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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2000.
OR
[ ] Transition report pursuant to Section 13(d) or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to __________.
Commission file number: 0-23296
CIDCO INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3500734
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
220 Cochrane Circle
Morgan Hill, CA 95037
(Address of principal executive offices and zip code)
(408) 779-1162
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--------------
The number of shares outstanding of the Registrant's Common Stock on November 6,
2000 was 14,418,298.
<PAGE>
CIDCO INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. Financial Statements:
Balance sheets at September 30, 2000
and December 31, 1999 ............................................3
Statements of operations and comprehensive income (loss)
for the three and nine months ended September 30, 2000 and 1999 ..4
Statements of cash flows for the nine months
ended September 30, 2000 and 1999 ................................5
Notes to financial statements .......................................6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..............8
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk...........18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ..............................................18
ITEM 2. Changes in Securities ..........................................18
ITEM 3. Defaults Upon Senior Securities ................................18
ITEM 4. Submission of Matters to a Vote of Security Holders ............19
ITEM 5. Other Information ..............................................19
ITEM 6. Exhibits and Reports on Form 8-K ...............................19
SIGNATURES ...................................................................20
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIDCO INCORPORATED
BALANCE SHEETS
(in thousands, except per share data; unaudited)
September 30, December 31,
2000 1999
------------ ----------
ASSETS
Current assets:
Cash and cash equivalents .................... $ 20,282 $ 29,323
Short-term investments ....................... 11,215 10,547
Accounts receivable, net of allowance
for doubtful accounts of $281 and $1,127 ... 21,159 22,407
Inventories .................................. 19,317 25,688
Other current assets ......................... 15,179 1,002
---------- ----------
Total current assets ....................... 87,152 88,967
Property and equipment, net ..................... 4,779 6,653
Other assets .................................... 2,858 711
---------- ----------
$ 94,789 $ 96,331
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 14,923 $ 9,412
Accrued liabilities........................... 14,231 8,738
---------- ----------
Total current liabilities .................. 29,154 18,150
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; 35,000 shares
authorized 14,418 shares issued ............ 144 144
Treasury stock, at cost (472 and 675 shares) .. (2,086) (2,988)
Additional paid-in capital ................... 90,035 88,916
Accumulated deficit .......................... (22,458) (7,891)
---------- ----------
Total stockholders' equity ................. 65,635 78,181
---------- ----------
$ 94,789 $ 96,331
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CIDCO INCORPORATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data; unaudited)
Three months ended Nine months ended
Sept. 30, Sept. 30,
------------------ ----------------------
2000 1999 2000 1999
-------- -------- ------- --------
Sales $ 21,455 $ 36,862 $ 59,440 $ 31,165
Cost of sales .................... 16,053 26,196 48,476 95,742
-------- -------- -------- --------
Gross margin ..................... 5,402 10,666 10,964 35,423
-------- -------- -------- --------
Operating expenses:
Research and development ........ 2,604 2,459 7,324 7,037
Selling and marketing ........... 11,215 6,847 27,792 20,772
General and administrative ...... 1,329 1,319 4,011 4,377
-------- -------- -------- --------
15,148 10,625 39,127 32,186
-------- -------- -------- --------
Income (loss) from operations..... (9,746) 41 (28,163) 3,237
Other income (expense), net ...... (2,342) 473 13,574 867
-------- -------- -------- --------
Net income (loss) ................$ (12,088) $ 514 $(14,589) $ 4,104
======== ======== ======== ========
Net earnings (loss) per
share - basic ................$ (0.87) $ 0.04 $ (1.05) $ 0.30
======== ======== ======== ========
Net earnings (loss) per
share - diluted...............$ (0.87) $ 0.03 $ (1.05) $ 0.28
========= ======== ======== ========
Shares used in per-share
calculation - basic ........... 13,899 13,553 13,861 13,574
======== ======== ======== ========
Shares used in per-share
calculation - diluted.......... 13,899 14,870 13,861 14,568
======== ======== ======== ========
Comprehensive income (loss):
Net income (loss).................$ (12,088) $ 514 $(14,589) $ 4,104
Change in unrealized gain
(loss) on investments, net........ 24 (19) 269 (88)
-------- ------- --------- ----------
Total comprehensive income (loss).$ (12,064) $ 495 $(14,320) $ 4,016
======== ======= ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CIDCO INCORPORATED
STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Nine months ended
September 30,
---------------------
2000 1999
------- --------
Cash flows provided by operating activities:
Net income (loss) .................................... $ (14,589) $ 4,104
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization ..................... 2,584 4,187
Deferred taxes .................................... -- 1,490
Gain on exchange of securities .................... (15,430) --
Changes in assets and liabilities:
Accounts receivable .............................. 1,248 866
Inventories ...................................... 6,371 1,436
Income tax refunds receivable .................... -- 18,367
Other current assets ............................. (14,177) 861
Other assets...................................... (2,147) (234)
Accounts payable ................................. 5,662 (1,610)
Accrued liabilities .............................. 5,342 (3,289)
--------- ---------
Net cash provided by (used in)operating activities . (25,136) 26,179
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment ................ (710) (1,911)
Sale of short-term investments, net .................. 14,493 1,574
--------- ---------
Net cash provided by (used in) investing activities. 13,783 (337)
Cash flows from financing activities:
Issuance of common stock.............................. 2,312 847
Purchase of treasury stock ........................... -- (3,155)
--------- ---------
Net cash provided by (used in) financing activities 2,312 (2,308)
--------- ----------
Net increase (decrease) in cash and cash equivalents .... (9,041) 23,534
Cash and cash equivalents at beginning of period ........ 29,323 12,349
--------- ---------
Cash and cash equivalents at end of period .............. $ 20,282 $ 35,883
========= =========
Supplemental disclosure of cash flow information:
Issuance of warrants in connection with
marketing agreement ............................. $ 1,120 $ --
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CIDCO INCORPORATED
Notes to Financial Statements
Note 1. Basis of Presentation
The accompanying financial information is unaudited, but, in the
opinion of management, reflects all adjustments (which include only normal
recurring adjustments) necessary to present fairly the Company's financial
position, operating results and cash flows for those periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The financial information should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 1999 included in the Company's most recent Annual Report on Form
10-K filed with the Securities and Exchange Commission. Results for the interim
period are not necessarily indicative of results for the entire year.
Note 2. Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
Implementation of SAB 101 is not expected to require us to change existing
revenue recognition policies and therefore is not expected to have a material
effect on the Company's financial position or results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions
involving Stock Compensation" an interpretation of APB Opinion No. 25. FIN 44
clarifies the application of Opinion 25 for (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of certain provisions for FIN 44 prior to September 30, 2000 did
not have a material impact on the financial statements. Management believes that
the impact of FIN 44 did not have a material effect on the financial position or
results of operations of the Company.
In June 1998, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No.
133 until fiscal years beginning after June 15, 2000. The Company will adopt
SFAS No. 133 during its fiscal year ending December 31, 2001. To date, the
Company has not engaged in derivative or hedging activities. The Company does
not expect the adoption of SFAS No. 133 to have a material effect on its results
of operations.
Note 3. Inventories
Inventories are stated at the lower of cost or market value, 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.
The components of inventory are as follows (in thousands):
Sept. 30, 2000 Dec. 31, 1999
-------------- -------------
Inventories, net of reserves:
Finished Goods ............... $ 14,136 $ 22,283
Raw Materials................. 5,181 3,405
---------- ----------
$ 19,317 $ 25,688
========== ==========
<PAGE>
Note 4. Comprehensive Income (loss)
The Company's comprehensive income (loss) consists of net income (loss)
and unrealized gains and losses on investments. Accumulated balances of
unrealized gains and losses on investments are as follows:
Balance December 31, 1998 ................... $ 79
Unrealized losses in the period, net ........ (88))
-----------
Balance September 30, 1999 .................. $ (9)
==========
Balance December 31, 1999 ................... $ (13)
Unrealized gain in the period, net .......... 269
----------
Balance September 30, 2000 .................. $ 256
=========
Note 5. Earnings (loss) per Share
Basic Earnings Per Share ("EPS") is computed by dividing net income (loss)
available to common stockholders (numerator) 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.
The following table is a reconciliation of the numerators and denominators of
the basic and diluted EPS:
Three Months ended Nine months ended
September 30, September 30,
-------------------------- --------------------
2000 1999 2000 1999
----------- ----------- --------- ---------
Net income (loss) used
to compute earnings per
common share ................ $ (12,088) $ 514 $ (14,589)$ 4,104
========= ========= ========= ========
Denominator used to
compute basic earnings (loss)
per common share ............ 13,899 13,553 13,861 13,574
Effect of dilutive
securities (1) .............. -- 1,317 -- 994
--------- --------- --------- ---------
Denominator used to
compute diluted earnings
(loss) per common share ..... 13,899 14,870 13,861 14,568
========= ========= ========= =========
Basic earnings (loss)
per share ................... $ (0.87) $ 0.04 $ (1.05)$ 0.30
========== ========= ========= =========
Diluted earnings (loss)
per share ................... $ (0.87) $ 0.03 $ (1.05)$ 0.28
========== ========= ========= =========
(1) Stock options and warrants to purchase 1,276,304 shares of common stock
priced at $ 4.13 to $19.82 per share were excluded because their inclusion
would be anti-dilutive for the quarter ended September 30, 2000. Stock
options to purchase 1,930,467 shares of common stock priced at $1.88 to
$24.95 per share were excluded because their inclusion would be
anti-dilutive for the quarter ended September 30, 1999.
<PAGE>
Note 6. Segment Information
The Company operates in two market segments, telephony products and
Internet appliances. Telephony products include telephone equipment that
supports Caller ID, Caller ID on Call Waiting and other services introduced by
telephone companies. In 1999 the Company developed a product called MailStation,
(TM)1 an Internet appliance, which is a small device that allows one easy access
to checking of e-mails and access to Yahoo! content and services. The Company
does not manage these market segments on any basis other than the revenue
information disclosed below.
Summarized financial information by groups of similar products and services is
as follows (in thousands):
Three Months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- ---------------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
Telephony Products.. $ 19,705 $31,494 $ 51,177 $125,797
Internet Devices.... 1,750 5,368 8,263 5,368
----------- --------- ----------- -----------
Total sales......... $ 21,455 $36,862 $ 59,440 $131,165
=========== ========= =========== ===========
Note 7 Telephony Business Asset Sale
On September 18, 2000, we entered into a definitive agreement to sell
certain assets related to our telephony business unit to a newly formed entity,
CIDCO Communications, LLC ("Buyer"), controlled by technology investor, David
Lee. The Buyer will pay CIDCO Inc. $5.0 million in cash at closing and CIDCO
Inc. will retain all cash and accounts receivable in the telephony business.
Buyer will make certain inventory and royalty payments to CIDCO Inc. after the
closing. CIDCO Inc. estimates the total value of the transaction to be between
$15 million and $20 million. The sale is subject to regulatory and stockholder
approval and other customary conditions, and is expected to close during
December 2000. We have scheduled a special stockholder meeting for December 8,
2000 to obtain the necessary stockholder approval.
1. MailStation is a trademark of CIDCO Corporation
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the interim
financial statements and the notes thereto in Part I, Item 1 of this Quarterly
Report.
Historical Background
The Company 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 5% and 37% of sales for the quarter ended
September 30, of 2000 and 1999, respectively. Fulfillment sales accounted for
1%, and 14% of sales for the quarter ended September 30, of 2000 and 1999,
respectively. Direct to Telco sales accounted for 94% and 49% of sales for the
quarter ended September 30, of 2000 and 1999, respectively.
As a result of lower level Telco promotional activity in the fourth
quarter of 1999 and the anticipation that Telco demand will remain soft through
the fourth quarter of 2000, the Company resized its Telco business to match an
estimated quarterly break-even point of approximately $20 million in revenue
which the Company may or may not achieve in any quarter. The Company began to
realize the benefit from such resizing during the second quarter of 2000.
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, including Telco demand,
gross margin, expected spending in various functions and MailStation subscriber
and retail store front increases. 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.
<PAGE>
Results of Operations
The following table sets forth for the periods indicated, the
percentage of sales represented by certain line items in the Company's income
statement:
Three months ended Nine months ended
Sept. 30, Sept. 30,
------------------ -------------------
2000 1999 2000 1999
------ ------ ------- -------
Sales .............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ...................... 74.8 71.1 81.6 73.0
------- ------- ------- -------
Gross margin ....................... 25.2 28.9 18.4 27.0
------- ------- ------- -------
Operating expenses:
Research and development ........ 12.1 6.6 12.3 5.4
Selling and marketing ........... 52.3 18.6 46.8 15.8
General and administrative ...... 6.2 3.6 6.7 3.3
------- ------- ------- -------
70.6 28.8 65.8 24.5
------- ------- ------- -------
Income (loss) from operations ...... (45.4) 0.1 (47.4) 2.5
Other income (expense), net ........ (10.9) 1.3 22.9 0.6
-------- ------- ------- -------
Net income (loss) .................. (56.3)% 1.4% (24.5)% 3.1%
======== ======= ======= =======
Sales
Telco sales are recognized upon shipment of the product to the customer
less reserves for anticipated returns and bad debt or, in the case of Direct
Marketing Services, non-retention of certain Services provided by the Telcos.
Retail sales of MailStation are recognized upon activation of the E-mail service
less reserves for anticipated returns and bad debt.
Sales decreased 42% to $21.5 million in the third quarter of 2000 from
$36.9 million in the third quarter of 1999. Sales from Direct to Telco increased
to $20.3 in the third quarter of 2000 from $18.1 in the third quarter of 1999.
Offsetting this increase was a decline in Direct Marketing Services Programs,
Fulfillment sales and MailStation sales to $1.1 million, $0.1 million, and $1.8
million respectively in the third quarter of 2000 from $13.6 million, $5.1
million, and $5.4 million respectively in the third quarter of 1999. The decline
in Direct Marketing Services Programs and Fulfillment sales was primarily due to
SBC Communications, Inc. ("SBC") consolidation which resulted in customer delays
in running promotional programs. In particular, the merger of Ameritech with SBC
has resulted in significantly lower demand. Additionally, the decline in Direct
Marketing Services Programs for Network Feature Services on behalf of certain
Telcos was a result of the Company electing not to participate in risky, low
profit agency programs. The MailStation sale's decline was due to a large,
hardware only, international shipment made in the third quarter of 1999. Retail
hardware and service sales for the MailStation increased to $1.7 million in the
third quarter of 2000. There were no retail hardware and services sales during
the same quarter a year ago. The Company expects the Telco demand to increase
slightly in the fourth quarter 2000 as the consolidation is now complete and
expects the MailStation hardware and service sales to increase in the fourth
quarter 2000.
Unit sales of adjunct products decreased in the third quarter of 2000 to
198,000 from 519,000 in the third quarter of 1999 while unit sales of phone
products increased to 229,000 in the third quarter of 2000, compared to 199
thousand in the third quarter of 1999. The adjunct unit volume decline was due
to decreased unit sales through both the Company's Direct to Telco sales channel
and Direct Marketing Services due to reasons stated above. The MailStation
retail unit shipments for the third quarter of 2000 increased to 45,000 compared
to zero for the same quarter the previous year as the company expanded its
retail storefront presence from 80 to over 12,500.
Adjunct and MailStation product sales decreased to 9% and 8%,
respectively of dollar sales in the third quarter of 2000 from 24% and 15%,
respectively of dollar sales in the third quarter of 1999. The reduction in
adjunct sales was primarily due to a shift in cordless phone sales that offer a
richer selection of Network Feature services. The MailStation decline was due to
a large international shipment during the third quarter of 1999 which was
partially offset by increased retail sales. Partially offsetting this decline
was an increase in phone sales to 83% of dollar sales in the third quarter of
2000 compared to 61% in the third quarter of 1999.
