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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or
15(d) of the Securities Exchange
Act of 1934 for the fiscal year
ended December 31, 1998.
Commission file number: 0-23296
CIDCO INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3500734
State or other jurisdiction of (IRS 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)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based on the closing sale price of such stock at $4.00 on March 25,
1999 was $37,339,240. Shares of Common Stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
Number of shares outstanding of the Registrant's Common Stock on March 25, 1999:
13,383,010
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders is incorporated by reference into Part III (Items 10, 11, 12, and
13) hereof.
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This report consists of 74 sequentially numbered pages. The exhibit index is
contained on page 44 of this report.
<PAGE>
CIDCO INCORPORATED
INDEX
PART I. Page
Item 1. Business ....................................................... 3
Item 2. Properties ..................................................... 13
Item 3. Legal Proceedings .............................................. 13
Item 4. Submission of Matters to a Vote of Security Holders ............ 13
PART II.
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters.......................... 14
Item 6. Selected Financial Data ......................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 16
Item 7A. Quantitative and Qualitative Disclosure About Market Risk ....... 26
Item 8. Financial Statements and Supplementary Data ..................... 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ............................ 43
PART III.
Item 10. Directors and Executive Officers of the Registrant .............. 43
Item 11. Executive Compensation .......................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and Management .. 43
Item 13. Certain Relationships and Related Transactions .................. 43
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . 44
SIGNATURES ................................................................. 45
<PAGE>
Forward-Looking Statements
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.
Part I.
Item 1. Business
CIDCO Incorporated ("CIDCO" or the "Company") is a leading innovator in
advanced telephony products - from Caller ID and Network Service equipment to
Internet-enabled appliances - which support Caller ID, Voice Mail, Three-way
Caller Conferencing, Caller ID on Call Waiting and/or other intelligent Network
("Network") Services (collectively "Services") being offered by Regional Bell
Operating Companies ("RBOCs") and independent telephone operating companies,
both domestic and international (collectively with RBOCs, "Telcos"). The Company
is a leading supplier of Caller ID equipment in the United States and has sold
over 28 million products, including Caller ID display units, Network feature
telephones, advanced cordless telephones, smart screen phones and
Internet-enabled devices. The Company's products are provided to telephone
subscribers primarily through distribution arrangements with leading Telcos. The
Company was incorporated in Delaware in 1988. The Company's principal executive
offices are located at 220 Cochrane Circle, Morgan Hill, California (telephone
number 408-779-1162). The Company's common stock trades on The Nasdaq Stock
Market under the symbol "CDCO".
The first Service to require specialized subscriber telephone equipment
was Caller ID, first introduced by New Jersey Bell in 1987. Caller ID not only
requires compatibility with complex Network signaling, but also a screen on
which to display Caller ID information. Originally, Caller ID Service provided
only the number of the party initiating the call and transmitted data only
within local area Networks. Since the early 1990's, certain Telcos have offered
both number and name identification. In December 1995, the Federal
Communications Commission (the "FCC") mandated that Caller ID Service be
supported nationally. California was the last state to provide the Service,
instituting it in mid-1996, making the Service available in all 50 states, the
District of Columbia and Puerto Rico. Additionally, Caller ID on Call Waiting
was first introduced in late 1995. This Service, also known as Type II Caller
ID, allows the subscriber to utilize Caller ID Service to identify a second
incoming call while already engaged in a telephone conversation. A third type of
Caller ID product was introduced in 1998 - Caller ID Deluxe or Caller ID on Call
Waiting with call disposition. Call disposition allows the user to make use of
the following functions while already engaged in a telephone conversation: put
the original call on hold and answer the new call, conference in the new call,
play a short message and put the new call on hold, send the caller to voice mail
or let the caller know the call will be returned later.
CIDCO sells its products to individual subscribers through direct
marketing relationships with certain Telcos ("Direct Marketing Services"),
fulfillment of Telco-generated orders ("Fulfillment"), wholesale shipments
directly to Telcos ("Direct to Telco"), and to a lesser extent, international
accounts, retail stores ("Retail") and via its own direct marketing activities
(telemarketing, web marketing, direct mail, direct response advertising).
CIDCO's customers include, among others, Bell Atlantic Corporation ("Bell
Atlantic"), GTE Corporation, Nippon Telegraph & Telephone ("NTT"), Pacific Bell,
Southwestern Bell, Southern New England Telecommunications Corporation ("SNET"),
Sprint Communications Company, L.P. ("Sprint") and U S WEST Communications, Inc.
("U S WEST").
Penetration for Caller ID Service has increased as necessary approvals
by state public utility commissions have been obtained and as the Telcos have
upgraded their switches and implemented new signaling technologies. Caller ID
Service is also currently available in much of Canada, Mexico and numerous
European, Asian, African and South American countries. During 1999, Caller ID
Service is expected to be introduced in a number of additional countries.
Since its founding in 1988, the Company has concentrated its product
development and marketing efforts on products that support Network Feature
Services. The Company's products can be categorized into three primary product
families: accessory products, Network feature phones and Internet appliances.
Accessory Products
The Company's accessory products include a line of Network Feature
adjunct units which connect directly into subscribers' telephone lines, receive
complex Network signaling and display call information on a liquid crystal
display ("LCD"). In addition, the Company has introduced a display unit that
combines two of the most popular Services, Caller ID and Call Waiting, into a
unit that essentially provides "visual call waiting". In 1998, the Company
introduced a unit combining Caller ID on Call Waiting with call disposition and
Voice Mail review/control. In 1999, the Company expects to introduce two new
adjuncts - one that handles voice mail Services offered by the Telcos and one
that handles Caller ID on Call Waiting calls with call disposition. Since the
introduction of its first Caller ID unit in 1989, the Company has become a
leading provider of Network Feature Service equipment, having sold more than
twenty-five million adjunct units.
Network Feature Phones
The Company offers a line of Network Feature phones for existing and
future Services, including a family of intelligent Network feature telephones
first introduced in September 1994. These phones are designed to support an
entire package of Services including Caller ID, Call Return, Call Forwarding,
and central office Voice Mail in a single device. The Company's most recent
products include a 900mhz digital spread spectrum cordless phone with a handset
display capable of accommodating Caller ID, a 50 name and number personal
directory and call waiting disposition, as well as a speakerphone equipped base
unit capable of handling Network Voice Mail Service.
Internet Appliances
In 1996, the Company began developing a line of next-generation,
telephone-based "information appliances" which allow access to the World Wide
Web and e-mail, as well as Services such as traditional Caller ID, Call Waiting
and Network Voice Mail. The Company's first such product in the Internet
appliances market was the CIDCO i-Phone(R)1 ("i-Phone"), developed in
conjunction with InfoGear Technology Corporation ("InfoGear"), a privately held
corporation in which the Company is an investor. The Company began commercial
shipments of the i-Phone in the first quarter of 1998. As a result of operating
losses incurred in 1998, the Company adopted a new business strategy primarily
focusing on its core telephony products and Services. The Company concluded that
its core business could not successfully fund the level of market development
expense required over time for this product to succeed and has substantially
discontinued operation of its i-Phone division.
To expand its product offerings for 1999 and beyond, CIDCO has plans to
introduce appliances that will use the Internet/telephony networks to enable
consumers to handle interpersonal communication in a non-PC environment. While
CIDCO's i-Phone product was ahead of its time, selling it yielded some valuable
market feedback. Management learned that the e-mail function on the i-Phone was
perceived as the most valuable feature on the device and also the most commonly
used function by many of its early adopters. To tap into this opportunity, CIDCO
has plans to introduce in 1999 a simple, inexpensive, single-use e-mail device
that will finally bring e-mail to the masses, especially to those who do not
have access to or the need for a personal computer in their homes.
Industry Background
Prior to its court-mandated break-up in 1984, American Telephone &
Telegraph ("AT&T") was a regulated monopoly that provided local and long
distance services, and customer telephone equipment to over two-thirds of the
telephone subscribers in the United States. Today's competitive
telecommunications industry has evolved principally as a result of AT&T's
divestiture of the RBOCs. The RBOCs, which currently account for approximately
77% of local telephone access lines in the United States, provide standard dial
tone service and local telephone access lines. Interexchange carriers, such as
AT&T, MCI Corp. and Sprint, provide long distance services. Since the
divestiture, AT&T (and its spun off affiliate Lucent Technologies) has continued
to sell switching equipment and telephone equipment, while the RBOCs have been
prohibited from manufacturing any type of telephony equipment. This prohibition
has been eliminated by the Telecommunications Act of 1996, although the FCC has
not yet issued all final regulations. The RBOCs have been permitted to sell
telephony equipment manufactured by others bearing the RBOCs tradename and may
purchase Network equipment from vendors other than AT&T. Consumers are no longer
required to lease telephones from AT&T and now purchase telephone equipment from
numerous suppliers. The AT&T divestiture, therefore, resulted in a more
deregulated telephone service industry, and a more dynamic and competitive
telephony equipment industry in the United States.
The Telcos have approached saturation levels for the installation of
local telephone access lines, thus limiting future growth of their core
business. In order to supplement growth in revenues from standard dial tone
service within their respective service areas, the Telcos have offered second
lines and Services for which they can charge their subscribers additional
monthly fees. In addition, the Telcos have used these Services to respond to
increased competition from alternative service providers such as cellular
companies, cable companies, data transmission companies and competitive access
providers by differentiating their Services and creating consumer awareness and
customer loyalty.
Although Services such as call waiting, call forwarding and speed
dialing have been available for over ten years, more recent investments by the
Telcos to upgrade their Networks and to accommodate new signaling technologies
have enabled the rapid introduction of Services known as CLASS (custom local
area signaling services). These include:
Caller ID, which displays information about an incoming call (including the
number and name of the caller and the time and date of the call) on a
display screen built into the telephone or a separate display unit
connected to the telephone;
Repeat Dialing, which continues to dial a busy number until the connection
is made;
Selective Call Forward, which lets the subscriber pre-select certain
numbers to be forwarded to another number;
Automatic Call Back, which automatically dials the number of the last
incoming call;
Selective Call Block, which lets the subscriber select certain telephone
numbers to be blocked;
Distinctive Ringing, which lets the subscriber pre-select numbers to ring
with a distinctive sounding ring;
Call Trace, which allows a subscriber to have a call traced by the
telephone company; and
Caller ID on Call Waiting, which allows the subscriber to utilize Caller ID
Service to identify an incoming call while already engaged in a
telephone conversation.
The ability of Telcos to achieve high penetration levels for Services
is dependent, in part, upon the availability of a new generation of subscriber
telephone equipment. Most existing telephones discourage use of these current
and future Services because they require subscribers to remember and dial
sequences of symbols and numbers to access the Services. Such telephones are
also incapable of receiving the complex Network signaling required for Caller ID
Service and other future Services and do not have a display screen and controls
for viewing and managing call information. Therefore, a market for a new
generation of user-friendly, intelligent, Network-compatible subscriber
telephone equipment has emerged.
This new generation of subscriber telephone equipment must operate
reliably over a wide range of telephone Network conditions. Although general
specifications exist for Caller ID and other Services, Network variations among
Telcos often require manufacturers to debug and field test their products on
various telephone Networks in order to ensure that their equipment operates
properly throughout these Networks and meets the high standards of reliability
and compatibility required by the Telcos.
Traditional consumer telephone suppliers, which sell primarily through
retailers, have focused on the types of high volume "generic" equipment that are
most suitable for such a distribution channel. However, the market for
intelligent Network subscriber telephone equipment currently relies in
significant part on specialized distribution arrangements and requires close
working relationships with the RBOCs and independent Telcos to address
compatibility issues promptly as they arise. This created an opportunity for
entrants in the market for intelligent Network subscriber equipment.
Strategy
CIDCO's mission is to provide the world's easiest-to-use personal
communications products and services. The Company's objective is to envision,
produce and distribute a range of products that will become the primary
telephony and communication appliances utilized by customers of Telcos. To
achieve this objective, the Company has developed the following strategy:
Diversify Product Line
The Company is seeking to expand its product offerings into a number of
new business areas including adding a mid-level and lower-end cordless
telephone, a Network voice mail product and an e-mail appliance. Adding such new
products is expected to broaden the Company's product line and is intended to
broaden the markets it can address while continuing to leverage CIDCO's
experience and core competencies.
Diversify Channels of Distribution
The Company is seeking to diversify its distribution channels toward
direct-to-end-user, retail and other alternate distribution channels in areas
that do not conflict with its Telco partners, with the goals of broadening the
Company's market opportunities and adding predictability to the Company's
quarter-to-quarter revenues.
Strengthen Infrastructure
The Company's future success will require, among other things, that the
Company improve its operating and information systems. In 1998, the Company
implemented a state-of-the-art, enterprise-wide accounting and resource planning
system which has improved the Company's ability to better manage business
processes and systems which, in turn, will improve customer retention and new
customer acquisition.
Leverage Relationships with Telcos
The Company believes that it has established close working
relationships with certain Telcos, which enable the Company to design its
products to be compatible with the existing and evolving Telco Networks. These
relationships allow the Company to understand variations between Networks and to
design its products to operate reliably over a wide range of Network conditions.
The Company has developed Fulfillment relationships with certain Telcos, which
expand its ability to market its equipment to those Telcos and leverage the
efforts of the Telcos to market these Services. CIDCO has experienced greater
acceptance for its products in regions where it maintains Fulfillment
relationships. These Fulfillment arrangements differ by Telco, but typically
allow subscribers to purchase both Network equipment and Services through one
phone call to a Telco sales representative. In general, the Telco representative
takes the customer's order for a CIDCO product and relays the information to the
Company for product fulfillment. Collectively, these relationships permit the
Company to design products to meet emerging standards and to respond to new
intelligent Network Services being introduced. The Company intends to continue
to leverage existing and future Fulfillment relationships as it introduces new
products.
Continued Cooperative Marketing Efforts
The Company has ongoing Direct Marketing Services programs with Telcos
to attract new subscribers and sell new product and Services to those
subscribers. Direct Marketing Services programs are sales campaigns run by the
Company involving the use of consumer mailings and telemarketing to sell
Services for the Telcos, which Services, in turn, 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, on behalf of the
Telco, ships an adjunct product or a phone product to each customer "acquired"
through the campaign. The Company intends to leverage its Direct Marketing
Services programs as it introduces new products.
Design High Quality, Innovative Products
Besides requiring compatibility with the Telcos' Networks, CIDCO's
customers also demand high-quality products that are innovative, easy to use and
have consumer appeal. The design, functionality and aesthetic characteristics of
advanced telephone products can impact acceptance of Services by customers and
have become important criteria to the Telcos in choosing companies with which to
develop Fulfillment relationships. The Company intends to continue to emphasize
quality, innovation and ease of use in its product design.
Provide High Quality Support and Service
The Company believes its ability to provide high-quality support and
service is fundamental to its success in developing and retaining its Telco and
other customer relationships. The Company intends to improve the quality of its
support and service to Telco subscribers, who expect the same level of support
and service that they receive from the Telcos. Telcos have become particularly
more demanding in this regard over the past two years.
Be a Low Cost Producer of Intelligent Network Subscriber Telephone Equipment
The Company intends to benefit from its ability to reduce manufacturing
costs by engineering products for high volume assembly and by stressing low cost
manufacturing design while maintaining quality, consistency and reliability. The
Company believes that its experience and acquired knowledge will permit it to
achieve low manufacturing costs for its products, under current market
conditions.
Products
The Company introduced its first Caller ID unit in 1989. Since then,
the Company has broadened its product family to include a variety of models
including stand-alone Caller ID display units and Network Feature Phones with
Caller ID capability built in. Through 1998, substantially all of the Company's
sales were generated from its Caller ID based and Network Feature Phone products
and Direct Marketing Services to Telcos.
CIDCO's Caller ID and Network feature phone products display all
transmitted information before the incoming phone call is answered and store the
call information in memory. Among the features available on the Company's
products are backlit screens for easy viewing, memory capacity for up to 100
calls, a "blocked call/new call" light, bilingual display, a "message waiting
alert" light that indicates to a Network voice mail subscriber that new voice
mail messages have been received and call disposition. The Company pioneered
OTV(R) (one-time viewing), which allows the screen on the Company's Caller ID
units to display all Caller ID information at one time. Additionally, some of
the Company's latest products include Caller ID on Call Waiting or Caller ID
Deluxe (Caller ID on Call Waiting with call disposition). Caller ID on Call
Waiting allows the caller to utilize Caller ID Service to identify an incoming
call while already engaged in another telephone conversation. Call disposition
allows the user to make use of the following functions while already engaged in
a telephone conversation: put the original call on hold and answer the new call,
conference in the new call, play a short message and put the new call on hold,
send the caller to voice mail or let the caller know the call will be returned
later. The Company's Caller ID units are intended to be compatible with the
major switches currently in use in the United States, including those
manufactured by AT&T, Northern Telecom, Siemens A.G. and L.M. Ericsson.
The Company's family of products includes the following principal
models:
Memory Typical
Model No. Capacity Product Features Retail Price
- --------- -------- ---------------------------------------- -----------------
PA-25 25 Calls OTV(R)(One-Time Viewing); Bilingual; $ 9.95 - $ 19.99
New Call/Blocked Call Light;
LCD Contrast Adjustment; Compact Design.
SA-100 99 Calls OTV(R); 2 Line Capable; Bilingual; $ 49.95 - $ 59.99
New Call/Blocked Call Light;
LCD Contrast Adjustment; Compact Design.
CW-99 99 Calls OTV(R); MEC(Multi-extension capability); $ 29.95 - $ 39.99
(Type II Type II Caller ID(CallerID/Call Waiting);
CallerID New Call/Blocked Call Light; Bilingual;
Adjunct) LCD Contrast Adjustment; Message Waiting
Alert Light.
DB-99 99 Calls OTV(R), Type II CallerID; MEC; Bilingual $ 34.95 - $ 49.99
(CW-99 w/ New Call/Blocked Call Light; Backlit LCD
dialback with Contrast Adjustment; One-Touch
key) Dialback Key.
DM-80 80 Calls OTV(R), Type II Caller ID, Voice Mail; $ 49.95 - $ 69.99
(Type II Trilight Alert; Bilingual; Message Waiting
CallerID Alert Light; Pre-programmed Caller ID;
Adjunct w/ Call Waiting Deluxe(Call Disposition)
Call and Central Office Voice Mail Keys;
Disposition) 60 Number Directory; One-Touch Dialback Key.
CT5 50 Calls Type I CallerID; Message Waiting Alert $ 39.95 - $ 49.95
(CallerID Light; Call Hold; Dial Number Displayed;
Feature Dedicated Central Office Voice Mail Access
Phone) Key; Redial Key.
CT15 40 Calls Type II CallerID; Message Waiting Alert $ 59.95 - $ 69.95
(CallerID Light; Dial Number Displayed; Dedicated
Feature Central Office Voice Mail Access Key;
Phone) Redial Key.
CT250 50 Calls OTV(R), New Call/Blocked Call Light; $109.95 - $129.95
(CallerID Message Waiting Alert Light; LCD Contrast
/Call Waiting Adjustment; 9 Programmable Class Feature
Speakerphone) Keys; Volume Adjustment; Busy Redial;
50 Number Personal Directory; Speakerphone;
Bilingual English/Spanish, English/French.
