be referred to collectively
herein as "Existing Preferred Holders").
The Company and the Existing Preferred Holders desire to amend and restate
the Prior Rights Agreement in order to grant to purchasers of the Series C
Shares the rights set forth in this Agreement and to make certain other
revisions reflected herein.
The Prior Rights Agreement provides in Section 4.1 that the obligations of
the Company and the rights of the other parties thereto may be waived or amended
with the written agreement of the Company and the holders of at least sixty-six
and two thirds percent (66.67%) of the issued and issuable Registrable
Securities, and that any such amendment is enforceable against all Holders of
Registrable Securities and the Company.
<PAGE>
Investors holding at least sixty-six and two thirds percent (66.67%) of the
issued or issuable Registrable Securities and the Company now desire to amend
and restate the Prior Rights Agreement in full as follows:
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
1. Registration Rights.
-------------------
1.1. Definitions. As used in this Agreement, the following terms
-----------
shall have the following respective meanings:
(a) The terms "register", "registered" and "registration" refer
to a registration effected by the preparation and filing of a registration
statement in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of the effectiveness of such
registration statement.
(b) The term "Registrable Securities" means (i) any and all
shares of Common Stock held by an Investor, (ii) any and all shares of Common
Stock of the Company issued or issuable upon conversion of the Series A Shares,
the Series B Shares or the Series C Shares, (iii) any and all shares of Common
Stock of the Company issued in lieu of stock referred to in clauses (i) and (ii)
in any reorganization which have not been sold to the public, (iv) stock issued
in respect of the stock referred to in (i), (ii), (iii) as a result of a stock
split, stock dividend, recapitalization or the like, which has not been sold to
the public, and (iv) the shares of Common Stock issued to the Founder (the
"Founders' Stock"), provided, however, that only for the purposes of Section 1.2
hereof, (x) the Founder's Stock shall not be deemed to be Registrable
Securities, and (y) the Founder shall not be deemed a Holder.
(c) The terms "Holder" or "Holders" means any person or persons
to whom Registrable Securities were originally issued or qualifying transferees
under Section 1.10 hereof who hold Registrable Securities.
(d) The term "Initiating Holders" means any Holder or Holders of
20% or greater of the aggregate of the Registrable Securities then outstanding.
(e) The term "SEC" means the Securities and Exchange Commission.
(f) The term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Sections 1.2, 1.3 and 1.4 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, reasonable fees and disbursements of one counsel for the Holders, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company.)
<PAGE>
1.2. Demand Registration.
(a) Request for Registration. In case the Company shall receive
------------------------
from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to at least 20% of the
aggregate number of Registrable Securities then outstanding, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
all such registrations, qualifications and compliances (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualifications under the applicable blue sky or other state
securities laws and appropriate compliance with exemptive regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Initiating Holder's or Initiating
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request given within
twenty (20) days after receipt of such written notice from the Company; provided
that the Company shall not be obligated to take any action to effect such
registration, qualification or compliance pursuant to this Section 1.2:
(A) at any time prior to the earlier of (i) six (6)
months following the effective date of the registration statement under the
Securities Act for the Company's initial registered underwritten public offering
(the "IPO") of its securities to the general public (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction) or (ii) October 31, 2001;
(B) in any particular jurisdiction in which the
Company would be required to execute a general qualification or compliance
unless the Company is already subject to service in such jurisdiction and except
as required by the Securities Act;
(C) after the Company has effected two (2) such
registrations pursuant to this Section 1.2(a) and such registrations have been
declared or ordered effective;
(D) unless the anticipated aggregate proceeds, net of
underwriting discounts and commissions, for such registration exceeds seven
million five hundred thousand dollars ($7,500,000) prior to or at the Company's
IPO and five million dollars ($5,000,000) after the Company is a reporting
company under the Securities Exchange Act of 1934 as amended immediately prior
to the time of such offering; or
<PAGE>
(E) if the Company has effected a demand registration
pursuant to this Section 1.2 within the previous twelve (12) months of receipt
of a demand registration request from Initiating Holders.
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, but in any event within one hundred twenty
(120) days if the registration statement being filed is not the initial
registered public offering of the Company's equity securities), after receipt of
the request or requests of the Initiating Holders; provided, however, that if
the Company shall furnish to such holders a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
it would be detrimental to the Company and its shareholders for such
registration statement to be filed at the date filing would be required and it
is therefore essential to defer the filing of such registration statement, the
Company shall have an additional period of not more than one hundred twenty
(120) days after the expiration of the initial 120-day period (or 90-day period,
as applicable) within which to file such registration statement; provided,
however, that the Company may not utilize this right more than once in any
twelve month period.
(b) Underwriting. If the Initiating Holders intend to distribute
------------
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as part of their request made pursuant to this
Section 1.2 and the Company shall include such information in the written notice
referred to in Section 1.2(a)(i). In such event, the underwriter shall be
selected by the Company and shall be reasonably acceptable to a majority in
interest of the Initiating Holders. The right of any Holder to registration
pursuant to this Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters.
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, the Initiating Holders
shall so advise all Holders, and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all Holders thereof in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders. If any Holder
of Registrable Securities disapproves of the terms of the underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. Any Registrable Securities which are
excluded from the underwriting by reason of the underwriter's marketing
limitation or withdrawn from such underwriting shall be withdrawn from such
registration.
(c) Company Shares. If the managing underwriter has not limited
--------------
the number of Registrable Securities to be underwritten, the Company may include
securities for its own account or for the account of others in such registration
if the managing underwriter so
<PAGE>
agrees and if the number of Registrable Securities which would otherwise have
been included in such registration and underwriting will not thereby be limited.
1.3. Company Registration.
--------------------
(a) Registration. If at any time or from time to time, the
------------
Company shall determine to register any of its securities, for its own account
or the account of any of its shareholders, other than a registration on Form S-8
relating solely to employee stock option or purchase plans, or a registration on
Form S-4 relating solely to an SEC Rule 145 transaction, or a registration on
any other form (other than Form S-1, S-2, S-3, SB-1 or SB-2, or their successor
forms) or any successor to such forms, which does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and compliance), and in
any underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 20 days after receipt of such written
notice from the Company, by any Holder or Holders of Registrable Securities,
except as set forth in Section 1.3(b) below.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
1.3, if the underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, and (i) if such registration is the
first registered offering of the sale of the Company's securities to the general
public, and if the Registrable Securities then held by the Founder and the
officers of the Company are similarly limited or excluded from the registration
and underwriting, then the underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting, or may exclude
Registrable Securities entirely from such registration and underwriting, or (ii)
if such registration is other than the first registered offering of the sale of
the Company's securities to the general public, and if the Registrable
Securities then held by the Founder and the officers of the Company are
similarly limited for inclusion in the registration and underwriting, then the
underwriter may limit the amount of the Registrable Securities to be included in
the registration and underwriting by the Company's shareholders; provided
however, that the number of Registrable Securities to be included in such
registration and underwriting under this Section 1.3(b) shall not be reduced to
less than thirty percent (30%) of the aggregate securities included in such
registration without the prior consent of at least a majority of the
<PAGE>
Holders who have requested their shares to be included in such registration and
underwriting. In addition, if any limitation of the number of shares of
Registrable Securities to be registered by the Holders is required pursuant to
this subsection, the number of shares that may be included in the registration
on behalf of the Holders shall be allocated first to the Investors, and any
amounts remaining available following such initial allocation shall be allocated
pro rata among the remaining Holders requesting registration in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by each of such Holders as of the date of the notice pursuant to Section
1.3(a)(i) above. The Company shall so advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto,
and if any Holder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
For any selling Holder which is a partnership or corporation, the partners,
retired partners and shareholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single selling Holder
such that any pro rata reduction with respect to such selling Holder shall be
based upon the aggregate amount of Registrable Securities owned by all entities
and individuals included in such selling Holder.
