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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1935 (No Fee
Required) For The Transition Period From
____________ to ____________
Commission File Number 0-21138
Boca Research, Inc.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2479377
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1601 Clint Moore Road
Boca Raton, Florida 33487-2722
(561) 997-6227
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Aggregate market value of voting stock by non-affiliates as of
March 28, 2000: $76,859,527
Common stock outstanding as of March 28, 2000: 11,601,438 shares
Documents Incorporated by Reference:
Specifically identified information in the definitive Proxy Statement for
the 2000 Annual Meeting of Shareholders to be held on May 22, 2000, is
incorporated by reference into Part III hereof.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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1
<PAGE>
BOCA RESEARCH, INC. ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
INDEX
Page
PART I ----
ITEM 1. BUSINESS.......................................................... 3
ITEM 2. PROPERTIES........................................................11
ITEM 3. LEGAL PROCEEDINGS.................................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............11
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT..............................12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...............................................13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA..............................14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................43
ITEM 11. EXECUTIVE COMPENSATION............................................43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...43
2
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PART I
Item 1: Business
Founded in 1985, Boca Research, Inc. and subsidiaries (the "Company") is a
supplier of computer enhancement products including modems, Input/Output (I/O)
systems, graphics and video systems, and communications software. For many
years, the Company was a leading provider of hardware and software technology,
designing, manufacturing, and marketing products that provided communications
solutions to enable data transmission, connectivity of devices, and access to
applications and information via the Internet, PCs, and/or server-based
environments. While the Company continues to market communications software as
well as data communications, I/O, multiport, and video products, it has
positioned itself to transition to a software and systems solutions-based
enterprise, enabling communications and access to applications and information
via the Internet and client/server networking. The Company has transitioned its
participation in the thin client, network appliance, and set top box businesses
from manufacturing and marketing these devices, to providing custom design
services related to these devices for third parties. The Company is a Florida
corporation headquartered in Boca Raton, Florida.
The Company's transition to a software and systems solutions-based
enterprise has moved forward with the formation of a wholly owned subsidiary,
InprimisTM Technologies, Inc. ("Inprimis"). Inprimis plans to focus on
technology design services for Internet-based information and entertainment
appliances. This subsidiary plans to provide its product design, systems
engineering, and software development services to consumer electronics,
computer, communications, and specialized line-of-business solutions providers
that are responding to consumer needs for Internet-related products and
services. In addition, Inprimis plans to have the capability for developing
hardware reference platforms that can be quickly adapted to meet specific
customer product requirements. These platforms include integrated computer
designs, such as set top boxes, that can be adapted for a variety of high-speed
communications, including DSL (Digital Subscriber Line), cable, and satellite
networks. Inprimis was established to provide customized design and development
services and by licensing its designs to customers on a royalty basis. Inprimis
will focus on helping both large and small companies achieve rapid
time-to-market by allowing them to leverage Inprimis's design expertise and
simple cost-effective solutions.
The Company's wholly owned subsidiary, Boca Global, Inc., ("Boca Global") is
a supplier of computing enhancement products, including I/O cards, graphics,
video systems, and modems. Boca Global's strong brands, Boca Research(TM) and
Global Village(R), address the growing demand for software, peripherals, and
accessories for PCs and Macintosh(R) computers for both home and business use.
Its products are sold to original equipment manufacturers (OEMs), wholesale
microcomputer distributors, retailers, and value-added resellers (VARs). Boca
Global is working to identify and work with customers on the design,
manufacture, and distribution of its products.
The Company's wholly-owned subsidiary, AppsCom, Inc., was organized in
August 1999 with a view to providing computer applications outsourcing by
renting and leasing applications to remote users via an application server based
network. Although the Company is focused primarily on its transition to a
software and systems solutions-based enterprise, it is still evaluating whether
to enter this business and pursue the development of AppsCom, Inc.
The Company is committed to providing high-quality, cost-effective products
and services that meet or exceed customers' needs while seeking to achieve
profitability through mutually beneficial relationships with customers and
business partners.
Strategy
The Company is transitioning from a manufacturer of hardware into a software
and systems solutions-based enterprise with a strategy to (1) develop in
Inprimis the ability to provide product design, systems engineering, and
software development services, and to (2) strengthen its core businesses through
the Boca Global subsidiary by introducing new products, strengthening its
distribution channels, and building a Web-based e-commerce business. This
strategy is designed to enable the Company to transition into leading edge
markets and technology while increasing revenues and restoring profitability to
its core business. The Company will concentrate on geographic markets where the
Company itself or its strategic alliance partners have access to the most
effective distribution channels to reach a critical mass of targeted end users.
Specifically, the Company seeks to:
Bring New Products to Market Quickly. The Company is improving its marketing
and product development capabilities and product management processes in order
to reduce time-to-market. The Company expects to introduce several significant
new products during the coming year.
3
<PAGE>
Develop Inprimis. Comprised of a core group of professionals with broad
high-technology expertise, Inprimis was formally organized in February 2000 to
provide technology and service solutions for Internet-based infotainment and
entertainment systems. Inprimis plans to offer designs and services for
companies that want to do business on the Internet and who want to reach mass
markets but who may not have the core skill to develop in-house solutions. These
companies include traditional consumer electronics companies, computer
companies, communications companies and companies needing to define specialized
systems for vertical industries.
Inprimis plans to work with Internet Service Providers (ISPs), Application
Service Providers (ASPs), telephone, cable, and satellite companies to design
and deliver new video-rich and interactive services. Inprimis' strategy is: to
help define and develop the architecture for the client devices and provide new
features to improve end user experience; work with the customer to determine the
selection of software and hardware platforms to best meet project goals; assist
in the definition of the system design; and, then, respond by designing
specifications to create either component or complete system deliverables. The
resulting design will be licensed to the customer for production. The structure
of these licenses will be made on a unit royalty basis, with pricing typically
determined by volume. Additionally, Inprimis will offer management of early
manufacturing services and will be able to assist the customer from conception
through full production.
Pursue Strategic Partnerships and Acquisitions. The Company's strategy is to
offer a broad range of data communications, information appliances, I/O cards,
and multiport products that provide a high degree of functionality at attractive
prices. The Company seeks to enhance its products by entering into technology
partnerships or joint ventures with third parties. The Company believes that
establishing strategic relationships with third parties will enable access to
emerging technologies at an earlier date than otherwise possible, helping to
expand the Company's market penetration. The Company also will consider
acquisitions in support of the Company's strategic and business plans.
Continue to Reduce Costs. In March 2000, the Company closed the sale of
certain of its fixed assets of its manufacturing facilities to Boundless
Manufacturing Services, Inc. ("Boundless"), a subsidiary of Boundless
Corporation, a global technology company, and simultaneously entered into a
contract manufacturing agreement with Boundless to outsource the Company's
manufacturing. Additionally, the Company reduced its headcount and consolidated
its operations into a single facility to appreciably reduce its expenses and
cash outflow. The Company will continue to engage in cost-reduction practices
that will make its operations more efficient.
International Operations. In light of the Company's continuing efforts to
reduce costs, the Company is transitioning its marketing strategy for
international markets from a direct-marketing approach to an approach in which
the Company will exclusively utilize marketing representatives. A summary of the
Company's net sales by geographic region can be found in Note 11 to the
Company's Consolidated Financial Statements located in Item 8 of this Form 10-K.
Build Distribution Channels. The Company continually seeks to expand its
distribution channels in order to reach a broad range of end users and to
minimize its reliance on any single channel. Boca Global's products are
currently sold to OEMs, VARs, and through wholesale distributors, Internet-based
e-tailers, and retailers/catalog companies. The Company will continue to sell
its products through these distribution channels. In addition, Boca Global is
expanding its use of the Internet and expects its revenues to increase from
end-users using the Boca Global e-commerce Web site.
Provide Quality Customer Service. The Company seeks to differentiate itself
through the quality of its products and the level of its technical support and
customer service. The Company designs its products for high reliability,
compatibility with existing and emerging industry standards, ease of use, and
support. Additionally, the Company believes its five-year limited warranty for
the majority of products, in addition to technical support programs, provides a
broad level of customer service.
Product Development
The Company believes that its ability to respond quickly to market demand,
technological advances, and changes in industry standards is critical to its
success. Traditionally, the Company's strategy has been to develop products for
markets with established demand. During 1999, the Company began expanding its
popular Global Village product line of modems and fax software into the
multimedia product arena. The Company plans to continue this expansion with
products such as a video capture hardware/software suite and new software
products that provide users with the ability to easily and inexpensively
manipulate photographic images and video on their computers. Several of the
Company's products incorporate software that the Company licenses from third
parties in exchange for the payment of a royalty based on the number of units
sold.
4
<PAGE>
The Company utilizes the expertise of third parties to develop new
technologies for use in the Company's products. The Company believes it can
continue to integrate new technologies into new products rapidly and at a
competitive cost. Boca Global is focusing its development efforts primarily on
expanding its hardware and software product offerings within existing product
categories, such as data communications, I/O, video, and multimedia categories.
Boca Global plans to expand its product lines in both the PC and Macintosh
markets by establishing a more aggressive sales and marketing program that
targets its core products. Additionally, Boca Global plans to place more
products on more retailer store shelves through its distributors and sales
representatives. During 2000, Boca Global plans to continue to utilize the
engineering expertise available from Inprimis.
Inprimis is focusing on the development of specific core reference platforms
and the development of the embedded system software including device drivers,
user interfaces, and system applications that enable the deployment of these new
interactive systems. The core development will result in two baseline hardware
reference platforms during 2000 that will be enabled for DSL, cable, satellite,
ATM, analog modem, or Ethernet communications. These platforms are being
developed in key partnerships with industry-leading silicon and software
suppliers. During 2000, Inprimis plans to continue to utilize the sales and
marketing expertise available from Boca Global.
Products and Services
Boca Global markets modems, I/O cards, and multimedia products under the
Boca Research and Global Village(TM) brand names. The Company no longer markets
thin client products under the BocaVisionTM brand name. Inprimis provides
reference designs for consumer electronics companies/Internet Service Providers
(ISPs).
The following tables represent a sample of the Company's products:
Boca Global, Inc.
<TABLE>
<CAPTION>
Product Category Description Products Market Introduction
---------------- ----------- -------- -------------------
<S> <C> <C> <C>
Data Communications
Windows(R)-based Modems enable the end user to send Boca Research 56K Tidalwave(TM) March 1998
Voice Modems and receive data across standard Boca Research 56K Tidalwave USB September 1999
telephone lines. International 56K WinStorm (TM) March 2000
Boca Research 33.6 Home/Office Modem February 1997
Boca Research 2400 Modem September 1991
Boca Research 56K Modems November 1997
Macintosh-based Global Village TelePort(TM) 56K March 1998
Modems Global Village TelePort Internal 56K February 1999
Global Village TelePort USB 56K April 1999
Global Village 56K PC Card Fax/Modem September 1998
Software Boca Research licenses software Global Village GlobalFax(TM) October 1998
that adds value to modem products.
- ------------------------------------------------------------------------------------------------------------------------------------
Video Products Video capture suite of products that Global Village VideoFX(TM) January 2000
captures, edits, catalogs, and prints
still photos and videos.
- ------------------------------------------------------------------------------------------------------------------------------------
I/O & Multiport I/O devices allow additional Boca Research Turbo Serial 650 September 1999
Products ports to be added to a PC enabling Boca Research Turbo Parallel August 1999
the end user to connect peripheral Boca Research Turbo Combo 1x2 September 1999
equipment, such as modems and Boca Research Turbo 650 October 1997
printers. Boca Research Turbo 2x2 August 1997
Boca Research Turbo Parallel April 1998
Boca Research Turbo 1x2 January 1996
Turbo 8 (White box) December 1999
Turbo 4 (White box) December 1999
2-port serial PCI I/O card (white box) February 2000
Multiport products allow for the BOCABOARD(TM) 8-port June 1994
connection of multiple PCs and
terminals to a single host PC.
</TABLE>
5
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Inprimis Technologies, Inc.
<TABLE>
<CAPTION>
Reference Designs Description Design Market Introduction
----------------- ----------- ------ -------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Information Appliance Information appliances allow end ST 2001 February 2000
users to surf the Internet and
send and receive e-mail using
a TV and a regular telephone
line.
- ------------------------------------------------------------------------------------------------------------------------------------
Next Generation ST 2020 Q2 2000 (anticipated)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Data Communications Products. Modems are used to send and receive data
between PCs/servers via standard telephone lines. Modems also enable the
transmission of faxes to or from PCs and fax machines. Boca Global's modem
products enable the end user to connect to the Internet on a standard telephone
line at up to 56K BITS per second. Boca Global markets both internal and
external Plug and Play modems and, on a limited basis, its PC Card (PCMCIA)
modems for Macintosh laptop computers.
Boca Global markets Windows(R)-based modems under the Boca Research brand
name. The Company also markets Macintosh(R)-based modems and software under the
Global Village brand name. Boca Global's software product, GlobalFax, is a
recognized communications package that sends, receives, views, prints, and
manages faxes from a Macintosh computer. A modified version of this software is
also bundled with Global Village brand modems.
The Company introduced its first data communications products in 1991 and
continues to adopt new data communications technologies. The Company's Boca
Global subsidiary currently markets its modem products worldwide. Sales of data
communications products accounted for approximately 71%, 70%, and 79% of the
Company's net sales in 1997, 1998 and 1999, respectively.
Video Products. In January 2000, the Company introduced VideoFX, a video
capture suite for Macintosh computers. This product allows the user to capture
still images or video directly from videotapes or a standard camcorder, cut
scenes, and add video footage or still images. The resulting videos and images
can be e-mailed or published on the Web.
I/O and Multiport Products. I/O and multiport products are primarily sold to
upgrade computers in the installed PC base I/O allowing additional serial and
parallel ports to be added to a single IBM-compatible PC. These additional ports
are used to connect peripheral computer equipment such as modems, scanners,
Zip(TM) drives and printers to the PC. The Company offers a variety of I/O
boards. Multiport boards with four-serial ports or eight serial ports are also
available. Multiport boards are typically used in retail point of sale terminals
where several serial devices, such as scanners, bar code readers, credit card
readers, printers, and modems are required. I/O and multiport products accounted
for approximately 8%, 6%, and 12% of the Company's net sales in 1997, 1998 and
1999, respectively.
Information Appliances. An information appliance is a product that
integrates multiple technologies that allows a user to perform one or more of
the following functions: browse the Internet; send and receive e-mail; perform
PC-like functions; play DVD titles, audio, and video CDs; and have
video-on-demand capability. In 1999, the Company marketed information appliances
through Boca Global. However, as the Company transitions from selling hardware
to providing software/systems solutions, the information appliance will be sold
as a reference design though Inprimis. The Company's engineering and design
services, which commenced in 1999, accounted for 2% of its net sales in 1999. As
of February 2000, these services are now provided through Inprimis.
6
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Thin Clients. A thin client is a low-cost computing device that works in a
server-based computing model. Revenues from thin clients accounted for 3% of the
Company's net sales in 1999, the first year in which the Company sold thin
client products. In regard to manufacturing the thin Client product, the Company
no longer views thin client products as representing an attractive sales
opportunity. The traditional thin client market remains a low-margin business as
the result of low-cost PCs. Consequently, the Company currently is seeking a
buyer to purchase the Company's thin client inventory and market these products
to its customers. However, in keeping with the Company's new strategy, the
Company is seeking partners for the design, manufacture, and possible sales
through distributors for thin client devices. With the combined expertise of
Inprimis's engineering, Boundless's manufacturing, and Boca Global's dual brand
channel access, the Company is in a position to take a new approach to its thin
client marketing opportunities and is seeking to transition to other thin client
products through Inprimis and its manufacturing relationship with Boundless.
Networking Products. Networking products enable a variety of computers to be
linked and accounted for approximately 5%, 2%, and 1% of the Company's net sales
in 1997, 1998, and 1999, respectively. In light of increased competition and
other factors, the Company no longer views networking products as representing
an attractive sales opportunity. Consequently, the Company no longer plans to
market these products.
Custom Manufacturing. In 1999, the Company made a strategic decision to
decrease its emphasis on custom manufacturing, given its historically low gross
margins. As a result, custom manufacturing accounted for only 2% of the
Company's net sales in 1999, compared with 12% and 18% in 1997 and 1998,
respectively. With the sale of certain manufacturing assets to Boundless, the
Company expects that it will no longer pursue custom manufacturing
opportunities.
Sales Channels
The Company sells its products worldwide to OEMs, VARs, wholesale
microcomputer distributors, retailers, catalog companies, and Internet based
e-tailers.
Original Equipment Manufacturers. The Company provides products to OEM
companies in several markets: consumer electronics, computer peripherals,
systems integrators (SIs), and build to order (BTO) PC factories. In addition,
the Company's technology products are found in a variety of custom devices that
require high-quality communication products, like automatic teller machines
(ATMs) and Internet-based information appliances. The OEM channel of
distribution is different from wholesale distributors and retailers in terms of
packaging, support, price, and terms. Working closely with OEM partners, the
Company satisfies their product needs by providing products in packaging
configurations that range from bulk packaging, to white box for OEM private
label, to full retail packaging under the OEM's brand name. Traditionally, the
OEM market has been highly competitive; however, Boca Global plans to be in a
stronger position in 2000 because of its access to Inprimis's design capability
and Boundless's world-class manufacturing facility. The Company plans to compete
for opportunities with OEMs for ADSL modems and other peripheral products. Sales
to OEMs accounted for approximately 45%, 49%, and 28% of net sales in 1997,
1998, and 1999, respectively.
Wholesale Distributors. The Company also sells its products through
regional, national, and international wholesale distributors. Sales to wholesale
distributors accounted for approximately 36%, 44%, and 59% of the Company's net
sales in 1997, 1998, and 1999, respectively. The Company's U.S. distributors
include major microcomputer wholesale distributors such as Ingram Micro(R)Inc.,
Pinacor, Inc., Merisel, Inc., and Tech Data(R) Corporation, as well as regional
wholesale distributors.
The Company has purchasing and marketing agreements with its principal
wholesale distributors. These agreements generally contain provisions relating
to stock rotation privileges and price protection. Returns of unsold products by
wholesale distributors are permitted on a limited basis in exchange for other
Boca Research products on terms negotiated with the Company. The Company works
with wholesale distributors to monitor inventory levels. In addition, in the
event the Company reduces its prices, the Company credits its wholesale
distributors for the difference between the purchase price of products remaining
in their inventory and the Company's reduced price for such products on terms
negotiated with the Company. The Company has established reserves for product
returns, price protection, and warranty claims which management believes are
adequate. The Company believes that its return and pricing policies are
consistent with general industry practices. There can be no assurance that
product returns, price protection, or warranty claims will not have a material
adverse effect on the Company's future operating results.
7
<PAGE>
Retailers, E-tailers, and Catalog Companies. The Company also sells directly
to several retail chains and catalog companies. Similar to its arrangements with
wholesale distributors, the Company offers stock rotation privileges and price
protection to retailers. Sales directly to retailers and catalog companies
accounted for approximately 20%, 7% and 13% respectively, of the Company's net
sales in 1997, 1998 and 1999, respectively. Some of the Company's U.S.
retailers, e-tailers, and catalog companies include CompUSA(R), Fry's
Electronics, Inc., Micro Center, MicroWarehouse, Inc., Outpost.com, and Buy.com.
Value-Added Resellers. This has been an on-going channel for the Company's
core business, which includes Boca Research and Global Village products, such as
modems as well as I/O and video-editing products. The Company plans to continue
to utilize this sales channel during 2000 for its new products.
International. In 1997, 1998, and 1999, international sales comprised
approximately 23%, 19% and 13%, respectively, of the Company's net sales.
International sales are subject to risks, including various regulatory
requirements, political, and economic changes and disruptions, tariffs or other
barriers, difficulties in staffing and managing foreign sales operations, and
potentially adverse tax consequences. In addition, fluctuations in exchange
rates may render the Company's products less competitive to local product
offerings or expose the Company to foreign currency exchange losses. During
2000, the Company plans to sell its products to the international market through
a few selected manufacturing representatives and through key distributorships.
Sales and Marketing
Boca Global sells its Global Village and Boca Research branded products
indirectly through a wide and diverse set of sales channels including national
and regional distributors, catalog retailers, Internet e-tailers, and
computer/office supply superstores. In addition, the Company sells its products
directly to end-customers from its Internet-based e-commerce Web-site. VARs and
SIs purchase the Company's products from national or regional distributors that
provide them with fulfillment, logistics support, and credit terms for
incorporation into their own custom systems. The Company utilizes a combination
of manufacturer's representatives and the Company's own sales force in its sales
and marketing activities. The Company has achieved strong brand recognition for
its Global Village and Boca Research brands through trade advertising, in-store
displays and catalogs, direct mail, and participation in key trade shows.
Technical Support and Customer Service
The Company offers extensive user documentation and a technical support
hotline available Monday through Friday to wholesale distributors, resellers,
and end users. The Company's technical analysts answer technical support calls
directly and generally provide same-day response to questions that cannot be
resolved in the initial phone call. The Company also provides a seven-day,
24-hour electronic bulletin board that makes available current software drivers,
technical tips, and answers to hardware and software compatibility questions. In
addition, the technical support department has implemented a fax-on-demand
system providing installation tips and technical documents to customers via fax.
The Company also maintains a home page on the Internet to provide customer
support and information.
Most of the products sold by the Company include a five-year limited
warranty that permits customers to return any product for repair or replacement
if the product does not perform as warranted. To date, the Company has not
encountered material warranty claims or liabilities. There can be no assurance,
however, that warranty claims will not have a material adverse effect on future
operating results.
Competition
The markets for the Company's products are intensely competitive resulting
in constant price pressures. Competitive factors include price, product quality
and reliability, product availability, credit terms, name recognition, delivery
time, and post-sale service and support. With respect to these factors, the
Company may be at a competitive disadvantage against companies with greater
financial, technical, product development, manufacturing, or marketing
resources. A variety of companies currently offer products that compete directly
with the Company's products. The Company's primary U.S.-based competitors for
modems are 3Com's U.S. Robotics, Best Data, and Zoom. In addition to U.S.-based
firms, the Company faces competition from Pacific Rim suppliers, which generally
offer modem products at significantly lower prices. These suppliers typically
market their products through the same distribution channels as the Company. The
Company competes with these suppliers on the basis of product quality, delivery
times, freight costs, technical support, and customer service. In addition, as
the Company enters new product markets, the Company expects that it will
encounter competition from a number of well-established companies, many of which
have greater financial, technical, product development, manufacturing, or
marketing resources and experience.
8
<PAGE>
There is a trend in original PC system manufacturing to integrate additional
functionality onto the system board or to utilize chipsets that provide
additional functionality. As PC manufacturers integrate more memory on the
system board, certain sound and video graphics functions, and some interface
functions, such as IDE controllers, or utilize chipsets that provide such
capabilities, the Company's strategy is to broaden its product offerings to
offset the decreasing opportunities for PC enhancement products. The Company has
relied on OEM opportunities in previous years for a significant percentage of
its revenue and has been successful in securing large orders in past years. In
1998 and 1999 the Company continued to lose OEM opportunities to offshore
manufacturers who appeared to be pursuing market share by aggressive pricing to
PC vendors who integrate modems into their PC product lines. PC vendors also are
aggressively pricing systems in an attempt to meet a sub $1,000 price point that
they believe will significantly increase sales. Therefore, OEMs have put
significant price pressure on suppliers of PC peripherals, including modems, in
an attempt to achieve their pricing goals. Due to excess worldwide manufacturing
capacity and the devaluation of many foreign currencies, PC vendors are better
able to reduce their purchasing costs by purchasing from foreign manufacturers.
Manufacturing
As previously announced, on March 3, 2000, the Company completed the sale of
certain assets relative to its manufacturing facilities to Boundless
Manufacturing Services, Inc., a subsidiary of Boundless Corporation, a global
technology company, in exchange for $1,700,000 in cash and notes (the
"Boundless Transaction"). In connection with the sale, Boundless assumed the
lease of the Company's manufacturing facility and staffed it primarily with
former employees of the Company's manufacturing team and entered into a contract
manufacturing agreement with Boundless to outsource the Company's manufacturing.
The contract manufacturing agreement includes a specified minimum level of
contract manufacturing services for the first 12-month period (see Note 14 to
the accompanying consolidated financial statements). The Company believes that
its close proximity to the Boundless plant, along with its familiarity with the
Boundless manufacturing employees, should benefit the Company in its transition
to outsourcing the manufacturing of its hardware products. As a result of this
transaction, the Company expects to achieve more favorable manufacturing costs,
while maintaining the same quality standards it has always maintained.
In the event of shortages of components, Boundless's production capacity
could be detrimentally impacted. Additionally, such shortage of components could
result in higher costs due to the higher costs of components in short supply or
the need to utilize higher cost substitute components. An extended interruption
in the supply of any of these components or a reduction in their quality or
reliability would have a material adverse effect on the Company's operating
results. While the Company believes that, with respect to single source
components, Boundless could obtain similar components from other sources, it
could be required to alter product designs to use alternative components. There
can be no assurance that severe component shortages will not occur in the future
which could increase the cost or delay the shipment of the Company's products,
which in turn could have a material adverse effect on the Company's operating
results. Government tariffs on imported components could also impact the
Company's ability to compete with foreign manufacturers. An increase in import
tariffs on such components would likely result in increases in the prices of
these components paid by the Company and other domestic manufacturers.
Significant tariffs could result in Boundless seeking alternate sources of
supply that may not be as reliable as Boundless's existing sources.
Purchasing
Prior to the Boundless Transaction, the Company purchased substantially all
of its components and subassemblies from suppliers on a purchase order basis and
did not maintain long-term supply arrangements. The Company selected suppliers
based on quality of product and industry acceptance. Most of the components used
in the Company's products were available from multiple sources. However, certain
components used in the Company's products were obtained from single sources.
Similar to others in the electronics industry, the Company, from time to time,
did experience difficulty in obtaining some components, and the Company and
Boundless could do so in the future.
9
<PAGE>
Proprietary Rights and Licenses
The Company believes that its success depends primarily upon factors such as
its responsiveness to customer needs and changing markets, the technological
competence and innovative skill of its personnel and its marketing skills.
Although the Company has not historically been the subject of significant claims
of infringement by third parties, the Company, as is common in the industry from
time to time receives, and may in the future receive, communications from third
parties asserting intellectual property rights relating to the Company's
products and technologies. There can be no assurance that the Company will be
able to obtain licenses of any intellectual property rights claimed by third
parties in the future with respect to the Company's products or that any such
licenses can be obtained on terms favorable to the Company. If the Company is
unable to obtain licenses of protected technology, it could be prohibited from
marketing products incorporating that technology. The Company could also incur
substantial costs in redesigning its products or in defending any legal action
taken against it. Should the Company be found to infringe the proprietary rights
of others, the Company could be required to pay damages to the infringed party.
The Company has numerous product trademarks, including the house marks
Boca Research, Inc., Boca, Global Village, Inprimis, and Inprimis Technologies,
Inc., together with product trademarks such as BOCABOARD, BOCAMODEM, and
GlobalFax. The trademarks Boca Research, Inc., Boca, and Global Village are
registered with the United States Patent and Trademark Office for the products
the Company provides, as are several other U.S. and foreign product trademarks.
Other trademark applications are pending.
In certain of its products, the Company includes software licensed from
third parties. These license arrangements are on a non-exclusive basis and
require the Company to pay the licensors a specified royalty based upon the
number of units sold by the Company. The Company's operating results could be
adversely affected by a number of factors relating to third party software,
including lack of market acceptance, failure by the licensors to promote or
support the software, delays in shipments of the Company's products as a result
of delays in the introduction of licensed software, or excess customer support
costs or product returns experienced by the Company due to errors in the
licensed software. Moreover, any impairment or termination of the Company's
relationship with any licensors of third party software or claims that such
software infringes the intellectual property rights of third parties could
adversely affect the Company's operating results.
Employees
As of December 31, 1999, the Company had 189 full-time employees, including:
84 in manufacturing and operations; 54 in sales, marketing, purchasing, quality
and customer support; 24 in finance and administration; and 27 in engineering
and product development. The Company's success will depend in part on its
ability to attract and retain highly qualified technical, marketing, engineering
and management personnel. The Company's employees are not covered by any
collective bargaining agreements and the Company has never experienced a work
stoppage. The Company believes that its employee relations are good. In 1999,
the Company used temporary employees in its manufacturing operation to balance
changes in production levels. The number of temporary employees at December 31,
1999 was 13.
In connection with the Boundless Transaction, Boundless hired 64 of the
Company's manufacturing employees, 2 of the Company's purchasing employees, and
8 temporary employees, reducing the number of the Company's full-time employees
by 66 and its temporary employees by 8.
10
<PAGE>
Item 2: Properties
The Company's headquarters, which had been located at 1377 Clint Moore Road
in Boca Raton, Florida, has been relocated to 1601 Clint Moore Road, the
Company's adjacent 57,673 square-foot facility. This relocation was due to the
assignment of the lease on the 1377 Clint Moore Road site to Boundless
Manufacturing Services, Inc., effective March 3, 2000, concurrent with the
purchase by Boundless of certain assets related to Boca Research's manufacturing
operations. The 1601 Clint Moore Road lease expires in July 2002. In addition to
the corporate offices, the Company's headquarters houses accounting,
engineering, sales, marketing, human resources, purchasing, and technical
support. The Company, through an assignment of the lease to another tenant,
vacated its 16,321 square foot facility in Sunnyvale, California on December 1,
1999 and subleased a 2,400 square foot facility in Freemont, California through
May 31, 2001. The lease on the Company's 10,513 square-foot warehouse space in
Boca Raton, Florida, which is currently being subleased to another tenant,
expires on July 31, 2000.
Item 3: Legal Proceedings
The Company has been named a co-defendant in an action brought in the United
States District Court for the District of Massachusetts, by NEC Technologies,
Inc. The suit alleges that the Company supplied modem hardware to NEC, which was
combined by NEC with software supplied by another co-defendant, Ring Zero
Systems, Inc. NEC was subsequently sued for patent infringement by PhoneTel
Communications, Inc., allegedly as a result of NEC's combination of modem
hardware and software supplied by the vendors in its personal computer products.
NEC alleges that Boca and Ring Zero are obligated to indemnify NEC for NEC's
costs of defense and settlement of the PhoneTel suit, in the amount of $327,000.
The Company is evaluating the claim, but does not presently believe the claim
will have a material adverse effect on the Company's operating results and
financial condition.
The Company receives communications from time to time alleging that certain
of the Company's products infringe the patent rights of other third parties. The
Company cannot predict the outcome of any such claim that may arise in the
future, or the effect of any such claim on the Company's operating results or
financial condition.
Item 4: Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of shareholders of the Company during the
fourth quarter of the fiscal year ended December 31, 1999.
11
<PAGE>
Item 4A: Executive Officers of the Registrant
Information required by Item 10 of Form 10-K with respect to executive
officers of the Company is set forth below. The executive officers of the
Company are elected annually by the Board of Directors and hold office until
their successors are elected and qualified, or until their earlier removal or
resignation.
Robert W. Ferguson, 76, has served as Chief Executive Officer since January,
2000, and Chairman of the Board of Directors for Boca Research since May 1997,
having served as Vice Chairman since February 1994. Mr. Ferguson has been a
Board member since 1993. He has been President of Robert W. Ferguson and
Associates, a consulting and investment firm, since its formation in 1986. Prior
to that, Mr. Ferguson held senior management positions with AT&T Corporation.
Cecil M. Dye, 59, has served as President of Boca Global since February
2000. He joined the Company in November 1999 as Executive Vice President, Sales
and Marketing. Prior to joining Boca Research, Mr. Dye was Vice President of
Business Development, Sales, and Marketing for Xcert International. Previously,
he served as Senior Vice President for Network Computing Devices, managing
sales, marketing, and channel sales, and as Senior Vice President of Worldwide
Sales and Service for Wyse Technology. Earlier, Mr. Dye spent 24 years at
Digital Equipment Corporation in various executive and senior level sales,
marketing, and services positions.
Robert P. Heinlein, 36, has served as Vice President of Finance and Chief
Financial Officer since August 1999. From July 1998 to August 1999, he served as
Vice President/Corporate Comptroller and Treasurer. Formerly, Mr. Heinlein was
Director of Finance, having joined the Company in June 1994. Prior to joining
Boca Research, Mr. Heinlein spent ten years in public accounting with Deloitte
and Touche LLP, most recently as Senior Audit Manager. Mr. Heinlein is a
Certified Public Accountant in the State of Florida.
Alex S. Oprescu, 55, has served as Senior Vice President of Worldwide
Business Development for the Company since May 1999 and for Inprimis
Technologies since February 2000. From June 1998 to May 1999, he served as Vice
President of International, Boca Research. From June 1997 to June 1998, he
served as General Manager of European Operations. Before joining Boca Research,
Mr. Oprescu was employed by Philips BV as Vice President for Worldwide Sales and
Marketing for one of their business electronics divisions. Before his
association with Philips, Mr. Oprescu held various management positions with
Seagate and Control Data Corporation.
Larry L. Light, 44, has served as Chief Operating Officer for Inprimis
Technologies since February 2000 and as Chief Technology Officer for Boca
Research since July 1999. From May 1998 to July 1999, Mr. Light was Senior Vice
President of Engineering. He joined Boca Research in February 1995 as Vice
President of Engineering. Prior to joining Boca Research, Mr. Light spent nearly
14 years at the IBM Corporation where he held a variety of management and
engineering positions, including Product Manager for several PC Systems.
Martha A. Ritchason, 60, has served as Senior Vice President, General
Administration since February 2000. Her responsibilities include human
resources, risk management, environmental issues, facilities, security, special
projects, and the coordination of legal matters between the Company and general
counsel. From June 1995 to February 2000, Ms. Ritchason served as Vice President
of Human Resources. From August 1991 to June 1995, she served as Director of
Human Resources. Before joining Boca Research, Ms. Ritchason spent over 11 years
as Director of Human Resources for the City of Delray Beach, Florida, where she
was responsible for overseeing all aspects of the City's human resources, risk
management, grants, and public relations functions. Additionally, she served as
the City's Chief Labor Negotiator for all collective bargaining matters. Prior
to her association with the City of Delray Beach, Ms. Ritchason held management
positions with Burdines, Kelly Services, and Upjohn's Healthcare Subsidiary.
12
<PAGE>
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Common Stock of the Company has traded on The NASDAQ Stock Market(R)
under the symbol BOCI. The following table sets forth the high and low last
reported sale prices for the Company's Common Stock for the period indicated as
reported by the NASDAQ National Market.
<TABLE>
<CAPTION>
Year Fiscal Quarter Ended High Low
------ --------------------------- ---- ---
<S> <C> <C> <C>
1998 March 31, 1998......................................................... 6 3/16 3 7/8
June 30, 1998.......................................................... 6 1/8 4 1/4
September 30, 1998..................................................... 4 11/16 2
December 31, 1998...................................................... 5 17/32 1 3/8
1999 March 31, 1999......................................................... 4 7/8 3
June 30, 1999.......................................................... 10 1/2 3 1/4
September 30, 1999..................................................... 7 3/4 4 3/4
December 31, 1999...................................................... 9 3/16 5 5/8
2000 Through March 28, 2000................................................. 8 5/8 5 7/8
</TABLE>
As of March 28, 2000, the Company had outstanding 11,601,438 shares of
Common Stock held by approximately 277 shareholders of record. This number does
not include beneficial owners of the Common Stock whose shares are held in the
names of various dealers, clearing agencies, banks, brokers and other
fiduciaries.
The Company currently anticipates that it will retain all of its earnings
for use in the development of its business and does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future. The covenants
contained in the Company's line of credit prohibit the Company from paying
dividends on the Common Stock without the prior approval of the lender.
13
<PAGE>
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information for the years
ended December 31, 1995 through December 31, 1999 is derived from the Company's
consolidated financial statements, which have been audited by the Company's
independent auditors. The information set forth below for fiscal years 1997,
1998, and 1999 is qualified by reference to and should be read in conjunction
with the Consolidated Financial Statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this report.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- -------
(In Thousands, except per share data)
Statements of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales...................................................... $ 143,038 $ 153,524 $ 70,207 $ 70,042 $ 32,767
Cost of goods sold............................................. 107,486 122,855 71,164 64,165 32,234
--------- --------- --------- --------- ---------
Gross profit (loss).................................. 35,552 30,669 (957) 5,877 533
--------- --------- --------- --------- ---------
Operating expenses:
Research and development.................................. 2,679 3,073 2,808 2,992 3,863
Selling, general and administrative....................... 18,469 18,551 18,366 15,389 19,316
In-process research and development....................... -- -- -- 2,800 --
--------- --------- --------- --------- ---------
Total operating expenses............................. 21,148 21,624 21,174 21,181 23,179
--------- --------- --------- --------- ---------
Income (loss) from operations.................................. 14,404 9,045 (22,131) (15,304) (22,646)
Non-operating income, net...................................... 540 596 837 694 377
--------- --------- --------- --------- ---------
Income (loss) before income taxes.............................. 14,944 9,641 (21,294) (14,610) (22,269)
Income taxes (benefit)......................................... 5,402 3,191 (6,371) -- 8
--------- --------- --------- --------- ---------
Net income (loss).............................................. $ 9,542 $ 6,450 $(14,923) $(14,610) $(22,277)
======= ======= ========= ========= ==========
Basic earnings (loss) per share................................ $ 1.13 $ 0.75 $ (1.71) $ (1.67) $ (2.20)
========= ========= ========== ========== ==========
Weighted average basic shares outstanding...................... 8,472 8,610 8,718 8,749 10,123
========= ========= ========= ========= ==========
Diluted earnings (loss) per share.............................. $ 1.07 $ 0.72 $ (1.71) $ (1.67) $ (2.20)
========= ========= ========== ========== ==========
Weighted average diluted shares outstanding.................... 8,921 8,941 8,718 8,766 10,123
========= ========= ========= ========= ==========
December 31,
-------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- -------
(In Thousands)
Balance Sheet Data:
Working capital................................................ $ 37,854 $ 47,248 $ 34,849 $ 16,706 $ 11,254
Total assets................................................... 57,678 $ 66,066 $ 50,219 $ 39,742 $ 26,488
Long-term obligations, net of current portion.................. -- -- -- -- --
Total stockholders' equity..................................... $ 46,607 $ 55,162 $ 40,580 $ 26,101 $ 17,323
</TABLE>
14
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The matters discussed in this Report contain forward-looking statements and
information that is based on management's belief and assumptions, as well as
information currently available to management. When used in this document, the
words "anticipate," "estimate," "expect," and similar expressions are intended
to identify forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Such
statements are subject to certain uncertainties, assumptions, and risks, which
include, but are not limited to, those discussed in "Certain Factors That May
Affect Future Performance" as well as those discussed in this section and
elsewhere including Item 1. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated or expected.
Results of Operations
The following discussion of the Company's consolidated results of operations
for the years ended December 31, 1997, 1998 and 1999 is based upon the
consolidated statements of operations data contained in the Company's selected
consolidated financial data appearing elsewhere in this Report. The following
discussion and analysis should be read in conjunction with the financial
information set forth under "Selected Consolidated Financial Data" and the
consolidated financial statements, including the notes thereto, included
elsewhere herein.
The following table sets forth for the periods indicated the percentage of
net sales represented by each line item in the Company's consolidated statements
of operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net sales.................................................................................... 100.0% 100.0% 100.0%
Cost of goods sold........................................................................... 101.4 91.6 98.4
----- ----- -----
Gross profit (loss)........................................................................ (1.4) 8.4 1.6
----- ----- -----
Operating expenses:
Research and development................................................................... 4.0 4.3 11.8
Selling, general and administrative........................................................ 26.1 22.0 58.9
In-process research and development........................................................ --- 4.0 ---
--------- ----- -----
Total operating expenses................................................................... 30.1 30.3 70.7
----- ----- -----
Loss from operations......................................................................... (31.5) (21.9) (69.1)
Non-operating income......................................................................... 1.2 1.0 1.1
----- ----- -----
Loss before income taxes..................................................................... (30.3) (20.9) (68.0)
Income taxes benefit......................................................................... (9.0) --- ---
----- --------- --------
Net loss..................................................................................... (21.3)% (20.9)% (68.0)%
===== ===== =====
</TABLE>
15
<PAGE>
Years Ended December 31, 1997, 1998, and 1999
Net Sales. The Company's net sales decreased by 53.2% from $70,042,000 in
1998 to $32,767,000 in 1999. The net sales decrease was primarily attributable
to decreases in sales of data communications products and custom manufacturing.
Sales of data communications products were adversely affected by several
factors, including pricing pressure on all modem products, excess industry-wide
channel inventories, and the slow adoption of 56 Kbps technology by consumers
who realize that the 56 Kbps product does not significantly increase Internet
downloading speed capability over the 33.6 Kbps product. It is anticipated that
the factors that adversely affected sales in 1999 will continue in 2000.
With respect to the Global Village branded data communications product, net
sales in 1999 totaled $12,958,000 as compared to net sales for the period June
18 to December 31, 1998 of $22,588,000. During January 1999, Apple introduced
its new line of Power Macintosh G3 computers, which negatively impacted sales of
the Company's existing Global Village modems. In fact, because of the
introduction of the Universal Serial Bus interface, no modems were available for
the Power Macintosh G3 computers until Boca Research began shipping the Global
Village TelePort Internal 56K fax/modem in the second half of February. From
April 2 through June 27, 1999, Apple offered purchasers of a qualifying Power
Macintosh G3 computer the option of choosing either a 56K internal modem or an
internal Zip drive at no additional cost. The Company believes that the Apple
Promotion had a negative impact on sales of Global Village branded modems during
the last nine months of 1999. The Apple promotion has resulted in pricing and
inventory issues in the Global Village modem business.
