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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1998.
OR
[ ] Transition report pursuant to Section 13(d) or 15(d) of the
Securities Exchange Act of 1934 for the transition period from ______
to ______.
Commission file number: 0-23296
CIDCO INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3500734
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
220 Cochrane Circle
Morgan Hill, CA 95037
(Address of principal executive offices and zip code)
(408) 779-1162
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
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
The number of shares outstanding of the Registrant's Common Stock on November 9,
1998 was 14,079,677.
1
<PAGE>
CIDCO INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements:
Balance sheet at September 30, 1998
and December 31, 1997 ..........................................3
Statement of operations for the three and nine months
ended September 30, 1998 and 1997 ..............................4
Statement of cash flows for the nine months
ended September 30, 1998 and 1997 ..............................5
Notes to financial statements .......................................6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................9
ITEM 3. Quantitative and Qualitative Disclosure about Market Risks ......20
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ...............................................21
ITEM 2. Changes in Securities ...........................................21
ITEM 3. Defaults upon Senior Securities .................................21
ITEM 4. Submission of Matters to a Vote of Security Holders .............21
ITEM 5. Other Information ...............................................21
ITEM 6. Exhibits and Reports on Form 8-K ................................21
SIGNATURES ...................................................................22
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIDCO INCORPORATED
BALANCE SHEET
(in thousands, except per share data; unaudited)
<TABLE>
.................................................... Sept. 30, Dec. 31,
1998 1997
--------- ---------
ASSETS
Current assets:
<S> .................................................. <C> <C>
Cash and cash equivalents .................... $ 9,728 $ 48,253
Short-term investments ....................... 16,010 26,486
Accounts receivable, net of allowance
for doubtful accounts of $2,195 and $3,301 37,979 58,082
Inventories .................................. 21,007 12,904
Deferred tax asset ........................... 19,007 11,808
Other current assets ......................... 896 1,306
--------- ---------
Total current assets ...................... 104,627 158,839
Property and equipment, net ..................... 15,675 12,591
Other assets .................................... 1,516 1,998
--------- ---------
$ 121,818 $ 173,428
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 16,641 $ 29,868
Accrued liabilities .......................... 20,285 12,830
--------- ---------
Total current liabilities ................. 36,926 42,698
--------- ---------
Stockholders' equity:
Common stock, $.01 par value; 35,000 shares
authorized,14,418 and 14,418 shares issued . 144 144
Additional paid-in capital ................... 88,763 88,763
Treasury stock, at cost (339 and 463 shares) . (4,600) (6,163)
Retained earnings ............................ 585 47,986
--------- ---------
Total stockholders' equity ................ 84,892 130,730
--------- ---------
$ 121,818 $ 173,428
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CIDCO INCORPORATED
STATEMENT OF OPERATIONS
(in thousands, except per share data; unaudited)
<TABLE>
<S> .................................. <C> <C> <C> <C>
Three months Nine months
ended Sept. 30, ended Sept. 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Sales ................................ $ 31,338 $ 51,079 $144,078 $186,397
Cost of sales ........................ 34,819 28,417 119,865 102,439
-------- -------- -------- --------
Gross margin ......................... (3,481) 22,662 24,213 83,958
-------- -------- -------- --------
Operating expenses:
Research and development ......... 2,200 4,093 9,008 12,617
Selling and marketing ............ 11,630 14,030 45,044 50,478
General and administrative ....... 1,842 2,534 7,377 7,780
Restructuring .................... 17,186 --- 19,858 ---
-------- -------- -------- --------
32,858 20,657 81,287 70,875
-------- -------- -------- --------
Income (loss) from operations ........ (36,339) 2,005 (57,074) 13,083
Other income, net .................... 1,006 914 3,438 2,064
-------- -------- -------- --------
Income (loss) before income taxes .... (35,333) 2,919 (53,636) 15,147
Provision (benefit) for income taxes . --- 1,173 (6,955) 5,964
-------- -------- -------- --------
Net income (loss) .................... $(35,333) $ 1,746 $(46,681) $ 9,183
======== ======== ======== ========
Basic earnings (loss) per share ...... $ (2.51) $ 0.13 $ (3.33) $ 0.66
======== ======== ======== ========
Diluted earnings (loss) per share .... $ (2.51) $ 0.12 $ (3.33) $ 0.64
======== ======== ======== ========
Common shares outstanding ............ 14,077 13,934 14,038 13,947
======== ======== ======== ========
Common shares assuming dilution ...... 14,077 14,246 14,038 14,308
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CIDCO INCORPORATED
STATEMENT OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<S> ........................................................ <C> <C>
Nine months ended
September 30,
--------------------
1998 1997
--------- --------
Cash flows provided by (used in) operating activities:
Net income (loss) ...................................... $ (46,681) $ 9,183
Adjustments to reconcile net income (loss) to net
cash provided byoperating activities:
Depreciation and amortization ...................... 2,238 4,639
Equity in losses of affiliate ...................... 1,605 1,777
Deferred tax asset ................................. (7,199) ---
Changes in assets and liabilities:
Accounts receivable .............................. 20,103 15,624
Inventories ...................................... (8,103) 3,762
Other current assets ............................. 410 (3,659)
Other assets ..................................... (1,123) (85)
Accounts payable ................................. (13,227) 5,250
Accrued liabilities .............................. 7,455 2,801
--------- ---------
Net cash provided by (used in) operating activities .. (44,522) 39,292
--------- ---------
Cash flows provided by (used in) investing activities:
Acquisition of property and equipment .................. (5,322) (2,940)
Sale (purchase) of short-term investments, net ......... 10,454 (18,497)
--------- ---------
Net cash provided by (used in) investing activities .. 5,132 (21,437)
--------- ---------
Cash flows provided by (used in) financing activities:
Issuance of Common Stock ............................... 865 1,076
Purchase of treasury stock ............................. --- (12,942)
--------- ---------
Net cash provided by (used in) financing activities .. 865 (11,866)
--------- ---------
Net increase (decrease) in cash and cash equivalents ..... (38,525) 5,989
Cash and cash equivalents at beginning of period ......... 48,253 26,509
--------- ---------
Cash and cash equivalents at end of period ............... $ 9,728 $ 32,498
========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes ............................. $ 1,855 $ 7,777
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normal recurring
adjustments) necessary to present fairly the Company's financial position,
operating results and cash flows for those periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The financial information should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 1997 included in the Company's most recent Annual Report on Form
10-K filed with the Securities and Exchange Commission. Results for the interim
period are not necessarily indicative of results for the entire year.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accou nting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130, which
the Company was required to adopt in the quarter ended March 31, 1998,
establishes standards for reporting comprehensive income and its components in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of items to
be included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gain/loss on
available-for-sale securities. No comprehensive income information has been
presented, as the impact of the disclosure required by FAS 130 is immaterial to
the financial statements of the Company.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131"). This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by FAS 131 are effective for calendar
1998, but are not required for interim financial statements in 1998.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings per Share
The Company adopted Statement of Financial Accounting Standards No.128,
"Earnings Per Share" ("SFAS 128") during the fourth quarter of 1997. SFAS 128
requires presentation of both basic and diluted earnings per share ("EPS") on
the face of the income statement, basic EPS, which replaces primary EPS, is
computed by dividing net income available to common stockholders (numerator) by
the weighted average number of common shares outstanding (denominator) during
the period. Unlike the computation of primary EPS, basic EPS excludes the
dilutive effect of stock options. Diluted EPS replaces fully diluted EPS and
gives effect to all dilutive potential common shares outstanding during a
period. In computing diluted EPS, the average stock price for the period is used
in determining the number of shares assumed to be purchased from exercise of
stock options rather than the higher of the average or ending stock price as
used in the computation of fully diluted EPS.
6
<PAGE>
Following is a reconciliation of the numerators and denominators of the
basic and diluted EPS:
<TABLE>
<S> ................................... <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net income (loss) used to compute
earnings (loss)per common share ... $(35,333) $ 1,746 $(46,681) $ 9,183
======== ======== ======== ========
Denominator used to compute basic
earnings (loss)per common share ... 14,077 13,934 14,038 13,947
Shares issuable on exercise of options(*) --- 312 --- 361
-------- -------- -------- --------
Denominator used to compute diluted
earnings (loss)per common share ... 14,077 14,246 14,038 14,308
======== ======== ======== ========
Basic earnings (loss) per share ....... $ (2.51) $ 0.13 $ (3.33) $ 0.66
======== ======== ======== ========
Diluted earnings (loss) per share ..... $ (2.51) $ 0.12 $ (3.33) $ 0.64
======== ======== ======== ========
</TABLE>
(*) Potential common stock equivalents issuable upon exercise of options to
purchase 94,321 shares of common stock priced at $1.00 to $3.00 per share was
excluded because their inclusion would be anti-dilutive for the nine-month
period ended September 30, 1998.
Reclassifications
Certain amounts in 1997 have been reclassified to conform to the 1998
presentation.
NOTE 4. RESTRUCTURING
The Company incurred a pretax restructuring charge of $2.7 million in the
first quarter of 1998 as it announced and implemented several streamlining
programs, including combining certain marketing and operations functions,
restructuring research and development activities and discontinuing certain
products, resulting in asset write-downs and the elimination of approximately
100 positions. Approximately $0.2 million of the restructuring charge requires
cash outlays and should be paid out over the next 9 months. The remaining $2.1
million represents asset write-downs of inventory of $1.1 million and leasehold
improvements of $1.0 million related to discontinued products and relocation of
the Company's distribution center from California to Texas. The Company has
determined that moving the distribution center has not produced the cost savings
and is relocating the distribution center back to California where the
distribution function can be fully integrated with the rest of the Company.
On July 22, 1998, the Company announced a new business strategy focusing on
core telephony products and services, and a restructuring plan to be implemented
in the second half of 1998, which resulted in one-time charges of $17.2 million
in the third quarter of 1998. The Company's restructuring plan is intended to
significantly reduce its personnel and resource costs throughout the core
business. As part of this strategy and restructuring plan, the Company has
explored strategic alternatives with regard to its Internet Solutions Division,
including the possible spin-out, sale or wind-down of the division in
significant part due to the high level of marketing, sales and research and
development expense that would be required to develop the market for these
products and services. As of September 30, 1998, the Company sold a relatively
minor amount of these assets and has discontinued operation of the Division,
including laying-off substantially all of the Division's employees. The Company
will continue to attempt to sell certain assets of the Division and will
continue to sell its CIDCO i-Phone(1)for the foreseeable future. The Company
employed 268 regular employees and approximately 88 temporary and contract
workers as of September 30, 1998. The restructuring has reduced permanent and
temporary headcount from the prior quarter's level by approximately 24% as the
Company focuses on its core telephony products and services business. The
restructuring is expected to require cash outlays of approximately $5.9 million
that should be substantially paid out over the next 6 months. The remaining
$11.2 million represents asset write-downs of inventory of $5.9 million and
write-offs of investments in intangible assets including a Sun Microsystems
license of $3.0 million and InfoGear Technologies Corporation of $1.4 million.
(1) i-Phone is a registered trademark of InfoGear Technology Corporation.
7
<PAGE>
The following table lists the components of the restructuring accrual for
the nine months ended September 30, 1998:
<TABLE>
<S> ................................. <C> <C> <C> <C>
Employee Asset
Costs Write-down Leases Total
(in thousands): -------- ---------- ------- -------
Reserve provided .................... $ 437 $ 2,080 $ 155 $ 2,672
Reserve utilized in first quarter ... --- (1,020) --- (1,020)
-------- ---------- ------- -------
Balance at March 31, 1998 ........... $ 437 $ 1,060 $ 155 $ 1,652
Reserve utilized in second quarter .. (304) --- (25) (329)
-------- ---------- ------- -------
Balance at June 30, 1998 ............ $ 133 $ 1,060 $ 130 $ 1,323
Additional reserve provided ......... 3,616 13,506 65 17,187
Reserve utilized in third quarter ... (2,636) (10,032) 54 (12,614)
-------- ---------- ------- -------
Balance at September 30, 1998 ....... $ 1,113 $ 4,534 $ 249 $ 5,896
======== ========== ======= =======
</TABLE>
Note 5. Employee Stock Option Plan
Due to the broad decline in the market price of the Company's stock, a
substantial amount of stock options granted had excercise prices above the
current market price. In an effort to provide incentives and retain current
employees, on August 17, 1998, the Company offered Stock Option Plan
participants the right to replace any remaining unexercised stock options with
an equal number of options at an exercise price of $3.00, the closing market
price on such date.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the interim
financial statements and the notes thereto in Part I, Item 1 of this Quarterly
Report.
Historical Background
CIDCO Incorporated (the "Company"), a Delaware corporation, was
incorporated in July 1988 to design, develop and market subscriber telephone
equipment that would support Caller ID, Caller ID on Call Waiting and other
intelligent network services (individually or collectively "Services") then
being introduced by Regional Bell Operating Companies ("RBOCs") and independent
telephone operating companies, both domestic and international (collectively
with RBOCs, "Telcos"). The Company began operations in 1989, initially funding
its business with a capital investment made by its founders. Prior to its
initial public offering, the Company financed its growth principally through
internally generated funds and short-term borrowings. In March 1994, the Company
completed its initial public offering of Common Stock and had two subsequent
public offerings in 1994 resulting in capital infusions to the Company totaling
approximately $59.4 million.
Historically, the Company's primary sales and distribution channels have
been through direct marketing fulfillment relationships with certain Telcos
("Agency Fulfillment"), standard fulfillment of Telco-generated orders
("Non-Agency Fulfillment"), wholesale shipments directly to Telcos ("Direct to
Telco"), and, to a lesser extent, international accounts, retail stores
("Retail"), and original equipment manufacturers. Agency Fulfillment programs
are sales campaigns run by the Company involving the use of consumer mailings
and telemarketing to sell Services for the Telcos which utilize the Company's
products. As part of these programs the Company, acting as the Telco's "agent",
generates an order for Services, such as Caller ID, and then ships an adjunct
product (or, less frequently, a phone product) to each Service customer
"acquired" through the campaign. The Company's own direct marketing of its
telephone products and Agency Fulfillment resulted in net sales of $43.9 million
in the first nine months of 1998 and $126.7 million in 1997. Non-Agency
Fulfillment sales occur when the Company receives an order from a Telco and
ships the requested product directly to the end-user customer. In the case of
Non-Agency Fulfillment sales, the Telco generates the order by performing the
marketing activities themselves rather than retaining the Company to perform
such services, as in Agency Fulfillment programs. Agency Fulfillment sales
totaled 23% of sales in the first nine months of 1998 and 49%, 25%, and 2% of
sales in 1997, 1996 and 1995, respectively. Non-Agency Fulfillment sales
accounted for 39% of sales in the first nine months of 1998 and 35%, 43%, and
68% of sales in 1997, 1996 and 1995, respectively.
As a result of operating losses for the first nine months of 1998 of $37.2
million, not including restructuring of $19.9 million, the Company adopted a new
business strategy focusing on its core telephony products and services. The
Company concluded that its core business cannot successfully fund the level of
market development expense required over time for success in this market and has
discontinued operation of its Internet Solutions Division. As a result of the
Company's change in direction, Co-Founder and Chairman of the Board of
Directors, Paul G. Locklin, has returned to the Company as its President and
Chief Executive Officer, superceding Daniel L. Eilers in this role. For
additional information, see Item 5 of Part II Other Information of this report.
For additional information on the restructuring, see Note 4. Restructuring
contained in Notes to Financial Statements of this report.
This Report contains forward-looking statements, which reflect the
Company's current views with respect to future events, which may impact the
Company's results of operations and financial condition. In this report, the
words "anticipates", "believes", "expects", "intends", "future" and similar
expressions identify forward-looking statements. These forward-looking
statements are subject to risks and uncertainties and other factors, including
those set forth below under the caption "Factors Which May Affect Future
Results," which could cause actual future results to differ materially from
historical results or those described in the forward-looking statements. The
forward-looking statements contained in this Report should be considered in
light of these factors. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof.
