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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 2000
REGISTRATION NO. 333-42570
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NOVATEL WIRELESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4812 86-0824673
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
9360 TOWNE CENTRE DRIVE
SUITE 110
SAN DIEGO, CA 92121
(858) 320-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JOHN MAJOR
CHIEF EXECUTIVE OFFICER
NOVATEL WIRELESS, INC.
9360 TOWNE CENTRE DRIVE
SUITE 110
SAN DIEGO, CA 92121
(858) 320-8800
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE
NUMBER INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
BLASE P. DILLINGHAM, ESQ. J. SCOTT HODGKINS, ESQ.
PATRICK T. WATERS, ESQ. LATHAM & WATKINS
JEAN-JACQUES B. DUPRE, ESQ. 633 WEST FIFTH STREET
ORRICK, HERRINGTON & SUTCLIFFE LLP LOS ANGELES, CA 90071
777 SOUTH FIGUEROA (213) 485-1234
LOS ANGELES, CA 90017
(213) 629-2020
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this preliminary prospectus is not complete and may
be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 13, 2000
7,000,000 Shares
[NOVATEL LOGO]
Common Stock
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $10.00 and $12.00 per share. Subject to notice of issuance, our common
stock has been approved for listing on The Nasdaq Stock Market's National Market
under the symbol "NVTL".
The underwriters have an option to purchase a maximum of 1,050,000
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS NOVATEL WIRELESS
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Per Share............................................ $ $ $
Total................................................ $ $ $
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
The date of this prospectus is , 2000
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The inside front cover contains a graphic of our product portfolio.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 5
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
CAPITALIZATION........................ 18
DILUTION.............................. 19
SELECTED FINANCIAL DATA............... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 22
BUSINESS.............................. 30
MANAGEMENT............................ 45
RELATED PARTY TRANSACTIONS............ 57
PAGE
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PRINCIPAL STOCKHOLDERS................ 62
DESCRIPTION OF SECURITIES............. 65
SHARES ELIGIBLE FOR FUTURE SALE....... 68
IMPORTANT UNITED STATES TAX
CONSEQUENCES TO NON-U.S. HOLDERS OF
OUR COMMON STOCK.................... 70
UNDERWRITING.......................... 73
NOTICE TO CANADIAN RESIDENTS.......... 76
LEGAL MATTERS......................... 77
EXPERTS............................... 77
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 77
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. NEITHER WE NOR THE UNDERWRITERS HAVE AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE
USED ONLY WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and financial statements appearing elsewhere
in this prospectus. This prospectus contains forward-looking statements. The
outcome of the events described in these forward-looking statements is subject
to risks and actual results could differ materially. The sections entitled "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as those discussed elsewhere in
this prospectus, contain a discussion of some of the factors that could
contribute to those differences.
OUR COMPANY
We are a provider of wireless data communications access solutions. We
provide wireless data modems and software for use with handheld computing
devices and portable personal computers. Our products enable professionals and
consumers to access enterprise networks and the Internet "anytime, anywhere." We
also provide wireless data modems which can be integrated into other devices for
a wide range of vertical applications. We also offer provisioning, activation
and systems integration services to our customers to facilitate use of our
products.
We have a strong history of designing innovative wireless access products.
We designed and delivered the first products to enable wireless connectivity for
the Palm family of handheld computing devices. We have successfully developed
and are continuing to develop solutions that enable our customers to wirelessly
access data utilizing a wide range of mobile computing devices across a broad
range of wireless data network technologies. Our current product portfolio
includes the following:
- The Minstrel line of Wireless Modem cradles, for the Palm family of
handheld computing devices, the Handspring family of handheld computing
devices and the Casio E-15 Windows Pocket PC handheld device;
- The Merlin Type II PC Card, for portable and desktop personal computers
(PCs);
- The Sage Wireless Modem, for portable and desktop PCs;
- The NRM-6812 and Expedite Wireless OEM Modem, for custom integration with
computers and other devices; and
- The Lancer 3W Wireless Modem, for vehicle-mounted applications.
Our core modem technology is easily customized to address a broad range of
vertical applications. Our customers include wireless telecommunications
operators such as Verizon Wireless and AT&T Wireless, and wireless data content
and service providers such as OmniSky Corporation, GoAmerica Communications
Corp. and CreSenda Wireless. We also have original equipment manufacturer (OEM)
customers such as @Road, Harvest/Coca-Cola and KeyCorp and we have entered into
strategic technology and development relationships within the wireless
communications industry with Intel Corporation, Hewlett-Packard Company,
Metricom, Inc., OmniSky, Symbol Technologies, Inc. and VoiceStream Wireless
Corp.
The convergence of mobile computing, wireless communications and the
Internet and enterprise networks is driving the rapidly expanding demand for
wireless data access. The explosion of the Internet and enterprise networks has
accelerated the development of applications for communications, information
access, content and commerce. As professionals and consumers have become
increasingly dependent on the growing functionality, productivity and
convenience offered by these applications, they are demanding wireless
connectivity for their mobile computing devices. We believe that demand for an
ever increasing range of wireless data applications will continue to grow as
wireless data network coverage, bandwidth and security improve to allow higher
quality service.
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To meet this rapidly growing demand, we provide the following advantages to
our customers:
Breadth of Wireless Access Products. Our products enable both handheld
computing devices and portable PCs to wirelessly access the Internet and
enterprise networks. We also provide wireless modems to enable wireless
connectivity to a broad range of devices for vertical applications.
Price Performance Leadership. We have designed our products to provide high
levels of performance and functionality with attractive pricing to drive
widespread adoption among users.
Convenience. Our products provide users with wireless connectivity to the
Internet and enterprise networks with a focus on ease-of-use and real-time
access to e-mail, online content and critical personal and professional
information. We have designed our products to reduce their size and weight
without compromising performance.
Productivity. Our products enhance productivity by enabling handheld
devices and portable PCs to be in constant connection with the Internet and
enterprise networks. Our products for handheld devices also enable wireless
synchronization so users can backup and access personal and professional data
from remote locations.
Customized Solutions. Our technology platform enables us to provide
wireless data solutions for a wide range of specialized applications and to
adapt our products to specific customer needs. We enable our OEM customers to
provide their clients with tailored solutions for vertical market applications
such as securities trading, field services and sales, public safety
transportation, retail and point of sale terminals, telemetry and vending system
monitoring.
Our objective is to be the leading global provider of wireless data access
products. The key elements of our strategy include:
- Extending our technology leadership to capitalize on the evolution and
expansion of global wireless data access technologies;
- Driving widespread adoption of our products by increasing our sales and
marketing activities, continuing to price our products strategically and
to improve their ease-of-use;
- Expanding and developing strategic relationships to improve the design
and functionality of our wireless access products and rapidly gain market
share;
- Continuing to target key vertical markets by offering products that
increase productivity, reduce costs and create operational efficiencies;
and
- Developing value-added applications to expand the capabilities of our
products.
CORPORATE INFORMATION
We were incorporated in Delaware on April 26, 1996 when we acquired certain
intellectual property rights relating to wireless communications. Our principal
executive offices are located at 9360 Towne Centre Drive, Suite 110, San Diego,
California 92121. Our telephone number at that location is (858) 320-8800.
References in the prospectus to "we," "our," "us" and the "Company" refer to
Novatel Wireless, Inc. together with our consolidated subsidiaries. Our Web site
is www.novatelwireless.com. This reference to our website is not an active
hyperlink, nor is the information contained in our Web site incorporated by
reference into this prospectus and it does not constitute part of this
prospectus.
Our trademarks and service marks include Contact(R), Expedite(TM),
Lancer(TM), Lancer 3W(TM), Merlin(TM), Minstrel(R), Minstrel IIIc(TM), Minstrel
III(TM), Minstrel V(TM), Minstrel Plus(TM), Minstrel S(TM), Minstrel 540(TM),
MissionONE(TM), Sage(R) and Viking(TM), each with its accompanying design, and
the Novatel Wireless logo. Novatel Wireless, our logo and other trademarks and
service marks mentioned in this prospectus are the property of Novatel Wireless,
Inc. or its subsidiaries. All other brand names, trademarks, or service marks of
other companies and products appearing in this prospectus are the property of
their respective holders.
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THE OFFERING
Common stock offered by us.......... 7,000,000 shares of our common stock
Common stock to be outstanding after
the offering...................... 52,113,581 shares of our common stock
Use of proceeds..................... For working capital and general
corporate purposes, including increased
research and development and sales and
marketing expenditures. See "Use of
Proceeds."
Nasdaq National Market symbol....... NVTL
The number of shares of our common stock to be issued and outstanding
immediately after this offering is based on the number of shares issued and
outstanding as of November 10, 2000. It also reflects a three-for-one split of
each share of our common stock and preferred stock, which we effected in
September 2000, and the automatic conversion into shares of our common stock
upon completion of this offering of (i) all series of preferred stock
outstanding as of the date of this prospectus and (ii) all shares of preferred
stock of our subsidiary Novatel Wireless Technologies, Ltd. an Alberta, Canada
corporation (NWT) (discussed below). In addition to the shares of common stock
to be outstanding after this offering, there are:
- 10,228,094 shares of common stock that could be issued upon the exercise
of options outstanding as of November 10, 2000 at a weighted average
exercise price of $4.62 per share;
- 10,542,090 shares of common stock that could be issued upon the exercise
of warrants outstanding as of November 10, 2000 at a weighted average
exercise price of $2.79 per share;
- 5,781,883 shares of common stock that could be issued in the future under
our stock option plans as of November 10, 2000;
- 1,500,000 shares of common stock that could be issued in the future under
our 2000 employee stock purchase plan.
Prior to this offering, the authorized capital stock of our subsidiary,
NWT, consisted of an unlimited number of Series A preferred shares, an unlimited
number of Series B preferred shares and an unlimited number of common shares. In
September 2000, all the NWT Series A preferred shares and all the NWT Series B
preferred shares were exchanged for an equal number of shares of our Series A
preferred stock and our Series B preferred stock, respectively, and upon
consummation of this offering will automatically convert into an aggregate of
4,396,236 shares of our common stock. Additionally, all the outstanding warrants
to purchase NWT common stock have been exchanged for warrants to purchase an
equal number of shares of our common stock. In this prospectus, we refer to
these exchanges, together, as the "NWT Exchange."
Except as otherwise specified in this prospectus, all information in this
prospectus assumes:
- the three-for-one split of each share of our common stock and preferred
stock which we effected in September 2000, after the occurrence of the
NWT Exchange;
- the automatic conversion of all the outstanding shares of our preferred
stock into shares of our common stock immediately prior to the completion
of this offering;
- the filing of our amended and restated certificate of incorporation with
the Delaware Secretary of State;
- the effectiveness of our 2000 stock incentive plan and our 2000 employee
stock purchase plan; and
- no exercise of the underwriters' over-allotment option.
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SUMMARY FINANCIAL DATA
You should read the following selected financial data in conjunction with
our consolidated financial statements and the related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this prospectus. The consolidated
statements of operations data for the years ended December 31, 1997, 1998 and
1999, and the balance sheet data at December 31, 1998 and 1999, are derived from
our consolidated financial statements which have been audited by Arthur Andersen
LLP and which are included elsewhere in this prospectus. The consolidated
statement of operations data for the period from inception to December 31, 1996
is derived from audited consolidated financial statements not included in this
prospectus. The balance sheet data at September 30, 2000 and consolidated
statements of operations data for the nine months ended September 30, 1999 and
2000 are derived from unaudited consolidated financial statements which are
included elsewhere in this prospectus. See notes 4 and 14 of the notes to the
consolidated financial statements for an explanation of the number of shares
used to compute net loss per share and pro forma net loss per share. The
historical financial information may not be indicative of our future
performance, and results of interim periods may not be indicative of results
that may be expected for any other interim period or for the year as a whole.
PERIOD FROM NINE MONTHS
APRIL 26, 1996 ENDED
(INCEPTION) TO FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------------------ ------------------------
1996 1997 1998 1999 1999 2000
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(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue.............................. $ 277 $ 3,354 $ 5,378 $ 9,556 $ 5,514 $ 33,408
Cost of revenue...................... 168 1,856 3,433 11,955 5,751 34,970
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Gross margin......................... 109 1,498 1,945 (2,399) (237) (1,562)
Operating expenses:
Research and development........... 2,650 1,995 2,333 3,717 1,926 8,902
Sales and marketing................ 256 2,058 2,685 4,480 2,630 10,468
General and administrative......... 656 1,944 2,496 4,443 3,335 3,345
Amortization of deferred stock
compensation..................... -- -- 115 220 166 6,523
Net loss............................. (3,462) (4,476) (5,506) (18,469) (9,530) (30,270)
Net loss per common share:
Basic and diluted.................. $ (0.37) $ (0.51) $ (0.69) $ (2.04) $ (1.09) $ (3.31)
Weighted average shares
outstanding...................... 9,711,630 9,711,630 9,711,630 9,728,421 9,723,737 10,138,695
Pro forma net loss per share
(unaudited)(1):
Basic and diluted.................. $ (0.73) $ (0.39) $ (0.75)
Weighted average shares
outstanding...................... 27,199,269 27,164,387 44,494,326
SEPTEMBER 30, 2000
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AS
ACTUAL ADJUSTED(2)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 13,893 $ 86,403
Working capital............................................. 20,003 92,513
Total assets................................................ 48,061 120,571
Total long-term liabilities................................. 289 289
Stockholders' equity........................................ (24,556) 99,446
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(1) See notes 4 and 14 of the notes to the consolidated financial statements for
an explanation of the determination of the number of shares and share
equivalents used in computing pro forma per share amounts.
(2) "As adjusted" reflects the application of the net proceeds from the sale of
7,000,000 shares of common stock offered by us at an assumed initial public
offering price of $11.00 per share, after deducting the underwriting
discounts and commissions and the estimated offering expenses (See "Use of
Proceeds" and "Capitalization") and the sale of 434,782 shares of our Series
D preferred stock that we issued and sold in October 2000 for net proceeds
of $2,500,000.
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks and uncertainties described below and the
other information contained in this prospectus before you decide whether to
invest in our common stock. If any of the following risks actually occurs, our
business, financial condition, results of operations and liquidity could be
materially adversely affected. This may cause the trading price of our common
stock to decline after this offering, and you could lose part or all of the
money you paid to purchase our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SIGNIFICANT OPERATING LOSSES SINCE OUR INCEPTION AND WE EXPECT
TO CONTINUE TO INCUR SIGNIFICANT NET LOSSES AND NEGATIVE CASH FLOWS FOR THE
FORESEEABLE FUTURE.
We have experienced operating losses and net losses in each quarterly and
annual period since our inception, and we expect to continue to incur
significant losses for the foreseeable future. We incurred net losses of $3.5
million for the eight months ended December 31, 1996, $4.5 million for the year
ended December 31, 1997, $5.5 million for the year ended December 31, 1998,
$18.5 million for the year ended December 31, 1999 and $30.3 million for the
nine months ended September 30, 2000. In addition, we had negative cash flows
from operations of $3.5 million for the year ended December 31, 1997, $5.0
million for the year ended December 31, 1998 and $5.2 million for the year ended
December 31, 1999 and $38.7 million for the nine months ended September 30,
2000. As of September 30, 2000, we had an accumulated deficit of $68.7 million.
We expect our operating expenses and negative cash flows will increase
substantially as we continue to attempt to expand our business. We also expect
to significantly increase our product development, sales and marketing, research
and development, manufacturing, and general and administrative expenses in
future periods. We have entered into and expect to continue to enter into
significant customer contracts for the development and supply of our products.
These contracts may place significant demands on our resources. If we are unable
to increase our revenue sufficiently to offset these expected increases in our
expenses, we will not achieve profitability and our operating losses, net losses
and negative cash flows will increase.
BECAUSE WE HAVE BEEN OPERATING ONLY SINCE 1996, OUR HISTORIC OPERATING RESULTS
MAY NOT BE MEANINGFUL TO AN INVESTOR EVALUATING OUR COMPANY.
We launched our first wireless modem in 1996. Because we have a limited
operating history for you to evaluate when considering an investment in our
company, it may be difficult for you to evaluate our current business and
prospects. You must consider the risks, expenses and uncertainties that an early
stage company like ours faces, particularly in the new and rapidly evolving
wireless communications market. These considerations include our ability to
continue to expand our customer base, maintain our current
strategic-relationships and develop new ones, deliver products associated with
our key contracts in a profitable and timely manner, attract and retain
qualified personnel and manage our growth. Because we have only recently
commenced commercial sales of our products, our past results and rates of growth
may not be meaningful, and you should not rely on them as an indication of our
future performance.
IF WE DO NOT CORRECTLY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE TO
ARRANGE COST-EFFECTIVE PRODUCTION OF OUR PRODUCTS OR WE COULD HAVE COSTLY EXCESS
INVENTORIES OR PRODUCTION.
Historically, we have experienced steady increases in demand for our
products and generally have been able to arrange for increased production to
meet that demand. However, the demand for our products depends on many factors
and is difficult to predict. We expect that it will become more difficult to
predict demand for specific products as we introduce and support multiple
wireless communications products and
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as competition in the market for our products intensifies. Significant
unanticipated fluctuations in demand could cause the following problems in our
operations:
- If demand increases beyond what we anticipate, we would have to rapidly
arrange for increased production at our third-party manufacturers. Our
manufacturers depend on suppliers to provide additional volumes of
components. If these suppliers cannot provide the additional volumes of
components, our manufacturers may not be able to increase production
rapidly enough to meet the unexpected demand. Even if our manufacturers
are able to procure enough components, they may not be able to produce
enough of our products to allow us to deliver them in a timely manner to
our customers. The inability of our suppliers to provide material
components or of our manufacturers to increase production rapidly enough
or to sufficient levels could cause us to fail to meet customer demand.
- Rapid increases in production levels to meet unanticipated demand could
result in higher costs for manufacturing and supply of components and
other expenses. These higher costs could lower our profit margins.
Further, if production is increased rapidly, manufacturing yields could
decline, which may also lower our profit margins.
- If anticipated demand does not develop, we could have excess inventories
of finished products and components, which would reduce our cash flow and
could lead to write-offs of some or all of the excess inventories. Lower
than anticipated demand could also result in manufacturing activity at
our third-party manufacturers below the minimum manufacturing activity
level for which we are financially committed, which could result in
higher costs of goods sold and lower profit margins.
IF WE CANNOT DELIVER PRODUCTS ASSOCIATED WITH OUR SIGNIFICANT CONTRACTS IN A
PROFITABLE AND TIMELY MANNER, OUR REPUTATION COULD BE HARMED AND OUR REVENUE AND
PROFIT MARGINS MAY DECREASE.
Our ability to generate future revenue under many of our significant supply
contracts depends upon our ability to manufacture and supply products that meet
defined specifications. To realize the benefits of these agreements, we will
have to manage the following risks successfully:
- We have priced these contracts on our estimate of future production
costs. If we incur higher costs than anticipated, our gross margins on
these contracts will decrease and these contracts may not be as
profitable as they otherwise may have been.
- If we are unable to commit the necessary resources or are unable to
deliver our products as required by the terms of these contracts, our
customers may cancel the contracts. In that event, we might not recover
any costs that we incurred for research and development, sales and
marketing, production and otherwise and we may incur additional costs as
contractual penalties.
- If we fail to meet a delivery deadline, or a customer determines that the
products we delivered do not meet the agreed-upon specifications, we may
have to reduce the price we can charge for our products, or we may be
liable to pay damages to the customer.
If we are unable to successfully manage these risks or meet required deadlines
in connection with one or more of our key contracts, our reputation could be
harmed and our business, financial condition, results of operations and
liquidity could be materially adversely affected.
IF THE MARKET FOR WIRELESS ACCESS TO THE INTERNET DOES NOT CONTINUE TO GROW, OUR
REVENUE WILL LIKELY DECLINE.
The market for wireless access to the Internet has experienced significant
growth in recent years. However, we cannot assure you that the market for our
existing products will continue to grow, that potential customers within the
industry will adopt our products for integration with their wireless data
communications solutions, or that we will be successful in independently
establishing markets for our products. If the wireless data communications
market fails to grow, or grows more slowly than we
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currently anticipate, or if we are unable to establish markets for our new
products, our business, financial condition, results of operations and liquidity
could be materially adversely affected.
THE MARKETABILITY OF OUR PRODUCTS MAY SUFFER IF WIRELESS TELECOMMUNICATIONS
OPERATORS DO NOT DELIVER ACCEPTABLE WIRELESS SERVICES.
The success of our business depends on the capacity, affordability and
reliability of wireless data access provided by various wireless
telecommunications operators. Currently, various wireless telecommunications
operators such as Verizon Wireless and AT&T Wireless, either directly or jointly
with us, sell our products in connection with the sale of their wireless data
access services to their customers. Growth in demand for wireless data access
may be limited if wireless telecommunications operators fail to offer services
which customers consider valuable, fail to maintain sufficient capacity to meet
demand for wireless data access, delay the expansion of their wireless networks
and services, fail to offer and maintain reliable wireless network services or
fail to market their services effectively. If any of these occurs, or if for any
other reason the demand for wireless data access fails to grow, sales of our
products will decline and our business, financial condition and results of
operations could be materially adversely affected.
In addition, our future growth depends on the successful deployment of next
generation wireless data networks by third parties, including those networks for
which we currently are developing products. If these next generation networks
are not deployed or widely accepted, or if deployment is delayed, there will be
no market for the products we are developing to operate on these networks. As a
result, we will not be able to recover our research and development expenses and
our financial condition and results of operations and liquidity could be
materially adversely affected.
OUR SUCCESS DEPENDS ON OUR ABILITY TO MANAGE ADDITIONAL GROWTH SUCCESSFULLY.
Our ability to successfully offer our products and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We have continued to increase the scope of our operations domestically
and have grown our shipments and headcount substantially. At November 10, 2000,
we had a total of approximately 281 employees, representing an increase from 36
employees on March 31, 1997. In addition, we expect to continue to hire a
significant number of employees during the remainder of 2000. Our growth has
resulted, and any future growth will result, in increased responsibilities for
our management and increased demands on our resources. To be successful, we will
need to:
- implement additional management information systems;
- improve our operating, administrative, financial and accounting systems,
procedures and controls;
- maintain and expand our manufacturing capacity;
- continue to train, motivate, manage and retain our existing employees and
attract and integrate new employees; and
- maintain close coordination among our executive, engineering,
professional services, accounting, finance, marketing, sales and
operations organizations.
We may not adequately anticipate all the demands that growth may impose on
our systems, procedures and structure. If we fail to anticipate and respond
adequately to these demands or if we are otherwise unable to manage our growth
effectively, we may not be able to compete effectively and our business,
financial condition, results of operations and liquidity could be materially
adversely affected.
WE CURRENTLY RELY EXCLUSIVELY ON THIRD-PARTY MANUFACTURERS TO PRODUCE OUR
PRODUCTS, AND OUR ABILITY TO CONTROL THEIR OPERATIONS IS LIMITED.
We currently outsource all our manufacturing to Sanmina Corporation, GVC
Corporation and Solectron de Mexico, S.A. de C.V. Because we only recently
entered into our agreements with GVC Corporation and Solectron, we have not had
any significant working experience with either of these
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manufacturers. We expect GVC and Solectron to begin manufacturing some of our
products at their facilities in Taiwan and Mexico, respectively, in the near
future. We expect to continue to depend exclusively on third-party manufacturers
to produce our products in a timely fashion and at satisfactory quality levels.
Neither of these third-party manufactures is obligated to supply products to us
for any specific quantity, except as may be provided in particular purchase
orders which we submit to them from time to time. If our third-party
manufacturers experience delays, disruptions, capacity constraints or quality
control problems in their manufacturing operations, then product shipments to
our customers could be delayed, which would negatively impact our revenues and
our competitive position and reputation. The cost, quality and availability of
third-party manufacturing operations are essential to the successful production
and sale of our products. Our reliance on our third-party manufacturers exposes
us to a number of risks which are outside our control:
- unexpected increases in manufacturing costs;
- interruptions in shipments if our third-party manufacturers are unable to
complete production timely;
- inability to control quality of finished products;
- inability to control delivery schedules;
- inability to control production levels and to meet minimum volume
commitments to our customers;
- inability to control manufacturing yield;
- inability to maintain adequate manufacturing capacity; and
- inability to secure adequate volumes of components.
If we are unable to manage successfully our relationships with these
third-party manufacturers, the quality and availability of our products may be
harmed. If any of our third-party manufacturers stopped manufacturing our
products or reduced its manufacturing capacity, we may be unable to replace the
lost manufacturing capacity on a timely basis. In addition, if any of our
third-party manufacturers changed the terms under which they manufacture for us,
our manufacturing costs could significantly increase. We generally place orders
with our third-party manufacturers at least three months prior to scheduled
delivery of products to our customers. Accordingly, if we inaccurately
anticipate demand for our products, we may be unable to obtain adequate
quantities of components to meet our customers' delivery requirements or we may
accumulate excess inventories. If one or more of these events were to occur, our
business, financial condition and results of operations could be materially
adversely affected by increased costs, reduced revenue and lower profit margins.
IF WE FAIL TO ADOPT NEW TECHNOLOGY AND FAIL TO DEVELOP AND INTRODUCE NEW
PRODUCTS SUCCESSFULLY, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
We operate in a highly competitive environment, characterized by rapidly
changing technology and industry standards. New products based on emerging
technologies or evolving industry standards may quickly render an existing
product obsolete and unmarketable. Our growth and future operating results
depend in part upon our ability to enhance existing products and introduce newly
developed products that conform to prevailing and evolving industry standards,
meet or exceed technological advances in the marketplace, meet changing customer
requirements, achieve market acceptance and respond to our competitors'
products.
The development of new products can be very difficult and requires
technological innovation. The development process is also lengthy and costly. In
addition, wireless communications service providers require that wireless data
systems deployed on their networks comply with their own standards, which may
differ from the standards of other providers. If we fail to anticipate our
customers' needs and technological trends accurately or are otherwise unable to
complete the development of products on time and within budgeted amounts, we
will be unable to introduce new products into the market on a timely basis, if
at all.
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If we are unsuccessful at developing and introducing new products that are
appealing to consumers, we may be unable to recover our significant research and
development costs and our business, financial condition and results of
operations could be materially adversely affected. In addition, as we introduce
new versions of our products or new products, our current customers may not
require the technological innovations of our new products and may not purchase
them.
To grow our revenue and achieve profitability, we must retain our current
customers and develop new ones. If consumers view our competitors' products as
superior to ours, or if our products are unable to meet their expectations or
requirements, we may be unable to retain our existing customers or to develop
new customers which would materially and adversely effect our business,
financial condition and results of operations.
THE FLUCTUATION OF OUR QUARTERLY OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO
DECLINE.
Our future quarterly operating results may fluctuate significantly and may
not meet the expectations of securities analysts or investors. If this occurs,
the market price of our stock would likely decline. The following factors may
cause fluctuations in our operating results:
- INCREASES IN OPERATING EXPENSES. We expect that our operating expenses,
particularly our sales and marketing, and our research and development
costs, will increase. We budget our operating expenses based on
anticipated sales, and a significant portion of our sales and marketing,
research and development and general and administrative costs are fixed,
at least in the short term. If revenue decreases and we are unable to
reduce our operating costs quickly and sufficiently, our operating
results could be materially adversely affected. We have entered into and
expect to continue to enter into significant customer contracts for the
development and supply of our products. We expect to incur significant
research and development, sales and marketing and other costs relating to
the development, manufacture and sale of these products prior to
receiving revenue from these contracts.
- PRODUCT MIX. The product mix of our sales affects profit margins in any
given quarter. As our business evolves and the revenue from the product
mix of our sales varies from quarter to quarter, our operating results
will likely fluctuate.
- NEW PRODUCT INTRODUCTIONS. As we introduce new products, the timing of
these introductions will affect our quarterly operating results. We may
have difficulty predicting the timing of new product introductions and
the market acceptance of these new products. If products and services are
introduced earlier or later than anticipated, or if market acceptance is
unexpectedly high or low, our quarterly operating results may fluctuate
unexpectedly. Our quarterly operating results also fluctuate because we
incur substantial upfront research and development, sales and marketing,
production and other costs to support new product introductions prior to
the periods in which we will recognize revenue from new products.
- USE OF SUPPLY CONTRACTS WITH CUSTOMERS. We rely on long-term supply
contracts with our distributor customers. These contracts typically have
minimum purchase volumes, and also typically include a non-binding,
forward-looking rolling forecast and allow the customer to make certain
volume changes within specified periods of time in advance of scheduled
production dates. We use these forecasts for internal planning of
material procurement and required manufacturing capacity, but cannot
predict with certainty incoming orders or changes in forecasts. Our
operating results may fluctuate as a result of deviations from forecasted
amounts, the timing of substantial orders, decreases in orders, failure
to fulfill orders, possible delays or shortages in component supplies, or
possible delays in the manufacture or shipment of current or new
products.
- LENGTHY SALES CYCLE. In addition, the length of time between the date of
initial contact with a potential customer and the execution of a contract
may take several months, and is subject to delays over which we have
little or no control. The sale of our products is subject to delays from
our customers' budgeting, approval and competitive evaluation processes
that typically accompany
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significant information technology purchasing decisions. For example,
customers frequently begin by evaluating our products on a limited basis
and devote time and resources to testing our products before they decide
whether or not to purchase a product. We commit substantial time and
resources to educate potential customers on the use and benefits of our
products. Customers may also defer orders as a result of anticipated
releases of newer or enhanced products by us or our competitors. As a
result, our ability to anticipate the timing and volume of sales to
specific customers is limited, and the delay or failure to complete one
or more large transactions could cause our operating results to vary
significantly from quarter to quarter.
We believe that quarter-to-quarter comparisons of our operating results
will not necessarily be meaningful in predicting our future performance. If we
do not achieve our expected revenue, it is possible that our operating results
will fall below the expectations of market analysts or investors in some future
quarter or quarters. Our failure to meet these expectations would likely
adversely affect the trading price of our common stock.
WE DEPEND UPON A SMALL NUMBER OF OUR CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR
REVENUE.
A significant portion of our revenue comes from a small number of
customers. Our top ten customers for the year ended December 31, 1999 and the
nine months ended September 30, 2000 accounted for approximately 83.7% and 79.1%
of our revenue, respectively. @Road, OmniSky and AirLink Communications, Inc.
accounted for 23.1%, 14.3% and 9.2% of our revenue, respectively, for the year
ended December 31, 1999. OmniSky, @Road, and Global Wireless Data accounted for
32.4%, 14.2% and 6.1% of our revenue, respectively, for the nine months ended
September 30, 2000. We expect that a small number of customers will continue to
account for a substantial portion of our revenue for the foreseeable future. If
there is a downturn in the business of any of these customers, if we are unable
to continue to retain their business, or if we are unable to diversify our
customer base, our revenue may decline.
The term of our agreement with OmniSky expired on May 1, 2000. Although we
are currently negotiating a new agreement, there can be no assurance that we
will arrive at a new agreement with OmniSky or that we will arrive at a new
agreement with terms substantially similar to those contained in the expired
agreement. Also, although we have been shipping and provisioning modems to
OmniSky pursuant to an open purchase order while observing the same terms as
those contained in the expired agreement (with the exception of the per unit
activation services fee), there can be no assurance that we will continue to do
so. If we fail to negotiate a new agreement with OmniSky or if we discontinue
shipping and provisioning to OmniSky, our revenue may decline.
WE DEPEND ON SOLE SOURCE SUPPLIERS FOR SOME OF OUR COMPONENTS, AND OUR PRODUCT
AVAILABILITY AND SALES WOULD BE HARMED IF THESE SUPPLIERS ARE NOT ABLE TO MEET
OUR DEMAND AND ALTERNATIVE SOURCES ARE NOT AVAILABLE.
Our products contain a variety of components that are procured from a
variety of suppliers. These components include both tooled parts and
industry-standard parts, many of which are similar to parts used in cellular
telephone handsets. The cost, quality and availability of components are
essential to the successful production and sale of our products. Some of these
components come from sole or single source suppliers for which alternative
sources may not be available. If suppliers are unable to meet our demand for
sole source components and if we are unable to obtain an alternative source or
if the price for a substitute is prohibitive, our ability to maintain timely and
cost-effective production of our products would be seriously harmed. Currently,
some components and certain integrated circuits are in short supply world-wide
due to the explosive growth in demand for cellular-telephone handsets. If the
shortage of such components or any other key component persists or worsens, we
may not be able to deliver sufficient quantities of our products to satisfy
demand.
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IF WE FAIL TO DEVELOP AND MAINTAIN STRATEGIC ALLIANCES, WE MAY NOT BE ABLE TO
PENETRATE NEW MARKETS.
A key element of our business strategy is to penetrate new markets by
developing new products through strategic alliances with leading companies. We
are currently investing, and plan to continue to invest, significant resources
to develop these relationships. We believe that our success in penetrating new
markets for our products will depend in part on our ability to maintain these
relationships and to cultivate additional or alternative relationships. We
cannot assure you that we will be able to develop additional strategic
alliances, that existing relationships will continue or be successful in
achieving their purposes or that strategic partners will not form competing
arrangements.
ANY SIGNIFICANT REDUCTION IN DEMAND FOR HANDHELD COMPUTING DEVICES OR FOR OUR
PRODUCTS DESIGNED FOR THOSE DEVICES MAY HARM OUR BUSINESS.
A significant amount of our revenue is generated by our products for
handheld computing devices and portable PCs. Although the demand for handheld
computing devices and portable PCs has historically increased at a steady rate,
we cannot assure you that the demand for those devices will continue to grow in
the future. In addition, certain recent models of handheld computing devices and
portable PCs include internal wireless modems installed by the manufacturer
which reduce the need for consumers to purchase our wireless modem products. If
demand for handheld computing devices and portable PCs declines or as more
consumers purchase handheld computing devices and PCs with internal wireless
modems, the demand for our products would materially decrease and our revenue
would decline.
WE MAY NOT BE ABLE TO MAINTAIN AND EXPAND OUR BUSINESS IF WE ARE NOT ABLE TO
INTEGRATE OUR MANAGEMENT TEAM AND RETAIN, HIRE, INTEGRATE AND MANAGE ADDITIONAL
QUALIFIED PERSONNEL.
Many members of our senior management have joined our company within the
last nine months. In particular, John Major, our chief executive officer, joined
us in July 2000. Melvin Flowers, our chief financial officer, and Steven
Schlief, our vice president of operations, joined us in February 2000 and July
2000, respectively. Peter Leparulo, our senior vice president of corporate and
strategic development and general counsel, joined us in September 2000. As a
result, our current management team has worked together for only a relatively
short time and is in the process of integrating as a management team. Our
ability to execute our strategies will depend upon our ability to integrate
these and future managers into our operations, and there can be no assurance
that we will be able to achieve the rapid execution necessary to fully exploit
the market opportunity for our products.
Our success in the future depends in part on the continued contribution of
our executive, technical, engineering, sales, marketing, manufacturing and
administrative personnel. Recruiting and retaining skilled personnel, including
software and hardware engineers, is highly competitive, especially in the San
Diego area. Cash compensation is likely to increase for employees with these
skills whom we hire after our initial public offering because prospective
employees may perceive that the stock option component of our compensation
package is not as valuable as it was prior to the offering. In addition, most of
our senior management and other key personnel are not bound by employment
agreements. If we are not able to attract or retain qualified personnel in the
future, or if we experience delays in hiring required personnel, particularly
qualified engineers, we will not be able to maintain and expand our business.
Over the past year, we have rapidly expanded our direct sales force and
expect to hire additional sales personnel commensurate with our sales
objectives. We may experience difficulty in integrating the new members of our
sales team into our operations. We have limited experience in managing a large,
expanding, geographically dispersed sales force. We cannot be certain that we
will be able to effectively manage the growing sales force in the future or that
newly-hired employees will achieve levels of productivity necessary to sustain
our sales and revenue growth.
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ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
As part of our business strategy, we intend to review on an ongoing basis
acquisition opportunities that we believe would be advantageous to the
development of our business. While we have no current agreements or current
discussions with respect to any acquisitions, we may acquire businesses,
products, or technologies in the future. If we make any acquisitions, we could
take any or all of the following actions, any one of which could adversely
affect our business, financial condition, results of operations and the price of
our common stock:
- issue equity securities that would dilute existing stockholders'
percentage ownership;
- use a substantial portion of our available cash, including proceeds from
this offering;
- incur substantial debt, which may not be available to us on favorable
terms and may adversely affect our liquidity;
- assume contingent liabilities; and
- take substantial charges in connection with the amortization of goodwill
and other intangible assets.
Acquisitions also entail numerous risks, including: difficulties in
assimilating acquired operations, products and personnel; unanticipated costs;
diversion of management's attention from other business concerns; adverse
effects on existing business relationships with suppliers and customers; risks
of entering markets in which we have limited or no prior experience; and
potential loss of key employees from either our preexisting business or the
acquired organization. We may not be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future, and our failure to do so could harm our business and operating results.
OUR FUTURE RESULTS COULD BE HARMED BY RISKS ASSOCIATED WITH INTERNATIONAL SALES
AND OPERATIONS.
We plan to expand our international sales and marketing activities in the
future. We have limited experience in marketing, selling, distributing and
manufacturing our products and services internationally. For the year ended
December 31, 1999 and the nine months ended September 30, 2000, only
approximately 12% and 9%, respectively, of our revenue was derived from
international accounts. As we expand international sales, we expect to become
subject to a number of risks which may increase our costs, lengthen our sales
cycle and require significant management attention. These risks associated with
doing business internationally generally include:
- changes in foreign currency exchange rates;
- changes in a specific country's or region's political or economic
conditions, particularly in emerging markets, and changes in diplomatic
and trade relationships;
- less effective protection of intellectual property;
- trade protection measures and import or export licensing requirements;
- potentially negative consequences from changes in tax laws;
- increased expenses associated with customizing products for foreign
countries;
- unexpected changes in regulatory requirements resulting in unanticipated
costs and delays;
- longer collection cycles and difficulties in collecting accounts
receivable; and
- difficulty in managing widespread sales and research and development
operations.
Our sales and invoices are currently denominated in U.S. dollars. In the
future, however, we may record sales and invoice customers in the applicable
local foreign currency. If that occurs, we may be exposed to international
currency fluctuations.
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THE WIRELESS COMMUNICATIONS MARKET IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.
We compete in the wireless communications markets. The markets for wireless
data access products are highly competitive and we expect competition to
increase. Many of our competitors or potential competitors have significantly
greater financial, technical and marketing resources than we do. These
competitors may be able to respond more rapidly than we can to new or emerging
technologies or changes in customer requirements. They also may devote greater
resources than we do to the development, promotion and sale of their products.
Many of our competitors have more extensive customer bases and broader
customer relationships and industry alliances that they could leverage to
establish relationships with many of our current and potential customers. These
companies also have significantly more established customer support and
professional services organizations. In addition, these companies may adopt
aggressive pricing policies or offer more attractive terms to customers, may
bundle their competitive products with broader product offerings and may
introduce new products and enhancements. Current and potential competitors may
establish cooperative relationships among themselves or with third parties to
enhance their products. As a result, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share.
Our wireless communications products compete with a variety of devices,
including wireless modems, traditional wired modems, wireless handsets, wireless
handheld computing devices and other wireless devices. Our current and potential
competitors include:
- Wireless modem manufacturers, such as Sierra Wireless, Uniden, NextCell
and Tellus;
- Traditional wired modem manufacturers, such as 3Com and Xircom;
- Wireless device manufacturers, such as Handspring, Palm and Research in
Motion;
- Wireless handset manufacturers and next generation wireless technology
providers, such as Ericsson, Motorola and Nokia; and
- Non-CDPD private communications network providers, such as Emotiant, Bell
South and Metricom.
We expect our competitors to continue to improve the performance of their
current products and to introduce new products, services and technologies.
Successful new product introductions or enhancements by our competitors could
reduce our sales and the market acceptance of our products, cause intense price
competition and make our products obsolete. To be competitive, we must continue
to invest significant resources in research and development, sales and
marketing, and customer support. We cannot be sure that we will have sufficient
resources to make these investments or that we will be able to make the
technological advances necessary to remain competitive. Increased competition
could result in price reductions, fewer customer orders, reduced margins and
loss of our market share. Our failure to compete successfully could seriously
harm our business, financial condition and results of operations.
OUR PRODUCTS MAY CONTAIN ERRORS OR DEFECTS WHICH COULD DECREASE THEIR MARKET
ACCEPTANCE.
Our products are technologically complex and must meet stringent user
requirements. We must develop our software and hardware products quickly to keep
pace with the rapidly changing and technologically advanced wireless
communications market. Products as sophisticated as ours may contain undetected
errors or defects, especially when first introduced or when new models or
versions are released. Our products may not be free from errors or defects after
commercial shipments have begun, which could result in the rejection of our
products, damage to our reputation, lost revenues, diverted development
resources, and increased customer service and support costs and warranty claims.
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WE COULD INCUR SUBSTANTIAL COSTS DEFENDING OUR INTELLECTUAL PROPERTY FROM
INFRINGEMENT OR A CLAIM OF INFRINGEMENT.
Our success depends in large part on our proprietary technology. We rely on
a combination of patents, copyrights, trademarks and trade secrets,
confidentiality provisions and licensing arrangements to establish and protect
our proprietary rights. We may be required to spend significant resources to
monitor and police our intellectual property rights. Before we do so, we may not
be able to detect infringement and we may lose competitive position in the
market. Intellectual property rights also may be unavailable or limited in some
foreign countries, which could make it easier for competitors to capture market
share. The unauthorized use of our technology by competitors could have a
material adverse effect on our ability to sell our products in some markets.
Although we are not currently involved in any intellectual property
litigation, we may be a party to litigation in the future either to protect our
intellectual property or as a result of an alleged infringement of others'
intellectual property. These claims and any resulting litigation could subject
us to significant liability for damages and could cause our proprietary rights
to be invalidated. Litigation, regardless of the merits of the claim or outcome,
would likely be time-consuming and expensive to resolve and would divert
management time and attention. Any potential intellectual property litigation
could also force us to do one or more of the following:
- stop using the challenged intellectual property and refrain from selling
our products or services that incorporate it;
- obtain a license to use the challenged intellectual property or to sell
products or services that incorporate it, which license may not be
available on reasonable terms, or at all; and
- redesign those products or services that are based on or incorporate the
challenged intellectual property.
If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, and our business, financial condition and
results of operations may be materially adversely affected.
WE MAY NOT BE ABLE TO DEVELOP PRODUCTS THAT COMPLY WITH APPLICABLE GOVERNMENT
REGULATIONS.
Our products must comply with government regulations. For example, in the
United States, the Federal Communications Commission (FCC) regulates many
aspects of communications devices, including radiation of electromagnetic
energy, biological safety and rules for devices to be connected to the telephone
networks. Radio frequency devices, which include our modems, must be approved
under the above regulations by obtaining equipment authorization from the FCC
prior to being offered for sale. Additionally, we cannot anticipate the effect
that changes in government regulations may have on our ability to develop
products in the future. Failure to comply with existing or evolving government
regulations or to obtain timely regulatory approvals or certificates for our
products could materially adversely affect our business, financial condition and
results of operations. An inability or delay in obtaining FCC authorization
could result in a decline in future revenue.
--------------------------------
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED BY SHARES BECOMING AVAILABLE FOR
SALE UNDER RULE 144 AND AS A RESULT OF REGISTRATION RIGHTS AGREEMENTS WE HAVE
ENTERED INTO WITH SOME OF OUR INVESTORS.
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock under Rule 144, or the
perception that these sales could occur, could cause our common stock price to
fall and could impair our ability to raise capital through the sale of
additional equity securities. In addition, we have entered into registration
rights agreements with some investors that entitle these investors to have their
shares registered for sale in the public market. The exercise of these rights
could affect the market
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price of our common stock. See "Shares Eligible for Future Sale" for further
information concerning potential sales of our shares after this offering,
including information concerning Rule 144 and the registration rights we have
granted.
OUR STOCK PRICE MAY BE VOLATILE, AND WE CANNOT ASSURE YOU THAT OUR STOCK PRICE
WILL NOT DECLINE.
The market price of our common stock could be subject to significant
fluctuations after this offering as a result of factors many of which are beyond
our control. Among the factors that could affect our stock price are:
- quarterly variations in our operating results;
- changes in revenue or earnings estimates or publication of research
reports by analysts;
- speculation in the press or investment community about our business or
the wireless communications industry generally;
- changes in market valuations of similar companies and stock market price
and volume fluctuations generally;
- strategic actions by us or our competitors such as acquisitions or
restructurings;
- regulatory developments;
- additions or departures of key personnel;
- general market conditions; and
- domestic and international economic factors unrelated to our performance.
The stock markets in general, and the markets for high technology stocks in
particular, have experienced extreme volatility that has often been unrelated to
the operating performance of particular companies. These broad market
fluctuations may adversely affect the trading price of our common stock. We
cannot assure you that you will be able to resell your shares at or above the
initial public offering price, which will be determined by negotiations between
the representatives of the underwriters and us.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL IN OUR COMPANY.
Our certificate of incorporation and bylaws contain anti-takeover
provisions that could prevent or delay an acquisition of our business at a
premium price. These provisions:
- provide for a staggered board;
- prevent stockholders from taking action by written consent;
- limit the persons who may call special meetings of stockholders; and
- authorize our board of directors to approve the issuance of undesignated
preferred stock without stockholder approval.
In addition, Delaware law imposes some restrictions on mergers and other
business combinations between us and any holder of 15% or more of our common
stock.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF YOUR SHARES.
The initial public offering price per share of our common stock is
substantially higher than the average net tangible book value per share of
common stock. As a result, if you purchase shares of common stock in this
offering your interest will suffer immediate and substantial dilution. This
dilution will reduce the net tangible book value of your shares since any shares
of our common stock that you purchase in this offering will be at a
substantially higher per share price than the current average net tangible book
value per share of our common stock. The dilution will be $9.13 per share in the
net tangible book value of the common stock from the assumed initial public
offering price of $11.00 per share. If additional shares are sold by the
underwriters following exercise of their over-allotment option, or if
outstanding options or warrants to purchase shares of common stock are
exercised, any shares of our common stock that you may
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purchase in this offering will be subject to further dilution. As a result of
this dilution, in the event of a liquidation, common stockholders purchasing
stock in this offering may receive significantly less than the full purchase
price that they paid for the shares they purchased in this offering.
OUR DIRECTORS, EXECUTIVE OFFICERS AND EXISTING STOCKHOLDERS AND THEIR AFFILIATES
WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US AFTER THIS OFFERING, AND THEIR
INTERESTS MAY DIFFER FROM AND CONFLICT WITH YOURS.
Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in total, 56.5% of our outstanding
common stock. As a result, these stockholders, whose interests may be different
from and may conflict with yours, will be able to influence matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This could have the effect of delaying or
preventing a change of control of our company or otherwise cause us to take
action that may not be in the best interests of all stockholders, either of
which in turn could reduce the market price per share of our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that relate to future events or
to our future business or performance. In some cases, you can identify
forward-looking statements by words such as "anticipates, " "believes," plans,"
"expects," "future," "intends," "may," "will," "should," "estimates,"
"predicts," "potential," "continue" and similar expressions. Our actual results
could differ materially from the results contemplated by these forward-looking
statements due to a number of factors, including those discussed in "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this prospectus. This prospectus also
contains forward-looking statements attributed to third parties relating to
their estimates regarding the growth of our markets. Forward-looking statements
are subject to known and unknown risks, assumptions, limitations, uncertainties
and other factors that may cause our actual results, as well as those of the
markets we serve, levels of activity, performance, achievements and prospects to
be materially different from those expressed or implied by the forward-looking
statements. These risks, uncertainties and other factors include, among others,
those identified in "Risk Factors" and elsewhere in this prospectus. Except as
required by law, we undertake no obligation to update publicly any
forward-looking statement for any reason, even if new information becomes
available or other events occur.
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USE OF PROCEEDS
We will receive net proceeds of approximately $70 million from the sale of
7,000,000 shares of common stock at an assumed price of $11.00 per share and an
additional $10.7 million from the sale of 1,050,000 shares if the underwriters'
over-allotment option is exercised in full, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including in management's
estimation continued investment in research and development of between $20
million and $30 million and sales and marketing expenditures of between $20
million and $30 million. The amounts and timing of these expenditures will vary
depending on a number of factors, including the amount of cash generated by our
operations, competitive and technological developments and the rate of growth,
if any, of our business. While we have no specific plans for any remaining
proceeds, we may also use a portion of the net proceeds to acquire businesses,
products and technologies or to establish joint ventures that we believe will
complement our current or future business. However, we have no specific plans,
agreements or commitments to do so and are not currently engaged in any
negotiations for any acquisition or joint venture.
Pending the uses described above, we intend to invest the net proceeds in
short-term, interest bearing, investment-grade securities. We cannot predict
whether the proceeds will be invested to yield a favorable return.
We may find it necessary or advisable to use portions of the net proceeds
for other purposes, and our management will maintain broad discretion in the
allocation of the net proceeds of this offering. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions on how to use the proceeds.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and do not anticipate declaring or paying any
cash dividends in the foreseeable future. The declaration and payment of
dividends, if any, will be at the discretion of our board of directors, after
taking into account various factors our board of directors deems relevant,
including our financial condition, operating results, current and anticipated
cash needs, expansion plans and debt covenants. Our revolving line of credit
with Venture Banking Group, a division of Cupertino National Bank, currently
prohibits us from paying dividends without its prior approval.
17
22
CAPITALIZATION
The following table sets forth our consolidated total capitalization as of
September 30, 2000. You should read this table in conjunction with "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the notes to our financial statements appearing elsewhere in this
prospectus. This information is presented:
- on an actual basis at September 30, 2000;
- on a pro forma basis at September 30, 2000 after giving effect to the
automatic conversion of all the outstanding shares of our preferred stock
upon the closing of this offering, including a total of 434,782 shares of
our Series D preferred stock that we issued and sold in October 2000, and
the receipt of net proceeds of $2,500,000 as a result thereof.
- on a pro forma as adjusted basis to give effect to the receipt of the net
proceeds from the sale by us of shares of common stock in this offering
at an assumed price of $11.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
SEPTEMBER 30, 2000
(UNAUDITED)
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS) -------- --------- -----------
Cash and cash equivalents................................. $ 13,893 $ 16,393 $ 86,403
======== ======== ========
Capital lease obligations, current portion................ $ 71 $ 71 $ 71
Capital lease obligations, net of current portion......... 289 289 289
-------- -------- --------
Total indebtedness........................................ 360 360 360
-------- -------- --------
Convertible and redeemable preferred stock................ 51,492 -- --
--------
Stockholders' equity (deficit):
Preferred stock......................................... 6 -- --
Common stock............................................ 10 45 52
Additional paid in capital.............................. 68,136 122,099 192,102
Deferred stock compensation............................. (24,013) (24,013) (24,013)
Accumulated deficit..................................... (68,695) (68,695) (68,695)
-------- -------- --------
Total stockholders' equity (deficit)................. (24,556) 29,436 99,446
-------- -------- --------
Total capitalization................................. $ 27,296 $ 29,796 $ 99,806
======== ======== ========
- ---------------
The common stock outstanding as shown excludes:
- 10,228,094 shares of common stock that could be issued upon the exercise
of options outstanding as of November 10, 2000 at a weighted average
exercise price of $4.62 per share;
- 10,542,090 shares of common stock that could be issued upon the exercise
of warrants outstanding as of November 10, 2000 at a weighted average
exercise price of $2.79 per share;
- 5,781,883 shares of common stock that could be issued in the future under
our stock option plans as of November 10, 2000;
- 1,500,000 shares of common stock that could be issued in the future under
our 2000 employee stock purchase plan.
18
23
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. The pro forma net tangible book value of
our common stock as of September 30, 2000 was approximately $27.7 million or
$0.61 per share of common stock including proceeds of $2.5 million from the
issuance of 434,782 shares of our Series D preferred stock in October 2000. Pro
forma net tangible book value per share represents the dollar amount of our
total tangible assets reduced by the dollar amount of our total liabilities and
divided by the total number of shares of our common stock including shares
issuable upon conversion of our preferred stock outstanding as of the date of
this prospectus.
After giving effect to the receipt of the estimated net proceeds from this
offering, based upon an assumed initial public offering price of $11.00 per
share, and after deducting underwriting discounts and commissions and estimated
offering expenses and the adjustments, the pro forma net tangible book value of
our common stock as of September 30, 2000 would have been $97.7 million or $1.87
per share. This represents an immediate increase in net tangible book value of
$1.26 per share to existing stockholders and an immediate dilution of $9.13 per
share to new investors purchasing shares at the initial public offering price.
The following table illustrates this per share dilution:
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of
September 30, 2000..................................... $0.61
Increase per share attributable to new investors.......... 1.26
-----
Pro forma as adjusted net tangible book value per share
after the offering........................................ 1.87
------
Dilution per share to new investors......................... $ 9.13
======
Assuming the exercise in full of the underwriters' over-allotment option,
our pro forma as adjusted net tangible book value at September 30, 2000 would
have been approximately $2.04 per share, representing an immediate increase in
net tangible book value of $1.43 per share to our existing stockholders and an
immediate dilution in net tangible book value of $8.96 per share to new
investors.
The following table summarizes, at September 30, 2000, on a pro forma
basis, the total number of shares purchased from us, and consideration paid to
us and the average price per share paid by existing holders of common stock and
by new investors purchasing shares of common stock in this offering at an
assumed initial public offering price of $11.00 per share, before deducting the
estimated underwriting discounts and commissions and estimated offering
expenses:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
Existing stockholders........................ 45,105,000 86.6% $ 85,116,000 52.5% $ 1.89
New investors................................ 7,000,000 13.4 77,000,000 47.5 $11.00
---------- ---- ------------ ----- ------
Total...................................... 52,105,000 100% $162,116,000 100.0%
========== ==== ============ =====
The foregoing discussion and table assume no exercise of the underwriters'
overallotment option and exclude the effect of:
- 10,228,094 shares of common stock that could be issued upon the exercise
of options outstanding as of November 10, 2000 at a weighted average
exercise price of $4.62 per share;
- 10,542,090 shares of common stock that could be issued upon exercise of
warrants outstanding as of November 10, 2000 at a weighted average
exercise price of $2.79 per share;
- 5,781,883 shares of common stock that could be issued in the future under
our stock option plans as of November 10, 2000; and
- 1,500,000 shares of common stock that could be issued in the future under
our 2000 employee stock purchase plan.
To the extent that any of our these options or warrants are exercised or shares
are issued, there will be further dilution to new public investors. See
"Capitalization," "Management -- Compensation Plans," "Description of
Securities," and notes 8 and 9 of notes to consolidated financial statements
contained elsewhere in this prospectus.
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SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our consolidated financial statements and notes to our consolidated financial
statements and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," which are included elsewhere in this prospectus. The
consolidated statement of operations data for each of the years ended December
31, 1997, 1998 and 1999, and the balance sheet data at December 31, 1998 and
1999 are derived from our consolidated financial statements which have been
audited by Arthur Andersen LLP and which are included elsewhere in this
prospectus. The consolidated statement of operations data for the period from
inception to December 31, 1996 and the balance sheet data at December 31, 1996
and 1997 are derived from audited consolidated financial statements not included
in this prospectus. The consolidated balance sheet data at September 30, 1999 is
derived from unaudited consolidated financial statements not included in this
prospectus. The consolidated balance sheet data at September 30, 2000 is derived
from unaudited consolidated financial statements included elsewhere in this
prospectus. See notes 4 and 14 of the notes to consolidated financial statements
for an explanation of the number of shares used to compute net loss per share
and pro forma net loss per share. The historical financial information may not
be indicative of our future performance and results of interim periods may not
be indicative of results that may be expected for any other interim period or
for the year as a whole.
PERIOD FROM NINE MONTHS ENDED
APRIL 26, 1996 YEAR ENDED DECEMBER 31, SEPTEMBER 30,
(INCEPTION) TO -------------------------------------- -------------------------
DECEMBER 31, 1996 1997 1998 1999 1999 2000
----------------- ---------- ---------- ------------ ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue................... $ 277 $ 3,354 $ 5,378 $ 9,556 $ 5,514 $ 33,408
Cost of revenue........... 168 1,856 3,433 11,955 5,751 34,970
---------- ---------- ---------- ------------ ----------- -----------
Gross margin.............. 109 1,498 1,945 (2,399) (237) (1,562)
---------- ---------- ---------- ------------ ----------- -----------
Operating expenses:
Research and
development........... 2,650 1,995 2,333 3,717 1,926 8,902
Sales and marketing..... 256 2,058 2,685 4,480 2,630 10,468
General and
administrative........ 656 1,944 2,496 4,443 3,335 3,345
Amortization of deferred
stock compensation.... -- -- 115 220 166 6,523
---------- ---------- ---------- ------------ ----------- -----------
Total operating
expenses............ 3,562 5,997 7,629 12,860 8,057 29,238
---------- ---------- ---------- ------------ ----------- -----------
Loss from operations...... (3,453) (4,499) (5,684) (15,259) (8,294) (30,800)
Other income (expense)
net..................... (9) 23 178 (3,210) (1,236) 530
---------- ---------- ---------- ------------ ----------- -----------
Net loss.................. $ (3,462) $ (4,476) $ (5,506) $ (18,469) $ (9,530) $ (30,270)
========== ========== ========== ============ =========== ===========
Net loss per common share:
Basic and diluted....... $ (0.37) $ (0.51) $ (0.69) $ (2.04) $ (1.09) $ (3.31)
========== ========== ========== ============ =========== ===========
Weighted average shares
outstanding........... 9,711,630 9,711,630 9,711,630 9,728,421 9,723,737 10,138,695
========== ========== ========== ============ =========== ===========
Pro forma net loss per
share (unaudited)(1):
Basic and diluted....... $ (0.73) $ (0.39) $ (0.75)
============ =========== ===========
Weighted average shares
outstanding........... 27,199,269 27,164,387 44,494,326
============ =========== ===========
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DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------
1996 1997 1998 1999 2000
------- ------- -------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 1,262 $ 1,927 $ 3,497 $ 25,455 $ 13,893
Working capital.................................. 274 937 3,383 15,769 20,003
Total assets..................................... 3,065 3,879 6,184 38,118 48,061
Long-term obligations, net of current portion.... -- -- -- 106 289
Convertible and redeemable preferred stock....... 2,258 6,724 14,812 43,805 51,492
Preferred stock.................................. -- -- -- -- 6
Common stock..................................... 10 10 10 10 10
Accumulated deficit.............................. (3,462) (7,937) (15,249) (35,122) (68,695)
Stockholders' equity (deficit)................... (752) (1,100) (14,625) (31,128) (24,556)
- ---------------
(1) See notes 4 and 14 of the notes to the consolidated financial statements for
an explanation of the determination of the number of shares and share
equivalents used in computing pro forma per share amounts.
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26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our consolidated financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
This prospectus contains certain statements of a forward-looking nature relating
to future events or our future financial performance. We caution prospective
investors that such statements involve risks and uncertainties, and that actual
events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors
identified in this prospectus, including the matters set forth under the caption
"Risk Factors" contained elsewhere in this prospectus which could cause actual
results to differ materially from those indicated by such forward-looking
statements.
OVERVIEW
We are a provider of wireless data access solutions. Since our inception in
April 1996, we have been focused on the development and commercialization of
two-way wireless data communications technologies. We launched our NRM-6812 OEM
module in September 1996, our Sage and first Minstrel products in 1997, our
Minstrel III Wireless Modem and Expedite Wireless Modem in April 1999 and our
Merlin Type II Wireless Modem in August 1999. In addition, we announced our
Minstrel V Wireless Modem for the Palm V handheld computing device in October
1999 and our Lancer 3W Modem in April 2000.
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our product
development, sales and marketing and professional services departments, and to
establish our administrative infrastructure. Historically, our operating
expenses have exceeded the revenue generated by our products and services. As a
result, we have incurred net operating losses in each quarter since inception
and had an accumulated deficit of $68.7 million as of September 30, 2000. In
addition, we have increased our number of employees and independent contractors
from 56 as of December 31, 1998 to 281 as of November 10, 2000.
We have entered into, and expect to continue to enter into, significant
customer contracts for the development and supply of our products. These
contracts may place significant demands on our resources. As a result, we expect
research and development, sales and marketing and other costs relating to the
development, manufacture and sale of our products to increase. We also expect to
continue to incur these expenses in periods prior to recognizing revenue from
these contracts.
Revenue. Our revenue has been generated from the sale of wireless modems to
wireless telecommunications operators, wireless data content and service
providers, resellers and OEM customers. We also generate revenue from product
activation services we provide prior to shipping; through September 30, 2000,
such revenue has not been significant. Revenue from product sales and services,
which includes product activation, is recognized upon the latter of transfer of
title or upon shipment of the product to the customer or upon rendering product
activation services, if applicable. Revenues from long-term supply contracts are
recognized as products are shipped to customers over the period of the contract.
We record deferred revenue for cash payments received from customers in advance
of product shipment. We grant price protection provisions to certain customers
and we track pricing and other terms offered to customers buying similar
products to assess compliance with these provisions. To date, the Company has
not incurred material price protection expenses. We establish reserves for
estimated product returns and warranty allowances in the period in which revenue
is recognized. Reserves for product returns were $0, $0 and $167,000 at December
31, 1998, 1999 and September 30, 2000, respectively.
During 1997 and 1998 we generated revenue of $1.4 million and $650,000,
respectively, under a contract research and development and license agreement.
Revenue on this agreement was recognized under the contractual terms, which in
1997 included customer acceptance of our design and a license to use our
technology and in 1998 included successful manufacturing of the product by the
customer. Costs of revenue incurred under the agreement totaled approximately
$720,000 and $294,000 in 1997 and 1998, respectively.
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27
Cost of Revenue. Our cost of revenue typically consists of material
components, labor for system assembly and testing, product activations,
technical support, warranty costs and overhead expenses. We currently outsource
our manufacturing operations to third parties to minimize our capital
expenditures and to benefit from contract manufacturer economies of scale.
Gross Margin. Our overall gross margin, or revenue less cost of revenue,
may fluctuate from quarter to quarter as a result of the availability and costs
of components, shifts in product mix, the proportion of direct and indirect
sales, anticipated decreases in average selling prices and our ability to manage
manufacturing costs.
We have reported negative gross margins since our margins are at or near
break-even levels based on contracted purchase and sales prices, and our cost of
revenues includes costs to support operations well in excess of our current
revenue and units processed in anticipation of future growth. We consider these
excess capacity costs to be a period expense rather than a capitalizable
inventory cost, and we account for them accordingly. These factors have resulted
in negative gross margins for the year ended December 31, 1999 and for the first
half of 2000. We had positive gross margins during the third quarter of 2000 and
anticipate this trend to continue. This is primarily due to increased sales
volume and changes in product mix.
Research and Development. Our research and development expenses consist of
employee compensation, related personnel expenses, consultant fees and prototype
expenses related to the design, development, testing and enhancement of our
products. Our research and development costs are expensed as incurred. We
believe that continued investment in research and development is critical to
achieving our strategic product development and cost reduction objectives and,
as a result, expect these expenses to continue to increase significantly in
absolute dollars in the future.
Sales and Marketing. Our sales and marketing expenses consist of employee
compensation, sales commissions and related expenses for personnel engaged in
marketing, sales and field service support and advertising and promotional
materials. We anticipate that sales and marketing expenses will increase in
future quarters as we increase sales and marketing operations, expand
distribution channels, increase the number of sales and marketing personnel and
increase our international sales efforts.
General and Administrative. Our general and administrative expenses consist
of employee compensation and related personnel expenses, recruiting and
relocation expenses, professional and consulting fees, and other general
corporate expenses. We expect these expenses to increase as we increase the
number of personnel and incur additional costs related to our operation as a
public company.
Stock-Based Compensation Expense. We recorded cumulative deferred
compensation expense of $30.9 million as a result of stock options granted below
fair value for accounting purposes through September 30, 2000. This amount
represents the difference between the exercise price of these stock option
grants and the estimated fair value of the underlying common stock at the time
of grant. Of this amount, we have amortized approximately $6.9 million through
September 30, 2000. The remaining $24.0 million will be amortized in future
periods over the vesting period of the options, which is generally four years.
We estimate that our stock compensation expense from options granted or issued
from our inception in April 1996 through September 30, 2000 will be $6.3 million
in the fourth quarter of 2000, $10.4 million in 2001, $4.6 million in 2002, $2.1
million in 2003 and $600,000 in 2004, assuming no cancellations or additional
stock option grants below deemed fair value. This expense has no impact on our
cash flow. With respect to stock-based compensation, we are using the attribute
method prescribed by FASB Interpretation No. 28 and SFAS 123.
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RESULTS OF OPERATIONS
The following table sets forth our consolidated statements of operations
expressed as a percentage of revenue for the periods indicated. Data for the
period from inception through December 31, 1996 is not presented because revenue
for that period was not material.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------
1997 1998 1999 1999 2000
------ ------ ------ ------- -------
(AS A PERCENT OF REVENUE)
Revenue..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................. 55.3 63.8 125.1 104.3 104.7
------ ------ ------ ------ ------
Gross margin................................ 44.7 36.2 (25.1) (4.3) (4.7)
------ ------ ------ ------ ------
Operating expenses:
Research and development.................. 59.5 43.4 38.9 34.9 26.7
Sales and marketing....................... 61.4 49.9 46.9 47.7 31.3
General and administrative................ 58.0 46.4 46.5 60.5 10.0
Amortization of deferred stock
compensation........................... -- 2.1 2.3 3.0 19.5
------ ------ ------ ------ ------
Total operating expenses............... 178.9 141.8 134.6 146.1 87.5
------ ------ ------ ------ ------
Loss from operations........................ (134.2) (105.6) (159.7) (150.4) (92.2)
------ ------ ------ ------ ------
Interest income............................. 0.7 3.3 0.5 0.6 1.7
Interest expense............................ -- -- (34.2) (23.0) (0.1)
Other, net.................................. -- -- 0.1 -- --
------ ------ ------ ------ ------
Net loss.................................... (133.5)% (102.3)% (193.3)% (172.8)% (90.6)%
====== ====== ====== ====== ======
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Revenue. Revenue for the nine months ended September 30, 2000 increased
$27.9 million, or 506%, to $33.4 million compared to $5.5 million for the same
period in 1999. In 2000, sales of existing products increased by $7.2 million
due to the overall increase in demand for wireless products. New products
contributed to the overall sales increases by $20.7 million with the
introduction of the Expedite Wireless Modem in April 1999, the Merlin Type II
Wireless Modem in August 1999 and the Minstrel V Wireless Modem in October 1999.
Cost of Revenue. Our cost of revenue for the nine months ended September
30, 2000 increased $29.2 million, or 508%, to $35.0 million compared to $5.8
million in the same period in 1999. The increase in cost of revenue was
primarily the result of increased sales of existing products (approximately $5.8
million), costs associated with the production and sales of new products
(approximately $17.8 million) and costs associated with increasing our operating
capacity.
Gross Margin. Our gross margin for the nine months ended September 30, 2000
decreased by $1.3 million, or 559%, to negative $1.6 million compared to
negative $237,000 in the same period in 1999.
Research and Development. Our research and development expenses for the
nine months ended September 30, 2000 increased $7.0 million, or 362%, to $8.9
million compared to $1.9 million in the same period in 1999. The increase was
due to an increase in personnel expenses of $2.8 million and an increase in
expenses relating to projects in development of $4.2 million.
Sales and Marketing. Sales and marketing expenses for the nine months ended
September 30, 2000 increased $7.8 million, or 298%, to $10.5 million compared to
$2.6 million in the same period in 1999. The increase was the result of
increased personnel expenses of $2.8 million, expanded advertising expenses of
$1.6 million, increased participation in trade shows resulting in a $1.6 million
increase and increased expenditures to support new products and expand
distribution channels.
General and Administrative. General and administrative expenses for the
nine months ended September 30, 2000 remained consistent at $3.3 million
compared to the same period in 1999.
24
29
Amortization of deferred stock compensation. Amortization of deferred stock
compensation for the nine months ended September 30, 2000 increased $6.4 million
to $6.5 million compared to $166,000 in the same period in 1999. This increase
is due to additional stock options issued during 2000, resulting in a deferred
compensation charge of $29.7 million.
Interest Income. Interest income for the nine months ended September 30,
2000 increased $521,000 to $554,000 compared to $33,000 in 1999. The increase
was due to income on the proceeds from the Series C financing which closed on
December 31, 1999 and the proceeds from the Series D financing which closed in
June and July of 2000.
Interest Expense. Interest expense amounted to $1.3 million for the nine
months ended September 30, 1999 due to the non-cash charges we incurred in
connection with the convertible subordinated debentures that we issued and sold
in 1999 and the related common stock warrants issued in connection with these
debentures. Interest expense of $30,000 for the nine months ended September 30,
2000 is due to capital leases entered into during 2000.
Net Loss. The net loss for the nine months ended September 30, 2000
increased $20.8 million, or 218%, to $30.3 million compared to $9.5 million in
1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenue. Revenue for 1999 increased $4.2 million, or 78%, to $9.6 million
compared to $5.4 million in 1998. In 1999, sales of existing products increased
by $1.5 million due to the overall increase in demand for wireless products. New
products also contributed to the overall sales by $3.3 million with the
introduction of the Expedite Wireless Modem in April 1999 and the Merlin Type II
Wireless Modem in August 1999. This increase is partially offset by a decrease
of $650,000 in contract research revenue during 1999 compared to 1998 as the
Company did not have any research contracts.
Cost of Revenue. Our cost of revenue for 1999 increased $8.5 million, or
248%, to $12.0 million compared to $3.4 million in 1998. The increase in cost of
revenue was primarily the result of increased sales of existing products
(approximately $1.4 million), costs associated with the production and sales of
new products (approximately $2.8 million) and costs associated with changing
manufacturers and moving production during the year (approximately $1.0 million)
offset in part by a decrease in contract research costs of $720,000 as the
Company did not have any research contracts. Prior to 1999, we used offshore
contract manufacturers. In the first quarter of 1999, our principal manufacturer
experienced financial difficulties as a result of the general downturn in the
Asian economies and, as a result, ceased production of our finished goods. To
maintain production levels in the short-term, we and our new manufacturer were
forced to purchase raw materials for immediate delivery at premium prices.
Gross Margin. Gross margin for 1999 decreased by $4.3 million, or 223%, to
negative $2.4 million compared to $1.9 million in 1998.
Research and Development. Research and development expenses for 1999
increased $1.4 million, or 59%, to $3.7 million compared to $2.3 million in
1998. The increase was primarily due to an increase in personnel expenses of
$703,000 and an increase in expenses relating to projects in development of
$697,000.
Sales and Marketing. Sales and marketing expenses for 1999 increased $1.8
million, or 67%, to $4.5 million compared to $2.7 million in 1998. The increase
was the result of increased personnel expenses of $1.1 million, expanded
advertising expenses of $388,000 and expenditures to support new products and to
expand our distribution channels resulting in a $171,000 increase.
General and Administrative. General and administrative expenses for 1999
increased $1.9 million, or 78%, to $4.4 million compared to $2.5 million in
1998. This increase was due to an increase in the number of personnel from 1998
to 1999 resulting in a $434,000 increase, our relocation of the administrative
functions from Calgary to San Diego which amounted to an increase of $750,000
and an increase in professional fees of $440,000.
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30
Amortization of deferred stock compensation. Amortization of deferred stock
compensation for 1999 increased $105,000, or 91% to $220,000 compared to
$115,000 in 1998. This increase is due to stock options issued towards the end
of 1998, which were amortized for a full year in 1999, in addition to deferred
compensation expense recorded as a result of stock options issued in 1999 at a
price below fair value.
Interest Expense. Interest expense amounted to $3.3 million for 1999 due to
the non-cash charges we incurred in connection with the convertible subordinated
debentures that we issued and sold in 1999 and the related common stock warrants
issued in connection with these debentures. We did not incur any interest
expense during 1998.
Interest Income. Interest income for 1999 decreased $131,000, or 74%, to
$47,000 compared to $178,000 in 1998. The decrease was due to lower average cash
invested in 1999 compared to 1998.
Net Loss. The net loss for the year ending December 31, 1999 increased
$13.0 million, or 235%, to $18.5 million compared to $5.5 million in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Revenue. Revenue for 1998 increased $2.0 million, or 60%, to $5.4 million
compared to $3.4 million in 1997. In 1998, sales of existing products increased
by $800,000 due to the overall increase in demand for wireless products. New
products also contributed to the overall sales by $2.5 million with the
introduction of the original Minstrel, Sage and Contact products in late 1997.
This increase was partially offset by a decrease of $750,000 in license and
research contract revenue during 1998 compared to 1997.
Cost of Revenue. Our cost of revenue for 1998 increased $1.5 million, or
85%, to $3.4 million compared to $1.9 million in 1997. The increase in cost of
revenue was the result of the costs of increased units sold and the start-up
costs associated with the production of new products, offset by a decrease in
costs related to research contact of approximately $426,000.
Gross Margin. Gross margin for 1998 increased by $400,000, or 30%, to $1.9
million compared to $1.5 million in 1997.
Research and Development. Research and development expenses for 1998
increased $300,000, or 17%, to $2.3 million compared to $2.0 million in 1997.
Fiscal year 1997 included approximately $500,000 for research and development
costs to further projects we commenced in 1996.
Sales and Marketing. Sales and marketing expenses for 1998 increased
$600,000, or 30%, to $2.7 million compared to $2.1 million in 1997. The increase
was the result of increased headcount. During 1998, we also increased marketing
expenditures to support new products and expand our distribution channels.
General and Administrative. General and administrative expenses for 1998
increased $600,000, or 28%, to $2.5 million compared to $1.9 million in 1997.
This increase was due to additions to our senior management team and
administrative personnel.
Amortization of deferred stock compensation. Amortization of deferred stock
compensation amounted to $115,000 for 1998 compared to none in 1997. During
1997, the Company did not issue any stock options at a price below fair value
and therefore did not record deferred compensation expense. In 1998, the Company
issued stock options at a price below fair value and therefore recorded deferred
compensation expense associated with those options.
Interest Income. Interest income for 1998 increased $155,000, or 674%, to
$178,000 compared to $23,000 in 1997. This increase was due to additional
interest income earned on our increased average cash and short-term investment
balances.
Net Loss. The net loss for the year ending December 31, 1998 increased $1.0
million or 23% to $5.5 million compared to $4.5 million in 1997.