In addition to the volume declines mentioned above, the Company
experienced an overall decline in average selling price. The average selling
price of adjunct and phone products dropped 46% and 31%, respectively from the
third quarter of 1999 to the third quarter of 2000 due to continued competitive
pricing pressures as well as product and channel mix changes.
Gross margin
Cost of sales includes the cost of finished goods purchased from the
Company's off-shore contract manufacturers, costs associated with procuring and
warehousing the Company's inventory and royalties payable on licensed technology
used in the Company's products. Gross margin as a percentage of sales decreased
to 25.2% in the third quarter of 2000 from 28.9% in the third quarter of 1999.
This decrease was attributable to the decrease of Direct Marketing Service
Programs that historically carried higher gross margins in addition to price
reductions. The Company expects gross margins to vary in the future due to
changes in sales mix by distribution channel and product mix. For the remainder
of 2000, the Company believes gross margins will range between 15% to 25%.
Research and development expenses
Research and development expenses consist of salaries for personnel,
associated benefits, contracted engineering services, tooling and supplies for
research and development activities. The Company's policy is to expense all
research and development expenditures as incurred except for certain investments
for tooling. Research and development expenses increased to $2.6 million in the
quarter ended September 30, 2000 from $2.5 million in the third quarter of 1999.
This increase primarily resulted from higher spending on MailStation development
projects related to new product introductions slated for introduction in the
first half of year 2001. Research and development expenses as a percentage of
sales increased to 12.1% in the quarter ended September 30, 2000 from 6.7% in
the same period of 1999. This increase was primarily due to the decrease in net
revenue. The Company expects that research and development spending will
increase somewhat in absolute dollars as future projects in the MailStation area
get to the more spending intensive phase as the products are brought to market.
Selling and marketing expenses
Selling and marketing expenses consist of personnel costs, telephone
and electronic data exchange expenses, promotional costs and travel expenses.
Selling and marketing expenses increased to $11.2 million in the quarter ended
September 30, 2000, from $6.8 million in the comparable period of 1999. As a
percentage of sales, selling and marketing expenses increased to 52.3% in the
quarter ended September 30, 2000, from 18.6% in the same period of 1999. The
above dollar increase was primarily due to increased marketing costs for the
Company's MailStation marketing activities. The increase in percent was due to a
combination of reduced net revenues for the quarter and increased marketing
costs for the Company's MailStation marketing activities. The MailStation sales
and marketing costs totaled $6.6 million in the third quarter of 2000 as
compared to $0.1 million in the third quarter of 1999. This increase was
partially offset by a decline in Direct Marketing Service programs for Network
services. The Company anticipates that selling and marketing expenses both in
absolute dollars and as a percentage of sales will increase significantly as the
Company invests heavily in marketing programs to grow MailStation subscribers,
slightly offset by planned reductions in Telco acquisition sales programs.
Additionally, the Company entered into a relationship with Yahoo! that
provides for co-branding of product and technical collaboration to allow
MailStation subscribers access to Yahoo! Content and services. CIDCO's retail
presence increased from 2,000 stores at the end of the second quarter to 12,500
at the end of September 2000.
MailStation new subscriber growth for quarter ended September 30, 2000
was approximately 19,400 subscribers, which increased the total base to
approximately 36,800 subscribers. The Company anticipates that the subscriber
base will increase during the fourth quarter. The anticipated increase in
subscribers is expected as a result of a national MailStation advertising
campaign and the increase in the number of retail store fronts during the
quarter.
General and administrative expenses
General and administrative expenses consist primarily of salaries,
benefits and other expenses associated with the finance and administrative
functions of the Company. General and administrative expenses remained flat at
$1.3 million compared to the same quarter a year ago. As a percentage of sales,
general and administrative expenses increased to 6.2% in the quarter ended
September 30, 2000 from 3.6% in the comparable period of 1999. The increase in
percent was primarily driven by lower net revenues for the quarter. The Company
believes that general and administrative expenditures will remain at
approximately third quarter spending levels during the remainder of 2000.
Other Income
Other income primarily consists of realized gains or (losses) on
investments, interest income earned on investments and extra ordinary
income/expense. Other expense amounted to $2.3 million in the quarter ended
September 30,2000 compared to other income of $0.5 million for the same period
in 1999. The other income change was due to a $2.0 million patent infringement
settlement with Active Voice Corporation in addition to a realized loss on the
sale of Cisco systems, Inc. ("Cisco") stock. Partially offsetting the above
expenses was interest income earned of $0.2 million. As a percentage of sales,
other expense increased to 10.9% in the quarter ended September 30, 2000
compared to other income of 1.3% in the comparable period of 1999.
Liquidity and capital resources
The Company's cash and cash equivalents declined by $9.0 million during the
nine months ended September 30, 2000. Cash used by operating activities amounted
to $25.1 million and was offset by cash generated by investing and financing
activities of $13.8 million and $2.3 million respectively. Cash used by
operating activities of $25.1 million consisted of net loss of $14.6 million, an
increase in gain on exchange of securities, other current assets and other
assets of $15.4 million, $14.2 million and $2.1 million respectively. Offsetting
the above was depreciation expense of $2.6 million, reduction in accounts
receivable and inventories of $1.2 million and $6.4 million respectively in
addition to an increase in accounts payable and accrued liabilities of $5.7
million and $5.3 million respectively.
Additionally, Cisco completed the acquisition of InfoGear Technology on
June 6, 2000. Approximately 245,000 shares of Cisco stock, valued at $15.4
million, were received by the Company for its 5% stake in InfoGear Technology.
Upon the closing of their acquisition of InfoGear Technology, the gain,
calculated on close, was recorded in other income. Subsequently, the Company
liquidated 220,616 shares during the period ending September 30, 2000 and
realized a net loss on the sale of $0.6 million. The value of the remaining
24,384 shares is reflected on the September 30, 2000 balance sheet in short-term
investments.
The Company had a working capital balance of $58.0 million as of
September 30, 2000, as compared to $70.8 million at December 31, 1999 for a net
decrease of $12.8 million. The Company's current ratio decreased to 2.9 to 1, as
of September 30, 2000, from 4.9 to 1, as of December 31, 1999. The decrease in
working capital was due to a reduction in cash and short-term investments of
$8.4 million, accounts receivable of $1.2 million, inventory of $6.4 million, an
increase in accounts payable of $5.5 million and accrued liabilities of $5.5
million. Offsetting the above was an increases other current assets of $14.2
million.
The Company has received an extension on a line of credit for up to $15
million and is currently in the process of negotiating a new line of credit. The
extension of the line,which is secured by cash, is primarily used for letters of
credit used to purchase inventory from international suppliers.
On September 18, 2000, we entered into a definitive acquisition to sell
certain assets related to our telephony business unit to a newly formed entity,
CIDCO Communications, LLC ("Buyer"), controlled by technology investor, David
Lee. The Buyer will pay CIDCO Inc. $5.0 million in cash at closing and CIDCO
Inc. will retain all cash and accounts receivable in the telephony business.
Buyer will make certain inventory and royalty payments to CIDCO Inc. after the
closing. CIDCO Inc. estimates the total value of the transaction to be between
$15 million and $20 million. The sale is subject to regulatory and stockholder
approval and other customary conditions, and is expected to close during
December 2000. We have scheduled a special stockholder meeting for December 8,
2000 to obtain the necessary stockholder approval.
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. In particular, the Company will invest in its
infrastructure to refine and improve its Internet service provider and mail
hosting capabilities and systems in support of its 1999 entry into the Internet
appliance and service market. The Company believes its remaining 2000 capital
expenditures will be approximately $1.2 million. The remaining 2000 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
RisksRelated to the Telephony Business Asset Sale
We have recently announced that we have entered into a definitive
agreement to sell the assets of our telephony business unit to a newly formed
company. The sale is subject to risks including our ability to obtain regulatory
and stockholder approval and the satisfaction of other conditions. If the sale
is not consummated, we may be subject to the risk of a decline in our stock
price to the extent that the current market price reflects an assumption that
the sale will be consummated. If the sale of the telephony business unit is
approved, we will face a number of risks, including risks related to the sale of
our primary revenue producing assets, the limited revenues and operating history
of our internet appliance business, risks related to our ability to sustain or
accelerate subscriber growth and recurring revenue, our dependence on a single
product, our need to develop and sustain successful relationships with content,
email hosting and internet service providers, our reliance on a third party
manufacturer as sole source for production of our products, the market
acceptance of internet appliance products generally, our ability to effectively
develop our brand and develop our retail distribution channel, our ability to
compete effectively in the internet appliance industry, and our obligation to
indemnify the buyer in certain circumstances under the purchase and sale
agreement. We cannot assure you that the sale will close, or, if it closes, that
the business strategy on which it is predicated will be successful.
Dependence on Telco Services and Maturation of Market
Approximately 83%, 9% and 8% of the Company's revenues in the quarter
ended September 30, 2000 came from the Company's sales of Network Feature
phones, adjuncts and MailStations, respectively. The Company's revenues for the
quarter ended September 30, 1999 for Network Feature phones, adjuncts and
MailStations were 61%, 24% and 15% respectively. The size of the overall market
for Network Feature products and Services is a function of the total number of
potential subscribers with Network Feature-enabled telephone lines and the rate
of adoption of Network Feature Services, or the "penetration rate," among those
subscribers. Customer adoption of Network Feature 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 Network Feature
Services, the perceived value of the Services to end users, including the extent
to which other end users have also adopted Network Feature Services, and the end
user cost for the Services. There can be no assurances that Telcos will continue
to promote Network Feature Services, that one or more Network Feature 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 Network Feature Service has not been achieved for the entire
United States market, one or more regional markets may become saturated.
Further, the market for Network Feature adjunct products may be eroded as
Network Feature functionality is designed into competitively priced phone
products as a standard feature. Declines in demand for or revenues from Network
Feature Services, whether due to reduced promotion of such Services by Telcos,
competition, market saturation, price reduction, technological change or
otherwise, will have a material adverse affect on the Company's business,
operating results or financial condition. In addition, as penetration rates for
adoption of Network Feature 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
Network Feature Services increases, which may result in unfavorable pressures on
the Company's profitability. Because of these reasons, the Company has elected,
in most circumstances, not to aggressively pursue Direct Marketing Service
arrangements and expects this trend to continue.
Dependence on Telcos; Concentrated Customer Base
A significant portion of the Company's revenues is derived from a small
number of Telcos. During the quarter ended September 30, of 2000 and 1999, the
percentage of revenue derived by the Company from its significant (greater than
10% of total sales) customers was 79% (two customers) and 71% (four customers),
respectively. 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 where 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 Network Services on a system-wide or
regional basis. The extent to which the Telcos determine to implement and/or
from time-to-time promote Network 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 Network Feature 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 a result, to the
extent that the Telcos delay the implementation and/or promotion of these
Services which were anticipated for a particular quarter, the Company's sales
and operating results in that quarter may be materially and adversely affected.
New Product Introduction; Technological Change
The telecommunications industry is subject to rapid technological
change, changing customer requirements, frequent new product introductions and
changing industry standards 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 further expand its product and
service offerings in a new business area, Internet/E-mail appliances, and
expects to devote a significant portion of its research and development
resources on developing and selling 2nd and 3rd generation Internet appliances
which would allow electronic messaging and other functionality via an
easy-to-use device. In this regard, the Company has introduced the MailStation
Internet E-mail appliance and intends to introduce follow-on products. A
significant aspect of this product and services offering will be the provision
of Internet services, yielding a recurring revenue stream from users of the
products or "subscribers". 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. Products of this nature rely to a great extent upon retail
distribution and brand recognition. There can be no assurance that the Company
will be successful in implementing a successful national retail distribution
channel, and a brand marketing campaign. More over, there can be no assurance
that the Company will achieve the significant subscriber growth required for
success in this offering.
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 and advertising 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. The Company believes its MailStation business's
success depends on the successful development of a strong retail distribution
channel. 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, will continue to be substantially dependent
upon the Telco channel for sales of its products and may not be able to grow the
Internet business.
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, in the Telco channel,
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 internet
appliance business is an emerging business and new entrants are likely. Many of
the Company's existing and prospective competitors are larger and have greater
resources and experience in the retail channel than the Company. 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, products or product categories, changes in earnings
estimates by market analysts, speculation in the press or analyst community and
general market conditions or market conditions specific to the technology
industry or the telecommunications industry in particular. The stock prices for
many companies in the technology sector have experienced wide fluctuations that
often have been unrelated to their operating performance. Such fluctuations may
adversely affect the market price of the Company's Common Stock.
Item 3 Quantitative and Qualitative Disclosure About Market Risk
Management believes that the market risk associated with the Company's
market risk sensitive instruments as of September 30, 2000 is not material, and
therefore, disclosure is not required.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 1, 1999, the Company filed a complaint against Active Voice
Corporation in U.S. District Court primarily seeking a Declaratory Judgment of
non-infringement and invalidity of U.S. Patent No. 5,327,493 involving detection
of tones, and secondarily for patent misuse and unfair competition. Active Voice
counter-claimed for infringement of U.S. Patent No. 5,327,493, and the Company
amended its complaint to include infringement by Active Voice of the Company's
U.S. Patent No. 4,366,348 involving Caller ID technology. On September 29, 2000,
a $2.0 million settlement was reached with Active Voice Corporation which covers
all past and future shipment of product that uses the Active Voice patent.
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 2. Changes In Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits at page 20 below.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three
months ended September 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIDCO INCORPORATED
November 14, 2000 By: ------------------------------------
Date Paul G. Locklin
President and Chief Executive Officer
Chairman of the Board of Directors
November 14, 2000 ------------------------------------
Date Richard D. Kent
Chief Financial Officer, Chief Operations
Officer, Chief Accounting Officer and
Corporate Secretary
<PAGE>
CIDCO INCORPORATED
Index to Exhibits
Exhibits Page
2.1 Telephony Business Asset Purchase Agreement 1
3.1 Amended and Restated Certificate of Incorporation. (1) --
3.2 Second Amended and Restated By-laws of CIDCO Incorporated
dated January 26, 1999. (6) --
4.1 Amended and Restated Loan and Security Agreement
dated March 29, 1999 between Registrant and
Comerica Bank-California. (7) --
4.2 Rights Agreement dated as of January 27, 1997,
between the Registrant and United States Trust
Company of New York, as Rights Agent. (3) --
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) --
10.24 Employment Agreement dated June 28, 1996 between
Registrant and Ian Laing. (4) --
10.30 Registrant's Second Amended and Restated 1993
Stock Option Plan. (5) --
10.31 Registrant's Amended and Restated 1998
Stock Option Plan. (5) --
10.32 Employment Agreement dated June 1, 1998 between
Registrant and Richard D. Kent. (5) --
10.33 Employment Termination Agreement dated Nov. 12,
1998 between Registrant and Daniel L. Eilers. (5) --
10.33 Employment Termination Agreement dated Nov. 12,
1998 between Registrant and Daniel L. Eilers. (5) --
10.34 Employment Agreement dated Nov. 12, 1998 between
Registrant and Paul G. Locklin. (6) --
10.35 Employment Agreement dated Sept. 30, 1994 between
Registrant and Timothy J. Dooley. (6) --
10.36 Separation Agreement dated Sept. 20, 1998 between
Registrant and Marv Tseu. --
10.37 Separation Agreement dated Sept. 20, 1998 between
Registrant and Jim Hindmarch. (6) --
10.38 Separation Agreement dated Nov. 20, 1998 between
Registrant and Ho Leung Cheung(6) --
10.39 Employment Agreement dated June 5, 1998 between
Registrant and William A. Sole. (7) --
10.40 Registrant's 1999 Employee Stock Purchase Plan (8) --
(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 March 31,
1997. (4) Incorporated herein by reference to the Company's Form 10-Q for the
quarter ended June 30, 1997. (5) Incorporated herein by reference to the
Company's Form 10-Q for the quarter ended September 30, 1998. (6) Incorporated
herein by reference to the Company's Form 10-K for the year ended December 31,
1998. (7) Incorporated herein by reference to the Company's Form 10-Q for the
quarter ended March 31, 1999. (8) Incorporated herein by reference to the
Company's Form 10-K for the year ended December 31, 1999.