9
<PAGE>
Results of Operations
The following table sets forth for the periods indicated the percentage of
sales represented by certain line items in the Company's Statement of
Operations:
Three months ended Nine months ended
September 30, September 30,
<TABLE>
<S> ................................... <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
----- ----- ----- -----
Sales ................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ......................... 111.1 55.6 83.2 55.0
----- ----- ----- -----
Gross margin .......................... (11.1) 44.4 16.8 45.0
----- ----- ----- -----
Operating expenses:
Research and development .......... 7.0 8.0 6.3 6.8
Selling and marketing ............. 37.1 27.5 31.3 27.1
General and administrative ........ 5.9 5.0 5.1 4.2
Restructuring ..................... 54.8 -- 13.8 --
----- ----- ----- -----
104.8 40.5 56.5 38.1
----- ----- ----- -----
Income (loss) from operations ......... (115.9) 3.9 (39.7) 6.9
Other income, net ................. 3.2 1.8 2.4 1.1
----- ----- ----- -----
Income (loss) before income taxes ..... (112.7) 5.7 (37.3) 8.0
Provision (benefit) for income taxes .. 0.0 2.3 (4.8) 3.2
----- ----- ----- -----
Net income (loss) ..................... (112.7)% 3.4% (32.5)% 4.8%
===== ===== ===== =====
</TABLE>
Sales
Sales are recognized upon shipment of the product to the customer less
reserves for anticipated returns or, in the case of Agency Fulfillment,
non-retention of certain Services provided by the Telcos, and customer credit
worthiness. Sales decreased 38.7% to $31.3 million in the third quarter of 1998
from $51.1 million in the third quarter of 1997. In the first nine months of
1998, sales decreased 22.7% to $144.1 million from $186.4 million in the first
nine months of 1997. These decreases were primarily due to lower average selling
prices for substantially all product lines. In the third quarter of 1998, 1.2
million units were sold compared with 1.5 million units sold in the third
quarter of 1997. Competitive pricing pressures from both Asian suppliers to the
United States market and certain North American suppliers contributed heavily to
the reduction in average sales prices. Total Agency Fulfillment programs for
Caller ID Services on behalf of Telcos decreased to 23% of sales in the first
nine months of 1998 from 48% in the first nine months of 1997. Adjunct product
sales decreased to 66% of total sales dollars in the first nine months of 1998
from 90% of total sales dollars in the first nine months of 1997 and,
correspondingly, phone product sales increased to 33% of total sales dollars in
the first nine months of 1998 from 10% of total sales dollars in the first nine
months of 1997. The decrease in adjunct product sales as a percentage of total
sales was due primarily to the decrease in Agency Fulfillment programs. The
increase in phone sales as a percentage of sales was due primarily to the
Company's direct marketing efforts and the agency Fulfillment programs that
utilized phone products in place of adjunct products in the acquisition of Telco
Service customers. Unit sales of adjunct products in the third quarters of 1998
and 1997 were 0.8 and 1.3 million, respectively. In first nine months of 1998
and 1997, adjunct unit sales were 4.8 and 5.1 million, respectively. However,
the average selling price of adjunct products dropped 39% from the first nine
months of 1997 to the first nine months of 1998. The Company has evaluated its
Agency Fulfillment business and may decline business in the future that would
result in margins below current levels. This may result in lower sales in future
periods.
10
<PAGE>
Gross margin
Cost of sales includes the cost of finished goods purchased from the
Company's offshore contract manufacturers, costs associated with procuring and
warehousing the Company's inventory and royalties payable on licensed technology
used in the Company's products. Gross margin as a percentage of sales decreased
to (11.1)% in the third quarter of 1998, from 44.4% in the third quarter of
1997. Gross margin as a percentage of sales decreased to 16.8% in the first nine
months of 1998 from 45.0% in the first nine months of 1997. The increase in cost
of sales in the first nine months of 1998 and the third quarter of 1998 resulted
primarily from a third quarter charge of $9.3 million for inventory reserves
mainly related to the net realizable value of certain of the Company's products,
as well as the write-off of raw materials purchased for production of certain
discontinued products and, for the nine-month period, a first quarter charge of
$4.0 million for the write-off of inventory related to product performance
issues on a key component used in certain of the Company's adjunct products. The
first nine months of 1997 included a first quarter charge of $4.3 million to
write down to net realizable value certain of the Company's inventory. Without
these non-recurring charges, gross margin as a percentage of sales would have
been 18.6% for the third quarter of 1998 and 26.0% for the nine-month period
ended September 30, 1998 compared to 44.4% and 42.7% in the comparable periods
of 1997. These gross margin decreases were primarily due to declines in adjunct
selling prices of 39% in the first nine months of 1998 relative to the
comparable period of 1997, offset partially by changes in product and channel
sales mix. These decreases in the average selling price of the Company's adjunct
products were caused by continued competitive pricing pressures, an increased
proportion of sales of adjunct products to Direct to Telcos and international
customers, with lower gross margins, and significant decreases in sales of the
Company's products through the Company's Agency Fulfillment programs for Caller
ID Services on behalf of the Telcos, which typically yield higher gross margins.
The Company expects gross margins to vary in the future due to changes in sales
mix by geography, distribution channel, type of service provided, and product.
The Company believes gross margins, excluding the impact of non-recurring
charges, will remain at approximately the level experienced in the first nine
months of 1998 for the remainder of 1998 as a result of competitive pricing
pressures and the shift in channel sales mix away from Agency Fulfillment
programs.
Research and development expenses
Research and development expenses represent salaries for personnel,
associated benefits and tooling and supplies for research and development
activities. The Company's policy is to expense all research and development
expenditures as incurred except for certain investments for tooling. Research
and development expenses decreased to $2.2 million in the quarter ended
September 30, 1998 from $4.1 million in the third quarter of 1997. Research and
development expenses decreased to $9.0 million in the nine-month period ending
September 30, 1998 from $12.6 million in the first nine months of 1997. These
decreases primarily resulted from reduced headcount and decreased spending on
adjunct-related development projects. Development costs for Internet products
remained flat during the third quarter of 1998, while the Company explored
strategic alternatives regarding its Internet Solutions Division. Due to the
fundamental market-based declines in the Company's core telephony products and
services business, the Company does not believe that it is feasible to continue
to invest its balance sheet resources at the level required to develop the
Internet business. Research and development expenses as a percentage of sales
decreased to 7.0% in the quarter ended September 30, 1998 from 8.0% in the
comparable period of 1997 and decreased to 6.3% in the first nine months of 1998
from 6.8% in the comparable period of 1997. The Company expects that research
and development expenses will decline moderately in absolute dollars during the
remainder of 1998.
11
<PAGE>
Selling and marketing expenses
Selling and marketing expenses represent personnel costs, telephone and
electronic data exchange expenses, promotional costs and travel expenses.
Selling and marketing expenses decreased to $11.6 million in the quarter ended
September 30, 1998, from $14.0 million in the comparable period of 1997 and
decreased to $45.0 million in the nine months ended September 30, 1998 from
$50.5 million in the comparable period of 1997. As a percentage of sales,
selling and marketing expenses increased to 37.1% in the quarter ended September
30, 1998, from 27.5% in the same period of 1997. In the nine months ended
September 30, 1998, selling and marketing expenses increased to 31.3% from 27.1%
of sales. The decrease in absolute dollars spent was due to a decrease in total
sales. Increases in selling and marketing expenses as a percentage of sales were
due to increased costs per order as the Company experienced higher market
penetration rates for Caller ID services. The Company expects that selling and
marketing expenses will remain at approximately the same level as a percentage
of sales for the remainder of 1998, but may fluctuate based on the volume
associated with direct marketing activities and Agency Fulfillment Programs.
General and administrative expenses
General and administrative expenses represent primarily salaries, benefits
and other expenses associated with the finance and administrative functions of
the Company. General and administrative expenses decreased to $1.8 million in
the quarter ended September 30, 1998 from $2.5 million in the comparable period
of 1997 as a result of decreased headcount and related personnel expenses. As a
percentage of sales, general and administrative expenses increased to 5.9% in
the quarter ended September 30, 1998 from 5.0% in the comparable period of 1997
due to the reduction in sales. In the nine months ended September 30, 1998,
general and administrative expenses increased to 5.1% from 4.2% as percentages
of sales. This increase reflects a one-time charge of $1.2 million for legal,
accounting, and consulting costs related to negotiations for a potential
acquisition by the Company that was ultimately determined to be not in the
Company's best interest. The Company believes that general and administrative
expenditures will decline somewhat in the remainder of 1998, when compared to
the first nine months of 1998, excluding one-time charges.
Provision (benefit) for income taxes
There was no provision (benefit) for income taxes for the quarter ended
September 30, 1998, as the Company's federal net operating loss carryback was
fully utilized in the first half of 1998. The provision for income taxes for the
quarter ended September 30, 1997 reflects an effective tax rate of 38%. The
benefit for income taxes for the nine months ended September 30, 1998 and the
provision for income taxes for the nine months ended September 30, 1997 reflect
an effective tax rate of 13% and 39%, respectively.
Liquidity and capital resources
The Company had working capital of $67.7 million as of September 30, 1998,
as compared to $116.1 million at December 31, 1997. The Company's current assets
ratio decreased to 2.8 to 1, as of September 30, 1998, from 3.7 to 1, as of
December 31, 1997. The Company's cash, cash equivalents and short-term
investments decreased $38.5 million during the nine months ended September 30,
1998. Cash used by operations of $44.5 million resulted primarily from a net
loss of $46.7 million, increases in inventories of $8.1 million, deferred tax
asset of $7.2 million and decreases in accounts payable and accrued liabilities
totaling $6.0 million, partially offset by decreased accounts receivable
balances of $20.1 million. Inventory increases were primarily caused by a shift
in shipping products from offshore contract manufacturers by sea instead of by
air freight in order to reduce cost of goods sold and thus improve profit
margins. The Company has more recently re-evaluated this practice and has
determined that airfreight is an effective means of supporting customer needs
while maintaining lower levels of inventory and commensurately higher cash
balances.
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The Company purchased its headquarters building for $3.2 million by
exercising an option in its lease on March 19, 1998. On July 20, 1998, the
Company entered into a sales contract to sell and lease back the building. The
contract provides for a sales price of $4.9 million and the Company anticipates
the sale will close in the fourth quarter of 1998.
The Company has an unsecured bank line-of-credit agreement that provides
for borrowings of up to $25 million. The interest rate on borrowings under the
line-of-credit is prime less 0.25%. The line is primarily used as security for
letters of credit used to purchase inventory from international suppliers. As of
September 30, 1998, the Company had not borrowed any funds under the line. There
were no letters of credit secured by this as of September 30, 1998. The
line-of-credit agreement has an annual profitability covenant that the Company
plans to renegotiate by the end of the year. This renegotiation may result in a
reduction in the line-of-credit borrowing maximum.
The Company plans to continue to invest in its infrastructure, including
information systems, to gain efficiencies, assure Year 2000 compliance, and meet
the demands of its markets and customers. The Company believes its 1998 capital
expenditures will be approximately $1.0 million during the remaining three
months of 1998. The 1998 capital expenditures are expected to be funded from
available working capital. The planned expenditure level is subject to
adjustment as changing economic conditions necessitate. The Company believes its
current cash, cash equivalents, short-term investments, and borrowing capacity
will satisfy the Company's working capital and capital expenditure requirements
for the next twelve months. The Company anticipates that its cash, cash
equivalents and short-term investments will remain at approximately the present
level through the remainder of 1998. Reversal of the decline in cash, cash
equivalents and short-term investments is dependent upon the Company's ability
to manage costs and expenditures given its anticipated future sales volumes and
margins.
Year 2000 compliance. The Year 2000 problem is widespread and complex. If
computer or information systems do not correctly recognize date information when
the year changes to 2000, there could be an adverse impact to the Company's
operations. The Company has a formal Year 2000 Compliance Project in place that
focuses on four key readiness areas: (1) internal infrastructure readiness,
addressing internal information systems and non-information technology systems;
(2) supplier readiness, addressing the preparedness of our supplier base; (3)
customer readiness; addressing the preparedness of our customer base; and (4)
product readiness, addressing the Company's product functionality. The Company
has appointed a Year 2000 Compliance Officer, and for each readiness area, a
task force is systematically performing a Company-wide risk assessment,
conducting testing and remediation, and communicating with employees, suppliers,
customers and third-party business partners to uncover problem areas and develop
action plans related to the Year 2000 problem. Below are overviews of each
readiness area and the Company's progress thereon for becoming ready for the
Year 2000.
Internal Infrastructure Readiness: An assessment of internal information
systems, hardware and software is in process. The Company has migrated to a new
software platform for its enterprise-wide accounting and management system which
is Year 2000 compliant. For other systems, the Company is in the process of
identifying non-compliant systems, has established a schedule for prioritized
system compliance, and is in the process of executing the Compliance Project.
One particular area of activity will be in examining, testing and reviewing the
interfaces between the Company's internal systems, some of which may not
currently be Year 2000 compliant. All systems are scheduled to be compliant no
later than July 1999. In addition to applications and information technology
systems, the Company is testing and developing remediation plans for embedded
systems, facilities and other operations.
Supplier Readiness: This program is focused on minimizing the risk
associated with suppliers in two areas: (1) a supplier's business capability to
continue providing products and services, and (2) a supplier's products
compliance with Year 2000. All suppliers are being contacted. The Company has
received responses from a number of its preferred suppliers and anticipates that
the majority of suppliers will respond by December 31, 1998. Supplier issues
that potentially affect the Company's products are targeted to be resolved by
July 1999. CIDCO has informed its suppliers that it will reevaluate its business
relationship with any supplier who either fails to respond or cooperate with
this project, or who fails to certify as to Year 2000 compliance by July 1999.
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Product Readiness: The Company has completed its review of Year 2000 issues
with respect to its product line. None of the products in the Company's current
product line calculates or processes dates, or relies upon date calculations for
their functionality. All information related to date is received by the products
over the telephone services provider's network, and only month and day
information is sent by the network and displayed by the product. In this
respect, the Year 2000 issue is not relevant to the functionality of the current
product line. For this reason, the Company believes that its products are Year
2000 compliant. In any future products developed by or for the Company that may
calculate date information, the Company will take steps to require Year 2000
compliance.
Risk Factors, Costs and Contingency Planning: The Company's Year 2000
project is currently in the assessment phase and, with respect to certain
information systems, in the remediation phase. The Company believes that its
greatest potential risks are associated with the systems of the Company's
suppliers, and secondarily, problems associated with the Company's information
systems and systems embedded in its operations and infrastructure. The Company
is at the beginning stage of assessment and cannot predict whether significant
problems will be identified. Accordingly, the Company is not in a position to
determine the extent of contingency planning that may be required and has not
yet developed contingency plans for most systems. Based on the status of the
assessment made and remediation plans developed to date, the Company is not in a
position to state the total cost of remediation of all Year 2000 issues,
however, the Company currently does not believe that such costs will exceed
$1,000,000. However, the Company has not yet completed its assessments,
developed remediation plans for all problems, developed contingency plans, or
completely implemented or tested any of its remediation plans.
As the Year 2000 Compliance Project continues, the Company may discover
additional Year 2000 problems. The Company may not be able to develop,
implement, or test remediation or contingency plans in time and may find that
the costs of these activities exceed current expectations. In many cases, the
Company will be in a position of relying on assurances from suppliers that new
and upgraded information systems and other products will be Year 2000 compliant.