In 1998, the Company continued to provide custom manufacturing to increase
the utilization of its manufacturing facilities. Because the gross margin for
custom manufacturing has historically been low, the Company has decreased its
emphasis on this area. Sales in this category in 1998 and 1999 represented 18%
and 2% of net sales, respectively. With the sale of certain manufacturing assets
to Boundless, the Company expects that it will no longer pursue custom
manufacturing opportunities.
The Company's net sales decreased by 0.2% from $70,207,000 in 1997 to
$70,042,000 in 1998. Included in the data communications product category below
for 1998 is net sales of $22,588,000 of Global Village branded product for the
period from June 18 to December 31, 1998. The Company acquired the modem
business of Global Village as of June 18, 1998. The addition of the Global
Village brand extended Boca Research's customer base in the Macintosh market
with the #1-selling modems for Macintoshs. Excluding the net sales associated
with the acquisition of the modem business of Global Village, the sales decrease
in 1998 compared to 1997 was primarily attributable to a decrease in sales of
data communications products, however the product categories of multimedia,
networking, video graphics, I/O, IDE, and Multiport also experienced a decline
in sales. The decrease in sales in these categories was partially offset by an
increase in sales in the category of custom manufacturing and Internet access
devices. Sales of data communication products were adversely affected by several
factors, including pricing pressure on all modem products and excess
industry-wide channel inventories of pre-standard 56 Kbps product.
International sales decreased by approximately 69% in 1999 as compared to
1998, and decreased by approximately 22% in 1998 as compared to 1997. In 1997,
1998, and 1999, international sales comprised approximately 23%, 19%, and 13%,
respectively, of the Company's net sales. International sales declined in 1999
and 1998 primarily due to the foregoing factors and because of the strength of
the U.S. dollar which affected the pricing competitiveness of Boca Research's
products, particularly in the Asia/Pacific Rim region. International sales
declined in 1997 primarily because of reduced sales to Hucom, which was the
Company's largest international customer.
16
<PAGE>
The following table presents the net sales for the Company's product
categories for the periods indicated. Net sales of Networking, and Video
Graphics products have declined in each of the last four years. Management
expects this trend to continue into 2000 as the Company places less emphasis on
these product categories.
<TABLE>
<CAPTION>
Year Ended December 31,
Product Categories 1997 % 1998 % 1999 %
------------------------ --------- -------- --------- -------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Data communications.................................................. $ 49,439 71% $ 48,649 70% $25,844 79%
Custom manufacturing................................................. 8,509 12 12,311 18 769 2
Multimedia........................................................... 968 1 36 -- -- --
Video graphics....................................................... 1,628 3 770 1 62 --
Video conferencing................................................... 292 -- 257 -- 316 1
I/O, IDE and Multiport............................................... 5,737 8 4,491 6 3,798 12
Networking........................................................... 3,634 5 1,570 2 420 1
Internet access devices and thin clients............................. -- -- 1,958 3 843 3
Engineering Services................................................. -- -- -- -- 715 2
-------- --- ---------- --- ------- ---
Total net sales.................................................. $ 70,207 100% $ 70,042 100% $32,767 100%
======== === ========== === ======= ===
</TABLE>
Gross Profit. Gross profit decreased from $5,877,000 in 1998 to $533,000 in
1999, and decreased as a percentage of net sales from 8.4% in 1998 to 1.6% in
1999. The decrease in gross margin percentage is primarily attributed to
write-downs of inventory and increases in the inventory reserve as a charge to
cost of goods sold in the amount of $3,677,000. The gross profit percentage was
also affected by low utilization of the Company's manufacturing facilities and
aggressive channel pricing to reduce channel inventories.
Gross profit (loss) increased from a loss of $957,000 in 1997 to a profit of
$5,877,000 in 1998, and increased as a percentage of net sales from (1.4%) in
1997 to 8.4% in 1998. The gross profit percentage for 1998 was affected by
several factors including low utilization of the Company's manufacturing
facilities, aggressive channel pricing to reduce channel inventories of 33.6
Kbps product and pre-standard 56 Kbps product, competitive pressure in the OEM
channel and the custom manufacturing product category requiring the Company to
compete with offshore manufacturers which the Company believes have a cost
advantage because of currency devaluations and better purchasing power because
of their larger volumes. Most of the above factors have been adversely affecting
the Company's gross profit percentage since January 1, 1997. In the period from
June 18 to December 31, 1998, the Company's gross profit was also impacted
favorably by net sales of $22,588,000 of the Global Village branded product,
which have higher gross margins associated with them as compared to sales of
Boca Research branded products. This is the primary reason for the improved
gross margins reported in the third and fourth quarters of 1998 as compared to
the first and second quarters of 1998. For the year ended December 31, 1998 the
Company recorded write downs of inventory and increases in the inventory reserve
as a charge to cost of goods sold in the amount of $4,340,000. This was the
result of excess inventories in the Company of older technology product that has
been determined to have limited sales value. In particular, the Company has seen
a significant slow down in sales of 33.6 Kbps product and pre-standard 56 Kbps
product along with significant price erosion. This has resulted in additional
price protection, rebates and other allowances to the distribution channel in
order to reduce channel inventories, which has a negative impact on gross
margins.
The gross profit margins for the Company's products depend upon a number of
factors, such as the degree of competition in the market for such products, the
product and channel mix (wholesale distributors and retailers versus OEMs),
component costs, and the level of utilization of manufacturing capacity. In
general, gross profit margins are higher on sales to wholesale distributors and
retailers than on sales to OEMs. In addition, gross profit margins on product
categories differ. Accordingly, the Company's gross profit margin has varied
substantially from quarter to quarter in the past, and can be expected to
continue to do so in the future, depending upon the product and channel mix.
Management believes that the lower operating expenses typically associated with
OEM sales generally offset their corresponding lower gross profit margins. There
could be circumstances, which the Company anticipates will occur during 2000, in
which the Company accepts lower gross profit margin sales for purposes such as
to phase-out inventory, to utilize manufacturing capacity or to respond to
competitive pricing pressures.
17
<PAGE>
Research and Development Expenses. Research and development expenses were
$2,808,000 in 1997, $2,992,000 in 1998, and $3,863,000 in 1999, and represented
4.0%, 4.3% and 11.8%, respectively, of net sales for each of those years. The
Company's research and development expenses are focused on development of new
products, international certification for the Company's data communications
products and prototyping the Company's current product designs for OEM
applications. As product life cycles shorten, there is an increased need to
recertify more product. Each increase in speed of modems from 28.8 Kbps to 33.6
Kbps to 56 Kbps requires recertification.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $18,366,000 in 1997, $15,389,000 in 1998, and
$19,316,000 in 1999 and represented 26.1%, 22.0%, and 58.9%, respectively, of
net sales for each of those years. Management of the Company focused on reducing
expenses during 1998 but these efforts were offset by additional expenses
associated with the full year's operations of Global Village in 1999. Included
in selling, general and administrative expenses in 1997, 1998, and 1999 were
approximately $2,629,000, $985,000, and $65,000, respectively, in provisions for
write off of uncollectible accounts. The amount in 1997 was substantially higher
than the Company has experienced in recent years. The majority of this write-off
was related to one customer, Creatix. The Company had entered into a letter of
intent to purchase Creatix in early 1997, but the definitive agreement was never
executed because certain conditions in the letter of intent were not met.
Therefore the Company did not complete the acquisition. Creatix continued to
experience operating losses throughout 1997, which impacted its ability to pay
the Company for modem chips that the Company had sold to Creatix. Selling,
general and administrative expenses included accounting and legal fees in the
amount of approximately $1,700,000 in 1997. This increase in expense was due to
legal costs associated with the possible acquisition of Creatix and litigation
regarding patent infringement and license fees.
In 1999, selling, general and administrative expenses were $3,927,000 higher
than in 1998. The increases were attributed to $2,264,000 higher advertising
expense, $432,000 higher trade show expense, $392,000 higher technical support,
$258,000 higher amortization of intangibles, and $239,000 higher travel expense.
Selling, general and administrative expenses as a percentage of net sales
will continue to fluctuate and will be influenced by the level of sales to the
various distribution channels, and the particular sales and marketing
requirements of each of the channels. Certain selling, general, and
administrative expenses have a fixed nature, thus a reduction in net sales could
increase selling, general and administrative expenses as a percentage of net
sales.
In-Process Research and Development Expenses. On June 18, 1998, the Company
completed its acquisition of the modem business of Global Village in exchange
for $9,855,206 in cash and notes. The Company purchased certain Global Village's
assets, technology, operations, and assumed certain of its liabilities. This
transaction was accounted for using the purchase method of accounting with the
purchase price being partially allocated to purchased technologies and
intangible assets. Of the total purchase price, $2,800,000 represented the value
of in-process research and development that had not yet reached technological
feasibility and had no alternative future use and, as such, was recorded as a
non-recurring charge for in-process research and development. The value
attributed to the in-process research and development was determined by an
independent appraisal. See Note 8 to the consolidated financial statements.
Provision for Income Taxes. An income tax benefit was provided for at an
effective rate of 29.9% in 1997. The effective tax rate in 1998 and 1999 was
zero. The differences in the Company's effective tax rate from the statutory
rate are primarily due to the operations of the Company's foreign sales
corporation as well as in 1997 and 1998, a valuation allowance on deferred tax
assets.
18
<PAGE>
Liquidity and Capital Resources
As of December 31, 1999, the Company's working capital decreased by $5,452,000
from December 31, 1998. The decrease in working capital was primarily reflected
in $7,926,000 lower trade receivables, $5,574,000 lower inventory, $2,052,000
lower refundable income taxes and $585,000 higher deferred revenue, offset by
$247,000 higher prepaid expenses and other assets and $2,360,000 lower accounts
payable.
The Company may from time to time experience periods of negative cash flow
from operations. In 1999, $6,065,000 of cash was used for operating activities.
Also cash of $2,800,000 was used for the Global Village acquisition and $650,000
of cash was used for capital expenditures. Sources of cash in 1999 included
$13,498,000 from the sale of common stock and $877,000 from the sale of property
and equipment. Such activities resulted in a net increase in cash of $4,860,000
during 1999.
The Company incurred substantial operating losses in 1997, 1998, and 1999
and it is likely that cash flow from operations will be negative in 2000. There
can be no assurances that the Company will return to profitable operations in
2000 and it is likely that in 2000, cash flow from operations will be negative.
Management believes that existing cash balances at December 31, 1999,
availability of funds under the credit line described in Note 6 to the
consolidated financial statements, and cash from the sale of certain assets
related to manufacturing operations in 2000 will be sufficient to meet its
liquidity and capital needs for the next twelve months. However, if negative
cash flows from 2000 operations exceed current estimates, the Company's
liquidity could become strained in the latter part of the year 2000.
The Company regularly evaluates acquisitions of businesses, technologies or
products complementary to the Company's business. In the event that the Company
effects one or more acquisitions, the Company's cash balances may be utilized to
finance such acquisitions and additional sources of liquidity such as debt or
equity financing may be required to finance such acquisitions or to meet working
capital needs. There can be no assurance that additional capital beyond the
amounts currently forecasted by the Company will not be required, nor that any
such required capital will be available on terms acceptable to the Company, if
at all, at such time or times as required by the Company.
19
<PAGE>
Certain Factors That May Affect Future Performance
In addition to the other information contained in this Report, the
following are important factors that should be considered carefully in
evaluating the Company and its business.
Transition of Company. The Company embarked upon a plan in early 2000
to transition from being primarily a data communication products manufacturer to
its new focus on providing software and systems solutions-based services. The
Company has very limited experience providing software and systems
solutions-based services, and there can be no assurances that the Company will
succeed in implementing its as-yet unproven business plan. The Company
anticipates that it will provide a significant amount of formal engineering and
design services to the infotainment appliance industry, yet has limited
experience to date in doing so. Risks associated with this transition include:
a. the existence of a limited number of network operators and information
appliance manufacturers that have deployed products and services using
the Company's technology;
b. potential delays in deploying high-speed networks and
internet-enhanced services and applications by the Company's
customers;
c. an unproven business model, which depends on revenues from engineering
services and royalty fees paid by information appliance manufacturers
and network operators; and
d. a potential inability of the Company to expand its engineering and
design staff, increase its sales or marketing activities, and invest in
its technological infrastructure.
Inprimis Technologies, Inc.: Uncertainty in Development of an Evolving
Industry. The market for intelligent computing devices is emerging and the
potential size of this market and the timing of its development are not known.
As a result, the profitability of the Inprimis subsidiary is uncertain and its
revenue may not grow as fast as anticipated, if at all. The Company is dependent
upon the broad acceptance by business and consumers of a wide variety of
intelligent computing devices, which depend on many factors, including:
a. the development of content and applications for intelligent computing
devices;
b. the willingness of large numbers of businesses and consumers to use
devices such as handheld and palm-size PCs and handheld industrial data
collectors to perform functions currently carried out manually or by
traditional PCs, including inputting and sharing data, communicating
among users and connecting to the Internet; and
c. the evolution of industry standards that facilitate the distribution of
content over the Internet to these devices via wired and wireless
telecommunications systems, satellite or cable.
The Company cannot guarantee that it will succeed in achieving its goals, and
its failure to do so would have a material adverse effect on its business,
prospects, financial condition and operating results.
Software Development and Services Market; Low Barriers to Entry. The
market for software development and services is becoming increasingly
competitive. Increased competition may result in price reductions, lower gross
margins and loss of market share, which would harm the Company's planned
business through its Inprimis subsidiary. The Company faces competition from:
(a) current and potential customers' internal research and
development departments that may seek to develop their own proprietary
solutions;
(b) large professional engineering services firms that may
enter the market;
(c) established intelligent computing device software and
tools manufacturers; and
(d) small- and medium-sized engineering service companies.
20
<PAGE>
As the Company develops new products, particularly products focused on
specific industries, they may begin competing with companies in sectors that
were not listed. It is also possible that new competitors will enter the market
or that existing competitors will form alliances that may enable them to rapidly
increase their market share. The barriers to entering the market as software
developer or hardware design consultant for intelligent computing devices are
low. New market entrants may have lower overhead than the Company and therefore
be able to offer advantageous pricing. The Company expects that competition will
increase as other established and emerging companies enter the intelligent
computing device market and as new products and technologies are introduced.
New Products, Technological Changes and Inventory Management. The
markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards and short product life cycles. The
Company's success depends upon its ability to enhance its existing products and
to introduce new products with features that meet changing end user
requirements. Moreover, because of short product life cycles coupled with long
lead times for many components used in the Company's products, the Company may
not be able to quickly reduce its inventory levels in response to unexpected
shortfalls in sales or, conversely, to increase production or inventory levels
in response to unexpected demand. The Information Technology ("IT") sector in
which the Company offers outsourcing and other services is characterized by
rapidly changing technology with continuous improvements in both computer
hardware and software and rapid obsolescence of current systems. The Company's
success will depend in part on its ability to develop solutions that keep pace
with continuing changes in information technology, evolving industry standards
and changing client preferences. Additionally, there can be no assurance that
the Company will be successful in identifying new markets, in developing,
manufacturing and marketing new products, or in enhancing its existing products,
either internally or through strategic relationships with third parties. The
Company's business would be adversely affected if the Company were to incur
delays in developing new products or enhancing existing products, if the Company
experiences delays in obtaining any required regulatory approvals for its
products or if any such new products or enhancements did not gain market
acceptance. In addition, there can be no assurance that products or technologies
developed by others will not render the Company's products or technologies
noncompetitive or obsolete.
Sales of individual products and product lines are typically
characterized by rapid declines in sales, pricing and margins toward the end of
the respective product's life cycle, the precise timing of which may be
difficult to predict. As new products are planned and introduced, the Company
attempts to monitor closely the inventory of older products and to phase out
their manufacture in a controlled manner. Nevertheless, the Company could
experience unexpected reductions in sales of older generation products as
customers anticipate the availability of new products. These reductions could
give rise to additional charges for obsolete or excess inventory, returns of
older generation products by distributors or substantial price protection
charges. To the extent that the Company is unsuccessful in managing product
transitions, its business and operating results could be materially adversely
affected.
Because the majority of the Company's products are used in PCs and
computer networks, the Company's future operating results could be adversely
affected by changes in the PC and computer networking markets, including major
technological developments or fluctuations in the growth rate. In addition,
there is a trend in original PC system manufacturing to integrate additional
functionality onto the system board of the PC or to utilize chipsets that
incorporate additional functionality, thereby decreasing the market for PC
enhancement products. Moreover, it is a concern in the PC industry that the
penetration of PCs into the home has flattened and the PC growth will slow as
PCs become more of a replacement market. This could impact modem sales to the
Company's OEM customers in the future. Any decrease in the markets for PC
enhancement or networking products or reduction in the growth rates in such
markets could have a material adverse effect on the Company's operating results.
21
<PAGE>
Potential Fluctuations in Quarterly Results. The Company's quarterly
operating results have varied significantly, and continue to vary significantly,
depending on a number of factors, some of which could adversely affect the
Company's operating results and the trading price of the Company's Common Stock.
These factors include the level of demand for the Company's products,
competitive pricing pressures, the timing of orders from and shipments to major
customers, the timing of new product introductions by the Company and its
competitors, the availability and pricing of components for the Company's
products, the timing of phase-outs of the Company's products, variations in the
Company's product mix and component costs, variations in the proportion of sales
made to wholesale distributors, OEMs, VARs and retailers, product returns or
price protection charges from customers, the timing of sales of the Company's
products to end users by the Company's customers, seasonal promotions by the
Company, its customers' and competitors' economic conditions prevailing within
the computer industry and economic conditions generally. Quarterly sales depend
on the volume and timing of orders received during a quarter, which are
difficult to forecast. Customers generally order products on an as-needed basis,
and accordingly the Company has historically operated with a relatively small
backlog. Moreover, as is typical of companies in the PC industry, a
disproportionate percentage of the Company's net sales in any quarter are
typically generated in the last month of a quarter. As a result, a shortfall in
net sales in any quarter as compared to expectations may not be identifiable
until the end of the quarter. In addition, from time to time, a significant
portion of the Company's sales are derived from a limited number of customers,
the loss of one or more of which could adversely impact operating results. There
can be no assurance that the Company will be able to return to its growth in
sales or profitability on a quarterly or annual basis. The Company's expense
levels are based, in part, on its expectations as to future sales. If sales
levels are below expectations, operating results may be adversely affected,
which would likely have an adverse effect on the trading price of the Company's
Common Stock.
Acquisitions. The Company may from time to time pursue the acquisition
of other companies, assets, technologies or product lines that would complement
or expand its existing business. Certain of these acquisitions may involve
businesses in which the Company lacks experience. Acquisitions involve a number
of risks that could adversely affect the Company's operating results, including
the diversion of management's attention, the assimilation of the operations,
products and personnel of the acquired companies, the amortization of acquired
intangible assets and the potential loss of key employees of the acquired
companies. There can be no assurance that the Company will be able to identify
businesses that would complement or expand its existing business or such
acquisitions, manage one or more acquisitions successfully, or that the Company
will be able to integrate the operations, products, or personnel gained through
such acquisition without a material adverse impact on the Company's business,
financial condition, and results of operations, particularly in the quarters
immediately following such acquisitions.
International Operations. The Company's international sales are subject
to the risks inherent in international sales, including various regulatory
requirements (including the need to obtain certifications for the Company's data
communications products), political and economic changes and disruptions,
tariffs or other barriers, difficulties in staffing and managing foreign
operations, and potentially adverse tax consequences. In addition, fluctuations
in exchange rates may render the Company's products less competitive relative to
local product offerings or expose the Company to foreign currency exchange
losses. One or more of these factors may have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
operating results.
Dependence on Suppliers. The major components of the Company's products
include circuit boards, microprocessors, chipsets and memory components. Most of
the components used in the Company's products are available from multiple
sources. However, certain components used in the Company's products are
currently obtained by Boundless Manufacturing Services, Inc. ("Boundless"), who
manufactures the Company's products, from single sources. Certain modem chipsets
used in the Company's data communications products in the past have been in
short supply and are frequently on allocation by semiconductor manufacturers.
Similar to others in the computer industry, the Company has, from time to time,
experienced difficulty in obtaining certain components. Neither the Company nor
Boundless has guaranteed supply arrangements with any of its suppliers and there
can be no assurance that these suppliers will continue to meet the Company's
requirements. Shortages of components not only limit Boundless' production
capacity but also could result in higher costs due to the higher costs of
components in short supply or the need to utilize higher cost substitute
components. An extended interruption in the supply of any of these components or
a reduction in their quality or reliability would have a material adverse effect
on the Company's operating results. While Boundless believes that with respect
to its single source components it could obtain similar components from other
sources, the Company could be required to alter product designs to use
alternative components. There can be no assurance that severe shortages of
components will not occur in the future which could increase the cost or delay
the shipment of the Company's products and have a material adverse effect on the
Company's operating results. Significant increases in the prices of these
components could also have a material adverse effect on the Company's operating
results since the Company may not be able to adjust product pricing to reflect
the increases in component costs. Moreover, a number of components for the
Company's products are obtained from foreign suppliers. Increases in tariffs on
such components or fluctuations in exchange rates could result in increases in
the prices paid by the Company for these components, which could impact the
Company's ability to compete with foreign manufacturers and have a material
adverse effect on the Company's operating results.
22
<PAGE>
Sales Channel Risks. The Company sells its products to OEMs, national,
regional and international wholesale distributors and retailers and catalog
companies. Sales to OEMs accounted for approximately 45% of net sales in 1997,
49% of net sales in 1998 and 28% of net sales in 1999. OEMs have significantly
different requirements, and in most cases, more stringent purchasing procedures
and quality standards than wholesale distributors and other resellers. There can
be no assurance that the Company will be successful in developing products for,
and delivering products to, the OEM market, or that it will be successful in
establishing and maintaining an effective distribution and customer support
system for OEMs. The Company's business could be adversely affected if it is
unsuccessful in developing, manufacturing and marketing products for sale to
OEMs. In addition, OEMs may require special distribution arrangements and
product pricing, which could have a material adverse effect on the Company's
operating results. A decline in sales to large customers or a delay or default
in payment by one or more of such customers could have a material adverse effect
on the Company's results of operations or financial condition.
The Company's three largest wholesale distributors account for
approximately 18% of the Company's net sales in 1997, 32% of net sales in 1998
and 47% of net sales in 1999. The PC distribution industry has been
characterized by rapid change, including consolidations and financial
difficulties of wholesale distributors and the emergence of alternative
distribution channels. The Company is dependent upon the continued viability and
financial stability of its wholesale distributors. The loss or ineffectiveness
of any of the Company's three largest wholesale distributors or a number of its
smaller wholesale distributors could have a material adverse effect on the
Company's operating results. In addition, an increasing number of vendors are
competing for access to wholesale distributors which could adversely affect the
Company's ability to maintain its existing relationships with its wholesale
distributors or could negatively impact sales to such distributors.
Competition. The markets for the Company's products are intensely
competitive resulting in constant pricing pressures. Some of the Company's
competitors have significantly greater financial, technical, product
development, manufacturing or marketing resources than the Company. The Company
believes that its ability to compete depends on a number of factors, including
price, product quality and reliability, product availability, credit terms, name
recognition, delivery time, and post-sale service and support. There can be no
assurance that the Company will be able to continue to compete successfully with
respect to these factors. A variety of companies currently offer products that
compete directly with the Company's products. These competitors could introduce
additional products or add features to their existing products that are superior
to the Company's products or that achieve greater market acceptance. In addition
to U.S.-based firms, the Company faces competition from Pacific Rim suppliers,
which generally offer products at significantly lower prices. The introduction
of lower priced competitive products or significant price reductions by the
Company's competitors would result in price reductions in the Company's products
that could have a material adverse effect on the Company's operating results. In
addition, as the Company enters into new product markets, such as Internet TV
appliances, the Company anticipates that it will encounter competition from a
number of well-established companies, many of which have greater financial,
technical, product development, manufacturing or marketing resources and
experience.
Proprietary Rights; Dependence on Software Licenses. The Company
receives from time to time, and may receive in the future, communications from
third parties asserting intellectual property rights relating to the Company's
products and technologies. There can be no assurance that in the future the
Company will be able to obtain licenses of any intellectual property rights
owned by third parties with respect to the Company's products or that any such
licenses can be obtained on terms favorable to the Company. If the Company is
unable to obtain licenses of protected technology, it could be prohibited from
manufacturing and marketing products incorporating that technology. The Company
could also incur substantial costs in redesigning its products or in defending
any legal action taken against it. Should the Company be found to infringe the
proprietary rights of others, the Company could be required to pay damages to
the infringed party, which could have a material adverse effect on the Company's
operating results.
In certain of its products, the Company includes software licensed from
third parties. The Company's operating results could be adversely affected by a
number of factors relating to this third party software, including lack of
market acceptance, failure by the licensors to promote or support the software,
delays in shipment of the Company's products as a result of delays in the
introduction of licensed software or errors in the licensed software, or excess
customer support costs or product returns experienced by the Company due to
errors in the licensed software. Moreover, any impairment or termination of the
Company's relationship with any licensors of third party software could have a
material adverse effect on the Company's operating results.
23
<PAGE>
Reliance on Centralized Manufacturing. All of the Company's
manufacturing occurs at Boundless' manufacturing facility in Boca Raton, Florida
(see Note 14 to the Company's Consolidated Financial Statements contained in
Item 8 to this Form 10-K). Boundless' manufacturing operations utilize certain
equipment which, if damaged or otherwise rendered inoperable, would result in
the disruption of Boundless' manufacturing operations. Although the Company
maintains business interruption insurance which the Company believes is
adequate, any extended interruption of the operations at Boundless' facility
would have a material adverse effect on the Company's operating results.
Product Returns, Price Protection and Warranty Claims. Like other
manufacturers of computer products, the Company is exposed to the risk of
product returns from wholesale distributors and retailers, either through
contractual stock rotation privileges or as a result of the Company's interest
in assisting customers in balancing inventories. Although the Company attempts
to monitor and manage the volume of sales to wholesale distributors and
retailers, large shipments in anticipation of sales by wholesale distributors
and retailers can lead to substantial overstocking by the Company's wholesale
distributors and retailers and to higher than normal returns. Moreover, the risk
of product returns may increase if demand for the Company's products declines.
When the Company reduces its prices, the Company credits its wholesale
distributors and retailers for the difference between the purchase price of
products remaining in their inventory and the Company's reduced price for such
products on terms negotiated with the Company, the result of which could have a
material adverse effect on the Company's operating results. The Company's
limited five-year warranty permits customers to return any product for repair or
replacement if the product does not perform as warranted. The Company to date
has not encountered material warranty claims or liabilities. The Company seeks
to continually introduce new and enhanced products, which could result in higher
product returns and warranty claims due to the risks inherent in the
introduction of such products. The Company has established reserves for product
returns, price protection and warranty claims which management believes are
adequate. There can be no assurance that product returns, price protection and
warranty claims will not have a material adverse effect on future operating
results.
Volatility of Stock Price. The price of the Company's Common Stock
historically has been volatile due to fluctuations in operating results and
other factors relating to the Company's operations, the market's changing
expectations for the Company's growth, overall equity market conditions relating
to the market for technology stocks generally and other factors unrelated to the
Company's operations, including announcements by or relating to the Company's
competitors. Such fluctuations are expected to continue. In addition, stock
markets have experienced more price volatility in recent years. This volatility
has had a substantial effect on the market prices of securities issued by many
technology companies, often for reasons unrelated to the operating performance
of the specific companies.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management. Due to its short-term duration, the fair
value of the Company's cash and cash equivalents portfolio at December 31, 1999
approximated carrying value. Interest rate risk is estimated as the potential
decrease in fair value resulting from a hypothetical 10% increase in interest
rates for issues contained in the portfolio. The resulting hypothetical fair
value was not materially different from the year-end carrying value.
24
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
(1) Financial Statements
Independent Auditors' Report.................................. 26
Consolidated Balance Sheets................................... 27
Consolidated Statements of Operations......................... 28
Consolidated Statements of Stockholders' Equity............... 29
Consolidated Statements of Cash Flows......................... 30
Notes to Consolidated Financial Statements.................... 31
(2) Financial Statement Schedules
Schedule II-- Consolidated Valuation and Qualifying Accounts... 42
Schedules other than those listed above have been omitted since they are
either not applicable, not required or the information is included elsewhere
herein.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Boca Research, Inc.
We have audited the accompanying consolidated balance sheets of Boca Research,
Inc. and subsidiaries (the "Company") as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the each of the three years in the period ended December 31, 1999. Our
audits also include the financial statement schedule listed in the Index at Item
8. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Boca Research, Inc. and
subsidiaries at December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 3, 2000
26
<PAGE>
BOCA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1999
---------- ------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents (Note 1)......................... $ 6,959,007 $ 11,819,147
Trade receivables, net (Notes 1,11,12)..................... 11,549,159 3,622,923
Inventory, net (Notes 1,2) ................................ 9,245,985 3,672,395
Prepaid expenses and other assets.......................... 541,012 788,491
Refundable and deferred income taxes (Notes 1,4)........... 2,051,559 ---
----------- ------------
Total current assets..................................... 30,346,722 19,902,956
Property and equipment, net (Notes 1,3)...................... 3,969,791 2,039,413
Goodwill and other intangible assets (Notes 1,8) ............ 4,803,749 3,368,996
Other assets (Note 12)....................................... 622,015 1,176,925
----------- ------------
TOTAL........................................................ $39,742,277 $ 26,488,290
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 6,804,017 $ 4,444,063
Notes payable (Note 8)..................................... 2,800,000 ---
Deferred revenue (Note 1).................................. --- 585,750
Accrued expenses and other liabilities (Note 5)............ 4,036,762 3,618,687
----------- ------------
Total current liabilities................................ 13,640,779 8,648,500
----------- ------------
Deferred revenue (Note 1)....................................... --- 16,667
Other non-current liabilities (Note 1).......................... --- 500,000
Commitments and contingencies (Notes 7,10, 14)
Stockholders' equity (Note 9):
Preferred stock, 5,000,000 $.01 par value shares authorized,
none issued and outstanding at December 31, 1998 and 1999. --- ---
Common stock, 25,000,000 $.01 par value shares authorized,
8,756,487 and 11,475,793 issued and outstanding at December
31, 1998 and 1999, respectively.............................. 87,565 114,758
Additional paid-in capital.................................... 26,045,128 39,516,078
Deficit....................................................... (31,195) (22,307,713)
Total stockholders' equity.................................. 26,101,498 17,323,123
----------- ------------
TOTAL........................................................... $39,742,277 $ 26,488,290
=========== ============
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
BOCA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net sales (Note 11).................... $ 70,206,609 $ 70,042,371 $ 32,767,117
Cost of goods sold..................... 71,163,861 64,164,809 32,234,423
------------ ------------ ------------
Gross profit (loss)............... (957,252) 5,877,562 532,694
------------ ------------ ------------
Operating expenses:
Research and development (Note 1).... 2,808,023 2,992,252 3,862,844
Selling, general and administrative.. 18,366,202 15,388,644 19,316,125
In-process research and development
(Note 8)............................ --- 2,800,000 ---
------------ ------------ ------------
Total operating expenses.......... 21,174,225 21,180,896 23,178,969
------------ ------------ ------------
Loss from operations................... (22,131,477) (15,303,334) (22,646,275)
------------- ------------- -------------
Non-operating income (expense):
Interest income...................... 508,108 398,364 459,113
Other income......................... 345,652 450,935 132,159
Interest expense..................... (16,238) (155,605) (213,719)
------------- ------------- -------------
Total non-operating income, net 837,522 693,694 377,553
------------ ------------- -------------
Loss before income taxes (benefit)..... (21,293,955) (14,609,640) (22,268,722)
Income taxes (benefit) (Notes 1,4)..... (6,370,828) --- 7,796
------------- ------------- -------------
Net Loss............................... $(14,923,127) $(14,609,640) $(22,276,518)
============= ============= =============
Basic Loss per share (Note 1) ......... $ (1.71) $ (1.67) $ (2.20)
============= ============== ==============
Weighted average basic shares
outstanding........................... 8,718,090 8,749,072 10,122,948
============= ============== ==============
Diluted Loss per share (Note 1)........ $ (1.71) $ (1.67) $ (2.20)
============== ============== ==============
Weighted average diluted shares
outstanding........................... 8,718,090 8,765,917 10,122,948
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
BOCA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Retained Total
Number Paid-in Earnings Stockholders'
Of Shares Amount Capital (Deficit) Equity
--------- ------ ------- --------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1996..... 8,678,883 $86,789 $25,573,639 $29,501,572 $55,162,000
Stock options exercised.......... 46,196 462 321,159 321,621
Tax benefit of options exercised. 19,940 19,940
Net loss......................... (14,923,127) (14,923,127)
----------- --------- -------------- --------------- ---------------
Balance at December 31, 1997..... 8,725,079 87,251 25,914,738 14,578,445 40,580,434
Stock options exercised.......... 31,408 314 130,390 130,704
Net loss......................... (14,609,640) (14,609,640)
----------- --------- -------------- -------------- --------------
Balance at December 31, 1998..... 8,756,487 87,565 26,045,128 (31,195) 26,101,498
Stock options exercised.......... 280,256 2,803 831,167 833,970
Sales of shares to investors..... 2,439,050 24,390 12,639,783 12,664,173
Net loss......................... (22,276,518) (22,276,518)
----------- --------- -------------- -------------- --------------
Balance at December 31, 1999..... 11,475,793 $114,758 $ 39,516,078 $ (22,307,713) $ 17,323,123
========== ======== ============== =============== ==============
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
BOCA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1998 1999
-------------- -------------- --------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss..................................................... $(14,923,127) $(14,609,640) $(22,276,518)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization........................... 2,917,002 3,854,343 3,279,745
In-process research and development..................... --- 2,800,000 ---
Gain on sales of property and equipment................. --- --- (141,741)
Change in assets and liabilities (net of effect of
acquisition in 1998):
(Increase) decrease in:
Receivables........................................... 15,444,145 8,914,913 7,926,236
Inventory............................................. 3,504,321 7,762,036 5,573,590
Prepaid expenses and other assets..................... 816,285 (501,565) (802,389)
Deferred income taxes................................. 418,281 2,703,980 ---
Increase (decrease) in:
Accounts payable...................................... (768,105) (7,518,350) (2,359,954)
Accrued expenses and other liabilities................ (497,390) (1,113,230) 81,925
Income taxes payable (refundable)..................... (5,449,938) 4,458,458 2,051,559
Deferred revenue...................................... --- --- 602,417
------------ ------------ ------------
Net cash provided by operating activities............. 1,461,474 6,750,945 (6,065,130)
------------ ------------ -------------
INVESTING ACTIVITIES
Cash paid for acquisition................................. --- (7,580,000) (2,800,000)
Proceeds from sales of property and equipment ............ --- --- 876,726
Capital expenditures...................................... (1,404,258) (547,280) (649,599)
------------- ------------- -------------
Net cash used in investing activities................. (1,404,258) (8,127,280) (2,572,873)
------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock..................... 321,621 130,704 13,498,143
------------ ------------ ------------
Net cash provided by financing activities............. 321,621 130,704 13,498,143
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents................................................ 378,837 (1,245,631) 4,860,140
Cash and cash equivalents at beginning of year............... 7,825,801 8,204,638 6,959,007
------------ ------------ ------------
Cash and cash equivalents at end of year..................... $ 8,204,638 $ 6,959,007 $ 11,819,147
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes (net of refunds)......................... $ (1,339,171) $ (7,162,438) $ (2,043,764)
============ ============= =============
Interest.............................................. $ 16,238 $ 10,811 $ 185,641
============ ============ ============
</TABLE>
See notes to consolidated financial statements
30
<PAGE>
BOCA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business. Boca Research, Inc. and subsidiaries (the "Company") is
a leading supplier of computing enhancing products, including modems,
input/output (I/O) systems, graphics and video systems, communications software
and accessories for PC's and Macintosh(R) computers for both home and business
use. The Company's products are sold worldwide through original equipment
manufacturers (OEMs), distributors, value-added resellers (VARs), and retailers.
The Company is in the process of transitioning to become a software and systems
solutions-based enterprise, enabling communications, as well as access to
applications, and information via the Internet or client/server networking. As a
result, it has transitioned its participation in the thin client, network
appliance, and set top box business from manufacturing and marketing these
devices, to providing custom design services relating to such devices for third
parties. Although the Company is focused primarily on its transition to a
software and systems solutions-based enterprise, it is still considering
entering the applications rental market via a client/server-based network. The
majority of the Company's operations are located in Boca Raton, Florida.
Business Operations and Liquidity. The Company incurred substantial
operating losses in 1997, 1998 and 1999 and it is likely that cash flow from
operations will be negative in 2000. However, management has implemented efforts
to bring the Company's expense structure in line with the reduced revenue levels
being achieved. Although there can be no assurances that the Company will return
to profitable operations in 2000, management believes that existing cash
balances, availability of funds under the credit line described in Note 6 to the
consolidated financial statements and cash generated from operations will be
sufficient to meet its liquidity and capital needs for the next twelve months.
However, if negative cash flows from 2000 operations exceed current estimates,
the Company's liquidity could become strained in the latter part of the year
2000.
The Company embarked upon a plan in early 2000 to transition from being
primarily a data communication products manufacturer to its new focus on
providing software and systems solutions-based services. The Company has very
limited experience providing software and systems based services, and management
can offer no assurances that the Company will succeed in implementing its new
business plan, and its failure to do so would have a material adverse effect on
its business, prospects, financial condition and operating results. Debt or
equity financing may be required by the Company in the future to sustain the
Company until the Company returns to profitable operations, or to finance growth
beyond that enabled by cash flow from operations, and there are no assurances
that any required capital will be available on terms acceptable to the Company,
if at all.
Principles of Consolidation. The accompanying consolidated financial
statements include Boca Research, Inc. and its wholly owned subsidiaries, Boca
Research of Delaware, Inc., Boca Research International, Inc., Boca Research
Holland B.V., Boca Research (UK) Limited, Boca Research International Holdings
Ltd., Boca Global, Inc., AppsCom, Inc. and Complete Acquisition Corp.
Intercompany accounts and transactions have been eliminated in consolidation.
The Company accounts for its investment in Power Tel BOCA Private Ltd. using the
equity method.
Use of Estimates. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those
estimates.
Cash and Cash Equivalents. Cash and cash equivalents includes cash balances
in deposits at banks, overnight repurchase agreements, money market funds,
commercial paper, and various other financial instruments having an original
maturity of three months or less.
Inventory. Inventory is stated at the lower of average cost or market.
Valuation allowances are recorded to reduce excess, obsolete and slow moving
inventory to estimated net realizable value. The markets for the Company's
products are characterized by rapidly changing technology, evolving industry
standards and short product life cycles. The Company may experience rapid
declines in sales, selling prices and margins toward the end of the life cycle
of a product or product category. These declines, which may be difficult to
predict, could result in additional charges for excess, obsolete or slow moving
inventory, returns of older generation products from distributors or substantial
price protection charges, which would have an adverse effect on results of
operations.
31
<PAGE>
The Company currently buys certain components used in its products from
single sources. In addition, certain modem chipsets used in the Company's data
communications products have in the past been in short supply and are frequently
on allocation by suppliers. Although there are a limited number of manufacturers
of these chipsets, management believes that other suppliers could provide
similar chipsets on comparable terms. However, a change in suppliers or
shortages in the availability of the chipsets, could cause a delay in
manufacturing and a possible loss of sales, which would affect operating results
adversely.
Property and Equipment. Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to five years or the lease term for leasehold
improvements.
Intangible Assets. The Company accounts for the impairment and disposition
of long-lived assets in accordance with Statement of Financial Accounting
Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of". In accordance with SFAS No. 121,
long-lived assets to be held are reviewed for events or changes in
circumstances, which indicate that their carrying amount may not be recoverable.
The Company periodically evaluates the carrying amount of the intangible assets
versus the cash benefit expected to be realized and adjusts for any impairment
of value.
Other Non-Current Liabilities. The Company has entered into a licensing
agreement that allows it to have access to certain specified source code.
Minimum payments due under this agreement for the period 2001 through 2002
approximate $500,000 and have been recorded as an other non-current liability in
the consolidated balance sheet.
Research and Development Costs. Research and development costs are expensed
as incurred.
Income Taxes. The Company provides for income taxes in accordance with the
liability method. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities and carryforwards that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount more likely than not to be realized. Income tax expense or
benefit is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Earnings (Loss) Per Share. Basic earnings per share excludes dilution and is
computed by dividing income or loss attributable to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted earnings per share is computed by
dividing income or loss available to common stockholders by the weighted average
number of common shares outstanding for the period and dilutive potential common
shares outstanding (all related to outstanding stock options discussed in Note
9) unless consideration of such dilutive potential common shares would result in
antidilution.
Revenue Recognition. The Company recognizes revenue from product sales upon
shipment, when title passes. Under specified conditions, certain customers are
allowed to return products for credit. Also, under the terms of some of the
agreements, in the event the Company reduces its selling prices, the customers
receive credit for the difference between the original purchase price of product
remaining in specified levels of their inventories and the Company's reduced
price for such products. The Company records allowances for estimated returns
and price adjustments. The allowance for sales returns, allowances and price
protection was $2,161,055 and $2,007,342 at December 31, 1998 and 1999,
respectively, and is netted against trade receivables. Reductions in selling
prices and product returns may result from events, such as actions by
competitors, technological changes and others, which may be difficult to predict
and may be beyond the Company's control. Accordingly, actual returns, allowances
and price protection may vary significantly in the near term from the estimates
used in recording the allowances.