CL980 40 Calls OTV(R); Bilingual; One-touch access to $239.95 - $249.99
(CallerID Central Office Voice Mail; Repeat Dialing;
/Call Call Forwarding; Type II CallerID; CallerID
Waiting Deluxe; 50 Number Personal Directory; Message
Cordless Waiting Indication/Visual Message Waiting;
Phone) Line in Use Indicator Light; Charge Indicator
Light; Last Number Redial; One Way Page.
CST2100 50 Calls Message Waiting Display; Platform for $239.95 - $249.99
(ADSI Visual Central Office Voice Mail,
Screenphone) Home Banking, Stock Quotes, etc.; 14
One-Touch Speed Dial Keys; Directory
Stores 100 Entries Alphabetically;
Redial List Saves and Redials Last 7
Dialed Numbers; Auto Name-Matching
from Directory or Speed Dial List.
Distribution
The Company's distribution strategy is to make its products available
to potential end users through multiple distribution channels. These channels
are:
Direct Marketing Services Arrangements
In 1998, the Company continued its cooperative marketing efforts with
Southwestern Bell, Bell Atlantic, Pacific Bell, SNET, Sprint and U S WEST. With
these efforts, the Company coordinates sales campaigns involving the use of
consumer mailings and telemarketing to sell Telco Services that utilize the
Company's products.
Fulfillment Arrangements
In 1998, the Company had Fulfillment arrangements with Bell Atlantic,
Cincinnati Bell, Pacific Bell, Southwestern Bell and US WEST. In most instances,
the Telco sales representatives sell both Network Services and CIDCO equipment
to customers and transmit equipment orders to CIDCO electronically on a daily
basis. The Company then ships its equipment directly to the customers and bills
the Telco, which in turn bills its customers. As part of these Fulfillment
relationships, CIDCO provides toll free after-sales service and support to help
the customer understand how to utilize the Feature Service and equipment.
The Company continually seeks to strengthen its current Telco marketing
alliances and to develop new alliances. The Company has found through experience
that sales of Feature Service and equipment are more successful when the
customer can purchase both Feature Service and equipment from a single source,
especially when payment for equipment can be made on an installment basis
through the customer's phone bill. The Company has found that customer
satisfaction with Feature Service is enhanced when the customer receives the
equipment promptly after ordering the Service and is provided a toll free number
for after-sales service and support.
Direct Sales to Telcos
Through its direct sales force, the Company sells Network Feature
Service products in quantity to a number of Telcos, either under the CIDCO name
or the respective Telcos' logo. The Company sells its products directly to most
of the major independent Telcos in the United States; as well as to certain
Canadian and international telephone companies.
Direct Marketing Sales
In 1997, the Company developed direct marketing programs for CIDCO
branded Network Feature Phones. These programs involve catalog, direct mail,
telemarketing, web commerce and direct response advertising directly to end
users. In 1998, sales from these programs were $10.1 million. However, the cost
of acquisition continues to increase as penetration rates increase.
Consequently, the Company has decided to pursue this avenue of selling its
products only to the extent that it can be done profitably and does not compete
with its Telco partners.
Retail Sales
The Company maintains a minimal retail presence nationally. All of the
Company's retail sales are made through manufacturers' representatives or
distributors with the support of the Company's sales personnel.
Significant Customers
For the year ended December 31, 1998, sales to Southwestern Bell, Bell
Atlantic and U S WEST represented 21.6%, 18.1% and 11.6%, respectively, of the
Company's sales. In 1997, sales to Southwestern Bell, GTE and U S WEST
represented 25.5%, 23.5% and 14.6%, respectively, of the Company's sales.
Product Development
The Company's product development efforts are focused on new products
that support additional Services, Internet/electronic messaging, product
enhancements, international standards compliance and the continued improvement
of hardware components to reduce manufacturing costs. The Company believes that
product and technology leadership along with a low-cost offering are keys to
long-term success in an industry that evolves as rapidly as the Telco equipment
market does today. Furthermore, the Company believes that its future operating
results will depend on its ability to continue to enhance existing products as
well as to develop and bring new products to market in a timely manner, that
meet market and customer requirements.
In 1998, the Company organized product development into two primary
product categories:
Accessory Products and Network Feature Phones
The Company's Accessory Products include a full line of Network Feature
Service products aimed at the consumer residential market. In 1998, the Company
focused its engineering efforts on making the current adjunct product line more
cost effective. The Company offers a line of Network feature phones that deliver
simplified and convenient access to Services. In 1998, the Company introduced an
ADSI screen telephone, a Caller ID on Call Waiting corded telephone and a
cordless Caller ID on Call Waiting telephone.
Internet Appliances
The Company's i-Phone division has been substantially discontinued due
to the level of market development expense required over time for success with
this product.
To expand its product offerings for 1999 and beyond, CIDCO has plans to
introduce appliances that will use the Internet/telephony networks to enable
consumers to handle interpersonal communication in a non-PC environment. While
CIDCO's i-Phone product was ahead of its time, selling it yielded some valuable
market feedback. Management learned that the e-mail function on the i-Phone was
perceived as the most valuable feature on the device and also the most commonly
used function by many of its early adopters. To tap into this opportunity, CIDCO
has plans to introduce in 1999 a simple, inexpensive, single-use e-mail device
that will finally bring e-mail to the masses, especially to those who do not
have access to or the need for a personal computer in their homes.
The Company's product development groups are experienced in engineering
products in the telecommunications industry. The Company's products utilize
proprietary electrical, mechanical and software designs. The Company's ability
to emulate various telephone switch-signaling characteristics through specially
designed test equipment in its development facility, together with its field
test program, enable it to develop products that are compatible with the various
telephone networks.
In 1998, 1997 and 1996, the Company's research and development
expenditures were $10.8 million, $16.9 million and $13.2 million, respectively.
Research and development expenses primarily have represented salaries for
research and development personnel, associated personnel benefits and tooling
and supplies for research and development activities.
At December 31, 1998, 32 employees were engaged in product development.
There can be no assurance that the Company's product development efforts will
result in commercially successful products, or that the Company's products will
not be rendered obsolete by changing technology or new product introductions by
others.
Manufacturing
The Company's products are manufactured for the Company by third
parties that are primarily located in Malaysia, China and Thailand. The
Company's manufacturing operations are limited to the testing, quality control
and shipping of finished products. All of the Company's contract manufacturers
have been certified pursuant to ISO 9002. The Company's manufacturers perform
comprehensive inspection, testing and statistical process control testing,
utilizing the Company's internally designed automated testing equipment.
To date, the Company has not experienced significant product warranty returns.
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 have supply contracts with
its suppliers and orders parts on a purchase order basis. 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.
Competition
The market for the Company's products is highly competitive and subject
to rapid technological change. At present, the Company's principal competitors
for display units are Bell South Products, Northern Telecom and GE/Thomson
("GE"). The Company's Network Feature telephones compete with those manufactured
by Lucent/Phillips, Northern Telecom, Panasonic, Sony, GE/Thomson, V-Tech and
others. Certain of these companies have significantly more financial and
technical resources than the Company. The Company's competitors also include
in-house divisions of the Company's current and potential customers, as well as
companies such as, Innotrac, offering specific services. In addition,
competitors for the Company's phone products include both large Asian and
European consumer electronics companies and smaller Asian and European
manufacturers. If the Company's existing customers elect to perform the customer
acquisition services currently undertaken by the Company through its Direct
Marketing Services programs, or if potential customers retain or increase
internal capabilities to provide such services, the Company's business, results
of operation and financial condition could be adversely affected.
The introduction of new competitive products into 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. The Company expects
competition to increase in the future from existing and new competitors,
possibly including current customers. The Company believes that the principal
competitive factors in its market are knowledge of the requirements of the
various Telcos, product reliability, product design, customer service and
support, and product price relative to performance. The Company believes it
presently competes favorably with respect to each of these factors.
Government Regulation
The sale of Network Feature Services by Telcos is subject to regulation
by state public utilities commissions and other regulatory authorities. Protests
from special interest groups that object to Caller ID on the basis of privacy
concerns have been effective in slowing down the regulatory approval process. To
facilitate the implementation of Caller ID Service, many telephone companies
already offer or plan to offer a "call blocking" Service. Under call blocking,
callers can block the display of their numbers on a per-line or per-call basis.
To date, all 50 states and Washington D.C. have implemented Caller ID
regulations with per-call blocking, per-line blocking or both.
Patents, Proprietary Rights and Licenses
The Company has acquired one U.S. patent related to core Caller ID
technology, has two U.S. patents issued on its new Caller ID/Call Waiting
extension protocol, and has a number of additional patents which address certain
features and functions of the Company's products. The Company currently has a
number of patent applications on file with the United States Patent and
Trademark Office.
A portion of the messaging technology used in the Company's products is
based on a patent licensed from Lucent on a non-exclusive basis. Lucent reserved
the right to use the technology for all purposes relating to businesses of
Lucent and its subsidiaries, and receives royalties from sales of the Company's
products other than to itself or the RBOCs. The Company paid royalties of $0.9
million, $2.0 million and $1.2 million to Lucent in 1998, 1997 and 1996,
respectively. The Lucent license agreement has no expiration date but is
terminable by either party for breach. If the Lucent license was terminated and
the Company was unable to negotiate a new patent license agreement, the Company
would no longer be authorized to manufacture or sell products in the United
States which fall within the scope of the Lucent patent, other than to RBOCs or
Lucent.
The Company has a non-transferable, non-exclusive license agreement
with Northern Telecom to utilize Northern Telecom's patents for Caller ID on
Call Waiting technology. Under the agreement, the Company pays royalties to
Northern Telecom for each licensed product sold, leased or put into use by the
Company other than direct sales to Northern Telecom beginning January 1, 1997.
The agreement also provided for a one-time payment in full satisfaction of
royalties on all units incorporating Northern Telecom's patents, which were sold
by the Company prior to January 1, 1997. Royalties incurred after January 1,
1997 are payable at a variable rate based on product type and number of units
sold. Total Northern Telecom royalty expense incurred in 1998 and 1997 was $1.8
million and $0.6 million, respectively.
The Company relies to a certain extent on trade secret laws to
establish and maintain those proprietary rights which it believes are not
reverse engineerable by third parties. Although the Company has obtained
confidentiality agreements from its employees, including its key executives and
engineers in its product development group, there can be no assurance that third
parties will not independently develop the same or similar technology, obtain
unauthorized access to the Company's proprietary technology or misuse the
technology to which the Company has granted access. It is for this reason the
Company has an internal legal department and is actively pursuing patent
protection for its Research and Development efforts.
The Company has patent protection on certain aspects of its existing
technology and also relies on trade secrets, 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.
The telecommunications industry, like many technology-based industries,
is characterized by frequent claims and litigation involving patent and other
intellectual property rights. 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 proprietary rights, or
redesign or modify their products and processes in order to avoid infringement
of such patent or other proprietary 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 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 owned or licensed patents or other intellectual property rights may be
time consuming and costly, or cause product shipment delays, either of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Employees
At December 31, 1998, the Company employed 250 full-time persons, of
whom 32 were engaged in product development, 21 in sales and marketing, 126 in
customer service/call center, 26 in operations, 15 in information services and
30 in management, finance and administration. The Company has no collective
bargaining agreement with its employees and believes that its relationship with
its employees is good.
Executive Officers
As of March 26, 1999, the executive officers of the Company are as follows:
Name Age Position
----------------- --- --------------------------------------------------------
Paul G. Locklin 53 President, Chief Executive Officer and Chairman
of the Board of Directors
Richard D. Kent 42 Chief Financial Officer, Chief Operating Officer
and Corporate Secretary
William A. Sole 41 Executive Vice President, Worldwide Sales and Marketing
Ian G. A. Laing 41 Executive Vice President, Network Phones and
Accessory Products
Timothy J. Dooley 43 Executive Vice President, Strategic Business Development
Paul G. Locklin, President and Chief Executive Officer and Chairman of the
Board of Directors
Paul G. Locklin returned to CIDCO in July of 1998. Mr. Locklin, a
co-founder of CIDCO, was President, Chief Executive Officer, and a Director of
the Company from 1989 to 1997. Prior to founding the Company with Mr. Robert
Diamond, Mr. Locklin established PCI, an international electronics manufacturer
that specialized in liquid crystal displays, wire bondable printed circuit
substrates, and high-volume contract assembly. While at PCI, Mr. Locklin served
as President and CEO. Previous to his time at PCI, Mr. Locklin held a research
position for the Color and Chemical Division of Hercules Inc. Mr. Locklin
received a Bachelor of Science in Marketing from California State University at
Hayward.
Richard D. Kent, Chief Financial Officer, Chief Operating Officer,
and Corporate Secretary
Richard D. Kent joined CIDCO in June 1994 as Corporate Controller.
After being promoted in January 1997, Mr. Kent served as Vice President of
Finance and Chief Financial Officer. In July of 1998, Mr. Kent took on the
additional duties of Chief Operating Officer and Corporate Secretary. Prior to
joining CIDCO, he served as Corporate Controller of Radius, Inc., a computer
peripheral manufacturer, and Wiltron Company, an automated test equipment
manufacturer. Mr. Kent is a Certified Public Accountant and received Bachelor of
Science in Business Administration with an emphasis in Finance and Accounting
from University of California at Berkeley.
William A. Sole, Executive Vice President, Worldwide Sales and Marketing
William A. Sole joined CIDCO in April 1998 and serves as the Executive
Vice President of Worldwide Sales and Marketing. Prior to joining CIDCO, Mr.
Sole served as Vice President of Sales at Voysys, a maker of small business
voice mail systems and integrated voice communication systems. During the two
years prior to employment with Voysys, Mr. Sole held various senior sales and
marketing positions at Wyse Technology. Mr. Sole received a B. A. in Materials
Logistics Management from Michigan State University and a MBA from Pepperdine
University.
Ian G.A. Laing, Executive Vice President, Network Phones and Accessory Products
Ian G. A. Laing joined CIDCO in July 1996 and serves as the Executive
Vice President, Network Phones and Accessory Products. Prior to joining CIDCO,
Mr. Laing spent over 16 years at AT&T in R & D, and general management
assignments. He served as Director of Product Development for AT&T's consumer
products, after holding the position of General Manager of AT&T's corded
telephone business unit. Mr. Laing received a Bachelor of Science in Electrical
Engineering from Rutgers University and a Masters of Science in Electrical
Engineering from Stanford University.
Timothy J. Dooley, Executive Vice President, Strategic Business Development
Timothy J. Dooley joined CIDCO initially in September 1994, and served
as Vice President, Sales, and later as Vice President and General Manager of the
Accessory Products Division. Mr. Dooley now serves CIDCO as Executive Vice
President of Strategic Business Development. Previously, he served in various
capacities at GTE. Mr. Dooley received a B. A. in Business with an emphasis in
Marketing from Washington State University.
Item 2. Properties
The Company's principal administrative, development, distribution and
support facility is located in Morgan Hill, California and consists of a four
building campus of approximately 111,000 square feet under leases that expire
between October 1999 and March 2006. The Company owns a 3.24-acre parcel in the
same business park. The Company also leases approximately 6,500 square feet of
storage space in Morgan Hill, California under a lease that expires in June
1999. The Company is currently renegotiating this lease. The Company leases
approximately 1,100 square feet of office space in Palo Alto, California under a
lease that expires in November 2002. In addition, the Company retains storage
space in Salinas, California based on square footage used during the month
payable on a month-to-month basis.
Item 3. Legal Proceedings
PhoneTel Communications, Inc. filed a complaint in August 1998 in
Federal District Court in Texas, alleging that CIDCO Worldwide, Inc. (an
affiliate of the Company) and 14 other defendants violated one or more of
PhoneTel's telephony patents. The complaint has not been served on the Company
pending the completion of current discussions between PhoneTel and the Company,
and thus litigation has not commenced. Although this matter is at an early
stage, management believes that the Company has not infringed any of PhoneTel's
patents, and that it will prevail in any litigation which may proceed from this
complaint. Management of the Company currently believes that the outcome of this
matter and the ultimate effect, if any, on the Company's consolidated financial
position, results of operations, or cash flows will be immaterial.
In the ordinary course of business, the Company may be involved in
other legal proceedings. As of the date hereof, the Company is not a party to
any other pending legal proceedings that it believes will materially affect its
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Part II.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded on The Nasdaq Stock Market under
the symbol CDCO.
The following table sets forth for the periods indicated the high and
low closing sales price per share of Common Stock on The Nasdaq Stock Market as
reported by Nasdaq:
1997 High Low
- ---- ------- -------
1st Quarter ........................................ $ 18.06 $ 12.00
2nd Quarter......................................... $ 15.88 $ 12.75
3rd Quarter......................................... $ 22.07 $ 12.81
4th Quarter......................................... $ 22.38 $ 17.00
1998
- ----
1st Quarter......................................... $ 20.25 $ 9.25
2nd Quarter......................................... $ 9.44 $ 4.63
3rd Quarter......................................... $ 5.00 $ 1.78
4th Quarter......................................... $ 3.50 $ 1.38
As of December 31, 1998, there were 144 holders of record of the
Company's Common Stock, which does not include those beneficial owners whose
shares are held in street or nominee name.
The Company's loan agreements prohibit the payment of dividends without
the lender's consent. The Company's policy is to utilize available cash in
operations and accordingly does not expect to pay dividends.
On January 27, 1999, the Company announced plans to purchase up to two
million shares of its outstanding Common Stock. As of March 3, 1999, the Company
had repurchased 698,000 shares at an aggregate purchase price of $3.1 million.
Item 6. Selected Financial Data
(in thousands, except per share data)
Year ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Statement of Operations Data:
Sales ...................... $174,703 $257,033 $215,197 $193,668 $100,290
Research and development ... 10,821 16,859 13,170 9,709 5,175
Income(loss) from
operations(1) ........... (62,052) 18,363 27,236 36,491 19,124
Net income(loss)(1) ........ (51,439) 12,910 18,523 22,613 11,657
Basic earnings(loss)
per share(2) ............ $ (3.66) $ 0.93 $ 1.30 $ 1.60 $ 0.93
Diluted earnings(loss)
per share(2) ............ $ (3.66) $ 0.90 $ 1.21 $ 1.51 $ 0.87
Common shares outstanding(2) 14,049 13,948 14,284 14,135 11,922
Common shares assuming
dilution(2) ............. 14,049 14,340 16,893 14,979 12,833
Dividends .................. $ -- $ -- $ -- $ -- $ --
As of December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Balance Sheet Data:
Cash and cash equivalents .. $ 12,349 $ 48,253 $ 26,509 $ 19,290 $ 28,224
Short-term investments ..... 13,975 26,486 38,560 21,342 19,936
Working capital ............ 70,238 112,980 110,469 91,355 74,003
Total assets ............... 107,667 173,428 152,613 127,151 108,598
Stockholders' equity ....... $ 80,402 $130,730 $128,846 $106,214 $ 81,306
QUARTERLY DATA:
(in thousands, except per share data; unaudited)
Year ended December 31, 1998
-----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Sales ............................ $ 69,354 $ 43,387 $ 31,338 $ 30,624
Gross margin ..................... 17,299 10,397 (3,481) 6,712
Loss from operations(1) .......... (10,094) (10,639) (36,339) (4,980)
Net loss(1) ...................... (5,361) (5,987) (35,333) (4,758)
Basic loss per share(2) .......... $ (0.38) $ (0.43) $ (2.51) $ (0.34)
Diluted loss per share(2) ........ $ (0.38) $ (0.43) $ (2.51) $ (0.34)
Year ended December 31, 1997
-----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Sales ............................ $ 77,030 $ 58,288 $ 51,079 $ 70,635
Gross margin ..................... 34,247 27,049 22,662 31,402
Income from operations ........... 6,869 4,210 2,005 5,279
Net income ....................... 4,397 3,041 1,746 3,727
Basic earnings per share(2) ...... $ 0.31 $ 0.22 $ 0.13 $ 0.27
Diluted earnings per share(2) .... $ 0.30 $ 0.22 $ 0.12 $ 0.26
(1) 1998 Operating Loss includes one-time charges of $29.2 million primarily
for restructuring and obsolete inventory write-offs. First quarter 1998
loss includes one-time charges of $2.7 million. Third quarter 1998 loss
includes one-time charges of $26.5 million.