The Company plans to test such products and systems, but cannot be sure that its
tests will be adequate or that, if problems are identified, they will be
addressed by the supplier in a timely and satisfactory way. Because the Company
uses a variety of information systems and has additional systems embedded in its
operations and infrastructure, it cannot be sure that all of its systems will
work together in a Year 2000-compliant fashion. Furthermore, the Company cannot
be sure that it will not suffer business interruptions, either because of its
own Year 2000 problems or those of its customers or suppliers whose Year 2000
problems may make it difficult or impossible for them to fulfill their
commitments to the Company. If the Company experiences any significant business
interruptions, it will have a material adverse effect on the Company. Should the
Company fail to satisfactorily resolve Year 2000 issues in a timely manner, it
could be exposed to liability to third parties.
Factors That May Affect Future Results
Dependence on Caller ID and Maturation of Market. Approximately 84%, 68%
and 70% of the Company's revenues during 1997, 1996 and 1995, respectively, came
from the Company's Agency Fulfillment and Non-Agency Fulfillment programs for
Caller ID adjunct products and, to a lesser extent, telephone products and
customer acquisition services through Telcos. Total Agency Fulfillment and
Non-Agency Fulfillment programs for Caller ID Services on behalf of Telcos
decreased to 69% of total revenue in the first nine months of 1998 from 83% of
total revenue in the first nine months of 1997. The size of the overall market
for Caller ID products and Services is a function of the total number of
potential subscribers with Caller ID-enabled telephone lines and the rate of
adoption of Caller ID Services, or the "penetration rate", among those
subscribers. Based upon the Company's projections of penetration rates, the
Company believes that the annual market for new Caller ID subscribers in the
United States may have peaked in 1997, with a resulting slowdown in Caller ID
sales to new subscribers expected in 1998 and beyond. Customer adoption of
Caller ID Services has been in the past, and likely will be in the future,
dependent on a variety of factors, including the rate at which Telcos from
time-to-time elect to promote Caller ID, the perceived value of the services to
end users, including the extent to which other end users have also adopted
and/or not blocked Caller ID Services, and the end user cost for the services.
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There can be no assurances that Telcos will continue to promote an increase in
Caller ID, that Caller ID Services will gain market acceptance or that, in areas
where the Services are accepted, those markets will not become saturated. In
addition, even if peak market penetration for Caller ID service has not been
achieved for the entire domestic United States market, one or more regional
markets may become saturated. Further, the market for Caller ID adjunct products
may be eroded as Caller ID functionality is designed into competitively priced
phone products as a standard feature. Declines in demand for or revenues from
Caller ID, whether due to reduced promotion of such services by Telcos,
competition, market saturation, price reduction, technological change or
otherwise, could have a material adverse effect on the Company's business,
operating results or financial condition. In the first nine months of 1998
revenues from Agency Fulfillment and Non-Agency Fulfillment programs declined as
a result of lower average selling prices and volume of units sold, resulting in
year-to-date operating losses. In addition, as penetration rates for adoption of
Caller ID services increase, the expenses, or "cost per order", the Company must
incur in its Agency Fulfillment arrangements to obtain incremental end user
adoption of Caller ID services increases, which may result in further pressures
on the Company's profitability.
Dependence on Telcos; Concentrated Customer Base. Significant portions of
the Company's revenues are derived from a small number of Telcos. During 1997,
1996 and 1995 respectively, the percentage of revenue derived by the Company
from its significant (greater than 10% of total sales) customers was 77% (four
customers), 68% (three customers) and 64% (two customers). There can be no
assurance that the Company will retain its current Telco customers or that it
will be able to attract additional customers. Industry practice with Telcos has
allowed for no long-term contracts with the Company's Telco or other customers
and no on-going minimum purchases that are required of those customers.
Moreover, the arrangements are typically both nonexclusive and terminable
at-will following a specified notice period, generally 20 to 60 days. In
addition, these Telco customers may have significant leverage over the Company
and may try to obtain terms relatively favorable to the customer and/or
subsequently change the terms, including pricing and/or payment terms, on which
the Company and such customers do business. If the Company accepts such terms,
including pricing and/or payment terms on which it does business, the Company's
operating margins and/or cash flows may decline and such declines may have a
material adverse affect on the Company's business, results of operations or
financial condition.
The Company's sales and operating results are substantially dependent on
the extent of, and the timing of, this relatively small number of Telcos'
respective decisions to implement and from time-to-time promote Caller ID,
Caller ID on Call Waiting and other Services on a system-wide or regional basis.
The extent to which the Telcos determine to implement and/or from time-to-time
promote Services may be affected by a wide variety of factors, including
regulatory approvals, technical requirements, budgetary constraints at the
Telcos, consolidation among Telcos, market saturation for the Services, the
profitability of the Services to the Telcos, market acceptance for the Services
and other factors. The Company typically has little control over any of these
factors. There can be no assurances that the Telcos will continue to implement
and/or promote Caller ID or other Services, or the Telcos will select the
Company's product and program offerings. Moreover, the Company believes that
certain Telcos have begun to perform directly themselves the customer
acquisition services currently undertaken by the Company through its agency
programs, rather than through third parties such as the Company. In addition,
the Telcos are increasingly choosing to unbundle their vendor selection for
products and services, making the barriers to entry much less complex, and
allowing competitors to more easily enter into any one of these three markets
(i.e., product, fulfillment services and agency marketing services). The
continuation of these trends among the Telcos could have a material adverse
affect on the Company's business, results of operations and financial condition.
The Company operates with little or no backlog and its quarterly results are
substantially dependent on these Telcos' implementation and/or promotion of
Services on a system wide or regional basis during each quarter. The Company's
operating expenses are based on anticipated sales levels, and a high percentage
of such expenses are relatively fixed. As a result, to the extent that the
Telcos delay the implementation and/or promotion of these Services which were
anticipated for a particular quarter, the Company's sales and operating results
in that quarter may be materially and adversely affected.
New Product Introduction; Technological Change. The telecommunications
industry is subject to rapid technological change, changing customer
requirements, frequent new product introductions and changing industry standards
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which may render existing products and services obsolete. The Company's future
success will depend in large part on its ability to timely develop (or source)
and introduce new products and services which keep pace with, and correctly
anticipate, these changes and which meet new, evolving market standards and
changing customer requirements, as well as its ability to enhance and improve
existing product and services. Product introductions and short product life
cycles necessitate high levels of expenditure for research and development.
There can be no assurance that the Company's existing markets will not be eroded
or that the Company will be able to correctly anticipate and/or timely develop
and introduce products and services which meet the requirements of the changing
marketplace or which achieve market acceptance. If the Company is unable to
develop and introduce products and services which timely meet the changing
requirements of the marketplace and achieve market acceptance, the Company's
business, results of operations or financial condition may be materially and
adversely affected.
In particular, the Company has been seeking to expand its product offerings
into a number of new business areas including the Internet and electronic
commerce, and has devoted about half of its research and development resources
for the past 12 months on developing telephone based "information appliances"
which allow access to the World Wide Web via telephone-based, or telephone-like,
devices. Certain of such devices would also be intended to enable electronic
commerce and services-based business models. These are significantly new areas
for the Company and its existing research and development, sales and marketing
personnel. There can be no assurances that the Company will be successful in
timely developing such products or that, if developed, there will be a market
for such products. Moreover, there can be no assurances that the Company's
existing personnel will have the skills necessary to timely develop, market and
sell products for this market or that, if it becomes necessary to do so, the
Company will be able to hire the necessary skilled personnel to develop, market
and/or sell products in these new areas. On July 22, 1998 the Company announced
that it is seeking "strategic alternatives" for its Internet business unit due
to the significant cash resources needed to successfully develop this new
market. Additionally, during the third quarter of 1998, the Company laid off
substantially all of its Internet Solutions Division employees and took a charge
of $10.1 million to write-off substantially all of the related assets. For
additional information on new product introduction and technological change, see
the sections entitled Note 4. Restructuring contained in Notes to Financial
Statements Research and Development and Liquidity and capital resources
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations of this Quarterly Report.
Significant undetected errors or delays in new products or releases may
affect market acceptance of the Company's products and could have a material
adverse effect on the Company's business, results of operations or financial
condition. There can be no assurances that, despite testing by the Company or
its Telco customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of market share, failure
to achieve market acceptance, or recalls due to product defects. Any such
occurrences could have a material adverse effect on the Company's business,
results of operations or financial condition. Further, if the Company were to
experience delays in the commercialization and introduction of new or enhanced
products, if customers were to experience significant problems with products or
if customers were dissatisfied with product functionality or performance, this
could have a material adverse effect on the Company's business, results of
operations or financial condition.
Viability of Internet and Electronic Commerce as New Business Areas. The
Company has recently begun to promote the adoption and sale of telephone-based
devices that allow access to the World Wide Web and which also may be designed
to enable electronic commerce and services-based business models. On July 22,
1998 the Company announced that it is seeking "strategic alternatives" for its
Internet business unit due to the significant cash resources needed to
successfully develop this new market. Following this announcement, potential and
existing customers for the Company's Internet products informed the Company they
would defer product purchases pending the outcome of this effort. During the
third quarter of 1998, the Company decided to continue to sell the current
version of the CIDCO i-Phone; however, it also decided to halt further research
and development of this product and, as of September 30, 1998, the Company laid
off substantially all of the employees and wrote-off substantially all of the
assets of the Internet Solutions Division. The market for such Internet phones
is very new and currently unproven, with several competing technological
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platform standards available. Both the extent and/or timing of consumer
acceptance for Internet phones, and the particular technology platform(s) for
such phones which may ultimately gain market acceptance, is currently uncertain.
A viable market for Internet phones and/or electronic commerce may not develop
for a number of reasons, including customer preference and usage patterns, the
cost of the device to end users, potentially inadequate development of the
necessary Internet infrastructure, delayed development of Internet enabling
technologies, inadequate Internet performance improvements, changing Internet
standards and protocols and increased government regulation. Changes in or
insufficient availability of, telecommunications services to support the
Internet also could result in slower response times and adversely affect usage
of the Internet generally and Internet phones and electronic commerce in
particular. Moreover, adverse publicity and consumer concern about the security
of transactions conducted on the Internet and the privacy of users may also
inhibit the growth of the market for Internet telephones and electronic
commerce. If the use of the Internet does not continue to grow or grows more
slowly than expected, if the infrastructure for the Internet does not
effectively support growth that may occur, if end user costs for Internet phones
are not reduced whether through manufacturing cost reductions, subsidy-based
business models or otherwise, or if concerns about Internet security do not
abate, the Company's ability to profit from Internet phones and electronic
commerce would be materially adversely affected. Moreover, there can be no
assurances that this market will develop or that, if a market develops, the
Company will be able to generate significant revenues or profits.
Fluctuations in Quarterly Revenues and Operating Results. The Company has
experienced in the past, and may experience in the future, significant
fluctuations in sales and operating results from quarter to quarter as a result
of a variety of factors, including the timing of orders for the Company's
products from Telcos and other customers; the success of the Company's own
direct marketing programs; the Company's ability to derive adequate sales
volumes while controlling related costs, credit risks and customer returns; the
effect of the restructuring on the Company's cash balances; the ability of the
Company to successfully downsize the business to meet the Company's anticipated
revenues; the addition or loss of distribution channels or outlets; the impact
on adoption rates of changes in monthly end-user charges for Services; the
timing and market acceptance of new product introductions by the Company or its
competitors; increases in the cost of acquiring end-user customers for Services
and the resulting effects on profitability; technical difficulties with Telco
networks; changes in the Company's product mix or sales mix by distribution
channel that may affect sales prices, margins or both; technological
difficulties and resource constraints encountered in developing, testing and
introducing new products; uncertainties involved in the Company's entry into
markets for new Services; disruption in sources of supply, manufacturing and
product delivery; changes in material costs; regulatory changes; general
economic conditions, competitive pressures, including reductions in average
selling prices and resulting erosions of margins; and other factors.
Accordingly, the Company's quarterly results are difficult to predict until the
end of each particular quarter, and delays in product delivery or closing of
expected sales near the end of a quarter can cause quarterly revenues and net
income to fall significantly short of anticipated levels. Because of these
factors, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and that such comparisons should
not be relied upon as indications of future performance. Due to all of the
foregoing factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
Need to Develop Alternative Distribution Channels. Historically, the
Company's Telco customers have collectively been the primary distribution
channel for the Company's products. However, the Company is seeking to diversify
its distribution channels toward direct-to-end-user, retail, targeted vertical
market segments and other alternate distribution channels, with the goals of
broadening the Company's market opportunities and adding predictability to the
Company's quarter-by-quarter revenues. Moving into these new channels may
involve a number of risks, including, among other things, the establishment of
new channel relationships and presence, the cost of creating brand awareness and
end-user demand in the new channels, the viability of the Company's product
offerings in the new channels and managing conflicts among different channels
offering the Company's products. There can be no assurance that the Company will
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be successful in identifying and exploiting alternate distribution channels or
in addressing any one or more of these risks. If the Company is not successful,
it may lose significant sales opportunities and will continue to be
substantially dependent upon the Telco channel for sales of its products.
Risks Related to Contract Manufacturing; Limited Sources of Supply. The
Company's products are manufactured for the Company by third parties that are
primarily located in Malaysia, China and Thailand. The use of third parties to
manufacture products involves a number of risks, including limited control over
production facilities and schedules and the management of supply chains for the
manufactured products. Moreover, reliance on contract manufacturers in foreign
countries subjects the Company to risks of political instability, financial
instability, expropriation, currency controls and exchange fluctuations, and
changes in tax laws, tariffs and rules. See "Risks Relating to International
Sales". Many of the key components used in the Company's products are available
either only from single sources or, even if potentially available from multiple
sources, involve relatively long lead times to manufacture, such that the
Company cannot quickly obtain additional supply without incurring significant
incremental costs. In general, the Company does not utilize long-term supply
contracts with its suppliers and orders parts on a purchase order basis in order
to enhance flexibility. The Company's inability to obtain sufficient quantities
of components required, or to develop alternative manufacturing capability if
and as required in the future, could result in delays or reductions in product
shipments that could materially and adversely affect the Company's business,
results of operations and financial condition.
Dependence on Key Personnel; Hiring and Retention of Employees. The
Company's continued growth and success depend to a significant extent on the
continued services of its senior management and other key employees and its
ability to attract and retain highly skilled technical, managerial, sales and
marketing personnel. Competition for such personnel is intense. The Company's
restructuring effort poses additional risks as several key executives, engineers
and other personnel have been laid off. There can be no assurance that the
Company will be successful in continuously recruiting new personnel or in
retaining existing personnel. The loss of one or more key employees or the
Company's inability to attract additional qualified employees or retain other
employees could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, the Company may
experience increased compensation costs in order to attract and retain skilled
employees.
Risks Relating to International Sales. The Company has had relatively
limited international sales to date. However, the Company believes that
international sales, particularly in Latin America and Asia, may represent an
increasing percentage of the Company's sales in the future. The Company's future
success will depend in part on its ability to compete in Latin America, Japan
and elsewhere in Asia and this will depend on the continuation of favorable
trading relationships between the region and the United States. The Company's
entry into international markets will likely require significant management
attention and may require significant engineering efforts to adapt the Company's
products to such countries' telephone systems. Moreover, the rate of customer
acceptance of Caller ID in areas outside of the United States is highly
uncertain. There can be no assurance that the Company's Caller ID or other
products will gain meaningful market penetration in any foreign jurisdictions,
whether due to local consumer preferences, local regulatory requirements,
technological constraints in the local networks, the extent to which the local
Telcos determine to promote Caller ID, or other factors. Dependence on revenues
from international sales involves a number of inherent risks, including new or
different regulations, economic slowdown and/or downturn in the general economy
in one or more local markets, international currency fluctuations, general
strikes or other disruptions in working conditions, political instability, trade
restrictions, changes in tariffs, the difficulties associated with staffing and
managing international operations, generally longer receivables collection
periods, unexpected changes in or impositions of legislative or regulatory
requirements, reduced protection for intellectual property rights in some
countries, potentially adverse taxes, delays resulting from difficulty in
obtaining export licenses for certain technology and other trade barriers.
