United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission file number: 0-9023
COMDIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-2443673
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 7266
1180 Seminole Trail; Charlottesville, Virginia 22906-7266
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(804) 978-2200
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of latest practicable date.
9,202,193 common shares as of April 2, 2000.
Page 1
COMDIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets as of
April 2, 2000 and December 31, 1999 3
Consolidated Statements of Operations
for the Three Months ended
April 2, 2000 and April 4, 1999 4
Consolidated Statements of Cash Flows
for the Three Months ended
April 2, 2000 and April 4, 1999 5
Notes to Consolidated Financial Statements 6-12
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-17
ITEM 3. Quantitative and Qualitative Disclosures
about Market Risks 18
PART II - OTHER INFORMATION
ITEM 4: Submission of Matters to a vote by
Security Holders 19
ITEM 6: Exhibits and Reports on Form 8-K 20
Page 2
COMDIAL CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - (Unaudited)
________________________________________________________________________
April 2, Dec. 31,
In thousands except par value 2000 1999 *
________________________________________________________________________
Assets
Current assets
Cash and cash equivalents $1,899 $1,917
Accounts receivable (less allowance 35,869 39,700
for doubtful accounts: 2000 - $311;
1999 - $302)
Inventories 23,755 22,827
Prepaid expenses and other current
assets 8,222 7,633
________________________________________________________________________
Total current assets 69,745 72,077
Property - net 18,864 19,458
Goodwill 10,409 11,207
Deferred tax asset - net 12,708 11,980
Other assets 19,473 18,352
________________________________________________________________________
Total assets $131,199 $133,074
========================================================================
________________________________________________________________________
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $12,231 $15,135
Accrued payroll and related expenses 2,374 2,652
Other accrued liabilities 3,408 4,575
Current maturities of debt 1,262 471
_______________________________________________________________________
Total current liabilities 19,275 22,833
Long-term debt 28,440 31,795
Deferred tax liability 2,629 2,622
Other long-term liabilities 5,949 4,216
Commitments and contingent liabilities
(see Note I) - -
_______________________________________________________________________
Total liabilities 56,293 61,466
Stockholders' equity
Common stock ($0.01 par value) and
paid-in capital (Authorized 30,000
shares; issued shares: 2000 = 9,202;
1999 = 8,940) 119,000 116,626
Other (1,236) (1,237)
Accumulated deficit (42,858) (43,781)
______________________________________________________________________
Total stockholders' equity 74,906 71,608
Total liabilities and stockholders'
equity $131,199 $133,074
=======================================================================
* Condensed from audited financial statements.
The accompanying notes are an integral part of these financial
statements.
Page 3
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations - (Unaudited)
In thousands except per share amounts
___________________________________________________________
Three Months Ended
April 2, April 4,
2000 1999
___________________________________________________________
Net sales $34,308 $31,864
Cost of goods sold 19,440 19,163
____________________________________________________________
Gross profit 14,868 12,701
Operating expenses
Selling, general & administrative 10,471 8,611
Engineering, research
& development 1,697 2,086
Goodwill amortization expense 799 784
____________________________________________________________
Operating income 1,901 1,220
Other expense
Interest expense 607 382
Miscellaneous expenses - net 31 129
Income before income taxes 1,263 709
Income tax expense (benefit) 340 321
____________________________________________________________
Net income applicable
to common stock $923 $388
============================================================
Earnings per common share and common
equivalent share:
Basic $0.10 $0.04
Diluted $0.10 $0.04
Weighted average common shares outstanding:
Basic 9,099 8,939
Diluted 9,444 8,987
The accompanying notes are an integral part of these financial
statements.
Page 4
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Unaudited)
________________________________________________________________________
Three Months Ended
April 2, April 4,
In thousands 2000 1999
________________________________________________________________________
Cash flows from operating activities:
Cash received from customers $39,588 $31,197
Other cash received 227 167
Interest received 22 1
Cash paid to suppliers and employees (39,341) (35,524)
Interest paid on debt (495) (397)
Income taxes paid (54) (52)
________________________________________________________________________
Net cash used in operating activities (53) (4,608)
Cash flows from investing activities:
Acquisition costs for Array, Aurora, and
Key Voice Technologies - (1)
Proceeds received from ePHONE 2,650 -
Proceeds from the sale of equipment 1 -
Capital expenditures (1,227) (976)
________________________________________________________________________
Net cash provided by (used in) investing
activities 1,424 (977)
Cash flows from financing activities:
Net borrowings under revolver (3,473) 5,774
Proceeds from issuance of common stock 2,129 12
Principal payments on capital lease
obligations (45) (4)
________________________________________________________________________
Net cash provided by (used in)
financing activities (1,389) 5,782
________________________________________________________________________
Net increase (decrease) in cash
and cash equivalents (18) 197
Cash and cash equivalents at
beginning of year 1,917 1,599
_______________________________________________________________________
Cash and cash equivalents at end of period $1,899 $1,796
=======================================================================
Reconciliation of net income to net cash provided by (used in)
operating activities:
Net income $923 $388
_______________________________________________________________________
Depreciation and amortization 2,620 2,218
Decrease (increase) in accounts receivable 3,831 (1,362)
Inventory provision 51 353
Decrease (increase) in inventory (979) 1,009
Increase in other assets (2,552) (2,802)
Decrease (increase) in deferred tax asset (614) 140
Decrease in accounts payable (2,904) (2,688)
Decrease in other liabilities (675) (2,264)
Increase in paid-in capital and
other equity 246 400
______________________________________________________________________
Total adjustments (976) (4,996)
______________________________________________________________________
Net cash used in
operating activities ($53) ($4,608)
======================================================================
The accompanying notes are an integral part of these financial
statements.
Page 5
COMDIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 2, 2000 - (Unaudited)
Note A: CONSOLIDATED FINANCIAL STATEMENTS_______________________
The financial information included as of April 2, 2000, and for
the three months ended April 2, 2000 and April 4, 1999 is
unaudited. The financial information reflects all normal recurring
adjustments necessary for a fair statement of results for such
periods. Accounting policies followed by Comdial Corporation
("Comdial") are described in Note 1 to the consolidated financial
statements in its Annual Report to Stockholders for the year ended
December 31, 1999. The consolidated financial statements for
accounting periods in 2000 contained herein should be read in
conjunction with the 1999 financial statements, including notes
thereto, contained in Comdial's Annual Report to Stockholders for
the year ended December 31, 1999. Certain amounts in the 1999
consolidated financial statements have been reclassified to conform
to the 2000 presentation. The results of operations for the three
months ended April 2, 2000, are not necessarily indicative of
results for the full year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES______________
The preparation of financial statements to conform with
generally accepted accounting principles ("GAAP") requires
management to make certain estimates and assumptions that affect
reported amounts of assets, liabilities, revenues, and expenses.
GAAP also requires disclosure of contingent assets and liabilities
as of April 2, 2000. Actual results may differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents are defined as short-term liquid
investments with maturities, when purchased, of less than 90 days
that are readily convertible into cash. Under Comdial's current
cash management policy, borrowings from the revolving credit
facility are used for operating purposes. The revolving credit
facility is reduced at management's option by cash receipts that
are deposited daily. Bank overdrafts of $3.4 million and $2.2
million are included in accounts payable as of April 2, 2000 and
December 31, 1999, respectively. Bank overdrafts consist of
outstanding checks that have not (1) cleared the bank and (2) been
funded by the revolving credit facility (see Note E). The
revolving credit facility activity is reported on a net basis in
the Consolidated Statements of Cash Flows.
Revenue Recognition
Comdial recognizes revenue as products are shipped. Returned
products are credited against revenues as they are received back
from the customer. The only exceptions to this policy are revenues
Page 6
from national account customers and embedded software. National
account customer revenues are not recognized until the customer
takes title to the equipment. Embedded software revenues are not
recognized until the customer requests a code from Comdial enabling
the software to be activated. Comdial's reporting of software
revenue meets the requirements as set forth by Statement of
Position 97-2 "Software Revenue Recognition."
Other Long-lived Assets
Long-lived assets are amortized based on the assets' useful
lives. Long-lived assets are reviewed for impairment as
circumstances change that might impair the useful life of the
asset. An impairment loss is not recognized unless a portion of
the carrying amount of an asset is no longer recoverable using a
test of recoverability, which is based on expected future
undiscounted cash flows.
Note C: DISPOSALS_______________________________________________
On March 31, 2000, Array Telecom Corporation ("Array"), a
wholly-owned subsidiary of Comdial, and Comdial entered into a
Strategic Alliance agreement with ePHONE Telecom, Inc. ("ePHONE").
Pursuant to the agreement, Array sold its fixed assets, the 3000
family of products, and licensed technology to ePHONE. Comdial
allowed ePHONE to utilize the name "Array" and will provide ePHONE
with access through Comdial to its distribution channels. ePHONE
paid Array on the closing date $2.7 million and will pay royalty
fees to Comdial based on certain gross sales over a five year
period. Most of the $2.7 million will be recognized into income
over the five year period.
Note D: INVENTORIES_____________________________________________
Inventories consist of the following:
_________________________________________________________________
April 2, Dec. 31,
In thousands 2000 1999
_________________________________________________________________
Finished goods $11,529 $8,763
Work-in-process 3,223 4,556
Materials and supplies 9,003 9,508
________________________
Total $23,755 $22,827
_________________________________________________________________
Comdial provides reserves to cover product obsolescence and
those reserves impact gross margin. Future reserves are dependent
on management's estimates of the recoverability of costs of all
inventory. Raw material obsolescence is mitigated by the
commonality of component parts and finished goods by the low level
of inventory relative to sales.
Note E: BORROWINGS______________________________________________
In the third quarter of 1998, Comdial and Bank of America, N.A.
("Bank of America"), entered into a credit agreement (the "Credit
Agreement"). The Credit Agreement provides Comdial with a $50
Page 7
million revolving credit facility ("the Revolver") and a $5 million
letter of credit subfacility.
Long-term Debt. Long-term debt consists of the following:
_________________________________________________________________
April 2, Dec. 31,
In thousands 2000 1999
_________________________________________________________________
Revolver (1) $26,123 $29,596
Capitalized leases (2) 3,579 2,670
_______________________
Total debt 29,702 32,266
Less current maturities on debt 1,262 471
________________________
Total long-term debt $28,440 $31,795
_________________________________________________________________
(1) The Revolver made pursuant to the Credit Agreement with Bank
of America carries an interest rate based on the LIBOR daily rate
plus a specified margin. The interest rate can be adjusted
quarterly based on Comdial's ratio of funded debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA"),
which allows the rates to vary from 0.75% to 1.50% above the LIBOR
daily rate. As of April 2, 2000 and December 31, 1999, Comdial's
borrowing rates were 6.88% and 6.58%, respectively, which includes
the additional applicable margin of 0.75% for both periods.
Comdial can use the Revolver with Bank of America for working
capital, equipment purchases, to finance permitted acquisitions,
and for other general corporate purposes. The Bank of America's
Revolver (as defined in the Credit Agreement) does not require
payment until August 31, 2003 with the option of possible credit
extensions.
(2) Capital leases are with various financing entities and are
payable based on the terms of each individual lease.
Debt Covenants
Comdial's indebtedness to Bank of America is secured by liens
on all of Comdial's properties and assets. The Credit Agreement
with Bank of America contains certain financial covenants that
relate to specified levels of consolidated net worth and other
financial ratios. As of April 2, 2000, Comdial was in compliance
with all of the covenants and terms of the Credit Agreement.
Note F: EARNINGS PER SHARE______________________________________
For the three months ended April 2, 2000 and April 4, 1999,
earnings per common share ("EPS") were computed for both basic and
diluted EPS to conform to Statement of Financial Accounting
Standards ("SFAS") No. 128. Basic EPS for the three months
presented were computed by dividing net income applicable to common
shares by the weighted average number of common shares outstanding
and common equivalent shares including any possible contingent
shares. For the three months ended April 2, 2000 and April 4,
Page 8
1999, diluted EPS were computed by dividing income attributable to
common shareholders by the weighted average number of common and
common equivalent shares outstanding during the period plus (in
periods in which they had a dilutive effect) the effect of common
shares contingently issuable, primarily from stock options. The
following table discloses the quarterly information for the three
months ended April 2, 2000 and April 4, 1999.
_________________________________________________________________
Numerator Denominator EPS
_________________________________________________________________
Three Months
2000
Basic EPS $923,000 9,098,999 $0.10
Diluted $923,000 9,443,564 $0.10
1999
Basic EPS $388,000 8,939,450 $0.04
Diluted $388,000 8,986,732 $0.04
For further detail of EPS see Exhibit 11.
_________________________________________________________________
Note G: INCOME TAXES____________________________________________
The components of the income tax expense based on the liability
method for the three months are as follows:
_________________________________________________________________
April 2, April 4,
In thousands 2000 1999
_________________________________________________________________
Current - Federal $40 $58
State 45 123
Deferred - Federal 253 191
State 2 (51)
_______________________
Income tax provision $340 $321
_________________________________________________________________
The income tax provision reconciled to the tax computed at
statutory rates for the three months are summarized as follows:
_________________________________________________________________
April 2, April 4,
In thousands 2000 1999
_________________________________________________________________
Federal tax at statutory
rate (35% in 2000 and 1999) $442 $239
State income taxes (net of federal
tax benefit) 30 48
Nondeductible charges 7 20
Other adjustments (139) -
Adjustment of valuation allowance - 14
_____________________
Income tax provision $340 $321
_________________________________________________________________
Net deferred tax assets of $15.4 million and $14.8 million have
been recognized in the accompanying Consolidated Balance Sheets as
Page 9
of April 2, 2000 and December 31, 1999, respectively. The
components of the net deferred tax assets are as follows:
_________________________________________________________________
April 2, Dec. 31,
In thousands 2000 1999
_________________________________________________________________
Total deferred tax assets $18,166 $17,545
Total valuation allowance (114) (114)
_______________________
Total deferred tax asset - net 18,052 17,431
Total deferred tax liabilities (2,629) (2,622)
_______________________
Total net deferred tax asset $15,423 $14,809
_________________________________________________________________
Comdial periodically reviews the requirements for a valuation
allowance and makes adjustments to such allowance when changes in
circumstances result in changes in management's judgment about the
future realization of deferred tax assets.
Comdial has net operating losses ("NOLs") and tax credit
carryovers of approximately $10.4 million and $1.6 million,
respectively. If not utilized, the NOLs and tax credit carryovers
will expire in various years through 2010.
NOTE H. SEGMENT INFORMATION_____________________________________
During the first three months of 2000 and 1999, substantially
all of Comdial's sales, net income, and identifiable net assets
were attributable to the telecommunications industry with over 97%
of sales occurring in the United States.
Comdial is organized into several product segments that
comprise the majority of its sales to the telecommunications
market. Comdial has three basic product categories that contribute
ten percent or more, to net sales. The segments are Digital
Systems, Solutions and Software, and Analog and Other (which
includes other miscellaneous products). Each of these categories
is considered a business segment, and with respect to their
financial performance, the costs associated with these segments can
only be quantified and identified to the gross profit level for
each segment.
The Digital Systems segment is comprised of products such as
Impact, Impression series telecommunication systems, Impact Digital
Expandable Systems ("DXP"), DXP Plus and the open digital switching
platforms known as the "FX Series." Digital Systems generally
offer customers more features with superior quality platforms. The
distinguishing characteristic of this segment is that it is
designed for the small office up to 500 end users.
The Solutions and Software segment is comprised of all
Comdial's software and software application products. The products
included are all of Comdial's vertical market products such as
Impact Concierge, QuickQ, Avalon, and voice processing systems.
Page 10
These products are sold to specific industries such as hospitality,
call centers, and assisted living centers.
The Analog and Other segment is comprised of Comdial's older
analog products (such as Unisyn), and other products such as ATC
Terminals and Custom Manufacturing. The Analog products are
designed for the small office market, which supports only a few
users. This market places more emphasis on price than features or
software functionality.
The information in the following tables is derived directly
from the segments' internal financial reporting used for corporate
management purposes. The expenses, assets and liabilities
attributable to corporate activity are not allocated to the
operating segments. There are no operating assets located outside
the United States.
Unallocated costs include operating expenses, goodwill
amortization, interest expense, other miscellaneous expenses, and
income tax expenses or benefits. Comdial does not maintain
information that would allow these costs to be broken down into the
various product segments and most of the costs are universal in
nature. Unallocated assets include such items as cash, deferred
tax assets, other miscellaneous assets, and goodwill. Unallocated
capital expenditures and depreciation relate primarily to shared
services assets. Unallocated liabilities include such items as
accounts payable, debt, leases, deferred tax liabilities, and most
other liabilities that do not relate to sales.
The information in the following tables is derived directly
from the segments' internal financial reporting used for corporate
management purposes. The following tables show segment information
for the periods ended April 2, 2000 and April 4, 1999.