(2) For an explanation of the number of shares used to compute earnings per
share, see Note 2 of Notes to Financial Statements. All earnings per share
data have been computed in accordance with the provisions of FAS 128 that
the Company was required to adopt in the quarter ended December 31, 1997.
Prior periods have been restated to conform to the provisions of FAS 128.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following information should be read in conjunction with the financial
statements and supplementary information thereto in Part II, Item 8 of this
Annual Report.
Historical Background
CIDCO 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 Services then being introduced by 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 Direct Marketing Services, Fulfillment, Direct to Telco, and, to a
lesser extent, international accounts, Retail, and OEM customers. Direct
Marketing Services 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 on the Telco's behalf an adjunct product or a phone product to each
customer "acquired" through the campaign. Fulfillment sales occur when the
Company receives an order and ships the requested product directly to the
customer. In the case of Fulfillment sales, the Telcos generate orders by
performing the marketing activities themselves rather than retaining the Company
to perform such services, as in Direct Marketing Services programs. Direct
Marketing Services sales totaled 32%, 49%, and 25% of sales in 1998, 1997 and
1996, respectively. Fulfillment sales accounted for 34%, 35%, and 43% of sales
in 1998, 1997 and 1996, respectively.
As a result of operating losses incurred in the first six months of
1998, the Company adopted a new business strategy focusing on its core telephony
products and services. The Company decided that its core business cannot
successfully fund the level of market development expense required over time for
success in marketing the i-Phone and has substantially discontinued operation of
its i-Phone division, taking a restructuring charge in the third quarter of
$19.9 million. As part of the Company's change in direction, Co-Founder and
Chairman of the Board of Directors, Paul G. Locklin, returned to the Company as
its President and Chief Executive Officer in the third quarter of 1998.
This Report contains forward-looking statements that reflect the
Company's current views with respect to future events that 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.
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 income statement:
Year ended December 31,
------------------------
1998 1997 1996
------ ------ ------
Sales .............................................. 100.0% 100.0% 100.0%
Cost of sales ...................................... 82.3 55.1 55.7
----- ----- -----
Gross margin ....................................... 17.7 44.9 44.3
Operating expenses:
Research and development ......................... 6.2 6.6 6.1
Selling and marketing ............................ 30.6 27.6 22.2
General and administrative ....................... 5.0 3.6 3.4
Restructuring .................................... 11.4 -- --
----- ----- -----
53.2 37.8 31.7
----- ----- -----
Income (loss) from operations ...................... (35.5) 7.1 12.6
Other income (expense):
Interest income .................................... 2.1 1.1 3.1
Interest expense ................................... -- -- (1.4)
----- ----- -----
2.1 1.1 1.7
----- ----- -----
Income (loss) before income taxes .................. (33.4) 8.2 14.3
Provision (benefit) for income taxes ............... (4.0) 3.2 5.7
----- ----- -----
Net income (loss) .................................. (29.4)% 5.0% 8.6%
===== ===== =====
1998 Compared to 1997
Sales
Sales are recognized upon shipment of the product to the customer less
reserves for anticipated returns or, in the case of Direct Marketing Services,
less reserves for non-retention of certain Services provided by the Telcos, and
customer credit worthiness. Sales decreased 32% to $174.7 million in 1998 from
$257.0 million in 1997, primarily due to the 33% decrease in average sales price
per adjunct unit. This pricing decrease was due to competitive pricing pressures
from both Asian suppliers to the United States market and certain domestic
suppliers as well as a decline in Direct Marketing programs. Prices have
stabilized since Asian currencies stopped their decline against the US Dollar.
It is expected that future price declines will be dependant on currency exchange
rates and the health of the Asian economy. Additionally, the Company's adjunct
unit sales decreased 25% to 5.4 million units in 1998 from 7.2 million units in
1997, primarily arising from the decline in Fulfillment sales and the Telco
customers shifting focus from adjuncts to integrated Network Service phones.
These declines were partially offset by the increase in phone unit sales to 0.9
million units in 1998 from 0.4 million units in 1997. Direct Marketing Services
programs decreased to 32% of sales in 1998 from 49% in 1997. This decline in
Direct Marketing Services business results from increased penetration levels in
feature Services in various marketing areas making new subscribers increasingly
difficult and expensive to acquire. Also, the Company chose not to participate
in risky low margin agency programs. While the Company expects this Agency
business trend to continue with respect to adjunct sales into 1999 and beyond,
the Company also believes that sales of Network Feature phones will increase
thereby mitigating the effect of this trend.
Gross Margin
Cost of sales includes the cost of finished goods purchased from the
Company's offshore contract manufacturers, all 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 17.7% in 1998 from 44.9% in 1997 due to the overall decrease in
average sales prices and the extensive liquidation of discontinued products.
One-time charges attributable to inventory liquidation were $9.3 million in 1998
or 5.3% as a percentage of sales. These were offset by royalty expense, which
declined in 1998 to $2.9 million compared with $3.9 million in 1997, due to the
renegotiation of a component licensing agreement such that there was no royalty
payable in 1998. Royalties payable to other patent holders remained
approximately the same in 1998 as in 1997. Although gross margins vary due to
changes in sales mix by distribution channel and product mix, the Company
expects that gross margins will range from 20% to 30% in 1999.
Research and Development Expenses
Research and development expenses include 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 in tooling. Research and
development expenses decreased 36% to $10.8 million in 1998 from $16.9 million
in 1997 due primarily to decreased spending on new development projects and the
decline of equity losses in InfoGear, Inc. Additionally, the Company
discontinued the i-Phone division in the last quarter of 1998, resulting in
research and development personnel reductions and the writing-off of
substantially all related assets. Research and development expenses as a
percentage of sales decreased to 6.2% in 1998 from 6.6% in 1997. The Company
expects research and development expenses will range between 5% and 6% of sales
in 1999.
Selling and Marketing Expenses
Selling and marketing expenses include acquisition costs, personnel
costs, telephone and electronic data exchange expenses, promotional costs and
travel expenses. Selling and marketing expenses decreased to $53.6 million in
1998 from $70.9 million in 1997 and as a percentage of sales increased to 30.6%
in 1998 from 27.6% in 1997. The absolute dollar decrease in selling expenses was
due principally to the lower levels of advertising and telemarketing expenses
associated with the decrease in the Company's Direct Marketing Services sales.
The Company anticipates that selling and marketing expenses as a percentage of
sales will decline in 1999 due to planned reduction in acquisition sales
programs.
General and Administrative Expenses
General and administrative expenses include salaries, benefits and
other expenses associated with the finance and administrative functions of the
Company. General and administrative expenses decreased to $8.7 million in 1998
from $9.3 million in 1997 and as a percentage of sales increased to 5.0% in 1998
from 3.6% in 1997. The absolute dollar decrease reflects decreased legal and
human resources costs. The Company believes that general and administrative
expenses will decrease in 1999.
Restructuring
The Company incurred a pretax restructuring charge of $2.7 million in the first
quarter of 1998 as it 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. On July 22,
1998, the Company implemented a new business strategy focusing on core telephony
products and services, and a restructuring plan that resulted in one-time
charges of $17.2 million in the third quarter of 1998. The Company's
restructuring plan has significantly reduced its personnel and resource costs
throughout the core business. As part of this strategy and restructuring plan,
during the second half of 1998, the Company explored strategic alternatives with
regard to its i-Phone 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 December 31, 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 i-Phone inventory until the
current stock and related components are depleted. The restructuring has reduced
permanent headcount from the prior year's level by approximately 41% as the
Company focuses on its core telephony products and services business.
Other Income (Expense)
Other income in 1998 includes interest income from the investment of
available cash balances, royalties from the licensing of technology and proceeds
from the sale of future production rights to a next-development-model i-Phone.
Provision for Income Taxes The provision (benefit) for income taxes
reflects an effective tax rate of (11.9)% in 1998 and 39% in 1997. The Company
expects no tax provision in 1999 due to a loss carry-forward from 1998.
1997 Compared to 1996
Sales
Sales increased 20% to $257.0 million in 1997 from $215.2 million in
1996, primarily due to higher unit sales of the Company's adjunct products
through the Company's Direct Marketing Services programs for Caller ID Services
on behalf of GTE and Fulfillment sales to U S WEST and Nynex customers.
Additionally, the Company's introduction of its CST-2000, a large format screen
phone, contributed to sales growth in the second half of 1997. These increases
were partially offset by a decrease in unit sales of phones sold to Ameritech
and lower average selling prices across the Company's product line due to
competitive pricing pressures from both Asian suppliers to the United States
market and certain domestic suppliers. The total Fulfillment business (i.e.,
Direct Marketing Services plus Fulfillment) grew to 84% of sales in 1997 from
70% of sales in 1996. This was primarily due to growth in Direct Marketing
Services programs that increased to 49% of sales in 1997 from 26% in 1996.
Gross Margin
Royalty expense in 1997 was $3.9 million compared with $2.1 million in
1996 due to the increased volume of adjunct sales to non-RBOC Telcos. Gross
margin as a percentage of sales increased nominally to 44.9% in 1997 from 44.3%
in 1996. Higher gross margins for Direct Marketing Services programs were
partially offset by declines in average selling prices of adjunct units and the
liquidation of inventory of several older model telephones through aggressive
price reductions.
Research and Development Expenses
Research and development expenses increased 28% to $16.9 million in
1997 from $13.2 million in 1996, due primarily to increased spending on
personnel and new development projects such as the ADSI large format screen
phone, cordless telephones and advanced screen phones which provide access to
the Internet. The Company recognized $2.4 million of expense in 1997 related to
the Company's equity in losses of InfoGear, which developed software for the
Company's initial i-Phone product. Research and development expenses as a
percentage of sales increased to 6.6% in 1997 from 6.1% in 1996.
Selling and Marketing Expenses
Selling and marketing expenses increased to $70.9 million in 1997 from
$47.7 million in 1996 and as a percentage of sales increased to 27.6% in 1997
from 22.2% in 1996. These increases were due principally to the higher levels of
advertising and telemarketing expenses associated with the Company's Direct
Marketing Services sales and, to a lesser extent, the Company's own direct
marketing for its screen phone products.
General and Administrative Expenses
General and administrative expenses increased to $9.3 million in 1997
from $7.3 million in 1996 and as a percentage of sales increased to 3.6% in 1997
from 3.4% in 1996. These increases reflect increased legal, human resources,
relocation and information systems costs. The 1997 results also reflect a
one-time charge for contractually obligated expenses incurred as a part of the
relinquishment of day-to-day duties of certain executives that occurred in the
first quarter of 1997.
Other Income (Expense)
Other income in 1997 includes interest income from the investment of
available cash balances, which were substantially lower on average in 1997 than
in 1996 due to the repayment of long-term debt at the end of 1996. Other expense
consists of interest expense related to the issuance of long-term debt, which
was outstanding during 1996.
Provision for Income Taxes
The provision for income taxes reflects an effective tax rate of 39% in
1997 and 40% in 1996.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $35.9 million during
1998 primarily from cash used by operations of $39.2 million and the purchase of
property and equipment of $10.3 million, offset by the sale of short-term
investments and the Company's treasury stock of $13.6 million. Cash used by
operations of $39.2 million resulted primarily from the net loss of $51.4
million, an increase in taxes receivable of $18.4 million, a decrease in
accounts payable of $17.4, an increase in inventory and other current assets of
$10.3 million and a decrease in taxes payable of $1.6 million, offset by a
decrease in accounts receivable of $30.4 million, a decrease in deferred taxes
of $11.1 million, retirement of property and equipment of $10.3 million, an
increase in accrued liabilities of $3.6 million, non-cash depreciation of $2.9
million and write-off of investment in affiliate of $1.6 million.
The Company had working capital of $70.2 million at December 31, 1998,
as compared to $112.9 million at December 31, 1997. The decrease in the working
capital was due to the decreases in cash and cash equivalents, short-term
investments and accounts receivable, offset by the decrease in accounts payable.
The Company's current ratio decreased to 3.6:1, as of December 31, 1998, from
3.7:1, as of December 31, 1997.
The Company has a line of credit for up to $25 million. Borrowings
under the line bear interest at 0.25% below the bank's base rate and the
interest is payable monthly. The bank's base rate was 7.75% per annum at
December 31, 1998. Borrowings under the line are unsecured. As of December 31,
1998, the Company had not borrowed any funds under the line. The line is
primarily used as security for letters of credit used to purchase inventory from
international suppliers. Letters of credit secured by this line totaled $8,600
as of December 31, 1998. As of the end of 1998, the Company had violated the
covenant of profitability. The bank has waived this violation and the line is
currently being renegotiated to $15 million and secured by substantially all of
the Company's assets bearing interest at the banks base rate.
On January 27, 1999, the Company announced plans to purchase up to two
million shares of its outstanding Common Stock. As of March 3, 1999, the Company
had repurchased 698,000 shares at an aggregate purchase price of $3.1 million.
The Company plans to continue to invest in its infrastructure,
including information systems, to gain efficiencies and meet the demands of its
markets and customers. The Company believes its 1999 capital expenditures will
be approximately $5.0 million. The 1999 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.
Factors That May Affect Future Results
Dependence on Caller ID and Maturation of Market
Approximately 65%, 84% and 68% of the Company's revenues during 1998,
1997 and 1996, respectively, came from the Company's Direct Marketing Services
and Fulfillment programs for Caller ID adjunct and, to a lesser extent,
telephone products and customer acquisition services through Telcos. 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 leveling off 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.
There can be no assurances that Telcos will continue to promote 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 affect on the Company's business, operating results or
financial condition. In addition, as penetration rates for adoption of Caller ID
Services increase towards projected saturation levels, the expenses, or "cost
per order," the Company must incur in its Direct Marketing Services arrangements
to obtain incremental end user adoption of Caller ID Services increases, which
may result in pressures on the Company's profitability.
Dependence on Telcos; Concentrated Customer Base
A significant portion of the Company's revenues is derived from a small
number of Telcos. During 1998, 1997 and 1996 respectively, the percentage of
revenue derived by the Company from its significant (greater than 10% of total
sales) customers was 62% (four customers), 77% (four customers) and 68% (three
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. The
Company generally does not enter into long term contracts with its Telco or
other customers and no on-going minimum purchases are required. 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, on which the Company and such customers do business. If the
Company is forced to accept such terms and/or change the terms, including
pricing, on which it does business, the Company's operating margins may decline
and such decline 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 that the Company's product and
program offerings will be selected by the Telcos. Moreover, the Company believes
that certain Telcos have begun to perform for themselves the customer
acquisition services currently undertaken by the Company through its Direct
Marketing programs, rather than through third parties such as the Company. The
continuation of this trend 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 the 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 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 which may render existing products and Services
obsolete. The Company's future success will depend in large part on its ability
to timely develop 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 products 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 is seeking to expand its product offerings
into a new business area, Internet/E-Mail Appliances, and expects to devote a
significant portion of its research and development resources on developing an
"e-mail appliance" which would allow electronic messaging via an easy-to-use
device. 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.
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 customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of market share or
failure to achieve market acceptance. 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.
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, in particular, deriving adequate sales
volumes while controlling related costs; 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 operating
expenses; 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 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 and
other alternate distribution channels to the extent such channels do not
conflict with current Telco partnerships, 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 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 have supply contracts with its suppliers and orders parts on a purchase
order basis. 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. There can be no assurance that the Company will be successful in
continuously recruiting new personnel or in retaining existing personnel. None
of the Company's employees is subject to a long-term employment agreement. 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, Asia-Pacific and Europe, 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 the
Asia-Pacific region, and in Europe, 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 Network Feature Services in areas outside of the
United States is highly uncertain. There can be no assurance that the Company's
Network Feature products will gain meaningful market penetration in target
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 Network Feature Services,
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.
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 and
tracking and product fulfillment service capabilities and systems in order to
retain and/or obtain Telco customers. The failure of the Company to successfully
manage and 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.
Competition
The telecommunications industry is an intensely competitive industry
with several large vendors that develop and market Network Feature 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 companies offering
specific services and large firms. In addition to U.S. companies, competitors
for the Company's phone products include both large Asian and European consumer
electronics companies and smaller Asian and European manufacturers. If the
Company's existing customers perform directly the customer acquisition services
currently undertaken by the Company through its Direct Marketing Services
programs, or if potential customers retain or increase internal capabilities to
provide such services, the Company's business, results of operation and
financial condition could be adversely affected. The introduction of new
competitive products into 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.
The telecommunications industry, like many technology-based industries,
is characterized by frequent claims and litigation involving patent and other
intellectual property rights. The Company from time to time may be notified by
third parties that the Company may be infringing patents owned by or 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 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 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 owned or licensed
patents or other intellectual property rights may be time consuming and costly,
or cause product shipment delays, either of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Possible 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.
Year 2000 Compliance
The information provided below constitutes a "Year 2000 Readiness
Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure
Act.
The Year 2000 problem arises from the use of a two-digit field to identify
years in computer programs (for example, 98=1998), and the assumption of a
single century, namely the 1900s. A program created with this assumption may
read or attempt to read "00" as the year 1900. 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 operations of a company who is not
sufficiently prepared. To minimize the possibility and extent of such an impact
to CIDCO's operation, CIDCO has put into place a formal Year 2000 Compliance
Project that focuses on four key readiness areas: (1) product readiness,
addressing CIDCO's product functionality; (2) internal infrastructure readiness,
addressing internal information systems and non-information technology systems;
(3) supplier readiness, addressing the preparedness of our supplier base; and
(4) customer readiness; addressing the preparedness of our customer base. CIDCO
has appointed a Year 2000 Compliance Officer, and for each readiness area, a
task force is systematically performing company-wide risk assessment and
contingency planning, 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 CIDCO's progress thereon for becoming
ready for the Year 2000.
Product Readiness
The Company has completed its review of Year 2000 issues with respect
to its product line. The Company's telephones, telephone adjuncts and
accessories, and other such communication products, with the exception of one
PBX product, do not calculate dates or rely upon software that calculates dates.
Any date information that is displayed on all but one of our products is
provided by the telephone company Service provider over the provider's Network,
and only month and day information is sent by the Network and displayed by the
products. Additionally, the user can set the date information in two (2) of our
current products. In other words, our products simply display the date
information that the telephone company provides, or in some cases, the date
information that a user inputs. Accordingly, Year 2000 issues are not relevant
to the functionality of these products. For the one product that calculates
dates, the Voysconnect PBX System, for the purpose of time stamping telephone
calls received, the related software will, under normal use, record and process
calendar dates falling on or after January 1, 2000 with the same functionality,
data integrity and performance as the software records and processes calendar
dates on or before December 31, 1999. In any future products developed by or for
the Company that may calculate or utilize date information, the Company will
take steps to require Year 2000 compliance.
