SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission File No. 0-26912
Vodavi Technology, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0789350
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8300 E. Raintree Drive, Scottsdale, Arizona 85260
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(480) 443-6000
----------------------------------------------------
(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 registrant's Common Stock, $.001 par value
per share, as of August 12, 1999 was 4,342,238.
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VODAVI TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999
and December 31, 1998. 3
Consolidated Statements of Operations - Three and Six Months 4
Ended June 30, 1999 and 1998.
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1999 and 1998. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 12
SIGNATURES 14
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VODAVI TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
In thousands
June 30, December 31,
1999 1998
-------- --------
(Unaudited)
CURRENT ASSETS:
Cash $ 352 $ 796
Accounts receivable, net 10,437 8,888
Inventory, net 7,155 6,385
Prepaids and other current assets 1,842 697
-------- --------
19,786 16,766
PROPERTY AND EQUIPMENT, net 2,505 2,663
GOODWILL, net 1,973 2,244
OTHER LONG-TERM ASSETS, net 1,154 1,169
-------- --------
$ 25,418 $ 22,842
======== ========
CURRENT LIABILITIES:
Current portion of long-term debt -- 124
Accounts payable 4,783 2,355
Accrued liabilities 1,510 1,854
-------- --------
6,293 4,333
-------- --------
LONG-TERM DEBT 8,055 7,910
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 4 4
Additional paid-in capital 12,308 12,308
Accumulated deficit (1,242) (1,713)
-------- --------
11,070 10,599
-------- --------
$ 25,418 $ 22,842
======== ========
The accompanying notes are an integral part of these
consolidated balance sheets.
3
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VODAVI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except share amounts
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
REVENUE, net $ 12,641 $ 12,287 $ 23,948 $ 24,329
COST OF GOODS SOLD 8,174 8,088 15,630 16,254
---------- ---------- ---------- ----------
GROSS MARGIN 4,467 4,199 8,318 8,075
OPERATING EXPENSES
Engineering and product
development 354 465 636 1,021
Selling, general and
administrative 3,598 3,416 6,641 6,327
---------- ---------- ---------- ----------
OPERATING INCOME 515 318 1,041 727
INTEREST EXPENSE 150 207 289 413
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 365 111 752 314
PROVISION FOR INCOME TAXES 133 39 281 116
---------- ---------- ---------- ----------
NET INCOME $ 232 $ 72 $ 471 $ 198
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ 0.05 $ 0.02 $ 0.11 $ 0.05
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 4,342,238 4,342,238 4,342,238 4,342,238
========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated statements.
4
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VODAVI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
(Unaudited)
Six months ended
June 30,
----------------------
1999 1998
-------- --------
OPERATING ACTIVITIES:
Net income $ 471 $ 198
Adjustments:
Depreciation and amortization 299 361
Loss on sale of repair center division 95 --
Rent levelization (9) 9
Changes in working capital:
Accounts receivable (1,154) 594
Inventory (671) (621)
Prepaids and other current assets (1,488) 328
Other long-term assets 8 (20)
Accounts payable 2,428 257
Accrued liabilities (403) (194)
-------- --------
NET CASH FLOWS - OPERATING ACTIVITIES (424) 912
-------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment (151) (341)
Proceeds from sale of repair center division 100 --
-------- --------
NET CASH FLOWS - INVESTING ACTIVITIES (51) (341)
-------- --------
FINANCING ACTIVITIES:
Payments on capital leases (124) (193)
Borrowings on line of credit 22,923 23,540
Payments on line of credit (22,768) (24,319)
-------- --------
NET CASH FLOWS - FINANCING ACTIVITIES 31 (972)
-------- --------
DECREASE IN CASH (444) (401)
CASH, beginning of period 796 634
-------- --------
CASH, end of period $ 352 $ 233
======== ========
Supplemental schedule of non-cash investing and financing activities:
The Company sold substantially all of the assets of the repair center division
during the second quarter of 1999.
Carrying amount of net assets sold $ 531
Notes receivable from buyer (395)
Liabilities incurred 59
Loss on sale (95)
--------
Cash proceeds from disposition of repair center division $ 100
========
The accompanying notes are an integral part of these
consolidated statements.
5
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VODAVI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
JUNE 30, 1999
(a) Vodavi Technology, Inc. (the Company), a Delaware corporation, designs,
develops, markets, and supports a broad range of telecommunication solutions,
including digital telephone systems, voice processing systems, and
computer-telephony products for a wide variety of business applications.
(b) The accompanying unaudited consolidated financial statements have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. These financial statements reflect all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly state the financial position
as of June 30, 1999 and the operating results and cash flows for the periods
presented. Operating results for the interim periods presented are not
necessarily indicative of the operating results that may be expected for the
entire year. These financial statements should be read in conjunction with the
Company's December 31, 1998 financial statements and accompanying notes thereto.
(c) Diluted earnings per share for the periods ended June 30, 1999 and 1998 were
determined by dividing net income by the weighted average number of common and
common equivalent shares outstanding, as outlined in Financial Accounting
Standard (SFAS) No. 128, Earnings Per Share.
(d) During the three-month period ended June 30, 1999, the Company sold its
repair center division's net inventory, property, and other assets with a net
book value of approximately $531,000. The buyer paid to the Company
consideration of $100,000 cash, a note receivable of $200,000 due July 31, 1999,
and a note receivable of approximately $195,000 with monthly payments of
approximately $16,000 for twelve months commencing August 1, 1999. The Company
also incurred liabilities of approximately $59,000 in connection with this
transaction.
(e) The Company has determined that it has one reportable operating segment. The
Company has three operating segments, which it manages based on the Company's
product categories of key telephone systems, voice processing systems, and
computer-telephony products. The Company's voice processing systems and
computer-telephony products categories do not meet the reportable thresholds of
SFAS No. 131, Disclosures About Segments Of An Enterprise and Related
Information. As a result of the foregoing, the Company has determined that it is
appropriate to present one reportable segment consistent with the guidance in
SFAS No. 131. Accordingly, the Company has not presented separate financial
information for each of its operating segments, as the Company's consolidated
financial statements present its one reportable segment.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998:
The following table summarizes the operating results of the Company as a
percentage of revenue for the periods indicated.
Three Months Ended
June 30,
-------------------
1999 1998
----- -----
Revenue 100.0% 100.0%
Cost of goods sold 64.7% 65.8%
----- -----
Gross margin 35.3% 34.2%
Operating expenses:
Engineering and product development 2.8% 3.8%
Selling, general and administrative 28.4% 27.8%
----- -----
Operating income 4.1% 2.6%
Interest expense 1.2% 1.7%
----- -----
Income before income taxes 2.9% 0.9%
Provision for income taxes 1.1% 0.3%
----- -----
Net income 1.8% 0.6%
===== =====
REVENUE
Revenue was approximately $12.6 million in the second quarter of 1999, an
increase of approximately $350,000, or 2.9%, over the second quarter of 1998.
The increase in net revenue is primarily due to reduced discounts provided to
the Company's wholesale distribution partners and increased rebates provided to
the Company by its vendors. Additionally, there was an approximately $100,000
increase in sales of higher-margined voice processing products.
GROSS MARGIN
Gross margin increased to approximately 35.3% of revenue in the second quarter
of 1999 as compared with 34.2% in the second quarter of 1998. The improvement in
gross margin in the second quarter of 1999 is primarily attributable to
decreased discounts provided to wholesale customers during that period as
compared with discounts given during the second quarter of 1998. The Company
also successfully negotiated additional vendor discounts in the second quarter
of 1999. Gross margin also improved slightly during the second quarter of 1999
as a result of an approximately $100,000 decrease in import duties.
ENGINEERING AND PRODUCT DEVELOPMENT
Expenditures related to engineering and product development decreased to
approximately $354,000, or 2.8% of revenue, in the second quarter of 1999 as
compared with approximately $465,000, or 3.8% of revenue, in the second quarter
of 1998. The decrease was due to the elimination of several engineering and
product development positions within the Company during fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses as a percentage of sales remained
consistent during the second quarter of 1999 as compared with the second quarter
of 1998.
7
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INTEREST EXPENSE
Interest expense was approximately $150,000 in the second quarter of 1999, a
decrease of $57,000, or 27.5%, over the second quarter of 1998. The decrease is
attributable to a decrease in average borrowings during the second quarter of
1999 as a result of reduced inventory levels. Net inventory at June 30, 1999 was
approximately $7.2 million as compared to approximately $8.9 million at June 30,
1998.
INCOME TAXES
The Company has provided for income taxes using an effective rate of 36.4% in
the second quarter of 1999, as compared with 35.1% in the second quarter of
1998.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998:
The following table summarizes the operating results of the Company as a
percentage of sales for the periods indicated.
Six Months Ended
June 30,
---------------------
1999 1998
------ ------
Revenue 100.00% 100.0%
Cost of goods sold 65.3% 66.8%
------ ------
Gross margin 34.7% 33.2%
Operating Expenses:
Engineering and product development 2.7% 4.2%
Selling, general and administrative 27.7% 26.0%
------ ------
Operating income 4.3% 3.0%
Interest expense 1.2% 1.7%
------ ------
Income before income taxes 3.1% 1.3%
Provision for income taxes 1.1% 0.5%
------ ------
Net income 2.0% 0.8%
====== ======
REVENUE
Revenue was approximately $23.9 million for the first six months of 1999, a
decrease of approximately $381,000, or 1.6% over the first six months of 1998.
Wholesale distribution revenue (net of discounts) decreased by approximately
$1.0 million, which the Company attributes to its strategy of reducing inventory
in the channel. This decrease was partially offset by an approximately $400,000
increase in dealer direct sales, primarily voice-mail systems, and increased
rebates of approximately $260,000 provided to the Company by its vendors.
GROSS MARGIN
Gross margin increased to approximately 34.7% of revenue for the first six
months of 1999 as compared with 33.2% for the first six months of 1998. The
improvement in gross margin is primarily attributable to decreased discounts
provided to wholesale customers during that period as compared with discounts
given during the first six months of 1998.
ENGINEERING AND PRODUCT DEVELOPMENT
Expenditures related to engineering and product development decreased to
approximately $636,000, or 2.7% of revenue, in the first six months of 1999 as
compared with $1,021,000, or 4.2% of revenue, in the first six months of
8
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1998. The decrease was due to the elimination of several engineering and product
development positions during fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE
As a percentage of sales, selling, general and administrative expenses remained
consistent during the first six months of 1999 as compared with the first six
months of 1998.
INTEREST EXPENSE
Interest expense was approximately $289,000 in the first six months of 1999, a
$124,000, or 30%, decrease over the first six months of 1998. The decrease is
attributable to a decrease in borrowings as a result of reduced levels of
inventory (See Liquidity and Capital Resources).