International sales will also be impacted by the specific economic conditions in
each country.
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Management of Infrastructure. The Company's future success will require,
among other things, that the Company continue to improve its operating and
information systems. In particular, the Company must constantly seek to improve
its order entry, tracking and product fulfillment service capabilities and
systems in order to retain and/or obtain Telco customers due to ever-increasing
demands/expectations from the Telcos. The failure of the Company to successfully
implement and continually improve its operating and information systems may
adversely affect both the Company's ability to obtain and/or retain its Telco
customers and accordingly, could have a material adverse effect on the Company's
business, results of operations or financial condition. Additionally, the
transition of systems, management and people related to the relocation of the
Company's distribution center to Austin, Texas was completed in the third
quarter of 1998. The Company has determined that the Austin facility has not
produced the cost savings expected due to the decrease in adjunct unit sales and
other factors; therefore, the Company is relocating the distribution center to
Morgan Hill, California where the distribution function can be fully integrated
with the rest of the Company. The failure of the Company to successfully manage
this second transition could have a material adverse effect on the Company's
business, results of operations or financial condition.
Competition. The telecommunications industry is an intensely competitive
industry with several large vendors that develop and market Caller ID adjunct
display units and screen phone products. Certain of these vendors have
significantly more financial and technical resources than the Company. The
Company's competitors include in-house divisions of the Company's current and
potential customers, as well as small companies offering specific services and
large firms. In addition, competitors for the Company's phone products include
both large Asian, European and North American consumer electronic and
telecommunication product companies and smaller Asian, European and North
American manufacturers. If the Company's existing customers perform directly the
customer acquisition services currently undertaken by the Company through its
Agency Fulfillment programs, or if potential customers retain or increase
internal capabilities to provide such services, the Company's business, results
of operations and financial condition could be adversely affected. The
introduction of new competitive products in one or more of the Company's various
markets could have a material adverse effect on the Company's business, results
of operations or financial condition.
Limited Protection of Intellectual Property; Risk of Third-Party Claims of
Infringement. The Company has patent protection on certain aspects of its
existing technology and also relies on trade secret protection, copyrights,
trademarks and contractual provisions to protect its proprietary rights. There
can be no assurance that the Company's protective measures will be adequate to
protect the Company's proprietary rights, that others have not or will not
independently develop or otherwise acquire equivalent or superior technology, or
that the Company will not be required to obtain royalty-bearing licenses to use
other intellectual property in order to utilize the inventions embodied in its
patents. There also can be no assurance that any patents will be issued pursuant
to the Company's current or future patent applications or that patents issued
pursuant to such applications or any patents the Company currently owns will not
be invalidated, circumvented or challenged. Moreover, there can be no assurance
that the rights granted under any such patents will provide competitive
advantages to the Company or be adequate to safeguard and maintain the Company's
proprietary rights. In addition, the laws of certain countries in which the
Company's products may from time-to-time be sold may not protect intellectual
property rights to the same extent as the laws of the United States.
Frequent claims and litigation involving patent and other intellectual
property rights characterize the telecommunications industry, like many
technology-based industries. The Company from time to time may be notified by
third parties that they believe the Company may be infringing patents or other
proprietary rights of third parties. The Company has in the past and may in the
future have to seek a license under such patent or other proprietary rights, or
redesign or modify their products and processes in order to avoid infringement
of such rights. There can be no assurance that such a license would be available
on acceptable terms, if at all, or that the Company could so avoid infringement
of such patent or other proprietary rights, in which case the Company's
business, financial condition and results of operations could be materially and
adversely affected. Additionally, litigation may be necessary to protect the
Company's proprietary rights. Any claims or litigation involving the Company's
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owned or licensed patents or other intellectual property rights may be time
consuming and costly, or may cause product shipment delays, either of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Volatility of Stock Price. The market price of the Company's Common Stock
has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly
affected by factors such as the announcement of new products or product
enhancements by the Company or its competitors, technological innovation by the
Company or its competitors, quarterly variations in the Company's or its
competitors' products and services, changes in revenue and revenue growth rates
for the Company as a whole or for specific geographic areas, business units,
products or product categories, changes in earnings estimates by market
analysts, speculation in the press or analyst community and general market
conditions or market conditions specific to the technology industry or the
telecommunications industry in particular. The stock prices for many companies
in the technology sector have experienced wide fluctuations that often have been
unrelated to their operating performance. Such fluctuations may adversely affect
the market price of the Company's Common Stock.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risks
Not Applicable.
20
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In the ordinary course of business, the Company may be
involved in legal proceedings. As of the date hereof, the
Company is not a party to any pending legal proceedings,
which the Company believes will materially affect its
financial condition or results of operations.
ITEM 2. Changes In Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
As result of the Company's change in direction, the
employment of the Company's former President and Chief
Executive Officer, Daniel L. Eilers, has been terminated
with severance benefits pursuant to an existing employment
agreement. Paul G. Locklin, co-founder and Chairman of the
Board of Directors, has superceded Mr. Eilers as the current
Chief Executive Officer and President.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits at page 23 below.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the nine
months ended September 30, 1998.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIDCO INCORPORATED
November 12, 1998 By:/s/Paul G. Locklin
- ----------------- ------------------
Date Paul G. Locklin
President and Chief Executive Officer
November 12, 1998 /s/Richard D. Kent
- ----------------- ------------------
Date Richard D. Kent
Vice President Finance, Chief Operating
Officer and Chief Financial Officer
22
<PAGE>
CIDCO INCORPORATED
INDEX TO EXHIBITS
Exhibits Page
3.1 Amended and Restated Certificate of Incorporation. (1) --
3.2 Amended and Restated By-laws (6). --
3.3 Form of Certificate of Designation, Number, Powers, Preferences
and Relative, Participating, Optional and Other Special Rights
and Qualifications, Limitations, Restrictions and Other
Distinguishing Characteristics of the Registrant's Series
A Junior Participating Preferred Stock. (4) --
4.1 Second Amendment to Revolving Credit Loan Agreement dated October
13, 1995 between Registrant andComerica Bank. (3) --
4.2 Rights Agreement dated as of January 27, 1997, between the
Registrant and United States Trust Company of New York,
as Rights Agent. (5) --
10.4 Patent License Agreement dated as of May 1, 1989 between the
Registrant and American Telephone and Telegraph Company. (1) --
10.5 Form of Indemnification Agreement. (1) --
10.16 Lease dated May 31, 1994, between Thoits Bros., Inc. and the
Registrant for 225 Cochrane Circle,Units A, B, C, D, and E. (3) --
10.17 Sublease dated November 18, 1994, between Thoits Bros. and the
Registrant for 180 Cochrane Circle. (2) --
10.18 Lease dated November 1, 1994, between Thoits Bros., Inc. and the
Registrant for 105 Cochrane Circle, Units A, B, C, D, and E. (2) --
10.20 Registrant's 1994 Directors' Stock Option Plan. (2) --
10.21 Registrant's 1994 employee stock purchase plan. (2) --
10.24 Employment Agreement dated June 28, 1996 between Registrant
and Ian Laing. (5) --
10.27 Employment Agreement dated March 17, 1997 between Registrant
and Daniel L. Eilers. (5) --
10.29 1997 Annual Executive Incentive Plan (6)--
10.30 Registrant's Second Amended and Restated 1993 Stock Option Plan. 24
10.31 Registrant's Amended and Restated 1998 Stock Option Plan. 36
10.32 Employment Agreement dated June 1, 1998 between Registrant
and Richard D. Kent. 48
10.33 Employment Termination Agreement dated September 30, 1998 between
Registrant and Daniel L. Eilers. 52
- -----------------------------------
(1) Incorporated herein by reference to the Company's registration statement on
Form S-1, File No. 33-74114.
(2) Incorporated herein by reference to the Company's Form 10-K for the year
ended December 31, 1994.
(3) Incorporated herein by reference to the Company's Form 10-Q for the quarter
ended September 30, 1995.
(4) Incorporated herein by reference to the Company's Form 8-A filed on
February 4, 1992.
(5) Incorporated herein by reference to the Company's Form 10-Q for the quarter
ended March 31, 1997.
(6) Incorporated herein by reference to the Company's Form 10-Q for the quarter
ended June 30, 1997.
23
<PAGE>
Exhibit 10.30
CIDCO INCORPORATED
SECOND AMENDED AND RESTATED
1993 STOCK OPTION PLAN
(As Amended Effective October 14, 1998)
Establishment, Purpose and Term of Plan.
Establishment. The CIDCO Incorporated 1993 Stock Option Plan was initially
adopted by the Board on May 1, 1993 and subsequently amended from time to time
(the "Initial Plan"). The Initial Plan is hereby amended and restated in its
entirety as the CIDCO Incorporated Second Amended and Restated 1993 Stock Option
Plan effective as of October 14, 1998 (the "Effective Date"). Notwithstanding
any provision herein to the contrary, each Option granted prior to the Effective
Date shall continue to be governed by the terms of the Initial Plan as in effect
at the time such Option was granted, except to the extent that the Option is
otherwise amended in writing as provided by the Plan.
Purpose. The purpose of the Plan is to advance the interests of the
Participating Company Group and its stockholders by providing an incentive to
attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
Term of Plan. The Plan shall continue in effect until the earlier of its
termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Options shall be granted, if at
all, within ten (10) years from the date on which the Initial Plan was adopted
by the Board.
Definitions and Construction.
Definitions. Whenever used herein, the following terms shall have their
respective meanings set forth below:
"Board" means the Board of Directors of the Company. If one or more
Committees have been appointed by the Board to administer the Plan, "Board" also
means such Committee(s).
"Code" means the Internal Revenue Code of 1986, as amended, and any
applicable regulations promulgated thereunder.
"Committee" means the Compensation Committee, Stock Option Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
"Company" means CIDCO Incorporated, a Delaware corporation, or any
successor corporation thereto.
"Consultant" means any person, including an advisor, engaged by a
Participating Company to render services other than as an Employee or a
Director.
"Director" means a member of the Board.
"Disability" means the permanent and total disability of the Optionee
within the meaning of Section 22(e)(3) of the Code.
"Employee" means any person treated as an employee in the records of a
Participating Company and, with respect to any Incentive Stock Option granted to
such person, who is an employee for purposes of Section 422 of the Code;
provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any date, the value of a share of Stock or
other property as determined by the Board, in its discretion, or by the Company,
in its discretion, if such determination is expressly allocated to the Company
herein, subject to the following:
If, on such date, the Stock is listed on a national or regional securities
exchange or market system, the Fair Market Value of a share of Stock shall be
the closing sale price of a share of Stock (or the mean of the closing bid
and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, The Nasdaq SmallCap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which
the Stock has
traded on such securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day
as shall be determined by the Board, in its discretion.
If, on such date, there is no public market for the Stock, the Fair
Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction
which, by its terms, will never lapse.
"Incentive Stock Option" means an Option intended to be (as set forth in
the Option Agreement) and which qualifies as an incentive stock option within
the meaning of Section 422(b) of the Code.
"Insider" means an officer or a Director of the Company or any other person
whose transactions in Stock are subject to Section 16 of the Exchange Act.
"Nonstatutory Stock Option" means an Option not intended to be (as set
forth in the Option Agreement) or which does not qualify as an Incentive Stock
Option.
"Option" means a right to purchase Stock (subject to adjustment as provided
in Section 4.2) pursuant to the terms and conditions of the Plan. An Option may
be either an Incentive Stock Option or a Nonstatutory Stock Option.
"Option Agreement" means a written agreement between the Company and an
Optionee setting forth the terms, conditions and restrictions of the Option
granted to the Optionee and any shares acquired upon the exercise thereof.
"Optionee" means a person who has been granted one or more Options.
"Parent Corporation" means any present or future "parent corporation" of
the Company, as defined in Section 424(e) of the Code.
"Participating Company" means the Company or any Parent Corporation or
Subsidiary Corporation.
"Participating Company Group" means, at any point in time, all corporations
collectively which are then Participating Companies.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time
to time, or any successor rule or regulation.
"Section 162(m)" means Section 162(m) of the Code, as amended by the
Revenue Reconciliation Act of 1993 (P.L. 103-66).
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means an Optionee's employment or service with the Participating
Company Group, whether in the capacity of an Employee, a Director or a
Consultant. An Optionee's Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Optionee renders Service to the
Participating Company Group or a change in the Participating Company for which
the Optionee renders such Service, provided that there is no interruption or
termination of the Optionee's Service. Furthermore, an Optionee's Service with
the Participating Company Group shall not be deemed to have terminated if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the one hundred eighty-first (181st) day following
the commencement of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and instead shall be
treated thereafter as a Nonstatutory Stock Option unless the Optionee's right to
return to Service with the Participating Company Group is guaranteed by statute
or contract. Notwithstanding the foregoing, unless otherwise designated by the
Company or required by law, a leave of absence shall not be treated as Service
for purposes of determining vesting under the Optionee's Option Agreement. An
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its discretion, shall determine whether an Optionee's Service has
terminated and the effective date of such termination.
"Stock" means the common stock of the Company, as adjusted from time to
time in accordance with Section 4.2.
"Subsidiary Corporation" means any present or future "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code.
"Ten Percent Owner Optionee" means an Optionee who, at the time an Option
is granted to the Optionee, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of a Participating
Company within the meaning of Section 422(b)(6) of the Code.
Construction. Captions and titles contained herein are for convenience only
and shall not affect the meaning or interpretation of any provision of the Plan.
Except when otherwise indicated by the context, the singular shall include the
plural and the plural shall include the singular. Use of the term "or" is not
intended to be exclusive, unless the context clearly requires otherwise.
Administration.
Administration by the Board. The Plan shall be administered by the Board. All
questions of interpretation of the Plan or of any Option shall be determined by
the Board, and such determinations shall be final and binding upon all persons
having an interest in the Plan or such Option.
Authority of Officers. Any officer of a Participating Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, determination or election.
Administration with Respect to Insiders. With respect to participation by
Insiders in the Plan, at any time that any class of equity security of the
Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall
be administered in compliance with the requirements, if any, of Rule 16b-3.
Committee Complying with Section 162(m). If a Participating Company is a
"publicly held corporation" within the meaning of Section 162(m), the Board may
establish a Committee of "outside directors" within the meaning of Section
162(m) to approve the grant of any Option which might reasonably be anticipated
to result in the payment of employee remuneration that would otherwise exceed
the limit on employee remuneration deductible for income tax purposes pursuant
to Section 162(m).
Powers of the Board. In addition to any other powers set forth in the Plan and
subject to the provisions of the Plan, the Board shall have the full and final
power and authority, in its discretion:
to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock
to be subject to each Option;
to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
to determine the Fair Market Value of shares of Stock or
other property;
to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without
limitation, (i) the exercise price of the Option, (ii) the method
of payment for shares purchased upon the exercise of the Option,
(iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares,
including by the withholding or delivery of shares of stock, (iv)
the timing, terms and conditions of the exercisability of the
Option or the vesting of any shares acquired upon the exercise
thereof, (v) the time of the expiration of the Option, (vi) the
effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii)
all other terms, conditions and restrictions applicable to the
Option or such shares not inconsistent with the terms of the
Plan;
to approve one or more forms of Option Agreement;
to amend, modify, extend, cancel, renew, reprice or
otherwise adjust the exercise price of, or grant a new Option in
substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or any shares acquired upon
the exercise thereof;
to accelerate, continue, extend or defer the exercisability
of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following
an Optionee's termination of Service with the Participating
Company Group;
to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or
alternative versions of, the Plan, including, without limitation,
as the Board deems necessary or desirable to comply with the laws
of, or to accommodate the tax policy or custom of, foreign
jurisdictions whose citizens may be granted Options; and
to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to
the Plan or any Option as the Board may deem advisable to the
extent consistent with the Plan and applicable law.