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 warranted to be 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. In
addition to applications and information technology systems, the Company is
testing and developing remediation plans for embedded systems, facilities and
other operations. One particular area of activity will be in examining, testing
and reviewing the interfaces between the Company's various internal systems,
some of which may not currently be Year 2000 compliant. The Company expects all
systems to be compliant by no later than July 1999.
Supplier Readiness
This program is focused on minimizing the risk associated with
suppliers in two areas: (1) a supplier's ability to continue providing products
and services, and (2) the Year 2000 compliance of suppliers in their internal
operations. The Company is contacting all its material suppliers. The Company
has received responses from many of its preferred suppliers and anticipates that
the majority of suppliers will respond and provide the Company with the
requested information. Supplier issues that potentially affect the Company's
operations and products are targeted to be resolved by July 1999. The Company
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.
Customer Readiness
This program is focused on minimizing the risk associated with our
customers in two areas: (1) a customer's ability to continue ordering and
utilizing the Company's products and services, and (2) the Year 2000 compliance
of customers in their internal operations, especially with respect to Electronic
Data Interchange ("EDI") with the Company. The Company is contacting all its
significant customers. The Company has received responses from some of its
customers and anticipates that the majority of customers will respond and
provide the Company with the requested information. Customer issues that
potentially affect the Company's sales of products and services are targeted to
be resolved by September 1999.
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 and contingency planning phases. 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. Additionally, it is possible that one or more of the Company's
Telco customers may choose to defer the commencement of programs that they would
ordinarily start in the last quarter of 1999 or the first quarter of 2000. Such
a decision could have a detrimental impact upon the Company's revenue for those
quarters.
With respect to suppliers and information systems, the Company is at the
intermediate stage of assessment and cannot predict whether significant problems
will be identified. Accordingly, the Company is not yet in a position to
determine the extent of contingency planning that may be required and has not
yet developed contingency plans for many systems. However, based on the status
of the assessment made and remediation plans developed to date, the Company
currently does not believe that problems identified will pose significant
issues, or that such costs will exceed $1,000,000. Once the Company has
completed its assessments, developed remediation plans for all problems,
developed contingency plans, and completely implemented and tested its
remediation plans, it will be better able to estimate remediation costs, and it
will provide such estimates at that time.
As the Year 2000 Compliance Project continues, the Company may discover
additional Year 2000 problems, may not be able to develop, implement, or test
remediation or contingency plans in time, or 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 third-party products, 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 fails to resolve Year 2000 issues related to its
products in a timely manner, it could be exposed to liability to third parties.
Item 7A Quantitative and Qualitative Disclosure About Market Risk
Management believes that the market risk associated with the Company's
market risk sensitive instruments as of December 31, 1998 is not material, and
therefore, disclosure is not required.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements:
Financial Statements: Page
Report of Independent Accountants ........................................27
Balance Sheet at December 31, 1998 and 1997 ..............................28
Statement of Operations for the three years
ended December 31, 1998 ..............................................29
Statement of Stockholders' Equity for
the three years ended December 31, 1998 ..............................30
Statement of Cash Flows for
the three years ended December 31, 1998 ..............................31
Notes to Financial Statements ............................................32
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts ..........................42
All other financial statement schedules are omitted because the information
called for is not present in amounts sufficient to require submission of the
schedules or because the information is shown either in the financial statements
or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of CIDCO Incorporated
In our opinion, the financial statements in the above index present fairly, in
all material respects, the financial position of CIDCO Incorporated at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
January 26, 1999
CIDCO INCORPORATED
BALANCE SHEET
(in thousands, except per share data)
December 31,
-----------------------
1998 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 12,349 $ 48,253
Short-term investments ........................... 13,975 26,486
Accounts receivable, net of allowances for
doubtful accountsof $1,885 and $3,301 ....... 27,689 58,082
Inventories ...................................... 22,086 12,904
Deferred tax asset ............................... 1,490 11,808
Income tax refund receivable ..................... 18,367 --
Other current assets ............................. 1,547 1,306
--------- ---------
Total current assets .......................... 97,503 158,839
Property and equipment, net ...................... 9,691 12,591
Other assets ..................................... 473 1,998
--------- ---------
$ 107,667 $ 173,428
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 12,446 $ 29,868
Accrued liabilities .............................. 14,585 10,955
Accrued taxes payable ............................ 234 1,875
--------- ---------
Total current liabilities ..................... 27,265 42,698
Commitments and contingencies (Notes 7 and 8)
Stockholders' equity:
Common stock, $.01 par value; 35,000 shares
authorized, 14,418 and 14,418 shares issued .. 144 144
Treasury Stock, at cost (339 and 463 shares) ..... (4,600) (6,163)
Additional paid-in capital ....................... (4,058) 47,986
--------- ---------
Total stockholders' equity .................... 80,402 130,730
--------- ---------
$ 107,667 $ 173,428
========= =========
The accompanying notes are an integral part of these financial statements.
CIDCO INCORPORATED
Statement of Operations
(in thousands, except per share data)
Year ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
Sales .................................. $ 174,703 $ 257,033 $ 215,197
Cost of sales .......................... 143,776 141,672 119,817
--------- --------- ---------
Gross margin ........................... 30,927 115,361 95,380
Operating expenses:
Research and development ........... 10,821 16,859 13,170
Selling and marketing .............. 53,577 70,851 47,720
General and administrative ......... 8,723 9,288 7,254
Restructuring ...................... 19,858 -- --
--------- --------- ---------
92,979 96,998 68,144
--------- --------- ---------
Income (loss) from operations .......... (62,052) 18,363 27,236
Other income (expense), net:
Other income ........................... 3,658 2,793 6,729
Interest expense ....................... -- -- (3,093)
--------- --------- ---------
3,658 2,793 3,636
--------- --------- ---------
Income (loss) before income taxes ...... (58,394) 21,156 30,872
Provision (benefit) for income taxes ... (6,955) 8,246 12,349
--------- --------- ---------
Net income (loss) ...................... $ (51,439) $ 12,910 $ 18,523
========= ========= =========
Basic earnings per share ............... $ (3.66) $ 0.93 $ 1.30
========= ========= =========
Diluted earnings per share ............. $ (3.66) $ 0.90 $ 1.21
========= ========= =========
Common shares outstanding .............. 14,049 13,948 14,284
========= ========= =========
Common shares assuming dilution ........ 14,049 14,340 16,893
========= ========= =========
The accompanying notes are an integral part of these financial statements.
CIDCO INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
Retained Total
Common Stock Treasury Stock Add'l. Earnings Stock-
------------ -------------- Paid-in (Accum. holders'
Shares Amt. Shares Amount Capital Deficit) Equity
------ ----- ------ ------- -------- -------- ---------
Balance at
December 31, 1995 .. 14,133 $ 141 -- $ -- $ 83,449 $ 22,624 $ 106,214
Unrealized gains from
investments ........ (170) (170)
Tax benefit from
exercise of
stock options ...... 1,828 1,828
Employee stock options
exercised .......... 241 3 1,883 1,886
Employee stock
purchase plan ...... 25 -- 565 565
Net income ............ 18,523 18,523
------ ----- ------ ------- -------- -------- ---------
Balance at
December 31, 1996 .. 14,399 144 -- -- 87,725 40,977 128,846
Unrealized losses from
investments ........ 28 28
Tax benefit from
exercise of
stock options ...... 787 787
Treasury stock
purchased .......... (1,000)(12,942) (12,942)
Employee stock options
exercised .......... 3 -- 521 6,577 21 (5,914) 684
Employee stock
purchase plan ...... 16 -- 16 202 230 (15) 417
Net income ............ 12,910 12,910
------ ----- ------ ------- -------- -------- ---------
Balance at
December 31, 1997 .. 14,418 144 (463) (6,163) 88,763 47,986 130,730
Unrealized gains from
investments ........ (31) (31)
Tax benefit from
exercise of
stock options ...... 153 153
Employee stock options
exercised .......... -- -- 61 773 (198) 575
Employee stock
purchase plan ...... -- -- 63 790 (376) 414
Net income (loss) ..... (51,439) (51,439)
------ ----- ------ ------- -------- -------- ---------
Balance at
December 31, 1998 .. 14,418 $ 144 (339)$(4,600)$ 88,916 (4,058)$ 80,402
====== ===== ====== ======= ======== ======== =========
The accompanying notes are an integral part of these financial statements.
CIDCO INCORPORATED
STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31,
-------------------------------
1998 1997 1996
-------- -------- --------
Cash flows provided by (used in)
operating activities:
Net income (loss) ........................... $(51,439) $ 12,910 $ 18,523
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............... 2,880 5,933 5,525
Equity in losses of affiliate ................ 1,605 2,369 428
Property and equipment retirements .......... 10,300 -- --
Deferred income taxes ....................... 11,100 (6,477) (2,584)
Changes in assets and liabilities:
Accounts receivable ...................... 30,393 (9,840) 1,382
Inventories .............................. (9,182) 1,651 3,361
Income tax refund receivable ............. (18,367) -- --
Other current assets ..................... (241) (22) (138)
Other assets ............................. (862) (353) (468)
Accounts payable ......................... (17,422) 12,988 5,507
Accrued liabilities ...................... 3,630 4,744 (2,211)
Accrued taxes payable .................... (1,641) 1,199 (466)
-------- -------- --------
Net cash provided (used in)
by operating activities ..... (39,246) 25,102 28,859
Cash flows provided by investing activities:
Acquisition of property and equipment ....... (10,280) (4,406) (5,531)
Purchase of equity interest in affiliate .... -- -- (3,000)
Sale (Purchase) of short-term
investments, net ........... 12,480 12,102 (17,388)
-------- -------- --------
Net cash provided by (used in)
investing activities ..... 2,200 7,696 (25,919)
Cash flows provided by (used in)
financing activities:
Issuance of Common Stock,
net of issuance costs .......... 989 1,101 2,451
Purchase of Treasury Stock .................. -- (12,942) --
Proceeds from issuance of long-term debt .... -- -- 150,000
Repayment of long-term debt ................. -- -- (150,000)
Tax benefit from exercise of stock options .. 153 787 1,828
-------- -------- --------
Net cash provided by (used in)
financing activities ....... 1,142 (11,054) 4,279
Net increase (decrease) in
cash and cash equivalents ... (35,904) 21,744 7,219
Cash and cash equivalents at beginning of year . 48,253 26,509 19,290
-------- -------- --------
Cash and cash equivalents at end of year ....... $ 12,349 $ 48,253 $ 26,509
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ...... $ -- $ -- $ 3,093
======== ======== ========
Cash paid during the year for income taxes .. $ 1,855 $ 10,973 $ 13,625
======== ======== ========
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. THE COMPANY
CIDCO Incorporated (the "Company"), a Delaware corporation, designs,
develops and markets subscriber telephone equipment for use with intelligent
Network Services. The Company started its operations in June 1989. The Company
sells its products to individual customers through its Direct Marketing and
Fulfillment relationships with certain Regional Bell Operating Companies
("RBOC"), to Telcos directly, and to major national and regional retail chains.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
Short-Term Investments
The Company classifies its investment securities as available for sale.
Realized gains or losses are determined on the specific identification method
and are reflected in income. Net unrealized gains or losses are recorded
directly in stockholders' equity except those unrealized losses that are deemed
to be other than temporary which are reflected in the income statement.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the standard cost method (which approximates first in, first
out). The Company's inventories consist of finished goods and raw materials
purchased for the manufacture of finished goods.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
ranging from three to five years. Leasehold improvements are stated at cost.
Amortization is computed using the straight-line method and the shorter of the
remaining lease term or the estimated useful lives of the improvements.
Investments in Affiliates
Investments in affiliates, where the Company owns more than 20 percent but
not in excess of 50 percent, are accounted for using the equity method.
New Accounting Standards
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("FAS 130"). FAS 130 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. In accordance with the
provisions of FAS 130, the Company has determined that the impact of
comprehensive income is not material for disclosure.
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. In accordance with the provisions of FAS 131, the Company has
determined that it does not have separately reportable operating segments.
Warranty Costs
Anticipated costs related to product warranties are charged to income as
sales are recognized. The Company has not experienced significant warranty
claims to date.
Revenue Recognition
Direct sales and sales through Fulfillment arrangements are recognized upon
shipment of the product to the customer. Allowances are established to recognize
any risk related to the creditworthiness of customers and for estimated returns.
Sales through certain promotions aimed at Fulfillment customers are dependent on
the customer's retention of certain Services provided by the Telco. The Company
reserves for estimated non-retention of such Services by these customers.
Advertising Costs
Advertising costs are expensed as incurred as defined by Statement of
Position 93-7, "Reporting on Advertising Costs." Advertising costs for 1998,
1997 and 1996 were $32.5 million, $32.4 million, and $20.7 million,
respectively.
Income Taxes
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for expected tax consequences of temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities.
Earnings per Share
Basic Earnings Per Share ("EPS") is computed by dividing net income
available to common stockholders (numerator - computed as net income adjusted
for any accretion of dividends paid on preferred stock) by the weighted average
number of common shares outstanding (denominator) during the period. Basic EPS
excludes the dilutive effect of stock options. Diluted EPS 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.
Following is a reconciliation of the numerators and denominators of the
basic and diluted EPS:
Year ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
Net income (loss) used to compute
basic earning per common share .............. $(51,439) $ 12,910 $ 18,523
Adjustment to net income (loss)
due to convertible note ................ -- -- 1,856
-------- -------- --------
Net income used to compute diluted
earnings (loss) per common share ............ $(51,439) $ 12,910 $ 20,379
======== ======== ========
Denominator used to compute basic
earnings (loss) per common share ............ 14,049 13,948 14,284
Shares issuable on exercise of options(1).. -- 392 750
Shares issuable on conversion of note ..... -- -- 1,859
-------- -------- --------
Denominator used to compute diluted
earnings (loss) per common share ............ 14,049 14,340 16,893
======== ======== ========
Basic earnings (loss) per share ................ $ (3.66) $ 0.93 $ 1.30
======== ======== ========
Diluted earnings (loss) per share .............. $ (3.66) $ 0.90 $ 1.21
======== ======== ========
(1) Potential common stock equivalents issuable upon exercise of options to
purchase 232,256 shares of common stock priced at $1.00 to $2.75 per share was
excluded because their inclusion would be anti-dilutive for the year ended
December 31, 1998.
Stock-Based Compensation
The Company accounts for stock-based employee compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations.
The Company provides additional pro forma disclosures as required under
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation." See Note 9.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments and accounts receivable. The Company limits the amount of
credit exposure to any one financial institution and financial instrument. The
Company's trade accounts receivable are derived primarily from sales in the
United States and the Far East. The Company maintains reserves for potential
credit losses; historically, such losses have been within management's
expectations.
Reclassifications
Certain amounts in 1997 have been reclassified to conform to the 1998
presentation.
NOTE 3. BALANCE SHEET COMPONENTS
December 31,
-------------------
1998 1997
-------- --------
(in thousands)
Inventories, net of reserves:
Finished Goods .................................... $ 14,005 $ 12,904
Raw Materials (1) ................................ 8,081 --
-------- --------
$ 22,086 $ 12,904
======== ========
Property and equipment, net:
Land .............................................. $ 866 $ 866
Computers and office equipment .................... 23,055 18,775
Furniture and fixtures ............................ 2,134 2,036
Leasehold improvements ............................ 2,648 7,078
-------- --------
28,703 28,755
Less accumulated depreciation and amortization .... (19,012) (16,164)
-------- --------
$ 9,691 $ 12,591
======== ========
Accrued liabilities:
Accrued compensation .............................. $ 1,619 $ 3,587
Accrued Restructuring ............................. 3,883 --
Sales Taxes Payable ............................... 2,004 2,804
Other ............................................. 7,079 4,564
-------- --------
$ 14,585 $ 10,955
======== ========
(1) An additional reserve of $3,935 (in thousands) related to i-Phone raw
materials has been included in restructuring. See Note 6.
NOTE 4. SHORT-TERM INVESTMENTS
The Company's short-term investments consist primarily of municipal bonds.
As of December 31, 1998, approximately $4.6 million of such investments had
maturities of greater than one year. However, all such securities mature within
three years. The cost and fair value of the Company's short-term investments are
as follows (in thousands):
December 31,
-------------------
1998 1997
-------- --------
Fair value ............................................. $ 13,975 $ 26,486
Cost ................................................... 13,873 26,302
-------- --------
Unrealized gains ....................................... $ 102 $ 184
======== ========
NOTE 5. INVESTMENT IN AFFILIATE
During 1996, the Company acquired for $3 million in cash a 33% interest in
the outstanding stock of InfoGear Technology Corporation ("InfoGear"), a company
involved in the development of software for Internet phones. The Company's
equity in losses of InfoGear has been included as a component of research and
development expense for the years ended December 31, 1998 and 1997, $0.6 million
and $2.4 million, respectively. In 1998, the Company invested and additional
$1.4 million in Infogear that the Company wrote off as worthless as part of the
restructuring costs. See Note 6 below.
NOTE 6. 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 6 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
determined that moving the distribution center has not produced the cost savings
and relocated 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 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 significantly
reduced 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 appliances 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
December 31, 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
i-Phone until present finished goods and components are depleted. The Company
employed 250 regular employees and approximately 123 temporary and contract
workers as of December 31, 1998. The restructuring reduced permanent headcount
from the prior year's level by approximately 41% 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 3 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
equity in InfoGear Technologies Corporation of $1.4 million.
The following table lists the components of the restructuring accrual for
the year ended December 31, 1998 (in thousands):
Employee Asset
Costs Write-downs Leases Total
-------- ----------- ------ ---------
Reserve provided ................ $ 437 $ 2,080 $ 155 $ 2,672
Reserve utilized in Q1 .......... -- (1,020) -- (1,020)
-------- --------- ------ ---------
Balance at March 31, 1998 ....... 437 1,060 155 1,652
Reserve utilized in Q2 .......... (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 Q3 .......... (2,636) (10,032) 54 (12,614)
-------- --------- ------ ---------
Balance at September 30, 1998 ... 1,113 4,534 249 5,896
Reserve utilized in Q4 .......... (1,053) (599) (361) (2,013)
-------- --------- ------ ---------
Balance at December 31, 1998 .... $ 60 $ 3,935 $ (112) $ 3,883
======== ========= ====== =========
NOTE 7. LINE OF CREDIT
The Company has a line of credit for up to $25 million. Borrowings under
the line bear interest at 0.25% below the bank's base rate and the interest is
payable monthly. The bank's base rate was 7.75% per annum at December 31, 1998.
Borrowings under the line are unsecured. As of December 31, 1998, the Company
had not borrowed any funds under the line. The line is primarily used as
security for letters of credit used to purchase inventory from international
suppliers. Letters of credit secured by this line totaled $8,600 as of December
31, 1998. As of the end of 1998, the Company had violated the covenant of
profitability. The bank has waived this violation and the line is currently
being renegotiated to $15 million and secured by substantially all of the
Company's assets bearing interest at the banks base rate.
NOTE 8. LEASES AND COMMITMENTS
Leases
The Company leases its headquarters, call center and distribution
facilities in Morgan Hill, California, under operating leases which expire from
1999 through 2006. The Company also leases office space in Palo Alto, California
under an operating lease that expires in 2002.
Future minimum lease payments under non-cancelable leases at December 31,
1998 were as follows (in thousands):
Year ending December 31,
1999 ............................................................ $ 1,174
2000 ............................................................ 913
2001 ............................................................ 871
2002 ............................................................ 837
2003 ............................................................ 840
Thereafter ...................................................... 1,911
-------
Total minimum lease payments .................................... $ 6,546
=======
Rent expense for 1998, 1997 and 1996 was $0.9 million, $1.4 million, and
$1.1 million, respectively.