INCOME TAXES
The Company has provided for income taxes using an effective rate of 37.4% in
the first six months of 1999, as compared with 36.9% in the first six months of
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were approximately $352,000 at June 30,
1999. The Company's cash accounts are swept regularly and applied against the
Company's line of credit, as described below. The Company's borrowings against
its available operating line of credit at June 30, 1999, were approximately $7.8
million, which represents an increase of $100,000 from its borrowings of $7.7
million at December 31, 1998. At June 30, 1999, the Company had borrowing
availability of $1.9 million, with $260,000 reserved for standby letters of
credit and $1.25 million reserved for maintaining the minimum availability
covenant, with a net available of $430,000.
The Company maintains a $12.0 million line of credit with General Electric
Capital Corporation (GE Capital) which expires in April 2000. The line of credit
bears interest at 2.5% over the 30-day commercial paper rate, or 7.35% at June
30, 1999. Advances under the line of credit are based upon the accounts
receivable and inventory balances of Vodavi Communications Systems, Inc. (VCS),
a wholly owned subsidiary of the Company, and are secured by substantially all
of the assets of the Company. The revolving line of credit contains covenants
that are customary for similar credit facilities and also prohibits the
Company's operating subsidiaries from paying dividends to the Company without
the consent of GE Capital. At June 30, 1999, the Company was in compliance with
all of the covenants.
Working capital, reduced by outstanding borrowings on the credit facility
(reported as long term debt on the balance sheet), increased to approximately
$5.7 million at June 30, 1999 from approximately $4.8 million at December 31,
1998. This increase is attributable to increases in prepaid expenses and other
current assets, inventory, and net accounts receivable, partially offset by an
increase in accounts payable as a result of timing of payments to inventory
suppliers.
On June 24, 1999, the Company sold its repair center division's net inventory,
property, and other assets with a net book value of approximately $531,000. The
buyer paid to the Company consideration of $100,000 cash, a note receivable of
$200,000 due July 31, 1999, and a note receivable of approximately $195,000 with
monthly payments of approximately $16,000 for twelve months commencing August 1,
1999. The Company also incurred liabilities of approximately $59,000 in
connection with this transaction. As part of the transaction, the Company
entered into a seven-year repair and refurbishment agreement with the buyer.
Under this agreement, the Company appointed the buyer as the exclusive
authorized repair center for products manufactured and distributed by the
Company.
During May, 1999, the Company entered into a licensing agreement with Santa
Barbara Connected Systems Corporation ("Connected Systems") to acquire the
licensing and manufacturing rights to the Company's "Talkpath" and "Dispatch"
product lines. Since 1997, the Company had purchased these products from
Connected Systems for private-labeled sales to distribution partners and
customers. According to the terms of the agreement, the Company paid Connected
Systems $300,000. The final payment of $200,000 will be paid in the third
quarter of 1999.
9
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The Company believes that its working capital and credit facilities are
sufficient to finance its internal growth in the near term. Although the Company
currently has no acquisition targets, it intends to continue to explore
acquisition opportunities as they arise and may be required to seek additional
financing in the future to meet such opportunities.
INTERNATIONAL MANUFACTURING SOURCES
The Company currently obtains certain of its products under various
manufacturing arrangements with third-party manufacturers in Asia. As of the
date of this Report, the Company does not believe that the current economic
situations in Asia will have any adverse impact on the Company's operations.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries to represent years in the date code field.
Computer systems and products that do not accept four-digit year entries will
need to be upgraded or replaced to accept four-digit entries to distinguish
years beginning with 2000 from prior years. The Company has initiated but has
not yet completed an internal system assessment to determine whether its
existing computer hardware and software systems are "Year 2000" compliant.
The Company currently is evaluating its entire internal computer system and has
engaged a third-party consultant in connection with the upgrade of certain of
its existing financial and accounting systems, including software related to
order entry, inventory management, materials planning, and accounts payable and
receivable. These upgrades are intended to improve the content, quality, and
flow of information within the Company, as well as to address any Year 2000
issues that may exist. As of the filing date of this Report, these projects are
approximately 95% complete. The Company successfully performed tests on the
system upgrades during June 1999. These tests were performed on fully functional
test platforms and the results were satisfactory. The upgrades are scheduled for
installation to the live platform during the third quarter of 1999. The $25,000
estimated cost for these upgrades has not been exceeded.
The Company has been advised that certain of the computer processing platforms
and networks and certain software systems used in connection with its
operations, other than the financial and accounting systems described above, may
not be Year 2000 compliant. The Company currently is assessing the extent of
such non-compliance and intends to develop a program to bring those systems into
Year 2000 compliance by September 30, 1999. The Company believes that any
modifications required to computer processing platforms, networks and certain
software systems, as defined by the program, will be addressed and completed by
November 30, 1999. A failure of its computer systems as a result of Year 2000
issues could have a material adverse effect on the Company's operations.
A significant portion of the Company's business communications systems products
is manufactured by third parties in Asia. The Company has completed an
assessment of the Year 2000 risks associated with the inability of those
manufacturers to bring their production processes and other computer-based
systems into Year 2000 compliance. Because the manufacturing processes utilized
do not rely upon date-related information, the Company currently believes that a
failure on the part of its overseas manufacturers to bring their processes and
equipment into Year 2000 compliance does not represent a material risk to the
Company's ability to obtain its products on a timely basis. As part of this
assessment, all of the manufacturers have advised the Company that their
processes and systems are Year 2000 compliant. The Company's overseas
manufacturers may be at risk with respect to suppliers of necessary resources,
particularly suppliers of power, water, and telecommunications, if those
suppliers are not Year 2000 compliant. Because of the nature of the ordering and
manufacturing cycles for the Company's products, the Company believes that
disruptions in its manufacturers' operations of up to two weeks would not have a
material adverse effect on the Company's business. Extended disruptions in the
overseas manufacturers' operations would, however, materially and adversely
impact the Company's ability to obtain its products on a timely basis.
Certain of the Company's products contain software and hardware that perform
functions based upon date-related information. The Company has identified those
of its existing products that are not Year 2000 compliant and has completed
development of upgrades or modifications to those products that will enable them
to process Year 2000 dates without malfunctioning. The Company believes that it
will be able to pass along to its customers costs related to upgrading installed
products that are no longer covered by the Company's product warranties. The
Company also believes that the costs related to upgrading installed products
that remain under the Company's product
10
<PAGE>
warranties would be relatively insignificant. To date, the Company has incurred
approximately $15,000 in costs associated with the development of Year 2000
compliance upgrades. The inability of the Company to develop and provide on a
timely basis product modifications that may be required could result in a
material adverse effect on the Company, including increased warranty costs,
customer satisfaction issues, and potential litigation.
The Company is unable to fully assess the impact of the Year 2000 issue as of
the filing date of this Report. The Company currently is evaluating the Year
2000 issue as it relates to computer systems operated by all of the third
parties, including manufacturers, suppliers, customers, and financial
institutions, with which the Company's systems interface. The failure of the
Company's computer system or the systems of third parties to timely achieve Year
2000 compliance could have a material adverse effect on the Company's business,
financial condition, and operating results. The Company currently is developing
a contingency plan under which it would use a manual system for order
processing, shipping and receiving functions, and accounting systems on a
short-term basis in the event the Company or third parties experience computer
system failures as a result of Year 2000 issues. As of the filing date of this
Report, the Company has not formulated a contingency plan with respect to any
longer-term issues that may arise as a result of the Year 2000 compliance issues
described above.
- --------------------------------------------------------------------------------
This report contains forward-looking statements, including statements regarding
the Company's business, strategies, and the industry in which the Company
operates. These forward-looking statements are based primarily on the Company's
expectations and are subject to a number of risks and uncertainties, some of
which are beyond the Company's control. Actual results could differ materially
from the forward-looking statements as a result of numerous factors, including
those set forth in the Company's Form 10-K for the year ended December 31, 1998,
as filed with the Securities and Exchange Commission.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 9, 1998, Paradygm Communications, Inc. ("Paradygm") and R.C.
Patel ("Patel") filed a lawsuit against the Company's wholly owned
subsidiary Vodavi Communications Systems, Inc. ("VCS") in the Superior
Court of Gwinnett County, Georgia (Case No. 98-A-8744-6). The complaint
alleges that VCS (i) breached its strategic alliance agreement with
Paradygm, as well as its warranty of product fitness under the strategic
alliance agreement; (ii) failed to provide reasonable technical and sales
training assistance to Paradygm's employees to support Paradygm in its
efforts to sell products under the agreement; and (iii) engaged in conduct
that constitutes intentional or negligent misrepresentation. The complaint
requests compensatory, punitive, incidental, and consequential damages,
attorneys' fees, plus any additional relief. VCS answered the complaint
denying the foregoing allegations, asserting that the complaint fails to
state a claim and, for various reasons, the relief sought by Paradygm and
Patel is barred. VCS also has filed a counterclaim against Paradygm
alleging that Paradygm breached the agreement because of its failure to
meet its payment obligations to VCS. The counterclaim requests amounts due
pursuant to the strategic alliance agreement, the costs of litigation, and
reasonable attorneys' fees. The Company intends to vigorously defend this
lawsuit.
On December 21, 1998, the case was removed from the Superior Court to the
United States District Court for the Northern District of Georgia - Atlanta
Division. On March 24, 1999, the plaintiffs filed an amended complaint to
add the Company's subsidiary Vodavi-CT, Inc. (formerly Enhanced Systems,
Inc.) ("Vodavi-CT") as an additional defendent. The amended complaint
alleges claims against Vodavi-CT similar to those alleged in the original
complaint. On July 28, 1999, Vodavi-CT filed an answer and denied those
allegations on the same basis as VCS' original answer. The parties
currently are conducting discovery.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
12
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual Meeting of Stockholders was held on June 7, 1999.
The following nominees were elected to the Company's Board of Directors, to
serve until their successors are elected or have been qualified, or until
their earlier resignation or removal:
Nominee Votes in Favor Withheld
------- -------------- --------
William J. Hinz 3,738,795 16,701
Gilbert H. Engels 3,738,795 16,701
Stephen A McConnell 3,253,215 502,281
Nam K. Woo 3,738,795 16,701
Emmett E. Mitchell 3,253,215 502,281
The following item was voted upon by the Company's stockholders:
a) Proposal to ratify the appointment of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending
December 31, 1999.
Votes in Favor Opposed Abstained Broker Non-Vote
-------------- ------- --------- ---------------
3,741,526 4,540 9,430 0
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 10.34. Bill of Sale and Assignment dated June 24, 1999,
between Vodavi Communication Systems, Inc. and Aztec International
LLC.
Exhibit 10.35. Repair and Refurbishment Agreement dated June 24, 1999,
between Vodavi Communication Systems, Inc. and Aztec International
LLC.
Exhibit 10.36. License Agreement dated May 17, 1999, between Santa
Barbara Connected Systems Corporation and Vodavi Technology, Inc.