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SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our historic unaudited quarterly
consolidated statements of operations data for each of the eleven fiscal
quarters ended September 30, 2000, and such information expressed as a
percentage of our revenue. This unaudited quarterly information has been
prepared on the same basis as the annual audited financial statements appearing
elsewhere in this prospectus, and includes all necessary adjustments, consisting
only of normal recurring adjustments, that we consider necessary to present
fairly the financial information for the quarters presented. The quarterly data
should be read in conjunction with the audited consolidated financial statements
and the notes thereto appearing elsewhere in this prospectus.
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue...................... $ 1,285 $ 1,732 $ 1,275 $ 1,086 $ 1,205 $ 1,096 $ 3,213 $ 4,042
Cost of revenue.............. 626 1,290 787 730 1,025 1,752 2,974 6,204
------- ------- ------- ------- ------- ------- ------- -------
Gross margin................. 659 442 488 356 180 (656) 239 (2,162)
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development... 536 551 480 766 484 682 760 1,791
Sales and marketing........ 640 507 799 739 391 990 1,249 1,850
General and
administrative........... 425 644 385 1,042 893 1,289 1,141 1,120
Amortization of deferred
stock compensation....... -- -- 46 69 69 71 38 42
------- ------- ------- ------- ------- ------- ------- -------
Total operating expense...... 1,601 1,702 1,710 2,616 1,837 3,032 3,188 4,803
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations......... (942) (1,260) (1,222) (2,260) (1,657) (3,688) (2,949) (6,965)
Interest income.............. 17 25 37 99 17 8 8 14
Interest expense............. -- -- -- -- -- -- (1,268) (1,999)
Other, net................... -- -- -- -- (1) -- -- 11
------- ------- ------- ------- ------- ------- ------- -------
Net loss..................... $ (925) $(1,235) $(1,185) $(2,161) $(1,641) $(3,680) $(4,209) $(8,939)
======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF REVENUE:
Revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.............. 48.7 74.5 61.7 67.2 85.1 159.8 92.6 153.5
------- ------- ------- ------- ------- ------- ------- -------
Gross margin................. 51.3 25.5 38.3 32.8 14.9 (59.8) 7.4 (53.5)
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development... 41.7 31.8 37.6 70.5 40.2 62.2 23.7 44.3
Sales and marketing........ 49.8 29.3 62.7 68.0 32.4 90.3 38.9 45.8
General and
administrative........... 33.1 37.2 30.2 96.0 74.1 117.6 35.5 27.7
Amortization of deferred
stock compensation....... -- -- 3.6 6.3 5.7 6.5 1.2 1.0
------- ------- ------- ------- ------- ------- ------- -------
Total operating expense...... 124.6 98.3 134.1 240.8 152.4 276.6 99.3 118.8
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations......... (73.3) (72.8) (95.8) (208.0) (137.5) (336.4) (91.9) (172.3)
Interest income.............. 1.3 1.4 2.9 9.1 1.4 0.7 0.2 0.3
Interest expense............. -- -- -- -- -- -- (39.5) (49.5)
Other, net................... -- -- -- -- -- -- -- 0.3
------- ------- ------- ------- ------- ------- ------- -------
Net loss..................... (72.0)% (71.4)% (92.9)% (198.9)% (136.1)% (335.7)% (131.2)% (221.2)%
======= ======= ======= ======= ======= ======= ======= =======
QUARTER ENDED
--------------------------------
MARCH 31, JUNE 30, SEPT. 30,
2000 2000 2000
--------- -------- ---------
(IN THOUSANDS)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue...................... $ 6,837 $ 9,094 $ 17,477
Cost of revenue.............. 7,865 10,149 16,956
------- ------- --------
Gross margin................. (1,028) (1,055) 521
------- ------- --------
Operating expenses:
Research and development... 2,076 3,127 3,699
Sales and marketing........ 2,319 4,153 3,996
General and
administrative........... 946 1,246 1,153
Amortization of deferred
stock compensation....... 120 142 6,261
------- ------- --------
Total operating expense...... 5,461 8,668 15,109
------- ------- --------
Loss from operations......... (6,489) (9,723) (14,588)
Interest income.............. 215 75 264
Interest expense............. (11) (9) (10)
Other, net................... 17 (11) --
------- ------- --------
Net loss..................... $(6,268) $(9,668) $(14,334)
======= ======= ========
AS A PERCENTAGE OF REVENUE:
Revenue...................... 100.0% 100.0% 100.0%
Cost of revenue.............. 115.0 111.6 97.0
------- ------- --------
Gross margin................. (15.0) (11.6) 3.0
------- ------- --------
Operating expenses:
Research and development... 30.4 34.4 21.2
Sales and marketing........ 33.9 45.7 22.9
General and
administrative........... 13.8 13.7 6.6
Amortization of deferred
stock compensation....... 1.8 1.6 35.8
------- ------- --------
Total operating expense...... 79.9 95.4 86.5
------- ------- --------
Loss from operations......... (94.9) (107.0) (83.5)
Interest income.............. 3.1 0.8 1.5
Interest expense............. (0.2) (0.1) (0.1)
Other, net................... 0.2 (0.1) --
------- ------- --------
Net loss..................... (91. 8)% (106.4)% (82.1)%
======= ======= ========
We have experienced and expect to continue to experience significant
fluctuations in quarterly operating results. We believe that quarter-to-quarter
comparisons of our operating results should not be relied upon as an indication
of our future performance. See "Risk Factors -- Because we have been operating
only since 1996, our historic operating results may not be meaningful to an
investor evaluating our company" and " -- The fluctuation of our quarterly
operating results may cause our stock price to decline."
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LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through
private sales of our equity securities and the issuance of debt instruments, and
to a lesser extent, capital lease arrangements and borrowings under various
lines of credit. To date, gross proceeds from these transactions have totaled
approximately $85.1 million. These transactions included sales of our common
stock since inception of $0.8 million, the sale between August 1996 and December
1997 of preferred stock for total proceeds of approximately $7.5 million, the
sale between December 1997 and September 1998 of preferred stock and warrants to
purchase common stock for total proceeds of approximately $9.8 million, the sale
in June and July 1999 of convertible subordinated debentures and warrants to
purchase shares of our common stock in the total original principal amount of
approximately $3.1 million, the sale in December 1999 of preferred stock and
warrants to purchase common stock for total proceeds of approximately $27.5
million, the sale in June and July 2000 of preferred stock and warrants to
purchase common stock for total proceeds of approximately $33.9 million and the
sale in October 2000 of preferred stock for total proceeds of approximately $2.5
million. All the preferred stock will automatically convert into shares of our
common stock immediately prior to the completion of this offering. See "Related
Party Transactions" for more information about these transactions. At September
30, 2000 we had approximately $13.9 million in cash and cash equivalents.
For the years ended December 31, 1997, 1998 and 1999, we used net cash in
operating activities of $3.5 million, $5.0 million and $5.2 million,
respectively. Our operating activities included major uses of cash to fund our
1999 net loss of $18.5 million which included a $3.1 million non-cash charge for
interest expenses related to the warrants we issued with our convertible
subordinated debentures. During 1999, we used cash in operating activities by
purchasing inventory in the amount of $4.7 million which was later transferred
to our contract manufacturer and classified as due from contract manufacturer on
the consolidated balance sheet. Additionally, we used cash by increasing
inventories by $4.1 million and accounts receivable by $900,000, and generated
cash flows by increasing accounts payable and accrued expenses by approximately
$11.0 million and our deferred revenue increased by $8.1 million. Substantially
all of the increase in deferred revenue represents cash received from customers
for advanced payments under long-term supply contracts. Our net cash used in
operating activities in the first nine months of 2000 amounted to $38.7 million.
Our operating activities included major uses of cash to fund our 2000 net loss
of $30.3 million, which included a $6.5 million non-cash stock compensation
charge. During 2000, we used cash in operating activities by increasing accounts
receivable in the amount of $10.9 million, increasing deferred revenues by $5.1
million, purchasing inventory in the amount of $4.2 million and increasing
prepaid expenses and other assets by $2.8 million. We generated cash flows by
increasing accounts payable and accrued expenses by approximately $5.0 million
and decreased our due from manufacturer receivable by $2.1 million.
Our net cash used in investing activities in 1999 was $600,000, which was
primarily for purchases of property and equipment. Our net cash used in
investing activities in 1997 and 1998 was $800,000 and $300,000, respectively,
and $6.7 million during the nine months ending September 30, 2000, and was also
primarily for purchases of property and equipment. These capital expenditures
were primarily investments for equipment to test our products and to support our
business.
Cash provided from financing activities, consisting primarily of net
proceeds from the sale of our equity securities, was approximately $4.7 million
for the year ending December 31, 1997, $7.2 million for the year ending December
31, 1998, $27.7 million for the year ending December 31, 1999 and $33.8 million
during the nine months ending September 30, 2000.
We believe that our available cash reserves, which includes proceeds from
the sale of our Series D preferred stock completed in June, July and October
2000, together with the estimated net proceeds of this offering, will be
sufficient to fund operations and to meet our working capital needs and
anticipated capital expenditures for at least the next twelve months. We do not
anticipate significant capital expenditures over the course of the next twelve
months. We may also use a portion of the net proceeds to invest in complementary
products, to license other technology or to make acquisitions. Thereafter, we
may raise
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additional funds to fund more rapid expansion of our business, fund unexpected
expenditures, continue to develop new products and enhancements to our current
products, or acquire technologies or businesses. Additional financing may not be
available when needed, on favorable terms, or at all.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not currently use derivative financial instruments. We generally
place our marketable security investments in high credit quality instruments,
primarily U.S. Government obligations and corporate obligations with contractual
maturities of less than one year. We do not expect any material loss from our
marketable security investments and therefore believe that our potential
interest rate exposure is not material; however, these investments are subject
to interest rate risk. We do not currently enter into foreign currency hedge
transactions. Through September 30, 2000, foreign currency fluctuations have not
had a material impact on our financial position or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board, or FASB, issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" and in June
1999 issued SFAS No. 137, "Accounting for Derivatives and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." Under
SFAS No. 133, derivatives not meeting hedge criteria are recorded in the balance
sheet as either an asset or liability measured at fair value and changes in fair
value are recognized currently in earnings. The Company will be required to
implement SFAS No. 133, as amended by SFAS No. 137, in fiscal 2001. The Company
does not anticipate that the implementation of SFAS No. 133 and SFAS No. 137
will have a material impact on its financial position or results of operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB No. 101 is effective during the fourth quarter of fiscal 2000. Management
has reviewed and adopted the provisions of SAB No. 101 which did not have a
material impact on the Company's financial position or results of operations.
YEAR 2000 COMPLIANCE
As a result of the change over from 1999 to 2000, none of our systems or
products was affected nor are we aware of any significant issues that have
affected our third-party suppliers or customers.
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BUSINESS
OVERVIEW
We are a leading provider of wireless data modems and software for use with
handheld computing devices and portable personal computers. We also provide
wireless data modems which can be integrated into other devices for a wide range
of vertical applications. We also offer provisioning, activation and systems
integration services to our customers to facilitate use of our products.
We have a strong history of designing innovative wireless access products.
We designed and delivered the first products to enable wireless connectivity for
the Palm family of handheld computing devices. We have successfully developed
and are continuing to develop solutions that enable our customers to wirelessly
access data utilizing a wide range of mobile computing devices across a broad
range of wireless data network technologies. Our current product portfolio
includes the following:
- The Minstrel line of Wireless Modem cradles, for the Palm family of
handheld computing devices, the Handspring family of handheld computing
devices and the Casio E-15 Windows Pocket PC handheld device;
- The Merlin Type II PC Card for portable and desktop PCs;
- The Sage Wireless Modem for portable and desktop PCs;
- The NRM-6812 and Expedite Wireless OEM Modems for custom integration with
computers and other devices; and
- The Lancer 3W Wireless Modem for vehicle-mounted applications.
Our core modem technology is easily customized to address a broad range of
vertical applications. Our customers include wireless telecommunications
operators such as Verizon Wireless and AT&T Wireless (which services our
products, through its distribution partner Global Data Wireless) as well as
wireless data content and service providers such as OmniSky, GoAmerica and
CreSenda. We also have OEM customers such as @Road, Harvest/Coca-Cola and
KeyCorp and we have entered into strategic technology and development
relationships within the wireless communications industry with Intel
Corporation, Hewlett-Packard, Metricom, OmniSky, Symbol and VoiceStream.
INDUSTRY BACKGROUND
The convergence of mobile computing, wireless communications and the
Internet and enterprise networks is driving the rapidly expanding demand for
wireless data access. The explosion of the Internet and enterprise networks has
accelerated the development of applications for communications, information
access, content and commerce. As professionals and consumers increasingly depend
on the growing functionality, productivity and convenience that these
applications afford, they are demanding "anytime, anywhere" connectivity for
their mobile computing devices. International Data Corporation projects that by
the end of 2002, the number of worldwide mobile users with two-way
communications to the Internet could exceed the number of wired users.
Growth in Mobile Computing
Competition and productivity demands are requiring an increasing number of
professionals to maintain remote and mobile access to the Internet, e-mail and
enterprise networks. International Data Corporation forecasts that the remote
and mobile workforce in the United States, defined as employees spending more
than 20% of their time on the job away from the office, will grow from 34
million individuals at the end of 1998 to 47 million at the end of 2003. This
trend towards mobile computing has led to the increased use of handheld
computing devices and portable PCs both on the road and in the office.
International Data Corporation projects that worldwide shipments of handheld
companions will grow from approximately 4 million in 1998 to approximately 19
million units in 2003, and that portable PC shipments will grow from
approximately 16 million in 1998 to approximately 35 million in 2003.
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Growth in Wireless Communications
The adoption of digital wireless voice communications has grown rapidly due
to improved service, declining prices, expanding network coverage and the
availability of extended service features such as voice and text messaging.
DataQuest projects that the number of worldwide digital wireless subscribers
will grow from approximately 217 million at the end of 1998 to approximately 828
million by the end of 2003. Recent developments in wireless data technology,
increased network coverage and deployment of digital data networks combined with
price reductions for data communications have enabled the adoption of wireless
data applications such as e-mail, financial services, news and lifestyle
content.
There are currently several standards-based technologies for the
transmission and reception of wireless data. Existing digital wireless
communications technologies such as Time Division Multiple Access (TDMA), Code
Division Multiple Access (CDMA) and Global System for Mobile Communications
(GSM), collectively known as second generation, or 2G, wireless technologies,
offer low speed transmission rates. The transmission rates afforded by these
circuit-switched technologies are adequate for limited content applications such
as short messaging, financial services, news and other text-based applications.
Cellular Digital Packet Data (CDPD) technology is a packet-switched standard
that is deployed over traditional analog networks and provides a continuous
network connection at slightly higher transmission speeds.
A new set of technologies, often referred to as 2.5G, is under development
to provide high-speed packet-based data services over GSM, CDMA and TDMA
networks. These 2.5G technologies are expected to support a broader set of data
applications, such as streaming media and Web browsing. Packet-based technology
affords its users several advantages over circuit-switched systems, including
continuous connectivity and higher bandwidth performance, leading to significant
cost savings for data transmission. As a result, the 2.5G standards are expected
to generate even wider use of wireless data access devices. Third generation, or
3G, systems are being developed for longer-term deployment eventually to replace
2G and 2.5G digital wireless systems. 3G networks will provide for broadband
transmission rates enabling enhanced multimedia applications.
Growth in the Internet and Enterprise Networks
The Internet has emerged as a global communications medium enabling
millions of people to deliver and share information and conduct business
electronically. The development of applications for the digital delivery of
products and services such as news, weather, stock quotes and trading, books,
music, driving directions and lifestyle information is increasing the everyday
use of the Internet. International Data Corporation estimates that the number of
worldwide Internet users will grow from approximately 144 million in 1998 to 602
million by the end of 2003. This dramatic growth has led to a proliferation of
information and services available on or through the Internet. As access speed
and the breadth of applications for the Internet increase, we believe the
Internet is quickly becoming a necessary medium for information access, commerce
and communication.
Similarly, the proliferation of enterprise networks continues to drive the
increasing need for the remote retrieval and use of information. As wireless
data communications improve, and as business computing systems are redesigned to
integrate and manage wireless enterprise solutions, wireless Internet access
applications and services will increasingly play a key role in providing mobile
access to corporate information.
Convergence of Mobile Computing, Wireless Communications and the Internet and
Enterprise Networks
The increase in demand for "anytime, anywhere" access is driving the
convergence of mobile computing, wireless communications and the Internet and
enterprise networks, creating new opportunities for wireless data products and
services. We have designed our wireless products to capitalize on these
opportunities and to afford increased mobile access to enterprise networks and
the Internet. Although there can be no assurances that the estimates of
International Data Corporation or DataQuest will be achieved or that we will
realize similar growth, we believe that demand for wireless data applications
will continue
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to increase as wireless data network coverage, bandwidth and security improve to
allow higher quality service. New wireless technologies that enable high speed
access to the Internet allow service providers to offer end-users greater access
to a vast array of services and content. These offerings are expected to
increase usage, attract new customers and improve customer loyalty. Dataquest
estimates that the number of wireless data subscribers worldwide will grow from
approximately 14 million at the end of 1998 to approximately 102 million by the
end of 2003.
As this convergence evolves, a large opportunity exists to develop wireless
connectivity applications for a wide range of vertical industry segments, such
as:
- Securities Trading;
- Enterprise Networking, for access to corporate databases and intranets
and the facilitation of virtual office applications;
- Field Services and Sales, to provide Web access, enterprise network
access and contact management in the field;
- Public Safety, for police, fire and ambulance related applications such
as remote database access, information dissemination, police substation
communication and electronic monitoring;
- Transportation, for applications related to trucking and mobile dispatch,
vehicle fleet management and location, driver communications, order entry
and vehicle location and tracking;
- Retail and Point of Sale Terminals, for applications such as remote
credit card verification and automated teller machines; and
- Vending System Monitoring.
Need for Cost-Effective Wireless Data Access for Mobile Computing Devices
We believe that as mobile professionals and consumers increasingly depend
on the Internet and other enterprise computing applications, they will demand
convenient, cost-effective and user-friendly wireless data solutions for all
mobile computing devices. Until now, devices such as smart phones and two-way
pagers have been introduced to address this demand. Smart phones are enhanced
cellular telephones that are designed for voice applications rather than data
applications, and two-way paging devices allow users to access e-mail and other
information, but are not currently suited for interactive or large display
applications. While these products may adequately address low bandwidth
applications, such as messaging, we believe devices that allow greater display
and interactive capabilities, such as handheld computing devices and portable
PCs, are better suited for wireless data applications.
OUR SOLUTION
We are a provider of integrated wireless data access solutions. We provide
a suite of wireless data modems and enabling software for use with handheld
computing devices and portable PCs and for vertical applications. We provide our
customers the following advantages:
Breadth of Wireless Access Products
Our products enable both handheld computing devices and portable PCs to
access the Internet and enterprise networks wirelessly. We also provide wireless
modems which enable connections to a broad range of appliances for vertical
applications. We are developing additional capabilities for emerging wireless
networks in order to afford our customers maximum flexibility in choosing their
wireless data access solutions.
Price Performance Leadership
We have designed our products to provide high levels of performance and
functionality at an attractive price to drive widespread adoption among users.
We use software solutions where others still use
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hardware and we build our products around a core common hardware and software
platform. As a result, we are able to offer products which present a
substantially better value proposition than do other wireless data access
products with similar functionality.
Convenience
Our products provide users with a wireless connection to the Internet and
enterprise networks with a focus on ease-of-use and real-time access to e-mail,
online content and critical personal and professional information. We have
designed our products to reduce their size and weight without sacrificing
performance. For example, our Minstrel modems for handheld computing devices are
lightweight and slip easily into a suit pocket or purse. We have also designed
our products to enhance range and functionality with low power requirements, so
that they can be used for extended periods of time without needing to recharge.
Moreover, we offer activation services to service providers prior to shipping so
that our products are ready for immediate use upon their delivery.
Productivity
Our products improve productivity by enabling handheld computing devices
and portable PCs to be continuously connected to the Internet and enterprise
networks. Our products for handheld computing devices also enable wireless
synchronization so users can backup and access personal and professional data
from remote locations. These features allow mobile professionals to access and
manage data and information even while they are away from traditional work
settings, thereby significantly increasing their productivity.
Customized Solutions
Our technology platform enables us to provide wireless data solutions for a
wide range of specialized applications and to adapt our products to specific
customer needs. We enable our OEM customers to provide their clients with
tailored solutions for vertical market applications such as securities trading,
public safety, transportation and retail and point of sale terminals. Our
engineering group assists with the integration of our wireless products to
provide comprehensive solutions to our customers.
OUR STRATEGY
Our objective is to be the leading global provider of wireless data access
products. The key elements of our strategy are to:
Extend Our Technology Leadership
We intend to continue developing higher speed integrated wireless data
access solutions to capitalize on the expansion of global wireless data access
technologies. We plan to rapidly develop new modem technologies based on
evolving wireless data standards and to offer customers a comprehensive range of
wireless access products for mobile computing devices. We also intend to
continue to apply our technological expertise to reduce the overall size,
weight, cost and power consumption of our products, while increasing their
capabilities and performance.
Drive Widespread Adoption of Our Products and Increased Market Penetration
We intend to drive widespread adoption of our products through increased
global marketing activities, strategic pricing and expansion of our
international and direct sales distribution networks. We believe these efforts
will increase our revenue and our brand recognition. Our product pricing is an
important part of this strategy and we will continue to adjust our prices to
ensure market penetration by offering value to our customers. We also intend to
promote and extend our technology integration services which, in simplifying
customer use, will help ensure the widespread adoption of our products.
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Expand and Develop Strategic Relationships
We plan to build and expand on strategic relationships to improve the
design and functionality of our wireless access products and rapidly gain market
share. We intend to establish and maintain relationships with a strategic focus
on:
- Wireless computing communications companies, such as our existing
relationships with Hewlett-Packard, Symbol and VoiceStream, to extend our
platform and expand distribution of our products;
- Software applications companies, such as our existing relationships with
FusionOne, Inc. AvantGo, Inc., Puma Technologies, Inc. and JP Systems,
Inc. to offer a wide array of value-added applications for our customers;
and
- Technology companies, such as our existing relationships with Metricom,
Inc. and TPP Communications Ltd. to accelerate the time to market and
expand the capabilities of our new products.
Continue to Target Key Vertical Markets
We market our products to key vertical industry segments by offering them
products that increase productivity, reduce costs and create operational
efficiencies. We are currently working with, among others, Harvest in vending
system monitoring, KeyCorp in retail/point of sale, @Road in vehicle tracking
and Symbol in inventory control. We believe that continuing improvements in
wireless computing technologies will create additional vertical markets and more
applications for our products.
Focus on Developing Value-added Applications
Developing value-added applications to expand the capabilities of our
products will be an important factor in increasing the overall demand for and
the use of our products. As competition in our marketplace intensifies, we
believe that developing proprietary value-added applications for our products in
vertical enterprise markets will give us a competitive advantage and
differentiate us from our competitors. To this end, we may pursue acquisition
opportunities to extend our product lines and provide additional solutions to
our customers.
PRODUCTS
We successfully deliver innovative and comprehensive solutions to our
customers. We currently offer a variety of wireless data access solutions to
OEMs, VARs, systems integrators, wireless telecommunications operators,
enterprise, mobile professionals and consumers. We delivered the first wireless
cradle modem for the Palm family of handheld computing devices and currently
provide the only commercially available wireless cradle modem for the Palm III
and Palm V product families. We also offer a Type II PC Card modem for portable
personal computers and Windows Pocket PC mobile computing devices.
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The following table describes our principal product lines:
PRODUCT APPLICATION
------- -----------
WIRELESS CRADLE DEVICES
- - Minstrel III Wireless Modem - Palm III handheld device
- - Minstrel E-15 Wireless Modem - Casio E-15 Palm-Size PC
- - Minstrel V Wireless Modem - Palm V handheld device
- - Minstrel S Wireless Modem - Handspring handheld device
WIRELESS PC CARD AND MODEMS
- - Merlin Type II Wireless Modem - Portable and desktop PCs
- - Sage Wireless Modem - Portable and desktop PCs
OEM PRODUCTS
- - Expedite Wireless Modem - point of sale terminals, automated
teller machines, vehicle tracking
- - NRM-6812 Wireless Modem - utility monitoring, vending system
- - Lancer 3W Wireless Modem monitoring
- public safety vehicle mounted
applications
Wireless Cradle Devices
Our Minstrel family of wireless data modems adds two-way communications
capability to the Palm family of handheld computing devices, the Handspring
family of handheld computing devices, private labeled derivatives and the Casio
E-15 Windows Pocket PC handheld device. The Minstrel wireless "cradles" maintain
the key advantages of these devices: size, ease-of-use, synchronization and
customization. Minstrel provides users with complete portable access to
enterprise networks, e-mail and the Internet without the limitation of wired
connections. The Minstrel/Palm handheld computing device integrated product is
lightweight and slips easily into a suit pocket or purse. Minstrel can also be
used with most third-party software developed for the Palm family of handheld
computing devices.
The Minstrel III Wireless Modem offers two-way wireless data communications
on the Palm III connected organizers. Improvements to prior versions include a
smaller and thinner form factor, lighter weight and improved battery life. The
Minstrel E-15 Wireless Modem, which is designed exclusively for the Casio E-15
Windows Pocket PC handheld computer, offers two-way wireless data
communications. The Minstrel V Wireless Modem, which is designed for the Palm V
connected organizer and is currently branded by OmniSky for sales and
distribution, also offers two-way wireless data communications. The Minstrel S
Wireless Modem offers two-way wireless data communications on the Handspring
family of handheld devices.
Wireless PC Cards and Modems
Our Merlin Type II Wireless Modem, which was designed for Windows
95/98/2000/NT/Pocket PC computers, allows mobile professionals and consumers to
send and receive e-mail, and to connect wirelessly to their enterprise networks
and to the Internet.
Our Sage Wireless Modem is a self-powered, external, wireless modem for
desktop PCs. The key strengths of Sage include its low price, extended battery
life and versatility. Sage provides its users with wireless access to e-mail,
enterprise networks and the Internet. Sage is also well suited for fixed
installations, particularly in situations where telephone lines are unavailable
or inconvenient.
OEM Products and Devices
The Expedite Wireless Modem offers 0.6-watt full-duplex wireless CDPD modem
capabilities with minimal power requirements and a form factor almost four times
smaller than its predecessor. The Expedite's 3.6 volt power supply has an
extended battery life and is compatible with more integrated products. The
Expedite is currently used in numerous applications, including wireless
telemetry monitoring,
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inventory monitoring, point-of-sale terminals, automated teller machines and
automated vehicle location and tracking. The Expedite is also priced below
comparable products offered by our competitors, making it extremely attractive
to OEMs, VARs and systems integrators that require wireless CDPD solutions. The
Expedite's small form factor, standards-based interfaces and adherence to
specifications, together with its simple design, make it easy for OEM customers
to incorporate a wireless CDPD solution into their existing or new product
lines.
The forerunner of the Expedite, the NRM-6812 Wireless Modem, remains an
industry leader in terms of size, performance and cost. The NRM-6812 has a wider
temperature range and differing voltage levels than the Expedite, making it
preferable for certain types of wireless applications such as oil and gas
telemetry and vehicle tracking.
The Lancer 3W is a wireless CDPD modem with extreme temperature tolerance
capabilities, high vibration tolerance and a ruggedized form factor which, with
input power voltage capabilities from 9 to 30 volts, is ideally suited for a
variety of applications ranging from public safety vehicle mounted applications
to field service and wireless telemetry monitoring. In addition, the Lancer 3W
has power saving capabilities offered by the "sleep mode," which maintains
network connection at low battery levels and reduces battery drainage. The
Lancer 3W is equipped with modem manager software and remote diagnostics which
allow users to monitor and control the modem remotely.
CURRENT WIRELESS TECHNOLOGY
Wireless data communications are currently transmitted over various public
and private networks utilizing either circuit-switched data or packet-switched
data, such as Cellular Digital Packet Data (CDPD), ARDIS and Mobitex. The
following table outlines these technologies.
TECHNOLOGY STANDARD DATA TRANSMISSION ATTRIBUTES NOMINAL DATA RATES
------------------- ---------------------------- ------------------
Analog Circuit-Switched Data Analog Circuit 9.6 Kbps
Cellular Digital Packet Data Digital Packet 19.2 Kbps
ARDIS Digital Packet 19.2 Kbps
Metricom Digital Packet 28.8 Kbps
Mobitex Digital Packet 9.6 Kbps
In a circuit-switched system the user is temporarily connected to the
network and pays for the total connection time. Although circuit-switched
systems cover a very broad geographical area, the newer packet networks have
significant performance, technical and economic advantages over circuit-switched
systems. CDPD uses a packet system which sends and receives content consisting
of individually addressed segments or "packets." The user is continually
connected to the network and pays either a flat monthly service fee or a fee
based on the amount of data transferred.
We believe that one of our competitive advantages is our broad base of core
technologies. Currently, we offer products based on the CDPD standard. We have
developed and continue to build on the following key current technology areas:
CDPD. CDPD is one of the most widely adopted wide-area wireless packet data
systems in North and South America. CDPD technology enhances the efficiency of a
cellular channel, but is transparent within it, allowing the voice system's
capability and quality to remain unaffected. CDPD technology improves the
efficiency of existing cellular channel infrastructure as it detects idle
moments when cellular channels are unused, packages data in small packets and
sends it in short bursts. As a result, CDPD is an extremely cost-effective
solution for cellular carriers to use to offer data services. CDPD provides for
access at speeds up to 19.2 Kbps.
Metricom. Metricom designs, provisions and operates digital networks and
services for mobile users. Metricom's Ricochet network, which is based upon
modified CDPD network technology, works by broadcasting signals back and forth
from transceivers mounted on utility poles to small radio modems connected to
subscribers' computers. Ricochet is generally available at speeds up to 28.8
Kbps in the
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greater San Francisco Bay Area, Seattle, Washington DC, selected areas of New
York City and selected airports and college campuses. Metricom is currently
under construction in 21 major service areas to bring its higher speed Ricochet
II 128 Kbps network to market, and ultimately expects to deploy a network in 46
markets covering 100 million in population.
EMERGING STANDARDS
Current wireless data technologies work well with text-based applications
such as messaging and securities trading. Next generation wireless data
technologies are expected to allow for higher interaction levels, making
multi-media applications, such as Web browsing, appeal to a broader group of
wireless data users. 2.5G and 3G technologies based on GSM, TDMA, CDMA and
W-CDMA standards, will offer much higher bandwidth performance than existing
technology. These emerging standards, summarized in the following table, will
enable service providers to offer a broader range of wireless data services
relative to those currently available.
TECHNOLOGY DEVELOPMENT STAGE FOR DATA TRANSMISSION CURRENT/EXPECTED 2.5G/3G
STANDARD DATA TRANSMISSION ATTRIBUTES DATA RATES STANDARDS
- ---------- ---------------------------- ---------------------------- ---------------- ---------
GSM Circuit-Switched and short Digital Packet, Circuit- 14.4 Kbps/ 384 GPRS/
messaging offered, standard Switched Kbps EDGE
published for packet data
TDMA Circuit-Switched and short Digital Packet, Circuit- 9.6 Kbps/ 384 IS136
messaging offered Switched Kbps GPRS/
EDGE
CDMA Circuit-Switched and short Digital Packet, Internet 14.4 Kbps/ 384 1XRTT/
messaging offered, standard Protocol, Circuit-Switched Kbps 1-2 Mbps 3XRTT
published for packet data
W-CDMA Standard published for Digital Packet 115 Kbps/ 2 3Gpp
digital packet voice, data Mbps
and multimedia
In addition to the products we offer based on current technology standards,
we are in the process of developing second and third generation versions of our
branded and OEM products that will include new technologies to enhance customer
usability and performance, as well as address new market opportunities. We
intend to develop solutions that build on the following emerging key technology
areas:
GPRS. General Packet Radio Service (GPRS), commonly referred to as a 2.5G
standard, is a high-speed wireless packet data service that runs on GSM or TDMA
networks. GPRS is being adopted by many GSM and TDMA networks in North America,
Europe and Asia. GPRS is a packet network, allowing for always-on connectivity,
that offers data speeds up to 115 Kbps. This technology is expected to be
developed by major GSM carriers by the end of 2000.
1XRTT. CDMAOne 2000 Phase 1 or 1XRTT, commonly referred to as a 2.5G
standard, is a spread spectrum technology, based on CDMA technology standards,
that forms the basis for 3G. CDMA is used primarily in North and South America,
Japan and South Korea. 1XRTT offers access speeds of up to 144 Kbps. This
technology is expected to be implemented by major CDMA carriers by the middle of
2001.
W-CDMA. Wideband CDMA (W-CDMA), commonly referred to as a 3G standard, is a
high-speed wireless packet voice, data and multi-media services based on CDMA
technology. W-CDMA offers data speeds of up to 2 Mbps. W-CDMA technology meets
requirements adopted by major carriers and standard organizations as the global
standard for 3G. This technology is expected to be implemented in Japan by the
end of 2001 and in Europe and North America in 2003.
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OUR TECHNOLOGY FOCUS
In addition to developing products based on the technology standards
mentioned above, we have developed and continue to build on the following key
technology areas:
Advanced Radio Frequency Design. Advanced Radio Frequency (RF) design is
the key technology that determines the performance of wireless devices. We have
specialized in the 800/900 MHz designs for analog and digital cellular, packet
data and spread spectrum systems. Our proprietary RF technology contributes to
the performance, small size and low cost of products. We are currently
developing the 1800 and 1900 MHz RF technology for future high speed wireless
systems including GPRS, 1XRTT and 3G technologies.
Miniaturization and System Integration. Small systems integration is the
integration of application specific integrated circuits, RF, baseband and
packaging technologies. The complete wireless modem is packaged into a
sub-credit card module with the advent of proprietary integrated circuit design,
embedded software modem and multi-layer RF stripline technologies. We have one
of the smallest wireless modems available, the only pocket-sized wireless modem
for the Palm family of personal computing devices, and a Type II PC card modem.
We will continue to augment the miniaturization technology to drive down the
size and cost of current and future products.
CUSTOMERS
Our customers include wireless telecommunications operators, wireless data
content and service providers, OEM customers, professionals and consumers. The
following is a representative selection of our customers:
WIRELESS
TELECOMMUNICATIONS WIRELESS DATA CONTENT AND SERVICE
OPERATOR CUSTOMERS PROVIDER AND RESELLER CUSTOMERS OEM CUSTOMERS
------------------ --------------------------------- -------------
Verizon Wireless GoAmerica Communications Corp. AirLink
AT&T Wireless(1) CreSenda (Internet content @Road (vehicle tracking)
Cellcom (Middle East) provider) Harvest/Coca-Cola (vending)
Movilnet (Latin America) OmniSky IVI Checkmate
NTE (China) KeyCorp (mobile point of sale)
Pivot International (voting
booths)
Symbol (inventory control)
- ---------------
(1) AT&T currently sources our products through its distribution partner, Global
Wireless Data.
Each of the customers listed in the table above has accounted for at least
$50,000 in revenue to us since January 1, 1999. OmniSky, @Road and Global
Wireless Data accounted for 32.4%, 14.2% and 6.1% of our revenue, respectively,
for the nine months ended September 30, 2000. @Road, OmniSky and Global Wireless
Data accounted for 23.1%, 14.3% and 8.2% of our revenue, respectively, for the
year ended December 31, 1999.
Many of our customer relationships provide us with the opportunity to
expand our customer base and market reach. Among those mutually beneficial
relationships that augment our sales opportunities are the following:
Wireless Telecommunications Operators. We work closely with our carrier
customers to generate demand for our products. Our carrier customers serve as an
important sales channel for our products. Verizon Wireless, which was recently
formed by AirTouch Communications, Bell Atlantic Mobile, GTE Wireless and
PrimeCo, sources our products through Global Wireless Data. AT&T Wireless also
sources our products, through its distribution partner Global Wireless Data.
Verizon Wireless and AT&T Wireless both maintain large sales forces that develop
sales opportunities for us. These sales leads are either consummated directly by
the carrier or jointly with our account executives. This approach allows us to
combine our wireless data expertise with the carriers' vast end-customer
relationships and broad sales
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reach. Our carrier customers also provide us and our customers with important
services, including field trial participation, first-tier technical support,
wireless data marketing and access to additional indirect distribution channels.
To leverage these services, we provide carriers with early access to new
products, technical training and co-marketing resources.
Wireless Data Content and Service Providers. Wireless data content and
service providers purchase our products either directly from us or from a
distributor and resell them to end-users. These providers typically integrate
our products with other elements and provide an overall wireless access solution
to the end-user in a particular field or vertical market. These solutions
include hardware, software and ongoing service components. Examples of our
content and service-provider customers include OmniSky and CreSenda.
OEM Customers. Our OEM customers integrate our products into devices that
they manufacture and sell to end-users through their own direct sales forces and
indirect distribution channels. Our products are integrated into a broad range
of devices, including but not limited to, handheld computing devices, laptops,
vehicle location devices (AVLs), electric meters, vending machines, industrial
equipment, wireless credit processing and point of sale (POS). Major customers
include @Road, Harvest and KeyCorp. We build strong relationships with our OEM
customers because they rely heavily on our application engineering support
during the process of integrating our products into theirs.
STRATEGIC ALLIANCES
We intend to develop and maintain strategic relationships within the
wireless communications industry which complement and expand our existing
distribution network and extend our technology and market reach. These
arrangements include strategic technology and marketing relationships with
providers of next generation wireless technology, application software
developers focused on wireless products, OEM customers which integrate our
products into other devices, value-added resellers, distributors, systems
integrators and cellular carriers. These strategic relationships allow us to
develop the most compelling wireless data products and provide us with access to
additional markets, channels of distribution and increased sales opportunities.
Our principal strategic alliances to date include the following:
Intel Corporation. In October 2000, we entered into a five-year product
purchase and license agreement with Intel Corporation. Under the agreement we
will sell to Intel a variety of wireless modem modules for use in Intel's future
products and provide related technical support. We will also collaborate with
Intel on technology development and system architecture relating to the
agreement. The agreement also grants Intel the option to license from us a
manufacturing package relating to certain modems for a royalty fee, and a design
package relating to certain modems and PC Card modules for a fixed fee. The
agreement contains no volume commitment from Intel, and Intel is not currently
selling products that require our modems.
Hewlett-Packard Company. Hewlett-Packard is a leading global provider of
computing and imaging solutions and services and focuses on capitalizing on the
opportunities of the Internet and the proliferation of electronic services. In
March 2000, we entered into a one-year supply agreement under which we will sell
the Minstrel 540 modem and provide technical support for its use with the HP
Jornada 540 Series Color Pocket PC. We started shipping our Minstrel 540
Wireless Modem for the HP Jornada 540 Series Pocket PC in November 2000.
Metricom, Inc. Metricom designs, provisions and operates networks and
services for mobile users. Metricom operates a Ricochet wireless network, which
is a system that broadcasts signals back and forth from transceivers mounted on
utility poles to small radio modems connected to subscribers' computers.
Ricochet network coverage is generally available at speeds up to 28.8 Kbps in
the greater San Francisco Bay Area, Seattle, Washington, DC, selected areas of
New York City and selected airports and college campuses. Metricom is currently
under construction in 21 major service areas to bring the higher speed Ricochet
128 Kbps network to market, and ultimately expects to deploy a network in the
markets covering 100 million in population. In October 1999, we entered into a
two-year license, manufacturing and purchase agreement with Metricom under which
we will custom develop a wireless radio modem
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compatible with Metricom's Ricochet network. Metricom will also purchase modems
during the term of the agreement, which lasts until October 2001. We currently
expect to begin shipping our Merlin Wireless PC Card Modem for Ricochet in
November 2000.
OmniSky Corporation. OmniSky offers a wireless service under its own brand
for use on handheld mobile devices. In July 1999, we entered into an agreement
with OmniSky, a wireless Internet service provider, for the development and sale
of our Minstrel III and Minstrel V cradle modems for the Palm III and Palm V
handheld computing devices. In November 1999, we began shipments to OmniSky.
Although the term of this agreement expired on May 1, 2000, we have been
shipping and provisioning modems to OmniSky pursuant to an open purchase order
while observing the same terms as those contained in the expired agreement (with
the exception of the per unit activation services fee).
Symbol Technologies, Inc. Symbol is a manufacturer of bar code-driven data
transaction systems and is engaged in the design, manufacture and marketing of
bar code reading equipment, handheld computers and radio frequency (RF) data
communications systems. In March 2000, we entered into a two-year agreement with
Symbol to integrate our Merlin OEM CDPD modems into Symbol's radio frequency
data communications systems.
VoiceStream Wireless Corporation. VoiceStream is a leading provider of
digital wireless communications. Through a license from the FCC, VoiceStream
constructs and operates Personal Communication Service (PCS) networks. Nearly
three out of every four people in the United States live in areas licensed to be
served by VoiceStream or its affiliates. In March 2000, we entered into an
agreement with VoiceStream, under which we will develop three types of wireless
GPRS-PCS PC card modems for wireless mobile computing devices. The modems may be
co-branded by VoiceStream. VoiceStream will also purchase our modems during the
term of the agreement, which lasts until March 2003.
Novatel Wireless Developer Program. Because of our commitment to mobile
computing platforms such as the Palm family of handheld computing devices,
Microsoft Windows Pocket PC, and Microsoft Windows 9x/NT, we formed the Novatel
Wireless Developer Program, which is a forum for us to work with application
software developers to develop wireless data products and markets. The mission
of the Developer Program is to encourage development of the best wireless data
solutions using our products, and successfully to market those solutions to our
customers. There are currently over 100 software developers enrolled in the
Novatel Wireless Developer Program. We have established a partner community
working together to create, deliver and support the best and most compelling
wireless data applications. Once these companies have a commercial software
package or service available, they are listed and promoted in the Wireless
Solutions Guide. This guide is available on our Web site and is frequently used
as a resource by internal sales personnel as well as carrier staff.
SALES AND MARKETING
As of November 10, 2000, our sales and marketing organization consisted of
72 employees, including those located in six sales offices throughout the United
States.
Sales
We sell our products using a multi-channel distribution model which
includes both direct and indirect sales. In order to maintain strong sales
relationships, we provide co-marketing, trade show, low-cost sales demo unit and
joint press release support. In addition to our direct sales relationships with
carriers and service providers, OEMs and VARs, we sell our products through the
following channels:
- Domestic Distributors. In the United States, we sell our products through
dedicated domestic distributors. As of November 10, 2000, our domestic
distributors include D&H Distributing Company, Global Wireless Data and
Ingram Micro.
- International Distributors. We sell our products through international
distributors in Latin America, Israel, the Far East and New Zealand. As
of November 10, 2000, our international distributors include Bismark,
Insite, Cellcom and Golden Net.
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- Mail-Order and Internet Catalogs. We sell our products to mail-order and
Internet catalogues, including CDW, Mobile Planet, Multiple Zone,
Outpost.com, PC Connection and PC Mall.
- Direct End-User Sales. Some end-users purchase products directly from us.
Direct sales are facilitated through our Web site and our toll-free
telephone number.
Marketing
We support our sales efforts through a variety of marketing initiatives.
Our marketing organization focuses on creating market awareness of and promoting
our products, generating sales leads, maintaining strong customer relationships,
and developing interest in and demand for our products in new market segments.
We engage in a wide variety of marketing initiatives, which include:
- conducting marketing programs in conjunction with industry, business and
trade publications;
- building awareness for our products and the Novatel Wireless brand
through a wide variety of media;
- participating in industry and technology related trade shows,
associations and conferences; and
- engaging in cooperative marketing programs and partnerships.
We also conduct extensive market research through our end-users,
third-party developer community and channel customers. We use this information
on a continuous basis to refine our product development and the position and
assortment of our products in our sales channels.
PRODUCT DEVELOPMENT
Our product development efforts are focused on developing innovative
products and improving the functionality, design and performance of our existing
products. We intend to continue to identify and respond to our customers' needs
by introducing new product designs with an emphasis on innovations in the
ease-of-use, performance, size, weight, cost and power consumption of our
products. We are also currently developing technology and products for high
bandwidth wireless applications to address opportunities presented by the next
generation of public and private wireless networks.
Our product development effort is driven by a highly skilled and
experienced team. The core members of our research and development team have
worked together for over 16 years, and the entire team has benefited from a low
turnover rate in an intensely competitive environment for skilled engineers.
While we have developed most new products and enhancements to existing products
internally, we have also licensed technology from third parties.
We manage our products through a structured life cycle process, from
identifying customer requirements through development and commercial
introduction to eventual phase-out. Product development emphasis is placed on
time-to-market, meeting industry standards and end-item product specifications,
ease of integration, cost reduction, manufacturability, quality and reliability.
We believe that our future success will depend, in part, on our ability to
identify and respond to emerging technological trends in our target markets,
develop and maintain competitive products, enhance our existing products by
adding features and functionality that differentiate them from those of our
competitors, and bring products to market on a timely basis. As a result, we
have devoted a significant portion of our resources to product development, and
we intend to continue making substantial investments in research and
development.
For the nine months ended September 30, 2000, our research and development
expense totaled $8.9 million. Our research and development expense totaled
approximately $3.7 million for the year ended December 31, 1999, $2.3 million
for the year ended December 31, 1998 and $2.0 million for the year ended
December 31, 1997. As of November 10, 2000, we had 167 engineering and technical
professionals
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in product development and manufacturing, which includes purchasing,
fulfillment, quality assurance, quality control, reliability, technical
documentation and technical publication.
MANUFACTURING
We currently have agreements to outsource our manufacturing operation with
Sanmina Corporation, GVC Corporation and Solectron de Mexico, S.A. de C.V. In
September 1999, April 2000, and August 2000, we entered into agreements with
Sanmina, GVC and Solectron, respectively, for the manufacture of our products.
The Sanmina and GVC agreements are for a term of two years, and the Solectron
agreement is for a term of one year with automatic successive one-year renewals.
Under the agreements, Sanmina, GVC and Solectron provide all component
procurement, product manufacturing, final assembly, testing, quality control and
delivery services for us. Under these agreements, we are required to provide
each manufacturer with firm purchase orders covering a minimum period of three
months. Recently, we moved our principal manufacturing operations from Sanmina's
facility in Calgary, Canada to its facility in Guntersville, Alabama. We expect
GVC and Solectron to begin manufacturing some of our products at their
facilities in Taiwan and Mexico, respectively, in the near future.
Our outsourced manufacturing activity allows us to:
- focus on our core competencies;
- minimize our capital expenditures;
- participate in contract manufacturer economies of scale and achieve rapid
production scalability by adjusting to manufacturing volumes quickly to
meet changes in demand;
- access best-in-class manufacturing resources; and
- operate without dedicating any space to manufacturing operations.
We believe that additional assembly line efficiencies are realized due to
our product architecture and our commitment to process design. The components
that make up our products are supplied by a number of vendors. Direct materials
for our products consist of tooled parts such as printed circuit boards, molded-
plastic components, unique metal components and application-specific integrated
circuits (ASICs), as well as industry-standard components such as transistor,
integrated circuits, piezo-electric filters, duplexers, inductors, resistors and
capacitors, many of which are similar to components used in cellular telephone
handsets. Although we generally use standard components for our products and try
to maintain alternative sources of supply, some components, such as
printed-circuit boards, molded plastic components, unique metal components and
ASICs, are purchased from suppliers for which alternative sources are not
currently available in the quantities and at the prices we require.
We employ our own manufacturing staff that focuses on managing the
relationship with our third-party manufacturers and particularly on
design-for-manufacturing, test procedures, quality, procurement and cost
optimization, production scheduling and continuous improvement. We also perform
certain manufacturing related functions internally, including manufacturing
engineering and the development of manufacturing test procedures and fixtures.
GOVERNMENT REGULATION
Our products are subject to certain mandatory regulatory approvals. In the
United States, the FCC regulates many aspects of communications devices,
including radiation of electromagnetic energy, biological safety and rules for
devices to be connected to the telephone networks. Radio frequency devices,
which includes our modems, must be approved under the above regulations by
obtaining FCC equipment authorization prior to being offered for sale. FCC
equipment authorization is obtained by submitting a technical description of the
product and report showing compliance with FCC technical standards. We have
obtained from the FCC all necessary equipment authorization for all products we
currently manufacture and sell.
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COMPETITION
The wireless data communications market is intense, rapidly evolving and
highly competitive. It is subject to technological changes and is significantly
affected by new product introductions and the market activities of industry
participants. We compete in this market on the basis of price, form factor, time
to market, functionality, quality and variety of product offerings. Moreover, we
expect that this market will experience several new entrants in the future. To
maintain and improve our competitive position, we must continue to develop new
products, expand our customer base, grow our distribution network and leverage
our strategic partnerships.
Our current and prospective competitors generally fall within the following
categories:
- Wireless modem manufacturers, such as Sierra Wireless, Uniden, NextCell
and Tellus;
- Traditional wired modem manufacturers, such as 3Com and Xircom;
- Wireless device manufacturers, such as Handspring, Palm and Research In
Motion;
- Wireless handset manufacturers and next generation wireless technology
providers, such as Ericsson, Motorola, and Nokia; and
- Non-CDPD private communications network providers, such as Emotiant, Bell
South and Metricom.
We believe the principal competitive factors impacting the market for our
products are functionality, features, performance, convenience, availability,
brand and price. We believe that we compete better than many of our current
competitors with respect to some or all of these factors due to the broad range
of products we offer, the ease-of-use in design and engineering of our products,
our ability to adapt our products to specific customer needs and our price
leadership.
There can be no assurance that our current or potential competitors will
not develop products comparable or superior to those developed by us or adapt
more quickly to new technologies, evolving industry standards, new product
introductions, or changing customer requirements. As a result, we must
continuously introduce new products and educate existing and prospective
customers as to the advantages of our products versus those of our competitors.
Many of our current and potential competitors have had longer operating
histories and significantly greater financial, manufacturing, technical, sales,
customer support, marketing and other resources, as well as greater name
recognition and a larger installed products and technologies base. In addition,
the global acceptance of our products could lead to increased competition as
third parties develop products competitive with our own. Any of these
competitors may be able to respond faster than we can to new or emerging
technologies and changes in customer requirements and to devote greater
resources to the development, promotion and sale of their products than we can.
We cannot assure you that our current or potential competitors will not develop
products comparable or superior to those that we develop or adapt more quickly
than we do to new technologies, evolving industry trends or changing customer
requirements.
In addition, as the wireless data communications product market develops, a
number of companies with significantly greater resources than we have could
attempt to increase their presence in the market by acquiring or forming
strategic alliances with our competitors, resulting in increased competition.
PROPRIETARY TECHNOLOGY
Our software, hardware and operations rely on and benefit from an extensive
portfolio of intellectual property. We currently hold 11 United States patents
issued for our technology and have four United States patent applications
pending. We also have four foreign patents issued and four foreign patent
applications pending.
We own a number of trademarks and servicemarks, including Contact(R),
Expedite(TM), Lancer(TM), Lancer 3W(TM), Merlin(TM), Minstrel(R), Minstrel
III(TM), Minstrel IIIc(TM), Minstrel V(TM), Minstrel Plus(TM),
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Minstrel S(TM), Minstrel 540(TM), MissionONE(TM), Sage(R) and Viking(TM), each
with its accompanying designs, and the Novatel Wireless logo.
We license CDMA technology from QUALCOMM, Incorporated for integration into
our products. This license allows us to manufacture CDMA-based wireless modems
and sell or distribute them worldwide. The license does not have a specified
term and may be terminated by us or by QUALCOMM for cause or upon the occurrence
of other specified events. In addition, we may terminate the license for any
reason upon 60 days' prior written notice. We have also granted to QUALCOMM a
nontransferable, worldwide, nonexclusive, fully paid and royalty-free license to
use, in connection with wireless communications applications, certain
intellectual property of ours that is used in our products which incorporate the
CDMA technology licensed to us by QUALCOMM. This license allows QUALCOMM to
make, use, sell or dispose of such products and the components therein.
In October 2000 we entered into a five-year product purchase and license
agreement with Intel Corporation. In connection with the agreement, under
certain circumstances we will not assert our patent rights against certain Intel
products which do not involve our core technology and, if we assign or sell any
of our patents that pertain to certain Intel products which do not involve our
core technology, we will grant Intel a nontransferable, worldwide, royalty-free
license to those patents.
We primarily rely on a combination of copyright, trade secret and trademark
laws, and nondisclosure and other contractual restrictions on copying and
distribution to protect our proprietary technology. In addition, as part of our
confidentiality procedures, we generally enter into nondisclosure agreements
with our employees, consultants, distributors and corporate partners and limit
access to and distribution of our software, documentation and other proprietary
information. It may be possible for a third party to copy or otherwise obtain
and use our products or technology without authorization, or to develop similar
technology. In addition, our products are licensed in foreign countries and the
laws of such countries may treat the protection of proprietary rights
differently from and may not protect our proprietary rights to the same extent
as do laws in the United States.
EMPLOYEES
As of November 10, 2000, we had a total of approximately 281 employees,
including 72 in sales and marketing, 167 in engineering, manufacturing, research
and development and 42 in general and administrative functions. Our future
performance depends, in significant part, upon our ability to attract new
personnel and retain existing personnel in key areas including engineering,
technical support and sales. Competition for personnel is intense, especially in
the San Diego area where we are headquartered, and we cannot be sure that we
will be successful in attracting or retaining personnel in the future. Our
employees are not represented by any collective bargaining unit, and we consider
our relationship with our employees to be good.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings which, if adversely determined,
would have a material adverse effect on our business, financial condition and
results of operations. We may, from time to time, become a party to various
legal proceedings arising in the ordinary course of business.
FACILITIES
Our principal executive offices are located in San Diego, California where
we lease approximately 20,000 square feet under a lease that expires in July
2005. We also lease approximately 4,500 square feet in San Diego under a lease
that expires in March of 2005. In addition, we lease approximately 20,000 square
feet in Calgary, Alberta, Canada for our research and development organization
under a lease that expires in January 2002, and 14,500 square feet in Carlsbad,
California utilized for distribution purposes under a lease that expires in
August 2002. We also lease space in various geographic locations primarily for
sales and support personnel or for temporary facilities. We believe that our
existing facilities are adequate to meet our current needs, and that suitable
additional or substitute space will be available as needed.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors:
NAME AGE POSITION(S)
---- --- -----------
John Major.................. 54 Chairman of the Board and Chief Executive Officer
Ambrose Tam................. 44 President, Chief Operating Officer and Chief Technology
Officer
Bruce Gray.................. 45 Senior Vice President, Sales and Marketing
Melvin Flowers.............. 47 Vice President of Finance, Chief Financial Officer and
Secretary
Peter Leparulo.............. 41 Senior Vice President, Corporate and Strategic Development
and General Counsel
Steven G. Schlief........... 44 Vice President, Operations
Robert Getz(1).............. 38 Director
Nathan Gibb(1).............. 30 Director
H.H. Haight(1)(2)........... 66 Director
David Oros.................. 41 Director
Mark Rossi(2)............... 44 Director
Steven Sherman.............. 54 Director
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
John Major has served as our Chairman of the Board and Chief Executive
since July 2000. From November 1999 until July 2000, Mr. Major was Chief
Executive Officer of Wireless Internet Solutions Group, a strategic consulting
services firm. From November 1998 to November 1999, Mr. Major was President and
Chief Executive Officer of WirelessKnowledge, a joint venture between Microsoft
Corporation, a software and Internet technology company, and QUALCOMM,
Incorporated, a digital wireless communications company. From May 1997 to
November 1998, he was an Executive Vice-President of QUALCOMM and served as
President of QUALCOMM Infrastructure Products Division. From 1977 until he
joined QUALCOMM in 1997, Mr. Major held a number of executive positions at
Motorola, Inc., a communications and electronics company, ultimately serving as
Senior Vice President and Chief Technical Officer. Mr. Major currently serves on
the board of directors of Littelfuse Corporation, a circuit protection
technology company; Verilink, an intelligent edge connection wireline modem
company; Identix, Inc., an identification technology company; Advanced Remote
Communications Solutions, Inc., a communications systems company, and Lennox
Corporation, an HVAC products company. He also serves on the Board of Directors'
Executive Committee for the Telecommunications Industry Association and the
Electronics Industry Association. Mr. Major holds a Bachelor of Science degree
in Mechanical and Aerospace Engineering from the University of Rochester, and a
Master of Science degree in Mechanical Engineering from the University of
Illinois. He also holds a Master of Business Administration degree, with
distinction, from Northwestern University and a Juris Doctor from Loyola
University.
Ambrose Tam has served as the President, Chief Operating Officer and Chief
Technology Officer of our company since August 1996. From 1990 to 1993, he was
the Research and Development Director of NovAtel Communications Ltd., which is
now NovAtel, Inc., and in 1994 he became the General Manager of the Personal
Communications Products division of NovAtel Communications. Our company was
founded when we acquired the assets of this division from NovAtel Communications
Ltd. Prior to joining NovAtel Communications, Mr. Tam spent 12 years in various
electronic and radio frequency engineering capacities with Astec Components
Ltd., a Hong Kong-based manufacturing, engineering and distribution company
specializing in radio frequency, satellite receivers and cellular phone
components. Mr. Tam holds a Higher Certificate in Electronic Engineering from
Hong Kong Polytechnic University and a Master of Business Administration degree
from the University of Calgary.
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Bruce Gray has served as our Senior Vice President of Sales and Marketing
since February 2000. Prior to that he was our vice president of sales and
marketing since joining our company in October 1998. From October 1997 to
October 1998, Mr. Gray was the Senior Director of Uniden Electronics
Corporation's Data Products Division, where he was responsible for sales
performance, strategic planning, channel development and new product
development. Prior to joining Uniden, a wireless communications company, Mr.
Gray was a Director of Sales and Marketing for Sensormatic Electronics
Corporation, a supplier of electronic security products, from December 1994 to
October 1997. From May 1992 to January 1994, Mr. Gray was a Director of
Marketing and Product Management for U.S. Robotics Corporation, a communications
products company. Mr. Gray holds a Bachelor of Science degree in Engineering
from the University of Alabama and a Master of Business Administration degree
from the University of San Diego.
Melvin Flowers has served as our Vice President of Finance and Chief
Financial Officer since joining our company in February 2000, and Secretary of
our company since April 2000. Mr. Flowers served as a Vice President and the
Chief Financial Officer of KNC Software, LLC, an Internet software company, from
July 1999 until November 1999. Prior to joining KNC Software, Mr. Flowers served
as a Vice President and the Chief Financial Officer of Microwave dB, from
November 1998 until June 1999. Prior to joining Microwave, Mr. Flowers served as
the Chief Financial Officer and Vice President of Finance of ACT Networks, Inc.,
a network access device manufacturer, from July 1993 to October 1998.
Previously, Mr. Flowers also served as President and Chief Financial Officer of
Pacific Earth Resources, an ornamental horticultural company, and as Vice
President and Chief Financial Officer of Spectramed, Inc., a medical device
manufacturing company. Mr. Flowers received a Bachelor of Science degree in
Accounting from Northern Illinois University.
Peter Leparulo has served as Senior Vice President, Corporate and Strategic
Development, and General Counsel of our company since September 2000. From June
1998 until September 2000, he was a senior partner at the law firm of Orrick,
Herrington & Sutcliffe LLP, where he specialized in corporate finance, mergers
and acquisitions, securities, intellectual property and general corporate
matters. Prior to joining Orrick, Mr. Leparulo was a partner at the law firm of
Pillsbury Madison & Sutro LLP, from January 1992 until June 1998, and an
associate at that firm from October 1989 until January 1992. He holds a Bachelor
of Science degree from Colgate University and a Juris Doctor from Case Western
Reserve University.
Steven Schlief has served as Vice President of Operations since joining our
company in July 2000. Prior to joining us, he was Vice President, Supply Chain
Management, for the Asian operations of Celestica Inc., a contract manufacturer,
from September 1997 to July 2000. Prior to that, Mr. Schlief was Director of
Materials at Polycom Inc., a telecommunications and video conferencing company,
from January 1995 to September 1997. Mr. Schlief has also held positions with
Apple Computer, IEC Electronics and Lockheed Corporation where he worked in a
number of areas including materials, supply chain management and operations. Mr.
Schlief holds a Bachelor of Arts degree from San Jose State University and a
Master of Business Administration from Santa Clara University.
Robert Getz has served as a director of our company since December 1999.
Since December 1996, Mr. Getz has served as a Managing Director of Cornerstone
Equity Investors, LLC, a private equity investment firm that specializes in
technology and telecommunications, business service and healthcare information
investments. Prior to joining Cornerstone, Mr. Getz served as a Managing
Director of Prudential Equity Investors, Inc., also a private equity investment
firm, from June 1994 until December 1996. Mr. Getz also serves as a director for
several private companies, including Artel Video Systems, Inc., a developer of
broadband video networking equipment, and Centurion International, Inc. a
designer and manufacturer of antenna and power solutions for the wireless device
industry. Mr. Getz holds a Bachelor of Arts degree from Boston University and a
Master of Business Administration in finance from the Stern School of Business
at New York University.
Nathan Gibb has served as a director of our company since June 1999. Mr.
Gibb is an Investment Manager with Working Ventures Canadian Fund Inc., a
Canadian investment fund. Mr. Gibb joined Working Ventures after receiving his
Masters of Business Administration from the University of Western
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Ontario in 1997. Mr. Gibb also serves on the board of directors of a number of
private portfolio companies, including InterUnion Asset Management Ltd., an
asset management firm consolidator. Mr. Gibb holds a Bachelor of Arts degree and
a Master of Business Administration degree from the University of Western
Ontario.
H.H. Haight has served as a director of our company since August 1996. Mr.
Haight is President, Chief Executive Officer and founder of Argo Global Capital,
Inc., the entity that manages GSM Capital Limited Partnership, a venture capital
firm. Prior to founding Argo Global Capital, Inc., Mr. Haight was a Managing
Director and co-founder of Advent International, a venture capital firm, from
June 1983 to June 1998. Mr. Haight also currently serves as a director of Coast
Mountain Hardwoods, a lumber concern, Genelabs Technologies, Inc., a
pharmaceutical company, Saraide, a wireless service provider, and several other
private companies. Mr. Haight received a Bachelor of Science degree from the
University of California at Berkeley and a Master of Business Administration
degree from Harvard University.
David S. Oros has served as a director of our company since July 2000. In
1996, Mr. Oros founded Aether Systems, Inc., a provider of wireless data
services and systems for wireless handheld devices, and has been Aether's
Chairman, Chief Executive Officer and President since its inception. Mr. Oros
also serves on the board of directors of OmniSky Corporation, which offers a
wireless service for use on handheld mobile devices. From 1994 until 1996, Mr.
Oros was President of NexGen Technologies, L.L.C., a wireless software
development company that contributed all of its assets to Aether. From 1992
until 1994, he was President of the Wireless Data Group at Westinghouse Electric
Company. Prior to that, Mr. Oros spent from 1982 until 1992 at Westinghouse
Electric directing internal research and managing large programs in advanced
airborne radar design and development. Mr. Oros received a Bachelor of Science
degree in mathematics and physics from the University of Maryland and holds a
U.S. patent for a multi-function radar system.
Mark Rossi has served as a director of our company since December 1999.
Since December 1996, Mr. Rossi has served as Managing Director of Cornerstone
Equity Investors, LLC, a private equity investment firm that specializes in
technology and telecommunications, business service and healthcare information
investments. Prior to joining Cornerstone, Mr. Rossi served as the President of
Prudential Equity Investors, Inc., a private equity investment firm, from June
1994 to December 1996. Mr. Rossi also serves as a director of Maxwell
Technologies, Inc., a diversified technology products and services company,
MCMS, Inc. an electronics manufacturing services company, True Temper Sports,
Inc., a designer and manufacturer of golf shafts and specialty tubing products,
and several private companies. Mr. Rossi holds a Bachelor of Arts degree from
Saint Vincent College and a Master of Business Administration in finance from
the Kellogg School of Management at Northwestern University.
Steven Sherman has served as a director of our company since August 1996.
Mr. Sherman also served as our Chief Executive Officer from August 1997 until
November 1998 and as Chairman of the Board from August 1997 until September
1999. In 1990, Mr. Sherman founded Main Street and Main, a restaurant franchise
holding company, and served as its Chairman until 1994. Since 1988, Mr. Sherman
has been the managing member of Sherman Capital Group, L.L.C., a merchant
banking organization. Mr. Sherman founded and served in various capacities,
including Chairman and Chief Executive Officer at Vodavi Communication Systems,
Inc., a telephone hardware and software company, until its acquisition of
Executone Information Systems, Inc. in 1988. He was a director of Executone from
1988 until 1990. Currently, Mr. Sherman is chairman of the board of Airlink
Communications, Inc., a wireless software infrastructure business. Mr. Sherman
holds a Bachelor of Arts degree in Business Administration from City College of
New York.
BOARD COMPOSITION
We currently have authorized eight directors. Our amended and restated
certificate of incorporation provides for a classified board of directors that
consists of three classes of directors, each serving staggered three year terms.
As a result, a portion of the board of directors will be elected each year. The
three classes will be as nearly equal in number as possible, as determined by
the board of directors. The Class I
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directors will serve an initial term until the annual meeting of stockholders to
be held in 2001, the Class II directors will serve an initial term until the
annual meeting of stockholders to be held in 2002, and the Class III directors
will serve an initial term until the annual meeting of stockholders to be held
in 2003. Each class will be elected for three-year terms following its
respective initial term. Messrs. Gibb and Haight have been designated Class I
directors whose terms expire at the 2001 meeting of stockholders. Messrs. Rossi
and Sherman have been designated Class II directors whose terms expire at the
2002 annual meeting of stockholders. Messrs. Getz, Major and Oros have been
designated Class III directors whose terms expire at the 2003 annual meeting of
stockholders. At each annual meeting of stockholders, directors will be elected
by the holders of common stock to succeed those directors whose terms are
expiring. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes of directorships so
that, as nearly as possible, each class will consist of one-third of the total
number of directors. This classification of our board of directors may have the
effect of delaying or preventing changes in control of our company or in our
management. See "Description of Securities -- Delaware Antitakeover Law and
Charter and Bylaw Provisions." The executive officers are elected by and serve
at the discretion of our board of directors. Our non-employee directors devote
such time to the affairs of our company as is necessary to discharge their
duties. There are no family relationships among any of our directors or our
executive officers.
BOARD COMMITTEES
We have established an audit committee composed of independent directors
that reviews and supervises our financial controls, including the selection of
our independent accountants, reviews our books and accounts, meets with our
officers regarding our financial controls, acts upon recommendations of our
auditors and takes further actions as the audit committee deems necessary to
complete an audit of our books and accounts. The audit committee also performs
other duties as may from time to time be determined. The audit committee
currently consists of three directors, Messrs. Getz, Gibb and Haight.
We have also established a compensation committee that reviews and approves
the compensation and benefits of our executive officers, administers our
compensation, stock incentive, and stock purchase plans, makes recommendations
to the board of directors regarding these matters and performs other duties as
may from time to time be determined by our board of directors. The compensation
committee currently consists of two directors, Messrs. Haight and Rossi.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from us for
attending board of directors or committee meetings, except for reimbursement of
reasonable expenses incurred in connection with attending those meetings.
Directors who are employees of ours are eligible to participate in our 2000
stock incentive plan and our 2000 employee stock purchase plan. Non-employee
directors who join our board after this offering are eligible to participate in
our 2000 stock incentive plan. Our 2000 stock incentive plan and our 2000
employee stock purchase plan were adopted by our board on July 24, 2000 and were
approved by our stockholders in September 2000. Our 2000 stock incentive plan
generally provides for an automatic initial grant of options to purchase 20,000
shares of our common stock to each non-employee director on the date on which a
person first becomes a non-employee director of our company. After the initial
grant, a non-employee director will be granted each year on the date of our
annual meeting of stockholders a subsequent option to purchase 5,000 shares of
our common stock, if he or she continues to serve after such annual meeting and
if he or she received an initial stock option grant. These options vest over a
four-year period with 25% of the option shares vesting on the first anniversary
of the date of grant and the remainder vesting in 36 equal monthly installments,
with accelerated vesting in the event of certain changes of control.
Non-employee directors receive grants solely at the discretion of the
compensation committee. The exercise price of options will be 100% of the fair
market value per share of our common stock on its date of grant. For an
additional description of these option plans, please refer to our discussion
under "Compensation Plans."
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our compensation committee members has been an officer or employee
of our company or any subsidiary of our company at any time. None of our
executive officers serves on the board of directors or compensation committee of
any entity that has one or more executive officers serving as a member of our
board of directors or our compensation committee. Until April 2000, Mr. Sherman,
one of our directors, was a member of our compensation committee. Mr. Sherman
was chief executive officer of Novatel Wireless Solutions, Inc., one of our
subsidiaries, from April 1996 until September 2000.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation received for services rendered to us during the fiscal year ended
December 31, 1999 by our Chief Executive Officer and each of the other four most
highly compensated executive officers, each of whose aggregate compensation
during the last fiscal year exceeded $100,000, referred to collectively in this
prospectus as the named executive officers. No individual who would otherwise
have been includable in the table on the basis of salary and bonus earned during
1999 has resigned or otherwise terminated his or her employment during 1999.
In July 2000, Mr. Major was appointed as our Chief Executive Officer. His
annual base salary is $325,000. In September 1999, Mr. Weitzner joined us as our
Vice President of Operations and Research and Development. His annualized salary
for 1999 was $220,000. Mr. Weitzner's employment was terminated in July 2000. In
July 2000, Mr. Schlief was appointed as our Vice President of Operations. His
annual base salary is $225,000, and he received a one time sign-on bonus of
$28,000. In September 2000, Mr. Leparulo was appointed our Senior Vice
President, Corporate and Strategic Development and General Counsel. His annual
base salary is $235,000 and he received a one time sign-on bonus of $25,000. In
February 2000, Mr. Flowers was appointed as our Chief Financial Officer.
Effective August 2000, his annual base salary is $200,000.
Annual compensation listed in the following table excludes other
compensation in the form of perquisites and other personal benefits that is less
than the lesser of $50,000 or 10% of the total annual salary and bonus of each
of the named executive officers in 1999. The options listed in the following
table were originally granted under our 1997 employee stock option plan. These
options will be incorporated into our 2000 stock incentive plan, but will
continue to be governed by their existing terms. See "Management -- 2000 Stock
Incentive Plan."
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- ------- ------------
Robert Corey(1)........................................... $200,000 $50,000 --
Chief Executive Officer
Ambrose Tam(2)............................................ 155,926 46,588 --
President, Chief Operating Officer and Chief Technology
Officer
Bruce Gray................................................ 141,750 -- 150,000
Senior Vice President, Sales and Marketing
Roger Hartman(1).......................................... 157,225 20,000 --
Chief Financial Officer and Vice President
James Palmer(1)........................................... 179,815 -- --
Vice President, Operations and Research & Development
- ---------------
(1) Mr. Corey ceased serving as our Chief Executive Officer in July 2000, Mr.
Hartman ceased serving as our Chief Financial Officer in February 2000 and
Mr. Palmer ceased serving as our Vice President, Operations and Research and
Development, in October 1999.
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(2) Mr. Tam's annual salary compensation in 1999 was (Canadian) $238,568, and
his annual bonus compensation in 1999 was (Canadian) $71,280. The amount
shown is based on the daily Noon Buying Rate of (Canadian) $1.53 per (US)
$1.00 on November 10, 2000.
OPTION GRANTS IN FISCAL YEAR 1999
The following table provides summary information regarding stock options
granted to our named executive officers during the fiscal year ended December
31, 1999. No stock appreciation rights were granted during 1999.
The potential realizable value is calculated assuming the fair market value
of the common stock appreciates at the indicated rate for the entire term of the
option and that the option is exercised and sold on the last day of its term at
the appreciated price. Stock price appreciation of 5% and 10% is assumed
pursuant to the rules of the Securities and Exchange Commission and does not
represent our estimate or projection of future common stock prices. We cannot
assure you that the actual stock price will appreciate over the term of the
options at the assumed 5% and 10% rates or at any other defined rate. Actual
gains, if any, on stock option exercises will depend on the future performance
of our common stock. Unless the market price of the common stock appreciates
over the option term, no value will be realized from the option grants made to
the named executive officers.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
DATE OF OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANT GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------------- ---------- ------------- ----------- ---------------- --------- ---------
Bruce Gray........... October 25, 1999 150,000 17.83% $0.95 October 24, 2009 $ 89,932 $227,905
John Weitzner........ August 18, 1999 225,000 26.74% $0.95 August 17, 2009 $134,898 $341,858
In 1999, we granted options to purchase up to a total of 852,000 shares to
employees, directors and consultants under our 1997 employee stock option plan
at an exercise price equal to the fair market value of our common stock on the
date of grant, as determined in good faith by our board of directors.
Mr. Gray's options began to vest on January 1, 2000. The options vest over
a four-year period, with 25% of the option shares vesting on the first
anniversary of the date of grant, and the remaining shares vesting in equal
monthly installments over the 36-month period following that date. The vesting
of the options will immediately accelerate upon a sale or merger of our company.
Mr. Weitzner's options began to vest on September 1, 1999. Effective July 24,
2000, Mr. Weitzner ceased to be an employee of our company. As of that date, Mr.
Weitzner held options to purchase 225,000 shares of our common stock at an
exercise price of $0.95 per share, none of which had vested. In connection with
the termination of Mr. Weitzner's employment with us, we entered into a
separation agreement which provided that options exercisable for 65,625 shares
vest on October 31, 2000.
In July 2000, Mr. Major was appointed Chief Executive Officer, and we
granted Mr. Major options to purchase 3,036,543 shares of common stock at an
exercise price of $5.00 per share. The option shares will vest and become
exercisable as follows: 607,308 option shares are immediately exercisable;
379,569 option shares vest and become exercisable on July 24, 2001; 379,569
option shares vest and become exercisable on July 24, 2002; and 303,654 option
shares vest and become exercisable on each July 24 of 2001, 2002, 2003 and 2004.
In addition, 455,481 option shares shall vest and become exercisable on the
earlier to occur of (1) our attaining certain milestones before December 31,
2000 or (2) with respect to 227,748 option shares, on July 24, 2003 and with
respect to another 227,748 option shares, on July 24, 2004. The vesting of the
option shares will immediately accelerate upon a change in control of our
company. The options expire on the first to occur of 6 months after termination
(in the event of termination of Mr. Major's employment by death or disability),
90 days after termination (in the event of termination of Mr. Major's employment
for any other reason) or July 24, 2010.