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
by and between
CIDCO Communications, LLC,
a Delaware limited liability company;
on the one hand
and
CIDCO Incorporated,
a Delaware corporation;
on the other hand.
-------------------------------
Dated as of September 14, 2000
-------------------------------
================================================================================
===============================================================================
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of September
14, 2000, by and between CIDCO Communications, LLC, a Delaware limited liability
company ("Purchaser") on the one hand, and CIDCO Incorporated, a Delaware
corporation ("Seller") on the other hand.
RECITALS
--------
A. Seller is engaged in the business of providing telephony products and
services through Regional Bell Operating Companies and independent
telephone operating companies to end users (excluding the Excluded
Assets, as defined below, the "Telephony Business").
B. Seller desires to sell to Purchaser and Purchaser desires to acquire
from Seller substantially all of the assets, and Seller desires
Purchaser to assume and Purchaser desires to assume certain specified
liabilities, related to the Telephony Business, in accordance with the
terms hereof (the "Transaction").
NOW, THEREFORE, in consideration of the representations, warranties and
covenants herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Article I.
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth or referenced below:
1.1. "Acquisition" shall mean any transaction or series of transactions
involving:
(a) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer,
exchange offer or other similar transaction (i) in which Seller is a
constituent corporation, (ii) in which a Person or "group" (as defined
in the Exchange Act and the rules promulgated thereunder) of Persons
directly or indirectly acquires beneficial or record ownership of
securities representing more than 50% of the outstanding securities of
any class of voting securities of Seller, or (iii) in which Seller
issues securities representing more than 50% of the outstanding
securities of any class of voting securities of Seller;
(b) any sale (other than in the ordinary course of business), lease (other
than in the ordinary course of business), exchange, transfer (other
than in the ordinary course of business), license (other than
nonexclusive licenses in the ordinary course of business), acquisition
or disposition (other than in the ordinary course of business) of any
business or businesses or assets that constitute or account for 50% or
more of the consolidated net revenues, net income or assets of Seller;
or
(c) any liquidation or dissolution of Seller.
1.2. "Acquisition Proposal" shall mean any offer, proposal, inquiry or
indication of interest (other than an offer, proposal, inquiry or
indication of interest by Purchaser) contemplating or otherwise
relating to any Acquisition.
1.3. "Affiliate" shall mean a Person that directly or indirectly, through
one or more intermediaries, is controlled by, or is under common
control with another Person.
1.4. "Assumed Contracts" shall mean only those Contracts listed on Schedule
4.9 which rights and obligations Seller will assign and Purchaser will
assume as of the Closing Date, as such schedule may be updated through
the Closing Date, subject to Purchaser's consent (not to be
unreasonably withheld) to include Contracts entered into in the
ordinary course of business or otherwise as agreed between the
parties.
1.5. "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.6. "Confidentiality Agreement" shall have the meaning set forth in
Section 8.1.
1.7. "Contracts" shall mean all those contracts and arrangements relating
to the Telephony Business listed on Schedule 4.9.
1.8. "Encumbrances" shall mean any and all restrictions on or conditions to
transfer or assignment, claims, liabilities, liens, pledges,
mortgages, restrictions, and encumbrances of any kind, whether
accrued, absolute, contingent or otherwise affecting the Assets.
1.9. "Excluded Assets" shall mean the following assets of Seller as of the
Closing: (a) all cash and cash equivalents, (b) all bank accounts, (c)
all accounts receivable, (d) Intellectual Property other than the
Transferred Intellectual Property, (e) all assets used in or related
to Seller's business of designing, manufacturing, marketing and
selling Internet appliances and providing related services (the
"Mailstation Business"), (f) prepaid assets and (g) such other assets,
rights or properties of Seller not expressly included in the Assets.
1.10."GAAP" shall mean generally accepted accounting principles, as in
effect in the United States from time to time, as supplemented by
Regulation S-X as promulgated by the United States Securities and
Exchange Commission, as in effect from time to time, consistently
applied.
1.11."Governmental Entity" shall mean any court, or any federal, state,
municipal, provincial or other governmental authority, department,
commission, board, service, agency, political subdivision or other
instrumentality.
1.12."Intangibles" shall mean guarantees, rights, warranties, defenses and
claims, choses in action, causes of action, demands, rights of
recovery, suits, covenants not to compete and other rights in favor of
Seller relating to the Assets, the Assumed Liabilities or the
Telephony Business, excluding Intellectual Property.
1.13."Inventory" shall mean the inventory, including consumables, parts
(including retainable parts), materials, and spares, wherever located,
owned, primarily employed or held for sale to customers in the conduct
of the Telephony Business, as identified on Schedule 1.13, as the same
may be updated or revised by Seller as of the Closing Date.
1.14."Knowledge" or "Known" shall mean the current actual knowledge of any
of the officers or directors of a Person.
1.15."Laws or Decrees" shall mean all applicable federal, state, provincial
and local laws, ordinances, rules, statutes, regulations and all
orders, writs, injunctions, awards, judgments or decrees.
1.16."Liability" shall mean any direct or indirect liability, indebtedness,
obligation, guarantee or endorsement, whether known or unknown,
whether accrued or unaccrued, whether absolute or contingent, whether
due or to become due, or whether liquidated or unliquidated.
1.17."Material Adverse Change" shall mean any change (i) that is or is
reasonably likely to be materially adverse to the Assets, the Assumed
Liabilities, or the results of operations or financial condition of
the Telephony Business or (ii) that materially impairs the ability of
Purchaser to perform its obligations hereunder or to consummate the
Transaction, provided, however, that (a) any failure by Seller to meet
published revenue or earnings projections; or (b) any change, event or
effect attributable or relating to conditions affecting Seller's
industry, the U.S. economy as a whole or the foreign economy in
locations where Seller has material operations or sales shall not
constitute a Material Adverse Change.
1.18."Material Adverse Effect" shall mean any effect (i) that is or is
reasonably likely to be materially adverse to the Assets, the Assumed
Liabilities, or the results of operations or financial condition of
the Telephony Business or (ii) that materially impairs the ability of
Purchaser to perform its obligations hereunder or to consummater the
Transaction, provided, however, that (a) any failure by Seller to meet
published revenue or earnings projections; or (b) any change, event or
effect attributable or relating to conditions affecting Seller's
industry, the U.S. economy as a whole or the foreign economy in
locations where Seller has material operations or sales shall not
constitute a Material Adverse Effect.
1.19."Permits" shall mean any and all licenses, permits, authorizations,
certificates, franchises, variances, waivers, consents and other
approvals from any Governmental Entity relating to the Telephony
Business, the Assets or the Assumed Liabilities. Schedule 1.19
contains a complete list of Permits held by Seller relating to the
Telephony Business, the date of expiration of each such Permit, and
whether each such Permit is transferable.
1.20."Permitted Encumbrances" shall mean (a) easements, covenants,
rights-of-way or other similar restrictions and imperfections of
title, (b) liens for taxes not yet due and payable, and (c) liens
described in Schedule 1.20.
1.21."Person" shall mean an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a Governmental Entity.
1.22."Proxy Statement" shall mean the proxy statement/prospectus to be sent
to Seller's stockholders in connection with the Seller Stockholder's
Meeting.
1.23."Tangible Assets" shall mean the tangible assets, equipment and other
fixed assets, including all tooling, aids, manuals, schematics,
diagnostics and machinery listed on Schedule 1.23.
1.24."Tax" shall mean any federal, provincial, territorial, local, or
foreign income, profits, gross receipts, capital gains taxes, license,
payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, business license, occupation, value
added, goods and service, alternative or add-on minimum, estimated, or
other tax or governmental charge of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not,
relating to the Assets or the Telephony Business.
1.25."Tax Return" shall mean any return, declaration, report, estimates,
claim for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and including any
amendment thereof, covering or relating to the Assets or the Telephony
Business.
1.26."Telephony Business Records" shall mean any and all books, records,
files, drawings, documentation, data or information that have been or
now are used in or with respect to, in connection with or otherwise
relating to the Telephony Business, the Assets or the Assumed
Liabilities.
1.27."Transferred Intellectual Property" shall mean the Trademarks, Patents
and Copyrights listed on Schedule 1.27 and all Trade Secrets currently
used in the Telephony Business and as described on Schedule 1.27.
The following terms are defined elsewhere in the Agreement:
Term Section Where Defined
Additional Inventory Payment 2.7(a)
Adverse Consequences 10.7(a)
Agreement Preamble
Allocation Schedule 2.9
Ancillary Agreements 4.2
Assets 2.2
Assumed Liabilities 2.4
Assumption Agreement 9.2(e)(iv)
Cash Payment 2.6
Closing 3.1
Closing Date 3.1
Competition 10.4
Copyrights 4.8(a)(iii)
Derivative Work 10.6(c)
DOJ 8.2(b)
Damages 11.1(b)
Exchange Act 4.6
Excluded Liabilities 2.5
Former Seller Employees 10.10
FTC 8.2(b)
HSR Act 4.3
HSR Filings 8.2(b)
Indemnification Claim 11.2(a)
Indemnified Person 11.1(b)
Intellectual Property 4.8
Issued Patents 4.8(a)(i)
JAMS Article XII
License 10.6(a)
Mailstation Business 1.9
Marks 10.6(b)
Officer's Certificate 11.2
Patents 4.8(a)(ii)
Patent Applications 4.8(a)(ii)
Patent Claim 10.7
Patent Losses 10.7
Property Taxes 10.3(b)
Prospective New Purchaser Employees 10.1(a)
Purchaser Preamble
Purchaser Compliance Certificate 9.2(a)
Purchaser Financial Statements 5.6
Required Seller Stockholder Vote 4.2
Royalty Payments 2.7(b)
Royalty Periods 2.7(b)(i)
SCPA 4.8(g)
Seller Preamble
Seller Compliance Certificate 9.3(a)
Seller Employee Plans 10.1(b)(iii)
Seller Financial Statement 4.6
Seller SEC Documents 4.6
Seller Stockholder Proposal 6.5(b)
Seller Stockholders' Meeting 6.4(a)
Seller's Cost 2.7(a)(i)
Survival Period 14.1
Telephony Business Recital A
Telephony Products 4.8(c)
Term of the Non-compete 10.6(a)
Third Party Claim 11.2(d)
Third Party Intellectual Property 4.8(d)
Threshold Inventory Sales 2.7(a)(i)
Trademarks 4.8(a)(iv)
Trade Secrets 4.8(a)(v)
Transaction Recital B
Transaction Taxes 10.3(a)
Warranty and Merchandise Exchange
Amount 2.8
Warranty and Merchandise Exchange
Schedule 2.8(a)
Warranty Obligations 2.4
Article II.
PURCHASE AND SALE OF ASSETS;
ASSUMPTION OF LIABILITIES
2.1. Purchase and Sale of Assets; Assumption of Assumed Liabilities; and
Technology License.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, effective as of the Closing Date:
(i) Seller agrees to sell, assign, transfer, convey and deliver to
Purchaser at the Closing, and Purchaser agrees to purchase from
Seller, all of Seller's right, title and interest in and to the
Assets;
(ii) Seller agrees to assign to Purchaser, and Purchaser agrees to assume
from Seller, the Assumed Liabilities;
(iii)Seller agrees to assign to Purchaser, and Purchaser shall assume from
Seller, all of Seller's rights and obligations under the Assumed
Contracts, subject to the obtaining of all necessary consents by the
other parties thereto; and
(iv) Purchaser agrees to grant to Seller the License pursuant to the terms
of Section 10.6 hereof.
(b) In connection with the Transaction, on the Closing Date, Seller shall
take any and all actions that may be required, or reasonably requested
by Purchaser, to transfer good title to all of the Assets to
Purchaser. Seller shall deliver possession of all of the Assets to
Purchaser on the Closing Date at the location and by such means as are
reasonably designated by Purchaser, and Seller shall further deliver
to Purchaser proper assignments, bills of sale, conveyances and other
instruments of sale and/or transfer in forms reasonably satisfactory
to Purchaser in order to convey to Purchaser good title to the Assets.
2.2. Assets. As used in this Agreement, the term "Assets" means,
collectively, all right, title and interest, in and to the following:
(a) Assumed Contracts. All rights and benefits of Seller in existence on
the Closing Date or arising from and after the Closing Date under the
Assumed Contracts;
(b) Telephony Business Records. All Telephony Business Records; provided,
however, that Seller shall be permitted to retain one copy thereof;
(c) Intangibles. All Intangibles;
(d) Inventory. All Inventory;
(e) Permits. All Permits to the extent transferable by Seller;
(f) Tangible Assets. All Tangible Assets; and
(g) Transferred Intellectual Property. All Transferred Intellectual
Property.
2.3. Excluded Assets. Notwithstanding anything herein to the contrary,
Seller shall retain all of its right, title and interest in and to,
and Purchaser shall not acquire any interest in, the Excluded Assets.
2.4. Assumption of Liabilities. Subject to and upon the terms and
conditions of this Agreement, effective as of the Closing Date,
Purchaser agrees to assume from Seller and to thereafter pay, perform
and/or otherwise discharge in a timely manner:
(a) Liabilities arising from and after the Closing Date under the
Assumed Contracts, other than (i) Liabilities performed or paid,
or required under any Assumed Contracts to have been performed or
paid, prior to the Closing Date, (ii) Liabilities arising from
any breach or default of any Assumed Contract to the extent
occurring (or arising from facts and/or activities occurring)
prior to the Closing Date or (iii) Liabilities arising from any
tort, infringement or violation of law by Seller that occurred
(or arose from facts occurring) prior to the Closing Date (the
"Assumed Liabilities"); and
(b) Any obligations of Seller under the Assumed Contracts to provide
product warranty repair or merchandise exchange services to those
Persons who purchased Telephony Products prior to the Closing
Date.
2.5. Liabilities Not Assumed. Except as expressly set forth in Section 2.4
above, Purchaser shall not assume or become liable or obligated in any
way, and Seller shall retain and remain solely liable for and
obligated to discharge all debts, expenses, contracts, agreements,
commitments, obligations, claims, suits and other liabilities of
Seller of any nature whatsoever, whether or not related to the
Telephony Business or the Assets, whether known or unknown, accrued or
not accrued, fixed or contingent, current or arising hereafter,
including, without limitation, any of the following (collectively
referred to herein as "Excluded Liabilities"):
(a) Any Liability arising out of or as a result of any legal or
equitable action or judicial or administrative proceeding
initiated at any time to the extent arising out of facts
occurring prior to the Closing Date;
(b) Any Liability of Seller for unpaid Taxes (with respect to the
Telephony Business, the Assets, or Seller's employees or
otherwise), any Liability of Seller for Taxes arising in
connection with the consummation of the Transaction (including
any income Taxes) arising because Seller is transferring the
Assets or any Liability of Seller for the unpaid Taxes of any
Person other than Seller, or a transferee or successor of Seller,
by contract or otherwise;
(c) Any Liabilities related to or arising from any breach or default
by Seller, whether before or after the Closing Date, of any
Contract or related to or arising from any tort, infringement or
violation of Laws or Decrees by Seller, in each case to the
extent occurring or arising from facts occurring on or prior to
the Closing Date;
(d) Any Liability of Seller incurred in connection with or under this
Agreement (including, without limitation, with respect to any of
Seller's representations, warranties, agreement or covenants
hereunder) relating to the execution or performance of this
Agreement and the transactions contemplated herein;
(e) Any Liability of Seller under any Seller Employee Plans with
respect to any obligation of Seller to contribute or to make
payments to or provide benefits on behalf of Seller's employees;
(f) Any fees or expenses incurred by Seller hereunder with
respect to Seller's engagement of its counsel, or any investment
banker, appraiser or accounting firm engaged to perform services
hereunder; and
(g) any Liability of Seller not related to the Telephony Business.
