<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ TO _______
Commission File Number 0-23152
MOBINETIX SYSTEMS, INC.
----------------------------------------------
(Name of small business issuer in its charter)
DELAWARE 33-0253408
- -------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 OAKMEAD PARKWAY, SUNNYVALE, CALIFORNIA 94086
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (408) 524-4200
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of issuer's common stock outstanding as of
May 5, 1998: 1,616,315
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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<PAGE> 2
MOBINETIX SYSTEMS, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheet at March 31, 1998 3
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 1998 and 1997 4
Consolidated Condensed Statements of Operations for the
Nine Months Ended March 31, 1998 and 1997 5
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended March 31, 1998 and 1997 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET (unaudited)
as of March 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents $ 5,549,809
Accounts receivable, net 334,144
Inventories 1,267,630
Prepaid expenses and other current assets 363,540
-----------
Total current assets 7,515,123
-----------
Property and equipment 551,881
Less: Accumulated depreciation (310,396)
-----------
Property and equipment, net 241,485
-----------
Total assets $ 7,756,608
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 864,708
Accrued liabilities and other 704,427
Notes payable 2,040,195
Deferred revenues 5,085,494
-----------
Total current liabilities 8,694,824
-----------
Stockholders' deficit:
Series B convertible preferred stock 858
Series C convertible preferred stock 28
Common stock 1,616
Additional paid-in capital 8,083,761
Accumulated deficit (9,024,479)
-----------
Total stockholders' deficit (938,216)
-----------
Total liabilities and stockholders' deficit $ 7,756,608
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues $ 2,456,159 $ 471,608
Cost of revenues 1,414,231 231,272
----------- -----------
Gross margin 1,041,928 240,336
----------- -----------
Operating expenses:
Selling, general and administrative 952,464 541,375
Research and development 758,973 495,266
----------- -----------
Total operating expenses 1,711,437 1,036,641
----------- -----------
Operating loss (669,509) (796,305)
Interest expense and other (Note 5) (189,229) (1,100)
Interest income 30,121 15,521
----------- -----------
Loss before income taxes (159,108) (781,884)
----------- -----------
Net loss $ (828,617) $ (781,884)
=========== ===========
Net loss per share (Note 2):
Basic $ (0.52) $ (0.58)
Diluted $ (0.52) $ (0.58)
Weighted average shares outstanding:
Basic 1,581,873 1,337,001
Diluted 1,581,873 1,337,001
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues $ 6,355,442 $ 1,118,775
Cost of revenues 3,714,883 565,911
----------- -----------
Gross margin 2,640,559 552,864
----------- -----------
Operating expenses:
Selling, general and administrative 2,444,569 1,580,036
Research and development 2,192,549 1,322,649
----------- -----------
Total operating expenses 4,637,118 2,902,685
----------- -----------
Operating loss (1,996,559) (2,349,821)
Interest expense and other (Note 5) (211,927) (3,239)
Interest income 73,791 93,965
----------- -----------
Loss before income taxes (2,134,695) (2,259,095)
Income taxes -- (2,400)
----------- -----------
Net loss $(2,134,695) $(2,261,495)
=========== ===========
Net loss per share (Note 2):
Basic $ (1.44) $ (1.69)
Diluted $ (1.44) $ (1.69)
Weighted average shares outstanding:
Basic 1,486,681 1,336,632
Diluted 1,486,681 1,336,632
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net cash used in operating activities $ (446,831) $ 1,041,748
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (89,275) (153,165)
----------- -----------
Net cash used in investing activities (89,275) (153,165)
----------- -----------
Cash flows from financing activities:
Issuance of Series B Preferred Stock -- 1,634,469
Series B Preferred Stock issuance costs -- (281,950)
Proceeds from sale of common stock 624,231 109
Borrowings - notes payable 2,040,195 --
----------- -----------
Net cash provided by financing
activities 2,664,426 1,352,628
----------- -----------
Net increase in cash 2,128,320 2,241,211
Cash at beginning of period 3,421,489 2,438,368
----------- -----------
Cash at end of period $ 5,549,809 $ 4,679,579
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ 2,400
Cash paid for interest $ 91,291 $ 2,239
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
MOBINETIX SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial information included herein for the three and nine month periods
ended March 31, 1998 and 1997 is un-audited; however, such information reflects
all adjustments consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
The interim consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. These interim
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Form 10-KSB of
MobiNetix Systems, Inc. (the "Company") for the year ended June 30, 1997.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
2. NET LOSS PER SHARE
Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per Share,"
simplifies the standards for computing earnings per share previously found in
ABP No. 15. SFAS 128 replaces the presentation of primary earnings per share
with a presentation of basic earnings per share, which excludes dilution. SFAS
128 also requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all entities with complex capital
structures and a reconciliation of the two earnings bases. Diluted earnings per
share is computed similarly to fully diluted earnings per share pursuant to ABP
No. 15. The Company was required to adopt SFAS 128 effective for the quarter
ended December 31, 1997. Basic earnings per share has been computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the period. Because of the net losses incurred for all periods presented,
there is no dilutive effect from stock options outstanding in the accompanying
consolidated condensed statements of operations.
<PAGE> 8
3. RECLASSIFICATIONS
Certain amounts for fiscal 1997 have been reclassified to conform to the current
presentation.
4. INVENTORIES
Classification of inventories is as follows:
<TABLE>
<CAPTION>
March 31,
1998
----------
<S> <C>
Finished goods $ 150,021
Work in process 732,380
Raw materials 385,229
----------
Total $1,267,630
----------
</TABLE>
5. NOTES PAYABLE
At March 31, 1998, the Company's notes payable consisted of a bridge loan in the
amount of $1,500,000 and borrowings under a line of credit in the amount of
$540,195. The bridge loan matured in April 1998 and bears an interest rate of
11%. Borrowings under the Company's $3.0 million line of credit bear an interest
rate of prime plus 1.5%. The line of credit is subject to certain borrowing base
formulas and other conditions and expires in July 1998. All of the bridge loan
borrowings under these loan arrangements were repaid on April 15, 1998.
As part of consideration for the bridge loan, MobiNetix granted the lenders
225,000 warrants to purchase the company's common stock as $3.50 per share. The
company determined that the value of these warrants was $120,636. As the loan
was repaid immediately subsequent to the end of the quarter, the Company
recorded $120,636 as interest expense in the third quarter of fiscal 1998.
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
un-audited consolidated financial statements of MobiNetix Systems, Inc. and its
wholly owned subsidiary PenWare, Inc., including the notes thereto (see Part I,
Item 1). This analysis contains certain forward-looking statements which are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected.
RESULTS OF OPERATIONS (THREE MONTHS ENDED MARCH 1998 COMPARED TO THREE MONTHS
ENDED MARCH 1997)
The 421% increase in revenues from the third quarter of fiscal 1997 (three
months ended March 31, 1997) to the third quarter of fiscal 1998 (three months
ended March 31, 1998) is largely due to increased sales of the Company's
advanced PenWare 3000 transaction terminal, including significant shipments to
IBM Corp. under a U.S. Postal Service subcontract. Higher sales of signature
capture components to other major OEM customers also contributed to the overall
increase in revenues. The Company has recognized substantially all of its $3.8
million contract with IBM at the end of third quarter of fiscal 1998.
Cost of sales increased significantly over this period, mainly due to higher
unit volumes and startup costs associated with the Company's manufacturing ramp
for new and existing products.
Selling, general and administrative expenses increased by 76% from third quarter
of fiscal 1997 to the third quarter of fiscal 1998. The increase is largely the
result of higher personnel expenses to support business growth, including
targeted new hires in such areas as field sales, purchasing and production
control.
The 53% year-to-year increase in research and development expense is also
largely attributable to personnel. The Company expanded its engineering staff
during fiscal 1998 to enable the design, development and production ramp of
interactive transaction terminal products and software solutions. Expenses for
technical consulting and engineering tools and materials also increased in
fiscal 1998 compared to the previous year in connection with the Company's
hardware development and design efforts.
Interest expenses increased significantly due to a $120,636 charge related to
certain warrants granted to lenders under a bridge loan agreement. As part of
consideration for the bridge loan, MobiNetix granted the lenders 225,000
warrants to purchase the company's common stock as $3.50 per share. The company
determined that the value of these warrants was $120,636. Since the bride loan
was repaid shortly after the end of the quarter, this amount was recorded as
interest expenses in the third quarter of fiscal 1998.
<PAGE> 10
RESULTS OF OPERATIONS (NINE MONTHS ENDED MARCH 1998 COMPARED TO NINE MONTHS
ENDED MARCH 1997)
Changes in revenues, costs and expenses from the first nine months of fiscal
1997 to the first nine months of fiscal 1998 are the result of the same factors
and trends as those outlined above for the three-month comparison period.
Interest expense increased during the first nine months of fiscal 1998 due to
new borrowings and the cost associated with the warrants issued to financial
institutions (a commercial bank and a private investor) in consideration for the
bridge loan.
CASH AND SOURCES OF LIQUIDITY
During the first nine months of fiscal 1997, financing activities, consisting
mainly of private placements of preferred stock, generated $1,352,628 in cash.
These proceeds were used to finance operations through fiscal 1997 and part of
fiscal 1998.
During the first nine months of fiscal 1998, the Company obtained additional
financing through stock option exercises. One of the optionees, a consultant for
the Company's board of directors, exercised 175,000 options in October 1997,
resulting in proceeds to the Company of $559,375. Additional stock options
exercises occurred in the third quarter of fiscal 1998.
The Company also borrowed $540,195 during the first nine months of fiscal 1998
under its $3.0 million line of credit. An additional $1,500,000 was borrowed
under a bridge loan with a commercial bank and a private investor. As part of
consideration for the bridge loan, the Company issued 225,000 warrants to
purchase common stock at a price of $3.50 per share, expiring in 2004.
The Company's operating activities consumed $446,831 in cash during the first
nine months of fiscal 1998, compared to an in-flow of $1,041,748 during the same
period in fiscal 1997. The increased cash usage is due largely to higher
operating expenses and working capital requirements, particularly for inventory,
offset in part by customer prepayments of $5 million in February 1998 and $3.8
million in February 1997 respectively.
As of March 31, 1998, the Company's principal sources of liquidity include cash
of $5.5 million and remaining funds available under its $3.0 million line of
credit, which is subject to borrowing base formulas and other conditions. The
line of credit expires July 1, 1998. The $1,500,000 bridge loan matured in April
1998.
<PAGE> 11
OUTLOOK
The Company is currently pursuing a private sale of preferred stock, the
proceeds of which would be used to finance future operations. There is no
assurance, however, that this or other equity funding will be available or if
available, that it will be on terms acceptable to the Company. However, the
Company has other sources of liquidity, including additional borrowings from the
existing credit line. Also, cost controls could be employed to preserve
liquidity if needed.
In connection with the Company's contract with Federated Department Stores, Inc.
MobiNetix received a $5 million prepayment in March 1998. The funds are being
used to help finance operations, including significant commitments for
inventory, and have been recorded as deferred revenue. The Company has
subsequently recognized a portion of this revenue. Additional revenue
recognition in future periods will depend on the Company's continued ability to
perform under the contract.
MobiNetix believes that it has the technical and marketing skills and product
offerings necessary for future success. However, the Company has yet to be
profitable and sales trends are inherently difficult to predict at this stage of
development. Price and product competition, design acceptance by customers,
financing constraints, the ability to manufacture new products in sufficient
volume, and general economic conditions, together with other risk factors, could
lead to adverse fluctuations in revenues and profitability in any particular
quarter.
SUBSEQUENT EVENT
Subsequent to the third quarter ended March 31, 1998, MobiNetix entered into an
agreement with Welch Allyn Inc., a privately held company in Skaneateles Falls,
N.Y. under which Welch Allyn Inc. will invest $6.875 million in MobiNetix. The
proceeds from this investment will be used to fuel the growth of the Company's
product lines. The investment is pending regulatory approval.
On April 15, 1998, MobiNetix paid off the bridge loan of $1.5 million and
reduced the revolving credit line balance to $250,000.
<PAGE> 12
FUTURE ACCOUNTING REQUIREMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued statement
of Financial Accounting Standards No.130 ("FAS 130"), "Reporting Comprehensive
Income," which the Company will be required to adopt for fiscal year 1999. This
statement will require the Company to report in the financial statements, in
addition to net income, comprehensive income and its components including, as
applicable, foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. Upon adoption, the Company will also be required to reclassify
financial statements for earlier periods provided for comparative purposes. The
Company currently expects that the effect of adoption of FAS 130 to be limited
and has not yet determined the manner in which comprehensive income will be
displayed.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 ("FAS 131"), "Disclosures about Segments of an Enterprise and Related
Information," which the Company will be required to adopt for fiscal year 1999.
This statement establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Under FAS 131, operating segments are to
be determined consistent with the way that management organizes and evaluates
financial information internally for making operating decisions and assessing
performance. The Company has not determined the impact of the adoption of this
new accounting standard on its consolidated financial statement disclosures.
<PAGE> 13
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Software Development and License Agreement, dated March 16, 1998
10.2 Systems Acquisition Agreement, dated March 16, 1998, as amended
March 20, 1998
10.3 Common Stock Purchase Warrant
27 Financial Data Schedule
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
MOBINETIX SYSTEMS, INC.
Date: May 13, 1998 By: /s/ DAVID M. LICURSE, SR.
------------------------------------
David M. Licurse, Sr.
Chief Financial Officer and
Vice President of Operations
(principal accounting officer)
<PAGE> 15
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
10.1 Software Development and License Agreement, dated March 16, 1998
10.2 Systems Acquisition Agreement, dated March 16, 1998, as
amended March 20, 1998
10.3 Common Stock Purchase Warrant
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.1
SOFTWARE DEVELOPMENT AND LICENSE
AGREEMENT
This Software Development and License Agreement ("LICENSE AGREEMENT") is
entered into as of the 16th day of March, 1998 by and between MOBINETIX
SYSTEMS, INC., having a place of business at 500 Oakmead Parkway, Sunnyvale,
California 94086-4056 ("LICENSOR"), and FEDERATED SYSTEMS GROUP, INC., with its
principal place of business located at 6801 Governor's Lake Parkway, Norcross,
Georgia 30071 ("LICENSEE").
A. Licensor is in the business of developing and manufacturing certain
electronic point of sale products comprising hardware and software;
B. Contemporaneously herewith, Licensor has entered into a Systems
Acquisition Agreement with Licensee (the "AGREEMENT"), pursuant to which
Licensor has agreed to manufacture and sell to Licensee such products on the
terms and conditions contained in the Agreement;
C. In conjunction with the sale of such products, Licensor has to modify
the software contained within such products, create and develop additional
software and license all such software to Licensee; and
D. The parties hereto wish to enter into this License Agreement for
purposes of setting forth the terms and conditions that will govern the
provision of programming services and the license to such software by Licensor
to Licensee.