Exhibit 10.37. Object Code Software License Agreement dated May 24,
1999, between D2 Technologies, Inc. and Vodavi Technology, Inc.
Exhibit 27. Financial Data Schedule
b) Reports on Form 8-K
Not applicable
13
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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.
Vodavi Technology, Inc.
Dated: August 13, 1999 /s/ Gregory K. Roeper
----------------------------------------
Gregory K. Roeper
President, Chief Operating Officer, and
Secretary
Dated: August 13, 1999 /s/ Tammy M. Powers
----------------------------------------
Tammy M. Powers
Chief Financial Officer, Vice President
- Finance, and Treasurer (Principal
Financial and Accounting Officer)
14
BILL OF SALE AND ASSIGNMENT
THIS BILL OF SALE AND ASSIGNMENT, is made and delivered this 24th day of
June 1999, by VODAVI COMMUNICATION SYSTEMS, INC., a Delaware corporation (herein
"Seller"), and AZTEC INTERNATIONAL LLC, a Delaware limited liability company
("Purchaser").
WHEREAS, Seller has agreed to sell, transfer and assign to Purchaser and
Purchaser has agreed to purchase from Seller, all of Seller's right, title and
interest in and to the Purchased Assets as the same are described in the
attached Schedule A for the total consideration of $494,616 which is to be paid
by the delivery of Purchaser's Purchase Order of even date (the "Purchase
Order').
NOW, THEREFORE, for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, it is hereby agreed that:
1. CONVEYANCE. Seller hereby sells, assigns, transfers, conveys and
delivers to Purchaser all of the right, title and interest of Seller in and to
each of the Purchased Assets owned by it as the same are defined and described
in the Schedule A hereto.
2. REPRESENTATION AND WARRANTY. Seller represents and warrants to Purchaser
that, at the date hereof, the machinery and equipment sold hereunder is in good
working order reasonable wear and tear excepted, Seller has good and marketable
title to the Purchased Assets being conveyed by it hereunder and under the
Purchase Agreement, and has transferred to and vested in Purchaser good and
marketable title to each of the Purchased Assets herein conveyed, free and clear
of all liens, claims, charges, encumbrances and security interests of any kind
or nature.
3. UNDERTAKINGS. If, subsequent to the date hereof, any property that is
part of the Purchased Assets herein conveyed comes into possession of Seller,
Seller shall promptly deliver the same to Purchaser and, if such property is in
the form of checks, drafts or other negotiable instruments, Seller shall
promptly endorse the same to Purchaser. If, subsequent to the date hereof, any
property that is not part of the Purchased Assets comes into the possession of
Purchaser, Purchaser shall promptly deliver the same to Seller and, if such
property is in the form of checks, drafts or other negotiable instruments,
Purchaser shall promptly endorse the same to Seller.
4. The REPAIR AND REFURBISHMENT AGREEMENT. Nothing contained in this Bill
of Sale and Assignment shall be deemed to supersede, limit or modify any of the
obligations, agreements, covenants or warranties of Seller or Purchaser
contained in the Service Agreement dated August 28, 1998 and Repair and
Refurbishment Agreement of the same date herewith, all of which survive the
execution and delivery of this Bill of Sale and Assignment. If any conflict
exists between the terms of this Bill of Sale and Assignment and the Repair and
Refurbishment Agreement, then the terms of the Repair and Refurbishment
Agreement shall govern and control.
5. GOVERNING LAW. This Bill of Sale and Assignment shall be governed by and
construed in accordance with the laws of the State of Arizona without regard to
conflicts of laws principles.
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have caused this Bill of Sale and
Assignment to be executed and delivered as of the date first above written.
SELLER:
VODAVI COMMUNICATION SYSTEMS, INC.
By /s/ Greg Roeper
-------------------------------------
President
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<PAGE>
SCHEDULE A TO BILL OF SALE
BY VODAVI COMMUNICATIONS SYSTEMS, INC. AND
VODAVI REPAIR SERVICES, INC. TO AZTEC INTERNATIONAL LLC
Inventory described in Inventory List of Seller's Repair Division dated
June 24, 1999 consisting of 60 pages.
Machinery equipment and furniture used in the Seller's repair business
described in a Fixed Asset List of Seller's Repair Division dated June 24, 1999
consisting of 10 pages.
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<PAGE>
SCHEDULE A
Terms and Conditions of Purchase Order
from Aztec International in favor of
Vodavi Communications Systems dated June 24, 1999
The purchase order is subject to the following terms and conditions:
1. Vodavi Communications Systems Inc. will transfer title to certain equipment
and inventory which/are described in a certain Bill of Sale, a copy of
which is attached hereto as Exhibit B.
2. Vodavi Communications Systems, Inc. shall ship said equipment and inventory
to Aztec at destinations which it specifies.
3. The obligation to make payment as set forth in the purchase order is
contingent upon Aztec receiving delivery of said test equipment and
inventory.
4. AZTEC INTERNATIONAL LLC'S RIGHT TO SET-OFF. Aztec International LLC will
have a right to set-off any indemnification obligation arising under
paragraph 12 of the Repair and Refurbishment Agreement of even date
herewith against the amounts due under this purchase order. If the amounts
of the inventory and the test equipment sold and delivered pursuant to the
Bill of Sale of the same date hereof are less than the quantities stated in
Schedule A, the amounts due under this purchase order shall be reduced to
account for such shortages. The valuations of the inventory and test
equipment shall be the standard values used on Schedule A. Aztec
International, LLC shall make any claims for adjustments within 30 days
from its receipt of the inventory and test equipment. Any reductions in
this purchase order shall be made from payments first becoming due under
this purchase order.
REPAIR AND REFURBISHMENT AGREEMENT
THIS REPAIR AND REFURBISHMENT AGREEMENT dated as of June , 1999 is made and
entered into by and between AZTEC INTERNATIONAL LLC, a Delaware Limited
Liability Company and, Vodavi Communications Systems, Inc. ("Vodavi") a Delaware
Corporation.
BACKGROUND
Aztec is involved in the business of repair, refurbishment and sale of
telecommunications equipment and other electronic products. Vodavi is in the
business of design, development and sales of telecommunications equipment,
software and hardware products. Aztec desires to undertake performing the
testing, refurbishing and repair work described in this agreement for Vodavi.
As of the date hereof the parties have entered into a Bill of Sale and
Purchase Order whereby Vodavi has transferred certain of its assets regarding
repair services.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. APPOINTMENT. Vodavi hereby appoints Aztec as the exclusive authorized
repair service center for products distributed and manufactured by Vodavi. As
the exclusive authorized repair service center, Aztec agrees to perform the
repairs for Vodavi in such a manner as to maintain the customer satisfaction
levels currently established. Aztec will perform the repair and refurbishment
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work for telecommunications and computer products, as outlined in this
agreement, that were sold or serviced by Vodavi or its dealers in the United
States ("Products"), and will work closely with Vodavi to ensure that accurate
processing, disposition, and accounting is set up and maintained for products
repaired for Vodavi under warranty to its customers. For so long as Aztec is not
in material default, which default is continuous; Vodavi will use reasonable
efforts to refer all third party inquiries that it receives with respect to
repair, refurbishment and resale of Vodavi products to Aztec. Aztec shall have
the right to use any phone or fax numbers used exclusively by Vodavi in
connection with the repair service. Vodavi will provide its "third party"
vendors who supply components and ancillary devices for Vodavi products with a
Letter of Agency authorizing Aztec to request and receive repair services on
Vodavi's behalf. Vodavi will from time to time communicate with its dealers to
urge them to use Aztec for the repair of Vodavi products.
2. REPAIR SERVICES. Aztec shall perform the services as requested by Vodavi
and shall invoice Vodavi ( warranty) or the Vodavi customer/dealers
(non-warranty) for such services in accordance with Aztec policies. Aztec will
provide data in the form as requested by Vodavi to Vodavi on repairs. This data
will be used by Vodavi to measure product reliability, improvements to design,
and other management reports. Vodavi and Aztec will use the date code
stamping/serialization method to determine the warranty status of product for
billing purposes. Such services shall initially be provided at the prices and
upon the terms set forth on the attached Schedule A. Vodavi shall pay Aztec for
all services on a net thirty-day basis. Repair pricing will be reviewed yearly
on the anniversary of this Agreement and the parties will seek to mutually agree
on any increases or decreases to such charges based solely upon actual changes
in (i) the cost of Aztec's operations in support of the Vodavi business and (ii)
the costs of materials and supplies. No increase or decrease in price shall be
effective until after sixty days following the agreement of the parties.
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Notwithstanding the exclusivity, if both parties agree in writing, and Aztec
chooses not to perform the work, Vodavi may use another repair facility.
3. RESALE SERVICES. Vodavi will make available to Aztec various products,
as covered in the service Agreement dated August 28, 1998 that have been removed
from Vodavi's inventory. Aztec will sell these products through its market
channels and the proceeds from this sale will be divided between Aztec and
Vodavi at a rate that is mutually agreed upon. Vodavi will advise Aztec the
products that are authorized for resale, and Aztec will only resell those
products that are authorized.
4. PERFORMANCE. Aztec warrants that it will perform the repair services for
Vodavi in such a manner that the customer satisfaction levels will be
maintained. The standard used to measure the performance are shown in SCHEDULE
B. In the event that Aztec fails to meet the customer satisfaction levels,
Vodavi will notify Aztec, in writing, of the short coming and Aztec will take
corrective action. In the event that Aztec fails to make significant progress
within 90 days of the written notice in restoring customer satisfaction in
accordance with schedule B, Vodavi may terminate the exclusivity provision
herein, or terminate the Agreement and obtain repair services from another
company or choose to do the repairs internally. Any failures in performance of
the services provided by Aztec must be in Aztec's control. Notwithstanding the
above Vodavi agrees to provide Aztec with continued support and will make every
effort to help Aztec to meet its performance objectives, as it is in the best
interest of both parties to maintain a high level of customer satisfaction.
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5. TERM. The term of this Agreement shall be for a period of seven (7)
years from the date hereof (the "Term"). In the event the Agreement is
terminated by Vodavi prior to the expiration date of the term, in addition to
any other remedies Aztec may have, Vodavi will be required to purchase test
equipment, component parts, inventory, and fixed assets that are then owned or
being used by Aztec for the performance of repair and refurbishment services
under this agreement. Where applicable the assets that are on a depreciation
schedule will be valued at such depreciated amount. All other inventory will be
transferred at Aztec's cost. Cash payment for these assets will be made within
15 days of the termination date at which time the assets will be transferred to
Vodavi.
6. EVENTS OF DEFAULT. To the extent that this paragraph conflicts with
paragraph 4 the terms of paragraph 4 governs to the extent of any conflict. If
either party is in default of any of its obligations hereunder, the other party
shall so advise in writing, including the particulars of the default. If such
fault is material and remains uncured for a period of more than 30 days after
notice , then the party not in default may terminate this agreement. Any party
who is required to take legal action in order to enforce its rights under this
Agreement shall be entitled to recover all costs of enforcement and collection
including reasonable attorneys fees from the defaulting party.