Licenses
The Company has a nontransferable, nonexclusive license agreement with
Lucent to utilize Lucent's patent related to data display devices. The Company
pays royalties to Lucent for each licensed product sold, leased or put into use
by the Company other than direct sales to Lucent, the Regional Bell Operating
Companies and other Lucent licensees under the patent. Royalties are payable at
a rate of one dollar per unit. Total Lucent royalty expense incurred in 1998,
1997 and 1996 was $0.9 million, $2.0 million, and $1.2 million, respectively.
The Company has a nontransferable, nonexclusive license agreement with
Northern Telecom to utilize Northern Telecom's patents for Caller ID on Call
Waiting technology. Under the agreement, the Company pays royalties to Northern
Telecom for each licensed product sold, leased or put into use by the Company
other than direct sales to Northern Telecom beginning January 1, 1997. The
agreement also provided for a one-time payment in full satisfaction of royalties
on all units incorporating Northern Telecom's patents that were sold by the
Company prior to January 1, 1997. Royalties are payable at a variable rate based
on product type and number of units sold. Total Northern Telecom royalty expense
incurred in 1998 and 1997 was $1.8 million and $0.6 million, respectively.
The Company has a nontransferable, exclusive license agreement with Focus
Semiconductor ("Focus") to utilize patents for Caller ID technology incorporated
in a part used in virtually all products sold by the Company. The Company paid
royalties to Focus for each part included in the Company's products beginning in
October 1996. Royalties were payable at a variable rate based on the number of
parts used. Total Focus royalty expense incurred in 1997 and 1996 was $1.3
million and $0.4 million, respectively. This agreement was renegotiated in June
1997, eliminating all future royalty payments.
401(k) Plan
Effective in 1993, the Company implemented a Savings and Profit Sharing
Plan (the "401(k) Plan") which qualifies as a thrift plan under section 401(k)
of the Internal Revenue Code. All employees who are 21 years of age or older on
or before the quarterly entry periods are eligible to participate in the 401(k)
Plan. The 401(k) Plan allows participants to contribute up to 15% of the total
compensation that would otherwise be paid to the participant, not to exceed the
amount allowed by applicable Internal Revenue Service guidelines. Effective July
1, 1997, the Company contributed for each participant a matching contribution
equal to 50% of the participant's before-tax contributions for the year not to
exceed a $2,500 per year maximum per plan participant. Prior to July 1, 1997,
the Company contributed for each participant a matching contribution equal to
25% of the participant's before-tax contributions for the year not to exceed 1%
of his or her compensation. In addition, the Company may choose to make elective
contributions to the 401(k) Plan for a particular plan year. The Company made
contributions of $526,000, $298,000, and $76,000 to the 401(k) Plan for the
years ended December 31, 1998, 1997, and 1996, respectively.
Pending Litigation
PhoneTel Communications, Inc. filed a complaint in August 1998 in
Federal District Court in Texas, alleging that CIDCO Worldwide, Inc. (an
affiliate of the Company) and 14 other defendants violated one or more of
PhoneTel's telephony patents. The complaint has not been served on the Company
pending the completion of current discussions between PhoneTel and the Company,
and thus litigation has not commenced. Although this matter is at an early
stage, management believes that the Company has not infringed any of PhoneTel's
patents, and that it will prevail in any litigation which may proceed from this
complaint. Management of the Company currently believes that the outcome of this
matter and the ultimate effect, if any, on the Company's consolidated financial
position, results of operations, or cash flows will be immaterial.
In the ordinary course of business, the Company may be involved in
other legal proceedings. As of the date hereof, the Company is not a party to
any other pending legal proceedings that it believes will materially affect its
financial condition or results of operations.
NOTE 9. COMMON STOCK AND STOCK PLAN
Common Stock
The Company is authorized to issue up to 35 million shares of Common Stock,
each with a par value of $0.01 per share. Holders of Common Stock are entitled
to one vote per share on all matters voted on by the Company's stockholders. In
March 1994, the Company completed an initial public offering (the "Offering") of
3.4 million shares of Common Stock and realized net proceeds of $45.9 million.
In conjunction with the Offering, all outstanding shares of mandatorily
redeemable Preferred Stock were redeemed for $19.3 million. In August 1994, the
Company completed a second public offering of 3.5 million shares of Common Stock
at a price of $22 per share. Of such shares, selling stockholders sold 3.4
million shares and the Company sold 100,000 shares and realized net proceeds of
$1.7 million. In December 1994, the Company completed an additional public
offering of 1.9 million shares of Common Stock at a price of $23.75 per share.
Of such shares, the Company sold 1.5 million shares for net proceeds of $33.5
million and selling stockholders sold 375,650 shares.
Directors' Stock Option Plan
In January 1994, the Company's stockholders approved the 1994 Directors'
Stock Option Plan (the "Directors' Option Plan"). Initially, a total of 100,000
shares of Common Stock were reserved for issuance under the Directors' Option
Plan, which provides for the granting of stock options to non-employee directors
of the Company. Such options vest immediately with respect to 20% of such
shares, with the remainder vesting in four equal annual installments commencing
one year after the date of grant. In May 1997, the stockholders approved an
amendment to increase the number of shares authorized under the Directors' Stock
Option Plan to 250,000 shares. In January 1994, the Company granted one director
an option under the Directors' Option Plan to purchase 33,350 shares of Common
Stock at an exercise price of $11.20 per share. No options were granted under
the Directors' Option Plan during 1995. In November 1996, the Company granted
two directors 66,650 shares of Common Stock at an exercise price of $18.55 per
share. In 1997, the Company granted three directors options under the Directors'
Option Plan to purchase a total of 93,325 shares of Common Stock at an average
exercise price of $16.23 per share. In 1998, the Company granted a director
options under the Directors' Option Plan to purchase 30,000 shares at an
exercise price of $4.75 per share. This option vests in four equal annual
installments commencing one year after the date of grant. An option for 33,325
shares was cancelled in 1998. Stock Grant to Former Executive Officer
In March 1997, the Company's then President and Chief Executive Officer,
Daniel L. Eilers, was granted a ten-year stock option to purchase up to 600,000
shares of the Company's Common Stock at an exercise price of $14.25 per share.
The option was scheduled to vest in equal monthly installments over five years.
This stock option was not issued under either of the Company's stock option
plans and the Company filed a Form S-8 Registration Statement with the
Securities and Exchange Commission covering the shares issuable upon exercise of
the stock option. In September 1998, a Separation Agreement and Mutual Release,
was executed which enables a total of up to 300,000 of these shares to vest
subject to certain time limits, and reprices 120,000 of the vested shares at
$3.00 per share.
Stock Option Plans
In May 1993, the Company adopted a stock option plan (the "Plan") under
which the employees and advisors may be granted options to purchase shares of
Common Stock at prices at least equal to the fair market value of the Company's
Common Stock on the date of grant. An aggregate of 2.9 million shares of Common
Stock have been reserved for issuance under the 1993 Stock Option Plan. In April
1998 the Company adopted a second stock option plan (the "1998 Plan") under
which employees and consultants may be granted options to purchase shares of
Common Stock at an exercise price no less than eighty-five (85%) of the fair
market value of the Company's Common Stock on the date of grant. A total of
700,000 shares were reserved for issuance under this plan (400,000 at inception
in April and 300,000 shares added in October 1998). Options under both plans
expire ten years from the date of grant. Generally, options granted prior to
August 1, 1997 vested in three equal annual installments commencing one year
from the date of grant. Effective on August 2, 1997, the Board of Directors
changed the standard vesting period for future options to vest 25% after one
year, and an additional 2.1% each month thereafter until fully vested. The Stock
Option Plans are administered by the Compensation Committee of the Board of
Directors, which determines the vesting provisions, the form of payment for
shares and all other terms of the options. The stock option plans were amended
in October 1998 by the Company's Board of Directors to make the Plans
competitive with plans offered by other companies in the Company's market.
On January 21, 1997, 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 $12.43, the closing market price on such date.
Due to the broad decline in market price of the Company's stock, a substantial
amount of outstanding stock options had exercise prices considerably above the
current market price. In an effort to provide incentives and retain current
employees, on August 17, 1998 eligible employees participating in the Company's
Stock Option Plans were offered the opportunity to elect to exchange outstanding
"underwater" options for options at an exercise price of $3.00 per share, the
closing market price on such date. As a provision of the repricing offer,
electing employees are not allowed to exercise their vested options until August
17, 1999.
The following table summarizes stock option activity under the Stock Option
Plans:
Options Outstanding
--------------------
Weighted
Shares Average
Available Exercise
for Grant Shares Price
--------- --------- --------
Balance at December 31, 1995 .............. 485,467 1,496,454 $ 13.27
Options granted ........................ (509,800) 509,800 $ 25.48
Options exercised ...................... -- (240,465) $ 7.80
Options canceled ....................... 126,883 (126,883) $ 28.55
--------- --------- --------
Balance at December 31, 1996 .............. 102,550 1,638,906 $ 16.69
Additional shares
authorized, May 1997 ................ 750,000 -- --
Options granted ........................ (1,660,082) 1,660,082 $ 14.21
Options exercised ...................... -- (525,421) $ 1.30
Options canceled ....................... 1,207,807 (1,207,807) $ 23.98
--------- --------- --------
Balance at December 31, 1997 .............. 400,275 1,565,760 $ 14.57
Additional shares
authorized, April 1998 .............. 400,000 -- --
Additional shares
authorized, October 1998 ............ 300,000 -- --
Options granted ........................ (2,706,798) 2,706,798 $ 4.19
Options exercised ...................... -- (61,278) $ 9.32
Options canceled ....................... 2,336,318 (2,336,318) $ 11.45
--------- --------- --------
Balance at December 31, 1998 .............. 729,795 1,874,962 $ 2.71
========= ========= ========
The following table summarizes information concerning all outstanding and
exercisable stock options as of December 31, 1998, including a stock grant to
the former Executive Officer of 300,000 shares and Directors Option Plan of
190,000 shares:
Options Outstanding Options Exercisable
--------------------------- ---------------------------------
Weighted Avg. Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ------------ -------- ----------- --------
$ 1.00 - $ 1.00 106,138 4.35 $ 1.00 106,138 $ 1.00
$ 1.88 - $ 3.00 1,870,490 9.62 $ 2.70 120,000 $ 3.00
$ 4.75 - $24.95 388,334 5.62 $ 14.14 175,472 $ 14.41
$ 1.00 - $24.95 2,364,962 8.72 $ 4.51 401,610 $ 7.46
Employee Stock Purchase Plan
The Company's 1994 Employee Stock Purchase Plan (the "Stock Purchase Plan)
was adopted by the Board of Directors and approved by the Company's stockholders
in January 1994. Under the Stock Purchase Plan, an eligible employee may
purchase shares of Common Stock from the Company through payroll deductions of
up to 10% of his or her compensation, at a price per share equal to 85% of the
lesser of the fair market value of the Company's Common Stock as of the first or
last trading day of each six month offering period. Offerings will commence on
the first trading day on or after January 1 and July 1 of each year and end on
the last trading day of the period six (6) months later. The Company has
reserved 200,000 shares of Common Stock for issuance under the stock Purchase
Plan.
Stockholder's Rights Plan
Effective January 27, 1997, the Company adopted a Stockholder's Rights Plan
wherein stock rights will be distributed as a dividend at the rate of one right
for each share of Common Stock held on February 14, 1997, the record date for
such dividend. The key terms of the Stockholder's Rights Plan will be activated
if any person acquires 15 percent or more of the Company's Common Stock without
the approval of the Company's Board of Directors. Once the Plan is activated,
each right will entitle the holder to purchase at a price of $95, a fraction of
a share of Preferred Stock which is equivalent to $190 worth of the Company's
Common Stock at the then current market value. Any person holding 15 percent or
more of the stock when the Stockholder's Rights Plan was adopted was
"grandfathered" for existing holdings. The Company's Board of Directors has
retained the right to amend the Stockholder's Rights Plan at any time prior to
its activation.
Pro Forma Net Income and Earnings Per Share
Had stock-based compensation cost for the Company's stock option and Stock
Purchase Plan been determined based on the fair value at the grant dates using
the Black-Scholes model as prescribed by SFAS 123, the Company's results for the
years ended December 31, 1998, 1997 and 1996 would have been as follows (in
thousands):
1998 1997 1996
-------- -------- --------
Net income (loss) as reported ................ $(51,439) $ 12,910 $ 18,523
Pro forma net income (loss) .................. $(56,794) $ 9,725 $ 16,219
Basic earnings per share as reported ......... $ (3.66) $ 0.93 $ 1.30
Diluted earnings per share as reported ....... $ (3.66) $ 0.90 $ 1.21
Pro forma basic earnings per share ........... $ (4.04) $ 0.70 $ 1.15
Pro forma diluted earnings per share ......... $ (4.04) $ 0.67 $ 1.08
The pro forma effect on net income and earnings per share is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following weighted average assumptions:
1998 1997 1996
------ ------ ------
Stock option plan:
Expected dividend yield .......................... 0.0% 0.0% 0.0%
Expected stock price volatility .................. 118% 65% 65%
Risk free interest rate .......................... 5.27% 6.11% 5.78%
Expected life of options (years) ................. 3.1 2.7 2.3
Stock purchase plan:
Expected dividend yield .......................... 0.0% 0.0% 0.0%
Expected stock price volatility .................. 227% 65% 71%
Risk free interest rate .......................... 4.87% 5.37% 5.29%
Expected life of option (years) .................. 0.5 0.5 0.5
The weighted average estimated grant date fair value, as defined by SFAS
123, for options granted under the Stock Option Plan during 1998, 1997 and 1996
was $2.91, $5.64 and $10.62, respectively. The weighted average estimated grant
date fair value, as defined by SFAS 123, for purchase rights granted under the
Stock Purchase Plan during 1998, 1997 and 1996 was $5.60, $5.23 and $10.88,
respectively.
NOTE 10. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following (in thousands):
Year ended December 31,
------------------------------
1998 1997 1996
-------- -------- --------
Current:
Federal .................................. $(18,230) $ 11,767 $ 12,229
State .................................... 175 2,956 2,704
-------- -------- --------
(18,055) 14,723 14,933
Deferred:
Federal .................................. 8,750 (5,206) (2,002)
State .................................... 2,350 (1,271) (582)
-------- -------- --------
11,100 (6,477) (2,584)
-------- -------- --------
$ (6,955) $ 8,246 $ 12,349
======== ======== ========
The difference between income taxes at the statutory federal income tax
rate and income taxes reported in the income statement are as follows:
Year ended December 31,
----------------------
1998 1997 1996
---- ---- ----
Federal statutory tax rate ........................ (35.0)% 35.0% 35.0%
State income taxes, net of federal benefit ........ 2.8 5.1 4.5
Research and development tax credits .............. (0.0) (2.4) (0.7)
Permanent differences ............................. 0.2 -- --
Valuation allowance ............................... 25.0 -- --
Other ............................................. (4.9) 1.3 1.2
---- ---- ----
(11.9)% 39.0% 40.0%
==== ==== ====
Deferred income taxes result from temporary differences in the recognition
of certain expenses for financial and income tax reporting purposes. The net
deferred tax asset consists of the following (in thousands):
As of December 31,
---------------------
1998 1997
-------- --------
Deferred Tax Assets:
State taxes .................................. $ -- $ 724
Non-deductible reserves ...................... 13,131 10,493
Inventory basis difference ................... 113 89
Depreciation ................................. 2,373 1,388
Other ........................................ 563 --
-------- --------
Gross deferred tax asset ......................... 16,180 12,694
Deferred tax liabilities ......................... (104) (104)
-------- --------
Net deferred tax assets .......................... 16,076 12,590
Less Valuation Allowance ......................... (14,586) --
-------- --------
$ 1,490 $ 12,590
======== ========
NOTE 11. SIGNIFICANT CUSTOMERS
The Company's sales to significant customers as a percentage of total sales
are as follows:
Year ended December 31,
----------------------
Customer 1998 1997 1996
------------------------------------------------- ---- ---- ----
A ............................................... 21.6% 25.5% 36.5%
B ............................................... 18.1% 14.0% 11.8%
C ............................................... 11.6% 14.6% *
D ............................................... 10.8% * *
E ............................................... * 23.3% *
F ............................................... * * 19.2%
The Company's accounts receivable from significant customers are as
follows:
December 31,
-------------
Customer 1998 1997
---------------------------------------------------------- ---- ----
A ........................................................ 37.8% 43.9%
B ........................................................ 11.2% 14.8%
C ........................................................ * 11.7%
*Amounts less than 10% have been omitted from the above tables.
SCHEDULE II: Valuation and Qualifying Accounts
Balance at Balance at
beginning end
(in thousands) of year Additions Deductions of year
- --------------------------------- --------- --------- ---------- ----------
Year ended December 31, 1996
Allowance for doubtful accounts $ 3,150 $ 11,768 $(11,952) $ 2,966
Year ended December 31, 1997
Allowance for doubtful accounts $ 2,966 $ 9,490 $ (9,155) $ 3,301
Year ended December 31, 1998
Allowance for doubtful accounts $ 3,301 $ 4,236 $ (5,652) $ 1,885
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
Part III.
Item 10. Directors and Executive Officers of the Registrant
Information required by this Item other than information regarding
executive officers is set forth under the section of the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders entitled "ELECTION OF
DIRECTORS" and "EXECUTIVE COMPENSATION AND OTHER MATTERS." Information regarding
the Company's executive officers may be found in the section entitled "Executive
Officers" in Part I of this 10-K.
Item 11. Executive Compensation
The information under the captions "Executive Compensation" and "Stock
Options and Bonuses" in the Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on May 26, 1999 (the "Proxy Statement") is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information under the caption "Stock Ownership of Certain
Beneficial Owners" of the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the caption "Certain Transactions" of the Proxy
Statement is incorporated herein by reference.
With the exception of the information specifically stated as being
incorporated by reference from the Company's Proxy Statement in Part III of this
Annual Report on Form 10-K, the Company's Proxy Statement is not to be deemed as
filed as part of this report. The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days of the Company's fiscal year
end.
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements See Item 8 of this Report.
(2) Financial Statement Schedules
See Item 8 of this Report.
Exhibits Page
3.1 Amended and Restated Certificate of Incorporation.(1) --
3.2 Second Amended and Restated By-laws. 47
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 Companyof New York, as Rights Agent.(4) --
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) --
10.17 Sublease dated Nov. 18, 1994, between Thoits Bros. and the
Registrant for 180 Cochrane Circle. (2) --
10.18 Lease dated Nov. 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) --
10.29 1997 Annual Executive Incentive Plan.(5) --
10.30 Registrant's Second Amended and Restated 1993 Stock Option Plan.(6) --
10.31 Registrant's Amended and Restated 1998 Stock Option Plan.(6) --
10.32 Employment Agreement dated June 1, 1998 between Registrant
and Richard D. Kent.(6) --
10.33 Employment Termination Agreement dated Nov. 12, 1998 between
Registrant and Daniel L. Eilers.(6) --
10.34 Employment Agreement dated Sept. 30, 1998 between Registrant
and Paul G. Locklin. 60
10.35 Employment Agreement dated Sept. 30, 1994 between Registrant
and Timothy J. Dooley. 64
10.36 Separation Agreement dated Sept. 20, 1998 between Registrant
and Marv Tseu. 69
10.37 Separation Agreement dated Sept. 20, 1998 between Registrant
and Jim Hindmarch. 71
10.38 Separation Agreement dated Nov. 20, 1998 between Registrant
and Ho Leung Cheung. 73
- ----------------------------
(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 10-Q for the quarter
ended March 31, 1997.