AGREEMENTS:
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
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SECTION 1. - DEFINITIONS
All Exhibits attached hereto constitute a part of this License Agreement
and are incorporated herein by this reference. Certain capitalized terms used
herein have the meanings given to them in this SECTION 1 or, if not defined
herein, have the meanings given to them in the Agreement. When used herein, the
term "INCLUDING" means "INCLUDING WITHOUT LIMITATION."
o "DESIGN SPECIFICATIONS" means a document that describes in technical
detail the features or functions of the New Software, which upon completion
shall be attached hereto as EXHIBIT A.
o "DEVELOPMENT PHASE" means the period during which Licensee shall
develop and create New Software or enhance, modify or convert the Software,
install same on Licensee's Hardware, and accomplish testing and Software
Acceptance, all in accordance with the Scope Document.
o "HARDWARE" means the Units point of sale computers and related
equipment into which the Licensed Software is installed or with which the
Licensed Software is required to interface, all as specified in EXHIBIT A.
o "LICENSED SOFTWARE" means collectively (i) the object code of the
Software in executable form, (ii) the source code of the New Software,
including all comments and the object code to the script interpreter software,
and (iii) as to each of the Software and New Software, all documentation
including, user manuals, flow charts and the like, and all aspects of a
developer's toolkit (including (i) complete documentation, down to the level of
how a script is built from source; (ii) all required documentation, including
special formats, etc.; and (iii) firmware documentation, including special
formats, etc.; and (iii) firmware documentation, including, specifically,
Application Programming Interface Software (API) and limitations, if any)
related to the Software or New Software, as modified, enhanced or customized
for Licensee's benefit, in accordance with the provisions of SECTION 2.
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o "LICENSEE" means Federated Systems Group, Inc., a party to this
Agreement. References to "LICENSEE" herein include any entity that controls, is
controlled by or subject to common control with Federated Systems Group, Inc.
o "LICENSEE UNDER COMMITTEE" means the users, programming and/or
technical consultants and other employees or agents of Licensee, appointed by
Licensee to cooperate with and provide guidance to Licensor and otherwise be
responsible for the execution of Licensee's obligations hereunder.
o "SCOPE DOCUMENT" means a document containing (i) a detailed
description of all services to be provided by Licensor during the Development
Phase, (ii) a time and action schedule (including key milestones such as the
delivery and acceptance of the various versions of the New Software, the dates
on which such milestones are to be met, the installation dates, and the date on
which testing and acceptance are required to be completed), (iii) a description
of the training obligations of Licensor, and (iv) a list of Licensee's
responsibilities during the Development Phase, if any. Upon completion the
Scope Document will be attached hereto as EXHIBIT B.
o "SOFTWARE" means collectively the following (i) PenWare 3100
Firmware, which is the operating system and encryption software built into each
of the Initial Units and stored in ROM; (ii) SRS Software Product, which is the
ModiNetix software product unknown as the "SECURE RECORDS SYSTEM", as modified
or customized pursuant to the Design Specifications agreed to by both parties;
and (iii) SDK Software Product, which is a software developer's toolkit and is
a MobiNetix software product known as "PENWARE SDK" and includes all
documentation relating or describing same, such as user manuals, flow charts
and the like.
o "SOFTWARE ACCEPTANCE" has the meaning specified in SECTION 2.4.
o "SYSTEM(S)" means the configuration of integrated components
comprising the Hardware and Licensed Software as installed in a Licensee
location.
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o "NEW SOFTWARE" means PenWare 3100 Scripts and is the application
software deliverables identified in the Scope Document and required to be
developed and created hereunder.
SECTION 2. DEVELOPMENT OF LICENSED SOFTWARE
The Software (i.e. the portion thereof known as SRS Software Product) shall be
modified, developed or customized and the New Software shall be created and
developed to create the Licensed Software, and the Licensed Software shall be
installed, all in accordance with the provisions, specification, conditions and
warranties set forth herein.
2.1 CREATION OF DESIGN SPECIFICATION. Licensor shall create a detailed
Design Specification for the New Software, in consultation with and subject to
the approval of Licensee's User Committee, provided, that such Design
Specification shall conform substantially to the functionality broadly
described in Exhibit C to the Agreement.
2.2 CREATION AND EXECUTION OF SCOPE DOCUMENT. Licensor shall submit to
Licensee's User Committee for its approval, a draft Scope Document within
thirty (30) days after the date Licensee approves the Design Specification. If
such draft Scope Document is not approved by Licensee, Licensor shall revise
same, provided, however, that the contents of the Scope Document shall be
acceptable to both Licensor and Licensee. Licensor and Licensee shall make
diligent efforts to ensure that the Scope Document is approved by both parties
within thirty (30) days after Licensor submits its first draft to Licensee.
2.3 EXECUTION OF SCOPE DOCUMENT. Licensor and Licensee shall perform all
their respective responsibilities as defined in and in accordance with the time
and action schedule set forth in the Scope Document.
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2.4 INSTALLATION AND ACCEPTANCE. Licensor shall deliver the Licensed
Software to Licensee in accordance with the Scope Document. After each delivery
by Licensor of a final prototype of the applicable version of the Licensed
Software, Licensee shall have forty-five (45) days to conduct testing on
Licensor's System to verify conformity of such prototype with the Design
Specification (the "testing period"). Licensee shall have until the end of the
testing period to provide written notice to Licensor of all non-conformities
with the Design Specification in such prototype, which notice shall describe
with particularity the non-conformities and the steps required to reproduce
such non-conformity. Licensor shall use reasonable efforts to correct all such
non-conformities and shall deliver to Licensee such corrected prototypes as
necessary to correct all such identified non-conformities. After each delivery
of a corrected prototype, Licensee shall have another forty-five (45) days to
test such prototype and provide notice to Licensor (each a "correction testing
period"). A prototype shall be deemed to be accepted if all the Licensed
Software, updated to reflect the exact code in the System, has been delivered
to Licensee and (i) if Licensee fails to provide notice of any non-conformities
in accordance with this Section 2.4 before the end of the applicable testing
period or correction testing period or (ii) Licensee expressly accepts such
prototype (either, a "Software Acceptance").
2.5 DOCUMENTATION AND TRAINING. Licensor shall provide training and
orientation to Licensee's personnel with respect to the System as specified in
the Agreement. Licensor shall also provide user manuals, flow charts,
developer's toolkit and other document related to the Licensed Software for the
benefit of users at each Licensee location.
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SECTION 3. LICENSE
3.1 GRANT OF LICENSE. Subject to the terms and conditions hereof,
Licensor hereby grants to Licensee, a perpetual, irrevocable and non-exclusive
license to Licensed Software for use by Licensee as set froth below.
3.2 PERMITTED USE. The Licensed Software (excepting the SDK Software
Product) may be used by Licensee in conjunction with its use of the Units in
its department store operations, wherever such operations may be located from
time to time, including Licensee's disaster recovery centers. The SDK Software
Product includes in the Software may be used by Licensee or permitted assignee
wherever Licensee's programming services in respect of the Licensed Software
are performed by Licensee. In addition, Licensee may use the New Software to
prepare derivative works of the Licensed Software, and may otherwise modify,
enhance, reverse engineer, decompile or otherwise handle it, whether by itself
or with the assistance of third parties. Except as may be expressly permitted
herein, Licensee may not (i) distribute or sublicense any portion of the
Software, (ii) prepare derivative works of the Software, or (iii) decompile,
reverse engineer or modify the Software.
3.3 LIMITATIONS. Nothing contained herein shall be construed as
conferring upon Licensee, by implication, estoppel, or otherwise, any license
or other right, except the license and rights expressly granted hereunder. All
rights not expressly granted herein are reserved by Licensor. The licenses
granted hereunder are granted solely to Licensee, as defined herein, and for the
use authorized hereunder.
3.4 PRESERVATION OF CONFIDENTIALITY. The Licensed Software constitutes
the confidential information of Licensor and the provisions of SECTION 7 of the
Agreement shall binding on Licensee with respect thereto. Licensee shall
protect the confidentiality, and take such actions to prevent the unauthorized
disclosure, of the Licensed Software in the same manner as it protects its own
confidential information of a similar nature. Licensee acknowledges that its
breach of this
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SECTION 3.4 would cause irreparable harm to Licensor and in addition to any
other remedies to which Licensor may be legally entitled, Licensor shall have
the right to seek injunctive relief in the event of a breach of this SECTION
3.4 by the Licensee.
SECTION 4. FEES
Licensee shall pay a one-time license fee for the Licensed Software, which
is included in the price payable for each Unit purchased pursuant to the
Agreement.
SECTION 5. WARRANTIES
5.1 LICENSOR'S COVENANTS, WARRANTIES AND REPRESENTATIONS. In addition to
the covenants, warranties and representations of Licensor (as MobiNetix)
contained in SECTION 5 of the Agreement, which are expressly incorporated
herein by this reference, Licensor covenants, warrants and represents that:
(i) the Licensed Software will be substantially free from programming
errors and defects in material and workmanship and, upon
installation, will perform in accordance with the specifications
therefor as contained in the Design Specifications, except for
errors caused or resulting from Licensee's misuse of the
Licensed Software.
5.2 LICENSEE'S COVENANT, WARRANTY AND REPRESENTATION. Licensee covenants,
warrants and represents that Licensee will not sublicense the Licensed
Software in a manner that violates the provisions of SECTION 3.2 hereof.
5.3 DISCLAIMER. EXCEPT AS PROVIDED HEREIN, THERE ARE NO EXPRESS OR
IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
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SECTION 6. TERM AND TERMINATION
6.1 LICENSE TERM. The license granted herein of the Licensed Software is
irrevocable and cannot be terminated after Licensee has paid the applicable
license fee (which shall be considered paid as to each Unit upon payment by
Licensee of the purchase price payable for such Unit under the Agreement),
provided, however, that upon a breach by Licensee of the provisions of SECTION
3.2 above, Licensor may seek an injunction or a restraining order from a court
of competent jurisdiction, or exercise any other legal or equitable remedy
available to Licensor pursuant to SECTION 3.4.
SECTION 7. MISCELLANEOUS
7.1 INCORPORATION OF AGREEMENT. The provisions of SECTIONS 3.1, 3.2, 5, 6,
7, 8, 9, 10.3, 10.4 and 11 are incorporated herein by this reference and shall
be binding on the parties hereto as if fully stated herein, with "FSG" being
the Licensee hereunder and "MOBINETIX" being the Licensor hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LICENSOR: LICENSEE:
MOBINETIX SYSTEMS, INC. FEDERATED SYSTEMS GROUP, INC.
By: /s/ DAVID M. LICURSE, SR. By: /s/ FAYE GLANCZ
--------------------------------- ---------------------------------
Name: David M. Licurse, Sr. Name: Faye Glancz
Title: CFO Title: VP & CFO
EXHIBIT A
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DESIGN SPECIFICATION
[To be prepared at a later date.]
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EXHIBIT B
SCOPE DOCUMENT
[OUTLINE]
This document to contain:
o Detailed list of Licensor's obligations;
o Detailed list of Licensee's obligations;
o T&A;
o Licensor's training obligations;
o Test specifications (if any);
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EXHIBIT 10.2
SYSTEMS ACQUISITION AGREEMENT
This Systems Acquisition Agreement ("Agreement") is entered into as of
the 16th day of March, 1998 by and between MobiNetix Systems, Inc., having a
place of business at 500 Oakmead Parkway, Sunnyvale, California 94086-4056
("MobiNetix"), and Federated Systems Group, Inc., with its principal place of
business located at 6801 Governor's Lake Parkway, Norcross, Georgia 30071
("FSG").
A. MobiNetix is in the business of developing and manufacturing
certain electronic signature capture products comprising hardware and software
and more particularly described below; and
B. FSG wishes to acquire such units on the terms and conditions
set forth herein and in the License Agreement, as defined below.
NOW THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
SECTION 1. - DEFINITIONS
o "Escrow Materials" has the meaning specified in Section 6.1.
o "Hardware" means units manufactured by or on behalf of MobiNetix and known as
PenWare 3100, and such other units as may be acquired by FSG from time to time
hereunder.
o "Hardware Documentation" means the engineering designs and specifications,
schematics, manufacturing details, including know-how, identity and address of
contract manufacturer, documents assigning manufacturing rights to FSG, if
any, and all other
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documents and information that are necessary and appropriate for FSG to cause
the Units to be manufactured without the aid or assistance of MobiNetix.
o "INITIAL UNITS" has the meaning specified in SECTION 2.1.
o "LICENSE AGREEMENT" means the Software License Agreement dated
contemporaneously herewith and entered into by MobiNetix as Licensor and FSG
as Licensee to effect a license of the Software and Software Documentation.
o "SHIPMENT ACCEPTANCE" has the meaning specified in Section 2.4.
o "SOFTWARE" means collectively the following (i) PenWare 3100 Firmware, which
is the operating system and encryption software built into each of the Initial
Units and stored in ROM; (ii) PenWare 3100 Scripts, which is the application
software identified in EXHIBIT C; (iii) SRS Software Product, which is the
MobiNetix software product known as the "SECURE RECORDS SYSTEM", as modified
or customized pursuant to a design or scope document agreed to by both
parties; and (iv) SDK Software Product, which is a software developer's
toolkit and is a MobiNetix software product known as "PENWARE SDK."
o "SOFTWARE DOCUMENTATION" means the source code to all of the Software, all
existing technical manuals, system and program flowcharts, file report and
screen layouts, existing maintenance tools, a list of all third-party
development tools and all other documents and information that are necessary
or reasonably appropriate for a programmer to reconstruct, maintain, enhance,
understand and program the Software without the aid or assistance of
MobiNetix.
o "SPECIFICATIONS" means, as to PenWare 3100 Units, the specifications contained
in EXHIBIT C and in a separate document to be prepared by MobiNetix and agreed
to by FSG, and as to other Units that may be purchased hereunder, the
specifications agreed to in writing by the parties, or, in the absence of such
agreement, the specifications contained in end-user documentation provided by
MobiNetix with respect to such other Units.
o "UNIT" means the configuration of integrated components comprising the
Hardware and Software.
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o "UNIT ACCEPTANCE" has the meaning specified in SECTION 2.4.
o Except as the context may otherwise require, (i) words of any gender include
the other gender, (ii) words using the singular or plural number also include
the plural or singular number, respectively, (iii) the terms "hereof",
"herein", "hereby" and derivative or similar words refer to this entire
Agreement, (iv) the term "party" means MobiNetix or FSG, as the context
requires, (v) the term "including" means "including but not limited to", and
(vi) the term "this Agreement", shall be deemed to include all exhibits and
schedules attached hereto and incorporated herein by this reference. Whenever
this Agreement refers to a number of days or months, such number shall refer
to calendar days or months unless otherwise specified. Certain capitalized
terms used but not defined herein have the meanings ascribed thereto in the
License Agreement.
SECTION 2. - PURCHASE
2.1 INITIAL PURCHASE. Subject to the terms of this Agreement, FSG shall
purchase at least [*] Units of PenWare 3100 (the "INITIAL UNITS"), and
MobiNetix shall sell to FSG the Initial Units at the price set forth in SECTION
3, provided that, FSG shall be deemed to have fulfilled its commitment to
purchase under this SECTION 2.1 if it purchases at least [*] of such Initial
Units. Upon execution of this Agreement, FSG shall communicate to MobiNetix the
exact number of Initial Units required by FSG. In addition, MobiNetix shall
upgrade to or replace with PenWare 3100 each Unit of PenWare 3000 currently
installed at an FSG location free of charge.
2.2 OTHER PURCHASES. FSG may, but need not, purchase from MobiNetix
additional Units of PenWare 3100, or other hardware or parts, all pursuant to
purchase orders that may be issued by FSG from time to time. MobiNetix shall
fulfill any such purchase order that may be issued by FSG. Purchases of all
such additional or different Units shall be upon the terms set forth in this
Agreement, and more particularly in EXHIBIT A and pursuant to a mutually
acceptable delivery schedule.
* Confidential treatment requested.