1.4. Form S-3. In addition to the rights and obligations set forth
--------
in Section 1.2 above, if the Company shall receive from any Holder or Holders of
the Registrable Securities a written request that the Company file a
registration statement on Form S-3 (or any successor to Form S-3) for a public
offering of shares of Registrable Securities and any related qualification or
compliance, the reasonably anticipated aggregate price to the public of which
(net of underwriting discounts and commissions) would exceed $1,000,000 and the
Company is then a registrant entitled to use Form S-3 to register the shares for
such an offering, the Company will give prompt written notice of the proposed
registration, qualification and compliance to all other Holders and shall use
its best efforts to cause such shares to be registered for the offering as may
be requested as soon as practicable on Form S-3 (or any successor form to Form
S-3); provided, however the Company shall not be required to effect a
registration pursuant to this Section 1.4:
(a) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(b) if the Company, within ten (10) days of the receipt of the
request of the Initiating Holders, gives notice of its bona fide intention to
effect the filing of a registration statement with the SEC within sixty (60)
days of receipt of such request (other than with respect to a registration
statement relating to a Rule 145 transaction, an offering solely to employees or
any other registration which is not appropriate for the registration of
Registrable Securities);
<PAGE>
(c) during the period starting with the date of filing of, and
ending on a date one hundred eighty (180) days following the effective date of,
a registration statement described in (b) above or pursuant to Section 1.2,
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and further
provided that no other person or entity could require the Company to file a
registration statement in such period;
(d) if the Company has effected two (2) registrations pursuant
to this Section 1.4 within the 12-month period prior to the date of such
request; or
(e) if the Company shall furnish to such Initiating Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be detrimental
to the Company and its shareholders for such registration statement to be filed
on or before the date filing would be required and it is therefore essential to
defer the filing of such registration statement, in which case the Company shall
have the right to defer such filing for a period of not more than ninety (90)
days after the furnishing of such a certificate of deferral, provided that the
Company may not defer such filing pursuant to this Section 1.4 more than once in
any 12-month period.
In the event such Initiating Holders propose to offer the shares of
Registrable Securities pursuant to this Section 1.4 by means of an underwriting,
the proposed underwriters shall be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. The
Company shall give written notice to all Holders of the receipt of a request for
registration pursuant to this Section 1.4 and shall provide a reasonable
opportunity for other Holders to participate in the registration, provided that
if the registration is for an underwritten offering, the terms of Section 1.2(b)
shall apply to all participants in such offering.
1.5. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 1 shall be borne by the Company except as follows:
(a) The Company shall not be required to pay for expenses of any
registration proceeding begun pursuant to Section 1.2, the request for which has
been subsequently withdrawn by the Initiating Holders (a "Withdrawn Request"),
in which case such expenses shall be borne by the Holders requesting such
withdrawal unless: (i) at the time of such withdrawal, the Holders have learned
of a material adverse change in the condition, business or prospects of the
Company from that known to the Initiating Holders at the time of their request,
or (ii) a majority-in-interest of the Initiating Holders (A) elect, in their
sole discretion, to treat the Withdrawn Request as one of their two (2) demand
registrations permitted pursuant to Section 1.2 above, and (B) deliver to
Company written evidence of their agreement in such form as Company may request.
(b) The Company shall not be required to pay fees or
disbursements of legal counsel of a Holder unless a majority-in-interest of the
Holders specify one special counsel (in which case the Company will only pay the
fees or disbursements of that one special counsel).
<PAGE>
(c) The Company shall not be required to pay underwriters' fees,
discounts or commissions relating to Registrable Securities.
1.6. Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Rights
Agreement, the Company will keep each Holder participating therein advised in
writing as to the initiation of each registration, qualification and compliance
and as to the completion thereof. Except as otherwise provided in Section 1.5,
at its expense the Company will:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities 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 up to one hundred eighty (180) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities 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 and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or, except as required under the
Securities Act, to file a general consent to service of process in any such
states or jurisdictions.
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or automated quotation system
on which similar securities issued by the Company are then listed.
1.7. Indemnification.
---------------
(a) The Company will indemnify and hold harmless each Holder of
Registrable Securities and each of its officers, directors and partners, and
each person controlling such Holder, with respect to which such registration,
qualification or compliance has been effected pursuant to this Rights Agreement,
and each underwriter, if any, and each person who controls any underwriter of
the Registrable Securities held by or issuable to such Holder, against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement,
<PAGE>
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, or any violation or alleged violation by the Company of
the Securities Act, the Securities Exchange Act of 1934 (the "Exchange Act") and
any state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, each person controlling such
Holder, and each such underwriter and each person who controls any such
underwriter, as and when they incur any reasonable legal and other expense in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 1.7(a) shall not apply to amounts paid in settlement
of any such claim, loss, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld); and provided further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder, controlling person or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company within the meaning of the Securities Act, and
each other such Holder, each of its officers, directors and partners and each
person controlling such Holder, against all claims, losses, expenses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by the Holder in an
instrument duly executed by such Holder specifically for use therein; provided,
however, that the indemnity agreement contained in this Section 1.7(b) shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if such settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld); and provided further, that
the total amount for which any Holder shall be liable under this Section 1.7(b)
shall not in any event exceed the net proceeds received by such Holder from the
sale of Registrable Securities held by such Holder in such registration.
<PAGE>
(c) Each party entitled to indemnification under this Section
1.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, except to the extent such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties 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. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
(d) The obligations of the Company and Holders under this
Section 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.8. Information by Holder. Any Holder or Holders of Registrable
---------------------
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.9. Rule 144 Reporting. With a view to making available to Holders
------------------
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, after ninety (90) days after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
<PAGE>
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(d) so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed by the Company as the Holder may reasonably request in complying with
any rule or regulation of the SEC allowing the Holder to sell any such
securities without registration.
1.10. Transfer of Registration Rights. Holders' rights to cause the
-------------------------------
Company to register their securities and keep information available, granted to
them by the Company under (i) Sections 1.2 and 1.3, may be assigned to a
transferee or assignee of not less than 450,000 shares of a Holder's Registrable
Securities not sold to the public and (ii) Sections 1.4 and 1.9, may be assigned
to a transferee or assignee of not less than 250,000 shares of a Holder's
Registrable Securities not sold to the public, provided in each case that the
Company is given written notice by such Holder at the time of or within a
reasonable time after said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned. The foregoing 450,000 share limitation
and 250,000 share limitation, as applicable, shall not apply, however, to (i)
transfers by a Holder which is a limited partnership to its partners or retired
partners, an affiliated limited partnership or other affiliate of such Holder
provided, however, that all such transferees or assignees agree in writing to
appoint a single representative as their attorney-in-fact for the purpose of
receiving any notices and exercising their rights under this Section 1 or (ii)
transfers to another holder of Registrable Securities who already possesses
registration rights pursuant to the terms of this Investors' Rights Agreement.