2.6. Purchase Price. In consideration of the purchase of the Assets,
Purchaser shall assume the Assumed Liabilities pursuant to Section
2.4, enter into the License under Section 10.6, pay to Seller the sum
of Five Million Dollars ($5,000,000) (the "Cash Payment"), payable in
cash at the Closing by wire transfer to an account designated by
Seller and be obligated to make the post-closing payments required
under Section 2.7 hereunder.
2.7. Post Closing Payments.
(a) Additional Inventory Payments.
(i) After Purchaser has sold Inventory with associated Seller's Cost
equal in the aggregate to $3,500,000 (as such amount may be
adjusted in accordance with Section 2.8) (the "Threshold
Inventory Sales"), Purchaser shall thereafter be obligated to pay
Seller, commencing with the calendar month in which the Threshold
Inventory Sales were achieved, a cash payment equal to the
aggregate Seller's Cost with respect to any additional Inventory
sold by Purchaser (net of product returned for credit and
excluding inventory described in Section 2.7(a)(ii)) beyond the
Inventory representing the Threshold Inventory Sales (the
"Additional Inventory Payments"). "Seller's Cost" shall be based
on Seller's Costs of the Inventory as set forth on Schedule 1.13.
(ii) In the event Purchaser sells any Inventory at less than Seller's
Cost, Purchaser shall be obligated to pay Seller 80% of the gross
proceeds to Purchaser from the sale of such Inventory. Purchaser
shall not be entitled to sell the Inventory below Seller's Cost
without Seller's approval, such approval not to be unreasonably
withheld; provided that with respect to sales of Inventory listed
on Schedule 2.7, Purchaser shall be entitled to sell such
Inventory below Seller's Cost without Seller's prior approval.
(iii)Additional Inventory Payments shall be made to Seller by
Purchaser by wire transfer to an account designated by Seller on
or before the 15th day after the close of each calendar month
commencing with the calendar month in which the Threshold
Inventory Sales were achieved. Inventory shall be deemed to have
been sold in the month in which Purchaser recognizes revenue in
accordance with GAAP for such sales; provided, however, that in
the event any Inventory is subject to a consignment arrangement,
such Inventory shall not be deemed to be sold under this Section
until such time as Purchaser is paid pursuant to the terms of the
consignment arrangement. Purchaser shall deliver to Seller 15
days after the end of each calendar month a written report
itemizing the Inventory sold in such calendar month.
(b) Royalty Payments
(i) Purchaser shall pay Seller a quarterly royalty on revenues (the
"Royalty Payments") recognized in accordance with GAAP by
Purchaser from the Telephony Business, including revenues from
the Telephony Products and future products derived from the
Transferred Intellectual Property, but excluding any revenues
from sales of Inventory below Seller's Cost pursuant to Section
2.7(a)(ii) for which Seller shall receive 80% of the gross
proceeds of such sales in lieu of Royalty Payments, as set forth
below:
Royalty Period Royalty Percentage
-------------- ------------------
During the 1st four successive calendar 4%
quarters, and any interim portion of a quarter,
following the Closing
During the 2nd four successive calendar 3%
quarters following the Closing
During the 3rd four successive calendar 2%
quarters following the Closing
During the 4th four successive calendar 1%
quarters following the Closing
(ii) Royalty Payments shall be made on or before the 30th day
following the end of each quarter during the Royalty Periods (as
described in the table set forth in subparagraph 2.7(b)(i)
above), in cash by wire transfer to an account designated by
Seller. Purchaser shall deliver to Seller within 30 days
following the end of each calendar quarter a written report
itemizing the revenues recognized by Purchaser for which a
royalty is due under this Section 2.7(b).
2.8. Warranty and Merchandise Exchange Schedule. In considertion of
Purchaser's assumption of the warranty repair and merchandise exchange
obligations under the Assumed Contracts, as described in Section
2.4(b), Purchaser shall be entitled to receive an adjustment to
Threshold Inventory Sales (the "Warranty and Merchandise Exchange
Amount"). Within thirty (30) days after the Closing Date, Seller will
prepare and deliver to Purchaser a warranty adjustment schedule (the
"Warranty and Merchandise Exchange Schedule") prepared in accordance
with the adjustment formula and methodology set forth on Schedule 2.8
hereto, which will detail the Warranty and Merchandise Exchange
Amount, and which will be accompanied by appropriate work papers,
invoices and such other supporting documentation as may be necessary
for Purchaser to review the Warranty and Merchandise Exchange Amount.
Based on the Warranty and Merchandise Exchange Amount, Purchaser shall
be entitled to claim a credit against the Threshold Inventory Sales.
To the extent the Warranty and Merchandise Exchange Amount is a
positive number, the Threshold Inventory Sales amount shall be
adjusted upward on a dollar-for-dollar basis up to the net book value
of the Inventory (as provided in the Allocation Schedule). In the
event the Warranty and Merchandise Exchange Amount exceeds Purchaser's
actual sales of Inventory (i.e., Purchaser does not reach the
Threshold Inventory Sales within 48 months after the Closing Date),
Purchaser shall be entitled to credit such remaining amounts against
Purchaser's Royalty Payments to Seller.
2.9. Inspection Rights. In addition to any recordkeeping obligations
specified in Section 2.8 above, Purchaser will keep complete and
accurate records in connection with its activities in connection with
its sale of the Inventory and revenues from the Telephony Business.
During the term of Purchaser's obligations under Section 2.7 and for
three (3) months following the termination of those obligations,
Purchaser will permit Seller or an auditor selected by Seller to
review such records upon reasonable advance written notice, solely for
the purpose of verifying Purchaser's compliance with the terms of this
Agreement. Any such inspection will be conducted during Purchaser's
regular business hours and, to the extent possible, in a manner that
does not interfere with the ordinary business operations of Purchaser.
In the event that any such inspection finds an underpayment of more
than three percent (3%) of the amounts due to Seller for any month,
Purchaser will promptly pay Seller such underpayment and reimburse
Seller for its costs and expenses incurred in connection with any such
inspection.
2.10.Allocation. Seller and Purchaser agree to allocate the purchase price
(including the Assumed Liabilities) among the Assets in accordance
with Schedule 2.9 (the "Allocation Schedule").
Article III.
THE CLOSING
-----------
3.1. The Closing. The consummation of the Transaction will take place at a
closing to be held at the offices of Gray Cary Ware & Freidenrich LLP,
400 Hamilton Avenue, Palo Alto, California (the "Closing") on the date
5 business days after all conditions (other than the respective
delivery obligations of the parties) hereto have been satisfied or
waived, or at such other time or date as may be agreed to by the
parties to this Agreement (the "Closing Date").
Article IV.
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Except as otherwise set forth in the Seller Disclosure Schedule
provided to Purchaser, a copy of which is attached hereto as Schedule IV, the
following representations and warranties are made by Seller as set forth below:
4.1. Organization. Seller is a corporation duly organized, validly existing
and in good standing under the laws of Delaware, and has full power
and authority to carry on its businesses as now conducted. Seller is
duly qualified or licensed to do business as a foreign corporation in
each jurisdiction in which it is required to be so qualified or
licensed, except in jurisdictions which the failure to qualify, in the
aggregate, would not have a Material Adverse Effect on the Telephony
Business.
4.2. Authorization. This Agreement and all other agreements in connection
with the Transaction to which Seller is or will be a party (such other
agreements being referred to hereinafter as the "Ancillary
Agreements") have been, or upon their execution and delivery hereunder
will have been, duly and validly executed and delivered by Seller and
constitute, or will constitute, valid and binding agreements of Seller
enforceable against Seller in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles or the exercise of
judicial discretion in accordance with such principles. Seller has all
requisite power and authority to execute, and deliver this Agreement
and, at the time of the Closing, will have all requisite power and
authority to carry out the transactions contemplated in this Agreement
and the Ancillary Agreements. All requisite corporate action on the
part of Seller has been taken to authorize the execution and delivery
of this Agreement and the Ancillary Agreements, subject only to the
approval of the Transaction and this Agreement by Seller's
stockholders as contemplated by Section 6.4. The affirmative vote of
the holders of a majority of the shares of common stock of Seller
outstanding on the record date for the Seller Stockholders' Meeting
called pursuant to Section 6.4 with regard to Seller Stockholder
Proposals (the "Required Seller Stockholder Vote") is the only vote of
the holders of any of Seller's capital stock necessary under
applicable Law to approve this Agreement and the transactions
contemplated hereby.
4.3. No Conflicts; Consents. The execution and the delivery of this
Agreement and the Ancillary Agreements do not, and the consummation of
the transactions contemplated herein and therein and compliance with
the provisions hereof and thereof will not, conflict with, result in a
breach of, constitute a default (with or without notice or lapse of
time, or both) under or violation of, any provision of the Certificate
of Incorporation or Bylaws of Seller or any material instrument,
contract or understanding to which Seller is a party or by which
Seller is bound, or by which Seller or any of its properties is bound,
or any federal, state or local judgment, writ, decree, order, statute,
rule or regulation applicable to Seller. Except for (i) consents,
approvals, authorizations, registrations or filings under applicable
securities laws, (ii) the termination of any waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), if applicable, and (iii) such other consents,
authorizations, filings, approvals and registrations required under
any other applicable Law or Decree which, if not obtained or made,
would not have a Material Adverse Effect on Seller and would not
prevent or materially alter or delay the Transaction, no consent of
any third party or any Governmental Entity is required to be obtained
on the part of Seller to permit the consummation of the transactions
contemplated in this Agreement or the Ancillary Agreements.
4.4. Title to Assets. Seller has good title to or a valid leasehold
interest in, all of the Assets, free and clear of all Encumbrances
except for Permitted Encumbrances. At the Closing, Seller will sell,
convey, assign, transfer and deliver to Purchaser good title, and all
Seller's right, title and interest, in and to all of the Assets, free
and clear of all Encumbrances except for Permitted Encumbrances.
Except as set forth in Schedule 1.23, each Tangible Asset is, and as
of the Closing Date will be, in good operating condition and good
repair, ordinary wear and tear excepted, and is usable in the ordinary
course of the Telephony Business.
4.5. Compliance with Laws and Regulations; Governmental Licenses, Etc.
Seller is in compliance with all applicable Laws or Decrees with
respect to or affecting the Telephony Business, the Assets, or the
Assumed Liabilities, except for such failure to comply as which would
not result in a Material Adverse Effect on the Telephony Business, the
Assets or the Assumed Liabilities. Seller is not subject to any order,
injunction or decree issued by any Governmental Entity which could
impair the ability of Seller to consummate the transactions
contemplated herein or which could adversely affect Purchaser's
conduct of the Telephony Business or its use and enjoyment of the
Assets or the Transferred Intellectual Property from and after the
Closing Date. Schedule 1.19 contains a complete list of Permits held
by Seller relating to the Telephony Business, the date of expiration
of each such Permit, and whether each such Permit is transferable.
4.6. SEC Reports; Seller Financial Statements. Seller has made available to
Purchaser through EDGAR a true and complete copy of each statement,
report, registration statement (with the prospectus in the form filed
pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement, and other filing filed with the SEC by Purchaser since
December 31, 1998; and, prior to the Closing, Seller will have made
available to Purchaser through EDGAR true and complete copies of any
additional documents filed with the SEC by Seller prior to the Closing
Date (collectively, the "Seller SEC Documents"). As of their
respective filing dates, the Seller SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and the Securities Act and
none of the Seller SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed Seller SEC
Document prior to the date hereof. The financial statements of Seller,
including the notes thereto, included in the Seller SEC Documents (the
"Seller Financial Statements"), complied as to form in all material
respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto as of
their respective dates, and have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of
unaudited statements included in Quarterly Reports on Form 10-Qs, as
permitted by Form 10-Q of the SEC). The Seller Financial Statements
fairly present the consolidated financial condition and operating
results of Seller and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments). There has been
no change in Seller's accounting policies except as described in the
notes to the Seller Financial Statements.
4.7. Absence of Certain Changes or Events. Since March 31, 2000, Seller has
conducted the Telephony Business in the ordinary course consistent
with past practices and, without limiting the generality of the
foregoing, has not suffered any Material Adverse Change in the Assets,
the Assumed Liabilities or the Telephony Business.
4.8. Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property" means:
(i) all issued patents, reissued or reexamined patents, revivals of
patents, utility models, certificates of invention, registrations
of patents and extensions thereof, regardless of country or
formal name (collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and provisional
patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively "Patent
Applications" and, with the Issued Patents, the "Patents");
(iii)all copyrights, copyrightable works, semiconductor topography and
mask work rights, including all rights of authorship, use,
publication, reproduction, distribution, performance
transformation, moral rights and rights of ownership of
copyrightable works, semiconductor topography works and mask
works, and all rights to register and obtain renewals and
extensions of registrations, together with all other interests
accruing by reason of international copyright, semiconductor
topography and mask work conventions (collectively,
"Copyrights");
(iv) trademarks, registered trademarks, applications for registration
of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names,
registered trade names and applications for registrations of
trade names and all goodwill associated therewith (collectively,
"Trademarks"); and
(v) all technology, ideas, inventions, designs, proprietary
information, manufacturing and operating specifications,
know-how, formulae, trade secrets, technical data, computer
programs, hardware, software and processes ("Trade Secrets");
(b) Seller owns and has good title to, or possesses legally
enforceable rights to use, all Intellectual Property used in the
Telephony Business as currently conducted. To Seller's Knowledge,
no Person other than Seller has any right, claim or interest in
or with respect to any Transferred Intellectual Property. Seller
owns the Marks and has the right to license the Marks to
Purchaser as contemplated under Section 10.6. There is no
unauthorized use, disclosure or misappropriation of the
Transferred Intellectual Property by any employee or to Seller's
Knowledge, former employee of Seller or to Seller's knowledge,
any of its subsidiaries or by any other third party. Seller has
no Knowledge of any prior art that would invalidate the Patents.
(c) Schedule 1.27 lists all Issued Patents, Patent Applications,
Trademarks, Copyrights and, to Seller's Knowledge, Trade Secrets
owned by Seller and currently used in the Telephony Business,
including the jurisdictions in which each such Issued Patent,
Patent Application, Trademark or Copyright has been issued or
registered or in which any such application for such issuance and
registration has been filed. A list of all current products of
the Telephony Business ("Telephony Products") is set forth on
Schedule 4.8.
(d) Schedule 4.8 contains an accurate list as of the date of this
Agreement of all licenses, sublicenses and other agreements to
which Seller is a party and pursuant to which Seller is
authorized to use in the Telephony Business any Intellectual
Property owned by any third party, excluding "off the shelf" or
other software at an aggregate cost not exceeding $10,000 and
widely available through regular commercial distribution channels
on standard terms and conditions ("Third Party Intellectual
Property").
(e) Seller has not entered into any agreement to indemnify any other
person against any charge of infringement of any Transferred
Intellectual Property. There are no royalties, fees or other
payments payable by Seller to any Person by reason of the
ownership, use, sale or disposition of the Transferred
Intellectual Property.
(f) Seller is not in breach of any license, sublicense or other
agreement relating to the Transferred Intellectual Property.
Neither the execution, delivery or performance of this Agreement
or any Ancillary Agreement contemplated hereby nor the
consummation of the Transaction will contravene, conflict with or
result in an infringement on Purchaser's right to own or use any
Transferred Intellectual Property, including any Third Party
Intellectual Property.
(g) All Patents and registered Trademarks included in the Transferred
Intellectual Property are valid and subsisting. All maintenance
and annual fees have been fully paid and all fees paid during
prosecution and after issuance of any Patent comprising or
relating to such item have been paid in the correct entity status
amounts. To Seller's Knowledge, in connection with the Telephony
Business, Seller is not infringing, misappropriating or making
unlawful use of any proprietary asset owned or used by any third
party. Seller has not brought a proceeding alleging infringement
of the Transferred Intellectual Property or breach of any license
or agreement involving the Transferred Intellectual Property
against any third party. All semiconductor topography works and
mask works have been registered in the United States Copyright
Office under the Semiconductor Chip Protection Act of 1984 (the
"SCPA") within two (2) years after the first date of Commercial
Exploitation, as that term is defined in the SCPA. (h) Seller is
not subject to any proceeding or outstanding decree, order,
judgment, or stipulation restricting in any manner the use,
transfer, or licensing thereof by Seller, or which may affect the
validity, use or enforceability of the Transferred Intellectual
Property. Seller is not subject to any agreement which restricts
in any material respect the use, transfer, or licensing by Seller
of the Transferred Intellectual Property.