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2.3 DELIVERIES. All Units purchased by FSG under this Agreement shall
(i) be delivered by MobiNetix FOB to a shipping company designated by FSG at
MobiNetix's production facility previously identified in writing to FSG, and
(ii) contain at a designated position a barcoded label that shall have been
provided by FSG to MobiNetix. Deliveries of the Initial Units by MobiNetix
shall be made in accordance with the schedule set forth in EXHIBIT B. MobiNetix
shall provide to FSG, via file transfer or on disk, the serial and barcode
numbers for each Unit shipped in a spreadsheet format as specified by FSG. FSG
shall arrange for such delivered Units to be shipped to FSG locations.
References in this Agreement to a "shipment of Units" shall mean all Units
contained in a shipment delivered to any one (1) FSG location. FSG shall bear
all applicable freight, insurance and other shipping charges. Upon delivery by
MobiNetix to FSG's shipping company, all right, title and interest in and to
the Units and risk of loss thereof shall pass to FSG.
2.4 ACCEPTANCE. FSG shall make diligent good faith efforts to install
and test each shipment of Units purchased by FSG hereunder at the applicable
FSG location within twenty one (21) days following receipt at such location.
FSG may, at its option, install and test only a sample portion of each shipment
of the Units received by FSG, in which event the results of such testing shall
be imputed to the entire shipment. When a Unit performs in accordance with the
Specifications therefor, acceptance of such Unit (the "UNIT ACCEPTANCE") by FSG
shall be deemed to occur. When at least ninety five percent (95%) of the
installed Units contained in any such single shipment of Units perform in
conformance with the Specifications therefor, acceptance by FSG of such
shipment of Units ("SHIPMENT ACCEPTANCE") will be deemed to occur. In the event
Shipment Acceptance does not occur with respect to any shipment of Units
received by FSG, FSG shall notify MobiNetix in writing (a "NOTICE OF
NON-ACCEPTANCE") as promptly as practicable, but in no event later than ninety
(90) days after receipt of such shipment in the applicable FSG location.
MobiNetix shall be deemed to have failed to deliver a shipment of Units as
required hereunder if such shipment fails to achieve Shipment Acceptance. Each
notice of non-Acceptance shall specify in detail the defects resulting in the
non occurrence of Acceptance. Each shipment of Units as to which MobiNetix has
not received a notice of non-Acceptance as specified herein shall be deemed to
have achieved Shipment Acceptance. Any dispute regarding the conformity or
non-conformity of Units with the applicable Specifications will be resolved in
accordance with SECTION 9. All Units that fail to achieve Unit Acceptance (or
after achieving same cease to perform) whether contained within a
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shipment of Units that achieves Shipment Acceptance or has failed to achieve
Shipment Acceptance in accordance with the terms hereof, shall be returned by
FSG to MobiNetix, at MobiNetix's cost, within ninety (90) days after receipt
thereof in the applicable FSG location. MobiNetix shall repair or replace such
defective Units and return same to FSG within fourteen (14) days after delivery
of such Units to MobiNetix.
2.5 TRAINING. MobiNetix shall train FSG personnel on the installation,
use, repair and maintenance of the Units. At FSG's option, such training shall
be provided at MobiNetix's location or at FSG location(s). In the latter case,
FSG shall reimburse MobiNetix, for the reasonable lodging, incidental and other
out-of-pocket travel costs incurred by it, provided that such costs have been
approved in advance by FSG and are incurred in accordance with FSG's travel
guidelines provided to MobiNetix in writing from time to time.
SECTION 3. - PURCHASE PRICE/PAYMENT TERMS
3.1 PURCHASE PRICE. Subject to SECTION 3.2, the purchase price payable
by FSG [*]. The purchase price payable by FSG for other Units that may be
purchased by FSG are set forth in EXHIBIT A. Amounts due hereunder do not
include and are net of any foreign or domestic governmental taxes or charges of
any kind that may be applicable to the sale or licensing of any software, goods
or services hereunder, including excise, sales, use, or value-added taxes;
customs or other import duties or other taxes, tariffs or duties. FSG shall be
responsible for and shall pay all such taxes and charges levied against
MobiNetix (except any taxes on MobiNetix's income) in a timely manner. When
MobiNetix has the legal obligation to pay or collect such taxes, excluding taxes
on the income of MobiNetix, the appropriate amount shall be invoiced to FSG and
paid by FSG to MobiNetix within thirty (30) days after receipt thereof unless
FSG provides MobiNetix with a valid tax exemption certificate issued by the
appropriate taxing authority.
3.2 PAYMENT TERMS. Payment with respect to each shipment of Units shall
be due and payable within thirty (30) days following receipt of such shipment
of Units by FSG at the designated FSG location but in no event later than
thirty-seven (37) days following delivery of
* Confidential treatment requested.
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such shipment of Units by MobiNetix to FSG's shipping company at MobiNetix's
production facility in accordance with SECTION 2.3. In the event FSG makes
payment to MobiNetix in respect of a Unit that subsequently fails to achieve
Unit Acceptance, FSG may, at its option, either offset such payment amount
against any other payments required to be made hereunder by FSG or seek
reimbursement of such amount from MobiNetix. Notwithstanding anything to the
contrary herein, FSG may withhold from the purchase price payable with respect
to each Unit that has been received at the designated FSG location, the
following amounts:
[*]
Except as otherwise provided immediately above, all withheld amounts shall be
payable by FSG to MobiNetix within fifteen (15) days following the fulfillment
of the applicable precondition to payment as specified above. A late payment
fee equal to one percent (1%) per month will be payable on any amount that is
due and not paid within five (5) business days after receipt by FSG of a notice
of non-payment from MobiNetix. With respect to any amount to be paid to FSG
* Confidential treatment requested.
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by MobiNetix hereunder, FSG may, at its option, set off that amount as a credit
against amounts otherwise payable hereunder to MobiNetix.
SECTION 4. - LICENSE
Pursuant to the License Agreement, MobiNetix has granted to FSG,
licenses to the Software more fully set forth in the License Agreement.
SECTION 5. - WARRANTIES
5.1 AS-DOCUMENTED WARRANTY. MobiNetix warrants to FSG that until
Software Acceptance is achieved under the License Agreement, each Unit
purchased will perform in accordance with the Specifications therefor,
including any engineering changes that may be implemented by MobiNetix from
time to time during such period in respect of the applicable model of Units
(this warranty being referred to herein as the "AS-DOCUMENTED WARRANTY"). FSG's
sole remedy upon the failure of any Unit to comply with the as-documented
warranty will be to obtain, repair or a replacement of such Unit or the
Software component thereof. Notwithstanding the foregoing, it shall be a
MobiNetix event of default under SECTION 10.3(ii), if any single shipment of
Units fails to achieve Acceptance as a result of the failure of this warranty.
5.2 PHYSICAL WARRANTY. For purposes of this SECTION 5.2, the warranty
period as to each Unit shall continue for thirty-six (36) months commencing (i)
as to all Units in a shipment of Units that achieved Shipment Acceptance, at
the time such shipment is received at the designated FSG location, and (ii) as
to all Units in a shipment of Units that fails to achieve Shipment Acceptance,
at such time as the replacement shipment achieves Shipment Acceptance (if FSG
does not exercise its right to terminate this Agreement pursuant to SECTION
10.2). MobiNetix warrants to FSG that, during the warranty period, each Unit
provided by
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MobiNetix will be free from defects in materials and workmanship. MobiNetix's
obligation in respect of this warranty during the initial ninety (90) days of
the applicable warranty period, is to replace or repair all Units that fail to
achieve Unit Acceptance, whether or not contained within a shipment of Units
that has failed to achieve Shipment Acceptance, and all such Units that
subsequently fail to perform. Except as stated in the immediately preceding
sentence, MobiNetix's obligation in respect of this warranty after the
expiration of such ninety (90) day period as to each Unit shall be to provide
all the requisite parts only during the warranty period, the parties having
agreed that the purchase price per Unit payable by FSG relieves MobiNetix of
its obligation to provide the requisite labor during the remaining thirty-three
(33) months of the warranty period. Upon the failure of any Unit to comply with
this warranty, FSG's sole remedy will be to obtain the repair or replacement of
such Unit, provided that any replacement made of individual Units contained
within a shipment of Units that has achieved Shipment Acceptance shall not
extend the warranty period specified above. Notwithstanding the foregoing, it
shall be a MobiNetix event of default under SECTION 10.3(ii), if any single
shipment of Units fails to achieve Shipment Acceptance as a result of the
failure of this warranty. The warranty contained in this SECTION 5.2 shall not
apply to defects resulting from abuse by non-MobiNetix personnel, vandalism,
acts of God or other perils.
5.3 PARTS INVENTORY WARRANTY. As early as practicable after the date
hereof, MobiNetix shall deliver to FSG's facility known as the Tampa National
Rework Center, (i) an inventory of warranty parts that is deemed adequate for
the purpose of ensuring the fulfillment of MobiNetix's warranty obligations
under SECTION 5 in respect of the Initial Units, and (ii) all documentation and
schematics available, including test routines. [*] MobiNetix shall replenish
parts withdrawn from inventory within fifteen (15) days after receipt of FSG's
notice and ensure the continuous maintenance of an inventory of parts as
required by this Section for so long as MobiNetix has any obligations pursuant
to SECTION 5.2. From time to time the parties shall review the actual needs of
FSG for parts and adjust the required inventory quantity as necessary.
* Confidential treatment requested.
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5.4 YEAR 2000. MobiNetix warrants to FSG that the each Unit, including
the Hardware and Software, will accurately process data (including calculating,
comparing and sequencing) from, into and between the 20th and 21st centuries,
including leap year calculations, without interruption or manual intervention,
and that dates outside the range 1900-1998, including the years 1999, 2000 and
beyond, encountered or processed by the Software or Hardware will be correctly
recognized, calculated, sorted, stored, displayed and/or otherwise processed in
any level of the Software or Hardware, including microcode, firmware,
application programs, system software, utilities, files and databases. Upon the
failure of any Unit to comply with this warranty, FSG's sole remedy will be to
obtain a replacement of such Unit. Notwithstanding the foregoing, it shall be a
MobiNetix event of default under SECTION 10.3(ii), if any single shipment
fails to achieve Acceptance as a result of the failure of this warranty.
5.4 OTHER MOBINETIX WARRANTIES. MobiNetix covenants, warrants and
represents as follows:
(i) MobiNetix is a corporation duly organized and legally existing
and in good standing under the laws of the State of Delaware
and has full corporate power and authority to enter into this
Agreement and execute the transactions and agreements
contemplated hereby;
(ii) to the knowledge of MobiNetix, no portion of the Unit contains
any time bomb, drop dead-device or other unauthorized code
designed to permit unauthorized access to, disable, erase or
otherwise harm the Software, Hardware or FSG's data;
(iii) MobiNetix is the owner of the Units, and is the owner or
licensee of the Software, and has the full power and authority
to transfer, assign, license, sublicense and sell same to FSG,
free and clear of all liens, security interests, pledges,
encumbrances or charges of any kind, and FSG shall have quiet
possession and peaceful enjoyment of the Units upon such
transfer;
(iv) The use of the Units by FSG and/or its affiliates, including
the repair, maintenance or enhancement of any aspect of such
Units will not violate or infringe upon any patent, copyright,
trade secret or other intellectual
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property rights of other persons or entities, provided that
MobiNetix's sole liability upon a breach of this warranty will
be as specified in SECTION 8.2; and
(v) Following the expiration of the applicable warranty period,
MobiNetix shall provide on-going support for any engineering
changes that may be implemented by MobiNetix in respect of the
applicable model of the Units and for a period of five (5)
years thereafter, continue to provide parts in accordance with
its obligations under SECTION 5.3, but at the prices specified
in EXHIBIT C.
5.6 DISCLAIMER OF ALL OTHER WARRANTIES AND REPRESENTATIONS. THE EXPRESS
WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS AGREEMENT ARE IN LIEU OF, AND
MOBINETIX DISCLAIMS ANY AND ALL OTHER WARRANTIES, CONDITIONS, OR
REPRESENTATIONS (EXPRESS OR IMPLIED, ORAL OR WRITTEN), WITH RESPECT TO THE
UNITS OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OR
CONDITIONS OF MERCHANTABILITY, FITNESS OR SUITABILITY FOR ANY PURPOSE, WHETHER
ALLEGED TO ARISE BY LAW, BY REASON OF CUSTOMER USAGE IN THE TRADE OR BY COURSE
OF DEALING.
5.7 FSG's WARRANTY. FSG covenants, warrants and represents that it is a
corporation duly organized and legally existing in good standing under the laws
of the State of Delaware and has full corporate power and authority to enter
into this Agreement and to carry out the transactions and agreements
contemplated hereby.
SECTION 6. - ESCROW
6.1 DEPOSIT. Within ten (10) days after the date of this Agreement, the
parties shall enter into a Preferred Registration Technology Escrow Agreement
(the "ESCROW AGREEMENT") with Data Securities International, Inc. substantially
in the form attached hereto as Exhibit D and within thirty (30) days after the
date of this Agreement, MobiNetix shall deposit with Data Securities
International, Inc., the Software Documentation and the Hardware Documentation
(collectively, the "ESCROW MATERIALS").
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6.2 UPDATES. Within thirty (30) days after the release of each new
version, release, correction or modification of the Hardware of Software,
MobiNetix shall deposit with the Escrow Agent the Escrow Materials to such
new version, release, correction or modification, as appropriate.
6.3 ESCROW FEES. All fees and expenses charged by Escrow Agent shall be
borne by FSG.
6.4 RELEASE FROM ESCROW. Upon the occurrence of a release condition as
set forth in and subject to SECTION 3 of the Escrow Agreement, FSG shall be
entitled to receive, and the Escrow Agent shall be obligated to release to FSG,
the Escrow Materials placed on deposit with the Escrow Agent. Upon such a
release, FSG shall be deemed to have received a non-transferable and
non-exclusive license to the Escrow Materials to use same to manufacture itself
or cause to be manufactured by third parties and use the Units for the use and
benefit of FSG and/or its affiliates.
6.5 VERIFICATION. FSG, at its option and expense and subject to the
provisions of SECTION 7, may request that the completeness and accuracy of the
Escrow Materials be verified by independent auditors once each year during the
term of this Agreement.
6.6 CONTINUED CONFIDENTIALITY. Subject to FSG's rights to use the Escrow
Materials as set forth in SECTION 6.4, the confidentiality obligations
contained in SECTION 7 shall continue to govern the Escrow Materials after the
release thereof.
SECTION 7. - CONFIDENTIALITY AND TRADE SECRETS
7.1 CONFIDENTIAL INFORMATION. Mobinetix and FSG acknowledge that in the
course of performance hereunder, each party may receive the trade secrets and
confidential information of the other. Each party acknowledges that the
confidentiality of the trade secrets and the confidential information of the
other is necessary to the others ability to compete with its competitors, and,
except as provided in SECTION 7.2 below, agrees at all times, during and after
the term of this Agreement, not to use, communicate, publish, disclose or
disseminate, directly
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or indirectly, any trade secrets or confidential information of the other for
any purpose except for the purpose of performing in accordance with this
Agreement. In the event any information can be treated as both trade secrets
and confidential information, such information shall be treated as trade
secrets for purposes of this Agreement. Each party shall use the same care to
prevent disclosure to third parties of the trade secrets and confidential
information of the other as it employs to avoid disclosure, publication or
dissemination of its own information of a similar nature.