7. CONFIDENTIALITY. Aztec acknowledges that in the course of performance of
its duties hereunder, it shall receive confidential information pertaining to
Vodavi's business, its relationships with its suppliers, and its relationship
with its customers. This includes without limit: customer lists, schematics,
software and test plans. Aztec agrees that it shall keep all such information
confidential and shall not divulge such information to any third party or use
such information for its own benefit without the express written consent of
Vodavi. Aztec agrees to take all reasonable steps to ensure that its employees,
agents and subcontractors are under a similar obligation of confidentiality.
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Aztec agrees that during the Term of this Agreement, Aztec will not solicit or
attempt to influence, directly or indirectly, any customer of Vodavi to
terminate or materially reduce its business with Vodavi or any of its Affiliates
in favor of a direct relationship with Aztec. Upon termination of this agreement
all documentation, schematics, drawings, and other confidential information, and
all copies thereof, provided by Vodavi to Aztec and used for repair of Vodavi
products will be returned to Vodavi within 30 days of the termination date.
8. REBATE. In addition to the foregoing Aztec will pay a yearly rebate to
Vodavi based on Aztec's total receipts from net repair billings to Vodavi's
customers/dealers during each calendar year during the term of this agreement
beginning January 1, 2001. For purposes of this agreement net repair billings
are exclusive of returns, allowances, taxes and freight. This rebate includes
total receipts on Vodavi and non-Vodavi products that are generated from this
agreement. Vodavi will provide Aztec with a list of the customers/dealers that
will be used in determining net repair billings to calculate the rebate.
Customers on this list will be considered to be Vodavi's even if they have done
business with Aztec previously. This list can be updated annually by Vodavi. Not
to be included in the rebate schedule are billings to Vodavi, or repair service
currently being provided on products not manufactured by Vodavi by Aztec to the
dealer base. The rebate schedule will be as follows:
Net Receipts Rebate %
------------ --------
0-$1,000,000 0%
$1,000,001- $1,750,000 1.5%
$1,750,001- $2,250,000 2.5%
$2,250,001- $3,000,000 + 3.0%
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<PAGE>
The foregoing rebate shall be paid to Vodavi annually, by March 1 following the
calendar year. The payment should include information about how the rebate was
calculated. The rebate will start for the calendar year 2001 with no rebate due
Vodavi for any period prior to January 1, 2001. Vodavi reserves the right to
audit the methods used to determine the rebate.
9. TRADEMARK. Aztec has the authority to use the Vodavi logo and advertise
as the exclusive authorized Vodavi repair center. In the event Aztec chooses to
use the logo it must have written permission from Vodavi prior to any release of
advertising, print or otherwise.
10. TEST EQUIPMENT. Vodavi will keep Aztec updated with the availability of
new proprietary test equipment from the factories that manufacture products for
Vodavi. In the event that the equipment is required to perform the repair
function, Vodavi will provide it to Aztec at Vodavi's cost. Vodavi may design
test fixtures that could aid in the repair testing. These fixtures may be
offered to Aztec to purchase or build themselves.
11. FREIGHT. The customer sending product in for repair will pay for all
inbound freight to Aztec. Outbound freight for repair work covered by a Vodavi
warranty will be paid for by Vodavi. Outbound freight for out of warranty repair
work will be included in the repair cost to the customer. Aztec will be solely
responsible for outbound freight for any part that failed during the Aztec
warranty period.
12. COMPONENT PARTS AND PLASTICS. Vodavi proprietary parts and plastics
will be supplied by Vodavi to Aztec. Aztec will order the parts and plastic from
Vodavi and the items will be ordered from the supplying factory. In most cases
it will take 120 days after receipt of order (ARO) to deliver the ordered parts.
In the event the factory decides to discontinue production and Vodavi has notice
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<PAGE>
of discontinuance of any proprietary parts, Aztec will be given the opportunity
to make a "last buy". Parts supplied by Vodavi to Aztec will be sold at a cost
of 15 % over landed cost.
13. REWORK SERVICES. Aztec will perform rework services as requested by
Vodavi in accordance with procedures specified by the Vodavi Quality Management
Department. Aztec shall invoice Vodavi for such rework services at the prices
established on specific purchase orders.
14. LUCENT INVENTORY. Vodavi will sell and transfer to Aztec as covered in
the Bill of Sale certain inventory that is used for the repair of telephones
manufactured under contract by LGIC for Lucent (herein the "Lucent Inventory").
In the event that Aztec does not succeed in securing the repair work from Lucent
for telephone equipment manufactured by LGIC, within 90 days after the date of
this agreement, then Aztec shall be entitled to return the Lucent inventory for
credit against the Purchase Order from Aztec to Vodavi of even date herewith.
The inventory will be valued at the same price Aztec purchased the material to
determine the amount of the said credit.
15. RISK OF LOSS OF INVENTORY. Vodavi acknowledges that Aztec does not
maintain insurance on inventory or work in progress. Vodavi agrees to assume the
risk of loss to the extent of Vodavi's inventory and materials being repaired or
reworked by Aztec.
16. ENTIRE AGREEMENT CLAUSE. This Agreement supersedes any and all other
agreements, either oral or in writing between the parties hereto with respect to
the subject matter hereof and contains all of the covenants and agreements
between the parties with respect to said matter; provided however that the
resale service agreement dated August 28, 1998 between the Parties shall
continue in full force and effect.
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<PAGE>
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona applicable to a contract
executed and performed in such State without giving effect to the conflict of
laws and principles thereof.
18. WARRANTIES. Aztec warrants that all services will be performed in a
prompt (which the parties for purposes agree hereof shall be consistent with
Schedule B.), professional and workman-like manner in accordance with industry
and professional standards and in accordance with this Agreement and that the
refurbished equipment provided to Vodavi and its dealer network under this
Agreement and the repair work performed hereunder shall be free from defects in
material and workmanship under normal use and service for the period of one (1)
year from the date of shipment by Aztec. THIS WARRANTY IS EXPRESSLY IN LIEU OF
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF
MERCHANTABILITY AND AZTEC SHALL NOT BE RESPONSIBLE FOR CONSEQUENTIAL DAMAGES OR
ACTS OF GOD.
19. COMPLIANCE WITH LAWS. Each party shall, at its own cost and expense,
follow all laws, rules, regulations or requirements of any governmental
authority having juristriction, which may apply to the services being performed
under this agreement. Each party will defend, indemnify, and hold the other
party harmless for any loss, cost, or expense occurring as a direct result of
the first party's violation of any law, rule or ordinance of the United States,
any State, or any other governmental agency in the performance of this
Agreement.
20. SUCCESSORS AND ASSIGNS. In the event that Vodavi is sold or transferred
to a third party whether by way of sale of assets, merger, consolidation or
otherwise, and in the event that Aztec is sold, or transferred by way of sale of
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<PAGE>
its assets, merger, consolidation or otherwise, that this repair and
refurbishment agreement shall be transferred to and assumed by the new owner of
the business and shall remain in full force and effect.
21. NOTICE PROVISION. Each notice, instrument or other certificate required
or permitted by the terms hereof shall be in writing and shall be communicated
by personal delivery, telecopier, or mail to the parties hereto at the addresses
set forth below, or at such other address as any of them may designate by notice
in accordance herewith to each of the others, and if notice is given by
telecopier, telex, telegram or hand delivery shall be deemed to have been given
or made on the date on which it was given, and if mailed, shall be deemed to
have been given or made on the third business day following the day after it was
mailed. The address for the notice of each party is:
If to Aztec:
Jack Meehan, President or
Les Asher, Vice President
Aztec International LLC
155 Woodward Avenue
South Norwalk, CT 06854
Fax: (203) 893-9111
If to Vodavi:
Greg Roeper, President
Vodavi Communications Systems
8300 East Raintree Drive
Scottsdale, Arizona 85260
Fax: (480) 483-0144
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IN WITNESS WHEREOF, the parties have entered into this Agreement the date
first above written.
AZTEC INTERNATIONAL Vodavi Technology Inc.
By: /s/ Jack Meehan By: /s/ Greg Roeper
----------------------------- ---------------------------------
Jack Meehan Greg Roeper
President President
10
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "Agreement") is made and entered, effective as
of the date set forth below, by and between SANTA BARBARA CONNECTED SYSTEMS
CORPORATION, a California corporation ("Licensor"), and VODAVI TECHNOLOGY, INC.,
a Delaware corporation ("Licensee"), with reference to the following facts:
RECITALS:
A. Under the OEM Agreement, Licensor has manufactured and sold to Licensee
certain products based upon Licensor's "Oyster" technology, and the parties have
elected to terminate the OEM Agreement and to have Licensor grant to Licensee a
perpetual, non-exclusive license to use the Licensed Technology described below
to manufacture and distribute the Products which Licensor previously sold to
Licensee pursuant to the OEM Agreement.
B. Licensor acquired its right to use a portion of the Licensed Technology
from D2 under the D2 Agreement described below, and the grant of license under
this Agreement also is subject to the terms, conditions and restrictions of the
separate Object Code Software License Agreement executed between Licensee and
D2.
C. Contemporaneously with the execution and delivery of this Agreement,
Licensee and D2 shall have entered into a separate Agreement.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties hereinafter set forth and other valuable consideration, the parties
hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have the
following meanings.
1.1 "D2" means D2 TECHNOLOGIES, INC., a California corporation.
1.2 "D2 AGREEMENT" means that certain Software Assignment, License and
Maintenance Agreement dated August 21, 1996, between D2, as licensor, and
Licensor, as licensee.
1.3 "DOCUMENTATION" means the written documentation which has been prepared
by Licensor, which describes the Licensed Technology, including the Bills of
Materials, Assembly Instructions and Documents, and certain Software
documentation, which is described in Exhibit A to this Agreement.
1.4 "LICENSED TECHNOLOGY" means the Documentation, the Manufacturing
Drawings, and the Software, including both the Source Code and the Object Code,
and other related technology as defined in Section 1. and described on Exhibit A
to this Agreement.
1.5 "MANUFACTURING DRAWINGS" means the design and manufacturing diagrams,
sub-assembly specifications and other drawings that Licensor used in connection
with its manufacture of Products for Licensee prior to the date of this
Agreement and which are reasonably required for Licensee to be able, using
reasonable skills consistent with the capabilities of a competent manufacturer
of surface mounted, electronic
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Connected Systems and Vodavi Technology Proprietary and Confidential
<PAGE>
component telecommunications products, to manufacture, support, or modify the
Products from the current release of the "Oyster" products as of the date of
this Agreement. Set forth on Exhibit A hereto is a list of the Manufacturing
Drawings that Licensor shall deliver to Licensee under this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, neither
any provision of this Agreement nor Licensor's delivery of any Licensed
Technology is intended or shall be construed as a representation or warranty by
Licensor that Licensee will be able to manufacture any of the Products
successfully or to modify any Product successfully. Notwithstanding the
foregoing, Licensor represents that the Licensed Technology is adequate to
enable manufacturing of the Products as they are currently manufactured.