(5) Incorporated herein by reference to the Company's Form 10-Q for the quarter
ended June 30, 1997.
(6) Incorporated herein by reference to the Company's Form 10-Q for the quarter
ended September 30, 1998.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized on the 26th day of March
1999.
CIDCO INCORPORATED
By: /s/ Paul G. Locklin
President and Chief Executive Officer
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, each on the 26th day of March 1999.
/s/ Richard D. Kent Chief Financial Officer, Chief Operating Officer,
Richard D. Kent Corporate Secretary and Principal Accounting Officer
/s/ Daniel L. Eilers Director
Daniel L. Eilers
/s/ Richard M. Moley Director
Richard M. Moley
/s/ Ernest K. Jacquet Director
Ernest K. Jacquet
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-71649) of CIDCO Incorporated of our report dated
January 26, 1999 appearing on page 27 of the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
/s/
PricewaterhouseCoopers LLP
San Jose, California
March 30, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000917639
<NAME> CIDCO INCORPORATED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,349
<SECURITIES> 13,975
<RECEIVABLES> 29,574
<ALLOWANCES> 1,885
<INVENTORY> 22,086
<CURRENT-ASSETS> 97,503
<PP&E> 28,703
<DEPRECIATION> 19,012
<TOTAL-ASSETS> 107,667
<CURRENT-LIABILITIES> 27,265
<BONDS> 0
0
0
<COMMON> 144
<OTHER-SE> 80,258
<TOTAL-LIABILITY-AND-EQUITY> 107,667
<SALES> 174,703
<TOTAL-REVENUES> 174,703
<CGS> 143,776
<TOTAL-COSTS> 92,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (58,394)
<INCOME-TAX> (51,439
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,439)
<EPS-PRIMARY> (3.66)
<EPS-DILUTED> (3.66)
</TABLE>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
CIDCO INCORPORATED
a Delaware corporation
(the "Company")
(as amended through January 26, 1999)
TABLE OF CONTENTS
Page
ARTICLE I. STOCKHOLDERS
Section 1.1 Annual Meeting............................... 1
Section 1.2 Special Meetings............................. 1
Section 1.3 Notice of Meetings........................... 1
Section 1.4 Quorum....................................... 2
Section 1.5 Voting....................................... 2
Section 1.6 Presiding Officer and Secretary.............. 2
Section 1.7 Proxies...................................... 2
Section 1.8 List of Stockholders......................... 2
Section 1.9 Actions Without a Meeting.................... 3
Section 1.10 Notice of Stockholder Business............... 3
Section 1.11 Conduct of Business.......................... 3
ARTICLE II. DIRECTORS
Section 2.1 Number of Directors.......................... 4
Section 2.2 Election and Term of Directors............... 5
Section 2.3 Vacancies and Newly Created
Directorships........................... 5
Section 2.4 Resignation.................................. 5
Section 2.5 Meetings..................................... 5
Section 2.6 Quorum and Voting............................ 6
Section 2.7 Written Consents and Meetings by
Telephone............................... 6
Section 2.8 Compensation................................. 6
Section 2.9 The "Whole Board"............................ 6
Section 2.10 Chairman of the Board........................ 6
Section 2.11 Nomination of Director Candidates............ 7
ARTICLE III. COMMITTEES OF THE BOARD
Section 3.1 Appointment and Powers....................... 8
ARTICLE IV. OFFICERS, AGENTS AND EMPLOYEES
Section 4.1 Appointment and Qualification................ 8
Section 4.2 Removal of Officers, Agents or
Employees............................... 9
Section 4.3 Compensation and Bond........................ 9
Section 4.4 President.................................... 9
Section 4.5 Vice President - Finance and
Administration.......................... 9
Section 4.6 Other Vice Presidents........................ 10
Section 4.7 Treasurer.................................... 10
Section 4.8 Secretary.................................... 10
Section 4.9 Assistant Treasurers......................... 10
Section 4.10 Assistant Secretaries........................ 10
Section 4.11 Delegation of Duties......................... 11
ARTICLE V. CAPITAL STOCK
Section 5.1 Certificates ................................ 11
Section 5.2 Transfers of Stock........................... 11
Section 5.3 Lost, Stolen or Destroyed
Certificates............................ 11
Section 5.4 Stockholder Record Date...................... 11
ARTICLE VI. SEAL
Section 6.1 Seal......................................... 12
ARTICLE VII. WAIVER OF NOTICE
Section 7.1 Waiver of Notice............................. 12
ARTICLE VIII. INDEMNIFICATION
Section 8.1 Indemnification............................. 13
Section 8.2 Determinations ............................. 13
Section 8.3 Business Combinations....................... 14
Section 8.4 Advances of Expenses........................ 14
Section 8.5 Employee Benefit Plans...................... 14
ARTICLE IX. AMENDMENTS
Section 9.1 Amendments.................................. 14
EXHIBIT 3.2
AMENDED AND RESTATED
(as amended through January 26, 1999)
BY-LAWS
OF
CIDCO INCORPORATED
a Delaware corporation
(the "Company")
Article I. Stockholders
Section 1.1. Annual Meeting. The annual meeting of stockholders of the
Company, for the election of directors and for the transaction of any other
business which may properly be transacted at the annual meeting, shall be held
at such hour on such day and at such place within or with out the State of
Delaware as may be fixed by the Board of Directors.
Section 1.2. Special Meetings. A special meeting of the stockholders of the
Company entitled to vote on any business to be considered at any such meeting
may be called by the President, any Vice President or the Secretary when
directed to do so by resolution of the Board of Directors or at the written
request of directors representing a majority of the Whole Board or at the
written request of the holders of stock representing a majority of the voting
power of the Company entitled to vote at such meeting.Any such request shall
state the purpose or purposes of the proposed meeting.
Section 1.3. Notice of Meetings. (a) Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
(b) Unless otherwise provided by law, and except as to any stockholder
duly waiving notice, the written notice of any meeting shall be given personally
or by mail, not less than ten nor more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, notice
shall be deemed given when deposited in the United States mail, postage prepaid,
directed to the stockholder at such stockholder's address as it appears on the
stock records of the Company.
(c) When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Company may transact any business which might have been transacted
at the original meeting. If, however, the adjournment is for more than 30 days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 1.4. Quorum. Except as otherwise provided by law in respect of the
vote of holders of stock that shall be required for a specified action, at any
meeting of stockholders the holders of stock representing a majority of the
voting power of the Company entitled to vote thereat, either present or
represented by proxy, shall constitute a quorum for the transaction of any
business, but the stockholders present, although less than a quorum, may adjourn
the meeting to another time or place and, except as provided in Section 1.3(c)
of these By-Laws, notice need not be given of the adjourned meeting.
Section 1.5. Voting. (a) Whenever directors are to be elected at a meeting,
they shall be elected by a plurality of the votes cast at the meeting by the
holders of stock entitled to vote thereat. Whenever any corporate action, other
than the election of directors, is to be taken by vote of stockholders at a
meeting, it shall, except as otherwise required by law or by the certificate of
incorporation or by these By-Laws be authorized by a majority of the votes cast
at the meeting by the ho1ders of stock entitled to vote thereat.
(b) Except as otherwise provided by law or by the certificate of
incorporation, each holder of record of stock of the Company entitled to vote on
any matter shall be entitled to one vote for each share of capital stock
standing in the name of such holder on the stock ledger of the Company on the
record date for the determination of the stockholders entitled to vote on such
matter.
Section 1.6. Presiding Officer and Secretary. At every meeting of
stockholders the President, or, in the President's absence, any Vice President,
or, if none be present, the appointee of the meeting, shall preside. The
Secretary, or in the Secretary's absence an Assistant Secretary, or if none be
present, the appointee of the presiding officer of the meeting, shall act as
secretary of the meeting.
Section 1.7. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. Every proxy
shall be signed by the stockholder or by such stockholder's duly authorized
attorney. A proxy that does not bear a date shall be deemed to be dated the date
it was first delivered to one or more of the persons named to act under such
proxy.
Section 1.8. List of Stockholders. (a) The officer who has charge of the
stock ledger of the Company shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order and showing the address of
each stockholder and the number of shares registered in such stockholder's name.
Such list shall be open to the examination of any stockholder entitled to vote
at the meeting, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder entitled to vote at the meeting who is present.
(b) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section 1.8 or the books of the Company, or to vote in person or by proxy at any
meeting of stockholders.
Section 1.9. Actions Without a Meeting. Until the closing of a firm
commitment or underwritten public offering of the Company's Common Stock (a
"Public Offering"), any action required or permitted to be taken at any annual
or special meeting of the holders of Common Stock of the Company may be taken
without a meeting, without prior notice and without a vote, if consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented to such
action in writing. Effective upon and after the closing of a Public Offering,
corporate action required to be taken at any annual or special meeting of the
holders of Common Stock of the Company may not be taken by written instrument in
lieu of such a meeting. Any such attempted corporate action by written consent
of the holders of Common Stock of the Company in lieu of a meeting after the
closing of a Public Offering is prohibited and shall be null and void.
Section 1.10. Notice of Stockholder Business. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
properly brought before the meeting by or at the direction of the Board of
Directors, (iii) properly brought before an annual meeting by a stockholder or
(iv) properly brought before a special meeting by a stockholder, but if, and
only if, the notice of a special meeting provides for business to be brought
before the meeting by stockholders.
For business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company. To be timely, (i) a stockholder proposal to be presented at an
annual meeting shall be received at the Company's principal executive offices
not less than 120 calendar days in advance of the date that the Company's (or
the Company's predecessor's) proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders, except that
if no annual meeting was held in the previous year or the date of the annual
meeting has been advanced by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement notice by the
stockholders to be timely must be received not later than the close of business
on the tenth day following the day on which the date of the annual meeting is
publicly announced and (ii) a stockholder proposal to be presented at a special
meeting must be received not later than the close of business on the tenth
(10th) day following the date on which the date of the special meeting is
publicly announced.
A stockholder's notice to the Secretary of the Company shall set forth as
to each matter the stockholder proposes to bring before the annual or special
meeting (i) a brief description of the business desired to be brought before the
annual or special meeting, (ii) the name and address, as they appear on the
Company's books, of the stockholder proposing such business, (iii) the class and
number of shares of the Company which are beneficially owned by the stockholder
and (iv) any material interest of the stockholder in such business.
Section 1.11. Conduct of Business. Unless otherwise approved by the
Chairman of the meeting, attendance at the stockholders' meeting is restricted
to stockholders of record, persons authorized in accordance with Section 1.7 of
these By-laws to act by proxy, and officers of the Company.
The Chairman of the meeting shall call the meeting to order, establish the
agenda, and conduct the business of the meeting in accordance therewith or, at
the Chairman's discretion, it may be conducted otherwise in accordance with the
wishes of the stockholders in attendance. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of, and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.11 and
Section 1.10 above. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that any proposed item of business was not
brought before the meeting in accordance with the provisions of this Section
1.11 and Section 1.10, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted
Article II. Directors
Section 2.1. Number of Directors. The Board of Directors shall consist of
such number of persons, not less than five nor more than nine, and the exact
number of directors shall be six until changed, within the limits specified
above, by the affirmative vote at a meeting of the holders of stock representing
a majority of the voting power of the Company or by resolution of the Board of
Directors, adopted by a majority of the Whole Board; provided that the number of
directors shall not be reduced so as to shorten the term of any director in
office at the time. The indefinite number of directors specified above may be
changed, or a definite number may be fixed without provision for an indefinite
number, by the affirmative vote at a meeting of the holders of stock
representing a majority of the voting power of the Company, provided, however,
that no amendment or amendments adopted in any year may change the stated
maximum number of authorized directors to a number greater than two times the
stated minimum number of directors at the beginning of such year minus one and,
provided, further, that the number of directors shall not be reduced so as to
shorten the term of any director in office at the time. The Board of Directors
of the Company shall be divided into three classes, designated Class A, Class B
and Class C. Each class shall consist, as nearly as is reasonably possible, of
one-third of the total number of directors constituting the Whole Board. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible.
Section 2.2. Election and Term of Directors. Directors shall be elected
annually at the annual meeting of stockholders. Each director shall hold office
until such director's successor is elected and qualified or until such
director's earlier resignation or death. If the annual election of directors is
not held on the date designated therefor, the directors shall cause such
election to be held as soon thereafter as convenient. At the 1994 annual meeting
of stockholders, Class A directors shall be elected for a 1-year term, Class B
directors for a 2-year term and Class C directors for a 3-year term. At each
succeeding annual meeting of stockholders beginning in 1995, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a 3-year term.
Section 2.3. Vacancies and Newly Created Directorships. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by election at a meeting of stockholders. Vacancies and
such newly created directorships may also be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a decrease
in the number of directors shorten the term of any director in office at the
time. Any vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the Board of Directors then
in office, and any other vacancy occurring in the Board of Directors may be
filled by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. Any director elected to fill a vacancy
not resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor.
Section 2.4. Resignation. Any director may resign from office at any time
either by oral tender of resignation at any meeting of the Board or by oral
tender to the President, any Vice President or by giving written notice to the
Secretary of the Company. Any such resignation shall take effect at the time it
specifies or, if the time be not specified, upon receipt, and the acceptance of
such resignation, unless required by its terms, shall not be necessary to make
such resignation effective.
Section 2.5. Meetings. Meetings of the Board, regular or special, may be
held at any place within or without the State of Delaware. An annual meeting of
the Board for the appointment of officers and the transaction of any other
business shall be held immediately following the annual meeting of stockholders
at the same place at which such meeting shall have been held, and no notice
thereof need be given. If the meeting is not so held, the annual meeting of the
Board shall take place as soon thereafter as is practicable, either at the next
regular meeting of the Board or at a special meeting. The Board may fix times
and places for regular meetings of the Board and no notice of such meetings need
be given. A special meeting of the Board shall be held whenever called by the
Chairman of the Board, the President, any Vice President or by any two directors
(except that if more than one meeting be called by directors in any period of
180 days or less, each such meeting so called may be called only by a majority
of the directors then in office) at such time and place as shall be specified in
the notice or waiver thereof. Notice of each special meeting shall be given by
the Secretary or by a person calling the meeting to each director by mailing the
same, first class postage prepaid, not later than the second day before the
meeting, or personally or by telegraphing, sending by telephone facsimile or
telephoning the same not later than the day before the meeting.
Section 2.6. Quorum and Voting. A majority of the Whole Board of Directors
shall constitute a quorum for the transaction of business (except as otherwise
provided by Section 2.3 hereof), but in no event shall a quorum consist of less
than two directors. If there be less than a quorum at any meeting of the Board,
a majority of the directors present may adjourn the meeting from time to time,
and no further notice thereof need be given other than announcement at the
meeting which shall be so adjourned. Except as otherwise provided by law or by
these By-Laws, the act of a majority of the directors present at a meeting at
which a Quorum is present shall be the act of the Board of Directors.
Section 2.7. Written Consents and Meetings by Telephone. Any (action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting if all members of the Board
or of such committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of proceedings of the Board or
committee. Members of the Board of Directors or any committee designated by the
Board may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this sentence shall constitute presence in person at such
meeting.
Section 2.8. Compensation. Directors may receive compensation for services
to the Company in their capacities as directors or otherwise in such manner and
in such amounts as may be fixed from time to time by the Board.
Section 2.9. The "Whole Board". As used in these By-Laws the term "the
Whole Board" or "the Whole Board of Directors" means the total number of
directors which the Company would have if there were no vacancies.
Section 2.10. Chairman of the Board. The Board may from time to time
designate from among its members a Chairman of the Board, who shall preside at
all meetings of the Board at which the Chairman is present (unless the Chairman
shall delegate such duties to the President or another director with respect to
a particular meeting of the Board). The Chairman of the Board shall have such
further powers and perform such other duties as may be prescribed by the Board.
The Chairman of the Board shall not, by virtue of designation as such, be
considered an officer of the Company.
Section 2.11. Nomination of Director Candidates Subject to the rights of
holders of any class or series of Preferred Stock then outstanding, nominations
for the election of directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of directors generally. However, any stockholder entitled
to vote in the election of directors generally may nominate one or more persons
for election as directors at a meeting only if timely notice of such
stockholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Company.
To be timely, a stockholder nomination for a director to be elected at an
annual meeting shall be received at the Company's principal executive offices
not less than 120 calendar days in advance of the date that the Company's (or
the Company's predecessor's) proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders, except that
if no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, or in the event
of a nomination for director to be elected at a special meeting, notice by the
stockholders to be timely must be received not later than the close of business
on the tenth day following the date on which the date of the special meeting is
publicly announced
Each such notice shall set forth (i) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated, (ii) a representation that the stockholder is a holder of record
of stock of the Company entitled to vote for the election of directors on the
date of such notice and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice, (iii) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder, (iv) such
other information regarding each nominee proposed by such stockholder as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission, had the nominee been nominated,
or intended to be nominated, by the Board of Directors and (v) the consent of
each nominee to serve as a director of the Company if so elected.
In the event that a person is validly designated as a nominee in accordance
with this Section 2.11 and shall thereafter become unable or unwilling to stand
for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section 2.11 had such substitute in nominee been initially proposed as a
nominee. Such notice shall include a signed consent to serve as a director of
the Company, if elected, of each such substitute nominee.
If the Chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.11,
such nomination shall be void; provided, however, that nothing in this Section
2.11 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock
Article III. Committees of the Board
Section 3.1. Appointment and Powers. The Board of Directors may from time
to time, by resolution passed by a majority of the Whole Board, designate an
executive committee or such other committee or committees as it may determine,
each committee to consist of one or more directors of the Company. Any such
committee, to the extent provided in the resolution, shall have and may exercise
any of the powers and authority of the Board of Directors in the management of
the business and affairs of the Company, and may authorize the seal of the
Company to be affixed to all papers which may require it, all subject to the
exceptions set forth in the General Corporation Law of the State of Delaware.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of any member of any committee
and of any alternate member designated by the Board, the member or members
thereof present at any meeting and not disqualified from voting; whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in place of any such
absent or disqualified member. Any such committee may adopt rules governing the
method of calling and time and place of holding its meetings. Unless otherwise
provided by the Board of Directors, a majority of any such committee shall
constitute a quorum for the transaction of business, and the act of a majority
of the members of such committee present at a meeting at which a quorum is
present shall be the act of such committee. Each such committee shall keep a
record of its acts and proceedings and shall report thereon to the Board of
Directors whenever requested so to do. Any or all members of any such committees
may be removed, with or without cause, by resolution of the Board of Directors,
adopted by a majority of the Whole Board.
Article IV. Officers, Agents and Employees
Section 4.1. Appointment and Qualification. The Board of Directors may
elect or appoint a President, a Treasurer, a Secretary, one or more Vice
Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries. Any number of offices may be held by the same person. Each officer
shall hold office until such officer's successor is elected and qualified or
until such officer's earlier resignation or removal. The Board may appoint, and
may delegate power to appoint, such other officers, agents and employees as it
may deem necessary or proper, who shall hold office for such period, have such
authority and perform such duties as may from time to time be prescribed by the
Board.