7.2 PERMITTED DISCLOSURE. Notwithstanding the foregoing, a receiving
party may disclose some or all of the trade secrets and confidential
information of the other party which are:
(i) required to be disclosed by law or order of court or
governmental agency applicable to the receiving party,
(ii) required to be disclosed by FSG strictly for the purpose of
enforcing its rights and obtaining the benefit of its bargain
hereunder, or
(iii) generally known and available in the public domain, or become
part of the public domain through no violation of any
confidentiality provisions of this Agreement.
7.3 PUBLICITY. MobiNetix and FSG may announce, publish or otherwise
communicate the fact that the parties have entered into a contractual
relationship pursuant to which MobiNetix shall manufacture and sell the Units
to FSG. Except for the foregoing, no other detail or aspect of this Agreement
may be disclosed by either party without the prior consent of the other.
SECTION 8. - INDEMNITY AND LIABILITY
8.1 CROSS INDEMNITY. Each party shall indemnify, defend and hold harmless
the other and the officers, employees, agents, shareholders, affiliates,
successors and assigns of
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the other (with the indemnifying party hereinafter referred to as "INDEMNITOR"
and the indemnified party together with its officers, employees, agents,
shareholders, affiliates, successors and assigns hereinafter referred to as
"INDEMNITEE") from any and all claims, actions, damages, liabilities, costs and
expenses, including reasonable attorneys' fees and expenses arising out of the
death or bodily injury of any persons or the damage, loss or destruction of
property that result from or are caused by any negligent or willful act or
omission of the Indemnitor.
8.2 INFRINGEMENT INDEMNITY. MobiNetix, as Indemnitor, shall defend or at
its option settle any claim, action, suite or proceeding brought by
third-parties against FSG for infringement or misappropriation of any third
party's U.S. letters patent, trade secrets, copyright, trademark, service mark,
trade name or similar proprietary right conferred by common law or by any
statute that is alleged to have occurred because of systems, services, software
or other products provided or work performed by MobiNetix, and to indemnify
FSG, as Indemnitee, against any court-awarded damages, liabilities, costs and
expenses for such infringement or misappropriation. In the event FSG is
enjoined by reason of any infringement claim, or is believed likely by FSG to
become the subject of a meritorious infringement claim, MobiNetix shall, at its
expense, either:
(i) procure the right to continue to use the affected system,
service, software or other product or any component thereof,
as contemplated hereunder,
(ii) replace or modify the affected system, service, software, or
other product, or any component thereof, to permit the
performance of such function or to render use of the affected
system, service, software or other product, or any component
thereof, non-infringing while performing substantially the same
functions without substantial degradation of performance, or
(iii) if any of the options stated in clauses (i) or (ii) above is
not reasonably available, refund to FSG the entire purchase
price paid by FSG for the affected system, software or product,
including the purchase price paid for any system, software or
product that is not directly the subject of the infringement
claim but is rendered unusable as a result of the
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discontinuance of the availability of the affected system,
product or software.
8.3 CONDUCT OF LITIGATION. In the event a claim or judicial action is
brought or threatened against the Indemnitee with respect to matters covered by
SECTIONS 8.1 or 8.2, the Indemnitor shall pay the costs and damages awarded in
any such claim or action or the cost of settling such claim or action and the
Indemnitor shall have the right to defend such claim or action at its expense
and to control the defense and settlement, provided, that the Indemnitee shall
have the right to participate in such defense and negotiations using counsel at
its own expense and Indemnitor shall obtain Indemnitee's consent, which shall
not be unreasonably withheld, prior to entering into a settlement or compromise
or consenting to any injunctive relief with respect to such claim or action. The
obligations of the Indemnitor hereunder are subject to its receiving prompt
notice of any claims for indemnification, and the Indemnitee reasonably
cooperating in the defense thereof.
8.4 LIMITATION OF LIABILITY. Subject to the indemnification
obligations contained in SECTIONS 8.1 and 8.2, neither party will be liable for
any claim or demand against the other, its officers, directors, partners,
principal, members, managers, employees, agents or representatives by any third
party nor for any amounts representing loss of profit, loss of business or
special indirect, incidental, consequential or punitive damages, even if such
party has been advised of the possibility of such damages, or damages that could
have been avoided, using reasonable diligence, by the other party. Subject to
the indemnification obligations of the parties contained in SECTIONS 8.1 and
8.2, each party's liability for any reason whatsoever arising under or relating
to this Agreement, regardless of the form of the cause of action, whether in
contract, statute or tort (including negligence) or otherwise, shall in no
event exceed in the aggregate an amount equivalent to (i) in the case of
MobiNetix, the amounts actually received by MobiNetix from FSG hereunder, or
(ii) in the case of FSG, the amounts paid to MobiNetix by FSG hereunder.
8.5 EXCUSE FOR NON-PERFORMANCE. To the extent that and only for so
long as one party (the "DEFAULTING PARTY") fails to perform an obligation which
failure prevents or renders impracticable the performance of an obligation by
the other party (the "NON-DEFAULTING PARTY") the non-defaulting party shall be
excused from such performance, provided that the non-defaulting party shall (i)
notify the defaulting party if possible and as soon as practicable
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describing the default and explaining how the non-defaulting party's
performance has been affected; (ii) use reasonable efforts to mitigate the
effect of the defaulting party's failure; and (iii) perform its obligations
hereunder to the extent reasonably practicable. The defaulting party shall use
diligent, uninterrupted efforts to cure its default and eliminate the effects
thereof.
SECTION 9. - DISPUTE RESOLUTION
Any dispute between the parties arising out of or relating to this
Agreement, including with respect to the interpretation of any provision of
this Agreement, conformance or non-conformance of the Units and performance by
MobiNetix or FSG hereunder, shall be resolved as provided in this SECTION 9.
9.1 INFORMAL DISPUTE RESOLUTION. Prior to the initiation of formal
dispute resolution procedures, the parties shall first attempt to resolve their
dispute informally, as follows:
(i) Upon the written request of either party containing a short
statement as to the nature of the dispute and the requesting
party's position with respect thereto, each party shall appoint a
designated representative who does not devote substantially all
of his or her time to performance under this Agreement, whose
task it will be to meet for the purpose of endeavoring to resolve
such dispute.
(ii) The designated representatives shall meet as often as the parties
reasonably deem necessary in order to gather and furnish to the
other all information with respect to the dispute which the
parties believe to be appropriate and germane in connection with
the resolution of the dispute. The representatives shall discuss
and attempt to resolve the dispute without the necessity of any
formal proceeding.
(iii) During the course of discussion, all reasonable requests made by
one party to another for nonprivileged information reasonably
related to this Agreement shall be honored in order that each of
the parties may be fully advised of the other's position.
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(iv) Formal proceedings for the resolution of the dispute pursuant to
Section 9.2 or 9.3 shall not be commenced until the earlier of:
(a) either of the designated representatives concludes in good faith
that amicable resolution through continued negotiation of the
dispute does not appear likely and so stating in a notice to the
other designated representative or in a joint declaration signed
by each of them; or
(b) thirty (30) days after the initial written request to appoint a
designated representative pursuant to SECTION 9.1(i)(this period
shall be deemed to run notwithstanding any claim that the process
described in this SECTION 9.1 was not followed or completed).
This SECTION 9.1 shall not be construed to prevent a party from instituting,
and a party is authorized to institute, formal proceedings earlier to avoid the
expiration of any applicable limitations period, or to preserve a superior
position with respect to other creditors, or as provided in SECTIONS 9.3.
9.2 ARBITRATION. If the parties are unable to resolve a dispute as
provided in SECTION 9.1, then such dispute may be submitted to mandatory and
binding arbitration pursuant to the following conditions:
(i) Agreement to Arbitrate. Provided the parties specifically agree
in writing signed by authorized representatives specifically
referencing this SECTION 9.2 to submit to arbitration, any
dispute, claim, or controversy relating in any way to this
Agreement may be settled by arbitration in San Francisco,
California, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association (the "AAA").
(ii) Award, Expenses. The award of the arbitrator shall be final and
binding on the parties, and judgment thereon may be entered in
any court of competent jurisdiction. Each party to the
arbitration shall pay an equal part of the deposit fixed by the
AAA. Notwithstanding the determination of the arbitrator (i) all
costs associated with the arbitration and imposed by the AAA or
the arbitrator shall be borne equally by each party to the
arbitration, and (ii) each party to the arbitration shall be
responsible for its
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own attorneys' fees and other professional fees incurred in
connection with the arbitration.
9.3 LITIGATION.
(i) Immediate Injunctive Relief. If a party makes a good
faith determination that a breach of the terms of this
Agreement by the other party is such that a temporary
restraining order or other injunctive relief is the only
appropriate and adequate remedy, such party shall be
authorized to seek immediate injunctive relief without
regard to SECTION 9.1 OR 9.2.
(ii) Litigation in Lieu of Arbitration. So long as no
arbitration proceeding has been commenced by one party
and accepted by the other party as provided in SECTION
9.2(i), after the dispute resolution procedure set forth
in SECTION 9.1 has been complied with, either party
shall be authorized to initiate litigation in order to
resolve the dispute.
(iii) Jurisdiction. The Parties consent to venue in Atlanta,
Georgia or in San Francisco, California and to the
exclusive jurisdiction of competent state or federal
courts in California for all litigation which may be
brought, subject to any requirement for informal dispute
resolution hereunder or prior agreement of the parties
to arbitrate, with respect to the terms of, and the
transactions and relationships contemplated by, this
Agreement.
9.4 CONTINUED PERFORMANCE. Each party agrees to continue performing its
obligations under this Agreement while any dispute is being resolved except to
the extent the issue in dispute precludes performance provided that any dispute
over payment shall not be deemed to preclude performance.
9.5 WAIVER OF JURY TRIAL.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE PERFORMANCE OF THE SERVICES.
EACH
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PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) EACH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (ii) EACH PARTY MAKES SUCH WAIVER
VOLUNTARILY, AND (iii) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
9.5.
SECTION 10. - TERM AND TERMINATION
10.1 TERM. The term of this Agreement shall commence on the date
hereof and shall continue for an initial term of three (3) years unless sooner
terminated as provided herein.
10.2 TERMINATION. This Agreement shall terminate automatically upon
the expiration of the initial term identified in SECTION 10.1 unless extended
by written agreement of the parties. Either party may terminate this Agreement
at any time upon the occurrence of an event of default by the other as set
forth in SECTION 10.3 or the occurrence of a force majeure event pursuant to
SECTION 10.4.
10.3 EVENT OF DEFAULT. It shall be an event of default if any of the
following shall occur and be continuing:
(i) FSG shall fail to pay any sum required to be paid
hereunder and not disputed and such failure continues
for thirty (30) days following receipt by FSG of
MobilNetix's notice of non-payment;
(ii) Either party shall fail to perform any covenant or
obligation hereunder or under the License Agreement, or
any representation or warranty of either party shall
fail, and any such failure continues for thirty (30)
days following receipt by such defaulting party of a
notice of default from the other, provided, that, prior
to an event of default hereunder being deemed to arise
for purposes of SECTION 6.4, and only for purposes of
SECTION 6.4, if such failure cannot reasonably be cured
within thirty (30) days and the defaulting party has
commenced and is diligently proceeding to cure the
default, the defaulting party shall have an additional
period, as reasonably necessary and by agreement of the
parties, to cure the default;
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(iii) Any party shall not pay its debts as they become due or shall
make a general assignment for the benefit of its creditors, or
any proceeding shall be instituted by or against such party
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, reorganization, adjustment or other relief under
any law relating to bankruptcy or reorganization, or seeking an
order for relief or the appointment of a receiver, trustee or
other similar official for a substantial part of its property
and such proceeding has not been stayed or dismissed within
sixty (60) days; or
(iv) Any of the conditions that could result in a release of the
Escrow Materials pursuant to SECTION 6 occur.
10.4 FORCE MAJEURE.
(i) No party shall be liable for any default or delay in the
performance of its obligations under this Agreement if and to
the extent such default or delay is caused, directly or
indirectly by: (a) fire, flood, earthquake, elements of nature
or acts of God; (b) riots, civil disorders, rebellions or
revolutions in any country; or (c) any other cause beyond the
reasonable control of such party, including electronic
failures, provided the non-performing party is without fault in
causing such default or delay, and such default or delay could
not have been prevented by reasonable precautions and cannot
reasonably be circumvented by the non-performing party through
the use of alternate sources, workaround plans or other means.
Notwithstanding the foregoing, the failure of MobiNetix's
warranty relating to Year 2000 compliance as contained in
SECTION 5.3 shall not be excused as a "force majeure" event.
(ii) In such event the non-performing party shall be excused from
further performance or observance of the obligation(s) so
affected for as long as such circumstances prevail and such
party continues to use its commercially reasonable efforts to
recommence performance or observance whenever and to whatever
extent possible without delay. Any party so delayed in its
performance shall immediately notify the party to whom
performance is due by telephone (to be confirmed in writing
within
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two (2) days of the inception of such delay) and describe at a
reasonable level of detail the circumstances causing such
delay.
(iii) If any force majeure event substantially prevents, hinders
or delays performance hereunder for more than sixty (60) days,
then FSG may terminate this Agreement. MobiNetix shall not have
the right to any additional payments from FSG for costs or
expenses incurred by MobiNetix as a result of any force majeure
occurrence.
SECTION 11. - MISCELLANEOUS
11.1 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without regard to its rules
governing conflicts of law.
11.2 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. This Agreement contains the
entire agreement of the parties hereto as to the subject matter discussed
herein. Any amendment to or modification of this Agreement must be in writing
and executed by authorized officers of MobiNetix and FSG. No waiver by either
party of any right of power it has under this Agreement shall impair or be
construed as a further waiver of such right of power. To be effective, all
waivers must be in writing and signed by the party waiving its rights.
11.3 ASSIGNABILITY. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective affiliates, successors and
permitted assigns. FSG may assign its interest hereunder without MobiNetix's
consent to any affiliate, or to any entity that purchases all or substantially
all of the assets of FSG. MobiNetix may not assign this Agreement, or any of its
other interests herein without the prior written consent of FSG except as
permitted below. In the event of (i) any assignment, sale or transfer of this
Agreement by MobiNetix in whole or in part, whether voluntarily or by operation
of law or through proceedings in bankruptcy, voluntary or involuntary, or by
reason of an assignment for the benefit of creditors, or (ii) a change in the
ownership structure or control of MobiNetix, including the merger or
consolidation of MobiNetix with or into another entity, then FSG shall have the
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unconditional right and option to terminate this Agreement, provided, that FSG
may not withhold its consent to terminate this Agreement if any of the events
described in subclauses (i) or (ii) above do not, in FSG's reasonable sole
judgment, result in either (x) an adverse change in the financial condition of
MobiNetix (y) a change in the management ranks of MobiNetix (which, for
purposes hereof will be deemed to be the resignation, removal or absence of the
persons currently holding the positions of CEO, CFO, Senior Program Manager
(for FSG), Software Manager (for Scripts), Engineering Manager (for firmware)
and such other senior personnel who currently are equity owners of MobiNetix
and actively engaged in its business operations as employees), or (z) the
vesting of control or controlling interest in MobiNetix with a competitor of
FSG's parent, Federated Department Stores, Inc. MobiNetix shall inform FSG of
any and all such assignments or changes in control or structure, including any
other substantive changes in the structure of its business within thirty (30)
days after the occurrence of such event.
11.4 RELATIONSHIP OF PARTIES. In performing under this Agreement, the
parties are acting as independent contractors and this Agreement shall not be
construed as imposing liability upon one party for the acts or omissions of the
other or as providing either party with the right, power or authority to impose
any duty or obligation on the other except as expressly provided herein.