Revenue from engineering services contracts is recognized as the work is
performed using the percentage of completion method. Revenue from product
licensing or software royalties is recognized as earned under the terms of the
contracts or using the straight-line method over the term of the contract.
Amounts received but unearned as of December 31, 1999 are recorded as deferred
revenue at December 31, 1999.
Trade receivables are presented net of an allowance for doubtful accounts of
$2,531,257 and $2,081,257 as of December 31, 1998 and 1999, respectively.
32
<PAGE>
Product Warranties. Under a five year limited warranty program, the Company
has agreed to repair or replace products during the designated warranty period.
Costs associated with the warranty program are determined on the basis of
estimated net future costs related to products sold.
Advertising. The Company participates in cooperative advertising programs
with certain customers. These programs are used by the Company to reimburse
customers for certain forms of advertising. In general, the programs allow
customers credits up to a specified percentage of net purchases. When the
products are sold to such customers, the Company accrues a liability for the
estimated amount to be reimbursed.
Costs of advertising by the Company are expensed as incurred. Total
advertising expense for 1997, 1998 and 1999 was $2,227,531, $1,031,849, and
$3,295,763 respectively.
New Accounting Pronouncement. In June 1998, Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" was issued. SFAS No. 133 defines derivatives and
established accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133, as modified by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000 and cannot be
applied retroactively. Management has not determined the effect the adoption of
SFAS No. 133 will have on the Company's consolidated financial statements.
Reclassifications. Certain prior year amounts have been reclassified to
conform to the fiscal 1999 presentation.
2. INVENTORY
Inventory consists of the following:
At December 31,
-----------------------------
1998 1999
-------------- -------------
Raw materials................................. $ 8,024,248 $ 4,377,745
Work-in-progress.............................. 3,133,016 1,053,196
Finished goods................................ 1,338,721 3,351,454
Allowance for obsolescense.................... (3,250,000) (5,110,000)
----------- -----------
$ 9,245,985 $ 3,672,395
=========== ===========
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
At December 31,
-----------------------------
1998 1999
-------------- -------------
Machinery and equipment....................... $ 14,674,618 $ 11,561,229
Furniture and fixtures........................ 994,159 749,891
Leasehold improvements........................ 1,489,027 1,317,670
Vehicles...................................... 78,794 74,641
------------ ------------
Total cost................................. 17,236,598 13,703,431
Less accumulated depreciation................. (13,266,807) (11,664,018)
------------ ------------
$ 3,969,791 $ 2,039,413
============ ============
Depreciation expense for the years ended December 31, 1997, 1998 and 1999
was $2,939,848, $2,815,554 and $1,844,992.
33
<PAGE>
4. INCOME TAXES
Refundable and deferred income taxes in the accompanying balance sheets as
of December 31, 1998 and 1999 includes estimated tax refunds of $2,051,559 and
$0, respectively, and deferred tax assets (liabilities) attributable to the
following items:
<TABLE>
<CAPTION>
At December 31,
-------------------------
1998 1999
------------- ----------
<S> <C> <C>
Accounts receivable allowances............................ $1,020,000 $ 934,771
Accrued expenses.......................................... 583,964 417,087
Inventory reserve......................................... 1,105,000 1,737,400
Goodwill.................................................. 1,669,239 1,908,024
Depreciation.............................................. 76,009 (94,727)
Allowance for product warranties.......................... 502,180 405,620
Federal and state net operating loss carryforward......... 2,038,410 9,620,704
AMT credit carryforward................................... 306,145 334,294
----------- -----------
Gross deferred tax asset.................................. 7,300,947 15,263,173
Valuation allowance....................................... (7,300,947) (15,263,173)
------------ ------------
$ 0 $ 0
=========== ===========
</TABLE>
The Company has a Federal and Florida net operating loss carryforward
available to offset future Federal and Florida taxable income of approximately
$24 million and $26.7 million, respectively. Approximately $3 million of the
Federal net operating loss will expire in 2018 and the balance of $21 million
will expire in 2019. Approximately $11 million of the Florida net operating loss
carryforward expires in 2012, $5.5 million expires in 2018, and the balance of
$10.2 million expires in 2019.
A valuation allowance is provided when it is more likely than not that some
portion of the Company's deferred tax assets will not be realized. Management
has evaluated the available evidence about the Company's future taxable income
and other possible sources of realization of deferred tax assets, and as a
result, the valuation allowance was increased by $8 million in fiscal 1999. The
valuation allowance recorded in the financial statements reduces deferred tax
assets to an amount that represents management's best estimate of the amount of
such deferred tax assets that more likely than not will be realized.
Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating losses carried forward may be impaired or limited in certain
circumstances. Events which may cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not limited
to, a cumulative ownership change of more than 50% over a three year period.
The components of income taxes (benefit) in the accompanying statements of
operations are as follows:
Year Ended December 31,
------------------------------------------
1997 1998 1999
------------- ------------- ------------
Federal:
Current....................... $(6,804,109) $(2,703,980) $ 7,796
Deferred...................... 418,281 2,703,980 0
----------- ----------- ----------
Total....................... (6,385,828) 0 7,796
----------- ----------- ----------
State:
Current....................... 15,000 0 0
Deferred...................... 0 0 0
----------- ----------- ----------
15,000 0 0
----------- ----------- ----------
Total....................... $(6,370,828) $ 0 $ 7,796
=========== =========== ===========
The Company's effective income tax rate differed from the statutory federal
rate of 35% as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Statutory rate applied to income (loss) before income taxes ....... 35.0% 35.0% 35.0%
Increase (decrease) in income taxes (benefit)resulting from:
Rate differential................................................. (1.0) (1.0) (1.0)
Valuation allowance............................................... (4.9) (34.0) (34.0)
State income taxes................................................ 2.5 0.0 0.0
Exempt foreign trade income....................................... 0.5 0.0 0.0
Other, net........................................................ (2.2) 0.0 0.0
---- ---- ----
Effective income tax rate......................................... 29.9% 0.0% 0.0%
==== ==== ====
</TABLE>
34
<PAGE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
At December 31,
-------------------------
1998 1999
------------- ---------
Cooperative advertising........................ $ 635,162 $ 261,626
Salaries, wages, benefits and bonuses.......... 626,913 1,046,181
Commissions.................................... 163,546 89,922
Allowance for product warranties............... 1,477,000 1,193,000
Other.......................................... 1,134,141 1,027,958
---------- ---------
$4,036,762 $3,618,687
6. LINE OF CREDIT
The Company has a two year collateralized revolving line of credit agreement
expiring November 9, 2000, which permits borrowings of the lesser of $5,000,000
or 60% of qualified accounts receivable and 20% of eligible inventory. During
March 2000, the Company's total credit limit under the loan agreement was
reduced from $5,000,000 to $2,500,000 (see Note 14). The interest rate during
the second year of the agreement is 1/2% in excess of the prime rate. The loan
agreement requires the Company to maintain certain financial ratios, limits the
incurrence of additional debt, and prohibits payment of dividends without the
lender's consent. No borrowings were outstanding as of December 31, 1998 and
1999.
7. COMMITMENTS AND CONTINGENCIES
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
$974,124, $1,576,130, and $1,658,221, respectively.
The Company is committed through 2002 for rents under noncancelable
operating leases for use of its offices, warehouses and manufacturing
facilities. The aggregate minimum annual payments under such leases for the
years ending December 31, 2000, 2001 and 2002 are $467,045, $393,450, and
$231,798, respectively.
The Company has been named a co-defendant in an action brought in the
United States District Court for the District of Massachusetts, by NEC
Technologies, Inc. The suit alleges that the Company supplied modem hardware to
NEC, which was combined by NEC with software supplied by another co-defendant,
Ring Zero Systems, Inc. NEC was subsequently sued for patent infringement by
PhoneTel Communications, Inc., allegedly as a result of NEC's combination of
modem hardware and software supplied by the vendors in its personal computer
products. NEC alleges that Boca and Ring Zero are obligated to indemnify NEC for
NEC's costs of defense and settlement of the PhoneTel suit, in the amount of
$327,000. The Company is evaluating the claim, but does not presently believe
the claim will have a material adverse effect on the Company's operating results
and financial condition.
The Company receives communications from time to time alleging that certain
of the Company's products infringe the patent rights of other third parties. The
Company cannot predict the outcome of any such claim which may arise in the
future, or the effect of any such claim on the Company's operating results or
financial condition.
8. ACQUISITION
On June 18, 1998, the Company consummated, through a wholly-owned
subsidiary, the acquisition of the modem business of Global Village
Communication, Inc. ("Global Village"), in exchange for $9,855,206 in cash and
notes. A $4,000,000 cash payment was made at closing and two additional payments
of $3,000,000 each were due Global Village on September 30, 1998 and on December
31, 1998. The notes payable relating to the two $3,000,000 payments were
non-interest bearing and interest on these notes had been imputed at the rate of
6%. The $3,000,000 payment due on September 30, 1998 was paid on October 2,
1998. On December 23, 1998, an amendment to the promissory note was executed
which reduced the payment due on December 31, 1998 by $200,000 and extended the
payment date of the remaining $2,800,000 balance. $2,000,000 of this amount was
paid on January 4, 1999 and the remaining $800,000 was paid on February 2, 1999.
Goodwill was reduced by $200,000 to reflect the reduction in the purchase price.
The Company purchased intellectual property, including the Global Village name,
logo, and trademarks, as well as the modem hardware and software products, and
the inventory, receivables, and other assets of the modem business. The Company
also assumed the liabilities of the modem business, including responsibility for
product warranty, technical support, product returns, ongoing marketing and
sales programs, and certain accounts payable and accrued liabilities. The
Company also received a warrant to purchase up to 425,000 shares of Global
Village common stock at an exercise price of $1.0003 per share. Subsequent to
the closing of the transaction, Global Village changed its corporate name to
OneWorld Systems, Inc.
35
<PAGE>
The acquisition was recorded as a purchase with the purchase price allocated
to the acquired assets, assumed liabilities and in-process research and
development as follows:
Accounts receivable, net.................................. $8,740,743
Inventory................................................. 2,131,822
Other current assets...................................... 62,000
Property, plant and equipment............................. 589,435
Tradename/marketing intangible asset...................... 2,300,000
Existing technology intangible asset...................... 1,500,000
Goodwill.................................................. 1,225,206
Warrants.................................................. 140,000
Account payable........................................... (7,776,000)
Accrued expenses.......................................... (2,058,000)
In-process research and development....................... 2,800,000
----------
$9,655,206
Direct acquisition costs associated with this transaction, totalling
$580,000, have also been capitalized to goodwill. Goodwill is being amortized
over a five year period. Existing technology is being amortized over a two-year
period. The tradename/marketing intangible asset is being amortized over a
seven-year period. Amortization expense for the years ending December 31, 1998
and 1999 was $801,457 and $1,434,753, respectively. During the fourth quarter of
1999, the Company wrote off its investment of $140,000 in OneWorld Systems, Inc.
warrants.
Upon consummation of the acquisition, the Company immediately expensed
$2,800,000 representing purchased in-process technology that had not yet reached
technological feasability and has no alternative future use. The value was
determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from such projects, and discounting the net cash flows back to their
present value. The discount rate included a factor that took into account the
uncertainty surrounding the successful development of the purchased in-process
technology. The in-process projects were expected to be commercially viable on
dates ranging from the end of the calendar year 1998 through calendar year 2000.
Expenditures to complete these projects were expected to total approximately
$1,800,000. These estimates are subject to change, given the uncertainties of
the development process, and no assurance can be given that deviations from
these estimates will not occur. Additionally, these projects will require
maintenance research and development after they have reached a state of
technological and commercial feasibility.
At the time of its acquisition by the Company, the modem division of Global
Village was working on several significant research and development projects
that, if successful, would meet tomorrow's market needs. These efforts involved
new analog and digital modem transmission platforms, speeds, interfaces,
technologies, form factors, which were intended to insure the long-term success
and survival of the organization. The nature of the efforts required to complete
the research and development projects involved, to varying degrees, the
completion of all planning, designing, prototyping, verification, and testing
activities that are necessary to establish that the proposed technologies meet
their design specifications including functional, technical, and economic
performance requirements.
The net cash flows resulting from the projects underway at Global Village,
which were used to value the purchased research and development, were based on
Company management's estimates of revenues, cost of revenues, research and
development costs, selling, general, and administrative costs, and income taxes
from such projects.
Estimated total revenues from the purchased in-process product areas peak in
calendar years 2000-2001 and decline rapidly thereafter as other new products
are expected to enter the market. In addition, a portion of the anticipated
revenues has been attributed to enhancements of the base technology under
development, and has been excluded from net cash flow calculations. Existing
technology was valued at $1,500,000 related to the acquisition. There can be no
assurances that these assumptions will prove accurate, or that the Company will
realize the anticipated benefit of this acquisition.
The discount applied to the net cash flows to calculate their present value
was based on the weighted average cost of capital ("WACC"). The WACC calculation
produces the average required rate of return on an investment in an operating
enterprise. The discount rate used to discount the net cash flows from purchased
in-process technology ranged between 35% to 50%. This discount rate is sometimes
higher than the WACC due to the inherent uncertainties in the estimates,
including the uncertainty surrounding the successful development of the
purchased in-process technology, the useful life of such technology, the
profitability levels of such technology, if any, and the uncertainty of
technological advances, all of which are unknown at this time.
36
<PAGE>
If these projects are not successfully developed, the Company's business,
operating results, and financial condition may be adversely affected in future
periods. In addition, the value of other intangible assets acquired may become
impaired.
The following is unaudited pro forma information as if the acquisition had
occurred as of the beginning of 1997 and 1998. The unaudited pro forma
information is not necessarily indicative of the results which would have
occurred had the companies actually been combined during the periods nor the
future results after the acquisition.
Year Ended December 31,
-----------------------------
1997 1998
------------- ------------
Net Sales.................................. $ 128,732,000 $ 94,135,000
Net Loss................................... $ ( 9,640,000) $(13,747,000)
Net Loss per Share (Basic and Diluted)..... $ (1.11) $ (1.57)
9. STOCK OPTION AND PURCHASE PLANS
The Board of Directors and shareholders adopted the 1992 Stock Option Plan
(the "1992 Plan") pursuant to which, as subsequently amended, a number as shall
always be equal to 26% of the then issued and outstanding common stock of the
Company are reserved for grant. The 1992 Plan also provides that no more than
250,000 shares of Common Stock may be issued to any employee in any one calendar
year. Under the 1992 Plan, incentive stock options may be granted to employees
and officers of the Company and non-qualified stock options may be granted to
consultants, employees and officers of the Company. The exercise price of the
options (which in the case of an incentive stock option cannot be less than the
fair market value of the common stock on the date of grant or less than 110% of
fair market value in the case of employees or officers holding 10% or more of
the voting stock of the Company) shall be as determined by the Compensation
Committee of the Board of Directors.
The Board of Directors and shareholders adopted the 1992 Non-Employee
Director Stock Option Plan (the "Director Stock Option Plan") pursuant to which,
as subsequently amended, a maximum of 60,000 shares of common stock are reserved
for grant. Under this plan, each non-employee director first elected to the
Board of Directors after January 1, 1993 will receive an option for 10,000
shares on the date of his or her election. The exercise price per share for all
options granted under the plan will be equal to the fair market value of the
common stock at the date of grant. All options vest in three equal installments
beginning on the first anniversary of the date of grant. The term of each option
will be for a period of ten years from the date of grant.
The Board of Directors and shareholders approved the 1996 Non-Employee
Director Stock Option Plan (the "1996 Director Plan") pursuant to which, as
subsequently amended, a maximum of 200,000 shares of common stock are reserved
for grant. Under this plan, each non-employee director will be entitled to be
granted an option to purchase 10,000 shares of common stock on the date of his
initial election to the Board and on the date of each annual meeting of the
Company's shareholders at which such director is reelected. The exercise price
per share for all options granted under the plan is equal to the fair market
value of the common stock on the date of grant. In addition, the Chairman of the
Board of Directors is entitled to be granted an option to purchase 5,000 shares
of common stock on the date of his election as Chairman and on the date of each
reelection. The exercise price per share for all options granted under the plan
is equal to the fair market value of the common stock on the date of grant. All
options will vest immediately on the date of grant.
In April 1997, the Company offered the holders of options to purchase an
aggregate of 715,097 shares of the Company's Common Stock with exercise prices
ranging from $7.125 to $27.50, the opportunity to exchange such options for
options to purchase a fewer number of shares at an exercise price of $6.75 per
share, the market value of the Common Stock on the date of such offer. The newly
issued options vest in three equal annual installments, commencing in April
1998. This offer was made as a result of the decline in the market price of the
Company's Common Stock in order to more effectively retain and motivate the
Company's key employees. As a result of this offer, options to purchase 465,689
shares were canceled in exchange for the issuance of options to purchase 314,416
shares priced at $6.75 per share. The holders of options representing 249,408
shares declined the offer to exchange their options.
37
<PAGE>
A summary of the status of the Company's stock options as of December 31,
1997, 1998 and 1999 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.............................. 1,153,165 $ 13.37 1,190,391 $ 7.97 1,579,472 $ 5.71
Granted....................................................... 996,716 7.30 942,461 3.97 362,500 6.20
Exercised..................................................... 22,167 6.10 -- -- 227,272 2.91
Cancelled..................................................... 937,323 13.95 553,380 7.61 322,965 5.67
-------- -------- --------
Outstanding at end of year.................................... 1,190,391 7.97 1,579,472 5.71 1,391,735 6.30
========= ========= =========
Exercisable at end of year.................................... 396,801 7.71 875,588 6.25 949,461 6.37
======== ======== ========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Price at 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price
- ------------------ ------------------------------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.59 - 3.19 125,128 8.8 $ 2.13 97,961 $ 2.10
3.20 - 6.38 637,276 8.5 5.35 498,940 5.48
6.39 - 12.75 614,331 7.8 7.68 337,560 8.11
12.76 - 25.00 15,000 6.4 25.00 15,000 25.00
-------- -------
1,391,735 8.2 6.30 949,461 6.37
========= =======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plans. Accordingly, no compensation expense has been recognized for the
Company's stock-based compensation plans. Had compensation cost for the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's pro forma net loss for 1997, 1998, and 1999 would have been
$16,625,691, $16,707,953 and $24,920,901 respectively. Pro forma loss per share
for 1997, 1998, and 1999 would have been $1.91, $1.91, and $2.46 respectively.
The weighted average fair value of the options granted during 1997, 1998 and
1999 was estimated at $4.61, $2.68, and $4.07 respectively, based upon the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: no dividend yield, expected volatility of 60%,
75%, and 67% respectively, weighted average risk-free interest rate of 6.09%,
5.33%, and 5.75% respectively, and expected lives of six years.
The Board of Directors and shareholders adopted a 1992 Employee Stock
Purchase Plan (the "1992 Purchase Plan"). The 1992 Purchase Plan authorizes the
issuance of a maximum of 250,000 shares of common stock pursuant to the exercise
of nontransferable options granted to participating employees. The exercise
price of the options is the lesser of 85% of the fair market value of the common
stock on the first and last day of the purchase period which commences on
January 1 and July 1 of each year. During 1998 and 1999, there were 31,408 and
43,913 shares issued in connection with this plan, respectively. At December 31,
1999, there were options to purchase 13,813 shares at a price of $5.63 granted
and exercisable under this plan.
38
<PAGE>
10. SAVINGS PLAN
In January 1992, the Board of Directors adopted a Savings Incentive Plan
(the "Savings Plan") pursuant to Section 401(k) of the Internal Revenue Code.
All employees are eligible to participate in the Savings Plan upon completion of
six months of employment. Each employee may elect to contribute to the Savings
Plan through payroll deductions in an amount not to exceed the amount permitted
under the Internal Revenue Code. The Company has the discretion to make matching
contributions on behalf of the participants. Employees are fully vested in their
contributions. Company contributions vest at a rate of 33% on each anniversary
date of employment. Amounts credited to an employee's account may be distributed
to the employee at the earliest of (a) the termination of the employee's
employment with the Company; (b) the termination of the Plan, or (c) a
withdrawal due to financial hardship. Under the Internal Revenue Code, neither
the employee nor Company contributions to the Savings Plan are taxable to the
employee until such amounts are distributed to the employee. However,
contributions made by the Company are tax deductible. During the years ended
December 31, 1997, 1998, and 1999 the Company's contribution expense to the
Savings Plan aggregated $119,319, $158,444 and $107,258, respectively.
11. MAJOR CUSTOMERS AND GEOGRAPHIC DATA
The Company sells its products primarily to national, regional and
international wholesale distributors and OEM customers. Sales to distributors
accounted for 36%, 44% and 59% of the Company's net sales in 1997, 1998 and
1999, respectively. Sales to OEM customers accounted for 45%, 49%, and 28% of
the Company's net sales in 1997, 1998, and 1999, respectively.
Sales to customers who contributed 10% or more of net sales during the years
ended December 31, 1997, 1998 and 1999 and the related receivable balances at
the end of each year were as follows:
Year Ended December 31,
-------------------------------------------
1997 1998 1999
---------- ----------- -----------
Net sales
Customer A................. $7,197,475 $13,249,187 $7,844,103
Customer B................. 1,983,663 2,902,139 1,714,823
Customer C................. 3,711,120 6,513,920 5,752,807
Customer D................. -- 61,283 --
Customer E................. 2,876,023 28,732 --
Customer F................. 229,804 9,008 --
As of December 31,
------------------------------------------
1997 1998 1999
------------- ------------- ----------
Accounts receivable
Customer A................. $1,428,217 $3,015,188 $1,771,942
Customer B................. 211,872 765,158 270,660
Customer C................. 980,991 2,250,565 1,423,856
Customer D................. 1,957 -- --
Customer E................. 12,925 -- --
Customer F................. 15,577 -- --
In 1997 and 1998 only customer A contributed more than 10% of net sales. In
1999, customers A and C contributed more than 10% of net sales.
Customers A, B and C are wholesale distributors; customers D, E and F are
OEMs.
39
<PAGE>
The Company sells its products in the United States and in foreign countries
primarily through its own sales force and independent manufacturer
representative organizations. Net sales by geographic region for the years ended
December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
-------------- -------------- ---------
<S> <C> <C> <C>
United States............................. $54,694,921 $53,388,233 $26,572,236
Asia/Pacific Rim.......................... 3,288,453 611,090 497,376
Canada.................................... 1,511,942 1,069,265 955,808
Europe.................................... 7,624,891 9,081,509 1,858,623
Other..................................... 3,086,402 5,892,274 2,883,074
----------- ----------- -----------
$70,206,609 $70,042,371 $32,767,117
=========== =========== ===========
</TABLE>
The Company's identifiable assets located in foreign countries are not
significant.
12. RELATED PARTY TRANSACTIONS
In September 1995, the Company acquired 50% of the Common Stock of Mbf/Boca
Asia Pacific Sdn Bhd, a joint venture in Malaysia which primarily distributes
the Company's products in the Pacific Rim. In 1998 sales to this joint venture
were approximately $633,000 compared to $0 in 1999. During 1999, the Company
reduced its ownership interest in this joint venture to zero. In 1996 the
Company acquired in India a 20% equity interest in PowerTel Boca Pvt., Ltd.
("PowerTel"). PowerTel distributes Boca Research products and services in India,
South Asia, and certain markets in Africa. PowerTel is headquartered in
Bangalore and has offices in Bombay and Delhi. The investment of $79,183 and
$75,964 in this joint venture as of December 31, 1998 and 1999, respectively, is
included in other assets in the consolidated balance sheet. In 1999, sales to
PowerTel were approximately $86,000 compared to $315,000 in 1998. The accounts
receivable balance due from PowerTel at December 31, 1999 was $34,713. The
Company has granted 180 day payment terms to PowerTel. The financial position
and results of operations of these joint ventures in 1998 and 1999 were
insignificant in relation to the Company's consolidated financial statements.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1998 and 1999 is as
follows (in thousands except for per share data):
<TABLE>
<CAPTION>
Three months ended March 31 June 30 September 30 December 31
------------------ --------- ---------- ------------ -----------
1998
<S> <C> <C> <C> <C>
Net sales................................... $15,616 $ 13,210 $ 22,789 $18,428
Gross profit (loss)......................... (150) (3,029) 3,568 5,490
Income (loss) from operations............... (3,707) (9,428) (2,184) 17
Net income (loss)........................... (3,504) (9,260) (2,015) 170
Basic earnings (loss) per share............. (0.40) (1.06) (0.23) 0.02
Diluted earnings (loss) per share........... (0.40) (1.06) (0.23) 0.02
Three months ended March 31 June 30 September 30 December 31
------------------ --------- -------- ------------ -----------
1999
Net sales................................... $10,701 $ 8,747 $ 7,719 $ 5,600
Gross profit (loss)......................... 2,098 442 223 (2,230)
Loss from operations........................ (3,947) (4,791) (5,055) (8,853)
Net Loss.................................... (3,806) (4,835) (4,833) (8,803)
Basic Loss per share........................ (0.43) (0.51) (0.45) (0.77)
Diluted Loss per share...................... (0.43) (0.51) (0.45) (0.77)
</TABLE>
40
<PAGE>
14. SUBSEQUENT EVENTS
On March 3, 2000, the Company completed the sale of certain of its
assets (the "Purchased Assets") relating to its manufacturing operations at 1377
Clint Moore Road for the manufacture of products, including modems, to Boundless
Manufacturing Services, Inc. ("Boundless"), a wholly owned subsidiary of
Boundless Corporation, for $1,700,000 in cash and notes. In accordance with
the terms of the Asset Purchase Agreement between the Company and Boundless
Technologies, Inc., which was assigned to Boundless on the closing of the
transaction, Boundless paid the Company $700,000 in cash and Boundless issued to
the Company a 6% promissory note (the "Note") in the principal amount of
$1,000,000 to be paid in eight equal installments of $125,000 plus accrued
interest commencing on June 1, 2000, and on the first business day of every
third month thereafter, until paid in full. The obligations of Boundless under
the Note are guaranteed by Boundless Technologies, Inc. and Boundless
Corporation.
In connection with the sale of the assets by the Company to Boundless,
the Company has amended its Loan and Security Agreement with FINOVA Capital
Corporation which, among other things, releases the security interests in
certain of the Purchased Assets and reduces the Company's total credit limit
under the loan agreement from $5,000,000 to $2,500,000. The minimum tangible net
worth covenant was modified to require the Company to maintain a minimum
tangible net worth of not less than $4,000,000 at all times. The Company was
previously required to maintain a minimum tangible net worth of not less than
$15,000,000.
In connection with the closing of the sale of the Purchased Assets,
Boundless has employed certain of the manufacturing employees of the Company.
Also, Boundless has entered into a new lease for the facility located at 1377
Clint Moore Road.
Concurrent with the closing of the sale of the Purchased Assets, the
Company has entered into a Supply Agreement with Boundless pursuant to which the
Company will outsource the manufacture of certain products to Boundless for a
period of two years. Under the Supply Agreement, the Company guarantees that it
will purchase products resulting in proceeds to Boundless exclusive of costs of
materials, of at least $3,775,000 during the first year of the term of the
Supply Agreement. To the extent the Company falls short of the cumulative
prorated amount guaranteed in any of the four 90 day periods subsequent to March
3, 2000, the amount of the shortfall would be due within 30 days after the end
of the 90 day period in which the shortfall occurred. In the event of any
default under the Note, the Company is entitled to offset any amounts due to
Boundless under the Supply Agreement.
41
<PAGE>
BOCA RESEARCH, INC. AND SUBSIDIARIES
SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Additions
Balance Charged to Charged to Balance
at Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions of Year
- -------------------------------------------------------- ---------------- --------------- ------------ -------------- -----------
1997
- -------------------------------------------------------- ---------------- --------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for Sales Returns,
Allowances and Price Protection $2,625,000 -- -- 1,325,000 $1,300,000
Allowance for Doubtful Accounts 1,326,008 2,628,601 -- 2,554,609 1,400,000
Allowance for Inventory Obsolescence 2,400,000 2,886,000 -- 1,786,000 3,500,000
Allowance for Product Warranties 296,000 60,000 -- -- 356,000
1998
- -------------------------------------------------------- ---------------- --------------- ------------ -------------- -----------
Allowance for Sales Returns,
Allowances and Price Protection $1,300,000 27,055 834,000 (1) -- $2,161,055
Allowance for Doubtful Accounts 1,400,000 985,399 931,257 (1) 785,399 2,531,257
Allowance for Inventory Obsolescence 3,500,000 1,618,042 -- 1,868,042 3,250,000
Allowance for Product Warranties 356,000 10,000 1,111,000 (1) -- 1,477,000
1999
- -------------------------------------------------------- ---------------- --------------- ------------ -------------- -----------
Allowance for Sales Returns,
Allowances and Price Protection $2,161,055 -- -- 153,713 $2,007,342
Allowance for Doubtful Accounts 2,531,257 65,388 -- 515,388 2,081,257
Allowance for Inventory Obsolescence 3,250,000 3,677,280 -- 1,817,280 5,110,000
Allowance for Product Warranties 1,477,000 83,000 -- 367,000 1,193,000
- -------------------------------------------------------- ---------------- --------------- ------------ -------------- -----------
(1) Includes the balances relating to the acquisition of the modem
business of Global Village Communications, Inc.
</TABLE>
42
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
In accordance with General Instruction G(3) to Form 10-K, except as
indicated in the following sentence, the information called for by Items 10, 11,
12 and 13 is incorporated by reference from the registrant's definitive proxy
statement pursuant to Regulation 14A for the Annual Meeting of Shareholders to
be held on May 22, 2000. As permitted by General Instruction G(3) to Form 10-K
and Instruction 3 to Item 401(b) of Regulation S-K, the information on executive
officers called for by Item 10 is included in Part I of this Annual Report on
Form 10-K.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The Financial Statements and Schedules filed as part of this Annual
Report on Form 10-K are listed in the index for Item 8.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1999.
43
<PAGE>
(c) Exhibits
Exhibit No. Title
- ----------- -----
(1)2.1 -- Agreement of Merger dated March 2, 1992 between the Company and
Boca Research Holding, Inc.
(1)2.2 -- Agreement of Merger dated December 22, 1992 between the Company
and Boca Research Incorporated Manufacturing, Inc.
(2)2.3 -- Asset Purchase Agreement dated July 2, 1993 between Complete
Acquisition Corp. and The Complete PC, Inc.
(1)3.1 -- Amended and Restated Articles of Incorporation of the Company.
(1)3.2 -- By-Laws of the Company.
(1)10.1 -- Non-Qualified Stock Option Plan.
(1)10.2 -- 1992 Stock Option Plan.
(1)10.3 -- 1992 Employee Stock Purchase Plan.
(1)10.4 -- 1992 Non-Employee Director Stock Option Plan.
(1)10.5 -- Lease Agreement between the Company and Catexor Limited
Partnership I dated October 4, 1990, as amended and supplemented
pursuant to the First Addendum to Lease dated October 4, 1990,
Second Addendum to Lease dated October 4, 1990, Third Addendum
to Lease dated December 1, 1991 and Fourth Addendum to Lease
dated January 9, 1992.
(1)10.10 -- Distributor Contract dated August 16, 1991 between Tech Data
Corporation and the Company.
(1)10.11 -- Form of Indemnification Agreement between the Company and its
directors and Officers.
(3)10.12 -- Standard Commercial Lease between Equitable Pacific Partners
Limited Partnership and the Company.
(4)10.13 -- Employment Agreement, dated as of April 24, 1995, between
Anthony F. Zalenski and the Company.
(5)10.15 -- Joint Venture Agreement dated September 25, 1995 between
Hitechniaga Sdn Bhd and the Company.
(6)10.16 -- Amended Revolving Credit Agreement between the Company, Boca
Research International, Inc., Boca Research Holland B.V., Inc.,
Complete Acquisition Corp., Boca Research of Delaware, Inc. and
First Union National Bank of Florida dated as of December 31,
1997.
(6)10.17 -- 1996 Non-Employee Director Stock Option Plan.
(7)10.18 -- Consulting Agreement dated October 4, 1996 by and among the
Company, ArgoQuest, Inc. and Jason Barzilay.
(8)10.19 -- Employment agreement, dated as of October 16, 1998, between
Robert W. Ferguson and the Company.
(9)10.21 -- Extension to Employment agreement, dated as of March 31, 1999,
between Robert W. Ferguson and the Company.
(10)10.22 -- Employment agreement, dated as of August 1, 1999, between Robert
P. Heinlein and the Company.
10.23 -- Employment agreement, dated as of November 8, 1999, between Cecil
Dye and the Company.
10.24 -- Employment agreement, dated as of November 30, 1999, between
Martha Ritchason and the Company.
10.25 -- Employment agreement, dated as of January 13, 2000, between Alex
Oprescu and the Company.
10.26 -- Employment agreement, dated as of March 17, 2000, between Larry
L. Light and the Company.
10.27 -- Asset Purchase Agreement, dated as of January 24, 2000, between
Boundless Technologies, Inc. and the Company.
10.28 -- Assignment and Assumption Agreement dated as of March 3, 2000,
between Boundless Technologies, Inc. and Boundless Manufacturing
Services, Inc.
10.29 -- Promissory Note dated March 3, 2000, issued by Boundless
Manufacturing Services, Inc. made in favor of the Company.
(11)10.30 -- Supply Agreement dated as of March 3, 2000, by and between
Boundless Manufacturing Services, Inc. and the Company.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP.
27.1 -- Financial Data Schedule.
- ----------
44
<PAGE>
(1) Incorporated by reference to the exhibits to the Registration Statement
No. 33-56530 filed with the Securities and Exchange Commission.
(2) Incorporated by reference to Exhibit 2.1 to the registrant's Current Report
on Form 8-K filed with the Securities and Exchange Commission on July 22,
1993.
(3) Incorporated by reference to exhibits to the registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995.
(4) Incorporated by reference to Exhibit 10.2 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
(5) Incorporated by reference to Exhibit 10 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995.
(6) Incorporated by reference to the exhibits to the registrant's Annual Report
on Form 10-K for the year ended December 31, 1995.
(7) Incorporated by reference to Exhibit 10 to the registrant's Current Report
on Form 8-K filed with the Securities and Exchange Commission on October
15, 1996.
(8) Incorporated by reference to the exhibits to the registrant's Annual Report
on Form 10-K for the year ended December 31, 1998.
(9) Incorporated by reference to the exhibits to the registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
(10) Incorporated by reference to the exhibits to the registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999.
(11) Portions of this Exhibit have been omitted pursuant to an application for
an order declaring confidential treatment filed with the Securities and
Exchange Commission.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BOCA RESEARCH, INC.
By: /s/ ROBERT W. FERGUSON
----------------------
Name: Robert W. Ferguson
Title: Chief Executive Officer
and Chairman of the
Board of Directors
Date: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ ROBERT W. FERGUSON President, Chief Executive Officer March 29, 2000
- --------------------------------- and a Director (Principal Executive
Robert W. Ferguson Officer)
/S/ ROBERT P. HEINLEIN Executive Vice President and General March 29, 2000
- --------------------------------- Manager (Principal Financial Officer
Robert P. Heinlein and Principal Accounting Officer)
/S/ ROBERT W. FERGUSON Director March 29, 2000
- ---------------------------------
Robert W. Ferguson
/S/ H. RIC LUHRS Director March 29, 2000
- ---------------------------------
H. Ric Luhrs
/S/ DOUGLAS K. RABORN Director March 29, 2000
- ---------------------------------
Douglas K. Raborn
Director March 29, 2000
- ---------------------------------
Joseph M. O'Donnell
/S/ ARTHUR R. WYATT Director March 29, 2000
- ---------------------------------
Arthur R. Wyatt
/S/ BLAINE DAVIS Director March 29, 2000
- ---------------------------------
Blaine Davis
/S/ EDWARD WILL Director March 29, 2000
- ---------------------------------
Edward Will
/S/ KARL GRUNS Director March 29, 2000
- ---------------------------------
Karl Gruns
Director March 29, 2000
- ---------------------------------
Michael S. Polacek
/S/ BERNARD A. CARBALLO Director March 29, 2000
- ---------------------------------
Bernard A. Carballo
</TABLE>
46
<PAGE>
Exhibit 10.23
EMPLOYMENT AGREEMENT
This Agreement is made as of the 8th day of November, 1999, between
Boca Global, Inc., a Florida corporation (the "Company"), and Cecil Dye (the
"Employee").
RECITALS
WHEREAS, the Company desires to employ the Employee as Executive Vice
President of Sales and Marketing of Boca Global, Inc., and the Employee desires
to serve as Executive Vice President of Sales and Marketing, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. The company hereby employs the Employee as Executive
Vice President of Sales and Marketing of the Company, and the Employee accepts
such employment for the term of employment specified in Section 3 below (the
"Employment Term"). During the Employment Term, the Employee shall, subject to
the direction of the President of the Company, oversee and direct the sales and
marketing operations of the Company and perform such other duties as may from
time to time be assigned to him by the President of the Company.
2. Performance. The Employee agrees to devote his best efforts and all
of his business time to the performance of his duties hereunder during the
Employment Term.
3. Employment Term. The Employment Term shall begin on the 8th day of
November, 1999, and shall continue until terminated in accordance with the terms
of this Agreement (the "Employment Term").
4. Compensation.
(a) Salary. During the Employment Term, the Company shall pay
the Employee a base salary, payable in equal monthly installments of $14,583.34,
subject to withholding and other applicable taxes. Additionally, commissions
shall be paid to the Employee in accordance with the Employment Letter attached
hereto.
(b) Insurance; Other Benefits. The Employee shall be entitled
to participate in all employee benefit plans now existing or hereinafter
established by the Company, including, but not limited to, medical/dental
insurance plans, group life and disability insurance plans, 401(k) Plan,
pension, profit sharing or bonus plans, Employee Stock Purchase Plan, and any
other employee benefit plan or arrangement made available to executive officers
of the Company. For the purpose of determining
-1-
<PAGE>
Long Term Disability and Life Insurance benefits the Employee's base
compensation shall be equal to his base salary.
(c) Vacation. The Employee shall be entitled to take paid
vacation during each calendar year of the Employment Term as provided for in the
Company's personnel policy as it exists from time to time, to be taken at such
time or times as shall be mutually convenient and consistent with his duties and
obligations to the Company.
(d) Stock Options. The vesting of all of the Employee's existing
options will automatically accelerate and become fully vested immediately upon a
"Change of Control." "Change of Control," for purposes of this Agreement, shall
mean the occurrence of any of the following events:
i) any merger or consolidation of the Company with any other
persons in which the Company is not the surviving company,
ii) any sale of all of substantially all of the assets of the
Company to any other person resulting in the Company leaving the
telecommunications industry,
iii) the acquisition by any person of 40% or more of the
outstanding voting stock of the Company, or
iv) the election of any directors of the Company if such
directors were not nominated for election as directors by
the Board of Directors of the Company and if such directors
constitute a majority of all of the members of the Board of
Directors of the Company.
5. Expenses. The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with the policies established by the Board of
Directors from time to time and upon receipt of appropriate documentation.
6. Agreement Not to Compete. The Employee agrees that during the
Employment Term and any Subsequent Employment Term and during the
Non-Competition Period (defined below) he will not in any capacity, either
separately, jointly, or in association with others, directly or indirectly, as
an officer, director, consultant, agent, employee, owner, partner, stockholder
or otherwise, engage or have a financial interest in any business which competes
with the Company in the United States (excepting only the ownership of not more
than 5% of the outstanding securities of any class listed on an exchange or
regularly traded in the over-the-counter market). The "Non-Competition Period"
shall mean the period ending one year after either (a)the termination of his
employment hereunder by the Company , provided that the Company continues to
comply with its obligations under Section 8(b) hereof during such one year
period, or (b)the termination of his employment hereunder by virtue of the
Employee's
-2-
<PAGE>
resignation, unless such resignation is for Good Reason (as defined
below). The Employee further agrees that during the Non-Competition Period,
except in connection with the performance of services hereunder, he will not in
any capacity, either separately, jointly or in association with others, directly
or indirection, solicit or contact with regard to a business competitor of the
Company any of the Company's employees, consultants, agents or suppliers,
customers or prospects, as shown by the Company's records, that were employees,
consultants, agents, suppliers, customers or prospects of the Company at any
time during the year immediately preceding the termination of employment
hereunder. For purposes of this Agreement, "Good Reason" shall mean the
resignation of the Employee due to (a)a material change in the Employee's duties
and responsibilities which interfere with his ability to manage the affairs of
the Company, (b)a material modification of the Employee's duties hereunder such
that such duties are not consistent with the duties of an Executive Vice
President of Sales and Marketing of a company of similar size and in a similar
business as the Company, or (c)a Change of Control arising out of any merger or
consolidation of the Company with any other person in which the Company is not
the surviving company or any sale of all or substantially all of the assets of
the Company to any other person.
If a court determines that the foregoing restrictions are too broad or
otherwise unreasonable under applicable law, including with respect to time or
space, the court is hereby requested and authorized by the parties hereto to
revise the foregoing restrictions to include the maximum restrictions allowed
under the applicable law. The Employee expressly agrees that breach of the
foregoing would result in irreparable injuries to the Company, that the remedy
at law for any such breach will be inadequate and that upon breach of this
provision, the Company, in addition to all other available remedies, shall be
entitled as a matter of right to seek injunctive relief in any court of
competent jurisdiction.
7. Secret Processes and Confidential Information. For the Employment
Term and thereafter, the Employee agrees to be bound by the terms and conditions
of the Company's Business Code of Conduct and the Confidentiality Agreement
executed by the Employee in favor of the Company.
8. Termination.
(a) Termination. The employment of the Employee hereunder may
be terminated by either party by written notice to the other party, unless
otherwise terminated in the manner provided in this Section 8.