4.9. Contracts and Arrangements.
(a) Schedule 4.9 hereto contains a true and accurate list of all
material contracts, pursuant to which Seller enjoys any right or
benefit or undertakes any obligation related to the Transferred
Intellectual Property, the Assumed Liabilities or the Assets (the
"Contracts"). Except for the Contracts, Seller is not a party to
or otherwise bound by the terms of any material contract,
agreement or obligation, written or oral, affecting the Assets,
the Transferred Intellectual Property, or the Assumed
Liabilities. Each of the Assumed Contracts is (assuming due
authorization and execution by the other party or parties
thereto) valid, binding and in full force and effect and
enforceable by Seller in accordance with its terms, except as
enforcement may be limited by general equitable principles and
the exercise of judicial discretion in accordance with such
principles. Except as set forth on Schedule 4.9 attached hereto,
no consents are necessary for the effective assignment to and
assumption by Purchaser of any of the Assumed Contracts.
(b) To Seller's Knowledge, there are no unresolved claims between
Seller and any of the principal licensors, vendors, suppliers,
distributors, representatives or customers of the Telephony
Business, and no event which could reasonably be expected to
result in (i) a material breach of an Assumed Contract, (ii) a
request for a material accommodation or concession in connection
with the sale of services, distributors, representatives or
customers or (iii) a significant impairment of the relationships
of the Telephony Business with its principal licensors, vendors,
suppliers, distributors, representatives, or customers, and none
of such persons has advised Seller of its intention to cease
doing business with Purchaser following the Closing Date, whether
as a result of the transactions contemplated hereunder or
otherwise.
4.10.Brokers. There is no broker, finder, investment banker or other
person, other than Alliant Partners, whose fees are to be paid by
Seller pursuant to the engagement agreement between Alliant Partners
and Seller (a true and correct copy of which has been provided to
Buyer), who would have any valid claim against any of the parties to
this Agreement for a commission or brokerage fee or payment in
connection with this Agreement or the transactions contemplated herein
as a result of any agreement of, or action taken by, Seller.
4.11.Litigation. There is no suit, action, proceeding, claim or
investigation, pending or threatened against Seller, or its properties
or officers or directors, before any Governmental Entity. There is no
judgment, decree or order against Seller or any of its properties.
4.12.Employee Benefits. There are no liens or other claims which affect or
could affect the Telephony Business or the Assets, of any nature,
whether at law or in equity, asserted or unasserted, perfected or
unperfected, arising out of or relating to any employee or the
operation, sponsorship or participation in any employee benefit plan,
program, procedure or other practice of any kind, whether or not
subject to the Employee Retirement Insurance Security Act of 1974.
4.13.Product Liability. To Seller's Knowledge, Seller has no Liability
arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any Telephony Products
manufactured, sold, leased, or delivered by Seller.
4.14.Disclosure. The representations and warranties contained in this
Article IV do not contain any untrue statement of fact or omit to
state any fact necessary in order to make the statements and
information contained in this Article IV not misleading.
Article V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Except as otherwise set forth in the Purchaser Disclosure Schedule
provided to Seller, a copy of which is attached as Schedule V, and Purchaser
hereby represents and warrants to Seller that:
5.1. Organization and Good Standing. Purchaser is a limited liability
company duly organized, validly existing and in good standing under
the laws of the State of Delaware and has full power and authority to
carry on its businesses as now conducted. Purchaser is duly qualified
or licensed to do business as a foreign corporation in each
jurisdiction in which it is required to be so qualified or licensed,
except in such jurisdictions in which failure to be so qualified or
licensed would not have a Material Adverse Effect on Purchaser.
5.2. Power, Authorization and Validity. Purchaser has the right, power,
legal capacity and authority to enter into and perform its respective
obligations under this Agreement and the Ancillary Agreements. The
execution and delivery of this Agreement and the Ancillary Agreements
have been duly and validly approved and authorized by the board of
directors of Purchaser. No authorization or approval, governmental or
otherwise, is necessary in order to enable Purchaser to enter into and
to perform the terms of this Agreement or the Ancillary Agreements.
This Agreement is and the Ancillary Agreements, when executed and
delivered by Purchaser shall be, the valid and binding obligations of
Purchaser, enforceable in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles or the exercise of
judicial discretion in accordance with such principles.
5.3. No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement or any of the Ancillary Agreements, nor the
consummation of the transactions contemplated herein or therein will
conflict with, or result in a material breach or violation of, or
constitute a default (with or without notice, lapse of time or both)
or give any party any right to terminate, accelerate or cancel any
provision of Purchaser's charter documents as currently in effect, any
material instrument, contract or understanding to which Purchaser is a
party or by which Purchaser is bound, or by which Purchaser or any of
its properties is bound, or any federal, state or local judgment,
writ, decree, order, statute, rule or regulation applicable to
Purchaser. Except for (i) consents, approvals, authorizations,
registrations or filings under applicable securities laws, (ii) the
termination of any waiting period under the HSR Act, if applicable,
and (iii) such other consents, authorizations, filings, approvals and
registrations required under any other applicable Law or Decree which,
if not obtained or made, would not have a Material Adverse Effect on
Purchaser, no consent of any third party or any Governmental Entity is
required to be obtained on the part of Purchaser to permit the
consummation of the transactions contemplated in this Agreement or the
Ancillary Agreements.
5.4. Litigation. There is no suit, action, proceeding, claim or
investigation, pending or threatened against Purchaser before any
Governmental Entity which questions or challenges the validity of this
Agreement or any of the Ancillary Agreements, or any of the
transactions contemplated herein or therein.
5.5. Brokers. There is no broker, finder, investment banker or other person
whose fees are to be paid by Purchaser, who would have any valid claim
against Seller for a commission or brokerage fee or payment in
connection with this Agreement or the transactions contemplated herein
as a result of any agreement of, or action taken by Purchaser.
5.6. Purchaser's Cash Payment. Purchaser has, or will have as of the
Closing Date, adequate financial resources to consummate the
transactions contemplated herein and to deliver to Seller the Cash
Payment.
5.7. Disclosure. The representations and warranties contained in this
Article V do not contain any untrue statement of fact or omit to state
any fact necessary in order to make the statements and information
contained in this Article V not misleading.
Article VI.
PRE-CLOSING COVENANTS OF SELLER
-------------------------------
6.1. Conduct of Telephony Business. During the period on and from the date
of this Agreement through and including the Closing Date, Seller will
conduct the Telephony Business in the ordinary course consistent with
past practices and will use its reasonable commercial efforts to
retain Seller's employees employed in the Telephony Business, protect
and preserve the Assets and the Transferred Intellectual Property, and
maintain and preserve intact Seller's relationships with its
consultants, independent contractors, licensors, suppliers, vendors,
representatives, distributors and other customers and all others with
whom it deals, all in accordance with the ordinary course of business.
Seller shall promptly notify Purchaser in writing of any event
occurring subsequent to the date of this Agreement that would render
any representation or warranty of Seller contained in this Agreement,
if made on or as of the date of that event or the Closing Date,
inaccurate to the extent that the condition set forth in Section
9.3(a) shall not be satisfied.
6.2. Access to Information. Until the Closing, Seller will allow Purchaser
and its agents reasonable access upon reasonable notice and during
normal working hours to the Telephony Business Records and facilities
relating to the Assets, the Assumed Liabilities and the Telephony
Business. Until the Closing, Seller shall cause its accountants to
cooperate with Purchaser and its agents in making available all
relevant financial information requested with respect to the Assets,
the Assumed Liabilities and the Telephony Business.
6.3. Satisfaction of Conditions Precedent. Seller will use its reasonable
commercial efforts to satisfy or cause to be satisfied all the
conditions precedent to the Closing hereunder, and to cause the
transactions contemplated herein to be consummated, and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give
all notices to, third parties, which may be necessary or reasonably
required on its part in order to effect the transactions contemplated
herein.
6.4. No Solicitation; Seller Stockholders' Meeting.
(a) Except as contemplated under the terms of this Agreement,
Seller shall not (i) solicit any Acquisition Proposalor take any
action that could reasonably be expected to lead to an
Acquisition Proposal, (ii) furnish any information regarding
Seller to any Person in connection with an Acquisition Proposal,
or (iii) approve, endorse or recommend any Acquisition Proposal;
provided, however, that prior to the adoption of this Agreement
by the Required Seller Stockholder Vote, this Section 6.4(a)
shall not prohibit Seller from furnishing nonpublic information
regarding Seller to, or entering into discussions with, any
Person in response to an Acquisition Proposal or approving,
endorsing or recommending an Acquisition Proposal if the board of
directors of Seller concludes in good faith, after having taken
into account the advice of its outside legal counsel, that
failure to take such action would be inconsistent with its
fiduciary obligations to Seller's stockholders under applicable
Law.
(b) Seller shall take such actions as it reasonably deems necessary
to call, give notice of and hold a meeting of the holders of
Seller's common stock (the "Seller Stockholders' Meeting") to
vote on a proposal to approve this Agreement and the Transaction
(the "Seller Stockholder Proposal"). Seller will, through its
board of directors, recommend to its shareholders approval of the
Seller Stockholder Proposal, subject to the board's fiduciary
duties. The Seller Stockholders' Meeting shall be held as
promptly as practicable following the date hereof. Seller shall
ensure that all proxies solicited in connection with Seller
Stockholders' Meeting are solicited in compliance with all
applicable legal requirements. As promptly as practicable after
the date of this Agreement, Seller shall prepare and cause to be
filed with the SEC the Proxy Statement. Seller shall use its best
efforts to cause the Proxy Statement to comply with the rules and
regulations promulgated by the SEC and to respond promptly to any
comments of the SEC or its staff. Seller will use its best
efforts to cause the Proxy Statement to be mailed to Seller's
stockholders as promptly as practicable. Purchaser shall promptly
furnish to Seller all information concerning Purchaser that may
be required or reasonably requested in connection with any action
contemplated by this Agreement. The Proxy Statement, at the date
mailed to Seller's stockholders and at the time of the Seller
Stockholders' Meeting, will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein in light of the circumstances under which they are
made. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act.
6.5. Foreign Telephony Products. Seller shall use best efforts to grant or
cause to be granted to Purchaser, prior to the Closing, an exclusive,
royalty-free license to manufacture and sell certain foreign telephony
products (as described on Schedule 6.5 hereto), in a territory
comprised of South America, Central America, and the Caribbean, which
license shall become an Assumed Contract and shall be in substantially
the form of Exhibit E hereto.
6.6. Bulk Sales. Purchaser acknowledges and agrees that Seller will not
comply with the provisions of any bulk transaction laws of any
jurisdiction in connection with the Transaction. Accordingly,
Purchaser hereby waives compliance with applicable bulk transfer or
similar laws, if any, applicable to the transactions contemplated in
this Agreement.
6.7. WARN Act. Seller shall use its reasonable commercial efforts to comply
with the notice requirements of the Worker Adjustment and Retraining
Notification Act, 29 U.S.C.A.ss. 2101 et seq.
Article VII.
PRE-CLOSING COVENANTS OF PURCHASER
----------------------------------
7.1. Advise of Changes. Purchaser will promptly notify Seller in writing of
any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Purchaser contained in
this Agreement, if made on or as of the date of that event or the
Closing Date, untrue or inaccurate to the extent that the condition
set forth in Section 9.2(a) shall not be satisfied.
7.2. Satisfaction of Conditions Precedent. Purchaser will use its
reasonable commercial efforts to satisfy or cause to be satisfied all
the conditions precedent to the Closing hereunder, and to cause the
transactions contemplated herein to be consummated, and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give
all notices to, third parties which may be necessary or reasonably
required on its part in order to effect the transactions contemplated
herein.
Article VIII.
MUTUAL COVENANTS
----------------
8.1. Confidentiality and Publicity. The parties acknowledge that Seller and
Purchaser have previously executed a non-disclosure agreement dated
July 28, 2000, as amended (the "Confidentiality Agreement"), which
Confidentiality Agreement is hereby incorporated herein by reference
and shall continue in full force and effect in accordance with its
terms. Unless otherwise permitted by this Agreement, Seller and
Purchaser shall consult with each other before issuing any press
release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to
an inquiry) regarding the terms of this Agreement and the transactions
contemplated hereby, and neither shall issue any such press release or
make any such statement or disclosure without the prior approval of
the other (which approval shall not be unreasonably withheld), except
as may be required by law or by obligations pursuant to any listing
agreement with any national securities exchange or with the National
Association of Securities Dealers.
8.2. Regulatory Filings; Consents; Reasonable Efforts.
(a) Regulatory Filings. Subject to the terms and conditions of
this Agreement, each of Seller and Purchaser shall use its respective
reasonable commercial efforts to (i) make all necessary filings with
respect to the Transaction and this Agreement under the Securities
Act, the Exchange Act and applicable blue sky or similar securities
laws and obtain required approvals and clearances with respect thereto
and supply all additional information requested in connection
therewith, (ii) make appropriate filings with federal, state,
provincial or local governmental bodies or applicable foreign
governmental agencies and obtain required approvals and clearances
with respect thereto and supply all additional information requested
in connection therewith, (iii) obtain all consents, waivers,
approvals, authorizations and orders required in connection with the
authorization, execution and delivery of this Agreement and the
Ancillary Agreements and the consummation of the Transaction and (iv)
take, or cause to be taken, all appropriate action, and do, or cause
to be done, all things necessary, proper or advisable to consummate
and make effective the transactions contemplated in this Agreement as
promptly as practicable.
(b) HSR Filings. As promptly as practicable after the execution
of this Agreement, each of Seller and Purchaser shall make (or shall
cause its respective "ultimate parent entities" as defined under the
HSR Act to make) any and all required governmental filings required
under the HSR Act ("HSR Filings"), with respect to the transactions
contemplated under this Agreement and the Ancillary Agreements, and
shall use its respective best efforts to respond promptly to all
inquiries or requests for additional information or documentation from
the Department of Justice ("DOJ"), the Federal Trade commission
("FTC") or any other Governmental Entity, as applicable. Each of
Seller and Purchaser shall use its respective best efforts to resolve
such objections, if any, as DOJ, FTC or any other Governmental Entity,
as applicable, may assert under applicable antitrust laws with respect
to the Transaction; provided, however, that (i) neither Seller nor
Purchaser shall be required hereunder to divest itself of any assets,
properties or businesses and (ii) neither Seller nor Purchaser shall
be required to consent to any modification or amendment of this
Agreement. In the event an action is instituted by DOJ, FTC or any
other Governmental Entity challenging the Transaction as violative of
applicable antitrust laws or an investigation is commenced, each of
Purchaser and Seller will use its respective best efforts to resolve
such action or investigation. Each of Seller and Purchaser, as
applicable, will notify the other of all correspondence, filings or
communications between such party and its representatives, on the one
hand, and DOJ and/or FTC, or any other Governmental Entity, on the
other hand, with respect to this Agreement, the Ancillary Agreements
and the transactions contemplated herein and therein. Each of Seller
and Purchaser, as applicable, will furnish the other party with such
necessary information and reasonable assistance as such other party
may request in connection with the preparation of the HSR Filings.
Each of Purchaser and Seller shall, from time to time and on a
reasonably timely basis, advise the other, or its designated
representatives, in reasonable detail of the status and progress of
Purchaser's or Seller's, as applicable, HSR Filings.