11.5 COMPLIANCE WITH LAWS. Each party agrees that it shall obtain all
licenses and other governmental authorizations and approvals required for the
performance of its obligations under this Agreement and that it shall perform
its obligations hereunder in accordance with all applicable laws and
regulations.
11.6 SURVIVAL. The provisions of SECTIONS 4, 5, 6.4, 6.6, 7, 8, 9, 11.1
and 11.6 shall survive the termination of this Agreement.
11.7 INSURANCE. During the Term of this Agreement, MobiNetix shall
maintain
(i) general public liability insurance, including blanket
contractual liability, broad form property damage and all risk
coverage, personal injury, completed operations, product
liability and personal property damage and such other insurance
as will protect itself and FSG from direct, assumed and
contingent liability with limits of not less than $1,000,000 for
personal injury, disease or death to any one person and
$5,000,000 for personal
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injury, disease, death or other loss to any number of persons and
not less than $2,000,000 for property damage, arising out of any
one (1) incident as to each limit; and
(ii) all necessary insurance under any Disability Benefits and
Unemployment and Workers' Compensation laws for all employees
employed by MobiNetix, and shall make or withhold all necessary
payments in connection therewith.
All policies insuring against liability for damage to property or personal
injury, disease or death shall contain an endorsement by which the insurer
extends the coverage thereunder to include the contractual liability of
MobiNetix arising by reason of the indemnity provisions of this Agreement,
shall be issued in the name of MobiNetix and shall name FSG as an additional
insured. All such required policies of insurance, except Workers' Compensation
insurance, shall be issued by insurance carriers approved by and in a form
satisfactory to FSG. MobiNetix shall deliver to FSG copies of all policies of
insurance within thirty (30) days after FSG's request therefor. Each policy
shall provide that it cannot be canceled or materially changed except on thirty
(30) days' prior written notice by the insurance carrier to FSG.
11.8 NOTICES. Any notice or other communication required or otherwise
provided for under this Agreement shall be in writing and shall be deemed given
when delivered by hand or by courier or express mail or by registered or
certified United States mail, return receipt requested, postage prepaid, or by
facsimile if receipt is acknowledged (except that a notice of termination or
default shall not be sent by facsimile) and shall be addressed as follows:
In the case of FSG:
Federated Systems Group, Inc.
6801 Governors Lake Parkway
Norcross, GA 30071
Attn: Chief Financial Officer
with copies to:
Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, Ohio 45202
Attn: Senior Vice President -- General Counsel
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In the case of MobiNetix:
Mobinetix Systems Inc.
500 Oakmead Parkway
Sunnyvale, CA 94086
Attn: Chief Financial Officer
Either party hereto may from time to time, change its address or designated
recipient for notification purposes by giving the other party notice thereof
and the date upon which it shall become effective.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MOBINETIX, INC. FEDERATED SYSTEMS GROUP, INC.
By: DAVID M. LICURSE, SR. By: /s/ FAY GLANCZ
--------------------------------- ---------------------------------
Name: David M. Licurse, Sr. Name: Faye Glancz
Title: CFO Title: VP & CFO
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<PAGE> 24
Exhibit A - Price List
<TABLE>
<CAPTION>
LIN PRODUCT DESCRIPTION COMMENTS
<S> <C> <C> <C> <C>
100 PenWare3100 [*] [*] [*]
101 [*] [*] [*]
102 20'Cable for PenWare3000 [*] [*]
103 12'Cable for PenWare3000 [*] [*]
200 Debit Key Injections [*] [*]
201 Re-key (Out of Warranty Devices) [*] [*]
300 [*] [*] [*]
SPECIFIED COMPONENTS
400 Main PCB Assy. [*] [*]
401 Liquid Crystal Display [*] [*]
402 Inverter/CCFL [*] [*]
403 Pressure Sensitive Pad [*] [*]
404 PenWare3100 Top Case [*] [*]
405 PenWare3100 Bottom Case [*] [*]
406 MSR (3-track) Engine [*] [*]
409 Tethered Passive PenWare Stylus [*] [*] [*]
NEW PRODUCTS
601 [*] [*] [*] [*]
SOFTWARE PRODUCTS
804 [*] [*] [*] [*]
900 Software Developer's Tool-kit [*] [*] [*]
1000 Application development [*] [*] [*]
1010 Application deliverables specified [*]
in EXHIBIT C
WARRANTY
[*] [*] [*] [*]
[*] [*]
[*] [*]
</TABLE>
* Confidential treatment requested.
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Exhibit B - Delivery Schedule
Date Quantity Cumulative
[*] [*] [*]
* Confidential treatment requested.
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<PAGE> 26
EXHIBIT C - SOFTWARE DELIVERABLES
[*]
[*]
Page 26
<PAGE> 27
[*]
* Confidential treatment requested.
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<PAGE> 28
[*]
* Confidential treatment requested.
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<PAGE> 29
EXHIBIT D
FORM ESCROW AGREEMENT
<PAGE> 30
PREFERRED ESCROW AGREEMENT INTRODUCTION
The Preferred agreement caters to those customers who demand more sophisticated
escrow arrangements. It is a three-party contract that involves constant
administration by DSI and ongoing contact between DSI the depositor and the
beneficiary. The depositor and beneficiary will receive signed and inspected
confirmations from DSI for every deposit; an account history report every six
months to notify them of the status of the escrow; and ongoing monitoring
services to ensure compliance of contract terms. In addition, the Preferred
escrow provides audit rights to both parties; technical verifications for the
beneficiary; tailored release conditions; grant of use rights and deposit
content definition; and overall ability to modify terms for unique requirements.
DSI's Preferred customers benefit from these unique features:
- - Technical Verification options.
- - Tailored release conditions.
- - Written notification detailing the contents of the initial deposit and each
update.
- - Semi-annual account histories listing all deposit activity.
- - DSI direct billing to beneficiary.
- - Technology Protection Program services.
- - Deposit inspection with signed receipt for both the depositor and
beneficiary.
For additional benefits, choose DSI's Comprehensive Preferred addendum and
receive these additional features:
- - Recurring Level I Verification.
- - Continual DeposiTrack Service.
- - Unlimited updates/replacements and one additional storage unit.
<PAGE> 31
PREFERRED ESCROW AGREEMENT
Account Number_________________
This Agreement is effective March 17, 1998 among Data Securities International,
Inc. ("DSI"), MobiNetix Systems Inc. ("Depositor") and Federated Systems Group
Inc. ("Preferred Beneficiary"), who collectively may be referred to in this
Agreement as "the parties."
A. Depositor and Preferred Beneficiary have entered or will enter into a
license agreement, development agreement, and/or other agreement regarding
certain proprietary technology of Depositor (referred to in this Agreement as
"the license agreement").
B. Depositor desires to avoid disclosure of its proprietary technology
except under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is critical
to Preferred Beneficiary in the conduct of its business and, therefore,
Preferred Beneficiary needs access to the proprietary technology under certain
limited circumstances.
D. Depositor and Preferred Beneficiary desire to establish an escrow with
DSI to provide for the retention, administration and controlled access of the
proprietary technology materials of Depositor.
E. The parties desire this Agreement to be supplementary to the license
agreement pursuant to 11 United States [Bankruptcy] Code, Section 365(n).
ARTICLE 1 -- DEPOSITS
1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the
parties, Depositor shall deliver to DSI the proprietary information and other
materials ("deposit materials") required to be deposited by the license
agreement or, if the license agreement does not identify the materials to be
deposited with DSI, then such materials will be identified on an Exhibit A. If
Exhibit A is applicable, it is to be prepared and signed by Depositor and
Preferred Beneficiary. DSI shall have no obligation with respect to the
preparation, signing or delivery of Exhibit A.
1.2 Identification of Tangible Media. Prior to the delivery of the deposit
materials to DSI, Depositor shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the deposit
materials are written or stored, Additionally, Depositor shall complete Exhibit
B to this Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The Exhibit B must be signed by
Depositor and delivered to DSI with the deposit materials. Unless and until
Depositor makes the initial deposit with DSI, DSI shall have no obligation with
respect to this Agreement, except the obligation to notify the parties regarding
the status of the deposit account as required in Section 2.2 below.
<PAGE> 32
1.3 Deposit Inspection. When DSI receives the deposit materials and the
Exhibit B, DSI will conduct a deposit inspection by visually matching the
labeling of the tangible media containing the deposit materials to the item
descriptions and quantity listed on the Exhibit B. In addition to the deposit
inspection, Preferred Beneficiary may elect to cause a verification of the
deposit materials in accordance with Section 1.6 below.
1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item descriptions
and quantity on Exhibit B, DSI will date and sign the Exhibit B and mail a copy
thereof to Depositor and Preferred Beneficiary. If DSI determines that the
labeling does not match the item descriptions or quantity on the Exhibit B, DSI
will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign
the Exhibit B with the exceptions noted; and (c) provide a copy of the Exhibit B
to Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs
upon the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to
Preferred Beneficiary is Preferred Beneficiary's notice that the deposit
materials have been received and accepted by DSI.
1.5 Depositor's Representations. Depositor represents as follows:
a. Depositor lawfully possesses all of the deposit materials
deposited with DSI;
b. With respect to all of the deposit materials, Depositor has the
right and authority to grant to DSI and Preferred Beneficiary
the rights as provided in this Agreement;
c. The deposit materials are not subject to any lien or other
encumbrance;
d. The deposit materials consist of the proprietary information and
other materials identified either in the license agreement or
Exhibit A, as the case may be; and
e. The deposit materials are readable and useable in their current
form or, if the deposit materials are encrypted, the decryption
tools and decryption keys have also been deposited.
1.6 Verification. Preferred Beneficiary shall have the right, at Preferred
Beneficiary's expense, to cause a verification of any deposit materials. A
verification determines, in different levels of detail, the accuracy,
completeness, sufficiency and quality of the deposit materials. If a
verification is elected after the deposit materials have been delivered to DSI,
then only DSI, or at DSI's election an independent person or company selected
and supervised by DSI, may perform the verification.
1.7 Deposit Updates. Unless otherwise provided by the license agreement,
Depositor shall update the deposit materials within 60 days of each release of a
new version of the product which is subject to the license agreement. Such
updates will be added to the existing deposit. All deposit updates shall be
listed on a new Exhibit B and the new Exhibit B shall be signed by Depositor.
Each Exhibit B will be held and maintained separately within the escrow account.
An independent record will be created which will document the activity for each
Exhibit B. The processing of all deposit updates shall be in accordance with
Sections 1.2 through 1.6 above. All references in this Agreement to the deposit
materials shall include the initial deposit materials and any updates.
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<PAGE> 33
1.8 Removal of Deposit Materials. The deposit materials may be removed
and/or exchanged only on written instructions signed by Depositor and Preferred
Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 2 -- CONFIDENTIALITY AND RECORD KEEPING
2.1 Confidentiality. DSI shall maintain the deposit materials in a secure,
environmentally safe, locked facility which is accessible only to authorized
representatives of DSI. DSI shall have the obligation to reasonably protect the
confidentiality of the deposit materials. Except as provided in this Agreement,
DSI shall not disclose, transfer, make available, or use the deposit materials.
DSI shall not disclose the content of this Agreement to any third party. If DSI
receives a subpoena or other order of a court or other judicial tribunal
pertaining to the disclosure or release of the deposit materials, DSI will
immediately notify the parties to this Agreement. It shall be the responsibility
of Depositor and/or Preferred Beneficiary to challenge any such order; provided,
however, that DSI does not waive its rights to present its position with respect
to any such order. DSI will not be required to disobey any court or other
judicial tribunal order. (See Section 7.5 below for notices of requested
orders.)
2.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary a
report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
2.3 Audit Rights. During the term of this Agreement, Depositor and Preferred
Beneficiary shall each have the right to inspect the written records of DSI
pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
ARTICLE 3 -- GRANT OF RIGHTS TO DSI
3.1 Title to Media. Depositor hereby transfers to DSI the title to the media
upon which the proprietary information and materials are written or stored.
However, this transfer does not include the ownership of the proprietary
information and materials contained on the media such as any copyright, trade
secret, patent or other intellectual property rights.
3.2 Right to Make Copies. DSI shall have the right to make copies of the
deposit materials as reasonably necessary to perform this Agreement DSI shall
copy all copyright, nondisclosure, and other proprietary notices and titles
contained on the deposit materials onto any copies made by DSI. With all deposit
materials submitted to DSI, Depositor shall provide any and all instructions as
may be necessary to duplicate the deposit materials including but not limited to
the hardware and/or software needed.
3.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the right
to transfer the deposit materials to Preferred Beneficiary upon any release of
the deposit materials for use by Preferred Beneficiary in accordance with
Section 4.5. Except upon such a release or as otherwise provided in this
Agreement, DSI shall not transfer the deposit materials.
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<PAGE> 34
ARTICLE 4 -- RELEASE OF DEPOSIT
4.1 Release Conditions. As used in this Agreement, "Release Conditions"
shall mean the following:
a. Depositor's failure to carry out obligations imposed on it
pursuant to the license agreement; or
b. Depositor's failure to continue to do business in the ordinary
course.
4.2 Filing For Release. If Preferred Beneficiary believes in good faith that
a Release Condition has occurred, Preferred Beneficiary may provide to DSI
written notice of the occurrence of the Release Condition and a request for the
release of the deposit materials. Upon receipt of such notice, DSI shall provide
a copy of the notice to Depositor, by certified mail, return receipt requested,
or by commercial express mail.
4.3 Contrary Instructions. From the date DSI mails the notice requesting
release of the deposit materials, Depositor shall have ten business days to
deliver to DSI Contrary Instructions. "Contrary Instructions" shall mean the
written representation by Depositor that a Release Condition has not occurred or
has been cured. Upon receipt of Contrary Instructions, DSI shall send a copy to
Preferred Beneficiary by certified mail, return receipt requested, or by
commercial express mail. Additionally, DSI shall notify both Depositor and
Preferred Beneficiary that there is a dispute to be resolved pursuant to the
Dispute Resolution section (Section 7.3) of this Agreement. Subject to Section
5.2, DSI will continue to store the deposit materials without release pending
(a) joint instructions from Depositor and Preferred Beneficiary; (b) resolution
pursuant to the Dispute Resolution provisions; or (c) order of a court.
4.4 Release of Deposit. If DSI does not receive Contrary Instructions from
the Depositor, DSI is authorized to release the deposit materials to the
Preferred Beneficiary or, if more than one beneficiary is registered to the
deposit, to release a copy of the deposit materials to the Preferred
Beneficiary. However, DSI is entitled to receive any fees due DSI before making
the release. This Agreement will terminate upon the release of the deposit
materials held by DS1.
4.5 Right to Use Following Release. Unless otherwise provided in the license
agreement, upon release of the deposit materials in accordance with this Article
4, Preferred Beneficiary shall have the right to use the deposit materials for
the sole purpose of continuing the benefits afforded to Preferred Beneficiary by
the license agreement. Preferred Beneficiary shall be obligated to maintain the
confidentiality of the released deposit materials.
ARTICLE 5 -- TERM AND TERMINATION
5.1 Term of Agreement. The initial term of this Agreement is for a period
of one year. Thereafter, this Agreement shall automatically renew from
year-to-year unless (a) Depositor and Preferred Beneficiary jointly instruct DSI
in writing that the Agreement is terminated; or (b) the Agreement is terminated
by DSI for nonpayment in accordance with Section 5.2. If the deposit materials
are subject to another escrow agreement with DSI, DSI reserves the right, after
the initial one year term, to adjust the anniversary date of this Agreement to
match the then prevailing anniversary date of such other escrow arrangements.