(b) Termination by the Company With Cause. The Company shall
have the right at any time to terminate the Employee's employment hereunder upon
the occurrence of any of the following (any such termination being referred to
as a termination for "Cause"):
-3-
<PAGE>
(i) the commission by the Employee of any proven embezzlement of
a material amount of funds or other proven deliberate and
premeditated act of dishonesty against the financial or business
interests of the Company which adversely affects the Company;
(ii) the breach by the Employee of any material term of the
Business Code of Conduct, which beach is not cured within 30 days
subsequent to notice from the Company to the Employee specifying
such breach;
(iii) the conviction by the Employee of or the pleading by the
Employee of nolo contendere to, a felony;
(iv) the willful failure or refusal of the Employee to
materially perform the duties specified in and pursuant to Section 1
hereof or to follow the lawful directives of the Board of Directors
(provided that the lawfulness of such directives is confirmed by
general counsel to the Company), which failure or refusal is not
cured within 15 days subsequent to notice from the Company to the
Employee specifying the nature of such failure or refusal; or
(v) the breach by the Employee of any material terms of this
Agreement, which beach is not cured within 30 days subsequent to
notice from the Company to the Employee specifying such breach.
(c) Termination Upon Death or Disability. The Employee's
employment hereunder shall automatically terminate upon the Employee's death or
upon his inability to perform his duties hereunder by reason of any mental,
physical or other disability for a period of at least six consecutive months, as
determined by a qualified physician selected by the Employee from a list of five
physicians selected by the Company.
(d) Termination by the Company Without Cause. The Company
shall have the right to terminate the Employee's employment at any time for any
reason without Cause.
(e) Resignation by Employee. The Employee shall have the right
to resign his employment with the Company, in good standing, provided a 60 day
notice is given, at any time for any reason.
9. Effect of Termination of Employment.
(a) With Cause; Resignation; Death or Disability. If the
Employee's employment is terminated with Cause pursuant to Section 8(b), if the
Employee's employment is terminated by the death or disability of the Employee
pursuant to
-4-
<PAGE>
Section 8(c), or if the Employee elects to terminate his employment,
the Employee's salary and other benefits specified in Section 4 shall cease at
the time of such termination; provided, however, that the Employee shall be paid
for all accrued and unused vacation and be entitled to continue to participate
in the Company's medical benefit plans to the extent required by law. Further,
the Employee shall be entitled to such life insurance and/or disability benefits
in the event of a death or disability as the Company provides pursuant to
Section 4(b) above, which for information purposes only, amounts to life
insurance coverage equal to two times the Employee's base salary, subject to
certain caps and limitations under the coverage. This provision shall not be
construed as requiring the Company to carry any certain amounts of insurance and
the same may change from time to time.
(b) Without Cause by the Company. If the Employee's employment is
terminated by the Company without Cause pursuant to Section 8(d), the Employee's
salary and other benefits specified in Section 4 shall cease at the time of such
termination, provided, however, that the Employee shall be entitled to be paid
for all accrued unused vacation. The Employee shall be entitled to receive one
year's annual base salary which exists as of the time of termination, payable in
twelve (12) equal monthly installments commencing on the 1st day of the month
following termination, as "Severance Pay." The Employee shall not be required to
mitigate the amount of any payment provided for in this Section 9(b) by seeking
other employment or otherwise; provided, however, that if the Employee accepts
any other employment for compensation of any kind, deferred or otherwise, during
such period during which the said Severance Pay is being made, such Severance
Pay shall terminate and the Company shall be under no further obligations to
Employee therefor except that he shall be entitled to participate in the
Company's group insurance plans to the extent required by law. In the event of
such termination whereby the Severance Pay is being made as provided above,
Employee's employment shall be deemed to continue during such period that the
severance payments are being made, exclusively for the purpose of exercising
options and not for further vesting purposes, pursuant to the 1992 Employee
Stock Option Plan and for the purpose of Employee's continuing on the Company's
group medical, dental, and life insurance plans.
10. Insurance. The Company may purchase insurance on the life of the
Employee, and if it does so, the Employee shall cooperate fully by performing
all the requirements of the life insurer which are necessary conditions
precedent to the issuance of the life insurance policy issued by it.
11. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses or such other address as to which notice is given in the manner
provided herein:
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<PAGE>
If to the Employee:
Cecil Dye
_______________________________
_______________________________
If to the Company:
Boca Global, Inc.
C/O Boca Research
1377 Clint Moore Road
Boca Raton, Florida 33487
Attn: Chairman
12. General.
(a) Governing Law. The terms of this Agreement shall be
governed by and construed under the laws of the State of Florida without regard
to its principles of conflicts of laws.
(b) Assignability. The Employee may not assign his interest
in or delegate his duties under this Agreement. The Company may not assign the
Agreement or the rights and obligations hereunder without consent of Employee.
(c) Enforcement Costs. In the event that either the Company or
the Employee initiates an action or claim to enforce any provision or term of
this Agreement, the costs and expenses (including attorneys' fees) of the
prevailing party shall be paid by the other party, such party to be deemed to
have prevailed if such action or claim is concluded pursuant to a court order or
final judgment which is not subject to appeal, a settlement agreement or
dismissal of the principle claims.
(d) Binding Effect; Successors. This Agreement shall be
binding upon and inure to the benefit of the Company, its permitted successors
and assigns and the Employee, his representatives and heirs. The Company will
require that any successor (whether direct or indirect, by purchase of stock or
assets, by merger, by consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, together with such successor's
ultimate parent corporation (if any), will be jointly and severally liable for
the obligations owed to the Employee hereunder and will perform this Agreement
in the same manner and to the same extent that the Company is obligated to
perform it. Any succession shall not, however, relieve or alter the Company's
continuing liability for all obligations owing to the Employee hereunder. The
Employee acknowledges and understands, however, that the Employee's employment
by a successor to the Company, if consistent with the terms and provisions of
this Agreement, will not be deemed a termination of the Executive's employment
with the Company.
-6-
<PAGE>
(e) Entire Agreement; Modification. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and may not be modified or amended in any way except in
writing by the parties hereto.
(f) Duration. Notwithstanding the term of employment
hereunder, this Agreement shall continue for so long as any obligations remain
under this Agreement.
(g) Indemnification. The Employee shall be entitled to rights
of indemnification as an officer of the Company to the extent that the Company
provides indemnification to its officers and directors, including the benefit of
any directors' and officers' insurance coverage maintained from time to time.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first above written.
BOCA GLOBAL, INC.
By:/S/ Robert W. Ferguson
----------------------
Name: Robert W. Ferguson
Title: Chairman & CEO
EMPLOYEE
/S/ Cecil Dye
-------------
Name: Cecil Dye
-7-
<PAGE>
Exhibit 10.24
EMPLOYMENT AGREEMENT
This Agreement is made as of the 30th day of November, 1999, between
Boca Research, Inc., a Florida corporation (the "Company"), and Martha Ritchason
(the "Employee").
RECITALS
WHEREAS, the Company desires to employ the Employee as Vice President
of Human Resources of the Company, and the Employee desires to serve as Vice
President of Human Resources of the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. The company hereby employs the Employee as Vice
President of Human Resources of the Company, and the Employee accepts such
employment for the term of employment specified in Section 3 below (the
"Employment Term"). During the Employment Term, the Employee shall, subject to
the direction of the President of the Company, oversee and direct the human
resources operations of the Company and perform such other duties as may from
time to time be assigned to her by the President of the Company.
2. Performance. The Employee agrees to devote her best efforts and all
of her business time to the performance of her duties hereunder during the
Employment Term.
3. Employment Term. The Employment Term shall begin on the date first
above written and shall continue until terminated in accordance with the terms
of this Agreement (the "Employment Term").
4. Compensation.
(a) Salary. During the Employment Term, the Company shall pay the
Employee a base salary, payable in equal biweekly installments, subject to
withholding and other applicable taxes, at an annual rate of One Hundred
Forty-four Thousand and no/100 Dollars ($144,000.00).
(b) Insurance; Other Benefits. The Employee shall be entitled to
participate in all employee benefit plans now existing or hereinafter
established by the Company, including, but not limited to, medical/dental
insurance plans, group life and disability insurance plans, 401(k) Plan,
pension, profit sharing or bonus plans, Employee Stock Purchase Plan, and any
other employee benefit plan or arrangement made available to executive officers
of the Company. For the purpose of determining
-1-
<PAGE>
Long Term Disability and Life Insurance benefits the Employee's base
compensation shall be equal to her base salary.
(c) Vacation. The Employee shall be entitled to take paid vacation
during each calendar year of the Employment Term as provided for in the
Company's personnel policy as it exists from time to time, to be taken at such
time or times as shall be mutually convenient and consistent with her duties and
obligations to the Company.
(d) Stock Options. The vesting of all of the Employee's existing
options will automatically accelerate and become fully vested immediately upon a
"Change of Control." "Change of Control," for purposes of this Agreement, shall
mean the occurrence of any of the following events:
i) any merger or consolidation of the Company with any other
persons in which the Company is not the surviving company,
ii) any sale of all or of substantially all of the assets of the
Company to any other person resulting in the Company leaving the
telecommunications industry,
iii) the acquisition by any person of 40% or more of the
outstanding voting stock of the Company, or
iv) the election of any directors of the Company if such
directors were not nominated for election as directors by the Board
of Directors of the Company and if such directors constitute a
majority of all of the members of the Board of Directors of the
Company.
Notwithstanding the foregoing, in the event the Employee shall
have been employed by the Company or any of its subsidiaries for less than three
(3) years from her first date of hire, and in the event a Change of Control
occurs as above defined, only those options which would otherwise have vested
during such year in which the event of Change of Control occurs shall accelerate
and vest as a result of such Change of Control.
5. Expenses. The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by her in connection with the performance of her
duties hereunder in accordance with the policies established by the Board of
Directors from time to time and upon receipt of appropriate documentation.
6. Agreement Not to Compete. The Employee agrees that during the
Employment Term and any Subsequent Employment Term and during the
Non-Competition Period (defined below) she will not in any capacity, either
separately, jointly, or in association with others, directly or indirectly, as
an officer, director, consultant, agent, employee, owner, partner, stockholder
or otherwise, engage or have
-2-
<PAGE>
a financial interest in any business which competes with the Company in the
United States (excepting only the ownership of not more than 5% of the
outstanding securities of any class listed on an exchange or regularly traded in
the over-the-counter market). The "Non-Competition Period" shall mean the period
ending one year after either (a)the termination of her employment hereunder by
the Company , provided that the Company continues to comply with its obligations
under Section 8(b) hereof during such one year period, or (b)the termination of
her employment hereunder by virtue of the Employee's resignation, unless such
resignation is for Good Reason (as defined below). The Employee further agrees
that during the Non-Competition Period, except in connection with the
performance of services hereunder, she will not in any capacity, either
separately, jointly or in association with others, directly or indirection,
solicit or contact with regard to a business competitor of the Company any of
the Company's employees, consultants, agents or suppliers, customers or
prospects, as shown by the Company's records, that were employees, consultants,
agents, suppliers, customers or prospects of the Company at any time during the
year immediately preceding the termination of employment hereunder. For purposes
of this Agreement, "Good Reason" shall mean the resignation of the Employee due
to (a)a material change in the Employee's duties and responsibilities which
interfere with her ability to manage the affairs of the Company, (b)a material
modification of the Employee's duties hereunder such that such duties are not
consistent with the duties of a Vice President of Human Resources of a company
of similar size and in a similar business as the Company, or (c)a Change of
Control arising out of any merger or consolidation of the Company with any other
person in which the Company is not the surviving company or any sale of all or
substantially all of the assets of the Company to any other person.
If a court determines that the foregoing restrictions are too broad or
otherwise unreasonable under applicable law, including with respect to time or
space, the court is hereby requested and authorized by the parties hereto to
revise the foregoing restrictions to include the maximum restrictions allowed
under the applicable law. The Employee expressly agrees that breach of the
foregoing would result in irreparable injuries to the Company, that the remedy
at law for any such breach will be inadequate and that upon breach of this
provision, the Company, in addition to all other available remedies, shall be
entitled as a matter of right to seek injunctive relief in any court of
competent jurisdiction.
7. Secret Processes and Confidential Information. For the Employment
Term and thereafter, the Employee agrees to be bound by the terms and conditions
of the Company's Business Code of Conduct and the Confidentiality Agreement
executed by the Employee in favor of the Company.
-3-
<PAGE>
8. Termination.
(a) Termination. The employment of the Employee hereunder may
be terminated by either party by written notice to the other party, unless
otherwise terminated in the manner provided in this Section 8.
(b) Termination by the Company With Cause. The Company shall
have the right at any time to terminate the Employee's employment hereunder upon
the occurrence of any of the following (any such termination being referred to
as a termination for "Cause"):
(i) the commission by the Employee of any proven embezzlement of
a material amount of funds or other proven deliberate and
premeditated act of dishonesty against the financial or business
interests of the Company which adversely affects the Company;
(ii) the breach by the Employee of any material term of the
Business Code of Conduct, which beach is not cured within 30 days
subsequent to notice from the Company to the Employee specifying
such breach;
(iii) the conviction by the Employee of or the pleading by the
Employee of nolo contendere to, a felony;
(iv) the willful failure or refusal of the Employee to
materially perform the duties specified in and pursuant to Section 1
hereof or to follow the lawful directives of the Board of Directors
(provided that the lawfulness of such directives is confirmed by
general counsel to the Company), which failure or refusal is not
cured within 15 days subsequent to notice from the Company to the
Employee specifying the nature of such failure or refusal; or
(v) the breach by the Employee of any material terms of this
Agreement, which beach is not cured within 30 days subsequent to
notice from the Company to the Employee specifying such breach.
(c) Termination Upon Death or Disability. The Employee's
employment hereunder shall automatically terminate upon the Employee's death or
upon her inability to perform her duties hereunder by reason of any mental,
physical or other disability for a period of at least six consecutive months, as
determined by a qualified physician selected by the Employee from a list of five
physicians selected by the Company.
-4-
<PAGE>
(d) Termination by the Company Without Cause. The Company shall
have the right to terminate the Employee's employment at any time for any reason
without Cause.
(e) Resignation by Employee. The Employee shall have the right to
resign her employment with the Company, in good standing, provided a 60 day
notice is given, at any time for any reason.
9. Effect of Termination of Employment.
(a) With Cause; Resignation; Death or Disability. If the Employee's
employment is terminated with Cause pursuant to Section 8(b), if the Employee's
employment is terminated by the death or disability of the Employee pursuant to
Section 8(c), or if the Employee elects to terminate her employment, the
Employee's salary and other benefits specified in Section 4 shall cease at the
time of such termination; provided, however, that the Employee shall be paid for
all accrued and unused vacation and be entitled to continue to participate in
the Company's medical benefit plans to the extent required by law. Further, the
Employee shall be entitled to such life insurance and/or disability benefits in
the event of a death or disability as the Company provides pursuant to Section
4(b) above, which for information purposes only, amounts to life insurance
coverage equal to two times the Employee's base salary, subject to certain caps
and limitations under the coverage. This provision shall not be construed as
requiring the Company to carry any certain amounts of insurance and the same may
change from time to time.
(b) Without Cause by the Company. If the Employee's employment is
terminated by the Company without Cause pursuant to Section 8(d), the Employee's
salary and other benefits specified in Section 4 shall cease at the time of such
termination, provided, however, that the Employee shall be entitled to be paid
for all accrued unused vacation. The Employee shall be entitled to receive one
year's annual base salary which exists as of the time of termination, payable in
twelve (12) equal monthly installments commencing on the 1st day of the month
following termination, as "Severance Pay." The Employee shall not be required to
mitigate the amount of any payment provided for in this Section 9(b) by seeking
other employment or otherwise; provided, however, that if the Employee accepts
any other employment for compensation of any kind, deferred or otherwise, during
such period during which the said Severance Pay is being made, such Severance
Pay shall terminate and the Company shall be under no further obligations to
Employee therefor except that she shall be entitled to participate in the
Company's group insurance plans to the extent required by law. Further, provided
Employee shall have been continuously employed by the Company for a period of
three (3) years prior to such termination, all existing stock options possessed
by the Employee shall be deemed immediately vested, subject to the terms of the
1992 Employee Stock Option Plan. In the event of such termination whereby the
Severance Pay is being made as provided above, Employee's employment shall be
deemed to continue during such period that the severance
-5-
<PAGE>
payments are being made, exclusively for the purpose of exercising options
pursuant to the 1992 Employee Stock Option Plan and for the purpose of
Employee's continuing on the Company's group medical, dental, and life insurance
plans.
10. Insurance. The Company may purchase insurance on the life of
the Employee, and if it does so, the Employee shall cooperate fully by
performing all the requirements of the life insurer which are necessary
conditions precedent to the issuance of the life insurance policy issued by it.
11. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses or such other address as to which notice is given in the manner
provided herein:
If to the Employee:
Martha Ritchason
6390 Via Tierra
Boca Raton, FL 33433
If to the Company:
Boca Research, Inc.
1377 Clint Moore Road
Boca Raton, Florida 33487
Attn: Chairman
12. General.
(a) Governing Law. The terms of this Agreement shall be governed by
and construed under the laws of the State of Florida without regard to its
principles of conflicts of laws.
(b) Assignability. The Employee may not assign her interest in or
delegate her duties under this Agreement. The Company may not assign the
Agreement or the rights and obligations hereunder without consent of Employee.
(c) Enforcement Costs. In the event that either the Company or
the Employee initiates an action or claim to enforce any provision or term of
this Agreement, the costs and expenses (including attorneys' fees) of the
prevailing party shall be paid by the other party, such party to be deemed to
have prevailed if such action or claim is concluded pursuant to a court order or
final judgment which is not subject to appeal, a settlement agreement or
dismissal of the principle claims.
(d) Binding Effect; Successors. This Agreement shall be
binding upon and inure to the benefit of the Company, its permitted successors
and assigns and the
-6-
<PAGE>
Employee, her representatives and heirs. The Company will require that any
successor (whether direct or indirect, by purchase of stock or assets, by
merger, by consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, together with such successor's ultimate
parent corporation (if any), will be jointly and severally liable for the
obligations owed to the Employee hereunder and will perform this Agreement in
the same manner and to the same extent that the Company is obligated to perform
it. Any succession shall not, however, relieve or alter the Company's continuing
liability for all obligations owing to the Employee hereunder. The Employee
acknowledges and understands, however, that the Employee's employment by a
successor to the Company, if consistent with the terms and provisions of this
Agreement, will not be deemed a termination of the Executive's employment with
the Company.
(e) Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the term of employment hereunder,
this Agreement shall continue for so long as any obligations remain under this
Agreement.
(g) Indemnification. The Employee shall be entitled to rights
of indemnification as an officer of the Company to the extent that the Company
provides indemnification to its officers and directors, including the benefit of
any directors' and officers' insurance coverage maintained from time to time.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first above written.
BOCA RESEARCH, INC.
By: /S/ Anthony F. Zalenski
-----------------------
Name: Anthony F. Zalenski
Title: President and CEO
EMPLOYEE
/S/ Martha Ritchason
--------------------
Name: Martha Ritchason
-7-
<PAGE>
Exhibit 10.25
EMPLOYMENT AGREEMENT
This Agreement is made as of the 13th day of January, 2000, between
Boca Research, Inc., a Florida corporation (the "Company"), and Alex Oprescu
(the "Employee").
RECITALS
WHEREAS, the Company desires to employ the Employee as Senior Vice
President - Worldwide Business Development of the Company, and the Employee
desires to serve as Senior Vice President - Worldwide Business Development of
the Company, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. The company hereby employs the Employee as Senior Vice
President - Worldwide Business Development of the Company, and the Employee
accepts such employment for the term of employment specified in Section 3 below
(the "Employment Term"). During the Employment Term, the Employee shall, subject
to the direction of the President of the Company, oversee and direct the
business development operations of the Company and perform such other duties as
may from time to time be assigned to him by the President of the Company.
2. Performance. The Employee agrees to devote his best efforts and all
of his business time to the performance of his duties hereunder during the
Employment Term.
3. Employment Term. The Employment Term shall begin on the date first
above written and shall continue until terminated in accordance with the terms
of this Agreement (the "Employment Term").
4. Compensation.
(a) Salary. During the Employment Term, the Company shall pay the
Employee a base salary, payable in equal biweekly installments, subject to
withholding and other applicable taxes, at an annual rate of One Hundred Twenty
Thousand and no/100 Dollars ($120,000.00).
(b) Insurance; Other Benefits. The Employee shall be entitled to
participate in all employee benefit plans now existing or hereinafter
established by the Company, including, but not limited to, medical/dental
insurance plans, group life and disability insurance plans, 401(k) Plan,
pension, profit sharing or bonus plans, Employee Stock Purchase Plan, and any
other employee benefit plan or arrangement made available to executive officers
of the Company. For the purpose of determining
-1-
<PAGE>
Long Term Disability and Life Insurance benefits the Employee's base
compensation shall be equal to his base salary.
(c) Vacation. The Employee shall be entitled to take paid vacation
during each calendar year of the Employment Term as provided for in the
Company's personnel policy as it exists from time to time, to be taken at such
time or times as shall be mutually convenient and consistent with his duties and
obligations to the Company.
(d) Stock Options. The vesting of all of the Employee's existing
options will automatically accelerate and become fully vested immediately upon a
"Change of Control." "Change of Control," for purposes of this Agreement, shall
mean the occurrence of any of the following events:
i) any merger or consolidation of the Company with any other
persons in which the Company is not the surviving company,
ii) any sale of all or of substantially all of the assets of the
Company to any other person resulting in the Company leaving the
telecommunications industry,
iii) the acquisition by any person of 40% or more of the
outstanding voting stock of the Company, or
iv) the election of any directors of the Company if such
directors were not nominated for election as directors by the Board
of Directors of the Company and if such directors constitute a
majority of all of the members of the Board of Directors of the
Company.
Notwithstanding the foregoing, in the event the Employee shall have
been employed by the Company or any of its subsidiaries for less than three (3)
years from his first date of hire, and in the event a Change of Control occurs
as above defined, only those options which would otherwise have vested during
such year in which the event of Change of Control occurs shall accelerate and
vest as a result of such Change of Control.
5. Expenses. The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with the policies established by the Board of
Directors from time to time and upon receipt of appropriate documentation.
6. Agreement Not to Compete. The Employee agrees that during the
Employment Term and any Subsequent Employment Term and during the
Non-Competition Period (defined below) he will not in any capacity, either
separately, jointly, or in association with others, directly or indirectly, as
an officer, director, consultant, agent, employee, owner, partner, stockholder
or otherwise, engage or have a financial
-2-
<PAGE>
interest in any business which competes with the Company in the United States
(excepting only the ownership of not more than 5% of the outstanding securities
of any class listed on an exchange or regularly traded in the over-the-counter
market). The "Non-Competition Period" shall mean the period ending one year
after either (a)the termination of his employment hereunder by the Company ,
provided that the Company continues to comply with its obligations under Section
8(b) hereof during such one year period, or (b)the termination of his employment
hereunder by virtue of the Employee's resignation, unless such resignation is
for Good Reason (as defined below). The Employee further agrees that during the
Non-Competition Period, except in connection with the performance of services
hereunder, he will not in any capacity, either separately, jointly or in
association with others, directly or indirection, solicit or contact with regard
to a business competitor of the Company any of the Company's employees,
consultants, agents or suppliers, customers or prospects, as shown by the
Company's records, that were employees, consultants, agents, suppliers,
customers or prospects of the Company at any time during the year immediately
preceding the termination of employment hereunder. For purposes of this
Agreement, "Good Reason" shall mean the resignation of the Employee due to (a)a
material change in the Employee's duties and responsibilities which interfere
with his ability to manage the affairs of the Company, (b)a material
modification of the Employee's duties hereunder such that such duties are not
consistent with the duties of a Senior Vice President - Worldwide Business
Development of a company of similar size and in a similar business as the
Company, or (c)a Change of Control arising out of any merger or consolidation of
the Company with any other person in which the Company is not the surviving
company or any sale of all or substantially all of the assets of the Company to
any other person.
If a court determines that the foregoing restrictions are too broad or
otherwise unreasonable under applicable law, including with respect to time or
space, the court is hereby requested and authorized by the parties hereto to
revise the foregoing restrictions to include the maximum restrictions allowed
under the applicable law. The Employee expressly agrees that breach of the
foregoing would result in irreparable injuries to the Company, that the remedy
at law for any such breach will be inadequate and that upon breach of this
provision, the Company, in addition to all other available remedies, shall be
entitled as a matter of right to seek injunctive relief in any court of
competent jurisdiction.
7. Secret Processes and Confidential Information. For the Employment
Term and thereafter, the Employee agrees to be bound by the terms and conditions
of the Company's Business Code of Conduct and the Confidentiality Agreement
executed by the Employee in favor of the Company.
-3-
<PAGE>
8. Termination.
(a) Termination. The employment of the Employee hereunder may be
terminated by either party by written notice to the other party, unless
otherwise terminated in the manner provided in this Section 8.
(b) Termination by the Company With Cause. The Company shall have
the right at any time to terminate the Employee's employment hereunder upon the
occurrence of any of the following (any such termination being referred to as a
termination for "Cause"):
(i) the commission by the Employee of any proven embezzlement of
a material amount of funds or other proven deliberate and
premeditated act of dishonesty against the financial or business
interests of the Company which adversely affects the Company;
(ii) the breach by the Employee of any material term of the
Business Code of Conduct, which beach is not cured within 30 days
subsequent to notice from the Company to the Employee specifying
such breach;
(iii) the conviction by the Employee of or the pleading by the
Employee of nolo contendere to, a felony;
(iv) the willful failure or refusal of the Employee to
materially perform the duties specified in and pursuant to Section 1
hereof or to follow the lawful directives of the Board of Directors
(provided that the lawfulness of such directives is confirmed by
general counsel to the Company), which failure or refusal is not
cured within 15 days subsequent to notice from the Company to the
Employee specifying the nature of such failure or refusal; or
(v) the breach by the Employee of any material terms of this
Agreement, which beach is not cured within 30 days subsequent to
notice from the Company to the Employee specifying such breach.
(c) Termination Upon Death or Disability. The Employee's
employment hereunder shall automatically terminate upon the Employee's death or
upon his inability to perform his duties hereunder by reason of any mental,
physical or other disability for a period of at least six consecutive months, as
determined by a qualified physician selected by the Employee from a list of five
physicians selected by the Company.
-4-
<PAGE>
(d) Termination by the Company Without Cause. The Company shall
have the right to terminate the Employee's employment at any time for any reason
without Cause.
(e) Resignation by Employee. The Employee shall have the right
to resign his employment with the Company, in good standing, provided a 60 day
notice is given, at any time for any reason.
9. Effect of Termination of Employment.
(a) With Cause; Resignation; Death or Disability. If the Employee's
employment is terminated with Cause pursuant to Section 8(b), if the Employee's
employment is terminated by the death or disability of the Employee pursuant to
Section 8(c), or if the Employee elects to terminate his employment, the
Employee's salary and other benefits specified in Section 4 shall cease at the
time of such termination; provided, however, that the Employee shall be paid for
all accrued and unused vacation and be entitled to continue to participate in
the Company's medical benefit plans to the extent required by law. Further, the
Employee shall be entitled to such life insurance and/or disability benefits in
the event of a death or disability as the Company provides pursuant to Section
4(b) above, which for information purposes only, amounts to life insurance
coverage equal to two times the Employee's base salary, subject to certain caps
and limitations under the coverage. This provision shall not be construed as
requiring the Company to carry any certain amounts of insurance and the same may
change from time to time.
(b) Without Cause by the Company. If the Employee's employment is
terminated by the Company without Cause pursuant to Section 8(d), the Employee's
salary and other benefits specified in Section 4 shall cease at the time of such
termination, provided, however, that the Employee shall be entitled to be paid
for all accrued unused vacation. The Employee shall be entitled to receive one
year's annual base salary which exists as of the time of termination, payable in
twelve (12) equal monthly installments commencing on the 1st day of the month
following termination, as "Severance Pay." The Employee shall not be required to
mitigate the amount of any payment provided for in this Section 9(b) by seeking
other employment or otherwise; provided, however, that if the Employee accepts
any other employment for compensation of any kind, deferred or otherwise, during
such period during which the said Severance Pay is being made, such Severance
Pay shall terminate and the Company shall be under no further obligations to
Employee therefor except that he shall be entitled to participate in the
Company's group insurance plans to the extent required by law. Further, provided
Employee shall have been continuously employed by the Company for a period of
three (3) years prior to such termination, all existing stock options possessed
by the Employee shall be deemed immediately vested, subject to the terms of the
1992 Employee Stock Option Plan. In the event of such termination whereby the
Severance Pay is being made as provided above, Employee's employment shall be
deemed to continue during such period that the severance payments
-5-
<PAGE>
are being made, exclusively for the purpose of exercising options pursuant to
the 1992 Employee Stock Option Plan and for the purpose of Employee's continuing
on the Company's group medical, dental, and life insurance plans.
10. Insurance. The Company may purchase insurance on the life of the
Employee, and if it does so, the Employee shall cooperate fully by performing
all the requirements of the life insurer which are necessary conditions
precedent to the issuance of the life insurance policy issued by it.
11. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses or such other address as to which notice is given in the manner
provided herein:
If to the Employee:
Alex Oprescu
_____________________________
_____________________________
If to the Company:
Boca Research, Inc.
1377 Clint Moore Road
Boca Raton, Florida 33487
Attn: Chairman
12. General.
(a) Governing Law. The terms of this Agreement shall be governed by
and construed under the laws of the State of Florida without regard to its
principles of conflicts of laws.
(b) Assignability. The Employee may not assign his interest in or
delegate his duties under this Agreement. The Company may not assign the
Agreement or the rights and obligations hereunder without consent of Employee.
(c) Enforcement Costs. In the event that either the Company or
the Employee initiates an action or claim to enforce any provision or term of
this Agreement, the costs and expenses (including attorneys' fees) of the
prevailing party shall be paid by the other party, such party to be deemed to
have prevailed if such action or claim is concluded pursuant to a court order or
final judgment which is not subject to appeal, a settlement agreement or
dismissal of the principle claims.
(d) Binding Effect; Successors. This Agreement shall be
binding upon and inure to the benefit of the Company, its permitted successors
and assigns and the
-6-
<PAGE>
Employee, his representatives and heirs. The Company will require that any
successor (whether direct or indirect, by purchase of stock or assets, by
merger, by consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, together with such successor's ultimate
parent corporation (if any), will be jointly and severally liable for the
obligations owed to the Employee hereunder and will perform this Agreement in
the same manner and to the same extent that the Company is obligated to perform
it. Any succession shall not, however, relieve or alter the Company's continuing
liability for all obligations owing to the Employee hereunder. The Employee
acknowledges and understands, however, that the Employee's employment by a
successor to the Company, if consistent with the terms and provisions of this
Agreement, will not be deemed a termination of the Executive's employment with
the Company.
(e) Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the term of employment hereunder,
this Agreement shall continue for so long as any obligations remain under this
Agreement.
(g) Indemnification. The Employee shall be entitled to rights
of indemnification as an officer of the Company to the extent that the Company
provides indemnification to its officers and directors, including the benefit of
any directors' and officers' insurance coverage maintained from time to time.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first above written.
BOCA RESEARCH, INC.
By: /S/ Robert W. Ferguson
----------------------
Name: Robert W. Ferguson
Title: Chief Executive Officer
EMPLOYEE
/S/ Alex Oprescu
----------------
Name: Alex Oprescu
-7-
<PAGE>
Exhibit 10.26
EMPLOYMENT AGREEMENT
This Agreement is made as of the 17th day of March, 2000, between Boca
Research, Inc., a Florida corporation (the "Company"), and Larry L. Light (the
"Employee").
RECITALS
WHEREAS, the Company desires to employ the Employee as Chief Operating
Officer of Inprimis Technologies, Inc., a subsidiary of the Company, and the
Employee desires to serve as Chief Operating Officer of Inprimis Technologies,
Inc., on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. The company hereby employs the Employee as Chief
Operating Officer of Inprimis Technologies, Inc., a subsidiary of the Company,
and the Employee accepts such employment for the term of employment specified in
Section 3 below (the "Employment Term"). During the Employment Term, the
Employee shall, subject to the direction of the President of the Company,
oversee and direct the operations of Inprimis Technologies, Inc. and perform
such other duties as may from time to time be assigned to him by the President
of the Company.
2. Performance. The Employee agrees to devote his best efforts and all
of his business time to the performance of his duties hereunder during the
Employment Term.
3. Employment Term. The Employment Term shall begin on the date first
above written and shall continue until terminated in accordance with the terms
of this Agreement (the "Employment Term").
4. Compensation.
(a) Salary. During the Employment Term, the Company shall pay
the Employee a base salary, payable in equal biweekly installments, subject to
withholding and other applicable taxes, at an annual rate of Two Hundred
Thousand and no/100 Dollars ($200,000.00).
(b) Insurance; Other Benefits. The Employee shall be entitled
to participate in all employee benefit plans now existing or hereinafter
established by the Company, including, but not limited to, medical/dental
insurance plans, group life and disability insurance plans, 401(k) Plan,
pension, profit sharing or bonus plans, Employee Stock Purchase Plan, and any
other employee benefit plan or arrangement made available to executive officers
of the Company. For the purpose of determining
-1-
<PAGE>
Long Term Disability and Life Insurance benefits the Employee's base
compensation shall be equal to his base salary.
(c) Vacation. The Employee shall be entitled to take paid
vacation during each calendar year of the Employment Term as provided for in the
Company's personnel policy as it exists from time to time, to be taken at such
time or times as shall be mutually convenient and consistent with his duties and
obligations to the Company.
(d) Stock Options. The vesting of all of the Employee's existing
options will automatically accelerate and become fully vested immediately upon a
"Change of Control." "Change of Control," for purposes of this Agreement, shall
mean the occurrence of any of the following events:
i) any merger or consolidation of the Company with any other
persons in which the Company is not the surviving company,
ii) any sale of all or of substantially all of the assets of the
Company to any other person resulting in the Company leaving the
telecommunications industry,
iii) the acquisition by any person of 40% or more of the
outstanding voting stock of the Company, or
iv) the election of any directors of the Company if such
directors were not nominated for election as directors by the Board
of Directors of the Company and if such directors constitute a
majority of all of the members of the Board of Directors of the
Company.
Notwithstanding the foregoing, in the event the Employee shall
have been employed by the Company or any of its subsidiaries for less than three
(3) years after his first date of hire, and in the event a Change of Control
occurs as above defined, only those options which would otherwise have vested
during such year in which the event of Change of Control occurs shall accelerate
and vest as a result of such Change of Control.
5. Expenses. The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with the policies established by the Board of
Directors from time to time and upon receipt of appropriate documentation.
6. Agreement Not to Compete. The Employee agrees that during the
Employment Term and any Subsequent Employment Term and during the
Non-Competition Period (defined below) he will not in any capacity, either
separately, jointly, or in association with others, directly or indirectly, as
an officer, director, consultant, agent, employee, owner, partner, stockholder
or otherwise, engage or have a financial
-2-
<PAGE>
interest in any business which competes with the Company in the United States
(excepting only the ownership of not more than 5% of the outstanding securities
of any class listed on an exchange or regularly traded in the over-the-counter
market). The "Non-Competition Period" shall mean the period ending one year
after either (a)the termination of his employment hereunder by the Company ,
provided that the Company continues to comply with its obligations under Section
8(b) hereof during such one year period, or (b)the termination of his employment
hereunder by virtue of the Employee's resignation, unless such resignation is
for Good Reason (as defined below). The Employee further agrees that during the
Non-Competition Period, except in connection with the performance of services
hereunder, he will not in any capacity, either separately, jointly or in
association with others, directly or indirection, solicit or contact with regard
to a business competitor of the Company any of the Company's employees,
consultants, agents or suppliers, customers or prospects, as shown by the
Company's records, that were employees, consultants, agents, suppliers,
customers or prospects of the Company at any time during the year immediately
preceding the termination of employment hereunder. For purposes of this
Agreement, "Good Reason" shall mean the resignation of the Employee due to (a)a
material change in the Employee's duties and responsibilities which interfere
with his ability to manage the affairs of the Company, (b)a material
modification of the Employee's duties hereunder such that such duties are not
consistent with the duties of a Chief Technology Officer of a company of similar
size and in a similar business as the Company, or (c)a Change of Control arising
out of any merger or consolidation of the Company with any other person in which
the Company is not the surviving company or any sale of all or substantially all
of the assets of the Company to any other person.
If a court determines that the foregoing restrictions are too broad or
otherwise unreasonable under applicable law, including with respect to time or
space, the court is hereby requested and authorized by the parties hereto to
revise the foregoing restrictions to include the maximum restrictions allowed
under the applicable law. The Employee expressly agrees that breach of the
foregoing would result in irreparable injuries to the Company, that the remedy
at law for any such breach will be inadequate and that upon breach of this
provision, the Company, in addition to all other available remedies, shall be
entitled as a matter of right to seek injunctive relief in any court of
competent jurisdiction.
7. Secret Processes and Confidential Information. For the Employment
Term and thereafter, the Employee agrees to be bound by the terms and conditions
of the Company's Business Code of Conduct and the Confidentiality Agreement
executed by the Employee in favor of the Company.
-3-
<PAGE>
8. Termination.
(a) Termination. The employment of the Employee hereunder may
be terminated by either party by written notice to the other party, unless
otherwise terminated in the manner provided in this Section 8.
(b) Termination by the Company With Cause. The Company shall
have the right at any time to terminate the Employee's employment hereunder upon
the occurrence of any of the following (any such termination being referred to
as a termination for "Cause"):
(i) the commission by the Employee of any proven embezzlement of
a material amount of funds or other proven deliberate and
premeditated act of dishonesty against the financial or business
interests of the Company which adversely affects the Company;
(ii) the breach by the Employee of any material term of the
Business Code of Conduct, which beach is not cured within 30 days
subsequent to notice from the Company to the Employee specifying
such breach;
(iii) the conviction by the Employee of or the pleading by the
Employee of nolo contendere to, a felony;
(iv) the willful failure or refusal of the Employee to
materially perform the duties specified in and pursuant to Section 1
hereof or to follow the lawful directives of the Board of Directors
(provided that the lawfulness of such directives is confirmed by
general counsel to the Company), which failure or refusal is not
cured within 15 days subsequent to notice from the Company to the
Employee specifying the nature of such failure or refusal; or
(v) the breach by the Employee of any material terms of this
Agreement, which beach is not cured within 30 days subsequent to
notice from the Company to the Employee specifying such breach.
(c) Termination Upon Death or Disability. The Employee's
employment hereunder shall automatically terminate upon the Employee's death or
upon his inability to perform his duties hereunder by reason of any mental,
physical or other disability for a period of at least six consecutive months, as
determined by a qualified physician selected by the Employee from a list of five
physicians selected by the Company.
-4-
<PAGE>
(d) Termination by the Company Without Cause. The Company shall
have the right to terminate the Employee's employment at any time
for any reason without Cause.
(e) Resignation by Employee. The Employee shall have the right to
resign his employment with the Company, in good standing, provided a
60 day notice is given, at any time for any reason.
9. Effect of Termination of Employment.
(a) With Cause; Resignation; Death or Disability. If the Employee's
employment is terminated with Cause pursuant to Section 8(b), if the Employee's
employment is terminated by the death or disability of the Employee pursuant to
Section 8(c), or if the Employee elects to terminate his employment, the
Employee's salary and other benefits specified in Section 4 shall cease at the
time of such termination; provided, however, that the Employee shall be paid for
all accrued and unused vacation and be entitled to continue to participate in
the Company's medical benefit plans to the extent required by law. Further, the
Employee shall be entitled to such life insurance and/or disability benefits in
the event of a death or disability as the Company provides pursuant to Section
4(b) above, which for information purposes only, amounts to life insurance
coverage equal to two times the Employee's base salary, subject to certain caps
and limitations under the coverage. This provision shall not be construed as
requiring the Company to carry any certain amounts of insurance and the same may
change from time to time.
(b) Without Cause by the Company. If the Employee's employment is
terminated by the Company without Cause pursuant to Section 8(d), the Employee's
salary and other benefits specified in Section 4 shall cease at the time of such
termination, provided, however, that the Employee shall be entitled to be paid
for all accrued unused vacation. The Employee shall be entitled to receive one
year's annual base salary which exists as of the time of termination, payable in
twelve (12) equal monthly installments commencing on the 1st day of the month
following termination, as "Severance Pay." The Employee shall not be required to
mitigate the amount of any payment provided for in this Section 9(b) by seeking
other employment or otherwise; provided, however, that if the Employee accepts
any other employment for compensation of any kind, deferred or otherwise, during
such period during which the said Severance Pay is being made, such Severance
Pay shall terminate and the Company shall be under no further obligations to
Employee therefor except that he shall be entitled to participate in the
Company's group insurance plans to the extent required by law. Further, provided
Employee shall have been continuously employed by the Company for a period of
three (3) years prior to such termination, all existing stock options possessed
by the Employee shall be deemed immediately vested, subject to the terms of the
1992 Employee Stock Option Plan. In the event of such termination whereby the
Severance Pay is being made as provided above, Employee's employment shall be
deemed to continue during such period that the severance
-5-
<PAGE>
payments are being made, exclusively for the purpose of exercising options
pursuant to the 1992 Employee Stock Option Plan and for the purpose of
Employee's continuing on the Company's group medical, dental, and life insurance
plans.
10. Insurance. The Company may purchase insurance on the life of the
Employee, and if it does so, the Employee shall cooperate fully by performing
all the requirements of the life insurer which are necessary conditions
precedent to the issuance of the life insurance policy issued by it.
11. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses or such other address as to which notice is given in the manner
provided herein:
If to the Employee:
Larry L. Light
_____________________________
_____________________________
If to the Company:
Boca Research, Inc.