The Company may prohibit the transfer of any Holders' rights under this Section
1.10 to any proposed transferee or assignee who the Company and a majority-in-
interest of the other Holders reasonably believe is a direct competitor of the
Company.
1.11. "Market Stand-Off" Agreement Each Holder hereby agrees that,
----------------------------
during the period of duration (not to exceed 180 days) specified by the Company
and an underwriter of common stock or other securities of the Company following
the effective date of a registration statement of the Company filed under the
Securities Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase,
pledge or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any securities of the Company held by it at any time during
such period except common stock included in such registration; provided,
however, that such agreement shall not be required unless all officers and
directors and key employees of the Company and all other persons with
registration rights (whether or not pursuant to this Agreement) or purchasing
common stock of the Company enter into similar agreements.
<PAGE>
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 of securities of every other person subject to the
foregoing restriction) until the end of such period.
1.12. Termination of Rights. The rights of (a) any particular Holder
---------------------
to cause the Company to register securities under Sections 1.2, 1.3, and 1.4
shall terminate with respect to such Holder following a bona fide, firmly
underwritten public offering of shares of Common Stock registered under the
Securities Act and at such time as such Holder is able to dispose of all of his
or its Registrable Securities in one three-month period pursuant to the
provisions of Rule 144, provided that such Holder holds Registrable Securities
constituting less than 1% of the outstanding voting stock of the Company, or at
such time that the Holder is eligible to sell such Registrable Securities
pursuant to Rule 144(k) and (b) all Holders to cause the Company to register
securities under Sections 1.2, 1.3, and 1.4 shall terminate as to all Holders
upon the expiration of seven (7) years from the closing of the IPO.
2. Right of First Refusal to Purchase Equity Securities.
----------------------------------------------------
2.1. Purchase Right. If at any time the Company should desire to
--------------
issue any Equity Securities (as hereinafter defined) in a transaction not
registered under the Securities Act in reliance upon a claimed exemption
thereunder, it shall give each Investor holding a minimum of 450,000 shares of
Registrable Securities (each, a "Qualifying Investor") the first right to
purchase the Qualifying Investors' pro rata share (or any part thereof) of all
of such privately offered Equity Securities on the same terms as the Company is
willing to sell such Equity Securities to any other person (the "Purchase
Right"). The Qualifying Investors' pro rata share of the Equity Securities shall
be equal to that percentage of the outstanding Common Stock of the Company
beneficially owned by the electing Qualifying Investor on the date thereof
versus all of the outstanding Common Stock of the Company beneficially owned by
all of the Qualifying Investors on the date thereof. For purposes of this
Section 2, the outstanding Common Stock of the Company shall include (i)
outstanding shares of Common Stock, and (ii) shares of Common Stock issued or
issuable upon conversion of any then outstanding Preferred Stock of the Company.
2.2. Notice of Intent to Sell and Issue. Prior to any sale or
----------------------------------
issuance by the Company of any Equity Securities, the Company shall notify each
Qualifying Investor in writing of its intention to sell and issue such
securities, setting forth the terms under which it proposes to make such sale.
Within fifteen (15) days after receipt of such notice, each Qualifying Investor
shall notify the Company whether the Qualifying Investor desires to exercise the
option to purchase the Qualifying Investor's pro rata share (or any part
thereof) of the Equity Securities so offered. In no event shall the Qualifying
Investor be obligated to purchase any Equity Securities pursuant to this Section
2, nor does the Qualifying Investor make any representation or warranty that it
plans to do so.
2.3. Qualifying Investor's Failure to Purchase. After termination of
-----------------------------------------
the fifteen (15) day period specified in Section 2.2 above, the Company may,
during a period of sixty (60) days following the end of such fifteen (15) day
period, sell and issue such Equity Securities
<PAGE>
as to which the Qualifying Investors do not indicate a desire to purchase to
another person upon terms and conditions no less favorable to the Company than
those set forth in the notice to the Qualifying Investors. In the event the
Company has not sold the Equity Securities within said sixty (60) day period,
the Company shall not thereafter issue or sell any Equity Securities without
first offering such securities to the Qualifying Investors in the manner
provided above.
2.4. Qualifying Investor Purchase. If a Qualifying Investor gives
----------------------------
the Company notice that the Qualifying Investor desires to purchase any of the
Equity Securities offered by the Company, payment for the Equity Securities
shall be by check or wire transfer against delivery of the Equity Securities at
the executive offices of the Company within ten (10) days after giving the
Company such notice, or, if later, the closing date for the sale of such Equity
Securities. The Company shall take all such action as may be required by any
regulatory authority in connection with the exercise by the Qualifying Investor
of the Purchase Right.
2.5. Excluded Securities. The Purchase Right contained in this
-------------------
Section 2 shall not apply to the issuance by the Company of Equity Securities
(i) to employees, officers, directors or consultants of the Company which are
approved or ratified by the Company's Board of Directors, (ii) pursuant to the
acquisition of all or part of another company by the Company by merger or other
reorganization, or by the purchase of all or part of the assets of another
company, pursuant to a plan, agreement or arrangement unanimously approved by
the Board of Directors, (iii) issued upon conversion of the Preferred Shares,
(iv) issued in connection with any stock split, stock dividend, recapitalization
or similar event, (v) to corporate partners or in connection with other
strategic alliances approved by the Board of Directors, (vi) issued pursuant to
the Series C Agreement, or (vii) issued in connection with an IPO.
2.6. Termination. The Purchase Right shall terminate (a) as to any
-----------
Qualifying Investor, when such Qualifying Investor declines to exercise in full
the purchase option referenced in Section 2.2 above unless the Company requests
in writing that such Qualifying Investor not exercise such purchase option in
full, and (b) as to all Investors, upon the closing of the IPO.
2.7. Equity Securities. The term "Equity Securities" shall mean (i)
-----------------
Common Stock and rights, options or warrants to purchase Common Stock, (ii) any
security other than Common Stock having voting rights in the election of the
Board of Directors, not contingent upon a failure to pay dividends, (iii) any
security convertible into or exchangeable for any of the foregoing, and (iv) any
agreement or commitment to issue any of the foregoing.
2.8. Assignment of Purchase Right. A Holder shall have the right to
----------------------------
assign the Purchase Right to an affiliate of the Investor or in connection with
a sale or transfer of at least 450,000 shares of Registrable Securities (as
adjusted for any recapitalization or reclassification). For the purposes of this
Section 2, an "affiliate" shall mean any partner or shareholder of the Investor
or any person or entity that directly or indirectly through one or more
intermediaries controls or is controlled by or is under common control with the
Investor. For the purposes of this Section 2, an Investor shall be a Qualifying
Investor if such Investor holds a minimum of
<PAGE>
450,000 shares of Registrable Securities on the date that is ten (10) business
days prior to the date the Company issues the notice pursuant to Section 2.2
hereof.