Page 4
<PAGE> 35
5.2 Termination for Nonpayment. In the event of the nonpayment of fees owed
to DSI, DSI shall provide written notice of delinquency to all parties to this
Agreement. Any party to this Agreement shall have the right to make the payment
to DSI to cure the default. If the past due payment is not received in full by
DSI within one month of the date of such notice, then DSI shall have the right
to terminate this Agreement at any time thereafter by sending written notice of
termination to all parties. DSI shall have no obligation to take any action
under this Agreement so long as any payment due to DSI remains unpaid.
5.3 Disposition of Deposit Materials Upon Termination. Upon termination of
this Agreement, DSI shall destroy, return, or otherwise deliver the deposit
materials in accordance with instructions. If there are no instructions, DSI
may, at its sole discretion, destroy the deposit materials or return them to
Depositor. DSI shall have no obligation to return or destroy the deposit
materials if the deposit materials are subject to another escrow agreement with
DSI.
5.4 Survival of Terms Following Termination. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
a. Depositor's Representations (Section 1.5);
b. The obligations of confidentiality with respect to the deposit
materials;
c. The rights granted in the sections entitled Right to Transfer
Upon Release (Section 3.3) and Right to Use Following Release
(Section 4.5), if a release of the deposit materials has
occur-red prior to termination;
d. The obligation to pay DSI any fees and expenses due;
e. The provisions of Article 7; and
f. Any provisions in this Agreement which specifically state they
survive the termination or expiration of this Agreement.
ARTICLE 6 -- DSI'S FEES
6.1 Fee Schedule. DSI is entitled to be paid its standard fees and expenses
applicable to the services provided. DSI shall notify the party responsible for
payment of DSI's fees at least 90 days prior to any increase in fees. For any
service not listed on DSI's standard fee schedule, DSI will provide a quote
prior to rendering the service, if requested.
6.2 Payment Terms. DSI shall not be required to perform any service unless
the payment for such service and any outstanding balances owed to DSI are paid
in full. Fees are due upon receipt of a signed contract or receipt of the
deposit materials whichever is earliest. If invoiced fees are not paid, DSI may
terminate this Agreement in accordance with Section 5.2. Late fees on past due
amounts shall accrue interest at the rate of one and one-half percent per month
(18% per annum) from the date of the invoice.
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<PAGE> 36
ARTICLE 7 -- LIABILITY AND DISPUTES
7.1 Right to Rely on Instructions. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be genuine.
DSI may assume that any employee of a party to this Agreement who gives any
written notice, request, or instruction has the authority to do so. DSI shall
not be responsible for failure to act as a result of causes beyond the
reasonable control of DSI.
7.2 Indemnification. DSI shall be responsible to perform its obligations
under this Agreement and to act in a reasonable and prudent manner with regard
to this escrow arrangement. Provided DSI has acted in the manner stated in the
preceding sentence, Depositor and Preferred Beneficiary each agree to indemnify,
defend and hold harmless DSI from any and all claims, actions, damages,
arbitration fees and expenses, costs, attorney's fees and other liabilities
incurred by DSI relating in any way to this escrow arrangement.
7.3 Dispute Resolution. Any dispute relating to or arising from this
Agreement shall be resolved by arbitration under the Commercial Rules of the
American Arbitration Association. Unless otherwise agreed by Depositor and
Preferred Beneficiary, arbitration will take place in San Diego, California,
U.S.A. Any court having jurisdiction over the matter may enter judgment on the
award of the arbitrator(s). Service of a petition to confirm the arbitration
award may be made by First Class mail or by commercial express mail, to the
attorney for the party or, if unrepresented, to the party at the last known
business address.
7.4 Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the State of California, without regard to its
conflict of law provisions.
7.5 Notice of Requested Order. If any party intends to obtain an order from
the arbitrator or any court of competent jurisdiction which may direct DSI to
take, or retain from taking any action, that party shall:
a. Give DSI at least two business days' prior notice of the
hearing;
b. Include in any such order that, as a precondition to DSI's
obligation, DSI be paid in full for any past due fees and be
paid for the reasonable value of the services to be rendered
pursuant to such order; and
c. Ensure that DSI not be required to deliver the original (as
opposed to a copy) of the deposit materials if DSI may need to
retain the original in its possession to fulfill any of its
other duties.
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<PAGE> 37
ARTICLE 8 -- GENERAL, PROVISIONS
8.1 Entire Agreement. This Agreement, which includes the Exhibits described
herein, embodies the entire understanding among the parties with respect to its
subject matter and supersedes all Previous communications, representations or
understandings, either oral or written. DSI is not a party to the license
agreement between Depositor and Preferred Beneficiary and has no knowledge of
any of the terms or provisions of any such license agreement. DSI's only
obligations to Depositor or Preferred Beneficiary are as set forth in this
Agreement. No amendment or modification of this Agreement shall be valid or
binding unless signed by all the parties hereto, except that Exhibit A need not
be signed by DSI, Exhibit B need not be signed by Preferred Beneficiary and
Exhibit C need not be signed.
8.2 Notices. All notices, invoices, payments, deposits and other documents
and communications shall be given to the parties at the addresses specified in
the attached Exhibit C. It shall be the responsibility of the parties to notify
each other as provided in this Section in the event of a change of address. The
parties shall have the right to rely on the last known address of the other
parties. Unless otherwise provided in this Agreement, all documents and
Communications may be delivered by First Class mail.
8.3 Severability. In the event any provision of this Agreement is found to
be invalid, voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Agreement, such
invalidity, voidability or unenforceability shall affect neither the validity of
this Agreement nor the remaining provisions herein, and the provision in
question shall be deemed to be replaced with a valid and enforceable provision
most closely reflecting the intent and purpose of the original provision.
8.4 Successors. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI shall have no
obligation in performing this Agreement to recognize any successor or assign of
Depositor or Preferred Beneficiary unless DSI receives clear, authoritative and
conclusive written evidence of the change of parties,
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<PAGE> 38
8.5 Regulations. Depositor and Preferred Beneficiary are responsible for and
warrant compliance with all applicable laws, rules and regulations, including
but not limited to customs laws, import, export, and re-export laws and
government regulations of any country to which the deposit materials may be
delivered in accordance with the provisions of this Agreement.
Mobinetix Systems Inc. _______________________________________
Depositor Preferred Beneficiary
By: David M. Licurse Sr. By:____________________________________
Name: Dave Licurse Name:__________________________________
Title: Chief Financial Officer Title:_________________________________
Date: March 17, 1998 Date:__________________________________
Data Securities International, Inc.
By:____________________________________
Name:__________________________________
Title:_________________________________
Date:__________________________________
Page 8
<PAGE> 39
EXHIBIT A
MATERIALS TO BE DEPOSITED
Account Number ____
Depositor represents to Preferred Beneficiary that deposit materials delivered
to DSI shall consist of the following:
1. Software Documentation
Source code to all of the software defined in the agreement, technical manuals,
system and program flowcharts, file report and screen layouts, existing
maintenance tools, a list of all third party development tools and all other
documents and information that are necessary or reasonably appropriate for a
programmer to reconstruct maintain, enhance, understand and program the
Software without the aid or assistance of Mobinetix.
2. Hardware Documentation
The engineering designs and specifications, schematics, manufacturing details,
including know-how, identity and address of contract manufacturer, documents
assigning manufacturing rights to FSG, if any, and all other documents and
information that are necessary and appropriate for FSG to cause the Units to be
manufactured without the aid or assistance of Mobinetix.
_____________________________________ _____________________________________
Depositor Preferred Beneficiary
By:__________________________________ By:__________________________________
Name:________________________________ Name:________________________________
Title:_______________________________ Title:_______________________________
Date:________________________________ Date:________________________________
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<PAGE> 40
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name: Mobinetix Systems Inc.
Account Number__________________________________________________________________
Product Name: [*]
(Product Name will appear on Account History report)
DEPOSIT MATERIAL DESCRIPTION:
Quantity Media Type & Size Label Description of Each Separate Item
(Please use other side if additional
space is needed)
- -------- Disk 3.5" or ______
- -------- DAT tape _______mm
- -------- CD-ROM
- -------- Data cartridge tape ______
- -------- TK 70 or ______ tape
- -------- Magnetic tape ______
- -------- Documentation
- -------- Other ___________________
PRODUCT DESCRIPTION:
Operating System: [*] ________________________________________
Hardware Platform: [*] _________________________________________________
DEPOSIT COPYING INFORMATION:
Is the media encrypted? NO. If yes, please include any passwords and the
decryption tools.
Encryption tool name ____________________________ Version ______________________
Hardware required ______________________________________________________________
Software required ______________________________________________________________
<TABLE>
<S> <C>
I certify for DEPOSITOR that the above described DSI has inspected and accepted the above
deposit materials have been transmitted to DSI: materials (any exceptions are noted above):
Signature _______________________________ Signature _________________________________
Print Name: Nazim Kareemi _______________ Print Name ________________________________
Date ____________________________________ Date Accepted _____________________________
Exhibit B# ________________________________
</TABLE>
Send materials to: DSI, 9555 Chesapeake Dr. #200, San Diego, CA 92123
(619) 694-1900
* Confidential treatment requested.
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<PAGE> 41
EXHIBIT C
DESIGNATED CONTACT
Account Number _______________
Notices, deposit material returns and
communications to Depositor Invoices to Depositor should be
should be addressed to: addressed-to:
Company Name: Mobinetix Systems Inc. Accounts Payable
------------------------------- -------------------------------
Address: 500 Oakmead Parkway 500 Oakmead Parkway
----------------------------------- -------------------------------
Sunnyvale, CA 94086 Sunnyvale CA 94086
----------------------------------- -------------------------------
----------------------------------- -------------------------------
Designated Contact: David M. Licurse Sr. Contact: Accounts Payable
------------------------- -----------------------
Telephone: 408-524-4228
---------------------------------- -------------------------------
Facsimile: 408-524-4299 P.O.#, IF REQUIRED:
----------------------------------- ------------
Notices and communications to Invoices to Preferred Bene-
Preferred Beneficiary should be addressed to: ficiary should be addressed to:
Company Name:
------------------------------- -------------------------------
Address:
----------------------------------- -------------------------------
----------------------------------- -------------------------------
----------------------------------- -------------------------------
Designated Contact: Contact:
------------------------- -----------------------
Telephone:
----------------------------------- -------------------------------
Facsimile: P.O.#, if required:
----------------------------------- ------------
Requests from Depositor or Preferred Beneficiary to change the designated
contact should be given in writing by the designated contact or an authorized
employee of Depositor or Preferred Beneficiary.
Contracts, deposit materials Invoice inquiries and fee
and notices to DSI should remittances to DSI should be
be addressed to: addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
Date:
-------------------------------
Page 11
<PAGE> 42
AMENDMENT TO
SYSTEMS ACQUISITION AGREEMENT
AMENDMENT, dated as of March 20, 1998 (this "Amendment"), to the
Systems Acquisition Agreement, dated as of March 16, 1998 (the "Agreement"), by
and between MobiNetix Systems, Inc. ("MobiNetix") and Federated Systems Group,
Inc. ("FSG"). Capitalized terms used herein but not defined herein shall have
the meanings assigned such terms in the Agreement.
WHEREAS, MobiNetix and FSG have entered into the Agreement; and
WHEREAS, MobiNetix and FSG desire to amend the Agreement as set forth
herein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in the Agreement and this Amendment and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
Section 1. AMENDMENT TO SECTION 3. The Agreement is hereby amended to
add the following Section 3.3 immediately following Section 3.2 of the
Agreement:
3.3 PURCHASE PRICE ADVANCE. Notwithstanding anything
to the contrary herein contained, (i) FSG has paid to MobiNetix
$5,000,160 as the purchase price for the first 11,364 Initial
Units to be purchased by FSG hereunder; (ii) the provisions of
Section 3.2 (other than the second sentence of such Section)
shall not apply to the first [*] Initial Units so purchased;
and (iii) without intending to limit the generality or effect of
the second sentence of Section 3.2, with respect to any Unit
delivered by MobiNetix in respect of its obligations with
respect to the first [*] Initial Units to be purchased by FSG
hereunder that subsequently fails to achieve Unit Acceptance,
FSG may offset amounts paid to MobiNetix as the purchase price
for such Initial Units as set forth in clause (i) above against
any other payment required to be made by FSG hereunder. In the
event that [*] Initial Units shall not have achieved Unit
Acceptance prior to the termination of this Agreement, (i) as
promptly as practicable following such termination, MobiNetix
will pay FSG an amount equal to (a) $5,000,160 less (b) the
product of (1) [*] and (2) the number of Initial Units that
either (A) have achieved Unit Acceptance or (B) are included in
a shipment that has achieved Shipment Acceptance and (ii)
thereafter MobiNetix shall promptly reimburse FSG [*] for each
Initial Unit that subsequently fails to achieve Unit Acceptance.
The provisions of the immediately preceding sentence of this
Section 3.3 shall survive the termination of this Agreement.
Section 2. CONTINUED EFFECTIVENESS. Except as specifically amended
hereby, the Agreement shall continue in full force and effect and is hereby
ratified and confirmed in all respects.
* Confidential treatment requested.
<PAGE> 43
Section 3. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Georgia without regard to
its rules governing conflicts of laws.
Section 4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MOBINETIX, INC. FEDERATED SYSTEMS GROUP, INC.
By: /s/ NAZIM KAREEMI By: /s/ FAYE GLANCZ
----------------------------- -------------------------------
Name: Nazim Kareemi Name: Faye Glancz
-------------------------- ----------------------------
Title: Exec. Vice President Title: VP & CFO
------------------------- ---------------------------
<PAGE> 1
Exhibit 10.3
COMMON STOCK PURCHASE WARRANT
THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED
PURSUANT TO THE EXERCISE OF THIS WARRANT (THE "SHARES") WILL BE, ACQUIRED
SOLELY OR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH,
ANY DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES (TOGETHER, THE
"SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.
No. W-
MOBINETIX SYSTEMS, INC.
WARRANT TO PURCHASE 125,000 SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Federated Systems Group (the
"HOLDER") is entitled to subscribe for and purchase from MobiNetix Systems,
Inc., a Delaware corporation (the "COMPANY"), 125,000 shares (as adjusted
pursuant to Section 3 hereof) of the fully paid and nonassessable Common Stock
(the "SHARES"), of the Company at the price per share as determined in
accordance with Section 1(b) below (the "EXERCISE PRICE") (and as adjusted
pursuant to Section 3 hereof), subject to the provisions and upon the terms and
conditions hereinafter set forth. This Warrant has been executed and delivered
by the Company as an inducement to Holder's willingness to cause it subsidiary,
Federated Systems Group, Inc. to agree to enter into the Amendment to Systems
Acquisition Agreement, dated even date herewith, between the Company and
Holder.
This Warrant is subject to the following terms and conditions:
1. Method of Exercise; Payment.
(a) Cash Exercise. The purchase rights represented by this Warrant
may be exercised by the Holder, in whole or in part, from time to time by the
surrender of this Warrant (with the notice of exercise form (the "NOTICE OF
EXERCISE") attached hereto as Exhibit A duly executed) at the principal office
of the Company, and by the payment to the Company of an amount equal to the
Exercise Price multiplied by the number of the Shares being purchased, which
amount may be paid, at the election of the Holder, by wire transfer or
certified check payable to the order of the Company.