1.6 "OBJECT CODE" means the version of a computer program that is not in a
programming language and is in a specific, machine-readable format only.
1.7 "OEM AGREEMENT" means the OEM Purchase Agreement dated April 11, 1997,
between Licensor and Enhanced Systems, Inc. ("Enhanced"), as amended by that
certain "Amendment to OEM Purchase Agreement" between Enhanced and Licensor, and
to which Licensee is a party as successor in interest to Enhanced Systems, Inc.
1.8 "PRODUCTS" means the "Oyster" products that Licensor manufactured for
Licensee under the OEM Agreement prior to the effective date of this Agreement
and all modifications and improvements to such "Oyster" products developed by
Licensor prior to the effective date of this Agreement, and all of the
derivative works of the "Oyster" products hereafter developed by Licensee. A
list of the Products as of the date of this Agreement is set forth on Exhibit B
hereto.
1.9 "SOFTWARE" means the computer software programs that were incorporated
into the Products that Licensor manufactured for Licensee prior to the date of
this Agreement. Notwithstanding the foregoing, the Software does not include and
Licensor shall have no obligation to deliver to Licensee any generally available
third party software that it has incorporated in, or used in connection with its
manufacture of, any of the "Oyster" products.
1.10 "SOURCE CODE" means the version of a computer program that is in a
programming language that is understandable by humans and shall include any
programmers notes and similar documentation available as of the date of this
agreement.
2. GRANT OF LICENSE
2.1 NON-EXCLUSIVE LICENSE. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee a world-wide, non-exclusive and
perpetual license (a) to use the Licensed Technology to manufacture or have
manufactured and sell the Products under the Licensee's brand names, (b) to
reproduce the Software, in Object Code format only, for distribution with the
Products, and (c) to use the Licensed Technology to develop modifications and
improvements of the Products. Licensee acknowledges that the license granted
under this Section is a non-exclusive license that does not convey ownership of
the Licensed Technology to Licensee, and that nothing in this Agreement limits
in any way Licensor's right to grant to any other person or entity a license to
use the Licensed Technology in connection with goods and services that may be
competitive with the Products and/or Licensee's business activities.
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Connected Systems and Vodavi Technology Proprietary and Confidential
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2.2 NO SUBLICENSING. Licensee shall not have the right to sublicense the
use for any purpose of any or all of the Licensed Technology to any person or
entity that designs, manufactures or distributes any voicemail, voice
processing, computer telephony or voice/data networking products.
Notwithstanding the foregoing, Licensee may contract with a third party for such
third party to manufacture Products for delivery to and sale by Licensee, even
if such third party does manufacture or distribute voice mail, voice processing,
computer telephony or voice/data networking products.
2.3 LICENSOR RIGHT TO MANUFACTURE. Licensor shall have the right to
manufacture for its own account and the account of other persons and entities,
and to contract for manufacture by others, of voicemail, voice processing,
voice/data networking and similar products that use, incorporate or rely upon
any or all of the Licensed Technology.
3. SOFTWARE MODIFICATIONS.
3.1 OWNERSHIP. All modifications to the Software, whether made to effect
"bug" fixes or to effect enhancements or improvements to the Software, and
regardless of whether or not such modifications constitute derivative works of
the Software, and regardless of which party effects such modifications, will be
the property of Licensor, but will be deemed to be Software subject to all the
license and other rights of Licensee under this Agreement. Licensor shall be the
exclusive owner of all such modifications and of all patents, copyrights and
other intellectual property rights in or to such modifications. Automatically
and simultaneously with the creation of any such modifications by Licensee,
Licensee shall be deemed to have assigned to Licensor all of its right, title
and ownership interest in and to each such modification and all patent,
copyright and other intellectual property rights related thereto.
3.2 COMPATIBILITY. Any modifications to the Software made by Licensee shall
be subject to review and acceptance by Licensor in order to maintain continuity
and compatibility of the modified Software with the API and/or DSP level
operating system software of the Products. Licensee shall not make any
modification to the Software which Licensor determines will interfere with the
continuity and compatibility of the modified Software with the API and/or DSP
level operating system software of the hardware. Licensor will not unreasonably
withhold its consent to or acceptance of any modification to the Software
requested by Licensee.
4. DELIVERIES BY LICENSOR. Simultaneously with the execution of this Agreement,
and upon receipt of payment in full of the initial payment installment as
determined in Section 5.1 below, Licensor shall deliver to Licensee copies of
the Licensed Technology.
5. PAYMENTS. In consideration of the grant of license under this Agreement,
Licensee shall pay to Licensor the following amounts.
5.1 UPON EXECUTION. Simultaneously with the execution of this Agreement,
Licensee shall pay to Licensor cash in the amount of Three Hundred Thousand
Dollars ($300,000.00);
5.2 DELIVERY OF LICENSED TECHNOLOGY. Simultaneously with Licensor's
delivery of the Licensed Technology under Section 4, above, and acceptance of
the Licensed Technology by Licensee, Licensee shall pay to Licensor cash in the
amount of One Hundred Thousand Dollars ($100,000.00). Licensee shall have one
week from the date of receipt of the Licensed Technology in which to evaluate
and accept, or state why it does not accept, the Licensed Technology. Upon
receipt of formal notification in writing to Licensor of failure of Licensee to
accept the Licensed Technology, Licensor shall attempt to
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Connected Systems and Vodavi Technology Proprietary and Confidential
<PAGE>
remedy the deficiency immediately. If no remedy, or reasonable attempt to
remedy, is made within thirty (30) days after such notification, this Agreement
will be terminated and Licensor will refund the $300,000.00 initial payment.and
the OEM Agreement rights and obligations of the parties shall remain in full
force and effect.
5.3 PRODUCTION OF FIRST PRODUCT BY LICENSEE. Within five (5) days after the
date on which Licensee first produces a Product [UNDER THE RIGHTS GRANTED IN
THIS AGREEMENT], but not later than three (3) months after acceptance pursuant
to 5.2, Licensee shall pay to Licensor cash in the amount of One Hundred
Thousand Dollars ($100,000.00).
6. TRANSITION ASSISTANCE AND TRAINING. The parties acknowledge that (a) Licensee
is entering into this Agreement with the objective of manufacturing Products
both at its own facilities and at other facilities operated by parties with whom
Licensee has a working relationship, and (b) for the immediate future, the most
effective and efficient method of ensuring an uninterrupted supply of Products
to Licensee is for Licensor to (x) assist Licensee in developing working
relationships with the companies and firms which have provided goods and
services to Licensor in connection with Licensor's manufacture and sale of the
Products, and (y) provide Licensee certain technical expertise and know-how that
Licensor has developed, through its employees, in manufacturing Products.
Therefore, from time to time during the three (3) -month period following the
effective date of this Agreement, upon request of Licensee:
6.1 VENDORS. Upon execution, Licensor shall (a) provide Licensee the names,
addresses, and telephone numbers of such vendors and suppliers from whom
Licensor has purchased goods or services in connection with the manufacture and
sale of Products, and (b) assist Licensee in conferring directly with
representatives of such vendors and suppliers who may be helpful in allowing
Licensee to establish a business relationship with those parties.
6.2 SALE OF MATERIALS FOR PRODUCTS. Upon request of Licensee, and if
available in Licensor's then current excess inventory, Licensor shall sell to
Licensee materials and components for Products at a price equal to the cost
thereof paid by Licensor plus fifteen percent (15.0%).
6.3 CONSULTING SERVICES. Licensor shall make its employees reasonably
available to consult with Licensee in connection with the use of the Licensed
Technology and the manufacture of the Products. Licensee shall compensate
Licensor for such services according to the fees described in Exhibit C of this
Agreement.
7. TERMINATION OF OEM AGREEMENT. Except as specified in Section 5.2, the parties
hereby terminate the OEM Agreement effective as of the date of this Agreement.
Each of the parties, for itself and its officers, directors, employees, agents,
successors, and assigns, hereby releases the other party, and each of such other
party's officers, directors, employees, agents, successors and assigns, from any
and all claims that it may have against the other party under the OEM Agreement
or otherwise in connection with any Products sold to Licensee pursuant to that
Agreement, by reason of any act or omission, whether known or unknown, prior to
the date of this Agreement. The foregoing releases include all claims for
damages of all of the releasing parties, whether known or unknown, foreseen or
unforeseen, anticipated or unanticipated, and whether they are latent or arise
later as a result of the foregoing. Each of the parties hereto waives all rights
under ss.1542 of the California Civil Code, which reads as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
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EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM, MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
8. TERM AND TERMINATION.
8.1 TERM. The term of this Agreement shall begin as of the effective date
of this Agreement and, unless terminated sooner pursuant to the terms of this
Agreement, shall continue in perpetuity.
8.2 TERMINATION. If either party shall be in material default of any
obligation of such party hereunder and such default is not remedied within the
applicable time period set forth below, then the non-defaulting party may give
written notice of such default and of its election to terminate this Agreement
under this Section 8, unless the defaulting party either (a) remedies, or takes
reasonable steps to remedy, such default within thirty (30) days after the
delivery of such notice of termination, or (b) if such default is other than
with respect to the payment of money, and can be remedied but cannot easily be
remedied within such 30-day period, the default party commences such remedial
action within such 30-day period, and continues thereafter to diligently pursue
such remedy until the remedy is complete. Unless the default is remedied within
the applicable period set forth above, the non-defaulting party may terminate
this Agreement by a second written notice, specifying such termination, and this
Agreement shall terminate simultaneously with the delivery of such second
notice.
8.3 BANKRUPTCY. If either party files or has filed against it a petition
under the Federal Bankruptcy Code, is adjudged a bankrupt, or files or has filed
against it a petition for reorganization or arrangement under any law relating
to bankruptcy, insolvency, moratorium, or similar laws for the protection of
debtors, whether under the laws of the United States, any of its political
subdivisions or otherwise, such party shall:
8.3.1 notify the other party thereof within ten days after the filing
of such a petition or such adjudication;
8.3.2 unless the petition is earlier dismissed, within ninety days
after the filing of such petition, shall assume this Agreement, and shall file a
petition with the appropriate court for approval of such assumption; and
8.3.3 thereafter shall take all other action as may be reasonably
necessary to obtain the approval of such assumption. If, within such ninety-day
period such party does not notify the other party of its assumption or rejection
of this Agreement and does not file the petition for approval of such assumption
or rejection, such party shall be deemed to have assumed this Agreement
8.4 EFFECT OF TERMINATION. The termination of this Agreement by either
party shall not constitute or be deemed to constitute the waiver or release by
such party of any right or claim such party may have against the other party by
reason of actions or omissions occurring on or before the effective date of
termination.