___________________________________________________________________
April 2, April 4,
(Dollars in thousands) 2000 1999
___________________________________________________________________
Business Segment Net Revenues
Digital Systems $21,816 $18,503
Solutions and Software 10,846 10,413
Analog and Other 1,646 2,948
_______________________
Net sales $34,308 $31,864
Business Segment Profit
Digital Systems $9,218 $6,234
Solutions and Software 5,386 5,802
Analog and Other 264 665
_______________________
Gross profit 14,868 12,701
Operating expenses 12,967 11,481
Interest expense 607 382
Miscellaneous expense - net 31 129
_______________________
Income before income taxes $1,263 $709
___________________________________________________________________
Page 11
___________________________________________________________________
April 2, December 31,
(Dollars in thousands) 2000 1999
___________________________________________________________________
Business Segment Assets
Digital Systems $53,705 $54,443
Solutions and Software 26,123 27,307
Analog and Other 3,947 5,335
Unallocated 47,424 45,989
________________________
Total $131,199 $133,074
Business Segment Liabilities
Digital Systems $1,314 $1,875
Solutions and Software 5,411 2,904
Analog and Other 136 202
Unallocated 49,432 56,485
________________________
Total $56,293 $61,466
___________________________________________________________________
___________________________________________________________________
April 2, April 4,
(Dollars in thousands) 2000 1999
___________________________________________________________________
Business Segment Property, Plant and Equipment
Depreciation
Digital Systems $412 $469
Solutions and Software 99 35
Analog and Other 27 39
Unallocated 240 308
_______________________
Total $778 $851
Additions
Digital Systems $248 $345
Solutions and Software 451 52
Analog and Other 36 49
Unallocated 80 425
_______________________
Total $815 $871
___________________________________________________________________
Note I: COMMITMENTS AND CONTINGENT LIABILITIES____________________
At this time, Comdial has not had any claims or losses
relating to Year 2000 issues. Comdial cannot predict whether there
will be any future litigation against Comdial due to non-compliance
relating to Year 2000 issues.
Page 12
COMDIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist the reader in
understanding and evaluating the financial condition and results of
operations of Comdial Corporation and its subsidiaries (the
"Company"). This review should be read in conjunction with the
consolidated financial statements and accompanying notes. This
analysis attempts to identify trends and material changes that
occurred during the periods presented. Prior years have been
reclassified to conform to the 2000 reporting basis (see Note A to
the Consolidated Financial Statements).
Comdial is a Delaware corporation based in Charlottesville,
Virginia. Comdial's Common Stock is traded on the National
Association of Security Dealers Automated Quotation System
("Nasdaq(") in the National Market( under the symbol, CMDL.
Results of Operations
Selected consolidated statements of operations for the first
three months of 2000 and 1999 are as follows:
_________________________________________________________________
April 2, April 4,
In thousands 2000 1999
_________________________________________________________________
Business Segment Sales:
Digital Systems $21,816 $18,503
Solutions and Software 10,846 10,413
Analog and Other 1,646 2,948
______________________
Net sales 34,308 31,864
Cost of sales 19,440 19,163
Gross profit 14,868 12,701
Selling, general & administrative 10,471 8,611
Engineering, research & development 1,697 2,086
Goodwill amortization 799 784
Interest expense 607 382
Miscellaneous expense - net 31 129
______________________
Income before income taxes 1,263 709
Income tax expense 340 321
______________________
Net income applicable to common stock $923 $388
======================
Earnings per common share and common
equivalent share: basic $0.10 $0.04
___________________________________________________________________
Revenue and Earnings
First Quarter 2000 vs. 1999
Comdial sales, gross profit margin, and earnings as a
percentage of sales grew for the first quarter of 2000 when
compared to the same period of 1999. Comdial's net sales increased
by 8% for the first quarter of 2000 to $34.3 million, compared with
Page 13
$31.9 million in the first quarter of 1999. This increase was
primarily attributable to the increase in digital systems sales.
Gross profit increased by 17% for the first quarter of 2000 to
$14.9 million, compared with $12.7 million in the first quarter of
1999. Gross profit, as a percentage of sales, increased from 40%
for the first quarter of 1999 to 43% for the same period of 2000.
This increase was primarily due to higher margins on digital
systems.
Selling, general and administrative expenses increased for the
first quarter of 2000 by 22% to $10.5 million, compared with $8.6
million in the first quarter of 1999. This increase was due to
adding sales and marketing personnel in the latter half of 1999 to
support Comdial's future growth along with some additional costs
associated with the restructuring of Comdial into new Strategic
Business Units during the first quarter of 2000.
Engineering, research and development expenses for the first
quarter of 2000 decreased by 19% to $1.7 million, compared with
$2.1 million for the first quarter of 1999. This decrease was
primarily due to the reduction in engineering personnel because of
the restructuring. All costs associated with the reduction or
changes in personnel were recognized in selling, general and
administrative expenses.
Interest expense increased by 59% for the first quarter of 2000
to $0.6 million, compared with $0.4 million in the first quarter of
1999. This increase was due to higher interest rates of
approximately 120 basis points in 2000 and an increase in capital
leases which is primarily associated with the installation of new
software.
Net income increased by 138% for the first quarter of 2000 to
$0.9 million, compared with $0.4 million for the same period in
1999. This increase was primarily attributable to the increase in
sales and gross margins. Income before income taxes for the first
quarter of 2000 increased to $1.3 million compared with $0.7
million for the first quarter of 1999.
Liquidity
Comdial's financial position continues to improve when compared
to previous years. In 1998, Comdial entered into a new financing
arrangement with Bank of America, N.A. ("Bank of America"), that
provides a line of credit up to $50 million. Comdial's continual
improvement in its financial position along with the additional
line of credit allows Comdial to finance working capital to
accommodate the expected growth in the business.
The following table sets forth Comdial's cash and cash
equivalents, current maturities on debt, and working capital at the
dates indicated:
Page 14
_________________________________________________________________
April 2, December 31,
In thousands 2000 1999
_________________________________________________________________
Cash and cash equivalents $1,899 $1,917
Current maturities on debt 1,262 471
Working capital 50,470 49,244
_________________________________________________________________
As of October 1998, Comdial and Bank of America signed a Credit
Agreement (the "Credit Agreement") that is now funding all
operational requirements as needed. All operating cash
requirements were funded through a $50 million revolving credit
facility (the "Revolver") provided by Bank of America. Comdial
reports the Revolver activity on a net basis in the Consolidated
Statements of Cash Flows. Comdial considers outstanding checks to
be a bank overdraft.
Current maturities on debt as of April 2, 2000, increased by
$0.8 million due to increases in new leases of approximately $1.4
million when compared to December 31, 1999.
Working capital as of April 2, 2000, increased by $1.2 million
when compared to December 31, 1999. This increase was primarily
due to the reduction of accounts payable and other accrued
liabilities which was partially offset by a decrease in accounts
receivables.
Capital additions per generally accepted accounting principles
("GAAP") for the first three months of 2000 and 1999 were
approximately $0.8 million and $0.9 million, respectively. Capital
additions were used to help Comdial introduce new products as well
as improve quality and reduce costs associated with existing
products. Capital additions were funded by cash generated from
operations and borrowing from the Revolver. Actual cash
expenditures for capital additions for the first three months of
2000 and 1999, were $1.2 million and $1.0 million, respectively.
Management anticipates that approximately $6 million will be spent
on capital additions for the year 2000. These additions will help
Comdial meet its commitments to its customers by developing new
products as well as increasing its capacity to produce high-tech
products for the future. Comdial plans to fund all additions
primarily through cash generated by operations.
Comdial has a commitment from Bank of America for the issuance
of letters of credit in an aggregate amount not to exceed $5
million at any one time. On April 2, 2000, the amount of
commitments under the letter of credit facility with Bank of
America was $0.1 million.
Accounts payable as of April 2, 2000, decreased by $2.9 million
when compared to December 31, 1999. This decrease was primarily
due to the timing of incoming material receipts for production.
Other accrued liabilities as of April 2, 2000, decreased by $1.2
Page 15
million partially due to Comdial paying promotional costs in 2000
that were incurred in 1999.
Other long-term liabilities as of April 2, 2000, increased by
$1.7 million when compared to December 31, 1999. This increase was
primarily due to the recognition of deferred revenue that was
received from ePHONE for the five-year license agreement with Array
Telecom Corporation ("Array").
Long-term Debt, Including Current Maturitie
As of April 2, 2000, long-term debt decreased by $3.4 million
which was a direct result of Comdial collecting receipts that
related to the high level of fourth quarter sales. See Note E to
Comdial's Consolidated Financial Statements for additional
information with respect to Comdial's loan agreements, long-term
debt and available short-term credit lines.
Comdial believes that income from operations combined with
amounts available from Comdial's current credit facilities will be
sufficient to meet Comdial's needs for the foreseeable future.
Other Financial Information
During the first three months of 2000 and 1999, primarily all
of Comdial's sales, net income, and identifiable net assets were
attributable to the telecommunications industry.
On March 17, 2000, Comdial and Lucent Technologies GRL
Corporation ("Lucent-GRL") entered into a Patent License Agreement
pursuant to which Lucent-GRL granted to Comdial licenses under
Lucent-GRL's patents for Licensed Products (as defined in the
agreement), and Comdial granted Lucent-GRL licenses under Comdial's
patents for Licensed Products (as defined in the agreement).
Pursuant to the agreement, Comdial paid Lucent-GRL an initial
payment and agreed to pay Lucent-GRL a royalty based on Comdial's
consolidated sales. The agreement extends for a period of five
years. The costs associated with this agreement are future period
costs.
Year 2000
In early 1997, Comdial established a team (the "Year 2000
Team"), to evaluate whether, and to what extent, Comdial's
products, information technology systems, facilities and production
and distribution infrastructure may be affected by the Year 2000
and potential problems caused by the inability of certain computers
and microprocessors to distinguish between the year 2000 and the
year 1900.
Comdial continues to monitor and review any new issues that may
arise concerning Year 2000. As of April 2, 2000, cumulative costs
incurred by Comdial specifically for the Year 2000 totaled an
aggregate of $0.7 million.
Page 16
Risks: While management believes that it has taken appropriate
actions to respond to and resolve potential Year 2000 issues, there
can be no assurance that Year 2000 issues will not have a material
adverse affect on Comdial.
Current Pronouncements
In the third quarter of 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Comdial does not participate in any
financial instruments that meet the definition of a derivative or
hedging activity, and therefore, it is not expected that this
statement will have any affect on Comdial's financial statements.
"SAFE HABOR" STATEMENT UNDER THE PRIVATE SECURITIES LIGITATION
REFORM ACT OF 1995
This report contains some forward-looking statements that are
subject to risks and uncertainties, including, but not limited to,
the impact of competitive products, product demand and market
acceptance risks, reliance on key strategic alliances, fluctuations
in operating results, delays in development of highly complex
products, and other risks detailed from time to time in Comdial's
filings with the Securities and Exchange Commission. These risks
could cause Comdial's actual results for 2000 and beyond to differ
materially from those expressed in any forward-looking statement
made by, or on behalf of, Comdial.
Page 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
Comdial believes that it does not have any material exposure to
market risk associated with activities in derivative financial
instruments, other financial instruments and derivative commodity
instruments.
Page 18
COMDIAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote by Security Holders
(a) On May 4, 2000, Comdial held its annual meeting of
shareholders in the Customer Conference Center within its
own facility located at 1180 Seminole Trail,
Charlottesville, Virginia 22901. The following matters
were voted upon:
1. The following director was elected to serve a three-
year term: Robert P. Collins.
Directors whose terms of office continued after the
meeting: Barbara J. Dreyer, William G. Mustain, John
W. Rosenblum, Robert E. Spekman, and Dianne C.
Walker.
Director whose term of office expired after the
meeting and who retired from the board: A. M.
Gleason.
2. An amendment to the Company's 1992 Stock Incentive
Plan to increase the number of shares authorized for
issuance to 2,050,000 was approved.
3. The selection of Deloitte & Touche LLP as the
Company's certified public accountants and
independent auditors was ratified.
Shares of Common Stock were voted as follows:
Item 1: (Election of Board of Director)
For - 7,346,997
Withheld authority - 1,155,012
Total Vote For Total Vote Withheld
Robert P. Collins 7,346,997 1,155,012
Item 2: (Increase authorized Common Shares for 1992 Stock
Incentive Plan)
For - 3,701,512
Against - 1,998,201
Abstain - 51,224
Broker non-votes - 2,751,072
Item 3: (Selection of Independent Auditors)
For - 8,445,398
Against - 36,342
Abstain - 20,269
Page 19
ITEM 6. Exhibits and Reports on Form 8-K.
(a)
3. Exhibits Included herein:
(3) By-laws.
3.1 Bylaws of Comdial Corporation
(10) Material Contracts.
10.1 Strategic Alliance Agreement dated March 31, 2000
among the Registrant and ePHONE Telecom, Inc.
10.2 Patent License Agreement dated March 17, 2000 among
the Registrant and Lucent Technologies GRL
Corporation
(11) Statement re Computation of Per Share Earnings.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
The Registrant has not filed any reports on Form 8-K during the
quarterly period.
__________________
Items not listed if not applicable.
Page 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Comdial Corporation
(Registrant)
Date: May 17, 2000 By: /s/ William G. Mustain
William G. Mustain
Chairman of the Board,
President and Chief
Executive Officer
By: /s/ Tara Y. Harrison
Tara Y. Harrison
Controller and
Acting Chief Financial Officer
Page 21
COMDIAL CORPORATION AND SUBSIDIARIES
Exhibit 11
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
__________________________________________________________________________
(Dollars in thousands except share amounts) Three Months Ended
April 2, April 4,
2000 1999
__________________________________________________________________________
BASIC
Net income applicable to common shares: $923 $388
===========================
Weighted average number of common
shares outstanding during the period 9,082,380 8,859,302
Add - contingency shares - 68,600
deferred shares 16,619 11,548
_________________________
Weighted average number of shares used in cal-
culation of basic earnings per common share 9,098,999 8,939,450
==========================
Basic earnings per common share: $0.10 $0.04
==========================================================================
DILUTED
Net income applicable to common shares - basic $923 $388
======================
Weighted average number of shares used in cal-
culation of basic earnings per common share 9,098,999 8,939,450
Add (deduct) incremental shares representing:
Shares issuable based on period-end market
price or weighted average price:
Stock options 344,565 47,282
_________________________
Weighted average number of shares used in calcula-
tion of diluted earnings per common share 9,443,564 8,986,732
=========================
Diluted earnings per common share $0.10 $0.04
=========================================================================
- 91 -
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> APR-02-2000
<CASH> 1,899
<SECURITIES> 0
<RECEIVABLES> 36,180
<ALLOWANCES> 311
<INVENTORY> 23,755
<CURRENT-ASSETS> 69,745
<PP&E> 53,182
<DEPRECIATION> 34,318
<TOTAL-ASSETS> 131,199
<CURRENT-LIABILITIES> 19,275
<BONDS> 29,702
0
0
<COMMON> 98
<OTHER-SE> 74,808
<TOTAL-LIABILITY-AND-EQUITY> 131,199
<SALES> 27,770
<TOTAL-REVENUES> 34,308
<CGS> 15,958
<TOTAL-COSTS> 19,440
<OTHER-EXPENSES> 13,004
<LOSS-PROVISION> (6)
<INTEREST-EXPENSE> 607
<INCOME-PRETAX> 1,263
<INCOME-TAX> 340
<INCOME-CONTINUING> 923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 923
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</TABLE>
Exhibit 10.1
STRATEGIC ALLIANCE AGREEMENT
AMONG
ARRAY TELECOM CORPORATION,
EPHONE TELECOM, INC.
AND
COMDIAL CORPORATIO
This Strategic Alliance Agreement (the "Agreement") is made as of
March 31, 2000, between ARRAY TELECOM CORPORATION, a corporation incorporated
under the laws of the State of Delaware and having its principal office at
1145 Herndon Parkway, Herndon, Virginia 20170 ("Array"), ePHONE TELECOM, INC.,
a corporation incorporated under the laws of the State of Florida and having
its principal office at 355 Burrard Street, Suite 1000, Vancouver, British
Columbia, Canada V6C 2G8 ("ePHONE"), and COMDIAL CORPORATION, a corporation
incorporated under the laws of the State of Delaware and having its principal
office at 1180 Seminole Trail, Charlottesville, Virginia 22906 ("Comdial").
RECITALS
WHEREAS, ePHONE is in the business of providing certain telecommunications
services, including international long distance services that allow users to
perform phone-to-phone one step dialing via Voice over Internet Protocol;
WHEREAS, Array has developed certain software products, including
VoipGate, Array Version 2 and the Array 3000 family of products, and owns
certain related assets;
WHEREAS, Comdial owns all of the outstanding capital stock of Array; and
WHEREAS, Array has agreed to sell, and ePHONE has agreed to purchase,
all of Array's physical assets, and Array has agreed to grant to ePHONE a
license in the form of Exhibit B to this Agreement to, among other things,
VoipGate, Array Version 2 and the Array 3000 family of products.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants, agreements and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE 1.
SALE AND PURCHASE OF ASSETS
Section 1.1 Sale and Purchase of Assets. Subject to the terms and
conditions of this Agreement, on the Closing Date (hereinafter defined) Array
-1-
shall sell, transfer, convey and deliver to ePHONE, and on the Closing Date
ePHONE shall purchase and acquire from Array, the fixed assets of Array used
in its business and listed in Schedule 1 (the "Purchased Assets"). The transfer
and conveyance of the Purchased Assets shall be made by a bill of sale (the
"Bill of Sale") in substantially the form attached hereto as Exhibit A.
Section 1.2 Excluded Assets. The Purchased Assets to be sold and
purchased hereunder do not include cash, accounts receivable, intangible
assets, patents or patent applications, know-how, trade secrets or any other
asset of Array that is not listed in Schedule 1.
Section 1.3 No Assumption of Liabilities. ePHONE shall not assume or
be otherwise liable for any liabilities or obligations of Array related to the
Purchased Assets or otherwise, except for obligations arising after the
Closing Date under the Lease (as defined in Section 7.7).
ARTICLE 2.
LICENSE OF TECHNOLOGY
Section 2.1 License. Array shall grant to ePHONE a license to the
Intellectual Property (as such term is defined in the License Agreement) (the
"Licensed Assets") pursuant to the License Agreement in substantially the form
attached hereto as Exhibit B.
ARTICLE 3.