In July 2000, Mr. Schlief was appointed Vice President, Operations, and we
granted Mr. Schlief options to purchase 600,000 shares of common stock at an
exercise price of $5.00 per share. The options
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are subject to our 1997 employee stock option plan and will vest over a
four-year period, with 25% of the option shares vesting each year.
In February 2000, Mr. Flowers was appointed Vice President of Finance and
Chief Financial Officer, and at that time we granted Mr. Flowers options to
purchase 375,000 shares of common stock at an exercise price of $1.67 per share.
The options will vest over a four-year period, with 25% of the option shares
vesting on February 17, 2001, and the remainder vesting in equal monthly
installments over the 36-month period following that date. The vesting of the
options will immediately accelerate upon a change of control of our company.
In September 2000, we appointed Mr. Leparulo our Senior Vice President,
Corporate and Strategic Development and General Counsel and at that time granted
him an option to purchase up to 600,000 shares of our common stock at an
exercise price of $11.00 per share. The shares subject to the option will vest
over a four-year period, with 25% of the shares vesting on the first anniversary
of the date of grant and the remaining shares vesting in equal monthly
installments over the 36-month period following that date. The vesting of the
shares will immediately accelerate upon a change of control of our company.
In August 2000, we also granted to Messrs. Flowers, Gray and Tam options to
purchase an additional 225,000, 330,000 and 225,000 shares of common stock,
respectively, at an exercise price of $7.50 per share. The options will vest
over a four-year period, with 25% of the options vesting one year from the date
of grant, and the remainder vesting in equal monthly installments over the
36-month period following that date. The vesting of the options will immediately
accelerate upon a change of control of our company.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of shares of common stock underlying the unexercised options held by the named
executive officers as of December 31, 1999. The table also sets forth the value
realized upon exercise of stock options in fiscal year 1999, and the year-end
number and value of unexercised options with respect to each of the named
executive officers as of December 31, 1999. The value was calculated by
determining the fair market value of our common stock on the date of exercise,
as determined in good faith by our board of directors, less the exercise price
paid for the shares. The value of unexercised in-the-money options at December
31, 1999 is calculated based on an assumed initial public offering price of
$11.00, less the exercise prices of the options, multiplied by the number of
shares underlying those options.
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
NUMBER OF 1999 AT DECEMBER 31, 1999
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
Robert Corey(1)....... -- -- 437,499 1,062,501 $4,395,407 $10,674,593
Ambrose Tam........... -- -- 45,000 45,000 463,050 463,050
John Weitzner(1)...... -- -- -- 225,000 -- 2,260,500
Bruce Gray............ -- -- 30,000 240,000 301,400 2,411,200
Roger Hartman(1)...... -- -- 75,000 225,000 753,500 2,260,500
James Palmer(1)....... 300,000 $490,000 300,000 -- 3,290,000 --
- ---------------
(1) Messrs. Corey and Weitzner left the company in July 2000; Mr. Hartman left
the company in February 2000; Mr. Palmer left the company in October 1999.
EMPLOYMENT-RELATED ARRANGEMENTS
In July 2000, we entered into an employment agreement with John Major
covering an initial term of three years under which Mr. Major will serve as the
Chairman of our board of directors and as our Chief Executive Officer. The
agreement provides for Mr. Major to receive an annual base salary of $325,000,
subject to review by our board at least annually, and an annual performance
incentive bonus payable in a
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single installment in an amount equal to up to 100% of Mr. Major's then
applicable annual salary. The agreement provides for Mr. Major to receive half
his bonus in cash and the remaining half in shares of our common stock. In
addition, we granted Mr. Major options to purchase up to 3,036,543 shares of our
common stock at an exercise price of $5.00 per share. Twenty percent of these
options vested and became exercisable on their date of grant and the remaining
options will vest and become exercisable with the passage of time or upon the
occurrence of specified events. In the event that we terminate Mr. Major without
cause, or in the event he terminates his employment with us because we have
materially breached the terms of his employment agreement or because a change of
control occurs, he is entitled to receive in a lump sum payment an amount equal
to his annual base salary then in effect and all unvested options will
immediately vest and become exercisable. Mr. Major would then also be entitled
to a bonus equal to the amount of the bonus he had earned as of the date of his
termination as well as to the continuation of certain employee benefits pursuant
to the terms of existing company plans. If we terminate Mr. Major's employment
for cause, or Mr. Major terminates his employment without good reason, Mr. Major
will be entitled to received severance and other benefits only as may then be
established under our existing severance and benefit plans and policies at the
time of such termination.
On August 21, 1996, Ambrose Tam entered into a five-year employment
agreement with us and one of our subsidiaries, NWT, under which Mr. Tam agreed
to serve as our and NWT's President and Chief Operating Officer. The employment
agreement provides for an annual salary of no less than (Canadian) $187,440 (US
$122,510) adjusted from time to time, and an annual performance incentive bonus
targeted to be 33% of his annual base salary, based on the achievement of
certain performance objectives. The employment agreement provides that if Mr.
Tam is terminated without cause, he will be entitled to (Canadian) $250,000 (US
$163,399), payable in two equal installments, the first of which would occur
upon his termination and the second of which would occur six months thereafter.
In this event, Mr. Tam would also receive a performance bonus prorated for the
period it covers and he would continue to receive certain employee benefits for
12 months. If Mr. Tam terminates his employment because of a material breach of
the employment agreement by either us or NWT, he will be entitled to (Canadian)
$250,000 (US $163,399), his incentive bonus prorated for the year and the
continuation of certain employee benefits for 12 months. In the event of a
change of control of either us or NWT, Mr. Tam will be entitled to (Canadian)
$125,000 (US $81,699) if he resigns from employment within 30 days from the date
of the change of control. All US dollar amounts presented above are based on the
daily Noon Buying Rate of (Canadian) $1.53 per (US)$1.00 on November 10, 2000.
We have entered into arrangements with several of our employees which
provide that the salary of each of these employees will continue for six months
if we cease to do business or if the employee's employment is terminated without
cause.
On April 17, 2000, we entered into a separation agreement and general
release with Roger Hartman pursuant to which, effective April 30, 2000, Mr.
Hartman agreed to terminate his employment with us. As of April 30, 2000, Mr.
Hartman held options to purchase 300,000 shares of our common stock at an
exercise price of $0.95 per share, 75,000 of which had vested. Under our
agreement, Mr. Hartman will serve as a consultant to us for a period of six
months ending October 31, 2000 for a monthly consultant fee of approximately
$12,000 and will be considered an employee for purposes of the vesting of his
stock options and participation in our 401(k) plan. After October 31, 2000, for
the two-month period ending December 31, 2000, Mr. Hartman will serve us as a
part-time consultant for which he will not be paid a consulting fee, though his
stock options will continue to vest.
In connection with the termination of Mr. Weitzner's employment with us
effective July 24, 2000, on July 30, 2000 we entered into a separation agreement
and general release. As of July 24, 2000, Mr. Weitzner held options to purchase
225,000 shares of our common stock, none of which had vested. The agreement
provides that 65,625 shares of Mr. Weitzner's options vest on October 31, 2000.
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COMPENSATION PLANS
1997 EMPLOYEE STOCK OPTION PLAN
Our 1997 employee stock option plan provided for the grant to employees of
incentive and nonstatutory stock options. We have 12,000,000 shares of common
stock authorized under our 1997 stock option plan. As of November 10, 2000,
10,228,094 shares were subject to outstanding options and 1,281,883 shares will
remain available for future grant. Our board of directors has determined that no
further options will be granted under the 1997 stock option plan after the
completion this offering. The remaining shares issuable under the 1997 employee
stock option plan shall be available for issuance under our 2000 stock incentive
plan.
2000 STOCK INCENTIVE PLAN
Our 2000 stock incentive plan was adopted by our board of directors on July
24, 2000 and was approved by our stockholders in September 2000. The plan will
become effective upon our initial public offering. At that time, all outstanding
options under our 1997 employee stock option plan will be transferred to the
2000 stock incentive plan, and no further option grants will be made under the
1997 plan. The transferred options will continue to be governed by their
existing terms, unless a committee of our board administrating the plan decides
to extend one or more features of the 2000 stock incentive plan to those
options.
The 2000 stock incentive plan provides for the discretionary grant of
incentive stock options to employees, including officers and employee directors,
and for the discretionary grant of nonstatutory stock options, stock
appreciation rights, stock units and stock purchase rights to employees,
directors and consultants. A total of 16,500,000 shares of our common stock has
been reserved for issuance under the 2000 stock incentive plan including those
shares under the 1997 employee stock option plan for which options have not been
granted as of the completion of this offering. Beginning with the first fiscal
year following the effective date of the 2000 stock incentive plan, on the first
day of each fiscal year, shares will be added to the 2000 stock incentive plan
equal to the lesser of (i) 1,500,000 shares, (ii) three percent of the shares of
our common stock outstanding in the last day of the prior fiscal year, or (iii)
such lesser number of shares as may be determined by our board in its sole
discretion. Unless terminated sooner, the 2000 stock incentive plan will
terminate on July 23, 2010.
A committee of our board which is comprised solely of independent directors
will generally serve as administrator of the 2000 stock incentive plan from and
after the date of this offering. The administrator of our 2000 stock incentive
plan generally has the power to select the key employees who are to receive
awards under the plan, interpret and operate the plan, determine the type,
number, vesting requirements and other features and conditions of an award of
the options, restricted stock, stock appreciation rights and stock units
granted. The compensation committee shall consist of at least two independent
directors who shall satisfy the requirements of Rule 16b-3 (or its successor)
promulgated under the Securities Exchange Act of 1934, as amended, with respect
to awards granted to our officers and directors under Section 16 of this Act.
Our board is the administrator of the 2000 stock incentive plan's
non-employee director grant program. Non-employee directors who first join our
board after the effective date of our initial public offering will receive a
grant of an option to purchase 20,000 shares of our common stock when they
become non-employee directors. In addition, all non-employee directors who
receive such an initial grant will receive a grant each subsequent annual
meeting of an option to purchase 5,000 shares, provided they continue to serve
after such annual meeting. These options generally vest over a four-year period
with 25% of the option shares vesting on the first anniversary of the date of
grant and the remainder vesting in 36 equal monthly installments commencing on
the date one month and one year after the date of grant. These options also
provide for accelerated vesting in the event of certain changes of control.
Implementation of the 2000 stock incentive plan's non-employee director grant
program is at the discretion of our board.
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Our board has the authority to amend, suspend or terminate the 2000 stock
incentive plan at any time for any reason, but no such action shall affect any
award previously granted under the plan. The maximum number of shares subject to
options and/or stock appreciation rights that each optionee may be granted
during a fiscal year is 1,000,000 shares, or 2,000,000 shares in the first
fiscal year of an optionee's employment with us. Restricted stock and stock unit
grants are limited to 500,000 shares per person in any fiscal year, or 1,000,000
shares, in the first fiscal year of a participant's employment with us.
Awards granted under our 2000 stock incentive plan are generally not
transferable by the optionee, and each option and stock appreciation right is
exercisable during the lifetime of the optionee only or by the optionee's
guardian or legal representative. The plan provides that a stock option or a
stock appreciation rights agreement under the plan may provide for accelerated
exercisability in the event of the optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the optionee's service to us.
In the case of restricted stock and stock units, unless the administrator
determines otherwise, the restricted stock purchase agreement shall grant us a
repurchase option exercisable after the purchaser's employment or other service
relationship with us has ended for any reason, including his or her death or
disability. Each award of restricted stock and stock units will be granted
pursuant to an agreement between us and the participant, and will vest in full
or in installments in accordance with the respective agreement, which may
provide for acceleration upon the occurrence of certain events. The purchase
price for shares repurchased pursuant to the restricted stock purchase agreement
shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to us. The repurchase option
shall lapse at a rate determined by the administrator.
The exercise price of all incentive stock options and nonstatutory stock
options granted automatically to non-employee directors must be at least equal
to the fair market value of our common stock on the date of grant. The exercise
price of other nonstatutory stock options and stock purchase rights granted
under the 2000 stock incentive plan is determined by the administrator, but with
respect to nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code
of 1986, as amended (Internal Revenue Code), the exercise price must be at least
equal to the fair market value of our common stock on the date of the grant.
With respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of our outstanding capital stock, the exercise price
of any incentive stock option granted must at least equal 110% of the fair
market value on the grant date and the term of such incentive stock option must
not exceed five years. The term of all other options granted under the 2000
stock incentive plan may not exceed ten years.
The 2000 stock incentive plan provides that in the event that our company
is a party to a merger or other reorganization, outstanding awards, other than
grants to directors, shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding awards by the surviving corporation or its parent, for
their continuation by us if we are the surviving corporation, for accelerated
vesting or for their cancellation with or without consideration. The plan
administrator may determine, at the time of granting an award or thereafter,
that such award shall become fully vested as to all shares subject to such award
in the event that a change in control occurs with respect to our company.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 employee stock purchase plan (2000 purchase plan) was adopted by
our board of directors on July 24, 2000 and was approved by our stockholders in
September 2000. The plan will become effective upon our initial public offering.
A total of 1,500,000 shares of our common stock will be reserved for issuance
under the 2000 purchase plan. Also, beginning with our first fiscal year
beginning after the effective date of the 2000 purchase plan, on the first day
of each fiscal year, shares will be added to the 2000 purchase plan equal to the
lesser of (a) 0.5% of the outstanding shares of our common stock on the last day
of the prior fiscal year, (b) 270,000 shares, or (c) such lesser number of
shares as may be determined by our board in its sole discretion.
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Under the 2000 purchase plan, which is intended to qualify under Section
423 of the Internal Revenue Code, our board of directors may determine the
duration and frequency of stock purchase periods. Initially the plan will
operate using consecutive, overlapping, twenty-four month offering periods. Each
offering period will include four approximately six-month purchase periods. The
offering periods generally start on the first trading day on or after February 1
and August 1 of each year, except for the first such offering period which
commences on the effective date of the initial public offering and ends on the
last trading day on or before January 31, 2002.
Employees of our company or of any designated subsidiary of ours will be
eligible to participate. However, no employee may be granted an opportunity to
purchase stock under the 2000 purchase plan if immediately after the grant, he
or she would own stock possessing 5% or more of the total combined voting power
or value of all classes of our capital stock.
The 2000 purchase plan permits participants to purchase our common stock
through payroll deductions of up to 10% of their total annual compensation.
Amounts deducted and accumulated by the participant are used to purchase shares
of common stock at the end of each purchase period. The price of stock purchased
under the 2000 purchase plan is generally 85% of the lower of the fair market
value of the common stock either at the beginning of the offering period (85% of
the price at which a share is first offered by the underwriters to the public in
the case of the first offering period) or at the end of the purchase period. In
the event the fair market value at the end of a purchase period is less than the
fair market value at the beginning of the offering period, the participants will
be withdrawn from the current offering period following exercise and
automatically re-enrolled in a new offering period. Participants may end their
participation at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with us.
Rights granted under the 2000 purchase plan are not transferable by a
participant other than upon his or her death or by a special determination by
the plan administrator. Each outstanding option under the 2000 purchase plan
will be subject to the acquisition agreement in the event we merge with or into
another corporation or sell substantially all of our assets.
Our board of directors has the authority to amend or terminate the 2000
purchase plan at any time for any reason. Unless earlier terminated by our board
of directors, the 2000 purchase plan will terminate automatically 10 years from
its effective date.
401(k) PLAN
Our 401(k) plan covers our employees located in the United States. The
401(k) plan is intended to qualify under Section 401(k) of the Internal Revenue
Code. Consequently, contributions to the 401(k) plan by the employees or by us,
and the investment earnings thereon, are not taxable to employees until
withdrawn from the 401(k) plan. Further, contributions by us, if any, will be
deductible by us when made. Employees may elect to contribute up to 15% of their
current annual compensation to the 401(k) plan up to the statutorily prescribed
annual limit. The 401(k) plan does not currently permit, but may in the future
be amended to permit, additional matching contributions to the 401(k) plan by us
on behalf of all participants in the 401(k) plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, we have included a
provision in our amended and restated certificate of incorporation to indemnify
our officers and directors against liability for monetary damages for breach or
alleged breach of their fiduciary duties as officers or directors, other than in
cases of fraud or other willful misconduct. Our bylaws provide that we will
indemnify our officers and directors to the maximum extent permitted by Delaware
law and may indemnify our other employees and agents to the maximum extent
permitted by Delaware. In addition, our bylaws provide that we will advance
expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. In addition, we plan
to enter into indemnification agreements with our officers and directors. The
indemnification agreements will require us, among other things, to indemnify
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officers and directors against liabilities that may arise by reason of their
status or service as officers and directors (but not for liabilities arising
from willful misconduct of a culpable nature), and to advance sums covering the
expenses they incurred as a result of any proceeding against them as to which
they could be indemnified.
We have obtained an insurance policy covering directors and officers for
claims they would otherwise be required to pay or for which we are required to
indemnify them.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of ours in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a material claim for
such indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
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RELATED PARTY TRANSACTIONS
Since January 1, 1997, there has not been any transaction or series of
similar transactions to which we were or are a party in which the amount
exceeded or exceeds $60,000 and in which any executive officer, director or any
holder of more than 5% of any class of our voting securities or any member of
the immediate family or any of the foregoing persons had or will have a direct
or indirect material interest, other than the transactions described below.
SERIES D FINANCING
On June 30, 2000, July 14, 2000 and October 23, 2000 we issued and sold an
aggregate of 6,326,932 shares of our Series D preferred stock at a purchase
price of $5.75 per share. We also issued warrants to purchase an aggregate of
1,178,400 shares of our common stock at an exercise price of $5.75 per share. Of
the 6,326,932 shares of Series D preferred stock and the 1,178,400 accompanying
warrants that we issued and sold, we issued and sold a total of 5,256,315 such
shares and a total of 1,051,254 warrants to the following executive officers,
directors, and greater than 5% stockholders of our company and persons
associated with them for a total purchase price of approximately $30.2 million.
NUMBER OF NUMBER OF TOTAL
PURCHASER SHARES WARRANTS PURCHASE PRICE
--------- --------- --------- --------------
Aether Capital, LLC..................................... 3,478,260 695,652 $19,999,995
Cornerstone Equity Investors IV, L.P. .................. 869,565 173,913 4,999,999
GSM Capital Limited Partnership......................... 516,519 103,302 2,969,984
Bank of Montreal Capital Corporation.................... 181,914 36,381 1,046,006
Working Ventures Canadian Fund, Inc..................... 173,913 34,782 1,000,000
Ventures West Investments Limited....................... 27,288 5,457 156,906
ARGC III, LLC........................................... 5,217 1,041 29,998
Sam Znaimer............................................. 3,639 726 20,924
Aether Capital, LLC is the investment arm of Aether Systems, Inc., which is
the sole member of Aether Capital LLC. David S. Oros, one of our directors,
serves as Chairman, Chief Executive Officer and President of Aether Systems,
Inc. Mr. Oros is also a director of OmniSky Corporation, in which Aether
Systems, Inc. is an investor. In August 1999, we entered into an agreement with
OmniSky for the development and sale of 100,000 of our Minstrel III and Minstrel
V cradle modems for the Palm III and Palm V handheld computing devices at unit
prices of $218.50 and $230.00, respectively, or an aggregate price of $22.7
million with a projected unit mix of 80% Minstrel V and 20% Minstrel III. Under
the agreement OmniSky paid total advances of $3.8 million in installments in
August and October of 1999 to be used for our procurement of long-lead-time
components. In addition, the agreement provided for a 4-month period during
which we would sell the Minstrel V exclusively to OmniSky. During that period we
sold approximately 7,000 Minstrel V units to OmniSky. The agreement also
required OmniSky to pay us $8.00 for each unit we activated for it and gave
OmniSky the option to obtain extended warranty coverage from us for $5.00 per
modem per year. Although we had sold approximately 21,000 units to OmniSky as of
the expiration of this agreement on May 1, 2000, we have been shipping and
provisioning the balance of 79,000 modems to it, 26,000 prior to September 21,
2000 and 53,000 pursuant to an open purchase order dated September 21, 2000,
while observing the same terms as those contained in the expired agreement with
the exception that we now charge OmniSky $12.00 per unit for activation services
which is the same price we currently charge our other customers for this
service. Since Mr. Oros joined our board in July 2000, we have sold
approximately 34,000 units to OmniSky. Pursuant to contracts we entered into
after executing the OmniSky agreement, we have sold similar products to other
parties at unit prices generally higher than those under our agreement with
OmniSky. We intend to complete the sale to OmniSky of the remaining balance of
approximately 40,000 units pursuant to this arrangement. We are currently
negotiating a new agreement with OmniSky whose terms and prices we expect will
be more commensurate with our recent customer contracts. There can be no
assurance that this agreement will be consummated.
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Cornerstone Equity Investors IV, L.P. is an investment fund whose managing
general partner is Cornerstone Equity Investors, LLC. Robert Getz and Mark
Rossi, two of our directors, are each managing directors of Cornerstone Equity
Investors, LLC.
Bank of Montreal Capital Corporation and Ventures West Investments Limited
are both controlled by Ventures West Capital Ltd. Sam Znaimer, one of our former
directors, is a senior vice president and a member of the board of directors of
Ventures West Capital Ltd.
GSM Capital Limited Partnership is an investment fund that is managed by
Argo Global Capital Inc. H.H. Haight, one of our directors, and Bernice Bradin,
one of our former directors, are both executives at Argo Global Capital, Inc.
ARGC III, LLC is an investment fund in which H.H. Haight, one of our
current directors, and Bernice Bradin, one of our former directors, are members.
Mr. Haight and Ms. Bradin are also both limited partners of Advent Partners
Limited Partnership, an entity that participated in some of our earlier
financing rounds. In addition, they are entitled to receive a percentage of the
carried interest payable to the managing general partner of each of Advent
Israel Limited Partnership, Advent Israel (Bermuda) Limited Partnership, Golden
Gate Development & Investment Limited Partnership and Digital Media &
Communications Limited Partnership provided these funds show a gain on their
investments. Each such fund purchased shares of our preferred stock in earlier
rounds of financing.
Working Ventures Canadian Fund, Inc. is a Canadian venture capital fund at
which Nathan Gibb, one of our directors, is an investment manager.
SERIES C FINANCING
On December 31, 1999, we issued and sold a total of 11,022,831 shares of
Series C preferred stock at a purchase price of $2.78 per share. We also issued
warrants to purchase a total of 6,277,854 and 29,568 shares of common stock at
an exercise price of $3.33 and $2.78 per share, respectively, on or prior to
December 31, 2004, including 4,158,783 warrants issued in conjunction with the
conversion of the convertible subordinated debentures, issued in June and July
1999, into shares of Series C preferred stock.
Of the 11,022,831 shares of Series C preferred stock that we issued and
sold, a total of 6,507,672 shares of Series C preferred stock and warrants to
purchase a total of 5,075,601 shares of common stock were issued and sold to the
following executive officers, directors and greater than 5% stockholders of our
company and persons affiliated with them for a total purchase price of
approximately $18.1 million:
NUMBER OF NUMBER OF TOTAL
PURCHASER SHARES WARRANTS PURCHASE PRICE
--------- --------- --------- --------------
Cornerstone Equity Investors IV, L.P. ................. 5,395,683 1,079,136 $15,000,000
GSM Capital Limited Partnership........................ 327,906 1,316,652 911,579
Bank of Montreal Capital Corporation................... 302,739 819,003 841,614
Working Ventures Canadian Fund, Inc. .................. 187,266 750,000 520,599
Marco Polo Industries Co., Ltd. ....................... 111,612 446,955 310,281
Entities affiliated with Advent International
Corporation.......................................... 131,004 524,622 364,191
Ventures West Investments Limited...................... 45,408 122,850 126,234
Sam Znaimer............................................ 6,054 16,383 16,830
Marco Polo Industries Co., Ltd., an investment firm, is owned by Horst
Pudwill, one of our former directors.
Advent International Corporation is an investment firm that beneficially
owns more than 5% of our voting capital stock. Advent participated in our
financings through its affiliates, Advent Partners Limited Partnership, Advent
Israel Limited Partnership, Advent Israel (Bermuda) Limited Partnership, Digital
Media & Communications Limited Partnership and Golden Gate Development &
Investment Limited Partnership.
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1999 BRIDGE FINANCING
On June 24, 1999 and July 15, 1999, we issued and sold convertible
subordinated debentures to purchasers in the total original principal amount of
$3,120,000 bearing interest at the rate of 8% per annum. Of this amount,
$500,000 was issued and sold by our subsidiary NWT. We also issued warrants to
purchase a total of 3,930,006 shares of common stock at an exercise price of
$0.67 per share on or prior to June 24, 2004 or July 15, 2004, respectively. NWT
also issued warrants to purchase 750,000 shares of NWT's common stock at an
exercise price of $0.67 per share. Upon the exercise of these NWT Warrants, the
resulting shares of NWT common stock are thereafter exchangeable on a
one-for-one basis for shares of our common stock. Immediately upon the closing
of our Series C preferred stock financing, the principal amount then outstanding
under the convertible subordinated debentures that we and NWT issued, together
with accrued but unpaid interest thereon, automatically converted into an
aggregate of 1,166,721 shares of Series C preferred stock at a price of $2.78
per share. In September 2000, the warrants that NWT issued in connection with
this financing were exchanged on a one-for-one basis for warrants to purchase
our common stock.
Of the $3,120,000 original principal amount of debentures that we and NWT
issued and sold, we and NWT issued and sold a total original principal amount of
$2,772,522 and warrants to purchase a total of 4,158,783 shares of our common
stock and NWT common stock to the following executive officers, directors or
greater than 5% stockholders of our company and persons affiliated with them:
TOTAL PRINCIPAL
AMOUNT OF
CONVERTIBLE
NUMBER OF SUBORDINATED
PURCHASER WARRANTS DEBENTURES
--------- --------- ---------------
GSM Capital Limited Partnership............................. 1,316,652 $877,768
Bank of Montreal Capital Corporation........................ 798,234 532,156
Working Ventures Canadian Fund, Inc. ....................... 750,000 500,000
Marco Polo Industries Co., Ltd. ............................ 446,955 297,970
Digital Media & Communications Limited Partnership.......... 285,393 190,262
Robert Corey................................................ 150,000 100,000
Ventures West Investments Limited........................... 119,736 79,824
Golden Gate Development & Investment Limited Partnership.... 118,722 79,148
Advent Israel Limited Partnership........................... 81,474 54,316
Advent Partners Limited Partnership......................... 39,033 26,022
Roger Hartman............................................... 30,000 20,000
Sam Znaimer................................................. 15,966 10,644
ARGC, LLC................................................... 6,618 4,412
Robert Corey is a former director and chief executive officer and Roger
Hartman is a former chief financial officer of ours.
ARGC, LLC is an investment fund in which H.H. Haight, one of our directors,
and Bernice Bradin, one of our former directors, are members.
SERIES B FINANCING
On December 23, 1997, April 24, 1998 and September 1, 1998, we issued and
sold a total of 6,252,843 shares of our Series B preferred stock at a purchase
price of $1.42 per share. We also issued warrants to purchase a total of
2,344,815 shares of common stock at an exercise price of $1.42 per share on or
prior to December 31, 2002 or December 31, 2004, depending on their date of
issuance. In addition, on December 23, 1997 and on April 24, 1998, our
subsidiary NWT issued an aggregate of 640,842 shares of its Series B preferred
stock at a purchase price of $1.42 per share and warrants to purchase a total of
240,315 shares of NWT's common stock at an exercise price of $1.42 per share on
or prior to December 31, 2002 or December 31, 2003, depending on their date of
issuance. In September 2000, these
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NWT shares and the accompanying NWT common stock purchase warrants were
exchanged on a one-for-one basis for shares of our Series B preferred stock, and
warrants to purchase our common stock.
Of the 6,893,685 shares of Series B preferred stock that each of Novatel
Wireless and NWT issued and sold, a total of 4,977,126 shares of Series B
preferred stock and warrants to purchase a total of 1,827,048 shares of common
stock were issued and sold to the following executive officers, directors and
greater than 5% stockholders of Novatel Wireless and persons affiliated with
them for a total purchase price of approximately $7.1 million.
NUMBER OF NUMBER OF TOTAL
PURCHASER SHARES WARRANTS PURCHASE PRICE
--------- --------- --------- --------------
GSM Capital Limited Partnership........................ 3,082,569 1,155,963 $4,377,248
Working Ventures Canadian Fund, Inc. .................. 640,842 240,315 909,996
Bank of Montreal Capital Corporation................... 530,379 198,891 753,138
Steven Sherman......................................... 352,113 132,042 500,000
Marco Polo Industries Co., Limited..................... 176,055 66,021 249,998
Sherman Capital Group, LLC............................. 105,000 -- 149,100
Ventures West Investments Limited...................... 79,557 29,835 112,971
Sam Znaimer............................................ 10,611 3,981 15,068
Sherman Capital Group, LLC is an investment firm at which Steven Sherman,
one of our directors, is the managing member.
SERIES A FINANCING
Between August 26, 1996, and December 11, 1997, we issued and sold a total
of 6,791,571 shares of our Series A preferred stock at a purchase price of $0.71
per share. In addition, during that period our subsidiary NWT issued a total of
3,755,394 shares of its Series A preferred stock at a purchase price of $0.71
per share. In September 2000, these NWT shares were exchanged on a one-for-one
basis for shares of our Series A preferred stock, which will automatically
convert into shares of our common stock immediately prior to the completion of
this offering.
Of the 10,546,965 shares of Series A preferred stock that we and NWT issued
and sold a total of 10,314,048 shares were issued and sold to the following
executive officers, directors and greater than 5% stockholders of our company
and persons affiliated with them for a total purchase price of approximately
$7.3 million.
NUMBER OF TOTAL
PURCHASER SHARES PURCHASE PRICE
--------- --------- --------------
Working Ventures Canadian Fund, Inc. ....................... 3,755,394 $2,666,330
Bank of Montreal Capital Corporation........................ 1,877,841 1,333,267
Digital Media & Communications Limited Partnership.......... 1,689,795 1,199,754
GSM Capital Limited Partnership............................. 865,602 614,577
Golden Gate Development & Investment Limited................ 703,125 499,219
Advent Israel Limited Partnership........................... 482,400 342,504
Steven Sherman.............................................. 324,030 230,061
Ventures West Investments Limited........................... 281,685 199,996
Advent Partners Limited Partnership......................... 231,120 164,095
Advent Israel (Bermuda) Limited Partnership................. 59,040 41,918
Sam Znaimer................................................. 37,536 26,651
ARGC, LLC................................................... 6,480 4,601
We believe that each transaction set forth above was made on terms no less
favorable to us than we could have obtained from unaffiliated third parties. All
future transactions, including loans, if any, between us and our officers,
directors and principal stockholders and their affiliates and any transaction
between us and any entity with which our officers, directors or greater than 5%
stockholders are affiliated will be
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approved by a majority of the members of the board of directors, including a
majority of the independent and disinterested outside members of our board of
directors and will be on terms no less favorable to us than we could obtain from
unaffiliated third parties.
RELATIONSHIPS WITH OFFICERS AND DIRECTORS
In June 1998 we entered into a consulting services agreement with one of
our directors, Steven Sherman. Pursuant to the agreement, Mr. Sherman agreed to
serve us as a special consultant for strategic business development in return
for monthly compensation in the amount of $7,000. In October 1999, this
agreement was terminated.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of November 10, 2000, and as adjusted for this
offering, by:
- each person or entity whom we know beneficially to own more than 5% of
our outstanding stock;
- each of our directors and named executive officers; and
- all directors and executive officers as a group.
Each stockholder's percentage ownership in the following table prior to the
offering is based on 45,113,581 shares of common stock outstanding as of
November 10, 2000, assuming conversion of all outstanding shares of preferred
stock. For purposes of calculating each stockholder's percentage ownership, all
options and warrants exercisable within 60 days of November 10, 2000 held by the
particular stockholder and that are included in the first column are treated as
outstanding shares, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person. The numbers shown in the table below
assume no exercise by the underwriters of their over-allotment option.
Except as otherwise noted, the principal address of each person listed in
the table below is c/o Novatel Wireless, Inc., 9360 Towne Centre Drive, Suite
110, San Diego, CA 92121. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and includes voting and
investment power with respect to shares. To our knowledge, except under
applicable community property laws or as otherwise indicated, the persons named
in the table have sole voting and sole investment control with respect to all
shares beneficially owned.
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
----------------------------
NUMBER OF SHARES PRIOR TO AFTER
BENEFICIALLY THE THE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------------------------ ---------------- ------------ ------------
Cornerstone Equity Investors LLC(1)................... 7,518,297 16.21% 14.09%
717 Fifth Avenue, Suite 1100
New York, NY 10022.
Robert Getz(1)........................................ 7,518,297 16.21 14.09
Mark Rossi(1)......................................... 7,518,297 16.21 14.09
Entities affiliated with GSM Capital Limited
Partnership(2)...................................... 7,391,250 15.50 13.51
Lynnfield Woods Office Park
210 Broadway, Suite 101
Lynnfield, MA 01949
H.H. Haight(2)........................................ 7,391,250 15.50 13.51
Working Ventures Canadian Fund, Inc.(3)............... 5,782,512 12.53 10.88
250 Bloor Street, East Suite 1600
Toronto, Ontario
CANADA M4W 1E6
Nathan Gibb(3)........................................ -- -- --
Steven Sherman(4)..................................... 4,991,367 11.02 9.54
Entities affiliated with Ventures West Capital
Limited(5).......................................... 4,716,816 10.17 8.84
1285 West Pender Street, Suite 280
Vancouver, British Columbia
CANADA V6E 4B1
Aether Capital, LLC(6)................................ 4,229,616 9.23 8.01
11460 Cronridge Drive
Owings Mills, MD
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PERCENTAGE OF SHARES
BENEFICIALLY OWNED
----------------------------
NUMBER OF SHARES PRIOR TO AFTER
BENEFICIALLY THE THE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------------------------ ---------------- ------------ ------------
David Oros(6)......................................... 4,229,616 9.23 8.01
Entities affiliated with Advent International
Corporation(7)...................................... 3,821,106 8.37 7.26
75 State Street, 29th Floor
Boston, MA 02109
Marco Polo Industries Co., Ltd.(8).................... 3,492,273 7.66 6.64
1806, 18F, Central Plaza
18 Harbour Road
Wanchai, Hong Kong
Hong Kong
Ambrose Tam(9)........................................ 1,729,350 3.83 3.31
John Major(10)........................................ 1,062,789 2.36 2.04
Melvin Flowers........................................ -- -- --
Bruce Gray(11)........................................ 97,500 * *
Peter Leparulo(12).................................... 5,214 * *
Steven Schlief........................................ -- -- --
---------- ----- -----
All directors and executive officers as a group (12
persons)............................................ 32,807,895 64.28% 56.53%
---------- ----- -----
- ---------------
* Less than one percent of the outstanding shares of our common stock.
(1) Represents 6,265,248 shares of common stock and warrants to purchase
1,253,049 shares of common stock. Mark Rossi and Robert Getz hold voting
and investment control over these securities and each disclaims beneficial
ownership of these securities except to the extent of his respective
pecuniary interest.
(2) Represents 4,807,200 shares of common stock and warrants to purchase
2,584,050 shares of common stock. H.H. Haight and Bernice Bradin hold
voting and investment control over these securities and each disclaims
beneficial ownership of these securities except to the extent of his or her
respective pecuniary interest.
(3) Represents 4,757,415 shares of common stock and warrants to purchase
1,025,097 shares of common stock. Working Ventures Canadian Fund Inc. is a
widely held Canadian mutual fund whose board of directors holds voting and
investment control over these securities. Mr. Gibb disclaims beneficial
ownership of these securities except to the extent of his pecuniary
interest.
(4) Represents 4,791,825 shares of common stock, warrants to purchase 132,042
shares of common stock and options to purchase 67,500 shares of common
stock which are vested and immediately exercisable.
(5) Represents 3,456,954 shares of common stock and warrants to purchase
1,259,862 share of common stock. The board of directors of Ventures West
Capital Limited, which is composed of Ted Anderson, Barry Gekiere, Nancy
Harrison, Robin Louis, Howard Riback and Sam Znaimer, holds voting and
investment control with respect to 3,326,811 shares of common stock and
warrants to purchase 1,212,417 shares of common stock. Sam Znaimer holds
voting and investment control over 57,840 shares of common stock and
warrants to purchase 21,090 shares of common stock. Robin Louis holds
voting and investment control over 72,303 shares of common stock and
warrants to purchase 26,355 shares of common stock. Both Messrs. Znaimer
and Louis disclaim beneficial ownership of the shares that Ventures West
Capital Limited controls except to the extent of his pecuniary interest.
(6) Represents 3,478,260 shares of common stock and warrants to purchase
695,652 shares of common stock, held of record by Aether Capital LLC. Mr.
Oros is Chairman, Chief Executive Officer and President of Aether Systems,
Inc., the sole member of Aether Capital, LLC. The board of directors of
Aether Systems, Inc. holds voting and investment control over these
securities. Mr. Oros disclaims beneficial ownership of these securities
except to the extent of his pecuniary interest. Also represents 36,666
shares of common stock and warrants to purchase 19,038 shares of common
stock held of record by Mr. Oros.
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(7) Represents 3,296,484 shares of common stock and warrants to purchase
524,622 shares of common stock. In its capacity as manager of a number of
investment funds that are the holders of record of our securities, Advent
International Corporation exercises voting and investment control with
respect to all our securities of which these funds are the holders of
record. Advent International Corporation exercises its voting and
investment control through a group of four persons: Douglas R. Brown,
President and Chief Executive Officer, Andrew I. Fillat, Senior Vice
President responsible for venture investments in North America, Greg C.
Smitherman, Vice President responsible for the investment in the Company,
and Janet L. Hennessy, Vice President responsible for monitoring public
securities, none of whom may act independently and a majority of whom must
act in concert to exercise voting or investment control over these
securities.
(8) Represents 2,979,297 shares of common stock and warrants to purchase
512,976 shares of common stock. Horst Pudwill owns a limited partnership
interest in Marco Polo Industries Co., Ltd., holds voting and investment
control over these securities and disclaims beneficial ownership of them
except to the extent of his pecuniary interest.
(9) Represents 1,661,850 shares of common stock and options to purchase 67,500
shares of our common stock which are vested and immediately exercisable.
(10) Represents 607,308 shares of common stock issuable upon exercise of
immediately exercisable options and 455,481 shares of common stock issuable
upon the exercise of options which may become exercisable before December
31, 2000.
(11) Represents options to purchase 97,500 shares of common stock which are
vested and immediately exercisable.
(12) Represents 4,347 shares of common stock and warrants to purchase 867 shares
of common stock, but excludes options to purchase 600,000 shares of common
stock which are unvested.
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DESCRIPTION OF SECURITIES
Upon the completion of this offering, we will be authorized to issue up to
350,000,000 shares of common stock, $0.001 par value per share, and up to
15,000,000 shares of undesignated preferred stock, $0.001 par value per share.
All shares of preferred stock currently outstanding will be converted into
shares of common stock upon the completion of this offering. As of November 10,
2000, assuming conversion of all outstanding shares of preferred stock into
common stock, there were outstanding 45,113,581 shares of our common stock
warrants to purchase 10,542,090 shares of common stock, and options to purchase
10,228,094 shares of common stock.
The following description of our securities does not purport to be complete
and is subject to and qualified by our amended and restated certificate of
incorporation and by our amended and restated bylaws, each of which is included
as an exhibit to the registration statement of which this prospectus forms a
part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of November 10, 2000, we had 76 holders of record of our common stock,
assuming the conversion of all outstanding shares of our preferred stock. There
will be 52,113,581 shares of common stock outstanding after giving effect to
this offering, based on the number of shares outstanding as of November 10,
2000, assuming no exercise of the underwriter's overallotment option or exercise
of outstanding warrants or options under our stock option plans after November
10, 2000.
The holders of our common stock are entitled to one vote for each share
held of record on each matter submitted to a vote of our stockholders. Subject
to preferences that may be applicable to any outstanding preferred stock,
holders of our common stock are entitled to receive ratably such dividends as
may be declared by our board of directors from funds legally available for that
purpose. See "Dividend Policy." In the event of our liquidation, dissolution or
winding up, the holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities and subject to the prior
distribution rights of any outstanding preferred stock. Our common stock carries
no preemptive or conversion rights or other subscription rights and there are no
redemption or sinking fund provisions applicable to it. The outstanding shares
of common stock are, and the shares of common stock to be issued upon completion
of this offering will be, duly authorized, validly issued, fully paid and non-
assessable.
PREFERRED STOCK
Our board of directors has the authority, without the need for further
action by our stockholders, to issue any or all our authorized but unissued
shares of preferred stock in one or more series. Our board of directors also has
the authority to designate the rights, preferences, privileges and restrictions
of each such series, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series. Any series of
preferred stock may possess voting, dividend, liquidation and redemption rights
superior to those of our common stock.
The issuance of preferred stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of entrenching our board of directors or of delaying, deferring or preventing a
third party from acquiring a majority of our outstanding voting stock. The
issuance of preferred stock with voting or conversion rights may also adversely
affect the voting power of the holders of our common stock. In certain
circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of shares of our common stock and delaying or
preventing a change of control. As of the closing of the offering, no shares of
preferred stock will be outstanding. We currently have no plans to issue any
shares of, or designate any series of, our preferred stock.
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WARRANTS
As of November 10, 2000, there were warrants outstanding to purchase a
total of 10,542,090 shares of our common stock. The warrants to purchase shares
of preferred stock that survive the closing of this offering will automatically
convert into warrants to purchase shares of our common stock on the closing of
this offering on a one-for-one basis. Generally, each warrant contains
provisions for the adjustment of its exercise price and the number of shares
issuable upon its exercise upon the occurrence of any stock dividend, stock
split, reorganization, reclassification, consolidation and certain dilutive
issuances of securities at prices below the then existing applicable warrant
exercise price. In addition, the shares of our common stock issuable upon any
exercise of the warrants provide their holders with rights to have those shares
registered and qualified under federal and state securities laws, as discussed
more fully below. Some of these warrants have net exercise provisions under
which the holder may, in lieu of payment of the exercise price in cash,
surrender the warrant and receive a net amount of shares based on the fair
market value of our common stock at the time of exercise of the warrant after
deduction of the aggregate exercise price.
REGISTRATION RIGHTS
Upon completion of this offering, under an amended and restated
registration rights agreement dated June 15, 1999, the holders of approximately
17,440,650 shares of our common stock and warrants to purchase approximately
2,505,904 shares of our common stock will be entitled to certain rights with
respect to the registration of shares under the Securities Act. Under the terms
of this agreement, if we propose to register any of our securities under the
Securities Act, these holders are entitled to notice of the registration and are
entitled to include shares of common stock in the registration. The rights are
subject to conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares included in the registration. At
any time following 180 days after this offering and prior to five years after
this offering, the holders of a majority of these securities may require us to
file registration statements under the Securities Act with respect to their
shares of common stock, and we are required to use our best efforts to effect
the registrations, subject to conditions and limitations. Additionally, if any
holder of these securities requests that we file a registration statement on
Form S-3 when such form becomes available to us, we are required to effect such
registration as long as the holders propose to sell such securities at an
aggregate price to the public of not less than $500,000. Subject to the
limitations contained in the agreement, we will be responsible for paying all
registration expenses and the holders selling their shares will be responsible
for paying all selling expenses.
In addition, upon completion of this offering, under an amended and
restated investors' rights agreement dated June 30, 2000, the holders of
approximately 17,356,216 shares of common stock and warrants to purchase up to
approximately 8,036,184 shares of common stock will be entitled to certain
rights with respect to the registration of shares under the Securities Act. If
we propose to register any of our securities under the Securities Act, these
holders are entitled to notice of the registration and are entitled to include
shares of common stock in the registration. The rights are subject to conditions
and limitations, among them the right of the underwriters of an offering to
limit the number of shares included in the registration. At any time following
the first anniversary of this offering, the holders of at least 30% of these
securities may require that we file up to two registration statements under the
Securities Act with respect to their shares of common stock, and we are required
to use our best efforts to effect those registrations, subject to conditions and
limitations. Additionally, if any holder of these securities requests that we to
file a registration statement on Form S-3 when such form becomes available to
us, we are required to effect such registration as long as the holders propose
to sell such securities at an aggregate price to the public of not less than
$1,000,000.
The registration rights granted in this amended and restated investors'
rights agreement will expire on the third anniversary of this offering, or
earlier with respect to a particular stockholder if that holder can resell all
its securities in a three month period under Rule 144 of the Securities Act.
Subject to the limitations contained in the amended and restated investors'
rights agreement, we will be responsible for
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paying all registration expenses and the holders selling their shares will be
responsible for paying all selling expenses.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our amended and restated certificate
of incorporation and bylaws could make it more difficult for a third party to
acquire us through a tender offer, a proxy contest or otherwise and the removal
of incumbent officers and directors. These provisions are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of us to negotiate with us first.
We believe that the benefits of increased protection of our potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire
or restructure us outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms.
Our amended and restated certificate of incorporation authorizes our board
to establish one or more series of undesignated preferred stock, the terms of
which can be determined by our board at the time of issuance without the need
for stockholder approval. Our amended and restated certificate of incorporation
also provides that stockholder action can be taken only at an annual or special
meeting of stockholders and may not be taken by written consent. In addition,
our bylaws provide that special meetings of stockholders can be called only by
our board of directors, the chairman of our board or our chief executive
officer, but do not permit our stockholders to call a special meeting of
stockholders. Our amended and restated certificate of incorporation also
provides that our board of directors is divided into three classes, with each
director assigned to a class with a term of three years. Our bylaws establish an
advance notice procedure with regard to stockholder proposals and the nomination
of candidates for election of directors other than by or at the direction of our
board of directors.
We are subject to Section 203 of the Delaware General Corporation Law,
which includes anti-takeover provisions. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date that
the person became an interested stockholder unless, subject to exceptions, the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior to the determination of interested
stockholder status, did own, 15% or more of the corporation's voting stock.
These provisions may have an anti-takeover effect, including discouraging
attempts that might result in the payment of a premium over the market price for
the shares of common stock held by stockholders, or delaying, deferring or
preventing a change in control without further action by the stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for shares of our common stock is U.S.
Stock Transfer Corporation. The transfer agent's address and telephone number is
1745 Gardena Avenue, Glendale, California 91204, (818) 502-1404.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no market for our common stock.
Future sales of substantial amounts of common stock, including shares issuable
upon the exercise of outstanding options and warrants, in the public market
could adversely affect prevailing market prices. Sales of substantially all
amounts of our common stock in the public market after contractual restrictions
lapse could adversely affect the prevailing market price and our ability to
raise equity capital in the future.
Upon completion of the offering, we will have outstanding 52,113,581 shares
of common stock, and 53,163,581 if the underwriters exercise their overallotment
option in full, which excludes:
- 10,228,094 shares of common stock that could be issued upon the exercise
of options outstanding as of November 10, 2000;
- 10,542,090 shares of common stock that could be issued upon the exercise
of warrants outstanding as of November 10, 2000;
- 5,781,883 shares of common stock that could be issued in the future under
our stock option plans as of November 10, 2000;
- 1,500,000 shares of common stock that could be issued in the future under
our 2000 employee stock purchase plan.
Of the outstanding shares, all the shares of common stock sold in this
offering will be freely tradable without restriction under the Securities Act,
except that shares purchased by our affiliates, as Rule 144 promulgated under
the Securities Act defines that term, may be sold only in compliance with the
limitations described below. The remaining 45,113,581 shares of common stock
will be deemed "restricted securities" as defined under Rule 144. Restricted
shares may be sold in the public market only if they are registered under the
Securities Act or if they qualify for an exemption from registration under Rules
144 or 701 promulgated under the Securities Act, which we summarize below.
Subject to the lock-up agreements described below in "Underwriting" and the
provisions of Rules 144 and 701, shares will be available for sale in the public
market as follows:
NUMBER OF SHARES DATE
- ---------------- ----
7,018,750 After the date of this prospectus, freely tradable shares
sold in this offering and shares eligible for resale under
Rule 144(k) that are not subject to the 180-day lock-up.
37,581,171 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these share are saleable under Rule
144 (subject, in some cases, to volume limitations).
3,187,554 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these share are saleable under Rule
701.
7,505,332 After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not
yet saleable under Rule 144.
Credit Suisse First Boston Corporation may, in its sole discretion and at
any time without notice, release some or all of the securities subject to the
lock-up agreements prior to the expiration of the 180-day lock-up period,
although we are not aware of any current intention for them to do so.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of our common stock then outstanding, or the average weekly
trading volume of the common stock on The Nasdaq National Market during the four
calendar weeks preceding the filing with the Securities and Exchange Commission
of a notice on Form 144 with respect to the proposed sale. Sales under Rule 144
are also subject to manner-of-sale provisions and notice requirements and to the
availability of current public information about us.
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RULE 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a proposed disposition of the subject
securities and who has beneficially owned the shares proposed to be sold for at
least two years is entitled to sell those shares without complying with the
manner-of-sale, public information, volume limitation or notice provisions of
Rule 144. However, because substantially all shares that we have issued are
subject to lock-up agreements, they will become eligible for re-sale only when
the 180-day lock-up agreements expire. As a result, they may be sold 90 days
after the offering only if the holder obtains our prior written consent.
RULE 701
Any of our employees, officers, directors or consultants who purchased his
or her shares under a written compensatory plan or contract may be entitled to
sell those shares in reliance on Rule 701. Rule 701 permits our affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell these shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. Under this rule, all holders of Rule 701 shares are required to wait
until 90 days after the date of this prospectus before selling those shares.
However, because substantially all shares that we have issued under Rule 701 are
subject to lock-up agreements, they will become eligible for sale only when the
180-day lock-up agreements expire. As a result, they may be sold 90 days after
the offering only if the holder obtains our prior written consent.
REGISTRATION RIGHTS
Following this offering, under specified circumstances and subject to
customary conditions, holders of approximately 45,338,954 shares of our common
stock, including approximately 10,542,090 shares that may be acquired upon the
exercise of warrants to purchase our common stock, will have registration rights
with respect to their shares of common stock. These registration rights require
us to register their shares of common stock under the Securities Act, and permit
these holders to participate in any future registrations of our securities. If
the holders of these registrable securities request that we register their
shares, and if the registration is declared effective, these shares will become
freely tradable without restriction under the Securities Act. Any sales of
securities by these stockholders could have a material adverse effect on the
trading price of our common stock. See "Description of
Securities -- Registration Rights."
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IMPORTANT UNITED STATES TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF OUR COMMON STOCK
This section is a general discussion of important United States federal
income and estate tax consequences of the ownership and disposition of our
common stock by a non-U.S. holder. You are a "non-U.S. holder" if you are, for
United States federal income tax purposes:
- a nonresident alien individual;
- a foreign corporation;
- a foreign partnership; or
- an estate or trust that in either case is not subject to United States
federal income tax on a net income basis on income or gain from our
common stock.
We do not, however, discuss all aspects of United States federal taxation
that may be important to a particular non-U.S. holder in light of specific facts
and circumstances relevant to that non-U.S. holder. For example, this section
does not describe special tax rules that could apply to a non-U.S. holder who
was previously a U.S. resident or citizen. This section also does not address
the treatment of a non-U.S. holder under the laws of any state, local or foreign
taxing jurisdiction. This section is based on the tax laws of the United States,
including the Internal Revenue Code of 1986, as amended, or the Code, existing
and proposed regulations, and administrative and judicial interpretations, all
as currently in effect. These laws are subject to change, possibly on a
retroactive basis.
YOU ARE URGED TO CONSULT A TAX ADVISOR REGARDING THE UNITED STATES FEDERAL
TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF OUR COMMON STOCK IN YOUR
PARTICULAR CIRCUMSTANCES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER
THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.
DIVIDENDS
Except as described below, if you are a non-U.S. holder of our common
stock, dividends paid, if any, to you are subject to withholding of United
States federal income tax at a 30% rate or at a lower rate if you are eligible
for the benefits of an income tax treaty that provides for a lower rate. Under
currently effective United States Treasury regulations, for purposes of
determining if dividends are subject to the 30% withholding tax, dividends paid
to an address in a foreign country are presumed to be paid to a resident of that
country, unless the person making the payment has knowledge to the contrary.
Under current interpretations of United States Treasury regulations, this
presumption also applies for purposes of determining whether a lower withholding
rate applies under an income tax treaty.
Under United States Treasury regulations that will generally apply to
dividends paid after December 31, 2000, you must satisfy certification
requirements in order to claim the benefit of a lower treaty rate. In addition,
if you are a partner in a foreign partnership, you, as well as the foreign
partnership, must satisfy the certification requirements and the partnership
must provide certain information. A look-through rule will apply in the case of
tiered partnerships.
If you are eligible for a reduced rate of United States withholding tax
under a tax treaty, you may obtain a refund of any amounts withheld in excess of
that tax by filing a refund claim with the United States Internal Revenue
Service, or the IRS.
If the dividends are "effectively connected" with your conduct of a trade
or business within the United States, and, if required by a tax treaty, the
dividends are attributable to a permanent establishment that you maintain in the
United States, then the dividends generally are not subject to withholding tax.
Instead, "effectively connected" dividends are taxed at rates applicable to
United States citizens, resident aliens and domestic United States corporations.
If you are a corporate non-U.S. holder, "effectively connected" dividends
that you receive may be subject to an additional "branch profits tax" at a 30%
rate or at a lower rate if you are eligible for the benefits of an income tax
treaty that provides for a lower rate.
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GAIN ON DISPOSITION OF COMMON STOCK
If you are a non-U.S. holder, you generally will not be subject to United
States federal income tax on gain that you recognize on a disposition of our
common stock unless:
- the gain is "effectively connected" with your conduct of a trade or
business in the United States, and the gain is attributable to a
permanent establishment that you maintain in the United States, if that
is required by an applicable income tax treaty as a condition for
subjecting you to United States taxation on a net income basis;
- you are an individual, you hold the common stock as a capital asset, you
are present in the United States for 183 or more days of the taxable year
of the sale or other disposition and certain other conditions exist; or
- we are or have been a United States real property holding corporation for
federal income tax purposes and you held, directly or indirectly, at any
time during the five-year period ending on the date of disposition more
than 5% of our common stock and you are not eligible for any treaty
exemption.
If you are an individual non-U.S. holder described in the first bullet
point above, you will be subject to tax on the net gain derived from the sale
under regular graduated United States federal income tax rates, if you are an
individual non-U.S. holder described in the second bullet point above, you will
be subject to a flat 30% tax on the gain derived from the sale, which may be
offset by United States source capital losses (even though you are not
considered a resident of the United States). If you are a non-U.S. holder that
is a foreign corporation and you are described in the first bullet point above,
"effectively connected" gains that you recognize may also, in some
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
at a lower rate if you are eligible for the benefits of an income tax treaty
that provides for a lower rate.
We have not been, are not and do not anticipate becoming a United States
real property holding corporation for United States federal income tax purposes.
Special rules may apply to certain non-U.S. holders, such as "controlled
foreign corporations," "passive foreign investment companies," "foreign personal
holding companies" and corporations that accumulate earnings to avoid United
States federal income tax, that are subject to special treatment under the Code.
These entities should consult their own tax advisors to determine the United
States federal, state, local and other tax consequences that may be relevant to
them.
FEDERAL ESTATE TAXES
Common stock held by an individual who is a non-U.S. holder at the time of
death will be included in the holder's gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the IRS and to each non-U.S. holder the amount
of dividends paid to each holder and the tax withheld with respect to the
dividends, regardless of whether withholding was required. Copies of the
information returns reporting dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder
resides under the provisions of an applicable tax treaty.
Under currently applicable law, if you are a non-U.S. holder, dividends
paid to you at an address outside the United States generally will not be
subject to backup withholding tax. Beginning with payments made after December
31, 2000, a non-U.S. holder will be entitled to such exemption only if the
non-U.S. holder provides a Form W-8BEN or otherwise meets documentary evidence
requirements for establishing that it is a non-U.S. holder, or otherwise
establishes an exemption.
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The gross proceeds from the disposition of our common stock may be subject
to information reporting and backup withholding tax at a rate of 31%. If you
sell your common stock outside of the United States through a non-U.S. office of
a non-U.S. broker, and the sales proceeds are paid to you outside the United
States, then United States backup withholding and information reporting
requirements generally will not apply to that payment. However, United States
information reporting, but not backup withholding, will apply to a payment of
sales proceeds, even if that payment is made outside the United States, if you
sell your common stock through a non-U.S. office of a broker that:
- is a United States person;
- derives 50% or more of its gross income in specific periods from the
conduct of a trade or business in the United States;
- is a "controlled foreign corporation" as to the United States; or
- with respect to payments made after December 31, 2000 is a foreign
partnership, if at any time during its tax year:
- one or more of its partners are U.S. persons, as defined in United
States Treasury regulations, who in the aggregate hold more than 50% of
the income or capital interests in the partnership; or
- at any time during its tax year, the foreign partnership is engaged in a
United States trade or business
unless the broker has documentary evidence in its files that you are a non-U.S.
person or you otherwise establish an exemption.
If you receive payments of the proceeds of a sale of common stock to or
through a United States office of a broker, the payment is subject to both
United States backup withholding and information reporting unless you certify,
under penalty of perjury, that you are a non-U.S. person or you otherwise
establish an exemption.
You generally may obtain a refund of any amounts withheld under the backup
withholding rules that exceed your income tax liability by filing a refund claim
with the IRS.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation, U.S.
Bancorp Piper Jaffray Inc. and Banc of America Securities LLC are acting as
representatives, the following respective numbers of shares of common stock:
NUMBER
UNDERWRITER OF SHARES
----------- ---------
Credit Suisse First Boston Corporation......................
U.S. Bancorp Piper Jaffray Inc..............................
Banc of America Securities LLC..............................
---------
Total..................................................... 7,000,000
=========
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 1,050,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
Underwriting Discounts and
Commissions paid by us.................. $ $ $ $
Expenses payable by us.................... $ $ $ $
The representatives have informed us that the underwriters do not expect
discretionary sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or any securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.
Our officers and directors and the holders of all but 18,750 shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock have agreed that they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction which
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership of our common stock, whether any of these transactions are to be
settled by delivery of our common stock or other securities, in cash or
otherwise, or publicly disclose the intention to make any such offer, sale,
pledge
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or disposition, or to enter into any of these types of transactions, swap, hedge
or other arrangement, without, in each case, the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
Subject to notice of issuance, our common stock has been approved for
listing on the Nasdaq Stock Market's National Market under the symbol "NVTL".
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include the following:
- the information included in this prospectus and otherwise available to
the representatives;
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our business development and our current financial
condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
We cannot be sure that the initial public offering price will correspond to
the price at which the common stock will trade in the public market following
this offering or that an active trading market for the common stock will develop
and continue after this offering.
U.S. Bancorp Piper Jaffray Inc. and its affiliates have provided financial
services to us in the past for which they received customary compensation.
Prior to this offering, U.S. Bancorp Piper Jaffray Inc. participated in our
private placement as placement agent in which it received warrants to purchase
our common stock as compensation and its affiliates purchased our Series C
preferred stock and warrants to purchase our common stock. In addition, U.S.
Bancorp Piper Jaffray's affiliates purchased Series D preferred stock and
warrants to purchase our common stock. U.S. Bancorp Piper Jaffray and its
affiliates currently hold 6,453 shares of common stock, 55,755 shares of our
Series C preferred stock, 28,689 shares of our Series D preferred stock and
warrants to purchase 187,842 shares of our common stock. U.S. Bancorp Piper
Jaffray and its affiliates are in compliance with section 2710 of the National
Association of Securities Dealers Rules of Conduct regarding underwriter
compensation.
In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
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- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option -- a naked short position -- that
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors
who purchase in the offering.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of the common
stock or preventing or retarding a decline in the market price of the common
stock. As a result the price of the common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the common stock are made. Any resale of the common stock in Canada
must be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase such common stock without the benefit of a prospectus qualified
under those securities laws,
- where required by law, the purchaser is purchasing as a principal and not
as an agent, and
- the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All the issuer's directors and officers as well as the experts we name
herein may be located outside Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences in their particular circumstances
of an investment in our common stock and about the eligibility of our common
stock for investment by the purchaser under relevant Canadian legislation.
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California. Orrick,
Herrington & Sutcliffe LLP owns a total of 17,391 shares of our preferred stock
and warrants to purchase 3,477 shares of our common stock. Individuals who are
partners of Orrick, Herrington & Sutcliffe LLP own 7,044 shares of our preferred
stock and warrants to purchase 1,386 shares of our common stock. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Latham & Watkins, Los Angeles, California.
EXPERTS
The consolidated balance sheets as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31, 1999
included in the prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in accounting and auditing in giving said
report.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered by this prospectus. This prospectus does not contain all the information
set forth in the registration statement and its exhibits and schedules. For
further information about us and our common stock, we refer you to the
registration statement and to its exhibits and schedules. Statements made in
this prospectus concerning the contents of any document referred to in this
prospectus are not necessarily complete. With respect to each such document
filed as an exhibit to the registration statement, we refer you to the exhibit
for a more complete description of the matter involved. Each statement in this
prospectus relating to a contract or document filed as an exhibit to the
registration statement is qualified in all respects by the filed exhibit. You
may read or obtain a copy of the registration statement with exhibits at the
SEC's public reference room located at 450 Fifth Street, N.W., Washington, DC
20549. You may obtain information on the operation of the public reference room
by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the site is
http://www.sec.gov.
As a result of the offering, the information and reporting requirements of
the Securities Exchange Act of 1934, as amended, will apply to us. We will
fulfill our obligations with respect to those requirements by filing periodic
reports and other information with the SEC. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
------------------
F-1
83
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Novatel Wireless, Inc.:
We have audited the accompanying consolidated balance sheets of Novatel
Wireless, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Novatel Wireless, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II -- Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
San Diego, California
September 13, 2000
F-2
84
NOVATEL WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
--------------------------- SEPTEMBER 30, EQUITY
1998 1999 2000 SEPTEMBER 30, 2000
------------ ------------ ------------- ------------------
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................... $ 3,497,000 $ 25,455,000 $ 13,893,000
Short-term investments...................... 296,000 -- --
Accounts receivable, net of reserve of
$44,000
(1998), $181,000 (1999), and $293,000
(2000).................................. 607,000 1,345,000 12,091,000
Inventories................................. 656,000 4,706,000 8,927,000
Due from contract manufacturers............. -- 4,732,000 2,627,000
Prepaid expenses and other.................. 224,000 480,000 3,301,000
------------ ------------ ------------
Total current assets...................... 5,280,000 36,718,000 40,839,000
------------ ------------ ------------
Property and equipment, net................. 904,000 1,346,000 5,264,000
Intangible asset............................ -- -- 1,735,000
Other assets................................ -- 54,000 223,000
------------ ------------ ------------
$ 6,184,000 $ 38,118,000 $ 48,061,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................ $ 1,169,000 $ 11,560,000 $ 14,884,000
Accrued expenses............................ 728,000 1,174,000 3,003,000
Deferred revenues........................... -- 8,134,000 2,878,000
Current portion of capital lease
obligations............................... -- 81,000 71,000
------------ ------------ ------------
Total current liabilities................. 1,897,000 20,949,000 20,836,000
------------ ------------ ------------
Capital lease obligations, net of current
portion..................................... -- 106,000 289,000
Convertible and redeemable minority
interest.................................... 4,100,000 4,386,000 --
Convertible and redeemable preferred stock,
13,044,414 (1998), 24,067,245 (1999),
28,463,481 (2000), and 0 (Pro Forma) shares
issued and outstanding, at liquidation
value, net of unamortized offering costs of
$127,000 (1998), $2,875,000 (1999) and
$2,438,000 (2000)........................... 14,812,000 43,805,000 51,492,000
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, par value $.001, 7,800,000
shares authorized, 0 (1998 and 1999) and
5,892,150 (2000) and 0 (Pro Forma) issued
and outstanding........................... -- -- 6,000 --
Common stock, par value $.001, 79,500,000
shares authorized, 9,711,630 (1998),
9,752,880 (1999), 10,314,840 (2000) and
44,670,471 (Pro Forma) shares issued and
outstanding............................... 10,000 10,000 10,000 $ 45,000
Additional paid-in capital.................. 775,000 4,784,000 68,136,000 119,599,000
Deferred stock compensation................. (161,000) (800,000) (24,013,000) (24,013,000)
Accumulated deficit......................... (15,249,000) (35,122,000) (68,695,000) (68,695,000)
------------ ------------ ------------ ------------
Total stockholders' equity (deficit)...... (14,625,000) (31,128,000) (24,556,000) $ 26,936,000
------------ ------------ ------------ ------------
$ 6,184,000 $ 38,118,000 $ 48,061,000
============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
85
NOVATEL WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- --------------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
Revenue.................... $ 3,354,000 $ 5,378,000 $ 9,556,000 $ 5,514,000 $ 33,408,000
Cost of revenue............ 1,856,000 3,433,000 11,955,000 5,751,000 34,970,000
----------- ----------- ------------ ------------ ------------
Gross margin.......... 1,498,000 1,945,000 (2,399,000) (237,000) (1,562,000)
----------- ----------- ------------ ------------ ------------
Operating costs and
expenses:
Research and
development........... 1,995,000 2,333,000 3,717,000 1,926,000 8,902,000
Sales and marketing...... 2,058,000 2,685,000 4,480,000 2,630,000 10,468,000
General and
administrative........ 1,944,000 2,496,000 4,443,000 3,335,000 3,345,000
Amortization of deferred
stock
compensation(*)....... -- 115,000 220,000 166,000 6,523,000
----------- ----------- ------------ ------------ ------------
5,997,000 7,629,000 12,860,000 8,057,000 29,238,000
----------- ----------- ------------ ------------ ------------
Operating loss........ (4,499,000) (5,684,000) (15,259,000) (8,294,000) (30,800,000)
Other income (expense):
Interest income.......... 23,000 178,000 47,000 33,000 554,000
Interest expense......... -- -- (3,267,000) (1,268,000) (30,000)
Other, net............... -- -- 10,000 (1,000) 6,000
----------- ----------- ------------ ------------ ------------
Net loss.............. $(4,476,000) $(5,506,000) $(18,469,000) $ (9,530,000) $(30,270,000)
=========== =========== ============ ============ ============
Per share date (Note 14):
Net loss applicable to
common stockholders... $(4,979,000) $(6,657,000) $(19,873,000) $(10,580,000) $(33,573,000)
Weighted average shares
used in computation of
basic and diluted net
loss per common
share................. 9,711,630 9,711,630 9,728,421 9,723,737 10,138,695
----------- ----------- ------------ ------------ ------------
Basic and diluted net
loss per common
share................. $ (0.51) $ (0.69) $ (2.04) $ (1.09) $ (3.31)
=========== =========== ============ ============ ============
Shares used in
computation of pro
forma basic and
diluted net loss per
share................. 27,199,269 27,164,387 44,494,326
------------ ------------ ------------
Pro forma basic and
diluted net loss per
share................. $ (0.73) $ (0.39) $ (0.75)
============ ============ ============
(*) Amortization of
deferred stock
compensation:
Cost of revenue...... $ -- $ -- $ -- $ -- $ 46,000
Research and
development.......... -- -- -- -- 121,000
Sales and
Marketing............ -- -- -- -- 118,000
General and
Administrative....... -- 115,000 220,000 166,000 6,238,000
----------- ----------- ------------ ------------ ------------
$ -- $ 115,000 $ 220,000 $ 166,000 $ 6,523,000
=========== =========== ============ ============ ============
See accompanying notes to consolidated financial statements.
F-4
86
NOVATEL WIRELESS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ -------------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION
--------- ------ ---------- ------- ----------- ------------ ------------
Balance, January 1, 1997................. -- -- 9,711,630 $10,000 $ 499,000 $ (3,613,000) $ --
Accretion of dividends on minority
interest in NWT....................... -- -- -- -- -- (189,000) --
Accretion of dividends on convertible
and redeemable preferred stock of
NWI................................... -- -- -- -- -- (308,000) --
Amortization of offering costs for
convertible and redeemable preferred
stock................................. -- -- -- -- -- (6,000) --
Net loss................................ -- -- -- -- -- (4,476,000) --
--------- ------ ---------- ------- ----------- ------------ ------------
Balance, December 31, 1997............... -- -- 9,711,630 10,000 499,000 (8,592,000) --
Deferred compensation for stock options
issued................................ -- -- -- -- 276,000 -- (276,000)
Amortization of deferred compensation... -- -- -- -- -- -- 115,000
Accretion of dividends on minority
interest in NWT....................... -- -- -- -- -- (273,000) --
Accretion of dividends on convertible
and redeemable preferred stock of
NWI................................... -- -- -- -- -- (859,000) --
Amortization of offering costs for
convertible and redeemable preferred
stock................................. -- -- -- -- -- (19,000) --
Net loss................................ -- -- -- -- -- (5,506,000) --
--------- ------ ---------- ------- ----------- ------------ ------------
Balance, December 31, 1998............... -- -- 9,711,630 10,000 775,000 (15,249,000) (161,000)
Additional paid-in capital from stock
options exercised..................... -- -- 41,250 -- 30,000
Deferred compensation for stock options
issued................................ -- -- -- 859,000 -- (859,000)
Amortization of deferred compensation... -- -- -- -- -- -- 220,000
Accretion of dividends on minority
interest in NWT....................... -- -- -- -- -- (286,000) --
Accretion of dividends on convertible
and redeemable preferred stock of
NWI................................... -- -- -- -- -- (1,096,000) --
Amortization of offering costs for
convertible and redeemable preferred
stock................................. -- -- -- -- -- (22,000) --
Imputed value of warrants issued with
convertible subordinated debentures... -- -- -- -- 3,120,000 -- --
Net loss................................ -- -- (18,469,000)
--------- ------ ---------- ------- ----------- ------------ ------------
Balance, December 31, 1999............... -- -- 9,752,880 10,000 4,784,000 (35,122,000) (800,000)
Issuance of convertible preferred
stock................................. 5,892,150 6,000 -- -- 33,333,000 -- --
Additional paid-in capital from stock
options and warrants exercised
(unaudited)........................... -- -- 561,960 -- 283,000 -- --
Deferred compensation for stock options
issued (unaudited).................... -- -- -- -- 29,736,000 -- (29,736,000)
Amortization of deferred compensation
(unaudited)........................... -- -- -- -- -- -- 6,523,000
Accretion of dividends on minority
interest in NWT (unaudited)........... -- -- -- -- -- (197,000) --
Accretion of dividends on convertible
and redeemable preferred stock of NWI
(unaudited)........................... -- -- -- -- -- (2,669,000) --
Amortization of offering costs for
convertible and redeemable preferred
stock (unaudited)..................... -- -- -- -- -- (437,000) --
Net loss (unaudited).................... -- -- -- -- -- (30,270,000) --
--------- ------ ---------- ------- ----------- ------------ ------------
Balance, September 30, 2000
(unaudited)............................. 5,892,150 $6,000 10,314,840 $10,000 $68,136,000 $(68,695,000) $(24,013,000)
========= ====== ========== ======= =========== ============ ============
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
Balance, January 1, 1997................. $ (3,104,000)
Accretion of dividends on minority
interest in NWT....................... (189,000)
Accretion of dividends on convertible
and redeemable preferred stock of
NWI................................... (308,000)
Amortization of offering costs for
convertible and redeemable preferred
stock................................. (6,000)
Net loss................................ (4,476,000)
------------
Balance, December 31, 1997............... (8,083,000)
Deferred compensation for stock options
issued................................ --
Amortization of deferred compensation... 115,000
Accretion of dividends on minority
interest in NWT....................... (273,000)
Accretion of dividends on convertible
and redeemable preferred stock of
NWI................................... (859,000)
Amortization of offering costs for
convertible and redeemable preferred
stock................................. (19,000)
Net loss................................ (5,506,000)
------------
Balance, December 31, 1998............... (14,625,000)
Additional paid-in capital from stock
options exercised..................... 30,000
Deferred compensation for stock options
issued................................ --
Amortization of deferred compensation... 220,000
Accretion of dividends on minority
interest in NWT....................... (286,000)
Accretion of dividends on convertible
and redeemable preferred stock of
NWI................................... (1,096,000)
Amortization of offering costs for
convertible and redeemable preferred
stock................................. (22,000)
Imputed value of warrants issued with
convertible subordinated debentures... 3,120,000
Net loss................................ (18,469,000)
------------
Balance, December 31, 1999............... (31,128,000)
Issuance of convertible preferred
stock................................. 33,339,000
Additional paid-in capital from stock
options and warrants exercised
(unaudited)........................... 283,000
Deferred compensation for stock options
issued (unaudited).................... --
Amortization of deferred compensation
(unaudited)........................... 6,523,000
Accretion of dividends on minority
interest in NWT (unaudited)........... (197,000)
Accretion of dividends on convertible
and redeemable preferred stock of NWI
(unaudited)........................... (2,669,000)
Amortization of offering costs for
convertible and redeemable preferred
stock (unaudited)..................... (437,000)
Net loss (unaudited).................... (30,270,000)
------------
Balance, September 30, 2000
(unaudited)............................. $(24,556,000)
============
See accompanying notes to consolidated financial statements.