8.3. Further Assurances. Prior to and following the Closing, each party to
this Agreement agrees to cooperate fully with the other party and to
execute such further instruments, documents and agreements, and to
give such further written assurances, as may be reasonably requested
by any other party to better evidence and reflect the transactions
described herein and the Ancillary Agreements and contemplated herein
and therein and to carry into effect the intent and purposes of this
Agreement. Prior to and after the Closing Date, Seller shall
reasonably cooperate with Purchaser in attempting to obtain the
agreement of parties to the Assumed Contracts necessary for
Purchaser's enjoyment of the Assets or the Transferred Intellectual
Property or Purchaser's conduct of the Telephony Business following
the Closing Date to extend the benefits and obligations of such
Assumed Contracts to Purchaser. Seller shall, from time to time, at
the request of Purchaser, and without further consideration, execute
and deliver such instruments of transfer, conveyance and assignment in
addition to those delivered pursuant to Sections 2.1 and (f) hereof,
and take such other actions, as may be necessary to assign, transfer,
convey and vest in Purchaser, and to put Purchaser in possession of,
the Assets, including but not limited to obtaining any and all
required consents of third parties which Seller has not obtained as of
the Closing Date. Purchaser shall, from time to time at the request of
Seller, and without further consideration, execute and deliver such
instruments of assumption, and take such other action, as may be
reasonably necessary to effectively confirm the assumption by
Purchaser of the Assumed Liabilities.
Article IX.
CONDITIONS TO CLOSING
---------------------
9.1. Conditions to Each Party's Obligations. The respective obligations of
each party to this Agreement to effect the transactions to be
performed by such party at the Closing are, at the option of such
party, subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) No Orders. No order shall have been entered, and not vacated, by
a court or administrative agency of competent jurisdiction, in
any action or proceeding which enjoins, restrains or prohibits
the Transaction or the consummation of any other transaction
contemplated herein.
(b) Permits, Authorizations and Approvals. All permits,
authorizations, approvals and orders required to be obtained
under all applicable Laws or Decrees in connection with the
transactions contemplated herein, including but not limited to
any applicable consent or termination of any applicable waiting
period under any Law shall have been obtained and shall be in
full force and effect at the Closing Date.
(c) No Litigation. There shall be no litigation pending or threatened
by any Governmental Entity in which (i) an injunction is or may
be sought against the transactions contemplated herein or (ii)
relief is or may be sought against any party hereto as a result
of this Agreement and in which, in the good faith judgment of the
board of directors of either Purchaser or Seller (relying on the
advice of their respective legal counsel), such Governmental
Entity has the probability of prevailing and such relief would
have a Material Adverse Effect upon such party.
(d) Stockholder Approval. The Seller Stockholder Proposals shall be
approved by the stockholders of Seller by the requisite vote
under applicable Law and Seller's Certificate of Incorporation.
9.2. Conditions to Obligations of Seller. The obligations of Seller to
effect the transactions to be performed by it at the Closing are, at
the option of Seller, subject to the satisfaction at or prior to the
Closing of the following additional conditions:
(a) Representations and Warranties. The representations and
warranties of Purchaser set forth in ARTICLE V hereof shall be
true and correct on and as of the Closing Date with the same
force and effect as if such representations and warranties had
been made at the Closing, except for such inaccuracies which
individually or in the aggregate do not constitute a Material
Adverse Effect, and Purchaser shall have delivered to Seller a
certificate (the "Purchaser Compliance Certificate") to such
effect dated as of the Closing Date and signed by the President
of Purchaser.
(b) Performance. All of the terms, covenants and conditions of this
Agreement to be complied with and performed by Purchaser, at or
prior to the Closing shall have been duly complied with and
performed except for such breaches or failure to perform which
individually or in the aggregate do not constitute a Material
Adverse Effect, and Purchaser shall have delivered to Seller the
Purchaser Compliance Certificate to such effect.
(c) Purchase Price. Purchaser shall have delivered the Cash Payment
to Seller in accordance with Section 2.6 hereof.
(d) Ancillary Agreements. Purchaser shall have executed and delivered
to Seller each of the Ancillary Agreements.
(e) Purchaser's Closing Deliverables. At the Closing, Purchaser will
deliver to Seller the following items:
(i) the Cash Payment;
(ii) the Purchaser Compliance Certificate in accordance with Section
9.2 and (a) hereof;
(iii)copies of each of the Ancillary Agreements executed by
Purchaser;
(iv) an agreement confirming the assumption by Purchaser of the
Assumed Liabilities (the "Assumption Agreement");
(v) a certificate, signed by the Secretary of Purchaser certifying as
to and accuracy of, and attaching copies of, Purchaser's charter
documents and all board of directors resolutions adopted in
connection with the Transaction; and
(vi) all other documents required to be delivered to Seller under this
Agreement.
(f) Opinion of Counsel. Seller shall have received from counsel to
Purchaser an opinion letter in form and substance as set forth in
Exhibit B hereto, addressed to Seller, and dated as of the
Closing Date.
9.3. Conditions to Obligations of Purchaser. The obligations of Purchaser
to effect the transactions to be performed by it at the Closing are,
at the option of Purchaser, subject to the satisfaction at or prior to
the Closing of the following additional conditions:
(a) Representations and Warranties. All the representations and
warranties of Seller set forth in ARTICLE IV hereof shall be true
and correct on and as of the Closing Date with the same force and
effect as if such representations and warranties had been made at
the Closing, except for such inaccuracies which individually or
in the aggregate do not constitute a Material Adverse Effect and
Seller shall have delivered to Purchaser a certificate (the
"Seller Compliance Certificate") to such effect dated as of the
Closing Date and signed by the President of Seller.
(b) Performance. All of the terms, covenants and conditions of this
Agreement to be complied with and performed by Seller at or prior
to the Closing shall have been duly complied with and performed
except for such breaches or failures to perform which
individually or in the aggregate do not constitute a Material
Adverse Effect, and Seller shall have delivered to Purchaser the
Seller Compliance Certificate to such effect.
(c) Required Consents. Any required consents from third parties to
the Assumed Contracts and other instruments required to allow the
consummation of the Transaction and the other transactions
contemplated herein shall have been obtained, except for such
consents the failure to obtain such would not result in a
Material Adverse Effect and evidence thereof satisfactory to
Purchaser shall have been delivered to Purchaser.
(d) Material Adverse Change. There shall have been no Material
Adverse Change relating to the Assumed Liabilities, the Assets or
the Telephony Business.
(e) Key Employee. Ian Laing shall have accepted an offer of
employment with Purchaser.
(f) Seller's Closing Deliverables. At the Closing, Seller will
deliver to Purchaser the following items:
(i) a bill of sale, intellectual property assignments, assignments
and assumptions of contracts and such other good and sufficient
instruments of conveyance, assignment and transfer, in form and
substance reasonably satisfactory to counsel to Purchaser as
shall be legally sufficient to vest in Purchaser good title to
the Assets (including the Assumed Contracts and Transferred
Intellectual Property);
(ii) the Telephony Business Records;
(iii)the Seller Compliance Certificate in accordance with Section 9.3
and (b) hereof;
(iv) all required consents from third parties to the Assumed Contracts
in accordance with Section 9.03(b) hereof;
(v) executed copies of each of the Ancillary Agreements;
(vi) a certificate, signed by the Secretary of Seller, certifying as
to the truth and accuracy of, and attaching copies of, Seller's
charter documents and board of directors and shareholder
resolutions adopted in connection with the Transaction; and
(vii)all other documents required to be delivered to Purchaser under
the provisions of this Agreement.
(g) Opinion of Counsel. Purchaser shall have received from counsel to
Seller an opinion letter in form and substance as set forth in
Exhibit A attached hereto, addressed to Purchaser, and dated as
of the Closing Date.
Article X.
POST-CLOSING MATTERS
--------------------
10.1. Employees.
(a) Employment Offer and Employment Terms and Conditions. An offer of
employment shall be made by Purchaser to any or all of those
Seller employees listed on Schedule 10.1 ("Prospective New
Purchaser Employees") at the sole discretion of Purchaser. The
parties hereby acknowledge that Purchaser is not under any
obligation to employ any current or future employee of Seller.
(b) Seller's Obligations and Liabilities.
(i) Seller shall be solely responsible for filing all tax returns
with respect to its employment of any Seller employee through the
Closing Date.
(ii) Seller shall be solely liable for and obligated to pay any
liabilities with respect to Seller's termination of employment of
any employee on or before the Closing Date.
(iii)Seller shall be responsible for any liability for claims filed
with respect to any employee of Seller eligible for coverage,
reimbursement and/or benefits under the terms of any Seller
Employee Plan. Additionally, Seller shall be responsible for any
liability for accrued benefits with respect to any Prospective
New Purchaser Employee who, as a result of employment with Seller
on or before the Closing Date, was a participant in any of
Seller's Employee Plan. As used herein, "Seller Employee Plans"
shall mean, collectively, any bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental
retirement, severance, pension, profit-sharing, retirement,
health, welfare, insurance, or other benefit plans and agreements
for the benefit of current or former employees of Seller.
10.2.Access to Telephony Business Records. From and after the Closing Date,
each party shall afford the other access to all pre-Closing Telephony
Business Records and other information acquired or retained by it
pursuant hereto, including data processing information, upon
reasonable notice during ordinary business hours for all reasonable
business purposes, and each party shall permit the other party to make
copies of any such records and retain possession of such copies. Each
of Purchaser and Seller shall use reasonable care to maintain the
confidentiality of the Telephony Business Records in the possession of
such party pursuant to the terms and subject to the conditions set
forth in the Confidentiality Agreement.
10.3. Tax Liability.
(a) Except as set forth herein, Seller shall pay all Taxes arising
from or relating to the transactions contemplated in this
Agreement (the "Transaction Taxes"). If a resale certificate,
resale purchase exemption certificate, production machinery and
equipment exemption certificate or other certificate or document
of exemption is required to reduce or eliminate the Transaction
Taxes, Purchaser will promptly furnish such certificate or
document to Seller or Purchaser will cooperate with Seller to
allow Seller to obtain such reduction or exemption from
Transaction Taxes.
(b) All ad valorem, property (whether real or personal) and similar
taxes ("Property Taxes") with respect to the Assets for any tax
period in which the Closing Date occurs shall be prorated between
Purchaser and Seller, with Seller economically responsible for
the Property Taxes for the portion of the tax year prior to and
including the Closing Date. Seller shall be responsible for the
preparation and filing of any tax returns or reports related to
the Assets that are required to be filed on or before the Closing
Date. Seller shall be responsible for all taxes imposed on or
with respect to the Assets that are attributable to any whole or
partial taxable period ending on or before the Closing Date.
Purchaser, with the cooperation of Seller, shall be responsible
for the preparation and filing of all tax returns or reports
related to the Assets.
10.4.Covenant Not to Compete. For a period of 48 months, from and
after the Closing Date (the "Term of the Non-Compete"), Seller
will not, directly or indirectly, engage in, own, manage,
operate, finance, control, or participate in the ownership,
management, operation or control of the sale of telephony
equipment (not including Internet appliances) worldwide (and for
purposes of this Agreement, any of such activities shall
constitute "Competition" and shall be deemed "Competitive").
Notwithstanding the foregoing restriction, Seller may engage in
sales of Internet appliances and services incident to its
Mailstation Business worldwide, and purchase or otherwise acquire
shares of Purchaser without limitation, except for restrictions
under applicable securities laws, and may purchase or acquire up
to (but not more than) five percent (5%) of any class of
securities of any enterprise which is engaged in Competition (but
without otherwise participating in the activities of such
enterprise) if (i) such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934 or on any
foreign securities exchange or (ii) such securities are issued in
a private venture capital round of financing. If the final
judgment of a court of competent jurisdiction declares that any
term or provision of this Section 10.4 is invalid or
unenforceable, the parties hereto agree that the court making the
determination of invalidity or unenforceability shall have the
power to reduce the scope or duration of the term or provision,
to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment may be appealed.
In the event of an Acquisition of Seller after the Closing by a
person engaged in Competition, this Section 10.4 shall terminate
and be of no further force and effect.
10.5.Inventory Sales.Purchaser shall use its reasonable commercial
efforts, at Purchaser's expense, to distribute, market and sell
the Inventory, for Seller's account, for 48 months following the
Closing Date. With respect to any proposed sales of Inventory
below Seller's Cost, to the extent Seller's consent is required
pursuant to Section 2.7(a)(ii), Seller agrees that such consent
will not be unreasonably withheld. As security for Purchaser's
Additional Inventory Payment obligations to Seller, Purchaser
will grant to Seller a security interest in the Inventory at the
Closing pursuant to a security agreement, a form of which is
attached hereto as Exhibit C. Purchaser agrees to pay, and to
hold Seller harmless from, any sales, use, excise, import or
export or similar tax or duty, resulting from the sale of the
Inventory, as well as the collection on withholding thereof,
including penalties or interest, as well as any costs associated
with the collection or withholding thereof, and all license fees
and similar fees levied upon sales of such Inventory. Purchaser
will be responsible for all support and fulfillment obligations
resulting from the sale of Inventory. Purchaser will
conspicuously inform (including in such manner as Seller may
reasonably designate) all customers that they must direct to
Purchaser all support and maintenance inquiries concerning any of
the Inventory. 10.6. License Agreement. (a) Effective as of the
Closing Date, Purchaser agrees to grant a license (the "License")
to Seller of certain Transferred Intellectual Property pursuant
to the terms of a license agreement, substantially in the form of
attached Exhibit D.
(b) License to the Marks. Effective as of the Closing Date, Seller
agrees to grant to Purchaser an exclusive, nontransferable,
royalty-free, perpetual license to use solely in the manner
specified below, the trademarks and service marks (the "Marks")
listed in Schedule 10.6 in connection with Purchaser's operation
of the Telephony Business following Closing. Purchaser shall
solely use the Marks in connection with Purchaser's post-Closing
operation of the Telephony Business and shall not use the Marks
in respect of any other goods or services unless otherwise agreed
to by Seller in writing. Seller reserves for itself all other
uses of the Marks including use in the Mailstation Business. In
addition: (i) Quality Control. The nature and quality of the
products and services supplied in connection with Purchaser's use
of the Marks shall conform to the standards set by Seller. In the
event that Purchaser's use of the Marks do not comply with
Seller's quality standards, Purchaser shall modify its use of the
Marks and shall submit corrected specimens of use to Seller
within thirty (30) days of notice by Seller. (ii) Certain
Acknowledgments. Purchaser agrees that it will not do anything
inconsistent with the limited license set forth in this Section
10.6(b). Purchaser agrees that the use of the Marks by Purchaser
shall inure to the benefit of and be solely on behalf of Seller.
Purchaser acknowledges that its utilization of the Marks as
provided herein will not create or confer any right, title or
interest in any other trademark or service mark of Seller or the
Marks as a combination with other works.
(iii)Restrictions on Use. Purchaser agrees that it will not adopt or
use as part or all of any corporate name, trade name, trademark,
service mark or certification mark, any trademark or other mark
confusingly similar to the Marks except to the extent permitted
under this Section 10.6(b). Purchaser shall use the Marks so that
it creates a separate and distinct impression from any other
trademark that may be used by Purchaser. Purchaser agrees that it
will not contest any Seller registration or application for any
of the Marks. Purchaser shall comply with all applicable laws and
regulations pertaining to the proper use and designation of the
Marks.
(iv) No Registration. Purchaser agrees not to apply to register the
Marks, or any works or combination of words containing the Marks
or any confusingly similar designation.
(v) Infringement. Seller shall have the sole and exclusive right to
commence or prosecute any claims or suits for infringement or any
other cause of action or claim for relief for unauthorized use of
the Marks provided, however, that if Seller does not institute an
infrin gement suit within ninety (90) days after written request
from Purchaser, Purchaser may, at its expense, institute and
prosecute such suit in the name of Seller.
(vi) Formalities. Purchaser shall assist Seller in complying with the
formalities of local law (if applicable), including but not
limited to, the execution of any application for registration as
a registered user, the execution of additional license agreements
suitable for recording with appropriate authorities, of providing
proof of use of the Marks on any other applicable documents.