1601 Clint Moore Road
Boca Raton, Florida 33487
Attn: Chairman
12. General.
(a) Governing Law. The terms of this Agreement shall be governed
by and construed under the laws of the State of Florida without regard to its
principles of conflicts of laws.
(b) Assignability. The Employee may not assign his interest in or
delegate his duties under this Agreement. The Company may not assign the
Agreement or the rights and obligations hereunder without consent of Employee.
(c) Enforcement Costs. In the event that either the Company or
the Employee initiates an action or claim to enforce any provision or term of
this Agreement, the costs and expenses (including attorneys' fees) of the
prevailing party shall be paid by the other party, such party to be deemed to
have prevailed if such action or claim is concluded pursuant to a court order or
final judgment which is not subject to appeal, a settlement agreement or
dismissal of the principle claims.
(d) Binding Effect; Successors. This Agreement shall be binding
upon and inure to the benefit of the Company, its permitted successors and
assigns and the
-6-
<PAGE>
Employee, his representatives and heirs. The Company will require that any
successor (whether direct or indirect, by purchase of stock or assets, by
merger, by consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, together with such successor's ultimate
parent corporation (if any), will be jointly and severally liable for the
obligations owed to the Employee hereunder and will perform this Agreement in
the same manner and to the same extent that the Company is obligated to perform
it. Any succession shall not, however, relieve or alter the Company's continuing
liability for all obligations owing to the Employee hereunder. The Employee
acknowledges and understands, however, that the Employee's employment by a
successor to the Company, if consistent with the terms and provisions of this
Agreement, will not be deemed a termination of the Executive's employment with
the Company.
(e) Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the term of employment hereunder,
this Agreement shall continue for so long as any obligations remain under this
Agreement.
(g) Indemnification. The Employee shall be entitled to rights
of indemnification as an officer of the Company to the extent that the Company
provides indemnification to its officers and directors, including the benefit of
any directors' and officers' insurance coverage maintained from time to time.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first above written.
BOCA RESEARCH, INC.
By: /S/ Robert W. Ferguson
----------------------
Name: Robert W. Ferguson
Title: Chairman & CEO
EMPLOYEE
/S/ Larry L. Light
------------------
Name: Larry L. Light
-7-
<PAGE>
Exhibit 10.27
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
BOUNDLESS TECHNOLOGIES, INC.
AND
BOCA RESEARCH, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS.......................................................2
- ---------------------
1.1 Definitions.....................................................3
--- -----------
ARTICLE 2 PURCHASE AND CONSIDERATION.......................................14
- ------------------------------------
2.1 Purchase and Sale of Assets to be Transferred..................14
--- ---------------------------------------------
2.2 Assets Not to be Transferred...................................15
--- ----------------------------
2.3 Liabilities and Obligations....................................16
--- ---------------------------
2.4 Consideration..................................................16
--- -------------
2.5 Transfer Taxes.................................................17
--- --------------
ARTICLE 3 CLOSING..........................................................17
- -----------------
3.1 The Closing....................................................17
--- -----------
3.2 Payment........................................................17
--- -------
3.3 Buyer's Additional Deliveries..................................18
--- -----------------------------
3.4 Seller's Deliveries............................................18
--- -------------------
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER.........................20
- --------------------------------------------------
4.1 Organization of Seller.........................................20
--- ----------------------
4.2 Authorization..................................................20
--- -------------
4.3 Taxes..........................................................22
--- -----
4.4 Condition of Assets............................................22
--- -------------------
4.5 Governmental Permits...........................................22
--- --------------------
4.6 Title to Tangible Property.....................................23
--- --------------------------
4.7 Intellectual Property..........................................24
--- ---------------------
4.8 Employees......................................................24
--- ---------
4.9 Contracts......................................................26
--- ---------
4.10 No Violation, Litigation or Regulatory Action..................27
---- ---------------------------------------------
4.11 Environmental Matters..........................................27
---- ---------------------
4.12 Financial Data.................................................31
---- --------------
4.13 No Finder......................................................31
---- ---------
4.14 Leased Facility................................................31
---- ---------------
4.15 Disclosure.....................................................34
---- ----------
4.16 HR Representation..............................................34
---- -----------------
4.17 Year 2000 Compliance...........................................35
---- --------------------
4.18 Seller Diligence...............................................35
---- ----------------
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER..........................35
- -------------------------------------------------
5.1 Organization of Buyer..........................................35
--- ---------------------
5.2 Authorization..................................................36
--- -------------
5.3 No Finder......................................................37
--- ---------
5.4 Cash Consideration.............................................37
--- ------------------
5.5 Buyer Diligence................................................37
--- ---------------
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<PAGE>
5.6 Continuation of Operations and Employment......................37
--- -----------------------------------------
ARTICLE 6 ACTION PRIOR TO THE CLOSING DATE.................................38
- ------------------------------------------
6.1 Investigation of the Operations by Buyer.......................38
--- ----------------------------------------
6.2 Preserve Accuracy of Representations and Warranties............39
--- ---------------------------------------------------
6.3 Transferred Agreements, Transferred Assets and the New Lease...39
--- ------------------------------------------------------------
6.4 Notice of Certain Matters......................................40
--- -------------------------
6.5 Operations Prior to the Closing................................41
--- -------------------------------
6.6 Confidentiality................................................43
--- ---------------
6.7 Leased Facility, Purchased Assets, Books, Records, and Reports.44
--- --------------------------------------------------------------
ARTICLE 7 ADDITIONAL AGREEMENTS............................................45
- -------------------------------
7.1 Employees......................................................45
--- ---------
7.2 Taxes..........................................................47
--- -----
7.3 Product Warranty...............................................48
--- ----------------
7.4 Inspection of Leased Facility..................................48
--- -----------------------------
7.5 Bulk Transfer and Other Laws...................................48
--- ----------------------------
7.6 Non-Competition................................................49
--- ---------------
7.7 8-K Filing.....................................................49
--- ----------
7.8 Exclusive Dealings.............................................49
--- ------------------
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.....................50
- ------------------------------------------------------
8.1 No Misrepresentation or Breach of Covenants and Warranties.....50
--- ----------------------------------------------------------
8.2 No Restraint or Litigation.....................................50
--- --------------------------
8.3 Necessary Approvals............................................50
--- -------------------
8.4 Employees......................................................51
--- ---------
8.5 Additional Agreements..........................................51
--- ---------------------
8.6 No Material Adverse Change.....................................51
--- --------------------------
8.7 New Lease......................................................51
--- ---------
8.8 Consent of Lenders.............................................51
--- ------------------
8.9 Legal Opinion..................................................51
--- -------------
8.10 Deliverables...................................................52
---- ------------
8.11 Casualties.....................................................52
---- ----------
8.12 Due Diligence..................................................52
---- -------------
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER....................53
- -------------------------------------------------------
9.1 No Misrepresentation or Breach of Covenants and Warranties.....53
--- ----------------------------------------------------------
9.2 No Restraint or Litigation.....................................53
--- --------------------------
9.3 Necessary Governmental Approvals...............................54
--- --------------------------------
9.4 Additional Agreements..........................................54
--- ---------------------
9.5 Legal Opinion..................................................54
--- -------------
9.6 Finova Revolver................................................55
--- ---------------
9.7 New Lease......................................................55
--- ---------
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<PAGE>
ARTICLE 10 INDEMNIFICATION.................................................55
- --------------------------
10.1 Indemnification by Seller......................................55
---- -------------------------
10.2 Indemnification by Buyer.......................................56
---- ------------------------
10.3 Notice of Claims...............................................58
---- ----------------
10.4 Third Person Claims............................................58
---- -------------------
10.5 Environmental Indemnification by Seller........................61
---- ---------------------------------------
10.6 Environmental Indemnification by Buyer.........................62
---- --------------------------------------
10.7 Limitation on Amount...........................................65
---- --------------------
ARTICLE 11 TERMINATION.....................................................65
- ----------------------
11.1 Termination....................................................65
---- -----------
11.2 Notice of Termination..........................................66
---- ---------------------
11.3 Effect of Termination..........................................66
---- ---------------------
ARTICLE 12 GENERAL PROVISIONS..............................................67
- -----------------------------
12.1 Survival of Obligations........................................67
---- -----------------------
12.2 No Public Announcements........................................67
---- -----------------------
12.3 Notices........................................................67
---- -------
12.4 Successors and Assigns.........................................69
---- ----------------------
12.5 Access to Records After Closing Date...........................69
---- ------------------------------------
12.6 Entire Agreements; Amendments..................................69
---- -----------------------------
12.7 Interpretation.................................................70
---- --------------
12.8 Waivers........................................................70
---- -------
12.9 Expenses.......................................................70
---- --------
12.10 Partial Invalidity.............................................70
----- ------------------
12.11 Execution in Counterparts......................................71
----- -------------------------
12.12 Further Assurances.............................................71
----- ------------------
12.13 Governing Law..................................................72
----- -------------
12.14 Dispute Resolution.............................................72
----- ------------------
12.15 Third Parties..................................................74
----- -------------
12.16 Specific Performance...........................................74
----- --------------------
12.17 Interpretation.................................................75
----- --------------
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<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement"), dated as of January 24,
2000, by and between Boundless Technologies, Inc., a Delaware corporation
("Boundless" or "Buyer") and Boca Research, Inc. ("Boca" or "Seller").
RECITALS
A. Seller desires to sell, directly or through a subsidiary, certain
assets related to its manufacturing operations (the "Operations") at 1377 Clint
Moore Road, Boca Raton, Florida, related to the manufacture of the modems and
other products set forth on Exhibit A attached hereto (the "Products") and Buyer
desires to purchase, directly or through a subsidiary, said assets related to
the Operations in accordance with the terms and conditions of this Agreement.
B. In connection with the sale of the assets related to the Operations
by Seller to Buyer, Buyer will offer employment to certain of Seller's employees
associated with the Operation to be released by Seller, all in accordance with
the terms and conditions of this Agreement.
C. Seller and Buyer desire that this Agreement constitute an important
step in the continuing business relationship between Seller and Buyer.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants, representations, warranties, conditions and agreements herein
contained, the parties hereto hereby agree as follows:
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ARTICLE 1
DEFINITIONS
1.1 Definitions
In this Agreement (including exhibits and schedules), the following
terms have the meanings specified or referred to in this Section 1.1 and shall
be equally applicable to both the singular and plural forms. Any agreement
referred to below shall mean such agreement as amended, supplemented and
modified from time to time to the extent permitted by the applicable provisions
thereof and by this Agreement.
"AAA" has the meaning specified in Section 12.14 hereof.
"Accounts Receivable" means all accounts receivable related to the
Operations.
"Additional Agreements" means all agreements (including exhibits and
schedules), instruments and documents being or to be executed and delivered
under this Agreement or in connection herewith, including, but not limited to,
the following: the Supply Agreement and the Transition Services Agreement.
"Affiliate" means any entity which controls, is controlled by, or is
under common control with, Seller or Buyer, as the case may be. An entity shall
be deemed to be in control of another entity if, and for so long as, it owns or
controls more than fifty percent (50%) of the shares of the subject entity
entitled to vote in the election of directors (or, in the case of an entity that
is not a corporation, for the election of the corresponding managing authority)
or otherwise possesses,
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directly or indirectly, the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities or by contract, or otherwise.
"Assumed Liabilities" has the meaning specified in Section 2.3 hereof.
"Benefit Arrangement" has the meaning specified in Section 4.8 hereof.
"Boca" has the meaning specified in the first paragraph of this
Agreement.
"Boundless" has the meaning specified in the first paragraph of this
Agreement.
"Buyer" has the meaning specified in the first paragraph of this
Agreement.
"Buyer Environmental Liabilities" have the meanings specified in
Section 10.6 hereof.
"Buyer Group Member" means Buyer, its officers, directors,
stockholders, agents and Affiliates.
"Claim" means any pending claim, demand, assessment, legal,
administrative or arbitral proceeding, cause of action, notice or demand
involving any Person.
"Claim Notice" has the meaning specified in Section 10.3 hereof.
"Closing" has the meaning specified in Section 3.1 hereof.
"Closing Date" has the meaning specified in Section 3.1 hereof.
"Closing Date Payment" has the meaning specified in Section 3.2 hereof.
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"COBRA" has the meaning specified in Section 4.8 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Components" means component parts, raw materials, supplies and other
materials which are of a type generally quantified in the bills of materials and
which are required for the Operations.
"Confidentiality Agreement" means the Confidentiality Agreement dated
October 21, 1999, between Seller and Buyer, attached as Exhibit A hereto.
"Contamination" means the presence of any Hazardous Material in the
soil, groundwater, surface water, ambient air, or building or other materials
constituting the referenced property in a concentration that exceeds the
concentration allowed by applicable Environmental Laws, Governmental Orders and
other agreements, covenants and restrictions applicable thereto, or requires
investigation, remediation, removal, or monitoring under the Environmental Laws.
"Contracts" has the meaning specified in Section 4.9 hereof.
"Disclosure Letter" has the meaning specified in the introductory
paragraph to Article 4 hereof.
"Disposal Facility" means all transporters, locations, landfills,
disposal sites, storage sites, treatment facilities, recyclers and incinerators
to which Hazardous Materials generated at an Operations Property in connection
with a Remediation Activity have been transferred or transported for storage,
treatment or disposal.
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"Encumbrance" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restrictions of any kind.
"Environmental Laws" mean all Requirements of Laws which relate to any
Hazardous Material or the use, handling, transportation, production, spill,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, release,
threatened release, leaching, migration, emission, sale, or storage of, or the
exposure of any Person to, a Hazardous Material.
"Environmental Matters" means any matter directly relating to or
directly resulting from acts or omissions by the Company which result in a
violation or a claim of a violation of Environmental Laws including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C.ss.ss.9601 et seq., the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C.ss.ss.11001 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C.ss.ss.6901 et seq.., the Toxic
Substances Control Act, 15 U.S.C.ss.ss.2601 et seq., the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C.ss.ss.136 et seq., the Clean Air Act, 42
U.S.C.ss.ss.7401 et seq.., the Clean Water Act (Federal Water Pollution Control
Act), 33 U.S.C.ss.ss.1251 et seq., the Safe Drinking Water Act, 42
U.S.C.ss.ss.300f et seq., the Occupational Safety and Health Act, 29
U.S.C.ss.ss.641 et seq., the Hazardous Materials Transportation Act, 49
U.S.C.ss.ss.1801 et seq., as any of the above statutes have been amended, all
rules and regulations promulgated pursuant to any of the above statutes, and
other foreign, federal, state or local law, statutes, ordinances, rules or
regulations governing Environmental Matters, as the same have been amended,
including any
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common law cause of action providing any right or remedy with respect to
Environmental Matters, and all applicable judicial decisions, orders, and
decrees relating to Environmental Matters.
"Environmental Permit" means any approval, permit, license, clearance,
transfer approval, condition or consent of any applicable Governmental Body or
other person reasonably necessary for the conduct of any Hazardous Material
Activity of the Operations as presently conducted under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Lease" has the meaning specified in Section 4.14(a) hereof.
"Expenses" means any and all costs and expenses incurred, including,
without limitation, court filing fees, court costs, arbitration fees or costs,
witness fees, and fees and expenses of legal counsel, investigators, expert
witnesses, consultants, accountants and other professionals.
"GAAP" means the generally accepted accounting principles in the United
States.
"Governmental Body" means any foreign, federal, state, county, local,
district, public authority, public agency, or any other political subdivision,
public corporation, or governmental or regulatory authority whether foreign or
domestic.
"Governmental Order" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal, or any Governmental
Body and any award in any arbitration proceeding.
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"Governmental Permits" has the meaning specified in Section 4.5 hereof.
"Hazardous Material" means any pollutants, contaminants, hazardous or
toxic substances or other material or substance, waste, constituents or
chemicals that are prohibited or regulated by or form the basis of liability
under any Requirements of Law dealing with the environment including
"Environmental Laws" or other matters or that is designated by any applicable
Governmental Body to be radioactive, toxic, hazardous or otherwise a danger to
health, reproduction or the environment.
"Hazardous Material Activity" means the transportation, transfer,
recycling, storage, use, treatment, manufacture, investigation, removal,
remediation, release, exposure of any Person to, or sale or distribution of, any
Hazardous Material or any equipment or product containing a Hazardous Material.
"Indemnified Party" means a Person indemnified pursuant to Section 10.3
hereof.
"Indemnitor" means a Person providing indemnification pursuant to
Article 10 hereof.
"Instrument of Assignment" means an instrument of assignment conveying
the Purchased Assets to Buyer.
"Intellectual Property" means (a) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made the
subject of a pending patent application or applications; (b) ideas and
conceptions of potentially patentable subject matter, including without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications; (c) all statutory invention registrations,
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patents, patent registrations and patent applications wherever registered
(including all reissues, divisions, continuations, continuations-in-part,
extensions and reexaminations) and all rights therein provided by law,
multinational treaties or conventions and all improvements to the inventions
disclosed in each such registration, patent or application (collectively
"Patents"); (d) trademarks, service marks, trade dress, logos, trade names and
corporate names, including all of the goodwill associated therewith, whether or
not registered, including all common law rights, and registrations and
applications for registration thereof, including, but not limited to, all marks
registered in the United States Patent and Trademark Office, the Trademark
Offices of the States and Territories of the United States of America, and the
trademark offices of other nations throughout the world, and all rights therein
provided by multinational treaties or conventions (collectively "Trademarks");
(e) copyrights, whether or not registered, and registrations and applications
for registration thereof, and all rights therein provided by law, multinational
treaties or conventions (collectively "Copyrights"); (f) mask works or
registrations of mask works; (g) trade secrets and confidential, technical
information (including ideas, formulas, compositions, inventions, and
conceptions of inventions whether patentable or unpatentable and whether or not
reduced to practice) (collectively "Trade Secrets"); (h) technology (including
know-how and show-how), manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data and copyrightable works, whether secret or
confidential or not; (i) copies and all tangible embodiments of all of the
foregoing, in whatever form or medium; (j) all rights to obtain and rights to
apply for patents, and to register trademarks and copyrights; and (k) all rights
to sue for and recover and retain damages, costs or attorneys' fees for present
and past infringement of any of the Intellectual Property rights herein above
set out.
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"IRS" means the Internal Revenue Service of the United States of
America.
"Leased Facility" means the Seller's manufacturing facility and the
real property both improved and unimproved that is now leased to the Seller and
after the Closing Date will be leased by Equitable Pacific Partners Limited
Partnership (the "Landlord") to Buyer, which is more particularly described in
Exhibit B attached hereto.
"Losses" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, Expenses,
deficiencies or other charges.
"Money Claim" has the meaning specified in Section 10.4 hereof.
"New Lease" has the meaning specified in Section 3.3(e) hereof.
"New Regular Personnel" means Regular Personnel who become Buyer's
personnel on the Closing Date.
"Nonassignable Asset" has the meaning specified in Section 6.3(b)
hereof.
"Operations" has the meaning specified in the Recitals to this
Agreement.
"Operations Property" means the Leased Facility and the Purchased
Assets.
"Permitted Encumbrances" means (a) liens for taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable and (c) other liens or imperfections on property
which are
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not material in amount or do not materially detract from the value of or
materially impair the existing use of the property affected by such lien or
imperfection.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or any other entity.
"Pre-Existing Environmental Liabilities" means all Losses and Expenses
arising out of any of the following:
(a) the presence of Contamination (i) at or in any of the
Operations Property on or before the Closing Date, (ii) at or in any of the
Operations Property or any other property at any time as a consequence of (A) a
Release or generation of Hazardous Material on or before the Closing Date from
the Leased Facility or otherwise in the course of the conduct of the Operations,
or (B) the presence on the Leased Facility on or before the Closing Date of a
condition that permits a Release of Hazardous Material to the environment or
which violates applicable Environmental Laws, or (iii) at or in any property as
a consequence of the migration by any means and at any time of any of the
aforesaid Contamination;
(b) any Hazardous Material Activity or Remediation Activity
conducted in the course of the Operations (i) on the Leased Facility on or
before the Closing Date, (ii) at any time on any other Operations Property, or
(iii) at any time by any Seller Group Member or its agents, employees or
contractors;
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(c) the exposure of any employee of any Seller Group Member,
or any other Person (i) to any Contamination described in sub-part (a) above, at
any time, (ii) to any Hazardous Material located at the Leased Facility on or
before the Closing Date, or (iii) to any Hazardous Material in the course of or
as a consequence of any Hazardous Material Activity or Remediation Activity
conducted on or before the Closing Date with respect to the Operations;
(d) the presence at any Disposal Facility of any Hazardous
Material that is generated in the course of the Operations and (i) shipped from
the Leased Facility at any time on or before the Closing Date, (ii) shipped from
any other Operations Property at any time, or (iii) shipped by any Seller Group
Member or their respective agents, employees or contractors at any time;
(e) any condition or facts disclosed by the reports delivered
or required to be delivered to Buyer pursuant to Section 4.11 hereof:
"Products" has the meaning specified in Recital A.
"Purchase Price" has the meaning specified in Section 2.4 hereof.
"Purchased Assets" has the meaning specified in Section 2.1 hereof.
"Regular Personnel" means all those employees of the Seller engaged in
the Operations listed on Schedule 4.8(c).
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or dispersing into
the environment.
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"Remediation Activity" means any reporting, investigation,
characterization, feasibility study, health assessment, risk assessment,
remediation, treatment, recycling, removal, transport, monitoring, maintenance
or any other activity incident to a Release, threatened Release, or the
investigation, remediation or removal, of a Hazardous Material existing on any
Operations Property or the air, soil, ground water, surface water, or
improvements thereof.
"Requirements of Laws" means any applicable foreign, federal, state and
local laws, statutes, regulations, rules, codes, ordinances, judgments,
guidelines, injunctions, decrees, orders, permits, approvals or treaties
enacted, adopted, issued or promulgated by any Governmental Body (including,
without limitation, those pertaining to electrical, building, zoning,
environmental and occupational safety and health requirements) or common law.
"Retained Intellectual Property" has the meaning specified in Section
2.2(e) hereof.
"Retained Liabilities" has the meaning specified in Section 2.3 hereof.
"SEC" means the Securities and Exchange Commission.
"Seller" has the meaning specified in the first paragraph of this
Agreement.
"Seller Group Member" means Seller, its officers, directors,
stockholders, agents and Affiliates.
"Successor" means any (a) direct or indirect successor (by purchase of
any asset(s), purchase of any stock, purchase of a partnership interest, merger,
acquisition, reorganization, or otherwise) of a principal, (b) any partner of
the principal, (c) any lender of the principal, (d) any assignee,
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mortgagee, transferee, purchaser, encumbrancer, lessee, sublessee, successor, or
foreclosure sale buyer of any right, title or interest in the assets of the
principal, or any portion thereof, and (e) any direct or indirect successor to
any of the foregoing.
"Supply Agreement" means the Supply Agreement to be entered into by the
parties annexed hereto as Exhibit C.
"Tax" means any federal, state, local or foreign income, alternative or
add-on minimum, gross income, gross receipts, property, sales, use, transfer,
gains, license, excise, employment, payroll, withholding or minimum tax, or any
other tax, custom, duty, governmental fee or other like assessment or charge of
any kind whatsoever, together with any interest or any penalty, addition to tax
or additional amount imposed by any Governmental Body.
"Tax Return" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached Schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
"Transferred Agreements" has the meaning specified in Section 2.1
hereof.
"Transfer Taxes" has the meaning specified in Section 2.5 hereof.
"Transition Services Agreement" means the Transition Services Agreement
to be entered into by the parties by February 11, 2000, on terms and conditions
reasonably determined by the parties in good faith.
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ARTICLE 2
PURCHASE AND CONSIDERATION
2.1 (a) Purchase and Sale of Assets to be Transferred. On the terms and
subject to the conditions of this Agreement, as of the Closing Date, Seller
agrees to sell, transfer, convey, assign and deliver to Buyer, and Buyer agrees
to buy and acquire from Seller, free and clear of all Encumbrances other than
Permitted Encumbrances, all right, title and interest of Seller in and to those
assets related to the Operations listed in Schedule 2.1, including the assets
more fully described below (collectively, the "Purchased Assets"):
(i) all assets listed on Schedule 2.1(a)(i) hereto;
(ii) the agreements listed on Schedule 2.1(a)(ii) hereto
("Transferred Agreements");
(iii) all Intellectual Property related to the Operations
listed on Schedule 2.1(a)(iv) hereto which the Seller believes is limited to
"know-how" and "show-how" ("Transferred Intellectual Property");
(iv) that information listed on Schedule 2.1(a)(iv), which
includes the information, books and records (including computer tapes or disks)
of Seller related to the Leased Facility or the Purchased Assets, the New
Regular Personnel including, without limitation, repair and maintenance records
and operation manuals, including but not limited to those listed on Schedule
2.1(a)(iv) hereto;
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(b) Seller shall update each of the Schedules set forth in
Section 2.1(a) above seven (7) days prior to the Closing Date to account for
changes in the Purchased Assets in the period between the date hereof and the
Closing Date; provided, that, any and all updates must be provided in writing
and approved by Buyer, such approval not to be unreasonably withheld, prior to
becoming valid and an integral part of this Agreement.
2.2 Assets Not to be Transferred. Seller shall retain and Buyer shall
not acquire the right, title and interest of Seller in and to the assets related
to the Operations more fully described below:
(a) all cash, bank deposits and cash equivalents;
(b) except for the Leased Facility or as provided for herein,
all owned real property, options to acquire real property and real estate
leases;
(c) all telephone, telex and facsimile numbers;
(d) Accounts Receivable;
(e) any Intellectual Property owned by Seller not related to
the manufacturing Operations (the "Retained Intellectual Property");
(f) Seller's financial, tax and accounting records; provided,
however, that from and after the Closing Date, Seller shall provide Buyer with
copies of such records as reasonably requested by Buyer; and
(g) any assets not listed in Section 2.1 above.
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2.3 Liabilities and Obligations.
(a) As of the Closing Date, Buyer agrees to assume and pay,
perform or otherwise discharge the obligations associated with the Transferred
Agreements, in accordance with the respective terms and subject to the
respective conditions thereof and hereof, only in the manner and to the extent
set forth on Schedule 2.3(a) hereto (collectively, the "Assumed Liabilities").
(b) Except as set forth in Section 2.3(a) hereof and
notwithstanding anything else in this Agreement to the contrary, Buyer shall not
assume or have any responsibility for any liability, obligation or commitment of
any nature of Seller, or associated with the Operations prior to the Closing,
whether now or hereafter existing, known or unknown, fixed or contingent,
matured or unmatured, accrued or unaccrued or due to come due, including,
without limitation, the Pre-Existing Environmental Liabilities, those
liabilities, if any, listed on the Disclosure Letter and those liabilities and
obligations specifically identified as "Retained Liabilities" in this Agreement
(collectively, the "Retained Liabilities"). Seller acknowledges and agrees that
it shall be fully responsible for all such Retained Liabilities in accordance
with the terms of Article 10 hereof.
2.4 Consideration. The consideration for the transfer of the Purchased
Assets (the "Purchase Price") shall be $1,700,000, of which $700,000 shall be
paid by the Buyer to the Seller on the Closing Date as provided in Section 3.2
hereof; the balance thereof to be paid by the Buyer to the Seller in eight (8)
equal quarterly principal installments of $125,000.00 each, together with
interest at the rate of six percent per annum, payable within 5 business days
after the close of each of the eight calendar quarters after the Closing Date.
That portion of the Purchase Price not paid at closing shall be represented by a
Note made by Buyer in favor of Seller in substantially the form of Exhibit
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D attached hereto. The Note shall be unconditionally guaranteed by (a) Boundless
Manufacturing Services, Inc. and (b) Boundless Corporation by the execution of
guarantees substantially in the form attached hereto as Exhibit E.
2.5 Transfer Taxes. Seller shall properly prepare and file all required
tax returns in connection with use, value-added, gross receipts, excise,
registration, stamp duty, transfer or other similar taxes or governmental fees
("Transfer Taxes") imposed or levied by reason of, in connection with or
attributable to this Agreement and the transactions contemplated hereby, Buyer
shall promptly deliver to Seller the amount of such taxes required to be
remitted with such returns. Seller shall cooperate with Buyer to the extent
reasonably requested and legally permitted to minimize any Transfer Taxes.
ARTICLE 3
CLOSING
3.1 The Closing
The transactions contemplated by this Agreement shall be consummated
(the "Closing") at the offices of Spinner, Dittman, Federspiel and Dowling, 151
N.W. 1st Avenue, Delray Bearch, Florida 33444 at 10:00 a.m., local time, on
March 3, 2000 or such other place, time and date as the parties shall agree in
writing. The time and date on which the Closing is actually held is sometimes
referred to herein as the "Closing Date."
3.2 Payment. Subject to fulfillment or waiver of the conditions set
forth in Article 8 below and subject to prorations provided for in this
Agreement, at the Closing Buyer shall pay Seller
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(i) $700,000, and (ii) all required Florida State sales tax, which shall be paid
by the Buyer to the Seller and which the Seller shall promptly pay to the State
of Florida (the "Closing Date Payment") by wire transfer of immediately
available funds to the bank account designated by Seller at least five (5) days
prior to the Closing.
3.3 Buyer's Additional Deliveries. Subject to fulfillment or waiver of
the conditions set forth in Article 8, at the Closing Buyer shall deliver to
Seller, in addition to the Purchase Price, all of the following:
(a) Certificate of the secretary or an assistant secretary of
Buyer, dated the Closing Date, in form and substance reasonably satisfactory to
Seller, as to the resolutions of the Board of Directors of Buyer authorizing the
execution and performance of this Agreement by Buyer and the contemplated
transactions;
(b) The certificate contemplated by Section 9.1 below, duly
executed by any Vice President or the President of Buyer;
(c) The Supply Agreement duly executed by Buyer; and
(d) The Transition Services Agreement duly executed by Buyer.
(e) The new Lease or assignment of the existing lease modified
to the Buyers satisfaction executed by buyer and the Landlord (the "New Lease").
3.4 Seller's Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article 9, at the Closing Seller shall deliver to Buyer
all of the following:
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(a) Certificate of the secretary or an assistant secretary of
Seller, dated the Closing Date, in form and substance reasonably satisfactory to
Buyer, as to the resolutions of the Board of Directors of Seller authorizing the
execution and performance of this Agreement and the contemplated transactions;
(b) The Instrument of Assignment duly executed by Seller;
(c) Certificates of title or origin (or like documents) with
respect to any vehicles or other equipment included in the Purchased Assets for
which a certificate of title or origin is required in order to transfer title;
(d) All consents, waivers or approvals required to be obtained
by Seller with respect to the Purchased Assets or the consummation of the
transactions contemplated by this Agreement;
(e) The certificate contemplated by Section 8.1 below, duly
executed by any authorized officer of Seller;
(f) Such other bills of sale, assignments and other
instruments of transfer or conveyance as Buyer may reasonably request or as may
be otherwise necessary to evidence and effect the sale, assignment, transfer,
conveyance and delivery of the Purchased Assets to Buyer;
(g) The Supply Agreement duly executed by Seller; and
(h) The Transition Services Agreement duly executed by Seller.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, except as set forth in Schedule
4 (the "Disclosure Letter") (which Disclosure Letter shall specifically
reference the Sections of this Agreement to which the disclosure therein applies
and shall be executed by an authorized officer of Seller), Seller represents and
warrants to Buyer as follows:
4.1 Organization of Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation. Seller is duly qualified to carry on the Operations as now
conducted and is in good standing in each of the jurisdictions in which the
ownership or leasing of the Purchased Assets or the conduct of the Operations
requires such qualification other than those jurisdictions in which the failure
to do so would not have a material adverse effect on the Buyer. Seller has full
corporate power and authority to own or lease and to operate and use the
Purchased Assets and to carry on the Operations as now conducted.
4.2 Authorization. Seller has full power and authority to execute,
deliver and perform this Agreement and all of the Additional Agreements and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Additional Agreements by
Seller have been duly and validly authorized and approved by all required
corporate proceedings on the part of Seller, and do not require any further
authorization or consent of Seller. This Agreement, and the Additional
Agreements, upon execution and delivery by Seller, will be duly authorized,
executed and delivered by Seller and constitute, or upon execution
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and delivery by Seller, will constitute, as the case may be, legal, valid and
binding obligations of Seller enforceable against Seller in accordance with
their terms, except (i) as such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights, and (ii) as the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(b) Except as set forth in Schedule 4.2, neither the execution
and delivery of this Agreement or any of the Additional Agreements or the
consummation of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof will: (i) require the consent of or otherwise violate, conflict with,
result in a breach of the terms, conditions or provisions of, or constitute a
default, an event of default or an event creating rights of acceleration,
termination or cancellation or a loss of rights under, or result in the creation
or imposition of any Encumbrance upon any of the Purchased Assets including the
Transferred Contracts under (A) the Seller's articles of organization or
by-laws, (B) any other note, instrument, agreement, mortgage, lease, license,
franchise, permit or authorization, right, restriction or obligation to which
Seller is a party or any of its properties is subject or by which Seller or any
of its properties is bound, (C) any Governmental Order to which Seller is a
party or any of its properties is subject or by which Seller or any of its
properties is bound, (D) any Transferred Contract or (E) any Requirements of
Laws affecting Seller or its property; or (ii) require the approval, consent,
authorization or act of any person, or the making by Seller of any declaration,
filing or registration with, any Person.
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4.3 Taxes. Seller has properly and timely filed within the time period
for filing or any extension granted with respect thereto, all Tax Returns which
it is required to file relating or pertaining to any and all taxes attributable
to or levied upon any activities of the Seller, including the Operations and/or
the Purchased Assets and has paid any and all Taxes it is required to pay in
connection with the taxable periods to which such Tax Returns relate. All Tax
Returns adequately provide for all Taxes which should be reflected in such
returns. There are (and as of immediately following the Closing there will be)
no Encumbrances on the Purchased Assets relating to or attributable to Taxes
other than Permitted Encumbrances. To the best knowledge of Seller, there is no
audit or other Tax-related proceeding or investigation relating to the Purchased
Assets. Seller has no knowledge of any basis for the assertion of any such
claims which, if adversely determined, would adversely effect Buyer or Buyer's
use of the Purchased Assets or result in an Encumbrance on the Purchased Assets,
other than Permitted Encumbrances. None of the Purchased Assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
4.4 Condition of Assets. Except as set forth in Schedule 4.4, the
Purchased Assets are in good and serviceable condition, subject to reasonable
wear and tear, and are suitable for the uses to which they are being put or
would be put in the ordinary course of business of the Operations.
4.5 Governmental Permits . Seller owns, holds or possesses all material
licenses, franchises, permits, privileges, immunities, approvals and other
authorizations from a Governmental Body (including without limitation those
relating to Environmental Laws) which are necessary to entitle it to own or
lease, operate and use the Leased Facility and the Purchased Assets and to carry
on and conduct the Operations substantially as currently conducted
(collectively, the "Governmental
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Permits"). Schedule 4.5 sets forth a list and brief description of each
Governmental Permit, except for such licenses, permits and other authorizations
that are incidental and readily obtainable without expense (other than a normal
permit fee) and without imposition of additional material conditions.
Except as set forth in Schedule 4.5: (a) to Seller's knowledge, Seller
has fulfilled and performed its obligations under each of the Governmental
Permits, and to its knowledge, no event has occurred or condition or state of
facts exists which constitutes or, after notice or lapse of time or both, would
constitute a breach or default or violation under any such Governmental Permit
or which permits or, after notice or lapse of time or both, would permit
revocation or termination of any such Governmental Permit; and (b) no notice of
cancellation, of default, of violation or of any material dispute concerning any
Governmental Permit, or of any event, condition or state of facts described in
the preceding clause, has been received by, or is known to, Seller.
4.6 Title to Tangible Property. Seller has good and indefeasible title
to all of the Purchased Assets, free and clear of all Encumbrances other than
Permitted Encumbrances. Except as set forth in Schedule 4.6, the Purchased
Assets, including the Transferred Contracts, constitute all of the assets which
are reasonably necessary for the continued conduct of the Operations as now
conducted and are in a condition sufficient and suitable for the conduct of the
Operations as presently conducted. The Purchased Assets are or will all be
located at the Leased Facility on the Closing Date. Upon delivery to Buyer on
the Closing Date of the instruments of transfer contemplated by Section 3.4
above, Seller will thereby transfer to Buyer good and indefeasible title to the
Purchased Assets, free and clear of Encumbrances other than Permitted
Encumbrances.
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(b) The operation or conduct of the Operations as they
currently are operated or conducted does not infringe or otherwise violate any
Intellectual Property right of any Person.
(c) Except as set forth in Schedule 4.6, there are no
pending actions, and no Person has made or, to Seller's knowledge, threatened to
make, a claim that the operation of the Operations.
4.7 Intellectual Property. The Seller owns or possesses legally
enforceable title to the Transferred Intellectual Property and upon transfer to
the Buyer, the Buyer will own or possess legally enforceable title to the
Transferred Intellectual Property.
(a) The operation or conduct of the Operations as they
currently are operated or conducted does not infringe or otherwise violate any
Intellectual Property right of any Person.
(b) Except as set forth in Schedule 4.7, there are no pending
actions, and no Person has made or, to Seller's knowledge, threatened to make, a
claim that the operation of the Operations infringes or otherwise violates the
Intellectual Property right of such Person.
4.8 Employees.
(a) Each "employee benefit plan" (as such term is defined in
Section 3(3) of ERISA), and each other plan, program or arrangement, whether
written or oral ("Benefit Arrangement"), providing for compensation or benefits
in connection with the performance of services to Seller and maintained by
Seller with respect to Regular Personnel has been identified in Schedule 4.8,
and copies or descriptions of each such employee benefit plan or Benefit
Arrangement
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has been delivered to or made available to Buyer, together with the most recent
determination letter in the case of any "pension benefit plan" (as such term is
defined in Section 3(2) of ERISA). Buyer will not have, as a consequence of the
transactions contemplated hereby, any liability or obligation with respect to or
under any employee benefit plan or with respect to or under any Benefit
Arrangement maintained by Seller with respect to employees of the Operations or
any other Seller employees, as all such matters constitute "Retained
Liabilities" hereunder. Seller has and will comply with the health care
continuation requirements of Section 601 et seq. of ERISA ("COBRA") with respect
to employees of the Operations and their spouses, former spouses and dependents.
(b) Each employee benefit plan and Benefit Arrangement
maintained by Seller with respect to employees of the Operations have been
maintained and administered at all times substantially in compliance with its
terms and all applicable laws, rules and regulations, including but not limited
to ERISA and the Code, applicable to such employee benefit plan or Benefit
Arrangement.
(c) Schedule 4.8(c) contains: (i) a list of all Regular
Personnel as of January 17, 2000; (ii) the then current annual compensation
provided by Seller to any such employees; (iii) a list of any increase presently
scheduled (including the effective date thereof) in the rate of compensation of
any such employees and (iv) a list of all Regular Personnel who have employment
contracts with the Seller together with an abstract of such contracts.
(d) Insofar as it pertains to the Operations, the Seller is
not a party to or bound by any union contract and has not experienced any
strike, grievance or any arbitration proceeding, claim of unfair labor practices
filed or, to Seller's knowledge, threatened to be filed or any other material
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labor difficulty. To Seller's knowledge, no organizational effort is being or
has been made or threatened by or on behalf of any labor union with respect to
any employees of the Seller pertaining to the Operations. To Seller's knowledge,
except as described on Schedule 4.8(d), none of the Regular Personnel is
involved in or is otherwise threatening a potential labor dispute nor are any
such Regular Personnel currently rated below a "3" in their most recent
performance evaluation.
4.9 Contracts. Set forth in Schedule 4.9 is a list of each supply and
customer contract, and each agreement, arrangement, commitment, license or other
instrument, written or oral, that is material to the Operations or the Leased
Facility to which Seller is a party or by which Seller, the Purchased Assets or
the Operations may be bound or affected. Each such Contract constitutes a valid,
legal and binding obligation of the respective parties thereto and no defenses,
offsets, or counterclaims thereto have been asserted, or, to Seller's knowledge,
may be made by any party thereto. Seller has not received notice of any default
under any of such Contracts. To Seller's knowledge, there are no existing
defaults or events or default, real or claimed, or events which with notice or
lapse of time or both would constitute a material default under any Contract.
Except as set forth in Schedule 4.9, to Seller's knowledge, there exists no
actual or threatened termination, cancellation, or limitation of, or any
amendment, modification, or change to any Contract.
Except as set forth in Schedule 4.9, Seller is neither renegotiating
any of the Transferred Agreements nor is it paying liquidated damages in lieu of
performance thereunder. Except as set forth in Schedule 4.9, any such
Transferred Agreements may be transferred to Buyer pursuant to this Agreement
and will continue in full force and effect thereafter, in each case without
breaching the terms thereof or resulting in the forfeiture or impairment of any
rights thereunder and without the
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consent, approval or act of, or the making of any filing with, any Person.
Complete and correct copies of each of the written Transferred Agreements have
heretofore been delivered to Buyer by Seller.
4.10 No Violation, Litigation or Regulatory Action. Except as set forth
in Schedule 4.10, (a) to Seller's knowledge, the Purchased Assets and their uses
comply in all material respects with all applicable Requirements of Laws and
Governmental Orders, (b) to Seller's knowledge, Seller has complied in all
material respects with all Requirements of Laws and Governmental Orders which
are applicable to the Purchased Assets or the Operations, (c) there are no
lawsuits, claims, suits, proceedings or investigations pending or, to the
knowledge of Seller, threatened against or affecting Seller in respect of the
Purchased Assets or the Operations, and there are no lawsuits, suits or
proceedings pending in which Seller is the plaintiff or claimant and which
relate to the Purchased Assets or the Operations; nor to Seller's knowledge, is
there any basis for the same, and (d) there is no action, suit or proceeding
pending or, to the knowledge of Seller threatened which questions the legality
of the transactions contemplated by this Agreement.