1
<PAGE> 2
The person or persons whose name(s) any certificate(s) representing Shares
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the
record holder(s) of, the Shares represented thereby (and such shares shall be
deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is exercised.
(b) Initial Exercise Price. The initial Exercise Price shall be $3.75.
(c) Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to the Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant representing
the shares with respect to which this Warrant shall not have been exercised
shall also be issued to the Holder within such time.
2. Stock Fully Paid; Reservation of Shares. All of the Shares issuable
upon the exercise of the rights represented by this Warrant will, upon issuance
and receipt of the Exercise Price therefor, be fully paid and nonassessable,
and free from all preemptive rights, rights of first refusal or first offer,
taxes, liens and charges with respect to the issuance thereof. During the
period within which the rights represented by this Warrant may be exercised,
the company shall at all times have authorized and reserved for issuance
sufficient shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
3. Mechanical Adjustments. The Exercise Price and the number and kind of
Shares purchasable upon exercise of this Warrant will be subject to adjustment
as follows:
(a) Subject to Section 3(f), if the Company (i) pays a dividend
or otherwise distributes to all of its holders of its Common Stock,
as such, shares of its capital stock (whether Common Stock or capital
stock of any other class), (ii) subdivides its outstanding shares of
Common stock into a greater number of shares of Common Stock, (iii)
combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock, or (iv) issues any shares of its capital
stock in a reclassification of its outstanding shares of Common Stock
(including any such reclassification in connection with a
consolidation, merger or other business combination transaction in
which the Company is the continuing or surviving corporation), then
the number and kind of Shares purchasable upon exercise of this
Warrant immediately prior thereto will be adjusted so that the Holder
will be entitled to receive (A) in the case of a dividend or
distribution, the sum of (1) the number of Shares that, if such
Warrant had been exercised immediately prior to such adjustment, the
Holder would have received upon such exercise and (2) the number and
kind of additional shares of capital stock that the Holder would have
been entitled to receive as a result of such dividend or distribution
by virtue of its ownership of such Shares, (B) in the case of a
subdivision or combination, the number of Shares that, if such
Warrant had been exercised immediately prior to such adjustment, the
Holder would have received upon such exercise, adjusted to give
effect to such subdivision or
2
<PAGE> 3
combination as if such Shares had been subject thereto, or (C) in the case of
an issuance in a reclassification, the sum of (1) the number of Shares that, if
this Warrant had been exercised immediately prior to such adjustment, the
Holder would have received upon such exercise and retained after giving effect
to such reclassification as if such Shares had been subject thereto and (2) the
number and kind of additional shares of capital stock that the Holder would
have been entitled to receive as a result of such reclassification as if such
Shares had been subject thereto. An Adjustment made pursuant to this paragraph
(a) will become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or
distribution in the case of a dividend or distribution and will become
effective immediately after the effective date of such subdivision, combination
or reclassification in the case of a subdivision, combination or
reclassification.
(b) Subject to Section 3(f), if the Company distributes to all of its
holders of its Common Stock, as such, (i) evidences of indebtedness or assets
(excluding regular cash dividends or cash distributions payable out of
consolidated retained earnings) of the Company or any corporation or other
legal entity a majority of the voting equity securities or equity interests of
which are owned, directly or indirectly, by the Company (a "Subsidiary"), (ii)
shares of capital stock of any Subsidiary, (iii) securities convertible into or
exchangeable for capital stock of the Company (including Common Stock or
capital stock of any other class) or any Subsidiary, or (iv) any rights,
options or warrants to purchase any of the foregoing (excluding those described
in Section 3(c)), then, the number of Shares thereafter purchasable upon
exercise of this Warrant will be adjusted to the number that results from
multiplying the number of Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment by a fraction (not to be less than one),
the numerator of which will be the Current Market Price per share (as defined
in Section 3(c)) of Common Stock on the record date for such distribution, and
the denominator of which will be such Current Market Price per share of Common
Stock less the fair value (as determined in good faith by the Board of
Directors of the Company, whose determination will be conclusive if based on
the financial advise of a nationally recognized investment banking firm) of the
portion of the evidences of indebtedness, assets, securities or rights, options
or warrants so distributed on account of one share of Common Stock. Such
adjustment will be made whenever any such distribution is made, and will become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution. Except as provided in
Section 3(i), no further adjustments of the number of Shares will be made upon
the actual issue of shares of Common Stock upon conversion or exchange of such
securities convertible or exchangeable for shares of Common Stock or upon
exercise of such rights, warrants or options for shares of Common Stock.
(c) Subject to Section 3(f), if the Company issues rights, options or
warrants to all of its holders of the outstanding shares of Common Stock, as
such, entitling the holders of such rights, options or warrants (for a period
expiring within 60 calendar days
3
<PAGE> 4
after the record date mentioned below) to subscribe for or purchase shares of
Common Stock at a price per share that is lower on the record date mentioned
below than the Current Market Price per share of Common Stock on such record
date, then the number of Shares thereafter purchasable upon the exercise of this
Warrant will be adjusted to the number that results from multiplying the number
of Shares purchasable upon exercise of this Warrant immediately prior to such
adjustment by a fraction (not to be less than none), the numerator of which will
be the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock offered by such rights, options or
warrants for subscription or purchase and the denominator of which will be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate subscription or purchase price of
the total number of shares of Common Stock so offered would purchase at the
Current Market Price per share of Common Stock on such record date. Such
adjustment will be made whenever such rights, options or warrants are issued,
and will become effective immediately after the record date for the
determination of stockholders-entitled to receive such rights, options or
warrants. In case such subscription or purchase price may be paid in a
consideration part or all of which is in a form other than cash, the fair value
of such consideration will be as determined by the Board of Directors of the
Company, whose determination will be conclusive if based on the financial advise
of a nationally recognized investment banking firm. Except as provided in
Section 3(i), no further adjustments of the number of Shares will be made upon
the actual issue of shares of Common Stock upon exercise of such rights, options
or warrants.
(d) Subject to Section 3(f), if the Company issues shares of Common Stock
or securities convertible into or exchangeable for shares of Common Stock
(excluding shares of Common Stock or convertible or exchangeable securities
issued in any of the transactions described in paragraph (a),(b) or (c) of this
Section 3) for a purchase price per share of such Common Stock, or for a
conversion or exchange price per share of Common Stock initially deliverable
upon conversion or exchange of such securities, that is less than the Series C
Conversion Price (as defined in the Company's Restated Certificate of
Incorporation) or, if there are no shares of Series C Preferred (as defined in
the Company's Restated Certificate of Incorporation) then outstanding, the
Current Market Price per share of the Common Stock, in either case, on the date
the purchase, conversion or exchange price of such additional shares of Common
Stock is first fixed (the "Adjustment Determination Price"), then the number of
Shares thereafter purchasable upon the exercise of this Warrant will be
adjusted to the number that results from multiplying the number of Shares
purchasable upon exercise of this Warrant immediately prior to such adjustment
by a fraction (not to be less than one), the numerator of which will be the
number of shares of Common Stock outstanding on such date plus the number of
additional shares of Common Stock so issued or issuable upon such conversion or
exchange, and the denominator of which will be the number of shares of Common
Stock outstanding on such date plus the number of shares of Common Stock which
the aggregate purchase, conversion or exchange price received by the Company
4
<PAGE> 5
for such additional shares of Common Stock would purchase at the Adjustment
Determination Price. Such adjustment will be made whenever such shares of
Common Stock or convertible or exchangeable securities are issued, and will
become effective immediately after the effective date of such event. In
case such purchase, conversion or exchange price may be paid in a
consideration part or all of which is in a form other than cash, the fair
value of such consideration will be as determined by the Board of Directors
of the Company, whose determination will be conclusive if based on the
financial advice of a nationally recognized investment banking firm. Except
as provided in 3(i), no further adjustment will be made upon the actual
issue of shares of Common Stock upon conversion or exchange of such
securities convertible into or exchangeable for shares of Common Stock.
(e) For purposes of this Warrant, the "Current Market Price" per
share of Common Stock on any date will be the average of the daily closing
prices for 20 consecutive Trading Days commencing 30 Trading Days before
the date of such computation. The closing price for each day (the "Closing
Price") will be the last reported sales price regular way or, in case no
such reported sale takes place on such day, the average of the closing bid
and asked prices regular way for such day, in each case on the principal
national securities exchange on which the shares of Common Stock are
listed or admitted to trading or, if not so listed or admitted to trading,
the average of the closing bid and asked prices of the shares of Common
Stock in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or any
comparable system, or if not so reported by any such organization on such
day, the average of the bid and asked prices furnished by a professional
market maker selected by the Board of Directors of the Company. In the
absence of one or more such quotations, the Board of Directors of the
Company will determine the Current Market Price in good faith on the basis
of such quotations or other relevant information as it considers
appropriate.
(f) No adjustment in the number of Warrant Shares purchasable upon
the exercise of this Warrant will be required unless such adjustment would
require an increase or decrease in the number of Shares purchasable upon
the hypothetical exercise of the Warrant of at least 1%; provided,
however, that any adjustments which by reason of this paragraph (f) are
not required to be made currently will be carried forward and made at the
time and together with the next subsequent adjustment which, together with
any adjustments so carried forward, would require an increase or decrease
in the number of Shares purchasable upon the hypothetical exercise of this
Warrant of 1% or more. All calculations with respect to the number of
Shares will be made to the nearest one-thousandth of a share and all
calculations with respect to the Exercise Price will be to the nearest
whole cent. No adjustment in the number of Shares purchasable upon the
exercise of a Warrant will be made under paragraph (b), (c) or (d) of this
Section 3 if the Company issues or distributes to the Holder the shares,
rights, options, warrants, convertible or exchangeable securities,
evidences of indebtedness, assets or other
5
<PAGE> 6
securities referred to in the applicable paragraph that the Holder would
have been entitled to receive had this Warrant been exercised prior to the
happening of such event on the record date with respect thereto (provided
that, in any case in which the Holder would have been so entitled to
receive a fractional interest in any such securities or assets, the
Company may distribute to the Holder in lieu of such fractional interest
cash in an amount equal to the fair value of such fractional interest as
determined in good faith by the Board of Directors of the Company). No
adjustment in the number of Shares purchasable upon the exercise of this
Warrant will be made on account of: (1) any issuance of shares of Common
Stock, or of options, rights or warrants to purchase, or securities
exchangeable for or convertible into, shares of Common Stock, in
accordance with any plan for the benefit of the employees or directors of
the Company that shall have been duly approved by the holders of Common
Stock, (2) any issuance of shares of Common Stock in connection with a
Company-sponsored plan for reinvestment of dividends or interest, or (3)
any issuance of shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock pursuant to an underwritten public
offering for a price per share of Common Stock in the case of an issuance
of shares of Common Stock, or for a price per share of Common Stock
initially deliverable upon conversion or exchange of such securities, that
is equal to or greater than 95% of the Closing Price per share of Common
Stock on the date the offering, conversion, or exchange price of such
additional share of Common Stock is first fixed. No adjustment in the
number of Shares will be made for a change in the par value of the shares
of Common Stock.
(g) Whenever the number of Shares purchasable upon the exercise of
each Warrant is adjusted as herein provided, the Exercise Price will be
adjusted by multiplying the Exercise Price in effect immediately prior to
such adjustment by a fraction, the numerator of which will be the number
of Shares purchasable upon the exercise of this Warrant immediately prior
to such adjustment, and the denominator of which will be the number of
Shares so purchasable immediately thereafter.
(h) For the purpose of this Section 3, the term "Common Stock" means
(i) the class of shares designated as the Common Stock of the Company as
of the date of this Warrant, (ii) all shares of any class or classes
(however designated) of the Company, now or hereafter authorized, the
holders of which have the right, without limitation as to amount, either
to all or to a part of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which are ordinarily entitled
to vote generally in the election of directors of the Company, or (iii)
any other class of shares resulting from successive changes or
reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. In the event that at any time, as a result of an adjustment made
pursuant to Section 3(a), this Warrant becomes exercisable to purchase
Shares other than shares of Common Stock, thereafter the number of such
other shares so purchasable upon exercise of this Warrant and the
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<PAGE> 7
Exercise Price payable in respect of such other shares upon the exercise of
this Warrant will be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Shares and the Exercise Price contained in this Section 3.
(i) Upon the expiration of any rights, options, warrants or conversion or
exchange privileges, if any thereof have not been exercised, the Exercise Price
and the number of Shares purchasable upon the exercise of this Warrant will,
upon such expiration, be readjusted and will thereafter be such as it would have
been had it been originally adjusted (or had the original adjustment not been
required, as the case may be) as if (i) the only shares of Common Stock so
issued were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or exchange rights and
(ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, conversion or
exchange plus the aggregate consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion or exchange rights whether or not exercised; provided, however, that
no such readjustment will have the effect of increasing the Exercise Price or
decreasing the number of Shares purchasable upon the exercise of this Warrant by
an amount in excess of the amount of the adjustment initially made in respect of
the issuance, sale or grant of such rights, options, warrants or conversion or
exchange privileges.
(j) In case of any consolidation of the Company with or merger of the
Company into another corporation or in case of any sale, transfer or lease to
another corporation of all or substantially all the property of the Company,
the Company or such successor or purchasing corporation, as the case may be,
will execute an agreement providing that the Holder will have the right
thereafter, upon payment of an amount equal to the amount payable upon the
exercise of this Warrant immediately prior thereto, to purchase upon exercise
of this Warrant the kind and amount of securities or property that it would
have owned or have been entitled to receive after giving effect to such
consolidation, merger, sale, transfer or lease on account of the Shares that
would have been purchasable upon the exercise of this Warrant had this Warrant
been exercised immediately prior thereto (provided that, to the extent that the
Holder would have been so entitled to receive cash on account of such Shares,
the Holder may elect in connection with the exercise of this Warrant in
accordance with Section 1 to reduce the amount of cash that it would be
entitled to receive upon such exercise in exchange for a corresponding reduction
in the amount payable upon such exercise). Such agreement will provide for
adjustments that will be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3. The provisions of this Section 3(j)
will similarly apply to successive consolidations, mergers, sales, transfers or
leases.
4. Notices.
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<PAGE> 8
(a) Upon any adjustments of the Exercise Price or the kind and number
of Shares purchasable upon the exercise of this Warrant in accordance with
Section 3 hereof, then, and in each such case, the Company, within thirty (30)
days thereafter, shall give written notice thereof to the Holder at the address
of such Holder as shown on the books of the Company which notice shall state the
Exercise Price as adjusted and, if applicable, the kind and number of Shares
purchasable upon the exercise of this Warrant, setting forth in reasonable
detail the method of calculation of each.
(b) Any written notice by the Company required or permitted hereunder
shall be given by hand delivery or first class mail, postage prepaid, addressed
to the Holder at the address shown on the books of the Company for the Holder.
5. Transfer of Warrant. Except in accordance with the conditions
contained in Section 6 hereof, this Warrant and all rights hereunder are not
transferable. In order to effect any transfer of all or a portion of this
warrant or the Shares, the transferor shall deliver a completed and duly
executed Notice of Transfer (attached hereto as Exhibit B).
6. Condition of Exercise or Transfer of Warrant.
(a) Unless exercised pursuant to an effective registration statement
under the Act which includes the Shares so exercised, it shall be a condition
to any exercise or transfer of this Warrant that the Company shall have
received, at the time of such exercise or transfer, a representation in writing
from the recipient or transferee in the form attached hereto as Exhibit A-1 or
Exhibit B-1, respectively, that the Shares being issued upon exercise, or this
Warrant (or portion hereof) transferred, as the case may be, are being acquired
for investment and not with a view to any sale or distribution thereof.