3. Maintenance Right.
-----------------
3.1 Minimum Holding. Each of the Investors and the Company
---------------
acknowledge and agree that Siemens Aktiengesellschaft ("Siemens") shall, in
addition to any rights it may have under the Purchase Right but subject to the
limitations set forth in Sections 3.2 and 3.3 below, be entitled to acquire from
the Company, on the terms set forth in this Section 3, an amount of Equity
Securities of the Company (the "Maintenance Right") which allows Siemens to
continue to hold not less than ten percent (10%) of the Equity Securities of the
Company (the "Minimum Holding"). In the event that the Company issues Equity
Securities after the date of this Agreement which issuance results in Siemens'
holding less than the Minimum Holding, then, provided that Siemens has exercised
the Purchase Right provided for in Section 2 to the fullest extent allowed, the
Company shall allow Siemens to purchase additional Series C Shares (or, in the
event that the Company does not have sufficient authorized Series C Shares, an
Equity Security with substantially similar rights, preferences and privileges to
the Series C Shares) sufficient to allow it to maintain the Minimum Holding. The
purchase price and other terms and conditions applicable to the purchase of
Equity Securities to be acquired upon exercise of the Maintenance Right shall be
no less favorable to the Company than the price and terms applicable to the sale
of the Series C Shares pursuant to the Series C Agreement. In the event that the
purchase price and other terms and conditions applicable to the issuance of
Equity Securities which triggers the Maintenance Right are more favorable to the
Company than those of the Series C Shares issued under the Series C Agreement,
then the purchase price and other terms and conditions applicable to the
purchase of Equity Securities to be acquired upon exercise of the Maintenance
Right shall be equivalent to the terms applicable to the issuance of Equity
Securities which triggers the Maintenance Right.
3.2 Excluded Securities. The Maintenance Right contained in this
-------------------
Section 3 shall not apply to the issuance by the Company of Equity Securities
(i) issued upon conversion of the Preferred Shares, (ii) issued in connection
with any stock split, stock dividend, recapitalization or similar event, or
(iii) issued in connection with an IPO.
3.3 Restrictions of Purchase Right. The issuance of securities by
------------------------------
Company to Siemens under this Section 3 shall not give rise to the Purchase
Right provided in Section 2.
3.4 Termination of Maintenance Right. The Maintenance Right shall
--------------------------------
terminate (a) when Siemens declines to exercise in full the purchase option
referenced in Section 2.2 above, (b) when Siemens transfers any of the
securities of the Company it holds to a third party or (c) upon the closing of
the IPO.
4. Covenants of the Company.
------------------------
4.1. Financial Information. The Company shall provide to each
---------------------
Investor annual and quarterly financial statements, on a timely basis, prepared
in accordance with generally accepted accounting principles, with annual
statements certified by independent public
<PAGE>
accountants. Upon reasonable advance request in writing, each Investor holding a
minimum of ten percent (10%) of the outstanding equity of the Company determined
on a fully diluted basis will have the right to inspect the financial books and
records of the Company.
4.2. Termination of Covenants. The covenants set forth in this
------------------------
Section 4 shall terminate and be of no further force and effect after the
closing of the Company's first firm commitment underwritten public offering
registered under the Securities Act.
4.3. Additional Registration Rights. The Company shall not, without
------------------------------
the prior written consent of Investors holding a majority-in-interest of
Registrable Securities at the time of such consent, enter into any agreement or
take any action that provides to any holder of the Company's securities rights
similar to those provided hereunder which have a preference over the rights and
preferences set forth herein.
5. General.
-------
5.1. Waivers and Amendments. With the written consent of the record
----------------------
or beneficial holders of at least sixty-six and two-thirds (66 2/3%) of the
Registrable Securities issued or issuable upon conversion of the Series A
Shares, the Series B Shares and Series C Shares, the obligations of the Company
and the rights of the other parties under this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely), and with the same
consent the Company, when authorized by resolution of its Board of Directors,
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement; provided, however, that no such modification, amendment or
waiver shall reduce the aforesaid percentage of Registrable Securities without
the consent of all of the Holders of the Registrable Securities. Upon the
effectuation of each such waiver, consent, agreement of amendment or
modification, the Company shall promptly give written notice thereof to the
record holders of the Registrable Securities who have not previously consented
thereto in writing. This Agreement or any provision hereof may be changed,
waived, discharged or terminated only by a statement in writing signed by the
party against which enforcement of the change, waiver, discharge or termination
is sought, except to the extent provided in this Section 5.1.
5.2. Effect on Prior Agreement; Waiver of Right of First Refusal.
-----------------------------------------------------------
This Agreement amends and supersedes any rights or obligations under the Prior
Rights Agreement an operates as a waiver of the Purchase Right under the Prior
Agreement with respect to any issuances of Equity Securities issued prior to the
date of this Agreement; provided, however, that any prior waiver of rights under
the Prior Rights Agreement and any and all other Registration Rights Agreements
shall remain in full force and effect.
5.3. Adjustment of Shares. Except as may be otherwise expressly
--------------------
provided herein, all share amounts described in this Agreement shall be
automatically adjusted to reflect the effect of any stock split, reverse stock
split, stock dividend, or other recapitalization affecting the number of
outstanding Registrable Securities.
<PAGE>
5.4. Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
5.5. Dispute Resolution. Any controversy, dispute or claim arising
------------------
out of, in connection with or in relation to the interpretation, performance or
breach of this Agreement, or any action taken by any party or otherwise arising
out of the execution or performance thereof, including any claim based on a
contract, tort or statute, shall be determined in accordance with this Section
5.5.
(a) Informal Dispute Resolution. Before making a demand for
---------------------------
arbitration of any dispute covered by this Section, the parties shall submit the
dispute for mediation before the American Arbitration Association ("AAA"), which
mediation shall involve at least one officer of each party involved having at
least the rank of Vice President or the equivalent. All submissions to the
mediator shall be in writing and supported by any documentary evidence which a
party wishes to attach to the submission. Said officers shall endeavor to
resolve the dispute within thirty (30) days after said submission. If they are
unable to resolve the dispute in such period, any party may thereafter submit
the matter to arbitration in accordance with Section 5.5(b). The submission of a
dispute to mediation shall toll the limitations period described in Section
(b)(i) below from the time of the submission until the mediator determines an
impasse exists.
(b) Arbitration. If the parties are unable to resolve a dispute
-----------
pursuant to Section 5.5(a) above, then the dispute shall be determined by
arbitration to be conducted in the English language in San Diego, California,
under the Large Complex Case Program of the American Arbitration Association
("LCCP") and in accordance with the AAA's Commercial Arbitration Rules and
Supplementary Procedures pertaining to the LCCP, as modified herein.
(i) Any party wishing to make a claim must file an
arbitration demand within 180 days from the date on which that party has actual
knowledge of the claim. The claim shall be deemed to have been discovered on the
date when the party discovers the essential facts giving rise to such claim.