Purchaser shall pay the expense of complying with such
formalities.
10.7.Patent Indemnification. Notwithstanding anything to the contrary
in this Agreement, and subject to the limitations set forth in
this Section 10.7, Seller shall at its expense, defend,
indemnify, and hold Purchaser harmless from and against any and
all losses, costs, damages, Liabilities and expenses arising from
claims, demands, actions, causes of action, including, without
limitation, legal fees (collectively, "Patent Losses"), arising
from Purchaser's sale of Telephony Products or derivatives
thereof post-Closing, to the extent such Patent Losses are
incurred by Purchaser as a result of the patent infringement
claim identified on Schedule 10.7 (the "Patent Claim"); provided,
however, Seller's obligation to indemnify Purchaser shall be
limited to the extent such Patent Losses arise from the Telephony
Products and follow-on products sold to Purchaser under the terms
of this Agreement and; further, provided, Seller shall not be
obligated to indemnify Purchaser for any Patent Losses which
constitute royalty fees payable for Purchaser's sale of the
Telephony Products or follow-on products post-Closing up to $0.40
per unit of Telephony Product ("Future Patent Royalty Fees").
Seller shall be obligated to indemnify Purchaser for any Patent
Losses which constitute royalty fees payable for Purchaser's sale
of the Telephony Products or follow-on products post-Closing to
the extent such royalty fees exceed $0.40 per unit of Telephony
Product. In the case of a lump sum settlement of the Patent Claim
which includes a settlement of Future Patent Royalty Fees, the
parties to this Agreement will make a good faith estimate of the
settlement amount attributable to the Future Patent Royalty Fees,
including in such calculation a good faith estimate of the number
of units of Telephony Product that will be sold by Purchaser from
the Closing Date until the expiration of the U.S. Patent upon
which the Patent Claim is based. Purchaser shall reimburse Seller
for the portion of the lump sum settlement amount allocated by
the parties to the Future Patent Royalty Fees.
Purchaser acknowledges and agrees that Seller will have sole and
complete control of the defense, prosecution and settlement of
the Patent Claim. Nothing in this Section 10.7 or elsewhere in
this Agreement shall be construed as (i) granting to Purchaser
the right to engage in settlement discussions or negotiations on
behalf of Seller or with respect to the Patent Claim or (ii)
creating indemnification obligations on the part of Seller other
than those expressly set forth in this Section 10.7. Purchaser
shall fully cooperate with Seller, at Seller's expense, in the
defense, prosecution and settlement of the Patent Claim. Seller's
indemnification obligations under this Section 10.7 apply solely
to the Patent Claim and are separate and distinct from any claims
Purchaser may have under Article XI for Seller's breach of
representations and warranties.
10.8.Notice to Vendors. Seller shall, as soon as practicable following
the Closing Date, send to each vendor who is a party to an
Assumed Contract a written notice of the assignment to Purchaser
of Seller's obligation under such Assumed Contract, which notice
shall request such vendor's agreement to look solely to Purchaser
for payment or performance of such Assumed Contract and to
release Seller from all obligations thereunder.
10.9.Collection of Accounts Receivable. To the extent Purchaser
receives any payment after the Closing from a customer on account
of accounts receivable arising from the Telephony Business prior
to the Closing, all such payments shall inure to the benefit of
Seller, and shall be remitted promptly by Purchaser to Seller.
10.10. Distribution from Seller's 401(k) Plan. To the extent that
Purchaser hires individuals who were employed by Seller as of the
Closing Date ("Former Seller Employees"), Seller hereby agrees
that it shall cause the accounts, if any, of such Former Seller
Employees in Seller's 401(k) Plan to be distributed as provided
by Code Section 401(k)(10)(A)(ii).
Article XI.
INDEMNIFICATION
---------------
11.1. Indemnification.
(a) The representations and warranties of the parties hereto shall survive the
Closing and continue in full force and effect until the first anniversary
of the Closing Date (the "Survival Period").
(b) Subject to the limitations set forth in this Article XI, Seller will
indemnify, defend and hold harmless Purchaser and its officers, directors,
agents, and employees (each an "Indemnified Person") from and against any
and all losses, costs, damages, liabilities and expenses arising from
claims, demands, actions, causes of action, including, without limitation,
reasonable legal fees arising out of any misrepresentation or breach of or
default in connection with any of the representations or warranties made by
Seller under Article IV of this Agreement (collectively, "Damages").
Indemnified Persons shall act in good faith and in a commercially
reasonable manner to mitigate any Damages they may suffer. Notwithstanding
anything herein to the contrary, Seller's obligations to indemnify
Purchaser for any Patent Losses shall be governed exclusively by Section
10.7.
(c) No claim for Damages shall be made under this Article XI unless (i) Seller
receives written notice of such claim (as provided in Section 11.2) during
the applicable Survival Period, and (ii) the aggregate of Damages shall
exceed $250,000 and then only to the extent such amount is exceeded.
Notwithstanding the foregoing, Seller's aggregate indemnification
obligations under this Article XI, and excluding Seller's obligations under
Section 10.7, shall not exceed $1,000,000. The Indemnified Persons' sole
and exclusive remedy against Seller for Damages shall be indemnification
under this Article XI; provided, however, that nothing contained in this
Section 11.1(c) shall limit any remedy at law or equity to which Purchaser
may be entitled against Seller for fraud or intentional misrepresentation.
11.2. Procedures for Indemnification.
(a) Upon receipt by Seller on or before expiration of the Survival Period of a
certificate signed by any officer of Purchaser (an "Officer's Certificate")
stating that with respect to the indemnification obligations of Seller set
forth in this Article XI, Damages exist and specifying in reasonable detail
the individual items of such Damages included in the amount so stated, the
date each such item was paid, or properly accrued or arose, and the nature
of the misrepresentation or breach of warranty, to which such item is
related (attaching relevant documentation) (an "Indemnification Claim"),
Purchaser shall, subject to the provisions of this Article XI, pay such
Damages pursuant to Section 11.2(c), provided, however, Seller shall have a
period of thirty (30) days following delivery of the Officer's Certificate
in which to object to Purchaser's claim for indemnification, by delivery of
a written notice of such objection to Purchaser specifying in reasonable
detail the basis for the objections, and provided further that in the event
the Indemnification Claim involves a Third Party Claim (as defined below)
then the procedures in Section 11.2(d) shall be observed by all parties.
Failure to timely so object shall constitute a final and binding acceptance
of the Indemnification Claim by Seller.
(b) If an objection is timely delivered by Seller and the dispute is not
resolved within twenty (20) business days from the delivery of such
objection, such dispute shall be resolved in accordance with the provisions
of Article XIII hereof.
(c) Subject to Section 11.1(c), upon determination of the amount of an
Indemnification Claim, whether by (i) an agreement between the Indemnified
Person and Seller, (ii) an arbitration award or (iii) a final judgment
(after expiration of all periods for appeal of such judgment) or other
final nonappealable order, Seller shall pay the amount of such
Indemnification Claim by (x) authorizing Purchaser to offset the amount of
such Indemnification Claim against Additional Inventory Payments or Royalty
Payments (as determined by Seller), or (y) wire transfer of immediately
available funds within ten (10) days of the date such amount is determined.
(d) Should any claim be made, or suit or proceeding (including, without
limitation, a binding arbitration or an audit by any taxing authority) be
instituted against an Indemnified Person which, if prosecuted successfully,
would be a matter for which Indemnified Person is entitled to
indemnification under this Agreement (a "Third Party Claim"), the
obligations and liabilities of the parties hereunder with respect to such
Third Party Claim shall be subject to the following terms and conditions:
(i) The Indemnified Person shall give Seller written notice of any such claim
promptly after receipt by Indemnified Person of notice thereof. Any delay
in giving notice hereunder which does not materially prejudice Seller,
shall not affect Indemnified Person rights to indemnification hereunder.
Seller may, at its option, (x) undertake control of the defense thereof by
counsel of its own choosing, or (y) decline to assume control of but
participate in the defense thereof. If Seller assumes control of the
defense thereof, an Indemnified Person may participate in the defense
through its own counsel at its own expense. If Seller declines to control
but elects to participate in the defense thereof, the Indemnified Person
may control the defense and have its expenses promptly reimbursed by
Seller. The assumption of the defense of any Third Party Claim by Seller
shall be an acknowledgment by Seller that such Third Party Claim is subject
to indemnification under the provisions of this Article XI and that such
provisions are binding on Seller. If, however, Seller fails or refuses to
undertake the defense of such Third Party Claim within twenty (20) days
after written notice of such claim has been delivered to Seller by an
Indemnified Person, such Indemnified Person shall have the right to
undertake the defense, compromise and, subject to Section 11.2, settlement
of such Third Party Claim with counsel of its own choosing. In the
circumstances described in the preceding sentence, Indemnified Person
shall, promptly upon its assumption of the defense of such Third Party
Claim, make an Indemnification Claim as specified in Section 11.2 which
shall be deemed an Indemnification Claim that is not a Third Party Claim
for the purposes of the procedures set forth herein. Failure of an
Indemnified Person to furnish written notice to Seller of a Third Party
Claim shall not release Seller from Seller's obligations hereunder, except
to the extent Seller is prejudiced by such failure.
(ii) Seller and Indemnified Persons shall cooperate with each other in all
reasonable respects in connection with the defense of any Third Party
Claim, including making available records relating to such claim and
furnishing employees of the Indemnified Person as may be reasonably
necessary for the preparation of the defense of any such Third Party Claim
or for testimony as witness in any proceeding relating to such claim.
(e) Unless Seller has failed to fulfill its obligations under this Article XI,
no settlement by an Indemnified Person of a Third Party Claim shall be made
without the prior written consent by or on behalf of Seller, which consent
shall not be unreasonably withheld or delayed. If Seller has assumed the
defense of a Third Party Claim as contemplated by Section 11.2(d), Seller
may settle such Third Party Claim so long as terms includes full release of
all claims against the Indemnified Person.
Article XII.
TERMINATION OF AGREEMENT
------------------------
12.1.Termination. This Agreement may be terminated prior to the Closing (whether
before or after approval of this Agreement by Seller's stockholders):
(a) by mutual written consent of Purchaser and Seller;
(b) by either Purchaser or Seller if the Closing shall not have occurred by
December 31, 2000 (unless the failure to consummate the Transaction is
attributable to a failure on the part of the party seeking to terminate
this Agreement to perform any material obligation required to be performed
by such party at or prior to the Closing);
(c) by either Purchaser or Seller if a court of competent jurisdiction or other
Governmental Entity shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect
of permanently restraining, enjoining or otherwise prohibiting the
Transaction;
(d) by either Purchaser or Seller if (i) Seller Stockholders' Meeting
(including any adjournments and postponements thereof) shall have been held
and completed and Seller's stockholders shall have taken a final vote on a
proposal to adopt this Agreement, and (ii) the Seller Stockholder Proposals
Agreement shall not have been adopted at such meeting by the Required
Seller Stockholder Vote including at any adjournment or postponement
thereof); provided, however, that a party shall not be permitted to
terminate this Agreement pursuant to this Section 11.1(d) if the failure to
obtain such stockholder approval is attributable to a failure on the part
of such party to perform any material obligation required to be performed
by such party at or prior to the Closing;
(e) by Purchaser if (i) any of Seller's representations and warranties
contained in this Agreement shall be inaccurate as of the date of this
Agreement, or shall have become inaccurate as of a date subsequent to the
date of this Agreement (as if made on such subsequent date), such that the
condition set forth in Section 9.3 would not be satisfied, or (ii) any of
Seller's covenants contained in this Agreement shall have been breached
such that the condition set forth in Section 9.03(a) would not be
satisfied; provided, however, that if an inaccuracy in Seller's
representations and warranties or a breach of a covenant by Seller is
curable by Seller and Seller is continuing to exercise all reasonable
efforts to cure such inaccuracy or breach, then Purchaser may not terminate
this Agreement under this Section 11.1(e) until 30 days after notice of
such inaccuracy or breach and such inaccuracy or breach remains uncured at
the end of such 30 day notice period; or
(f) by Seller if (i) any of Purchaser's representations and warranties
contained in this Agreement shall be inaccurate as of the date of this
Agreement, or shall have become inaccurate as of a date subsequent to the
date of this Agreement (as if made on such subsequent date), such that the
condition set forth in Section 9.2 would not be satisfied, or (ii) if any
of Purchaser's covenants contained in this Agreement shall have been
breached such that the condition set forth in Section (a) would not be
satisfied; provided, however, that if an inaccuracy in Purchaser's
representations and warranties or a breach of a covenant by Purchaser is
curable by Purchaser and Purchaser is continuing to exercise all reasonable
efforts to cure such inaccuracy or breach, then Seller may not terminate
this Agreement under this Section 0(e) until 30 days after notice of such
inaccuracy or breach and such inaccuracy or breach remains uncured at the
end of such 30 day notice period.
(g) by Seller or Purchaser, if Seller, in accordance with Section 6.4, shall
have entered into a definitive acquisition agreement for an Acquisition or
an Acquisition shall have occurred; provided, however, Purchaser shall not
have the right to terminate this Agreement if (i) Seller's ability to
consummate the Transaction has not been adversely affected by such
Acquisition, (ii) the definitive agreement expressly acknowledges this
Agreement and Seller's performance hereunder, and (iii) Seller continues to
perform its obligations under this Agreement.
12.2.Effect of Termination. In the event of the termination of this Agreement as
provided in Section 0, this Agreement shall be of no further force or
effect; provided, however, that (i) this Section 12.1(g), Section 12.2 and
ARTICLE XIII shall survive the termination of this Agreement and shall
remain in full force and effect, and (ii) the termination of this Agreement
shall not relieve any party from any liability for any willful breach of
any representation, warranty or covenant contained in this Agreement.
12.3.Expenses; Termination Fees. Except as provided in Section 10.7, all fees
and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses, whether or not the Transaction is consummated.
Article XIII.
RESOLUTION OF CONFLICTS AND ARBITRATION
---------------------------------------
Either party hereto may, by written notice to the other,
demand arbitration of any dispute arising in connection with this Agreement
unless the amount of the damages is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either such event the
matter shall be settled by arbitration conducted by one arbitrator. Purchaser
and Seller shall agree on the arbitrator, provided that if Purchaser and Seller
cannot agree on such arbitrator, either Purchaser or Seller can request that
Judicial Arbitration and Mediation Services ("JAMS") select the arbitrator. The
arbitrator shall set a limited time period and establish procedures designed to
reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrator shall rule upon motions to compel or limit discovery and
shall have the authority to impose sanctions, including attorneys' fees and
costs, to the same extent as a court of competent law or equity, should the
arbitrator determine that discovery was sought without substantial justification
or that discovery was refused or objected to without substantial justification.
The decision of the arbitrator shall be written, shall be in accordance with
applicable law and with this Agreement, and shall be supported by written
findings of fact and conclusion of law which shall set forth the basis for the
decision of the arbitrator. Judgment upon any award rendered by the arbitrator
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Santa Clara County, California under the commercial rules then in effect
of the American Arbitration Association.
Article XIV.
GENERAL
-------
14.1.Governing Law and Jurisdiction. It is the intention of the parties hereto
that the internal laws of the State of California (irrespective of its
choice of law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the
rights and duties of the parties hereto.
14.2.Assignment; Binding upon Successors and Assigns. None of the parties hereto
may assign any of its rights or obligations hereunder without the prior
written consent of the other party, which consent shall not be unreasonably
withheld. This Agreement will be binding upon and inure to the benefit of
the parties hereto and their respective permitted successors and assigns.
14.3.Severability. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be held to be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace such invalid or unenforceable provision of this Agreement
with a valid and enforceable provision which will achieve, to the extent
possible, the economic, business and other purposes of the invalid or
unenforceable provision.