8.5 SURVIVAL. The rights and obligations of each party under Sections 5, 7,
8, 9, 10, 11, and 13 hereof will survive the expiration of this Agreement.
9. CONFIDENTIAL INFORMATION.
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9.1 CONFIDENTIAL INFORMATION. The term "Confidential Information" means
only information which either is used by either party in the conduct of its
business or relates to the Licensed Technology, and which has not been
voluntarily released by the party to the general public. The Confidential
Information shall include, but not be limited to, all information, processes,
process parameters, methods, practices, fabrication techniques, technical plans,
algorithms, computer programs, software, and related documentation, customer
lists, price lists, supplier lists, marketing plans, financial information, and
all other compilations of information of the Company. The Confidential
Information shall include all those documents, writings and other information
which are marked "confidential" or by some similar notation as the proprietary
and/or marked exclusive information of either party. Licensee agrees that the
Licensed Technology, including the Documentation, Manufacturing Drawings, and
Object Code and Source Code versions of the Software constitute Confidential
Information of Licensor, whether or not specifically marked as so and whether
supplied prior to or following the execution of this Agreement. Notwithstanding
the foregoing, the term "Confidential Information" does not include and this
obligation of non-disclosure shall not apply to any information which is:
9.1.1 published or otherwise made available to the public other than
by breach of this Agreement by the party receiving the information; or
9.1.2 rightfully received by the receiving party from a third party
without any breach by such third party or the receiving party of any
confidential limitations or contractual obligations; or
9.1.3 known to the party receiving the information prior to the first
receipt of same from the disclosing party provided that the receiving party so
notifies the disclosing party thereof within 30 days after its receipt of the
information; or
9.1.4 hereinafter disclosed by the disclosing party to a third party
without restriction on disclosure; or
9.1.5 approved for public release by the disclosing party in writing;
or
9.1.6 independently developed by the receiving party; or
9.1.7 made public through disclosure as required by law or legal
process; provided that, if either party claims that this paragraph applies, such
party shall not disclose any of the Confidential Information unless it has given
the other party notice of such law or legal process at least thirty (30) days
prior to the scheduled date of disclosure of the Confidential Information and
reasonable opportunity to oppose such disclosure.
9.2 IDENTIFICATION OF CONFIDENTIAL INFORMATION. All additional Confidential
Information not covered in Section 9.1 above and disclosed by one party to the
other hereunder shall be clearly labeled as such. Confidential Information which
is disclosed orally or in any non-tangible form shall be summarized in writing
by the disclosing party. The written summary shall be clearly labeled as
Confidential Information and shall be delivered to the receiving party within
thirty days of disclosure.
9.3 OBLIGATIONS. Each party agrees to receive and hold all Confidential
Information of the other party in confidence for a period of three (3) years
after receipt of such information and shall exercise the same degree of care to
prevent the disclosure of such Confidential Information as it does to protect
its own Confidential Information. As a minimum protection, the receiving party
shall limit disclosure of Confidential Information to its employees having a
need to know such information and shall not disclose the
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Confidential Information of the other to any third party, individual,
corporation or other entity, without the prior written consent of the disclosing
party.
9.4 RETURN OF CONFIDENTIAL INFORMATION. Within thirty (30) days following
termination of this Agreement for whatever reason, unless termination is
disputed and submitted to arbitration per section 13.10 of this Agreement, at
the disclosing party's request, the receiving party shall return the original
and all copies of Confidential Information to the disclosing party, or certify
in writing that all copies have been destroyed.
9.5 INSPECTION. Each party may, as its own expense, examine the other
party's applicable records to verify that such party has satisfied such party's
obligations under this Section 9 relating to the protection of Confidential
Information. Each party agrees to make its records available to the other party
as requested upon one month prior written notice. No such examination shall be
made more than once during any twelve-month period. The audited party shall be
entitled to require execution of non-disclosure agreements by any person
designated to perform such an examination.
10. RIGHTS ON INSOLVENCY. The parties expressly acknowledge that the Licensed
Technology and Licensee's rights under this Agreement constitute "intellectual
property" within the meaning of Section 101 of the Bankruptcy Code, and that, in
the event Licensor becomes the subject of a bankruptcy case, it is the parties'
intention and understanding that Licensee would thereafter continue to be
entitled to exercise its rights under this Agreement as provided by Section
365(n) of the Bankruptcy Code. Accordingly, during the term of this Agreement,
Licensor will promptly deliver all embodiments of the Hardware Documentation and
Software Documentation to Licensee as soon as they are available to Licensor.
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11. Intellectual Property Infringement Indemnity.
11.1 Indemnification by Licensor. Licensor warrants and agrees as follows:
11.1.1 The Licensed Technology will not infringe any patent,
copyright, trade secret or other intellectual property right of any third party.
11.1.2 Licensor may grant Licensee the rights and licenses to be
granted to Licensee hereunder without breach of any contractual obligation of
Licensor, and, to the best of its knowledge, without infringement of any
intellectual property rights of any third party.
11.1.3 Notwithstanding the foregoing provisions of this Section 11 or
any other provision of this Agreement to the contrary, Licensor is not providing
to Licensee any representation or warranty to Licensee whatsoever, and Licensor
shall not be liable to Licensee for any claims, costs, damages, or expenses,
arising from or relating to any modifications to the Licensed Technology made by
Licensee after the effective date of this Agreement.
11.2 Indemnity by Licensor. Licensor will indemnify, defend, and hold
Licensee and its successors and assigns free and harmless from and against all
claims alleging such infringement or breach and all damages, loss, cost and
expense (including attorneys' fees) incurred by Licensee in connection with such
claims, provided that (a) Licensee provides Licensor written notice of such
claim within fourteen (14) days following the first date as of which Licensee
first discovers the existence of the claim, and (b) Licensee cooperates
reasonably with Licensor in the defense against the claim. Licensor may satisfy
its indemnity obligation under this Section 11.2 with respect to any particular
claim by procuring for Licensee from the party asserting infringement a license
that entitles Licensee to use the allegedly infringing item, on terms no less
favorable to Licensee than the terms of this Agreement; provided that obtaining
such a license will not relieve Licensor of its obligation to indemnify Licensee
for any indemnification damages, loss, cost or expense incurred by Licensee
prior to the time such license is secured.
11.3 Limitation. Other than the express warranties provided in this Section
11 and in Section 12, below, Licensor:
DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ON THE
CONFIDENTIAL INFORMATION OR THE INTELLECTUAL PROPERTY USE RIGHTS
TRANSFERRED HEREUNDER; and
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOSS OF PROFITS OR
BUSINESS, LOSS OF USE, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES (EXCEPT
FOR BREACH OF THE INTELLECTUAL PROPERTY INFRINGEMENT WARRANTIES GIVEN IN
SECTION 11 OF THIS AGREEMENT), EVEN IF THE PARTY WAS ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
12. YEAR 2000 COMPLIANCE.
12.1. YEAR 2000 WARRANTY. Licensor warrants to Licensee that the Software,
as it exists as of the effective date of this Agreement and used in connection
with other software, components and products that are Y2K Compliant (as defined
below), the Software is and will be Y2K Compliant. For purposes of this Section
12, the term "Y2K Compliant" means that the particular software, component or
other product
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will not fail to operate in conformity with its specifications on and after
December 31, 1999, solely by reason of the date changing to a date subsequent to
December 31, 1999. The representation provided in this Section 12 relates only
to the Software and does not constitute a representation or warranty as to
whether or not (a) the Software will operate, on or after December 31, 1999, in
conformity with its specifications if it is used in connection with any other
software, component or product that is not Y2K Compliant, or (b) any system,
component or other product in connection with which the Software is used will be
Y2K Compliant. Licensee acknowledges and agrees that, as between Licensor and
Licensee, Licensee is solely responsible for determining whether or not any of
such other software, component, product or system is Y2K Compliant. The
foregoing representation is made exclusively for the benefit of Licensee and its
successors and assigns. Licensor specifically disclaims any representation or
warranty to any party other than Licensee with respect to the Software and
whether or not the Software is or will beY2K Compliant.
THE FOREGOING WARRANTY CONSTITUTES LICENSOR'S SOLE WARRANTY WITH RESPECT
WHETHER OR NOT THE SOFTWARE IS Y2K COMPLIANT, AND LICENSOR SPECIFICALLY
DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESSED OR IMPLIED, WITH RESPECT
TO WHETHER OR NOT THE SOFTWARE IS Y2K COMPLIANT.
12.2 YEAR 2000 INDEMNIFICATION. Subject to the limitations set forth in
this Section, Licensor will indemnify, defend and hold harmless Licensee, and
its successors and assigns, against any and all damages, costs, expenses,
liabilities and obligations arising from the breach or inaccuracy of the year
2000 warranty set forth in Section 12.1, above.
IN NO EVENT SHALL LICENSOR BE LIABLE FOR ANY LOSS OF PROFITS OR BUSINESS,
LOSS OF USE, LOSS OF DATA OR INFORMATION, LOSS OF QUIET ENJOYMENT, OR
INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES AS A RESULT OF THE BREACH OR
INACCURACY OF THE Y2K WARRANTY SET FORTH IN SECTION 12.1, ABOVE.
13. GENERAL TERMS.
13.1 TRADEMARKS. Nothing in this Agreement shall be construed to confer any
license, right to use, or other right with respect to any trademark or trade
name of either party.
13.2 NO IMPLIED LICENSE. No license is granted by this Agreement by either
party to the other, either directly or by implication, estoppel or otherwise,
except as expressly provided in this Agreement.
13.3 EXPORT REGULATIONS. If the Hardware or the Software is exported from
the United States or re-exported from a foreign destination by either party,
such party shall insure that the distribution and re-export thereof is in
compliance with all laws, regulations, orders, or other restrictions of the U.S.
Export Administration regulations.
13.4 SEVERABILITY. If any provision of this Agreement is for any reason
found to be ineffective, unenforceable, or illegal by any court having
jurisdiction, such condition shall not affect the validity or enforceability of
any of the remaining portions hereof, unless it deprives any party hereto of any
material right or license held by such party under this Agreement. The parties
shall negotiate in good faith to replace any such ineffective, unenforceable or
illegal provisions as soon as is practicable, and the substituted provision
shall, as closely as possible, have the same economic effect as the eliminated
provision.
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13.5 INDEPENDENT CONTRACTORS. Performance by the parties under this
Agreement shall be as independent contractors. Nothing contained herein or done
in pursuance of this Agreement shall constitute the parties' entering upon a
joint venture or partnership, or shall constitute either party the agent for the
other party for any purpose or in any sense whatsoever, or to create any
fiduciary or any other extra obligations.