Shares Subject to Plan.
Maximum Number of Shares Issuable. Subject to adjustment as provided in Section
4.2, the maximum aggregate number of shares of Stock that may be issued under
the Plan shall be two million nine hundred thousand (2,900,000) and shall
consist of authorized but unissued or reacquired shares of Stock or any
combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled or if shares of Stock are acquired upon the exercise of
an Option subject to a Company repurchase option and are repurchased by the
Company at the Optionee's exercise price, the shares of Stock allocable to the
unexercised portion of such Option or such repurchased shares of Stock shall
again be available for issuance under the Plan.
Adjustments for Changes in Capital Structure. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options, in the Section 162(m) Grant Limit
set forth in Section 5.4, and in the exercise price per share of any outstanding
Options. If a majority of the shares which are of the same class as the shares
that are subject to outstanding Options are exchanged for, converted into, or
otherwise become (whether or not pursuant to an Ownership Change Event, as
defined in Section 8.1) shares of another corporation (the "New Shares"), the
Board may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment, the
number of shares subject to, and the exercise price per share of, the
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 4.2 shall
be rounded down to the nearest whole number, and in no event may the exercise
price of any Option be decreased to an amount less than the par value, if any,
of the stock subject to the Option. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
Eligibility and Option Limitations.
Persons Eligible for Options. Options may be granted only to Employees,
Consultants and Directors. For purposes of the foregoing sentence, "Employees,"
"Consultants" and "Directors" shall include prospective Employees, prospective
Consultants and prospective Directors to whom Options are granted in connection
with written offers of employment or other service relationship with the
Participating Company Group. Eligible persons may be granted more than one (1)
Option.
Option Grant Restrictions. Any person who is not an Employee on the effective
date of the grant of an Option to such person may be granted only a Nonstatutory
Stock Option. An Incentive Stock Option granted to a prospective Employee upon
the condition that such person become an Employee shall be deemed granted
effective on the date such person commences service as an Employee with a
Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.
Fair Market Value Limitation. To the extent that options designated as Incentive
Stock Options (granted under all stock option plans of the Participating Company
Group, including the Plan) become exercisable by an Optionee for the first time
during any calendar year for stock having an aggregate Fair Market Value greater
than One Hundred Thousand Dollars ($100,000), the portion of such options which
exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes
of this Section 5.3, options designated as Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of stock shall be determined as of the time the option with respect to
such stock is granted. If the Code is amended to provide for a different
limitation from that set forth in this Section 5.3, such different limitation
shall be deemed incorporated herein effective as of the date and with respect to
such Options as required or permitted by such amendment to the Code. If an
Option is treated as an Incentive Stock Option in part and as a Nonstatutory
Stock Option in part by reason of the limitation set forth in this Section 5.3,
the Optionee may designate which portion of such Option the Optionee is
exercising. In the absence of such designation, the Optionee shall be deemed to
have exercised the Incentive Stock Option portion of the Option first. Separate
certificates representing each such portion shall be issued upon the exercise of
the Option.
Section 162(m) Grant Limit. Subject to adjustment as provided in Section 4.2, no
Employee shall be granted one or more Options within any calendar year which in
the aggregate are for the purchase of more than one hundred thousand (100,000)
shares (the "Section 162(m) Grant Limit"). An Option which is canceled in the
same calendar year in which it was granted shall continue to be counted against
the Section 162(m) Grant Limit for such period.
Terms and Conditions of Options.
Options shall be evidenced by Option Agreements specifying the number of shares
of Stock covered thereby, in such form as the Board shall from time to time
establish. No Option or purported Option shall be a valid and binding obligation
of the Company unless evidenced by a fully executed Option Agreement. Option
Agreements may incorporate all or any of the terms of the Plan by reference and
shall comply with and be subject to the following terms and conditions:
Exercise Price. The exercise price for each Option shall be established in the
discretion of the Board; provided, however, that (a) the exercise price per
share for an Incentive Stock Option shall be not less than the Fair Market Value
of a share of Stock on the effective date of grant of the Option, (b) the
exercise price per share for a Nonstatutory Stock Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of a share of Stock on the
effective date of grant of the Option, and (c) no Incentive Stock Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
Exercise Period. Options shall be exercisable at such time or times, or upon
such event or events, and subject to such terms, conditions, performance
criteria, and restrictions as shall be determined by the Board and set forth in
the Option Agreement evidencing such Option; provided, however, that (a) no
Option shall be exercisable after the expiration of ten (10) years after the
effective date of grant of such Option, (b) no Incentive Stock Option granted to
a Ten Percent Owner Optionee shall be exercisable after the expiration of five
(5) years after the effective date of grant of such Option, and (c) no Option
granted to a prospective Employee, prospective Consultant or prospective
Director may become exercisable prior to the date on which such person commences
Service with a Participating Company. Subject to the foregoing, unless otherwise
specified by the Board in the grant of an Option, any Option granted hereunder
shall have a term of ten (10) years from the effective date of grant of the
Option.
Payment of Exercise Price.
Forms of Consideration Authorized. Except as otherwise provided below, payment
of the exercise price for the number of shares of Stock being purchased pursuant
to any Option shall be made (i) in cash, by check or cash equivalent, (ii) by
tender to the Company, or attestation to the ownership, of shares of Stock owned
by the Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"Cashless Exercise"), (iv) provided that the Optionee is an Employee, by cash
for a portion of the aggregate exercise price not less than the par value of the
shares being acquired and the Optionee's promissory note in a form approved by
the Company for the balance of the aggregate exercise price, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
Limitations on Forms of Consideration.
Tender of Stock. Notwithstanding the foregoing, an Option may not be exercised
by tender to the Company, or attestation to the ownership, of shares of Stock to
the extent such tender or attestation would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's stock. Unless otherwise provided by the Board, an Option may not be
exercised by tender to the Company, or attestation to the ownership, of shares
of Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
Cashless Exercise. The Company reserves, at any and all times, the right, in the
Company's sole and absolute discretion, to establish, decline to approve or
terminate any program or procedures for the exercise of Options by means of a
Cashless Exercise.
Payment by Promissory Note. No promissory note shall be permitted if the
exercise of an Option using a promissory note would be a violation of any law.
Any permitted promissory note shall be on such terms as the Board shall
determine at the time the Option is granted. The Board shall have the authority
to permit or require the Optionee to secure any promissory note used to exercise
an Option with the shares of Stock acquired upon the exercise of the Option or
with other collateral acceptable to the Company. Unless otherwise provided by
the Board, if the Company at any time is subject to the regulations promulgated
by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.
Tax Withholding. The Company shall have the right, but not the obligation, to
deduct from the shares of Stock issuable upon the exercise of an Option, or to
accept from the Optionee the tender of, a number of whole shares of Stock having
a Fair Market Value, as determined by the Company, equal to all or any part of
the federal, state, local and foreign taxes, if any, required by law to be
withheld by the Participating Company Group with respect to such Option or the
shares acquired upon the exercise thereof. Alternatively or in addition, in its
discretion, the Company shall have the right to require the Optionee, through
payroll withholding, cash payment or otherwise, including by means of a Cashless
Exercise, to make adequate provision for any such tax withholding obligations of
the Participating Company Group arising in connection with the Option or the
shares acquired upon the exercise thereof. The Company shall have no obligation
to deliver shares of Stock until the Participating Company Group's tax
withholding obligations have been satisfied by the Optionee.
Effect of Termination of Service.
Option Exercisability. Subject to earlier termination of the Option as otherwise
provided herein and unless otherwise provided by the Board in the grant of an
Option and set forth in the Option Agreement, an Option shall be exercisable
after an Optionee's termination of Service as follows:
Disability. If the Optionee's Service with the Participating Company Group is
terminated because of the Disability of the Optionee, the Option, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or the Optionee's guardian or
legal representative) at any time prior to the expiration of twelve (12) months
after the date on which the Optionee's Service terminated, but in any event no
later than the date of expiration of the Option's term as set forth in the
Option Agreement evidencing such Option (the "Option Expiration Date").
Death. If the Optionee's Service with the Participating Company Group is
terminated because of the death of the Optionee, the Option, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee's legal representative or other
person who acquired the right to exercise the Option by reason of the Optionee's
death at any time prior to the expiration of twelve (12) months after the date
on which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within thirty (30) days
after the Optionee's termination of Service.
Termination After Change in Control. If the Optionee's Service with the
Participating Company Group ceases as a result of Termination After Change in
Control (as defined below), then (1) the Option, to the extent unexercised on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee (or the Optionee's guardian or legal representative) at any time prior
to the expiration of six (6) months after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date,
and (2) the Option shall become immediately exercisable and vested in full as of
the date on which the Optionee's Service terminated. Notwithstanding the
foregoing, if it is determined that the provisions or operation of this Section
6.5(a)(iii) would preclude treatment of a Change in Control as a
"pooling-of-interests" for accounting purposes and provided further that in the
absence of the preceding sentence such Change in Control would be treated as a
"pooling-of-interests" for accounting purposes, then this Section 6.5(a)(iii)
shall be void ab initio, and the vesting and exercisability of the Option shall
be determined under any other applicable provision of the Plan or the Option
Agreement evidencing such Option.
Other Termination of Service. If the Optionee's Service with the Participating
Company Group terminates for any reason, except Disability, death or Termination
After Change in Control, the Option, to the extent unexercised and exercisable
by the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within thirty (30) days (or such longer or shorter
period of time as determined by the Board, in its discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the
exercise of an Option within the applicable time periods set forth in Section
6.5(a) is prevented by the provisions of Section 11 below, the Option shall
remain exercisable until thirty (30) days after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
Extension if Optionee Subject to Section 16(b). Notwithstanding the foregoing,
if a sale within the applicable time periods set forth in Section 6.5(a) of
shares acquired upon the exercise of the Option would subject the Optionee to
suit under Section 16(b) of the Exchange Act, the Option shall remain
exercisable until the earliest to occur of (i) the tenth (10th) day following
the date on which a sale of such shares by the Optionee would no longer be
subject to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of Service, or (iii) the Option Expiration Date.
Certain Definitions. The following terms shall have their respective
meanings set forth below:
"Termination After Change in Control" shall mean either of the following
events occurring within twelve (12) months after a Change in Control:
(1) termination by the Participating Company Group of the Optionee's
Service with the Participating Company Group for any reason other than for Cause
(as defined below); or
(2) the Optionee's resignation for Good Reason (as defined below) from all
capacities in which the Optionee is then rendering Service to the Participating
Company Group within a reasonable period of time following the event
constituting Good Reason.
Notwithstanding any provision herein to the contrary, Termination After
Change in Control shall not include any termination of the Optionee's Service
with the Participating Company Group which (1) is for Cause (as defined below);
(2) is a result of the Optionee's death or disability; (3) is a result of the
Optionee's voluntary termination of Service other than for Good Reason; or (4)
occurs prior to the effectiveness of a Change in Control.
"Cause" shall mean any of the following: (1) the Optionee's theft,
dishonesty, or falsification of any Participating Company documents or records;
(2) the Optionee's improper use or disclosure of a Participating Company's
confidential or proprietary information; (3) the Optionee's failure or inability
to perform any reasonable assigned duties after written notice from the
Participating Company Group of, and a reasonable opportunity to cure, such
failure or inability; (4) any material breach by the Optionee of any employment
agreement between the Optionee and the Participating Company Group, which breach
is not cured pursuant to the terms of such agreement; or (5) the Optionee's
conviction (including any plea of guilty or nolo contendere) of any criminal act
which impairs the Optionee's ability to perform his or her duties with the
Participating Company Group.
"Good Reason" shall mean any one or more of the following:
(1) without the Optionee's consent, any limitations of the Optionee's
responsibilities, substantially inconsistent with the Optionee's positions,
duties, responsibilities and status with the Participating Company Group
immediately prior to the date of the Change in Control;
(2) without the Optionee's consent, the relocation of the principal place
of the Optionee's employment to a location that is more than fifty (50) miles
from the Optionee's principal place of employment immediately prior to the date
of the Change in Control;
(3) any failure by the Participating Company Group to pay, or any material
reduction by the Participating Company Group of, (A) the Optionee's base salary
in effect immediately prior to the date of the Change in Control (unless
reductions comparable in amount and duration are concurrently made for all other
employees of the Participating Company Group with responsibilities,
organizational level and title comparable to the Optionee's), or (B) the
Optionee's bonus compensation, if any, in effect immediately prior to the date
of the Change in Control (unless reductions comparable in amount and duration
are concurrently made for all other employees of the Participating Company Group
with responsibilities, organizational level and title comparable to the
Optionee's, and subject to applicable performance requirements with respect to
the actual amount of bonus compensation earned by the Optionee); or
(4) any failure by the Participating Company Group to (A) continue to
provide the Optionee with the opportunity to participate, on terms not
materially less favorable than those in effect for the benefit of any employee
group which customarily includes a person holding the employment position or a
comparable position with the Participating Company Group then held by the
Optionee, in any benefit or compensation plans and programs, including, but not
limited to, the Participating Company Group's life, disability, health, dental,
medical, savings, profit sharing, stock purchase and retirement plans, if any,
in which the Optionee was participating immediately prior to the date of the
Change in Control, or their equivalent, or (B) provide the Optionee with
substantially all other fringe benefits (or their equivalent) from time to time
in effect for the benefit of any employee group which customarily includes a
person holding the employment position or a comparable position with the
Participating Company Group then held by the Optionee.
Standard Forms of Option Agreement.
Incentive Stock Options. Unless otherwise provided by the Board at the time the
Option is granted, an Option designated as an "Incentive Stock Option" shall
comply with and be subject to the terms and conditions set forth in such form of
Incentive Stock Option Agreement as may be adopted by the Board and as amended
from time to time.
Nonstatutory Stock Option Agreement. Unless otherwise provided by the Board at
the time the Option is granted, an Option designated as a "Nonstatutory Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the appropriate form of Nonstatutory Stock Option Agreement adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
Authority to Vary Terms. The Board shall have the authority from time to time to
vary the terms of any of the standard forms of Option Agreement described in
this Section 7 either in connection with the grant or amendment of an individual
Option or in connection with the authorization of a new standard form or forms;
provided, however, that the terms and conditions of any such new, revised or
amended standard form or forms of Option Agreement are not inconsistent with the
terms of the Plan.
Change in Control.
Definitions. The following terms shall have their respective meanings set
forth below:
An "Ownership Change Event" shall be deemed to have occurred if any of the
following occurs with respect to the Company: (i) the direct or indirect sale or
exchange in a single or series of related transactions by the stockholders of
the Company of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party; (iii) the sale,
exchange, or transfer of all or substantially all of the assets of the Company;
or (iv) a liquidation or dissolution of the Company.
A "Change in Control" shall mean an Ownership Change Event or a series of
related Ownership Change Events (collectively, the "Transaction") wherein the
stockholders of the Company immediately before the Transaction do not retain
immediately after the Transaction, in substantially the same proportions as
their ownership of shares of the Company's voting stock immediately before the
Transaction, direct or indirect beneficial ownership of more than fifty percent
(50%) of the total combined voting power of the outstanding voting stock of the
Company or the corporation or corporations to which the assets of the Company
were transferred (the "Transferee Corporation(s)"), as the case may be. For
purposes of the preceding sentence, indirect beneficial ownership shall include,
without limitation, an interest resulting from ownership of the voting stock of
one or more corporations which, as a result of the Transaction, own the Company
or the Transferee Corporation(s), as the case may be, either directly or through
one or more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
Effect of Change in Control on Options. In the event of a Change in
Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "Acquiring Corporation"),
may either assume the Company's rights and obligations under outstanding Options
or substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Change in Control, the Option confers the
right to purchase in accordance with its terms and conditions, for each share of
Stock subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. In the event the Acquiring Corporation elects not to assume or
substitute for outstanding Options in connection with a Change in Control, any
unexercisable or unvested portions of outstanding Options held by Optionees
whose Service has not terminated prior to such date shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Change in Control. The exercise or vesting of any Option that was
permissible solely by reason of this Section 8.2 shall be conditioned upon the
consummation of the Change in Control. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control shall terminate
and cease to be outstanding effective as of the date of the Change in Control.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Options immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Change in Control is the surviving
or continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the outstanding Options
shall not terminate unless the Board otherwise provides in its discretion.