This paragraph, together with the tolling provision set forth above, shall be a
statute of limitation for any arbitration claim and the failure of a party to
file an arbitration demand as described herein shall forever bar that party from
making such claim. The arbitration panel shall not have jurisdiction to hear or
decide on the merits any claim for which an arbitration demand is not filed
within the limitations period unless the parties agree in writing to extend or
toll the limitation period.
(ii) The claim shall be arbitrated before three
arbitrators, each of whom have experience in resolving corporate and/or
securities disputes, and have committed to the parties in advance that he/she
will conduct a hearing in strict accordance with the requirements of this
Section.
(iii) The parties to the arbitration shall attempt to
select the arbitrators from names provided by the AAA at the administrative
conference conducted under the LCCP Supplementary Procedures. To the extent the
parties are unable to agree upon any
<PAGE>
arbitrators at the administrative conference or within twenty days (20)
thereafter, the arbitrator(s) shall be chosen by the AAA in accordance with the
Commercial Arbitration Rules, subject to the qualification requirements
specified herein.
(iv) The arbitrators shall have the following powers, in
addition to any powers and authority granted them pursuant to the applicable AAA
rules and procedures:
(1) The power to appoint expert witnesses, at the
parties' expense, to assist the arbitrators in understanding any issue to be
resolved in the dispute, provided that such expert provides the parties with any
documents created, referred to, or relied on in forming his/her opinion and is
subject to examination by the parties at the hearing;
(2) The power, at his/her discretion, to grant
interim or final equitable relief, including without limitation injunctive
relief and specific performance, provided that said relief bears a relationship
to the contract rights and obligations of the parties; and
(3) The power to impose sanctions, based upon the
failure of any party to comply with an arbitration order, rule or procedure
applicable to the arbitration.
(v) Each party shall have the right to take discovery in
accordance with the California Rules of Civil Procedure, limited to: (i) one set
of document requests (not to exceed fifteen (15) requests); (ii) one set of
requests for admissions (not to exceed five (5) requests without subparts); and
(iii) a maximum of five (5) depositions (provided that each party shall have the
right, without limitation, to take depositions to be used as evidence in the
arbitration hearing upon a satisfactory showing that the deponent is unavailable
to testify at the hearing).
(vi) Within a reasonable period prior to the arbitration
hearing and after the close of discovery, the parties shall meet informally to
attempt in good faith to agree on issues to be decided in the arbitration, facts
which will not be disputed in the arbitration, and whether any issues in the
dispute should be resolved prior to the hearing and determination of other
issues. The agreed issues and undisputed facts and, if applicable, order of
issues shall be submitted in writing to the arbitrators no later than five (5)
days prior to the commencement of the hearing.
(vii) Failing agreement between the parties, any party
shall have the right and the arbitrators shall have the discretion to have an
issue heard and resolved prior to the hearing on other issues upon a showing
that early resolution of said issues will be likely to resolve the entire
dispute or substantially reduce the scope of the hearing. The arbitration
procedures set forth in this Section shall not vary with respect to any early
resolution of issues, except that the arbitrators shall have ten (10) days to
decide any such issue before continuing with the arbitration hearing, in which
case the maximum length of the arbitration hearing shall be extended
accordingly.
<PAGE>
(viii) No later than ten (10) days prior to the hearing,
either party shall have the right to make a formal written offer to resolve the
dispute on any basis that the party deems to be appropriate. The other party
shall have a period of five (5) days thereafter within which to reject or accept
the offer. In the event the offer is rejected, and the party making the offer
later obtains an arbitration award more favorable than the terms of the offer,
the offering party shall have the right to recover all costs, including expert
witness and arbitration fees, incurred in connection with the arbitration.
(ix) The arbitration hearing shall be held within 180
days of service of the arbitration demand. To the maximum extent possible, the
hearing shall run continuously during regular business days for a maximum of 25
full business days, including opening statements, presentations of evidence,
motions and closing argument, provided that the arbitration hearing shall be
concluded no later than 60 days after it commences. The parties shall have the
right to submit written briefs in addition to or in lieu of closing arguments.
The award shall include a decision on damages, if any, and costs, expenses and
attorney's fees in accordance with the provisions of this contract. At the
request of either party, the award shall include a written statement of reasons
supporting the award. The award shall be final and binding on the parties and
the basis for any party obtaining an enforceable judgment from a court of
appropriate jurisdiction.
(x) The arbitration proceeding, as well as the fact that
such proceedings have been instituted, shall be kept confidential by the parties
and may be disclosed to their officers, directors and employees only on a need-
to-know basis, to their representatives and advisors or as required by law and
insofar as is necessary to confirm, correct, vacate or enforce the award. In the
event of any breach of this provision following a final award by the arbitrator,
the aggrieved party may initiate a new arbitration proceeding pursuant to this
paragraph to obtain appropriate relief for the violation of this provision.
(xi) Any party may, at its election, seek equitable
relief from a court of appropriate jurisdiction and venue located in California
contemporaneous with the filing or prosecution of any arbitration claim. Any
such action shall not be deemed a waiver by any party of its right to pursue
arbitration or to obtain any legal or equitable relief from the arbitrators as
specified herein, to the extent not inconsistent with any prior equitable relief
which a court might award.
(xii) Subject to subparagraph (viii), the prevailing party
in any such arbitration shall be entitled to recover its costs, expenses
(including expert witness and arbitration expenses), and its reasonable
attorneys' fees. For this purpose, the prevailing party shall be determined
according to the following criteria: (i) if there are multiple claims, the
prevailing party shall be determined with respect to each claim separately; and
(ii) the prevailing party shall be the party who has obtained the greater relief
in connection with any particular claim, although with respect to any claim it
may be determined that there is no prevailing party.
<PAGE>
5.6. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
5.7. Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof.
5.8. Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be delivered effective (i)
upon personal delivery, (ii) one business day after delivery to a reputable
overnight courier service, (iii) upon machine confirmed facsimile transmittal or
(iv) upon receipt if mailed by first class mail, postage prepaid, certified or
registered mail, return receipt requested, addressed (a) if to the Investors,
addresses as set forth in the Company's records, or at such other addresses as
any Investors shall have furnished to the Company in writing, or (b) if to the
Company, at such address as the Company shall have furnished to the Investors in
writing.
5.9. Severability. If any provision of this Agreement, or the
------------
application thereof, is for any reason and to any extent determined by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement and the application of such provision to other persons or
circumstances will be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties agree to use their best efforts to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent greatest possible, the economic,
business and other purposes of the void or unenforceable provision.
5.10. Titles and Subtitles. The titles of the sections and Sections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.12 Additional Closings. Pursuant to the terms of the Series C
-------------------
Agreement, the Company may, at one or more additional closings ("Additional
Closings") offer and sell to one or more additional investors ("New Investors"),
up to that number of shares of Series C Preferred equal to 10,000,000 less the
number of shares of Series C Preferred previously issued and sold by the
Company. The Company and the New Investors purchasing Series C Preferred at any
Additional Closing will execute counterpart signature pages to this Agreement,
and such New Investors will, upon delivery to the Company of such signature
pages, become parties to, and be bound by, this Agreement. Exhibit A to this
---------
Agreement will be amended to list the New Investors and the Company will
promptly furnish to each Investor copies of the amendments to Exhibit A referred
---------
to in the preceding sentence. Upon the completion of each Additional Closing,
each New Investor will be deemed to be an "Investor" for all purposes of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereby have executed this Second Amended
and Restated Investors' Rights Agreement on the date first above written.