CONSIDERATION FOR AGREEMENT
Section 3.1 Consideration for Agreement. In partial consideration for
this Agreement and the transactions contemplated hereby, ePHONE shall pay to
Array at the Closing in cash the amount of $2,650,000.
Section 3.2 Royalty Payments. ePHONE shall make royalty payments to
Comdial pursuant to the terms of the License Agreement.
ARTICLE 4.
REPRESENTATIONS BY ARRAY
Section 4.1 Organization; Qualification. Array is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all necessary corporate power and authority to own its
assets and carry on its business as it is presently being conducted. Array
is duly qualified and in good standing to do business in each jurisdiction in
which its business makes such qualification necessary, except in those
jurisdictions where failure to be duly qualified and in good standing does not
and cannot reasonably be expected to have, in the aggregate, a material
adverse effect on the Purchased Assets, the Licensed Assets or its business.
Array has heretofore delivered to ePHONE complete and correct copies of its
Certificate of Incorporation and Bylaws currently in effect.
-2-
Section 4.2 Authority Relative to this Agreement. Array has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery by Array of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly authorized by the Board of
Directors of Array and no other corporate proceedings on the part of Array
are necessary with respect thereto. This Agreement has been duly executed
and delivered by Array and constitutes, and the other agreements referred to
herein to which Array is a party (collectively, the "Array Related Agreements"),
when executed and delivered by Array, will constitute, valid and binding
obligations of Array enforceable against Array in accordance with their terms,
except as their terms may be limited by (i) bankruptcy, insolvency or similar
laws affecting creditors' rights generally or (ii) general principles of
equity, whether considered in a proceeding in equity or at law.
Section 4.3 No Violation. The execution and delivery by Array of this
Agreement and the Array Related Agreements does not, and the consummation of
the transactions contemplated hereby and thereby, will not (i) violate or
result in a breach of any provision of the Certificate of Incorporation or
bylaws of Array, (ii) result in a default, or give rise to any right of
termination, modification or acceleration, or the imposition of a mortgage,
lien, pledge, security interest, charge, claim, restriction or other
encumbrance or other defects in title (each an "Encumbrance") on any of the
Purchased Assets or the Licensed Assets, under the terms or provisions of any
agreement or other instrument or obligation to which Array is a party or by
which Array, any of the Purchased Assets, the Licensed Assets or its business
may be bound, or (iii) violate any law or regulation, or any judgment, order
or decree of any court, governmental body, commission, agency or arbitrator
applicable to Array, any of the Purchased Assets, the Licensed Assets or its
business (other than applicable "bulk sales" laws), excluding from the
foregoing clauses (ii) and (iii) such defaults and violations which do not
and cannot reasonably be expected to have a material adverse effect on the
Purchased Assets or the Licensed Assets, or Array or its other properties or
its business.
Section 4.4 Litigation. There are no actions, suits, claims,
investigations or proceedings pending or, to the knowledge of Array, threatened
against Array, before any court, governmental body, commission, agency or
arbitrator, which have or can reasonably be expected to have a material
adverse effect on the Purchased Assets or the Licensed Assets or Array or its
business, or which seek to limit, in any manner, the right of ePHONE to
control and use the Purchased Assets and the Licensed Assets after the
consummation of the transactions contemplated in this Agreement. Furthermore,
there are no judgments, orders or decrees of any such court, governmental
body, commission, agency or arbitrator which have or can reasonably be expected
to have any such effect.
Section 4.5 Titles to Assets; Leases. Array holds good and marketable
title to all of the Purchased Assets and the Licensed Assets, free and clear
of any Encumbrances, and has the right to sell, transfer and assign the
Purchased Assets to ePHONE and license the Licensed Assets to ePHONE. All
properties held under lease by Array are held under valid, enforceable and
assignable leases.
Section 4.6 Consents and Approvals. Except to the extent that failure
to obtain such consent or approval would not have material adverse effect on
-3-
the Purchased Assets or the Licensed Assets or Array's business, and except
for the consent of Bank of America under the Credit Agreement between Bank of
America and Comdial dated as of October 22, 1998, which consent has been
obtained, there is no requirement applicable to Array to make any filing with,
or to obtain the consent or approval of, any individual, corporation,
partnership, limited liability company, association, trust or other entity or
organization, including any government or political subdivision, agency or
instrumentality thereof (each a "Person") as a condition to the consummation
of the transactions contemplated by this Agreement (other than as may be
required by applicable "bulk sales" laws).
ARTICLE 5.
REPRESENTATIONS BY COMDIAL
Section 5.1 Organization and Qualification. Comdial is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all necessary corporate power and authority to own
its assets and carry on its business as it is presently being conducted.
Comdial is duly qualified and in good standing to do business in each
jurisdiction in which its business makes such qualification necessary, except
in those jurisdictions where failure to be duly qualified and in good standing
does not and cannot reasonably be expected to have, in the aggregate, a
material adverse effect on its business.
Section 5.2 Authority Relative to Agreement. Comdial has all necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
by Comdial of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by the Board of Directors of
Comdial and no other corporate proceedings on the part of Comdial are
necessary with respect thereto. This Agreement has been duly executed and
delivered by Comdial, and constitutes the valid and binding obligation of
Comdial enforceable against Comdial in accordance with its terms except as
its terms may be limited by (i) bankruptcy, insolvency or similar laws
affecting creditors' rights generally or (ii) general principles of equity,
whether considered in a proceeding in equity or at law.
Section 5.3 No Violation. The execution and delivery by Comdial of
this Agreement does not, and the consummation of the transactions
contemplated hereby will not, (i) violate or result in a breach of any
provision of the Certificate of Incorporation or bylaws of Comdial, or (ii)
violate any law or regulation, or any judgment, order or decree of any court,
governmental body, commission, agency or arbitrator applicable to Comdial or
its business excluding such defaults and violations which do not and cannot
reasonably be expected to have a material adverse effect on its properties or
its business.
ARTICLE 6.
REPRESENTATIONS BY EPHONE
Section 6.1 Organization and Qualification. ePHONE is a corporation
duly organized, validly existing and in good standing under the laws of the
-4-
State of Florida and has all necessary corporate power and authority to own
its assets and carry on its business as it is presently being conducted.
ePHONE is duly qualified and in good standing to do business in each
jurisdiction in which its business makes such qualification necessary, except
in those jurisdictions where failure to be duly qualified and in good standing
does not and cannot reasonably be expected to have, in the aggregate, a
material adverse effect on its properties or its business. ePHONE has
heretofore delivered to Comdial complete and correct copies of its Articles
of Incorporation and Bylaws currently in effect.
Section 6.2 Authority Relative to Agreement. ePHONE has all necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
by ePHONE of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by the Board of Directors of
ePHONE and no other corporate proceedings on the part of ePHONE are necessary
with respect thereto. This Agreement has been duly executed and delivered by
ePHONE and constitutes, and the Related Agreements to which ePHONE is a party,
when executed and delivered by ePHONE, will constitute, valid and binding
obligations of ePHONE enforceable against ePHONE in accordance with their
terms except as their terms may be limited by (i) bankruptcy, insolvency or
similar laws affecting creditors' rights generally or (ii) general principles
of equity, whether considered in a proceeding in equity or at law.
Section 6.3 No Violation. The execution and delivery by ePHONE of this
Agreement does not, and the consummation of the transactions contemplated
hereby will not, (i) violate or result in a breach of any provision of the
Articles of Incorporation or bylaws of ePHONE, or (ii) violate any law or
regulation, or any judgment, order or decree of any court, governmental body,
commission, agency or arbitrator applicable to ePHONE or its business as
presently conducted or as contemplated to be conducted in the Business Plan
of ePHONE, excluding such defaults and violations which do not and cannot
reasonably be expected to have a material adverse effect on its properties or
its business.
Section 6.4 Consents and Approvals. Except to the extent that failure
to obtain such consent or approval would not have material adverse effect on
its properties or its business, there is no requirement applicable to ePHONE
to make any filing with, or to obtain the consent or approval of, any Person
as a condition to the consummation of the transactions contemplated by this
Agreement.
Section 6.5 Financial Statements. ePHONE has previously furnished
Comdial with true and complete copies of (i) the audited financial statements
of ePHONE for the periods ending June 30, 1999 and December 31, 1998 and 1997,
including the notes thereto (the "Annual Financial Statements"), together with
the reports on such statements of ePHONE's independent auditors, and (ii)
unaudited interim financial statements for the eleven month period ending
November 30, 1999 (the "Interim Financial Statements"). Such financial state
ments present fairly the financial position of ePHONE as of such dates and the
results of its operations and changes in its financial position for such
periods and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis.
Section 6.6 No Undisclosed Liabilities. Since November 30, 1999, and
except as previously disclosed in writing to Comdial, there has not been any
-5-
change, or development involving a prospective change, including, without
limitation, any damage, destruction or loss (whether or not covered by
insurance), which affects or can reasonably be expected to affect, the
properties or business of ePHONE, and ePHONE has not entered into any
contract which can reasonably be expected to have any such effect.
Section 6.7 Absence of Certain Changes. Except as previously disclosed
in writing to Comdial, ePHONE has not incurred any liabilities which are not
reflected in the Interim Financial Statements other than those which were
incurred subsequent to such date in the ordinary course of business and which
have not and cannot reasonably be expected to have a material adverse effect
on the properties or business of ePHONE.
Section 6.8 Absence of Litigation. There are no actions, suits, claims,
investigations or proceedings pending or, to the knowledge of ePHONE,
threatened against ePHONE, before any court, governmental body, commission,
agency or arbitrator, which have or can reasonably be expected to have a
material adverse effect or its business or which seek to limit, in any manner,
the right of ePHONE to control the Purchased Assets and the Licensed Assets
after the consummation of the transactions contemplated in this Agreement.
Furthermore, there are no judgments, orders or decrees of any such court,
governmental body, commission, agency or arbitrator which have or can
reasonably be expected to have any such effect.
Section 6.9 Business Plan. Attached hereto as Exhibit C is the current
Business Plan of ePHONE with respect to the Purchased Assets and the Licensed
Assets.
ARTICLE 7.
OTHER AGREEMENTS
Section 7.1 Support for Imbedded Base. The parties hereto acknowledge
that Array's imbedded base of customers will be supported and serviced by
ePHONE following the Closing. ePHONE agrees that it will use commercially
reasonable efforts to support such imbedded base from and after the Closing
Date.
Section 7.2 Investigation of Business. From the date hereof until the
Closing, each of the parties hereto will afford the other parties hereto and
their respective representatives, including attorneys and accountants, full
access at all reasonable times to its officers, employees, properties,
contracts and books and records to enable such other party to make a full
investigation of its business. Each party will also furnish each other party
with such financial, operating and other information as such party may
reasonably request in making such investigation.
Section 7.3 Confidentiality. The information which any party acquires
about any other party prior to consummation of the transactions contemplated
by this Agreement as a result of the investigations permitted hereby is
termed "Evaluation Material." Each party agrees that neither it, nor any of
its representatives, will (i) use any such material for any purpose not
related to the transactions contemplated by this Agreement nor (ii) disclose
any such material to anyone except its representatives who may need such
information to perform their respective duties and have been informed of its
confidential nature. If the transactions contemplated by this Agreement are
-6-
not consummated, each party agrees that it will return any written Evaluation
Material in its possession, or will destroy and will not retain any such
material, any copies thereof or any notes or memoranda made using such material.
Section 7.4 Public Announcements. Prior to the Closing Date, the parties
will consult with each other before issuing any press releases or making any
public statements with respect to this Agreement or the transactions
contemplated hereby and will not issue any such press release or make any such
public statement without the prior consent of the other, except to the extent
required by law.
Section 7.5 Employee Matters; Customer Solicitation. Comdial and Array
will not object to or interfere with any efforts by ePHONE to employ the current
employees of Array. During the term of the License Agreement, neither Array
nor Comdial shall directly or indirectly induce or attempt to persuade any
employee of ePHONE to terminate his or her employment with ePHONE. During
the term of the License Agreement, neither Array nor Comdial nor any Person
affiliated with either shall directly or indirectly sell or attempt to sell
(by means of solicitation or otherwise) to any customer to which ePHONE is
providing or has provided Products and Services (as such terms are defined in
the License Agreement) any product or service which is competitive with the
Products and Services.
Section 7.6 Access to Comdial Dealer Network and Direct Sales
Organization. During the term of the License Agreement, Comdial (i) shall
use commercially reasonable efforts to assist ePHONE in distributing products
and services provided by ePHONE through its direct sales organization and
(ii) shall use commercially reasonable efforts to enable ePHONE to distribute
products and services through its network of independent telecommunications
equipment dealers.
Section 7.7 Assignment of Lease. As soon as practicable following the
Closing Date, Array shall assign to ePHONE its interests as lessee under the
lease to Array's business facility located at 1145 Herndon Parkway, Herndon,
Virginia, from W9/LWS Real Estate Limited Partnership, as lessor, dated
February 23, 1999 ("Lease"), and ePHONE shall, from and after the Closing
Date, assume and discharge the obligations of Array arising after the Closing
Date under the Lease. Such assignment of lease shall be made by an assignment
(the "Lease Assignment") in substantially the form of Lease Assignment
attached hereto as Exhibit D. ePHONE shall use commercially reasonable
efforts to have Comdial released from its obligations under the lease as soon
as practicable following the Closing Date.
ARTICLE 8.
CLOSING OF TRANSACTIONS
Section 8.1 Time and Place of Closing. The closing ("Closing") shall
take place at Arnold & Porter at 4:00 p.m. local time on (i) March 31, 2000,
(ii) such other date as may be agreed upon by the parties (either of which
dates is referred to in this Agreement as the "Closing Date"). If the
Closing takes place, the Closing and all of the transactions contemplated by
this Agreement shall be deemed to have occurred simultaneously and become
effective at the same time on the Closing Date.
-7-
Section 8.2 Deliveries by Array. At the Closing, Array shall deliver
to ePHONE the following:
(a) Bill of Sale substantially in the form of Exhibit A attached
hereto, duly executed, transferring to ePHONE title to the Purchased
Assets;
(b) License Agreement substantially in the form of Exhibit B
attached hereto;
(c) Certified copies of the resolutions duly adopted by Array
constituting all necessary corporate authorization for the consummation
by Array of the transactions contemplated by this Agreement;
(d) A certificate dated as of a recent date from the Delaware
Secretary of State as to the good standing of Array; and
(e) Such other documents, instruments, certificates and writings as
reasonably may be requested by ePHONE at least three business days prior to
Closing.
Section 8.3 Deliveries by ePHONE. At the Closing, ePHONE shall deliver
to Array or Comdial the following:
(a) Immediately available funds in the amount of $2,650,000, by
wire transfer to an account designated by Array;
(b) License Agreement substantially in the form of Exhibit B
hereto;
(c) Certified copies of the resolutions duly adopted by ePHONE
constituting all necessary corporate authorization for the consummation
by ePHONE of the transactions contemplated by this Agreement;
(d) A certificate dated as of a recent date from the Florida
Secretary of State as to the good standing of ePHONE; and
(e) Such other documents, instruments, certificates and writings
as reasonably may be requested by Array at least three business days
prior to Closing.
Section 8.4 Deliveries by Comdial. At the Closing, Comdial shall deliver
to ePHONE the following:
(a) License Agreement substantially in the form of Exhibit B
attached hereto;
(b) Certified copies of the resolutions duly adopted by Comdial
constituting all necessary corporate authorization for the consummation by
Comdial of the transactions contemplated by this Agreement;
(c) A certificate dated as of a recent date from the Delaware
Secretary of State as to the good standing of Comdial; and
-8-
(d) Such other documents, instruments, certificates and writings as
reasonably may be requested by ePHONE at least three business days prior to
Closing.
ARTICLE 9.
MISCELLANEOUS PROVISIONS
Section 9.1 Obligations of Comdial. Comdial hereby guarantees the complete
and timely performance of the obligations of Array under this Agreement.
Comdial agrees that if Array defaults in any of its obligations under this
Agreement, ePHONE may exercise any remedies available to it to require
Comdial to satisfy such Array obligations without first being required to seek
performance of such obligations from Array.
Section 9.2 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) upon
confirmation of receipt of facsimile; (ii) one (1) business day following the
date sent when sent by overnight delivery; or (iii) five (5) business days
following the date mailed when mailed by registered or certified mail return
receipt requested and postage prepaid to the following address:
If to Array or Comdial:
Comdial Corporation
Attention: William G. Mustain
1180 Seminole Trail
Charlottesville, Virginia 22906
Phone: (804) 978-2518
Fax: (804) 978-2512
Email: [email protected]
Copy to:
McGuire, Woods, Battle & Boothe LLP
Attention: Robert E. Stroud, Esquire
Court Square Building
310 Fourth Street NE, Suite 300
Post Office Box 1288
Charlottesville, Virginia 22902-1288
Phone: (804) 977-2511
Fax: (804) 980-2272
Email: [email protected]
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If to ePHONE:
ePHONE Telecom, Inc.
Attention: Robert G. Clarke
355 Burrard Street, Suite 1000
Vancouver, British Columbia
Canada V6C 2G8
Facsimile No.: (202) 942-5999
Phone: (604) 482-6116
Fax: (604) 482-1116
Email: [email protected]
Copy to:
Arnold & Porter
Attention: Paul D. Freshour
555 Twelfth Street, N.W.
Washington, D.C. 20004-1202
Phone: (202) 942-5872
Fax: (804) 942-5999
Email: [email protected]
Section 9.3 Arbitration.
(a) Any dispute, controversy or claim arising under, out of or
relating to the Agreement or the License Agreement (any "Dispute"), shall
be solely, finally and conclusively settled by arbitration in accordance
with the Commercial Arbitration Rules (the "Rules") of the American
arbitration Association (the "AAA") in force when such arbitration is
commenced. The arbitration shall take place in Washington, D.C. The
Dispute shall be decided in accordance with the laws of the Commonwealth of
Virginia. In the event that more than one Dispute is pending at the same
time, such Disputes shall be consolidated in a single arbitral proceeding.