14.4.Entire Agreement. This Agreement, the exhibits and schedules hereto, the
certificates referenced herein, the exhibits thereto, the Ancillary
Agreements and the Confidentiality Agreement constitute the entire
understanding and agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect
hereto and thereto.
14.5.Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same instrument.
14.6.Other Remedies. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party shall be deemed cumulative with and
not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy shall not preclude the exercise of any
other.
14.7.Amendment and Waivers. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby.
The waiver by a party of any breach hereof for default in payment of any
amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach
or default.
14.8.Notices. All notices and other communications hereunder will be in writing
and will be deemed given (a) upon receipt if delivered personally (or if
mailed by registered or certified mail), (b) the day after dispatch if sent
by overnight courier, (c) upon dispatch if transmitted by telecopier or
other means of facsimile transmission (and confirmed by a copy delivered in
accordance with clause (a) or (b)), properly addressed to the parties at
the following addresses:
Seller: CIDCO Incorporated
220 Cochrane Circle
Morgan Hill, CA 95037
Attention: Paul Locklin
Facsimile: (408) 776-2602
with a required copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Diane Holt Frankle, Esq.
Facsimile: (650) 327-3699
Purchaser: CIDCO Communications, LLC
4950 Patrick Henry Drive
Santa Clara, CA 95054
Attention: David S. Lee
Facsimile: (408) 982-0235
with a required copy to: Baker, Donelson, Bearman & Caldwell, P.C.
165 Madison Suite 2000
Memphis, Tennessee 38103
Attention: Charles T. Tuggle, Jr.
Facsimile: 901-577-2303
Either party may change its address for such communications by giving
notice thereof to the other party in conformity with this Section 14.8.
14.9. Construction and Interpretation of Agreement.
(a) This Agreement has been negotiated by the parties hereto and their
respective attorneys, and the language hereof shall not be construed for or
against either party by reason of its having drafted such language.
(b) The titles and headings herein are for reference purposes only and shall
not in any manner limit the construction of this Agreement, which shall be
considered as a whole.
(c) As used in this Agreement, any reference to any state of facts, event,
change or effect being "material" with respect to any entity means a state
of facts that is material to the current condition (financial or
otherwise), properties, assets, liabilities, business or operations of such
entity. Whenever the term "enforceable in accordance with its terms" or
like expression is used in this Agreement, it is understood that excepted
therefrom are any limitations on enforceability under applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting the enforcement of creditor's rights.
14.10. No Joint Venture. Nothing contained in this Agreement shall be deemed or
construed as creating a joint venture or partnership between any of the
parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall
have the power to control the activities and operations of any other and
their status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party shall have any power or
authority to bind or commit any other. No party shall hold itself out as
having any authority or relationship in contravention of this Section.
14.11. Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any
client, customer, Affiliate, shareholder, partner of any party hereto or
any other person or entity unless specifically provided otherwise herein,
and, except as so provided, all provisions hereof shall be personal solely
between the parties to this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the respective dates set forth next to their signatures below.
CIDCO Communications, LLC,
Executed on September __, 2000 a Delaware limited liability company
By:
Title:
CIDCO Incorporated,
------------------
Executed on September __, 2000 a Delaware corporation
By:
Title:
<PAGE>
SCHEDULES AND EXHIBITS
Schedules
Schedule 1.13 Inventory
Schedule 1.19 Permits
Schedule 1.20 Permitted Encumbrances
Schedule 1.23 Tangible Assets
Schedule 1.27 Transferred Intellectual Property
Schedule 2.7 Inventory Not Requiring Consent
Schedule 2.8 Warranty and Merchandise Exchange Methodology
Schedule 2.9 Allocation Schedule
Schedule IV Seller Disclosure Schedule
Schedule V Purchaser Disclosure Schedule
Schedule 4.8 Intellectual Property; Telephony Products
Schedule 4.9 Assumed Contracts
Schedule 6.5 Foreign Telephony Products
Schedule 10.1 Prospective New Purchaser Employees
Schedule 10.4 Officer's Subject to Non-Competition
Schedule 10.6 Marks
Schedule 10.7 Patent Claim
Exhibits
Exhibit A Opinion of Seller's Counsel
Exhibit B Opinion of Purchaser's Counsel
Exhibit C Security Agreement
Exhibit D License Agreement
Exhibit E Foreign Telephony Product License Agreement
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.........................................................1
1.1 "Acquisition"................................................1
1.2 "Acquisition Proposal".......................................1
1.3 "Affiliate"..................................................1
1.4 "Assumed Contracts"..........................................1
1.5 "Code".......................................................2
1.6 "Confidentiality Agreement"..................................2
1.7 "Contracts"..................................................2
1.8 "Encumbrances"...............................................2
1.9 "Excluded Assets"............................................2
1.10 "GAAP".......................................................2
1.11 "Governmental Entity"........................................2
1.12 "Intangibles"................................................2
1.13 "Inventory"..................................................2
1.14 "Knowledge" or "Known".......................................2
1.15 "Laws or Decrees"............................................2
1.16 "Liability"..................................................2
1.17 "Material Adverse Change"....................................2
1.18 "Material Adverse Effect"....................................2
1.19 "Permits"...................................................3
1.20 "Permitted Encumbrances".....................................3
1.21 "Person".....................................................3
1.22 "Proxy Statement"............................................3
1.23 "Tangible Assets"............................................3
1.24 "Tax"........................................................3
1.25 "Tax Return".................................................3
1.26 "Telephony Business Records".................................3
1.27 "Transferred Intellectual Property"..........................3
ARTICLE II PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES.............5
2.1 Purchase and Sale of Assets; Assumption of Assumed
Liabilities; and Technology License........................5
2.2 Assets.......................................................5
2.3 Excluded Assets..............................................5
2.4 Assumption of Liabilities....................................5
2.5 Liabilities Not Assumed......................................6
2.6 Purchase Price...............................................6
2.7 Post Closing Payments........................................6
2.8 Warranty and Merchandise Exchange Schedule...................7
2.9 Inspection Rights............................................8
2.10 Allocation...................................................8
ARTICLE III THE CLOSING.......................................................8
3.1 The Closing..................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER...........................8
4.1 Organization.................................................8
4.2 Authorization................................................8
4.3 No Conflicts; Consents.......................................9
4.4 Title to Assets..............................................9
4.5 Compliance with Laws and Regulations; Governmental
Licenses, Etc............................................9
4.6 SEC Reports; Seller Financial Statements.....................9
4.7 Absence of Certain Changes or Events........................10
4.8 Intellectual Property.......................................10
4.9 Contracts and Arrangements..................................11
4.10 Brokers.....................................................11
4.11 Litigation..................................................11
4.12 Employee Benefits...........................................12
4.13 Product Liability...........................................12
4.14 Disclosure..................................................12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER........................12
5.1 Organization and Good Standing..............................12
5.2 Power, Authorization and Validity...........................12
5.3 No Violation of Existing Agreements.........................12
5.4 Litigation..................................................12
5.5 Brokers.....................................................13
5.6 Purchaser's Cash Payment....................................13
5.7 Disclosure..................................................13
ARTICLE VI PRE-CLOSING COVENANTS OF SELLER...................................13
6.1 Conduct of Telephony Business...............................13
6.2 Access to Information.......................................13
6.3 Satisfaction of Conditions Precedent........................13
6.4 No Solicitation; Seller Stockholders' Meeting...............13
6.5 Foreign Telephony Products..................................14
6.6 Bulk Sales..................................................14
6.7 WARN Act....................................................14
ARTICLE VII PRE-CLOSING COVENANTS OF PURCHASER...............................14
7.1 Advice of Changes...........................................14
7.2 Satisfaction of Conditions Precedent........................14
ARTICLE VIII MUTUAL COVENANTS................................................14
8.1 Confidentiality and Publicity...............................14
8.2 Regulatory Filings; Consents; Reasonable Efforts............15
8.3 Further Assurances..........................................15
ARTICLE IX CONDITIONS TO CLOSING.............................................16
9.1 Conditions to Each Party's Obligations......................16
9.2 Conditions to Obligations of Seller.........................16
9.3 Conditions to Obligations of Purchaser......................17
ARTICLE X POST-CLOSING MATTERS...............................................18
10.1 Employees...................................................18
10.2 Access to Telephony Business Records........................18
10.3 Tax Liability...............................................19
10.4 Covenant Not to Compete.....................................19
10.5 Inventory Sales.............................................19
10.6 License Agreement...........................................20
10.7 Patent Indemnification......................................20
10.8 Notice to Vendors...........................................21
10.9 Collection of Accounts Receivable...........................21
10.10 Distribution from Seller's 401(k) Plan......................21
ARTICLE XI INDEMNIFICATION...................................................21
11.1 Indemnification.............................................21
11.2 Procedures for Indemnification..............................22
ARTICLE XII TERMINATION OF AGREEMENT.........................................23
12.1 Termination.................................................23
12.2 Effect of Termination.......................................24
12.3 Expenses; Termination Fees..................................24
ARTICLE XIII RESOLUTION OF CONFLICTS AND ARBITRATION.........................24
ARTICLE XIV GENERAL..........................................................25
14.1 Governing Law and Jurisdiction..............................25
14.2 Assignment; Binding upon Successors and Assigns.............25
14.3 Severability................................................25
14.4 Entire Agreement............................................25
14.5 Counterparts................................................25
14.6 Other Remedies..............................................25
14.7 Amendment and Waivers.......................................25
14.8 Notices.....................................................25
14.9 Construction and Interpretation of Agreement................26
14.10 No Joint Venture............................................26
14.11 Absence of Third Party Beneficiary Rights...................26
<PAGE>
AMENDMENT 1
TO
ASSET PURCHASE AGREEMENT
This Amendment to that certain ASSET PURCHASE AGREEMENT, dated as of
September 14, 2000 Agreement (the "Agreement") by and between CIDCO Incorporated
("Seller"), and CIDCO Communications, LLC ("Purchaser"), is made and entered
into as of this ___day of October, 2000 (the "Effective Date"). Capitalized
terms used herein without definition shall have the meanings given such terms in
the Agreement.
WHEREAS, Seller and Purchaser agreed under the terms of the Agreement
that in the case of a lump sum settlement of the Patent Claim which includes a
settlement of future Patent Royalty Fees, Seller and Purchaser would make a good
faith estimate of the settlement amount attributable to the Future Patent
Royalty Fees, including in such calculation a good faith estimate of the number
of units Telephony Products likely to be sold by Purchaser from the Closing Date
until the expiration of the U.S. patent upon which the Patent Claim is based;
and
WHEREAS, Seller and Active Voice Corporation settled the Patent Claim
on September 29, 2000 (the "Settlement Agreement"); and
WHEREAS, following settlement of the Patent Claim, Seller and Purchaser
agreed that Purchaser shall only be required to make Patent Reimbursement
Payments for a period of four years after the Closing Date, and that such Patent
Reimbursement Payments shall be based on actual sales of telephony products, not
the parties' good faith estimate; and
WHEREAS, following execution of the Agreement, the parties agreed that
Purchaser will take possession of the Inventory on a consignment basis, except
the initial $3.5 million of Inventory, title to which will be transferred to
Purchaser as of the Closing Date; and
WHEREAS, the parties have agreed to divide equally the filing fees due
in connection with the parties' HSR filings.
NOW, THEREFORE, the parties agree to modify the Agreement as follows:
A. Patent Reimbursement Fees. Section 10.7, including Schedule 10.7 and
Subpart (f) paragraph 1 Active Voice of Schedule 4.8 of the Agreement are
deleted in there entirety and replaced with the following:
1. Purchaser will pay to Seller $0.40 per unit ("Patent Reimbursement Fees")
for all current and future products made, sold or placed into the stream of
commerce by Purchaser using or incorporating the teachings of Active Voice
United States Patent #5,327,493 (the "Patent") from the Closing Date
through the fourth anniversary of the Closing Date.
2. Patent Reimbursement Fees shall be due and payable on the first day of each
calendar quarter for the preceding calendar quarter and shall be remitted
separately from Inventory and Royalty Payments due under the Agreement.
With respect to Patent Reimbursement Fees, Seller shall have rights of
inspection in accordance with Section 2.9 of the Agreement. The parties
acknowledge that all current Telephony Products incorporate the teachings
of the Patent. The parties agree that the Settlement Agreement is an
assumable contract and/or license and is therefore added to Schedule 4.8 as
such.
B. Inventory Sales . Section 10.5 of the Agreement is deleted in its entirety
and replaced with the following:
(a) Purchaser shall use its reasonable commercial efforts, at Purchaser's
expense, to distribute, market and sell the Inventory, for Seller's
account, for 48 months following the Closing Date. With respect to any
proposed sales of Inventory below Seller's Cost, to the extent Seller's
consent is required pursuant to Section 2.7(a)(ii), Seller agrees that such
consent will not be unreasonably withheld. Purchaser agrees to pay, and to
hold Seller harmless from, any sales, use, excise, import or export or
similar tax or duty, resulting from the sale of the Inventory, as well as
the collection on withholding thereof, including penalties or interest, as
well as any costs associated with the collection or withholding thereof,
and all license fees and similar fees levied upon sales of such Inventory.
Purchaser will be responsible for all support and fulfillment obligations
resulting from the sale of Inventory. Purchaser will conspicuously inform
(including in such manner as Seller may reasonably designate) all customers
that they must direct to Purchaser all support and maintenance inquiries
concerning any of the Inventory.
(b) At the Closing Date Purchaser shall have paid to Seller $5,000,000
approximately $3,500,000 of which is a pre payment for Inventory and title
to this Inventory passes to Purchaser upon the Closing Date. Otherwise,
title to the Inventory will pass from Seller to Purchaser at the time of
delivery to the carrier by Purchaser for shipment to the end-user customer;
and as between Seller and Purchaser, risk of loss for the Inventory shall
pass to Purchaser and remain with Purchaser, throughout the process of
receipt and handling by Purchaser.
(c) Purchaser will exercise reasonable care in the control and handling of
Inventory in its possession and will at all times during the term hereof
ensure that the Inventory in its possession will be insured against loss,
damage or theft pursuant to a comprehensive general liability insurance
policy or policies covering replacement cost, including property loss and
contractual liability coverages. In addition, Purchaser will name Seller as
an additional insured and loss payee under such policies and evidence such
coverage by issuance of an insurance certificate, which certificate shall
provide for notice of cancellation to Seller thirty (30) days prior to the
expiration or termination of, or any material change in said insurance.
Seller will segregate and keep segregated all Inventory from any other
goods in its inventory while Seller remains the owner of the Inventory
whether consigned, bailed, or otherwise provided, to Purchaser. The
segregated Inventory will also be identified, in a manner reasonably
acceptable to Seller as the property of Seller. Purchaser agrees that a
lapse in insurance coverage would not reduce or otherwise affect
Purchaser's responsibility to Seller for any damage to, or loss or theft
of, the Inventory while the Inventory is in the possession of Purchaser.
(d) Purchaser may only receive and store the Inventory at locations meeting
safety and insurance requirements agreed to by the parties from time to
time. If any of the Inventory will be kept at a location not owned or
leased by Purchaser directly, then Purchaser shall assist Seller to obtain
any necessary agreements or filings to protect Seller's rights in the
Inventory with all involved third parties. The parties agree to sign
appropriately worded Uniform Commercial Code ("UCC") informational filings
for bailment or consignment transactions as the case may be, to protect
Seller's interest in the Inventory.
C. Expenses. The parties agree that expenses related to any filings under the
HSR Act will be equally divided between Seller and Purchaser.
<PAGE>
D. General. In the event of inconsistencies between the Agreement and this
Amendment, the terms and conditions of this Amendment shall be controlling.
Unless specifically modified or changed by the terms of this Amendment, all
terms and conditions of the Agreement shall remain in effect and shall
apply fully as described and set forth in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
Effective Date.
CIDCO Incorporated, a Delaware CIDCO Communications, LLC, a
corporation Delaware limited liability
company
By: By:
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Name: Name:
----------------------------- --------------------------
Title: Title:
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