COMPANY:
NEOPOINT, a California corporation
By: __________________________________
William Y. Son, President/CEO
Address: 4225 Executive Square,
Suite 600
La Jolla, CA 92037
FOUNDER:
______________________________________
William Y. Son, an individual
<PAGE>
INVESTOR'S COUNTERPART SIGNATURE PAGE
NEOPOINT, INC.
AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT
December 1, 1999
"INVESTOR"
If the signatory is an individual,
please sign and print your name to
the right and print your address below. _________________________________
(Printed Name)
_________________________________
Signature(s)
Address:
_____________________________
_____________________________
_____________________________
Date: December 1, 1999
If Signatory is an organization, please Name of Organization:
print the legal name of the organization
and have an authorized person sign to the
right and print your address below
Address:
_____________________________ By:______________________________
_____________________________
_____________________________ Title:___________________________
Date: December 1, 1999
<PAGE>
EXHIBIT A
Series C Holders
----------------
<PAGE>
EXHIBIT 10.19
PRODUCT DEVELOPMENT AGREEMENT
THIS PRODUCT DEVELOPMENT AGREEMENT ("Agreement") is made this 22nd day of
July, 1999 ("Effective Date"), by and between NEOPOINT, INC., a California
corporation ("NEOPOINT"), located at 4225 Executive Square, 6th Floor, La Jolla,
California 92037, and NEXCOM KOREA, a Korean corporation ("NEXCOM"), located at
2nd Floor, 1600-1 Kwanyang-dong Dongan-gu Kyunggi-do Korea.
WHEREAS, NEXCOM is in the business of developing technology for hand-held
CDMA wireless telecommunication devices;
WHEREAS, NEOPOINT desires that NEXCOM develop a * * * (the "Product")
and to provide appropriate solutions for research and development, production
technology, service technology and training associated with the Product; and
WHEREAS, NEXCOM desires to develop the Product for NEOPOINT and to provide
such solutions to NEOPOINT, subject to the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, NEOPOINT and NEXCOM hereby agree as follows:
1. NEXCOM Product Development Services.
-----------------------------------
1.1 NEXCOM shall develop the Product ("Development Services") on behalf of
NEOPOINT to the specifications set forth in Exhibit A attached hereto
("Specifications").
1.2 A schedule of the estimated milestones for the Development Services is
set forth in Exhibit B, attached hereto ("Milestones"). NEXCOM agrees to use
---------
best efforts to meet the Milestone schedule. NEXCOM shall provide NEOPOINT with
a written report of any actual or anticipated problems (resolved or unresolved)
and any indication of delay promptly upon becoming aware of such circumstance.
Approximately once every month the parties shall meet in person or convene by
conference call for a formal progress presentation during which NEXCOM shall
describe the status of the work and projections of the time of completion of
each stage of the development.
2. Acceptance of the Product.
-------------------------
2.1 Request for Inspection. NEXCOM shall request in writing that NEOPOINT
----------------------
review the development of the Product upon meeting each of the Milestones and
within thirty (30) days prior to the expiration of the term of the Development
Services, as specified in Section 10.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
1
<PAGE>
2.2 Inspection of the Product. Upon receipt of NEXCOM'S written request
-------------------------
for inspection of the Product to determine if NEXCOM has met the relevant
Milestone, NEOPOINT shall review NEXCOM's Development Services. NEOPOINT shall
have up to thirty (30) days after NEXCOM delivers any such inspection request to
NEOPOINT to provide notice to NEXCOM of its failure to satisfactorily comply
with the relevant Milestone. Notwithstanding anything to the contrary contained
in this Section 2, the parties may mutually agree in writing to extend the
inspection time periods.
2.3 Notice of Non-Compliance. If NEOPOINT's inspection of the Development
------------------------
Services and/or the Product uncovers any non-compliance with any Milestone or
any of the Specifications, then NEOPOINT shall provide written notice of any
specific non-compliance to NEXCOM. NEXCOM agrees to use its best efforts to
cure any such non-compliance within fifteen (15) days of receipt of NEOPOINT's
notice of non-compliance. NEXCOM shall request another inspection by NEOPOINT
pursuant to Section 2.2 after curing any non-compliance of the Product. In the
event NEXCOM is unable to cure to NEOPOINT's sole satisfaction the noncompliance
within the above described fifteen (15) day period, NEOPOINT shall have the
rights set forth in Sections 5.5 and 10 below.
2.4 Acceptance Notification. Each Milestone shall be deemed complete upon
-----------------------
the earlier to occur of (a) written confirmation by NEOPOINT specifying that
NEXCOM has satisfactorily complied with the Milestone and (b) forty five (45)
days after NEOPOINT's receipt of a written request for inspection from NEXCOM to
which a notice of non-compliance has not been issued ("Acceptance"). The
Development Services shall be deemed complete upon NEOPOINT's final acceptance
of the Product as evidenced by its delivery of a final acceptance certificate to
NEXCOM and its release of the Escrowed Funds, as defined below ("Final
Acceptance").
3. Additional Duties of NEXCOM.
---------------------------
3.1 Upon Final Acceptance, NEXCOM shall provide NEOPOINT with the Product
and all materials and documentation necessary to allow NEOPOINT to manufacture
the Product, including, but not limited to, all required software (both source
and object code), testing procedures, test jig, service manuals and such other
items mutually agreed upon between the parties ("Additional Materials").
3.2 During the term of this Agreement, NEOPOINT shall be entitled to
modify the properties and specifications of the Product by providing NEXCOM with
a written change order ("Change Order") setting forth the changes to the
Specifications. After receipt of a Change Order, NEXCOM shall provide NEOPOINT
with an estimate of additional expense, if any, and additional time, if any,
required to comply with the modified Specifications. If NEOPOINT agrees to
NEXCOM'S proposed revised Milestone Schedule and any additional costs, then
Exhibits A and B shall be revised and such revised Exhibits shall be executed by
both parties. NEXCOM agrees to use its best efforts to meet the revised
Specifications according to the
2
<PAGE>
revised Milestone schedule.
3.3 NEXCOM shall provide reasonable technological support to assist
NEOPOINT or its designated manufacturing subcontractor to manufacture the
Product.
3.4 NEXCOM shall provide reasonable technological support and assist
NEOPOINT in obtaining customer and agency approval of the Product in NEOPOINT's
market.
3.5 NEXCOM shall provide NEOPOINT with training related to the inspection,
operation and repair of the Product. The level of training and frequency of
training shall be agreed to by the parties.