(b) In any dispute between the parties hereto, the number of
arbitrators shall be three. If the parties are unable to agree on the
arbitrators, the arbitrators shall be selected in accordance with the
Rules.
(c) The parties hereto intend that the provisions to arbitrate set
forth herein be valid, enforceable and irrevocable. The arbitrator's award
shall be final and binding upon the parties. The parties shall carry out
the final order on the award without delay and waive their right to assert
any form of recourse against, or objection or defense to such order or its
enforcement insofar as such waiver can validly be made. Judgment upon the
award may be entered by any court having jurisdiction thereof or having
jurisdiction over the parties or their assets or application may be made
for judicial acceptance of the award and an order of enforcement, as the
case may be.
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(d) Each party to the arbitration proceeding shall pay the fees and
expenses of such party's attorney's and witnesses. The fees and expenses
of the arbitrator and all other expenses shall be borne by the party that
loses the arbitration. The parties agree that if it becomes necessary for
any party to enforce an arbitral award by a legal action or additional
arbitration or judicial methods, the party against whom enforcement is
sought shall pay all reasonable costs and attorneys' fees incurred by the
party seeking to enforce the award.
Section 9.4 Governing Law. This Agreement shall be governed in all
respects, and it and the transactions contemplated hereby shall be construed
and interpreted, by the laws of the Commonwealth of Virginia without regard to
its choice of law rules.
Section 9.5 Entire Agreement. This Agreement, including the Schedules,
the Business Plan of ePHONE and the Array Related Agreements attached hereto,
constitutes the entire agreement between the parties with respect to the subject
matter hereof, and supersedes all other prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof.
Section 9.6 Counterpart Copies. 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.
Section 9.7 No Third Party Beneficiaries This Agreement shall not
confer any rights or remedies upon any person or entity other than the parties
and their respective successors and permitted assigns.
Section 9.8 Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Any of the parties hereto shall be permitted
to assign this Agreement to a successor in interest of all or substantially
all of its assets, or to an affiliated entity.
Section 9.9 Amendments. No amendment of any provision of this Agreement
shall be valid unless the amendment shall be in writing and signed by all
parties hereto.
Section 9.10 Waivers. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, regardless
of whether intentional, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
Section 9.11 Severability. Any term or condition of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
Section 9.12 Construction. The parties have participated mutually in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted mutually by the parties and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any of the provisions of this Agreement.
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Section 9.13 Headings. The Article and Section headings contained in
this Agreement are inserted for convenience only and shall not affect in any
way the meaning or interpretation of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ARE ON THE NEXT PAGE]
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement by its duly authorized officer as of the date first set forth above.
ARRAY TELECOM CORPORATION
By: /s/ William G. Mustain
Name: William G. Mustain
Title: Chairman
ePHONE TELECOM, INC.
By: /s/ JG
Name: John G. Fraser
Title: Director. Executive Vice President
COMDIAL CORPORATION
By: /s/ William G. Mustain
Name: William G. Mustain
Title: President/CEO
EXHIBIT A
FORM OF BILL OF SALE
This Bill Of Sale And Assignment ("Bill of Sale") is made as of March
31, 2000, by ARRAY TELECOM CORPORATION, a corporation incorporated under the
laws of the State of Delaware and having its principal office at 1145 Herndon
Parkway, Herndon, Virginia 20170 ("Seller"), in favor of ePHONE TELECOM, INC.,
a corporation incorporated under the laws of the State of Florida and having
its principal office at 355 Burrard Street, Suite 1000, Vancouver, British
Columbia, Canada V6C 2G8 ("Buyer").
INTRODUCTION
A. Seller and Buyer are parties to a Strategic Alliance Agreement
(the "Agreement") dated as of March 31, 2000 among Seller, Buyer, and Comdial
Corporation, a Delaware corporation, pursuant to which Buyer has agreed to
purchase certain listed assets of the Seller. Terms which are defined in the
Agreement and used in this Bill of Sale have the same meanings in this Bill
of Sale as they have in the Agreement.
B. The Agreement provides, among other things, that for the considerations
provided therein, Seller will sell to Buyer, and Buyer will purchase from
Seller, the fixed assets of Seller used in its business (the "Purchased
Assets").
C. The purpose of this Bill of Sale is to effect the transfer to Buyer
of the Purchased Assets.
TRANSFER OF ASSETS
NOW, THEREFORE, for the considerations set forth in the Agreement, the receipt
and sufficiency of which is hereby acknowledged:
1. Seller hereby sells, transfers, conveys, assigns and delivers to Buyer
the Purchased Assets used in the conduct of the business of Seller, listed in
Schedule 1 to this Bill of Sale, and all of which comprise the Purchased
Assets.
2. Seller hereby authorizes Buyer, as its assignee, to demand and receive
any and all of the Purchased Assets transferred by this Bill of Sale, to give
receipts and releases for and in respect of the same, or any part thereof,
and to institute and prosecute any proceedings which Buyer may deem necessary
for the collection, or reduction to possession, of any of the Purchased
Assets, or for the enforcement of any claim or right of any kind, transferred
by this Bill of Sale.
3. Seller hereby agrees that, from time to time after the delivery of
this Bill of Sale, it will, at the request of Buyer and without further
consideration, promptly take such further action and execute and deliver such
additional assignments, bills of sale, consents or other similar
instruments as may be necessary to complete the transfer of the title or
possession of the Purchased Assets to, or to vest title to them in, Buyer.
Page 1
4. The provisions of this Bill of Sale are for the benefit of Buyer, its
successors and assigns, and all rights hereby granted Buyer may be exercised
by Buyer, its successors or assigns.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale to by its duly
authorized offcere as of the date first set forth above.
ARRAY TELECOM CORPORATION
By: /s/ William G. Mustain
Name: William G. Mustain
Title: Chairman
EXHIBIT B
FORM OF LICENSE AGREEMENT
AMONG
ARRAY TELECOM CORPORATION,
ePHONE TELECOM, INC.
AND
COMDIAL CORPORATION
This License Agreement (this "Agreement") is made as of
March 31, 2000, by and among ARRAY TELECOM CORPORATION, a corporation
incorporated under the laws of the State of Delaware and having
its principal office at 1145 Herndon Parkway, Herndon, Virginia
20170 ("Array"), ePHONE TELECOM, INC., a corporation incorporated
under the laws of the State of Florida and having its principal
office at 355 Burrard Street, Suite 1000, Vancouver, British
Columbia, Canada V6C 2G8 ("ePHONE"), and COMDIAL CORPORATION, a
corporation incorporated under the laws of the State of Delaware
and having its principal office at 1180 Seminole Trail,
Charlottesville, Virginia 22906 ("Comdial").
RECITALS
A. This Agreement is executed in conjunction with the
Strategic Alliance Agreement dated March 31, 2000, by and among
Array, ePHONE, and Comdial (the "Strategic Alliance Agreement"),
pursuant to which, among other things, ePHONE purchased certain
of the assets of Array, excluding intellectual property assets.
B. Array is willing to grant ePHONE a license to Array's
Intellectual Property, as hereinafter defined, on the terms and
conditions set forth herein.
C. Array is a wholly owned subsidiary of Comdial. Comdial
is willing to assist ePHONE with marketing the Products and
Services, as hereinafter defined, through Comdial's existing
distribution channels, which include over 2000 independent
telecommunications equipment dealers.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants,
agreements, and representations set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
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ARTICLE 1
DEFINITIONS
For purposes of this Agreement:
Section 1.1 "Copyrights" means any work containing
copyrightable subject matter that Array owns or has the right to
license to others relating to Products and Services, including
without limitation works registered with the United States
Copyright Office or works for which an application to register
the work with the United States Copyright Office has been filed.
Section 1.2 "Intellectual Property" means the entire
right, title, and interest in and to all proprietary rights
encompassed within the categories of Copyrights, Know-How, and
Patents, and the Mark.
Section 1.3 "Know-How" means unpatented technology,
inventions, designs, drawings, processes, recipes, formulae,
data, technical information, and other industrial, commercial
property that: (i) are known to Array as of the Effective Date;
(ii) are secret, in the sense that they are not generally known
or easily accessible to others; and (iii) relate to the Products
and Services. A list of Know-How licensed hereunder is attached
to this Agreement as Schedule 2 and incorporated by reference
herein.
Section 1.4 "Mark" means the common law trademark and
service mark "ARRAY".
Section 1.5 "Patents" means the United States patents and
design patents that had been issued as of the Effective Date as
well as United States patent applications filed as of the
Effective Date. A list of Patents licensed hereunder is attached
to this Agreement as Schedule 1 and incorporated by reference
herein.
Section 1.6 "Products and Services" means: (i) VoipGate,
Array Version 2, Array Series 3000, and any products developed
from the foregoing; and (ii) international long distance
telecommunications services that allow users to perform phone-to-
phone dialing via Voice Over Internet Protocol, and related
services.
Section 1.7 Any capitalized term contained in this
Agreement that is not expressly defined herein shall be deemed to
have the meaning ascribed to it by the Strategic Alliance
Agreement.
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ARTICLE 2
EFFECTIVE DATE AND TERM
Section 2.1 Effective Date. This Agreement shall be
effective as of the date first set forth above (the "Effective
Date").
Section 2.2 Term. This Agreement and the licenses
granted herein shall become effective as of the Effective Date
and shall remain in effect for an initial term of five (5) years.
Section 2.3 ePHONE's Option to Renew the Agreement or to
Purchase the Intellectual Property. Upon the conclusion of the
initial term of this Agreement, ePHONE, in its sole discretion,
may elect: (i) to allow the Agreement to expire; (ii) to renew
the Agreement under the identical terms and conditions set forth
hereunder for an additional term of five (5) years; or (iii) to
terminate the Agreement by purchasing the Intellectual Property.
(a) In order to exercise its option to purchase the
Intellectual Property, ePHONE must give Array and Comdial
notice of its election to exercise such option within six
(6) months prior to the end of the initial term of this
Agreement. In the event ePHONE elects to exercise its
option to purchase the Intellectual Property, ePHONE shall
be entitled to purchase the Intellectual Property for the
fair market value of the Intellectual Property, determined
at the time ePHONE exercises its option to purchase the
Intellectual Property. For this purpose, the fair market
value of the Intellectual Property shall be determined by
two investment bankers, one selected by Array or Comdial and
the other selected by ePHONE. If the two investment bankers
are not able to agree upon the fair market value of the
Intellectual Property, the investment bankers shall choose a
third investment banker and the average of the values
asserted by the two investment bankers who assert the two
amounts closest in value shall be deemed the fair market
value of the Intellectual Property.
(b) In the event ePHONE exercises its option to
purchase the Intellectual Property, ePHONE agrees to grant
Comdial and Array, and their successors and affiliates, a
nonexclusive, irrevocable, royalty free license to the
Intellectual Property.
ARTICLE 3
LICENSE TO INTELLECTUAL PROPERTY
Section 3.1 Grant of Patent License. Subject to the
terms and conditions of this Agreement, Array grants to ePHONE,
and ePHONE accepts, an exclusive right and license to the Patents
to make, have made, use, and sell the Products and Services, on a
worldwide basis. ePHONE shall be entitled to sublicense, assign,
or transfer the rights granted herein without the prior written
consent of Array. The license granted herein shall terminate
upon the expiration or termination of this Agreement.
-3-
(a) Patent License Territory. ePHONE acknowledges
that the Patents cover only the United States; practicing
the technology covered by the Patents outside of the United
States will be at ePHONE's sole risk and discretion.
(b) Patent License Term. Notwithstanding anything to
the contrary provided herein, the license to the Patents
granted herein shall terminate upon the conclusion of the
term of the relevant Patent, unless sooner terminated
pursuant to the terms of this Agreement.
(c) Notice. When utilizing the Patents, ePHONE agrees
that where reasonable and practical, any patented designs,
devices, objects of manufacture, or any other patented items
shall bear the appropriate patent notice.
(d) Prosecution of Patent Applications. ePHONE shall
make all reasonable efforts to assist Array or Comdial with
the prosecution of any patent applications encompassed
within the definition of the Patents licensed hereunder,
including executing any necessary documents and providing
such evidence and expert assistance as ePHONE may have
within its control.
Section 3.2 Grant of Know-How License. Subject to the
terms and conditions of this Agreement, Array grants to ePHONE,
and ePHONE accepts, an exclusive right and license to the Know-
How to make, have made, use, and sell the Products and Services,
on a worldwide basis. ePHONE shall be entitled to sublicense,
assign, or transfer the rights granted herein without the prior
written consent of Array. The license granted herein shall
terminate upon the expiration or termination of this Agreement.
Section 3.3 Grant of Copyright License. Subject to the
terms and conditions of this Agreement, Array hereby grants
ePHONE an exclusive right and license to the Copyrights for use
in connection with selling, manufacturing, marketing or rendering
of Products and Services, on a worldwide basis. ePHONE shall be
entitled to sublicense, assign or transfer the rights granted
herein without the prior written consent of Array. The license
granted herein shall terminate upon the expiration or termination
of this Agreement.
(a) Notice. When using the Copyrights, ePHONE agrees
that where reasonable and practicable, use of the Copyrights
shall be accompanied by the symbol c, the date of copyright,
and the name of the copyright owner.
Section 3.4 Grant of Mark License. Subject to the terms
and conditions of this Agreement, Array grants to ePHONE, and
ePHONE accepts, an exclusive right and license to the Mark as
necessary to produce, promote, and sell Products and Services, on
a worldwide basis. ePHONE acknowledges and agrees that its use
of the Mark shall inure to Array's benefit. ePHONE shall be
entitled to sublicense, assign, or transfer the rights granted
herein without the prior written consent of Array. The license
granted herein shall terminate upon the expiration or termination
of this Agreement.
-4-
(a) Quality Control. ePHONE agrees that all Products
to which the Mark is affixed shall be formulated,
manufactured, promoted, and sold or provided in a first rate
manner and all Services with which the Mark is associated
shall be rendered in a first rate manner. ePHONE
understands and agrees that Array has the right to and will
monitor the quality of Products and Services provided under
the Mark. Upon written request from Array or Comdial,
ePHONE shall provide to Array and Comdial either: (i) a
reasonable number of samples of the Products to which the
Mark is affixed, or (ii) a reasonable written description of
the Services that ePHONE provides under the Mark and the
manner in which the Mark is used in connection with such
Services, so that Array and Comdial may monitor the quality
of such Products or Services and otherwise protect and
maintain Array's rights in the Mark. Upon written notice to
ePHONE, representatives of Array or Comdial may visit and
inspect ePHONE's facilities in order to monitor the quality
of the Products and Services.
In the event Array or Comdial reasonably determines
that the Products sold or Services provided by ePHONE under
the Mark are not of a sufficiently high quality, Array or
Comdial shall so notify ePHONE in writing and ePHONE shall
have thirty (30) days in which to (i) reassure Array and
Comdial that the quality of the Products or Services is in
fact commensurate with the specified standard or (ii) take
steps to improve the quality of the Products or Services to
meet such standard. If, at the end of such thirty (30) day
period, Array or Comdial is not reasonably satisfied that
the quality of the Products sold or Services provided by
ePHONE under the Mark meets the specified standard, Array or
Comdial may terminate this Agreement upon thirty (30) days'
written notice to ePHONE.
(b) Trademark and Service Mark Notices. When affixing
the Mark to Products, ePHONE agrees that where reasonable
and practicable, the Mark shall be accompanied by the symbol
? on labels, packaging, and advertising and promotional
materials. When using the Mark in connection with Services,
ePHONE agrees that where reasonable and practicable, the
Mark shall be accompanied by the symbol ? on advertising
and promotional materials.
Section 3.5 Retention of Ownership Rights and Right to
License or Assign. Nothing in this Agreement or in ePHONE's use
of the Intellectual Property shall grant ePHONE any rights in or
to the Intellectual Property other than the rights expressly
licensed hereunder. The licenses granted herein are exclusive as
between Array and unrelated third parties. Nonetheless, Array
shall retain all rights in and to the Intellectual Property,
including the right to license or assign the Intellectual
Property, in whole or in part, to Comdial, to any majority owned
subsidiary of Comdial, or to any successor to Comdial's business,
provided that such license or assignment shall have no
detrimental effect on ePHONE's rights and obligations hereunder.
Notwithstanding the foregoing or anything to the contrary
contained herein, neither Array nor Comdial, nor any successor or
affiliate thereof, shall be entitled to use the Mark in
connection with products or services that are marketed in direct
competition with the Products and Services.
-5-
ARTICLE 4
ROYALTIES
Section 4.1 Royalty Payments. In partial consideration
for the licenses to Intellectual Property granted herein and for
the transactions contemplated under the Strategic Alliance
Agreement, ePHONE shall pay Array, or such other entity as Array
may designate, a royalty equal to two percent (2%) (the "Royalty
Rate") of ePHONE's Consolidated Gross Sales, as hereinafter
defined.
(a) The royalty amounts set forth herein shall accrue
upon the recognition by ePHONE of revenues for transactions
that would be included in Consolidated Gross Sales and shall
be paid by ePHONE on a calendar quarterly basis. For each
of the first three (3) quarters of each calendar year, such
quarterly royalty amount shall be calculated at the Royalty
Rate applied to Consolidated Gross Sales during such
quarter, and shall be paid not later than forty-five (45)
days after the end of such quarter. For the fourth quarter
of each calendar year, such quarterly royalty amount shall
be an amount equal to the Royalty Rate applied to
Consolidated Gross Sales for the calendar year, less the
quarterly royalty payment amounts made for the prior three
(3) quarters of that year, and shall be paid not later than
ninety (90) days after the end of such calendar year.