Provision of Information.
Each Optionee shall be given access to information concerning the Company
equivalent to that information generally made available to the Company's common
stockholders.
Transferability of Options.
During the lifetime of the Optionee, an Option shall be exercisable only by
the Optionee or the Optionee's guardian or legal representative. No Option shall
be assignable or transferable by the Optionee, except by will or by the laws of
descent and distribution. Notwithstanding the foregoing, a Nonstatutory Stock
Option shall be assignable or transferable to the extent permitted by the Board
and set forth in the Option Agreement evidencing such Option.
Compliance with Securities Law.
The grant of Options and the issuance of shares of Stock upon exercise of
Options shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. Options may not
be exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system
upon which the Stock may then be listed. In addition, no Option may be exercised
unless (a) a registration statement under the Securities Act shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (b) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal counsel
to be necessary to the lawful issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the failure to issue or sell
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of any Option, the Company may require the
Optionee to satisfy any qualifications that may be necessary or appropriate, to
evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
Indemnification.
In addition to such other rights of indemnification as they may have as
members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
Termination or Amendment of Plan.
The Board may terminate or amend the Plan at any time. However, subject to
changes in applicable law, regulations or rules that would permit otherwise,
without the approval of the Company's stockholders, there shall be (a) no
increase in the maximum aggregate number of shares of Stock that may be issued
under the Plan (except by operation of the provisions of Section 4.2), (b) no
change in the class of persons eligible to receive Incentive Stock Options, and
(c) no other amendment of the Plan that would require approval of the Company's
shareholders under any applicable law, regulation or rule. No termination or
amendment of the Plan shall affect any then outstanding Option unless expressly
provided by the Board. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option without the consent of the
Optionee, unless such termination or amendment is required to enable an Option
designated as an Incentive Stock Option to qualify as an Incentive Stock Option
or is necessary to comply with any applicable law, regulation or rule.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the
foregoing sets forth the CIDCO Incorporated Second Amended and Restated 1993
Stock Option Plan as amended by the Board through October 14, 1998.
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<PAGE>
36
Exhibit 10.31
CIDCO INCORPORATED
AMENDED AND RESTATED
1998 nonstatutory STOCK OPTION PLAN
(As Amended Effective October 14, 1998)
Establishment, Purpose and Term of Plan.
Establishment. The CIDCO Incorporated 1998 Nonstatutory Stock Option Plan was
initially established effective April 14, 1998 (the "Initial Plan"). The Initial
Plan is hereby amended and restated in its entirety as the CIDCO Incorporated
Amended and Restated 1998 Nonstatutory Stock Option Plan effective as of October
14, 1998 (the "Effective Date"). Notwithstanding any provision herein to the
contrary, each Option granted prior to the Effective Date shall continue to be
governed by the terms of the Initial Plan as in effect at the time such Option
was granted, except to the extent that the Option is otherwise amended in
writing as provided by the Plan.
Purpose. The purpose of the Plan is to advance the interests of the
Participating Company Group and its stockholders by providing an incentive to
attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
Term of Plan. The Plan shall continue in effect until the earlier of its
termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed.
Definitions and Construction.
Definitions. Whenever used herein, the following terms shall have their
respective meanings set forth below:
"Board" means the Board of Directors of the Company. If one or more
Committees have been appointed by the Board to administer the Plan, "Board" also
means such Committee(s).
"Code" means the Internal Revenue Code of 1986, as amended, and any
applicable regulations promulgated thereunder.
"Committee" means the Compensation Committee, Stock Option Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
"Company" means CIDCO Incorporated, a Delaware corporation, or any
successor corporation thereto.
"Consultant" means any person, including an advisor, engaged by a
Participating Company to render services other than as an Employee or a
Director.
"Director" means a member of the Board.
"Disability" means the permanent and total disability of the Optionee
within the meaning of Section 22(e)(3) of the Code.
"Employee" means any person treated as an employee in the records of a
Participating Company; provided, however, that neither service as a Director nor
payment of a director's fee shall be sufficient to constitute employment for
purposes of the Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any date, the value of a share of Stock or
other property as determined by the Board, in its discretion, or by the Company,
in its discretion, if such determination is expressly allocated to the Company
herein, subject to the following:
If, on such date, the Stock is listed on a national or regional securities
exchange or market system, the Fair Market Value of a share of Stock shall be
the closing sale price of a share of Stock (or the mean of the closing bid
and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, The Nasdaq SmallCap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which
the Stock has
traded on such securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day
as shall be determined by the Board,
in its discretion.
If, on such date, there is no public market for the Stock, the Fair
Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction
which, by its terms, will never lapse.
"Nonstatutory Stock Option" means an Option not intended to be an incentive
stock option within the meaning of Section 422(b) of the Code.
"Option" means a right to purchase Stock (subject to adjustment as provided
in Section 4.2) pursuant to the terms and conditions of the Plan. All Options
shall be Nonstatutory Stock Options.
"Option Agreement" means a written agreement between the Company and an
Optionee setting forth the terms, conditions and restrictions of the Option
granted to the Optionee and any shares acquired upon the exercise thereof.
"Optionee" means a person who has been granted one or more Options.
"Parent Corporation" means any present or future "parent corporation" of
the Company, as defined in Section 424(e) of the Code.
"Participating Company" means the Company or any Parent Corporation or
Subsidiary Corporation.
"Participating Company Group" means, at any point in time, all corporations
collectively which are then Participating Companies.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means an Optionee's employment or service with the Participating
Company Group, whether in the capacity of an Employee, a Director or a
Consultant. An Optionee's Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Optionee renders Service to the
Participating Company Group or a change in the Participating Company for which
the Optionee renders such Service, provided that there is no interruption or
termination of the Optionee's Service. Furthermore, an Optionee's Service with
the Participating Company Group shall not be deemed to have terminated if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company. Notwithstanding the foregoing, unless otherwise
designated by the Company or required by law, a leave of absence shall not be
treated as Service for purposes of determining vesting under the Optionee's
Option Agreement. An Optionee's Service shall be deemed to have terminated
either upon an actual termination of Service or upon the corporation for which
the Optionee performs Service ceasing to be a Participating Company. Subject to
the foregoing, the Company, in its discretion, shall determine whether an
Optionee's Service has terminated and the effective date of such termination.
"Stock" means the common stock of the Company, as adjusted from time to
time in accordance with Section 4.2.
"Subsidiary Corporation" means any present or future "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code.
Construction. Captions and titles contained herein are for convenience only and
shall not affect the meaning or interpretation of any provision of the Plan.
Except when otherwise indicated by the context, the singular shall include the
plural and the plural shall include the singular. Use of the term "or" is not
intended to be exclusive, unless the context clearly requires otherwise.
Administration.
Administration by the Board. The Plan shall be administered by the Board. All
questions of interpretation of the Plan or of any Option shall be determined by
the Board, and such determinations shall be final and binding upon all persons
having an interest in the Plan or such Option.
Authority of Officers. Any officer of a Participating Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, determination or election.
Powers of the Board. In addition to any other powers set forth in the Plan and
subject to the provisions of the Plan, the Board shall have the full and final
power and authority, in its discretion:
to determine the persons to whom, and the time or times at which, Options
shall be granted and the number of shares of Stock to be subject to each Option;
to determine the Fair Market Value of shares of Stock or other property;
to determine the terms, conditions and restrictions applicable to each
Option (which need not be identical) and any shares acquired upon the exercise
thereof, including, without limitation, (i) the exercise price of the Option,
(ii) the method of payment for shares purchased upon the exercise of the Option,
(iii) the method for satisfaction of any tax withholding obligation arising in
connection with the Option or such shares, including by the withholding or
delivery of shares of stock, (iv) the timing, terms and conditions of the
exercisability of the Option or the vesting of any shares acquired upon the
exercise thereof, (v) the time of the expiration of the Option, (vi) the effect
of the Optionee's termination of Service with the Participating Company Group on
any of the foregoing, and (vii) all other terms, conditions and restrictions
applicable to the Option or such shares not inconsistent with the terms of the
Plan;
to approve one or more forms of Option Agreement;
to amend, modify, extend, cancel, renew, reprice or otherwise adjust the
exercise price of, or grant a new Option in substitution for, any Option or to
waive any restrictions or conditions applicable to any Option or any shares
acquired upon the exercise thereof;
to accelerate, continue, extend or defer the exercisability of any Option
or the vesting of any shares acquired upon the exercise thereof, including with
respect to the period following an Optionee's termination of Service with the
Participating Company Group;
to prescribe, amend or rescind rules, guidelines and policies relating to
the Plan, or to adopt supplements to, or alternative versions of, the Plan,
including, without limitation, as the Board deems necessary or desirable to
comply with the laws of, or to accommodate the tax policy or custom of, foreign
jurisdictions whose citizens may be granted Options; and
to correct any defect, supply any omission or reconcile any inconsistency
in the Plan or any Option Agreement and to make all other determinations and
take such other actions with respect to the Plan or any Option as the Board may
deem advisable to the extent consistent with the Plan and applicable law.
Shares Subject to Plan.
Maximum Number of Shares Issuable. Subject to adjustment as provided in Section
4.2, the maximum aggregate number of shares of Stock that may be issued under
the Plan shall be four hundred thousand (400,000) and shall consist of
authorized but unissued or reacquired shares of Stock or any combination
thereof. If an outstanding Option for any reason expires or is terminated or
canceled or if shares of Stock are acquired upon the exercise of an Option
subject to a Company repurchase option and are repurchased by the Company at the
Optionee's exercise price, the shares of Stock allocable to the unexercised
portion of such Option or such repurchased shares of Stock shall again be
available for issuance under the Plan.
Adjustments for Changes in Capital Structure. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options and in the exercise price per share
of any outstanding Options. If a majority of the shares which are of the same
class as the shares that are subject to outstanding Options are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event, as defined in Section 8.1) shares of another corporation (the "New
Shares"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price per share of,
the outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 4.2 shall
be rounded down to the nearest whole number, and in no event may the exercise
price of any Option be decreased to an amount less than the par value, if any,
of the stock subject to the Option. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
Eligibility and Option Limitations.
Persons Eligible for Options. Options may be granted only to Employees and
Consultants. For purposes of the foregoing sentence, "Employees" and
"Consultants" shall include prospective Employees and prospective Consultants to
whom Options are granted in connection with written offers of employment or
other service relationship with the Participating Company Group. However,
notwithstanding any other provision herein to the contrary, no person shall be
eligible to be granted an Option under the Plan whose eligibility would require
approval of the Plan by the stockholders of the Company under any law or
regulation or the rules of any stock exchange or market system upon which the
Stock may then be listed. If not inconsistent with any such law, regulation or
rule, an Option may be granted to a person, not previously employed by a
Participating Company, as an inducement essential to entering into an employment
contract with the Participating Company. Eligible persons may be granted more
than one (1) Option.
Options Authorized. Options granted under the Plan may only be Nonstatutory
Stock Options.
Terms and Conditions of Options. Options shall be evidenced by Option
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. No Option or purported
Option shall be a valid and binding obligation of the Company unless evidenced
by a fully executed Option Agreement. Option Agreements may incorporate all or
any of the terms of the Plan by reference and shall comply with and be subject
to the following terms and conditions:
Exercise Price. The exercise price for each Option shall be established in
the discretion of the Board; provided, however, that the exercise price per
share shall be not less than eighty-five percent (85%) of the Fair Market Value
of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is granted
pursuant to an assumption or substitution for another option in the manner
described in Section 424(a) of the Code.
Exercise Period. Options shall be exercisable at such time or times, or
upon such event or events, and subject to such terms, conditions, performance
criteria, and restrictions as shall be determined by the Board and set forth in
the Option Agreement evidencing such Option; provided, however, that (a) no
Option shall be exercisable after the expiration of ten (10) years after the
effective date of grant of such Option and (b) no Option granted to a
prospective Employee or prospective Consultant may become exercisable prior to
the date on which such person commences Service with a Participating Company.
Subject to the foregoing, unless otherwise specified by the Board in the grant
of an Option, any Option granted hereunder shall have a term of ten (10) years
from the effective date of grant of the Option.
Payment of Exercise Price.
Forms of Consideration Authorized. Except as otherwise provided below, payment
of the exercise price for the number of shares of Stock being purchased pursuant
to any Option shall be made (i) in cash, by check or cash equivalent, (ii) by
tender to the Company, or attestation to the ownership, of shares of Stock owned
by the Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"Cashless Exercise"), (iv) provided that the Optionee is an Employee, by cash
for a portion of the aggregate exercise price not less than the par value of the
shares being acquired and the Optionee's promissory note in a form approved by
the Company for the balance of the aggregate exercise price, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
Limitations on Forms of Consideration.
Tender of Stock. Notwithstanding the foregoing, an Option may not be
exercised by tender to the Company, or attestation to the ownership, of shares
of Stock to the extent such tender or attestation would constitute a violation
of the provisions of any law, regulation or agreement restricting the redemption
of the Company's stock. Unless otherwise provided by the Board, an Option may
not be exercised by tender to the Company, or attestation to the ownership, of
shares of Stock unless such shares either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company.
Cashless Exercise. The Company reserves, at any and all times, the right,
in the Company's sole and absolute discretion, to establish, decline to approve
or terminate any program or procedures for the exercise of Options by means of a
Cashless Exercise.
Payment by Promissory Note. No promissory note shall be permitted if the
exercise of an Option using a promissory note would be a violation of any law.
Any permitted promissory note shall be on such terms as the Board shall
determine at the time the Option is granted. The Board shall have the authority
to permit or require the Optionee to secure any promissory note used to exercise
an Option with the shares of Stock acquired upon the exercise of the Option or
with other collateral acceptable to the Company. Unless otherwise provided by
the Board, if the Company at any time is subject to the regulations promulgated
by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.
Tax Withholding. The Company shall have the right, but not the obligation,
to deduct from the shares of Stock issuable upon the exercise of an Option, or
to accept from the Optionee the tender of, a number of whole shares of Stock
having a Fair Market Value, as determined by the Company, equal to all or any
part of the federal, state, local and foreign taxes, if any, required by law to
be withheld by the Participating Company Group with respect to such Option or
the shares acquired upon the exercise thereof. Alternatively or in addition, in
its discretion, the Company shall have the right to require the Optionee,
through payroll withholding, cash payment or otherwise, including by means of a
Cashless Exercise, to make adequate provision for any such tax withholding
obligations of the Participating Company Group arising in connection with the
Option or the shares acquired upon the exercise thereof. The Company shall have
no obligation to deliver shares of Stock until the Participating Company Group's
tax withholding obligations have been satisfied by the Optionee.
Effect of Termination of Service.
Option Exercisability. Subject to earlier termination of the Option as otherwise
provided herein and unless otherwise provided by the Board in the grant of an
Option and set forth in the Option Agreement, an Option shall be exercisable
after an Optionee's termination of Service as follows:
Disability. If the Optionee's Service with the Participating Company Group
is terminated because of the Disability of the Optionee, the Option, to the
extent unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or the Optionee's guardian or
legal representative) at any time prior to the expiration of twelve (12) months
after the date on which the Optionee's Service terminated, but in any event no
later than the date of expiration of the Option's term as set forth in the
Option Agreement evidencing such Option (the "Option Expiration Date").