Section 4.2. Removal of Officers, Agents or Employees. Any officer, agent
or employee of the Company may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to officers, agents and employees not appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the Company
shall not of itself create contract rights.
Section 4.3. Compensation and Bond. The compensation of the officers of the
Company shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under such officer's
direction or control. The Company may secure the fidelity of any or all of its
officers, agents or employees by bond or otherwise.
Section 4.4. President. The President shall preside at all meetings of the
stockholders at which the President is present and shall preside at meetings of
the Board in the absence of the Chairman or if the Chairman shall delegate such
duties to the President with respect to a particular meeting of the Board. The
President shall be the chief executive officer and, unless the Board shall
designate another officer as such, shall be the principal operating officer of
the Company. Subject to the control of the Board, the President shall have
general charge of the business and affairs of the Company and shall keep the
Board fully advised. The President shall employ and discharge employees and
agents of the Company, except such as shall be appointed by the Board, and the
President may delegate these powers to the Vice Presidents or other officers.
The President may vote the shares or other securities of any other domestic or
foreign company of any type or kind which may at any time be owned by the
Company, may execute any stockholder or other consent in respect thereof and may
in the President's discretion delegate such powers by executing proxies, or
otherwise, on behalf of the Company. In the absence or inability to act of the
Chairman of the Board, unless the Board shall otherwise provide, the President
shall perform all the duties and may exercise any of the powers of the Chairman
of the Board, subject to the control of the Board of Directors. The President
shall have such other powers and perform such duties as the Board of Directors
may from time to time prescribe. The Board, by resolution from time to time, may
confer other like powers upon any other person or persons.
Section 4.5. Vice President - Finance and Administration. The Vice
President - Finance and Administration shall be the chief financial officer of
the Company and shall have charge of all funds and securities of the Company,
shall endorse the same for deposit or collection when necessary and deposit the
same to the credit of the Company in such banks or depositories as the Board of
Directors may authorize. The Vice President - Finance and Administration may
endorse all commercial documents requiring endorsements for or on behalf of the
Company and may sign all receipts and vouchers for payments made to the Company.
The Vice President - Finance and Administration shall have all such further
powers and duties as generally are incident to the position of chief financial
officer or as may be assigned to the Vice President - Finance and Administration
by the President or the Board of Directors. The performance of any such duty
shall, in respect of any person dealing with the Company, be conclusive evidence
of the Vice President - Finance and Administrations power to act.
Section 4.6. Other Vice Presidents. Each other Vice President shall have
such powers and perform such duties as the Board of Directors or the President
may from time to time prescribe. In the absence or inability to act of the
President, unless the Board or Directors shall otherwise provide, the Vice
President who has served in that capacity for the longest time and who shall be
present and able to act, shall perform all the duties and may exercise any of
the powers of the President. The performance of any duty by a Vice President
shall, in respect of any other person dealing with the Company, be conclusive
evidence of such Vice President's power to act.
Section 4.7. Treasurer. The Treasurer shall have such powers and
perform such duties as the Board of Directors, the President or the Vice
President - Finance and Administration may from time to time prescribe. In the
absence or inability to act of the Vice President - Finance and Administration,
the Treasurer may perform all the duties and exercise all the powers of the
chief financial officer. The performance of any such duty shall, in respect of
any other person dealing with the Company, be conclusive evidence of the
Treasurer's power to act.
Section 4.8. Secretary. The Secretary shall record all proceedings of
meetings of the stockholders and directors in a book kept for that purpose and
shall file in such book all written consents of directors to any action taken
without a meeting. The Secretary shall attend to thc giving and serving of all
notices of the Company. The Secretary shall have custody of the seal of the
Company and shall attest the same by signature whenever required. The Secretary
shall have charge of the stock ledger and such other books and papers as the
Board of Directors may direct, but may delegate responsibility for maintaining
the stock ledger to any transfer agent appointed by the Board. The performance
of any such duty shall, in respect of any other person dealing with the Company,
be conclusive evidence of the Secretary's power to act. The Secretary shall have
all such further powers and duties as generally are incident to the position of
Secretary or as may be assigned to the Secretary by the President, any Vice
President or the Board of Directors.
Section 4.9. Assistant Treasurers. In the absence or inability to act
of the Vice President - Finance and Administration and the Treasurer, any
Assistant Treasurer may perform all the duties and exercise all the powers of
the Vice President - Finance and Administration and the Treasurer. The
performance of any such duty shall, in respect of any other person dealing with
the Company, be conclusive evidence of such Assistant Treasurer's power to act.
An Assistant Treasurer shall also perform such other duties as the Vice
President Finance and Administration, the Treasurer or the Board of Directors
may assign to such person.
Section 4.10. Assistant Secretaries. In the absence or inability to act
of the Secretary, any Assistant Secretary may perform all the duties and
exercise all the powers of the Secretary. The performance of any such duty
shall, in respect of any other person dealing with the Company, be conclusive
evidence of such Assistant Secretary's power to act. An Assistant Secretary
shall also perform such other duties as the Secretary or the Board of Directors
may assign to such person.
Section 4.11. Delegation of Duties. In case of the absence of any
officer of the Company, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director or other
person designated by the Board.
Article V. Capital Stock
Section 5.1. Certificates. Certificates for stock of the Company shall be
in such forms as shall be approved by the Board of Directors and shall be signed
in the name of the Company by the President or any Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
Such certificates may be sealed with the seal of the Company or a facsimile
thereof, and shall contain such information as is required by law to be stated
thereon. Any of or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Company with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
Section 5.2. Transfers of Stock. Transfers of stock shall be made only upon
the books of the Company by the holder, in person or by duly authorized
attorney, and on the surrender of the certificate or certificates for such stock
properly endorsed. The Board of Directors shall have the power to make all such
rules and regulations, not inconsistent with the certificate of incorporation
and these By-Laws, as the Board may deem appropriate concerning the issue,
transfer and registration of certificates for stock of the Company. The Board
may appoint one or more transfer agents or registrars of transfers, or both, and
may require all stock certificates to bear the signature of either or both,
which signature or signatures may be in facsimile form if the Board by
resolution authorizes such procedure.
Section 5.3. Lost, Stolen or Destroyed Certificates. The Company may issue
a new stock certificate in the place of any certificate theretofore issued by
it, alleged to have been lost, stolen or destroyed, and the Company may require
the owner of the lost, stolen or destroyed certificate or such owner's legal
representative to give the Company a bond sufficient to indemnify it against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of any such new certificate.
The Board may require such owner to satisfy other reasonable requirements.
Section 5.4. Stockholder Record Date. (a) In order that the Company may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than 60 nor less than ten
days before the date of such meeting, nor more than 60 days prior to any other
action. Only such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to notice of, and to vote at, such meeting and any
adjournment thereof, or to express consent or dissent to corporate action in
writing without a meeting, or to receive payment of such dividend or other
distribution, or to exercise such rights in respect of any such change,
conversion or exchange of stock, or to participate in such action, as the case
may be, not withstanding any transfer of any stock on the books of the Company
after any record date so fixed.
(b) If no record date is fixed by the Board of Directors, (i) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the date on which notice is given, (ii) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed, and
(iii) the record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, provided that the Board of Directors may fix a new record date for the
adjourned meeting.
Article VI. Seal
Section 6.1. Seal. The seal of the Company shall consist of a flat-faced
circular die with the name of the Company in a circle and the word "Delaware"
and the year of its incorporation in the center. Such seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Article VII. Waiver of Notice
Section 7.1. Waiver of Notice. Whenever notice is required to be given by
statute, or under any provision of the certificate of incorporation or these
By-Laws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. In the case of a stockholder, such waiver of notice may be signed by
such stockholder's attorney or a proxy duly appointed in writing. Attendance of
a stockholder at a meeting of stockholders, or attendance of a director at a
meeting of the Board of Directors or any committee thereof, shall constitute a
waiver of notice of such meeting, except when such stockholder or director, as
the case may be, attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice.
Article VIII. Indemnification
Section 8.1. Indemnification. The Company shall indemnify each director,
officer, employee and agent (provided, that, in the case of agents, the Company
shall indemnify only those agents to whom the Board of Directors shall
determine, before or after their engagement, shall be afforded the protection of
these indemnification provisions) of the Company who is a natural person, such
person's heirs, executors and administrators (whether or not natural persons)
and all other natural persons whom the Company is authorized to indemnify under
the provisions of the General Corporation Law of the State of Delaware to whom
the Board of Directors shall determine shall be afforded the protection of these
indemnification provisions (including but not limited to a person who is or was
serving at the request of the Company as a director, officer, partner, trustee,
employee or agent (or in a like capacity) of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise), to the fullest
extent permitted by law, (i) against all expenses (including but not limited to
attorneys' and other experts' fees and disbursements), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any actual or threatened action, suit or other proceeding,
whether civil, criminal, administrative, investigative or an arbitration, or in
connection with any appeal therein, or otherwise, and (ii) against all expenses
(including but not limited to attorneys' and other experts' fees and
disbursements) actually and reasonably incurred by such person in connection
with the defense or settlement of any action, suit or other proceeding by or in
the right of the Company, or in connection with any appeal therein, or
otherwise; and no provision of these By-Laws is intended to be construed as
limiting, prohibiting, denying or abrogating any of the general or specific
powers or rights conferred under the General Corporation Law of the State of
Delaware or by the certificate of incorporation of the Company, as may be
amended from time to time, upon the Company to furnish, or upon any court to
award, such indemnification, or such other indemnification as may otherwise be
authorized pursuant to the General Corporation Law of the State of Delaware or
any other law now or hereafter in effect, including but not limited to
indemnification of any employees or agents of the Company or of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. The term "proceeding" shall be understood to include any inquiry or
investigation that could lead to a proceeding. The indemnification provided for
herein shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled and shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators.
Section 8.2. Determinations. If and to the extent such indemnification
shall require a determination whether or not the relevant person met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware, such determination shall be made expeditiously at the cost of
the Company after a request for the same from the person seeking
indemnification. If indemnification is to be given or an advance of expenses is
to be made upon a determination by independent legal counsel, such counsel maybe
the regular counsel to the Company. In rendering such opinion, such counsel
shall be entitled to rely upon statements of fact furnished to them by persons
reasonably believed by them to be credible, and such counsel shall have no
liability or responsibility for the accuracy of the facts so relied upon, nor
shall such counsel have any liability for the exercise of their own judgment as
to matters of fact or law forming a part of the process of providing such
opinion. The fees and disbursements of counsel engaged to render such opinion
shall be paid by the Company whether or not such counsel ultimately are able to
render the opinion that is the subject of their engagement.
Section 8.3. Business Combinations. Unless the Board of Directors shall
determine otherwise with reference to a particular merger or consolidation or
other business combination, for purposes of this Article VIII references to "the
Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a merger or consolidation or other business combination which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, partner, trustee, employee, agent (or in a like capacity) of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
Section 8.4. Advances of Expenses. If a person who may be entitled to
indemnification hereunder shall request that such person's expenses actually and
reasonably incurred in connection with any action, suit, proceeding, arbitration
or investigation or appeal therein be paid by the Company in advance of the
final disposition thereof, such request shall not be unreasonably refused, and a
response to such request shall not be unreasonably delayed, by the Company.
Section 8.5. Employee Benefit Plans. References herein to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a corporate agent which imposes duties on, or involves
services by, the corporate agent with respect to an employee benefit plan, its
participants, or beneficiaries. A person who acted in good faith and in a manner
such person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner not opposed to the best interests of the Company.
Article IX. Amendments
Section 9.1. Amendments. These By-Laws or any of them may be altered,
amended or repealed, and new By-Laws may be adopted, at any annual meeting of
the stockholders, or at any special meeting of the stockholders called for that
purpose, by a vote of a majority of the voting power of the shares represented
and entitled to vote thereat. The Board of Directors shall also have the power,
by a majority vote of the Whole Board, to alter or amend or repeal the By-Laws
or any of them, and to adopt new By-Laws; provided that (i) any such action of
the Board of Directors may be amended or repealed by the stockholders at any
annual meeting or any special meeting called for that purpose, (ii) the Board of
Directors shall not have the power to alter or amend or repeal a specified
By-Law if such By-Law is adopted by the stockholders and contains an express
provision that such By-Law may be altered or amended or repealed only by action
of the stockholders, (iii) the Board of Directors shall not have the power to
alter, amend or repeal a By-Law to change the authorized number of directors
(except to fix the authorized number of directors pursuant to a By-Law providing
for a variable number of directors), and (iv) Article VIII hereof may be altered
or amended by the Board of Directors to increase the indemnification of the
persons referred to therein to the extent permitted by law, but such Article may
be otherwise altered, amended or repealed only by action of the stockholders as
provided above and, in that connection, any repeal, amendment or alteration
which reduces or limits the indemnification of the persons referred to therein
shall apply prospectively only and shall not be given retroactive effect. This
Article IX may be altered, amended or repealed only by action of the
stockholders.
Exhibit 10.34
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of
November 12, 1998 (the "Effective Date"), by and between CIDCO Incorporated, a
Delaware corporation (the "Company"), and Paul G. Locklin ("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 Second 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 Corporate Secretary, with a copy to the
Company's Corporate Counsel from Executive of such condition(s), which written
notice of condition(s) shall be delivered by Executive to such persons 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 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 cc: Corporate Counsel 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: November 12, 1998
By:/s/ Richard D. Kent
Title: COO/CFO
EXECUTIVE: Paul G. Locklin
Date: November 12, 1998
Executive's Signature
/s/ Paul G. Locklin
Exhibit 10.35
EMPLOYMENT AGREEMENT
AGREEMENT dated as of September 30, 1994 between CIDCO Incorporated, a
Delaware corporation (the "Company"), and Timothy Dooley (the "Employee").
WHEREAS, the Employee has been a key employee of the Company; and
WHEREAS, the Company is engaged in a highly technical and competitive
business.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. Employment and Term.
The Company hereby agrees to employ the Employee during the period
commencing as of the date hereof and continuing until this Agreement is
terminated pursuant to the terms hereof, to serve as Vice President, Business
Development - Telephone Companies of the Company and in such other executive
managerial position or positions with the Company or its subsidiaries or
affiliates as shall hereafter be designated by the Board of Directors of the
Company, to perform such managerial duties consistent with the usual duties of
an officer of his status. Such employment shall, except as otherwise stated
herein, be on the same terms and conditions as Employee is currently employed by
the Company. The Employee hereby accepts such employment and agrees to devote
his full business time exclusively to the faithful and diligent performance of
the duties provided herein and agrees in connection with the performance of such
duties to act in a manner consistent with the primary objective of maximizing
the profitability of the Company.
2. Compensation.
(a) Salary. The Company shall compensate the Employee with a base
salary of at least $52,000 (representing the Employee's base salary for 1994),
subject to annual review by the Company's Compensation Committee, with a minimum
annual increase in 1995 and subsequent years to reflect the percentage increase
in the cost of living during the preceding year as reflected in the All Items
Consumer Price Index for all urban consumers in the San Francisco-Oakland-San
Jose, California area as published by the United States Bureau of Labor
Statistics. Payment shall be made in 26 installments. In addition to the
Employee's base salary, the Company may also compensate the Employee with
commission and other bonuses in such amounts as the Company and the Employee may
from time to time agree.
(b) Benefits. The Employee shall be entitled to participate in such
pension plans, 401(k) plans, group health, accident or life insurance plans,
group medical and hospitalization plans, stock option plans, stock purchase
plans and other similar benefits, as may hereafter be available to the
executives of the Company. It is understood that, except as set forth herein,
the Company does not by reason of this Agreement obligate itself to make such
benefits available to its employees.
(c) Expenses. The Company shall pay or reimburse the Employee for all
expenses normally reimbursed by the Company and reasonably incurred by him in
furtherance of his duties hereunder including, without limitation, expenses for
traveling, meals, hotel accommodations and the like upon submission by him of
vouchers or an itemized list thereof prepared in compliance with such rules
relating thereto as the Board may, from time to time, adopt and as may be
required in order to permit such payments as proper deductions to the Company
under the Internal Revenue Code of 1986, as amended, and the rules and
regulations adopted pursuant thereto now or hereafter in effect.
(d) Vacations. During each year of employment (including the current
year ending December 31, 1994), the Employee shall be entitled to paid vacations
for an aggregate of the greater of (A) two weeks, or (B) such period as may be
provided from time to time in the Company's vacation policy. The Company shall
not pay the Employee any additional compensation for any vacation time not used
by the Employee.
3. Termination.
(a) This Agreement shall be terminated upon the happening of any of the
following events: (i) whenever the Company or the Employee shall give written
notice terminating this Agreement; (ii) upon the death of the Employee; or (iii)
upon the Permanent Disability (as such term is defined in Section 3(d) hereof)
of the Employee.
(b) In the event that the Employee's employment with the Company is
terminated by the Company without Cause (as defined in Section 3(c) hereof) or
is terminated by the Employee for Good Reason (as defined in Section 3(e)
hereof), then for a period of six months following the date his employment is so
terminated, the Employee shall continue to receive compensation payments in
amounts pro-rated over such six month period which in the aggregate equal the
total of all salary, commission and bonus compensation received by the Employee
during the six month period immediately prior to the date of such termination,
plus all other benefits to which the Employee is entitled pursuant to Section
2(b) hereof (including, without limitation, continuation of the Employee's
participation in the Company's pension, 401(k) plan, insurance, medical, stock
option, stock purchase and other benefit plans as if the Employee's employment
continued throughout such six month period), provided, however, that if during
such sic month period the Employee obtains reasonably comparable employemnt with
another employer, then the Employee's continuing compensation payments hereunder
shall cease upon the date of commencement of such comparable employemtn (but the
Employee's right to continued participating in Company benefits shall
nevertheless continue until the end of such six month period).
(c) For purposes hereof, "Cause" shall mean any of the following: (i)
the intentional failure, neglect or refusal of the employee to substantially
fulfill his material duties as an employee; (ii) a material breach of any
fiduciary duty or other material dishonesty by the employee with respect to the
Company or any affiliate thereof resulting in actual material harm to the
Company or such affiliate; or (iii) the conviction of the employee for a
fraudulent act or felony.
(d) For purposes hereof, "Permanent Disability" shall mean the total
incapacitation of the Employee so as to preclude performance of the duties of
his employment hereunder for an aggregate period of four months in any twelve
month period.
(e) For purposes hereof, "Good Reason" shall exist if the company
shall: (i) be in breach of or default under any material provision of this
Agreement and not cure such breach within 30 days of receiving notice of such
breach from the Employee; (ii) change the principal work location of the
Employee without the consent of the Employee, which consent may be withheld by
the Employee for any reason; (iii) materially change the duties of the Employee
without the Employee's consent, which consent may be withheld by the Employee
for any reason; (iv) reduce the Employee's base salary or benefits without the
Employee's consent, which consent may be withheld by the Employee for any
reason; or (v) become insolvent or bankrupt or file a voluntary or involuntary
petition in bankruptcy or make an assignment for the benefit of creditors or
consent to the appointment of a trustee or receiver.
4. Noncompetition and Nonintervention.
(a) While in the employ of the Company, the Employee agrees to devote
substantially all of his entire time, attention and energies to the performance
of the business of the Company and the Employee shall not, directly or
indirectly, alone or as a member of any partnership or other business
organization, or as a partner, officer, director, employee, stockholder,
consultant or agent of any other corporation, partnership or other business
organization, be actively engaged in or concerned with any other duties or
pursuits which interfere with the performance of his duties as an Employee of
the Company, or which, even if noninterfering, may be contrary to the best
interests of the Company.