(b) For purposes of determining the royalty to be paid
by ePHONE, the term "Consolidated Gross Sales" shall mean
all sales resulting from ePHONE's business activities, as
reflected in ePHONE's Business Plan.
(c) Each royalty payment hereunder shall be
accompanied by a written report describing the calculation
of such payment. Furthermore, ePHONE agrees to maintain
complete and accurate records sufficient to substantiate the
calculation of payments made hereunder. Array or its
designee may, from time to time, inspect such records to
verify the accuracy of payments made hereunder; provided,
however, that ePHONE shall receive at least thirty (30) days
written notice of such inspections and such inspections
shall take place at ePHONE's offices during ePHONE's regular
business hours. Array or its designee shall bear all costs
of such inspections, unless an inspection reveals a
discrepancy of more than three percent (3%) in ePHONE's
favor between the royalty actually paid and the royalty that
should have been paid, based on ePHONE's Consolidated Gross
Sales, in which case ePHONE shall bear all costs of the
inspection that revealed the discrepancy.
(d) Notwithstanding the foregoing, ePHONE shall pay to
Array or its designee the following minimum royalty amounts:
(i) During the first year of the term of this
Agreement, ePHONE shall pay a minimum annual royalty
amount of $180,000 (the "First Year Minimum Royalty").
In the event Consolidated Gross Sales for the first
year are less than $9,000,000, ePHONE shall pay such
additional royalty amounts as shall be necessary to
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cause the total royalty amount paid for such year to be
at least equal to the First Year Minimum Royalty. Such
amounts shall be paid not later than the due date for
the first quarterly royalty payment due after the close
of the first year.
(ii) For each calendar quarter after the first
year of the term of this Agreement, ePHONE shall pay a
minimum quarterly royalty amount of $125,000 (the
"Quarterly Minimum Royalty"). In the event Consolidated
Gross Sales during any quarter are less than $6,250,000,
ePHONE shall pay such additional royalty amounts as
shall be necessary to cause the total royalty amount
paid for such quarter to be at least equal to the
Quarterly Minimum Royalty. In the event any calendar
quarter shall be less than three (3) months, the
Quarterly Minimum Royalty for such quarter shall be
prorated on a daily or other appropriate basis.
Section 4.2 Non-Payment of Royalty Amounts. In the event
ePHONE is unable, after exhausting all of its consolidated cash
and cash equivalent assets, to pay Array or its designee the full
amount of any royalty payment at the time the payment is due, the
following provisions shall be applicable.
(a) ePHONE shall give Array or its designee notice of
ePHONE's inability to pay any portion of any royalty
payment, which notice shall be accompanied by a written
statement by ePHONE's principal lenders and credit
facilities confirming ePHONE's inability to make such
payment and the fact that ePHONE has exhausted all of its
consolidated cash and cash equivalent assets.
(b) The total unpaid amount of any royalty payment
(the "Delinquent Payment") shall accrue interest at the
annual rate of ten percent (10%) during the first year after
the Delinquent Payment was due. For each three (3) month
period thereafter, for so long as any portion of the
Delinquent Payment remains unpaid, the interest rate
applicable to the Delinquent Payment will increase by one
(1) percentage point for each such three (3) month period.
(c) In its sole discretion, Array or its designee may
elect to accept ePHONE stock in lieu of the Delinquent
payment and accrued interest thereon. If Array or its
designee exercises this option, Array or its designee shall
be entitled to receive an amount of ePHONE stock equivalent
in value to the Delinquent Payment, calculated at a twenty
percent (20%) discount from the average of the closing
prices of such stock on the five (5) trading days prior to
the date on which Array or its designee elects to exercise
this option. The equivalent value so determined may be paid
to Array or its designee either in ePHONE common stock or in
warrants for the purchase of ePHONE common stock, the terms
of which are reasonably satisfactory to Array or its
designee, and which provide for an exercise price of not
more than one cent ($0.01) per share. ePHONE agrees to
provide Array or its designee demand and piggy back
registration rights for registration on an established stock
exchange or on the Nasdaq national market for its shares, or
for the warrants and the warrant shares to be issued upon
exercise of the warrants, and to assist in the registration
process. Array shall have at least two (2) demand
registration rights for each year so long as any of such
shares, or such warrants or warrant shares, remain
unregistered. Within sixty (60) days after the Closing
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Date, as defined in the Strategic Alliance Agreement, the
parties agree to negotiate in good faith to execute a
registration rights agreement with terms and conditions that
are consistent with the terms of this Agreement and that are
customary and usual with respect to such agreements.
(d) Notwithstanding any of the provisions of this
Agreement, in the event any royalty payment or portion thereof
remains unpaid for one (1) year, or Array or its
designee accept warrants for such payment and the warrants
are not registered within such year, then ePHONE's license
to the Intellectual Property shall no longer be exclusive
and Array shall be entitled to license the Intellectual
Property to third parties other than ePHONE.
ARTICLE 5
OWNERSHIP AND PROTECTION OF INTELLECTUAL PROPERTY
Section 5.1 Ownership. Nothing in this Agreement or in
ePHONE's use of the Intellectual Property shall grant ePHONE any
rights in or to the Intellectual Property other than the rights
expressly licensed hereunder. ePHONE acknowledges Array's rights
in the Intellectual Property. ePHONE shall not commit, or cause
any third party to commit, any act challenging, contesting, or in
any way impairing or attempting to impair Array's rights in and
to the Intellectual Property.
Section 5.2 Infringement by Third Parties. If ePHONE learns
of any activity by a third party that might constitute
infringement of Array's rights in any of the Intellectual
Property, or if any third party asserts that ePHONE's use of the
Intellectual Property constitutes unauthorized use or
infringement, ePHONE shall so notify Array. Any action or
litigation resulting from any claim of infringement arising
hereunder shall be handled by Array or Comdial. ePHONE shall
make all reasonable efforts to assist Array or Comdial with any
such action or litigation, including providing such evidence and
expert assistance as ePHONE may have within its control.
Section 5.3 Rights in Improvements, Developments,
Enhancements, Modifications, and Inventions.
(a) CTVoice Release 2A. Within thirty (30) days
following the Effective Date, ePHONE shall deliver to Array
the source code for the product CTVoice Release 2A, which
product shall have the same functionality and all of the
capabilities of the product Array Series 3000. Array, or
such other entity as Array may designate, shall own all
rights in such source code, including without limitation all
intellectual property rights. The source code shall be
included within the definition of Intellectual Property for
purposes of this Agreement, and it shall be licensed to
ePHONE pursuant to the terms and conditions hereunder.
(i) Until the first anniversary of the Effective
Date, ePHONE shall provide to Array or its designee any
improvements, developments, enhancements,
modifications, or inventions that resolve any
-8-
functional problems or other technological difficulties
with the CTVoice Release 2A product ("Bug Fixes").
ePHONE shall own all rights in the Bug Fixes, including
without limitation all intellectual property rights.
Nonetheless, by providing Array or its designee with
the Bug Fixes, ePHONE shall be deemed to have granted
Array or its designee, and such parties' successors and
affiliates, a nonexclusive, irrevocable, royalty free
license to the Bug Fixes.
(ii) After the first anniversary of the Effective
Date, ePHONE and Array or its designee agree to
negotiate in good faith regarding the terms and
conditions under which any Bug Fixes developed,
invented, or created by employees or agents of ePHONE
after the first anniversary of the Effective Date may
be licensed to Array or its designee. ePHONE shall
charge Array or its designee rates at least as low as
the lowest rates charged to third parties not
affiliated with ePHONE for such licenses.
(b) Improvements, Developments, Enhancements,
Modifications, and Inventions other than CTVoice Release 2A.
(i) If any of the employees or agents of ePHONE
improves, develops, enhances, modifies, or invents
technology, works, or other intangible property,
related to or arising from the Intellectual Property
licensed hereunder, ePHONE shall own all rights in such
technology, works, or other intangible property,
including without limitation all intellectual property
rights.
(ii) If any of the employees or agents of Array or
Comdial improves, develops, enhances, modifies, or
invents technology, works, or other intangible
property, related to or arising from the Intellectual
Property licensed hereunder, Array or Comdial, as
appropriate, shall own all rights in such technology,
works, or other intangible property, including without
limitation all intellectual property rights.
(iii) The parties agree to negotiate in good faith
regarding the terms and conditions under which any
improvements, developments, enhancements,
modifications, or inventions encompassed by this
Section 5.3(b) may be licensed to the other parties.
The parties shall charge rates at least as low as the
lowest rates charged by the parties to unaffiliated
third parties for such licenses.
-9-
ARTICLE 6
WARRANTIES, DISCLAIMERS, INDEMNIFICATION,
AND LIMITATION OF LIABILITY
Section 6.1 Warranties. ePHONE represents and warrants
that it shall use the Intellectual Property only in accordance
with the terms and conditions of this Agreement.
Section 6.2 Representations and Disclaimers.
(a) Array and Comdial each represent and warrant that
the Patents set forth on Schedule 1 and the Know-How set
forth on Schedule 2 accurately list all of the Intellectual
Property owned by Array that has been duly registered with,
filed in, or issued by, as the case may be, the United
States Patent and Trademark Office. Array owns the entire
right, title, and interest in and to the Patents and the
Know-How, including without limitation the exclusive right
to use and license the same. To the knowledge of Array, no
Person, as defined in the Strategic Alliance Agreement, is
infringing upon any of the Patents or the Know-How.
(b) The Intellectual Property constitutes all of the
intellectual property necessary to conduct the business and
operations of Array as conducted as of the Effective Date.
To the knowledge of Array, there is no basis for any claim
of infringement by any Person, as defined in the Strategic
Alliance Agreement, with regard to any of the Intellectual
Property.
(c) Notwithstanding the foregoing, neither Array nor
Comdial represents or warrants that: (i) the Intellectual
Property is suitable for use in connection with Products or
Services; (ii) use of the Intellectual Property will enable
ePHONE to obtain specific results; (iii) the Intellectual
Property does not infringe the rights of third parties; or
(iv) use of the Intellectual Property will not cause any
loss, damage, or injury. ePHONE will use the Intellectual
Property at its own risk and neither Array nor Comdial shall
be responsible for any Products or Services provided through
the use of the Intellectual Property or for any other
exploitation of the Intellectual Property.
Section 6.3 Indemnification.
(a) ePHONE agrees to be solely responsible for, and to
defend, indemnify, and hold Array and Comdial, and any of
their successors or affiliates, harmless against any and all
claims, actions, suits, liabilities, demands, expenses
(including reasonable attorneys' fees and disbursements),
losses, costs, or damages asserted against or incurred by
Array, Comdial, or any of their successors or affiliates,
arising out of or in connection with (i) Products produced
or Services rendered by ePHONE, (ii) the use of the
Intellectual Property by ePHONE, or (iii) any breach of
ePHONE's obligations hereunder.
-10-
(b) Array and Comdial, jointly and severally, agree to
be solely responsible for, and to defend, indemnify, and
hold ePHONE, and any of its successors or affiliates,
harmless against any and all claims, actions, suits,
liabilities, demands, expenses (including reasonable
attorneys' fees and disbursements), losses, costs, or
damages asserted against or incurred by ePHONE, or any of
its successors or affiliates, arising out of or in
connection with (i) any failure of the representations and
warranties set forth in Section 6.2 of this Agreement to be
true and correct or (ii) any breach of Array's or Comdial's
obligations hereunder.
Section 6.4 Limitation of Liability. No party to this
Agreement shall under any circumstances be liable for any
special, incidental, consequential, indirect, or punitive damages
arising from breach of warranty, breach of contract, negligence,
or any other legal theory arising from or related to this
Agreement, even if such party or its agents or employees have
been advised of the possibility of such damages.
ARTICLE 7
DEFAULT AND TERMINATION
Section 7.1 Events of Default. Any one of the following
shall constitute an Event of Default by ePHONE:
(a) ePHONE defaulting in the performance of any
covenant, agreement, term, or provision under this
Agreement, and such default continuing for a period of
thirty (30) days after written notice thereof by Array or
Comdial to ePHONE;
(b) ePHONE filing a voluntary petition for bankruptcy,
reorganization, or an arrangement under any bankruptcy or
insolvency law, or an involuntary petition under any such
law being filed against ePHONE and not dismissed within
ninety (90) days; or
(c) ePHONE making an assignment for the benefit of its
creditors.
Section 7.2 Remedies. Without limiting other remedies
available to Array or Comdial at law or equity, upon the
occurrence of an Event of Default by ePHONE, either Array or
Comdial may, at their option, terminate this Agreement by giving
written notice to ePHONE.
Section 7.3 Discontinuation of Use. Following the
expiration or termination of this Agreement, for any reason other
than ePHONE's election of its option to purchase the Intellectual
Property pursuant to Section 2.3, ePHONE shall immediately cease
use of the Intellectual Property licensed under this Agreement.
-11-
ARTICLE 8
CONFIDENTIALITY
Section 8.1 ePHONE's Confidentiality Obligations. The
parties acknowledge that, during the ordinary course of business,
ePHONE will be required to disclose confidential and proprietary
information to its customers and other parties. During the term
of this Agreement and thereafter, ePHONE agrees that it will
enter into confidentiality agreements or nondisclosure agreements
with usual and customary terms and conditions prior to disclosing
the Know-How and all other technology, inventions, software,
hardware, designs, drawings, processes, recipes, formulae, data,
technical information and the like, which are disclosed by Array
or Comdial to ePHONE or received by ePHONE's personnel under this
Agreement.
Section 8.2 Array's and Comdial's Confidentiality
Obligations. The parties acknowledge that, during the ordinary
course of business, Array and Comdial will be required to
disclose confidential and proprietary information to its
customers and other parties. During the term of this Agreement
and thereafter, Array and Comdial agree that they, jointly or
individually, will enter into confidentiality agreements or
nondisclosure agreements with usual and customary terms and
conditions prior to disclosing all technology, inventions,
software, hardware, designs, drawings, processes, recipes,
formulae, data, technical information and the like, which are
disclosed by ePHONE to Array or Comdial or received by Array or
Comdial's personnel under this Agreement.
Section 8.3 Exceptions to Confidentiality Obligations.
The confidentiality obligations set forth in this Article 8 shall
not apply to any information that: (i) is or becomes generally
available to the public other than as a result of disclosure by
one of the parties or the parties' agents, employees,
representatives, or advisors; (ii) is rightfully disclosed to
either of the parties by a third party without any breach of the
confidentiality obligations hereunder. Any of the parties may
disclose the other parties' confidential information to its
personnel and independent contractors, including, without
limitation, lawyers, accountants, and consultants, when the
course of their employment necessitates such disclosure;
provided, however, that the disclosing party shall take
appropriate measures to maintain the confidentiality of all
confidential information disclosed to or obtained by such party's
personnel or independent contractors.
Section 8.4 Return of Confidential Information. Upon the
expiration or termination of this Agreement, for any reason other
than ePHONE's election of its option to purchase the Intellectual
Property pursuant to Section 2.3, each party hereto shall return
to the other parties, as applicable, all materials or items that
contain, embody, or relate to any confidential information
belonging to the other parties, including, without limitation,
documents, drawings, software, hardware, databases, electronic
information, storage media, samples, and models. Each party
shall return all such materials to the other parties within
fifteen (15) days of the date of expiration or termination.
-12-
ARTICLE 9
TECHNICAL ASSISTANCE
Section 9.1 Technical Assistance Services. ePHONE shall
use commercially reasonable efforts to make its employees and
agents available to Array and Comdial to provide technical
assistance with the Intellectual Property, any improvements,
developments, enhancements, modifications, or inventions related
thereto, or any other technical matters related to ePHONE's
business. ePHONE shall charge Array and Comdial rates at least
as low as the lowest rates charged to third parties not
affiliated with ePHONE for such technical assistance services.
ARTICLE 10
GENERAL PROVISIONS
Section 10.1 No Third Party Beneficiaries. This Agreement
shall not confer any rights or remedies upon any person or entity
other than the parties and their respective successors and
permitted assigns.
Section 10.2 Succession and Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
Any of the parties hereto shall be permitted to assign this
Agreement and its rights and obligations hereunder to a successor
in interest of all or substantially all of its assets, or to an
affiliated entity.
Section 10.3 Amendments. No amendment of any provision of
this Agreement shall be valid unless the amendment shall be in
writing and signed by all parties hereto.
Section 10.4 Waivers. No waiver by any party of any
default, misrepresentation, or breach of warranty or covenant
hereunder, regardless of whether intentional, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such
occurrence.
Section 10.5 Severability. Any term or condition of this
Agreement that is invalid or unenforceable in any situation in
any jurisdiction shall not affect the validity or enforceability
of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
Section 10.6 Construction. The parties have participated
mutually in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted mutually
by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of
any of the provisions of this Agreement.
-13-
Section 10.7 Notices. All notices, requests, demands,
claims, and other communications hereunder shall be in writing.
Any notice, request, demand, claim, or other communication
hereunder shall be deemed duly given (i) upon confirmation of
receipt of facsimile or electronic mail; (ii) one (1) business
day following the date sent when sent by overnight delivery; or
(iii) five (5) business days following the date mailed when
mailed by registered or certified mail return receipt requested
and postage prepaid to the following address:
If to Array or Comdial:
Comdial Corporation
1180 Seminole Trail
Charlottesville, Virginia 22906
Attention: William G. Mustain
Tel: (804) 978-2518
Fax: (804) 978-2512
E-mail: [email protected]
Copy to:
McGuire, Woods, Battle & Boothe LLP
310 4th Street NE, Suite 300
P. O. Box 1288
Charlottesville, Virginia 22902-1288
Attention: Robert E. Stroud, Esquire
Tel: (804) 977-2511
Fax: (804) 980-2272
E-mail: [email protected]
If to ePHONE:
ePHONE Telecom, Inc.