4. Ownership and Intellectual Property Rights. NEXCOM acknowledges and agrees
------------------------------------------
that the Product is a "work for hire" and that NEOPOINT shall be the sole owner
of the Product which is being developed solely for NEOPOINT's use to its
Specifications. NEXCOM shall have no right to the Product and agrees not to,
directly or indirectly, use, make, market, manufacture, copy, distribute, lease,
license or sell the Product, any Intellectual Property (as defined below) or any
Improvements (as defined below). NEXCOM agrees that NEOPOINT shall own all
right, title and interest in the intellectual property rights incorporated in
(regardless of whether incorporated by NEOPOINT or NEXCOM or its subcontractors)
and/or related to the Products, including but not limited to all patents, patent
applications, copyrights, trademarks, trademark applications, service marks,
service mark applications, trade names, trade secrets, inventions, software
(whether source or object form), hardware, drawings, designs, specifications,
documentation, proprietary know-how or information or other intellectual or
industrial property rights comprising, incorporated into or related thereto
(collectively, the "Intellectual Property"). NEXCOM further agrees that
NEOPOINT shall own and NEXCOM shall have no right to any and all new releases
and new versions of, modifications, alterations, adaptations, translations,
enhancements and additions to and derivative works of any Intellectual Property
(collectively, the "Improvements").
5. Compensation; Payment.
---------------------
5.1 Development Services. In consideration of NEXCOM's performance of the
--------------------
Development Services, NEOPOINT agrees to pay NEXCOM * * *. Each payment
made hereunder other than the Initial Payment shall be referred to herein as an
"Interim Payment").
5.2 Tooling. NEXCOM shall pay for tooling and industrial design cost,
-------
including plastic housing, press molding, LCD, window, key-pad, antenna and all
customized parts. NEOPOINT shall approve tooling design and be entitled to
reasonable design modifications.
5.3 Royalty. In consideration of the performance of the Development
-------
Services and the provision of technical and engineering support for the life of
the Product, NEOPOINT shall pay
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
3
<PAGE>
to NEXCOM a * * * in any market by NEOPOINT or any affiliate, distributor,
representative or agent of NEOPOINT.
5.4 Escrow of Consideration. All Interim Payments shall be deposited by
-----------------------
NEOPOINT in an escrow account (the "Escrow Account") to be established pursuant
to the terms of an Escrow Agreement to be executed by NEXCOM, NEOPOINT and Bank
of America, as Escrow Agent. The Escrow Agreement shall provide for the Escrow
Agent to release thirty percent (30%) of each Interim Payment to NEXCOM within
five (5) days of the date NEOPOINT deposits such Interim Payment in the Escrow
Account.
5.5 Refund of Compensation.
----------------------
A. In the event NEOPOINT terminates this Agreement for cause at any time
during the term hereof, all funds held in the Escrow Account shall be
immediately returned to NEOPOINT and NEOPOINT shall have no further
payment obligations hereunder.
B. In the event NEXCOM fails to meet a Milestone in a timely manner and
NEOPOINT elects not to terminate the Agreement due to such failure,
NEOPOINT shall have the right to cause the Escrow Agent to refund to
NEOPOINT three percent (3%) of all funds then held in the Escrow
Account (the "Refund Right"). This Refund Right shall be additive to
all other rights NEOPOINT has hereunder and may be exercised by
NEOPOINT each time a Milestone is missed by NEXCOM.
6. Additional Duties of NEOPOINT.
-----------------------------
6.1 NEOPOINT shall provide NEXCOM with such information and technical
support as is reasonably requested from NEXCOM from time to time during the term
of this Agreement to assist NEXCOM in its performance under this Agreement.
6.2 * * *. In the event NEOPOINT is unsuccessful in obtaining such
license prior to August 25, 1999, this Agreement shall automatically terminate
and neither party shall have any further obligations hereunder.
6.3 * * *.
6.4 NEOPOINT shall provide a procurement team that will work closely with
NEXCOM to coordinate delivery of sample components and schedule.
6.5 NEOPOINT shall provide NEXCOM technical information and specification
requirements from its customers, which information shall be kept strictly
confidential by NEXCOM.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
4
<PAGE>
7. Confidential Information.
------------------------
7.1 Definition of Confidential Information. "Confidential Information" as
--------------------------------------
used in this Agreement shall mean any and all technical and non-technical
information including patent, copyright, trade secret, and proprietary
information, techniques, sketches, drawings, models, inventions, know-how,
processes, apparatus, equipment, algorithms, software programs, software source
documents, and formulae related to the current, future and proposed products and
services of either party hereto, its suppliers and customers, and includes,
without limitation, its respective information concerning research, experimental
work, development, design details and specifications, engineering, financial
information, procurement requirements, purchasing manufacturing, customer lists,
business forecasts, sales and merchandising and marketing plans and information.
7.2 Nondisclosure and Nonuse Obligations. Each party agrees to use the
------------------------------------
Confidential Information obtained from the other party solely to perform their
respective duties and obligations under this Agreement. Each party agrees that
it will treat all Confidential Information of the other party with the same
degree of care as it accords to its own Confidential Information, and each party
represents that it exercises at least reasonable care to protects its own
Confidential Information. Each party agrees to immediately give notice to the
other party of any unauthorized use or disclosure of the other party's
Confidential Information. Each party agrees to assist the other party in
remedying any such unauthorized use or disclosure of the other party's
Confidential Information.
7.3 Exclusions from Nondisclosure and Nonuse Obligations. The foregoing
----------------------------------------------------
obligations of confidentiality and non-use shall not apply to any Confidential
Information of one party which: (a) was known by the other party prior to its
disclosure by the disclosing party (whether prior or subsequent to the date of
this Agreement) and not obtained or derived, directly or indirectly, from such
party or its affiliates, or if so obtained or derived, was lawfully obtained or
derived, and is not held subject to any confidentiality or non-use obligations;
(b) is or becomes publicly available other than through any act of default of a
party that has an obligation of confidentiality and non-use with respect to such
information; (c) is obtained or derived subsequent to the date of this Agreement
from a third party which, to the best knowledge of the party acquiring such
information, is lawfully in possession of such information and does not hold
such information subject to any confidentiality or non-use obligations; (d) is
developed or derived by a party, prior or subsequent to its disclosure by the
disclosing party, independently and without reference to the Confidential
Information which was disclosed by the other party; or (e) is required to be
disclosed by one of the parties pursuant to applicable law or under a government
or court order; provided, however, that (i) the obligations of confidentiality
and non-use shall continue to the fullest extent not in conflict with such law
or order, and (ii) if and when a party is required to disclose such Confidential
Information pursuant to any such law or order, such party shall promptly notify
the other party and use reasonable best efforts to obtain a protective order or
take such other actions as shall prevent or limit, to the fullest extent
possible,
5
<PAGE>
public access to or disclosure or such Confidential Information.
8. Representations and Warranties of NEXCOM. NEXCOM hereby represents and
----------------------------------------
warrants to NEOPOINT as follows:
NEXCOM is a corporation validly existing and in good standing under
the laws of the Republic of Korea and has all requisite power and authority to
enter into this Agreement and to carry on its business as such business is now
being conducted;
The execution, delivery and performance of this Agreement by NEXCOM and
the consummation of the transactions contemplated hereby do not and will not
conflict with any agreement to which NEXCOM is a party; and
NEXCOM's performance of the Development Services shall not infringe upon
any third party's intellectual property rights and NEXCOM owns all intellectual
property necessary for the performance of the Development Services and has full
right and authority to develop the Product for NEOPOINT's sole use as
contemplated in this Agreement.