F-5
87
NOVATEL WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
Operating activities:
Net loss.......................................... $(4,476,000) $(5,506,000) $(18,469,000) $(9,530,000) $(30,270,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 462,000 442,000 672,000 503,000 1,046,000
Provision for bad debt.......................... -- -- 137,000 -- 116,000
Compensation for stock options issued below fair
value......................................... -- 115,000 220,000 166,000 6,523,000
Compensation for warrants issued in connection
with convertible subordinated debentures...... -- -- 3,120,000 -- --
Changes in assets and liabilities:
Accounts receivable........................... (56,000) (214,000) (875,000) (1,778,000) (10,861,000)
Due from contract manufacturers............... -- -- (4,732,000) -- 2,105,000
Inventories................................... 22,000 (226,000) (4,050,000) (5,749,000) (4,222,000)
Prepaid expenses and other.................... (86,000) (127,000) (256,000) (187,000) (2,821,000)
Other assets.................................. -- -- (54,000) -- (169,000)
Accounts payable.............................. 544,000 332,000 10,391,000 7,388,000 3,323,000
Accrued expenses.............................. 78,000 156,000 576,000 65,000 1,700,000
Deferred revenues............................. -- -- 8,134,000 3,358,000 (5,127,000)
----------- ----------- ------------ ----------- ------------
Net cash used in operating activities....... (3,512,000) (5,028,000) (5,186,000) (5,764,000) (38,657,000)
----------- ----------- ------------ ----------- ------------
Investing activities:
Purchases of property and equipment............... (521,000) (313,000) (880,000) (663,000) (4,966,000)
Purchase of intangibles........................... -- -- -- --
Net change in short-term investments.............. (260,000) (36,000) 296,000 296,000 (1,735,000)
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by investing
activities................................ (781,000) (349,000) (584,000) (367,000) (6,701,000)
----------- ----------- ------------ ----------- ------------
Financing activities:
Borrowings on promissory notes.................... 500,000 -- -- -- --
Payments on promissory notes...................... (1,000,000) (500,000) -- -- --
Issuance of convertible and redeemable preferred
stock........................................... 4,128,000 7,197,000 24,625,000 -- --
Issuance of convertible and redeemable minority
interest shares................................. 1,070,000 510,000 -- -- --
Issuance of convertible preferred stock........... -- -- -- -- 33,339,000
Proceeds from exercise of stock options........... -- -- 30,000 21,000 283,000
Proceeds from issuance of convertible subordinated
debentures...................................... -- -- 3,120,000 3,120,000 --
Proceeds (payments) under capital lease
obligation...................................... -- -- (47,000) -- 174,000
----------- ----------- ------------ ----------- ------------
Net cash provided by financing activities... 4,698,000 7,207,000 27,728,000 3,141,000 33,796,000
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents............................... 405,000 1,830,000 21,958,000 (2,990,000) (11,562,000)
Cash and cash equivalents, beginning of period...... 1,262,000 1,667,000 3,497,000 3,497,000 25,455,000
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents, end of period............ $ 1,667,000 $ 3,497,000 $ 25,455,000 $ 507,000 $ 13,893,000
=========== =========== ============ =========== ============
Supplemental disclosures of non-cash investing and
financing activities:
Conversion of convertible subordinated debentures
and related accrued interest into Series C
convertible and redeemable preferred stock...... $ -- $ -- $ 3,250,000 $ -- $ --
Accretion of dividends on minority interest....... 189,000 273,000 286,000 215,000 197,000
Accretion of dividends on convertible and
redeemable preferred stock...................... 308,000 859,000 1,096,000 820,000 2,669,000
Amortization of offering costs for convertible and
redeemable preferred stock...................... 6,000 19,000 22,000 15,000 437,000
Deferred compensation for stock options issued.... -- 276,000 859,000 -- 29,736,000
Property and equipment acquired under capital
lease obligations............................... -- -- 234,000 -- --
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest........................................ $ -- $ -- $ 7,000 $ 4,000 $ 30,000
Income taxes.................................... 1,000 1,000 1,000 1,000 1,000
See accompanying notes to consolidated financial statements.
F-6
88
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
1. THE COMPANY
Novatel Wireless, Inc., a Delaware corporation ("NWI," the "Company," or
"we") is headquartered in San Diego, California. We are a provider of wireless
data communications access solutions. We provide wireless data modems and
enabling software for use with handheld computing devices and portable personal
computers. We also provide wireless data modems that can be integrated into
other devices for vertical OEM applications. Our products enable professionals
and consumers to access enterprise networks and the Internet.
Prior to being established as an independent operating entity in April of
1996, the Company was formerly the Personal Communications Product Division of
NovAtel Communications, a Canadian telecommunications company. The Company's
subsidiaries include wholly owned Novatel Wireless Solutions, Inc., incorporated
in Delaware, and fifty-percent owned Novatel Wireless Technologies Ltd. ("NWT"),
incorporated in Alberta, Canada.
2. RISKS AND UNCERTAINTIES
Company Operations
The Company is subject to a number of risks and uncertainties associated
with companies at a similar stage of maturity, has only a limited operating
history and the revenue and income potential of the Company's business and
market are unproven. Further, the market for wireless Internet products and
services is relatively new and rapidly evolving both technologically and
competitively.
The Company has experienced net losses in each year since its inception and
had an accumulated deficit of $35.1 million at December 31, 1999 and $68.7
million (unaudited) at September 30, 2000. The Company incurred net losses of
$4.5 million, $5.5 million, $18.5 million, $9.5 million (unaudited) and $30.3
million (unaudited) and negative cash flows from operations of $3.5 million,
$5.0 million, $5.2 million, $5.8 million (unaudited) and $38.7 million
(unaudited) for the years ended December 31, 1997, 1998 and 1999 and the nine
months ended September 30, 1999 and 2000, respectively. The Company expects to
continue to incur net losses for at least the next several quarters. While the
Company is unable to predict accurately its future operating expenses, the
Company currently expects these expenses to increase substantially, as it, among
other things, expands its selling and marketing activities, increases its
research and development efforts to upgrade its existing services and develop
new services and technologies, upgrades its operational and financial systems,
procedures and controls, and hires and trains additional personnel.
The Company will need to significantly increase its revenues to achieve and
maintain profitability. If we fail to significantly increase our revenues, the
Company will continue to experience losses indefinitely and, accordingly, the
Company may be required to obtain additional financing in the future. Management
believes that the Company's cash reserves including net proceeds from the Series
D financing (see Note 3) will be sufficient to fund operations for at least the
next twelve months.
Initial Public Offering
In April 2000, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to offer shares of common stock to the public. In April 2000,
the Company's Board of Directors authorized an increase in the capitalization of
the Company to 350,000,000 shares of common stock, par value $.001 per share,
and up to 15,000,000 shares of undesignated preferred stock, par value $.001 per
share, upon the effective date of the Company's public offering. If the offering
is consummated under terms presently anticipated, all
F-7
89
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
outstanding shares of convertible and redeemable preferred stock outstanding at
September 30, 2000 will convert into 34,355,631 shares of common stock.
Unaudited pro forma stockholders' equity reflects the assumed conversion of the
convertible preferred stock and minority interest shares outstanding at
September 30, 2000 into common stock.
In August 2000, the Company's Board of Directors approved a 3 for 1 stock
split. The effects of this stock split have been retroactively reflected for all
periods presented.
3. RECENT FINANCINGS AND EQUITY ACTIVITY
Series D
In June and July of 2000, the Company issued 5,892,150 shares of Series D
preferred stock to accredited investors in a private offering. Net proceeds from
the financing amounted to approximately $33.6 million, or $5.75 per share, after
offering costs of approximately $541,000. We also issued warrants to purchase a
total of 1,178,400 shares of NWI common stock at an exercise price of $5.75
expiring June 30, 2005.
The Company amended its Certificate of Incorporation to authorize 7,800,000
shares of Series D Convertible Preferred Stock, par value $0.001.
In September 2000, the holders of the NWT Series A and B convertible and
redeemable preferred shares exercised their right to exchange all of their
shares into Series A and B convertible and redeemable preferred shares of NWI.
(See Note 7)
Series D -- October 2000 (Unaudited)
In October 2000, the Company issued 434,782 shares of Series D preferred
stock to a qualified institutional buyer in a private offering. Net proceeds
from the financing amounted to approximately $2.5 million, or $5.75 per share.
The per share price represents a discount of $5.25 compared to the fair value on
the date of issuance. Concurrently, the Company entered into a product purchase
and licensing agreement with the same investor.
The Company will record the sale of the preferred stock measured at fair
value pursuant to the guidance in SFAS No. 123. The discount of approximately
$2.3 million will be recorded in accordance with the terms of the product
purchase and licensing agreement.
Line of Credit Commitment
In July 2000, the Company entered into a commitment for credit facility
with a bank, which will allow the Company to borrow up to the lesser of $10
million or 80% of eligible accounts receivable. This credit facility will bear
interest at prime plus 1%, will be collateralized by substantially all assets of
the Company and will expire in June 2001.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Novatel
Wireless, Inc., its wholly owned subsidiary Novatel Wireless Solutions, Inc. and
its 50% owned subsidiary NWT, which is consolidated because NWI has financial
and managerial control over NWT and has the ability to unilaterally obtain a
majority share ownership position and voting control. The other shareholder in
NWT is a passive investor with no operational influence, no veto voting rights
and no obligation to fund NWT's operations.
F-8
90
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
The remaining 50% ownership of NWT is reflected in the accompanying balance
sheets as convertible and redeemable minority interest. Refer to Note 7 for
further discussion of the minority interest. All significant intercompany
transactions and balances have been eliminated in consolidation. Certain
reclassifications have been made to amounts included in the prior years'
financial statements to conform to the presentation for the year ended December
31, 1999.
Unaudited Interim Results
The accompanying balance sheet as of September 30, 2000, the statements of
operations and cash flows for the nine months ended September 30, 1999 and
September 30, 2000 and the statement of stockholders' equity (deficit) for the
nine months ended September 30, 2000 are unaudited. The unaudited interim
financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the
Company's financial position and its results of operations and its cash flows
for the nine months ended September 30, 1999 and September 30, 2000. The
financial data and other information disclosed in these notes to financial
statements related to these periods are also unaudited. The results for the nine
months ended September 30, 2000 are not necessarily indicative of the results to
be expected for the year ending December 31, 2000.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues, expenses and disclosures of contingent
assets and liabilities. Actual results could differ from these estimates.
Revenue Recognition
Our revenue has been generated from the sale of wireless modems to wireless
telecommunications operators, wireless data content and service providers,
resellers and OEM customers. We also generate revenue from product activation
services we provide prior to shipping; through September 30, 2000, such revenue
has not been significant. Revenue from product sales and services, which
includes product activation, is recognized upon the latter of transfer of title
or upon shipment of the product to the customer or upon rendering product
activation services, if applicable. Revenues from long-term supply contracts are
recognized as products are shipped to customers over the period of the contract.
We record deferred revenue for cash payments received from customers in advance
of product shipments. We grant price protection provisions to certain customers
and we track pricing and other terms offered to customers buying similar
products to assess compliance with these provisions. To date, the Company has
not incurred material price protection expenses. We establish reserves for
estimated product returns and warranty allowances in the period in which revenue
is recognized. Reserves for product returns were $0, $0, and $167,000 at
December 31, 1998, 1999 and September 30, 2000, respectively.
During 1997 and 1998 we generated revenues of $1.4 million and $650,000,
respectively, under a contract research and development and license agreement.
Revenues on this agreement were recognized under the contractual terms, which in
1997 included customer acceptance of our design and a license to use our
technology and in 1998 included successful manufacturing of the product by the
customer. Cost of revenues incurred under the agreement totaled approximately
$720,000 and $294,000 in 1997 and 1998, respectively.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes
F-9
91
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
the SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB No. 101 is effective during the fourth
quarter of fiscal 2000. Management has reviewed and adopted the provisions of
SAB No. 101 which did not have a material impact on the Company's financial
position or results of operations.
Research and Development Costs
Research and development costs are expensed as incurred. To date, we have
not incurred significant software development costs that would be capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed."
Warranty Costs
We accrue warranty costs based on our best estimates, with reference to our
past experience.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less. Cash and cash equivalents consist of money
market and mutual funds and are carried at market, which approximates cost.
Short-Term Investments
From time to time, the Company invests its excess cash in U.S. government
securities and debt instruments of financial institutions and corporations with
strong credit ratings. The Company has established guidelines to diversify its
short-term investments and their maturities to manage safety and liquidity.
These guidelines are periodically reviewed and modified to take advantage of
trends in yields and interest rates. The Company has not experienced any
significant losses on its short-term investments.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The Company provides reserves against inventories which it believes to
be excess or obsolete to state such inventories at realizable value.
Due from Contract Manufacturers
Due from contract manufacturers represents amounts due from the Company's
outsourced product manufacturers from the sale of materials inventories by the
Company to the manufacturers. These sales represented a transfer of assets and
were not recognized as revenues in the accompanying consolidated statements of
operations.
Property and Equipment
Property and equipment are stated at cost and depreciated primarily using
the straight-line method. Test equipment, computer equipment and software,
furniture and fixtures and product tooling are depreciated over lives between
one and five years and leasehold improvements are depreciated over the shorter
of the related lease period or useful life.
F-10
92
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
Intangible Asset
Intangible asset consists of a non-exclusive and perpetual worldwide
software product license. The Company capitalized the cost to acquire the
license and will amortize the cost on a straight-line basis over the estimated
useful life of the asset which is 5 years.
Long-Lived Assets
The Company continually evaluates the carrying value of the unamortized
balances of its long-lived assets to determine whether any impairment of these
assets has occurred or whether any revision to the related amortization periods
should be made. This evaluation is based on management's projections of the
undiscounted future cash flows associated with each asset. If management's
evaluation were to indicate that the carrying values of these assets were
impaired, such impairment would be recognized by a write down of the applicable
asset to its estimated fair value and expensed through operations.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method of
accounting for deferred income taxes. Under this method, deferred income taxes
are recorded to reflect the tax consequences on future years of temporary
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end. If it is more likely than not that some
portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
Stock-Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company accounts for costs of stock-based employee compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, the Company discloses the pro forma
effect on net loss and related per share amounts as if the fair-value method
prescribed by SFAS No. 123 had been used to account for its stock-based employee
compensation. The Company accounts for equity instruments issued to
non-employees in accordance with the provisions of SFAS No. 123 and related
interpretations.
Computation of Net Loss Per Share
SFAS No. 128, "Earnings Per Share," requires companies to compute basic and
diluted per share data for all periods for which a statement of operations is
presented. Basic net loss per share is computed by dividing the net loss
applicable to common stockholders by the weighted average number of common
shares that were outstanding during the period. Diluted earnings per share is
computed by giving effect to all potentially dilutive securities that were
outstanding for the periods presented. Potentially dilutive securities
consisting of options, warrants, convertible and redeemable minority interest
and convertible and redeemable preferred stock were not considered in the
calculation of diluted earnings per share as their impact would be antidilutive.
For the periods presented, there is no difference between the basic and diluted
net loss per share.
Pro forma net loss per share (unaudited) is computed by dividing net loss
applicable to common stockholders by the weighted average number of common
shares outstanding and the weighted average number of shares of convertible and
redeemable preferred stock, including the minority interest shares, outstanding
as if such shares were converted to common stock at the time of issuance.
F-11
93
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
Foreign Currency Translation
Monetary balance sheet accounts of the Company's Canadian subsidiary are
translated from Canadian dollars into U.S. dollars at the exchange rate in
effect at the balance sheet date, non-monetary balance sheet accounts are
translated at historical rates and revenue and expense accounts are translated
using an average exchange rate during the period of recognition. The functional
currency of the Canadian subsidiary is the U.S. dollar, thus translation gains
and losses are reflected in operations. Exchange gains and losses arising from
transactions denominated in foreign currencies are recorded using the actual
exchange differences on the date of the transaction and are reflected in
operations.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, primarily
including cash, accounts receivable, accounts payable and accrued expenses
approximate their fair value due to their short term nature. The Company
performs credit evaluations of key customers and management believes it is not
exposed to significant credit risk on its accounts receivable in excess of
established reserves.
Comprehensive Income
SFAS No. 130, "Comprehensive Income," requires that all items recognized
under accounting standards as components of comprehensive income be reported
with the same prominence as other financial statements. The Company has no items
requiring separate display of comprehensive income.
Segment Information
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires public companies to report financial and descriptive
information about their reportable operating segments. The Company identifies
its operating segments based on how management internally evaluates separate
financial information, business activities and management responsibility. The
Company believes it operates in a single business segment consisting of the
development, manufacture and sale of wireless Internet products.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board, ("FASB"), issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" and in
June 1999 issued SFAS No. 137, "Accounting for Derivatives and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." Under
SFAS No. 133, derivatives not meeting hedge criteria are recorded in the balance
sheet as either an asset or liability measured at fair value and changes in fair
value are recognized currently in earnings. The Company will be required to
implement SFAS No. 133, as amended by SFAS No. 137, in fiscal 2001. The Company
does not anticipate that the implementation of SFAS No. 133, as amended by SFAS
No. 137, will have a material impact on its financial position or results of
operations.
5. FINANCIAL STATEMENT DETAILS
Due from Contract Manufacturers
Due from contract manufacturers represents amounts due from the Company's
third party product manufacturers from the transfer of materials inventories by
the Company to the manufacturers. These transfers of assets were not recognized
as revenues in the accompanying consolidated statements of operations. At
December 31, 1999, the inventory amount transferred to the contract
manufacturers was
F-12
94
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
$4.7 million. Subsequent to year-end, we received $4.5 million of this
receivable from our contract manufacturers.
Inventories
Inventories consist of the following:
DECEMBER 31,
---------------------- SEPTEMBER 30,
1998 1999 2000
-------- ---------- -------------
(UNAUDITED)
Finished goods......................................... $656,000 $3,377,000 $ 3,412,000
Raw materials and components........................... -- 1,942,000 6,420,000
-------- ---------- -----------
656,000 5,319,000 9,832,000
Less -- reserve for estimated excess and
obsolescence...................................... -- (613,000) (905,000)
-------- ---------- -----------
$656,000 $4,706,000 $ 8,927,000
======== ========== ===========
Property and Equipment
Property and equipment consists of the following:
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1998 1999 2000
----------- ----------- -------------
(UNAUDITED)
Test equipment...................................... $ 449,000 $ 650,000 $ 2,571,000
Computer equipment and purchased software........... 1,013,000 1,550,000 3,530,000
Furniture and fixtures.............................. 291,000 396,000 804,000
Product tooling..................................... 235,000 491,000 768,000
Leasehold improvements.............................. -- 15,000 378,000
----------- ----------- -----------
$ 1,988,000 3,102,000 8,051,000
Less -- accumulated depreciation and
amortization................................... (1,084,000) (1,756,000) (2,787,000)
----------- ----------- -----------
$ 904,000 $ 1,346,000 $ 5,264,000
=========== =========== ===========
Depreciation expense was $462,000, $442,000, $672,000, $503,000 (unaudited)
and $1,046,000 (unaudited) for the years ended December 31, 1997, 1998, 1999 and
the nine months ended September 30, 1999 and 2000, respectively. At December 31,
1999, assets held under capital leases had a net book value of $190,000, net of
accumulated amortization of $31,000.
F-13
95
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
Accrued Expenses
Accrued expenses consist of the following:
DECEMBER 31,
---------------------- SEPTEMBER 30,
1998 1999 2000
-------- ---------- -------------
(UNAUDITED)
Sales taxes............................................ $ 5,000 $ 346,000 $ 166,000
Payroll and related.................................... 80,000 430,000 1,235,000
Product warranty....................................... 244,000 236,000 874,000
Royalties.............................................. 176,000 62,000 59,000
Other.................................................. 223,000 100,000 669,000
-------- ---------- ----------
$728,000 $1,174,000 $3,003,000
======== ========== ==========
6. LINE OF CREDIT
The Company has a line of credit agreement with a bank that allows the
Company to borrow the lesser of $2.5 million, or 80%, of eligible accounts
receivable balances plus 40% of raw materials and finished goods inventories, as
defined in the agreement. The line of credit bears interest at prime rate plus
0.5% (9.0% at December 31, 1999), is collateralized by substantially all assets
of the Company and expires during September 2000. In connection with this line
of credit, 71,430 NWI warrants were granted to purchase shares of Series C
convertible and redeemable preferred stock. As of December 31, 1999 and
September 30, 2000 (unaudited), there were no borrowings outstanding under the
line of credit. However, the Company was in violation of certain covenants
defined in the line of credit agreement. The Company has obtained a waiver from
the bank related to such covenant violations through September 30, 2000. (See
Note 3)
7. CONVERTIBLE AND REDEEMABLE MINORITY INTEREST
Minority interest consists of 3,755,394 Series A convertible and redeemable
preferred shares (Series A shares) and 640,842 Series B (Series B shares)
convertible and redeemable preferred shares of NWT at December 31, 1998 and
1999.
In 1996, we issued 2,812,500 Series A shares to accredited investors in a
private offering. Proceeds from the financing were approximately $1,997,000, or
$0.71 per share.
In 1997, we issued 942,894 Series A shares to accredited investors in a
private offering. Proceeds from the financing were approximately $669,000, or
$0.71 per share. Additionally, we issued 281,688 Series B shares to accredited
investors in a private offering. Proceeds from the financing were approximately
$400,000, or $1.42 per share. In connection with this offering, we also caused
our subsidiary, NWT, to issue warrants to purchase a total of 105,633 shares of
NWT common stock at an exercise price of $1.42 on or prior to December 31, 2002.
In 1998, we issued 359,154 Series B shares to accredited investors in a
private offering. Proceeds from the financing were approximately $510,000, or
$1.42 per share. We also caused our subsidiary, NWT, to issue warrants to
purchase a total of 134,682 shares of NWT common stock at an exercise price of
$1.42 on or prior to April 24, 2003.
The NWT Series A shares are exchangeable at the option of the holder, on a
1:1 basis to NWI Series A preferred shares without the payment of any additional
consideration any time after issuance but before August 21, 2002. The NWT Series
B shares are exchangeable, at the option of the holder, on a 1:1
F-14
96
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
basis to NWI Series B preferred shares without the payment of any additional
consideration any time after issuance but before December 23, 2003. In the event
that NWI becomes listed on a public exchange, the Company has the right to
require holders of the Series A and Series B shares to exchange all such shares
into NWI Series A and NWI Series B shares. In the event that NWT becomes listed
on a public exchange, merges or consolidates with or into another company or
sells all or substantially all of its assets, these Series A and Series B shares
would be automatically converted into NWT common shares, provided certain
minimum proceeds requirements are met. Further, automatic conversion into NWT
common shares for each Series would occur provided two-thirds of the preferred
stockholders of that Series voted to convert.
NWT's preferred stockholders may elect, after August 21, 2000 for Series A
preferred shares and after December 23, 2001 for Series B preferred shares, to
have NWT redeem the shares provided that funds are legally available. After
August 21, 2002 for Series A preferred shares and after December 23, 2003 for
Series B preferred shares, NWT must redeem all of the outstanding preferred
shares provided that funds are legally available. If funds legally available are
not sufficient to redeem the total number of shares submitted for redemption, or
those subject to mandatory redemption, those shares not redeemed will carry a
dividend rate of 12%.
Each of NWT's preferred stockholders are entitled to receive, from funds
legally available, a cumulative annual dividend of 8% per annum based on their
respective purchase price upon any liquidation, dissolution or winding up of the
affairs of NWT, redemption, or when declared by the Board of Directors provided
that, upon optional or automatic conversion of the preferred shares, all accrued
and unpaid dividends are forfeited. Dividends on these shares of $189,000,
$273,000, $286,000, $215,000 (unaudited) and $197,000 (unaudited) for the years
ended December 31, 1997, 1998 and 1999 and for the nine months ended September
30, 1999 and 2000, respectively, have been accrued and recorded in the
accompanying consolidated financial statements.
In September 2000, the NWT Series A & Series B Holders exchanged their NWT
Series A and Series B shares on a 1:1 basis into NWI Series A preferred and
Series B preferred shares.
8. CONVERTIBLE AND REDEEMABLE PREFERRED STOCK
The Company has three classes of convertible and redeemable preferred stock
as follows.
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1998 1999 2000
----------- ----------- -------------
(UNAUDITED)
Convertible and redeemable preferred stock, Series
A, par value $.001, 16,500,000 shares authorized,
6,791,571 (1998 and 1999) and 10,546,965 (2000)
shares issued and outstanding..................... $ 5,472,000 $ 5,870,000 $ 9,661,000
Convertible and redeemable preferred stock, Series
B, par value $.001, 7,500,000 shares authorized
(485,241 are non-voting), 6,252,843 (1998 and
1999) and 6,893,685 (2000) shares issued and
outstanding....................................... 9,340,000 10,060,000 11,707,000
Convertible and redeemable preferred stock, Series
C, par value $.001, 16,500,000 shares authorized,
11,022,831 shares issued and outstanding.......... -- 27,875,000 30,124,000
----------- ----------- -----------
$14,812,000 $43,805,000 $51,492,000
=========== =========== ===========
F-15
97
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
In 1996, the Company issued 3,089,565 shares of Series A convertible and
redeemable preferred stock (Series A) to accredited investors in a private
offering. Proceeds from the financing were approximately $2,194,000, or $0.71
per share.
In 1997, the Company issued 3,702,006 shares of Series A preferred stock to
accredited investors in a private offering. Proceeds from the financing were
approximately $2,628,000, or $0.71 per share and related offering costs were
approximately $83,000. Additionally, we issued 1,126,761 shares of Series B
convertible and redeemable preferred stock (Series B) to accredited investors in
a private offering. Proceeds from the financing were approximately $1,600,000,
or $1.42 per share and related offering costs were approximately $17,000. We
also issued warrants to purchase a total of 422,535 shares of NWI common stock
at an exercise price of $1.42 on or prior to December 31, 2002.
In 1998, the Company issued 5,126,082 shares of Series B preferred stock to
accredited investors in a private offering. Proceeds from the financing were
approximately $7,279,000, or $1.42 per share and related offering costs were
approximately $82,000. We also issued warrants to purchase a total of 1,922,280
shares of NWI common stock at an exercise price of $1.42 on or prior to December
31, 2004.
In December 1999, the Company issued 11,022,831 shares of Series C
convertible and redeemable preferred stock (Series C) to accredited investors in
a private offering at a price of $2.78 per share. Proceeds from the financing
were approximately $27,875,000, including conversion of subordinated debentures
of $3,120,000 and related accrued interest of $130,000 after deducting offering
costs and underwriters' commissions of approximately $2,768,000.
Subject to adjustment under certain circumstances, the Series A, Series B,
and Series C shares are convertible to NWI common shares on a 1:1 basis without
the payment of additional consideration at the option of the holder at any time
after issuance but before August 21, 2002 for Series A, before December 23, 2001
for Series B, and before June 30, 2001 for Series C. Automatic conversion occurs
if:
a. NWI becomes listed on a public exchange with minimum net proceeds
of $10 million and the offering price is not less than $1.42 per share for
Series A, $2.50 per share for Series B, and $4.87 per share for Series C.
b. NWI sells all or substantially all of its assets, merges or
consolidates into or with another corporation provided the portion of
proceeds distributable are not less than $1.42 per share for Series A,
$2.50 per share for Series B, and $4.87 per share for Series C.
c. Two-thirds of each Series of the preferred stockholders vote to
convert.
Holders of the Series A, Series B and Series C shares may elect, after
January 1, 2005 to have the Company redeem the shares, provided that funds are
legally available. After January 1, 2005, the Company must redeem all of the
outstanding preferred shares, provided that funds are legally available. If
funds legally available are not sufficient to redeem the total number of shares
submitted for redemption, or those subject to mandatory redemption, those shares
not redeemed will carry a dividend rate of 12%.
The holders of the Series A, Series B and Series C shares are entitled to
receive, from funds legally available, a cumulative annual dividend of 8% of the
purchase price upon any liquidation, dissolution or winding up of the affairs of
the Company, upon redemption, or when declared by the Board of Directors,
provided that upon optional or automatic conversion of the preferred shares all
accrued and unpaid dividends shall be forfeited. Dividends on these shares of
$308,000, $859,000, $1,096,000, $820,000 (unaudited) and $2,669,000 (unaudited)
for the years ended December 31, 1997, 1998 and 1999, and the nine months ended
September 30, 1999 and 2000, respectively, have been accrued and recorded in the
accompanying consolidated financial statements.
F-16
98
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
9. STOCKHOLDERS' EQUITY
During fiscal 1999, the Company amended its Certificate of Incorporation to
change its authorized share capital. As a result, the Company is authorized to
issue 79,500,000 shares of common stock, par value $.001; 16,500,000 shares of
Series A convertible and redeemable preferred stock, par value $.001; 7,500,000
shares of Series B convertible and redeemable preferred stock (of which 485,241
are non-voting), par value $.001; and 16,500,000 shares of Series C convertible
and redeemable preferred stock, par value $.001. With the exception of 56,364
outstanding shares of Series B convertible and redeemable preferred stock, all
outstanding shares carry voting rights (see Note 3).
Convertible Subordinated Debentures
On June 24, 1999 and July 15, 1999, the Company issued convertible
subordinated debentures to accredited investors in the total principal amount of
$3,120,000 bearing interest at the rate of 8% per annum. The Company also issued
warrants to purchase a total of 3,930,006 common shares of NWI and 750,000
common shares of NWT at an exercise price of $0.67 per share. Of these warrants,
4,650,621 expire on June 24, 2004 and 29,385 expire on July 15, 2004.
Immediately upon the closing of the Series C preferred stock financing, the
principal amount under convertible subordinated debentures and accrued interest
of approximately $130,000 thereon converted into shares of Series C preferred
stock at $2.78 per share.
Warrants
Since inception, NWI and NWT have issued warrants to purchase shares of NWI
and NWT stock to various investors and lenders as approved by the Board of
Directors.
A summary of warrant activity is as follows:
DECEMBER 31,
------------------------------------------------------------------
1997 1998 1999
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- --------
NWI WARRANTS
Outstanding, beginning of year........ -- -- 422,535 $1.42 2,344,815 $1.42
Granted............................. 422,535 $1.42 1,922,280 $1.42 6,150,075 $1.61
------- --------- ---------
Outstanding, end of year.............. 422,535 $1.42 2,344,815 $1.42 8,494,890 $1.56
======= ========= =========
NWT WARRANTS
Outstanding, beginning of year........ -- 105,633 $1.42 240,315 $1.42
Granted............................. 105,633 $1.42 134,682 $1.42 750,000 $0.67
------- --------- ---------
Outstanding, end of year.............. 105,633 $1.42 240,315 $1.42 990,315 $0.85
======= ========= =========
In connection with Series C financing in 1999 (see Note 8), the Company
issued warrants to buy 2,148,639 common shares of the Company. These warrants
may be exercised at $3.33 per share (for 2,119,071 warrants) and $2.78 per share
(for 29,568 warrants) at any time up to December 31, 2004. The Company estimated
the fair market value of these warrants at the date of issuance was nominal and,
accordingly, no value has been assigned to them.
F-17
99
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
In connection with the convertible subordinated debenture transaction, the
Company issued warrants to buy 3,930,006 common shares of NWI and 750,000 common
shares of NWT. These warrants may be exercised at $0.67 per share. The Company
estimated that the fair value of the warrants at the date of issuance was
approximately $4.3 million as the exercise price per common share was less than
deemed fair value per common share. Accordingly, the Company allocated the gross
debenture proceeds of $3,120,000 toward the value of these warrants. This also
resulted in non-cash interest expense totaling $3,120,000 in fiscal 1999 to
accrete the debt discount (resulting from the allocation of proceeds to the
warrant) from the time of debenture issuance to conversion to Series C.
In connection with line of credit financing (see Note 6), the Company
issued warrants to buy 71,430 Series C convertible and redeemable preferred
shares of the Company. These warrants may be exercised at $2.10 per share at any
time up to expiration at December 31, 2004. The Company believes the fair value
of these warrants at the date of issuance was nominal and, accordingly, no value
has been assigned to them.
In connection with the Series B financing in 1997 and 1998 (see Note 8),
NWI issued warrants to buy 422,535 and 1,922,280 common shares of NWI,
respectively, and NWT issued warrants to buy 105,633 and 134,682 common shares
of NWT, respectively. These warrants may be exercised at $1.42 per share at any
time up to December 31, 2002 (for 528,168 of the warrants) and April 24, 2003
(for 2,056,962 of the warrants). The Company believes the fair market value of
these warrants at the date of issuance was nominal and, accordingly, no value
has been assigned to them.
Stock Option Plans
The Company's June 1997 stock option plan (the "1997 Plan") for employees
authorizes the granting of options for up to 12,000,000 shares of the Company's
common stock as of December 31, 1999. Generally, options are to be granted at
prices equal to at least 100% of the fair value of the stock at the date of
grant, expire not later than ten years from the date of grant and become
exercisable ratably over a four-year period following the date of grant. From
time to time, as approved by the Company's Board of Directors, options with
differing terms have also been granted. The Plan provides that any shares issued
come from the Company's authorized but unissued or reacquired common stock.
In July 2000 the Company's Board of Directors approved the 2000 Stock
Incentive Plan (the "2000 Plan"). The Company will implement the 2000 Plan upon
the effective date of an initial public offering (see Note 2). Options granted
under the 2000 Plan generally vest on the same terms as the 1997 Plan and are
exercisable for a period of ten years.
F-18
100
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
A summary of stock option activity is as follows:
OPTIONS WEIGHTED AVERAGE
OPTIONS AVAILABLE EXERCISE PRICE
OUTSTANDING FOR GRANT PER SHARE
----------- ---------- ----------------
Options authorized at inception (June 2, 1997)..... -- 1,800,000 --
Granted.......................................... 1,521,000 (1,521,000) $0.72
Cancelled........................................ (115,500) 115,500 $0.71
New authorized options........................... -- 588,150 --
---------- ---------- -----
Options outstanding, December 31, 1997............. 1,405,500 982,650 $0.72
New authorized options........................... -- 1,500,000 --
Granted.......................................... 2,337,000 (2,337,000) $0.84
Cancelled........................................ (322,500) 322,500 $0.76
---------- ---------- -----
Options outstanding, December 31, 1998............. 3,420,000 468,150 $0.80
New authorized options........................... -- 2,111,850 --
Granted.......................................... 852,000 (852,000) $0.95
Exercised........................................ (41,250) -- $0.71
Cancelled........................................ (198,750) 198,750 $0.78
---------- ---------- -----
Options outstanding, December 31, 1999............. 4,032,000 1,926,750 $0.83
New authorized options........................... -- 6,000,000 --
Granted (unaudited).............................. 7,836,744 (7,836,744) $5.78
Exercised (unaudited)............................ (446,898) -- $2.57
Cancelled (unaudited)............................ (1,004,626) 1,004,626 $1.08
---------- ---------- -----
Options outstanding, September 30, 2000
(unaudited)...................................... 10,417,220 1,094,632 $4.55
========== ========== =====
Exercisable, December 31, 1997..................... 5,001 $0.71
========== =====
Exercisable, December 31, 1998..................... 328,752 $0.65
========== =====
Exercisable, December 31, 1999..................... 1,327,752 $0.66
========== =====
Exercisable, September 30, 2000 (unaudited)........ 2,010,281 $2.11
========== =====
Additional information relating to stock options outstanding and
exercisable at December 31, 1999, summarized by exercise price is as follows:
OUTSTANDING EXERCISABLE
WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE ------------------------------ --------------------
PRICE LIFE EXERCISE EXERCISE
PER SHARE SHARES (YEARS) PRICE SHARES PRICE
- --------------------- --------- ------- -------- --------- --------
$0.03 300,000 8.77 $0.03 300,000 $0.03
$0.71 909,750 7.00 $0.71 471,003 $0.71
$0.95 2,811,750 9.10 $0.95 556,749 $0.95
--------- ---------
4,021,500 1,327,752
========= =========
The Company amortizes employee stock based compensation over the vesting
periods of the related options using the attribute method prescribed by FASB
Interpretation No. 28 and SFAS No. 123. Under this method, each vested tranche
of options is accounted for as a separate option grant awarded for services.
Accordingly, the compensation expense is recognized over the period during which
the services
F-19
101
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
are provided. This method results in higher compensation expense in the earlier
vesting periods of the related options.
In 1998, the Company granted 300,000 options to an employee at $0.03 per
share. On the grant date, the deemed fair value of a share of common stock was
in excess of the exercise price. Accordingly, the Company has recognized gross
deferred compensation of $276,000, of which $115,000 and $161,000 were
recognized in 1998 and 1999, respectively.
In 1999, the Company issued 852,000 options at $0.95 per share to
employees. On the grant dates the deemed fair value of a share of common stock
was in excess of $0.95 per share. Accordingly, the Company has recognized gross
deferred compensation related to these grants of $859,000 of which $800,000 is
unamortized as of December 31, 1999. This deferred charge will be amortized to
expense over the four-year vesting period of these options.
Of the remaining 3,558,000 options granted through December 31, 1999,
1,521,000 and 2,037,000 were granted in 1997 and 1998, respectively. These
options were granted at exercise prices which the Company believes approximated
fair value at the date of grant.
In February 2000, the Company granted 375,000 additional stock options at
$1.67 per share. In connection with this grant, the Company has recorded
$295,000 (unaudited) of gross deferred stock compensation in the first quarter
of fiscal 2000. The deferred compensation will be amortized over the four year
vesting from the date of the grant.
In April and May 2000, the Company granted a total of 907,950 options to
employees at an average price of $3.33 per share. In connection with this grant,
the Company has recorded $169,000 (unaudited) of gross deferred stock
compensation in the second quarter of fiscal 2000.
In July 2000, the Company granted 3,636,543 options to employees at an
exercise price of $5.00 per share. In connection with these grants, the Company
has recorded $21,819,000 (unaudited) of gross deferred stock compensation in the
third quarter of fiscal 2000. Additionally, $659,000 (unaudited) of gross
deferred compensation expense related to 65,625 options was recorded for the
extension of the vesting period related to a terminated employee. In July 2000,
the Company appointed a new Chief Executive Officer, and granted this officer
options to purchase 3,036,543 shares of common stock at an exercise price of
$5.00 per share. The option shares will vest and become exercisable as follows:
607,308 option shares are immediately exercisable; 379,569 option shares vest
and become exercisable on July 24, 2001; 379,569 option shares vest and become
exercisable on July 24, 2002; and 303,654 option shares vest and become
exercisable on each July 24 of 2001, 2002, 2003 and 2004. In addition, 455,481
option shares shall vest and become exercisable on the earlier to occur of (1)
our attaining certain milestones before December 31, 2000 or (2) with respect to
227,748 option shares, on July 24, 2003 and with respect to another 227,748
option shares, on July 24, 2004. The remaining 600,000 July option grants will
vest over a four-year period, with 25% of the options vesting each year from the
date of grant.
In August 2000, the Company granted 1,941,150 options to employees at an
exercise price of $7.50 per share. In connection with these grants, the Company
has recorded $6,794,000 (unaudited) of gross deferred stock compensation in the
third quarter of fiscal 2000. The options will generally vest over a four-year
period, with 25% of the options vesting each year from the date of grant.
In September 2000, the Company granted 664,400 options to employees at an
exercise price of $11.00. The Company believes these options were granted at
fair value as of the date of the grant.
Amortization of this stock-based compensation was $220,000 and $6.5 million
for the periods ended December 31, 1999 and September 30, 2000, respectively.
The Company expects to amortize $6.3 million
F-20
102
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
in the fourth quarter of fiscal 2000, $10.4 million in 2001, $4.6 million in
2002, $2.1 million in 2003 and $600,000 in 2004, assuming no cancellations or
additional stock option grants below deemed fair value.
As permitted, the Company has adopted the disclosure only provisions of
SFAS No. 123. Accordingly, no compensation expense, except as specifically
described above, has been recognized for the stock option plans. The fair value
of these option grants were estimated on the date of grant using an
option-pricing model with the following weighted-average assumptions: zero
dividend yield; risk-free interest rates between 5.28% and 6.45%; and an
expected life of five years. Had compensation expense been determined based on
the fair value at the dates of grant for the years ended December 31, 1997,
1998, 1999 and for the nine months ended September 30, 1999 and 2000 consistent
with the provisions of SFAS No. 123, the Company's net loss per share would have
been reported as the pro forma amounts indicated below:
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ---------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Net loss applicable to common
stockholders, as
reported................... $(4,979,000) $(6,657,000) $(19,873,000) $(10,580,000) $(33,573,000)
Net loss applicable to common
stockholders, pro forma.... $(5,031,000) $(6,789,000) $(20,201,000) $(10,798,000) $(34,850,000)
Net loss per share, as
reported................... $ (0.51) $ (0.69) $ (2.04) $ (1.09) $ (3.31)
Net loss per share, pro
forma...................... $ (0.52) $ (0.70) $ (2.08) $ (1.11) $ (3.44)
The option pricing model was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
Option valuation models also require the input of highly subjective assumptions.
Because the Company's employee stock-based compensations plans have
characteristics significantly different from these of traded options and because
changes in the subjective input assumptions can materially affect fair value
estimates, the Company believes that existing option valuation models do not
necessarily provide a reliable single measure of the fair value of awards from
the plans.
F-21
103
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
Common Shares Reserved for Future Issuance
The Company has reserved shares of common stock as follows:
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
Stock options outstanding................................... 4,032,000 10,417,220
Stock options available for future grant.................... 1,926,750 5,594,632
Conversion of:
Series A NWI convertible and redeemable preferred stock... 6,791,571 10,546,965
Series B NWI convertible and redeemable preferred stock... 6,252,843 6,893,685
Series C NWI convertible and redeemable preferred stock... 11,022,831 11,022,831
Series D NWI convertible preferred stock.................. -- 5,892,150
Series A NWT convertible and redeemable preferred stock... 3,755,394 --
Series B NWT convertible and redeemable preferred stock... 640,842 --
Stock warrants -- NWI..................................... 8,494,890 10,548,543
Stock warrants -- NWT..................................... 990,315 --
---------- ----------
Total reserved shares for issuance of common stock..... 43,907,436 60,916,026
========== ==========
In October 2000, the Company issued 434,782 shares of Series D preferred
stock to a qualified institutional buyer in a private offering (Unaudited).
Employee Stock Purchase Plan
In July 2000, the Company's Board of Directors approved the 2000 Employee
Stock Purchase Plan (ESPP), subject to stockholder approval. The Company will
implement the ESPP upon the effective date of an initial public offering (see
Note 2). The ESPP, subject to certain limitations, will permit eligible
employees of the Company to purchase common stock through payroll deductions of
up to 10% of their compensation. The Company has authorized the issuance of
1,500,000 shares of common stock under the ESPP, plus an automatic annual
increase, to be added on the first day of the fiscal year beginning in 2001,
equal to the lesser of (a) 0.5% of the outstanding shares on the last day of the
prior fiscal year, (b) 270,000 shares, or (c) such lesser number of shares as
may determined by the Board in its sole discretion. If purchases of stock
through the plan deplete this supply, we will limit, suspend or discontinue
purchases under the plan until additional shares of stock are available.
F-22
104
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
10. INCOME TAXES
The Company's deferred tax assets and liabilities consist of the following:
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
Current deferred taxes:
Accounts receivable reserve............................... $ 18,000 $ 327,000
Accrued expenses.......................................... 125,000 393,000
Other..................................................... -- 183,000
----------- -----------
Deferred tax asset -- current............................. 143,000 903,000
Valuation allowance....................................... (143,000) (903,000)
----------- -----------
Net current deferred taxes................................ -- --
=========== ===========
Long-term deferred taxes:
Depreciation and amortization............................. 879,000 1,095,000
Research and development costs............................ 205,000 205,000
Net operating loss and credit carryforwards............... 3,802,000 8,462,000
----------- -----------
Deferred tax asset -- noncurrent.......................... 4,886,000 9,762,000
Valuation allowance....................................... (4,886,000) (9,762,000)
----------- -----------
Net long-term deferred taxes.............................. -- --
----------- -----------
Net deferred income taxes................................... $ -- $ --
=========== ===========
Management has established a valuation allowance against its net deferred
tax assets due to the uncertainty surrounding the realization of such assets. At
December 31, 1999 the Company has U.S. federal net operating loss carryforwards
of approximately $13.6 million, which expire at various dates through 2020. The
Company has California net operating loss carryforwards of approximately $8.2
million, which expire at various dates through 2004. In addition, the Company
has state operating loss carryforwards of approximately $9.2 million, which
expire at various dates through 2006. The Company's use of net operating loss
carryforwards in future years will be substantially limited due to previous
ownership changes as defined under Internal Revenue Code section 382.
The provision for income taxes reconciles to the amount computed by
applying the statutory federal income tax rate to income before provision for
income taxes as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------- NINE MONTHS ENDED
1997 1998 1999 SEPTEMBER 30, 2000
----------- ----------- ----------- ------------------
(UNAUDITED)
Federal tax provision, at statutory
rate.............................. $(1,567,000) $(1,927,000) $(6,464,000) $ (9,614,000)
State tax, net of federal benefit... (42,000) (195,000) (543,000) (805,000)
Change in valuation allowance....... 1,602,000 2,069,000 5,636,000 10,307,000
Interest expense on convertible
subordinated debentures........... -- -- 1,279,000 --
Other............................... 7,000 53,000 92,000 112,000
----------- ----------- ----------- ------------
$ -- $ -- $ -- $ --
=========== =========== =========== ============
F-23
105
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES
Operating and Capital Leases
The Company leases its office space and certain equipment under
non-cancelable operating and capital leases. Rental expense under operating
leases in fiscal 1997, 1998 and 1999 was approximately $327,000, $370,000 and
$517,000, respectively. The minimum future lease payments under non-cancelable
operating leases and future minimum capital lease payments as of December 31,
1999 are:
OPERATING CAPITAL
---------- --------
2000........................................................ $1,053,000 $108,000
2001........................................................ 1,104,000 76,000
2002........................................................ 826,000 24,000
2003........................................................ 742,000 19,000
2004........................................................ 759,000 13,000
Thereafter.................................................. 87,000 --
---------- --------
Total minimum lease payments...................... $4,571,000 240,000
==========
Less -- amount representing interest (at rates ranging from
9.9% to 20.1%)............................................ (53,000)
--------
Present value of net minimum lease payments................. 187,000
Less -- current installments of obligations under capital
leases.................................................... (81,000)
--------
Obligations under capital leases, excluding current
installments.............................................. $106,000
========
Royalties
The Company is required to pay quarterly royalties for its products shipped
with CDPD technology. The Company incurred royalty expenses of $27,000, $136,000
and $353,000 in fiscal 1997, 1998 and 1999, respectively.
Employment Agreements
The Company has entered into an employment agreement with its President and
Chief Operating Officer that provides for compensation in the event of
termination of employment of 250,000 Canadian dollars (approximately $168,000 at
December 31, 1999) or 125,000 Canadian dollars (approximately $84,000 at
December 31, 1999) in the event of resignation within 30 days of a change in
control of the Company, plus continuation of certain benefits and pro rata
payment of incentive bonuses. The Company has also entered into an employment
agreement with its Chief Executive Officer that provides for a lump sum payment
equivalent to annual base salary and certain additional benefits upon
termination without cause or upon a change in control of the Company. Employment
agreements with certain other key employees provide for six months salary
payment in the event of termination without cause.
Legal Matters
The Company is party to various legal matters and subject to claims in the
ordinary course of business. In the opinion of management, such matters will not
have a material adverse impact on the Company's financial position or results of
operations.
F-24
106
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
12. SEGMENT INFORMATION AND CONCENTRATIONS OF RISK AND RELATED PARTIES
Segment Information
The Company operates in the wireless data modem technology industry and all
sales of the Company's products and services are made in this segment.
Management makes decisions about allocating resources based on this one
operating segment.
The Company has operations in the United States and Canada. The
distribution of the Company's assets in the United States and Canada as of
December 31, 1998, December 31, 1999, and September 30, 2000 are $3.5 million
and $2.7 million, $27.4 million and $10.7 million, and $39.0 and $9.1 million,
respectively.
Concentrations of Risk and Related Parties
Two customers accounted for 32% and 14%, respectively, of the revenues for
the nine months ended September 30, 2000 (unaudited). Two customers accounted
for 23% and 14%, respectively, of 1999 revenues. No customer accounts for more
than 10% of 1998 revenues and one customer accounts for 19% of 1997 revenues.
Substantially all of the Company's revenues come from wireless Internet
products. Any decline in market acceptance of the Company's products may impair
the Company's ability to operate effectively. On June 30, 2000, Aether Capital,
LLC, purchased $20 million of the Company's Series D preferred stock. Aether
Capital, LLC is the investment arm of Aether Systems, Inc., which is the sole
member of Aether Capital, LLC. David S. Oros, one of the Company's directors,
who joined the Company's board in July 2000, serves as Chairman, Chief Executive
Officer and President of Aether Systems, Inc. Mr. Oros is also a director of
OmniSky Corporation, in which Aether Systems, Inc. is an investor. As a result
of this capital transaction, OmniSky Corporation, a significant customer, became
a related party. Sales to OmniSky amounted to $10,818,000 and $7,254,000 for the
nine months and three months ended September 30, 2000, respectively (unaudited).
Receivables from OmniSky Corporation amounted to $4,377,000 as of September 30,
2000 (unaudited).
The Company currently outsources substantially all of its manufacturing
operations to a single third party. This outsource manufacturer provides the
Company with procurement, manufacturing, assembly, test, quality control and
delivery services. Subsequent to December 31, 1999, the Company has entered into
a manufacturing agreement with another vendor, but manufacturing activities have
not begun with this new vendor. If there were disruptions to, or terminations
of, the Company's outsourced manufacturing relationships, the Company's
financial position and results of operations would be materially adversely
effected.
13. RETIREMENT SAVINGS PLAN
The Company has a defined contribution 401(k) retirement savings plan (the
"Plan"). Substantially all of the Company's U.S. employees are eligible to
participate in the Plan after meeting certain minimum age and service
requirements. Employees may make discretionary contributions to the Plan subject
to Internal Revenue Service limitations. As of December 31, 1999, there are no
provisions for employer contributions to the Plan. Participants are fully vested
in all contributions to the Plan.
14. UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA STOCKHOLDERS'
EQUITY (DEFICIT)
Upon the closing of the Company's initial public offering, all outstanding
NWI Series A, B and C convertible and redeemable preferred stock and Series D
convertible preferred stock as of September 30,
F-25
107
NOVATEL WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
AND SEPTEMBER 30, 2000 (UNAUDITED)
2000, will be converted into NWI common stock. The pro forma effect of this
conversion has been presented as a separate column in the accompanying balance
sheet.
Pro forma basic and diluted net loss per share have been computed to give
effect to common equivalent shares from convertible and redeemable preferred
stock and minority interest shares that will convert upon the closing of the
Company's initial public offering (using the as-if-converted method) for the
year ended December 31, 1999 and the nine months ended September 30, 1999 and
2000.
A reconciliation of the numerator and denominator used in the calculation
of pro forma basic and diluted net loss per common share follows (in thousands,
except per share data):
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ---------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Net loss..................... $(4,476,000) $(5,506,000) $(18,469,000) $ (9,530,000) $(30,270,000)
Adjustments to net loss used
in computing basic and
diluted net loss applicable
to common stockholders:
Accretion of dividends on
minority interest.......... (189,000) (273,000) (286,000) (215,000) (197,000)
Accretion of dividends on
convertible and redeemable
preferred stock............ (308,000) (859,000) (1,096,000) (820,000) (2,669,000)
Amortization of offering
costs for convertible and
redeemable preferred
stock...................... (6,000) (19,000) (22,000) (15,000) (437,000)
----------- ----------- ------------ ------------ ------------
Net loss applicable to common
stockholders............... $(4,979,000) $(6,657,000) $(19,873,000) $(10,580,000) $(33,573,000)
=========== =========== ============ ============ ============
Denominator:
Weighted average common
shares outstanding...... 9,728,421 9,723,737 10,138,695
Adjustments to reflect
assumed conversion of
convertible and
redeemable preferred
stock from the date of
issuance:
Series A NWI............ 6,791,571 6,791,571 10,546,965
Series B NWI............ 6,252,843 6,252,843 6,893,685
Series C NWI............ 30,198 -- 11,022,831
Series D NWI............ -- -- 5,892,150
Class A NWT............. 3,755,394 3,755,394 --
Class B NWT............. 640,842 640,842 --
------------ ------------ ------------
Weighted average shares
used in computing pro
forma basic and
diluted net loss per
share................. 27,199,269 27,164,387 44,494,326
============ ============ ============
F-26
108
The inside back cover contains a diagram showing the relationship and
architecture of our product line to the Internet through wireless networks.
109
[NOVATEL LOGO]
110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee and the Nasdaq National Market listing
fee.
AMOUNT TO
BE PAID
----------
SEC registration fee........................................ $ 27,720
NASD filing fee............................................. 11,000
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 500,000
Blue Sky qualification fees and expenses.................... 25,000
Transfer Agent and Registrar fees........................... 15,000
Miscellaneous fees and expenses............................. 76,280
----------
Total..................................................... $1,600,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under some circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the Securities Act). Article XIV of our amended and restated
certificate of incorporation (Exhibit 3.1 to this registration statement) and
Article VI of our bylaws (Exhibit 3.2 to this registration statement) provide
for indemnification of our directors, officers, employees and other agents to
the maximum extent permitted by Delaware law. In addition, we have entered into
Indemnification Agreements (Exhibit 10.6 to this registration statement) with
our officers and directors. The underwriting agreement (Exhibit 1.1 to this
registration statement) also provides for cross-indemnification among us and the
underwriters with respect to certain matters, including matters arising under
the Securities Act. Our amended and restated certificate of incorporation
provides that subject to Delaware law, our directors will not be personally
liable for monetary damages awarded as a result of a breach of their fiduciary
duty owed to Novatel Wireless, Inc. and its stockholders. This provision does
not eliminate our directors' fiduciary duty and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, we have issued and sold the following
securities:
1. On June 30 and July 14, 2000, we issued and sold a total of
5,892,150 shares of our Series D preferred stock to accredited investors
and on October 23, 2000, we issued and sold a total of 434,782 shares of
our Series D preferred stock to a qualified institutional buyer at a
purchase price of $5.75 per share. We also issued and sold warrants to
purchase a total of 1,178,400 shares of our common stock at an exercise
price of $5.75 per share. These warrants are exercisable upon the earliest
to occur of June 30, 2001, the closing of this offering or a transaction
which results in a change of control of our company.
II-1
111
2. On December 31, 1999, we issued and sold a total of 11,022,831
shares of our Series C preferred stock to accredited investors at a
purchase price of $2.78 per share. We also issued and sold warrants to
purchase a total of 2,119,071 and 29,568 shares of common stock at an
exercise price of $3.33 and $2.78 per share, respectively, on or prior to
December 31, 2004.
3. On October 12, 1999, we issued and sold a warrant to purchase
71,430 shares of our Series C preferred stock to a financial institution in
connection with a working line of credit at an exercise price of $2.10 per
share.
4. On June 24, 1999 and on July 15, 1999, we and our subsidiary NWT
issued and sold convertible subordinated debentures to accredited investors
in the total original principal amount of $3,120,000 bearing interest at
the rate of 8% per annum. Of this amount, $500,000 in original principal
amount was issued by NWT. We also issued warrants to purchase a total of
3,930,006 shares of common stock at an exercise price of $0.67 per share on
or prior to June 24, 2004 or July 15, 2004 depending on their date of
issuance. In connection with this financing, NWT issued warrants to
purchase 750,000 shares of NWT's common stock, which shares of NWT common
stock were upon issuance exchangeable on a one-for-one basis for shares of
our common stock. Immediately upon the closing of our Series C preferred
stock financing, the principal amount then outstanding under these
convertible subordinated debentures, together with accrued interest
thereon, automatically converted into 1,166,721 shares of our Series C
preferred stock at a price of $2.78 per share without the payment of
additional consideration.
5. On December 23, 1997, April 24, 1998 and September 1, 1998, we
issued and sold a total of 6,252,843 shares of our Series B preferred stock
to accredited investors at a purchase price of $1.42 per share. In
addition, on December 23, 1997, and on April 24, 1998 our subsidiary NWT
issued an aggregate of 640,842 shares of its Series B preferred stock.
These NWT shares were, upon issuance, exchangeable on a one-for-one basis
for shares of our Series B preferred stock. During this period, we also
issued warrants to purchase 2,344,815 shares of our common stock at an
exercise price of $1.42 per share. In connection with this financing, NWT
issued warrants to purchase 240,315 shares of NWT's common stock at an
exercise price of $1.42 per share which shares of NWT common stock were,
upon issuance, exchangeable on a one-for-one basis for shares of our common
stock. 528,168 of the warrants that each of Novatel and NWT issued in
connection with this Series B financing are exercisable on or before
December 31, 2002 and 2,056,962 of such warrants are exercisable on or
before December 31, 2003.
6. At November 10, 2000, we have outstanding options to purchase
10,228,094 shares of our common stock to a number of our employees,
directors and consultants.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements under the Securities
Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or
Rule 701 with respect to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment purposes only and not with a view to or for sale in connection with
any distribution thereof, and appropriate legends were affixed to the stock
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
II-2
112
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
1.1** Form of underwriting agreement.
3.1** Form of Amended and Restated Certificate of Incorporation of
Novatel Wireless, Inc., to be effective upon consummation of
this offering.
3.2** Form of Amended and Restated Bylaws of Novatel Wireless,
Inc., to be effective upon consummation of this offering.
4.1** Form of Specimen Common Stock Certificate.
5.1** Opinion of Orrick, Herrington & Sutcliffe LLP regarding the
legality of the common stock being registered.
10.1** Amended and Restated 1997 Stock Option Plan of Novatel
Wireless, Inc.
10.2** 2000 Stock Incentive Plan of Novatel Wireless, Inc.
10.3** 2000 Employee Stock Purchase Plan of Novatel Wireless, Inc.
10.4** Amended and Restated Registration Rights Agreement, dated as
of June 15, 1999, by and among Novatel Wireless, Inc. and
some of its stockholders.
10.5** Amended and Restated Investors' Rights Agreement, dated as
of June 30, 2000, by and among Novatel Wireless, Inc. and
some of its stockholders.
10.6** Form of Indemnification Agreement to be entered into by and
between Novatel Wireless, Inc. and its officers and
directors.
10.7** Loan and Security Agreement, dated as of October 12, 1999,
by and between Novatel Wireless, Inc. and Venture Banking
Group, a division of Cupertino National Bank, as amended.
10.8** Real Property Sublease, dated as of July 7, 2000, by and
between Sicor Inc. (formerly Gensia Sicor, Inc.) and Novatel
Wireless, Inc., for 9360 Towne Centre Drive, San Diego,
California.
10.9** Real Property Lease, dated as of February 1, 1997, by and
between Novatel Wireless Technologies Ltd. and Sun Life
Assurance Company of Canada, for 6715 8th St., N.E.,
Calgary, Alberta.
10.10+ Supply Agreement, dated as of March 31, 2000, by and between
Novatel Wireless, Inc. and Hewlett-Packard Company.
10.11+ Technology License, Manufacturing and Purchase Agreement,
dated as of October 13, 1999, by and between Novatel
Wireless, Inc. and Metricom, Inc.
10.12+ Supply Agreement, dated as of August 12, 1999, by and
between Novatel Wireless, Inc. and OpenSky Corporation
(currently known as OmniSky Corporation).
10.13+** Electronic Manufacturing Services, dated as of September 3,
1999, by and between Novatel Wireless, Inc. and Sanmina
(Canada) ULC.
10.14+ Letter Agreement, dated as of March 15, 2000, by and between
Novatel Wireless, Inc. and Symbol Technologies, Inc.
10.15+ Agreement for Purchase and Sale of Novatel Wireless, Inc.
Mobile Terminal Units dated as March 2000 by and between
Novatel Wireless, Inc. and VoiceStream Wireless Corporation.
10.16+** Agreement for Electronic Manufacturing Services, dated as of
April 8, 2000, by and between Novatel Wireless, Inc. and GVC
Corporation.
10.17** Employment Agreement, dated as of July 24, 2000, by and
between Novatel Wireless, Inc. and John Major.
10.18** Employment Agreement, dated as of August 21, 1996, by and
among Novatel Wireless, Inc., Novatel Wireless Technologies
Ltd. and Ambrose Tam.
10.19** Standard Manufacturing Agreement, dated as of August 8,
2000, by and between Novatel Wireless, Inc. and Solectron de
Mexico, S.A. de C.V.
10.20** First Amendment to Employment Agreement, dated as of
September 22, 2000, by and among Novatel Wireless, Inc.,
Novatel Wireless Technologies Ltd. and Ambrose Tam.
II-3
113
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
10.21+ Product Purchase and License Agreement, dated as of October
23, 2000, by and between Novatel Wireless, Inc. and Intel
Corporation.
21.1** Subsidiaries of Novatel Wireless, Inc.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.2** Consent of Orrick, Herrington & Sutcliffe LLP (contained in
their opinion filed as Exhibit 5.1).
24.1** Power of Attorney (included in the signature page to this
registration statement).
27.1** Financial Data Schedule.
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested as to some portions of this exhibit.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts............ S-1
ITEM 17. UNDERTAKINGS
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names the underwriters require to permit prompt delivery to each purchaser in
the offering.
To the extent indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, our certificate of
incorporation, our bylaws, indemnification agreements entered into between the
company and our officers and directors, the underwriting agreement, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission this indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against these liabilities (other than our payment of
expenses incurred or paid by any of our directors, officers or controlling
persons in the successful defense of any action, suit or proceeding) is asserted
by a director, officer or controlling person in connection with the securities
being registered, we will, unless our legal counsel opines that controlling
precedent has settled the matter, submit to a court of appropriate jurisdiction
the question whether this indemnification by us is against public policy as
expressed in the Securities Act and we will be governed by the final
adjudication of the issue.
The undersigned registrant undertakes:
(1) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus we filed pursuant to Rule 424(b)(1) or (4) or 497(h) of
the Securities Act shall be deemed to be part of this registration
statement as of the time the registration statement was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
114
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 6 to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San Diego,
State of California on November 13, 2000.
NOVATEL WIRELESS, INC.
By: /s/ JOHN MAJOR
------------------------------------
John Major
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 6 to
the registration statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN MAJOR Chief Executive Officer and November 13, 2000
- --------------------------------------------------- Chairman of the Board (Chief
John Major Executive Officer)
/s/ AMBROSE TAM President, Chief Operating November 13, 2000
- --------------------------------------------------- Officer and Chief Technology
Ambrose Tam Officer
/s/ MELVIN FLOWERS Chief Financial Officer (Chief November 13, 2000
- --------------------------------------------------- Financial and Accounting
Melvin Flowers Officer)
* Director November 13, 2000
- ---------------------------------------------------
H. H. Haight
* Director November 13, 2000
- ---------------------------------------------------
Nathan Gibb
* Director November 13, 2000
- ---------------------------------------------------
Robert Getz
* Director November 13, 2000
- ---------------------------------------------------
David Oros
* Director November 13, 2000
- ---------------------------------------------------
Mark Rossi
II-5
115
SIGNATURE TITLE DATE
--------- ----- ----
* Director November 13, 2000
- ---------------------------------------------------
Steven Sherman
*By: /s/ JOHN MAJOR Director November 13, 2000
---------------------------------------------
John Major, Attorney-In-Fact
II-6
116
SCHEDULE II
NOVATEL WIRELESS, INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEAR PERIOD ENDED DECEMBER 31, 1999
BALANCE AT ADDITIONS DEDUCTIONS BALANCE
BEGINNING CHARGED TO FROM AT END
OF YEAR OPERATIONS RESERVES OF YEAR
---------- ---------- ---------- ----------
Allowance for doubtful accounts year ended:
December 31, 1997........................ $ -- $ 47,000 $ -- $ 47,000
December 31, 1998........................ 47,000 -- 3,000 44,000
December 31, 1999........................ 44,000 137,000 -- 181,000
Warranty reserve year ended:
December 31, 1997........................ 11,000 78,000 -- 89,000
December 31, 1998........................ 89,000 155,000 -- 244,000
December 31, 1999........................ 244,000 132,000 140,000 236,000
Deferred tax asset valuation allowance:
December 31, 1997........................ 1,652,000 1,406,000 -- 3,058,000
December 31, 1998........................ 3,058,000 1,828,000 -- 4,886,000
December 31, 1999........................ 4,886,000 4,876,000 -- 9,762,000
S-1
117
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- -------- ----------------------- ------
1.1** Form of underwriting agreement..............................
3.1** Form of Amended and Restated Certificate of Incorporation of
Novatel Wireless, Inc., to be effective upon consummation of
this offering...............................................
3.2** Form of Amended and Restated Bylaws of Novatel Wireless,
Inc., to be effective upon consummation of this offering....
4.1** Form of Specimen Common Stock Certificate...................
5.1** Opinion of Orrick, Herrington & Sutcliffe LLP regarding the
legality of the common stock being registered...............
10.1** Amended and Restated 1997 Stock Option Plan of Novatel
Wireless, Inc. .............................................
10.2** 2000 Stock Incentive Plan of Novatel Wireless, Inc. ........
10.3** 2000 Employee Stock Purchase Plan of Novatel Wireless,
Inc. .......................................................
10.4** Amended and Restated Registration Rights Agreement, dated as
of June 15, 1999, by and among Novatel Wireless, Inc. and
some of its stockholders....................................
10.5** Amended and Restated Investors' Rights Agreement, dated as
of June 30, 2000, by and among Novatel Wireless, Inc. and
some of its stockholders....................................
10.6** Form of Indemnification Agreement to be entered into by and
between Novatel Wireless, Inc. and its officers and
directors...................................................
10.7** Loan and Security Agreement, dated as of October 12, 1999,
by and between Novatel Wireless, Inc. and Venture Banking
Group, a division of Cupertino National Bank, as amended....
10.8** Real Property Sublease dated as of July 7, 2000, by and
between Sicor Inc. (formerly Gensia Sicor, Inc.) and Novatel
Wireless, Inc., for 9360 Towne Centre Drive, San Diego,
California..................................................
10.9** Real Property Lease, dated as of February 1, 1997, by and
between Novatel Wireless Technologies Ltd. and Sun Life
Assurance Company of Canada, for 6715 8th St., N.E.,
Calgary, Alberta............................................
10.10+ Supply Agreement, dated as of March 31, 2000, by and between
Novatel Wireless, Inc. and Hewlett-Packard Company..........
10.11+ Technology License, Manufacturing and Purchase Agreement,
dated as of October 13, 1999, by and between Novatel
Wireless, Inc. and Metricom, Inc. ..........................
10.12+ Supply Agreement, dated as of August 12, 1999, by and
between Novatel Wireless, Inc. and OpenSky Corporation
(currently known as OmniSky Corporation)....................
10.13+** Electronic Manufacturing Services, dated as of September 3,
1999, by and between Novatel Wireless, Inc. and Sanmina
(Canada) ULC................................................
10.14+ Letter Agreement, dated as of March 15, 2000, by and between
Novatel Wireless, Inc. and Symbol Technologies, Inc. .......
10.15+ Agreement for Purchase and Sale of Novatel Wireless, Inc.
Mobile Terminal Units dated as March 2000 by and between
Novatel Wireless, Inc. and VoiceStream Wireless
Corporation.................................................
10.16+** Agreement for Electronic Manufacturing Services, dated as of
April 8, 2000, by and between Novatel Wireless, Inc. and GVC
Corporation.................................................
10.17** Employment Agreement, dated as of July 24, 2000, by and
between Novatel Wireless, Inc. and John Major...............
10.18** Employment Agreement, dated as of August 21, 1996, by and
among Novatel Wireless, Inc., Novatel Wireless Technologies
Ltd. and Ambrose Tam........................................
10.19** Standard Manufacturing Agreement, dated as of August 8,
2000, by and between Novatel Wireless, Inc. and Solectron de
Mexico, S.A. de C.V.........................................
118
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- -------- ----------------------- ------
10.20** First Amendment to Employment Agreement, dated as of
September 22, 2000, by and among Novatel Wireless, Inc.,
Novatel Wireless Technologies Ltd. and Ambrose Tam..........
10.21+ Product Purchase and License Agreement, dated as of October
23, 2000, by and between Novatel Wireless, Inc. and Intel
Corporation.
21.1** Subsidiaries of Novatel Wireless, Inc. .....................
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.................................................
23.2** Consent of Orrick, Herrington & Sutcliffe LLP (contained in
their opinion filed as Exhibit 5.1).........................
24.1** Power of Attorney (included in the signature page to this
registration statement).....................................
27.1** Financial Data Schedule.....................................
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested as to some portions of this exhibit.
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EXHIBIT 10.10
SUPPLY AGREEMENT
This Supply Agreement ("Agreement") is being entered into and is
effective as of March 31, 2000 (the "Effective Date"), by and between NOVATEL
WIRELESS, INC., a Delaware corporation ("Novatel Wireless" or "Seller"), having
its principal place of business at 9360 Towne Centre Drive, San Diego,
California 92121 and Hewlett-Packard Company, a Delaware corporation
("Hewlett-Packard" or "Buyer"), having its principal place of business at 3000
Hanover Street, Palo Alto, California 94304.
WHEREAS, Seller is engaged in, among other things, the development and
manufacture of wireless modem cradles ("Modems");
WHEREAS, Buyer desires to purchase certain quantities of Modems from
Seller, and Seller is willing to supply such quantities of Modems to Buyer,
subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants set forth below, the parties agree as follows:
1. SALE AND PURCHASE OF PRODUCTS.
1.1 Sale and Purchase. Buyer shall purchase from Seller, and Seller
shall supply to Buyer *** Modems in accord with the specifications set forth in
Annex B (the "Product Specifications").
1.2 Price and Payments.
1.2.1 Buyer shall make payments due to Seller for Modems either
directly to Seller or to such bank as Seller may designate in writing. Order
payment terms are Net 30 Days.
1.2.2 Buyer shall pay in accordance with the terms set forth in
Annex D ("Purchase Price and Volume Commitments") per unit for each Modem.
1.3 Modems. The price per unit as set forth above includes the finished
product modem, installation and configuration software on CD ROM, AC adapter,
display packaging and user documentation.
1.4 Shipment and Forecast. Buyer shall order and Seller shall deliver to
Buyer the Modems set forth in Section 1.1 in accord with the delivery schedule
attached set forth in Annex C ("Forecast and Delivery Schedules").
1.5 Delivery. Seller shall deliver the Modems sold to Buyer in accord
with the delivery schedule set forth in Annex C. The Modems shall be shipped
f.o.b. shipping point from the Seller's manufacturing site.
1.6 Warranties. Acceptance of a Modem shall not relieve Seller from its
obligations thereunder with respect to warranties under Section 6 below.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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1.7 Title; Risk of Loss. Title to and risk of loss in Modems covered by
this Agreement shall pass to Buyer at such time Seller ships the Modems.
1.8 Taxes. The prices of all Modems hereunder include all taxes, duties
and excise which are directly imposed on the Modems. Notwithstanding the
foregoing, Buyer shall bear the responsibility for any taxes or duties imposed
on Modems in any other country or state of destination, including without
limitation, taxes imposed on the sale by Buyer of a product that includes Seller
products.
1.9 Preferred Supplier Status. For the term of this Agreement, Seller
shall have the right of first refusal as a supplier with respect to any wireless
data modem project initiated by the Hewlett-Packard Wireless and Internet
Services Division.
2. TRADEMARKS.
2.1 Seller's Trademarks.
2.1.1 Buyer shall not use the trademark "Novatel" or "Novatel
Wireless" or any other trademark owned by Seller or any mark confusingly similar
thereto without the prior written consent of Seller in each instance.
Notwithstanding the foregoing, Buyer shall be entitled to use the trademark
"Novatel" or "Novatel Wireless" or any other trademark owned by Seller in
association with the Modems, but such use shall be in strict accord with the
latest (most recent) version of Seller's Trademark Style Guide as provided by
Seller to Buyer.
2.1.2 Buyer shall not use the Seller's trademark or any other
trademark owned by Seller or any mark confusingly similar thereto without the
prior written consent of Seller in each instance.
2.1.3 Buyer acknowledges Seller's sole ownership and exclusive
right, title and interest in and to the use of each of its trademarks, and that
any use of any of the trademarks of Seller will inure solely to the benefit of
Seller. Buyer shall not acquire any right to or under any of Seller's
trademarks. Nothing contained herein shall in any way limit Seller's rights
under its patents or licensing agreements or grant Buyer any rights under such
patents or licensing agreements.
2.1.4 License to the Documentation. Solely for purposes as required
in accordance with this Agreement, Seller hereby grants to Buyer, under Seller"s
intellectual property rights, a non-exclusive, worldwide license to use,
reproduce and display the appropriate Documentation for the Modems.
2.2 Buyer's Trademarks.
2.2.1 Trademarks. Neither party is granted any ownership in or
license to the trademarks, marks or trade names (collectively,
"Marks") of the other party. Seller's use of Buyer's Marks shall be
in accordance with the latest (most recent) Buyer's Trademark
guidelines as provided by Buyer to Seller.
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2.2.2 Seller shall not use the Buyer's trademark or any other
trademark owned by Buyer or any mark confusingly similar thereto
without the prior written consent of Buyer in each instance.
2.2.3 Seller acknowledges Buyer's sole ownership and exclusive
right, title and interest in and to the use of each of its
trademarks, and that any use of any of the trademarks of Buyer will
inure solely to the benefit of Buyer. Seller shall not acquire any
right to or under any of Buyer's trademarks. Nothing contained
herein shall in any way limit Buyer's rights under its patents or
licensing agreements or grant Seller any rights under such patents
or licensing agreements.
2.3 Co-Branding. Buyer and Seller agree that the Modems manufactured and
sold under this Agreement shall be co-branded with the trademarks of both Buyer
and Seller. Buyer and Seller agree to reasonably cooperate with one another in
developing an appropriate co-branding strategy.
3. KNOW-HOW AND SUPPORT.
Seller shall provide Level II and Level III Technical Support (as set
forth in Annex A ("Technical Support")), and training to Buyer's designated
service technicians to enable Buyer to provide Level I Support and engineering
support at Buyer's facilities to enable Buyer to support the Modems, including
the details of modem functionality and design required for detection and
correction of bugs or failures. The parties hereto acknowledge and agree that
Seller shall not provide direct end-user support to any end-user on its own
behalf or on behalf of Buyer (Level I Technical Support). Seller will provide
technical support during the term of this Agreement in accordance with the terms
of this Agreement, except that Seller shall not be obligated to provide support
for any change in Seller's specifications of the Modems as set forth in Annex B
(the "Product Specifications") requested by the Buyer to the extent that this
change proposed by Buyer is not incorporated into the standard Modems sold by
Seller.
4. REPRESENTATION, WARRANTY and indemnification.
4.1 Seller represents and warrants that no additional Federal Trade
Commission certification or CDPD carrier certification or other governmental
certification is required for the Modems. If either certification becomes
necessary for the sale of the Modems, Seller shall immediately stop delivery of
the Modems. Seller shall make the necessary changes to certify the Modems and
all previously delivered Modems shall be retrofitted to meet the certified
configuration.