355 Burrard Street, Suite 1000
Vancouver, British Columbia, Canada V6C 2G8
Attention: Robert G. Clarke
Tel: (604) 482-6116
Fax: (604) 482-1116
E-mail: [email protected]
-14-
Copy to:
Arnold & Porter
555 Twelfth Street NW
Washington, D.C. 20004-1202
Attention: Paul D. Freshour, Esquire
Tel: (202) 942-5872
Fax: (202) 942-5999
E-mail: [email protected]
Section 10.8 Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the
same instrument.
Section 10.9 Headings. The Article and Section headings
contained in this Agreement are inserted for convenience only and
shall not affect in any way the meaning or interpretation of this
Agreement.
Section 10.10 Entire Agreement. The Strategic Alliance
Agreement, this Agreement, and the other Agreements referred to
and incorporated by reference in the Strategic Alliance Agreement
shall constitute the entire agreement between the parties and
supersede any prior understandings, agreements, covenants,
warranties, or representations by or between the parties, written
or oral.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ARE ON THE NEXT PAGE]
-15-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
ARRAY TELECOM, INC.
By: /s/ William G. Mustain__
Name: William G. Mustain
Title: Chairman
ePHONE TELECOM, INC.
By: __/s/ JG
Name: John G. Fraser
Title: Director, Executive Vice President
COMDIAL CORPORATION
By: /s/ William G. Mustain__
Name: William G. Mustain
Title: President/CEO
-16-
Exhibit 10.2
PATENT LICENSE AGREEMENT
between
LUCENT TECHNOLOGIES GRL CORPORATION
and
COMDIAL CORPORATION
Effective as of January 1, 2000
Relating to Business Communication Systems
PATENT LICENSE AGREEMENT
TABLE OF CONTENTS
ARTICLE I - GRANTS OF LICENSES
1.01 Grant
1.02 Duration
1.03 Scope
1.04 Ability to Provide Licenses
1.05 Joint Inventions
1.06 Publicity
ARTICLE II - ROYALTY AND PAYMENTS
2.01 Royalty Calculation
2.02 Records and Adjustments
2.03 Reports and Payments
ARTICLE III - TERMINATION
3.01 Term
3.02 Breach
3.03 Voluntary Termination
3.04 Survival
ARTICLE IV - MISCELLANEOUS PROVISIONS
4.01 Disclaimer
4.02 Assignability
4.03 Addresses
4.04 Taxes
4.05 Choice of Law
4.06 Integration
4.07 Outside the United States
4.08 Dispute Resolution
4.09 Releases
4.10 Severability
4.11 Modification
APPENDIX A - DEFINITIONS
APPENDIX B - CUSTOMER RELATIONSHIP MANAGEMENT PATENTS
i
PATENT LICENSE AGREEMENT
This Patent License Agreement ("Agreement") is between the following Parties:
LUCENT TECHNOLOGIES GRL CORPORATION, a Delaware corporation ("LUCENT-GRL"),
having an office at Suite 105, 14645 N.W. 77th Avenue, Miami Lakes, Florida
33014, and COMDIAL CORPORATION, a Delaware corporation ("COMDIAL"), having an
office at 1180 Seminole Trail, Charlottesville, Virginia 22906. This Agreement
is effective on January 1, 2000 (the "Effective Date"). The Parties agree as
follows:*
ARTICLE I
GRANTS OF LICENSES
1.01 Grant
(a) LUCENT-GRL grants to COMDIAL under LUCENT-GRL's PATENTS personal,
worldwide, nonexclusive and non-transferable (except as otherwise provided
for in Section 4.02) licenses for:
LICENSED PRODUCTS
The licenses granted to COMDIAL under this Agreement do not include any
licenses for VOICE PROCESSING PRODUCTS, SPECIALIZED.
(b) COMDIAL grants to LUCENT-GRL under COMDIAL's PATENTS personal,
nonexclusive, worldwide, royalty-free and non-transferable (except as
otherwise provided for in Section 4.02) licenses for:
LICENSED PRODUCTS
1.02 Duration
All licenses granted herein under any patent shall terminate at the earlier
of: (i) termination of such licenses pursuant to Article III; or (ii) the
expiration of the entire unexpired term of such patent. However, upon
commencement of the LIMITED PERIOD or at the time of earliest filing
specified in the definition of LUCENT-GRL's PATENTS or COMDIAL's PATENTS
___________________________
* Any term in capital letters which is defined in the APPENDIX A - DEFINITIONS
shall have the meaning specified therein.
(as the case may be), the grantor has no rights, or less than full rights,
with respect to any of its patents included within such definition, the
license granted herein under such patent shall be for as much of such term
as, and to the maximum extent that, the grantor has the right to grant,
subsequent to commencement of the LIMITED PERIOD, at or after such time of
earliest filing.
1.03 Scope
(a) The licenses granted herein are licenses to (i) make, have made, use,
lease, sell and import LICENSED PRODUCTS; (ii) make, have made, use and import
machines, tools, materials and other instrumentalities, insofar as such
machines, tools, materials and other instrumentalities are involved in or
incidental to the development, manufacture, testing or repair of LICENSED
PRODUCTS which are or have been made, used, leased, owned, sold or imported
by the grantee of such license; and (iii) convey to any CUSTOMER of the
grantee, with respect to any LICENSED PRODUCT which is sold or leased by such
grantee to such CUSTOMER, rights to use and resell such LICENSED PRODUCTS as
sold or leased by such grantee (whether or not as part of a larger
combination); provided, however, that no rights may be conveyed to NON END-USER
CUSTOMERS with respect to any invention which covers (1) a combination of such
LICENSED PRODUCT (as sold or leased) with any other product unless the LICENSED
PRODUCT embodies a significant portion of the invention and the LICENSED
PRODUCT has a fair market value of at least seventy-five percent (75%) of the
total fair market value of the combination as resold by such a NON END-USER
CUSTOMER, (2) a method or process which is other than the inherent use of such
LICENSED PRODUCT itself (as sold or leased), or (3) a method or process
involving the use of a LICENSED PRODUCT to manufacture (including associated
testing) any other product.
(b) Except as otherwise expressly provided in this Agreement, licenses
granted herein are not to be construed either (i) as consent by the grantor to
any act which may be performed by the grantee, or (ii) to include licenses to
contributorily infringe or induce infringement under U.S. law or a foreign
equivalent thereof.
(c) Except as otherwise expressly provided in Section 4.02(c) of this
Agreement, the grant of each license by the grantor hereunder includes the
right to grant sublicenses within the scope of such license to a Party's
RELATED COMPANIES for so long as they remain its RELATED COMPANIES. Any such
sublicense may be made effective retroactively, but not prior to the Effective
Date hereof, nor prior to the sublicensees becoming a RELATED COMPANY of such
Party.
(d) Notwithstanding Section 1.03(c), no right is given to COMDIAL, without
the written consent of LUCENT-GRL, to grant a sublicense to a RELATED COMPANY
of COMDIAL under certain or all of LUCENT-GRL'S PATENTS, if said RELATED
COMPANY was a licensee under said certain or all LUCENT-GRL'S PATENTS for
LICENSED PRODUCTS at any time within a two (2)-year period prior to said
Page 2
company becoming a RELATED COMPANY unless, however, said RELATED COMPANY
ceased to be such a licensee solely due to the termination of the relevant
license agreement by lapse of time (as opposed to voluntary termination or
termination by breach).
1.04 Ability to Provide Licenses
(a) It is recognized that certain actions of the Parties to this
Agreement may limit their ability to provide licenses hereunder without
constituting a breach. In particular, (i) prior to the earliest filing of a
patent application disclosing an invention of a Party or its RELATED COMPANY,
such Party or RELATED COMPANY may assign to a third party the title to patents
on such invention, or (ii) prior to the execution of this Agreement, a Party
or its RELATED COMPANY may have limited by contract its ability to provide
licenses hereunder with respect to certain patents or technologies.
(b) A Party's failure to meet any obligation hereunder, due to the
assignment of title to any invention or patent, or the granting of any
licenses, to the United States Government or any agency or designee thereof
pursuant to a statute or regulation of, or contract with, such Government or
agency, shall not constitute a breach of this Agreement.
(c) Each Party represents and warrants that it has all rights (or rights
from third parties) necessary to enter into this Agreement and the power to
grant the rights described in this Agreement.
(d) Either Party may submit to the other Party no more than two (2)
inquiries in writing per calendar year, each inquiry requesting whether up to
ten (10) specifically identified patents fall within the definitions of this
Agreement. The Party to whom such an inquiry is submitted shall, within
twenty (20) business days, respond in writing as to whether each identified
patent is included within COMDIAL's PATENTS (if the recipient of the inquiry
is COMDIAL) or LUCENT-GRL's PATENTS (if the recipient of the inquiry is LUCENT
- -GRL).
1.05 Joint Inventions
(a) There are countries (not including the United States) which require
the express consent of all inventors or their assignees to the grant of
licenses or rights under patents issued in such countries for joint inventions.
(b) Each Party shall give such consent, or shall obtain such consent from
its RELATED COMPANIES, its employees or employees of any of its RELATED
COMPANIES, as required to make full and effective any such licenses and rights
respecting any joint invention granted to the grantee hereunder by such Party
and by another licensor of such grantee.
Page 3
(c) Each Party shall take steps which are reasonable under the
circumstances to obtain from third parties whatever other consents are
necessary to make full and effective such licenses and rights respecting any
joint invention purported to be granted by it hereunder. If, in spite of such
reasonable efforts, such Party is unable to obtain the requisite consents from
such third parties, the resulting inability of such Party to make full and
effective its purported grant of such licenses and rights shall not be
considered to be a breach of this Agreement.
1.06 Publicity
Nothing in this Agreement shall be construed as conferring upon either Party
or its RELATED COMPANIES or sublicensees any right to include in advertising,
packaging or other commercial activities related to a LICENSED PRODUCT, any
reference to the other Party (or any of its RELATED COMPANIES or sublicensees),
its trade names, trademarks or service marks in a manner which would be likely
to cause confusion or to indicate that such LICENSED PRODUCT is in any way
certified by the other Party hereto or its RELATED COMPANIES or sublicensees.
ARTICLE II
ROYALTY AND PAYMENTS
2.01 Royalty Calculation
(a) In part payment for the grant of rights hereunder by LUCENT-GRL to
COMDIAL and in addition to the fees specified in Section 2.01(b), COMDIAL
shall pay to LUCENT-GRL a non-refundable sum of six hundred fifty thousand
United States dollars (U.S. $650,000.00) of which only one hundred fifty
thousand United States dollars (U.S. $150,000.00) is creditable with respect
to royalties owed under Sections 2.01(b) and 2.03(b) for the calendar year
2000. This payment is due to LUCENT-GRL prior to thirty (30) days after the
EXECUTION DATE.
(b) In partial consideration for the licenses and rights exchanged herein
for the LUCENT-GRL'S PATENTS and for the convenience of the Parties, COMDIAL
has elected to and shall pay to LUCENT-GRL in United States dollars for each
calendar year beginning January 1, 2000, a royalty amount calculated at a
royalty rate of three hundred seventy-five thousandths of one percent (0.375%)
of the consolidated sales of COMDIAL and its RELATED COMPANIES ("Consolidated
Sales") during such calendar year (or portion thereof) during which this
Agreement is in effect, as reported in its Form 10-K for such calendar year
filed with the Securities and Exchange Commission ("SEC"). As an example,
Consolidated Sales for the year 1998 as reported in the SEC Form 10K-405 filed
on March 24, 1999 were one hundred twenty-eight million nine hundred seventy-
Page 4
seven thousand U.S. dollars ($128,977,000.00 U.S.). Obligations to pay accrued
royalties shall survive termination of licenses and rights pursuant to Article
III.
(c) When a company ceases to be a RELATED COMPANY of COMDIAL, royalties
which have accrued with respect to such company, but which have not been paid,
shall become payable with COMDIAL's next scheduled royalty payment.
(d) Notwithstanding any other provisions hereunder, royalties shall
accrue and be payable only to the extent that enforcement of COMDIAL's
obligation to pay such royalty would not be prohibited by applicable law.
2.02 Records and Adjustments
(a) LUCENT-GRL will credit to COMDIAL the amount of any overpayment of
royalties made in error which is identified and fully explained in a written
notice to LUCENT-GRL delivered within two (2) years after the due date of the
payment which included such alleged overpayment, provided that LUCENT-GRL is
able to verify the existence and extent of the overpayment.
(b) No refund, credit or other adjustment of royalty payments shall be made
by LUCENT-GRL except as provided in this Section 2.02. Rights conferred by
this Section 2.02 shall not be affected by any statement appearing on any check
or other document, except to the extent that any such right is expressly waived
or surrendered by a Party having such right and signing such statement.
(c) Upon termination of this Agreement or of all the rights and licenses
granted to COMDIAL herein, accrued royalties shall be paid within thirty (30)
days of the date of termination. LUCENT-GRL shall have the right through its
accredited auditors to make an examination, during normal business hours, of
those records that are, under recognized accounting practices, used in the
preparation of SEC filings and that bear upon the amount of royalty payable
hereunder. Adjustment shall be made within sixty (60) days of the completion
of such audit to compensate for any errors or omissions disclosed by such
examination. If the adjustment, if any, reflects an underpayment by COMDIAL
in excess of ten percent (10%) of the amount of royalty payable as determined
by such auditors, COMDIAL shall pay the costs of such audit. Otherwise, the
audit shall be at LUCENT-GRL's expense.
Page 5
2.03 Reports and Payments
(a) COMDIAL shall furnish to LUCENT-GRL, simultaneously with its filing
with the SEC, a copy of each Form 10-Q and each Form 10-K filed during the
term of this Agreement. Such copy shall be sent by first class mail, postage
prepaid, to LUCENT-GRL at the address specified in Section 4.03.
(b) The annual royalty amount set forth in Section 2.01(b) shall accrue
upon the recognition of revenues by COMDIAL and/or any of its RELATED COMPANIES
for transactions that would be included in Consolidated Sales and shall be
payable quarterly. Such quarterly royalty amount shall be paid by COMDIAL in
United States dollars to LUCENT-GRL at the address specified in Section 4.03
on or before the date on which COMDIAL files with the SEC its quarterly report
on Form 10-Q (as to the first three (3) quarters of each calendar year) and its
annual report as to the last quarter of each calendar year, beginning with the
Form 10-Q filed by COMDIAL with respect to the second quarter of the calendar
year 2000. For the first three (3) quarters of each calendar year, such
quarterly royalty amount shall be calculated at a royalty rate of three
hundred seventy-five thousandths of one percent (0.375%) of the Consolidated
Sales during such quarter, as reported in the respective Form 10-Q filed by
COMDIAL with the SEC for such quarter. For the fourth quarter of each calendar
year, such quarterly royalty amount shall be an amount equal to a royalty rate
of three hundred seventy-five thousandths of one percent (0.375%) of the
Consolidated Sales during such calendar year, as reported in the respective
Form 10-K filed by COMDIAL with the SEC, less the quarterly royalty payments
made for the prior three (3) quarters of that calendar year. However, the
Parties agree that for their convenience the quarterly royalty payment for the
first quarter of calendar year 2000 shall be one hundred fifty thousand United
States dollars ($150,000.00 U.S.).
(c) Any conversion to United States dollars shall be at the prevailing rate
for bank cable transfers as quoted for the last day of such quarterly period
by leading United States banks in New York City dealing in the foreign exchange
market.
(d) Overdue payments hereunder shall be subject to a late payment charge
for the period of time such payment is delinquent calculated at an annual rate
of one percentage point (1%) over the prime rate or successive prime rates in
effect in New York City during delinquency. If the amount of such charge
exceeds the maximum permitted by law, such charge shall be reduced to such
maximum.
Page 6
ARTICLE III
TERMINATION
3.01 Term
This Agreement shall terminate upon termination of the LIMITED PERIOD unless
otherwise terminated pursuant to this Article III. Any partial termination of
rights under this Article III will not affect payments due under Section 2.01.
3.02 Breach
In the event of a breach of this Agreement by either Party, the other Party
may, in addition to any other remedies that it may have, at any time terminate
any or all licenses and rights granted by it hereunder by not less than two
(2) months written notice specifying such breach, unless within the period of
such notice all breaches specified therein shall have been remedied. Exercise
of the right of either Party to terminate any or all rights and licenses
pursuant to this Section 3.02 shall be subject to challenge in accordance with
Section 4.08, in which case the effectiveness of such termination shall be
suspended (and the Parties' obligations shall continue) until determined by
the Dispute Resolution process provided for in Section 4.08 provided, however,
that should the breaching Party fail to meet its royalty obligations, such
termination shall be effective as of such prior written notice of breach.
3.03 Voluntary Termination
By written notice to the other Party, either Party may voluntarily terminate
all or a specified portion of the licenses and rights granted to it hereunder.
Such notice shall specify the effective date (not more than six (6) months
from the giving of said notice) of such termination and shall clearly specify
any affected patent, invention or product.
3.04 Survival
(a) If a company ceases to be a RELATED COMPANY of a Party, licenses and
rights granted hereunder with respect to patents of such company that are
included in LUCENT-GRL's PATENTS or COMDIAL's PATENTS (as the case may be)
shall not be affected by such cessation.
(b) Any termination of licenses and rights of a Party under the provisions
of this Article III shall not affect such Party's licenses, rights and
obligations with respect to any LICENSED PRODUCT made prior to such
termination, and shall not affect the other Party's licenses and rights (and
obligations related thereto) hereunder.