9. Indemnity. NEXCOM agrees to indemnify, defend and hold NEOPOINT and its
---------
officers, director, agents, representatives and assigns harmless from and
against any and all claims, demands, losses, actions, damages, liabilities, and
expenses (including reasonable attorneys' fees), investigations and penalties of
any kind or nature whatsoever arising out of or resulting from any and all
claims by third parties for loss, damage or injury caused by (i) NEXCOM's
infringement of any third party patent, copyright, trademark, trade secret or
other intellectual property rights in its performance of this Agreement, (ii)
negligence or wrongful acts of employees or contractors of NEXCOM while
performing the Development Services and (iii) NEXCOM's breach of any term of
this Agreement. In connection with NEXCOM'S indemnification obligations in this
Section 9, (a) NEOPOINT agrees to give prompt written notice to NEXCOM of any
such claim, action or demand and (b) NEOPOINT agrees to fully assist, at
NEXCOM'S expense, in the defense of such claim.
10. Term and Termination.
--------------------
10.1 Term. This Agreement shall remain in effect until the later to
----
occur of (a) 12 months from the Effective Date, (b) the date of final completion
of Development Services unless earlier terminated as set forth herein below and
(c) the date NEOPOINT notifies NEXCOM that it no longer needs the Support
Services. Notwithstanding the termination of this Agreement, the provisions of
Sections 7, 8, 9, 11 and 13 shall survive the termination of this Agreement.
10.2 Termination for Cause. Either party hereto may terminate this
---------------------
Agreement at any time following the other party's breach of any material term
hereof upon not less than thirty (30) days' prior written notice to the
breaching party, and provided further, that the breaching party
6
<PAGE>
has not cured its breach within said cure period. Notwithstanding the foregoing,
either party may terminate this Agreement immediately upon the occurrence of one
of the following: (a) any party to this Agreement files for voluntary or
involuntary Bankruptcy; or (b) any party begins dissolution proceedings.
11. No Consequential Damages. NEITHER NEXCOM NOR NEOPOINT WILL BE LIABLE
------------------------
FOR ANY INTERRUPTION OF BUSINESS, OR ANY INDIRECT, SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE
FORM OF ACTION WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT
LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
13. Limitation of Liability. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
-----------------------
CONTRARY, NEXCOM'S AGGREGATE LIABILITY ARISING FROM OR RELATED TO THIS AGREEMENT
OR NEXCOM'S PERFORMANCE OF ITS DUTIES AND OBLIGATIONS SET FORTH IN THIS
AGREEMENT SHALL NOT EXCEED ONE HUNDRED PERCENT (100%) OF THE AGGREGATE
CONSIDERATION PAID BY NEOPOINT TO NEXCOM.
13. Miscellaneous Provisions.
13.1 Notice. Unless otherwise agreed by the parties, all notices,
------
invoices and communications under this Agreement shall be sent to the parties at
their addresses set forth in the initial paragraph of this Agreement. All
notices shall be sent by registered airmail and where circumstances require,
notices may be sent by wire, cable or telex which shall be confirmed by
registered air mail.
13.2 Force Majeure. Neither party ("Affected Party") hereto shall be
-------------
responsible to the other party ("Non-Affected Party") for non-performance
(either in whole or in part) or delay in performance of the terms and conditions
of this Agreement, due to war, war-like operations; act of God; riot; strikes,
sabotage or other labor disturbances in the manufacturing plant; lockout of the
manufacturing plant; epidemics, floods, earthquakes, typhoon; embargoes, laws
and regulations of the United States or the Korean Government; shortage or
failure in supply of raw materials from the then contemplated sources of supply
or any other causes beyond the control of the parties. In case of any such
event the terms of this Agreement relating to time and performance shall be
suspended during the continuance of the event. Within five (5) days from the
date of commencement of the event, the Affected Party shall advise the Non-
Affected Party in writing when such delay in performance commenced, and the
reasons therefor as enumerated in this Agreement. In addition, within five (5)
days after the delay ends the Affected party shall advise Non-Affected Party in
writing when such delay ended, and shall also specify the time by which the
performance of the obligations hereunder is to be completed. Notwithstanding
the foregoing, NEOPOINT shall have the right to terminate this Agreement in the
event a force majeure continues for thirty (30) days.
7
<PAGE>
13.3 Arbitration, Choice of Venue and Governing Law. Any dispute over
----------------------------------------------
performance under the terms of this Agreement shall be resolved by arbitration
in San Diego, California, and shall be binding as to both parties. This
Agreement shall be governed by and construed in all respects in accordance with
the laws of the State of California without regard to its conflict of laws
provisions.
13.4 Assignment. Neither party shall assign this Agreement to any other
----------
person without the other party's prior written consent.
13.5 Non-Waiver. No claim or right of either party under this Agreement
----------
shall be deemed to be waived or renounced in whole or in part unless the waiver
or renunciation of such claim or right its acknowledged and confirmed in writing
by such party.
13.6 Modification. This Agreement may be modified only by a written
------------
agreement signed by both parties hereto.
13.7 Conflict. In the event of a conflict between this Agreement and
--------
Exhibits A ("Specifications") or B ("Milestone Schedule"), then the provisions
of this Agreement shall prevail.
13.8 Compliance with Law. Each party agrees to abide by the terms and
-------------------
conditions of this Agreement, as well as all pertinent laws and regulations in
performing their duties and obligations set forth in this Agreement.
13.9 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties relating to this subject matter and supersedes all prior or
contemporaneous oral or written agreements concerning such subject matter.
This Agreement may be executed in one or more counterparts which together shall
constitute one single instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by duly authorized officers as of the Effective Date.
NEOPOINT: NEXCOM:
By:_______________________________ By:________________________________
Name:_____________________________ Name:______________________________
Title:____________________________ Title:_____________________________
Date:_____________________________ Dated:_____________________________
[Signature page to Development Agreement]
8
<PAGE>
EXHIBIT A
---------
Specifications
. Product Name : * * *
. Characteristic : * * *
. Baseband Chip Set and SW : * * *
. Frequency
--------------------------------------------------------
* * * * * *
--------------------------------------------------------
* * * * * *
* * *
--------------------------------------------------------
. Weight : * * *
. Dimension : * * *
. Operating Temperature : * * *
. Battery Using Time
--------------------------------------------------------
* * *
--------------------------------------------------------
* * * * * *
* * * * * *
--------------------------------------------------------
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
9
<PAGE>
EXHIBIT B
---------
NeoPoint/NEXCOM Development Milestones
Date Deliveries
* * * 2 Marketing Functional Samples (English Version with NeoPoint logo)
with Product Specifications and feature Sheet
1 Industrial Design Mock-up
* * * 1 set working mockup
* * * 1/st/ Engineering Sample
* * * 2/nd/ Engineering Sample
* * * Approval Sample
* * * Final Approved Sample
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
10
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated April 9, 1999 (except Note 12, as to which the
date is , 2000), in the Registration Statement (Form S-1) and
related Prospectus of Neopoint, Inc.
ERNST & YOUNG LLP
San Diego, California
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the
completion of certain events as described in Note 12 to the financial
statements.
/s/ ERNST & YOUNG LLP
San Diego, California
January 10, 2000
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