13.6 NOTICES. All notices permitted or required by this Agreement shall be
in writing and shall be deemed to have been delivered and received (a) when
personally delivered, (b) on the third (3rd) business day after the date on
which deposited in the United States Mail, certified or registered mail, postage
prepaid, (c) on the date on which transmitted by facsimile (provided that the
sender's facsimile machine generates a written receipt confirming a successful
transmission), or (d) on the next business day after the date on which deposited
with a regulated public carrier (e.g, Federal Express) for the fastest available
overnight delivery, addressed to the party for whom intended at the address set
forth on the signature page of this Agreement or such other address or facsimile
number, notice of which is delivered in a manner permitted by this Section 13.6.
13.7 ASSIGNMENT. This Agreement is not assignable by either party without
the other party's written consent, provided that either party may assign this
Agreement to: (a) a subsidiary or entity controlling, controlled by or under
common control with such party or to any entity providing the assigning party
agrees to remain liable for its obligations under this Agreement; or (b) a third
party who acquires the assigning party by a merger or acquisition of eighty
percent (80%) or more of the assigning party's outstanding stock; or (c) by a
third party who acquires all or substantially all of the assets of the assigning
party; provided the assignee agrees to assume the assigning party's obligations
under this Agreement. Any attempted assignment in violation of this provision
shall be void. The provisions hereof will be binding upon and inure to the
benefit of the parties, their successors and permitted assigns.
13.8 NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
ANY LOSS OF PROFITS, LOSS OF USE, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES
FOR ANY BREACH OF A PARTY'S OBLIGATIONS UNDER THIS AGREEMENT.
13.9 GOVERNING LAW, JURISDICTION AND VENUE. This Agreement shall be
governed by and subject to and construed according to the internal laws of the
State of California. Each party hereby consents to the jurisdiction of the
courts of the defendant for any action construing or enforcing the rights and
duties created hereunder. The parties agree that the exclusive venue for all
disputes arising under or in connection with this Agreement shall be the court
of general jurisdiction in or for the County in which the defendant's principal
executive offices are located, and further hereby waive any right to object that
such venue is inconvenient or otherwise inappropriate.
13.10 ARBITRATION. Except for any action requiring the exercise of
equitable powers, all disputes which arise under this Agreement and are not
resolved within thirty (30) days following the date on which either party
delivers to the other a written notice invoking the arbitration provisions of
this Section 13.10 shall be resolved by binding arbitration before a single
arbitrator in Las Vegas, Nevada , under the rules then obtaining of the American
Arbitration Association. The arbitrator shall be an attorney licensed to
practice in California and shall have substantive experience in and familiarity
with the law, custom, and practice governing the development, marketing, and
licensing of hardware and software. The decision of the arbitrator shall be
final and binding on the parties, and judgment thereon may be entered in a court
of competent jurisdiction. This agreement to arbitrate shall be specifically
enforceable.
13.11 INCORPORATION OF EXHIBITS. All Exhibits referenced herein are
incorporated into and become an integral part of this Agreement by this
reference.
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13.12 ENTIRE AGREEMENT; AMENDMENTS. This Agreement (a) sets forth the
entire understanding of the parties concerning the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings relating
to the subject matter hereof, whether oral or written, and (b) may not be
modified or amended, except by a written instrument executed after the effective
date of this Agreement by the party sought to be charged by the amendment or
modification.
13.13 COUNTERPARTS. This Agreement is executed in the English language and
may be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
13.14 INTERPRETATION. Each party to this Agreement has been represented by
independent legal counsel. Therefore, the normal rule of construction that an
agreement shall be interpreted against the drafting party shall not apply. All
pronouns and any variation thereof shall be deemed to refer to the masculine,
feminine, or neuter and to the singular or plural as the identity of the person
or persons may require for property interpretation of this Agreement.
13.15 ATTORNEY'S FEES. In any action between the parties seeking
enforcement of any of the terms and provisions of this Agreement, the prevailing
party in such action shall be awarded, in addition to damages, injunctive or
other relief, its reasonable costs and expenses, not limited to taxable costs,
and a reasonable attorneys' fee.
13.16 COPYRIGHT NOTICES. Licensee shall place such copyright notices on the
Hardware and the Software and in such typical and reasonable places thereon as
Licensor may request from time to time to evidence or maintain its intellectual
property rights. Licensor may inspect, in accordance with the provisions of
Section 9.5 hereof, Licensee's applicable records to verify that Licensee has
complied with its obligations under this Section 13.16.
13.17 EFFECTIVE DATE. The effective date of this Agreement shall be May 17,
1999.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
SANTA BARBARA CONNECTED SYSTEMS VODAVI TECHNOLOGY, INC.,
CORPORATION, a California corporation a Delaware corporation
By /s/ Dwight Buck By /s/ Gregory K. Roeper
---------------------------------- ---------------------------------
Dwight Buck, President Name & Title: President
Date May 17, 1999 Date May 24, 1999
Address and Facsimile No. for Notices: Address and Facsimile No.for Notices:
126 W. Figueroa Street 8300 E. Raintree Dr.
Santa Barbara, California 93101 Scottsdale, AZ 85260
Facsimile No.: (805) 962-5066 Facsimile No.: (480) 483-0144
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OBJECT CODE SOFTWARE LICENSE AGREEMENT
This Agreement is entered into by D2 Technologies, Inc. a corporation of the
State of California with a place of business at 104 West Anapamu St., Santa
Barbara, CA 93101 (hereinafter called "D2") and Vodavi Technology, Inc. a
Deleware corporation with a principal place of business at 8300 E. Raintree Dr.,
Scottsdale, AZ 85260 (hereinafter called "LICENSEE"). The effective date of this
Agreement shall be the later of the dates executed by the respective parties.
RECITALS.
WHEREAS, D2 has the right to grant the rights to use and distribute the
Licensed Software specified in Exhibit A; and
WHEREAS, LICENSEE desires to obtain such rights to use and distribute the
Licensed Software described hereinafter; and
WHEREAS, D2 desires to provide LICENSEE with such rights upon the terms and
conditions set forth in this Agreement; and
WHEREAS, Connected Systems, Inc. a corporation of the State of California
having a place of business at 126 W. Figueroa St., Santa Barbara, CA 93101
(herinafter CONNECTED) and LICENSEE have entered into a License Agreement
effective the date hereof, WHEREAS CONNECTED and D2 are affiliated
entities; WHEREAS LICENSEE requires the use of D2 technology to fulfill its
Agreement with CONNECTED;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions set forth in this Agreement, the parties agree as
follows.
1.0 DEFINITIONS
1.1 "LICENSEE" shall mean the legal entity identified as the LICENSEE on
the face page of this Agreement.
1.2 "Licensed Software" shall mean D2's software products identified in
Exhibit A including all manuals and other related technical documentation
provided by D2, and including all updates thereto delivered to LICENSEE by D2.
1.3 "Object Code" means the Licensed Software in machine-readable, compiled
object code form.
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1.4 "Binary Code" means the binary executable form of the Licensed Software
which may be linked with other LICENSEE-provided software and embedded in the
Bundled Product.
1.5 "Bundled Product(s)" means one or more of the products or product
groups described in Exhibit B, which has been or will be developed by LICENSEE
and which incorporates in the Bundled Product, in any manner, any portion of the
Binary Code. A Bundled Product represents sufficient value enhancement to the
Licensed Software such that the primary reason for LICENSEE's customer to
license such Bundled Product is other than the right to receive a license to the
Licensed Software included in the Bundled Product.
2.0 GRANT OF RIGHTS
2.1 LICENSE. Subject to the terms and conditions of this Agreement: D2
grants a nontransferable, fully paid up, perpetual, nonexclusive license to
execute the Binary Code of the Licensed Software only in a configuration in
which the Licensed Software is embedded within LICENSEE's Bundled Product.
LICENSEE may transfer the Binary Code of the Licensed Software to LICENSEE'S
customers, embedded in LICENSEE's Bundled Product, provided that the Bundled
Product (including the embedded software) is transferred pursuant to an End-User
License which shall contain at a minimum all of the following provisions:
1. The Licensed Software is licensed, not sold. Title does not pass to the
LICENSEE customer. The LICENSEE customer will not make any copies of the
Licensed Software except as required for backup and archival purposes.
2. Each license granted to LICENSEE customer shall be a perpetual,
nonexclusive and nontransferable license to use the Binary Code version of
the Licensed Software.
3. A Protection of Confidential Software clause similar to the clause provided
in this Agreement.
4. A limitation of liability as set forth in this Agreement.
5. An export control notice similar to the clause in this Agreement.
2.2 RESERVATIONS. D2 reserves all rights and licenses not expressly granted to
LICENSEE.
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3.0 ADDITIONAL OBLIGATIONS
3.1 Delivery. D2 will ship to LICENSEE one (1) copy of the Licensed
Software upon execution of this Agreement and the CONNECTED License Agreement.
LICENSEE shall have no runtime License fee obligation to D2.
3.2 LIMITED WARRANTY
For a period of one year after delivery of the Licensed Software, D2
warrants that the Licensed Software will perform substantially according to the
description and specifications contained in D2's Software documents. During the
warranty period, LICENSEE may request and D2 shall provide, technical support,
as described in Paragraph 3.2 (a), (b), (c) and (d) of this Agreement, and
software updates, as requested by Licensee, at the Time and Material fees
charges offered to other similarly situated customers. For each year thereafter,
LICENSEE may renew such technical support and software updates on an annual
basis at the then-current D2 maintenance fee, if such support and updates
services are available.
D2 telephone and written technical support are as follows:
(a) D2 will assist LICENSEE in determining if problems LICENSEE may
encounter are caused by programming errors in the Licensed Software.
(b) D2 will answer questions concerning installation of the Licensed
Software in original delivered configuration, unmodified by Customer.
(c) D2 will provide assistance with resolving LICENSEE's problems which
occur during the normal usage of the Licensed Software.
(d) D2 will use reasonable efforts to remedy any programming error in the
Licensed Software which is attributable to D2 which causes the failure
to meet specifications.
Subject to the limitations set out below, the sole remedy for failure to meet
the limited warranty shall be D2's reasonable efforts to remedy any programming
error in the Licensed Software which is attributable to D2 and which causes the
failure to meet the warranty. Such remedy may consist of supplying corrected
portion(s) of Licensed Software, or communication to LICENSEE of a workaround
which gives LICENSEE the ability to achieve substantially the same functionality
as would be obtained without the programming error, as may be determined by D2.
If D2 is unable to provide such remedy within a reasonable time, D2 shall accept
return of that portion of Licensed Software which is in breach of this warranty
and refund to LICENSEE the full value of such portion of the Licensed Software.
Limitations:
D2's efforts shall be promptly initiated only after LICENSEE has provided D2
with written notice of its claim of any such programming error. An error report
must contain sufficient information, on computer-readable media if practicable,
for D2 to reproduce the
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problem. D2 shall have no obligations for any Licensed Software which includes
any modifications made by LICENSEE, or for LICENSEE-specific application
software and drivers. D2 shall also have no obligations for the correction of
errors or problems which are due to operational characteristics of the computer
equipment on which the Licensed Software is used.