Page 7
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.01 Disclaimer
Neither Party nor any of its RELATED COMPANIES makes any representations,
extends any warranties of any kind, assumes any responsibility or obligations
whatever, or confers any right or license by implication, estoppel or
otherwise, other than the licenses, rights and warranties herein expressly
granted.
4.02 Assignability
(a) Each Party has entered into this Agreement in contemplation of personal
performance by the other Party and it is each Party's intention that a transfer
of its grantee's licenses or rights not occur, except as provided for in this
Section 4.02, without the grantor's express written consent.
(b) Except as otherwise provided for in this Agreement, neither this
Agreement nor any licenses or rights hereunder, in whole or in part, shall be
assignable or transferable by either Party (by operation of law or otherwise)
without the other Party's express written consent. Any such purported
assignment or transfer of this Agreement or licenses or rights hereunder by
either Party without the other Party's necessary consent shall be void (without
affecting any other licenses or rights hereunder).
(c) Notwithstanding Sections 4.02(a) and (b), any or all of LUCENT-GRL's
rights, title and interest in this Agreement and any or all licenses and rights
granted to it hereunder may be assigned without COMDIAL's consent to any of its
RELATED COMPANIES at any time and for any reason or to SPINCO (before or after
its divestiture from Lucent Technologies Inc.) or to any successor to all or a
portion of its business that is the subject matter of this Agreement. If
LUCENT-GRL so assigns its rights, the terms of this Agreement shall remain the
same and be enforceable by COMDIAL. If Lucent Technologies Inc. divests a
portion of its business and such divested business continues operation as a
separately identifiable business, then the licenses granted hereunder to
LUCENT-GRL may be sublicensed to such divested separate business without the
consent of COMDIAL, but only (i) until the termination of this Agreement
pursuant to Article III; (ii) to the extent and for the time the divested
business functions as a separately identifiable business, and (iii) for
products and services of the kind provided by the divested business prior to
its divestiture and not to any products or services of any entity which
acquires the divested business. This Section 4.02(c) shall apply regardless
of whether the business is divested by a sale of assets or as a sale of a legal
entity (e.g., sale of a RELATED COMPANY). The sublicensing rights specified
herein shall include any business whose acquisition is after the Effective Date
Page 8
of this Agreement, provided the acquisition of such business was not a sham for
the purpose of extending rights to the acquired (and then divested) business.
In particular, the licenses granted hereunder to LUCENT-GRL shall be, solely at
LUCENT-GRL's option, sublicensed to SPINCO upon its divestiture from Lucent
Technologies Inc. provided, however, that the sublicense to SPINCO will not
include those ones of COMDIAL's PATENTS that issue on any application filed
(except those applications having a priority date prior to the EXECUTION DATE)
in any or all countries of the world at any time subsequent to the EXECUTION
DATE.
(d) Notwithstanding Sections 4.02(a) and (b), COMDIAL may assign all of
its rights (except as provided herein) and obligations existing or arising
under this Agreement to any successor to all or a portion of its business that
is the subject matter of this Agreement as the result of an acquisition or
merger, with no further right to assign, which successor shall thereafter be
deemed substituted for, and in lieu of, COMDIAL as a Party hereto, subject to
written acceptance by the assignee, provided that COMDIAL may so assign upon
written notice to LUCENT-GRL if: (i) LUCENT-GRL determines that such
assignment, if made, or anticipation of such assignment, would have or had no
effect on a license arrangement between itself and such successor (or any
entities relating to such successor) in effect at any time within a two
(2)-year period prior to such assignment, (ii) only products made by or for
COMDIAL prior to the acquisition or merger will be licensed under this
Agreement and not products of the acquiring entity, except those products of
the acquiring entity, its parent company, and such parent company's other
SUBSIDIARIES that are equivalent to those products made by or for COMDIAL prior
to such acquisition or merger, and (iii) solely for purposes of Section
1.05(b), 1.06, 3.04(a), and the definition of COMDIAL's PATENTS, RELATED
COMPANIES of COMDIAL shall be deemed to include any parent company of which
the acquiring entity is a SUBSIDIARY and such parent company's other
SUBSIDIARIES as of the effective date of the assignment. If COMDIAL so
assigns its rights, the terms of this Agreement shall remain the same and be
enforceable by LUCENT-GRL. The rights so assigned by COMDIAL will not include
any and all rights and licenses under CUSTOMER RELATIONSHIP MANAGEMENT PATENTS
granted to COMDIAL pursuant to this Agreement.
(e) In the event that COMDIAL assigns such rights and obligations to any
acquiring entity pursuant to Section 4.02(d) ("Assignee"), the provisions of
Sections 2.01(b), 2.02(c) and 2.03(a) and (b) shall not apply and shall be
replaced with the following provisions. The term "Reportable Product" shall
mean (i) any COMDIAL product identical to or equivalent to products whose sale
was included in Consolidated Sales prior to such acquisition or merger and
(ii) any product of the Assignee, of its RELATED COMPANIES, of any parent
company of which the Assignee is a SUBSIDIARY, and of such parent company's
other SUBSIDIARIES, that is equivalent to any such COMDIAL product, whether
or not such a product meets the definition of LICENSED PRODUCT. The term
"Assignee Gross Revenues" shall mean those gross revenues recognized for any
and all Reportable Products.
Page 9
2.01(b) For the licenses and rights exchanged herein under LUCENT-GRL'S
PATENTS and for the convenience of the Parties, Assignee has elected to and
shall pay to LUCENT-GRL in United States Dollars a sum calculated at a royalty
rate of three hundred seventy-five thousandths of one percent (0.375%) applied
to quarterly Assignee Gross Revenues recognized for each quarterly period
during which this Agreement is effective for any time, beginning with the
quarterly period during which the assignment of this Agreement by COMDIAL to
Assignee occurs. Royalty shall accrue upon the invoicing of the sale or lease
for any and all such Reportable Products. Upon termination of this Agreement
or of all the rights and licenses granted to COMDIAL herein, accrued royalties
shall be paid within thirty (30) days of the date of termination.
2.02(c) Assignee shall keep full, clear and accurate records with respect to
Assignee Gross Revenues and shall furnish any information which LUCENT-GRL may
reasonably prescribe from time to time to enable LUCENT-GRL to ascertain the
proper royalty due hereunder. Assignee shall retain such records with respect
to Assignee Gross Revenues for at least seven (7) years from the invoicing of
the sale or lease for any and all such Reportable Products. LUCENT-GRL shall
have the right through its accredited auditors to make an examination, during
normal business hours, of all records and accounts bearing upon the amount of
royalty payable to it hereunder. Adjustment shall be made within sixty (60)
days of the completion of such audit to compensate for any errors or omissions
disclosed by such examination. If the adjustment, if any, reflects an
underpayment by COMDIAL in excess of ten percent (10%) of the amount of
royalty payable as determined by such auditors, COMDIAL shall pay the costs
of such audit. Otherwise, the audit shall be at LUCENT-GRL's expense.
2.03(a) Within thirty (30) days after the end of each quarterly period ending
on March 31st, June 30th, September 30th, or December 31st during which this
Agreement is effective for any time, commencing with the quarterly period
during which the assignment of this Agreement by COMDIAL to Assignee occurs,
Assignee shall furnish to LUCENT-GRL at the address specified in Section 4.03
a statement certified by a responsible official of Assignee showing, in a
manner acceptable to LUCENT-GRL, Assignee Gross Revenues.
Page 10
2.03(b) Within such thirty (30) days, Assignee shall pay in United States
dollars to LUCENT-GRL at the address specified in Section 4.03 the royalties
payable in accordance with such statement.
4.03 Addresses
(a) Any notice or other communication hereunder shall be sufficiently
given to COMDIAL when sent by certified mail addressed to Comdial Corporation,
1180 Seminole Trail, Charlottesville, Virginia 22906, Attention: President,
with a copy to Robert E. Stroud, c/o McGuire, Woods, Battle & Boothe LLP,
Court Square Building, 310 Fourth Street, N.E., Suite 300, Charlottesville,
Virginia 22902 or to LUCENT-GRL when sent by certified mail addressed to
Contract Administrator, Intellectual Property Organization, Lucent
Technologies GRL Corporation, Suite 105, 14645 N.W. 77th Avenue, Miami Lakes,
Florida 33014, United States of America. Changes in such addresses may be
specified by written notice.
(b) Payments by COMDIAL shall be made to LUCENT-GRL at Lucent
Technologies GRL Corporation, General Post Office, P.O. Box 6219, New York,
New York, 10087-6219, United States of America. Alternatively, payments to
LUCENT-GRL may be made by bank wire transfers to LUCENT-GRL's account at
Chase Manhattan Bank: Lucent Technologies GRL Corporation, Account No.
323857752, Swift Code: CHASUS33, ABA Code: 021000021. Changes in such
address or account may be specified by written notice.
4.04 Taxes
(a) In anticipation of payments being received from a U.S. corporation
and under current law as of the Effective Date, the Parties do not contemplate
that any taxes (except income taxes), duties, levies, or similar charges will
be imposed as a result of the existence or operation of this Agreement.
However, in the event such charges are imposed, COMDIAL agrees that it shall
bear all such charges (and any related interest and penalties), however
designated, imposed as a result of the existence or operation of this
Agreement, except (i) any tax imposed upon LUCENT-GRL in a jurisdiction other
than the United States if such tax is allowable as a credit against the United
States income taxes of LUCENT-GRL; and (ii) any net income tax imposed upon
LUCENT-GRL by the United States or any governmental entity within the United
States (the fifty (50) states and the District of Columbia). In order for the
exception contained in (i) to apply, COMDIAL must furnish LUCENT-GRL with
evidence issued by the taxing authority in such jurisdiction that such tax has
been paid. The evidence must be furnished within thirty (30) days of issuance
by the taxing authority and must be sufficient to satisfy United States taxing
authorities that such tax has been paid.
(b) If COMDIAL is required to bear a tax, duty, levy or similar charge
pursuant to Section 4.04(a) above, COMDIAL shall pay such tax, duty, levy or
similar charge and any additional amounts as are necessary to ensure that the
Page 11
net amounts received by LUCENT-GRL hereunder after all such payments or
withholdings equal the amounts to which LUCENT-GRL is otherwise entitled under
this Agreement as if such tax, duty, levy or similar charge did not apply.
4.05 Choice of Law
The Parties are familiar with the principles of New York law, and desire and
agree that the law of New York (exclusive of its conflict of laws provision)
shall apply in any dispute arising with respect to this Agreement.
4.06 Integration
This Agreement, together with a letter of assurance by Lucent Technologies
Inc. and a letter of assurance by COMDIAL, set forth the entire agreement and
understanding between the Parties as to the subject matter hereof and merges
all prior discussions between them. However, the Parties agree that nothing
herein or in such letters of assurance is intended to bind Lucent Technologies
Inc. in any manner, except as to the truth of the statements in its such
letter. Lucent Technologies Inc. has no obligations or duties pursuant to the
letters of assurance, this Agreement, and the subject matter hereof. Neither
of the Parties shall be bound by any warranties, understandings or
representations with respect to such subject matter other than as expressly
provided herein or in a writing signed with or subsequent to execution hereof
by an authorized representative of the Party to be bound thereby.
4.07 Outside the United States
(a) There are countries in which the owner of an invention is entitled to
compensation, damages or other monetary award for another's unlicensed
manufacture, sale, lease, use or importation involving such invention prior to
the date of issuance of a patent for such invention but on or after a certain
earlier date, hereinafter referred to as the invention's "protection
commencement date" (e.g., the date of publication of allowed claims or the
date of publication or "laying open" of the filed patent application). In some
instances, other conditions precedent must also be fulfilled (e.g., knowledge
or actual notification of the filed patent application). The Parties agree
that (i) an invention which has a protection commencement date in any such
country may be used in such country pursuant to the terms of this Agreement on
and after any such date, and (ii) all such conditions precedent are deemed
satisfied by this Agreement. There may be countries in which a Party hereto
may have, as a consequence of this Agreement, rights against infringers of the
other Party's patents licensed hereunder. Each Party hereby waives any such
right it may have by reason of any third party's infringement or alleged
infringement of such patents.
(b) COMDIAL hereby agrees to register or cause to be registered, to the
extent required by applicable law, and without expense to LUCENT-GRL or any of
Page 12
its RELATED COMPANIES, any agreements wherein sublicenses are granted by it
under LUCENT-GRL's PATENTS. COMDIAL hereby waives any and all claims or
defenses, arising by virtue of the absence of such registration, that might
otherwise limit or affect its obligations to LUCENT-GRL.
(c) LUCENT-GRL hereby agrees to register or cause to be registered, to the
extent required by applicable law, and without expense to COMDIAL or any of its
RELATED COMPANIES, any agreements wherein sublicenses are granted by it under
COMDIAL'S PATENTS. LUCENT-GRL hereby waives any and all claims or defenses,
arising by virtue of the absence of such registration, that might otherwise
limit or affect its obligations to COMDIAL.
4.08 Dispute Resolution
(a) If a dispute arises out of or relates to this Agreement, or the breach,
termination or validity thereof, the Parties agree to submit the dispute to a
sole mediator selected by the Parties or, at any time at the option of a Party,
to mediation by the American Arbitration Association ("AAA"). If not thus
resolved, it shall be referred to a sole arbitrator selected by the Parties
within thirty (30) days of the mediation, or in the absence of such selection,
to AAA arbitration which shall be governed by the Federal Arbitration Act.
(b) Any award made (i) shall be a bare award limited to a holding for or
against a Party and affording such remedy as is deemed equitable, just and
within the scope of the Agreement; (ii) shall be without findings as to issues
(including but not limited to patent validity and/or infringement) or a
statement of the reasoning on which the award rests; (iii) may in appropriate
circumstances (other than patent disputes) include injunctive relief; (iv)
shall be made within four (4) months of the appointment of the arbitrator;
(v) may be entered in any court; and (vi) shall be binding.
(c) The requirement for mediation and arbitration shall not be deemed a
waiver of any right of termination under this Agreement but the exercise of
such right is subject to the provisions of Section 3.02. The arbitrator is
not empowered to act or make any award other than based solely on the rights
and obligations of the Parties prior to any such termination.
(d) The arbitrator shall be knowledgeable in the legal and technical
aspects of this Agreement and shall determine issues of arbitrability but may
not limit, expand or otherwise modify the terms of this Agreement.
(e) The place of mediation and arbitration shall be Washington, D.C.
(f) Each Party shall bear its own expenses, except those related to the
compensation and expenses of the mediator and arbitrator which shall be borne
equally.
Page 13
(g) A request by a Party to a court for interim measures shall not be
deemed a waiver of the obligation to mediate and arbitrate.
(h) The arbitrator shall not have authority to award punitive or other
damages in excess of compensatory damages and each Party irrevocably waives
any claim thereto.
(i) The Parties, their representatives, other participants and the
mediator and arbitrator shall hold the existence, content and result of
mediation and arbitration in confidence.
4.09 Releases
(a) Subject to Section 4.09(c) and to the receipt by LUCENT-GRL of the
payment by COMDIAL pursuant to Section 2.01(a), LUCENT-GRL, for itself and
for its present RELATED COMPANIES (i.e., RELATED COMPANIES as of the Effective
Date), hereby releases COMDIAL and its present RELATED COMPANIES, all of the
present and former officers and directors of COMDIAL and its present RELATED
COMPANIES, and all CUSTOMERS under any claim that solely LUCENT-GRL or any of
its present RELATED COMPANIES has for patent infringement arising prior to the
Effective Date for which the rights and licenses expressly granted under this
Agreement to COMDIAL and its present RELATED COMPANIES would be a complete
defense to such claim had this Agreement been in effect at the time such
patent infringement arose.
(b) Subject to Section 4.09(c), COMDIAL, for itself and for its present
RELATED COMPANIES, hereby releases LUCENT-GRL and its present RELATED
COMPANIES, all of the present and former officers and directors of LUCENT-GRL
and its present RELATED COMPANIES, and all CUSTOMERS under any claim that
solely COMDIAL or any of its present RELATED COMPANIES has for patent
infringement arising prior to the Effective Date for which the rights and
licenses expressly granted under this Agreement to LUCENT-GRL and its present
RELATED COMPANIES would be a complete defense to such claim had this Agreement
been in effect at the time such patent infringement arose. For the purposes
of this Section 4.09(b), RELATED COMPANIES of LUCENT-GRL also includes Lucent
Technologies Inc. and its SUBSIDARIES as they formerly existed as part of AT&T
Corp.
(c) The releases in Sections 4.09(a) and (b) shall not operate to release
any CUSTOMER of COMDIAL or any of its RELATED COMPANIES who is a party to any
lawsuit involving allegations of patent infringement, patent invalidity or
patent unenforceability in which LUCENT-GRL or any of its RELATED COMPANIES is
an adverse party as of two weeks prior to the EXECUTION DATE.
Page 14
4.10 Severability
If any paragraph or provision of this Agreement shall be deemed void or
invalid as a matter of law, the remaining paragraphs or provisions of this
Agreement shall nevertheless remain in full force and effect and be interpreted
to the extent possible to effect the overall intention of the Parties at the
EXECUTION DATE of this Agreement.
4.11 Modification
This Agreement may not be amended, modified or altered in any way, except in a
writing identified as such and signed by both Parties hereto.
Page 15
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
in duplicate originals by its duly authorized representatives on the respective
dates entered below.
LUCENT TECHNOLOGIES GRL CORPORATION
By:_/s/ G. G. Partlow_____
G. G. Partlow
Chairman of the Board
Date: March 17, 2000
COMDIAL CORPORATION
By: /s/ William G. Mustain
Name: William G. Mustain
Title:_Chairman/President/CEO
Date:_March 22,2000
THIS AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY
IN ANY MANNER UNLESS DULY EXECUTED BY AUTHORIZED
REPRESENTATIVES OF BOTH PARTIES.