4.11 Environmental Matters. Except as set forth in Schedule 4.11:
(a) Seller has obtained all environmental, health and safety
Governmental Permits necessary for the conduct of the Operations (including
without limitation the Hazardous Material Activities associated therewith) as
presently conducted and/or for the ownership, leasing, and use of the Leased
Facility and the Purchased Assets including that required to be obtained by it
by applicable Environmental Laws for the use, storage, treatment,
transportation, release, emission and disposal of raw materials, by-products,
wastes and other substances used or produced by or
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otherwise relating to its business. To Seller's knowledge, all Governmental
Permits are in full force and effect, and the Purchased Assets, the Leased
Facility and the conduct of Operations (including without limitation the
Hazardous Material Activities associated therewith) comply with the provisions
of such Governmental Permits.
(b) Neither Seller, with respect to the Purchased Assets, the
Leased Facility, the Operations or any of the Operations Property, nor any of
the past or present Operations, is subject to any pending or ongoing judicial
proceeding, Governmental Order, investigation, notice, or settlement or other
agreement with or before any Governmental Body or other Person (including
without limitation any present or prior owner or operator of Operations
Property) respecting (i) any Environmental Laws, (ii) any Remediation
Activities, (iii) the conduct of Hazardous Material Activities associated with
the Operations, or (iv) any claim of Losses and Expenses arising from
Contamination or the Release or threatened Release of Hazardous Material.
(c) Seller has not, with respect to the Operations or the
Purchased Assets, filed nor does Seller intend to file any notice or report
under any Environmental Laws reporting a violation of any Environmental Laws or
any Release of Hazardous Material to the environment in violation of any
Environmental Law.
(d) No Contamination is present on, in or under the Leased
Facility or is, to Seller's knowledge, reasonably likely to migrate to the
Leased Facility, and no Release has occurred on or before the Closing Date on
the Leased Facility or any other Operations Property which has or is likely to
cause Contamination or any health effect to the occupants of the Leased
Facility, or any other property in the vicinity thereof or to result in a
violation of the Environmental Laws.
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(e) No underground storage tank or surface impoundment nor any
landfill or waste pile which either is or was used to dispose of or store any
Hazardous Material is present on the Leased Facility.
(f) Seller has not received any notice or claim to the effect
that it is or may be liable to any Person as a result of the Release or
threatened Release of Hazardous Material into the environment from or on the
Leased Facility.
(g) No environmental Encumbrance has attached to any Purchased
Assets.
(h) Any asbestos-containing material which is on or part of
the Leased Facility (excluding any raw materials used in the manufacture of
products or products themselves) is in good repair according to the current
standards and practices governing such material, and its presence or condition
does not violate any applicable Environmental Laws.
(i) None of the products Seller has manufactured, distributed
or sold in connection with the Operations contains asbestos-containing material.
(j) Other than Hazardous Material listed in Schedule 4.11(p)
which are reasonably necessary for the conduct of the Operations as presently
conducted and properly stored in accordance with applicable Environmental Laws,
no Hazardous Material is or will be stored or kept at the Leased Facility as of
the Closing Date.
(k) All Hazardous Material Activities conducted at the Leased
Facility or the Operations Property or in connection with past or present
Operations (i) have been conducted in
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compliance with applicable Environmental Laws and (ii) have not resulted in the
exposure of any Person to Hazardous Material in a manner which has or will cause
an adverse health effect to said Person.
(l) No Governmental Order, action, proceeding, liability or
claim exists or, to the knowledge of Seller, is threatened, against any Disposal
Facility or against Seller, with respect to any transfer to or from, storage at,
disposal at or release from, a Disposal Facility of Hazardous Material generated
at the Leased Facility or during the conduct of the Operations, and, to the
knowledge of the Seller, there is no valid basis for such claim.
(m) Other than as listed in Schedule 4.11(m), Seller is not
aware of any fact or circumstance that could involve Seller in any environmental
litigation or impose upon Seller any material environmental liability with
respect to the Leased Facility, or any past or present Operations.
(n) Seller has delivered to Buyer, or made available for
inspections by Buyer and its agents and employees, all records available to
Seller pertaining to Hazardous Material Activities associated with the
Operations, and all environmental audits and environmental assessments of the
Leased Facility or any other Operations Property conducted at the request of, or
otherwise available to, Seller.
(o) Seller has complied with all environmental disclosure
obligations imposed upon Seller by applicable Requirements of Laws with respect
to this transaction.
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(p) Except as set forth in Schedule 4.11(p), the Leased
Facility and the Purchased Assets are free of any Hazardous Materials (except
those authorized pursuant to and in accordance with Environmental Permits held
by the Company) and free of all Contamination arising from, relating to, or
resulting from any such Hazardous Materials.
4.12 Financial Data. Seller has provided to Buyer certain information
regarding the historical expenses and revenues of the Operations. Such
historical information does not contain any material inaccuracies or
misstatements. Financial projections, if any, were prepared based on the
judgment of the management of the Operations and Seller makes no representation
or warranty as to the accuracy of any such financial projections.
4.13 No Finder. Neither Seller nor any Person acting on its behalf has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement.
4.14 Leased Facility. Except as set forth in Schedule 4.14:
(a) The Seller is the legal owner of a leasehold interest in
the Leased Facility (the "Existing Lease") with full right to exclusive
possession thereof. The Existing Lease is in full force and effect, constitutes
a valid, legal and binding obligation of the respective parties thereto, and
there are no existing defaults or events of default, real or claimed, or events
which with notice, lapse of time or both would constitute a default under the
Existing Lease.
(b) Seller has not granted to any Person a sublease or any
option or right of first refusal to sublease any portion of the Leased Facility,
or to purchase or acquire any leasehold
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interest in part of the Leased Facility and to the best knowledge of the Seller,
no such right or interest or right or interest to purchase any interest in the
underlying fee ownership has been granted by the Landlord to any Person.
(c) To Seller's knowledge, there are now, and at the time of
Closing Date will be, no material physical or mechanical defects of the Leased
Facility, including, without limitation, the structural and load-bearing
components thereof. To Seller's knowledge, the buildings, structures and
improvements, including without limitation the roof(s), the parking lot(s), the
plumbing, heating, air conditioning, water, sewer, gas, and electrical and life
safety systems of the Leased Facility, are in good operating condition and
repair, are in compliance in all material respects with applicable Requirements
of Laws, have been reasonably maintained consistent in all material respects
with standards generally followed by similar businesses and buildings, and are
structurally sound.
(d) To Seller's knowledge, the conduct of the Operations at
the Leased Facility is legally permitted by all applicable Requirements of Laws
and no Governmental Permit other than those scheduled on Schedule 4.14(d) hereof
is required for the continued conduct by Buyer of the Operations at the Leased
Facility in a manner consistent with present operations on and after the Closing
Date. To the knowledge of Seller, the Leased Facility complies in all material
respects with any private covenant, conditions, restrictions, and approvals
applicable thereto.
(e) To the best of Seller's knowledge, no condemnation,
environmental, zoning, land-use or other regulatory proceedings or rule-making
procedures have been instituted or are planned to be instituted with respect to
the Leased Facility or any portion thereof, nor has Seller received notice of
any proceedings to impose any new Taxes or operating restrictions upon the
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Leased Facility. Seller shall notify Buyer promptly of any such proceedings of
which Seller becomes aware prior to the Closing.
(f) To Seller's knowledge, all water, sewer, gas, electric,
telephone, and drainage facilities and all other utilities required by
Requirements of Laws or for the conduct of the Operations as presently conducted
have been, and on the Closing Date will be, (i) legally installed to, and
available for use in, the Leased Facility upon payment of market rate
consumption charges, (ii) connected to the Leased Facility in accordance with
all Requirements of Laws and pursuant to valid permits, (iii) separately metered
and connected to the Leased Facility for public utility mains, and (iv) in
operational condition adequate for both the continuation after the Closing Date
of the Operations as presently conducted and the performance by Buyer of its
obligations under the Additional Agreements.
(g) To Seller's knowledge, the Landlord has obtained all
permits, licenses, variances, approvals, authorizations, easements and rights of
way required from all Governmental Bodies having jurisdiction over the Leased
Facility or from private parties to insure vehicular and pedestrian ingress to
and egress from the Leased Facility and the parking of vehicles at the Leased
Facility at current levels.
(h) On the Closing Date there will be no outstanding written
or oral contracts made by Seller for any alterations or improvements on or to
the Leased Facility which have not been fully paid, and Seller shall cause to be
discharged all mechanics' and materialmen's liens arising from any labor or
materials furnished to the Leased Facility prior to the Closing Date.
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(i) All documents, information and other records with respect
to the Leased Facility, which Seller has delivered or will deliver to Buyer in
connection with this Agreement, will be complete and correct in all material
respects. All such documents prepared by or at the request of Seller accurately
represent in all material respects the condition of the Leased Facility and its
ownership operations and management, as of the date and for the period
identified in said documents, except as disclosed to Buyer in writing at the
time the documents are first delivered to Buyer.
4.15 Disclosure. None of the representations or warranties of Seller
contained herein, none of the information contained in the exhibits and
schedules attached hereto or in the Additional Agreements (including exhibits
and schedules attached thereto) contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary to make
the statements herein or therein not misleading.
4.16 HR Representation. The Seller on a consolidated basis with its
parent and subsidiary entities, did not have $100 million or more in net sales
during its last completed fiscal year or its current fiscal year and does not
now have and did not have, as of the end of its last fiscal quarter or last
fiscal year, total assets of $100 million or more.
4.17 Year 2000 Compliance. All of the Purchased Assets which contain
computer software and computer hardware and other similar or related items of
automated or computerized systems are Year 2000 Compliant except for those set
forth on Schedule 4.17. For purposes of this Agreement, the term "Year 2000
Compliant" means that the asset is designed to be used prior to, during and
after the calendar Year 2000 A.D., and will accurately receive, provide and
process date
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and time data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including years
1999 and 2000, and leap-year calculations, and will not malfunction, cease to
function, or provide invalid or incorrect results as a result of the date or
time data.
4.18 Seller Diligence. Seller shall utilize commercially reasonable
efforts to satisfy all of the conditions precedent to Seller's obligations to
close this transaction.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, Buyer hereby represents and
warrants to Seller and agrees as follows:
5.1 Organization of Buyer. Buyer is an entity duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and all jurisdictions in which it does business other than those jurisdictions
in which the failure to do so would not have a material adverse effect on the
Buyer. Buyer has full corporate power and authority to own or lease and to
operate and use its properties and assets and to carry on its business as now
conducted.
5.2 Authorization. Buyer has full power and authority to execute,
deliver and perform this Agreement and all of the Additional Agreements and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Additional Agreements by
Buyer have been duly authorized and approved by the board of directors of Buyer,
and do not require any further authorization or consent of Buyer. This
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Agreement has been, and the Additional Agreements, upon execution and delivery
by Buyer will be, duly authorized, executed and delivered by Buyer and
constitutes, or upon execution and delivery by Buyer will constitute, as the
case may be, legal, valid and binding obligations of Buyer enforceable against
Buyer in accordance with their terms, except (i) as such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights, and (ii) as the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
Except as set forth in Schedule 5.2 hereof, neither the
execution and delivery of this Agreement or any of the Additional Agreements or
the consummation of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof will: (i) violate, conflict with, result in a breach of the terms,
conditions or provisions of, or constitute a default, an event of default or an
event creating rights of acceleration, termination or cancellation or a loss of
rights under (A) the organizational documents of Buyer, (B) any other note,
instrument, agreement, mortgage, lease, license, franchise, permit or
authorization, right, restriction or obligation to which Buyer is a party or any
of its properties is subject or by which Buyer or any of its properties is
bound, (C) any Governmental Order to which Buyer is a party or any of its
properties is subject or by which Buyer or any of its properties is bound, or
(D) any Requirements of Laws affecting Buyer or its property; or (ii) require
the approval, consent, authorization or act of, or the making by Buyer of any
declaration, filing or registration with, any Person.]
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5.3 No Finder. Neither Buyer nor any Person acting on its behalf has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement.
5.4 Cash Consideration. Buyer will, at the Closing, have available
sufficient cash to enable it to perform its obligations under this Agreement.
5.5 Buyer Diligence. Buyer shall utilize commercially reasonable
efforts to obtain all approvals, the employment of the employees to whom the
Buyer has made offers as described in Section 7.1 hereof, the negotiation and
obtaining of the New Lease, the obtaining of all required permits, and the
satisfaction of all conditions precedent to Buyer's obligation to close this
transaction.
5.6 Continuation of Operations and Employment. Buyer hereby represents
to Seller that, subject to and subsequent to closing on the purchase
contemplated by this Agreement, it intends to continue operations and the
employment of those New Regular Personnel for at least ninety (90) days after
closing.
ARTICLE 6
ACTION PRIOR TO THE CLOSING DATE
The respective parties hereto covenant and agree to take the following
actions prior to the Closing.
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6.1 Investigation of the Operations by Buyer. Prior to the Closing,
upon reasonable advance notice by Buyer to Seller, Seller shall afford to the
officers, employees and authorized representatives of Buyer (including, without
limitation, independent public accountants and attorneys) reasonable access
during normal business hours to the offices, properties, employees and business
and financial records (including computer files, retrieval programs and similar
documentation) of Seller with respect to the Operations and shall furnish to
Buyer or its authorized representatives such additional information concerning
the Purchased Assets and the Operations as shall be reasonably requested,
including all such information as shall be reasonably necessary to enable Buyer
or its representatives to verify the accuracy of the representations and
warranties contained in this Agreement, to verify that the covenants of Seller
contained in this Agreement have been complied with and to determine whether the
conditions set forth in Article 8 have been satisfied. Such investigation shall
be conducted in such a manner as not to interfere unreasonably with the
Operations, and Seller shall have no duty hereunder to provide access to Buyer
to any information as to which Seller owes any Person a duty of confidentiality
without such Person's prior written consent. No investigation made by Buyer or
its representatives hereunder shall affect the representations and warranties of
Seller.
6.2 Preserve Accuracy of Representations and Warranties. Each of the
parties hereto shall refrain from taking any action which would render any
representation or warranty contained in Article 4 or 5 of this Agreement not to
be true and correct in all material respects as of the Closing Date. Each party
shall promptly notify the other of any action, suit or proceeding that shall be
instituted or threatened against such party to restrain, prohibit or otherwise
challenge the legality of any transaction contemplated by this Agreement. Seller
shall promptly notify Buyer of any lawsuit,
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claim, proceeding or investigation that is threatened, brought, asserted or
commenced against Seller which would have been set forth in Schedule 4.10 if
such lawsuit, claim, proceeding or investigation had arisen prior to the date
hereof.
6.3 Transferred Agreements, Transferred Assets and the New Lease.
(a) Transferred Agreements. Seller will use commercially
reasonable efforts to secure, before the Closing Date, the consent, approval or
waiver, in form and substance reasonably satisfactory to Buyer, from any Person
to any Purchased Asset including to any Transferred Agreement required to be
obtained to assign or transfer any such assets, agreements to Buyer and to
assist the Buyer in obtaining the execution of the New Lease between the
Landlord and the Buyer, such lease to be in form and substance acceptable to the
Buyer or to otherwise satisfy the conditions set forth in Section 8.3; provided
that neither Seller nor Buyer shall have any obligation to offer or pay any
consideration in order to obtain any such consents or approvals; and provided,
further, that Seller shall not make any agreement or understanding affecting the
Purchased Assets or the Operations as a condition for obtaining any such
consents or waivers except with the prior written consent of Buyer. During the
period prior to the Closing, Buyer shall use commercially reasonable efforts to
cooperate and assist Seller in obtaining the consents, approvals and waivers
contemplated by this Section 6.3(a).
(b) To the extent that any Purchased Asset including
Transferred Agreements is not capable of being assigned to Buyer without the
consent, approval or waiver of a third Person, or if such assignment or
attempted assignment would constitute a breach thereof or default thereunder
(each a "Nonassignable Asset"), Seller shall use commercially reasonable efforts
to obtain such
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consents, approvals and waivers prior to the Closing Date, provided that neither
Seller nor Buyer shall have any obligation to offer or pay any consideration in
order to obtain any such consents or approvals; and provided further that Seller
shall not make any agreement or understanding affecting the Purchased Assets,
including the Transferred Agreements or the Operations as a condition for
obtaining such consents or waivers except with the prior written consent of
Buyer. During the period prior to the Closing, Buyer shall cooperate and assist
Seller in obtaining the consents approvals and waivers contemplated by this
Section 6.3(b).
6.4 Notice of Certain Matters. Without limiting either party's right to
rely on the representations and warranties as set forth herein, each of Buyer
and Seller shall provide the other party with prompt written notice with respect
to any material facts which arise between the date of this Agreement and the
Closing Date which, if they had occurred and been known prior to the date of
this Agreement, would have been required to have been disclosed in order to make
the representations and warranties contained in Articles 4 and 5 true and
correct as of the date of this Agreement. In addition, Seller shall provide
Buyer with prompt written notice if, between the date hereof and the Closing
Date, there is a change in the Purchased Assets or the Operations which has or
may be reasonably expected to materially and adversely affect the Operations.
Subject to the applicable confidentiality provisions of this Agreement, during
the period prior to the Closing, Seller will as promptly as reasonably possible
under the circumstances advise Buyer in writing of (a) any notice or other
communication from any third Person alleging that the consent of such third
Person is or may be required in connection with the transactions contemplated by
this Agreement, and (b) any material default under any Transferred Agreement or
Governmental Permit or event which, with
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notice or lapse of time or both, would become such a default on or prior to the
Closing Date and of which Seller has knowledge.
6.5 Operations Prior to the Closing.
-------------------------------
(a) Except as expressly contemplated by this Agreement, (i)
Seller shall operate and carry on the Operations only in the ordinary course and
substantially as presently operated, and in compliance with all Requirements of
Laws, Governmental Orders, and the binding agreements, covenants and
restrictions applicable thereto; (ii) Seller shall keep and maintain the
Purchased Assets in good operating condition and repair and, except to the
extent specifically agreed to in writing by Buyer, shall endeavor to maintain
the business organization of the Operations intact and to preserve the goodwill
of the suppliers, contractors, New Regular Employees, customers and other
Persons having business relations with the Operations, and (iii) Seller shall
not (A) transfer or cause to be transferred from or to Seller any Regular
Personnel without the knowledge of the Buyer, (B) otherwise attempt to persuade
any Regular Personnel to terminate his or her relationship with the Operations
other than for cause in accordance with Seller's personnel policy and with three
(3) days' prior notification to Boundless, (C) create, amend or terminate any
employment contract with any New Regular Personnel other than for cause in
accordance with Seller's personnel policy and with three (3) days' prior
notification to Boundless, (D) enter into any other material transactions
adverse to the Buyer, except in the ordinary course of business, (E) suffer any
material damage, destruction, or loss (whether or not covered by insurance) to
any of the Purchased Assets, (F) except in the ordinary course of business,
permit or allow any of the Purchased Assets to be subject to any Encumbrance,
other than Permitted Liens, or permit or allow any of such Purchased Assets to
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deteriorate except as the result of ordinary wear and tear, (G) sell, transfer
or otherwise dispose of any of the Purchased Assets or any other assets used in
the Operations in one or more transactions except in the ordinary course of
business and with the Consent of the Buyer, (H) terminate or amend in any
material respect any Transferred Agreement to which it is a party, (I)
intentionally omit to do any act, or permit any act or omission to act, which
may cause a material breach of any Transferred Agreement, or (J) agree, whether
in writing or otherwise, to do any of the foregoing.
(b) In furtherance of the foregoing subsection, and without
limitation thereof, except as expressly contemplated by this Agreement or except
with the express written approval of Buyer, Seller shall (i) use the Purchased
Assets in the usual, regular and ordinary course and in substantially the same
manner as heretofore used, (ii) continue to make payments when due and not slow
down those payments as compared to its normal payment procedures and to perform
its obligations under the Existing Lease and the leases, contracts, commitments
and other agreements included in the Purchased Assets, (iii) maintain insurance
against loss or damage to the Leased Facility and the Purchased Assets and such
other insurance with respect to the Purchased Assets as has heretofore been
maintained, (iv) not sell, dispose of, encumber or enter into any agreement for
the sale, disposition or encumbrance of, all or any part of the Purchased
Assets, except for the sale of Inventory in the ordinary course of business
consistent with past practice, (v) with respect to any employee who is or would
thereby become Regular Personnel, not enter into any employment contract or,
except in the ordinary course of business, increase any such employee's
compensation or benefits, and (vi) not enter into any contracts or commitments
with respect to the Operations, adverse to the Buyer, not in the ordinary course
of business.
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6.6 Confidentiality.
(a) Buyer agrees, and shall cause each Buyer Group Member to
agree, unless and until each and every one of the transactions contemplated
hereby shall have been consummated, to hold in strict confidence all proprietary
information and documents received from Seller concerning the Purchased Assets
and the Operations, and Buyer Group Members will not use any such information
and documents for any purpose other than in connection with the transactions
contemplated hereby. If the transactions herein contemplated are not
consummated, Buyer Group Members will continue to hold such information and
documents in strict confidence and, upon receipt of notice requesting such
action, will return to Seller all such documents then in each Buyer Group
Member's possession without retaining copies thereof; provided, however, that
each Buyer Group Member's obligation to maintain such confidentiality shall not
apply to any information or documents that are required by applicable law or the
terms of this Agreement to be disclosed, that are in the public domain at the
time furnished, or that become in the public domain thereafter through any means
other than as a result of any act of a Buyer Group Member which constitutes a
breach of this Agreement.
(b) Beginning as of the Closing, Seller agrees, and shall
cause each Seller Group Member to agree to hold in strict confidence all
proprietary information concerning the Purchased Assets and the Operations and
all information provided by Buyer to Seller under the terms of this Agreement
and will not use such information except in furtherance of its continuing
business relationships with Buyer. If the transactions herein contemplated are
not consummated, Seller Group Members will continue to hold such information in
strict confidence; provided, however, that
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each Seller Group Member's obligations hereunder shall not apply to any
information or documents that are required by applicable law or the terms of
this Agreement to be disclosed, that are in the public domain at the time
furnished, or that become in the public domain thereafter through any means
other than as a result of any act of a Seller Group Member which constitutes a
breach of this Agreement.
6.7 Leased Facility, Purchased Assets, Books, Records, and Reports. On
or before the Closing, Seller shall deliver to Buyer copies of all records and
other documents in its possession reasonably requested by Buyer relating to the
Leased Facility and the Purchased Assets, which material, to Seller's knowledge,
is true and correct.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Employees.
(a) For purposes of Section 7.1 and of Section 8.4, "Buyer"
shall be defined to be either Boundless Technologies, Inc. or Boundless
Manufacturing Services, Inc. Buyer shall, on or before February 7, 2000, offer
to hire, conditioned upon the occurrence of the Closing, certain persons,
identified by the Buyer in its sole and absolute discretion, whose jobs relate
primarily to the Operations and who are Regular Personnel of the Seller and
Affiliates of Seller and who are identified on Schedule 4.8(c) attached hereto.
Seller shall cooperate with Buyer's efforts to hire such employees and shall not
directly or indirectly seek to retain the services of such employees. Seller
shall terminate the employment of all New Regular Personnel as of midnight of
the date of
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Closing. Effective as of 12:01 a.m. on the day following the Closing Date, Buyer
shall hire all persons to whom it has made such an offer in accordance with the
immediately preceding sentence and who accept such offer in the manner and
within the time frame specified by Buyer (such employees hired by Buyer being
hereinafter referred to as the "New Regular Personnel"). The Terms and
conditions of Buyer's offer to hire the employees identified in Schedule 4.8(c)
shall be as determined in the sole and absolute discretion of Buyer. Seller may
discharge or layoff any of its employees at any time where such employees are
not offered employment by Buyer as provided for above but shall not discharge or
layoff any employees to whom Buyer has made offers of employment other than for
cause and with three (3) days' prior notification to Boundless. Buyer agrees
that for two (2) years following the Closing, it shall not, without the consent
of Seller, which consent shall be in Seller's sole discretion, hire any
Employees of Seller other than the Regular Personnel. Seller agrees that for two
(2) years following the Closing, it shall not, without the consent of Buyer,
which consent shall be in Buyer's sole discretion, hire any New Regular
Personnel.
(b) During the period prior to the Closing Date all Regular
Personnel of the Seller including employees accepting conditional offers of
employment extended by Buyer, will be under the exclusive supervision of Seller
and subject to Seller's policies and procedures. Thereafter, all New Regular
Personnel will be under the exclusive supervision of Buyer and subject to
Buyer's policies and procedures, and Regular Personnel who do not become New
Regular Personnel will remain under the exclusive supervision of Seller and
subject to Seller's policies and procedures.
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(c) As a condition precedent to Seller's obligations to close
on this transaction, Buyer hereby agrees that, on or before February 7, 2000, it
shall offer employment to no fewer than sixty-five (65) Regular Personnel of
Seller listed in Schedule 4.8(c), upon employment terms at least economically
equal to their current employment package, which Seller herewith discloses to
Buyer in Schedule 4.8(c). Buyer shall provide Seller a list of all those who
have accepted the offers by February 11, 2000. Seller shall be free to retain or
terminate the employment of those Regular Personnel other than those individuals
specified in Schedule 8.4 who shall not have been on the list provided to Seller
by Buyer as having accepted their conditional offers of employment tendered by
Buyer as of February 11, 2000.
(d) Seller shall promptly reimburse the Buyer, after written
notice thereof, an amount equal to fifty percent of any "stay on" bonus paid by
the Buyer to any of the employees identified in Schedule 8.4 hereof which bonus
shall not exceed two (2) months current salary of any such employees.
7.2 Taxes.
(a) Notwithstanding anything to the contrary in Article 10
below, Seller shall be responsible for and pay all Taxes of Seller, its
Affiliates, the Operations or the Purchased Assets arising at any time with
respect to periods ending on or prior to the Closing Date, including the portion
of real, personal or other property Taxes attributable to such periods and all
such Taxes shall constitute Retained Liabilities. Florida Tangible Personnel
Property and real estate taxes which are the obligation of the Seller under the
Existing Lease, if the Existing Lease is assumed by the Buyer, shall be prorated
between the Buyer and the Seller as of the Closing Date.
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(b) To the extent relevant to the Purchased Assets and the
Operations, Seller shall (i) provide Buyer with such assistance as may
reasonably be required in connection with the preparation of any Tax Return and
the conduct of any audit or other examination by any taxing authority or in
connection with judicial or administrative proceedings relating to any liability
for Taxes and (ii) retain and provide Buyer with all records or other
information that may be relevant to the preparation of any Tax Returns, or the
conduct of any audit or examination, or other tax proceeding. Seller shall
retain all relevant documents, including prior year's Tax Returns, supporting
work schedules and other records or information that may be relevant to such
returns and shall not destroy or otherwise dispose of any such records without
the prior written consent of Buyer.
7.3 Product Warranty. Except as may be provided to the contrary in the
Supply Agreement, Buyer shall be responsible for repair or replacement of all
products sold by the Operations prior to the Closing Date in accordance with the
product warranty terms of the Operations and Seller shall promptly reimburse
Buyer for the costs incurred by Buyer in connection therewith.
7.4 Inspection of Leased Facility. Buyer and its agents, contractors
and consultants may enter the Leased Facility for the purpose of conducting such
inspections, testing, and evaluation of any matter concerning the physical
condition of the Leased Facility (including, without limitation, the structural,
operating and roof systems thereof, and the presence or absence of termites, dry
rot, fungi, wood destroying organisms or Hazardous Material at or on the Leased
Facility, or the soil, groundwater, surface water, air or building materials
thereof) as Buyer may elect to investigate. Buyer shall pay the cost of such
inspections and indemnify and hold harmless the Seller from any
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property damage or bodily injury arising out of the negligent conduct of such
inspections; provided, however, that in no event shall Buyer be liable for any
condition present on the Leased Facility prior to entry by Buyer or its agents,
contractors or consultants thereon.
7.5 Bulk Transfer and Other Laws. Buyer hereby waives compliance by
Seller with the provisions of any so-called bulk transfer laws of any
jurisdiction in connection with the sale of the Purchased Assets to Buyer.
Seller shall indemnify Buyer from, and hold it harmless against, any
liabilities, damages, costs and expenses resulting from or arising out of (i)
the parties' failure to comply with any of such laws in respect to the
transactions contemplated by this Agreement, or (ii) any action brought or levy
made as a result thereof, other than those liabilities which have been expressly
assumed, on such terms as expressly assumed, by Buyer pursuant to this
Agreement.
7.6 Non-Competition. Seller agrees that for a period commencing on the
Closing Date and ending with the termination of the Supply Agreement, neither it
nor any of its Affiliates will engage in the manufacture or assembly of any of
the Products, except (i) under the Supply Agreement or (ii) with respect to
Boca's license of rights to third parties to manufacture and sell products under
third party private branding where the third party manufactures the products for
its own distribution for its own accounts under its own brand name or (iii)
except for Products purchased by Boca from third parties for resale which
require only rebranding in Boca's name, bundling of third party software,
packing and shipping, provided that such Products are not based on Boca
Intellectual Property.
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7.7 8-K Filing. Seller will supply such information as requested by the
Buyer to enable it to file in a timely manner any required 8-K Report with the
Securities and Exchange Commission and will otherwise cooperate with the Buyer
with respect to the preparation of such report.
7.8 Exclusive Dealings. For so long as this Agreement remains in
effect, neither the Seller, nor any Person acting on the Seller's behalf shall,
directly or indirectly, solicit or seek the initiation of any offer from, or
conduct any negotiations with, any Person, other than the Buyer, concerning the
acquisition of the Purchased Assets or the other transactions contemplated
herein except in the ordinary course of business and as otherwise permitted in
this Agreement.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement shall be subject, at the
option of Buyer, to the satisfaction, on or prior to the Closing Date, of the
following conditions.
8.1 No Misrepresentation or Breach of Covenants and Warranties. Each of
the representations and warranties of Seller contained or referred to herein and
in the Additional Agreements shall be true and correct in all material respects
on the Closing Date as though made on the Closing Date; Seller shall have
complied with and not otherwise breached the covenants set forth herein; and
there shall have been delivered to Buyer a certificate to such effect, dated the
Closing Date, signed on behalf of Seller by the President or any Vice President
of Seller.
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8.2 No Restraint or Litigation.. No action, suit, investigation or
proceeding shall have been instituted or overtly threatened to restrain or
prohibit or otherwise challenge the legality or validity of the transactions
contemplated hereby.
8.3 Necessary Approvals. The parties shall have received the approvals
and consents of all Persons necessary to consummate the transactions
contemplated hereby, including those which are specified in Schedule 4.2, and
Sections 6.3(a) and 6.3(b) including with respect to the Nonassignable Assets or
otherwise required to be obtained prior to the Closing including by applicable
Requirements of Laws and Buyer shall have obtained any Government Permits
required for it under the Requirements of Law, to conduct the Operations as it
was conducted by the Seller prior to the Closing Date.
8.4 Employees. On or before February 11, 2000, the employees identified
by the Buyer on Schedule 8.4 shall have accepted (and not withdrawn) offers of
employment by Buyer extended as contemplated by Section 7.1 and Buyer shall have
offered employment to the number of Regular Personnel contemplated by Section
7.1(c) hereof.
8.5 Additional Agreements. Each of the Additional Agreements shall
have been duly executed by Seller or its Affiliates and shall be in full force
and effect.
8.6 No Material Adverse Change. There shall have been no material
adverse change with respect to the Purchased Assets or the Operations.
8.7 New Lease. The New Lease to the Leased Facility shall have been
executed between the Landlord and the Buyer by February 14, 2000, in form and
substance acceptable to the Buyer,
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and shall be in full force and effect, provided that the New Lease shall not
impose and liability or responsibility for any matters beyond the Sellers
obligations under the existing lease through the date of closing.
8.8 Consent of Lenders. The Buyer shall have received the approvals and
consents of its lenders under its Amended and Restated Credit Agreement and
Guaranty, dated as of April 14, 1999, among the Buyer, Boundless Acquisition
Corporation, the Chase Manhattan Bank, Silicon Valley Bank and National Bank of
Canada.
8.9 Legal Opinion. Buyer shall have received from (1) counsel to Seller
a legal opinion addressed to Buyer, dated the Closing Date, to substantially the
following effect: Seller is a corporation duly organized and validly existing in
good standing under the Laws of the State of Florida; has all required corporate
power and authority necessary to execute, deliver and perform its obligations
under this Agreement and the Additional Agreements; such execution, delivery and
performance has been duly authorized by all necessary corporate action on the
part of Seller; the execution, delivery and performance of its obligations under
this Agreement and the Additional Agreements do not (i) violate or cause a
default under any provision of Seller's articles of organization or by-laws, and
(ii) to the best knowledge of such counsel, violate any material contracts
required to be filed as exhibits to Form 10-K under Item 601 of Regulation S-K
that are related to purchased assets; and (2) each of this Agreement and the
Additional Agreements to which Seller is a party has been duly executed and
delivered by Seller and constitutes a valid and binding obligation of Seller
enforceable in accordance with its terms, subject to such customary exceptions
as may be reasonably acceptable to counsel for Buyer.
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8.10 Deliverables. The Seller's Deliveries to be delivered by Seller to
Buyer at the Closing and which are described in Section 3.4 shall be in form and
substance reasonably satisfactory to Buyer and shall be in conformity with the
requirements of Section 3.4 of this Agreement.
8.11 Casualties. Prior to the Closing, fire, flood or other cause shall
not have destroyed a material part of the Purchased Assets taken as a whole, or
damaged such Purchased Assets to a material extent so that there shall have been
a material Adverse Effect on the Buyer's ability to conduct the Operations as a
result of such occurrence.
8.12 Due Diligence . Buyer shall have completed its due diligence no
later than February 7, 2000 with respect to the Purchased Assets and the
Operations and the results thereof are satisfactory to Buyer and Buyer shall
have verified, in Buyer's sole and absolute discretion, that the Purchase Price
for the Purchased Assets does not exceed the fair market value thereof. Further,
Buyer shall have received an environmental report, at its expense and through
its consultants, by February 14, 2000, with respect to the Leased Facility,
satisfactory to Buyer, addressing among other items that the Leased Facility,
including sub-surface soils and ground water, is not impacted by the Release of
Hazardous Materials.
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ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement shall be subject, at the
option of Seller, to the satisfaction, on or prior to the Closing, of the
following conditions:
9.1 No Misrepresentation or Breach of Covenants and Warranties. Each of
the representations and warranties of Buyer contained or referred to in this
Agreement and the Additional Agreements shall be true and correct in all
material respects on the Closing Date as though made on the Closing Date; Buyer
shall have complied with and not otherwise breached the covenants set forth
herein; and there shall have been delivered to Seller a certificate or
certificates to such effect, dated the Closing Date and signed on behalf of
Buyer by the President or any Vice President of Buyer.
9.2 No Restraint or Litigation. No action, suit, investigation or
proceeding shall have been instituted or overtly threatened to restrain,
prohibit or otherwise challenge the legality or validity of the transactions
contemplated hereby.
9.3 Necessary Governmental Approvals. The parties shall have received
the approvals of all Governmental Bodies necessary to consummate the
transactions contemplated hereby, which are either contemplated by Section 6.7
hereof or otherwise required to be obtained prior to the Closing by applicable
Requirements of Laws.
9.4 Additional Agreements. Each of the Additional Agreements
shall have been duly executed by Buyer or its Affiliates and shall be in full
force and effect.
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9.5 Legal Opinion. Seller shall have received from counsel to Buyer, a
legal opinion addressed to Seller, dated the Closing Date, to substantially the
following effect: Buyer is a corporation duly organized and validly existing in
good standing under the Laws of Delaware; has all required corporate power and
authority necessary to execute, deliver and perform its obligations under this
Agreement and the Additional Agreements; such execution, delivery and
performance has been duly authorized by all necessary corporate action on the
part of Buyer; the execution, delivery and performance of its obligations under
this Agreement and the Additional Agreements do not (i) violate or cause a
default under any provision of Buyer's charter or by-laws and (ii) to the best
knowledge of such counsel, violate any material contracts known to such counsel
to which Buyer is a party or to which Buyer or any of its property is subject
and which are required to be filed as exhibits to Form 10-K under Item 601 of
Regulation S-K that are related to the operation as contemplated to be conducted
by Buyer after the Closing Date; each of this Agreement and the Additional
Agreements to which Buyer is a party has been duly executed and delivered by
Buyer, each of the Additional Agreements to which Buyer is a party constitutes a
valid and binding obligation of Buyer; and each of such Additional Agreements is
enforceable in accordance with its terms, subject to such customary exceptions
as may be reasonably acceptable to counsel for Seller.
9.6 Finova Revolver. Written approval of the sale and release of all
liens and encumbrances relative to the Purchased Assets from Sellers lender,
Finova under that certain Revolving Line of Credit and related documents dated
November 9, 1998.
9.7 New Lease. The New Lease to the Leased Facility shall have been
executed between the Landlord and the Buyer, in form and substance acceptable to
the Buyer, and shall be in full force
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and effect, provided that the New Lease shall not impose any liability or
responsibility for any matters beyond the Sellers obligations under the Existing
Lease through the date of closing as well as a release from liability under the
Lease from the Landlord for any matters or claims arising out of events or
occurrences subsequent to the Closing Date.
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification by Seller. Seller agrees to indemnify and hold
harmless each Buyer Group Member from and against any and all Losses and
Expenses incurred by such Buyer Group Member in connection with or arising from:
(a) any breach by Seller of any of its covenants in this
Agreement;
(b) any breach of any warranty or the inaccuracy of any
representation of Seller contained or referred to in this Agreement or any
certificate delivered by or on behalf of Seller pursuant hereto; and
(c) Retained Liabilities. The indemnification provided for in
Section 10.1(a) and 10.1(c) shall not terminate. The indemnification provided
for in Section 10.1(b) shall terminate three (3) years after the Closing Date
and no claims shall be made by any Buyer Group Member under Section 10.1(b)
thereafter, except that the indemnification by Seller shall continue as to any
Loss or Expense of which any Buyer Group Member has notified Seller, including
the general circumstances giving rise thereto, in accordance with the
requirements of Section 10.3 on or prior to the date such indemnification would
otherwise terminate in accordance with this Section 10.1, as to
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which the obligation of Seller shall continue until the liability of Seller
shall have been determined pursuant to this Article 10, and Seller shall have
reimbursed all Buyer Group Members for the full amount of such Loss and Expense
in accordance with this Article 10.
10.2 Indemnification by Buyer. Buyer agrees to indemnify and hold
harmless each Seller Group Member from and against any and all Losses and
Expenses incurred by such Seller Group Member in connection with or arising
from:
(a) any breach by Buyer of any of its covenants in this
Agreement;
(b) any breach of any warranty or the inaccuracy of any
representation of Buyer contained or referred to in this Agreement or any
certificate delivered by or on behalf of Buyer pursuant hereto; and
(c) Assumed Liabilities. The indemnification provided for in
Section 10.2(a) and 10.2(c) shall not terminate. The indemnification provided
for in Section 10.2(b) shall terminate three (3) years after the Closing Date,
and no claims shall be made by any Seller Group Member under Section 10.2(b)
thereafter, except that the indemnification by Buyer shall continue as to any
Loss or Expense of which any Seller Group Member has notified Buyer in
accordance with the requirements of Section 10.3 on or prior to the date such
indemnification would otherwise terminate in accordance with this Section 10.2,
as to which the obligation of Buyer shall continue until the liability of Buyer
shall have been determined pursuant to this Article 10, and Buyer shall have
reimbursed all Seller Group Members for the full amount of such Loss and Expense
in accordance with this Article 10.
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10.3 Notice of Claims.
(a) Any Buyer Group Member or Seller Group Member (the
"Indemnified Party") seeking indemnification hereunder shall give to the party
obligated to provide indemnification to such Indemnified Party (the
"Indemnitor") a notice (a "Claim Notice") describing in reasonable detail the
facts then known with respect to such claim for indemnification hereunder and
shall include in such Claim Notice the amount of such claim (to the extent then
known), and a reference to the provision of this Agreement or any other
agreement, document or instrument executed hereunder or in connection herewith
upon which such claim is based; provided, however, that a Claim Notice in
respect of any action at law or suit in equity by or against a third Person as
to which indemnification will be sought shall be given promptly after the action
or suit is commenced; and provided, further, that failure to give such notice
shall not relieve the Indemnitor of its obligations hereunder except to the
extent it shall have been materially prejudiced by such failure.
(b) After delivery of any Claim Notice pursuant hereto, the
amount of indemnification to which an Indemnified Party shall be entitled under
this Article 10 shall be determined in accordance with the dispute resolution
mechanism set forth in Section 12.14 hereto.
10.4 Third Person Claims
(i) Subject to subsection (iii) below if Losses or Expenses arise out of a third
party claim seeking recovery of money damages (a "Money Claim"), the Indemnitor
shall have the right, at its option and expense, to assume the defense of such
Money Claim with counsel reasonably acceptable to the Indemnified Party.
Notwithstanding the foregoing, the Indemnified Party shall have the right
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to employ its own counsel in any such case but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party unless (x) the
employment of such counsel shall have been authorized in writing by the
Indemnitor in connection with the defense of such action at the expense of the
Indemnitor or (y) the Indemnitor shall not have employed counsel to have charge
of the defense of such action within a reasonable time after the Notice of Claim
is given, or, having assumed such defense, fails to pursue it within reasonable
time or (z) the named parties to such claim include both the Indemnified Party
and the Indemnitor and such Indemnified Party shall have been advised by counsel
that counsel employed by the Indemnitor would, under applicable professional
standards, have a conflict in representing both the Indemnitor and such
Indemnified Party, in any of which events such fees and expenses of one
additional counsel for the Indemnified Party shall be borne by the Indemnitor.