4.2 Seller also represents and warrants that it is entitled to enter
into this Supply Agreement and that Seller's performance according to the terms
of this Supply Agreement shall not violate any other agreement to which Seller
is a party. Seller shall, at its sole cost and expense, indemnify, defend and
hold Buyer harmless from and against any claims, demands, liability or suit,
including costs and expenses, for or by reason of any actual or alleged breach
of this warranty in this Section 4.2.
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4.3 General Indemnity. Seller agrees to indemnify and hold Buyer
harmless of and from any and all loss, cost, claim, liability, suit, judgment or
expense, including reasonable attorneys' fees, arising out of any breach of the
above described warranties.
4.4 No Infringement. Seller warrants that the computer software provided
by Seller with the Modems to Buyer (the "Program"), and accompanying
Documentation, referred to in this Agreement do not violate or infringe any
patent, copyright, trademark, trade secret or other proprietary right of any
third party and that Seller is not aware of any facts upon which such a claim
for infringement could be based.
4.5 Infringement Indemnity.
(a) Seller will defend any claim, suit, or proceeding brought
against Buyer or its customers insofar as it is based on a claim that the
Program or Documentation, or any part thereof, furnished by Seller under this
Agreement constitutes an infringement of any third party's patent, copyright,
trademark, trade name, other proprietary right, or unauthorized trade secret
use; provided that Seller is notified promptly in writing of such claim, and
given authority, information and assistance (at Seller's expense) to handle the
claim or the defense of any suit or proceeding. Seller agrees to pay damages and
costs awarded therein against Buyer and its customers but only to the extent
such damages and costs are directly attributable to infringement caused by the
Program or Documentation which is provided by Buyer to Seller. Notwithstanding
the foregoing, Seller's total liability under this Section shall not exceed the
total amounts actually paid by Buyer to Seller under this Supply Agreement.
(b) In case any Program or Documentation or any part thereof in such
suit is held to constitute an infringement and its use is enjoined, Seller
shall, at its own expense and at its option (i) procure for Buyer and its
customers the right to continue use, or (ii) if applicable, replace the same
with a noninfringing program and documentation of substantially equivalent
function and performance, or (iii) modify them so they become noninfringing
without detracting substantially from function or performance.
(c) Notwithstanding the foregoing, Seller shall have no
responsibility for claims arising from (i) unauthorized modifications of the
Program made by Buyer or its customers if such claim would not have arisen but
for such modifications, or (ii) unauthorized combination or use of the Program
with products not contemplated herein if such claim would not have arisen but
for such combination or use.
5. TERM; TERMINATION; RIGHTS AND OBLIGATIONS UPON TERMINATION.
5.1 Except as otherwise provided for herein, the term of this Agreement
shall be for the period set forth on Annex D, unless terminated earlier by
either party pursuant to the provisions of this Section 5 or extended by mutual
written agreement of the parties.
5.2 Notwithstanding the foregoing, the following provisions shall
continue in effect after termination of this Agreement in accordance with their
terms:
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(a) All payment provisions to the extent unpaid at the time of
termination shall be paid in accordance with the terms of this Agreement.
(b) All warranties specified in the Agreement.
(c) Sections 2.1 and 2.2 (Trademarks).
(d) Section 5.6 (Commitment Termination Event).
(e) Sections 9.1 and 9.2 (Confidentiality and Advertising).
(f) Section 9.3 (Confidential Information).
(g) Section 9.8 (Applicable Law).
5.3 Buyer's Right to Terminate. Buyer shall have the right, by providing
Seller with thirty (30) days' prior written notice, to terminate this Agreement
upon the occurrence of any of the following events, any one of which shall be
considered a "Seller Default":
(a) Seller discontinues the Modems;
(b) Seller is adjudged bankrupt;
(c) Seller files a voluntary petition in bankruptcy or liquidation
or for the appointment of a receiver;
(d) Filing of an involuntary petition to have Seller declared
bankrupt, or subject to receivership, provided that such petition is not vacated
or set aside within ninety (90) days from the date of filing;
(e) The execution by Seller of any assignment for the benefit of
creditors; or
(f) Seller breaches any material provision of this Agreement and
fails to cure such material breach within thirty (30) days from receipt of
written notice describing the breach.
(g) Seller, after receiving written notice from Buyer, fails to make
product deliveries as provided in this Agreement, unless such failure is cured
within thirty (30) days of Seller receiving such written notice from Buyer.
5.4 Seller's Right to Terminate. Seller shall have the right, by
providing Buyer with thirty (30) days' prior written notice, to terminate this
Agreement upon the occurrence of any of the following events, any one of which
shall be considered a "Buyer Default":
(a) Buyer fails to make payments as provided in this Agreement,
unless such failure is cured within thirty (30) days from receipt of written
demand for such payment. Any late payments shall bear interest at the annual
rate of ***;
(b) Buyer is adjudged bankrupt;
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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(c) Buyer files a voluntary petition in bankruptcy or liquidation or
for the appointment of a receiver;
(d) Filing of an involuntary petition to have Buyer declared
bankrupt, or subject to receivership, provided that such petition is not vacated
or set aside within ninety (90) days from the date of filing;
(e) The execution by Buyer of any assignment for the benefit of
creditors; or
(f) Buyer breaches any material provision of this Agreement and
fails to cure such material breach within thirty (30) days from receipt of
written notice describing the breach.
5.5 Remedy Upon Default. In the event that this Agreement is terminated
pursuant to Section 5.3 or 5.4 above, both parties shall have the right to
exercise any and all rights surviving such termination pursuant to Section 5.2.
5.6 Commitment Termination Event. In the event of a Commitment
Termination Event, Buyer shall, as soon as practicable and in no event later
than five (5) days after the occurrence of such Commitment Termination Event,
pay Seller, ***. Seller agrees to use commercially reasonable efforts to dispose
of or otherwise use excess finished product in an effort to reduce any residual
amount owed to Seller. "Commitment Termination Event" means (i) the failure by
Buyer to purchase Modems in the amounts set forth in Section 1.1 ("Sale and
Purchase") hereof pursuant to the schedule of payment and delivery set forth in
the Delivery Schedule (Annex C); (ii) termination of this Agreement by Buyer for
any reason whatsoever other than pursuant to an uncured material breach by
Seller; (iii) any uncured material breach by Buyer of any representation,
covenant or agreement on the part of Buyer set forth in this Agreement, and
subsequent termination of this Agreement by Seller for such breach. ***
6. PRODUCT WARRANTY.
6.1 Product Warranty. The following Sections 6.l through 6.6 refer only
to Product Warranty.
(a) Seller warrants that all Modems, including components thereof,
to be delivered hereunder, will conform substantially to the Product
Specifications and be free from defects in material and workmanship. The
foregoing warranty is given provided Buyer gives written notice of any defect,
deficiency or non-conformance of any Modem, or parts thereof, within: (i) ***
from the purchase date by the end-user/consumer (the "Warranty Period"). Seller
shall, at no cost to Buyer, and within the "Turn-Around Time" as defined in
Section 6.2(a) below, repair or furnish replacements for all such defective,
deficient or non-conforming items or parts thereof; provided, however, the
Modems have been maintained in accordance with Seller's specifications and have
not been modified by any party other than Seller except as expressly permitted
by Seller in writing.
(b) The foregoing warranties do not extend to:
(i) defects, errors or nonconformities in a Modem due to
accident, abuse, misuse or negligent use of such Modem or use in other than a
normal and customary
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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manner, environmental conditions not conforming to Seller's specifications, or
failure to follow prescribed operating maintenance procedures;
(ii) defects, errors or nonconformities in the Modem due to
modifications, alterations, additions or changes in the Modem not made or
authorized to be made by Seller in writing;
(iii) normal wear and tear; or
(iv) damage caused by force of nature or act of any third party.
6.2 Turn-Around Time.
(a) "Turn-Around Time" for the purposes of this Section 6 means ***
from the date on which such defective item, or defective or non-conforming part
thereof, is furnished to Seller, for repair or replacement until the date on
which such replaced or repaired item is returned to Buyer.
(b) Seller shall bear air shipment costs of the deficient, repaired
or replaced item as well as the risk or loss or damage to the item or its
replacement throughout the period between the shipment of the defective item and
the receipt of the repaired or replaced item. Repaired or replaced items shall
be subject to the warranty provided on the original finished product only (the
time during which Seller repairs or replaces the item shall not be considered as
part of the Warranty Period), in accordance with this Section 6. Notwithstanding
the foregoing, Buyer shall bear all expenses if no fault on the part of Seller
was found in the items returned for repair or replacement.
6.3 Inspection; Acceptance. This warranty shall survive inspection,
acceptance or payments by Buyer and is provided for the sole and exclusive
benefit of Buyer and shall not extend to any third party, including without
limitation, any reseller or end-user.
6.4 Exclusive Remedy. The warranty granted in this Section 6 sets forth
Buyer's sole and exclusive remedy and Seller's sole and exclusive liability for
any claim of warranty for any product delivered by Seller.
6.5 No Authority. Buyer acknowledges that it is not authorized to make
any warranty or representation on behalf of Seller or its suppliers regarding
the Modems, whether express or implied, other than the warranty terms set forth
in this Section 6.
6.6 Year 2000 Compliance. Novatel Wireless hereby warrants that the
Software included as part of the overall product is Year 2000 Compliant; "Year
2000 Compliant" shall be defined as having the capability to (i) correctly
process date field dependent logic to accurately process and utilize any date
prior to and any date after December 31, 1999; and (ii) store and represent
dates in a manner which enables the user to easily identify or use the century
portion of any date fields without any special processing.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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6.7 No Other Warranty. THE WARRANTY MADE UNDER THIS SECTION 6 IS
EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
7. LIMITATION OF LIABILITY.
SELLER SHALL NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL,
INDIRECT OR PUNITIVE DAMAGES (INCLUDING LOST REVENUES OR PROFITS) OF ANY KIND
DUE TO ANY CAUSE, REGARDLESS OF WHETHER SELLER HAS BEEN ADVISED OR IS AWARE OF
THE POSSIBILITY OF SUCH DAMAGES.
8. FORCE MAJEURE.
8.1 Events of Force Majeure. Neither party shall be liable for a default
or delay in the performance under this Agreement if and to the extent such
default or delay is caused, directly or indirectly, by (i) fire, flood, natural
disturbances or other acts of God; (ii) any outbreak or escalation of
hostilities, war, civil commotion, riot or insurrection; (iii) any act or
omission of the other party or any governmental authority or (iv) any other
similar causes beyond the control of such party that arise without the fault or
negligence of such party. Any delay resulting from such events shall be referred
to herein as a "Force Majeure," shall not constitute a default by such party
under this Agreement and shall entitle the delayed party to a corresponding
extension of its delayed obligation. The party whose performance will be delayed
by such events will use its best efforts to notify the other party within three
(3) days after delayed party becomes aware of such event, as well as the
cessation thereof.
8.2 Subcontractor's Default. Any delays in performance by Seller's
subcontractors or suppliers shall be deemed excusable delays with respect to
Seller only if (i) such subcontractor's non-performance is caused by Force
Majeure and (ii) Seller could not have obtained the supplies or services of such
subcontractor from other sources in sufficient time and on customary terms to
prevent interruption of Seller's performance of this Agreement.
8.3 Termination.
(a) If Force Majeure results in a delay to make any scheduled
delivery under this Agreement by more than sixty (60) days, Buyer may terminate
this Agreement in whole or in part and such termination shall not be deemed a
breach of this Agreement.
(b) If Buyer does not terminate within such sixty (60) day period,
and the Force Majeure prevails for further forty-five (45) days, Buyer may
terminate this Agreement, but it shall have no right to claim damages from
Seller for breach of the Agreement. The foregoing expresses Buyer's sole remedy
and Seller's sole liability for such termination resulting from Force Majeure.
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9. MISCELLANEOUS.
9.1 Confidentiality of Agreement; Permitted Disclosures. Throughout the
term of this Agreement, each party agrees that the terms of this Agreement shall
be kept confidential. No disclosure of the identity of Buyer's customers or
end-users or other information concerning this Agreement shall be released by
Seller without the prior written consent of Buyer except in Seller's or Buyer's
communication with its respective shareholders, investors or potential
investors.
9.2 Required Disclosures; Advertising. Notwithstanding Section 9.1
above:
(a) Each party may divulge information hereunder as is reasonably
required for the performance of the Agreement or as is required by law; and
(b) Each party shall have the right to list the other party as a
customer or supplier (as the case may be) in its advertising material.
9.3 Confidential Information.
(a) In performance of this Agreement, it may be necessary or
desirable for either party to disclose to the other certain business and/or
technical information which the disclosing party regards as proprietary and
confidential (the "Confidential Information"). Any Confidential Information
disclosed shall be reduced to writing and provided to the other party within
twenty (20) days after it was first disclosed. The disclosing party shall make
commercially reasonable efforts to mark all tangible embodiments of Confidential
Information with an appropriate confidentiality legend. Each of the parties
hereto agree that it shall (i) not make use of or disclose the Confidential
Information for any purpose whatsoever at any time, other than for the purposes
of this Agreement and (ii) limit access to the Confidential Information of the
other party to its employees and contractors who shall be advised of and agree
to be subject to the terms of this Section 9.3.
(b) Nothing herein shall be construed as granting to either party,
by implication, estoppel or otherwise, any right, title or interest in, or any
license under, any patent or Confidential Information.
(c) Items shall not be considered Confidential Information if such
information was (i) available to the public other than by a breach of an
agreement with the disclosing party; (ii) rightfully received from a third party
not in breach of any obligation of confidentiality; (iii) independently
developed by one party without access to the Confidential Information of the
other; (iv) known to the recipient at the time of disclosure; or (v) produced in
compliance with applicable law or a court order, provided that other party is
given reasonable notice of such law or order and an opportunity to attempt to
preclude or limit such production.
9.4 Severability. If any provision of this Agreement shall be held
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
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9.5 Assignment. Neither Seller nor Buyer may assign this Agreement in
whole or in part, or any rights hereunder without the prior written consent of
the other, except to (i) a wholly-owned subsidiary of such party, (ii) a
successor in interest of all or substantially all of such party's assets or
business or (iii) a bank trust company or other financial institution for money
due or to become due under this Agreement. In the event of any assignment, the
assigning party shall promptly supply the other party with two (2) copies of
such assignment and, in the instance of an assignment pursuant to this Section
9.5, shall indicate on each invoice to whom payment is to be made. In the event
of any assignment pursuant to this Section 9.5, the assigning party also shall
provide a written guarantee by such party of the obligations assigned to such
party's subsidiary.
9.6 Relations of the Parties. Nothing in this Agreement shall be
construed as creating relationship of principal and agent or of employer and
employee between the parties. Furthermore, nothing in this Agreement is intended
to constitute, create, give effect to or otherwise contemplate a joint venture,
partnership or formal business entity of any kind. The rights and obligations of
the parties with respect to this Agreement shall not be construed as providing
for sharing of profits or losses arising out of the effort of either of the
parties. The parties shall not incur any liability on behalf of the other.
9.7 Waiver. No waiver by either Seller or Buyer of any breach of this
Agreement shall be held to be a waiver of any other subsequent breach. No waiver
or time extension given by either Seller or Buyer shall have effect unless made
expressly and in writing.
9.8 Applicable Law. This Agreement and all matters regarding the
interpretation and/or enforcement hereof shall be governed exclusively by the
law of the State of California without reference to its choice of law rules.
9.9 Entire Agreement. This Agreement constitutes the entire agreement
between the parties, supersedes and cancels any previous understandings or
agreements between all the parties relating to the provisions hereof, and
expresses the complete and final understanding of the parties in respect
thereto. This Agreement may not be changed, modified, amended or supplemented
except by a written instrument signed by the parties.
9.10 Notices. Any notice contemplated by or made pursuant to this
Agreement shall be in writing and shall be deemed delivered on the date of
delivery if delivered personally or by commercial overnight courier with
tracking capabilities or by fax, or five (5) days after mailing if placed in the
mail, postage prepaid, registered or certified mail, return receipt requested,
addressed to Buyer or Seller (as the case may be) as follows:
Seller: Novatel Wireless, Inc.
9360 Towne Centre Drive
Suite 110
San Diego, CA 92121
Attn: Bruce Gray, Vice President of Sales
and Marketing
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Buyer: Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304
Attn: General Counsel
or such other address as each party may designate for itself by notice given in
accordance with this Section 9.10.
9.11 Headings. The headings in this Agreement are for convenience only
and shall not be regarded in the interpretation hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the Effective Date written above.
SELLER: NOVATEL WIRELESS, INC.
By: /s/ BRUCE GRAY
------------------------------------------------
Name: Bruce Gray
Title: Vice President of Sales and Marketing
BUYER: HEWLETT-PACKARD COMPANY
By: /s/
-------------------------------------------------
Name:
Title:
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ANNEX A; TECHNICAL SUPPORT
Technical Support for the H.P. Jornada 540 series modem cradle Product delivered
to Hewlett Packard customers will be managed via a three-tier Technical Support
infrastructure and process as follows:
LEVEL ONE TECHNICAL SUPPORT
Level one Technical Support will be provided by Hewlett Packard to their
direct and indirect customers. Level one support is defined as calls*
originating from Hewlett Packard customers, resellers or distributors
regarding H.P. Jornada 540 series modem cradle products including but
not limited to pre and post sale inquiries concerning the basic
operation of the hardware and software, functionality, interoperability
and capabilities of those products and services.
For calls regarding the H.P. Jornada 540 series modem cradle products,
Hewlett Packard will make every attempt to answer customer questions and
resolve issues using available tools, documentation, test equipment and
other materials used to support the H.P. Jornada 540 series modem cradle
products (see training section below). If the customer question/issue
regarding the H.P. Jornada 540 series modem cradle product cannot be
resolved by Hewlett Packard support personnel to the customers'
satisfaction, the issue will be forwarded to Seller level two Technical
Support for further investigation and resolution.
*Calls include phone calls, e-mail, web-based inquiries, faxes and
letters.
LEVEL TWO TECHNICAL SUPPORT
Level two Technical Support will be provided by Seller support staff
directly to Hewlett Packard level one support personnel to assist in the
resolution of open customer issues that have not been resolved to Hewlett
Packard customers satisfaction during a level one support call. Hewlett
Packard will have direct access to designated support staff within the
Seller support organization for this purpose. A direct line of communication
between the two organizations will be established and Seller support
technicians will be available during normal Hewlett Packard Technical
Support operation hours to assist in resolution of customer problems. Seller
support engineering will work directly with Hewlett Packard support staff to
resolve issues and answer questions, this may require Hewlett Packard
support staff to gather additional information and provide system
information or test results back to Seller
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support staff to aid in the definition and resolution of the problem It will
be Hewlett Packard support staff's responsibility to communicate directly
with the end-user customer. Problems that are not resolved WITHIN 72 HOURS
or problems that are flagged as sensitive/mission critical will be escalated
to level three Technical Support for final resolution.
LEVEL THREE TECHNICAL SUPPORT (ESCALATION)
Level three Technical Support will be provided by Seller support and system
engineering staff to resolve issues that cannot be satisfactorily resolved
by level one and level two support personnel. Level three support will
handle all Hewlett Packard product escalations issues including unresolved
support calls and will work directly with Seller engineering staff to
resolve those issues.
TECHNICAL SUPPORT TRAINING
Technical Support training and documentation for the H.P. Jornada 540 series
modem cradle will be provided to Hewlett Packard level one support staff by
Seller. Hewlett Packard support staff will receive training on the general
use, functionality, operation and compatibility of the Seller H.P. Jornada
540 series modem cradle products. In addition all support related
documentation, training materials, notes, FAQ's, and web based support
materials will be made available to Hewlett Packard for their use in
supporting these products.
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ANNEX B; PRODUCT SPECIFICATIONS
HARDWARE AND SOFTWARE DESCRIPTIONS
***
PRODUCT FEATURES DESCRIPTION
***
FEATURE SET DETAILS
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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***
***
***
***
***
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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***
***
***
***
***
***
***
***
***
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Commission. Confidential treatment has been requested with respect to the
omitted portions.
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***
***
***
HARDWARE SPECIFICATIONS
***
HARDWARE SPECIFICATION DETAILS
***
***
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omitted portions.
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***
***
***
***
***
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Commission. Confidential treatment has been requested with respect to the
omitted portions.
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3. INDUSTRIAL DESIGN
***
Overview:
***
Features:
***
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Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Specifications:
***
CDPD PC CARD
Product Description
Overview:
This is a Type II PC Card based on the CDPD specifications and designed
to work with a Windows laptop or handheld PC. It is wireless modem based
on digital packet technology and allows high-speed data communication on
a world recognized wireless standard.
Features:
- Operation in all CDPD environments.
- capable of power output at .6 watts
- size is compatible with Type II PC Card (PCMCIA)
- CDPD technology allows for over the air download of data at 19.2Kbps
nominally
- Over the Air programming is available for user feature implementation
- Application Software available for setup, configuration, operation
and status monitoring of the PC Card
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omitted portions.
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***
Specifications:
***
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Commission. Confidential treatment has been requested with respect to the
omitted portions.
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ANNEX C; FORECAST AND DELIVERY SCHEDULES
PRODUCT MANUFACTURING AND FORECASTING: Hewlett Packard will need to submit a ***
forecast to Novatel Wireless. The forecast for the *** of shipments shall be
given *** days in advance of the scheduled production date and will be
considered fixed. After the forecast for first *** of shipments is submitted to
Novatel Wireless, forecast changes may be made as follows for the remaining
months:
***
NOTE: Hewlett Packard can reserve the right to provide forecasting for the
consumption of the entire volume commitment (product mix and quantity) by
providing a minimum of *** advance notice.
DEVELOPMENT AND DELIVERY SCHEDULE: The schedule below indicates the total
development time (time-to-market) for all versions of the cradle starting from
the date the agreement is signed to the date when volume quantities are shipped
to Hewlett Packard's designated point of distribution. Development of all
devices will begin once an agreement between the two parties is signed.
The schedule is detailed as follows (Time listed in months ARO):
CDPD ***
***
FORECAST BEGINNING WITH FIRST MONTH'S AVAILABILITY:
***
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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***
Novatel Wireless, during the term of this Agreement, for all H.P. Jornada series
540 modem cradles that are shipped through Novatel Wireless channels, will
bundle collateral marketing and advertising materials and any other related
collaterals, electronic or otherwise which are supplied by Hewlett-Packard or
Hewlett-Packard partners.
For each H.P. Jornada series 540 modem cradle shipped by Novatel Wireless to
Hewlett-Packard pursuant to this Agreement, Novatel Wireless will provide
Hewlett-Packard on a monthly basis with all EID Numbers for such modem cradles.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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ANNEX D; PRODUCT PRICING AND VOLUME COMMITMENTS
VOLUME COMMITMENT: *** units between H.P. Jornada 540 series modem cradle and PC
Card form factors using either CDPD or *** technologies.
TERM: One year beginning from the first revenue *** H.P. Jornada 540 series
modem cradle Cradle modem shipment to Hewlett Packard from Novatel Wireless.
DISTRIBUTION: ***
UNIT PRICING: Unit pricing for the H.P. Jornada 540 series modem cradle cradle
is as follows:
Quantity: ***
*** ***
CDPD ***
Unit Pricing for the Type II PCMCIA cards is as follows:
*** ***
CDPD ***
DEVELOPMENT FEE:
Hewlett-Packard agrees to provide a product development fee of *** to Novatel
Wireless. One payment of *** shall be made by Hewlett-Packard to Novatel
Wireless upon execution of this Agreement and a second payment of *** shall be
made one week prior to the first manufacturing run for the products.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
1
EXHIBIT 10.11
TECHNOLOGY LICENSE, MANUFACTURING AND PURCHASE AGREEMENT
THIS TECHNOLOGY LICENSE, MANUFACTURING AND PURCHASE AGREEMENT, (the
"Agreement") is entered Into as of the 13th day of October, 1999, (the
"Effective Date") by and between METRICOM, INC., a Delaware corporation, with
its principal offices at 980 University Avenue, Los Gatos, California 95030-2375
("Metricom") and NOVATEL WIRELESS, INC., a Delaware corporation, with its
principal offices at 9360 Towne Centre, Suite 110, San Diego, CA 92121
("Novatel").
WHEREAS, Metricom has developed a Network; and
WHEREAS, the parties desire to enter into an agreement regarding
Metricom's Network whereby Novatel will develop Network interoperable and
compatible Modem as a product; and
WHEREAS, Novatel wishes to obtain from Metricom a technology license to
use Metricom's technology and incorporate the Licensed Technology into a Modem;
and
WHEREAS, Metricom is prepared to grant such a license upon the
terms and conditions of this Agreement; and
WHEREAS, the parties now desire to enter into an agreement whereby
Novatel will manufacture the Modem; and
WHEREAS, Novatel wishes to supply such Modem to the general marketplace,
Metricom's Designee(s) or Metricom; and
WHEREAS, Metricom wishes Novatel to supply Modems built to the
Specifications to Metricom's Designee(s) or Metricom.
NOW THEREFORE, in consideration of the foregoing and the covenants and
premises contained in this Agreement, the parties agree as follows:
PART I: DEFINITIONS
1. DEFINITIONS. As used herein, capitalized terms will have the meanings
set forth below.
1.1 "ACCEPTANCE CERTIFICATE" means a document issued by Metricom
confirming that a Modem shipment meets all applicable Specifications.
1.2 "CONFIDENTIAL INFORMATION" means any confidential or
proprietary information, including without limitation any source code, software
tools, designs, schematics, plans or any other information relating to any
research project, work in process, future development, scientific, engineering,
manufacturing, marketing or business plan or financial or personnel matter
relating to either party, its present or future products, sales, customers,
employees, investors or business, identified by the disclosing party as
Confidential Information, whether in oral, written, graphic or electronic form.
If disclosed in oral form, such Confidential
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Information must be reduced to writing and marked as Confidential Information
within 30 days following disclosure.
1.3 "DESIGNEE" means a Metricom partner approved, in writing, by
Metricom.
1.4 "EFFECTIVE DATE" means the date first mentioned above.
1.5 "FCC" means the Federal Communications Commission.
1.6 "LICENSED TECHNOLOGY" means the Metricom Know-how, Metricom
Patents, Metricom Technology, Metricom Improvements and the Specifications.
1.7 "METRICOM KNOW-HOW" means techniques, inventions, practices,
methods, knowledge, skill, experience, test data and cost, sales and
manufacturing data relating to the manufacture of the Modem which Metricom
discloses to Novatel under this Agreement, including without limitation any
technology developed by either party on behalf of Metricom.
1.8 "METRICOM PATENTS" means the existing patents and patent
applications listed on Exhibit B hereto and such patents obtained and patent
applications filed by Metricom relating to the patents listed on Exhibit B, and
improvements thereto, including without limitation, all foreign counterparts,
all substitutions, extensions, reissues, renewals, divisions, continuations and
continuations in part relating to such Metricom Patents and their foreign
counterparts.
1.9 "METRICOM SOFTWARE" means certain software developed by
Metricom and embedded in the Modem, and such additional or modified software
features and functions that Metricom may specify from time to time pursuant to
this Agreement.
1.10 "METRICOM SPECIFICATIONS" means the performance, usage and
form factor specifications written by Metricom to which the Guaranteed Volume of
Modems will conform. Such Metricom Specifications shall be attached as Exhibit D
hereto upon completion of development of such Metricom Specifications, which
shall not be later than thirty (30) days from the execution of this Agreement.
1.11 "METRICOM TECHNOLOGY" means (a) the inventions, discoveries
and processes covered under the Metricom Patents and (b) the Metricom Know-how.
1.12 "MODEM" means a portable 900 MHz-enabled data device
interoperable and compatible with Metricom's Ricochet2 data network to be custom
developed and manufactured by Novatel.
1.13 "NETWORK" means Metricom's Ricochet network.
1.14 "NETWORK SPECIFICATIONS" means the software, firmware and
hardware performance and usage specifications for the Network as written by
Metricom with which the Modem must be interoperable and compatible. Such Network
Specifications shall be attached as Exhibit C hereto within thirty (30) days
from the execution of this Agreement.
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1.15 "NOVATEL KNOW-HOW" means techniques, inventions, practices,
methods, knowledge, skill, experience, test data and cost, sales and
manufacturing data relating to those parts that may be specified for inclusion
in the Modem as set forth in Exhibit A.
1.16 "NOVATEL PATENTS" means the existing patents and patent
applications listed on Exhibit B hereto and such patents obtained and patent
applications filed by Novatel relating to the patents listed on Exhibit A, and
improvements thereto, including without limitation, all foreign counterparts,
all substitutions, extensions, reissues, renewals, divisions, continuations and
continuations in part relating to such Novatel Patents and their foreign
counterparts.
1.17 "NOVATEL TECHNOLOGY" means the inventions, discoveries and
processes relating to those parts that may be specified for inclusion in the
Modem as set forth in Exhibit A.
1.18 "NRE COSTS" means foundry, non-recurring engineering and
development costs associated with this Agreement.
1.19 "SPECIFICATIONS" means the Network Specifications and the
Metricom Specifications.
1.20 "ROYALTIES" means those royalties payable by Novatel to
Metricom pursuant to this Agreement.
1.21 "THIRD PARTY SOFTWARE" means any software that belongs to a
third party which is used in the Network and is licensed to Metricom for such
use.
PART II: TECHNOLOGY LICENSE, DEVELOPMENT AND MANUFACTURING
2. LICENSE GRANTS.
2.1 METRICOM LICENSE GRANT.
(a) TECHNOLOGY LICENSE. Subject to the terms and
conditions of this Agreement, Metricom hereby grants to Novatel during the term
of this Agreement a nonexclusive, non-transferable, royalty bearing license,
without right to sublicense, under the Licensed Technology, to develop,
manufacture, market and sell the Modem for use with the Network.
(b) METRICOM SOFTWARE LICENSE. During the term of this
Agreement and subject to the terms and conditions of this Agreement, Metricom
grants to Novatel a nonexclusive, non-transferable license, without right to
sublicense, to reproduce and embed the Metricom Software in object code form
only in the Modem. Except as expressly stated in this Agreement, no rights to
prepare derivative works, perform, display or distribute the Metricom Software
are granted hereunder.
(c) SOURCE CODE. Should Novatel require it and subject to
the terms and conditions of this Agreement, Metricom may disclose to Novatel the
source code for the Metricom Software for purposes of enabling Novatel to port
the Metricom Software to the
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Modem. Any disclosure of source code, and all notes made by Novatel pertaining
thereto, shall be treated as Metricom's Confidential Information pursuant to the
terms of this Agreement.
(i) Novatel shall not make any changes to the
source code other than those changes necessary to run the Metricom Software on
hardware platforms other than as originally developed. Novatel shall provide
Metricom with an electronic copy (ASCII text) of the updated source code in the
event it makes any changes.
(ii) Except as needed to port the Metricom
Software as set forth in this Agreement. No copyright rights to reproduce,
prepare derivative works, perform, display or distribute the Metricom Software
in source code format are granted to Novatel hereunder.
(d) RESTRICTIONS ON USE. Novatel shall not, and shall not
permit any person within its control, to use the Licensed Technology and the
Metricom Software or any of Metricom's Confidential Information for any other
purpose than as expressly set forth in this Agreement.
2.2 NOVATEL LICENSE GRANT. Subject to the terms and conditions of
this Agreement, Novatel hereby grants Metricom a non-exclusive, non-
transferable, royalty-free, perpetual and irrevocable right, with right of
sublicense through multiple tiers of distribution, under the Novatel Patents,
the Novatel Technology, the Novatel Know-how and the Novatel Improvements, to
offer to sell, sell and use the Modems.
2.3 THIRD PARTY SOFTWARE. Should the Metricom Software contain
Third Party Software, Metricom shall, at Novatel's request, assist Novatel in
obtaining the rights to use such Third Party Software. The parties acknowledge
and agree that it is Novatel's obligation to license such Third Party Software.
3. DEVELOPMENT AND MANUFACTURING.
3.1 DEVELOPMENT. Upon execution of this Agreement, Novatel shall
begin development of the Modem in accordance with the Network Specifications and
the terms of this Agreement, and for the Guaranteed Volume, also in accordance
with the Metricom Specifications. Prior to manufacturing, Novatel shall provide
a reasonable quantity of a prototype Modem along with an electronic copy (ASCII
text) of the software source code including release notes to Metricom for
acceptance testing. Novatel shall not commence manufacturing prior to Metricom's
written acceptance of the prototype Modem.
3.2 MANUFACTURING. Novatel shall custom-manufacture, assemble,
test, label, package (includes plastic or other material housing including
retail packaging with approved use of Ricochet brand) and deliver the Modem in
accordance with the Network Specifications and the terms of this Agreement, and,
for the Guaranteed Volume, also in accordance with the Metricom Specifications.
3.3 MARKET AND USE. For the consideration described in this
Agreement, the parties acknowledge and agree that Novatel shall sell the Modems
only for use on the Network.
3.4 NRE COSTS. ***
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3.5 REGULATORY AGENCY APPROVAL. Novatel shall be responsible for
obtaining any regulatory agency approval, including, but not limited to, FCC
approval, for the Modem. Metricom shall, at Novatel's request and expense,
assist Novatel in obtaining FCC approval.
3.6 MODIFICATIONS REQUESTED BY METRICOM. During the term hereof,
changes to Metricom's Know-how, government regulations (including FCC Part 15
regulations), or other masons may require changes to the Network Specifications
and/or the Metricom Specifications and therefore the Modem.
(a) Metricom shall, from time to time, provide Metricom
Software updates to Novatel. Novatel shall incorporate such changes into the
Modem software and make it available to Level I Technical Support providers
within (i) fourteen (14) days of receipt of such update for critical changes;
and (ii) thirty (30) days of receipt of such update for non-critical changes.
Novatel's changes shall be subject to acceptance testing by Metricom.
(b) In the event Metricom requests an engineering change
to a Guaranteed Volume Modem, Novatel shall notify Metricom in writing of any
impact on the cost and/or scheduled delivery of such Modem within ten (10)
business days of the receipt of Metricom's written change request. This should
include, but not be limited to, a costed bill of materials, scheduled delivery,
and any additional NRE.
(c) Upon receipt by Metricom of such estimate, the parties
shall agree in writing to which such engineering changes shall be made as well
as adjustments, if any, in pricing and delivery schedules and the parties shall
agree in writing upon any such engineering changes prior to their
implementation.
3.7 MODIFICATIONS BY NOVATEL. Novatel may make changes to the
Modem without Metricom's prior written consent; provided, however, that (i) the
Modem shall continue to meet the specifications of the Network, and the terms of
this Agreement and, for the Guaranteed Volume, also meet the Metricom
Specifications; (ii) Metricom receives an electronic copy (ASCII text) of the
modified source code and any related release notes and documentation and
approves such modifications prior to release to end-users; and (iii) is subject
to acceptance testing by Metricom. Novatel may make changes in design,
components or materials that may have the effect of reducing the cost of
production of the Modem or increase reliability or improve performance or expand
procurement options.
3.8 UPDATE MECHANISM. Novatel shall provide a mechanism by which
an end-user can update the software in their Modem and shall make it available
to Level I Technical Support providers at the same time it makes the Modem
software, including any updates, available.
3.9 FUTURE DEVELOPMENTS. The parties envision that Novatel may
develop, custom manufacture, and deliver to the marketplace, Metricom's
Designee(s) or Metricom future generations of the Modems and/or replacement
products, subject to satisfactory performance under this Agreement and future
technical and market conditions.
3.10 UNIT IDENTIFICATION AND SERIAL NUMBERS. Metricom shall
supply Novatel within a range of individual unit identification and serial
numbers to be applied to units of the
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Modem. Novatel shall incorporate in all Modems and any accompanying
documentation therefor one of the individual Metricom-assigned unit
identification and serial numbers for each such Modem. Such unit identification
and serial number shall be clearly marked and visible externally on each Modem
and encoded in the Metricom Software embedded in each Modem. Novatel shall
provide Metricom with the unit identification and serial number of each Modem it
sells, leases or otherwise puts into use at the time of shipment.
3.11 DEVELOPMENT SCHEDULE. Total time between execution of this
Agreement and when the first shipment of the Guaranteed Volume shall be made is
*** for development with the first delivery suitable for distribution to
end-users to occur *** after receipt of both Metricom's and the FCC's approval.
3.12 TESTING. Novatel shall test all Modem deliveries prior to
shipment to confirm conformance with the Network Specifications and the terms of
the Agreement, and additionally, for the Guaranteed Volume, the Metricom
Specifications. Prior to implementation of such testing, Novatel shall submit to
Metricom, and Metricom shall have final approval of, the interoperability and
compatibility test plans. Upon request, Novatel shall provide test data to
Metricom.
3.13 SUPPORT. Except as provided for in Section 8 of this
Agreement, Novatel shall provide for Levels I, II and III Technical Support as
set forth in Exhibit I attached hereto for Modems which it sells, leases or
otherwise puts into use.
4. OWNERSHIP AND INTELLECTUAL PROPERTY.
4.1 OWNERSHIP.
(a) Novatel acknowledges and agrees that Metricom
is and shall remain the sole owner of the Metricom Technology, the Metricom
Patents, the Metricom Know-how, the Specifications and the Metricom Software and
any improvements to the Metricom Patents, the Metricom Know-how, the Metricom
Technology, Specifications and Metricom Software (the "Metricom Improvements")
and that Novatel has no rights in or to the Metricom Technology, the Metricom
Patents, the Metricom Know-how, the Specifications or the Metricom Software and
any Metricom Improvements other than the license rights specifically granted
herein.
(b) Metricom acknowledges and agrees that Novatel
is and shall remain the sole owner of the Novatel Technology, Novatel Patents
and Novatel Know-how and any improvements to the Novatel Technology, Novatel
Patents and Novatel Know-how (the "Novatel Improvements") and that Metricom has
no rights in or to the Novatel Technology, Novatel Patents and Novatel Know-how
and any Novatel Improvements other than the license rights specifically granted
herein.
4.2 FUTURE INVENTIONS AND JOINT INVENTIONS. Each party
acknowledges and agrees that any and all discoveries, know-how, inventions,
methods, ideas and the like ("Inventions") made or discovered pursuant to this
Agreement solely by its employees, agents or subcontractors shall be owned
solely by such party and that any and all Inventions made jointly by employees,
agents or subcontractors of each shall be jointly owned (the "Joint
Inventions"),
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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all as determined in accordance with U.S. laws of inventorship. Notwithstanding
the foregoing, the parties agree that any Inventions made by employees, agents
or subcontractors of either party that result in Metricom Improvements shall be
owned solely by Metricom and licensed to Novatel pursuant to this Agreement.
Novatel shall assign any rights it may obtain in or to such Metricom
Improvements and any patents it obtains for such Metricom Improvements to
Metricom when such Metricom Improvements are first fixed in a tangible medium or
reduced to practice, as applicable. Joint Inventions shall be treated as
Confidential Information of each party.
4.3 PROPRIETARY RIGHTS NOTICES. Each unit of the Modem and any
accompanying documentation shall include all copyright and proprietary legends
provided to Novatel by Metricom.
5. TRADEMARKS.
5.1 Metricom hereby grants Novatel the right to use, and requires
Novatel to place on the Modems and on the packaging for Modems during the term
of this Agreement, the Metricom trademarks and trade names set forth in Exhibit
G hereto (the "Marks") solely to affix the Marks to the Modems in accordance
with the Metricom Corporate Style Guide attached hereto as Exhibit H, the
Network Specifications, and, for the Guaranteed Volume, the Metricom
Specifications or other Metricom requirements. Metricom may alter or replace
such Marks or may revise its policies and guidelines related thereto in its sole
discretion upon ninety (90) day's prior written notice to Novatel. Novatel
hereby admits and recognizes Metricom's exclusive worldwide ownership of such
Marks and the renown of Metricom's Marks. Novatel agrees not to take any action
inconsistent with such ownership and further agrees to take any action, at
Metricom's reasonable expense, including without limitation the conduct of legal
proceedings, which Metricom deems necessary to establish and preserve Metricom's
rights in and to its Marks. Reproductions of Metricom's Mark's, logos, symbols,
etc., shall be true reproductions and done photographically.
6. ROYALTY. Novatel shall pay Metricom *** on all Modems manufactured
and sold, leased or otherwise put into use by Novatel. ***
6.1 ***
6.2 ***
6.3 ***
(a) ***
(b) ***
(c) ALL PAYMENTS DUE BY NOVATEL SHALL BE MADE TO METRICOM
WITHOUT ANY DEDUCTIONS FOR TAXES, DUTIES, FEES OR CHARGES OF ANY KIND.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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6.4 INSPECTION OF ROYALTY RECORDS.
(a) Novatel shall maintain appropriate books of
account and record, in accordance with generally accepted U.S. accounting
principles, which shall include inventory records, and shall make accurate
entries concerning all transactions relevant to this Agreement (the "Records").
(b) Metricom shall have the right during the term
and for six (6) years thereafter (or in the event of a dispute during the Term
or within five years thereafter involving in any way the Records, until the
dispute is resolved, whichever is later), on reasonable notice to Novatel to
inspect, examine, take extracts and make copies from Novatel's Records to the
extent necessary to verify the ROYALTY and payments made under this Agreement.
(c) If, upon inspection of the Records of
Novatel, Metricom discovers that it did not receive the correct AMOUNT OF
ROYALTIES PAYABLE UNDER THIS AGREEMENT, Metricom shall notify Novatel of such
discovery. In the event Novatel disagrees with such discovery, the parties
shall, acting reasonably and in good faith, work together to resolve such
dispute. Within ten (10) days of receipt of Metricom's notice or, in the case of
dispute within ten (10) days of resolution of such dispute, Novatel shall pay to
Metricom the difference between what was paid and what should have been paid. If
the difference exceeds *** of the amount found by Metricom, then Novatel shall
bear Metricom's reasonable costs in connection with such Inspection, including
all reasonable legal and auditors' fees.
6.5 OBLIGATION TO PAY. ***
PART III: SUPPLY TO AND PURCHASE OF MODEMS BY METRICOM
7. MODEM PURCHASES.
7.1 GUARANTEED VOLUME. Metricom agrees to purchase at least ***
Modems (the "Guaranteed Volume") during the Term of this Agreement. The
Guaranteed Volume may be purchased by either Metricom or its Designee(s). The
Guaranteed Volume shall conform to the Specifications.
7.2 PILOT TEST. Upon completion of Modem development and
Metricom's written acceptance of a prototype Modem that conforms to the
Specifications, approximately *** from execution of this Agreement, Novatel
shall manufacture and deliver *** Modems, which shall be deducted from
Metricom's initial delivery, to Metricom for use in conducting end-user testing
and soliciting feedback relative to the Modem ("Pilot Test").
(a) Metricom shall perform one (1) week of testing at its
facilities to ensure interoperability and compatibility with the Network.
(b) Thereafter, Metricom shall identify and supply
qualified end-users with Modems to conduct Pilot Testing for a period of thirty
(30) days.
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the Commission. Confidential treatment has been requested with respect to the
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(c) If any necessary changes may be handled in the
firmware or installation software then manufacturing of the Modems may continue
provided that patches for the necessary changes can be effected as part of the
manufacturing process.
7.3 FORECAST. Metricom shall submit a one-year forecast to
Novatel, attached hereto as Exhibit E. The forecast for the first three months
of shipments shall be given to Novatel at least sixty (60) days in advance of
the scheduled delivery date and shall be considered fixed at sixty (60) days
prior to the delivery date. Thereafter, changes to the forecast for the
remaining months may be made in writing as set forth below, provided, however,
that Metricom shall have the right to forecast for the entire volume guaranteed
within the first six months of shipment by providing seven (7) months advance
notice.
NUMBER OF DAYS PERCENT OF CHANGE TO
ADVANCE WRITTEN NOTICE FORECASTED VOLUME
---------------------- --------------------
*** ***
*** ***
*** ***
*** ***
7.4 PURCHASE ORDERS.
(a) Metricom or its Designee(s) agrees to provide Novatel
with binding purchase orders. All purchase orders are binding, and cannot be
cancelled or rescheduled except as set forth In the Agreement. Purchase orders
shall set forth the quantity of Modems ordered, the destination of delivery and
the delivery date required.
(b) Should a Metricom Designee(s) place the purchase
order, Novatel shall ship and bill directly to the Metricom Designee(s). During
the term of this Agreement, unless mutually agreed to by Novatel, Metricom and
the Metricom Designee(s), the terms and conditions of this Agreement shall
govern all Metricom Designee(s) purchase orders. Metricom shall inform its
Designee(s) of the terms of this Agreement.
(c) Any terms or conditions in any purchase order, sales
acknowledgment or receipt that is different from, inconsistent with or
additional to the terms and conditions of this Agreement that are not expressly
accepted by the other party in writing are void, of no effect, and am hereby
rejected by the parties.
7.5 DELIVERY. Novatel shall deliver the Guaranteed Volume of
Modems to Metricom or it's Designee(s), in accordance with the Specifications,
the applicable purchase order and the delivery schedule set forth in Exhibit E,
as may be modified from time to time in accordance with this Agreement, to the
location specified in the applicable purchase order provided, however, that:
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(a) no deliveries shall occur until Metricom has approved
in writing the Modem's compliance with the Specifications and issued an initial
Acceptance Certificate; and
(b) all future deliveries shall also be subject to
acceptance testing by Metricom or its Designee(s) as set forth in this
Agreement.
Title and risk of loss shall pass to Metricom upon Metricom's acceptance of the
Modem shipments. Time is of the essence for all deliveries. Novatel will provide
Metricom or its Designee(s) documentation on all known errors or unresolved
product issues at the time of delivery.
7.6 ACCEPTANCE TEST PROCEDURES. Novatel shall inspect and test
all Guaranteed Volume Modem deliveries prior to shipment to confirm conformance
with the Specifications. Following receipt of delivery of a Modem shipment,
Metricom or its Designee(s), as specified in the applicable purchase order, may
inspect such shipment for conformance with the Specifications.
(a) Upon determination that a shipment does meet
Specifications, Metricom will issue an Acceptance Certificate for such shipment.
Such Acceptance Certificate does not imply acceptance of any other shipment nor
waive the warranty provisions under this Agreement or any other remedy that
Metricom may have for a defective shipment.
(b) In the event that a shipment is rejected for failure
to meet Specifications, Metricom or its Designee(s) shall return the shipment at
Novatels expense and provide Novatel with written notification of the shipment's
nonconformity. Novatel shall undertake to repair or replace the shipment or any
nonconforming portion thereof at no charge to Metricom. or its Designee(s) and
resubmit the shipment to Metricom or its Designee(s) within five (5) days of
receipt of the rejected shipment.
8. MODEM SUPPORT.
8.1 TECHNICAL SUPPORT TRAINING AND DOCUMENTATION. Novatel shall
provide training and documentation for the Modem to service technicians and
engineering support at Metricom and its Designee(s) which shall be sufficient to
allow Metricom or its Designee(s) to provide Level I Technical Support with
reasonable product knowledge and troubleshooting skills. Training shall include,
but not be limited to, general use, support, troubleshooting, functionality,
operation, interoperability and compatibility of the Modem that is developed and
purchased under this Agreement. In addition, all support related documentation,
troubleshooting tools and materials, test equipment, training materials, notes,
frequently asked questions ("FAQ's"), and web based support materials shall be
made available to Metricom or its Designee(s) for their use in supporting the
Modem. In the event any product changes result in new functionality or change in
operation and compatibility, Novatel shall provide additional training to
Metricom and its Designee(s).
8.2 SUPPORT LEVELS. Level I, Level II and Level III Technical
Support shall be defined in Exhibit I of this Agreement.
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8.3 METRICOM SUPPORT OBLIGATIONS.
(a) Metricom or its Designee(s) shall, in a diligent
manner consistent with industry practices, provide Level I Technical Support to
their direct end-user(s) for Modems which Metricom or its Designees have
purchased under the terms of this Agreement.
(b) If Metricom or its Designee is unable to resolve the
question or issues to Customer's satisfaction, Metricom or its Designee shall
forward the request to Novatel Level II Technical Support for further
investigation and resolution.
(c) Upon approval from Novatel, Metricom or its
Designee(s) may refer a Customer directly to Novatel for Level II and Level III
Technical Support.
8.4 NOVATEL SUPPORT OBLIGATIONS.
(a) Novatel support and engineering staff shall provide
Level II and Level III Technical Support directly to Metricom or its Designee(s)
by telephone via a toll free number twenty-four (24) hours a day, seven (7) days
a week for Moderns which Metricom or its Designees have purchased under the
terms of this Agreement. Upon approval from Novatel, Metricom or its Designee(s)
may refer a Customer directly to Novatel for Level II and Level III Technical
Support.
(b) Level II Technical Support issues that remain
unresolved longer than *** after notification of the problem or issues flagged
as sensitive or mission critical, shall be escalated to Level III Technical
Support for final resolution.
(c) Novatel shall provide written explanation to Metricom
or its Designee of the problem, known symptoms, possible causes, and expected
time for resolution for any Level III Support issue that remains unresolved
longer than *** after escalation to Level III Support.
(d) Novatel shall provide Metricom or its Designee(s)
documentation on all known errors or unresolved product issues (i) at the time
of delivery; and (ii) as discovered by Novatel's Level III Support staff after
the initial launch of the Modem.
9. PRICE AND PAYMENT.
9.1 PRICE. Metricom shall pay Novatel *** set forth in Exhibit F
attached hereto.
9.2 DELIVERY. Novatel shall deliver all Modems to Metricom or any
other location Metricom or its Designee(s) shall designate FOB Buyer's Dock.
Novatel shall prepay the freight charges and bill such freight charges to
Metricom for reimbursement by Metricom. Title and risk of loss shall pass to
Metricom upon Metricom's or its Designee(s)'s acceptance of the Modem shipments
as evidenced by an Acceptance Certificate. Metricom or its Designee(s) shall
assume all freight charges which result from expedited shipment dates requested
by Metricom or its Designee(s). The parties acknowledge and agree that time is
of the essence for all deliveries.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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9.3 PAYMENT.
(a) All payments for Modems purchased by Metricom under
this Agreement shall be due and payable thirty (30) clays following receipt of
valid invoice.
(b) Should Metricom issue the purchase order, invoices
shall accompany applicable Modem shipments or, if the Modem shipments are to be
made to a location other than Metricom's Los Gatos facilities, then such invoice
shall be sent to the Los Gatos facility at the same time the shipment is made to
the alternate destination.
(c) Should a Metricom Designee(s) issue the purchase
order, invoices shall accompany the applicable Modem shipment or, if the Modem
shipments are made to a location other than the billing address, then
such-invoice shall be sent to the Metricom Designee(s)'s billing address at the
same time the shipment is made to the alternate destination.
(d) The parties acknowledge and agree that Metricom shall
have no obligation, financial or otherwise, for purchase orders made by a
Metricom Designee(s).
9.4 TAX. Novatel shall separately state on the invoices delivered
to Metricom all taxes applicable to sale of the Modems to Metricom, excluding
any taxes based on the net income of Novatel. Metricom shall pay Novatel any
such properly invoiced and applicable amounts and Novatel shall pay the relevant
taxing authorities any such amounts when due. Novatel hereby indemnifies and
holds Metricom harmless from and against any and all liabilities, penalties, and
amounts due regarding any taxes or fees due to the applicable government not
properly or timely invoiced or paid by Novatel which was the responsibility of
Novatel.
9.5 FREIGHT. Novatel shall separately stale on the invoices
delivered to Metricom all applicable freight charges, at cost. Metricom shall
pay Novatel any such properly invoiced and applicable amounts.
10. INCENTIVES AND PENALTIES.
10.1 ***
10.2 ***
11. FUTURE RELATIONSHIPS. In the event Novatel enters into a separate
purchase agreement with other parties, Novatel agrees that (i) ***
PART IV: GENERAL
12. CONFIDENTIALITY.
12.1 CONFIDENTIALITY. Each party hereto will maintain in
confidence all Confidential Information disclosed by the other party hereto.
Neither party will use, disclose or grant use of such Confidential Information
except as expressly authorized by this Agreement. To the extent that disclosure
is authorized by this Agreement, the disclosing party will obtain
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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13
prior agreement from its employees, agents or consultants to whom disclosure is
to be made to hold in confidence and not make use of such information for any
purpose other than those permitted by this Agreement. Each party will use at
least the same standard of care as it uses to protect its own most confidential
information to ensure that such employees, agents or consultants do not disclose
or make any unauthorized use of such Confidential Information. Each party will
promptly notify the other upon discovery of any unauthorized use or disclosure
of the Confidential Information. Notwithstanding any other provision in this
Agreement to the contrary, the obligations set forth in this section shall
survive any termination or expiration of this Agreement for a period of ten
years thereafter.
12.2 EXCEPTIONS. The obligations of confidentiality contained in
this section will not apply to the extent that it can be established by the
receiving party by competent proof that such Confidential Information:
(a) was already known to the receiving party, other than
under an obligation of confidentiality, at the time of disclosure by the other
party;
(b) was generally available to the public or otherwise
part of the public domain at the time of its disclosure to the other party;
(c) became generally available to the public or otherwise
part of the public domain after its disclosure and other than through any act or
omission of the receiving party in broach of this Agreement;
(d) was disclosed to the receiving party, other than under
an obligation of confidentiality, by a third party which had no obligation to
the other party not to disclose such Information to others.
12.3 AUTHORIZED DISCLOSURE. Each party may disclose the
Confidential Information to the extent such disclosure is reasonably necessary
in filing or prosecuting patent applications, prosecuting or defending
litigation or complying with applicable governmental regulations, provided that
if such party is required to make any such disclosure of the Confidential
Information it will to the extent practicable give reasonable advance notice to
the other party of such disclosure requirement and, except to the extent
inappropriate in the case of patent applications, will use its best efforts to
secure confidential treatment of such information required to be disclosed. The
parties acknowledge that the sale of the Modem may necessarily disclose
Confidential Information of the parties and the parties agree to use
commercially reasonable efforts to limit such disclosure. In furtherance
thereof, Novatel agrees to provide Metricom a copy of all documentation.
12.4 OWNERSHIP OF CONFIDENTIAL INFORMATION. All Confidential
Information of a party shall remain the exclusive property of such party, and no
right, title or interest in such information shall be conveyed to the other
party by release of such information to it. Each party receiving such
information agrees to return or destroy all such information upon the written
request of the other party, or upon the reasonable determination by the other
party that the receiving Party no longer has a need for such information. Each
party agrees to notify the other party if it becomes aware of any use of the
information that is not authorized by this Agreement.
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12.5 INJUNCTIVE RELIEF. Each party acknowledges that, in the
event of a breach of this Section by such party or any of its officers,
directors, agents and/or employees, the other party will suffer irreparable
damages that cannot be fully remedied by monetary damages. Each party therefore
agrees that the other party shall be entitled to seek injunctive relief against
any such breach in any court of competent jurisdiction. The rights of each party
under this Section shall not in any way be construed to limit or restrict its
rights to seek or obtain other damages or relief available under this Agreement
or applicable law.
12.6 INDEPENDENT DEVELOPMENT. The terms of this Section shall not
be construed to limit a party's right to independently develop or acquire
products which are similar in functionality to those of the other party so long
as such development or acquisition is made without the use of the Confidential
Information of the other Party. Both parties acknowledge that each of them may
currently or in the future be developing information internally, or receiving
information from other parties, that is similar to the Confidential Information
of the other. Nothing in this Agreement will be construed as a representation or
agreement that the receiving party will not develop or have developed for its
products, concepts, systems or techniques that are similar to or compete with
the products, concepts, systems or techniques contemplated by or embodied in the
Confidential Information provided that the receiving party does not violate any
of its obligations under this Agreement.
13. TERM AND TERMINATION.
13.1 TERM. This Agreement will commence as of the Effective Date
and, unless sooner terminated as provided hereunder, will terminate two (2)
years from the Effective Date. The term may be extended only upon the mutual
written agreement of the parties.
13.2 TERMINATION FOR CAUSE.
(a) The Agreement and the Metricom licenses granted herein
will terminate prior to the end of the term at the option of the non-breaching
party upon thirty (30) days written notice if the other party breaches or
defaults on any material obligation under this Agreement and fails to cure such
breach or default during such thirty (30) day period. In the event such breach
cannot reasonably be cured within such thirty (30) day period, the breaching
party shall be required to (i) commence curing such breach or default during
such thirty (30) day period and diligently pursue such cure until the breach or
default has been cured; and (ii) and provide written notice to the non-breaching
party of the time required to cure such breach or default.
(b) Metricom shall have the right to terminate this
Agreement upon written notice to Novatel in the event Novatel does not agree to
the Specifications for the Guaranteed Volume within sixty (60) days from the
execution of this Agreement. Upon such termination, Metricom will reimburse
Novatel for any expenses related to the development of the Modems incurred prior
to the termination date, ***.
13.3 EFFECT OF TERMINATION.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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(a) RESTOCKING FEE. If termination occurs as a result of
Metricom's material breach of the Agreement or upon Metricom's request without
cause, end such termination occurs prior to Metricom's receipt and acceptance of
*** that comply with this Agreement, then Metricom shall pay Novatel, ***.
Without limiting the foregoing, Metricom shall still be responsible for paying
any amounts due under any outstanding purchase orders where Novatel has
delivered and Metricom has accepted such deliveries.
(b) DUTIES OF THE PARTIES UPON TERMINATION. Upon any
termination or expiration of this Agreement, Novatel agrees to do the following:
(1) refrain thereafter from representing itself as a distributor or manufacturer
of the Modem; and (2) return to Metricom all tangible items in its possession or
under its control evidencing the Licensed Technology and Confidential
Information of Metricom, including all copies of the Metricom Software, the
source code, modified or otherwise, and any related documentation. Upon any
termination or expiration of this Agreement, Metricom agrees to return to
Novatel all tangible items in its possession or under its control evidencing
Confidential Information of Novatel.
(c) LICENSE TERMINATION. Upon any termination or
expiration of this Agreement, all licenses granted by Metricom under this
Agreement shall be terminated. Upon any termination or expiration of this
Agreement, all licenses, except those for Modems delivered to Metricom or its
Designee(s), granted by Novatel under this Agreement shall be terminated.
(d) SURVIVAL. Except as set forth in the applicable
section, Sections 1, 2, 3.3, 4, 5, 6.4, 6.5, 7, 12, 14, 15, 16 and 18 shall
survive any termination of this Agreement.
14. REPRESENTATIONS AND WARRANTIES.
14.1 REPRESENTATIONS AND WARRANTIES. Each party hereby represents
and warrants:
(a) CORPORATE POWER. Such party is duly organized and
validly existing under the laws of the state or county of its incorporation and
has full corporate power and authority to enter into this Agreement and to carry
out the provisions hereof.
(b) DUE AUTHORIZATION. Such party is duly authorized to
execute and deliver this Agreement and to perform its obligations hereunder,
(c) BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon it and enforceable in accordance with Its terms. The
execution, delivery and performance of this Agreement by such party does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a party or by which it may be bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having jurisdiction over it.
14.2 WARRANTY. Novatel represents and warrants that for a period
of twelve (12) months from the Metricom's or its Designee(s)'s acceptance of a
shipment as evidenced by the Acceptance Certificate, all Modems delivered under
this Agreement shall be free of defects in materials or workmanship and shall
conform with the applicable Specifications. In the event
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
-15-
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of a breach of this Warranty, Novatel shall repair or replace the defective
Modem(s) at no additional charge to Metricom or its Designee(s).
14.3 DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED
HEREIN, METRICOM HEREBY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND
OR NATURE, WHETHER EXPRESS OR IMPLIED, RELATING TO THE METRICOM TECHNOLOGY, THE
METRICOM SOFTWARE OR THE METRICOM PATENTS, INCLUDING WITHOUT LIMITATION ANY
WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. Without limiting the generality of the foregoing, Metricom
expressly does not warrant (i) the patentability of any of the Inventions, or
(ii) the accuracy, safety, or usefulness for any purpose, of the Licensed
Technology or the Modem. Except as set forth in Section 15, Metricom assumes no
liability in respect of any infringement of any patent or other right of third
parties due to any activities of Novatel under this Agreement.
15. INDEMNIFICATION.
15.1 INFRINGEMENT INDEMNITY.
(a) METRICOM INDEMNITY. Metricom shall indemnify and hold
Novatel harmless and will defend Novatel against any actions based on a claim
that the Technology, Metricom Know-How and Metricom Patents relied upon by
Novatel or the Metricom Software, in the absence of any modifications and not in
combination with any other technology, infringes any patent, copyright or other
proprietary rights of any third party, or misappropriates any trade secret of
any third party.
(b) NOVATEL INDEMNITY. Novatel shall indemnify and hold
Metricom harmless from and will defend against any action brought against
Metricom to the extent that it is based on a claim that the manufacture, use or
sale of the Modem infringes any patent, copyright or other proprietary rights of
any third party or misappropriates any trade secret of any third party, but not
to the extent such action is based on the incorporation or use of the
Technology. Metricom Know-How, Metricom Patents relied upon by Novatel or the
Metricom Software in such Modem.
(c) INDEMNIFICATION PROCEDURES. An indemnifying party
hereunder shall be liable for any costs and damages to third parties incurred by
the other party which are attributable to any such claims, provided that such
other party (i) notifies the indemnifying party promptly in writing of the
claim, (ii) permits the indemnifying party to defend, compromise or settle the
claim, and (iii) provides all available information, assistance and authority to
enable the indemnifying party to defend, compromise or settle such claim. Any
indemnifying party hereunder shall diligently pursue any defense required to be
rendered hereunder, shall keep the indemnified party informed of all significant
developments in any action defended by the indemnified party, and shall allow
the indemnified party reasonable opportunity to comment upon any settlement
proposed to be entered into by the indemnifying party on behalf of the
indemnified party.
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15.2 GENERAL INDEMNIFICATION. Both parties agree to indemnify and
save harmless the other party, its subsidiaries, other affiliates, and the
officers, directors, employees, successors and assigns of any of them, from all
costs, damages and expenses including costs of settlement, reasonable attorney's
fees and court costs that arise out of or result from injuries or death to
persons or damage to property, including theft, caused by or on account of
negligence or willful misconduct by the indemnifying party or person furnished
by the indemnifying party.
16. LIMITATION OF LIABILITY.
16.1 WAIVER OF CONSEQUENTIAL DAMAGES. IN NO EVENT WILL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, LOST SAVINGS, OR ANY OTHER
INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING OUT OF OR IN CONNECTION WITH
THE GRANTING OR USE OF THE LICENSES HEREUNDER.
16.2 LIMITATION OF LIABILITY. EXCEPT AS SET FORTH IN THIS
AGREEMENT OR IN THE CASE OF A KNOWING OR WILLFUL VIOLATION OF A PARTY'S OR ANY
THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS BY EITHER PARTY, NEITHER PARTY'S
TOTAL LIABILITY TO THE OTHER HEREUNDER SHALL EXCEED THE NET AMOUNT PAID BY
METRICOM TO NOVATEL UNDER THIS AGREEMENT.
17. INSPECTION AND AUDIT. Metricom shall be entitled, at its sole
expense, upon reasonable request and during normal business hours to witness
testing and manufacturing of the Modem at Novatel's facilities and to audit
Novatel's conformance with the Specification conformance test procedures upon
reasonable written notice. Such notice to exceed 72 hours and inspections not to
exceed five business days. Metricom personnel, in conducting such inspections
for audits, shall be bound by the confidentiality provisions set forth herein.
18. MISCELLANEOUS PROVISIONS.
18.1 RELATIONSHIP OF THE PARTIES. Neither party is, nor will be
deemed to be, an agent or legal representative of the other party for any
purpose. Neither party will be entitled to enter into any contracts in the name
of or on behalf of the other party, and neither party will be entitled to pledge
the credit of the other party in any way or hold itself out as having authority
to do so. No party will incur any debts or make any commitments for the other,
except to the extent, if at all, specifically provided herein.
18.2 ASSIGNMENT. Except as otherwise provided herein, neither
this Agreement nor any interest hereunder will be assignable in part or in whole
by either party without the prior written consent of the other; provided,
however, that Metricom may assign this Agreement to its Designee(s). This
Agreement will be binding upon the successors and permitted assigns of the
parties and the name of a party appearing herein will be deemed to include the
names of such party's successor's and permitted assigns to the extent necessary
to carry out the intent of this Agreement. Any assignment which is not in
accordance with this Section will be void.
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18.3 the disclosing party will obtain prior agreement from its
employees, agents or consultants to whom disclosure is to be made to hold in
confidence and not make use of such information for
18.4 FORCE MAJEURE. Neither party will be liable to the other for
loss or damages or will have any right to terminate this Agreement for any
default or delay attributable to any fire, floods, earthquake, embargo, war, act
of war (whether declared or not), insurrections, riots, civil commotions,
strikes, lockouts or other labor disturbances, acts of God or act, omission or
delay in acting by any governmental authority other than those regulatory
agencies from whom approval or certification must be obtained or the other
party, if the party affected gives prompt notice of any such cause to the other
party. The party giving such notice will thereupon be excused from such of its
obligations hereunder as it is thereby disabled from performing for so long as
it is so disabled and for 30 days thereafter; provided, however, that such
affected party commences and continues to take reasonable and diligent actions
to cure such cause.
18.5 GOVERNING LAW AND VENUE. This Agreement is made in
accordance with and shall be governed and construed in accordance with the laws
of the State of California, without regard to conflicts of laws rules. All
disputes arising hereunder not resolved amicably by discussions between the
appropriate representatives of the parties shall be adjudicated in the state and
federal courts having jurisdiction over disputes arising in Santa Clara County,
California, and Novatel hereby consents to the jurisdiction of such courts. The
official language of this Agreement is English.
18.6 COMPLIANCE WITH LAWS AND REGULATIONS. Each party agrees that
it will comply with all federal, state and local laws and regulations in force
as of the Effective Date.
18.7 EXPORT CONTROL. The parties acknowledge that the manufacture
and sale of the Modem is subject to the export control laws of the United States
of America, including the U.S. Bureau of Export Administration regulations, as
amended, and hereby agree to obey any and all such laws. The parties agree not
to take any actions that would cause either party to violate the U.S. Foreign
Corrupt Practices Act of 1977, as amended.
18.8 NOTICES. All notices and other communications hereunder will
be in writing and will be deemed given if delivered personally or by facsimile
transmission (receipt verified), telexed or sent by express courier service, to
the parties at the following addresses (or at such other address for a party as
will be specified by like notice; provided, that notices of a change or address
will be effective only upon receipt thereof): If to Metricom, addressed to:
Metricom, Inc.
980 University Avenue
Los Gatos, CA 95030
if to Novatel, addressed to:
Novatel Wireless, Inc.
9380 Towne Centre
Suite 110
San Diego, CA 92121
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18.9 AMENDMENT. No amendment, modification or supplement of any
provision of the Agreement will be valid or effective unless made in writing and
signed by a duly authorized officer of each party.
18.10 WAIVER. No provision of the Agreement unless such provision
otherwise provides will be waived by any act, omission or knowledge of a party
or its agents or employees except by an instrument in writing expressly waiving
such provision and signed by a duly authorized officer of the waiving party.
18.11 SEVERABILITY. Whenever possible, each provision of the
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of the Agreement.
18.12 HEADINGS. The section headings appearing in this Agreement
are inserted only as a matter of convenience and in no way define, limit,
construe or describe the scope or intent of any such section nor in any way
affect this Agreement.
18.13 PARTIES ADVISED BY COUNSEL. This Agreement has been
negotiated between unrelated parties who are sophisticated and knowledgeable in
the matters contained in this Agreement and who have acted in their own self
interest. In addition, each party has been represented by legal counsel. The
provisions of this Agreement shall be interpreted in a reasonable manner to
effect the purpose of the parties, and this Agreement shall not be interpreted
or construed against any party to this Agreement because that party or any
attorney or representative for that party drafted this Agreement or participated
in the drafting of this Agreement.
18.14 ENTIRE ASSIGNMENT OF THE PARTIES. The Agreement and the
Development Agreement will constitute and contain the complete, final and
exclusive understanding and agreement of the parties and cancels and supersedes
any and all prior negotiations, correspondence, understandings and agreements,
whether oral or written, between the parties respecting the subject matter
thereof.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, including the Exhibits attached hereto and incorporated herein by
reference, as of the Effective Date.
METRICOM, INC. NOVATEL WIRELESS, INC.
/s/ /s/
- ----------------------------------- ---------------------------------------
Signature Signature
- ----------------------------------- ---------------------------------------
Printed Name Printed Name
- ----------------------------------- ---------------------------------------
Title Title
- ----------------------------------- ---------------------------------------
Date Date
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EXHIBIT A
NOVATEL KNOW-HOW, PATENTS AND TECHNOLOGY
NONE
22
EXHIBIT B
PATENTS
METRICOM PATENTS
***
***
***
***
***
***
***
***
***
***
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
23
EXHIBIT C
NETWORK SPECIFICATIONS
To be provided within thirty (30) days from the execution of this Agreement.
24
EXHIBIT D
METRICOM SPECIFICATIONS
GUARANTEED VOLUME MODEMS PERFORMANCE AND USAGE SPECIFICATION
1. SUMMARY OF FEATURES
***
2. PRODUCT REQUIREMENTS
The high level requirements for this product are listed below.
***
2.2. PHYSICAL CHARACTERISTICS
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
25
The antenna shall protrude no further than 1" from the side of
the attached computer and have an extended length of no more than
6".
2.3. EXTERNAL MATERIAL
***
2.4. COLOR
***
2.5. BRAND IDENTIFICATION
***
2.6. STRUCTURAL INTEGRITY
***
2.7. MOUNTING AND ATTACHMENT TO OTHER DEVICES
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
26
2.8. ANTENNA ATTRIBUTES
***
2.9. COMMUNICATION I/O PORT
***
2.10. IN-BOX MATERIAL
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
27
3. USABILITY
3.1. INSTALLATION
***
3.2. USER INTERFACE
***
4. FUNCTIONALITY
4.1. OPERATING LIFE/POWER REQUIREMENTS
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
28
***
4.2 COMPATIBILITY
***
4.3. SOFTWARE/FIRMWARE
***
5. ACCESSORIES
***
6. COMPATIBILITY
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
29
6.2. OPERATING SYSTEMS
***
6.3 USER APPLICATIONS
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
30
EXHIBIT E
INITIAL FORECAST AND DELIVERY SCHEDULE
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
Changes may be made to the Forecast and Delivery Schedule in accordance with
Section 7.3 of this Agreement.
***
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
31
EXHIBIT F
PRICE
The parties acknowledge and agree that the prices of the initial design Modems
shall be as follows:
*** ***
*** ***
*** ***
*** ***
***
***
***
***
***
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
32
EXHIBIT G
TRADEMARKS
Metricom(R)
Ricochet(R)
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EXHIBIT H
METRICOM CORPORATE STYLE GUIDE
To be provided within thirty (30) days from execution of the Agreement.
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EXHIBIT I
TECHNICAL SUPPORT LEVEL DEFINITIONS AND ESCALATION PROCESS
I. DEFINITIONS
LEVEL I TECHNICAL SUPPORT:
Level I Technical Support receives Customer calls and answers routine
inquires and frequently asked questions related to the basic operation
of the hardware and software, functionality, interoperability and
capabilities of the Modem using available tools, documentation, test
equipment and other materials provided by Novatel.
LEVEL II TECHNICAL SUPPORT:
Level II Technical Support shall be provided by Novatel support and
engineering staff and includes, but is not limited to, providing
assistance in resolving any outstanding Level I Support issues and
questions. Level II Technical Support shall be provided directly to
Level I Technical support personnel and Level I Technical Support
personnel shall have direct access to designated support staff within
the Novatel support organization for this purpose.
LEVEL III TECHNICAL SUPPORT:
Level III Technical Support shall be provided by Novatel support and
engineering staff and includes, but is not limited to, resolution of any
issues that cannot or have not been satisfactorily resolved by Level I
and Level II Support personnel and any problems with the engineering or
manufacturing of the Modem.
II. ESCALATION PROCESS:
Support issues related to the engineering or manufacturing of the Modem
shall immediately be escalated to Level III Technical Support
Level I Technical Support issues that are not resolved to Customer's
satisfaction will be forwarded to Level II Technical Support for further
investigation and resolution.
Level I Technical Support may refer a Customer directly to Novatel for
Level II and Level III Technical Support upon approval from Novatel.
Level II Technical Support issues that remain unresolved after *** from
the initial notification by Level I Technical Support of the problem, or
problems that are flagged as sensitive or mission critical, shall be
escalated to Level III Technical Support for final resolution.
Novatel shall provide prompt written explanation to Metricom or its
Designee of the problem, known symptoms, possible causes, and expected
time of resolution for any Level III Support issue that remains
unresolved longer than *** after escalation to Level
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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III Support.
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EXHIBIT 10.12
SUPPLY AGREEMENT
This Supply Agreement ("Agreement") is being entered into and is
effective as of August 12, 1999 (the "Effective Date"), by and between NOVATEL
WIRELESS, INC., a Delaware corporation ("Novatel" or "Seller"), having its
principal place of business at 9360 Towne Centre Drive, San Diego, California
and OPENSKY CORPORATION, a Delaware corporation ("OpenSky" or "Buyer"), having
its principal place of business at 471 Emerson Street, Suite 200, Palo Alto,
California.
WHEREAS, Seller is engaged in, among other things, the development and
manufacture of the Minstrel III(TM) wireless modem cradle ("Minstrel III") and
the Minstrel V(TM) wireless modem cradle ("Minstrel V"), for the Palm III and
Palm V connected organizers, respectively (the Minstrel III and the Minstrel V
are referred to herein collectively as the "Modems");
WHEREAS, Buyer desires to purchase certain quantities of such Modems
from Seller, and Seller is willing to supply such quantities of such Modems to
Buyer, subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants set forth below, the parties agree as follows:
1. SALE AND PURCHASE OF PRODUCTS.
1.1 Sale and Purchase. Buyer shall purchase from Seller, and Seller
shall supply to Buyer, an aggregate of 100,000 Modems pursuant to the schedule
of payment and delivery in Annex A, for an 22,770,000, subject to any
adjustments to the Mix (as described in Section 1.3) made in accordance with
Section 1.3 hereof.
1.2 Payments. Buyer shall make payments due to Seller for Deliverable
Items either directly to Seller or to such bank as Seller may designate in
writing. Payments for Modems shall be due and payable in full, in cash, by Buyer
thirty (30) days prior to each scheduled delivery of Modems into Seller's
Distribution Facility in San Diego, California (the "Novatel Distribution
Facility"). Each delivery of specification compliant Modems in accordance with
Annex D for which a pre-payment by Buyer has been received may not be canceled.