Page 16
BYLAWS Exhibit 3.1
of
COMDIAL CORPORATION
Table of Contents
ARTICLE 1 Stockholders 1
Section 1.1 Annual Meetings 1
Section 1.2 Special Meetings 1
Section 1.3 Notice of Meetings 1
Section 1.4 Adjournments 1
Section 1.5 Quorum 1
Section 1.6 Organization 2
Section 1.7 Voting; Proxies 2
Section 1.8 Fixing Date for Determination of
Stockholders of Record 3
Section 1.9 List of Stockholders Entitled to Vote 4
Section 1.10 No Action Except in Meeting 4
ARTICLE 2 Board of Directors 4
Section 2.1 Functions and Compensation 4
Section 2.2 Number; Qualifications 4
Section 2.3 Elections and Nominating Procedures 5
Section 2.4 Resignations; Removal; Vacancies 5
Section 2.5 Regular Meetings 5
Section 2.6 Special Meetings 6
Section 2.7 Notice of Special Meetings 6
Section 2.8 Telephonic Meetings Permitted 6
Section 2.9 Quorum; Vote Required for Action 6
Section 2.10 Organization 6
Section 2.11 Action by Directors Without a Meeting 6
ARTICLE 3 Committees 7
Section 3.1 Committees 7
Section 3.2 Committee Rules 7
ARTICLE 4 Officers 7
Section 4.1 Executive Officers; Election;
Qualifications 7
Section 4.2 Term of Office; Resignation; Removal;
Vacancies 8
Section 4.3 Powers and Duties of Executive Officers 9
Section 4.4 Bond of Officers 8
Section 4.5 Compensation 8
ARTICLE 5 Stock 8
Section 5.1 Certificate 8
Section 5.2 Transfer of Stock 9
Section 5.3 Lost, Stolen or Destroyed Stock 9
Certificates; Issuance of New
Certificates
Page 22
ARTICLE 6 Indemnification 9
Section 6.1 Indemnification of Directors, Officers 9
Section 6.2 Indemnification in Derivative Suits 10
Section 6.3 Indemnification for Expenses 11
Section 6.4 Authorization of Indemnification 11
Section 6.5 Advancement of Expenses 11
Section 6.6 Suit to Enforce Claim for Indemnification 11
Section 6.7 Indemnification Non-Exclusive 12
Section 6.8 Insurance 12
Section 6.9 Indemnification After Leaving Office 12
ARTICLE 7 Miscellaneous 12
Section 7.1 Fiscal Year 12
Section 7.2 Seal 12
Section 7.3 Waiver of Notice of Meetings of
Stockholders, Directors and Committees 12
Section 7.4 Interested Directors; Quorum 13
Section 7.5 Form of Records 13
Section 7.6 Dividends 13
Section 7.7 Checks 14
Section 7.8 Documents Filed with Secretary
of State 14
Section 7.9 Authority to Bind Corporation 14
Section 7.10 Amendment of Bylaws 14
Page 23
BYLAWS
of
COMDIAL CORPORATION
ARTICLE 1
Stockholders
Section 1.1 Annual Meetings. An annual meeting of the stockholders
shall be held for the election of directors at such date, time and place,
either within or without the State of Delaware, as may be designated by
resolution of the Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting.
Section 1.2 Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Chairman of the Board,
if any, the Vice Chairman of the Board, if any, the President or the Board of
Directors, or by a committee of the Board of Directors which has been duly
designated by the Board of Directors, and whose powers and authority, as
expressly provided in a resolution of the Board of Directors, include the power
to call meetings. Such special meetings shall be held at such date, time and
place either within or without the State of Delaware as may be stated in the
notice of the meeting.
Section 1.3 Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which 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. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation.
Section 1.4 Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. 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 at the meeting.
Section 1.5 Quorum. At each meeting of stockholders, except where
otherwise provided by law or the Certificate of Incorporation or these Bylaws,
the holders of a majority of the outstanding shares of stock entitled to vote
at the meeting, present in person or by proxy, shall constitute a quorum. For
purposes of the foregoing, two or more classes or series of stock shall be
considered a single class if the holders thereof are entitled to vote together
page 24
a single class at the meeting. In the absence of a quorum, the stockholders
present may, by majority vote, adjourn the meeting from time to time in the
manner provided in Section 1.4 of these Bylaws until a quorum shall attend.
Shares of its own stock belonging to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of any corporation to
vote stock, including but not limited to its own stock, held by it in a
fiduciary capacity.
Section 1.6 Organization. Meetings of stockholders shall be presided
over by the President, or in his absence by a Vice President, or in the absence
of the foregoing persons by a chairman designated by the Board of Directors, or
in the absence of such designation by a chairman chosen at th meeting. The
Secretary shall act as secretary of the meeting, but in his absence the chairman
of the meeting may appoint any person to act as secretary of the meeting.
Subject to the requirements of applicable law, all annual and special meetings
of stockholders shall be conducted in accordance with such rules and procedure
as the Board may determine and, as to any matters not governed by such rules
and procedures, as the chairman of the meeting shall determine.
Section 1.7 Voting; Proxies. Unless otherwise provided in the
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law
to support an irrevocable power. A stockholder may revoke any proxy which is
not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at
such meeting shall so determine. At all meetings of stockholders for the
election of directors a plurality of the votes cast shall be sufficient to
elect. All other elections and questions shall, unless otherwise provided by
law or by the Certificate of Incorporation or these Bylaws, be decided by the
vote of the holders of a majority of the outstanding shares of stock entitled
to vote thereon present in person or by proxy at the meeting, provided that
(except as otherwise required by law or by the Certificate of Incorporation)
the Board of Directors may require a larger vote upon any election or
question.
Section 1.8 Fixing Date for Determination of Stockholders of Record.
(a) Notice and Voting Rights: In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than
sixty nor less than ten days before the date of such meeting. If no
record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the
meeting is held. 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; providing, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) Consents: 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 record
date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which date 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. If no
record date has been fixed by the Board of Directors, the record date
for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of
Directors is required by law, the Certificate of Incorporation or these
Bylaws shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office, principal place of
business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand
or by certified mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the Certificate of Incorporation or these
Bylaws, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) Other Lawful Action: In order that the Corporation may
determine the stockholders entitled to receive payment of any dividend
or other distribution or allotment of any rights or the stockholders
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 record date shall not
precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior
to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 1.9 List of Stockholders Entitled to Vote. The Secretary
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 1.10 No Action Except in Meeting. No action shall be taken by
the stockholders of the Corporation except in an annual or special meeting of
stockholders.
ARTICLE 2
Board of Directors
Section 2.1 Functions and Compensation. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors of the Corporation. The Board of Directors shall have the authority
to fix the compensation of the members thereof.
Section 2.2 Number; Qualifications. The number of directors of the
Corporation shall be not less than four or more than eleven, and the exact
number thereof shall be determined from time to time by resolution of the Board
of Directors. No decrease in the exact number of directors shall have the
effect of shortening the term of any incumbent director. Directors need not
be stockholders.
Section 2.3 Elections and Nominating Procedures.
(a) Election. At each annual meeting of the stockholders, the
stockholders shall elect directors to replace those directors whose terms then
expire. The election of directors is subject to any provisions contained in
the Certificate of Incorporation relating thereto, including any provisions
for a classified Board of Directors.
(b) Nominations. Nominations for election to the Board of Directors
may be made by the Board of Directors or a nominating committee
appointed by the Board of Directors or by any holder of any shares of
the capital stock of the Corporation entitled to vote for the election
of directors. Nominations other than those made by or on behalf of the
management of the Corporation must be made in writing delivered or
mailed to the Secretary of the Corporation not less than 120 days in
advance of the anniversary date of the Corporation's proxy statement
released to its stockholders in connection with the previous year's
annual meeting of stockholders. The notice concerning the nomination
must contain the following information to the extent known to the
notifying stockholder: (1) the name and address of the stockholder who
intends to make the nomination; (2) a representation that the
stockholder is entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (3) the name and address of each proposed
nominee; (4) the principal occupation of each proposed nominee; (5) the
total number of shares of capital stock of the Corporation that will be
voted for each proposed nominee; (6) the number of shares of capital
stock of the Corporation owned by the notifying stockholder. Nominations
not made in accordance herewith may be disregarded by the chairman of
the meeting at his discretion, and upon his instructions the vote tellers
will disregard all votes cast for each such nominee.
Section 2.4 Resignation; Removal; Vacancies. Any director may resign
at any time upon written notice to the Corporation. Stockholders may remove
directors with or without cause. Any vacancy occurring in the Board of
Directors for any cause may be filled by a majority of the remaining members
of the Board of Directors, although such majority is less than a quorum, or
by a plurality of the votes cast at a meeting of stockholders, and each
director so elected shall hold office until the expiration of the term of
office of the director whom he has replaced.
Section 2.5 Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware
and at such times as the Board of Directors may from time to time determine,
and if so determined, notices thereof need not be given.
Section 2.6 Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, the Vice Chairman of
the Board, the President, any Vice President, the Secretary, or by a
plurality of directors in office.
Section 2.7 Notice of Special Meetings. Notice of the time and place
of special meetings shall be given to each director in writing or orally, in
person or by telephone. In case such notice is mailed, it shall be deposited
in the United States mail, addressed to the director at the director's address
shown on the records of the Corporation, postage prepaid, at least five
business days prior to the time of the meeting. In case such notice is sent
by facsimile machine, it shall be telecopied to the director at the director's
telecopy number shown on the records of the Corporation at least twenty-four
hours prior to the meeting. In case such notice is sent by e-mail, it shall
be sent to the director at the director's e-mail address shown on the records
of the Corporation at least twenty-four hours prior to the time of the meeting.
In case such notice is given orally, it shall be given to the director at least
twenty-four hours prior to the time of the meeting.
Section 2.8 Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of such Board or 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 participation in a meeting pursuant to this
Section 2.8 shall constitute presence in person at such meeting.
Section 2.9 Quorum; Vote Required for Action. At all meetings of
the Board of Directors a majority of the entire Board shall constitute
a quorum for the transaction of business. Except in cases in which the
Certificate of Incorporation or these Bylaws otherwise provide, the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 2.10 Organization. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or in his absence by
the Vice Chairman of the Board, if any, or in his absence by the President,
or in their absence by a chairman chosen at the meeting. The Secretary shall
act as secretary of the meeting, but in his absence the chairman of the meeting
may appoint any person to act as secretary of the meeting.
Section 2.11 Action by Directors Without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors,
or of any committee thereof, may be taken without a meeting if all members of
the Board or such 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.
ARTICLE 3
Committees
Section 3.1 Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each
committee to consist of two 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 the
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 place of any such absent or 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 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 dissolution, removing or indemnifying directors or amending
these Bylaws; and, unless the resolution designating such committee or the
Certificate of Incorporation expressly so provides, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock. The name or names of such committees shall be determined by
resolution of the Board of Directors.
Section 3.2 Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE 4
Officers
Section 4.1 Executive Officers; Election; Qualifications. As soon as
practicable after the annual meeting of stockholders in each year the Board of
Directors shall elect a Chief Executive Officer, a President and a Secretary,
and it may, if it so determines, elect a Chairman of the Board and a Vice
Chairman of the Board from among its members. The Board of Directors may also
elect one or more Vice Presidents, one or more Assistant Vice Presidents, one
or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers
and may give any of them such further designations or alternate titles as it
considers desirable. Any number of offices may be held by the same person.
Section 4.2 Term of Office; Resignation; Removal; Vacancies. Except
as otherwise provided in the resolution of the Board of Directors electing any
officer, each such officer shall hold office until the first meeting of the
Board of Directors after the annual meeting of stockholders next succeeding
this election, and until his successor is elected and qualified or until his
earlier resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of
the term by the Board of Directors at any regular or special meeting.
Section 4.3 Powers and Duties of Executive Officers. The officers of
the Corporation shall have the powers and duties in the management of the
Corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective offices, subject to
the control of the Board of Directors.
Section 4.4 Bond of Officers. The Board of Directors may by
resolution require any and all general officers to give a bond to the
Corporation, with sufficient sureties, conditioned for the faithful performance
of the duties of their respective offices and such other conditions as may
from time to time be required by the Board of Directors.
Section 4.5 Compensation. The Board of Directors shall fix the
compensation of the Chairman of the Board (if any), the Vice Chairman of the
Board (if any) and of the President and shall fix, or authorize the President
to fix, the compensation of any or all others. The Board of Directors may
allow compensation to members of any committee and may vote compensation to
any director for attendance at meetings or for any special services.
ARTICLE 5
Stock
Section 5.1 Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
of the Board (if any) or Vice Chairman of the Board (if any), or the President
or a Vice President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Corporation, certifying the number
of shares owned by him in the Corporation. Any of or all 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. 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 qualifications,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate 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 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 equal
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 5.2 Transfer of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares endorsed or
accompanied by a written assignment signed by the holder of record or by his
duly authorized attorney-in-fact, it shall be the duty of the Corporation, or
its duly appointed transfer agent, to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
Section 5.3 Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
ARTICLE 6
Indemnification
Section 6.1 Indemnification of Directors, Officers. The Corporation
shall indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, 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 such person
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent, or in any other capacity while serving
as a director, officer, employee or agent, against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection with such action, suit or proceeding
if such person acted in good faith and in a manner such person 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 or her 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 such person did not act in good faith and in a manner which such person
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 or her conduct was unlawful.
Section 6.2 Indemnification in Derivative Suits. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact
that such person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against all expense, liability and
loss (including attorneys' fees and amounts paid or to be paid in settlement
except to the extent such indemnification is found to be contrary to public
policy by the Delaware Supreme Court, or in the absence of a decision by the
Delaware Supreme Court, the court of next highest jurisdiction in the State
of Delaware) reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Corporation unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 6.3 Indemnification For Expenses. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Section 6.1 or 6.2 of this Article VI or in defense of any claim, issue
or matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 6.4 Authorization of Indemnification. Any indemnification
under Sections 6.1 or 6.2 of this Article VI (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, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Sections 6.1 or 6.2 of this Article VI. Such
determination shall be made (a) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit
or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the stockholders. The director,
officer, employee or agent shall be afforded a reasonable opportunity to
present evidence and arguments in support of a favorable determination before
the individual or individuals making such determination.
Section 6.5 Advancement of Expenses. Expenses incurred in defending
a civil or criminal 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 (1) a written request by or on behalf of the director, officer,
employee or agent including such evidence of the incurrence of expenses as the
Corporation may reasonably request and (2) an undertaking by or on behalf of
such person to repay all amounts if it shall ultimately be determined that
such person is not entitled to be indemnified by the Corporation as authorized
by these Bylaws.
Section 6.6 Suit To Enforce Claim For Indemnification. If a claim
under Sections 6.1, 6.2, 6.3, or 6.5 of this Article VI is not paid in full by
the Corporation within sixty (60) days after receipt by the Corporation of a
written request therefor, the director, officer, employee or agent making such
request may at any time thereafter bring suit against the Corporation in the
Commonwealth of Virginia to recover the unpaid amount of the claim and, if
successful in whole or in part, such person shall be entitled to be paid also
the expense of prosecuting such claim. If such claim has not been paid because
the determination required under Section 6.4 of this Article VI either has not
been made or has been made unfavorably to the director, officer, employee or
agent, such person shall be entitled to indemnification only if such person can
establish that he or she nevertheless has met the applicable standard of
conduct set forth in Sections 6.1 or 6.2 of this Article VI.
Section 6.7 Indemnification Non-Exclusive. The indemnification and
advancement of expenses provided by or granted pursuant to these Bylaws shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any Bylaws,
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.
Section 6.8 Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such
liability under the provisions of this section.
Section 6.9 Indemnification After Leaving Office. The indemnification
and advancement of expenses provided by or granted pursuant to these Bylaws
shall, unless otherwise provided, when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE 7
Miscellaneous
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 7.2 Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 7.3 Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Any written waiver of notice, signed by the person entitled
to notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 7.4 Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association,
or other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board or committee thereof which
authorizes the contract or transaction, or solely because his or their votes
are counted for such purpose, if: (1) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and the Board or
committee in good faith authorized the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (2) the material facts
as to his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.
Section 7.5 Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, microphotographs, or any other
information storage device, provided that the records so kept can be converted
into clearly legible form within a reasonable time. The Corporation shall so
convert any records so kept upon the request of any person entitled to inspect
the same.
Section 7.6 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. 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 or reserves 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 interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 7.7 Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 7.8 Documents Filed with Secretary of State. All instruments
to be filed with the Secretary of State of Delaware or in accordance with the
Delaware General Corporation Law shall be signed by the chairman or vice-
chairman of the Board of Directors, if any, or the President or a Vice
President, and attested by the Secretary or an Assistant Secretary, of the
Corporation, or by such other officers as may be duly authorized to exercise
the duties, respectively, ordinarily exercised by the president or vice
president and by the secretary or assistant secretary of a corporation.
Section 7.9 Authority to Bind Corporation. The Chief Executive
Officer and the President shall have the authority to enter into any
contract or execute any instrument in the name and on behalf of the
Corporation. The Board, or the Chief Executive Officer or the President
pursuant to a written delegation of approval authority, may authorize any
other officer or agent to enter into any contract or execute any instrument in
the name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances. Unless so authorized by the Board, the
Chief Executive Officer, the President or these Bylaws, no officer, agent or
employee shall have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or on any amount.
Section 7.10 Amendment of Bylaws. These Bylaws may be altered or
repealed, and new bylaws made, by the Board of Directors, but the stockholders
may make additional bylaws and may alter and repeal any bylaws whether adopted
by them or otherwise.