Death. If the Optionee's Service with the Participating Company Group is
terminated because of the death of the Optionee, the Option, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee's legal representative or other
person who acquired the right to exercise the Option by reason of the Optionee's
death at any time prior to the expiration of twelve (12) months after the date
on which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within thirty (30) days
after the Optionee's termination of Service.
Termination After Change in Control. If the Optionee's Service with the
Participating Company Group ceases as a result of Termination After Change in
Control (as defined below), then (1) the Option, to the extent unexercised on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee (or the Optionee's guardian or legal representative) at any time prior
to the expiration of six (6) months after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date,
and (2) the Option shall become immediately exercisable and vested in full as of
the date on which the Optionee's Service terminated. Notwithstanding the
foregoing, if it is determined that the provisions or operation of this Section
6.5(a)(iii) would preclude treatment of a Change in Control as a
"pooling-of-interests" for accounting purposes and provided further that in the
absence of the preceding sentence such Change in Control would be treated as a
"pooling-of-interests" for accounting purposes, then this Section 6.5(a)(iii)
shall be void ab initio, and the vesting and exercisability of the Option shall
be determined under any other applicable provision of the Plan or the Option
Agreement evidencing such Option.
Other Termination of Service. If the Optionee's Service with the
Participating Company Group terminates for any reason, except Disability, death
or Termination After Change in Control, the Option, to the extent unexercised
and exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within thirty (30) days (or such
longer or shorter period of time as determined by the Board, in its discretion)
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date.
Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if
the exercise of an Option within the applicable time periods set forth in
Section 6.5(a) is prevented by the provisions of Section 11 below, the Option
shall remain exercisable until thirty (30) days after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
Extension if Optionee Subject to Section 16(b). Notwithstanding the
foregoing, if a sale within the applicable time periods set forth in Section
6.5(a) of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
Certain Definitions. The following terms shall have their respective
meanings set forth below:
"Termination After Change in Control" shall mean either of the following
events occurring within twelve (12) months after a Change in Control:
(1) termination by the Participating Company Group of the Optionee's
Service with the Participating Company Group for any reason other than for Cause
(as defined below); or
(2) the Optionee's resignation for Good Reason (as defined below) from all
capacities in which the Optionee is then rendering Service to the Participating
Company Group within a reasonable period of time following the event
constituting Good Reason.
Notwithstanding any provision herein to the contrary, Termination After Change
in Control shall not include any termination of the Optionee's Service with the
Participating Company Group which (1) is for Cause (as defined below); (2) is a
result of the Optionee's death or disability; (3) is a result of the Optionee's
voluntary termination of Service other than for Good Reason; or (4) occurs prior
to the effectiveness of a Change in Control.
"Cause" shall mean any of the following: (1) the Optionee's theft, dishonesty,
or falsification of any Participating Company documents or records; (2) the
Optionee's improper use or disclosure of a Participating Company's confidential
or proprietary information; (3) the Optionee's failure or inability to perform
any reasonable assigned duties after written notice from the Participating
Company Group of, and a reasonable opportunity to cure, such failure or
inability; (4) any material breach by the Optionee of any employment agreement
between the Optionee and the Participating Company Group, which breach is not
cured pursuant to the terms of such agreement; or (5) the Optionee's conviction
(including any plea of guilty or nolo contendere) of any criminal act which
impairs the Optionee's ability to perform his or her duties with the
Participating Company Group.
"Good Reason" shall mean any one or more of the following:
(1) without the Optionee's consent, any limitations of the Optionee's
responsibilities, substantially inconsistent with the Optionee's positions,
duties, responsibilities and status with the Participating Company Group
immediately prior to the date of the Change in Control;
(2) without the Optionee's consent, the relocation of the principal place of the
Optionee's employment to a location that is more than fifty (50) miles from the
Optionee's principal place of employment immediately prior to the date of the
Change in Control;
(3) any failure by the Participating Company Group to pay, or any material
reduction by the Participating Company Group of, (A) the Optionee's base salary
in effect immediately prior to the date of the Change in Control (unless
reductions comparable in amount and duration are concurrently made for all other
employees of the Participating Company Group with responsibilities,
organizational level and title comparable to the Optionee's), or (B) the
Optionee's bonus compensation, if any, in effect immediately prior to the date
of the Change in Control (unless reductions comparable in amount and duration
are concurrently made for all other employees of the Participating Company Group
with responsibilities, organizational level and title comparable to the
Optionee's, and subject to applicable performance requirements with respect to
the actual amount of bonus compensation earned by the Optionee); or
(4) any failure by the Participating Company Group to (A) continue to provide
the Optionee with the opportunity to participate, on terms not materially less
favorable than those in effect for the benefit of any employee group which
customarily includes a person holding the employment position or a comparable
position with the Participating Company Group then held by the Optionee, in any
benefit or compensation plans and programs, including, but not limited to, the
Participating Company Group's life, disability, health, dental, medical,
savings, profit sharing, stock purchase and retirement plans, if any, in which
the Optionee was participating immediately prior to the date of the Change in
Control, or their equivalent, or (B) provide the Optionee with substantially all
other fringe benefits (or their equivalent) from time to time in effect for the
benefit of any employee group which customarily includes a person holding the
employment position or a comparable position with the Participating Company
Group then held by the Optionee.
Standard Forms of Option Agreement.
Nonstatutory Stock Option Agreement. Unless otherwise provided by the Board at
the time the Option is granted, each Option shall comply with and be subject to
the terms and conditions set forth in the appropriate form of Nonstatutory Stock
Option Agreement adopted by the Board concurrently with its adoption of the Plan
and as amended from time to time.
Authority to Vary Terms. The Board shall have the authority from time to time to
vary the terms of any of the standard forms of Option Agreement described in
this Section 7 either in connection with the grant or amendment of an individual
Option or in connection with the authorization of a new standard form or forms;
provided, however, that the terms and conditions of any such new, revised or
amended standard form or forms of Option Agreement are not inconsistent with the
terms of the Plan.
Change in Control.
Definitions. The following terms shall have their respective meanings set
forth below:
An "Ownership Change Event" shall be deemed to have occurred if any of the
following occurs with respect to the Company: (i) the direct or indirect sale or
exchange in a single or series of related transactions by the stockholders of
the Company of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party; (iii) the sale,
exchange, or transfer of all or substantially all of the assets of the Company;
or (iv) a liquidation or dissolution of the Company.
A "Change in Control" shall mean an Ownership Change Event or a series of
related Ownership Change Events (collectively, the "Transaction") wherein the
stockholders of the Company immediately before the Transaction do not retain
immediately after the Transaction, in substantially the same proportions as
their ownership of shares of the Company's voting stock immediately before the
Transaction, direct or indirect beneficial ownership of more than fifty percent
(50%) of the total combined voting power of the outstanding voting stock of the
Company or the corporation or corporations to which the assets of the Company
were transferred (the "Transferee Corporation(s)"), as the case may be. For
purposes of the preceding sentence, indirect beneficial ownership shall include,
without limitation, an interest resulting from ownership of the voting stock of
one or more corporations which, as a result of the Transaction, own the Company
or the Transferee Corporation(s), as the case may be, either directly or through
one or more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
Effect of Change in Control on Options. In the event of a Change in Control, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), may
either assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Change in Control, the Option confers the
right to purchase in accordance with its terms and conditions, for each share of
Stock subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. In the event the Acquiring Corporation elects not to assume or
substitute for outstanding Options in connection with a Change in Control, any
unexercisable or unvested portions of outstanding Options held by Optionees
whose Service has not terminated prior to such date shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Change in Control. The exercise or vesting of any Option that was
permissible solely by reason of this Section 8.2 shall be conditioned upon the
consummation of the Change in Control. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control shall terminate
and cease to be outstanding effective as of the date of the Change in Control.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Options immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Change in Control is the surviving
or continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the outstanding Options
shall not terminate unless the Board otherwise provides in its discretion.
Provision of Information.
Each Optionee shall be given access to information concerning the Company
equivalent to that information generally made available to the Company's common
stockholders.
Transferability of Options.
During the lifetime of the Optionee, an Option shall be exercisable only by
the Optionee or the Optionee's guardian or legal representative. No Option shall
be assignable or transferable by the Optionee, except by will or by the laws of
descent and distribution. Notwithstanding the foregoing, an Option shall be
assignable or transferable to the extent permitted by the Board and set forth in
the Option Agreement evidencing such Option.
Compliance with Securities Law.
The grant of Options and the issuance of shares of Stock upon exercise of
Options shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. Options may not
be exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system
upon which the Stock may then be listed. In addition, no Option may be exercised
unless (a) a registration statement under the Securities Act shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (b) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal counsel
to be necessary to the lawful issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the failure to issue or sell
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of any Option, the Company may require the
Optionee to satisfy any qualifications that may be necessary or appropriate, to
evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
Indemnification.
In addition to such other rights of indemnification as they may have as
members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
Termination or Amendment of Plan.
The Board may terminate or amend the Plan at any time. However, no
termination or amendment of the Plan shall affect any then outstanding Option
unless expressly provided by the Board. In any event, no termination or
amendment of the Plan may adversely affect any then outstanding Option without
the consent of the Optionee, unless such termination or amendment is necessary
to comply with any applicable law, regulation or rule.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the
foregoing sets forth the CIDCO Incorporated Amended and Restated 1998
Nonstatutory Stock Option Plan as amended by the Board through October 14, 1998.
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<PAGE>
48
Exhibit 10.32
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of June
1, 1998 (the "Effective Date"), by and between CIDCO Incorporated, a Delaware
corporation (the "Company") and Richard D. Kent ("Executive").
Recitals
The Company and Executive desire to enter into this Agreement in order
to provide compensation and benefits to Executive and to encourage Executive to
devote his full attention and dedication to the Company and to continue his
employment with the Company. The Company believes that the existence of this
Agreement will serve as an incentive to Executive to remain in the employ of the
Company and will enhance its ability to call on and rely upon Executive to
continue to provide services to the Company.
Definitions. As used in this Agreement, unless the context requires a
different meaning, the following terms shall have the meanings set forth herein:
"Cause" means: Executive's theft, material act of dishonesty, fraud, or
intentional falsification of any employment or Company records, or Executive's
commission of any criminal act which impairs Executive's ability to perform his
duties under this Agreement; the neglect or refusal of Executive to
substantially fulfill his material duties as an employee; improper disclosure of
the Company's confidential, business or proprietary information by Executive; a
material breach of any fiduciary duty by Executive with respect to the Company
resulting in material harm to the Company; or Executive's conviction (including
any plea of guilty or nolo contendere) for a crime involving moral turpitude or
which causes material harm to the reputation and standing of the Company, as
determined by the Company in good faith.
"Change in Control" means the occurrence of either: the sale, exchange or
transfer of all or substantially all of the property and assets of the Company;
or a merger or consolidation in which the Company is a party or the direct or
indirect sale or exchange by the stockholders of the Company of a majority of
the voting stock of the Company which, in any such event, constitutes a "Change
in Control," as defined in subsection 12(b) of the CIDCO Incorporated Amended
and Restated 1993 Stock Option Plan as in effect on the Effective Date.
"Constructive Termination" means the occurrence of any of the following
conditions, which condition(s) remain(s) in effect thirty (30) days after
written notice to the Company's Chief Executive Officer from Executive of such
condition(s), which written notice of condition(s) shall be delivered by
Executive to the Chief Executive Officer within ten (10) days following the
occurrence of the alleged condition(s): a material decrease in Executive's
annual base salary which is made without Executive's written consent, except
that, in the event of a reduction in base salary that is initiated for all
executives, such action can be taken and will not constitute Constructive
Termination for purposes of this Agreement nor will it require Executive's
written consent; a demotion, a material reduction in Executive's position,
responsibilities or duties or a material, adverse change in Executive's
substantive functional responsibilities or duties, as measured against
Executive's position, responsibilities or duties immediately prior to such
change causing it to be of materially less stature or responsibility; the
relocation of Executive's work place for the Company to a location more than
twenty-five (25) miles from Executive's principal place of employment prior to
such relocation; any material breach of this Agreement by the Company; or any
failure or refusal of a successor company to assume the Company's obligations
under this Agreement as required by Section 16.
"Permanent Disability" means that: Executive has been incapacitated by
bodily injury or disease so as to be prevented thereby from engaging in the
performance of Executive's duties; such incapacity shall have continued for a
period of four (4) consecutive months or six (6) months in any twelve (12) month
period; and such incapacity will, in the opinion of a qualified physician, be
permanent and continuous during the remainder of Executive's life.
Position and Duties. Executive shall continue to be an at-will employee of
the Company. Executive shall also be entitled to continue to participate in and
to receive benefits on the same basis as other executive or senior staff members
under any of the Company's employee benefit plans as in effect from time to
time. In addition, Executive shall be entitled to the benefits afforded to other
employees similarly situated under the Company's vacation, holiday and business
expense reimbursement policies. Executive agrees to devote his full business
time, energy and skill to his duties at the Company. These duties shall include,
but not be limited to, any duties consistent with his position which may be
assigned to Executive from time to time. Benefits Upon Executive's Termination
for Cause, Voluntary Termination, Permanent Disability or Death. In the event
that Executive voluntarily terminates his employment relationship with the
Company at any time and his termination is not for nor deemed for Constructive
Termination, or in the event that Executive's employment terminates as a result
of his death or Permanent Disability or for Cause, Executive shall be entitled
to no compensation or benefits from the Company other than those earned under
Section 2 above through the date of his termination of employment.
Termination for Other Than Cause and/or for Constructive Termination. If
Executive's employment is terminated by the Company for any reason other than
Cause or if Executive terminates his employment with the Company for
Constructive Termination, Executive shall be entitled to the following
separation benefits: twelve (12) months of Executive's annual base salary as in
effect as of the date of such termination, less applicable withholding, paid in
a lump sum payment; and Executive shall be entitled to elect continued medical
insurance coverage in accordance with the applicable provisions of federal law
(COBRA) and the Company shall pay for the cost of such COBRA coverage for twelve
(12) months. This payment shall be made in a lump sum together with the payment
described in subsection 4(a). If such coverage included Executive's dependents
immediately prior to the date of termination, such dependents shall also be
covered at the Company's expense for the same time period as Executive's COBRA
coverage described above.
Additional Benefit Upon Certain Termination After Change in Control. If,
within six (6) months following the date of consummation (i.e., the closing) of
a Change in Control, Executive either (i) is given notice of termination of his
employment by the Company for any reason other than Cause or (ii) gives notice
to the Company of the occurrence of one or more conditions constituting
Constructive Termination and subsequently terminates his employment with the
Company on the basis of such Constructive Termination, then in either such event
Executive shall be entitled to the Stock Option Acceleration Benefit described
below in addition to the payments and benefits provided by Section 4. Except as
otherwise provided below, the Stock Option Acceleration Benefit shall apply to
each option (an "Option") to purchase shares of stock of the Company or its
successor granted to Executive by the Company or its successor and outstanding
as of the date ten (10) business days prior to the effective date of the
termination of Executive's employment (the "Effective Termination Date") for a
reason described in this Section 5, regardless of whether such Option was
granted before, on or after the Effective Date of this Agreement. Pursuant to
the Stock Option Acceleration Benefit: the vesting and exercisability of each
Option shall be computed on the basis of monthly vesting periods commencing on
the date contemplated by the stock option agreement evidencing such Option (the
"Vesting Commencement Date") notwithstanding that such agreement provides for
vesting on the basis of one or more periods of different length, such as a year;
and in addition to the number of actual full months of Executive's employment
with the Company from the Vesting Commencement Date through the Effective
Termination Date, Executive shall be credited, effective as of the date ten (10)
business days prior to the Effective Termination Date, with an additional number
of full months of employment for Option vesting purposes equal to the lesser of
(i) twelve (12) months or (ii) the number of actual full months of Executive's
employment with the Company beginning on the Vesting Commencement Date and
ending on the Effective Termination Date. This Section 5 shall not be applied or
construed in any manner that would reduce the degree of vesting or
exercisability of any Option determined in the absence of this Section.