Payments for Deliverable Items (other than Modems), shall be due and payable in
full, in cash, by Buyer within thirty (30) days following the date of shipment
to end-users on behalf of Buyer. For purposes of this Agreement, "Deliverable
Items" shall mean any item, or parts thereof, that Seller is obligated to
provide under this Agreement including but not limited to Modems, documentation,
know-how and information. Payment for shipping and configuration and activation
shall be due and payable in full, in cash, as set forth in Sections 1.8 and 2.1,
respectively.
1.3 Prices and Mix. The Modems shall be supplied to Buyer at a price per
unit equal to $218.50 for the Minstrel III and $230.00 for the Minstrel V.
Pricing is based on 100,000 units to be purchased during the term of this
Agreement. During the term of this Agreement, unless changed in accordance with
this Section 1.3, the number of each type of Modem to be purchased in each
delivery and in the aggregate under this Agreement shall be 80%
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Minstrel V and 20% Minstrel III (the "Mix"). Buyer may change the Mix (i) by 10%
upon 30-days' advance written notice to Seller; (ii) by 30% upon 60-days'
advance written notice to Seller or (iii) in its entirety upon 90-days' advance
written notice to Seller. Buyer may change the delivery schedule set forth on
Annex A as to the total monthly quantity of Modems shipped upon sixty (60) days
prior written notice to Seller; provided, however, that (i) any increase in the
monthly quantity of Modems shall not exceed 20% of the monthly quantity of
Modems set forth on Annex A for the relevant month; (ii) any decrease in the
monthly quantity of Modems shall not exceed 30% of the monthly quantity of
Modems set forth on Annex A for the relevant month and (iii) the total quantity
of Modems purchased under this Agreement shall remain unchanged. If Buyer
reduces the monthly quantity of Modems during the Exclusivity Period pursuant to
the previous sentence, then notwithstanding anything to the contrary in this
Agreement, the exclusivity provided for in Section 1.9 shall not apply with
respect to the number of Modems by which such monthly quantity of Modems was so
reduced.
1.4 Advance. The parties hereto acknowledge and agree that in order to
ensure the prompt availability of the Modems of the initial scheduled delivery
hereunder as provided in Annex A, Seller must make an initial commitment to its
suppliers of components. On the dates set forth below, Buyer shall advance an
aggregate amount of $3,780,000 (the "Advance") to Seller in cash against future
payments to be made by Seller on deliveries purchased. Deliveries made after
November 1, 1999 under this Agreement, for the specific purpose of facilitating
the procurement of components as follows:
-----------------------------------------------------
Date of Buyer's Advance Amount of Buyer's Advance
-----------------------------------------------------
$2,520,000
August 3, 1999 (40K units at $63 per unit)
-----------------------------------------------------
$1,260,000
October 15, 1999 (27K units at $63 per unit)
-----------------------------------------------------
All deliveries of modems made after November 1, 1999 pursuant to this
Agreement shall be invoiced at the actual prices provided in Section 1.2 above
minus $63 per modem until the advance is fully recovered by Buyer.
1.5 Accessories. During the Shipping Period (as defined in Section 1.8
below), Seller shall hold for Buyer 1,000 Minstrel III batteries in reserve
inventory and shall make available accessories for the Modems at such prices
listed in Annex B.
1.6 Acceptance Criteria. The Modems shall be run through an acceptance
test prior to delivery. The acceptance test will be based on an agreed to
statistical sampling of the Modems and will demonstrate that the Modems meet all
of the Product Specifications outlined in Annex D. If there is a statistical
failure rate of greater than *** for any Product Specifications, then every
modem shall be tested prior to acceptance by Buyer. Seller shall provide Buyer
notice of when acceptance test will be performed. Buyer shall have the right to
witness each such test. Upon completion of the acceptance test, Seller shall
provide Buyer with the results of such test and Buyer shall indicate acceptance
by signing the acceptance test documentation.
1.7 Delivery and Title. The Modems sold to Buyer shall be delivered to
the Novatel Distribution Facility in accordance to the delivery schedule set
forth in Annex A. Title and risk of loss in the Modems shall transfer to Buyer
at such time as Seller ships the Modems to
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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an end-user on behalf of Buyer or to a third party distributor on behalf of
Buyer. Seller shall warehouse the inventory on behalf of Buyer and ship to
end-users the Modems on behalf of Buyer from the Novatel Distribution Facility
in accordance with Section 1.8 below. Subject to Section 8 below, all Modems
shipped to Buyer or to the end-users on behalf of Buyer shall be non-returnable.
1.8 Shipping.
1.8.1 From the period beginning November 1, 1999 and ending March
1, 2000 (the "Shipping Period") Seller shall make shipments FOB Destination of
the Modems to end-users on behalf of Buyer. In each case, Buyer shall provide to
Seller in writing, by electronic transmission or any other mode of communication
as set forth in Section 13.11, such information as is necessary to complete the
requested shipment, including without limitation, the address or location of
shipment, the number and type of Modem to be shipped and the type of shipment to
be utilized pursuant to Section 1.8.2 below. Seller shall arrange for the
requested shipment FOB Destination within a 24-hour period from receipt by
Seller of Buyer's shipment request pursuant to this Section 1.8.1.
1.8.2 During the Shipment Period, Seller shall arrange, in
coordination with Buyer, for the air carrier insurance and freight from the
Novatel Distribution Facility to end-users on behalf of Buyer, and the CIF cost
shall be borne by Buyer directly. Seller shall provide three (3) shipment
options to Buyer: (i) overnight delivery; (ii) 2-day delivery or (iii) ground
delivery; and for which Buyer shall pay Seller, in cash, fees for shipment of
the Modems pursuant to this Section 1.8.2. As additional shipping options and
volume discounts become available, the fees for shipment paid by Buyer to Seller
may be agreed upon on a case by case basis by Buyer and Seller. Seller shall
deliver monthly invoices to Buyer for the costs and fees in connection with the
shipment of the Modems made to end-users on behalf of Buyer. In addition to such
other amounts as may be due hereunder, Buyer shall pay Seller in full, in cash,
for Seller's costs and fees for such shipments within thirty (30) days following
the date of delivery of such invoice to Buyer pursuant to this Section 1.8.2.
1.9 Exclusivity. The Minstrel V shall be made available for sale and
purchase exclusively to Buyer for the Exclusivity Period. The "Exclusivity
Period" means the four-month period commencing as of the later of (i) such date
Seller has delivered 18,000 Minstrel V units in accordance with this Agreement
on account of Buyer to the Novatel Distribution Facility or (ii) November 30,
1999. In the event that Seller's delivery of field trial Minstrel V Modems is
not made prior to September 30, 1999 or Seller retrofits Modems pursuant to
Section 1.17 or Section 5 hereof, then (i) the initial delivery of Modems into
the Novatel Distribution Facility shall be due on December 31, 1999; (ii) each
subsequent delivery date on Annex A shall be adjusted accordingly; and (iii) the
Exclusivity Period will begin on such date Seller has delivered 18,000 Minsrel V
units in accordance with this Agreement to the Novatel Distribution Facility.
1.10 Warranties. Acceptance of a Modem shall not relieve Seller from its
obligations thereunder with respect to warranties under Section 8 below.
1.11 Title; Risk of Loss. Title to Deliverable Items covered by this
Agreement shall pass to Buyer and risk of loss of or damage to Deliverable Items
shall be assumed by
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Buyer, at such time Seller ships the Deliverable Items to an end-user on behalf
of Buyer or to a third party distributor on behalf of Buyer.
1.12 Taxes. The prices of all Modems and Deliverable Items hereunder
include all taxes, duties and excises which are directly imposed on the Modems
or Deliverable Items. Notwithstanding the foregoing, Buyer shall bear the
responsibility for any taxes or duties imposed on Deliverable Items in any other
country or state of destination, including without limitation, taxes imposed on
the sale by Buyer of a product that includes Seller products.
1.13 Adverse Results; Government Action. Each party agrees to promptly
notify the other party of any adverse or unexpected results or any actual or
potential government action relevant to a Modem of which it becomes aware.
1.14 Invoices; Errors. Invoices shall be submitted by Seller in
duplicate (original and one copy) for each delivery of Deliverable Items (other
than Modems) and will enclose as an integral part thereof documentary proof of
delivery of such Deliverable Items, according to commercially accepted standards
for exports.
1.15 Additional Supply. Beginning after completion of delivery of
100,000 Modems and for a period of one (1) year. The first option of available
allocation granted to Buyer under this Section 1.15 shall be on such terms and
conditions and at such price as mutually agreed upon between the parties hereto
or as then in effect pursuant to future Modem supply agreements entered into
between Buyer and Seller but at no greater price than Seller would offer to any
other similar buyer for the same Modem on similar volume and other terms.
1.16 Schedule. If Seller fails to deliver the Modems to the Novatel
Distribution Facility as scheduled in Annex A and Buyer waives the delay, Annex
A shall be adjusted by changing the dates in Annex A by an equivalent number of
days. For example, a thirty (30) day delay in delivery will cause a thirty (30)
day delay in every subsequent delivery requirement pursuant to Annex A. If
Seller is only able to deliver a portion of the Modems as scheduled, then the
remaining portion shall be delivered fifteen (15) days after the final delivery
pursuant to Annex A. Any prepayment in accordance with Section 1.2 for
undelivered Modems shall be applied to the prepayment for the next scheduled
delivery of Modems. In the event the Modems are not delivered for field trial by
September 30, 1999 pursuant to Section 1.17 below then the delivery schedule on
Annex A will be adjusted so that the initial delivery shall be due on December
31, 1999 and each subsequent delivery on Annex A shall be adjusted accordingly.
1.17 Field Trials. Seller will deliver Modems for Buyer to conduct field
trials on or prior to September 30, 1999. If the Modems have mechanical or
electrical failures in excess of *** during Buyer field trial then Seller shall
immediately stop delivery of Modems to the Novatel Distribution Facility. Seller
shall make the necessary changes to rectify the identified failures and all
previously delivered Modems shall be retrofitted to meet the specification
configuration.
2. CONFIGURATION AND ACTIVATION; TRADEMARKS.
2.1 Configuration and Activation.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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2.1.1 Seller shall configure and activate each Modem on behalf of
Buyer. Buyer shall provide shipping, configuration and activation instructions
in writing, by electronic transmission or any other mode of communication as set
forth in Section 13.11, to Seller for each Modem to be shipped on behalf of
Buyer. In addition to such other amounts as may be due hereunder, Buyer shall
pay Seller a fee equal to $8.00 for each Modem unit activated. Seller shall
deliver a monthly invoices to Buyer stating the aggregate activation fees due
and payable in connection with the activation of the units. Buyer shall pay such
fee in full, in cash, within thirty (30) days following the delivery date of
such invoice to Buyer.
2.1.2 The parties agree that all Modem units shipped to end-users
on behalf of Buyer shall be activated by Seller in accordance with this Section
2 and in consideration of the fee set forth in Section 2.1.1 hereof. In
activating the Modems, Seller shall undertake the following steps:
- Unpack Minstrel Cradle
- Plug into AC power source
- Attach pre-configured Palm test unit
- Run "Modem Manager" software
- Program Modem parameters and confirm
registration
- Send Test Packet
- Repackage Minstrel in retain box, including
activation/IP documentation
2.1.3 Each Modem shall be shipped to an end-user on behalf of
Buyer with a joint branding configuration consisting of the word "Novatel
Wireless" on the back of the Modem and such name as may be designated by Buyer
in writing, by electronic transmission or any other mode of communication as set
forth in Section 13.11 on the front of the Modem. Such branding configuration
shall extend to the Modem, user documentation and retail packaging. All Modems
will be packaged according to standards of trade generally applicable to similar
products shipped on a global basis.
2.2 Seller's Trademarks. Buyer shall not use the trademark "Novatel" or
"Novatel Wireless" or any other trademark owned or used by Seller or any mark
confusingly similar thereto without the prior written consent of Seller in each.
2.2.1 Buyer acknowledges Seller's sole ownership and exclusive
right, title and interest in and to the use of each of its trademarks, and that
any use of any of the trademarks of Seller will inure solely to the benefit of
Seller. Buyer shall not at any time, either during the term hereof or at any
time thereafter, directly contest, or aid others in contesting, or do anything
which might impair the validity of, any or all of Seller's trademarks or the
exclusive ownership thereof by Seller. Buyer shall not acquire any right to or
under any of Seller's trademarks. If any such rights should become vested in
Buyer by operation of law or otherwise, Buyer agrees it will immediately assign
any and all such rights to Seller. Nothing contained herein in any way limit
Seller's rights under its patents or licensing agreements nor grant Buyer any
rights under such patents or licensing agreements.
2.3 Buyer's Trademarks.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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2.3.1 Seller shall use the trademarks of Buyer only on or in
connection with the terms of Section 2.1 hereof and shall not use any marks
confusingly similar to Buyer's trademarks on any other goods.
2.3.2 Seller acknowledges Buyer's sole ownership and exclusive
right, title and interest in and to the use of each of its trademarks, and that
any use of any of the trademarks of Buyer will inure solely to the benefit of
Buyer. Seller shall not at any time, either during the term hereof or at any
time thereafter, directly contest, or aid others in contesting, or do anything
which might impair the validity of, any or all of Buyer's trademarks or the
exclusive ownership thereof by Buyer. Seller shall not acquire any right to or
under any of Buyer's trademarks. If any such rights should become vested in
Seller by operation of law or otherwise, Seller agrees it will immediately
assign any and all such rights to Buyer. Nothing contained herein in any way
limit Buyer's rights under its patents or licensing agreements nor grant Seller
any rights under such patents or licensing agreements.
3. KNOW-HOW AND SUPPORT.
Seller shall provide Level II and Level III Technical Support (as
described in Annex C), and training to Buyer's designated service technicians to
enable Buyer to provide Level I Support and engineering support at Buyer's
facilities to enable Buyer to support the Modems, including the details of modem
functionality and design required for detection and correction of bugs or
failures . The parties hereto acknowledge and agree that Seller shall not
provide direct end-user support to any end-user on its own behalf or on behalf
of Buyer (Level I Technical Support). Seller will provide technical support
during the term of this Agreement in accordance with the terms of this Agreement
for so long as Buyer does not request any change in Seller's specifications of
the Modems as set forth in Annex D (the "Product Specifications").
4. AUDIT.
During the term of this Agreement, Seller shall maintain separate,
complete and accurate accounting records, in a form in accordance with generally
accepted accounting principles, to substantiate Seller's invoices hereunder.
Buyer, or any other person designated by it, reserves the right during the term
of this Agreement to audit and review, with reasonable notice to Seller,
Seller's books and records pertaining to such invoices to substantiate the
invoices delivered in connection with this Agreement. Seller shall preserve such
books and records for this purpose for a period of seven (7) years from the
receipt of last payment from Buyer. Buyer shall have the right to visit the
Novatel Distribution Facility to take a physical inventory of Modems that have
been delivered in accordance with Section 1.7.
5. REPRESENTATION AND WARRANTY.
Seller represents and warrants that no Federal Trade Commission
certification of CDPD carrier certification is required for the Modems. If
either certification becomes necessary for the sale of the Modems, Seller shall
immediately stop delivery of the Modems to the Novatel Distribution Facility.
Seller shall make the necessary changes to certify the Modems and all previously
delivered Modems shall be retrofitted to meet the certified configuration.
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6. INSURANCE.
Seller shall maintain sufficient general liability insurance for the
Novatel Distribution Facility to cover the Modems stored at the site.
7. TERM; TERMINATION; RIGHTS AND OBLIGATIONS UPON TERMINATION.
7.1 Except as otherwise provided for herein, the term of this Agreement
shall be for the period commencing on the Effective Date and ending on April 1,
2000, unless terminated earlier by either party pursuant to the provisions of
this Section 7 or extended by mutual written agreement of the parties.
7.2 Notwithstanding the foregoing, the following provisions shall
continue in effect after termination of this Agreement in accordance with their
terms:
(a) All payment provisions, and any payment due at the
time of termination shall be paid in accordance with the terms of this
Agreement.
(b) All warranties specified in the Agreement.
(c) All Patent Indemnity obligations.
(d) Section 1.14 (Additional Supply).
(e) Sections 2.2 and 2.3 (Trademarks).
(f) Section 7.6 (Commitment Termination Event).
(g) Section 11.3 (Spare Parts).
(h) Sections 13.l and 13.2 (Confidentiality and
Advertising).
(i) Section 13.3 (Confidential Information).
(j) Section 13.8 (Applicable Law), which shall govern any
dispute between the parties under the Agreement that may subsequently arise.
7.3 Buyer's Right to Terminate. Buyer shall have the right, by providing
Seller with thirty (30) days' prior written notice, to terminate this Agreement
upon the occurrence of any of the following events, any one of which shall be
considered a "Seller Default:"
(a) Seller discontinues the Modems;
(b) Seller is adjudged bankrupt;
(c) Seller files a voluntary petition in bankruptcy or
liquidation or for the appointment of a receiver;
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(d) Filing of an involuntary petition to have Seller
declared bankrupt, or subject to receivership, provided that such petition is
not vacated or set aside within ninety (90) days from the date of filing;
(e) The execution by Seller of any assignment for the
benefit of creditors; or
(f) Seller breaches any material provision of this
Agreement and fails to cure such material breach within thirty (30) days from
receipt of written notice describing the breach.
7.4 Seller's Right to Terminate. Seller shall have the right, by
providing Buyer with written notice, to immediately terminate this Agreement
upon the occurrence of any of the following events, any one of which shall be
considered a "Buyer Default:"
(a) Buyer fails to make payments as provided in this
Agreement, unless such failure is cured within thirty (30) days from receipt of
written demand for such payment. Any late payments shall bear interest at the
annual rate of LIBOR plus 2%;
(b) Buyer is adjudged bankrupt;
(c) Buyer files a voluntary petition in bankruptcy or
liquidation or for the appointment of a receiver;
(d) Filing of an involuntary petition to have Buyer
declared bankrupt, or subject to receivership, provided that such petition is
not vacated or set aside within ninety (90) days from the date of filing;
(e) The execution by Buyer of any assignment for the
benefit of creditors; or
(f) Buyer breaches any material provision of this
Agreement and fails to cure such material breach within thirty (30) days from
receipt of written notice describing the breach.
7.5 Remedy Upon Seller Default. In the event that this Agreement is
terminated pursuant to Section 7.3 above, Buyer shall have the right to exercise
any and all rights surviving such termination pursuant to Section 7.2.
7.6 Commitment Termination Event. In the event of a Commitment
Termination Event, Buyer shall, as soon as practicable and in no event later
than five (5) days after the occurrence of such Commitment Termination Event,
pay Seller, in cash an amount equal to twenty percent (20%) of the aggregate
amount which otherwise would have been owed to Seller under this Agreement had
the Commitment Termination Event not occurred and Seller fully performed its
obligations under this Agreement less any pre-payment made for undelivered
Modems in accordance with Section 1.2. "Commitment Termination Event" means (i)
the failure by Buyer to purchase Modems in the amounts set forth in Section 1.1
("Sale and Purchase") hereof pursuant to the schedule of payment and delivery
set forth in Annex A (giving effect to any adjustments made in accordance with
Section 1.3 hereof); (ii) termination of this Agreement by Buyer for any reason
whatsoever other than pursuant to a breach by Seller of the provisions of
Section 8.1 hereof (Product Warranty) or failure by Seller to make the scheduled
deliveries in accordance with Section 1.7 hereof; (iii) any breach by Buyer
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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of any representation, covenant or agreement on the part of Buyer set forth in
this Agreement or (iv) Buyer's use of another CDPD modem vendor for the Palm III
and Palm V during the term of this Agreement.
8. PRODUCT WARRANTY.
8.1 Product Warranty. The following Sections 8.l through 8.6 refer only
to Product Warranty.
(a) Seller warrants (i) that all Modems, including
components thereof, to be delivered hereunder, will conform to the Product
Specifications, be free from defects in material and workmanship and (ii) that
the "Modem Manager" software installed pursuant to Section 2.1 hereof shall be
free from errors which materially affect performance. The foregoing warranty is
given provided Buyer gives written notice of any defect, deficiency or
non-conformance of any Modem, or parts thereof, within: (i) twelve (12) months
from the shipment date to the end-user, or (ii) fifteen (15) months from the
date the Modems are delivered to Buyer at the Novatel Distribution Facility (the
"Warranty Period"). Seller shall, at no cost to Buyer, and within the
"Turn-Around Time" as defined in Section 8.2(a) below, repair or furnish
replacements for all such defective, deficient or non-conforming items or parts
thereof; provided, however, the Modems have been maintained in accordance with
Seller's specifications and have not been modified by any party other than
Seller except as expressly permitted by Seller in writing.
(b) The foregoing warranties do not extend to:
(i) defects, errors or nonconformities in a Modem
due to accident, abuse, misuse or negligent use of such Modem or use in other
than a normal and customary manner, environmental conditions not conforming to
Seller's specifications, or failure to follow prescribed operating maintenance
procedures;
(ii) defects, errors or nonconformities in the
Modem due to modifications, alterations, additions or changes in the Modem not
made or authorized to be made by Seller in writing;
(iii) normal wear and tear; or
(iv) damage caused by force of nature or act of any
third party.
8.2 Turn-Around Time.
(a) "Turn-Around Time" for the purposes of this Section 8
means fifteen (15) days from the date on which such defective item, or defective
or non-conforming part thereof, is furnished to Seller, for repair or
replacement until the date on which such replaced or repaired item is returned
to Buyer.
(b) Seller shall bear air shipment costs of the deficient,
repaired or replaced item as well as the risk or loss or damage to the item or
its replacement throughout the period between the shipment of the defective item
and the receipt of the repaired or replaced
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item. Repaired or replaced items shall be subject to the warranty provided on
the original Modem only (the time during which Seller repairs or replaces the
item shall not be considered as part of the Warranty Period), in accordance with
this Section 8. Notwithstanding the foregoing, Buyer shall bear all expenses if
no fault on the part of Seller was found in the items returned for repair or
replacement.
8.3 Extended Warranty. In the event Buyer elects to offer an extended
warranty, Buyer may, up to one (1) year after an order is received from an
end-user, extend the Warranty Period at a cost of $5 per Modem per year.
Discounts in the cost of such extension of warranty may be negotiated between
Seller and Buyer, based on the number of the Modems on which Buyer elects to
extend the Warranty Period.
8.4 Inspection; Acceptance. This warranty shall survive inspection,
acceptance or payments by Buyer and is provided for the sole and exclusive
benefit of Buyer and shall not extend to any third party, including without
limitation, any reseller or end-user.
8.5 Exclusive Remedy. The warranty granted in this Section 8 sets forth
Buyer's sole and exclusive remedy and Seller's sole and exclusive liability for
any claim of warranty for any product delivered by Seller.
8.6 No Authority. Buyer acknowledges that it is not authorized to make
any warranty or representation on behalf of Seller or its suppliers regarding
the Modems, whether express or implied, other than the warranty terms set forth
in this Section 8.
8.7 No Other Warranty. THE WARRANTY MADE UNDER THIS SECTION 8 IS
EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
9. PATENT INDEMNITY.
9.1 Patent Indemnity. Seller shall, at its sole cost and expense,
indemnify, defend and hold Buyer harmless from and against any claims, demands,
liability or suit, including costs and expenses, for or by reason of any actual
or alleged infringement of any third party patent, trademark or copyright
resulting from the design, development, manufacture, use, sale or disposal of
any Modem or Deliverable Items furnished hereunder. Buyer shall promptly notify
Seller in writing of any such infringement claim after Buyer becomes aware of
such claim, and shall provide Seller with such assistance and cooperation as
Seller may reasonably request from time to time in connection with the defense
thereof. In the event Buyer determines that Seller is unable or unwilling to
defend the claim, Buyer may assume control of the defense of any infringement
claim; provided that under such circumstances Buyer shall bear all costs of such
defense (but not of any consequent judgment or liability). If any settlement
requires an affirmative obligation of, results in any ongoing liability to, or
prejudices or detrimentally impacts in any way, Buyer, then such settlement
shall require Buyer's written consent.
9.2 Right to Substitute. Should Buyer be prevented as a result of such
claims, actions or suits regarding infringement, from utilizing the Modems or
Deliverable Items in
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
10
11
question, or if Seller believes such a claim is likely, then Seller shall, at
Seller's expense, either substitute an equivalent non-infringing item, or modify
the item so that same no longer infringes but remains equivalent, or obtain (at
its own expense) for Buyer the right to continue use of the item in accordance
with the terms of this Agreement.
9.3 Procedure. Seller's obligation to indemnify will be subject to the
following terms and conditions:
(a) The obligation will arise only if Seller receives
prompt written notice of the infringement claim.
(b) The obligation will not cover any claim that the
Modems infringe any third party's rights only as used in combination with any
software or hardware not supplied by Seller, if that claim could have been
avoided by the use of the Modems in combination with equivalent other available
software or hardware.
10. LIMITATION OF LIABILITY.
SELLER SHALL NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL,
INDIRECT OR PUNITIVE DAMAGES (INCLUDING LOST REVENUES OR PROFITS) OF ANY KIND
DUE TO ANY CAUSE, REGARDLESS OF WHETHER SELLER HAS BEEN ADVISED OR IS AWARE OF
THE POSSIBILITY OF SUCH DAMAGES.
11. POST WARRANTY OBLIGATIONS.
11.1 Support. Seller agrees that for the term of this Agreement, plus
the Warranty Period, it will retain a staff of technical personnel in connection
with the design, manufacture and trouble-shooting of the Modems and Deliverable
Items supplied under this Agreement. This staff will be available to render
technical assistance to Buyer upon Buyer's reasonable request regarding the
Modems or a Deliverable Item and will provide such assistance as may be
reasonably required to support systems integration, system debug, basic
parameter changes in the Modems, modification of the Modems, upgrades in the
Modems, and customer and production support in accordance with the provisions of
Section 6.
11.2 Repair. During the term of this Agreement, in the event that Buyer
requires repair of the Modems, or any part thereof, after the date of completion
of Seller's warranty obligations under this Agreement, Seller will perform such
repairs on terms at and prices in accordance with its standard support and
maintenance fees, or at a fair and reasonable prices if standard fees have not
been set.
11.3 Spare Parts. Seller undertakes, for a period of five years after
the completion Seller's warranty obligations under this Agreement, to supply
Buyer with spare parts for the Modems and the Deliverable Items as Buyer may
reasonably request from time to time, at prices that are fair and reasonable,
considering prevailing market prices at the time said items are ordered.
11
12
12. FORCE MAJEURE.
12.1 Events of Force Majeure. Neither party shall be liable for a
default or delay in the performance under this Agreement if and to the extent
such default or delay is caused, directly or indirectly, by (i) fire, flood,
natural disturbances or other acts of God; (ii) any outbreak or escalation of
hostilities, war, civil commotion, riot or insurrection; (iii) any act or
omission of the other party or any governmental authority or (iv) any other
similar causes beyond the control of such party that arise without the fault or
negligence of such party. Any delay resulting from such events shall be referred
to herein as a "Force Majeure," shall not constitute a default by such party
under this Agreement and shall entitle the delayed party to a corresponding
extension of its delayed obligation. The party whose performance will be delayed
by such events will use its best efforts to notify the other party within three
(3) days after delayed party becomes aware of such event, as well as the
cessation thereof.
12.2 Subcontractor's Default. Any delays in performance by Seller's
subcontractors or suppliers shall be deemed excusable delays with respect to
Seller only if (i) such subcontractor's non-performance is caused by Force
Majeure and (ii) Seller could not have obtained the supplies or services of such
subcontractor from other sources in sufficient time and on customary terms to
prevent interruption of Seller's performance of this Agreement.
12.3 Termination.
(a) If Force Majeure results in a delay to make any
scheduled delivery under this Agreement by more than sixty (60) days, Buyer may
terminate this Agreement in whole or in part and such termination shall not be
deemed a breach of this Agreement.
(b) If Buyer does not terminate within such sixty (60) day
period, and the Force Majeure prevails for further forty-five (45) days, Buyer
may terminate this Agreement, but it shall have no right to claim damages from
Seller for breach of the Agreement. The foregoing expresses Buyer's sole remedy
and Seller's sole liability for such termination resulting from Force Majeure.
13. MISCELLANEOUS.
13.1 Confidentiality of Agreement; Permitted Disclosures. Throughout the
term of this Agreement, each party agrees that the terms of this Agreement shall
be kept confidential. No disclosure of the identity of Buyer's customers or
end-users or other information concerning this Agreement shall be released by
Seller without the prior written consent of Buyer except (i) in Seller's or
Buyer's communication with its respective shareholders, investors or potential
investors, and (ii) as to such advertising or other marketing in which Seller
may engage in the ordinary course of business.
13.2 Required Disclosures; Advertising. Notwithstanding Section 13.1
above:
(a) Each party may divulge information hereunder as is
reasonably required for the performance of the Agreement or as is required by
law; and
12
13
(b) Each party shall have the right to list the other
party as a customer or supplier (as the case may be) in its advertising
material.
13.3 Confidential Information.
(a) In performance of this Agreement, it may be necessary
or desirable for either party to disclose to the other certain business and/or
technical information which the disclosing party regards as proprietary and
confidential (the "Confidential Information"). Any Confidential Information
disclosed shall be reduced to writing and provided to the other party within
twenty (20) days after it was first disclosed. Each of the parties hereto agree
that it shall (i) not make use of or disclose the Confidential Information for
any purpose whatsoever at any time, other than for the purposes of this
Agreement and (ii) limit access to the Confidential Information of the other
party to its employees who shall be advised of and agree to be subject to the
terms of this Section 13.3.
(b) Nothing herein shall be construed as granting to
either party, by implication, estoppel or otherwise, any right, title or
interest in, or any license under, any patent or Confidential Information.
(c) Items shall not be considered Confidential Information
if such information was (i) available to the public other than by a breach of an
agreement with the disclosing party; (ii) rightfully received from a third party
not in breach of any obligation of confidentiality; (iii) independently
developed by one party without access to the Confidential Information of the
other; (iv) known to the recipient at the time of disclosure; or (v) produced in
compliance with applicable law or a court order, provided that other party is
given reasonable notice of such law or order and an opportunity to attempt to
preclude or limit such production.
13.4 Severability. If any provision of this Agreement shall be held
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
13.5 Assignment. Neither Seller nor Buyer may assign this Agreement in
whole or in part, or any rights hereunder without the prior written consent of
the other, except to (i) a wholly-owned subsidiary of such party, (ii) a
successor in interest of all or substantially all of such party's assets or
business or (iii) a bank trust company or other financial institution for money
due or to become due under this Agreement. In the event of any assignment, the
assigning party shall promptly supply the other party with two (2) copies of
such assignment and, in the instance of an assignment pursuant to this Section
13.5, shall indicate on each invoice to whom payment is to be made. In the event
of any assignment pursuant to this Section 13.5, the assigning party also shall
provide a written guarantee by such party of the obligations assigned to such
party's subsidiary.
13.6 Relations of the Parties. Nothing in this Agreement shall be
construed as creating relationship of principal and agent or of employer and
employee between the parties. Furthermore, nothing in this Agreement is intended
to constitute, create, give effect to or otherwise contemplate a joint venture,
partnership or formal business entity of any kind. The rights and obligations of
the parties with respect to this Agreement shall not be construed as
13
14
providing for sharing of profits or losses arising out of the effort of either
of the parties. The parties shall not incur any liability on behalf of the
other.
13.7 Waiver. No waiver by either Seller or Buyer of any breach of this
Agreement shall be held to be a waiver of any other subsequent breach. No waiver
or time extension given by either Seller or Buyer shall have effect unless made
expressly and in writing.
13.8 Applicable Law. This Agreement and all matters regarding the
interpretation and/or enforcement hereof, shall be governed exclusively by the
law of the State of California without reference to its choice of law rules.
13.9 Arbitration. Any dispute arising out of or in connection with this
Agreement, including any question regarding its breach, validity or termination,
or the transactions contemplated hereby, including any dispute based in whole or
in part on tort or other non-contractual principles of law, shall be fully and
finally resolved and settled by arbitration under the Rules of the American
Arbitration Association for Commercial Disputes (the "Rules") (as modified by
this Section 13.9). The number of arbitrators shall be one (1) if all parties to
the dispute agree on the arbitrator. If there is a disagreement on selection of
a sole arbitrator, the number of arbitrators then shall be three (3), with the
arbitrators to be appointed in accordance with the Rules from a panel of
arbitrators in San Diego, California. The place of arbitration shall be San
Diego, California or such other place as the parties to the dispute shall
mutually agree upon in writing. The arbitration proceedings shall state the
reasons for the award. Judgment upon the award rendered by the arbitrator or
arbitrators may be entered in any court having jurisdiction thereof, and shall
be binding on the parties hereto. The costs of arbitration, including reasonable
legal fees and costs, shall be borne by either or both of the parties in
whatever proportion as the arbitrator or arbitrators may award. This Section
13.9 shall not apply to actions seeking enforcement of this Agreement to
arbitrate or to enforce Section 2.2 ("Seller's Trademarks"), Section 2.3
("Buyer's Trademarks"), Section 13.1 ("Confidentiality") or Section 13.3
("Confidential Information") hereof or with respect to any request for
provisional or interim relief brought prior to the appointment of an arbitrator.
The dispute resolution proceedings contemplated by this provision shall
be as confidential and private as permitted by law. To that end, the parties
shall not disclose the existence, content or results of any claims hereunder or
proceedings conducted in accordance with this provision, and materials submitted
in connection with such proceedings shall not be admissible in any other
proceeding; provided, however, that this confidentiality provision shall not
prevent a petition to vacate or enforce an arbitration award, and shall not bar
disclosures required by law. The parties hereto agree that any decision or award
resulting from proceedings in accordance with this dispute resolution provision
shall have no preclusive effect in any other matter involving third parties.
13.10 Entire Agreement. This Agreement constitutes the entire agreement
between the parties, supersedes and cancels any previous understandings or
agreements between all the parties relating to the provisions hereof, and
expresses the complete and final understanding of the parties in respect
thereto. This Agreement may not be changed, modified, amended or supplemented
except by a written instrument signed by the parties.
14
15
13.11 Notices. Any notice contemplated by or made pursuant to this
Agreement shall be in writing and shall be deemed delivered on the date of
delivery if delivered personally or by commercial overnight courier with
tracking capabilities or by fax, or five (5) days after mailing if placed in the
mail, postage prepaid, registered or certified mail, return receipt requested,
addressed to Buyer or Seller (as the case may be) as follows:
Seller: Novatel Wireless, Inc.
9360 Towne Centre Drive
Suite 110
San Diego, CA 92121
Attn: Chief Executive Officer
Fax: (858) 784-0626
Buyer: OpenSky Corporation
471 Emerson Street, Suite 200
Palo Alto, CA 94301
Attn: Chief Executive Officer
Fax: (650) 561-9968
or such other address as each party may designate for itself by notice given in
accordance with this Section 13.11.
13.12 Headings. The headings in this Agreement are for convenience only
and shall not be regarded in the interpretation hereof.
[Signature Page Follows]
15
16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the Effective Date written above.
SELLER: NOVATEL WIRELESS, INC.
By: /s/ BRUCE GRAY
-----------------------------------------
Name: Bruce Gray
Title: Vice President -- Sales/Marketing
BUYER: OPENSKY CORPORATION
By: /s/ MICHAEL DOLBEC
-----------------------------------------
Name: Michael Dolbec
Title: Vice President --
Business Development
17
Annex A
SCHEDULE OF PAYMENT AND DELIVERY
***
** Buyer shall pre-pay in full for any forecasted bi-monthly quantity 30 days
prior to delivery into the Novatel Distribution Center in San Diego California
subject to Sections 1.2 and 1.4 of this Agreement.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
18
ANNEX B
ACCESSORY PRICING
OPENSKY COST** MSRP
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Battery Pack $21.90 $39.99
- --------------------------------------------------------------------
AC Adaptor $9.77 $19.99
- --------------------------------------------------------------------
Car Adaptor $30.62 $45.99
- --------------------------------------------------------------------
Stylus 3 Pack $5.99 $9.99
- --------------------------------------------------------------------
***
ANNEX C
TECHNICAL SUPPORT
Technical Support for the Minstrel III and Minstrel V products delivered to
OpenSky customers will be managed via a three-tier Technical Support
infrastructure and process as follows:
LEVEL I TECHNICAL SUPPORT
Level I Technical Support will be provided by OpenSky to their direct
and indirect customers. Level I Support is defined as calls* originating
from OpenSky customers, resellers or distributors regarding Palm
Products, OpenSky Service, Wireless Service Providers, Minstrel III or
Minstrel V products including but not limited to pre and post sale
inquiries concerning the basic operation of the hardware and software,
functionality, interoperability and capabilities of those products and
services.
For calls regarding the Minstrel III and Minstrel V products, OpenSky
will make every attempt to answer customer questions and resolve issues
using available tools, documentation, test equipment and other materials
used to support the Minstrel III and Minstrel V products (see training
section below). If the customer question/issue regarding the Minstrel
III or Minstrel V product cannot be resolved by OpenSky support
personnel to the customers' satisfaction, the issue will be forwarded to
Novatel Wireless Level II Technical Support for further investigation
and resolution.
*Calls include phone calls, e-mail, web-based inquiries, faxes and
letters.
LEVEL II TECHNICAL SUPPORT
Level II Technical Support will be provided by Novatel Wireless support
staff directly to OpenSky Level I Support personnel to assist in the
resolution of open customer issues that have not been resolved to the
satisfaction of OpenSky customers during a Level I Support call. OpenSky
will have direct access to designated support staff within the Novatel
Wireless support organization for this purpose. A direct line of
communication between the two organizations will be established and
Novatel Wireless support technicians will be available during normal
OpenSky technical support operation hours to assist in
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
19
resolution of customer problems. Novatel Wireless support engineering
will work directly with OpenSky support staff to resolve issues and
answer questions, this may require OpenSky support staff to gather
additional information and provide system information or test results
back to Novatel support staff to aid in the definition and resolution of
the problem. It will be OpenSky support staff's responsibility to
communicate directly with the end-user customer. Problems that are not
resolved within three business days or problems that are flagged as
sensitive/mission critical will be escalated to Level III Technical
Support for final resolution.
LEVEL III TECHNICAL SUPPORT (ESCALATION)
Level III Technical Support will be provided by the Novatel Wireless
support and system engineering staff to resolve issues that cannot be
satisfactorily resolved by Level I and Level II Support personnel. Level
III Technical Support will handle all OpenSky product escalations issues
including unresolved support calls and will work directly with Novatel
Wireless engineering staff to resolve those issues.
TECHNICAL SUPPORT TRAINING
Technical Support training and documentation for the Minstrel III and
Minstrel V will be provided to OpenSky Level I Support staff by Novatel
Wireless. OpenSky support staff will receive training on the general
use, functionality, operation and compatibility of the Minstrel III and
Minstrel V products. In addition, all support related documentation,
training materials, notes, FAQ's, and web based support materials will
be made available to OpenSky for their use in supporting these products.
20
FIRST AMENDMENT TO SUPPLY AGREEMENT
This First Amendment to Supply Agreement (this "Amendment") is made as
of October ___, 1999 by and among Novatel Wireless, Inc., a Delaware corporation
("Novatel") and OpenSky Corporation, a Delaware corporation ("OpenSky").
WHEREAS, Novatel and OpenSky entered into that certain Supply Agreement,
dated and effective as of August 12, 1999 (the "Supply Agreement"); and
WHEREAS, pursuant to Section 13.10 of the Supply Agreement, Novatel and
OpenSky desire to amend certain terms and provisions of the Supply Agreement;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the parties hereto agree as follows (all capitalized
terms not otherwise defined herein shall have the meanings therefor set forth in
the Supply Agreement):
1. Pursuant to Section 1.3, OpenSky hereby changes the Mix and delivery
schedule in accordance with Exhibit A hereto.
2. Section 1.2 is amended in its entirety to read as follows:
"1.2 Payments. Buyer shall make payments due to
Seller for Deliverable Items either directly to Seller or to such bank
as Seller may designate in writing. Payments for Modems shall be due and
payable in full, in cash, by Buyer thirty (30) days prior to each
scheduled delivery of Modems into Seller's Distribution Facility in San
Diego, California (the "Novatel Distribution Facility") with respect to
any delivery scheduled in Annex A to be made on or before December 31,
1999. Payments for Modems shall be due and payable in full, in cash, by
Buyer within thirty (30) days following the date of each scheduled
delivery of Modems into the Novatel Distribution Facility with respect
to any delivery scheduled in Annex A to be made on or after January 1,
2000. Each delivery of specification compliant Modems in accordance with
Annex D for which a pre-payment by Buyer has been received may not be
canceled. Payments for Deliverable Items (other than Modems), shall be
due and payable in full, in cash, by Buyer within thirty (30) days
following the date of shipment to end-users on behalf of Buyer. For
purposes of this Agreement, "Deliverable Items" shall mean any item, or
parts thereof, that Seller is obligated to provide under this Agreement
including but not limited to Modems, documentation, know-how and
information. Payment for shipping and configuration and activation shall
be due and payable in full, in cash, as set forth in Sections 1.8 and
2.1, respectively."
3. Section 1.7 is amended in its entirety to read as follows:
"1.7 Delivery and Title. The Modems sold to Buyer
shall be delivered to the Novatel Distribution Facility in accordance to
the delivery schedule set forth in Annex A. Title and risk of loss in
the Modems shall transfer to Buyer FOB Manufacturer, as determined by
Seller. Seller shall warehouse the inventory on behalf of Buyer and ship
to end-users the Modems on behalf of Buyer from the Novatel Distribution
Facility in accordance with Section 1.8 below. Subject to Section 8
below, all Modems delivered to Buyer shall be non-returnable."
21
4. Section 1.8.1 is amended by deleting the date "March 1, 2000" in the
first sentence and replacing it with the date "May 1, 2000", so that the
Shipping Period ends on May 1, 2000.
5. Section 7.1 is amended by deleting the date "April 1, 2000" in the
first sentence and replacing it with the date "May 1, 2000", so that the term of
the Supply Agreement ends on May 1, 2000.
6. In all other respects, the Supply Agreement, as herein amended, shall
remain in full force and effect, including Section 1.3 of the Supply Agreement
without giving effect to this Amendment. Subject to the foregoing, to the extent
that any provisions of the Supply Agreement and any provisions of this Amendment
are in conflict, the provisions of this Amendment shall govern. In the event any
one or more of the provisions contained in this Amendment or any instrument
entered into in connection herewith is for any reason held to be invalid or
unenforceable in any respect, that event shall not affect any other provision of
this Amendment or such other instrument.
7. This Amendment shall be governed by, and construed and enforced in
accordance with, the substantive laws of the State of California, without regard
to its principles of conflicts of laws.
8. This Amendment shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, legal
representatives and heirs.
9. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which take together shall
constitute one and the same instrument.
22
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first written above.
NOVATEL WIRELESS, INC.
/s/
--------------------------------
By:
-----------------------------
Its:
----------------------------
OPENSKY CORPORATION
/s/
--------------------------------
By:
-----------------------------
Its:
----------------------------
23
EXHIBIT A
SCHEDULE OF PAYMENT AND DELIVERY
***
** Buyer shall pre-pay in full for any forecasted bi-monthly
quantity 30 days prior to delivery into the Novatel Distribution Facility in
Calgary, Canada with respect to any shipments scheduled for delivery on or
before December 31, 1999 in accordance with Sections 1.2 and 1.4 of this
Agreement.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
24
ANNEX D
PRODUCT SPECIFICATIONS
DESCRIPTION
***
DIMENSIONS
***
MODEM FEATURES
***
BUILT-IN FEATURES
***
POWER SUPPLY
***
TEMPERATURES
***
POWER REQUIREMENTS
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
1
March 15, 2000 EXHIBIT 10.14
Christopher Ciervo
Symbol Technologies, Inc.
1 Symbol Plaza
Hotsville, NY 11742-1300
Dear Chris:
Here are the terms we have discussed for the supply of CDPD modems in your
application.
1. Novatel Wireless Inc. ("Novatel") agrees to supply the Merlin
OEM CDPD modem, as well as Ricochet II, GPRS, GSM EDGE and CDMA
technologies to Symbol Technologies, Inc. ("Symbol").
2. This agreement shall run from July 1, 2000 through June 30, 2002.
3. Novatel agrees to supply the CDPD modems to Symbol at a unit
price not to exceed $139 US or at ***, whichever is lower. For
GPRS, Ricochet II, GSM EDGE and CDMA technologies, Symbol's
cost will be ***.
4. Symbol agrees to purchase a total of *** or *** from Novatel over the
*** of the agreement. If Symbol does not meet this commitment ***, and
does not integrate another CDPD modem solution, Symbol will not be
liable for any monetary penalty.
5. If Symbol chooses to utilize another CDPD modem vendor for reasons other
than under performance of Novatel's hardware, software or record in
meeting agreed delivery dates, Symbol will make payments equaling *** on
any outstanding forecast volumes.
6. The per unit price as set forth includes the communications board made
up of the 0.6-Watt CDPD radio modem, top and bottom shield covers of
metal-plated plastic, and a 50ohm RF connector for antennae connection.
7. Symbol shall provide a 12-month rolling forecast to Novatel
Wireless. The following changes to the quantity forecasts will
be allowed:
-----------------------------------------------------------------------
TIME LINE STOCKING AGREEMENT
-----------------------------------------------------------------------
*** ***
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*** ***
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8. All prices are FOB Novatel's facility in Carlsbad, CA. All prices
include normal packing for domestic shipment. All duty, insurance,
special packing costs and expenses, and all Federal, Provincial, State
and local excise, sales, use and other similar taxes are for Customer's
account and will appear as additional items on invoices.
9. Warranties shall be defined in Schedule "A".
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
-1-
2
10. Novatel Wireless may, at its discretion, implement changes in
the Product, modify the drawings and its specifications, or
substitute a Product of more recent design; provided, however,
that any such changes, modifications or substitutions, under
normal and proper use shall not materially and adversely affect
functional performance, form or fit of the product. Novatel
Wireless agrees to use reasonable efforts to provide Customer
with 30 days written notice of such changes.
11. Neither party shall be liable for any loss or damage due to delays in
its delivery or performance, for its failure to manufacture, deliver or
perform, arising out of any cause beyond its reasonable control.
12. Customer shall not assign this Agreement or any of its rights or
obligations under this Agreement without the prior written consent of
Novatel Wireless.
13. This agreement represents the business intent of both parties,
and will be replaced by a formal agreement 30 days after
execution.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
NOVATEL WIRELESS INC. SYMBOL TECHNOLOGIES INC.
/s/ ROBERT COREY /s/ RON GOLDMAN
- ---------------------------- ----------------------------------
Robert Corey Ron Goldman
President and CEO Vice President and General Manager
-2-
3
SCHEDULE "A"
Warranties
1. Novatel Wireless warrants for a period of 1 year from delivery
at the FCA point that its Products are free from defects in
material and workmanship, conform to Novatel Wireless
specifications and that the software shall be free from errors
which materially affect performance. THESE WARRANTIES ARE
EXPRESSLY IN LIEU OF ALL OTHER WARRANTIE3S, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRRANTEIS OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NOVATEL
WIRELESS SHALL IN NO EVENT BE LIABLE FOR SPECIAL, INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, OF ANY KIND OR NATURE DUE
TO ANY CAUSE.
2. Novatel Wireless' obligations are limited to correction of such failure,
by implementation of the module swap warranty procedure whenever
practicable and are conditioned upon the Product having been maintained
in accordance with Novatel Wireless specifications and the Product not
having been modified by any party other than Novatel Wireless except as
expressly permitted in writing.
3. The foregoing warranties do not extend to (i) non-conformities,
defects or errors in the Product due to accident, abuse, misuse
or negligent use of the Product or use in other than a normal
and customary manner, environmental conditions not conforming
to Novatel Wireless' specifications, or failure to follow
prescribed operating maintenance procedures, (ii) defects,
errors or non-conformities in the Product due to modifications,
alterations, additions or Product changes not made or
authorized to be made by Novatel Wireless, (iii) normal wear
and tear, or (iv) damage caused by force of nature or act of
yany third party.
A-1
1
EXHIBIT 10.15
AGREEMENT FOR PURCHASE AND SALE
OF
NOVATEL WIRELESS INC. MOBILE TERMINAL UNITS
BETWEEN
NOVATEL WIRELESS INC.
AND
VOICESTREAM WIRELESS CORPORATION
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
2
TABLE OF CONTENTS
1 DEFINITIONS.............................................................................1
2 PURCHASES AND SCOPE OF SUPPLY...........................................................4
2.3 PERSONS AUTHORIZED TO PURCHASE; SUPPLY OF DELIVERABLES AND PURCHASE ORDERS...........4
2.5 TECHNICAL INTERFACE..................................................................4
2.6 POINT-OF-SALE PACKAGING..............................................................5
2.13 CO PRODUCTS..........................................................................7
2.8 PRODUCT TEST INSTRUMENTATION.........................................................7
2.9 ACCESSORIES..........................................................................7
2.12 UPDATE TO CHANGED STANDARDS..........................................................8
2.15 MINIMUM HANDSET PROCUREMENT..........................................................8
2.14 ALLOCATION OF PRODUCTION.............................................................9
2.18 EMBEDDED PERMITTED SYSTEM RESTRICTION; PRE-LOADED SIM................................9
2.19 RESALE BY BUYER.....................................................................10
2.20 SOFTWARE LICENSE....................................................................10
2.21 DATABASE............................................................................10
2.22 COUNTRY OF ORIGIN...................................................................10
2.23 BATTERY RECYCLING...................................................................10
2.24 ADVERTISING DISPLAY MATERIAL........................................................10
3 CUSTOMER REPRESENTATIVE................................................................11
3.1 PROGRAM MANAGER REQUIRED............................................................11
3.3 REPORTING AND MEETINGS..............................................................11
4 PRICES.................................................................................11
5.1 PRICE LIST; CHANGES AS NEW PRODUCTS ARE INTRODUCED..................................12
5.2 MOST FAVORED CUSTOMER...............................................................13
5.7 TAXES AND OTHER CHARGES.............................................................14
5 INVOICING AND TERMS OF PAYMENT.........................................................14
6.2 INVOICE UPON SHIPMENT...............................................................14
6.5 PAYMENT.............................................................................14
6.6 PAST DUE PAYMENTS...................................................................14
6.7 AMOUNTS IN DISPUTE..................................................................14
6 SELLER ADVERTISING ACCOUNT.............................................................14
7 TRADEMARKS AND LOGOS...................................................................15
9.1 BUYER'S LOGO ON PRODUCTS; ADVANCE CONSENT OF BUYER FOR OTHER LOGOS..................15
9.2 ARTWORK AND REPRODUCTION............................................................15
10.8 INABILITY TO MEET REQUIRED DELIVERY DATE............................................18
10.10 FAILURE TO MEET REQUIRED DELIVERY DATE............................................18
10.10 RIGHT TO COVER....................................................................18
10.12 DISCREPANCIES.....................................................................19
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10.15 MODIFICATIONS TO PURCHASE ORDER....................................................19
4.1 ACCEPTANCE TEST PROCEDURE TO BE DEFINED.............................................20
4.2 REGULATORY..........................................................................20
4.7 ISO 9000 COMPLIANCE; AUDITS.........................................................20
4.4 COMMERCIAL TEST PROCEDURES MARKET VERIFICATION TEST.................................21
4.6 SAMPLE TESTING......................................................................21
12.2 EXTENDED TERM FOR CERTAIN PROVISIONS................................................23
11. TITLE AND RISK OF LOSS...............................................................23
12 PRODUCT SUPPORT.......................................................................23
14.1 TRAINING SUPPORT....................................................................23
14.2 TECHNICAL SUPPORT...................................................................24
14.3 DOCUMENTATION.......................................................................24
14.4 SURVIVAL AND EXTENDED TERM..........................................................25
13 WARRANTY AND SERVICE REPAIR...........................................................26
4.3 INTER-OPERABILITY TESTING...........................................................26
2.4 COMPLIANCE..........................................................................26
11.1 RETURN OF DEFECTIVE PRODUCTS........................................................28
16.3 SURVIVAL AND TERM...................................................................29
14 TERMINATION; LIMITATION OF LIABILITY..................................................29
17.1 DEFAULT.............................................................................29
17.3 BANKRUPTCY..........................................................................29
17.4 LIMITATION OF LIABILITY.............................................................30
17.6 RIGHTS OF PARTIES UPON TERMINATION BY SELLER........................................31
15 CONFIDENTIALITY.......................................................................31
18.1 CONFIDENTIAL INFORMATION DEFINED....................................................31
18.2 EXCEPTIONS..........................................................................32
18.3 SURVIVAL............................................................................32
16 FORCE MAJEURE.........................................................................32
19.1 FORCE MAJEURE.......................................................................32
19.3 BUYER'S RIGHT TO TERMINATE FOR FORCE MAJEURE........................................33
19.4 SELLER'S RIGHT TO TERMINATE FOR FORCE MAJEURE.......................................33
17 PRODUCT LIABILITY INDEMNIFICATION.....................................................33
18 INTELLECTUAL PROPERTY INDEMNIFICATION.................................................33
19 DISPUTE RESOLUTION....................................................................34
22.1 INTERNAL ESCALATION.................................................................34
22.2 MEDIATION...........................................................................35
22.3 ARBITRATION OF DISPUTES.............................................................35
22.4 CONTINUE TO PERFORM.................................................................36
20 NON-EXCLUSIVE AGREEMENT...............................................................36
21 INSURANCE.............................................................................36
24.1 SELLER TO MAINTAIN..................................................................36
24.3 LEVEL OF INSURANCE..................................................................37
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24.4 CERTIFICATES OF INSURANCE...........................................................37
24.5 NO WAIVER...........................................................................37
22 ASSIGNMENT............................................................................37
25.1 CONSENT REQUIRED....................................................................37
25.2 INVALID WITHOUT COMPLIANCE..........................................................37
25.3 ASSIGNS.............................................................................38
23 NOTICES...............................................................................38
24 PUBLICITY.............................................................................38
25 COMPLIANCE WITH LAWS; GOVERNING LAW...................................................39
26 WAIVERS OF DEFAULT....................................................................39
27 AMENDMENTS............................................................................39
28 ORDER OF PRECEDENCE...................................................................39
29 HEADINGS..............................................................................40
30 SEVERABILITY..........................................................................40
31 SURVIVAL..............................................................................40
32 LICENSE...............................................................................40
33 PARTY RELATIONSHIP....................................................................40
35 COUNTERPARTS..........................................................................41
39.1 INCORPORATION.......................................................................41
37 ENTIRE AGREEMENT......................................................................41
ATTACHMENT A-1 PRODUCT 1 -- GPRS - PCS PC CARD..........................................44
ATTACHMENT A-2 PRODUCT 2 -- GPRS - PCS PC CARD 8-SLOT...................................46
ATTACHMENT A-3 PRODUCT 3 -- GPRS - GSM/PCS PC CARD 900/1900.............................48
ATTACHMENT B DATES FOR COMPLETION OF ATTACHMENTS.........................................50
ATTACHMENT C PRICES......................................................................51
ATTACHMENT D SAMPLE TESTING PROTOCOL.....................................................53
ATTACHMENT E ACCEPTANCE TEST PROCEDURE..................................................56
PENDING..................................................................................56
ATTACHMENT F WARRANTY....................................................................57
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ATTACHMENT G DATABASE FORMAT.............................................................58
ATTACHMENT H ADVERTISING DISPLAY MATERIAL................................................59
ATTACHMENT I RETURN POLICY...............................................................60
ATTACHMENT J GPRS DEVELOPMENT SCHEDULE..................................................61
LEVEL ONE TECHNICAL SUPPORT..............................................................63
LEVEL TWO TECHNICAL SUPPORT..............................................................63
TECHNICAL SUPPORT TRAINING...............................................................64
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LIST OF CONTRACT ATTACHMENTS
ATTACHMENT DESCRIPTION
Attachment A-1 Description of Product 1 (specifications)
Attachment A-2 Description of Product 2 (specifications)
Attachment A-3 Description of Product 3 (specifications)
Attachment B Dates for Completion of Attachments
Attachment C Prices
Attachment D Sample Testing Protocol
Attachment E Acceptance Test Procedure
Attachment F End-user warranty
Attachment G Database Format
Attachment H Advertising Display Material
Attachment I Return Policy
Attachment J GPRS Development Schedule
Attachment K Technical Support
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AGREEMENT FOR PURCHASE AND SALE
OF
NOVATEL WIRELESS INC. GPRS MOBILE TERMINAL UNITS
THIS AGREEMENT FOR PURCHASE AND SALE OF NOVATEL WIRELESS INC. MOBILE TERMINAL
UNITS (the "Agreement"), is made and effective as of the __ day of March, 2000,
by and between VoiceStream Wireless Corporation, a Delaware corporation with its
principal place of business in Bellevue, Washington ("Buyer"), and Novatel
Wireless Inc., a Delaware corporation, with its principal place of business in
San Diego, California ("Seller").
RECITALS
A. Buyer has received authority from the FCC (as defined herein below) to
construct and operate PCS (as defined herein below) networks in certain
areas within the jurisdiction of the United States and may receive
authority to operate additional such systems.
B. Seller has offered to sell to Buyer and Buyer wishes to buy the wireless
communications subscriber devices and accessories described herein at
the prices and discounts and on the terms and conditions specified
herein .
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties, intending to
be legally bound, agree as follows:
1 DEFINITIONS
The capitalized terms used in this Agreement or in an Attachment to this
Agreement have the meanings set forth below:
AFFILIATE means any partnership, corporation or other entity in which Buyer owns
a fifteen percent (15%) or greater equity interest or any entity
controlling, controlled by or under common control with Buyer, which
operates or is authorized to operate a Cellular System or PCS system in
North America including the Caribbean Islands.
ANNUAL FORECAST means that annual forecast of Buyer's purchase volume only,
updated monthly, supplied by Buyer to Seller, as more specifically
described in Section 8.1.
AUTHORIZED PURCHASER means Buyer's selected, dealers, and agents, GSM network
operators, retail stores, distribution centers, third party warehouses,
and those other third party
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dealers with whom Buyer has a relationship at the time of such third
party's contracting with Seller for the purchase of Handsets.
BTA means Basic Trading Area, a geographic area designated by the Federal
Communications Commission for the purpose of granting authorizations to
construct and operate PCS networks.
COMMERCIAL PRODUCTS means that Products have passed the testing process defined
in Section 9, have received any necessary regulatory approvals, and is
ready in all respects for public sale.
COMMERCIAL TEST PROCEDURES (CTP) means that test procedure, as provided in
Section 9 and elsewhere, for Commercial Products.
CONFIDENTIAL INFORMATION means information that the parties are obligated to
protect as more fully provided in Section 15.
END-USER means the owner or user of a Handset (i.e., the person who buys and
uses a Product).
FCC OR FEDERAL COMMUNICATIONS COMMISSION means the agency of the United States
Government charged with authorizing PCS networks, currently the Federal
Communications Commission, or its successor agency.
HANDSET(s) means a mobile station in the PCS service intended to be used while
in motion or during halts at unspecified points and conforming to the
PCS 1900 specifications, as appropriate. Handsets include handheld
portable units and units installed in vehicles. Handsets shall also
include data-only or voice and data subscriber equipment products
designed for use with computer devices, and includes the PCS cards
described on Attachments A-1 through A-3 and such other attachments upon
which the parties may subsequently agree in writing and attach to this
Agreement.
INTELLECTUAL PROPERTY CLAIM (IP CLAIM) means a claim involving Buyer's or
Seller's intellectual property rights, as more fully described in
Section 19.
INVENTORY means all Products owned and held by Buyer or its Authorized
Purchasers for resale or use.
MINIMUM PURCHASE TERM means that 12-month period of time (i) commencing on the
date of delivery from Seller of the first Commercial Products purchased
and accepted by Buyer.
MTA means Major Trading Area, a geographic area designated by the Federal
Communications Commission for the purpose of granting authorizations to
construct and operate PCS networks. References to MTAs shall include
BTAs.
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PERSONAL COMMUNICATIONS SERVICE ("PCS") means a system authorized by the FCC to
provide public correspondence using cellular radio techniques and
operating in the frequency band 1850 MHz to 1910 MHz and 1930 MHz to
1990 MHz.
PRODUCTS means the Handsets and accessories identified in Attachments A-1
through A-3 hereto, including related documentation as the same may be
modified, added or discontinued during the Term (where the addition,
modification or discontinuance is in accordance with this Agreement) and
available for purchase by Buyer or otherwise supplied to Buyer under
this Agreement.
PROTOTYPE PRODUCT means an engineering version of a Product that is not a
Commercial Product, capable of demonstrating size, weight, feel and some
basic functionality (e.g., the ability to place/receive voice telephony
calls, of the final Product). Prototype Products are not necessarily
produced with production tooling nor do they necessarily have final
production software. Prototype Products are built in limited volumes,
primarily for engineering design validation purposes, and may include
Alpha (first generation) and Beta versions..
PURCHASE ORDER means Buyer's order to Seller for specific Products, as more
fully described in Section 8.
SECTION means, when used without any other reference, sections, including
subsections, within this Agreement.
SOFTWARE means (a) all computer software furnished hereunder for use with
Products including, but not limited to, computer programs contained on a
magnetic or optical storage medium, in a semiconductor device, or in
another memory device or system memory consisting of (i) hardwired logic
instructions which manipulate data in central processors, control
input-output operations, and error diagnostic and recovery routines,
(ii) instruction sequences in machine-readable code that control call
processing, peripheral equipment and administration and maintenance
functions; and (b) documentation furnished hereunder for use and
maintenance of the Software.
SPECIFIED SHIPPING DATE means the date, as shown in a Purchase Order or
otherwise, upon which Buyer requests shipping of certain Products, as
more fully described in Section 8.
SUBSCRIBER IDENTITY MODULE (SIM) means mean an electronic module, either in the
form of an integrated circuit "smart card" or otherwise, that contains
personalization information concerning a user and is intended to be
inserted in and removed from a SIM reader in Handset Products.
TERM means, unless sooner terminated subject to section 14, the initial three
(3) year duration of this Agreement commencing on the date that it is
completely executed by the parties, which initial term shall be extended
for additional one-year terms unless, ninety (90) days before the
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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expiration of the initial or any other term, one party gives written
notice to the other of non-renewal.
2 PURCHASES AND SCOPE OF SUPPLY
2.1 PERSONS AUTHORIZED TO PURCHASE .
2.1.1 PERSONS PERMITTED TO BUY PRODUCTS. This Agreement
contemplates purchases by Buyer, its Affiliates, and its
Authorized Purchasers, all sometimes collectively referred
to as "Permitted Purchasers."
2.1.1.1 BUYER AND AFFILIATES. Buyer is permitted to
purchase under the terms and conditions
applicable to Buyer on its own account or for its
Affiliates and Authorized Purchasers.
2.1.1.2 AUTHORIZED PURCHASERS. To simplify administration
of purchases by Affiliates and Authorized
Purchasers, unless otherwise agreed by the
parties, each Affiliate or Authorized Purchaser
may enter into a separate contract with Seller
consistent with Seller's obligations to provide
to such Affiliate or Authorized Purchaser
identical pricing and substantially and
materially the same terms and conditions provided
to Buyer herein
2.1.2 Nothwithstanding the foregoing, Buyer has no
responsibility for payments of obligations incurred by any
other purchaser. Seller shall not seek payment from Buyer
for any sums owed by any purchaser except Buyer.
2.1.3 EXCLUSIVE PURCHASES. Nothing in this Agreement shall
require Buyer, or any other Permitted Purchasers, to
purchase exclusively from Seller.
2.14 CREDITWORTHINESS. For any Permitted Purchaser other than
Buyer, Seller may establish commercially reasonable,
non-discriminatory credit (and other) qualifications as a
pre-condition to sales. Seller shall provide written
notice to Buyer of any proposed disqualification.
2.2 TECHNICAL INTERFACE.
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2.2.1 INFORMATION REQUIRED. Within forty five (45) days from the
effective date hereof, Seller shall provide Buyer with
detailed information concerning the diagnostic and
monitoring capabilities, operating software
specifications, and detailed product specifications of
Products, except information Seller reasonably considers
proprietary or confidential. The information to be
provided by Seller to Buyer shall also include the
electrical interface specifications and the data flow
specifications. All such information provided by Seller
shall be sufficient enough to permit Buyer to use and
maintain the Products as test equipment and to effectively
test the Products in Buyer's network. As new Products are
developed or as the electrical interface or data flow
specifications are changed, Seller shall timely supply
updated information to Buyer, except information Seller
reasonably considers to be proprietary or confidential.
The information supplied shall include instruction on how
to place Products into diagnostic or monitor mode and, if
hardware or Software components are necessary, Seller
shall supply Buyer, without charge, with a quantity of
such components sufficient for Buyer's reasonable
requirements. The diagnostic and monitoring information to
be provided by Seller shall include specific
diagnostic/monitoring testing features on PCS 1900
equipment. If unique or proprietary connecting cables are
necessary to communicate with the Product when in
diagnostic or monitor mode, Seller shall furnish Buyer
with a reasonable quantity of such cables, without charge.
2.2.2 USE OF INFORMATION. Seller hereby grants to Buyer a
royalty-free license to use the information described in
2.2.1 for Buyer's purposes in constructing, testing,
maintaining, using, and operating the Products. Seller
shall develop sample software demonstrating interfaces and
communications with the Product in diagnostic or monitor
mode and Seller shall supply, without charge, copies of
same, including sample source code (i.e., sample AT
command script), to Buyer for Buyer's use. Buyer shall
have the right to incorporate Products in this
configuration into its test equipment for testing the
Products, including the right to transfer information
furnished under this Section 2.2.2 to third parties to
develop test equipment for Buyer or to develop such test
equipment directly. Seller shall not charge Buyer or any
such third party any royalty or other similar charge where
the test equipment so developed is used for Buyer's
purposes testing the Products.
2.3 POINT-OF-SALE PACKAGING.
Seller shall use EAN 328, "3 of 9", or Universal Product Code
("UPC") stock control numbering ("SKU") markings or other
customer-specific bar code markings and human readable format on
the outside of the point-of-sale package
5
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for each of the packaging options described below. Seller shall
provide information to Buyer concerning Seller's bar coding and
serial number coding for Products, sufficient to permit Buyer to
properly electronically read Seller's bar coding and to be able
to monitor and track Products received. Invoices and shipping
notices shall include electronic copies of serial numbers and
other information reasonably needed by Buyer to track and control
inventory.
Buyer shall select, from time-to-time, its desired packaging
format from among the options described below, subject to the
limitations established therein. In the event that Buyer wishes
to change its desired packaging format, Buyer and Seller shall
agree upon the lead time necessary to effect such change, Buyer
shall provide Seller with Notice of its desire to change
packaging format as soon as possible (but no less than 90 days
before the format change is desired), and Seller shall use
reasonable efforts to afford the shortest lead time possible.
2.3.1 SELLER-LABELED BOX. The Product is packaged and shipped in
Seller's standard size rectangular box labeled with
Seller's trade name.
2.3.2 GENERIC BOX. The Product is packaged and shipped in
Seller's standard size rectangular box without any labels,
in a plain white cardboard format. In the event that any
labels, packaging or identifying marks are intended to be
attached to, or wrapped around such box, and Buyer uses
its transparent packaging, Seller shall design the Product
so that the "Novatel Inc." logo will be visible to the End
User.
2.3.3 BULK-SHIP. The Product is shipped in a bulk package,
without individual packages for each unit of Product.
Buyer has the obligation to arrange for individual unit
packaging. In the event that any labels, packaging or
identifying marks are attached to, or wrapped around any
individual unit packaging, and Buyer uses its transparent
packaging, Seller shall design the Product so that the
"Novatel Inc." logo will be visible to the End User.
2.3.4 CUSTOM PACKAGE. The Product is packaged and shipped in
Seller's standard size rectangular box with Buyer's
artwork and inserts (Commercial Product packaging). Buyer
shall provide the necessary artwork in such format and
upon such schedules as may be reasonably agreed by the
parties. The parties shall agree upon a
commercially-reasonable minimum order for such custom
packaging. In the event that the cost for producing and
shipping such a custom package exceeds Seller's cost to
produce and ship its Seller-labeled box, Buyer shall pay
that excess amount upon Seller's providing such
documentation as Buyer may reasonably require.
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2.3.5 PACKAGE INSERTS. With respect to the packaging performed
in sections 2.3.1, 2.3.2, and 2.3.4, Seller shall, without
charge to Buyer, insert into each point-of-sale package up
to four (4) pieces of Buyer-provided materials such as,
but not limited to, promotional materials and Buyer's
service provider information. Buyer's promotional
materials and information may be different for different
models of Products and may differ geographically, which
would require different SKU's for each package
configuration, but they shall be designed to fit within
the point of sale packaging with the Product, without
significantly increasing the packaging costs. Seller shall
ensure that the proper materials and information are
inserted into the corresponding Commercial Product
packaging and are delivered to the corresponding
geographical regions.
2.4 CO-BRANDED PRODUCTS.
2.4.1 CO-BRANDED PRODUCTS. Buyer may wish to receive all or part
of its orders in the form of co-branded Products in such
form as Buyer shall direct in advance, whereby Buyer's
name appears on the Product in addition to Seller's name
(such Products being referred to as "Co-Branded
Products"). Such Co-Branded Products may be in slightly
different form, different color, etc. as may be mutually
agreed by Buyer and Seller. Co-Branded Products shall be
available to Permitted Purchasers to the extent determined
and permitted in writing by Buyer. Seller's logo shall
also appear on Co-Branded Products.
2.4.2 PRICES FOR CO-BRANDED PRODUCTS.
2.4.2.1 ***
2.4.2.2 *** the *** charge for a Co-Branded Product shall
be based upon ***. Seller shall document its
incremental expenses and present the
documentation to Buyer. Notwithstanding anything
to the contrary contained in the preceding
sentences, the parties may mutually agree upon a
commercially reasonable charge for custom
manuals, documentation or other similar changes
from Seller's standard practices. ***" Seller's
charges for packaging of a Co-Branded Product are
to be determined consistent with this Section
2.4.
2.5 PRODUCT TEST INSTRUMENTATION. ***, beginning when the first
Commercial Products are delivered, Seller shall provide Buyer
with current Software and shall continue to provide current
updated Software subject to the terms of this Agreement.
2.6 ACCESSORIES. Seller will include a standard set of accessories
with each Handset as identified and set forth in Attachment A-1
through Attachment A-3, including, at
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
7
14
a minimum, antenna, headpiece/earset, user guide and necessary
device driver software supplied on computer readable media (i.e.
CD-ROM). In addition, Seller will offer a set of optional
accessories available *** as identified in Attachment C, which
shall be updated from time to time as mutually agreed to by the
parties.
2.7 UPDATE TO CHANGED STANDARDS. The parties recognize that the PCS
1900 technology is still undergoing development and that
Commercial Products may require post-production modification to
meet changes in the various standards governing such Commercial
Products.
2.7.1 Seller agrees to provide to Buyer, ***, all Software
necessary to update any Products provided under this
Agreement to meet standards changes relevant to the
Product, where such standards change becomes effective
within *** from the date of delivery of the Product to the
End-User and (i) where, without the update, use of the
Product would be significantly impaired; or (ii) where the
update is necessary to remove a safety risk to users of
the Product; or (iii) where the update is necessary in
order to continue the safe, efficient and economic
operation of Buyer's network; or (iv) where the change is
required by operation of federal, state, local, or
international law or regulation.
2.7.2 Further, Seller agrees to provide to Buyer, ***, any
Software necessary to update any Products provided under
this Agreement to meet standards changes relevant to such
Products where such standards changes become effective
within *** from the date of delivery of the Products to
Buyer and where, without the update (i) there would be a
material degradation in the operation of significant
features of the Products available to End-Users prior to
such standards changes and such material degradation
occurred with respect to a material number of Products, or
(ii) there would be a material degradation in the
operation of the network.
2.7.3 Notwithstanding anything to the contrary contained herein,
Seller shall comply with the final order of any court or
administrative body with respect to any required
modification of any Product.
2.8 MINIMUM PRODUCT PROCUREMENT. ***
2.8.1 RECORDS AND REPORTS. Seller shall maintain records
sufficient to accurately determine the actual purchase
volume credited to Buyer. Not later than thirty (30) days
after the end of each preceding month, Seller shall
prepare and provide to Buyer a report of qualifying
purchases and credits toward purchases (if appropriate)
for the preceding month. The report shall be furnished in
both paper and electronic versions. Seller shall certify
the accuracy of the report by signature of an appropriate
officer of Seller. The report shall be categorized by
identity of purchaser
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
8
15
(Buyer,Affiliates, Authorized Purchasers) and model of
Product purchased or credits toward purchases made, and
the report shall indicate the unit volume of purchases
qualifying for aggregation in each category.
2.8.2 CONTINUE TO DEVELOP COMPETITIVE PRODUCTS. Buyer's guaranty
to purchase the Minimum Purchase Quantity is conditioned
upon Seller's ability to continue to supply
state-of-the-art Products that are readily accepted by the
marketplace.
2.9 ALLOCATION OF PRODUCTION. In the event that Seller is unable to
meet its orders for Products as set forth in Purchase Orders that
have been accepted by the Seller, and without derogation of
Buyer's other remedies under this Agreement, Seller grants Buyer
***. Buyer shall retain this right of first refusal until Buyer
has met its Minimum Purchase Quantity commitment, or the Minimum
Purchase Term has expired, whichever is earlier. Buyer's right of
first refusal shall apply to purchases by Affiliates and
Authorized Purchasers.
2.10 EMBEDDED PERMITTED SYSTEM RESTRICTION; PRE-LOADED SIM.
2.10.1 EMBEDDED PERMITTED SYSTEM RESTRICTION. All Co-Branded
Handset Products sold to Permitted Purchasers shall be
configured with embedded software so as to function only
with a SIM supplied by Buyer or, as provided in Section
2.10.2, by Seller, unless otherwise specifically requested
by Buyer. Handsets shall be inoperable, except for
emergency calls, using a SIM for a network other than
Buyer's. Roaming operation with Buyer's network as the
subscriber's home system shall be unaffected by this
restriction. Such restriction shall be removable only
through an input key sequence unique to each individual
Handset (i.e., a common un-restriction code for all
Handsets of a particular model is not acceptable).
Following removal, the Handset shall operate with any SIM.