(b) For a period of one year after the termination or cessation of the
Employee's employment with the Company for any reason (including termination of
employment by the Company without Cause), the Employee shall not, directly or
indirectly, alone or as a member of any partnership or other business
organization, or as a partner, officer, director, employee, stockholder,
consultant or agent of any corporation, partnership or business organization,
engage in any business activity which is directly or indirectly in competition
with the products or services being developed, manufactured, marketed, provided
or sold by the Company or which is directly or indirectly detrimental to the
business of the Company. For a period of eighteen months after the termination
or cessation of the Employee's employment with the Company for any reason
(including termination of employment by the Company without Cause) the Employee
shall not, directly or indirectly, alone or as a member of any partnership or
other business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any corporation, partnership or business
organization (i) request or cause any customer of the Company to cancel or
terminate any business relationship with the Company, or (ii) solicit or
otherwise cause any employee of the Company to terminate such employee's
relationship with the Company. For the purposes of this Section 4(b), a business
shall be deemed to be in competition with the Company only if the products or
services of such business are substantially similar in function or capability to
the products or services then being developed, manufactured, marketed, provided
or sold by the Company, and are marketed to substantially the same type of user
as that to which the products and services of the Company are marketed or
proposed to be marketed.
5. Confidential Information.
(a) The Employee will not at any time, whether during or after the termination
or cessation of his employment, reveal to any person, association or company any
of the trade secrets or confidential information concerning the organization,
business or finances of the Company so far as they have come or may come to his
knowledge, except as may be required in the ordinary course of performing his
duties as an employee of the Company or except as may be in the public domain
through no fault of the Employee, and the Employee shall keep secret all matters
entrusted to him and shall not use or attempt to use any such information in any
manner which may injure or cause loss or may be calculated to injure or cause
loss whether directly or indirectly to the Company.
(b) The Employee agrees that during his employment he shall not make,
use or permit to be used any notes, memoranda, drawings, specifications,
programs, data or other materials of any nature relating to any matter within
the scope of the business of the Company or concerning any of its dealings or
affairs otherwise than for the benefit of the Company. The Employee shall not,
after the termination or cessation of his employment, use or permit to be used
any such notes, memoranda, drawings, specifications, programs, data or other
materials, it being agreed that any of the foregoing shall be and remain the
sole and exclusive property of the Company and that immediately upon the
termination or cessation of his employment the Employee shall deliver all of the
foregoing, and all copies thereof, to the Company, at its main office.
6. Patent and Copyright Assignment.
The Employee agrees to assign and transfer to the Company or its
designee, without any separate remuneration or compensation, his entire right,
title and interest in and to all Inventions and Works in the Field (as
hereinafter defined), together with all United States and foreign rights with
respect thereto, and at the Company's expenses to execute and deliver all
appropriate patent and copyright applications for securing United States and
foreign patents and copyrights on such Inventions and Works, and to perform all
lawful acts, including giving testimony, and to execute and deliver all such
instruments, that may be necessary or proper to vest all such Inventions and
Works in the Field and patents and copyrights with respect thereto in the
Company, and to assist the Company in the prosecution or defense of any
interference which may be declared involving any said patent applications or
patents or copyright applications or copyrights. For the purposes of this
Agreement, the words "Inventions and Works" shall include any discovery,
process, design, development, improvement, application, technique, program or
invention, whether practice or not, conceived or made by the Employee,
individually or jointly with others (whether on or off the Company's premises or
during or after normal working hours) while in the employ of the Company,
provided, however, that no discovery, process, design, development, improvement,
application, technique, program or invention reduced to practice or conceived by
the Employee off the Company's premises and after normal working hours shall be
deemed to be included in the term "Inventions and Works" unless directly or
indirectly related to the business then being conducted by the Company or any
business which the Company is then actively exploring (collectively, the
"Field").deemed cumulative and the exercise of one shall not preclude the
exercise of any other remedy at law or in equity for the same event or any other
event.
7. Binding Effect.
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and the Company's successors or assigns (whether resulting from
any reorganization, consolidation or merger of the Company or any business to
which all or substantially all of the assets of the Company are sold) and the
Employee's heirs, executors and legal representatives.
8. Entire Agreement
This Agreement contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings with respect thereto and cannot be modified,
amended, waived or terminated, in whole or in part, except in writing signed by
the party to be charged.
9. Right to Injunction.
The Employee acknowledges and agrees that the services rendered and to
be rendered to the Company by him are of a specialized and unique character and
that irreparable and immediate damage will result to the Company if Employee
fails to, refuses to or neglects to perform his agreements and obligations
hereunder. In the event of such a failure, refusal or neglect by the Employee,
the Company shall be entitled to injunctive relief or any other legal or
equitable remedies including the recovery, by appropriate action, of the amount
of the actual damage caused by the Company by any such failure, refusal or
neglect by the Employee. The remedies provided in this Agreement shall be deemed
cumulative and the exercise of one shall not preclude the exercise of any other
remedy at law or in equity for the same vent or any other event.
10. Miscellaneous
(a) Amendments. No amendment, modification or waiver of any of the
terms of this Agreement shall be valid unless made in writing and signed by the
Employee and the Company.
(b) Successors in Interest. All provisions of this Agreement shall
survive the termination or cessation of the Employee's employment with the
Company and shall be binding upon and inure to the benefit of and be enforceable
by and against the respective heirs, executors, administrators, personal
representatives, successors and assigns of either of the parties to this
agreement.
(c) Waiver. The waiver by the Company of a breach of this Agreement by
the Employee shall not operate or be construed as a waiver of any subsequent
breach by the Employee.
(d) Severability. If any provision of this Agreement shall contravene
any law or any particular state where the Employee shall perform services for
the Company, then this Agreement shall be first construed to be limited in scope
and duration so as to be enforceable in that state, and if still unenforceable,
shall then be construed as if such provision is not contained herein.
(e) Governing Law. This Agreement shall be governed by the laws of the
State of New York without regard to the conflict of laws principles thereof.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, and by each party on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
/s/___________________________
Timothy Dooley
CIDCO INCORPORATED
By:/s/___________________________
Paul G. Locklin
President
Exhibit 10.36
CONFIDENTIAL SEPARATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
1. Marv Tseu ("Employee") was employed by CIDCO Incorporated (the
"Company") on or about July 29, 1996. Employee and the Company entered into an
Executive Employment Agreement (the "Employment Agreement") dated June, 1998.
2. Due to business conditions, the Company is required to reduce its
workforce. Such action is subject to the Worker Adjustment and Retraining
Notification Act (WARN) which requires the Company to provide 60 days notice to
employees affected by this action. As a result, the Company has decided to
terminate Employee's employment pursuant to the terms of the Employment
Agreement It is the desire of the Company and Employee that Employee receive
those certain benefits that are described in the Employment Agreement and that
he would not otherwise be entitled to receive upon his termination and to
resolve any claims that Employee has or may have against the Company.
Accordingly, Employee and the Company agree as set forth below.
3. The Company and Employee agree that Employee's employment with the
Company will terminate on September 20, 1998 (the "Termination Date") the last
day of the 60 day notice period described above.
4. The Company shall provide Employee with the following benefits when
this Agreement becomes effective:
(a) Twelve (12) months of employee's annual base salary as in
effect as of the date of such termination, less applicable
withholding, paid in a lump sum
(b) Company paid cost of COBRA coverage for twelve (12) months,
paid in a lump sum together with payment in subsection 4(a).
Employee acknowledges and agrees that he has been paid all wages and accrued,
unused vacation that he earned during his employment with the Company. Employee
understands and acknowledges that he shall not be entitled to any payments or
benefits from the Company other than those expressly set forth in this paragraph
5. Employee and his successors release the Company and its
shareholders, investors, directors, officers, employees, agents, attorneys,
legal successors and assigns of and from any and all claims, actions and causes
of action, whether now known or unknown, which Employee now has, or at any other
time had, or shall or may have against the released parties based upon or
arising out of any matter, cause, fact, thing, act or omission whatsoever
occurring or existing at any time up to and including the date on which this
Agreement becomes effective, including, but not limited to, any and all claims
of breach of contract, wrongful termination, fraud, defamation, infliction of
emotional distress or national origin, race, age, sex, sexual orientation,
disability or other discrimination or harassment under the Civil Rights Act of
1964, the Age Discrimination In Employment Act of 1967, the Americans With
Disabilities Act, the Fair Employment and Housing Act or any other applicable
law. This Release of Claims shall not impair Employee's right to be indemnified
by the Company to the fullest extent allowed by law or the Company's by-laws for
any claims against Employee arising out of any acts or omissions by Employee
during the course of his employment with the Company.
6. Employee acknowledges that he has read section 1542 of the Civil
Code of the State of California, which states in full:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
Employee waives any rights that he has or may have under section 1542
and/or any similar law of any other state to the full extent that he may
lawfully waive such rights pertaining to this general release of claims, and
affirms that he is releasing all known and unknown claims that he has or may
have against the parties listed above.
7. Employee agrees that he will not apply for nor otherwise seek
employment with the Company at any time following the Termination Date. Employee
acknowledges and agrees that he shall continue to be bound by and comply with
the terms of any confidentiality or assignment of invention agreements between
the Company and Employee.
8. 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 further
agrees that he will not, at any time in the future, make any critical 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.
9. Employee agrees that for a period of one year following the
Termination Date:
(a) he will not, on behalf of himself or any other person or
entity, directly or indirectly solicit any employee of the Company to terminate
his or her employment with the Company; and
(b) he will not, on behalf of himself or any other person or
entity, directly or indirectly request or cause any customer or vendor of the
Company to cancel or terminate any business relationship with the Company.
10. In the event of any legal action relating to or arising out of this
Agreement, the prevailing party shall be entitled to recover from the losing
party its reasonable and customary attorneys' fees and costs incurred in that
action. Provided that, for clarity, the parties acknowledge that neither party
will be required hereunder to advance any such fees and costs
11. 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 Of al, with the exception of any
agreements described in paragraph 6 as well as the Employment Agreement
described in paragraph 1. This Agreement may not be modified or amended except
by a document signed by an authorized officer of the Company and Employee.
EMPLOYEE UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING
THIS AGREEMENT AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE
PARTIES RELEASED ABOVE BY SIGNING THIS AGREEMENT. EMPLOYEE FURTHER UNDERSTANDS
THAT HE MAY HAVE UP TO 45 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
BENEFITS DESCRIBED IN PARAGRAPH 3.
Exhibit 10.37
CONFIDENTIAL SEPARATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
1. Jim Hindmarch ("Employee") was employed by CIDCO Incorporated (the
Company") on or about August 22, 1997 Employee and the Company entered into an
Executive Employment Agreement (the "Employment Agreement") dated June 1998.
2. Due to business conditions, the Company is required to reduce its
workforce. Such action is subject to the Worker Adjustment and Retraining
Notification Act (WARN) which requires the Company to provide 60 days notice to
employees affected by this action. As a result, the Company has decided to
terminate Employee's employment pursuant to the terms of the Employment
Agreement. It is the desire of the Company and Employee that Employee receive
those certain benefits that are described in the Employment Agreement and that
he would not otherwise be entitled to receive upon his termination and to
resolve any claims that Employee has or may have against the Company.
Accordingly, Employee and the Company agree as set forth below.
3.The Company and Employee agree that Employee's employment with the
Company will terminate on September 20, 1998 (the "Termination Date") the last
day of the 60-day notice period described above.
4. The Company shall provide Employee with the following benefits when
this Agreement becomes effective:
(a) Twelve (12) months of employee's annual base salary as in effect
as of the date of such termination, less applicable withholding, paid in a lump
sum.
(b) Company paid cost of COBRA coverage for twelve (12) months, paid
in a lump sum together with payment in subsection 4(a).
Employee acknowledges and agrees that he has been paid all wages and accrued,
unused vacation that he earned during his employment with the Company. Employee
understands and acknowledges that he shall not be entitled to any payments or
benefits from the Company other than those expressly set forth in this paragraph
5. Employee and his successors release the Company and its
shareholders, investors, directors, officers, employees, agents, attorneys,
legal successors and assigns of and from any and all claims, actions and causes
of action, whether now known or unknown, which Employee now has, or at any other
time had, or shall or may have against the released parties based upon or
arising out of any matter, cause, fact, thing, act or omission whatsoever
occurring or existing at any time up to and including the date on which this
Agreement becomes effective, including, but not limited to, any and all claims
of breach of contract, wrongful termination, fraud, defamation, infliction of
emotional distress or national origin, race, age, sex, sexual orientation,
disability or other discrimination or harassment under the Civil Rights Act of
1964, the Age Discrimination In Employment Act of 1967, the Americans With
Disabilities Act, the Fair Employment and Housing Act or any other applicable
law. This Release of Claims shall not impair Employee's right to be indemnified
by the Company to the fullest extent allowed by law or the Company's by-laws for
any claims against Employee arising out of any acts or omissions by Employee
during the course of his employment with the Company.
6. Employee acknowledges that he has read section 1542 of the Civil
Code of the State of California, which states in full:
A general release does not extend to claims, which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.
Employee waives any rights that he has or may have under section 1542 and/or any
similar law of any other state to the full extent that he may lawfully waive
such rights pertaining to this general release of claims, and affirms that he is
releasing all known and unknown claims that he has or may have against the
parties listed above.
7. Employee agrees that he will not apply for nor otherwise seek
employment with the Company at any time following the Termination Date. Employee
acknowledges and agrees that he shall continue to be bound by and comply with
the terms of any confidentiality or assignment of invention agreements between
the Company and Employee.
8. 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 further
agrees that he will not, at any time in the future, make any critical 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.
9. Employee agrees that for a period of one-year following the Termina-
tion Date:
(a) he will not, on behalf of himself or any other person or
entity, directly or indirectly solicit any employee of the Company to terminate
his or her employment with the Company; and
(b) he will not, on behalf of himself or any other person or
entity, directly or indirectly request or cause any customer or vendor of the
Company to cancel or terminate any business relationship with the Company.
10. In the event of any legal action relating to or arising out of this
Agreement, the prevailing party shall be entitled to recover from the losing
party its reasonable and customary attorneys' fees and costs incurred in that
action. Provided that, for clarity, the parties acknowledge that neither party
will be required hereunder to advance any such fees and costs.
11. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes ail prior
negotiations and agreements, whether written or oral, with the exception of any
agreements described in paragraph 6 as well as the Employment Agreement
described in paragraph 1. This Agreement may not be modified or amended except
by a document signed by an authorized officer of the Company and Employee.
EMPLOYEE UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING
THIS AGREEMENT AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE
PARTIES RELEASED ABOVE BY SIGNING THIS AGREEMENT. EMPLOYEE FURTHER UNDERSTANDS
THAT HE MAY HAVE UP TO 45 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 IJNTIL THAT 7-DAY PERIOD HAS PASSED. EMPLOYEE ACKNOWLEDGES THAT HE IS
SIGNING THIS AGREEMENT KNOWINGLY. WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE
BENEFITS DESCRIBED IN PARAGRAPH 3.
Exhibit 10.38
CONFIDENTAL SEPARATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
1. Ho Leung Cheung ("Employee") was employed by CIDCO Incorporated
(the "Company') on or about July 7, 1997. Employee and the Company entered into
an Executive Employment Agreement (the "Employment Agreement") dated June, 1998.
2. Due to business conditions, the Company is required to reduce its
workforce. Such action is subject to the Worker Adjustment and Retraining
Notification Act (WARN) which requires the Company to provide 60 days notice to
employees affected by this action. As a result, the Company has decided to
terminate Employee's employment pursuant to the terms of the Employment
Agreement. It is the desire of the Company and Employee that Employee receive
those certain benefits that are described in the Employment Agreement and that
he would not otherwise be entitled to receive upon his termination and to
resolve any claims that Employee has or may have against the Company.
Accordingly, Employee and the Company agree as set forth below.
3. The Company and Employee agree that Employee's employment with the
Company will terminate on November 20, 1998 (the "Termination Date") the last
day of the 60 day notice period described above
4. The Company shall provide Employee with the following benefits when
this Agreement becomes effective:
(a) Twelve (12) months of employee's annual base salary as in
effect as of the date of such termination, less applicable withholding, paid in
a lump sum.
(b) Company paid cost of COBRA coverage for twelve(12) months,
paid in a lump sum together with payment in subsection 4(a).
Employee acknowledges and agrees that he has been paid all wages and accrued,
unused vacation that he earned during his employment with the Company. Employee
understands and acknowledges that he shall not be entitled to any payments or
benefits from the Company other than those expressly set forth in this paragraph
3.
5. Employee and his successors release the Company and its
shareholders, investors, directors, officers, employees, agents, attorneys,
legal successors and assigns of and from any and all claims, actions and causes
of action, whether now known or unknown, which Employee now has, or at any other
time had, or shall or may have against the released parties based upon or
arising out of any matter, cause, fact, thing, act or omission whatsoever
occurring or existing at any time up to and including the date on which this
Agreement becomes effective, including, but not limited to, any and all claims
of breach of contract, wrongful termination, fraud, defamation, infliction of
emotional distress or national origin, race, age, sex, sexual orientation,
disability or other discrimination or harassment under the Civil Rights Act of
1964, the Age Discrimination In Employment Act of 1967, the Americans With
Disabilities Act, the Fair Employment and Housing
Act or any other applicable law. This Release of Claims shall not impair
Employee's right to be indemnified by the Company to the fullest extent allowed
by law or the Company's by-laws for any claims against Employee arising out of
any acts or omissions by Employee during the course of his employment with the
Company.
6. Employee acknowledges that he has read section 1542 of the Civil
Code of the State of California, which states in full:
A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.
Employee waives any rights that he has or may have under section 1542 and/or any
similar law of any other state to the full extent that he may lawfully waive
such rights pertaining to this general release of claims, and affirms that he is
releasing all known and unknown claims that he has or may have against the
parties listed above.
7. Employee agrees that he will not apply for nor otherwise seek
employment with the Company at any time following the Termination Date. Employee
acknowledges and agrees that he shall continue to be bound by and comply with
the terms of any confidentiality or assignment of invention agreements between
the Company and Employee.
8. 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 further
agrees that he will not, at any time in the future, make any critical 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.
9. Employee agrees that for a period of one year following the
Termination Date:
(a) he will not, on behalf of himself or any other person or
entity, directly or indirectly solicit any employee of the Company to terminate
his or her employment with the Company; and
(b) he will not, on behalf of himself or any other person or
entity, directly or indirectly request or cause any customer or vendor of the
Company to cancel or terminate any business relationship with the Company.
10. In the event of any legal action relating to or arising out of
this Agreement, the prevailing party shall be entitled to recover from the
losing party its reasonable and customary attorneys' fees and costs incurred in
that action. Provided that, for clarity, the parties acknowledge that neither
party will be required hereunder to advance any such fees and costs
11. 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 any
agreements described in paragraph 6 as well as the Employment Agreement
described in paragraph 1. This Agreement may not be modified or amended except
by a document signed by an authorized officer of the Company and Employee.
EMPLOYEE UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING
THIS AGREEMENT AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE
PARTIES RELEASED ABOVE BY SIGNING THIS AGREEMENT. EMPLOYEE FURTHER UNDERSTANDS
THAT HE MAY HAVE UP TO 45 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 INEXCHANGE FOR THE
BENEFITS DESCRIBED IN PARAGRAPH 3