In no event shall the Indemnitor be liable for fees and expenses of more than
one counsel for all indemnified Parties (in addition to any local counsel)
separate from its own counsel in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. An Indemnified Party shall have the right
to settle or compromise any Money Claim and recover the amount paid in such
settlement from the Indemnitor without the consent of any Indemnitor if the
Indemnified Party has given written notice thereof to the Indemnitor and the
Indemnitor has failed to assume the defense of the Money Claim or, having
assumed the defense, has failed to diligently pursue it within a reasonable
length of time. Any Indemnitor shall have the right to settle or compromise any
Money Claim against an Indemnified Party with the consent of the Indemnified
Party provided that the terms of such settlement or compromise provide for the
unconditional release of the Indemnified Party and require the payment of money
damages only by the Indemnitor.
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(ii) Subject to the provision of subsection (iii) below if an
Indemnified Person determines not to accept a monetary settlement of any such
Money Claim following the Indemnified Person's receipt of written notice from
the Indemnitor requesting the Indemnified Party's acceptance of such a
settlement for an amount (the "Settlement Amount") agreed to in writing by the
Indemnitor and the parties (other than the Indemnified Person) to such
litigation or prospective litigation and a judgment in excess of the Settlement
Amount is thereafter rendered against the Indemnified Person, no claim for
indemnification under Article 10 hereof, as the case may be, may thereafter be
made with respect to such litigation or prospective litigation against the
Indemnitor in excess of the Settlement Amount consented to by the Indemnitor.
(iii) If Losses or Expenses arise out of a third party claim
seeking equitable relief alone or in addition to monetary damages and, if such
equitable relief, standing alone, if obtained would materially and adversely
affect the business, operations, assets or financial condition of the
Indemnified Party (an "Equitable Claim"), the Indemnified Party shall be
entitled to defend such Equitable Claim with counsel reasonably acceptable to
the Indemnitor in a reasonable manner under the circumstances and at the expense
of the Indemnitor, which shall be provided by counsel to the Indemnitor with
regular information regarding the costs of such defense. The Indemnitor shall be
entitled to participate at its own expense in the defense of any such Equitable
Claim. The Indemnified Party shall make no settlement, compromise, admission, or
acknowledgement which would give rise to liability on the part of any Indemnitor
without the prior written consent of the Indemnitor, which shall not be
unreasonably withheld or delayed.
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(iv) The parties shall extend reasonable cooperation to one
another in connection with the defense of any third-party claim pursuant to this
Section 10.4 and, in connection therewith, shall furnish such records,
information, and testimony and attend such conferences, discovery proceedings,
hearings, trials, and appeals as may be reasonably requested.
10.5 Environmental Indemnification by Seller.
(a) Indemnification. Notwithstanding anything to the contrary
in this Agreement, Seller agrees to indemnify and hold harmless each Buyer Group
Member from and against any and all Pre-Existing Environmental Liabilities
incurred by any of them.
(b) Adequate Protection From Loss. Seller acknowledges that
its obligations under the foregoing Section 10.5(a) shall arise upon the threat
or institution of any Losses or Expenses for which Seller is liable under this
indemnity, and not merely upon the realization by an Indemnified Party of an
actual loss; and, therefore, Seller agrees, within fifteen (15) days following a
written demand, to indemnify, defend and hold harmless and take such other
reasonable actions as the Indemnified Party may reasonably request to protect
the Indemnified Party from such Losses and Expenses, provided the Indemnified
Party provides Seller with notice.
(c) Waiver by Seller. To the extent permitted by applicable
Law, Seller, on behalf of itself and its Successors (other than Buyer and the
Buyer Group Members), after consultation with counsel, hereby waives (i) any and
all rights to join Buyer, the Buyer Group Members and their Successors in any
litigation or proceeding to the extent arising out of or in
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connection with any of Pre-Existing Environmental Liabilities; and (ii) any and
all Losses and Expenses which any of them may have with respect to any
Pre-Existing Environmental Liabilities.
(d) Survival. It is expressly acknowledged by Seller that the
acts, omissions, breach of any covenant in this Agreement or in any Additional
Agreement, or violation of Environmental Laws by Buyer Group Members and/or
their respective Successors (whether active, passive, negligent, wrongful or in
violation of any agreement) shall not impair the right of any of such Persons
(including the Person acting or omitting to act) to enforce Seller's
indemnification obligations pursuant to this Section 10.5. The obligations and
rights of the parties under this Section 10.5 are in addition to, independent
from, and severable from the rights and obligations of the parties under this
Agreement or any other agreement between them and shall survive, notwithstanding
the termination, expiration or breach of such agreements or any other agreement
between any of the parties hereto and notwithstanding any other act or omission
of the parties, whether or not such acts are in violation of the express
provisions of this Agreement, any other agreement or applicable Requirements of
Laws. This Agreement shall survive the sale, transfer, assignment or
hypothecation of any Buyer Group Member or any of their properties, or any
interest therein, to any Person.
10.6 Environmental Indemnification by Buyer.
(a) Indemnification. Buyer agrees to indemnify and hold
harmless each Seller Group Member from and against any and all Losses and
Expenses incurred by any of them, to the extent caused by or arising out of any
of the following liabilities which are not otherwise Pre-Existing Environmental
Liabilities ("Buyer Environmental Liabilities"):
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(i) the presence of Contamination as a
consequence of the Release after the Closing Date of Hazardous Material by a
Buyer Group Member or any of the Buyer Group Member's respective agents,
employees or contractors on or about the Leased Facility, except to the extent
that such Release resulted from a condition present on the Leased Facility on
the Closing Date, which permits a Release of Hazardous Material to the
environment or which violates applicable Environmental Laws.
(ii) any Hazardous Material Activity or
Remediation Activity conducted in the course of the Operations on the Leased
Facility after the Closing Date by any Buyer Group Member or a Buyer Group
Member's agents, employees or contractors.
(iii) the exposure after the Closing Date of any
employee of any Seller Group Member or other Person (A) to any Contamination
described in sub-part (i) above, at any time, that is not a Pre-Existing
Environmental Liability, or (B) to any Hazardous Material that is not a
Pre-Existing Environmental Liability in the course of or as a consequence of any
Hazardous Material Activity or Remediation Activity conducted on or about the
Leased Facility after the Closing Date by a Seller Group Member or a Seller
Group Member's respective agents, employees or contractors.
(iv) the presence at any Disposal Facility of any
Hazardous Material generated in the course of the Operations and shipped from
the Leased Facility at any time after the Closing Date by any Seller Group
Member or their respective agents, employees or contractors.
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(b) Adequate Protection From Loss. Buyer acknowledges that its
obligations under the foregoing Section 10.6(a) shall arise upon the threat or
institution of any Losses or Expenses for which Buyer is liable under this
indemnity, and not merely upon the realization by the Indemnified Party of an
actual loss; and, therefore, Buyer agrees, within fifteen (15) days following a
written demand, to take such action as the Indemnified Party may reasonably
request to protect the Indemnified Party from such Losses and Expenses; provided
the Indemnified Party provides Buyer with notice.
(c) Waiver by Buyer. To the extent permitted by applicable
law, Buyer, on behalf of itself and its Successors, after consultation with
counsel, hereby waives (i) any and all rights to join Seller, the Seller Group
Members and their Successors in any litigation or proceeding to the extent
arising out of or in connection with any Buyer Environmental Liabilities; and
(ii) any and all Losses and Expenses which any of them may have with respect to
any Buyer Environmental Liabilities.
(d) Survival. It is expressly acknowledged by Buyer that the
acts, omissions, breach of any covenant in this Agreement or in any Additional
Agreement, or violation of Environmental Laws by Seller, the Seller Group
Members and/or their respective Successors (whether active, passive, negligent,
wrongful or in violation of any agreement) shall not impair the right of any of
such Persons (including the Person acting or omitting to act) to enforce Buyer's
indemnification obligations pursuant to this Section 10.6. The obligations and
rights of the parties under this Section 10.6 are in addition to, independent
from, and severable from the rights and obligations of the parties under this
Agreement or in any Additional agreement between them and
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shall survive, notwithstanding the termination, expiration or breach of such
agreements between any of the parties hereto and notwithstanding any other act
or omission of the parties, whether or not such acts are in violation of the
express provisions of this Agreement, any Additional Agreement or Requirements
of Laws. This Agreement shall survive the sale, transfer, assignment or
hypothecation of any Seller Group Member or any of their properties, or any
interest therein, to any Person.
10.7 Limitation on Amount. The Seller shall have no liability for
claims made under this Article 10 until the aggregate amount of the Losses and
Expenses incurred by the Buyer Group Members shall exceed Fifty Thousand Dollars
($50,000), in which event the indemnification obligations of the Seller shall
apply to the full amount of such claims, beginning with the first dollar thereof
provided, however that the Seller shall not be liable in the aggregate pursuant
to this Article 10 for an amount in excess of the total Purchase Price
determined in accordance with Section 2.4.
ARTICLE 11
TERMINATION
11.1 Termination . Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated at any time prior to the Closing
Date:
(a) by the mutual consent of Buyer and Seller;
(b) by Buyer or Seller if the Closing Date shall not have
occurred on or before March 3, 2000 (or such later date as may be mutually
agreed to by Buyer and Seller), provided that failure of closing to occur by
such date is not caused by the party seeking to terminate;
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(c) by Buyer in the event of any material breach by Seller of
any of the representations, warranties, covenants or agreements of Seller
contained herein and the failure of Seller to cure such breach within fifteen
(15) days after receipt of notice from Buyer requesting such breach to be cured;
(d) by Seller in the event of any material breach by Buyer of
any of Buyer's representations, warranties, covenants or agreements contained
herein and the failure of Buyer to cure such breach within fifteen (15) days
after receipt of notice from Seller requesting such breach to be cured; or
(e) by Seller in the event that is shall receive an
unsolicited offer from a third party for the purchase of the Purchased Assets on
terms deemed more advantageous in its shareholders interest by its Board of
Directors than the terms offered by Buyer under this Agreement.
11.2 Notice of Termination. Any party desiring to terminate this
Agreement pursuant to Section 11.1 above shall give notice of such termination
to the other parties to this Agreement.
11.3 Effect of Termination. In the event that this Agreement shall be
terminated pursuant to this Article 11, all further obligations of the parties
under this Agreement (other than Sections 6.6, 12.3, 12.9 and 12.14 and Article
10) shall be terminated, provided that nothing herein shall relieve any party
from liability for its breach of this Agreement.
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ARTICLE 12
GENERAL PROVISIONS
12.1 Survival of Obligations. All representations, warranties,
covenants and obligations contained in this Agreement shall survive the
consummation of the transactions contemplated by this Agreement. The respective
representations and warranties of each party hereto contained herein shall not
be deemed waived or otherwise affected by any investigation made by the other
party hereto and shall survive the Closing Date.
12.2 No Public Announcements. Except as heretofore made, neither Buyer
nor Seller shall, without the approval of the other, make any press release or
other public announcement concerning this Agreement, its existence or the
transactions contemplated by this Agreement, except as and to the extent that
any such party shall be so obligated by law, in which case the other party shall
be advised and the parties shall use their reasonable efforts to cause a
mutually agreeable release or announcement to be issued.
12.3 Notices. All notices, requests, instructions or other
communications or other documents required or permitted hereunder shall be in
writing and shall be deemed given or delivered when delivered personally via
telecopier or five (5) days after being sent, when sent by registered or
certified mail, or one (1) day after being sent, when sent by overnight courier,
addressed as follows:
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If to Seller, to:
Boca Research, Inc.
1601 Clint Moore Road
Boca Raton, Florida 33487
Attention: Robert Heinlein, Vice President of Finance/
Chief Financial Officer
Facsimile: (561) 997-6934
with a copy to:
Spinner, Dittman, Federspiel and Dowling
151 N.W. 1st Avenue
Delray Beach, Florida 33444
Attention: Robert W. Federspiel
Facsimile: (561) 276-5489
If to Buyer, to:
Boundless Technologies, Inc.
P.O. Box 18001
Hauppauge, NY 11788-8801
Attention: Joseph Gardner, VP of Finance, CFO
Facsimile: (516) 342-7911
with a copy to:
Fischbeino Badilloo Wagnero Harding
909 Third Avenue
New York, New York 10022
Attention: Joseph L. Cannella, Esq.
Facsimile: (212) 644-7485
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
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12.4 Successors and Assigns.
(a) The rights of either party under this Agreement shall not
be assignable prior to the Closing Date without the written consent of the other
except the Buyer may assign this Agreement to Boundless Manufacturing Services,
Inc.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any Person other than the parties and successors and
assigns permitted by this Section 12.4 any right, remedy or claim under or by
reason of this Agreement.
12.5 Access to Records After Closing Date. For a period of five (5)
years after the Closing Date, Buyer and its representatives shall have
reasonable access to all of the information, books and records of the Operations
which Seller or any of its Affiliates shall retain after the Closing Date, in
each case subject to the Confidentiality Agreement or similar nondisclosure
agreement if the Confidentiality Agreement shall have terminated or expired.
Such access shall be afforded by Seller and its Affiliates upon receipt of
reasonable advance notice and during normal business hours.
12.6 Entire Agreements; Amendments. This Agreement and the exhibits and
schedules referred to herein and the documents delivered pursuant hereto contain
the entire understanding of the parties hereto with regard to the subject matter
contained herein or therein, and supersede all prior agreements or understanding
between or among any of the parties hereto. This Agreement
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shall not be amended, modified or supplemented except by a written instrument
signed by an authorized representative of each of the parties hereto.
12.7 Interpretation. Article titles and headings to sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement. The schedules
referred to herein shall be construed with and as an integral part of this
Agreement to the same extent as if they were set forth verbatim herein.
12.8 Waivers. Any term or provision of this Agreement may be waived, or
the time for its performance may be extended, by the party or parties entitled
to the benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes of this Agreement if, as to any party, it is
authorized in writing by an authorized representative of such party. The failure
of any party hereto to enforce at any time any provision of this Agreement shall
not be construed to be a waiver of such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to constitute a waiver of any other or subsequent
breach.
12.9 Expenses. Except as otherwise expressly agreed to in writing by
the parties each party hereto will pay all Expenses incident to its negotiation
and preparation of this Agreement and to its performance and compliance with all
agreements and conditions contained herein on its part to be performed or
complied with.
12.10 Partial Invalidity. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the
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provisions contained herein shall be held to be invalid, illegal or
unenforceable in any respect, such provision shall be ineffective to the extent,
but only to the extent, of such invalidity, illegality or unenforceability
without invalidating the remainder of such invalid, illegal or unenforceable
provision or provisions or any other provisions hereof, unless such a
construction would be unreasonable.
12.11 Execution in Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be considered an original instrument,
but all of which shall be considered one and the same agreement, and shall
become binding when one or more counterparts have been signed by each of the
parties hereto and delivered to each of Seller and Buyer.
12.12 Further Assurances.
(a) On the Closing Date Seller shall (i) deliver to Buyer such
other bills of sale, deeds, endorsements, assignments and other good and
sufficient instruments of conveyance and transfer, in form reasonably
satisfactory to Buyer and its counsel, as Buyer may reasonably request or as may
be otherwise reasonably necessary to vest in Buyer all the right, title and
interest of Seller in, to or under any or all of the Purchased Assets, and (ii)
take all steps as may be reasonably necessary to put Buyer in actual possession
and control of all the Purchased Assets.
(b) From time to time following the Closing Date, Seller shall
execute and deliver, or cause to be executed and delivered, to Buyer such other
instruments of conveyance and transfer as Buyer may reasonably request or as
otherwise may be reasonably necessary to more effectively convey and transfer
to, and vest in, Buyer and put Buyer in possession of, any part of the
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Purchased Assets, and in the case of licenses, certificates, approvals,
authorizations, agreements, contracts, leases, easements and other commitments
included in the Purchased Assets (i) which cannot be transferred or assigned
effectively without the consent of Persons which consent has not been obtained
prior to the Closing Date and the delivery of which on the Closing Date has been
waived by Buyer, to cooperate with Buyer at its request in endeavoring to obtain
such consent promptly, and if any such consent is unobtainable, to use its
reasonable efforts to secure to Buyer the benefits thereof in some other manner,
or (ii) make reasonable efforts jointly with Buyer to secure to Buyer the
benefits thereof in some other manner (including the exercise of the rights of
Seller thereunder).
12.13 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Delaware. The Additional Agreements shall be
governed by such laws as set forth therein.
12.14 Dispute Resolution. For any dispute or claim arising out of or
relating to this Agreement, or breach hereof, the parties, prior to filing any
claims to binding arbitration, shall in good faith first negotiate a written
resolution of such dispute or claim for a period not to exceed thirty (30) days
from the date of receipt of a party's request for such negotiation. Such
negotiations shall be conducted by managers of each party who have authorization
to resolve any such dispute or claim. In the event the parties cannot negotiate
a written resolution to such dispute or claim during this thirty (30) day
negotiation period, the parties shall then submit such dispute or claim to
binding arbitration with the American Arbitration Association ("AAA"). The
arbitration may be initiated by the written request of either party to the other
party, shall commence within fifteen (15) days of
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receipt of such notice and shall be conducted in accordance with the standard
mediation procedures established by AAA, unless otherwise agreed by the parties.
Nothing in this paragraph shall prevent a party from seeking temporary equitable
relief, from AAA or such other body as the parties may mutually agree upon,
during the fifteen (15) day period if necessary to prevent irreparable harm.
The arbitrators shall be selected as follows: Buyer and Seller
shall each select on independent, qualified arbitrator and the two arbitrators
so selected shall select the third arbitrator. Either party may disqualify any
individual arbitrator who is a present or past employee, owner, or consultant to
the opposing party or a competing organization.
Arbitration shall take place in the New York metropolitan area
if initiated by Seller, and in the Boca Raton, Florida, area if initiated by
Buyer. At the request of either party, except as may be required by law,
arbitration proceedings will be conducted in the utmost secrecy and, in such
case, all documents, testimony and records shall be received, heard and
maintained by the arbitrators in secrecy under seal, available for inspection
only by Purchase and Seller, their respective attorneys, and their respective
experts, consultants or witnesses who shall agree, in advance and in writing, to
receive all such information confidentially and to maintain such information in
secrecy, and make no use of such information except for the purpose of the
arbitration, until such information shall become generally know.
The arbitrators, who shall act by majority vote, shall be able
to decree any and all relief of an equitable nature, including but not limited
to such relief as a temporary restraining order, a temporary injunction or a
permanent injunction, and shall also be able to award damages, with or without
an accounting and costs, but not punitive damages, to either party. The decree
of judgment
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of an award rendered by the arbitrators may be entered in any court having
jurisdiction over the parties.
Reasonable notice of the time and place of arbitration shall
be given to persons other than the parties, if such notice is required by law,
in which case such persons or their authorized representatives shall have the
right to attend or participate in the arbitration hearing in such manner as the
law shall require.
The arbitration can and shall be rendered in writing and shall
be final and binding or the parties, not subject to any appeal except to the
extent authorized by law.
If any action is necessary to enforce or interpret the terms
of this agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs, and necessary disbursements in addition to any other
relief to which the party may be entitled
12.15 Third Parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any Person other than the parties
hereto, their successors or permitted assigns and, with respect to Article 10,
the Indemnified Parties, any rights or remedies under or by reason of this
Agreement.
12.16 Specific Performance. The parties each acknowledge and agree that
each of the parties hereto shall be entitled to specific enforcement of the
terms of this Agreement against the other party.
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12.17 Interpretation. The parties hereto acknowledge and agree that:
(i) each party and its counsel reviewed and negotiated the terms and provisions
of this Agreement and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement:
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
BOCA RESEARCH, INC.
By:/S/ Robert Heinlein
-------------------
Name: Robert Heinlein
---------------
Title: C.F.O.
------
BOUNDLESS TECHNOLOGIES, INC.
By:/S/ J. Gerald Combs
-------------------
Name: J. Gerald Combs
---------------
Title: C.E.O.
------
<PAGE>
Exhibit 10.28
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
Boundless Technologies, Inc., a Delaware corporation (the "Assignor"),
for good and valuable consideration paid to it, the receipt and sufficiency of
which is hereby acknowledged, does hereby grant, sell, convey, assign, transfer
and deliver to Boundless Manufacturing Services, Inc., a Delaware corporation
(the "Assignee") and its successors and assigns, forever, all of Assignor's
right, title and interest in and to the Asset Purchase Agreement, dated as of
January 24, 2000, by and between Boca Research, Inc. and Assignor (the
"Contract"), to have and to hold the same unto Assignee, its successors and
assigns to and for its use forever, and further, that Assignee hereby accepts
the Contract and assumes and agrees to perform all obligations of Assignor under
the Contract including the obligation to issue and deliver the Note pursuant to
Section 2.4 of the Contract. Assignor hereby assumes Assignee's obligation under
Section 2.4 of the Contract to unconditionally guaranty the Note issued by
Assignee.
Assignee represents, warrants and covenants with Assignor as follows,
which representations, warranties and covenants shall survive the sale, transfer
and delivery of the Contract:
On and after the date hereof and without further consideration,
Assignor will, from time to time at Assignee's request, execute and deliver such
further instruments of conveyance, assignment and transfer and will take or
cause to be taken such other action as Assignee may reasonably request for the
more effective conveyance, assignment and transfer to Assignee of the Contract
and Assignee's assumption of all Assignor's obligations under the Contract, as
aforesaid.
In WITNESS WHEREOF, Assignor and Assignee have caused this Assignment
and Assumption Agreement to be duly executed as of the 3 day of March, 2000.
BOUNDLESS TECHNOLOGIES, INC.
By:/S/ J. Gerald Combs
-------------------
J. Gerald Combs, President
BOUNDLESS MANUFACTURING
SERVICES, INC.
By: /S/ Joseph Gardner
------------------
Joseph Gardner, CFO
<PAGE>
Exhibit 10.29
NON-NEGOTIABLE PROMISSORY NOTE
$1,000,000.00 March 3rd, 2000
Boca Raton, Florida
FOR VALUE RECEIVED, Boundless Manufacturing Services, Inc., a Delaware
corporation (the "Company"), promises to pay to Boca Research, Inc., a Florida
corporation, or its registered assigns (the "Holder"), the principal sum of One
Million Dollars and No/100 ($1,000,000.00). Subject to the provisions of Section
11, interest shall accrue at the rate of six percent (6%) per annum with respect
to this Promissory Note. All unpaid principal, together with any then unpaid and
accrued interest and other amounts payable hereunder, if any, shall be due and
payable in accordance with the provisions of Section 6.
The following is a statement of the rights of Holder and the conditions
to which this Note is subject, and to which Holder, by the acceptance of this
Note, agrees:
1. Definitions. As used in this Note, the following capitalized terms
have the following meanings:
(a) "Event of Default" has the meaning given in Section 3
hereof.
(b) "Person" shall mean and include an individual, a
partnership, a corporation (including a business trust), a joint stock company,
a limited liability company, an unincorporated association, a joint venture or
other entity or a governmental authority.
2. Interest. Accrued interest on this Note, if any, shall become due
and payable as provided for herein on the date amounts are declared due and
payable by Holder or made automatically due and payable upon or after the
occurrence of an Event of Default
3. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Note:
(a) Failure to Pay. Company shall fail to pay when due any
payment of principal, interest or other payment required under the terms of this
Note on the date due, provided the Holder shall have given the Company five (5)
days' written notice of such failure to pay ; or
(b) Voluntary Bankruptcy or Insolvency Proceedings. Either the
Company or the Guarantor shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a substantial
part of its property, (ii) be unable, or admit in writing its inability, to pay
its debts generally as they mature, (iii) make a general assignment for the
benefit of its or any of its creditors, (iv) be dissolved or liquidated in full
or in part, (v) become insolvent (as such term may be defined or interpreted
under any applicable statute), (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or
(c) Involuntary Bankruptcy or Insolvency Proceedings.
Proceedings for the appointment of a receiver, trustee, liquidator or custodian
of Company or the Guarantor or of all or a substantial part of the property
thereof, or an involuntary case or other proceedings seeking liquidation,
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reorganization or other relief with respect to Company or the Guarantor or the
debts thereof under any bankruptcy, insolvency or other similar law now or
hereafter in effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within ten (10) days of
commencement.
4. Cross-Default. An Event of Default by the Company under this Note
shall be deemed a default under that certain Supply Agreement entered into
between the parties of even date.
5. Rights of Holder upon Default. Upon the occurrence or existence of
any Event of Default described in Section 3, immediately and without notice, all
outstanding Obligations payable by Company hereunder shall automatically become
immediately due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein to the contrary notwithstanding. In addition to the foregoing remedies,
upon the occurrence or existence of any Event of Default, Holder may exercise
any other right, power or remedy granted to it under the Agreement or the
Guaranty or otherwise permitted to it by law, either by suit in equity or by
action at law, or both.
6. Maturity Dates. Subject to the provisions of Section 5, the Company
shall pay to the Holder the principal amount quarterly of One Hundred
Twenty-five Thousand Dollars and No/100 ($125,000.00) quarterly, together with
any accrued but unpaid interest, for eight (8) consecutive quarters commencing
June 1, 2000, and on the first business day of each and every third month
thereafter, until all sums of unpaid principal have been paid in full.
Notwithstanding the foregoing, the entire principal amount owing hereunder shall
be due and payable upon the change of control of either the Company or the
Guarantor. For purposes of this Section 6, a change of control shall mean (i)
the transfer of more than fifty percent of the voting securities of either the
Company or the Guarantor (other than as a result of issuance of Employee stock
options and/or issuance of capital stock for funding)or the sale of all or
substantially all of the assets of the Company or the Guarantor, or (ii) the
merger of the Company or the Guarantor with an unaffiliated third party in which
the holders of the Guarantor's voting securities immediately prior to such
merger do not own (directly or indirectly) a majority of the voting securities
of the surviving entity.
7. Guaranty. The obligations of the Company under this Note are
unconditionally guaranteed by Boundless Corporation and Boundless Manufacturing
Services, Inc. (the "Guarantor"), pursuant to a Guaranty of even date herewith
executed by the Guarantor.
8. Waiver and Amendment. No provision of this Note may be amended,
waived or modified without the prior written consent of Company, Holder and the
Guarantor.
9. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery at the
respective addresses of such party. Notice shall conclusively be deemed to have
been given three days after the mailing or sending thereof.
10. Payment. All payments hereunder shall be made in lawful tender of
the United States. Payments shall be made in immediately available funds at the
place and in the manner requested by Holder from time to time.
The Holder agrees that, in addition to (and without limitation
of) any rights the Company may otherwise have, the Company shall be entitled, at
its option and without any prior notice to the Holder (any such notice being
expressly waived by the Holder), to offset the balance owed to the Holder under
this Note against any amount payable by the Holder to the Company, under the
supply agreement between the Holder and Boundless Manufacturing Services, Inc.
executed on this date, which is not paid
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when due, in which case the Company shall promptly notify the Holder thereof;
provided that the Company's failure to give such notice shall not affect the
validity thereof.
11. Default Rate; Usury. In the event that any payment of principal or
interest provided for herein is not paid by Company within 5 business days after
the close of each of the quarters during which payments are due (including the
entire unpaid balance of this Note in the event such amount is made immediately
due and payable pursuant to the terms hereof), then Company shall pay interest
at the maximum allowable rate of interest on such amounts not paid when due. In
the event any interest is paid on this Note which is deemed to be in excess of
the then legal maximum rate, then that portion of the interest payment
representing an amount in excess of the then legal maximum rate shall be deemed
a payment of principal and applied against the principal of this Note.
12. Governing Law. This Note and all actions arising out of or in
connection with this Note shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the conflicts of law
provisions of the State of Delaware or of any other state.
13. Severability. In case any one or more of the provisions contained
in this Note should be held to be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
14. Assignment. This Note is registered on the books of the Company
and is transferrable only by surrender thereof at the principal office of the
Company duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Note or its attorney duly authorized
in writing.
IN WITNESS WHEREOF, Company has caused this Note to be issued as of the
date first written above.
COMPANY
BOUNDLESS MANUFACTURING SERVICES, INC.
By:/S/ Joseph Gardner
------------------
Name: Joseph Gardner
Title: Vice President
Acknowledged and Agreed to by:
BOCA RESEARCH, INC.
By:/S/ Robert Heinlein
-------------------
Name: Robert Heinlein
Title: CFO
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Exhibit 10.30
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT ("Agreement") dated this 3rd day of March, 2000
(the "Effective Date"), is entered into by and between BOCA RESEARCH, INC., a
Florida corporation having its principal offices located at 1377 Clint Moore
Road, Boca Raton, Florida 33487 ("Boca"), and BOUNDLESS MANUFACTURING SERVICES,
INC. a Delaware Corporation, having its principal offices located at 100 Marcus
Boulevard, Hauppauge, New York 11788-8801 ("Boundless").
W I T N E S S E T H:
WHEREAS, Boca is engaged in the research, design and development of
computer products; and
WHEREAS, Boundless is engaged in the business of manufacturing and
marketing computer products; and
WHEREAS, Boca desires that Boundless manufacture certain computer
products for Boca in accordance with Boca design and parts specifications; and
WHEREAS, Boundless desires to manufacture such products for Boca.
NOW, THEREFORE, in consideration of the mutual promises and covenants
of the parties hereto and other valuable consideration, the parties hereto agree
with each other as follows:
1.0 DEFINITIONS.
The following defined terms, and other capitalized terms defined
herein, shall govern the interpretation of this Agreement.
"Code" shall mean computer programming instructions. Unless
specifically stated otherwise, Code shall include Executable Code,
Object Code, Source Code and bug fixes thereof in existence from time
to time during the course of this Agreement.
"Executable Code" shall mean Code that loads and executes without
further processing by a software compiler or linker.
"Object Code" shall mean the Code that results when Source Code is
processed by a software compiler, but is not Executable Code.
"Source Code" shall mean the human-readable form of the Code and
related system documentation, including all comments and any procedural
language.
"EPROM Software" shall mean Code included on the EPROM (as defined in
the Specifications) including without limitation hardware boot and
diagnostic Code.
"Flash Software" shall mean Code included on the Flash (as defined in
the Specifications) including without limitation networking protocols
and configuration and operating system Code.
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"Intellectual Property Rights" shall mean all current and future
patents, copyrights, trademark, trade secrets and other intellectual
property rights throughout the world, including without limitation, all
applications and registrations with respect thereto.
"Inventory" shall mean raw materials and supplies necessary for the
manufacture of the Products pursuant to this Agreement.
"Make or Have Made" shall mean to use or have used, reproduce or have
reproduced, practice or have practiced, all or any part of the Boca
Technology for the fabrication, manufacturing, assembly, testing,
packaging and maintenance of the Product pursuant to the Agreement.
"Products" shall mean the products described on Schedule 1 attached
hereto and as described in the Specifications (including any Revisions,
maintenance releases and bug fixes) in all configurations, and any
other Boca products that Boca may develop in the future during the term
of this Agreement which shall be added to this definition by the
parties agreeing upon Boundless' manufacture thereof pursuant to the
provisions of this Agreement.
"Boca Documentation" shall mean datasheets, PG tapes, brochures,
application notes, user and technical manuals, test programs and
procedures, and similar documents authored or created by or for Boca to
be included in or shipped with the Product.
"Boca Software" shall mean all Code which is used (i) in or shipped
with the Product, including Flash Software and EPROM Software; and (ii)
in the manufacture, testing, or assembly of the Product pursuant to
this Agreement, including any upgrades, enhancements and corrections
thereto made available to Boundless by Boca.
"Boca Technology" shall mean all technology or property, tangible or
intangible, of whatever nature, whether proprietary or not, owned by
Boca or which Boca has the right to license to Boundless, including
without limitation Code, means, methods, processes, practices,
formulas, techniques, procedures, designs, specifications, assembly
procedures, schematics and other information which is now in (or
hereafter during the term of this Agreement comes into) the possession
of Boca and which is necessary and/or useful in the manufacture,
assembly, and testing of Products. Boca Technology shall include
Revisions to the foregoing.
"Revisions" are upgrades, improvements or changes including, but not
limited to, improved feature sets by the adoption of industry standard
protocols and Engineering Change Orders made by or for Boca to Product
or Boca Technology.
"Specifications" means Boca's specifications with respect to the
Products, as provided in the format of a structured bill of materials,
which shall include instructions for assembly, testing and packaging,
and from time to time any special instructions.
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2.0 MANUFACTURING
2.1 Agreement to Manufacture. During the term of this Agreement and
subject only as otherwise provided in this Agreement Boca shall purchase from
Boundless and Boundless shall manufacture and sell to Boca, all of Boca's
requirements for the Products. Boundless shall be the exclusive manufacturer of
the Products. Boundless agrees to use reasonable commercial efforts, pursuant to
purchase orders issued by Boca and accepted by Boundless, to procure Inventory
and to manufacture, test, assemble, and deliver the Products pursuant to the
Specifications to Boca F.O.B. Boundless, Boca Raton, Florida. Boundless shall
manufacture Product strictly in conformance with the Specifications.
2.1.1 Boca agrees to negotiate in good faith for Boundless to
manufacture for Boca any new products which Boca may design and develop during
the term of this Agreement which require manufacture by or for Boca. Provided
that Boundless can provide Boca with a proposal which is at least substantially
equivalent in terms of price, delivery and quality to any other proposal which
Boca may receive ("Equivalent Proposal"), Boundless shall have the right of
first refusal to supply Boca with all new products which do not fall within the
definition of "Product" under this Agreement, and which products Boca proposes
to manufacture through any third party manufacturer ("Proposed Products") and
Boca shall not permit a third party to manufacture any such new products without
first providing Boundless with a reasonable opportunity to provide Boca with a
written proposal within five (5) business days of Boca providing the required
specifications for such proposal. If Boca determines to proceed with the
Proposed Product and Boundless is determined hereunder by Boca in its
commercially reasonable discretion, to not have submitted an Equivalent Proposal
and therefore to be the manufacturer of the Proposed Product, Boundless shall
have three (3) business days within which to either (i) accept the terms which
have been submitted by the third party manufacturer and produce the Proposed
Product for Boca for such cost and terms; however Boundless shall have the right
to submit any dispute as to whether it has submited an Equivalent Proposal to
arbitration pursuant to Section 15.2 hereof, and the parties shall be bound by
the outcome of such arbitration or (ii) notify Boca that it waives its right to
manufacture such product.
2.1.2 Specifically excluded from this Agreement are (i)
Products which are not manufactured based on Boca Technology and are purchased
by Boca from third parties for resale which require only rebranding in Boca's
name, bundling of software, packing and shipping, and (ii) Boca's right to
license third parties to manufacture and sell products under third party private
branding where the third party manufactures the products for its own
distribution for its own accounts under its own brand name, which right is
hereby expressly retained.
2.1.3 Boca agrees that, from the date hereof to the first
anniversary of the date hereof, it will order and purchase Products from
Boundless which results in proceeds, minus Boundless' cost of material
("Proceeds"), of at least $3.775 million to Boundless (the "Minimum Purchase
Commitment") and Boca also commits to Boundless' receiving $943,750 of
cumulative Proceeds by the 90th day from the date hereof, $1,887,500 by the
180th day from the date hereof and $2,831,250 by the 270th day from the date
hereof. In the event Boca has not met the Minimum Purchase Commitment by each
quarter (measured in 90-day increments) of the first year of the term of this
Agreement, Boca will, within thirty (30) days thereafter, pay to Boundless an
amount equal to the shortfall incurred in such quarter. The parties acknowledge
that any surplus over the minimum required by Boca in any quarter may be applied
to the minimum commitment of the next ensuing quarter(s). The parties further
expressly agree that to the extent Boca has a shortfall at the end of
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the first anniversary of the date hereof, it shall have the right to apply the
next due sums owing by Boundless to Boca under the Note, defined below, to the
extent necessary to satisfy its obligations under such shortfall. All Proceeds
to Boundless from services provided by Boundless under this Agreement, including
manufacturing, distribution, RMA and repair as well as all third party business
Proceeds accruing to Boundless which is the direct result of an introduction and
meeting with a third party arranged by Boca, shall count toward the Minimum
Purchase Commitment. Boundless is simultaneously making and delivering a note
evidencing its indebtedness to Boca in the amount of One Million Dollars
($1,000,000.00) pursuant to the terms of that certain asset purchase agreement
(the "Asset Purchase Agreement") between the parties of even date (the "Note").
The parties hereby agree that a default in making payment under the Note shall
be deemed a default under this Agreement and shall entitle Boca, in addition to
all other remedies available to it, to the right of offset against any
obligations of Boca hereunder.
2.2 Limited License. Subject to the terms, conditions and restrictions
of this Agreement, Boca hereby grants Boundless a royalty-free,
non-transferable, non-exclusive, license, without the right to sublicense, of
Boca's Intellectual Property Rights (including, but not limited to, the Boca
Technology, the Boca Software and the Boca Documentation) solely to: (i) copy
Flash Software and Boca Documentation for the sole purpose of inclusion into
units of Product during manufacturing for Boca; and (ii) manufacture, repair,
modify, test and assemble Product pursuant to this Agreement for Boca.
2.3 (a) Boca Inventory. Provided that Boca has good title to its
Inventory, free and clear of any liens or encumbrances, and such Inventory is
free of defect, Boundless agrees to purchase from Boca at Boca's standard cost,
on payment terms net due 30 days from delivery, such Inventory in Boca's
possession on the date hereof as is necessary to meet purchase orders placed by
Boca with Boundless pursuant to this Agreement to the extent that Boca has such
inventory available, and such purchases shall occur prior to Boundless utilizing
inventory purchased by it from any third parties. Boca shall keep Boundless
informed of the levels of such inventory so that Boundless can make purchases
from third parties as necessary.
(b) Inventory. The Specifications shall be based on a bill of
materials ("BOM") provided by Boca. Boundless shall manage procurement of
Inventory based on the BOM and shall have sole responsibility for pooled
Inventory. Should Boundless desire to make a substitution for or change from the
BOM, it shall: (i) send a written notice to Boca of such proposed substitution
for or change; (ii) and provide an evaluation sample of such material or part to
Boca for qualification, upon which Boca shall have five (5) business days from
receipt to send a written acceptance or rejection of the sample to Boundless.
Boundless shall not make substitutions or otherwise deviate from the BOM unless
approved by Boca, whose approval shall not be unreasonably withheld. In the
event Boca proposes to make a substitution for or change from the BOM, such
substitution or change shall have the same effect as, and the parties shall have
the same rights and obligations which they have with respect to, an Engineering
Change Order described in Section 2.14.
2.4 Assembly and Production. Boundless agrees to utilize the Inventory
specified by the BOM to manufacture and assemble the Product in conformity with
the Specifications. Assembly shall include the completion of the Product in its
entirety, testing of the Product, and insertion of the Product and any related
peripherals and Boca Documentation into suitable packaging as reasonably
directed by Boca.
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2.5 Package Design. The BOM describes standard inclusions to be
packaged with finished units. Masters of Boca Documentation will be furnished by
Boca for Boundless to use in the manufacture of the Product which are consistent
with industry practice. From time to time, unique sales offerings will be
supplied by Boca for inclusion in finished packaging.
2.6 Production Schedule. Boca will deliver to Boundless a written
forecast at the end of each calendar month for the quantity of Product that Boca
wishes to purchase from Boundless for the next four (4) months (""Forecast"").
The parties agree that the Forecast shall not be deemed binding on Boca in any
manner, except that not meeting or exceeding Forecasts may result in certain
consequence to Boca as provided for herein, including Boca's responsibility to
pay Boundless for materials procured due to "lead time" requirements that cannot
be returned to suppliers. In the event of constrained Product availability due
to shortages in Inventory, line capacity or other manufacturing factors,
Boundless will use best efforts to ensure Product availability at a level
sufficient to meet Boca's purchase orders.
Boundless is authorized to purchase materials using standard purchasing
practices including, but not limited to, acquisition of material recognizing
Minimum or Economic Order Quantities ("MOQ"), ABC buy policy and long lead time
component management in order to meet the Forecast. Boca recognizes its
financial responsibility for the material purchased by Boundless on behalf of
Boca in accordance with the Forecast. MOQ, ABC and Long Lead-time Components
shall be identified in Exhibit B and Boundless shall notify Boca of any changes
thereto.
When Boundless receives a design change or purchases of products by
Boca are less than 85% of that Forecast and such schedule change from the
Forecast potentially creates Excess or Obsolete inventory, Boundless will
preliminarily notify Boca, and proceed to promptly cancel and/or change orders
and/or return parts to suppliers, utilize such parts for other products and use
commercially reasonable efforts to reduce any potential liabilities and costs
associated with such inventory. After such efforts, Boundless shall notify Boca
of any cancellation charges it has been required to pay, and also provide a
detailed list of Excess and Obsolete parts that still remain in its inventory.
Boca shall purchase such Excess and Obsolete parts at Boundless' cost (including
Boundless' labor and handling cost equal to 5.5% of the materials with respect
to such parts) and pay the cancellation charges, if any, within thirty (30) days
after receipt of such notice, provided that Boundless shall have delivered to
Boca all such reasonable documentation, information, records and correspondence
justifying such charges. Boca shall not be responsible for any Excess or
Obsolete parts (or for any cancellation charges therefor) which Boundless had
the opportunity to cancel without any cancellation charge or fee but failed to
do so. Furthermore, in the event of such design or schedule changes, Boca will
also purchase any Finished Products (defined in Section 2.15) in Boundless'
possession at the price set for such Products in this Agreement which are not
Forecast to be purchased by Boca within the next 90 days.