The removal key sequence shall be supplied to Buyer in an
electronic database, indexed by the serial number of the
Handset or other unique identifier agreed to by Buyer. The
removal key sequence shall not be supplied to any other
Permitted Purchaser or to the users of Handsets without
the written consent of Buyer on a case-by-case basis.
2.10.2 PRE-LOADED SIM; PRE-PAID SIMS. Buyer intends that all
Handsets sold to Permitted Purchasers shall have a SIM
configured for Buyer's network pre-installed unless
otherwise directed by Buyer. The parties shall negotiate
the method of effecting Buyer's intention, recognizing the
need for security in the SIM configuration and the need to
accomplish installation in a cost-effective fashion. The
installation method may involve Buyer supplying configured
SIMs to Seller for installation. In those instances where
Seller is to install SIMs, the compensation to be
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
9
16
paid to Seller shall be as set forth in Attachment C.
Where the parties agree that Seller is to assume
responsibility for installing SIMs, information concerning
the SIM and International Mobile Equipment Identity
("IMEI"), etc., shall be provided to Buyer in a mutually
agreed electronic form. ***. Seller agrees that it will
implement reasonable and prudent safeguards to protect all
SIMs over which it has custody. In connection therewith,
no less frequently than once per calendar quarter, Seller
shall provide Buyer with a detail inventory report and
proper accounting of SIMs provided to Seller hereunder.
Seller agrees promptly to implement pre-paid SIM support
in its Handsets upon completion of pre-paid SIM standards.
2.11 RESALE BY BUYER. Buyer shall have the right to resell Products
upon the prices and terms and conditions to be determined by
Buyer. Seller shall honor the warranty and other obligations
imposed in this Agreement with respect to any Affiliate,
Authorized Purchaser, or End User to the same extent required for
a direct sale by Seller.
2.12 SOFTWARE LICENSE. Subject to the limitations set forth elsewhere
in this Agreement, at no charge to Buyer, Seller hereby grants to
Buyer and its End Users a nonexclusive license to use Software
associated with Products delivered to Buyer.
2.13 DATABASE. Seller shall provide electronic format data concerning
each Handset Product shipped, in the format and on the dates set
forth in Attachment G. The form of data and its media may be
changed from time-to-time by mutual agreement of the parties.
2.14 COUNTRY OF ORIGIN. Upon request by Buyer, Seller shall provide
Buyer with evidence of country of origin of Products, including
the usual and customary certificates of country of origin, signed
by an appropriate authorized official of Seller.
2.15 BATTERY RECYCLING. If Seller's Products contain separate
batteries or batteries replacable by End-Users, Seller shall
establish a "used battery return program," whereby Buyer and
End-Users of Seller's Products may obtain information on
recycling used batteries through a nationwide toll-free "800"
telephone number. Information concerning this program shall be
included in the user information supplied with Products and
replacement batteries.
2.16 ADVERTISING DISPLAY MATERIAL. Seller shall create the normal and
customary point-of-sale display material, product brochures,
dummy Handsets, etc. and furnish reasonable quantities of the
same to Permitted Purchasers at the prices set forth in
Attachment C. Seller shall cooperate with Buyer in producing this
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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material and, upon request by Buyer, add reasonable Buyer-defined
information to the point-of-sale material. Reasonable quantities
of the sales material described in Attachment H will be provided
by Seller to Buyer without charge. Such quantities shall be
consistent with those quantities offered to other customers of
Seller under similar circumstances.
3 CUSTOMER REPRESENTATIVE
3.1 CUSTOMER REPRESENTATIVE. No more than 30 days subsequent to the
effective date hereof, Seller shall identify a customer
representative (the "Customer Representative") to whom it shall
delegate such authority within Seller's organization as is
necessary for proper discharge of the duties and obligations set
forth in this Agreement. By illustration and not limitation, the
Customer Representative shall provide timely information to Buyer
concerning development, testing and manufacturing schedules, test
procedures, test execution, shipping and delivery schedules,
manufacturing of co-branded or other custom Products,
specifications, features and functions, inter-operability, and
other related matters. The Customer Representative shall be
Buyer's primary point of contact for all issues arising from the
implementation and execution of the terms and conditions of this
Agreement.
3.2 UPDATE MEETINGS. The parties shall meet not less than once every
calendar quarter to review Buyer's needs for Products, and
discuss new Products (such meeting being referred to as an
"Update Meeting"). At least thirty (30) days prior to each Update
Meeting, Buyer shall submit to Seller a written, proposed agenda,
outlining the development issues Buyer would like addressed by
Seller. Seller shall review such proposed agenda and will provide
an update to Buyer on any such issue where Seller has provided,
or is willing to provide, an update to any customer or other
third party. Further, at each Update Meeting, Seller will provide
to Buyer an update on the status of the development of any
features Seller anticipates will be launched within the
forthcoming two (2) years, provided that Seller has disclosed, or
is willing to disclose, such information to any customer or other
third party. Buyer agrees that certain of this information may be
Confidential Information and shall be treated as such in accord
with the terms of this Agreement.
4 PRICES
4.1 ***
4.2 ***. Subject to the terms and conditions set forth in Section 8,
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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4.2.1 In the event that Seller fails for any reason to develop
and deliver any of the Commercial Products listed on Attachments
A-1, A-2, or A-3 within the time periods previously agreed upon
by the parties, then ***
4.3 PRICE LIST; CHANGES AS NEW PRODUCTS ARE INTRODUCED. The prices
for the Products as set forth in Attachment C are ***. If Seller
implements changes in the Products, modifies the drawings and
specifications relating thereto, or substitutes therefor products
of more recent design through proposed amendments to Attachments
A-1 through A-3 or the addition of a new Attachment, in addition
to any other requirements provided in this Agreement, any
changes, modifications or substitutions must comply with each of
the following requirements with respect to changes to existing
Products or new Products intended as replacements for existing
Products:
4.3.1 INTERCHANGEABILITY. Where the new or changed Product is
intended to be physically interchangeable with an existing
Product, such new or changed Product must not adversely
affect physical or functional interchangeability with
existing Products or performance, unless otherwise agreed
in writing by Buyer.
4.3.2 PRICE. The price for an equivalent Product (i.e., with
similar form including size and weight, features,
functionality and accessories) must be ***.
4.3.3 ADVANCE NOTICE.
4.3.3.1 Seller will provide Buyer with advance written
notice of any substantial change, modification
substitution, or discontinuance, including notice
of Seller's intention to change the Product's
price as set forth in section 4.3.2. Except where
unplanned and immediate market changes make such
notice impracticable, the notice shall be given
at least ninety (90) days in advance of the
effective date of the change, modification or
substitution, except that notice of Seller's
intention to change the Product's price shall be
given at least thirty (30) days in advance of the
effective date of the change. Should Seller not
have made its final pricing decisions at the date
of notice, Seller shall provide Buyer with
Seller's estimated prices *** and shall furnish
the final price information to Buyer not later
than thirty (30) days in advance of the effective
date. In the event that Seller has failed to
provide the required advance written notice, then
Buyer may, at its option, return all unsold
inventory of the Products to which the price
change applies and receive a credit from Seller
in the amount paid by Buyer for the
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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returned products. The price for any Product that
has not been shipped as of the effective date of
the price change shall be deemed to be restated
at the new, lower amount.
4.3.4 ACCESSORY COMPATIBILITY. Where a new Product is
introduced, Seller shall ensure that, to the greatest
extent reasonably feasible, the new Product is
plug-compatible with older Products for accessories. It is
not Buyer's intention to limit Seller's ability to
introduce smaller or lighter Products through this Section
4.3.4. However, Seller shall give due consideration to
ensuring compatibility of, among other things, battery
chargers, hands-free kits, etc., when introducing new
Products.
4.4 ***.
***
4.4.2 *** either by (i) delivering a check made payable to the
order of Buyer or delivering cash to Buyer; or (ii)
applying a credit or offset against any outstanding
undisputed invoices Buyer has with Seller and delivering a
check to Buyer for the remaining amount. In addition to
the foregoing, the parties may agree that Seller may apply
*** rebate either by (x) delivering to Buyer such quantity
of Products as has an aggregate value equal to the ***; or
(y) combining any of the first three methods set forth in
this Section 4.4.2.
4.4.3 CERTIFICATION. Buyer may from time to time obtain from
Seller, ***, a certification signed by an authorized
officer, stating that the price review was performed and
whether Buyer or any other Permitted Purchaser is entitled
to a rebate or a lower price upon the conclusion of the
quarterly price analysis described above. At Buyer's
request, Seller shall provide the results and
documentation of the review to Buyer's outside independent
firm of certified public accountants for verification;
provided that the accountants shall not disclose any
information related to such review to Buyer, unless Buyer
is entitled to lower prices or more favorable terms of
sale under this provision and then only such information
as may be necessary to request such prices or terms. All
information delivered to Buyer shall also be delivered to
Seller. In the event that the outside audit determines
that a price reduction should have been made but was not
made by Seller, Seller shall bear all expenses of the
audit. In the event that the outside audit determines that
no price reduction should have been made, Buyer shall bear
all expenses of the audit.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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4.5 RETURN POLICY. Buyer shall have the right to return Product,
subject to re-stocking charges and other reasonable limitations
set forth in Seller's "Standard Return Policy," as amended from
time to time by mutual agreement, a copy of which is attached
hereto as Attachment I. ***
4.6 TAXES AND OTHER CHARGES. Seller shall bear the cost of all taxes,
import and export duties, and other governmental fees of whatever
nature except sales and use taxes. Seller shall not charge Buyer
sales tax, provided that Buyer has provided Seller with a current
tax-exempt certificate.
4.7 SELLER TO HOLD BUYER HARMLESS. Seller agrees to pay, and to hold
Buyer harmless from and against, any penalty, interest, tax or
other charge that may be levied or assessed as a result of the
delay or failure of Seller for any reason to pay any tax or file
any return or information required by law, rule or regulation or
by this Agreement to be paid or filed by Seller.
5 INVOICING AND TERMS OF PAYMENT
5.1 INVOICE UPON SHIPMENT. Seller shall issue an invoice to Buyer in
detail satisfactory to Buyer, including a mutually-agreed upon
electronic format, for Products at the time of shipment.
5.2 PAYMENT. Buyer guarantees to Seller to pay invoices within thirty
(30) calendar days of the later of both (i) Buyer's receipt of an
invoice and (ii) receipt by Buyer of Products corresponding to
such Invoice.
5.3 PAST DUE PAYMENTS. Any payment not made within thirty (30) days
of receipt of invoice shall be subject to a late payment charge
of *** per month applied against the unpaid portion of the
charge. In the event that any payment becomes more than sixty
(60) days past due, Seller may at its option (i) cease shipment
of any Products ordered in accord with this Agreement and (ii)
provide the thirty (30) notice of termination with Buyer's right
to cure as set forth in section 14.1.
5.4 AMOUNTS IN DISPUTE. Where Buyer disputes the amount due under an
invoice, Buyer shall pay the sum not in dispute. Sums disputed in
good faith shall not be considered late under Section 5.3.
6 SELLER ADVERTISING ACCOUNT
Buyer may purchase advertising and promotion in the Buyer's MTA's and
BTA's with a total value of *** purchased by Permitted Purchasers from
Seller hereunder, and Seller shall credit *** against amounts otherwise
due Seller (the "Advertising Allowance"). Buyer shall earn the
Advertising Allowance monthly and may use it at any time over the
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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twelve (12) month period immediately following the month in which the
Advertising Allowance was earned. The Advertising Allowance shall be
applicable to the Minimum Purchase Quantity only once the Minimum
Purchase Quantity has been delivered, but it may be spent at any time in
the twelve (12) month period immediately following completion of
delivery of the Minimum Purchase Quantity.
7 TRADEMARKS AND LOGOS
7.1 LOGOS ON PRODUCTS; ADVANCE CONSENT FOR OTHER LOGOS. At either
party's reasonable request, the Products shipped under this
Agreement shall carry that party's designated logo and/or
labeling as described in Section 2.
7.2 LIMITED USE OF MARKS. To ensure protection of each party's
trademarks, trade names, corporate slogans, corporate logo,
goodwill and product designations, neither party, without the
express written consent of the other, shall have the right to use
any such marks, names, slogans or designations of the other, in
the sales, lease or advertising of any Products or on any Product
container, component part, business forms, sales, advertising and
promotional materials or other business supplies or material,
whether in writing, orally or otherwise.
7.3 ARTWORK AND REPRODUCTION. To the extent requested by a party and
in accordance with Sections 2 and 7.1, the other shall provide
camera-ready artwork of the other's trademarked logo labels. The
providing party hereby authorizes the receiving party to
reproduce such trademarked labels to the providing party's
satisfaction for the sole purpose of affixing such trademarked
labels to the Products and point-of-sale packaging in accordance
with the providing party's specifications. Each party represents
and warrants to the other that it has the right, by way of
ownership or otherwise, to use such logo and further agrees to
indemnify and hold the other harmless for any losses, damages or
other liabilities resulting from the use of the providing party's
designated logo. The parties will agree upon reasonable
provisions for samples and approval of trademarked labels added
to Products.
8. FORECASTING AND PURCHASE ORDERS.
8.1 FORECAST OF DEMAND. Buyer shall MONTHLY FURNISH SELLER WITH
twelve-month rolling forecasts, showing Buyer's projected purchases month by
month. Buyer shall use its reasonable efforts to make the rolling forecasts
accurate but the rolling forecast does not obligate Buyer to purchase any
specific Products or quantities of Products, subject to the Minimum Purchase
Quantity commitment. Seller shall notify Buyer promptly upon receipt of each
forecast whether Seller can provide Products sufficient to meet the forecast.
Buyer shall provide the first forecast within two business days after complete
execution of this Agreement.
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8.2 PURCHASE ORDERS; ACCEPTANCE; THE MINIMUM PURCHASE QUANTITY.
Buyer shall periodically submit to Seller orders for the purchase of the
Products (each a "Purchase Order") as set forth below. Purchase Orders shall be
governed by the terms and conditions of this Agreement. If a Purchase Order
specifies quantities that do not exceed the forecast, then Seller must accept
that Purchase Order. If a Purchase Order specifies quantities that exceed the
forecast, Seller may at its option accept all of the Purchase Order, but it must
accept that portion or quantity of the Purchase Order specified in the forecast.
If a Purchase Order is within the forecast and Seller can only deliver less, the
difference between the quantity within the forecast and the quantity delivered
shall be applied against Buyer's obligation to purchase the Minimum Purchase
Quantity. In the event that Seller refuses to provide Products in excess of the
quantities set forth in the forecast, then such amounts shall not be applied
against Buyer's obligation to purchase the Minimum Purchase Quantity.
8.3 FORM OF PURCHASE ORDER. Each Purchase Order shall specify:
(a) the models, unit extended, and total cost of
Products to be delivered;
(b) the quantity of Products to be delivered,
provided, however, that each Purchase Order
shall be for a minimum of four pallets, each
sized 40" X 48" X 60", and containing no fewer
than *** units of the Products;
(c) Buyer's required date of delivery of the
Products (the "Specified Delivery Date"),
provided, however, that in no event shall the
Specified Delivery Date be sooner than ninety
(90) days after Seller receives the Purchase
Order;
(d) Where the Products are to be delivered, which
may include any or all of Buyer's, Affiliates',
or Authorized Purchasers' delivery points, or
third party delivery points or warehouses [the
"Delivery Location(s)"];
(e) the preferred method of shipping;
(f) the SKU and any other Products packaging or
labeling requirements; and
(g) Name, address and phone number of the person to
receive the notice of receipt.
8.4. RECEIPTS OF PURCHASE ORDERS. Seller shall provide Buyer with
electronic (to include facsimile) or written notice of receipt of Purchase
Orders. Subject to the terms and restrictions of section 8.2, within five (5)
business days of Buyer's placement of a
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Purchase Order, Seller shall notify Buyer in writing of its acceptance or
rejection of Buyer's Purchase Order including shipment dates. Seller shall also
provide to Buyer notices of actual shipments on each day of shipment. Such
notices shall include the serial numbers of Products being shipped and the
Purchase Order number being filled, SKU, description, quantity shipped and
quantities backordered, the name of the carrier and the carrier's tracking
number, delivery date, and Universal Product Codes ("UPC") related to the
shipment.
8.5. SIM UNLOCK DATA. Seller shall provide Buyer with all handset
SIM unlock data via electronic or disks within five (5) days of any handset
deliveries. The data format shall follow the GSM NA reference document NAPT 14
(or successor thereto). Upon prior written approval by Buyer, Seller may
implement an alternate means of Seller's choice of providing the SIM unlock
data, provided, however, that if such alternate means requires additional costs
or equipment, this shall be provided to Buyer by Seller free of charge.
8.6 CHANGES TO DELIVERY LOCATIONS. Changes to the Delivery
Location(s) originally specified on a purchase order must be submitted to Seller
in writing at least fifteen (15) business days prior to the Shipment Date.
8.7 TEMPORARY HOLD ON DELIVERIES. Buyer shall have the right to
require Seller to hold delivery of up to twenty percent (20%) of any shipment
for a period not to exceed sixty (60) days, where the hold notice is given at
least thirty (30) days in advance of the scheduled shipping date; provided,
however, for all such shipments scheduled to be made during the last calendar
quarter of any year, Seller may, at its option, in lieu of postponing shipment
according to the terms of this Section 8.7, ship the Products as scheduled.
However, if Seller elects not to honor Buyer's hold notice and instead elects to
ship the entire quantity of Product ordered by Buyer, Buyer shall be afforded
sixty (60) days from the date of receipt of the invoice applicable to such
shipped order in which to pay Seller for such shipment. Notwithstanding anything
to the contrary contained in this Section 8.7, if Buyer shall invoke its
privilege to delay delivery of up to twenty percent (20%) and shipment is
delayed as provided herein, the liquidated damages provision of Section 8.10
shall not apply to the late delivery of the re-scheduled shipment(s) and Buyer
expressly acknowledges that Seller may sell to another of Seller's customers any
delayed Handset inventory on hold.
8.8 CHANGE OF MODEL MIX. Buyer may change the model mix of any
shipment of any Purchase Order and Seller shall honor such
changes subject to the following:
8.8.1. All such changes must be made in writing.
8.8.2. For changes requested where Products are sought
to be substituted for other Products within that
same model family, requests for changes made at
least ninety (90) days prior to the Specified
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Shipping Date shall be honored, without adjustment
to the Specified Shipping Date.
8.8.3 For changes requested where (a) Products are
sought to be substituted for other Products
within that same model family, but the request is
made less than ninety (90) prior to the Specified
Shipping Date or (b) Products are sought to be
substituted for other Products outside the model
family, Seller shall, within ten (10) days of
receipt of such request, notify Seller whether
the requested change is acceptable and/or whether
such changes will necessitate a change in the
Specified Shipping Date.
8.9 INABILITY TO MEET A SPECIFIED SHIPPING DATE. Once a Purchase
Order has been accepted, Seller is expected to deliver the
Products in such quantities, in such manner and in such time as
specified in the Purchase Order. As soon as Seller believes that
it will be unable to meet the Specified Shipping Date, Seller
shall without delay provide notice to Buyer.
8.10. FAILURE TO MEET SPECIFIED SHIPPING DATE. Regardless of whether
Buyer has been notified of Seller's inability to meet a Specified
Shipping Date, should Seller fail to ship Products within
fourteen (14) days of the Specified Shipping Date, Buyer shall
have the option, which shall not be unreasonably invoked, to
exercise any one or more of the remedies defined below:
8.10.1 Cancel the Purchase Order, in whole or in part, with no
obligation to pay for the Products specified in the
Purchase Order.
8.10.2 Reschedule the delivery date for all or any part of the
late shipment.
8.10.3 If delivery is not complete by the Specified Shipping
Date, then Seller shall be liable for the following late
delivery damages: ***
8.10.4 If Seller fails to make a full delivery within 30 days of
the Specified Shipping Date, in addition to the foregoing
remedies, ***
8.11 RIGHT TO COVER. Except as otherwise limited in the manner
described in this Section 8.11, in addition to any other rights
that Buyer might have elsewhere in this Agreement, including
specifically section 8.10, should Seller fail to meet its
Specified Shipping Date for any Product, at its sole option and
after providing Seller with written notice no less than thirty
(30) days prior to seeking alternative supplies, Buyer may seek
alternative supplies from other manufacturers or distributors.
However, if within such thirty (30) day period, Seller resolves
the delivery problems that have caused Buyer to seek such
alternative supplies, Buyer shall renew purchasing Products from
Seller on the terms and conditions set forth in this Agreement.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Should Buyer exercise its option to seek alternative supplies
after the thirty (30) day period described above, Buyer's Minimum
Purchase Quantity shall be reduced by the number of units that
Buyer obtains from its alternative source. The number of units
that Buyer obtains from its alternative source shall also count
toward Buyer's ***, as set forth in Section 4.2. For example, in
the event that Seller fails to meet a Specified Delivery Date for
*** units, and after 30 days, Buyer exercises its option to
purchase those *** units from an alternative source, then those
*** units shall count as purchased in determining when Buyer
shall begin to recoup the Product Development Fee. If Buyer has
already begun to ***, then those units shall be eligible for ***
in accordance with Section 4.2.
Should Buyer exercise its option to seek alternative supplies
after the thirty (30) day period described above, Seller shall be
liable to Buyer for Buyer's increased costs, including
differences in unit prices, expedited shipping charges and
related operating costs related acquiring comparable Products
from an alternative source. Notwithstanding anything to the
contrary in the immediately preceding sentence, Buyer agrees that
it shall take reasonable steps to mitigate the level of such
increased costs and the resultant impact on Buyer's operations.
8.12 DISCREPANCIES. Buyer shall report to Seller any discrepancies
concerning the quantity of Products shipped or drop-shipped
within either five (5) days following delivery or three (3) days
of discovery of the discrepancy, whichever comes later.
8.13 MODIFICATIONS TO PURCHASE ORDER. Except to the extent restricted
by this Agreement, Buyer retains the right to modify or cancel,
in whole or in part, any Purchase Order prior to complete
performance thereof by Seller. Any such modification or
cancellation shall be subject to the provisions set forth below
and to this Agreement.
8.13.1 MODIFIED OR CANCELED PURCHASE ORDER. Notwithstanding the
foregoing, Buyer may modify or cancel any Purchase Order
through notice to Seller. In the event of modification or
cancellation of a Purchase Order by Buyer, Seller may be
entitled to claim compensation as provided in Section
8.13.2.
8.13.2 CHANGE IN COSTS. If Seller has performed work that is not
reusable in fulfilling its obligations under other
Purchase Orders issued by Buyer, or that such non-reusable
work cannot reasonably be restocked or otherwise used by
Seller in fulfillment of its obligations to other
customers without increased cost to Seller, then the
purchase price to be charged by Seller shall be equitably
adjusted. Seller shall inform Buyer of its intention to
demand a price increase due to the variation within two
(2) weeks after the receipt by the Seller of the modified
or canceled Purchase Order. Buyer need not give notice to
Seller of Buyer's intention to claim a
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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payment reduction due to any cancellation or reduction in
quantity of Products. In such instances, Seller shall
reduce appropriately and automatically the invoice amount
to reflect the reduced quantity of Product ordered. The
determination of any price adjustment shall in no event
delay any performance by Seller under this Agreement.
9 QUALITY ASSURANCE
9.1 ACCEPTANCE TEST PROCEDURE TO BE DEFINED. Buyer and Seller will
jointly establish the appropriate Acceptance Test Procedures that
will be added to this Agreement subsequent to the date hereof as
Attachment E not later than the dates set forth in Attachment B.
Notwithstanding the preceding sentence, Seller is expected to
plan other tests, generate test procedures, incorporate Buyer
input, to the extent Seller believes such input is reasonably
appropriate, execute tests, report results and rectify test
failures, before testing a Product for Acceptance.
9.2 REGULATORY. Seller shall be responsible at its sole cost for
obtaining any and all approvals and certifications required by
governing bodies, including, but not limited to, FCC approvals,
Underwriter's Laboratory approval, etc. Seller is deemed to be an
expert in obtaining any regulatory approvals and delays in
obtaining regulatory approval shall not constitute an excusable
delay, unless such delay is the result of system simulator
failure or similar problems, or such delay results from an event
deemed to be Force Majeure, unless Seller can clearly demonstrate
such, where requests are timely filed. Seller represents and
warrants that all Products delivered hereunder will have received
all necessary regulatory approvals. By illustration and not
limitation of the foregoing, Seller warrants that, upon delivery,
Products will comply with all FCC rules or other regulations
including, without limitation, compatibility with disabled or
handicapped End-Users, including hearing impaired End-Users using
hearing aids, blind End-Users, etc., applicable as of the date of
such delivery. Seller also warrants that, to the extent
applicable to Seller or Buyer, Seller's Products comply with the
requirements of the Americans With Disabilities Act, 42 U.S.C.
Section 12101. Seller shall add to its instruction manuals
information concerning use of Products by disabled or handicapped
persons. Buyer agrees to provide Seller at Seller's expense with
reasonable assistance and backup support when so requested by
Seller and where necessary in obtaining such approvals.
9.3 ISO 9000 COMPLIANCE; AUDITS. Seller shall endeavor to produce
Products in accordance with a quality system meeting the
requirements established in ISO Standard 9001. Seller shall work
to gain ISO 9001 certification and shall, upon request by Buyer,
furnish Buyer a copy of Seller's ISO certification plans and
timetable. Buyer may conduct quality audits of Seller's
manufacturing facilities up to four times a year, with advance
notice of five (5) working days.
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9.4 MARKET VERIFICATION TEST; COMMERCIAL TEST PROCEDURES. For each
Prototype model of Product, within five (5) days of the first day
on which Alpha units are available (as set forth in Attachment
J), Seller will provide Buyer, at no charge, two (2) such
Prototypes for testing. Buyer shall test the units according to
any protocols submitted by Seller and may additionally test the
units as Buyer deems appropriate. In addition, for each new model
of Product, within five (5) days of the first (1st) day of Beta
testing (generally, about thirty (30) days before launch), Seller
will provide Buyer, at no charge, one hundred (100) units for
Beta testing in accordance with Seller's protocols. Buyer shall
conduct all such testing in good faith and shall submit the
results to Seller within ten (10) days of completion of testing.
In addition, if Seller so requests, all test units on loan to
Buyer shall be (i) returned to Seller, or (ii) destroyed by
Buyer, either at Seller's expense.
9.5 FIELD TRIALS. Where Buyer and Seller agree to conduct field
trials using Buyer's network and Prototype Products, should FCC
type acceptance or other regulatory approval not have been
granted for the Prototype or Pre-production Products, Seller, at
its cost and with appropriate support from Buyer in Buyer's
discretion, shall promptly seek and diligently prosecute, a
request for expedited approval or an interim waiver to meet
regulatory requirements. In connection with such field trials, at
no charge to Seller, Buyer shall provide Seller with a
commercially reasonable number of SIMs for the purpose of
conducting such field trials. The SIMs to be provided to Seller
shall be enabled for use in Buyer's home network and for roaming
in other networks. The reasonable and customary expenses incurred
by Seller in performing such tests shall be borne by Seller.
9.6 SAMPLE TESTING. Seller may at its sole option, but is not
obligated to, perform adequate testing to assure that shipped
Products meet Buyer's sample testing criteria established in
Attachment D. Notwithstanding the foregoing, prior to Seller
initiating the volume manufacture of Products, Buyer shall have
the right at its sole option, but is not obligated to, conduct
sample testing of incoming Products and to reject lots that fail
to meet the applicable product specifications and quality levels
set forth in this Agreement and Attachments hereto (including the
quality levels set forth in Attachment D), and/or US regulatory
requirements and US law. Buyer shall have the right to conduct
such testing either at Seller's manufacturing facility ("on-site
testing") or Buyer's facility ("off-site testing"). Neither
Buyer's waiver of its right to conduct sample testing nor Buyer's
conducting sample testing in any way other than as set forth in
Attachment D shall derogate from or otherwise affect in any way
Buyer's other rights or remedies under this Agreement, including
by illustration and not limitation its rights and remedies under
sections 13, 14, or 17.
9.6.1 ON-SITE TESTING. Buyer shall have the right to conduct at
Seller's site acceptance tests of manufactured Products in
such time frames as are
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mutually agreed upon by the parties. Buyer's acceptance
tests shall not unreasonably interfere with Seller's
normal business operations, and Buyer may not require
Seller to provide test equipment for such tests beyond
that which Seller normally uses to perform such tests.
This testing in no way relieves Seller of any other
responsibilities under this Agreement. Seller shall make
available such test equipment to Buyer at Seller's
location to perform such tests. In the event Buyer
requests tests that are not normally performed by Seller,
Buyer and Seller shall work together to implement Buyer
specific end of process tests. Any increases in cost to
Seller to perform such Buyer tests will be negotiated in
good faith by both parties prior to Seller initiating such
tests.
9.6.2 OFF-SITE TESTING. Seller acknowledges and agrees that, in
addition to the testing described in Section 9.6.1 or in
lieu thereof, Buyer shall have the right to conduct
off-site sample testing of incoming Products and to reject
lots that fail to meet the quality levels set forth in
Attachment D. In connection with such off-site testing,
Buyer shall bear the cost of any additional test equipment
required to perform such test(s); however, Seller shall
provide Buyer, without charge, all upgrade(s) to any
Seller owned software used in the test equipment so that
Buyer is able to test and confirm the quality of the
various releases of Products provided hereunder. Buyer
shall be solely responsible for any additional testing
required to qualify Products for sale in any market other
than the U.S. Seller shall perform adequate testing to
assure that shipped Products meet Buyer's sample testing
criteria set forth in Attachment D.
9.7 INCOMING INSPECTION. In addition to the sample testing described
in Section 9.6, Buyer shall have the right to conduct up to one
hundred percent (100%) inspection of all incoming products
("Incoming Inspection"). Any Incoming Inspection shall be
completed within thirty (30) days of receipt of the Product
undergoing inspection. The Incoming Inspection shall determine
completeness of shipment, physical and electrical condition of
Products, and otherwise verify conformance of the Products with
the specifications thereof. Buyer shall have the right to reject
any such shipment as having failed Incoming Inspection. In such
event, at the Seller's discretion either (i) Buyer may reject the
shipment and return it to Seller at Seller's expense or (ii)
Buyer may reject the shipment, and, as soon as commercially
feasible but no later than seventy-two (72) hours after receiving
Buyer's notice of rejection, Seller will fly one or more of its
personnel to the location of such rejected shipment for the
purpose of examining the same and rectifying the cause for
Buyer's rejection. Buyer, however, shall not have the right to
delay payment, where payment to Seller is otherwise due, by
virtue of Buyer's failure to complete Incoming Inspection within
thirty (30) days. Buyer's performance of Incoming Inspection,
however, shall not prevent Buyer from making claims under other
provisions of this Agreement for defective, misdelivered or
otherwise incorrect Products.
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9.8 RETURN OF DEFECTIVE PRODUCTS OTHER THAN IN WHOLE SHIPMENTS. With
respect to Products failing Buyer's acceptance tests, where such
failures are random in nature and type and are not common
failures (e.g., a software program bug that affects every unit
shipped in the same or a similar manner), Seller shall compensate
Buyer in liquidated damages for Buyer's efforts in identifying
Defective Products and returning them to Seller for credit
against Buyer's account. A Product Defect shall include, but not
be limited to, a damaged, mislabeled or mis-packaged Product, an
incorrect Product model or improperly operating Product, or a
Product not in compliance with the specifications as set forth in
Attachments A-1 through A-3 of this Agreement or such subsequent
Attachment (a "Defect" or "Defective Product"). The liquidated
damages shall be in the form of additional like Products shipped
at Seller's expense, provided without additional charge to Buyer,
and shall be in addition to any other remedies for Defective
equipment as provided elsewhere in this Agreement. The liquidated
damages shall be determined as follows:
9.8.1 ***
9.8.2 ***
10. EXTENDED TERM FOR CERTAIN PROVISIONS. Except as may be more specifically
set forth in an individual section, sections 1, 2, 7, 10, 12, 13, 14,
15, 17, 18, 19, 25, and 32 shall survive the termination of other
portions of this Agreement.
11. TITLE AND RISK OF LOSS
Title and risk of loss shall pass to Buyer upon delivery of the
Products to the location specified in the Purchase Order. Seller
shall pay for all freight charges from Seller's configuration
center to Seller's warehouse in San Diego, California. Seller
shall bill all additional freight charges to Buyer's Delivery
Points at the amounts set forth in Attachment C. Delivery of the
Products shall convey to Buyer all rights and title therein by
appropriate documents with warranty of title, free and clear of
all liens and encumbrances. Title to Seller's intellectual
property, including software, patents, copyrights, trademarks and
trade names, shall not be conveyed to Buyer at any time.
12 PRODUCT SUPPORT
12.1 TRAINING SUPPORT. Seller shall provide, without charge, training
support to Buyer as provided below:
12.1.1 TECHNICAL TRAINING. Seller will train Buyer's personnel in
connection with the installation, re-programming, use, and
maintenance of the Products. Consistent with the
requirements of Section 12.3, Seller shall
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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give Buyer a reasonable number of copies of Product
documentation, including, but not limited to,
re-programming and installation instructions, standards
and specifications, maintenance procedures and usage
instructions, except as Seller reasonably considers to be
proprietary or confidential.
12.1.2 SALES TRAINING. Seller shall train Buyer's sales personnel
on the Products, including training materials for on-site
sales personnel training, providing detailed feature and
benefits summaries, configuration drawings, accessory
descriptions, programming instructions and the like.
12.1.3 CUSTOMER SERVICE TRAINING. Seller shall train Buyer's
customer operations personnel, including training
materials for on-site customer service training, providing
detailed feature, configuration drawings, trouble shooting
Q&A, and programming instructions.
12.1.4 REPRODUCTION RIGHTS; UPDATED TRAINING MATERIAL. Buyer has
the right to video tape all training classes conducted by
Seller for Buyer's employees and to use the video tapes as
training tools for new hires. Seller will provide Buyer
with training documentation in both paper and electronic
formats and for on-line documentation to be shared by
multiple users. Seller will provide Buyer with updates to
training manuals and training equipment and software at no
charge to Buyer. Buyer will work with Seller to establish
the training guidelines and modules. Seller will conduct
training at Buyer's sites of choice with no more than five
(5) sites in each MTA or BTA for each category of training
defined in Sections 12.1.1 through 12.1.3. Seller will
provide Buyer with a training support line, during normal
business hours, at no charge to Buyer. Buyer will provide
Seller with a single point of contact for updates and
resolutions.
12.2 TECHNICAL SUPPORT. Seller shall provide, without charge,
technical support to Buyer and End Users as described on Exhibit
K.
12.3 DOCUMENTATION. Seller shall supply Buyer with the documentation
described below in both printed format and on magnetic storage
medium. Where documentation exists in draft or preliminary form,
it shall be supplied to Buyer in such draft or preliminary form,
and updated as described in Section 12.4. All documentation
supplied shall be in accordance with the best standards for
similar Products, whether from Seller or other suppliers.
12.3.1 TECHNICAL DOCUMENTATION. Except as Seller reasonably
considers to be proprietary or confidential, technical
documents to be supplied include, but are not limited to:
block diagrams; service manual (including theory
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of operation); installation and preventive maintenance
procedures; training manual; configuration guide;
installation and planning guide; commercial/sales training
instructions.
12.3.2 FIRMWARE. Except as Seller reasonably considers to be
proprietary or confidential, Seller shall provide to Buyer
a firmware manual, including general description of
firmware architecture, to the extent appropriate for the
level of maintenance performed by Buyer.
12.3.3 DELIVERY DATES AND REPRODUCTION. Complete sets of the
documents described in Sections 12.3.1 and 12.3.2,
inclusive, shall be delivered within a mutually agreed and
established time schedule and in correspondence with any
addition or modification to Products or the addition of
new Products to this Agreement. Buyer is authorized to
modify, reproduce and distribute such documents, whether
in whole or in part, as Buyer sees fit, for purposes
related to the operation, maintenance or business
activities of its PCS business.
12.3.4 TECHNICAL BULLETINS AND NOTES. Except as Seller reasonably
considers to be proprietary or confidential, Seller shall
provide to Buyer, without charge, all technical bulletins
and notes related to Products, whether issued periodically
or aperiodically.
12.3.5 TEST AND DIAGNOSTIC MODE INFORMATION. Except as Seller
reasonably considers to be proprietary or confidential,
Seller shall provide the information specified at Section
2.2 concerning the technical interface to Products,
including test and diagnostic mode information.
12.3.6 CUSTOMER SERVICE. Seller shall provide customer service to
the extent and in the manner described in Attachment K.
Further, Seller shall make a good faith effort to
coordinate customer service efforts with Buyer's
contractor, Wireless Data Services.
12.4 SURVIVAL AND EXTENDED TERM. Seller shall be responsible for
revising and issuing its documentation and for providing Buyer
with complete and up-to-date documentation as provided in Section
12.3 and for providing Buyer with technical support as provided
in Section 12.2. Seller's obligations under Sections 12.2 and
12.3 and this Section 12.4 shall survive the term of this
Agreement and shall end three (3) years after the delivery of the
last unit of any Product under this Agreement.
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13 WARRANTY AND SERVICE REPAIR
13.1 PRODUCT WARRANTY. Without reducing the scope of warranties
provided by Seller elsewhere in this Agreement or that may be
imposed upon Seller at law or in equity, Seller hereby represents
and warrants to Buyer as follows:
13.1.1 INTER-OPERABILITY TESTING. Seller shall warrant and
certify that it has tested its PCS 1900 Products with PCS
1900 network infrastructure manufactured by Northern
Telecom, Ericsson, Siemens, Motorola, Nokia and Lucent, to
the extent these manufacturers have a functioning PCS 1900
test system and are willing to cooperate with Seller in
such compatibility testing, and that the results of such
tests demonstrate proper inter-operability as of the date
of testing. Seller shall periodically inform Buyer of the
status of its compatibility testing and shall provide such
information to Buyer when Seller introduces a new
configuration Product.
13.1.2 REGULATORY APPROVALS. Seller warrants that all Products
have received all necessary regulatory approvals and
comply with all applicable federal and state laws, rules,
regulations, and codes in existence during the term hereof
(including without limitation FCC rules, regulations and
requirements),.
13.1.3 COMPLIANCE. Seller warrants that all Products will work on
the full PCS spectrum, Bands A through F, inclusive,
except as may be specifically excluded on a
product-by-product basis in Buyer's sole discretion.
Seller further warrants that the Products comply with all
EIA/TIA, GSM, GSM NA, PTCRB, and ETSI standards and all
other mutually agreed industry specifications and
standards. Seller further warrants that the Products are
and will be fully Year 2000 compliant, meaning that the
advent of the Year 2000 shall not adversely affect the
performance, operation, or networking of any Products,
with respect to date or date-dependent data or functions.
13.1.4 GOOD TITLE. Seller warrants that it has good title to the
Products and the right to sell them to Buyer free of any
proprietary rights of any other party, security interest,
lien or any other encumbrance whatsoever.
13.1.5 OPERATIONS WARRANTY. Seller warrants that Products
furnished by Seller hereunder shall be free from defects
in manufacture, material, design, workmanship and title,
and shall conform to published specifications at the time
of original purchase. This warranty shall not apply to any
Product, or part thereof, which (i) has been modified or
otherwise altered other than pursuant to Seller's written
instructions or written approval, (ii) is in the normal
course consumed or depleted in operation or, (iii) is not
properly stored, installed, used, maintained or repaired
other than by
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Seller-authorized repair, or, (iv) has been subjected to
any other type of misuse or detrimental exposure, or has
been involved in an accident.
13.1.6 If a Product fails to meet the foregoing Warranties during
the warranty period, Seller shall promptly correct the
failure. Any repaired or replacement part furnished
hereunder shall be warranted for either the longer of (a)
the remainder of the warranty period of the Products in
which it is installed or (b) ninety (90) days after the
repair or replacement. In the event that Seller is unable
to correct the failure through either repair or
replacement, Buyer shall return the Product and Seller
shall refund the purchase price of the Product.
13.2 LIMITATION. SUBJECT TO SECTIONS 4, 9, 11, AND 12, THE WARRANTIES
SET FORTH IN THIS SECTION 13 ARE THE ONLY WARRANTIES, EITHER
EXPRESS OR IMPLIED, THAT ARE MADE BY SELLER TO BUYER AS TO THE
PRODUCTS, AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, STATUTORY
OR COMMON LAW, ARE HEREBY EXPRESSLY DISCLAIMED, INCLUDING, BUT
NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTIBILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
13.3 END-USER WARRANTY. In addition, each Product shall come with such
warranty to the End-User, as Seller shall establish as its
standard End-User warranty for the Products from time to time,
the current such standard warranty to the End-User being
substantially in the form attached hereto as Attachment F. Under
no circumstances shall the warranty period under the End-User
warranty be for less than the longer of either (a) one year from
the purchase of the Product or (b) ninety (90) days from the date
of repair of the Product.
13.4 SERVICE REPAIR AND REPLACEMENT. Seller shall maintain one or more
authorized service centers as may be necessary to provide
warranty service for the Products. The authorized service centers
shall be equipped to repair or exchange, at no cost to the owner
of the Product, defective Products that are within the warranty
period, as described above. For products requiring repair or
replacement after expiration of the applicable warranty period,
Seller's authorized service center shall implement an exchange
and repaid policy at reasonable rates.
13.5 EXCHANGE PROGRAM. In order to minimize end-user time without
Handsets in the event of warranty repairs, Seller shall support a
Handset exchange program to be administered by PCS Partners or
other servicer authorized by Seller and selected by Buyer (PCSP).
Such support shall consist of (a) supplying an appropriate number
of handsets and standard accessories to PCSP as seed stock
sufficient to meet warranty replacement needs, and (b) the
payment of fees to PCSP to cover repairs, refurbishing and one
way standard ground freight for in-warranty
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defective Seller products received from end-users. PCSP shall use
all in-warranty repaired and refurbished units as replacements
under the exchange program.
13.6 CONSISTENT FAILURES. Notwithstanding any disclaimer of warranties
herein, where delivered Products repeatedly exhibit Defect
failure rates during the warranty period with regard to any
particular model of Product (i.e. any lot, batch, or other
separately distinguishable group of Product sold or delivered to
the End-user or remaining in inventory has more than ***of the
same or similar Defect, or *** failure due to cumulative
Defects), Seller and Buyer shall immediately initiate a joint
program for appropriate countermeasures and, in addition to any
other remedy ultimately available to Buyer under this Agreement
or otherwise, Buyer shall have the option to exercise any of the
following rights, individually or cumulatively:
13.6.1 COVER. Buyer may purchase substitute products from another
supplier, in which case Seller shall be liable to Buyer
for Buyer's increased costs, including increased operating
costs, resulting from the substitute products
13.6.2 TERMINATE FOR CAUSE. Buyer may terminate this Agreement
for cause; provided, however, Buyer shall deliver notice
to Seller of its intent to terminate this Agreement for
cause pursuant to this Section 13.6 and Seller shall be
given thirty (30) days in which to completely remedy to
Buyer's reasonable satisfaction the problem or problems
creating the unacceptable consistent defective failure
rate.
13.6.3 RETURN OF DEFECTIVE PRODUCTS. Upon notice from Buyer of a
Product Defect, Seller shall issue a return authorization
to Buyer within 48 hours of receipt of notice. A Defective
Product may be returned directly by any Permitted
Purchaser or by Buyer's distributors or retailers at
Seller's expense. Seller shall accept returns even though
the Product is no longer in its original point-of-sale
packaging. Buyer agrees that each Defective Product is to
be returned to Seller without its associated SIM. Buyer's
distributors and retailers may return Defective Products
for a period starting upon receipt of such Product and
ending one (1) year after the last date the particular
model of Product has been purchased and received by an
End-User. Where Buyer elects to proceed under this Section
13.6.3, Seller shall issue an open credit memo to Buyer in
the amount of the full invoice purchase price for all
returned Products within thirty (30) days of return. Once
repaired or replaced, the Products will be delivered with
new invoices. This return policy shall continue to apply
notwithstanding that Seller has discontinued the model of
the Defective Products.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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13.6.4 CANCELLATION OF PURCHASE ORDER. Cancel the Purchase Order,
in whole or in part, and return Defective and
non-Defective Products to Seller. Should Buyer exercise
its option under this section, Buyer's Minimum Purchase
Quantity shall be reduced by the number of units returned.
That number of units returned shall also count toward
Buyer's recoupment of the Product Development Fee, as set
forth in Section 4.2.
13.6.5 RESHIPMENT. Require Seller to ship within 48 hours a
comparable non-Defective Product to the location requested
by Buyer, at Seller's expense; provided, however, such
right shall be exercised by Buyer only for returns of
twenty-five (25) or few units of Product.
13.6.6 DURATION OF RIGHTS. Buyer shall be entitled to exercise
its rights under Section 13.6 until such time as Seller
establishes to Buyer's reasonable satisfaction that it has
cured the consistent failures. Provided, however, that
should Buyer have exercised its rights to terminate under
Section 13.6.2, Buyer shall be under no obligation to
reinstate this Agreement and provided that should Buyer
have exercised the remedies identified in Sections 13.6.1,
Seller shall be obligated to supply alternative Products
and cover Buyer's reasonable expenses, respectively, until
Seller has demonstrated, through delivery of Products to
Buyer, a period of three (3) consecutive months'
compliance with a failure rate of *** in each delivery
lot. Where Buyer elects to terminate this Agreement under
Section 13.6.2 during the Minimum Purchase Term, Seller
shall be liable to Buyer for Buyer's increased costs for
the remainder of the Minimum Purchase Term. Where Buyer
elects the right of cover under section 13.6.1, for a
period of forty-five (45) days following receipt by Seller
of notice of Buyer's remedy, Buyer shall provide Seller
the opportunity to negotiate the supply contract necessary
to effect such cover.
13.7 SURVIVAL AND TERM. The rights and warranties granted in this
Section 13 shall survive the term of this Agreement and shall
remain valid for the periods during which the right or warranty
is provided as described in this Section 13.
14 TERMINATION; LIMITATION OF LIABILITY
14.1 DEFAULT. In the event of a material breach of this Agreement, the
non-breaching party shall have the right to terminate this
Agreement upon thirty (30) days prior written notice of
termination to the other party, unless such breach and any
intervening breaches have been cured.
14.2 BANKRUPTCY. Either party may terminate this Agreement by written
notice in the event that the other party (i) applies for or
consents to the appointment of, or the
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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taking of possession by a receiver, custodian, trustee, or
liquidator of itself or of all or a substantial part of its
property, (ii) makes a general assignment for the benefit of its
creditors, (iii) commences a voluntary proceeding under the
Federal Bankruptcy code or under any other law relating to relief
from creditors generally, or (iv) fails to contest in a timely or
appropriate manner, or acquiesces in writing to, any petition
filed against it in an involuntary proceeding under the Federal
Bankruptcy Code or under any other law relating to relief from
creditors generally, or any application for the appointment of a
receiver, custodian, trustee, or liquidator of itself or of all
or a substantial part of its property, or its liquidation,
reorganization, dissolution, or winding-up.
14.3 LIMITATION OF LIABILITY.
14.3.1 EXCEPT FOR SELLER'S LIABILITY UNDER SECTIONS 9, 12, 13,
15, 17, AND 18, AND EXCEPT FOR SELLER'S GROSSLY NEGLIGENT OR
INTENTIONALLY WRONGFUL ACTS OR OMISSIONS, THE TOTAL LIABILITY OF
SELLER, ON ANY AND ALL CLAIMS, WHETHER IN CONTRACT, WARRANTY,
TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, ARISING OUT OF,
CONNECTED WITH, OR RESULTING FROM THE PERFORMANCE OR
NON-PERFORMANCE OF ANY AGREEMENT RESULTING HEREFROM OR FROM THE
MANUFACTURE, SALE, DELIVERY, RESALE, REPAIR, REPLACEMENT OR USE
OF THE PRODUCTS OR THE FURNISHING OF ANY SERVICE, SHALL NOT
EXCEED THE PRICE ALLOCABLE TO THE PRODUCT OR SERVICE WHICH GIVES
RISE TO THE CLAIM.
14.3.2 Where a remedy, including a series of optional remedies or
multiple remedies, is set forth in the Agreement, those remedies
shall be the sole and exclusive remedies for the breach or event
for which it is specified, unless such section states that the
series of remedies are not exclusive of other remedies. Where no
specific remedy is provided, the non-defaulting party shall have
the right to recover from the defaulting party only its direct
damages arising out of that breach or event. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, IN NO
EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, WARRANTY, TORT
(INCLUDING BUT NOT LIMITED TO NEGLIGENCE OR INFRINGEMENT) SHALL
SELLER OR BUYER BE LIABLE UNDER THIS AGREEMENT FOR ANY
CONSEQUENTIAL OR INCIDENTAL DAMAGES OF ANY NATURE WHATSOEVER,
INCLUDING LOST PROFITS, OF THE OTHER PARTY, REGARDLESS OF WHETHER
SUCH DAMAGES ARE FORESEEABLE OR WHETHER A PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF DAMAGES.
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14.4 RIGHTS OF PARTIES UPON TERMINATION BY EITHER PARTY. In the event
of a termination by Buyer or Seller pursuant to the terms hereof,
the parties shall make an equitable accounting of any sums due
Seller for partial deliveries, such accounting to be completed
within sixty (60) days following the effective date of
termination, with payment by Buyer to be completed within thirty
(30) days following the completion of such accounting.
Seller acknowledges and agrees that the Minimum Purchase Quantity
commitment of Section 2.8 imposed upon Buyer shall be terminated
in the event of any termination hereunder due to the Seller's
breach of this Agreement.
14.5 OTHER GROUNDS FOR TERMINATION. Notwithstanding anything to the
contrary contained elsewhere in this Agreement, this Agreement
may be terminated and the obligations of the parties hereunder
shall be ended under the following circumstances:
(a) Buyer and Seller mutually agree in writing to
terminate this Agreement;
(b) Buyer determines that the development of Products is
more than 6 months behind the development schedule set
forth in Attachment J; or
(c) Buyer determines that key performance requirements
(e.g., dataspeeds, etc.) are beyond the deviation or
tolerance standards set forth in this Agreement or in any
Attachments hereto.
15 CONFIDENTIALITY
15.1 CONFIDENTIAL INFORMATION DEFINED. During the term of this
Agreement and thereafter it may be necessary for the parties to
mutually exchange certain information, data and material of a
proprietary nature whether relating to marketing, technical,
financial and other matters. To be treated as confidential
hereunder ("Confidential Information"), information disclosed in
writing shall be marked as confidential or proprietary, and the
disclosing party shall indicate the confidential nature of verbal
information at the time of disclosure. All Confidential
Information shall:
15.1.1 BE HELD IN CONFIDENCE. Be received and retained in the
strictest confidence by the parties and will be deemed to
be proprietary information of the disclosing party and the
recipient(s) of such Confidential Information agree(s)
that it (or they) will not disclose it to third parties
and further, will treat such information, data or material
as proprietary using the same degree of care that it (or
they) would normally use in protecting its (or their) own
proprietary information.
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15.1.2 LIMITED USE. Be used by the parties hereto solely for the
purpose of implementing this Agreement.
15.2 EXCEPTIONS. The provisions of Section 15.1 above shall not apply
to any Confidential Information which:
(a) Is known by the receiving party prior to the date
hereof, and is not subject to or in violation of an
obligation of confidentiality;
(b) Is or becomes public knowledge other than by default
of the receiving party;
(c) Is obtained by the receiving party from a bona-fide
third party having free right of disposal of such
information;
(d) Is wholly and independently developed by receiving
party without reference to the Confidential Information;
or
(e) The receiving party is required to disclose pursuant
to a valid order of a court or other governmental body or
any political subdivision thereof, provided, however, that
the recipient of the information shall first have given
notice to the disclosing party and made a reasonable
effort to obtain a protective order requiring that the
information and/or documents so disclosed be used only for
the purposes for which the order was issued.
15.3 SURVIVAL. This Section 15 shall survive any termination of this
Agreement for a period of two (2) years.
16 FORCE MAJEURE
16.1 FORCE MAJEURE. Neither of the parties hereto shall be liable for
any damages or penalty for delay in performance of its
obligations under this Agreement when such delay is due to acts
of God, acts of civil or military authority, fires, floods,
epidemics, war or riots, industry-wide strikes, lockouts or other
labor disputes, , or any other causes beyond the reasonable
control of such party. The party so affected shall, upon giving
prompt written notice to the other party of the delay and the
cause therefore, be excused from performance to the extent of the
prevention, restriction or interference; provided, however, that
the party so affected shall use reasonable efforts to avoid or
remove such causes of nonperformance and shall continue
performance hereunder with the utmost dispatch whenever such
causes are removed. In the event of Force Majeure delays, the
time for performance shall be extended by mutual agreement of the
parties as
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provided above, but in no case shall the extension exceed a
day-for-day extension based upon the duration of the act of Force
Majeure.
16.2 BUYER'S RIGHT TO TERMINATE FOR FORCE MAJEURE. Should Force
Majeure prevent Seller from timely performing under this
Agreement, where the Force Majeure delays Seller's performance by
such time that, in Buyer's reasonable judgment, Buyer has lost
the benefit of the bargain or where the delay is such that Buyer
must reasonably look to substitute supplies to protect Buyer's
position, Buyer has the right to terminate this Agreement,
notwithstanding the provisions of Section 18.1.
16.3 SELLER'S RIGHT TO TERMINATE FOR FORCE MAJEURE. Should Force
Majeure prevent Buyer's performance under this Agreement for a
period of more than six (6) months, Seller has the right to
terminate this Agreement, notwithstanding the provisions of
Section 16.1.
17 PRODUCT LIABILITY INDEMNIFICATION
Notwithstanding anything to the contrary contained herein, Seller agrees
to defend, hold harmless and indemnify Buyer, its subsidiaries and
Affiliates, and its and their officers, agents and employees, from and
against any damages, claims, demands, liabilities and expenses
(including reasonable attorneys' fees) that arise out of, or result
from, the death or bodily injury to, or damage to tangible property of
any third party resulting (including Seller's employees) from the
design, manufacture, or use of a Product, whether or not resulting from
a Defect, produced by Seller or Seller's affiliate. Seller shall pay all
costs, damages and reasonable attorneys' fees that a court awards as a
result of such claim provided that: (i) Seller has sole control of the
defense and related settlement negotiations; (ii) Buyer provides Seller
with assistance, information and authority reasonably necessary for
Seller to perform its obligations under this Section 17; and (iii) Buyer
notifies Seller in writing within thirty (30) days of the discovery of
the claim. Seller shall not be responsible for any settlement made
without its consent. Buyer shall not be required to admit any liability
either to obtain Seller's compliance with the indemnification provisions
of this Section or for any other reason.
18 INTELLECTUAL PROPERTY INDEMNIFICATION
18.1 Seller warrants that the Products furnished hereunder shall be
delivered free of any rightful claim of any third party for
infringement of any patent, copyright, trademark, trade secret,
or other intellectual property right. If Buyer notifies Seller
with thirty (30) days of the receipt of any claim that the
Products infringes a patent, copyright, trademark, trade secret,
or other intellectual property right, and gives Seller
information assistance and exclusive authority to settle and
defend such claim, Seller at its own expense shall indemnify,
defend, and hold harmless
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Buyer, or may settle, any suit or proceeding against Buyer so far
as based on a claimed infringement which breaches this warranty.
If, in any such suit arising from such claim, the continued use
of the Products for the purpose intended is enjoined by any court
of competent jurisdiction, Seller shall, at its expense and
option, either: (i) procure for Buyer the right to continue using
the Products, or (ii) modify the Products so that they become
non-infringing, or (iii) replace the Products or portions thereof
so that they become non-infringing, or (iv) if none of (i), (ii),
or (iii) can be accomplished within a reasonable period, accept
the return of the Products and refund the purchase price. The
foregoing states the entire liability of Seller for patent,
copyright, trademark, trade secret or other intellectual property
right infringement by the Products and is subject to any
limitation of total liability set forth in this Contract. Buyer
shall not be required to admit any liability either to obtain
Seller's compliance with the indemnification provisions of this
Section or for any other reason.
18.2 The preceding subsection 18.1 shall not apply to: (i) any portion
of the Products that is manufactured to Buyer's design, provided
that the claim of infringement arose out of Buyer's design or
(ii) the use of the Products for a purpose not intended or in
conjunction with any other apparatus or material not supplied by
Seller to the extent that such conjoined use causes the alleged
infringement. As to any portion of the Products or use described
in the preceding sentence, Seller assumes no liability whatsoever
for patent, copyright, trademark, trade secrets, or intellectual
property rights infringement.
18.3 Seller will not be responsible for any compromise or settlement
made without its written consent.
19 DISPUTE RESOLUTION
19.1 INTERNAL ESCALATION. In the event that a dispute arises over the
interpretation or application of any provision of this Agreement
or the grounds for termination hereof, any party may request that
the parties meet within ten (10) days of such request and seek to
resolve the dispute by negotiation of the appropriate officers of
each party, with the request for resolution being passed to each
officer at the next higher level of authority, in turn. Such
meetings shall be attended by individuals with decision-making
authority, to attempt in good faith to negotiate a resolution of
the dispute prior to pursuing other available remedies. If,
within ten (10) days after the first such meeting, the parties
have not succeeded in negotiating a resolution of the dispute, or
if it has not been possible to schedule a meeting within ten (10)
days following request thereof by a party, a party may request
that such dispute be mediated in accordance with Subsection 19.2.
Notwithstanding anything to the contrary contained in the
foregoing, any disputes with respect to intellectual property
rights shall be submitted to the courts and not
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subject to the provisions of Subsection 19.2, unless otherwise
agreed by both Buyer and Seller.
19.2 MEDIATION. If the attempts to resolve a dispute described in
Subsection 19.1 fail, then such dispute will be mediated by a
mutually acceptable mediator to be chosen by Seller and Buyer
within twenty (20) days after written notice by either party
demanding mediation. A party may not unreasonably withhold
consent to the selection of a mediator, and Seller and Buyer
shall share the costs of mediation equally. Each party shall pay
its own attorneys' fees. By mutual agreement, however, Seller and
Buyer may postpone mediation until each has completed some
specified but limited discovery regarding the dispute. The
parties may also agree to replace mediation with some other form
of alternate dispute resolution, such as neutral fact-finding or
mini-trial.
19.3 ARBITRATION OF DISPUTES. Any controversy or claim arising out of
or relating to this Agreement for the breach hereof which cannot
be settled by the parties pursuant to Section 19.1 and 19.2,
shall be settled by arbitration in accordance with the commercial
arbitration rules of the American Arbitration Association as set
forth herein.
19.3.1 SELECTION OF ARBITRATORS. Each party may select one
arbitrator. Selection shall be completed within ten (10)
days of the receipt of a demand for arbitration. If either
party fails to select an arbitrator within such ten (10)
day period, the one selected shall act as sole arbitrator.
If two (2) arbitrators have been selected, the two
arbitrators selected shall select a third within fifteen
(15) days after their selection. If they fail to do so,
the third arbitrator shall be selected by the American
Arbitration Association. The arbitrators shall set a date
of hearing no later than sixty (60) days from the date all
arbitrators have been selected and shall enter a decision
within thirty (30) days at the end of the proceeding
19.3.2 LANGUAGE. All proceedings shall be conducted in the
English language.
19.3.3 LOCATION. The arbitration shall take place at a location
to be agreed upon by the parties. If the parties are
unable to agree, the arbitration shall be in Bellevue, or
Seattle, Washington, as designated by Buyer.
19.3.4 FRCP TO APPLY. In any such arbitration proceeding the
arbitrators shall adopt and apply the provisions of the
Federal Rules of Civil Procedure relating to discovery so
that each party shall allow and may obtain discovery of
any matter not privileged which is relevant to the subject
matter involved in the arbitration to the same extent as
if such arbitration were a civil action pending in a
United States District Court; provided, however, that each
party shall be entitled to no more than four (4)
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depositions upon oral examination of no more than one (1)
day in length each.
19.3.5 FINAL AWARD. The award of any arbitration shall be final,
conclusive and binding on the parties hereto.
19.3.6 REMEDY. The arbitrators may award any legal or equitable
remedy. The arbitration award shall include an award of
reasonable attorney's fees, in the amount of such fees, to
the prevailing party. Judgment upon any arbitration award
may be entered and enforced in any court of competent
jurisdiction.
19.3.7 INJUNCTIVE RELIEF. Either party to an arbitration
hereunder may bring an action for injunctive relief
against the other party if such action is necessary to
preserve jurisdiction of the arbitrators or to maintain
status quo pending the arbitrators' decision. Any such
action called pursuant to this paragraph shall be
discontinued upon assumption of jurisdiction by the
arbitrators and their opportunity to consider the request
for equitable relief pending final decision in the
arbitration.
19.4 CONTINUE TO PERFORM. The parties shall continue to perform all
obligations under the Agreement pending the above-described
dispute resolution proceedings, subject to full reservation of
rights at law or under this Agreement.
19.5 CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
WASHINGTON, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAW THEREOF.
20 NON-EXCLUSIVE AGREEMENT
This Agreement is a nonexclusive agreement. Buyer expressly reserves the
right to contract with others for any of the goods or services it may
require, including those that may duplicate Products.
21 INSURANCE
21.1 SELLER TO MAINTAIN. Seller shall maintain and keep in force all
risk insurance, in form and substance and with insurers
reasonably satisfactory to Buyer, covering all Products delivered
to Buyer the risk of loss to which has not passed to Buyer, and
shall furnish Buyer with proof that such insurance has been
obtained and is in force.
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21.2 LEVEL OF INSURANCE. Seller shall at all times while performing
services on Buyer's premises carry insurance with limits not less
than the limits described as follows:
(a) Employer's General Liability: Limits ***.
(b) Comprehensive General Public Liability: *** single
limit bodily injury and property damage combined; such
coverage shall include a broad form liability rider,
completed operations coverage rider and contractual
liability rider.
(c) An umbrella policy: with *** single limit bodily
injury and property damage combined.
(d) Workmen's Compensation: maintained at least at the
level required by statute in the states in which Seller is
to perform work under this Agreement.
21.3 CERTIFICATES OF INSURANCE. Seller shall provide Buyer with
certificates of insurance (i) evidencing the insurance to be
carried under this Article 21, naming the Buyer as an additional
insured and (ii) including provisions that such insurance policy
shall not be subject to cancellation, expiration or reduction
without thirty (30) days written notice to Buyer.
21.4 NO WAIVER. Notwithstanding the requirements as to insurance to be
carried, the insolvency, bankruptcy or failure of any insurance
company carrying insurance for either party, or failure of any
such insurance company to pay claims accruing, shall not be held
to waive any of the provisions of this Agreement or relieve
either party from any obligations under this Agreement.
22 ASSIGNMENT
22.1 CONSENT REQUIRED. Except as otherwise expressly provided in this
Agreement, no party shall have the right to assign its rights or
delegate its duties under this Agreement or any Purchase Order
hereunder, without the prior written consent of the other party
hereto, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, Buyer may assign its rights and
obligations hereunder to (1) any corporation resulting from any
merger or other reorganization to which Buyer is a party, (2) any
corporation, partnership, association, or other person or entity
to which Buyer may transfer all or substantially all of its
assets or business existing at such time, or (3) any entity which
controls, is controlled by, or under common control with Buyer.
22.2 INVALID WITHOUT COMPLIANCE. Any attempted assignment or
delegation in contravention of this Section 22 shall be void and
of no effect and shall be
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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grounds for immediate termination by the non-breaching party, for
cause, as provided in Section 12 hereof.
22.3 ASSIGNS. Subject to the provisions of Section 22.1 above, this
Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns, if any, of the parties hereto.
23 NOTICES
Except as otherwise provided in this Agreement, or applicable Purchase
Order, all notices or other communications hereunder shall be deemed to
have been duly given when made in writing and mailed by certified mail,
return receipt request, facsimile transmission upon confirmation of
receipt, overnight courier or hand delivery to the parties at the
addresses set forth below or at such other addresses as may be
designated by the parties in writing:
To: Seller:
NOVATEL INC.
Attn: Greg Robins
9360 Towne Center Drive, Suite 110
San Diego, CA 92122
Phone: 858-320-8813
Fax: 858-784-0626
To: Buyer:
VoiceStream Wireless Corporation
Attn: David A. Miller
Vice President of Legal Affairs
3650 131st Ave. SE, Suite 200
Bellevue WA 98006
with a copy, which shall not constitute notice, to:
Attn: Stuart Funk
Director of Contracts and Supplier Relations
3650 131st Ave. SE, Suite 200
Bellevue WA 98006
24 PUBLICITY
Except with respect to Co-Op Advertising (for which Buyer is allowed to
use Seller's name in accordance with Buyer's guidelines), Seller shall
submit to Buyer and Buyer
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shall submit to Seller, as the case may be, all advertising, sales
promotion, press releases and other publicity relating to the subject
matter of this Agreement wherein Buyer's or Seller's name or names
(including the names of Affiliates) are mentioned or language, signs,
markings or symbols are used from which the connection of a Buyer's or
Seller's name or names therewith may, in Buyer's or Seller's judgment,
as applicable, be reasonably inferred or implied. Seller or Buyer, as
applicable, shall not publish or use such advertising, sales promotion,
press release or publicity matter without Buyer's Seller's, as
applicable, prior written approval, which approval may be withheld or
delayed for any or no reason.
25 COMPLIANCE WITH LAWS; GOVERNING LAW
Each party shall comply with all applicable federal, state and local
laws, regulations and codes, including the procurement of permits and
licenses when needed, in the performance of this Agreement. Each party
shall indemnify the other party against any loss or damage that may be
sustained by reason of such party's failure to comply with such federal,
state and local laws, regulations and codes. This Agreement shall be
construed and enforced in accordance with the laws of the State of
Washington, without regard to the conflict of laws of Washington or any
other state.
26 WAIVERS OF DEFAULT
Waiver by a party of any default by another party shall not be deemed a
waiver by the non-defaulting party of any other default. Failure of a
party to exercise a right or remedy shall not be deemed a waiver of that
right or remedy.
27 AMENDMENTS
No provisions of this Agreement or any Purchase Order shall be deemed
waived, amended or modified by a party, unless such waiver, amendment or
modification is in writing and signed by the authorized representative
of the party against whom it is sought to enforce such waiver, amendment
or modification.
28 ORDER OF PRECEDENCE
During the Term, Buyer's purchase of Products from Seller shall be
deemed to be purchased under the terms and conditions of this Agreement.
The terms and conditions of Buyer's Purchase Order, Seller's
acknowledgments, invoices or any other writings by either party which
differ from the terms hereunder shall not be effective unless
specifically accepted in writing by amendment to this Agreement made
separate and apart from said terms and conditions and signed by all of
the parties to this Agreement. In the event of any conflict or
inconsistency among the provisions of this Agreement and the
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documents attached and incorporated herein, such conflict or
inconsistency shall be resolved, by giving precedence to this Agreement
and thereafter to the Attachments.
29 HEADINGS
The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
30 SEVERABILITY
If any provision or any part of a provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate or render unenforceable the entire Agreement, but rather the
entire provision or the Agreement shall be construed as if not
containing the particular invalid or unenforceable provision or
provisions, and the rights and obligations of the parties shall be
construed and enforced accordingly, provided, that the deletion of such
provision does not change the intent of the Agreement.
31 SURVIVAL
The provisions contained in this Agreement that by their sense and
context are intended to survive the cancellation or termination of this
Agreement or any Purchase Order hereunder shall survive such
Cancellation and termination.
32 LICENSE
Except as specifically provided in Section 2 hereof, no licenses,
express or implied, under any patents, copyrights, trademarks or trade
secrets are granted by Buyer or Seller to the other hereunder.
33 PARTY RELATIONSHIP
It is expressly understood that the parties intend by this Agreement to
establish the relationship of independent contractors. No party shall
have any authority to create or assume in the name of or on behalf of
the other party any obligation, express or implied, nor to act or to
purport to act as the agent or legally empowered representative of the
other party hereto for any purpose whatsoever.
34 CONTRACT/TARGET DATES
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Performance of this Agreement will also be subject to Seller working
towards completion of tasks subject to agreed target and contract
completion dates, set out in Attachment J.
35 COUNTERPARTS
This Agreement may be executed in two (2) separate counterparts, each of
which shall be deemed an original and both of which taken together shall
constitute one and the same instrument.
36 ATTACHMENTS AND INCORPORATION
36.1 INCORPORATION. The following documents attached hereto are
incorporated herein by reference and made a part of this
Agreement with the same force and effect as though set forth in
their entirety herein (such documents together with this
Agreement are herein referred to as the "Agreement").
ATTACHMENT DESCRIPTION
Attachment A-1 Description of Product 1 (specifications)
Attachment A-2 Description of Product 2 (specifications)
Attachment A-3 Description of Product 3 (specifications)
Attachment B Dates for Completion of Attachments
Attachment C Prices
Attachment D Sample Testing Protocol
Attachment E Acceptance Test Procedures
Attachment F End-user warranty
Attachment G Database Format
Attachment H Advertising Display Material
Attachment I Return Policy
Attachment J GPRS Development Schedule
Attachment K Technical Support
37 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter thereof. All prior agreements,
representations, statements, negotiations, understandings and
undertakings are superseded hereby.
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IN WITNESS HEREOF, THE PARTIES HEREBY EXECUTE THIS AGREEMENT BELOW.
SELLER: BUYER:
Novatel Wireless Inc., VoiceStream Wireless Corporation
a Delaware Corporation a Delaware Corporation
/s/ /s/
- ----------------------------------- -----------------------------------
By: By:
Cole Brodman
- ----------------------------------- -----------------------------------
Name: [Print] Name: [Print]
Title: Title:
----------------------------- -----------------------------
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ATTACHMENTS
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Attachment A-1
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT A-1 PRODUCT 1 - GPRS - PCS PC CARD
Overview:
***
Features:
***
Specifications:
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
44
51
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
45
52
Attachment A-2
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT A-2 PRODUCT 2 - GPRS - PCS PC CARD 8-SLOT
Overview:
***
Features:
***
Specifications:
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
47
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Attachment A-3
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT A-3 PRODUCT 3 -- GPRS - GSM/PCS PC CARD 900/1900
Overview:
***
Features:
***
Specifications:
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
48
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***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Attachment B
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT B DATES FOR COMPLETION OF ATTACHMENTS
ATTACHMENT DESCRIPTION Completion Date
- ---------- ----------- ---------------
Attachment A-1 Description of Product 1 (specifications) ***
Attachment A-2 Description of Product 2 (specifications) ***
Attachment A-3 Description of Product 3 (specifications) ***
Attachment B Dates for Completion of Attachments ***
Attachment C Prices ***
Attachment D Sample Testing Protocol ***
Attachment E Acceptance Test Procedures ***
Attachment F End-user warranty ***
Attachment G Database Format ***
Attachment H Advertising Display Material ***
Attachment I Return Policy ***
Attachment J GPRS Development Schedule ***
Attachment K Technical Support ***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Attachment C
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT C PRICES
Net Price* to Buyer shall be determined by adding the Base Price plus all
applicable adjustments as set forth below:
BASE PRICE
THE NOT-TO-EXCEED PRICE FOR PRODUCTS 1 THROUGH 3 AS DEFINED IN ATTACHMENTS A-1
THROUGH A-3 SHALL BE ***.
Prices charged in the future may be adjusted downward to the best prevailing
market price at the time of shipment in accordance with the *** section of this
agreement.
ADJUSTMENTS TO PRICE
UPCHARGE UPCHARGE
APPLIED APPLIED TO
SECTION TO ALL AFFECTED
NUMBER SUBJECT PRODUCTS PRODUCTS
- ------- ------- -------- --------
2.6.4 *** ***
2.7 *** ***
2.11.1 *** ***
2.15.2 *** ***
2.20 *** ***
4.3 *** ***
5.5 *** ***
9.6 *** ***
12.1.2 *** ***
12.1.3 *** ***
12.2.1 *** ***
12.3.1 *** ***
12.3.2 *** ***
12.3.4 *** ***
12.3.5 *** ***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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12.3.6 *** ***
Attachments A-1 *** ***
through A-3
****
ACCESSORY PRICES
No accessories are currently contemplated.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Attachment D
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT D SAMPLE TESTING PROTOCOL
***
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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- ------------------------------------------------------------------------------------------
ACCEPTANCE SAMPLE TESTING
- ------------------------------------------------------------------------------------------
NUMBER OF PRODUCTS FOUND
IN SAMPLE QUANTITY WITH A MAJOR DEFECT
- ------------------------------------------------------------------------------------------
ACCEPT IF THIS REJECT IF THIS
NUMBER OR FEWER ARE NUMBER OR MORE ARE
LOT SIZE SAMPLE QUANTITY FOUND FOUND
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
*** *** *** ***
- ------------------------------------------------------------------------------------------
Notwithstanding anything to the contrary set forth herein below, three Minor
Defects (as defined in the Defect Categorization for AQL Testing table set forth
herein below) of Handset Products shall also be deemed to constitute a Major
Defect and contribute to the acceptance or rejection of a lot as provided in the
table, rounded downward (i.e., five (5) Minor Defects should be counted as one
(1) Major Defect, while six (6) Minor Defects shall be counted as two (2) Major
Defects).
Major and Minor Defects are determined on a per-Product basis (i.e., a single
unit of Product with two (2) Major Defects is counted only as a single Major
Defect for the purpose of acceptance or rejection of a lot).
Should Buyer reject a lot based upon sample testing in accordance with this
Attachment E, Seller shall have the option to perform 100% testing of the lot,
at Seller's sole expense, at Buyer's premises or elsewhere with Buyer having the
right of observation of the tests and may re-submit the lot (less any defective
units) to Buyer. Seller agrees that Buyer may then re-sample test the
re-submitted lot, and Buyer may accept or reject such lot based on the testing
criteria set forth above.