In order to have the benefit of D2's efforts, LICENSEE must provide D2 with data
and information, as requested, and with sufficient support and test time on the
LICENSEE's Development Computer system and Bundled Product to duplicate the
problem, determine if the problem is with the Licensed Software covered
hereunder, correct the problem and determine that the problem has been
corrected.
LICENSEE shall reimburse D2 for traveling expenses if D2 personnel are required
to travel to either the LICENSEE'S premise or LICENSEE'S customer's premise in
order to fix the reported problem. LICENSEE must designate a named contact
person and alternate contact person per installation who will submit problem
reports and receive all corrections, upgrades, correspondence and other
communications concerning the Licensed Software.
THE LIMITED WARRANTIES IN THIS SECTION ARE THE SOLE AND EXCLUSIVE WARRANTIES, IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, GIVEN BY D2 INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
4.0 PROPRIETARY RIGHTS
4.1 LICENSED SOFTWARE. LICENSEE shall not be an owner of any copies of the
Licensed Software, but, rather, is granted a limited license pursuant to this
Agreement to use such copies. LICENSEE acknowledges and agrees that, as between
LICENSEE and D2, all right, title and interest in the Licensed Software and any
part thereof, including, without limitation, all rights to patent, copyright,
trademark and trade secret rights and all other intellectual property rights
therein and thereto, and all copies thereof, in whatever form, including any
written documentation and all other material describing such Licensed Software,
shall at all times remain solely with D2.
5.0 CONFIDENTIALITY
5.1 GENERAL. LICENSEE acknowledges and agrees that the Licensed Software
constitutes the confidential and proprietary trade secrets of D2, and that
LICENSEE's protection thereof is essential to this Agreement and a condition of
LICENSEE's use and possession of the Licensed Software. LICENSEE shall retain in
strict confidence any and all elements of the Licensed Software and use the
Licensed Software only as expressly licensed herein. LICENSEE agrees that it
will under no circumstances distribute or in any way disseminate or disclose the
Licensed Software to third parties, except as
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expressly provided in Section 2.3 above. LICENSEE shall be relieved of this
obligation of confidentiality to the extent that such information was in the
public domain at the time it was disclosed, required to be disclosed by law,
received from a third party with no obligation, or has become in the public
domain through no fault of LICENSEE.
5.2 SECURITY. LICENSEE agrees to use the Licensed Software for the purposes
set forth in this Agreement under similar care and control LICENSEE uses for its
own proprietary software.
5.3 NOTIFICATION. LICENSEE agrees to notify D2 promptly in the event of any
breach of its security under conditions in which it would appear that the
Licensed Software were prejudiced or exposed to loss. LICENSEE shall, upon
request of D2, take all other reasonable steps necessary to recover any
compromised trade secrets disclosed to or placed in the possession of LICENSEE
by virtue of this Agreement. The cost of taking such steps shall be borne solely
by LICENSEE.
5.4 REMEDIES. LICENSEE acknowledges that any breach of any of its
obligations under this Section 5 may cause or threaten irreparable harm to D2,
and, accordingly, LICENSEE agrees that in such event, D2 shall be entitled to
equitable relief to protect its interest therein, including but not limited to
preliminary and permanent injunctive relief, as well as money damages.
6.0 TERMINATION
6.1 TERMINATION. This Agreement is perpetual unless terminated as set forth
herein. Upon prior written notice, either party may terminate this Agreement if
the other party ceases doing business, , or fails to cure a material breach of
any term or condition of this Agreement within thirty (30) days of receipt of
written notice specifying such breach.
6.2 EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason, LICENSEE shall immediately discontinue use of the Licensed Software and
within ten (10) days certify in writing to D2 that all copies of the Licensed
Software, in whole or in part, in any form, have either been returned to D2 or
destroyed in accordance with D2's instructions. All payments made by LICENSEE to
D2 hereunder are non-refundable except as set forth herein.
6.3 SURVIVAL. The provisions of Sections 4, 5, 6, 7 and 8 shall survive
termination of this Agreement.
7.0 INDEMNIFICATION
7.1 D2 will defend any suit brought against LICENSEE based on the grounds
that the Licensed Software furnished under this Agreement infringes any patent,
trade secret or other Intellectual Property Right of any third party
("Indemnified Right"), and will pay all damages and costs that a court or
arbitration awards against LICENSEE as a result of such claim and all amounts
paid in settlement of such claim, provided that LICENSEE
5
D2 Technologies and Connected Systems Proprietary and Confidential
<PAGE>
gives D2 (i) prompt written notice of such claim, (ii) the sole right to defend
and/or settle the claim, and (iii) all reasonable information and assistance, at
D2's expense, excluding time spent by employees or consultants of LICENSEE) to
handle the defense and settlement thereof. Should the Licensed Software become
the subject of a claim of infringement of an Indemnified Right, D2 shall, at its
option, either: (a) procure for LICENSEE the right to continue using such
Licensed Software or (b) modify such Licensed Software to make it
non-infringing. If neither of the foregoing alternatives is reasonably
available, D2 shall accept return of the infringing portion of Licensed Software
and refund to LICENSEE the depreciated value of such portion of Licensed
Software, as measured over a thirty-six (36) month life span.
7.2 D2 hereby represents that, insofar as is presently known to D2, the
Licensed Software and Developed Programs do not infringe any patent, copyright,
trade secret or other Intellectual Property Right of any third party, and D2
knows of no such claims thereof.
7.3 LICENSEE will indemnify and hold D2 harmless from any loss, damage, or
liability arising in connection with LICENSEE's improper or unauthorized use of
the Licensed Software.
8.0 LIMITATION OF LIABILITY
8.1 IN NO EVENT SHALL D2 HAVE ANY LIABILITY FOR ANY LOST PROFITS, LOSS OF
DATA OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY
SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES ARISING IN ANY WAY OUT OF THIS
AGREEMENT, OR OTHERWISE ARISING UNDER ANY COVER OF ACTION AND WHETHER OR NOT D2
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS SHALL
APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY.
9.0 MISCELLANEOUS PROVISIONS
9.1 GOVERNING LAW. This Agreement shall be interpreted and governed by the
laws of the State of California, without reference to conflict of laws
principles.
9.2 JURISDICTION. For any disputes arising out of this Agreement the
parties consent to the personal and exclusive jurisdiction of, and venue in, the
state or federal court within Santa Barbara County, California.
9.3 ENTIRE AGREEMENT. This Agreement constitutes the entire and exclusive
Agreement between the parties hereto with respect to the subject matter hereof
and supersedes and cancels all previous registrations, agreements, commitments
and writings in respect thereof.
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D2 Technologies and Connected Systems Proprietary and Confidential
<PAGE>
9.4 MODIFICATION. No modification to this Agreement, nor any waiver of any
rights, shall be effective unless assented to in writing by the party to be
charged and the waiver of and breach or default shall not constitute a waiver of
any other right hereunder or any subsequent breach or default.
9.5 ASSIGNMENT. Each party's obligations under this Agreement and all
rights and obligations hereunder are personal to the parties hereto and may not
be assigned in whole or in part by either party without the prior written
consent of the other. Notwithstanding the foregoing, either party may assign
this Agreement without the prior written consent of the other party, pursuant to
a sale by the assigning party of the portion of that party's business to which
this Agreement pertains, whether by merger, sale of stock, sale of assets, or
otherwise.
9.6 EXPORT ADMINISTRATION ACT. In conformity with the United States Export
Administration Act and regulations promulgated thereunder, LICENSEE and its
employees and agents shall not disclose, export or re export, directly or
indirectly, any of the Licensed Software or technical data (or direct products
thereof) provided under this Agreement to destinations in Country Groups Q, S,
W, Y and Z as modified from time to time by the US Department of Commerce, or
that are otherwise controlled under said Act and regulations.
9.7 SEVERABILITY. If any provision of this Agreement is held to be invalid
by a court of competent jurisdiction, then the remaining provisions will
nevertheless remain in full force and effect. The parties agree to renegotiate
in good faith any term held invalid and to be bound by the mutually agreed
substitute provision.
9.8 NO WAIVER. The failure of D2 to enforce any term or condition of this
Agreement shall not constitute a waiver of D2's rights to enforce subsequent
breaches of any term or condition under this Agreement.
9.9 NOTICES. Any notices required to be given under this Agreement shall be
in writing and addressed to the respective party at the address shown on the
face page of this Agreement or such other address as may be provided by each
party from time-to-time. Notices shall be effective when received and shall be
sent by certified or registered mail, return receipt requested, or by overnight
courier.
9.10 US GOVERNMENT RESTRICTED RIGHTS. LICENSEE will legend or mark the
Licensed Software provided pursuant to any agreement with the United States
Government or any contractor therefor, as required by law.
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<PAGE>
D2 and LICENSEE each hereby acknowledge that they have read and understand the
terms of this Agreement, and that by signing below they become parties to the
Agreement and agree to be bound by all terms, conditions, and obligations
contained therein.
D2 LICENSEE
By: /s/ David Y. Wong By: /s/ Gregory K. Roeper
------------------------------ --------------------------------
Print Name: David Y. Wong Print Name: Gregory K. Roeper
Title: President Title: President
Date: May 17, 1999 Date: May 24, 1999
---------------------------- ------------------------------
8
D2 Technologies and Connected Systems Proprietary and Confidential
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS EXHIBIT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THIS EXHIBIT SHALL NOT BE DEEMED FILED FOR PURPOSES OF SECTION 11 OF
THE SECURITIES ACT OF 1933 AND SECTION 18 OF THE SECURITIES EXCHANGE ACT OF
1934, OR OTHERWISE SUBJECT TO THE LIABILITY OF SUCH SECTIONS, NOR SHALL IT BE
DEEMED A PART OF ANY OTHER FILING WHICH INCORPORATES THIS REPORT BY REFERENCE,
UNLESS SUCH OTHER FILING EXPRESSLY INCORPORATES THIS EXHIBIT BY REFERENCE.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 352
<SECURITIES> 0
<RECEIVABLES> 11,422
<ALLOWANCES> 985
<INVENTORY> 7,155
<CURRENT-ASSETS> 19,786
<PP&E> 4,351
<DEPRECIATION> 1,846
<TOTAL-ASSETS> 25,418
<CURRENT-LIABILITIES> 6,293
<BONDS> 8,055
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<COMMON> 4
<OTHER-SE> 11,066
<TOTAL-LIABILITY-AND-EQUITY> 25,418
<SALES> 23,948
<TOTAL-REVENUES> 23,948
<CGS> 15,630
<TOTAL-COSTS> 15,630
<OTHER-EXPENSES> 7,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> 752
<INCOME-TAX> 281
<INCOME-CONTINUING> 471
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<EXTRAORDINARY> 0
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