For the purposes of this Agreement, "Excess" inventory shall be defined
as parts used in Products, including work in process, for which quantities on
hand and on order exceed production requirements for the next sixty (60) days .
"Obsolete" inventory shall be defined as parts no longer used in active Products
(e.g. eliminated by a design change) or used only in obsolete Products.
2.7 Purchase Orders and Deliveries. All Boca purchase orders and/or
releases against previously accepted purchase orders are subject to written
acceptance by Boundless and must specifically refer to this Agreement by
reference to its Effective Date. Once accepted by Boundless, the Purchase Order
will be binding on the parties. Purchase orders or releases so submitted for
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Product by Boca must state firm quantities and delivery for a definite date(s)
during the Term of this Agreement. Purchase orders must be in writing or be in
electronic format as agreed between the parties. All purchase orders shall be in
minimum lots of 1,000 units. Boca shall have the right to place purchase orders
for less than minimum lots of 1,000 units, subject to negotiation of mutually
acceptable pricing between the parties. Deliveries will only be scheduled upon
receipt of a duly executed purchase order and/or release from Boca. Boundless
shall use commercially reasonable efforts to deliver Product to Boca to the
location specified by the purchase order by the delivery date requested in the
purchase order and, provided such Products are Forecast and, so long as all the
material used in such Products have leadtimes less than 45 days minus the
kitting and manufacturing time, no more than forty-five (45) days after the
receipt of the purchase order by Boundless. Such "long lead" items are the
responsibility of Boca when procured by Boundless in accordance to Forecast,
subject to Boundless' commercially reasonable efforts to return the material.
Freight charges shall be paid by Boca, provided that the carrier used is the
carrier specified in the purchase order or approved by Boca. Any charges for
expedited delivery of Product in order to meet the scheduled delivery date that
result from delays due to Boundless shall be paid by Boundless. Boundless will
not be responsible for such charges or otherwise penalized hereunder for failure
to deliver Products if the purchase orders exceed Forecasts or if there is an
industry-wide shortage of components used in the Products or in the event of the
occurrence of a force majeur, described in Section 12.
2.8 Changes and Cancellations. Except as set forth herein, Boca may
change or cancel any order (or part thereof) for Product without charge by
giving Boundless written notice not less than thirty (30) days prior to the
scheduled delivery date of those units to which said cancellation or change
pertains. In the event that Boca cancels or changes orders (for reasons other
than the failure of the Product to conform to the warranties set forth in
Section 5.1) at a time less than thirty (30) days before the scheduled delivery
date, Boundless will use commercially reasonable efforts to reschedule
manufacturing of Product to avoid any charges to Boca. In the event Boundless is
unable to avoid incurring charges related to the cancellation or change of the
order, Boca will be subject to payment of charges reasonably related to the
cancellation or change; provided that in no event shall Boca be liable for
charges in excess of the purchase price for the Product. At the time Boundless
receives any such order, cancellation or change, Boundless shall within three
(3) business days provide Boca with an estimate of the charges for which Boca
would be liable, provided that any delay in the delivery of such estimate shall
not relieve Boca of its responsibilities hereunder.
2.9 Qualification and Acceptance. Boundless agrees to manufacture and
produce the Products in accordance with the Specifications and special
instructions provided by Boca, provided that, if special instructions result in
increased costs to Boundless, Boca and Boundless will negotiate in good faith
increased pricing of the Products related thereto. As a part of Boundless' first
production unit ("First Articles") of any individual Product, Boca shall be
entitled to on-site inspect and observe such Product run to assure quality and
compliance of such initial run with the specifications and special instructions
given. If the First Articles are required to be modified as a result of a change
in the Specifications, Boca will pay Boundless its costs and expenses relating
to such modifications to the First Article.
2.10 Return of Product. Upon written notice within sixty (60) days
after its receipt (the "Rejection Period"), Boca shall be entitled to reject or
return any Product that materially fails to meet the warranties set forth in
Section 5.1. In addition, Boca shall be entitled to reject an entire production
lot within the Rejection Period if such lot fails to meet the AQL defined in
Section 2.11.
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Boundless shall, at its own expense and within thirty (30) days of receipt of
notice of rejection by Boca, replace the rejected or returned Product. Boundless
shall be responsible for the payment of all freight and charges related to the
replacement of Product hereunder F.O.B. Boundless, Boca Raton, Florida. Should
any defects be related to design of the Product, compatibility, or
Specifications, those defects shall be the sole responsibility of Boca. If a
Product is returned to Boundless but has defects relating to design,
compatibility or Specifications, is not defective or is damaged through no fault
of Boundless, Boca will reimburse Boundless for its cost of inspecting and
returning such Product.
2.11 Defects. Boundless and Boca hereby mutually agree that during the
production cycle of the Product, the production defect ratio (Accepted Quality
Level, or "AQL") shall be zero percent (0%) for a critical level of defect, zero
point sixty-five percent (0.65%) for a major level of defect, and one point five
percent (1.5%) for a minor defect. Boca hereby represents and warrants that it
has consistently realized defect levels in manufacturing the Products which do
not exceed these standards. "Critical Defect," "Major Defect," and "Minor
Defect" are terms which are defined as follows:
"Critical Defects" are those defects which would result in hazardous or
unsafe conditions for the individual using or maintaining the Product.
"Major Defects" are those defects, other than Critical Defects, that
are likely to result in failure of the Product, or to reduce materially
the usability of the Product for its intended purpose.
"Minor Defects" are those defects, other than Critical or Major Defects
which though departing from the Specifications for the Product, have
no, material adverse effect on the use or operation of the Product.
Boundless shall keep for a period of two (2) years records relating to
its production of the Product, and Boca shall have the right to review such
records upon request. Boundless shall perform an inspection of each lot shipment
of Product at the manufacturing facility prior to shipment, at Boundless'
expense, in accordance with shipping inspection standards as determined by
agreement of Boca. Boca may participate in such inspections at Boca's expense.
2.12 Testing. Boundless agrees to perform testing of Product during and
after assembly. Testing initially shall include: (1) In Circuit test; (2) Fresh
Start Test; (3) Burn-in Test; (4) Functional test; and (5) Final Test. Boca will
agree to reduced test procedures when Boundless' quality level (and first pass
yield data) warrant it and such agreement by Boca will not be unreasonably
withheld. Initially, all units will be 100% tested. Boundless shall imprint or
imbed within the printed circuit boards identification as to the source of
manufacture. Boca hereby represents and warrants that it has consistently
applied the testing and other requirements set forth herein. All incircuit test
fixtures procured as a part of this process shall belong to Boca.
2.13 Recommendations for Process/Manufacturing Improvements. Boundless
reserves the right to provide Boca in writing any recommendations that it may
have which would improve the ability to manufacture Product. Boca may agree to
such changes in writing within thirty (30) days of such recommendations which
agreement will not be unreasonably withheld.
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2.14 Product Revisions. Approved and accepted Revisions to Product
shall be designated with numerical levels, and will begin with Revision 0 on all
products produced after the First Articles, and continue numerically as
required. Revision level designation and parameters for change shall be
controlled and audited by Boca. Acceptance of Revisions shall be acknowledged in
writing by both parties prior to any change in the manufacturing schedule of the
current product version. Upon receipt of an Engineering Change Order ("ECO")
from Boca, Boundless will assess the impact of the ECO on their current
inventory and production. Within three (3) business days, Boundless will provide
Boca with an estimate of the cost to implement the ECO (including inventory
obsolescence), the proposed schedule and any increases in pricing resulting
therefrom. Boca will pay for the cost to implement the ECO and Boca and
Boundless will negotiate in good faith as to increases in pricing resulting from
such ECO. Boca must provide written approval and acceptance of the cost estimate
and schedule prior to implementation by Boundless.
2.15 Finished Goods. All finished Product shall be shipped by Boundless
from its manufacturing facilities on a first-in, first-out basis pursuant to the
instructions contained in the purchase order. Finished Product will be defined
as completed Product pursuant to an accepted purchase order which meets the
Specifications and is ready for delivery to Boca via a common carrier designated
by Boca. All Product shall be delivered F.O.B. Boundless' manufacturing plant in
Boca Raton, Florida. Title to Product shall be deemed to pass to Boca upon
actual delivery to such common carrier at Boundless' manufacturing facilities,
Boca Raton, Florida. Boundless shall procure and maintain a Warehouseman's Bond
in an amount not less than the value of all finished goods contained therein or
such other security or insurance as is reasonably acceptable to Boca.
2.16 Data Collections. Boundless will be responsible for the collection
and maintenance of all data concerning Inventory suppliers, production,
manufacturing, testing, certification, inventory and shipment of Product and
related peripherals. Such data shall be kept for a period of two (2) years and
made available to Boca upon request. Such data shall be subject to the
confidentiality provisions of Article 7.0.
2.17 Reporting. Boundless agrees, during regular business hours and
given reasonable notice, to provide Boca with on-site or on-line access to all
information relating to the manufacture of Product including but not limited to
Product inventory status, production status, Inventory order lead times, quality
control reporting, and shipping. Both parties agree to the appointment of a
dedicated project manager to represent each party in the relationship. In
addition, each party will designate a primary contact person in the areas of
administration, technical services, engineering, production/procurement and
manufacturing. Boca will appoint other individuals to manage the various phases
of the relationship between the parties. These shall include a Project Manager
for program management responsibility including contract oversight, a Production
Manager providing shipping instructions, establishing production schedules, and
coordinating finished goods inventory balances, and a Technical Manager for
managing the design and test issues. Unless specified otherwise in writing,
these appointed individuals are the only representatives who may authorize or
direct changes in those activities for which they are responsible.
2.18 Corrective Action Process. Boundless will maintain a viable
corrective action and auditing system, which utilizes collected data and other
indicators to make process improvements and take appropriate actions to resolve
any system anomalies.
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3.0 REGULATORY APPROVALS
3.1 At its sole cost, Boca shall be responsible for obtaining all
required governmental or regulatory approvals for Products (including Revisions
thereto)including those currently specified in the Specifications, or hereafter
required or desirable at any time during the Term of this Agreement in
connection with the sale or use of the Products. Regulatory approvals for these
Boundless assemblies shall be paid for by Boundless. Regulatory approvals
include, but are not limited to, approvals from the Federal Communication
Commission (FCC), Underwriters Laboratory (UL), the Canadian Standards
Association (CSA) and (DOC), and Council of Europe (CE).
4.0 PRICING AND PAYMENT TERMS
4.1 Product Price. The price per unit of Product manufactured under
this Agreement to Boca shall be based on time and material costs contained
within the Bill of Material as follows:
MONTHS LABOR MATERIAL BURDEN
1-6 (*) (*)
7-8 (*) (*)
9-24 (*) (*)
With respect to "non-manufactured product", which is defined as items
which are not produced on Boundless's surface mount technology (SMT) production
lines, the hourly labor rate will be the same as the manufactured products. The
material burden rate for non-manufactured products will be $ * per board
overhead, plus * % per month of the material cost as an asset-carrying charge
based upon the average monthly balance. Additionally, Boca will reimburse
Boundless for the freight-in costs and brokers' fees for materials used in
non-manufactured products which are procured from outside the United States.
Beginning six (6) months from the date of closing, the price to Boca
per unit for Products manufactured under this Agreement shall be no greater than
the lowest price of labor and the lowest price of material burdens offered to
any other customer of Boundless at its Boca Raton facility ordering quantities
of products comparable to the orders placed by Boca.
Thereafter, Boca and Boundless will agree on Cost reduction targets for
the subsequent periods. All prices are F.O.B. Boundless Boca Raton, Florida and
include all packing, palleting or containers for shipments. Boundless shall
cooperate and provide Boca with reasonable access to the information and records
of Boundless as to such pricing. Upon reasonable notice to Boundless, Boca shall
have the right to have an independent auditor, selected by Boca and acceptable
to Boundless, audit Boundless' records, during normal business hours and upon
reasonable notice, to verify Boundless' Costs for Product. The accountant shall
report to Boca and Boundless as to the accuracy of such Costs, and in the event
of any inaccuracy, the correct amount of such Costs. Boundless shall promptly
refund to Boca the amount of any overpayment determined in such audit. Such
audit shall be at Boca's expense unless the audit identifies greater than five
percent (5%) error, in which case such audit shall be at Boundless' expense.
Boca shall preserve and maintain all such records and accounts required for
audit for a period of two (2) years. The information resulting from such audit
shall be kept confidential pursuant to Section 8.1.
(*) Indicates information has been omitted and seperately filed with the
Securities and Exchange Commission pursuant to an application for an order
declaring confidential treatment thereof.
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4.1.1 Boundless and Boca will meet quarterly during the term of this Agreement
to review pricing and determine whether any price increase or decrease is
required. Any price change shall apply only to purchase orders or materials
releases issued after the effective date of such price change. The parties may
increase or decrease prices for fluctuations in material and other direct costs
and for changes in specification, changes to order volume and, in cases of
extraordinary market conditions. If there is any substantial change in pricing,
higher or lower, the parties will make commercially reasonable efforts to adjust
pricing accordingly and immediately. Any price adjustment shall be effective
upon the date and terms mutually agreed to by the parties at the time such
adjustment is made.
4.2 Terms of Payment and Acceptance of Orders. All orders and releases
under this Agreement shall be placed in accordance with the terms and conditions
hereof. No other items or conditions whatsoever shall be applicable to the
Agreement or to the individual orders and releases hereunder. Boca shall be
granted a credit limit equal to $ *, subject to quarterly adjustment at
Boundless' discretion based upon its standard credit policy, , and payment is
due in US Dollars thirty (30) days from receipt of invoice by Boca. Invoices
will be issued on delivery of the Product. If Boca's aggregate credit
obligations to Boundless exceeds the credit limit established by Boundless,
deliveries will not be made until payments are made so that the total obligation
including the new delivery is within the credit limit. Unless credit is approved
and maintained, prepayment terms shall be determined by Boundless. Any payments
not made by Boca within thirty (30) days of receipt of invoice by Boca shall
accrue interest on an annual rate equal to the lesser of eighteen percent (18%)
or the highest interest rate permitted by applicable law. Boundless shall retain
a first purchase money security interest on all Product shipped to Boca pending
payment. Boca agrees to execute such documentation to perfect such security
interest as reasonably requested by Boundless from time to time.
4.3 Spare Parts. Boundless shall sell to Boca all parts, components and
subassemblies ("Parts") detailed in the BOM, at prices to be negotiated in good
faith by the parties, so long as Boca continues to purchase the Product pursuant
to the terms and conditions of this Agreement. Provided such Parts are available
from the supplier, Boundless agrees to sell to Boca Parts for one (1) year after
the final shipment of Product to Boca. Should Boundless elect to cease
manufacture, procurement, sale or support of any of the Parts, it shall give
Boca no less than two (2) months written notice of such decision (which notice
shall identify the Parts Boundless intends to cease manufacturing, procuring,
selling or supporting), during which time Boca may purchase such Parts as needed
for its support of the Product thereafter.
5.0 PRODUCT SUPPORT
5.1 Warranty. Boundless warrants to Boca that the Product manufactured
by it pursuant to this Agreement will in all material respects (i) conform to
the Specifications; and (ii) be free of manufacturing defects in workmanship for
a period of one (1) year from the date of delivery to Boca ("Warranty Period"").
For the purpose of this warranty, manufacturing defects shall include cosmetic
defects. Should the product fail to conform to the warranty above during the
Warranty Period, Boundless will, at its option, repair or replace the Product at
no additional charge, provided such product has not been abused, repaired or
modified.
With respect to Products or Parts that do not comply with this Warranty
provision, replacement Parts or complete Product will be furnished by Boundless
to Boca on an exchange or
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credit basis once per month. Replaced Parts and/or Product become the property
of Boundless. If Product is returned by mail, Boca agrees to prepay shipping
charges, insure the Product and to use a shipping container equivalent to the
original packaging; provided that all costs incurred by Boca in return of the
Product shall be fully reimbursed by Boundless. The above warranty shall not
apply to any Products which have been altered or repaired except by Boundless,
or which have been subjected to unusual physical or electrical stress, misuse,
abuse, negligence or accident or whose defect, problems or claims are the result
of the Specifications. EXCEPT FOR EXPRESS WARRANTIES STATED ABOVE, BOUNDLESS
DISCLAIMS ALL WARRANTIES ON PRODUCTS FURNISHED HEREUNDER, INCLUDING ALL IMPLIED
WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, THE STATED WARRANTIES ARE IN LIEU OF ALL
OBLIGATIONS OR LIABILITIES ON THE PART OF BOUNDLESS FOR DAMAGES INCLUDING, BUT
NOT LIMITED TO SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE USE OR PERFORMANCE OF THE PRODUCTS AND BOUNDLESS SHALL NOT
BE RESPONSIBLE FOR ANY SUCH OBLIGATIONS OR LIABILITIES. EXCEPT AS EXPRESSLY
PROVIDED IN THIS AGREEMENT, LIABILITY FOR DAMAGES TO BOCA OR OTHERS RESULTING
FROM THE USE OF ANY PRODUCT FURNISHED HEREUNDER SHALL IN NO EVENT EXCEED THE
PURCHASE PRICE RECEIVED BY BOUNDLESS FOR SUCH PRODUCT UNDER THIS AGREEMENT.
5.2 Customer Products RMA Not Covered by Boundless Warranty
Responsibilities. The parties hereby agree that Boundless shall provide RMA
services to Boca for the return of customer products sold by Boca which require
repair or replacement for reasons other than those which would be covered by
Boundless' warranties as provided above in accordance with the provisions set
forth in Exhibit "B" attached hereto.
5.3 Boca Property. All Boca Technology provided to or used by Boundless
pursuant to this Agreement shall belong exclusively to Boca. Boca Technology
shall include without limitation any tools or tooling, molds, patterns, special
dyes or materials, designs, drawings, procurement specifications,
Specifications, and documents developed, purchased or fabricated by Boundless
specifically for Boca where the cost is charged or allotted to Boca but shall
not include any property which constitutes property acquired by Boundless and is
defined as "Purchased Assets" (hereinafter "Purchased Assets") under the Asset
Purchase Agreement. Boundless warrants that title to all Product and Parts
purchased by and delivered to Boca hereunder during the Term shall be free and
clear of all liens, encumbrances, security interests or other third party
claims.
6.0 DISTRIBUTION
Attached hereto as Exhibit C are provisions regarding distribution of
the Product.
7.0 INTELLECTUAL PROPERTY
7.1 Boca Intellectual Property Rights. As between the parties, Boca
retains title to and ownership of any and all Intellectual Property Rights
associated with the Product, Boca Technology, Boca Software and Boca
Documentation, except for such property which constitutes Purchased Assets.
During the Term of this Agreement, Boundless is granted limited rights to Boca"s
Intellectual Property Rights as set forth above. Except as expressly provided in
this Agreement, no
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right, title, or interest is granted, whether express or implied, in or to any
Intellectual Property Rights owned by Boca. Without limiting the generality of
the foregoing, the grant of limited rights by Boca to Boundless herein does not
convey to Boundless any license, expressly or by implication, to modify, derive,
reverse engineer, decompile, duplicate or otherwise copy or reproduce any of the
Product, parts thereof or Boca Software, except as expressly provided herein.
7.2 Assistance. Boundless shall accord the same degree of care with
respect to Boca"s Intellectual Property Rights as it accords its own
Intellectual Property Rights. Boundless shall promptly notify Boca: (i) of any
claims or objections that the manufacture, marketing, sale or use of the
Products may or will infringe the Intellectual Property Rights of another
person; and (ii) of any and all infringements, imitations, illegal use, or
misuse, by any person, of any of Boca"s Intellectual Property Rights.
7.3 Intellectual Property Rights Notices. Boundless shall include on
the Product or packaging therefor all notices of Boca"s Intellectual Property
Rights as reasonably directed by Boca. Boundless agrees not to alter, erase,
deface or overprint any such notice so provided by Boca.
8.0 CONFIDENTIALITY
8.1 The parties acknowledge that by reason of their relationship to
each other hereunder, each will have access to certain information and materials
concerning the other's business, plans, customers (including, but not limited
to, customer lists of both parties), Code, technology, and/or products that is
confidential and of substantial value to that party, which value would be
impaired if such information were disclosed to third parties ("Confidential
Information"). In order to be considered "Confidential Information," the
information and material must be marked "Confidential," "Proprietary" or with a
similar designation in writing (and if disclosed orally must be followed within
one week of disclosure with a letter identifying information as "Confidential
Information"). Each party agrees that it will not use in any way for its own
account or the account of any third party, nor disclose to any third party, any
such Confidential Information revealed to it by the other party, and will take
every reasonable precaution to protect the confidentiality of such information
and with no less precautions than it takes to protect its own Confidential
Information. If Confidential Information is required to be disclosed in response
to an order by a court or other government body, or if otherwise required to be
disclosed by law, or if necessary to establish the rights of either party under
this Agreement, the receiving party shall use commercially reasonable efforts to
inform the disclosing party of such required disclosure and to give disclosing
party sufficient time to seek a protective order or other protective measures,
if any are available, regarding such Confidential Information. Upon request by
either party, the other party will advise whether or not it considers any
particular information or materials to be Confidential Information. Confidential
Information does not include information, technical data or know-how which: (i)
is in the possession of the receiving party at the time of disclosure as shown
by the receiving party's files and records immediately prior to the time of
disclosure; (ii) prior or after the time of disclosure becomes part of the
public knowledge or literature, not as a result of any inaction or action of the
receiving party; (iii) is independently developed by a party without the use of
any Confidential Information of the other party; or (iv) is approved for release
by the disclosing party.
8.2 If either party breaches any of its obligations with respect to
confidentiality, or if such a breach is likely to occur, the other party shall
be entitled to seek equitable relief, including specific
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performance or an injunction, in addition to any other rights or remedies,
including money damages, provided by law.
8.3 The parties shall treat the terms and conditions of this Agreement
as Confidential Information. Each party shall obtain the other's consent prior
to any publication, presentation, public announcement or press release
concerning the terms and conditions of this Agreement.
9.0 REPRESENTATIONS AND WARRANTIES
9.1 Representations. Boca warrants and represents to Boundless that the
Product, Boca Software, Boca Technology, Boca Documentation and all materials
and services provided hereunder do not infringe upon the Intellectual Property
Rights held by a third-party. Each party represents and warrants to the other
that: (i) it has the full power to enter into this Agreement and perform under
this Agreement; and (ii) its compliance with the terms and conditions of this
Agreement will not violate any applicable Federal, state or local laws,
regulations or ordinances or any third party agreements.
10.0 INDEMNIFICATION
10.1 Boca Indemnity. Boca has the right to defend, or at its option to
settle, at its own expense, any claim, suit or proceeding brought against
Boundless, its affiliates, officers, directors, and employees,
(collectively,"Indemnified Parties"") by any third-party for money damages or
relating to (i) infringement of the third party"s Intellectual Property Rights
by Boundless" manufacture of the Products in conformance with the
Specifications; (ii) any design defect associated with the Product; or (iii) any
damage arising from a negligent act or omission of an employee or agent of Boca;
provided that: (a) the Product is manufactured by Boundless in conformance with
the Specifications; and (b) such Indemnified Party (1) promptly notifies Boca,
in writing, of such claim, suit or proceeding of which it becomes aware; (2)
permits Boca to control, in a manner not adverse to such Indemnified Party, the
defense, settlement, adjustment or compromise of any such claim using counsel
reasonably acceptable to the Indemnified Party; and (3) cooperates with Boca in
the defense of any such claim, provided that all reasonable expenses associated
with such cooperation shall be at Boca's expense. Boca agrees to pay, subject to
the limitations hereinafter set forth, any final judgment entered by a court of
law against the Indemnified Party on such issue in any such claim, suit or
proceeding, whether or not defended by Boca. Boca shall not be liable for any
costs or expenses incurred without its written authorization. The Indemnified
Party may employ counsel, at its own expense (provided that if such counsel is
necessary because of a conflict of interest of either Boca or its counsel or
because Boca does not assume control, Boca will bear such expense), to assist it
with respect to any such claim. Boca shall not enter into any settlement that
affects an Indemnified Party"s rights or interest without prior written approval
by the Indemnified Party. The Indemnified Party shall have no authority to
settle any claim on behalf of Boca without Boca's consent which shall not be
unreasonably withheld.
10.2 Qualification. Boca shall have no liability under Section 10.1 to
the extent the alleged infringement is due: (i) to use of other than the then
most recent version of the Boca Software provided by Boca to Boundless hereunder
(the "Current Release"") but only with respect to Products manufactured by
Boundless after Boca has made available such Current Release to Boundless and
its customers free of charge; (ii) to the manufacture of the Product by
Boundless not in material conformance with the Specifications; (iii) to any
combination of the Boca Software or Product with
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other non-Boca equipment, programs or data, where such combination was not
intended by Boca and in any way not provided for or described in the applicable
technical documentation; or (iv) solely to the process used by Boundless in the
manufacture of the Products, except to the extent such process was used by Boca
prior to the date hereof, and not based on any information, design or
specifications provided to Boundless by Boca. THE PROVISIONS OF SECTIONS 10.1
AND 10.2 STATE THE ENTIRE LIABILITY OF BOCA AND THE EXCLUSIVE REMEDY OF THE
INDEMNIFIED PARTIES WITH RESPECT TO ANY ALLEGED INFRINGEMENT OF THE INTELLECTUAL
PROPERTY RIGHTS OF ANY THIRD PARTY.
10.3 Boundless Indemnity. Boundless has the right to defend, or at its
option to settle, at its own expense, any claim, suit or proceeding brought
against Boca, its affiliates, officers, directors, employees, and customers
(collectively, "Indemnified Parties"") by any third-party arising or resulting
from Boundless" (i) manufacture of the Product not materially in conformance
with the Specifications; (ii) any defect in the manufacture or workmanship of
the Product which defects are not a result of the design of the Products or the
Specifications; or (iii) any damage arising from a negligent act or omission of
an employee or agent of Boundless, provided that Boca (a) promptly notifies
Boundless, in writing, of any such claim of which it becomes aware; (b) permits
Boundless to control, in a manner not adverse to such Indemnified Party, the
defense, settlement, adjustment or compromise of any such claim using counsel
reasonably acceptable the Indemnified Party; and (c) cooperates with Boundless
in the defense of any such claim, provided that all reasonable expenses
associated with such cooperation shall be at Boundless' expense. Boundless
agrees to pay any final judgment entered by a court of law against the
Indemnified Party on such issue in any such claim, suit or proceeding whether or
not defended by Boundless. Boundless shall not be liable for any costs or
expenses incurred without its written authorization. The Indemnified Party may
employ counsel, at its own expense (provided that if such counsel is necessary
because of a conflict of interest of either Boundless or its counsel or because
Boundless does not assume control, Boundless will bear such expense), to assist
it with respect to any such claim. Boundless shall not enter into any settlement
that affects an Indemnified Party"s rights or interest without prior written
approval by the Indemnified Party. The Indemnified Party shall have no authority
to settle any claim on behalf of Boundless without Boundless' consent which
shall not be unreasonably withheld.
11.0 LIMITATION OF LIABILITIES
EXCEPT AS EXPRESSLY PROVIDED HEREIN UNDER NO CIRCUMSTANCES WILL EITHER
PARTY BE LIABLE TO THE OTHER UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR
OTHER LEGAL OR EQUITABLE THEORY, FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES OR FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR
SERVICES OR FOR LOSS OF DATA OR LOST PROFITS IN CONNECTION WITH THE SUBJECT
MATTER OR THE TERMINATION OF THIS AGREEMENT. THIS LIMITATION DOES NOT APPLY TO
CLAIMS FOR BODILY INJURY OR DAMAGE TO REAL OR TANGIBLE PERSONAL PROPERTY CAUSED
BY THE NEGLIGENCE OF EMPLOYEES OR REPRESENTATIVES OF BOUNDLESS OR BOCA.
12.0 FORCE MAJEURE
Neither party shall be considered in default of performance of its
obligations under this Agreement to the extent that performance of such
obligations is delayed by force majeure or
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contingencies or causes beyond the reasonable control of such party or its
suppliers. In the event Boca fails to deliver any Boca Software including
without limitation, updates, bug fixes or maintenance releases due to such
causes for a period of at least thirty (30) days, in addition to any remedies
Boundless may have at law or in equity, Boundless may either: (a) terminate this
Agreement; or (b) suspend this Agreement in whole or in part for the duration of
the delaying cause and Boundless shall not be responsible for delays in delivery
times for Products resulting therefrom; provided, however, that Boca shall
nonetheless be responsible for its obligations to Boundless hereunder.
Furthermore, the provisions of Section 2.6 dealing with excess and obsolete
inventory shall apply. Boca shall resume performance under this Agreement
immediately after the delaying cause ceases and, at Boundless' option, extend
the then current term period for a period equivalent to the length of time the
excused delay endured.
13.0 ASSIGNMENT
This Agreement shall be binding on the parties hereto and their
successors and assigns; provided, however, that neither party shall assign or
transfer, in whole or part, this Agreement or any of its rights or obligations
arising hereunder without the prior written consent of the other party, which
shall not be unreasonably withheld. Any purported assignment without such
consent shall be null and void.
14.0 TERM
14.1 Term. The term of this Agreement is two (2) years, commencing
from the Effective Date of this Agreement (""Term" ").
14.2 Termination. In addition to the termination rights provided
elsewhere in this Agreement, either party may terminate this Agreement by
written notice stating such party"s intent to terminate in the event the other:
(i) shall have breached or defaulted in the performance of any of its material
obligations hereunder, and the breaching party shall have failed to cure such
default or breach within thirty (30) days after written notice thereof was
provided to the breaching party by the non-breaching party, provided, however,
that the termination right set forth in the subsection (i) shall not apply to
bona fide disputes which shall be subject to Section 14.5 or Section 15.2; or
(ii) becomes insolvent, or has a receiver appointed for all or a substantial
part of its business or properties, or an insolvency, bankruptcy or similar
proceeding is brought by or against such other party and is not dismissed within
sixty (60) business days of its institution, or if such other party goes into
liquidation or otherwise ceases to function as a going concern.
14.3 Effect of Termination. Upon expiration or termination of this
Agreement for any reason whatsoever, all rights and obligations of the parties
hereunder shall cease including but not limited to the rights granted to
Boundless by Boca under Section 2.2. Upon termination of this Agreement for any
reason whatsoever, all amounts then owing to Boundless, will be paid in full by
Boca in accordance with Section 4.2. With respect to any purchase order by Boca
then outstanding, the portion of such purchase order that contemplates delivery
of Products more than forty-five (45) business days after the effective date of
termination, shall be automatically terminated. If the termination is for
reasons other than the expiration of the Term of this Agreement, the portion of
such purchase order by Boca that contemplates delivery of Products within
twenty-five (25) business days after the effective date of termination, may be
(i) rejected in whole in part by
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Boundless, at its option and without liability to Boca, or (ii), except as
otherwise provided, herein, terminated in whole or in part by Boca, at its
option and without liability to Boundless. In the event of a termination or
expiration of this Agreement, Boca shall purchase all Inventory, including work
in progress, at Boundless' cost, plus 5.5% handling charges, and all finished
Products in Boundless' possession, as well as Products covered by all purchase
orders which cannot be cancelled,at the price set for such Products in this
Agreement. With respect to Inventory purchase orders which cannot be canceled
without penalty, Boca will promptly reimburse Boundless for all cancellation
charges and penalties. Boundless will use commercial best efforts to minimize
remaining unused Inventory and other materials. Upon termination or expiration
of this Agreement, all Boca property shall be returned to Boca.
14.4 Survival. The provisions of Sections 2.11, 2.12, 2.16, 4.1, 4.3, ,
5.1, 5.2, 5.3, 7.1, 14.3 and 14.4 and Articles 8.0, 9.0, 10.0, 11.0 and 15.0
shall survive the termination or expiration of this Agreement.
14.5 In the event of any dispute between Boca and Boundless under this
Agreement, including a claim of default by a party against the other, such
complaining party shall request a meeting between the project managers. Such
meeting shall be convened in person at a mutually agreeable location and time;
provided that such meeting is held within fifteen (15) days of delivery of
notice of the complaint. If at the initial meeting the project managers are
unsuccessful in resolving the issue, such managers shall use their reasonable
best efforts to continue to work to resolve the issue in the twenty (20) days
following their initial meeting. In the event the project managers are unable to
resolve the issue following the twenty (20) day period, each party shall appoint
one of its two most senior executive officers to meet in person within fifteen
(15) days following the expiration of the twenty (20) day period. The executive
officers shall in good faith attempt to resolve the issue and if at the
conclusion of such meeting, the issue is not resolved, either party may demand
arbitration in accordance with the provisions of Section 15.2 hereof. The
arbitrator shall be asked to determine the issue and each party shall be
entitled to present any evidence it deems relevant to assist its case. If the
issue relates to pricing, while the issue is being resolved in accordance with
the procedures set forth in this section, Boundless shall continue to supply
Product(s) to Boca at the prices established in accordance with this Agreement
(other than this section).
15.0 GENERAL
15.1 Notices. All notices shall be sufficient only if personally
delivered, delivered by telecopy, delivered by a major commercial rapid delivery
courier service or mailed by certified or registered mail, return receipt
requested. Notices to the parties shall be sent to:
Chief Financial Officer
Boundless Manufacturing Services, Inc.,
100 Marcus Boulevard
Hauppauge, NY 11788
Copy to:
Joseph L. Cannella, Esq.
Fischbein.Badillo.Wagner.Harding
909 Third Avenue
New York, NY 10022
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Copy to:
Chief Financial Officer
Boca Research, Inc.
1377 Clint Moore Road
Boca Raton, Florida
Copy to:
Robert W. Federspiel, Esq.
501 East Atlantic Avenue
Delray Beach, Florida
If not received sooner, notice by mail shall be deemed received five (5) days
after deposit in the U.S. mail, properly addressed, with first class postage
prepaid. Notice by telecopy shall be deemed received at the time sent or the
next working day if such time is not during a working day.
15.2 Controlling Law and Jurisdiction.
15.2.1 This Agreement shall be governed, controlled, interpreted and
defined by and under the laws of the State of Delaware and the United States,
without regard to the conflicts of laws provisions thereof.
15.2.2 All disputes arising out of or in any manner relating to this
Agreement which the parties do not resolve in good faith within thirty (30) days
after either party notifies the other of its desire to arbitrate such dispute or
controversy shall be settled by arbitration by a single arbitrator in accordance
with the then standard prevailing commercial rules, as modified or supplemented
by this article, of the American Arbitration Association ("AAA"). The
arbitration shall be held in the New York metropolitan area if initiated by
Boca, and in the Boca Raton, Florida, area if initiated by Boundless. The
arbitration award shall be in writing and shall specify the factual and legal
bases of such award. The arbitration award shall be final and binding, and a
judgment consistent therewith may be entered by any court of competent
jurisdiction. The parties agree that the arbitration award shall be treated
confidentially, and the parties shall not, except as otherwise required by law
or court order, disclose the arbitration award to any third party, excluding
personnel in their affiliated companies and their attorneys and accountants with
a need to know, provided that such recipients agree to be bound by the same
restrictions as are contained in this Agreement. The arbitrator shall not have
the power to render an award of punitive damages. To the extent of any conflict,
this article shall supersede and control AAA rules.
15.2.3 Except as provided in this section, neither Boca nor Boundless
shall have the right to take depositions or obtain discovery of documents or
other information which is relevant to the subject matter of any arbitration
which is required under Section 15.2. After the appointment of the arbitrator,
Boca and Boundless shall agree on (i) a reasonable number of and schedule for
depositions which the parties may take and (ii) a reasonable scope and schedule
for the production of documents or other information which is relevant to the
subject matter of the arbitration. If Boca and Boundless cannot reach agreement
on the number of depositions, the scope of production of documents or other
information and the schedule therefor, the arbitrator shall make such
determination(s). All discovery shall be completed no later than 30 days prior
to the arbitration
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hearing. The arbitrator shall have the power to enforce any discovery agreed
upon by the parties or otherwise required to be taken pursuant to this section
by imposing the same terms, conditions, sanctions and penalties as can be or may
be imposed in like circumstances in a civil action by a state court of general
jurisdiction, except the power to order the arrest or imprisonment of a person.
15.2.4 No later than 30 days prior to the arbitration hearing, each
party shall produce to the other party and the arbitrator lists of the
witnesses, documents and other information which such party intends to use at
the arbitration hearing.
15.3 Waivers and Amendments. No failure or delay by either party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial waiver thereof include any other right,
power or privilege. This Agreement may not be amended, changed, discharged or
terminated except by a written document signed by duly authorized officers of
the parties.
15.4 Severability. In the event that any provision of this Agreement
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such unenforceability or invalidity shall only apply
to such provision and shall not render this Agreement unenforceable or invalid
as a whole; and, in such event, such provision shall be modified or interpreted
so as to best accomplish the objective of such unenforceable or invalid
provision within the limits of applicable law or applicable court decision and
the manifest intent of the parties hereto.
15.5 Relationship of the Parties. In fulfilling its obligations under
this Agreement, each party shall be acting as an independent contractor. This
Agreement does not make either party the employee, agent or legal representative
of the other.
15.6 Basis of Bargain. EACH PARTY RECOGNIZES AND AGREES THAT THE
WARRANTY DISCLAIMERS AND LIABILITY AND REMEDY LIMITATIONS IN THIS AGREEMENT ARE
MATERIAL BARGAINED FOR BASES OF THIS AGREEMENT AND THAT THEY HAVE BEEN TAKEN
INTO ACCOUNT AND REFLECTED IN DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH
PARTY UNDER THIS AGREEMENT AND IN THE DECISION BY EACH PARTY TO ENTER INTO THIS
AGREEMENT.
15.7 Entire Agreement. This Agreement, and the Exhibits attached or
referenced herein, is the complete agreement between the parties hereto
concerning the subject matter of this Agreement, and replaces any
contemporaneous or prior written or oral communications between the parties.
There are no conditions, understandings, agreements, representations or
warranties, expressed or implied, which are not specified herein.
15.8 Headings. The headings used in this Agreement are for convenience
only and shall not be used to construe or interpret this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons duly authorized as of the date and year first above written.
[Remainder of page intentionally left blank]
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BOCA RESEARCH, INC. BOUNDLESS MANUFACTURING SERVICES, INC.
By:/S/ Robert Heinlein By:/S/ Joseph Gardner
--------------------- -----------------------
Name: Robert Heinlein Name: Joseph Gardner
Title: CFO Title: Vice President
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SCHEDULE 1
PRODUCTS
Schedule 1
BB1008 MD56EUSB
IOP654 Chase MV.34ED
IOP658 Chase MV.34FEMS
IO622P MD56PCMS
IO650M GV30-0975
IO652 GV30-6400
IOAT55 GV30-6405
IOAT55M GV30-6406
IOAT55MHP GV30-6500
IOAT55X GV30-6505
IOPAR GV30-6600
IOPCI55 GV30-6700
IOP652 GV30-6605
IOPT652MTigger GV30-6706
IOPPAR GV30-0980 Video FX
M024ED ST2001
M56HI STB121
MD56HI Low Cost WT120
M56INTLE WT120INTL
MA56WWE JNC205
M56INTLI ETH-C/W
M56IQ ETH-J
M56IQG DTC203
MD56AE NETWOLVES
This schedule is subject to change for additions and deletions, based upon
forecasted demand.
<PAGE>
EXHIBIT B
NON WARRANTY CUSTOMER RMA AGREEMENT (RMA)(*)
- --------
(*) Indicates information has been omitted and separately filed with the
Securities and Exchange Commission pursuant to an application for an order
declaring confidential treatment thereof.
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EXHIBIT C
DISTRIBUTION AND LOGISTICS AGREEMENT(*)
- --------
(*) Indicates information has been omitted and separately filed with the
Securities and Exchange Commission pursuant to an application for an order
declaring confidential treatment thereof.
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EXHIBIT 21.1
BOCA RESEARCH, INC.
SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION
---- -----------------------------
Complete Acquisition Corp. Florida
Boca Global, Inc. Florida
Boca Research International, Inc. United States Virgin Islands
Boca Research Holland B.V. Holland
Boca Research of Delaware, Inc. Delaware
Boca Research (UK) Limited United Kingdom
Boca Research International Holdings Ltd. Mauritius
AppsCom, Inc. Florida
Inprimis Technologies, Inc. Florida
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-65330 and No. 33-80043 of Boca Research, Inc. on Forms S-8 of our report
dated March 3, 2000, appearing in this Annual Report on Form 10-K of Boca
Research, Inc. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
March 29, 2000
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 11,819,147
<SECURITIES> 0
<RECEIVABLES> 7,711,523
<ALLOWANCES> 4,088,600
<INVENTORY> 3,672,395
<CURRENT-ASSETS> 19,902,956
<PP&E> 13,703,431
<DEPRECIATION> 11,664,018
<TOTAL-ASSETS> 26,488,290
<CURRENT-LIABILITIES> 8,648,500
<BONDS> 0
0
0
<COMMON> 114,758
<OTHER-SE> 17,208,365
<TOTAL-LIABILITY-AND-EQUITY> 26,488,290
<SALES> 32,767,117
<TOTAL-REVENUES> 32,767,117
<CGS> 32,234,423
<TOTAL-COSTS> 32,234,423
<OTHER-EXPENSES> 23,178,969
<LOSS-PROVISION> 65,388
<INTEREST-EXPENSE> 213,719
<INCOME-PRETAX> (22,268,722)
<INCOME-TAX> 7,796
<INCOME-CONTINUING> (22,276,518)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,276,518)
<EPS-BASIC> (2.20)
<EPS-DILUTED> (2.20)
</TABLE>