(b) It shall be a further condition to any transfer of this Warrant,
or of any or all of the Shares issued upon exercise of this Warrant, other than
a transfer registered under the Act, that the Holder shall have given written
notice to the Company which shall describe the manner and circumstances of the
proposed transfer and be accompanied by a written opinion of Holder's legal
counsel or a "no-action" letter reasonably satisfactory to the Company stating
that such transfer is exempt from the registration requirements of the Act and
applicable state securities laws.
(c) Each certificate evidencing the Shares issued upon exercise of
this Warrant, or transfer of such shares (other than a transfer registered under
the Act or any subsequent transfer of shares so registered) shall be stamped or
imprinted with a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
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<PAGE> 9
REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
Subject to this Section 6, the Company may instruct its transfer agent not
to register the transfer of all or a part of this Warrant, or any of the
Shares, unless one of the conditions specified in the above legend is satisfied.
7. Removal of Legend. Upon request of a holder of a certificate with the
legend referred to in Section 6 hereof, the Company shall issue to such holder
a new certificate therefor free of any transfer legend, if, with such request,
the Company shall have received either an opinion of counsel or a "no-action"
letter referred to in section 6(b) of this Warrant to the effect that any
transfer by such holder of the shares evidenced by such certificate will not
violate the Act and applicable state securities laws.
8. Fractional Shares. No fractional shares of Common stock will be
issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the Exercise Price then in effect.
9. Representations and Warranties of the Company. The Company
represents and warrants to the Holder as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms;
(b) The Shares have been duly authorized and reserved for issuance
by the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the Shares and the holders thereof are as set forth in the
Company's Certificate of Incorporation, a true and complete copy of which has
been delivered to the original Holder of this Warrant; and
(d) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Certificate of
Incorporation or Bylaws, as amended.
10. Representations and Warranties by the Holder. The Holder represents
and warrants to the Company as follows:
(a) This Warrant is being acquired for its own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Act. Upon
exercise of this Warrant, the Holder shall, if so requested by the
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<PAGE> 10
Company, confirm in writing, in a form reasonably satisfactory to the Company,
that the Shares issuable upon exercise of this Warrant are being acquired for
investment and not with a view toward distribution or resale.
(b) The Holder understands that the Warrant and the Shares have not
been registered under the Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the Act
pursuant to Section 4(2) thereof, and that they must be held by the Holder
indefinitely, and that the Holder must therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Act or is exempted from such registration. The Holder further
understands that the Shares have not been qualified under the California
Securities Law of 1968 (the "California Law") by reason of their issuance in a
transaction exempt from the qualification requirements of the California Law
pursuant to Section 25102(f) thereof, which exemption depends upon, among other
things, the bona fide nature of the Holder's investment intent expressed above.
(e) The Holder has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of this Warrant and the Shares purchasable pursuant to the terms of
this Warrant and of protecting its interests in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase of
the Shares pursuant to the terms of this Warrant.
11. Rights of Stockholders. No holder of this Warrant shall be entitled,
as a Warrant holder, to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of
stock, change of par value, consolidation, merger, conveyance, or otherwise) or
to receive notice of meetings, or to receive dividends or subscription rights
or otherwise until the Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein.
12. Expiration of Warrant. This Warrant shall expire and shall no longer
be exercisable as of the date of the earliest of the following to occur:
(a) March 20, 2003; and
(b) the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock for the account
of the Company to the public with gross proceeds to the
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<PAGE> 11
Company (prior to underwriter commissions and offering expenses) per share of
not less than $8 (the "PUBLIC OFFERING").
13. Certain Registration Rights for Shares.
(a) If the Company proposes to file a registration
statement (other than in connection with an exchange offer, an offering made
solely to employees of the Company or a registration statement on Form S-4 or
S-8 or any successor form to such forms) under the Act with respect to an
offering of any securities issued or to be issued by the Company (whether or
not for its own account), the Company will give written notice of the proposed
registration at least 20 business days prior to the filing of a registration
statement under the Act with respect thereto to the Holder. The Holder will
have the right to request that all or any part of its Shares, whether issued or
issuable (such Shares being referred to herein as "Registrable Securities") be
included in such registration by giving written notice to the Company within 10
business days after the giving of such notice by the Company. Subject to the
next following sentence, the Company will include such Registrable Securities
in such registration in accordance with such request and on the terms and
subject to the conditions set forth herein. If the registration is an
underwritten offering and the managing underwriters of such offering deliver an
opinion to the Holder that the total amount of securities which the Holder, the
Company and any other person or entity having rights to participate in such
offering is such as to materially and adversely affect the success of such
offering, then the amount of securities to be offered for the account of the
Holder will be reduced (to zero, if necessary) on the same basis as any other
person or entity seeking to exercise so-called "piggyback" registration rights
in connection therewith or, if there are no such other persons or entities, to
the maximum number of Registrable Securities, if any, as can be included
therein without materially and adversely affecting the success of such offering.
(b) Registrable Securities proposed to be registered for
sale pursuant to an underwritten offering for the account of the Holder will be
sold to prospective underwriters selected or approved by the Company and on the
terms and subject to the conditions of one or more underwriting agreements
negotiated between the Company and such underwriters. The Company may withdraw
any registration statement which covers Registrable Securities (a "Registration
Statement") at any time before it becomes effective, or postpone the offering
of securities, without obligation or liability to the Holder. Notwithstanding
anything to the contrary herein contained, Registrable Securities need not be
included in any Registration Statement pursuant to Section 13(a) if (i)
registration under the Act is not required for public distribution of such
Registrable Securities in the manner that the Holder seeks to distribute such
Registrable Securities or (ii) such Registrable Securities may be sold pursuant
to Rule 144(k) under the Securities Act.
(c) The Holder will, if so requested by the managing
underwriters in an underwritten public offering, not effect any public sale or
distribution of securities of the Company of the same class as the securities
to be included in such registration, including a sale pursuant to Rules 144 or
144A under the Act (except as part of such offering), during the 20 calendar
day period prior to, and for a period of 180 days beginning on, the closing
date of such offering. Holder further agrees to
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<PAGE> 12
execute any agreement reflecting the foregoing as may be requested by the
underwriters in connection with the Public Offering.
(d) In connection with its obligations under Section 13(a), the Company
will as expeditiously as reasonably practicable:
(i) before filing with the Securities and Exchange Commission (the
"Commission") a Registration Statement or any amendments or supplements
thereto, furnish to the Holder, if its Registrable Securities are covered by
such Registration Statement (as such, the "Selling Shareholder"), copies of all
such documents proposed to be filed, which documents will be subject to the
reasonable review of the Holder;
(ii) prepare and file with the Commission a Registration Statement
and such amendments and supplements thereto as may be required by the
Commission's rules and regulations; and comply with the provisions of the Act
with respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in the related prospectus (the
"Prospectus");
(iii) notify the Selling Shareholder promptly:
(A) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose,
(B) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose, and
(C) of the existence of any fact which results in the Registration
Statement or the Prospectus containing an untrue statement of a material fact
required to be stated therein or necessary to make the statements therein not
misleading;
(iv) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the
earliest practicable time (unless such order has been issued as the result of
any action, omission or status of the Selling Shareholder);
(v) furnish to the Selling Shareholder, without charge, at least one
copy of the Registration Statement and any post-effective amendment thereto;
(vi) deliver to the Selling Shareholder, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as the Selling Shareholder may reasonably
request; and
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<PAGE> 13
(vii) cooperate with the Selling Shareholder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold.
(e) As a condition of the inclusion of Registrable Securities in a
registration, the Company may require the Selling Shareholder to furnish to the
Company such information regarding the proposed distribution of its securities
as the Company may from time to time reasonably request in writing.
(f) In connection with any Registration Statement prepared and
filed under Section 13(a), the Selling Shareholder will bear all costs and
expenses incurred by them directly and the underwriting discounts and
commissions relating to its Registrable Securities included in the related
offering. The Company will pay all other costs and expenses of registration.
(g) The Company will indemnify and hold harmless the Selling
Shareholder, its officers, directors, employees and agents and each person who
controls the Selling Shareholder within the meaning of Section 15 of the Act
from and against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and legal expenses) arising out of
or based upon any untrue statement or allegedly untrue statement of a material
fact contained in any Registration Statement (or any prospectus or prospectus
supplement relating thereto), arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or expenses arising out of or are
based upon any such untrue statement or omission or allegation thereof based
upon information furnished in writing to the Company by the Selling Shareholder
or on the Selling Shareholder's behalf expressly for use therein; provided,
however, that in connection with any non-underwritten offering the Company will
not be liable to the Selling Shareholder to the extent that any such losses,
claims, damages, liabilities or expenses arise out of or based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus if either (i)(A) the Selling Shareholder failed to
send or deliver a copy of the Prospectus with or prior to the deliver of
written confirmation of the sale by the Selling Shareholder of a Registrable
Security to the person asserting the claim from which such losses, claims,
damages, liabilities or expenses arise and (B) the Prospectus would have
completely corrected such untrue statement or alleged untrue statement of such
omission or alleged omission or (ii) such untrue statement or alleged untrue
statement, omission or alleged omission is completely corrected in an amendment
or supplement to the Prospectus and, having previously been furnished by or on
behalf of the Company with copies of the Prospectus as so amended or
supplemented, the Selling Shareholder thereafter fails to deliver such
Prospectus as so amended or supplemented prior to or concurrently with the sale
of a Registrable Security to the person asserting the claim from which such
losses, claims, damages, liabilities or expenses arise. The Selling Shareholder
will indemnify and hold harmless the Company, its directors and officer, any
agent of the Company, and each person, if any, who controls the Company within
the meaning of Section 15 of the Act to the same extent as the foregoing
indemnity from the Company to the Selling Shareholder, but only with respect
to information relating to the Selling Shareholder furnished in writing by the
Selling
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<PAGE> 14
Shareholder or on the Selling Shareholder's behalf expressly for use in any
Registration Statement (or any prospectus supplement relating thereto).
(h) If the indemnification provided for in Section 13(g) is
unavailable to an indemnified party (other than by reason of exceptions provided
therein) in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, will contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as if appropriate to reflect the relative fault of
the indemnified party on the one hand and of the indemnifying party on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company on the one hand and
of the Selling Shareholder on the other hand will be determined by reference to,
among other things, whether the untrue or allegedly untrue statement of a
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or by the Selling Shareholder and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the Selling
Shareholder acknowledge that it would not be just and equitable if contribution
pursuant to this Section 13(h) were determined by pro rata allocation or any
other method of allocation which does not take into account the equitable
considerations referred to above. No person guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the Act will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
14. Miscellaneous.
(a) The headings in this Warrant are for purposes of reference only,
and shall not limit or otherwise affect any of the terms hereof.
(b) The terms of this Warrant shall be binding upon and shall inure
to the benefit of any successors or assigns of the Company and of the holder or
holders hereof and of the Shares issued or issuable upon the exercise hereof.
(9) This Warrant and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
(d) The Company shall not, by amendment of its Certificate of
Incorporation, or through any other means, directly or indirectly, avoid or
seek to avoid the observance or performance of any of the terms of this
Warrant and shall at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant
against impairment.
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(e) Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of any such loss, theft or destruction, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, upon surrender and cancellation of such Warrant, the Company
at its expense will execute and deliver to the holder of record, in lieu
thereof, a new Warrant of like date and tenor.
(f) This Warrant and any provision hereof may be amended, waived or
terminated only by an instrument in writing signed by the Company and the
Holders.
(g) Receipt of this Warrant by the Holder hereof shall constitute
acceptance of and agreement to the foregoing terms and conditions.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Issued this 19th day of March, 1998.
MOBINETIX SYSTEMS, INC.
By: /s/ NAZIM KAREEMI
---------------------------
Name: NAZIM KAREEMI
Title: Executive Vice President
Acknowledged and Accepted:
FEDERATED DEPARTMENT STORES, INC.
By: /s/ KAREN M. HOGART
- -------------------------------
Name: KAREN M. HOGART
Title:
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<PAGE> 17
EXHIBIT A
NOTICE OF EXERCISE
TO: MOBINETIX SYSTEMS, INC.
500 Oakmead Parkway
Sunnyvale, California 94086
Attention: President
1. The undersigned hereby elects to purchase _______ shares of Common
Stock of MOBINETIX SYSTEMS, INC. pursuant to the terms of this Warrant, and
tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
(Name)
(Address)
3. The undersigned hereby represents and warrants that the aforesaid
shares of Common Stock are being acquired for the account of the undersigned
for investment and not with a view to, or for resale, in connection with the
distribution thereof, and that the undersigned has no present intention of
distributing or reselling such shares and all representations and warranties of
the undersigned set forth in Section 10 of the attached Warrant are true and
correct as of the date hereof. In support thereof, the undersigned agrees to
execute an Investment Representation Statement in a form substantially similar
to the form attached to the Warrant as Exhibit A-1.
(Signature and Date)
Title:
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<PAGE> 18
EXHIBIT A-1
INVESTMENT REPRESENTATION STATEMENT
PURCHASER
SELLER
COMPANY MOBINETIX SYSTEMS, INC.
SECURITY COMMON STOCK ISSUED UPON EXERCISE OF THE
COMMON STOCK PURCHASE WARRANT ISSUED ON March __, 1998
AMOUNT __________ SHARES
DATE ________________ , ___________
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
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<PAGE> 19
(d) I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof, in a non-public offering subject to the satisfaction of certain
conditions.
The Securities may be resold in certain limited circumstances subject to
the provisions of Rule 144, which requires among other things: (1) the
availability of certain public information about the Company, (2) the resale
occurring not less than one year after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities
less than two years, (3) the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) I hereby accept and agree to be bound by the provisions of the Warrant
as though I were a party thereto.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive,
the Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
(Signature)
By:
Title:
Date:
2
<PAGE> 20
EXHIBIT B
NOTICE OF TRANSFER
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _________________________________ the right represented by the attached
Warrant to purchase _____________________* shares of Common Stock of MOBINETIX
SYSTEMS, INC., to which the attached warrant relates, and appoints
___________________ Attorney to transfer such right on the books of MOBINETIX
SYSTEMS, INC., with full power of substitution in the premises.
Dated:
(Signature must conform in all respects to name
of Holder as specified on the face of the
Warrant)
(Address)
Signed in the presence of:
* Insert here the number of shares without making any adjustment for
additional shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the Warrant,
may be deliverable upon exercise.
1
<PAGE> 21
EXHIBIT B-1
INVESTMENT REPRESENTATION STATEMENT
PURCHASER:
TRANSFEROR:
COMPANY : MOBINETIX SYSTEMS, INC.
SECURITY : COMMON STOCK PURCHASE WARRANT ORIGINALLY
ISSUED ON MARCH _____, 1998
AMOUNT : _______________ SHARES
DATE : ______________, ______
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Transferor and to the Company the following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
1
<PAGE> 22
(d) I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof, in a non-public offering subject to the satisfaction of certain
conditions.
The Securities may be resold in certain limited circumstances subject to
the provisions of Rule 144, which requires among other things: (1) the
availability of certain public information about the Company, (2) the resale
occurring not less than one year after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities
less than two years, (3) the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) I hereby accept and agree to be bound by the provisions of the Warrant
as though I were a party thereto.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 is not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Fuel 144 is not exclusive,
the Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
(Signature)
By:
Title:
Date: , ______
2
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