Notwithstanding any provision of this Section 5 to the contrary, if it is
determined that the provisions or operation of this Section 5 would preclude
treatment of a Change in Control as a "pooling-of-interests" for accounting
purposes and provided further that in the absence of this Section 5 such Change
in Control would be treated as a "pooling-of-interests" for accounting purposes,
then this Section 5 shall be void ab initio, and the vesting and exercisability
of each Option shall be determined under any other applicable provision of the
stock option agreement evidencing such Option.
Required Advance Notice of Termination for Other Than Cause. No termination
of Executive's employment by the Company for any reason other than Cause shall
be effective prior to the tenth (10th) business day following the date on which
Executive is given written notice of such termination.
Excess Parachute Payment. In the event that any payment or benefit received
or to be received by Executive pursuant to this Agreement or otherwise would
subject Executive to any excise tax pursuant to Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), due to the characterization of
such payment or benefit as an excess parachute payment under Section 280G of the
Code, Executive may elect in his sole discretion to reduce the amounts of any
payments or benefits otherwise called for under this Agreement in order to avoid
such characterization.
Conflict of Interest/Non-Solicitation. Executive agrees that for a period
of one (1) year following termination of his employment with the Company, he
will not, directly or indirectly, solicit the services of or in any manner
persuade employees, customers or vendors of the Company to discontinue that
person's or entity's relationship with or to the Company as an employee,
customer or vendor, as the case may be. Payment of Taxes. All payments made to
Executive under this Agreement shall be subject to all applicable federal and
state income, employment and payroll taxes.
Exclusive Remedy. Under any claim for breach of this Agreement or wrongful
termination, the payments and benefits provided for in Section 4 and Section 5
as applicable shall constitute Executive's sole and exclusive remedy for any
alleged injury or other damages arising out of the cessation of the employment
relationship between Executive and the Company in the event of Executive's
termination. Except as expressly set forth herein, Executive shall be entitled
to no other compensation, benefits, or other payments from the Company as a
result of any termination of employment with respect to which the payments
and/or benefits described in Section 4 and Section 5 as applicable have been
provided to Executive.
Proprietary and Confidential Information. Executive agrees to continue to
abide by the terms and conditions of the Company's confidentiality and/or
proprietary rights agreement between Executive and the Company.
Arbitration. Pursuant to the Federal Arbitration Act, any claim, dispute or
controversy arising out of this Agreement, the interpretation, validity or
enforceability of this Agreement or the alleged breach thereof shall be
submitted by the parties to binding arbitration in Santa Clara County,
California or elsewhere by mutual agreement. The selection of the arbitrator and
procedure shall be governed by the Employment Arbitration Rules of the American
Arbitration Association. The arbitrator shall be someone with an employment law
background and from the AAA Commercial Arbitration Panel, or if both parties
agree, the Judicial Arbiters Group. Notwithstanding the above, this arbitration
provision shall not preclude the Company from seeking injunctive relief from any
court having jurisdiction with respect to any disputes or claims relating to or
arising out of the misuse or misappropriation of the Company's trade secrets or
confidential and proprietary information or the breach of any provisions by
Executive of the Company's confidentiality and/or proprietary rights agreement
between Executive and Company. Each party shall bear its own costs and expenses
of arbitration or litigation, including but not limited to attorneys fees and
other costs. Judgment may be entered on the award of the arbitration in any
court having jurisdiction.
Interpretation. Executive and the Company agree that this Agreement shall
be interpreted in accordance with and governed by the laws of the State of
California.
Conflict in Benefits. This Agreement shall supersede all prior
arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement including but not limited to any severance plans or
arrangements or prior employment agreements, and shall be the exclusive
agreement for the determination of any payments due upon Executive's termination
of employment; provided, however, that this Agreement is not intended to and
shall not affect, limit or terminate (i) any plans, programs, or arrangements of
the Company that are regularly made available to a significant number of
employees of the Company, (ii) any agreement or arrangement with Executive that
has been reduced to writing and which does not relate to the subject matter
hereof, (iii) any indemnification rights described below, or (iv) any agreements
or arrangements hereafter entered into by the parties in writing, except as
otherwise expressly provided herein.
Release of Claims. Except for the Stock Option Acceleration Benefit
described in Section 5, no severance benefits shall be paid to Executive under
this Agreement unless and until Executive shall, in consideration of the payment
of such severance benefit, execute a release of claims in the form attached
hereto as Exhibit A and all applicable waiting periods thereunder shall have
expired; provided, however, that such release shall not apply to any right of
Executive to be indemnified by the Company for the period during which Executive
was employed by the Company.
Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. In view of the personal
nature of the services to be performed under this Agreement by Executive, he
shall not have the right to assign or transfer any of his rights, obligations or
benefits under this Agreement, except as otherwise noted herein.
Notices. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
duly given when delivered in person or sent by confirmed facsimile transmission,
when received if given by Federal Express or other internationally recognized
overnight courier service, or five (5) business days after deposit in the United
States Post Office, postage prepaid, by first-class registered or certified
mail, return receipt requested, addressed as follows:
if to the Company: CIDCO Incorporated
220 Cochrane Circle
Morgan Hill, CA 95037
Attn: Corporate Secretary
and if to Executive at the address specified at the end of this Agreement.
Notice may also be given at such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
No Representations. Executive acknowledges that he is not relying and has
not relied on any promise, representation or statement made by or on behalf of
the Company which is not set forth in this Agreement.
Validity. If any one or more of the provisions (or any part thereof) of
this Agreement shall be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions (or any
part thereof) shall not in any way be affected or impaired thereby.
Modification. This Agreement may only be modified or amended by a
supplemental written agreement signed by Executive and the Company.
Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together will constitute one and
the same instrument. IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year written below.
CIDCO Incorporated
Date: June 1, 1998 By:/s/ Daniel L. Eilers
Title:President and Chief Executive Officer
EXECUTIVE:
Date: June 1, 1998 /s/Richard D. Kent
Executive's Signature
<PAGE>
Exhibit 10.32
CONFIDENTIAL SEPARATION AGREEMENT
Daniel L. Eilers ("Employee") was employed by CIDCO Incorporated (the "Company")
as its President and Chief Executive Officer. The Company and Employee entered
into an Employment Agreement, dated as of March 17, 1997 (the "Employment
Agreement"), a copy of which is attached hereto as Exhibit A. In addition, the
Company and Employee entered into a CIDCO Incorporated Stock Option Agreement
Non-Qualified Stock Option, dated as of March 12, 1997 (the "Option Agreement"),
a copy of which is attached hereto as Exhibit B, pursuant to which the Company
granted to Employee an option (the "Option") to purchase 600,000 shares (the
"Optioned Shares") of the Company's common stock at a price of $14.25 per share.
The Board of Directors of the Company (the "Board") has determined to terminate
without Cause (as defined in the Employment Agreement) Employee's relationship
as an employee and officer of the Company. Employee will remain a member of the
Board following his termination. This Agreement will become effective on the
eighth day after it is signed by Employee if Employee has not revoked the
Agreement prior to that date. The Company and Employee agree that Employee's
employment with the Company terminated effective as of the close of business on
September 21, 1998 (the "Termination Date"). Employee hereby resigns from all
positions with the Company other than as a member of the Company's Board of
Directors (the "Board"), and will serve as director on the Board until the
completion of his term or until he otherwise leaves office. The Company shall
provide Employee with the following compensation and benefits pursuant to the
Employment Agreement: On or before October 20, 1998 the Company shall pay to
Employee a lump sum cash severance payment equal to the sum of (i) an amount
equal to one year of Employee's current annual base salary of $375,000, (ii)
Employee's target bonus of $225,000 for the year ending December 31, 1998 and
(iii) payment of a "benefits value" (as such term is used in the Employment
Agreement) in the amount of $7,941.12, which amount is equal to the cost of
Employee's continued group medical insurance coverage (including coverage of
Employee's dependents covered immediately prior to the Termination Date) under
the applicable federal law (COBRA) for the period of twelve months following the
Termination Date, provided that such payment shall be reduced by applicable
income and employment tax withholding. Employee and the Company agree that the
lump sum cash payment provided by this subsection (a) shall constitute payment
in full of all compensation and benefits due and payable to Employee pursuant to
Section 3 of the Employment Agreement. Employee and the Company agree that as of
the Termination Date, the Option has become cumulatively exercisable as to
thirty percent (30%) of the Optioned Shares (i.e., an aggregate of 180,000
shares) in accordance with the terms of the Option Agreement. In addition to the
foregoing, Employee and the Company agree that, in accordance with Section 3(c)
of the Employment Agreement, the Option shall continue to vest and become
exercisable at the rate of 1.67% percent of the Optioned Shares on the twelfth
day of each month commencing in October 1998 and ending in September 1999,
inclusive. Following September 12, 1999, Employee shall accrue no further
vesting with respect to the Optioned Shares. Employee and the Company further
agree that the Option shall be and remain exercisable to the extent of the
cumulative number of Optioned Shares then vested until the earlier of (i) the
date occurring twelve (12) months after the later of the Termination Date or
date on which Employee ceases to be a member of the Board or (ii) the expiration
or earlier termination of the Option (other than by reason of Employee's
termination of employment or membership on the Board) in accordance with the
provisions of the Option Agreement. The Company shall provide Employee with the
following additional compensation and benefits: Except as otherwise provided
below, the Option Agreement shall be amended as follows:
to reduce to $3.00 the purchase price for 120,000 currently vested Optioned
Shares under the Option Agreement, in consideration for Employee's material
contributing role with respect to the transaction for the sale of the product
and intellectual property code-named "Mercury" and certain other assets of the
Internet Solutions Division of the Company pursuant to that certain letter dated
September 24, 1998, between Infogear Technology Corporation and the Company.
to reduce to $3.00 the purchase price per Optioned Share not otherwise amended
pursuant to Section 4(c)(i) above effective as of the date of approval by the
Board (provided such approval occurs no later than March 21, 1999) of any of the
following (whether effected in a single transaction or a series of transactions
which have the cumulative result(s) described below) and with respect to which
the Board determines in good faith that Employee has performed a material
contributing role: The sale of all or substantially all of the assets of the
Internet Solutions Division of the Company (other than any such sale to a
subsidiary of the Company); or The sale by the Company to the public or one or
more private investors of newly issued equity securities in a transaction the
purpose of which is to provide additional financing for the Internet Solutions
Division of the Company; or
Any other transaction with respect to the assets of the Internet Solutions
Division of the Company not in the ordinary course of business of the Company
(other than any such transaction with a subsidiary of the Company) which is
determined by the Board in good faith to materially increase the value of the
Company to its stockholders; provided, however, the Option Agreement shall not
be so amended if, in the opinion of the Company's independent auditors, as a
result of such amendment the Company would be required in accordance with
generally accepted accounting principles to record an expense with respect to
the Option for financial reporting purposes.
The Board shall authorize to Employee such power and authority sufficient, as
determined by the Board in good faith, to represent the Company during the
six-month period following the Termination Date in arranging for one or more of
the transactions referred to in subsection (a) above, provided that the terms
and conditions of any such transaction shall be subject to the approval of the
Board, the requirements of the governing organizational documents of the Company
and applicable law.
The Company shall reimburse Employee for all business expenses heretofore
reasonably incurred in the furtherance of his duties or which are reasonably
incurred by him in the future in furtherance of the transactions referred to in
subsection (a) above upon submission of an itemized list thereof, together with
receipts therefore in accordance with applicable Company policies.
The Company hereby grants to Employee all right, title and interest in that
certain Hewlett Packard Pavilion personal computer system and Hewlett Packard
laser printer purchased by the Company which is currently in Employee's
possession. Employee agrees that he will allow the Company to remove any
software licensed to the Company for use on that computer system.
The Company will continue to provide Employee with his current voice mail box
and e-mail address and will provide secretarial support during the period of six
months following the Termination Date, provided that Employee's use of such
facilities and support is reasonable and appropriate at all times, and provided
further that if such use is determined by the Company in good faith to be
unreasonable, the facilities and/or support will be terminated immediately.
Employee acknowledges and agrees that as of the Termination Date he has been
paid all wages and accrued, unused vacation that he earned during his employment
with the Company. Employee acknowledges and agrees that the Option Agreement
amendment described in and subject to the conditions set forth in subsection
5(a) above shall constitute the sole consideration to be paid to Employee in
connection with his services rendered to the Company in furtherance of the
transactions described in subsection 5(a), and that he shall not earn or accrue
any wages, benefits, vacation or other paid time off with respect to such
services. Employee understands and acknowledges that he shall not be entitled to
any compensation, benefits or other payments from the Company other than those
expressly set forth in this Section 4 and this Section 5. Employee acknowledges
and agrees that he shall continue to be bound by and comply with the terms of
any confidentiality, assignment of inventions, noncompetition, nonintervention,
nonsolicitation or similar agreements between the Company and Employee,
including, without limitation, all such provisions set forth in the Employment
Agreement. Employee agrees that he shall not directly or indirectly disclose any
of the terms of this Agreement to anyone other than his immediate family or
counsel, except as such disclosure may be required for accounting or tax
reporting purposes or as otherwise may be required by law. Employee agrees that
he will not, at any time in the future, make any critical, damaging or
disparaging statements about the Company, its products or its employees, unless
such statements are made truthfully in response to a subpoena or other legal
process. The Company agrees that it will not, through its officers and
directors, at any time in the future, make any critical, damaging or disparaging
statements about Employee, unless such statements are made truthfully in
response to a subpoena or legal process. Employee agrees to execute any
documents, perform any tasks and cooperate fully in any matter including but not
limited to regulatory matters as may be reasonably requested by the Company to
enable the Company to meet any obligations it has in the future which are
dependent upon some action by Employee. If any provision of this Agreement,
shall for any reason be invalid or unenforceable, the remainder of this
Agreement shall remain in effect. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior negotiations and agreements, whether written or oral, with
the exception of the Employment Agreement, Indemnification Agreement and the
Option Agreement, in all such cases to the extent not inconsistent with this
Agreement. This Agreement may not be modified or amended except by a document
signed by an authorized officer of the Company and Employee. This Agreement may
be executed in counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. EMPLOYEE
UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS
AGREEMENT. EMPLOYEE FURTHER UNDERSTANDS THAT HE MAY HAVE UP TO 21 DAYS TO
CONSIDER THIS AGREEMENT, THAT HE MAY REVOKE IT AT ANY TIME DURING THE 7 DAYS
AFTER HE SIGNS IT, AND THAT IT SHALL NOT BECOME EFFECTIVE UNTIL THAT 7-DAY
PERIOD HAS PASSED. EMPLOYEE ACKNOWLEDGES THAT HE IS SIGNING THIS AGREEMENT
KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE COMPENSATION AND
BENEFITS DESCRIBED IN SECTION 4.
Dated September 30, 1998 /s/Daniel L. Eilers
CIDCO Incorporated
Dated September 30, 1998 /s/Paul G. Locklin
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,728
<SECURITIES> 16,010
<RECEIVABLES> 40,174
<ALLOWANCES> (2,195)
<INVENTORY> 21,007
<CURRENT-ASSETS> 104,627
<PP&E> 34,077
<DEPRECIATION> (18,402)
<TOTAL-ASSETS> 1,516
<CURRENT-LIABILITIES> 36,926
<BONDS> 0
0
0
<COMMON> 144
<OTHER-SE> 84,748
<TOTAL-LIABILITY-AND-EQUITY> 121,818
<SALES> 31,338
<TOTAL-REVENUES> 31,338
<CGS> 34,819
<TOTAL-COSTS> 32,858
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (35,333)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,333)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,333)
<EPS-PRIMARY> (2.51)
<EPS-DILUTED> (2.51)
</TABLE>