Seller shall provide Buyer with Product specifications, including pass/fail
limits on parameters.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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- ------------------------------------------------------------------------------------------
DEFECT CATEGORIZATION FOR AQL TESTING
- ------------------------------------------------------------------------------------------
DEFECT TYPE MAJOR DEFECT MINOR DEFECT
- ------------------------------------------------------------------------------------------
ESN does not match declared ESN X
- ------------------------------------------------------------------------------------------
Shipping container seriously damaged X
- ------------------------------------------------------------------------------------------
Shipping list inconsistent with Purchase Order X
- ------------------------------------------------------------------------------------------
Visual assembly defect, not repaired, per
Seller's workmanship standards X
- ------------------------------------------------------------------------------------------
Mechanical part missing, damaged or broken, but
not restricting product integration X
- ------------------------------------------------------------------------------------------
Connectors damaged or not functional X
- ------------------------------------------------------------------------------------------
Failure to pass Seller's Product test program X
- ------------------------------------------------------------------------------------------
Foreign material on the Product X
- ------------------------------------------------------------------------------------------
Display damaged or inoperable X
- ------------------------------------------------------------------------------------------
Failure to conform with the PCS 1900
specifications or Seller's Product tolerances X
- ------------------------------------------------------------------------------------------
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Attachment E
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT E ACCEPTANCE TEST PROCEDURE
Pending
(To be jointly developed by the Parties)
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Attachment F
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT F WARRANTY
Novatel warrants for a period either of the longer of 1 year from delivery at
the customer's location or ninety days after repair or replacement that its
Products are free from defects in material and workmanship, conform to Novatel
specifications and that the software shall be free from errors which materially
affect performance. THESE WARRANTIES ARE EXPRESSLY IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NOVATEL
WIRELESS SHALL IN NO EVENT BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES, OF ANY KIND OR NATURE DUE TO ANY CAUSE.
Novatel's obligations are limited to correction of such failure, repair or
replacement and are conditioned upon the Product having been maintained in
accordance with Novatel specifications and the Product not having been modified
by any party other than Novatel except as expressly permitted in writing.
The foregoing warranties do not extend to (i) nonconformities, defects or errors
in the Product due to accident, abuse, misuse or negligent use of the Product or
use in other than a normal and customary manner, environmental conditions not
conforming to Novatel's specifications, or failure to follow prescribed
operating maintenance procedures, (ii) defects, errors or nonconformities in the
Product due to modifications, alterations, additions or Product changes not made
or authorized to be made by Novatel, (iii) normal wear and tear, or (iv) damage
caused by force of nature or act of any third party.
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Attachment G
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT G DATABASE FORMAT
(To be supplied by Novatel)
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Attachment H
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT H ADVERTISING DISPLAY MATERIAL
(To be supplied by Novatel)
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Attachment I
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT I RETURN POLICY
Recognizing that product sold to our customers is done so in good faith, the
return of stock is considered contrary to the original purchase terms. However,
at your request, Seller will consider the return of customer's inventory under
certain market conditions. Seller will only consider credit returns if our
customer has demonstrated active promotion and proper positioning of our
product.
This agreement is necessitated by the cost prohibitive nature of stock returns
and covers the blanket guidelines for processing a return. As a partner with
Seller interested in growing our relationship and respective businesses,
customers are asked to share the cost of this burden.
Note that each request for return must be specifically agreed to by the Seller
customer representative and Seller management. To obtain approval for a specific
restock return for credit, a customer signed agreement in accordance with the
following return guidelines is required:
The product must be in current production and directly purchased by
Buyer within the last 90 days. If product is determined to been
purchased from other suppliers, product will be returned to customer.
The product must be in new, immediate resoluble condition including
original packaging and master cartons.
***
A return authorization will be provided by your sales representative. It
will be valid for 30 days from issuance.
Stock is to be returned to the Seller San Diego, California, facility.
No custom products are returnable under this policy.
Buyer shall pay freight on returns.
Credit will be provided to customer's account within thirty (30) days.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Attachment J
VoiceStream Wireless Corporation/Novatel Inc.
ATTACHMENT J GPRS DEVELOPMENT SCHEDULE
THE FOLLOWING SCHEDULE IS CONTINGENT UPON THE OPERABILITY AND COMMERCIAL
AVAILABILITY OF A NORTH AMERICAN GSM 1900 NETWORK.
GPRS DEVELOPMENT SCHEDULE:
-------------------------------------------------------------------------------------
14.4KBPS 43.3KBPS 56KBPS
-------------------------------------------------------------------------------------
PROTOTYPE
QUANTITY 10 20 100
-------------------------------------------------------------------------------------
*** *** *** ***
-------------------------------------------------------------------------------------
*** *** *** ***
-------------------------------------------------------------------------------------
*** *** *** ***
-------------------------------------------------------------------------------------
*** *** *** ***
-------------------------------------------------------------------------------------
*** *** *** ***
-------------------------------------------------------------------------------------
*** *** *** ***
-------------------------------------------------------------------------------------
*** *** *** ***
-------------------------------------------------------------------------------------
*** *** *** ***
-------------------------------------------------------------------------------------
GPRS PC CARD PRODUCT DEVELOPMENT MILESTONES:
FIRST 1 SLOT ENGINEERING SAMPLES: ***
INDUSTRIAL DESIGN COMPLETE: ***
ALPHA TEST BEGINS IN PC CARD FORM FACTOR: ***
FCC CERTIFICATION BEGINS: ***
PILOT RUN: ***
BETA TEST BEGINS : ***
CARRIER CERTIFICATION BEGINS: ***
RELEASE TO MANUFACTURING: ***
FIRST PRODUCTION UNITS: ***
TARGET DEVELOPMENT SCHEDULE FOR 115KBPS GPRS*:
----------------------------------------------
115KBPS
----------------------------------------------
SCHEDULE PROTOTYPE-12 MONTHS ARO
----------------------------------------------
VOLUME-14 MONTHS ARO
----------------------------------------------
CONTINGENT ON SOURCE OF
----------------------------------------------
SILICON
----------------------------------------------
----------------------------------------------
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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----------------------------------------------
CONFIGURATION 8 RECEIVE, 2 TRANSMIT
----------------------------------------------
----------------------------------------------
SPEED 115KBPS DOWNLOAD
----------------------------------------------
28.8KBPS UPLOAD
----------------------------------------------
* Project totally dependent on delivery of silicon capable of this
configuration.
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Attachment K
VoiceStream Wireless Corporation/Novatel
ATTACHMENT K TECHNICAL SUPPORT
TECHNICAL SUPPORT
Technical Support for the Novatel GSM/GPRS 900/1900 Mhz PC Card delivered to
Voicestream or a Voicestream Designated Channel Partner will be managed via a
three-tier Technical Support infrastructure and process as follows:
LEVEL ONE TECHNICAL SUPPORT
Level one Technical Support will be provided by Voicestream or
Voicestream Designated Channel Partner to their direct and indirect
customers. Level one support is defined as calls* originating from
Voicestream or Voicestream Designated Channel Partner customers,
resellers or distributors regarding Voicestream or Voicestream
Designated Channel Partner Service, Wireless Service Providers, Novatel
GPRS PC Card products including but not limited to pre and post sale
inquiries concerning the basic operation of the hardware and software,
functionality, interoperability and capabilities of those products and
services.
For calls regarding the Novatel GPRS PC Card products, Voicestream or
Voicestream Designated Channel Partner will make every attempt to answer
customer questions and resolve issues using available tools,
documentation, test equipment and other materials used to support the
Novatel GPRS PC Card products (see training section below). If the
customer question/issue regarding the Novatel GPRS PC Card product
cannot be resolved by Voicestream or Voicestream Designated Channel
Partner support personnel to the customers' satisfaction, the issue will
be forwarded to Novatel level two Technical Support for further
investigation and resolution.
*Calls include phone calls, e-mail, web-based inquiries, faxes and
letters.
LEVEL TWO TECHNICAL SUPPORT
Level two Technical Support will be provided by Novatel Wireless support
staff directly to Voicestream or Voicestream Designated Channel Partner
level one support personnel to assist in the resolution of open customer
issues that have not been resolved to Voicestream or Voicestream Designated
Channel Partner customers satisfaction during a level one support call.
Voicestream or Voicestream Designated Channel Partner will have direct
access to designated support staff within the Novatel Wireless support
organization for this purpose. A direct line of communication between the
two organizations will be established and Novatel
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Wireless support technicians will be available during normal Voicestream or
Voicestream Designated Channel Partner Technical Support operation hours to
assist in resolution of customer problems. Novatel Wireless support
engineering will work directly with Voicestream or Voicestream Designated
Channel Partner support staff to resolve issues and answer questions, this
may require Voicestream or Voicestream Designated Channel Partner support
staff to gather additional information and provide system information or
test results back to Novatel support staff to aid in the definition and
resolution of the problem. It will be Voicestream or Voicestream Designated
Channel Partner support staff's responsibility to communicate directly with
the end-user customer. Problems that are not resolved *** or problems that
are flagged as sensitive/mission critical will be escalated to level three
Technical Support for final resolution.
LEVEL THREE TECHNICAL SUPPORT (ESCALATION)
Level three Technical Support will be provided by Novatel support and
system engineering staff to resolve issues that cannot be satisfactorily
resolved by level one and level two support personnel. Level three
support will handle all Voicestream or Voicestream Designated Channel
Partner product escalations issues including unresolved support calls
and will work directly with Novatel engineering staff to resolve those
issues.
TECHNICAL SUPPORT TRAINING
Technical Support training and documentation for the Novatel GPRS PC
Card Product will be provided to Voicestream or Voicestream Designated
Channel Partner level one support staff by Novatel Wireless. Voicestream
or Voicestream Designated Channel Partner support staff will receive
training on the general use, functionality, operation and compatibility
of the Novatel GPRS PC Card products. In addition all support related
documentation, training materials, notes, FAQ's, and web based support
materials will be made available to Voicestream or Voicestream
Designated Channel Partner for their use in supporting these products.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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EXHIBIT 10.21
PRODUCT PURCHASE AND LICENSE AGREEMENT
AGREEMENT NO. ______________
BETWEEN
INTEL CORPORATION AND NOVATEL WIRELESS, INC.
This Agreement dated this 23 day of October, 2000 ("Effective Date") is
between Novatel Wireless, Inc., with a place of business at 9360 Towne Centre
Drive, Suite 110, San Diego, CA 92121, and Intel Corporation, with a place of
business at 2111 N.E. 25th Avenue, Hillsboro, OR 97124-6497. The "Agreement,"
"Novatel Wireless" and "Intel" are defined more fully below. Novatel Wireless
and Intel are collectively referred to as "Parties", and each individually as a
"Party", in this Agreement.
RECITALS
1. Novatel Wireless develops, markets, sells and licenses wireless modems
and related firmware and software.
2. Subject to the terms of this Agreement, Intel desires to purchase, and
Novatel Wireless desires to sell, wireless modems for incorporation in
or integration with Intel's Products, including without limitation a
family of wireless computing products that Intel may distribute to end
user customers directly and through Intel's distribution channel of
resellers, distributors, OEMs and system integrators. Subject to the
terms and conditions of this Agreement, Intel also desires that Novatel
Wireless sell wireless modems to Intel's contract manufacturers and to
third party resellers of wireless computing products on terms and
conditions similar to those set forth herein.
3. In addition, subject to the terms of this Agreement, Intel desires to
license from Novatel Wireless the necessary rights to manufacture and
have such wireless modems manufactured and, under certain circumstances,
to enhance and modify the design of such modems.
AGREEMENT
Now, therefore, in consideration of the foregoing, the covenants stated
herein, and for other good and valuable consideration, the receipt and
sufficiency of which the Parties hereby acknowledge, the Parties agree as
follows:
1. DEFINITIONS. The capitalized terms in this Agreement shall have the
following definitions.
1.1 "Agreement" shall mean this document and its Exhibits, schedules,
attachments or addenda, and any amendments to the foregoing.
1.2 " *** " shall mean the *** of the Products, *** .
1.3 "Derivative" means (a) for material subject to copyright protection,
any work that is based upon one or more pre-existing works, such as a
revision, modification, translation, abridgment, condensation,
expansion, collection, compilation or any other form in which such
pre-existing works may be recast, transformed or adapted and (b) for
patentable or patented materials, any adaptation, subset, addition,
improvement or combination.
1.4 "Design Package" shall mean, with respect to each Form Factor, all
of the documentation, including all Updates thereto, necessary to permit
the design and manufacture of such Form Factor. The Design Package shall
include without limitation the items listed in Exhibit C-2.
1.5 "Documentation" shall mean training materials, product descriptions,
specifications, technical manuals and other printed information in any
medium for the Products including all Updates thereto,
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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shipped to Intel and shall include Updates to such Documentation created
from time to time during the term of this Agreement.
1.6. "Form Factor" shall mean each of the ***.
1.7 "Intel" shall mean Intel Corporation and its Subsidiaries.
1.8 "Intel Manufacturer" shall mean an OEM that manufactures products
for or for Intel.
1.9 "Intel Product" shall mean a product manufactured by or for Intel.
1.10 "Intellectual Property Rights" means (i) all United States and
foreign letters patent and applications for letters patent, industrial
models, industrial designs, utility models, certificates of invention,
and other indications of invention ownership, including any such rights
granted upon any reissue, division, or continuation or
continuation-in-part applications now or hereafter filed; (ii) all trade
secret rights arising under the laws of any jurisdiction; (iii) all
United States and foreign semiconductor mask work rights and
registrations for such rights; and (iv) all copyright rights and all
other literary property and author rights, whether or not copyrightable,
and all copyrights and copyrighted interests, including any renewals
thereof. Intellectual Property Rights do not include any rights in any
trademarks, trade names, service marks, logos, and the goodwill
associated therewith.
1.11 "Invention" shall mean any idea, design, concept, technique,
invention, discovery or improvement relating to software, firmware,
microcode, or the hardware intended to run such software, firmware,
and/or microcode, whether or not patentable, that is first conceived or
reduced to practice by one or more of the inventing party's employees
during the term and in the performance of this Agreement.
1.12 "Manufacturing Package" shall mean all of the documentation
including all Updates thereto necessary for the manufacture of the
Products. The Manufacturing Package shall include without limitation the
items set forth in Exhibit C-1.
1.13 "Novatel Wireless" shall mean Novatel Wireless, Inc, and its
Subsidiaries.
1.14 "Novatel Wireless Intellectual Property Rights" means all
Intellectual Property Rights owned by, controlled by, or licensed to,
Novatel Wireless on or after the Effective Date.
1.15 "Novatel Wireless Manufacturer" shall mean an OEM that manufactures
products by or for Novatel Wireless.
1.16 "OEM" means original equipment manufacturer.
1.17 *** shall mean the *** of the Products, as described in Exhibit A.
1.18 "Patent Rights" means with respect to a party all of such party's
rights arising from or related to all classes or types of patents,
utility models and design patents and applications for these classes or
types of patent rights and any equivalent rights in all countries of the
world that are owned or controlled by such party.
1.19 "***" means *** manufactured by or on behalf of Intel or
third-parties that are or will be used in connection with the ***.
1.20 "***" means the *** and *** being developed by and for Intel for a
family of ***, ***, ***.
1.21 "***" shall mean the *** of the Products, as described in
Exhibit A.
1.22 "Products" shall mean Novatel Wireless's wireless modems and
related firmware and software which are sold or licensed to Intel under
this Agreement, consisting of the ***, ***, including without limitation
the Product Software, all as described in Exhibit A, and any Updates
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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thereto.
1.23 "Product Support" mean the support that Novatel Wireless is
required to provide Intel with respect to the Products, as described in
Exhibit D.
1.24 "Product Software" shall mean the software and firmware, including
all related Documentation and Updates thereto, that is required or
normally provided by Novatel Wireless for the operation of the Products,
in compiled object code form (or, only if licensed pursuant to the
Design Package license provisions in Section 5, in source code form), as
described in Exhibit A, including without limitation the TTP Com
Software.
1.25 "Product Software Utilities" shall mean the Product Software
Utilities described in Exhibit A hereto, including any Updates thereto.
1.26 "Shipment" or "Shipped" refers to a shipment by Intel or an Intel
Manufacturer of a Product out of finished goods.
1.27 "Subsidiary" shall mean a corporation, company or other entity more
than fifty percent (50%) of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are owned or controlled, directly or indirectly, by
a party hereto. However, such corporation, company or other entity shall
be deemed to be a Subsidiary only so long as such ownership or control
exists.
1.28 "Substitutable Product" shall mean a wireless modem, whether
Novatel Wireless's or a third party's, which would be considered a
substitute or replacement product for Products.
1.29 "TTP Com Software" shall mean the Layer 2/3 Protocol Stack and
Application Layer software licensed from TTPCom to Novatel Wireless as
in existence on the Effective Date, and any Updates thereto.
1.30 "Updates" shall mean with respect to any Product (including Product
Software) any modifications to or Derivatives of the Products developed
by Novatel Wireless during the term of this agreement that correct
errors, fix bugs, or provide other incidental corrections, or improve
functions, add new functions, or improve performance by changes in
system design and coding (including modifications to hardware, firmware
and software), including carrier-mandated hardware and software fixes,
component (vendor) changes, implemented cost reduction strategies;
software/firmware changes; changes to the connector or antenna (and
related Documentation), which are made available at no additional charge
to any customer of Novatel Wireless who purchases such Product, except
that notwithstanding the foregoing, "Updates" shall not include
modifications to or Derivatives of the Products implementing changes in
the band or mode for current Form Factor sizes (e.g., single or
multi-band; single or multi-mode), changes in the form factor relating
to a specific host, or substantial changes to the host connector or
antenna. "Updates" with respect to the Manufacturing Package and the
Design Package shall include all of the Updates as specified above for
Products, and also information and support documentation with respect to
any change in the manufacturing process that supports any Updates to
Products.
2. PURCHASE OF PRODUCTS. Intel may purchase and Novatel Wireless shall sell the
Products at the prices specified in Exhibit B-1 and in accordance with the
specifications set forth in Exhibit A, as updated from time to time by Novatel
Wireless in accordance with Section 2.6 hereof ( "Product Specifications",
"Product specifications" or "specifications"), the quality requirements set
forth in Exhibit E, and the terms and conditions of Exhibit B. Intel shall have
no obligation to purchase a minimum number of Product units from Novatel
Wireless. In addition, Novatel Wireless shall sell Products directly to Intel's
Manufacturers of *** and to third party resellers private labeling *** on terms
and subject to conditions substantially similar to the terms and conditions of
this Agreement.
2.1 Object Code License to Product Software. Novatel Wireless grants to
Intel, a non-exclusive, worldwide, non-transferable (except in
connection with a permitted assignment under this Agreement),
fully-paid, ***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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license (with the right to sublicense only as expressly set forth
herein) to reproduce, display, perform, and distribute the Product
Software in object code form to end users directly or indirectly through
Intel's distribution channels, including without limitation, OEMs,
value-added resellers, system integrators, distributors and resellers;
but solely to the extent that the Product Software is incorporated in or
integrated with Products purchased by Intel under this Section 2 or
manufactured by or for Intel under the license to the Manufacturing
Package, and for no other purpose. In connection with the exercise of by
Intel of the license to the Manufacturing Package, the Product Software
shall not include the TTP Com Software. Intel shall have the right to
sublicense the foregoing rights to third parties in relation to the
distribution of the Products or to Intel Manufacturers in connection
with its exercise of the license to the Manufacturing Package
Manufacturer subject to appropriate restrictions on disclosure and use
by such Intel Manufacturer. The license granted under this Section 2.1
shall terminate upon termination of the Agreement, except that it shall
be perpetual with respect to Products which utilize the Product Software
and which have been: 1) made by Intel or an Intel Manufacturer pursuant
to the manufacturing license granted in Section 4.1; or 2) sold to Intel
under this Agreement by Novatel Wireless.
2.2 Source Code License to Product Software Utilities and Delivery of
Product Software Utilities. Within ten (10) days of the Effective Date
of this Agreement, Novatel Wireless will deliver or have delivered to
Intel the Product Software Utilities, in source code form. Novatel
Wireless grants to Intel, a non-exclusive, worldwide, non-transferable
(except in connection with a permitted assignment under this Agreement),
fully-paid, ***, license to reproduce, internally display, internally
perform and make Derivatives of (only under the conditions provided
herein) the Product Software Utilities solely for the internal
development and support of the Products and to compile and distribute in
object code form such Product Software Utilities as incorporated in or
integrated with Intel Products, and for no other purposes. Intel shall
promptly report to Novatel Wireless any Derivatives made using the
Product Software Utilities and shall send a copy of any such Derivatives
to Novatel Wireless in both source code and object code format and shall
provide Novatel Wireless with a non-exclusive, worldwide, irrevocable,
perpetual, fully-paid, royalty-free license to such Derivatives.
2.3 Other Intellectual Property License. Novatel Wireless grants to
Intel a license under all of its other Intellectual Property Rights
sufficient for Intel to exercise the copyright rights granted to it in
Sections 2.1 and 2.2 and for no other purpose.
2.4 Obligation to Meet Product Milestones; Access to Prototypes: (a)
Novatel Wireless will complete the following milestones with respect to
the development and production readiness of the Products by the dates
specified below (each, a "Product Milestone"):
***
For the purpose of this Section 2.4, the following terms shall have the
following meanings: "PROTOTYPE" - Functionally incomplete, not in final
Form Factor, demonstrable with significant effort. "ALPHA" -
Functionally complete (code complete), in final Form Factor, integration
into other systems is possible with some effort, demonstrable with ease,
bugs are to be expected. "BETA" - Has passed a significant amount of
quality assurance and validation tests, new bugs are few
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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and far between, integration with other systems is complete, may be
certified by FCC and other regulatory bodies. "PRODUCTION READY" -
Certified against and validated against specifications, ready for first
customer ship.
(b) Novatel Wireless will provide Intel the Prototypes, Alpha and Beta
units described in Section 2.4(a) prior to providing such Prototypes to
any other entity and Novatel Wireless will provide Production Ready
units of the Products to Intel prior to providing such units to any
other entity.
2.5 [***]
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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2.6 Product Specifications Input Process. The parties understand that the
Product specifications set forth in Exhibit A hereto are in some
respects incomplete and will be modified and updated by Novatel Wireless
during the course of this Agreement as part of Novatel Wireless's normal
process of development. The parties agree that they will follow the
following process with regard to permitting Intel to have input with
respect to the development and updating of specifications for the
Products:
A. [***]
B. [***]
C. Novatel Wireless provides pre 1.0 release specification to Intel in
either Word or PDF format on either major revisions or modifications to the
specification(s).
D. Intel reviews each specification and provides written feedback to
Novatel Wireless for each specification.
E. Intel and Novatel Wireless hold a review teleconference to go over
the specifications.
F. Each company will iterate on this until all specifications reach a
1.0 release level, it being understood by the parties that Novatel Wireless
shall have sole discretion as to the final specifications.
3. SERVICES.
3.1 Product Support. During the term of this Agreement, Novatel
Wireless, [***], shall provide Product
Support in accordance with Exhibit D. Product Support shall be provided
by Novatel Wireless for the term of this Agreement for all the Products,
regardless of whether Novatel Wireless discontinues the manufacture or
ends the life of any Product.
3.2 Product Updates. During the term of this Agreement, Novatel
Wireless, [***], Novatel Wireless shall
deliver to Intel Updates made by or for it to Products (including the
Product Software) no later than the delivery to any other customer.
3.3 Implementation Services. In the event Intel exercises its option to
license the Manufacturing Package or Design Package, [***]
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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***
3.4 Additional Consulting Services. ***
3.5 Interoperability Testing. Novatel Wireless will provide, *** the
interoperability Testing services described in Exhibit H hereto in a
manner consistent with the requirements of Exhibit B, except for
Sections 3 and 4 thereof. The Statements of Work developed by the
parties and governed by Exhibit B will be based on Exhibit H.
3.6 Applicability of Exhibit B to Product Support and Implementation
Services. Product Support and the Implementation Services provided under
this Agreement shall be rendered in a manner consistent with the terms
and conditions of Sections 8, 12, 14, 15, 17, 19, 20 of Exhibit B, and
will be considered "Services" for the purposes of such sections of
Exhibit B.
4. MANUFACTURING PACKAGE AND LICENSE
4.1 Manufacturing License. Intel shall have the option, in its sole
discretion, and upon ten (10) days written notice to Novatel Wireless at
any time during the term of this Agreement, to license the Manufacturing
Package pursuant to the terms and conditions of this Agreement,
including without limitation this Section 4.1. Upon such notice, Novatel
Wireless grants to Intel a non-exclusive, non-transferable (except in
connection with a permitted assignment under this Agreement), ***,
world-wide, license,
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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with the right to sublicense only as expressly permitted by this
Agreement, under Novatel Wireless's Intellectual Property Rights in the
Manufacturing Package, to use, import, reproduce, perform, display and
distribute such Manufacturing Package solely to manufacture, or have
manufactured the Products for incorporation in or integration with Intel
Products, and to make, have made, use, sell, offer to sell, import,
reproduce, display, perform and distribute the Products incorporated in
or integrated with Intel Products to end users directly or indirectly
through Intel's distribution channels, including without limitation,
OEMs, value-added resellers, system integrators, distributors and
resellers, and for no other purposes. Such manufacturing license shall
include a license under Novatel Wireless's Patent Rights that is
sufficient in scope in order for Intel to manufacture and have
manufactured the Products as specified above. Intel shall have the right
to sublicense such rights to an Intel Manufacturer subject to
appropriate restrictions on disclosure and use by such Intel
Manufacturer , and Intel agrees to cause such Intel Manufacturers to
abide by all of the terms and conditions of this Section 4.1 and with
respect to the confidentiality provisions of Section 10.1 as they relate
to the Manufacturing Package.
4.2 Royalty Prepayment for Implementation Services. In consideration for the
Implementation Services with respect to the Manufacturing Package, Intel
shall pay Novatel Wireless ***.
4.3 Manufacturing Royalty.
(a) Subject to Section 4.3(b), for each Product manufactured under the license
set forth in Section 4.1 for which a Shipment has been made, Intel shall pay
Novatel Wireless royalties ("Manufacturing Royalties") in an amount equal to
***
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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***
4.4 Generation Deposit and Return of Manufacturing Package: In support
of Novatel Wireless's obligations under this Section 4, Novatel Wireless
shall generate and deposit the Manufacturing Package in escrow with the
escrow agent identified in Exhibit C-3 pursuant to the terms and
conditions of Exhibit C-3. Upon termination of this Agreement, unless
the manufacturing license is renewed under terms mutually agreed to in
writing by the parties, Intel shall immediately return all copies of the
Manufacturing Package to Novatel Wireless or certify in writing that it
all such copies have been destroyed, including any copies in the
possession of Intel Manufacturers.
4.5 Updates to Manufacturing Package: During the term of this Agreement,
Novatel Wireless shall deposit in escrow, or if applicable, make
available to Intel, Updates to the Manufacturing Package, whether the
Manufacturing Package is in escrow or has been accessed by Intel
pursuant to the exercise of the license granted in Section 4.1. Such
Updates shall be delivered to the escrow agent, or if applicable, to
Intel on a quarterly basis or promptly upon a change in the
Manufacturing Package, whichever is more frequent with respect to any
Products, until Intel notifies Novatel Wireless in writing that it has
permanently ceased distribution of such Products or upon the
discontinuance of use of such Products by Intel, but in any event not
later than the expiration or termination of this Agreement. Such Updates
may include materials which Intel has reasonably requested which are not
listed in Exhibit C-1, subject to the consent of Novatel Wireless which
shall not be unreasonably withheld, conditioned or delayed.
4.6 Royalty Reports. Intel will submit a royalty report with respect to
Products Shipped by Intel and Intel Manufacturers under the
manufacturing license, and pay to Novatel Wireless Manufacturing
Royalties on the same due within *** of the end of each calendar quarter
in which such amounts are due. Such royalty reports will contain
adequate detail for Novatel Wireless to determine the basis for such
payments, and the royalty reports and the underlying information from
which they were prepared shall be subject to the audit rights of Section
13 of this Agreement. Novatel Wireless agrees to maintain royalty
reports as Confidential Information under this Agreement. Payment of
royalties shall be made by wire transfer of immediately available funds
to the following account: ________________________.
5. DESIGN PACKAGE AND LICENSE
5.1 Design License:
(a) License Grant:Intel shall have the option, in its sole
discretion and upon notice to Novatel Wireless at any time during the
term of this Agreement, to license the Design Package for any Form
Factor. Upon such notice, or upon the occurrence of any one of the
conditions set forth in Section 5.1(b), Novatel Wireless grants to Intel
a non-exclusive, non-transferable (except in connection with a permitted
assignment under this Agreement), irrevocable, ***, fully paid up (after
the payment of the Design License Fees in accordance with Section 5.2,
or if one of the conditions set forth in Section 5.1(b) occurs (each, an
"Escrow Event"), without payment of any license fees), world-wide,
perpetual license.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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with the right to sublicense only as expressly permitted by this
Agreement, under Novatel Wireless's Intellectual Property Rights in the
Design Package, use, import, reproduce, display, perform, and modify
(but only under the terms set forth in this Section 5.1(a)) such Design
Package for such Form Factor of the Products and any authorized
modification thereof, to manufacture and have manufactured such Form
Factor of the Products and any authorized modifications thereof for
incorporation in or integration with [***], and to make, have made, use,
sell, offer to sell, import, reproduce, display, perform and distribute
such Form Factor of the Products and any authorized modification thereof
incorporated in or integrated with such [***] to end users directly or
indirectly through Intel's distribution channels, including without
limitation, OEMs, value-added resellers, system integrators,
distributors and resellers. Such design license shall include a license
under Novatel Wireless's Patent Rights that is sufficient in scope in
order for Intel to exercise fully the license grant set forth above.
Intel may sublicense such rights (other than the right to make
modifications of the Products) to an Intel Manufacturer subject to
appropriate restrictions on disclosure and use by such Intel
Manufacturer and Intel agrees to cause such Intel Manufacturers to abide
by all of the terms and conditions of this Section 5.1 and with respect
to the confidentiality provisions of Section 10.1 as they relate to the
Design Package. Intel has the right to make modifications to the Design
Package and to the Products, without seeking the consent of Novatel
Wireless only if such modifications are substantially similar in nature
and scope to Updates previously provided by Novatel Wireless (such
modifications hereafter referred to as "Update Modifications"). Intel
shall grant to Novatel Wireless a non-exclusive *** perpetual
world-wide, license to use, reproduce, display, perform, modify,
distribute and sublicense any such Update Modifications. Such Update
Modifications, including all related information and Documentation,
shall be promptly delivered to Novatel Wireless, in source code form,
consistent with the manner set forth in Section 5.4 with respect to
delivery of Updates to the Design Package by Novatel Wireless. Intel may
request of Novatel Wireless, the right to make additional modifications
to the Design Package that do not constitute Update Modifications, and
may make such additional modifications upon receipt of written consent
from Novatel Wireless, which consent shall not be unreasonably withheld,
conditioned or delayed. Subject to the foregoing, Novatel Wireless shall
give or refuse such consent within twenty (20) days of Intel's initial
request (such approved modifications hereafter referred to as "Approved
Modifications"). Intel shall grant to Novatel Wireless a perpetual,
world-wide, license to use, reproduce, display, perform, modify,
distribute and sublicense any such Approved Modifications, at a
consideration and upon appropriate terms and conditions to be negotiated
in good faith by the parties.
(b) Design License Conditions.
(i) Novatel Wireless ceases doing business or exits the
business of developing and manufacturing all of the Products;
(ii) All or substantially all of the assets of Novatel
Wireless are transferred to an assignee for the benefit of
creditors, to a receiver or to a trustee in bankruptcy.
(iii) Novatel Wireless fails in a material respect to provide
Product Support for any Product, and such failure is not
remedied within sixty (60) days of Intel providing written notice
to Novatel Wireless of such failure to provide Product Support.
(c) Restrictions on Use by Intel of Design Package in Event of
Failure of Product Support.
In the event Intel believes that Design License Condition (iii)
in section 5.1(b)(iii) has occurred, Intel shall give written
notice of such event to Novatel Wireless and upon receipt of such
notice, Novatel Wireless shall have sixty (60) days to cure such
alleged breach. During the sixty (60) day period, Intel shall
reasonably cooperate with Novatel Wireless to effect a cure. If,
after sixty (60)
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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days, Intel is not satisfied that Novatel Wireless has cured the
alleged breach, Intel shall send notice to Novatel Wireless that
an Escrow Event has occurred and Novatel Wireless shall have two
(2) business days to consent or object to such characterization.
If Novatel Wireless objects to such characterization, the
parties shall submit the matter to a third-party consultant (the
"Consultant") as selected pursuant to Exhibit C-3, hereto. The
parties shall submit arguments and the Consultant shall render a
decision on the matter within ten (10) days after it is referred
to such Consultant. If the Consultant rules that an Escrow Event
has occurred, the Consultant must then also determine, based on
the parties arguments, the appropriate portion of the Design
Package to release from escrow (i.e., that portion required in
order for Intel to provide itself the specific Product Support
which Novatel Wireless failed to provide), and promptly order
the release of such portion of the Design Package. Any use of
the Design Package by Intel for this purpose of replacing failed
Product Support shall be limited to replacement of the failed
Product Support, and any other use by Intel of the released
portion of the Design Package is strictly prohibited.
5.2 License Fee to Novatel Wireless for Design Package: [***]
5.3 Generation and Deposit of Design Package: In support of
Novatel Wireless's obligations under this Section 5,
Novatel Wireless shall generate and deposit the Design
Package into escrow with the escrow agent identified in
Exhibit C-3 pursuant to the terms and conditions of
Exhibit C-3.
5.4 Updates to Design Package: During the term of this Agreement,
Novatel Wireless shall deliver to the escrow agent, or if applicable
make available to Intel, Updates to the Design Package, whether the
Design Package is in escrow or has been accessed by Intel pursuant to
its exercise of the Design Package License. Such Updates shall be
delivered to Intel on a quarterly basis or promptly upon a change in the
Design Package, whichever is more frequent, until Intel notifies Novatel
Wireless in writing that it has permanently ceased distribution of such
Products or upon the discontinuance of such Products by Intel, but in
any event not later than the expiration or termination of this
Agreement. Such Updates may include materials which Intel has reasonably
requested which are not listed in Exhibit C-2.
[***]
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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[***]
8. QUARTERLY REVIEWS, CONTRACT ADMINISTRATION AND CHANGES TO CONTRACT DOCUMENTS.
Intel and Novatel Wireless will meet approximately once per calendar quarter
(each party bearing their own expenses). The content of such quarterly meetings
shall typically include, but not be limited to the following: 1) product roadmap
review; 2) current product development status; 3) sales and inventory of the
Products and 4) identifying additional product areas where other collaborative
efforts may exist. The Parties may also meet on an as-needed basis, in order to
address on-going issues such as support or manufacturing issues.
9. INVENTIONS & OWNERSHIP.
9.1 Pre-existing Intellectual Property Rights. Each Party shall retain
sole and exclusive ownership of and/or unrestricted right to license any
pre-existing Intellectual Property Rights owned by such Party or in
which such Party has an interest.
9.2 Ownership of Intellectual Property Rights in Modification. Except
for Intellectual Property Rights in modifications to the Products made
by Intel solely or in collaboration with others in connection with
Intel's exercise of the Design Package license, which rights shall be
owned by Intel (and which shall be subject to the provisions of 5.1(a)
above), all Intellectual Property Rights in modifications to the
Products developed by the Parties solely or in collaboration with others
in the course of the performance the interoperability testing (as
provided in Section 3.5 of this Agreement), the Implementation Services,
or the Product Support, shall be owned by Novatel Wireless. Intel agrees
to assign (or cause to be assigned) and hereby does assign fully to
Novatel Wireless, all such Intellectual Property Rights. All
Intellectual Property Rights in modifications to any [***]
developed by the Parties solely or in collaboration with others in the
course of the performance of the interoperability testing (as provided
in Section 3.5 of this Agreement), the Implementation Services or the
Product Support, shall be owned by Intel. Novatel Wireless agrees to
assign (or cause to be assigned) and hereby does assign fully to Intel,
all such Intellectual Property Rights. Intellectual Property Rights with
respect to any Additional Consulting Services shall be determined by
mutual agreement of the parties.
9.3 Other Inventions. Except as otherwise provided herein, the Inventing
Party shall own each
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Invention made by its employees, applications filed thereon, and patents
issuing thereon.
9.4 No Other License. Except as explicitly granted in this Agreement,
no other patent license or immunity, or other license or right of any
kind, shall be deemed granted hereunder, at any time to either party,
whether expressly or by implication, estoppel, or otherwise.
9.5 Assignment of Rights. Each party agrees to assist the other, or its
designee, at such other party's expense, in every proper way, to secure
the rights assigned to such other party under Section 9.2 of this
Agreement, including the disclosure to such other Party of all pertinent
information or data with respect thereto and the execution of all
applications, specifications, oaths, assignments, and all other
instruments which such other Party may deem reasonably necessary in
order to apply for and obtain such rights and in order to assign and
convey to such other party, its successors and assigns, the sole and
exclusive rights, title and interest in and to such rights, including
without limitation, in the case of the interoperability testing (as
provided in Section 3.5 of this Agreement), the Certificate of
Originality set forth on Exhibit B-3 and the Assignment of Intellectual
Property set forth in Exhibit B-4. Each Party hereby waives any and all
moral rights, including the right to identification of authorship or
limitation on subsequent modification, that such Party or its employees
has or may have in any rights assigned to the other party under Section
9.2 of this Agreement.
10. CONFIDENTIALITY AND INFORMATION EXCHANGE.
10.1 General Applicability of CNDA. This Agreement and all information
and disclosures made by either Party under this Agreement in writing and
whether or not such information or disclosure is listed on any
Confidential Information Transmittal Record shall constitute
"Confidential Information" as defined in the Parties' Corporate
Nondisclosure Agreement # 698343 dated August 2, 2000, which is attached
to this Agreement as Exhibit G and incorporated in this Agreement in its
entirety ("CNDA"). Except as provided for in this Agreement, neither
Party shall disclose the existence or content of this Agreement without
the prior written consent of the other Party.
10.2 Confidentiality of Terms.
(a) Confidentiality of Terms. Confidential Information (as defined
below) shall not be disclosed by any party hereto to any third
party, including, without limitation, the Securities and
Exchange Commission or any other governmental authority or
regulatory body, except in accordance with the provisions set
forth below. For purposes of this Agreement, the term
"Confidential Information" refers to the following items: (i)
the existence of this Agreement, (ii) the terms and provisions
of this Agreement, and (iii) such other agreements between Intel
and Novatel Wireless that incorporate this section of this
Agreement by reference. "Confidential Information" does not
include information that is publicly filed with the Securities
and Exchange Commission.
(b) Prohibition on Announcements and Other Disclosures. No
announcement or other disclosure (including, without limitation,
any filing with any governmental authority or regulatory body)
regarding any Confidential Information shall be made in a press
release, conference, advertisement, announcement, professional
or trade publication, mass marketing materials, private
placement memorandum, offering circular, prospectus,
registration statement, filing, notice or otherwise without the
prior written consent of each of the parties hereto.
(c) Permitted Disclosures. Notwithstanding the foregoing, (i) any
party may disclose any of the Confidential Information to its
senior management, employees, investment bankers, lenders,
accountants and attorneys, in each case only where such persons
or entities have a reasonable need to know such information and
are under appropriate nondisclosure obligations; and (ii) Intel
may disclose its investment in Novatel Wireless and other
Confidential Information to third parties or to the public at
its sole discretion and, if it does so, Novatel Wireless shall
have the right to disclose to third parties any such information
disclosed in a press release or other public announcement by
Intel.
(d) Legally Compelled Disclosure. Subject to the terms and
conditions of Intel's Consent of even date herewith, in the
event that Novatel Wireless is requested or is legally required
or becomes legally compelled (or reasonably believes it is
legally required or compelled) by any governmental authority or
regulatory body (including, without limitation, the Securities
and Exchange Commission) or by statute or regulation or by oral
questions, interrogatories, requests for
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information or documents, subpoena, criminal or civil
investigative demand or similar process, including, without
limitation, in connection with any public or private offering of
Novatel's capital stock to disclose any Confidential Information
relating to the terms and conditions of this Agreement, Novatel
Wireless shall disclose only that portion of the Confidential
Information that Novatel Wireless is legally required to
disclose. The Company will not file this Agreement with any
governmental authority or regulatory body, or disclose the
identity of Intel or any other Confidential Information in any
manner except as permitted above and Intel hereby consents to
such disclosure if it is in the manner permitted above.
(E) Other Information. The provisions of this Section 10.2 shall be
in addition to, and not in substitution for, the provisions of
any separate nondisclosure agreement executed by any of the
parties hereto with respect to the transactions contemplated
hereby. Disclosures and exchange of confidential information
between the Company and Intel not covered by this Section 10 or
any other nondisclosure agreement executed by the parties
hereto, shall be governed by the terms of the Corporate
Non-Disclosure Agreement No. 6983494, dated August 2, 2000,
executed by Novatel Wireless and Intel, and any Confidential
Information Transmittal Records provided in connection
therewith.
11. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that it
has all rights necessary to enter into this Agreement and that there exist no
prior commitments or other obligations which prevent such Party from making all
of the grants and undertakings provided for in this Agreement. Further, Novatel
Wireless represents and warrant that it has not, as of the Effective Date,
received any notice from a third party alleging that any of the Products,
Product Software, the Design Package or the Manufacturing Package, respectively,
infringe or violate any Intellectual Property Rights of such third party.
11.1 Novatel Wireless's Warranties. In addition, Novatel Wireless makes
the following warranties regarding the Design Package and the Manufacturing
Package furnished hereunder, which warranties shall survive any delivery of such
Design Package or Manufacturing Package:
(a) the Manufacturing Package contains all the documents and other items
sufficient in detail and comprehensiveness to permit the commercially reasonable
manufacture of the Products by a manufacturer with reasonable background and
experience such that functional test yield of *** is achieved for Products that
meet the specifications set forth in Exhibit A and the Quality Requirements of
Exhibit E.
(b) the Design Package contains all the documents and other items
sufficient in detail and comprehensiveness necessary to permit the commercially
reasonable design, maintenance and support of the Products by a wireless product
designer with reasonable background and experience.
(c) Novatel Wireless has the necessary right, title, and interest to
license the Design Package and the Manufacturing Package to Intel (Except with
respect to any TTP Com Software included in either the Design Package or the
Manufacturing Package), and the Design Package and the Manufacturing Package
will be free of financial or security interest liens and encumbrances subject to
a general first lien on all of Novatel Wireless's assets by financial
institutions with which Novatel Wireless has loans outstanding.
11.2 Intel Warranty.
Intel warrants that upon exercise of the license to the Manufacturing
Package or the Design Package, it will have all necessary license rights from
TTPCom with respect to TTP Com Software in order to be able to be able to use
the TTP Com Software as integrated in or with Products manufactured in
accordance with the terms of the manufacturing license in Section 4.1 and the
design license in Section 5.1.
12. INTELLECTUAL PROPERTY INDEMNIFICATION.
12.1 Indemnity Regarding Packages. Novatel Wireless agrees to defend,
indemnify, and hold Intel harmless against any loss, cost, liability,
and expense (including reasonable attorneys' fees) arising from any
action or claim brought or threatened against Intel alleging that any of
the Manufacturing Package or the Design Package, or any product
manufactured in accordance with Novatel Wireless's specifications using
such Manufacturing Package or Design Package (collectively, the
"Indemnified Items") infringe any patent, copyright, trademark, trade
secret, or other intellectual property right of any third party. Intel
agrees to provide Novatel Wireless with (i) prompt written notice of
such claim or action, (ii) the
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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opportunity to control the defense or settlement of such claim or
action, and (iii) reasonable information and assistance in the defense
and/or settlement any such claim or action. Notwithstanding the
foregoing, if Novatel Wireless controls the defense, Intel shall be
permitted to participate in the defense at Intel's sole option and
expense. Novatel Wireless further agrees that if Novatel Wireless fails
to defend Intel in a timely and proper manner, Intel shall be permitted
to assume control of the defense and settlement of the claim, all at
Novatel Wireless's cost and expense. Intel shall not enter into any
settlement or compromise any claim without Novatel Wireless's prior
written consent, which shall not be unreasonably withheld, conditioned,
or delayed. In the event that any Indemnified Item is held to constitute
such an infringement, Novatel Wireless, at its expense, may, at it's
sole option either (i) obtain for Intel or its customers the right to
continue to use such Indemnified Item as contemplated herein, (ii)
modify such Indemnified Item so that it becomes non-infringing, but
without materially altering its functionality, or (iii) replace such
Indemnified Item with a functionally substantially equivalent
non-infringing Indemnified Item. Regardless of which of the foregoing
remedies is effected, Novatel Wireless shall pay to Intel reasonable
rework expenses and reasonable incremental cost incurred by Intel to
procure alternative products reasonably required to fill orders placed
by Intel and accepted by Novatel Wireless as of the effective date of
the injunction relative to an Indemnified Item.
12.2 Indemnification Obligation for Products. Novatel Wireless shall
indemnify and hold Intel harmless from any costs, expenses (including
reasonable attorneys' fees), losses, damages, or liabilities incurred
because of actual or alleged infringement of any patent, copyright,
trade secret, trademark, maskwork, or other intellectual property right
arising out of the use or sale by Intel or Intel's customers of Products
or Intel's products manufacturing using the Product(s) or containing or
integrated with the Products(s), except as otherwise provided in Section
12.3 of this Agreement. Intel shall notify Novatel Wireless of such
claim or demand and shall permit Novatel Wireless to participate in the
defense or settlement thereof. If an injunction issues as a result of
any claim or action, Novatel Wireless agrees at its expense and sole
option to either: (i) procure for Intel and Intel's customers the right
to continue using the Products; (ii) replace them with non-infringing
Products; (iii) modify them so they become non-infringing; or if Intel,
in its sole discretion determines that the previous remedies are
commercially unreasonable (iv) refund to Intel the amount paid for any
Products returned to Novatel Wireless or destroyed. Regardless of which
of the foregoing remedies is effected, Novatel shall pay to Intel
reasonable rework expenses and reasonable incremental cost incurred by
Intel to procure alternative products reasonably required to fill orders
placed by Intel and accepted by Novatel as of the effective date of the
injunction against the Products.
12.3 Limitations. Notwithstanding the foregoing, Novatel Wireless
assumes no liability for infringement claims arising from (i) the
combination of an Product with other products not provided by Novatel
Wireless where such claim would not have arisen but for such
combination, (ii) any modification or alteration of such Product not
made by or under the authority of Novatel Wireless, where such
infringement would not have occurred but for such modifications or
alterations, or (iii) any use of the Products other than as permitted by
this Agreement where such claim would not have occurred but for such
use.
12.4 Intel Indemnification Obligation for Intel Products that contain
Products. Intel shall indemnify and hold Novatel Wireless harmless from
any costs, expenses (including reasonable attorneys' fees), losses,
damages, or liabilities incurred because of actual or alleged
infringement of any patent, copyright, trade secret, trademark,
maskwork, or other intellectual property right arising out of: 1)
Intel's or Intel Manufacturers' manufacture of Products under the
manufacturing license granted under Section 4.1 or the design license
granted under Section 5.1 which do not comply to Novatel Wireless
specifications where such claim would not have occurred but for such
non-compliance; or 2) the combination of a Product with other products
not provided by Novatel Wireless where such claim would not have arisen
but for such combination. Novatel Wireless agrees to provide Intel with
(i) prompt written notice of such claim or action, (ii) the opportunity
to control the defense or settlement of such claim or action, and (iii)
reasonable information and assistance in the defense and/or settlement
any such claim or action.
13. AUDIT
The Parties, and Intel Manufacturers shall maintain complete and
accurate accounting, manufacturing, Shipping and salesrecords, in
accordance with generally acceptable accounting practices, to support
and document all compliance with (i) Novatel Wireless's obligations
under this agreement related to the most
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favored customer pricing requirements set forth in this Agreement, (ii)
the calculation and payment of royalties by Intel to Novatel Wireless
under this Agreement (iii) the services performed by Novatel Wireless
under this Agreement, and (iv) the occurrence of any *** Termination
Event. Such records, as they pertain to accrual of payments, shall be
retained for a period of at least three years after the accrual of the
payments resulting from such obligations, all other records shall be
kept for two (2) years following termination of the Agreement, Each
Party shall, upon written request, during normal business hours, but not
more frequently than once each calendar year (and in the event of an
occurrence of an *** Termination Event), provide access to such
accounting to an independent accounting firm chosen by the Party being
audited and compensated by the requesting Party, for purposes of an
audit. Such accounting firm shall be required to sign an agreement
protecting the audited Party's Confidential Information, as defined in
Section 10, and shall be authorized to report only the compliance with
the above-mentioned provisions. The Parties agree that if a discrepancy
of more than five percent (5%) is found in such audit then the audited
Party shall pay for the costs of the audit if an underpayment occurred.
If there is a five percent (5%) or more overpayment found, the Parties
shall each pay half of the cost of the audit. Any underpayment or
overpayment amount shall be paid to the appropriate Party within thirty
(30) days of the date of any audit report. The Parties also agree that
where the audited Party is found to be in non-compliance with the terms
of this Agreement, the audited Party shall bear the cost of the audit.
Novatel Wireless shall, upon reasonable notice to Intel, have the right
to have an independent auditor chosen by Intel and compensated by
Novatel Wireless, inspect and investigate the compliance of Intel and
Intel Manufacturers with the substantive, non-monetary provisions
relating to the manufacturing license and the design license as set
forth in Section 4.1 and Section 5.1, respectively. Such auditing firm
shall be required to sign an agreement protecting Intel's Confidential
Information, as defined in Section 10, and shall be authorized to report
only the compliance with the above-mentioned provision. If Intel is
found to be in material non-compliance with such license provisions,
Intel shall bear the costs of the audit.
14. COVENANT NOT TO SUE
14.1 Definitions. For the purpose of this Section 14:
(a) "ASSERT" means to bring an action of any nature before
any legal, judicial, arbitration, administrative, executive or other
type of body or tribunal that has or claims to have authority to
adjudicate such action in whole or in part. Examples of such body or
tribunal include, without limitation, United States State and Federal
Courts, the United States International Trade Commission and any
foreign counterparts of any of the foregoing.
(b) "CHIPSET" means any single product consisting of
integrated circuit(s) one or more of which is designed to be connected
directly to an Intel microprocessor, except for that portion of such
product that (i) provides RF transmission or reception, or (ii)
provides the interface between the portions set forth in the preceding
clause (i) and the digital portion of such chipset.
(c) "INTEL COVERED PRODUCTS" means
(i) all microprocessors manufactured by or for
Intel; and
(ii) all Chipsets manufactured by or for Intel
(d) "NOVATEL WIRELESS COVERED PRODUCTS" means all products
manufactured by or for Novatel Wireless other than (i) Chipsets; and
(ii) microprocessors that are hardware or software compatible with one
or more Intel microprocessors.
(e) "PATENT RIGHTS" means with respect to a party all of
such party's rights arising from or related to all classes or types of
patents, utility models and design patents and applications for
these classes or types of patent rights and any equivalent rights in
all countries of the world that are owned or controlled by such party.
14.2 COVENANT NOT TO SUE. Novatel Wireless agrees that for a period
of five years from the Effective Date of this Agreement, or for so long
as the parties have a long term business agreement in place with one
another (other than a purchase order or similar arrangement), whichever
is greater, Novatel Wireless shall not Assert any Patent Right against
Intel, its customers, distributors, and contract manufacturers or any
other entity to whom Intel has a patent infringement indemnification
obligation with respect to Intel Covered Products for the manufacture,
use, import, offer for sale or sale of any Intel Covered Products or any
process or method employed in the manufacture, testing, distribution or
use thereof for so long as Intel does not Assert any Patent Right
against Novatel Wireless, its customers, distributors and contract
manufacturers or any other entity to whom Novatel Wireless has a patent
infringement indemnification obligation with respect to Novatel Wireless
Covered Products for the manufacture, use, import, offer for sale or
sale of any Novatel Wireless Covered Products or any process or method
employed in the manufacture, testing, distribution or use thereof. For
the avoidance of doubt, this Section 14.2 is not intended by the parties
to prevent Novatel Wireless from Asserting any Patent Right with respect
to a non-Intel Covered Product or a combination of an Intel Covered
Product with a non-Intel Covered Product and this Section 14.2 shall not
prevent Novatel Wireless from Asserting any Patent Right with respect to
any Intel Covered Product which has been modified or altered by a third
party where such Patent Right would not have covered such Intel Covered
Product but for such third party modification or alteration.
14.3 ASSIGNMENT. For so long as the covenant not to sue of Section
14.2 of this Agreement remains in effect, if Novatel Wireless assigns
(directly or by operation of law) ownership of any of its Patent Rights
to a third party not bound by this Agreement, then effective
immediately prior to such assignment, Novatel Wireless agrees that
Intel shall have a nonexclusive, nontransferable license, without right
of sublicense, under such assigned Patent Rights to make, use, sell,
offer for sale and import Intel Covered Products. The provisions of
this Section shall not apply in the event that Novatel Wireless
"assigns" its Patent Rights (i) through a transaction in which all or
substantially all of Novatel Wireless or Novatel Wireless's assets are
acquired by a third party or (ii) in the case of a change of control of
Novatel Wireless by way of sale of all or substantially all of the
common stock (other than in a public offering) or a merger or other
similar acquisition transaction.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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***
15. TERM AND TERMINATION.
15.1 Stated Term of Agreement. Unless sooner terminated under the
provisions of this Section 15 the term of the Agreement begins on the
Effective Date and expires five (5) years thereafter.
15.2 Termination of the Agreement For Cause. Either Party shall have the
right to terminate this Agreement if the other Party fails to cure a
material breach of the terms of this Agreement within forty-five (45)
days of receipt of written notice thereof from the non-breaching Party.
15.3 Survival. Upon expiration or termination of this Agreement the
following Sections of this Agreement shall survive and continue in
effect: 2.1 (but only as provided therein), 2.2 (but only as provided
therein) 2.3 (but only to the extent Section 2.1 and 2.2 survive), 5.1
(but only as provided therein), 15.3 and 18.1 and Articles 9, 10, 11,
12, 13, 14 (but only as provided therein), and 16. Upon expiration or
termination of this Agreement, each Party shall: (i) return the
Confidential Information of the other Party to such Party except such
Confidential Information as is necessary to provide support services to
existing customers; and (ii) have the right to ship and sell Products in
Intel's inventory subject to the payment of royalties to Novatel
Wireless as provided in Section 4.3. In addition, upon termination of
this Agreement the Design and Manufacturing Packages held in escrow, if
any, shall be immediately released to Novatel Wireless.
16. LIMITATION OF LIABILITIES.
IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE OTHER PARTY, END USERS
OR ANY OTHER THIRD PARTY, FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES
ARISING OUT OF THIS AGREEMENT, UNDER ANY CAUSE OF ACTION OR THEORY OF LIABILITY,
AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE. ANY LIABILITY OF either party ARISING OUT OF THIS AGREEMENT SHALL IN NO
CASE EXCEED THE GREATER OF (A) three TIMES THE TOTAL AMOUNT OF PAYMENTS RECEIVED
BY NOVATEL WIRELESS FROM INTEL UNDER THIS AGREEMENT AND (B) fifteen million
dollars, except that NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED TO LIMIT
either party's liability for personal injury (including bodily injury), death,
physical damage to property or ANY INDEMNITY PROVIDED BY either party to the
other UNDER Section 12 of THIS AGREEMENT.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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17. ADDITIONAL COLLABORATION
Novatel Wireless and Intel will engage in the following technical
collaboration:
a) Novatel Wireless, in consultation with and support from Intel,
will provide all personnel, resources, and IP to complete the
work described in the statement of work attached in Exhibit J-1,
also referred to as Phase 1b. The parties recognize that they
have not set forth in full detail all technical aspects of the
statement of work attached in Exhibit J-1. Upon execution of
this agreement, the parties will complete this statement in
reasonable detail. If the parties are unable for any reason to
agree on such details within sixty (60) calendar days following
the effective date, Novatel Wireless will in good faith perform
the work as presently described with a goal of making Novatel
Wireless technology work as well on platforms targeted in the
statement of work attached as Exhibit J-1 as on any other
silicon, board or system architecture.
b) Novatel Wireless presently intends to perform the work described
in the statements of work set forth in Exhibits J-2 also
referred to as Phase 2. The parties recognized that they have
reached full agreement upon the advisability or the scope of
this work. Upon execution of this agreement, Novatel Wireless
will in good faith agree with Intel on this scope of this work.
If the parties are unable for any reason to agree on such
details within ninety (90) calendar days following the effective
date, Novatel Wireless will in good faith perform the work as
presently described with a goal of making Novatel Wireless
technology for Software Reconfigurable Radios work on Intel
Silicon.
c) Assuming the success of Phase 2 technology development (as
mutually defined and agreed to by both companies), the
productization of such technology will be undertaken as set
forth in Exhibit J-3 also referred to as Phase 2b. The parties
recognized that they have reached full agreement upon the
advisability or the scope of this work - given that the Phase 2
technology achieves its performance and cost targets. Upon
execution of this agreement, Novatel Wireless will in good faith
agree with Intel on the next level of details for this phase. If
the parties are unable for any reason to agree on such details
within 365 calendar days following the effective date, the high
level terms set forth in the current exhibit will continue to
remain in effect - unless mutually agreed to in writing between
the two companies.
18. GENERAL.
18.1 Notice. Unless otherwise agreed to by the Parties, all notices
required under this Agreement shall be deemed effective when received
and made in writing by either (i) registered mail, (ii) certified mail,
return receipt requested, or (iii) overnight mail, addressed and sent to
the attention:
INTEL: Intel Corporation
2111 N.E. 25th Avenue
MS JF3-147
Hillsboro, Oregon 97124-6497
Attn: General Counsel
With a copy of non-technical notices to
Intel Corporation
2111 N.E. 25th Avenue
MS JF3-147
Hillsboro, Oregon 97124-6497
Attn: Post Contracts Management
Novatel Wireless: Novatel Wireless, Inc.
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9360 Towne Centre Drive
Suite 110
San Diego, California 92121
Attn: Bruce Gray, Senior Vice President of Sales
and Marketing.
Each Party may designate another address for notices hereunder
in a written notice to the other from time to time.
18.2 Construction.
(1) Headings. The headings of this Agreement are provided
for reference only and shall not be used as a guide to
interpretation.
(2) Order of Precedence. In the event of inconsistency
between or among the various Agreement documents, the
following order of precedence shall govern
interpretation:
(a) The Statement of Work, solely as to its subject
matter;
(b) This document and its Exhibits other than the
Statement of Work and the Purchase Order; and
(c) Purchase Orders and Invoices.
18.3 Independent Contractor. Each Party is and shall remain an
independent contractor with respect to all performance rendered pursuant
to the Agreement documents. Neither Party nor any employee thereof shall
be considered an employee or agent of the other Party for any purpose
and shall have no authority to bind or make commitments on behalf of
such other Party for any purpose and shall not hold itself or themselves
out as having such authority. In performing Services under this
Agreement, Novatel Wireless is an independent contractor and its
personnel and other representatives shall not act as nor be agents or
employees of Intel. As an independent contractor, Novatel Wireless will
be solely responsible for determining the means and methods for
performing the required Services. Novatel Wireless shall have complete
charge and responsibility for personnel employed by Novatel Wireless.
18.4 Independent Development. Except as set forth in Section 2.4, this
Agreement does not preclude Intel or Novatel Wireless from evaluating,
acquiring from third parties not a party to this Agreement,
independently developing or marketing similar technologies or products
to the Products, or making and entering into similar arrangements with
other companies. Neither Party is obligated by this Agreement to make
such products or technologies available to the other.
18.5 Compliance with Laws. Each Party shall, at its own expense, comply
with any governmental law, statute, ordinance, administrative order,
rule or regulation relating to its duties, obligations and performance
under this Agreement and shall procure all licenses and pay all fees and
other charges required thereby.
18.6 Export of Technical Data. The Parties shall not, nor shall they
authorize or permit their employees, agents or subcontractors to, export
or re export any Deliverable or Products, any technical information, or
any process, product or service that is produced under this Agreement to
any country specified as a prohibited destination in applicable
national, state and local laws, regulations and ordinances, including
the Regulations of the U.S. Department of Commerce and/or the U.S. State
Department, without first obtaining government approval.
18.7 Taxes. Except as otherwise set forth in Section 4 of Exhibit B,
each Party shall have sole responsibility for the payment of all taxes
and equivalents and duties imposed by all governmental entities, as they
pertain to its duties, obligations and performance under this Agreement,
without reimbursement for tax liability, penalty, or interest, assessed
upon either Party.
18.8 Dispute Resolution. All disputes arising directly under the express
terms of this Agreement or the grounds for termination thereof shall be
resolved as follows: The senior management of both parties shall
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meet to attempt to resolve such disputes. If the disputes cannot be
resolved by the senior management, either party may make a written
demand for formal dispute resolution and specify therein the scope of
the dispute. Within thirty (30) days after such written notification,
the parties agree to meet for one (1) day with an impartial mediator and
consider dispute resolution alternatives other than litigation,
including referral to the National Patent Board. If an alternative
method of dispute resolution is not agreed upon within thirty (30) days
after the one day mediation, either party may begin litigation
proceedings.
18.9 Force Majeure. Neither Party shall be held liable for failure to
fulfill its obligations other than payment obligations under this
Agreement, if the failure is caused by flood, extreme weather, fire, or
other natural calamity, acts of governmental agency, or similar causes
beyond the control of such party, and the term for performance shall be
increased to a reasonable period of time.
18.10 Assignment. Neither party may assign or otherwise transfer its
rights or obligations under this Agreement without prior written consent
of the other party, which shall not be unreasonably withheld,
conditioned or delayed; provided that Intel may assign this Agreement to
a successor in interest, by merger, operation of law, or by assignment,
purchase or otherwise of the particular business or substantially all of
the assets of the particular business within Intel to which this
Agreement relates, without Novatel Wireless's consent. A change of
control shall not be considered a transfer or assignment under this
Section 18.10. Any attempt by either party to assign or delegate any
rights, duties or obligations set forth in this Agreement without the
other party's prior written consent , except as permitted herein, shall
be deemed a material breach of this Agreement and shall be null and
void. Except as provided above, the terms and conditions of this
Agreement shall bind and enure to the benefit of each party's successors
and assigns.
18.11 Governing Law, Jurisdiction and Venue. Any claim arising under or
relating to this Agreement shall be governed by the internal substantive
laws of the State of Delaware or federal courts located in Delaware,
without regard to principles of conflict of laws. Each party hereby
agrees to jurisdiction and venue in the courts of the State of Delaware
for all disputes and litigation arising under or relating to this
Agreement. This provision is meant to comply with 6 Del. C. Section
2708(a). The provisions of the United Nations Convention on Contracts
for the International Sale of Goods shall not apply to this Agreement.
The parties agree that the predominance of this Agreement is the sale of
goods, and agree that the Delaware version of the Uniform Commercial
Code, Article 2, shall be applicable to this Agreement.
18.12 No Other Rights. This Agreement shall not be construed to grant
any rights by implication, estoppel, or otherwise, that are not granted
through its express provisions.
18.13 Severability. The terms and conditions stated herein are declared
to be severable. If any paragraph, provision, or clause in this
Agreement shall be found or be held to be invalid or unenforceable in
any jurisdiction in which this Agreement is being performed, the
remainder of this Agreement shall be valid and enforceable and the
parties shall use good faith to negotiate a substitute, valid and
enforceable provision which most nearly effects the parties' intent in
entering into this Agreement.
18.14 Waiver. Failure by either party to enforce any term of this
Agreement shall not be deemed a waiver of future enforcement of that or
any other term in this Agreement or any other agreement that may be in
place between the parties
18.15 Entire Agreement. The terms and conditions of this Agreement,
including its exhibits, constitutes the entire agreement between the
parties with respect to the subject matter hereof, and merges and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions. Neither of the parties shall be bound by
any conditions, definitions, warranties, understandings, or
representations with respect to the subject matter hereof other than as
expressly provided herein. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. No oral explanation
or oral information by either party hereto shall alter the meaning or
interpretation of this Agreement. No amendments or modifications shall
be effective unless in a writing signed by authorized representatives of
both parties. These terms and conditions will prevail notwithstanding
any different, conflicting or additional terms and conditions which
20
21
may appear on any purchase order, acknowledgment or other writing not
expressly incorporated into this Agreement. This Agreement may be
executed in two (2) or more counterparts, all of which, taken together,
shall be regarded as one and the same instrument. The following exhibits
are attached hereto and incorporated herein:
Exhibit A: Product Definition and Specifications
Exhibit B: Purchasing Terms
Exhibit B-1: Product and Services Pricing; Statements of Work
Exhibit B-2: Intentionally Omitted
Exhibit B-3 Certificate of Originality
Exhibit B-4 Assignment of Intellectual Property
Exhibit C-1: Manufacturing Package
Exhibit C-2: Design Package
Exhibit C-3: Escrow Provisions
Exhibit D: Support and Training Requirements
Exhibit E: Quality Assurance Requirements
Exhibit F: Intentionally Omitted
Exhibit G: Executed CNDA
Exhibit H: Interoperability Statement of Work
Exhibit I: Intentionally Omitted
Exhibit J-1: Phase 1b Statement of Work
Exhibit J-2: Phase 2 Collaboration
Exhibit J-3: Phase 3b Collaboration
21
22
18.16 Marketing Collaboration. In the event Intel chooses to brand the
products with an Intel brand, rather than co-brand the Products, the
parties shall discuss in good faith opportunities for joint
participation in trade shows and other joint marketing opportunities.
IN WITNESS WHEREOF the Parties, through their respective duly authorized
representatives, hereby execute this Agreement on the Effective Date.
INTEL CORPORATION NOVATEL WIRELESS, INC.
By: /s/ ANGELA BIEVER By: /s/ BRUCE GRAY
---------------------------------- ----------------------------------
Printed Name: Angela Biever Printed Name: Bruce Gray
------------------------ ------------------------
Title: General Manager, NBI Title: Senior Vice President,
------------------------------- Sales and Marketing
-------------------------------
Date: October 23, 2000 Date: October 23, 2000
-------------------------------- --------------------------------
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EXHIBIT A
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EXHIBIT A-1
EXHIBIT A-1
PRODUCT SPECIFICATIONS
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Exhibit A-6
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EXHIBIT B
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EXHIBIT B
TERMS AND CONDITIONS OF PURCHASE AGREEMENT - GOODS AND SERVICES
1. DEFINITIONS. The following terms shall have the meanings ascribed to
them for the purpose of the Agreement.
A. "Hazardous Materials" are or contain dangerous goods, chemicals,
contaminants, substances, pollutants, or any other materials that are
defined as hazardous by relevant local, state, national, or
international law, regulations, and standards.
B. "Purchase Order" is Intel's document setting forth specific Services to
be rendered and/or specific Products ordered, and Release information.
C. "Release" means Intel's authorization for Novatel Wireless to provide
the Services and/or to ship a definite quantity of Products to a
specified schedule. The Release is contained in the Purchase Order sent
to Novatel Wireless.
D. "Service(s)" means the additional consulting services to be performed by
Novatel Wireless as set forth in Section 3.4 of the Agreement and the
interoperability testing services set forth in Section 3.5 of the
Agreement.
2. DELIVERY AFTER EXPIRATION
At Intel's option, Products may be scheduled for delivery up to six (6)
months following expiration of the Agreement.
3. PRICING
A. Except as set forth in Exhibit B-1, Pricing for the Products and
Services shall be in accordance with Exhibit B-1 for the duration of
this Agreement. The parties may substitute a revised Exhibit B-1 at any
time by each signing a dated copy that shall from such date be the
effective Exhibit B-1. At Intel's request, Services shall be provided in
accordance with a Statement of Work in the form specified in Exhibit B-1
B. In consideration for including the Products exclusively in the reference
design for the ***, the price charged Intel for any Product or Service
shall always be Novatel Wireless's *** for that Product or equivalent
Service regardless of any special terms, conditions, rebates, or
allowances of any nature (hereinafter "***"), provided that the price
charged by Novatel Wireless for *** and *** shall be *** of such price.
If Novatel Wireless sells any Product or Service to any customer at a
price *** that set forth herein, Novatel Wireless shall adjust its price
to the *** for any un-invoiced Products or Service and for all future
invoices for such Product or Service. Each of the above adjustments
shall be calculated from the date Novatel Wireless first sells the
Product or Service at the ***.
C. In the event Novatel Wireless offers ***, either as a general *** or
only to *** for any reason, Novatel Wireless shall immediately inform
Intel of this price and price protect Intel's inventory of affected
Products or Service by *** to Intel an amount equal to *** by Intel and
the *** Products pulled into Intel's manufacturing process for
consumption or Service retroactive to the date the Novatel Wireless
first sells the Product or Service at a lower price.
D. Intel may return up to *** of its inventory of Products purchased from
Novatel Wireless during the previous ninety (90) days in unopened,
original, individual Product packaging for a credit against any future
Novatel Wireless invoices.
E. All applicable taxes, including but not limited to sales/use taxes,
transaction privilege taxes, gross receipts taxes, and other charges
such as duties, customs, tariffs, imposts, and government imposed
surcharges shall be stated separately on Novatel Wireless's invoice.
Novatel Wireless shall remit all such charges to the appropriate tax
authority unless Intel provides sufficient proof of tax exemption. In
the event that Intel is prohibited by law from making payments to
Novatel Wireless unless Intel deducts or withholds taxes therefrom and
remits such taxes to the local taxing jurisdiction, then Intel shall
duly withhold such taxes and shall pay to Novatel Wireless the remaining
net amount after the taxes have been withheld. Intel shall not reimburse
Novatel Wireless for the amount of such taxes withheld. When property is
delivered and/or services are provided or the benefit of services occurs
within jurisdictions in which Novatel Wireless collection and remittance
of taxes is required by law, Novatel Wireless shall have sole
responsibility for payment of said taxes to the appropriate tax
authorities. In the event Novatel Wireless does not collect tax from
Intel, and is subsequently audited by any tax authority, liability of
Intel will be limited to the tax assessment, with no reimbursement for
penalty or interest charges. Each party is responsible for its own
respective income taxes or taxes based upon gross revenues, including
but not limited to business and occupation taxes.
F. Additional costs will not be reimbursed without Intel's prior written
approval.
4. INVOICING AND PAYMENT
A. Intel shall make payment within *** days of Intel's receipt of the
proper original invoice or Intel's receipt of Products or performance of
Services, whichever is later. Payment is made when Intel's check is
mailed or EDI funds transfer initiated.
B. Original invoices or packing lists shall be submitted and shall include:
purchase agreement number from the Purchase Order, Purchase Order
number, line Product number, Release number, part number, complete bill
to address, description of Products, quantities, unit price, extended
totals, and any applicable taxes or other charges. All costs forwarded
to Intel for reimbursement of expenses agreed under the terms of this
Agreement shall be net of any reclaimable Value Added Taxes ("VAT")
incurred on such expenses. Intel's payment shall not constitute
acceptance.
C. Novatel Wireless shall be responsible for and shall hold Intel harmless
for any and all payments to its vendors or subcontractors utilized in
performing the Services.
D. Novatel Wireless agrees to invoice Intel no later than one hundred
eighty (180) days after completion of Services or shipment of Products.
Intel will not be obligated to make payment against any invoices
submitted after such period.
5. TERMINATION FOR CONVENIENCE
A. Subject to Section 2.4 of the Agreement (Exclusivity), Intel may
terminate any Purchase Order or Release issued, or any part thereof, at
any time for its sole convenience by giving written notice of
termination to Novatel Wireless. Upon Novatel Wireless's receipt of such
notice, Novatel Wireless shall, unless otherwise specified in such
notice, immediately stop all work hereunder and give immediate written
notice to and cause all of its suppliers or subcontractors to cease all
related work.
B. There shall be no charges for termination of orders for Products or
Services not yet provided. Intel will be responsible for payment of
authorized Services and Products already provided by Novatel Wireless,
but not yet invoiced. Notwithstanding anything to the contrary, Novatel
Wireless shall not be compensated in any way for any work done after
receipt of Intel's notice, nor for any costs incurred by Novatel
Wireless's vendors or subcontractors after Novatel Wireless gives them
notice of termination, nor for any costs Novatel Wireless could
reasonably have avoided. Novatel Wireless will be responsible to
immediately notify its relevant suppliers of any relevant termination
pertaining to this agreement.
C. Notwithstanding anything else in the Agreement, failure to meet the
delivery date(s) in the Purchase Order shall be considered a material
breach of contract and shall allow Intel to terminate the order for the
Product and/or any subsequent Releases in the Purchase Order without any
liability.
D. Novatel Wireless may terminate any Purchase Order or Release issued, or
any part thereof, by providing Intel written notice of termination upon
the occurrence of any of the following events:
(a) Intel materially breaches its payment obligations under this
Agreement, unless such failure is cured within sixty (60) days from receipt of
written demand for such payment.
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(b) Intel materially breaches any material provision of this Agreement
and fails to institute reasonable efforts to cure such material breach within
sixty (60) days from receipt of written notice describing the breach. This
section in no way limits Novatel Wireless's rights to terminate the Agreement
pursuant to Section 15 thereof.
6. CONTINGENCIES
Neither party shall be responsible for its failure to perform due to
causes beyond its reasonable control, such as acts of God, fire, theft,
war, riot, embargoes or acts of civil or military authorities. If
delivery of Products or performance of Services are to be delayed by
such contingencies, Novatel Wireless shall immediately notify Intel in
writing and Intel may either: (i) extend time of performance; or (ii)
terminate all or part of the uncompleted portion of the Purchase Order
at no cost to Intel.
7. DELIVERY, RELEASES, AND SCHEDULING
A. Any forecasts provided by Intel are non-binding forecasts that are made
for planning purposes only and do not constitute a Release or other
commitment by Intel. Within *** following execution of this Agreement,
Intel shall furnish Novatel Wireless with a forecast ("Estimated Product
Forecast"), estimating on at least a monthly basis, the quantity of each
type of Products that Intel may purchase during the succeeding ***
period and the desired date therefor ("Delivery Date"). Thereafter, on
or before the first day of each calendar month, and at such other time
as appropriate in the event forecasts are more frequent than monthly,
Intel shall provide Novatel Wireless with an updated forecast for the
succeeding *** period. Novatel Wireless will use its commercially
reasonable efforts to ensure that supply of Products is available
consistent with Intel's forecasts, as updated, but Intel will have no
liability for any differences between the Estimated Product Forecast and
the actual Product volume ordered by Intel in any Purchase Order
Release.
B. All Purchase Orders placed by Intel under this Agreement shall reference
this Agreement and shall be governed only by the terms and conditions of
this Agreement. The terms and conditions of any Purchase Order, or any
other document submitted by Intel, which conflicts with or in any way
purports to amend this Agreement are hereby specifically objected to and
shall be of no force or effect, unless the same refers to this
Agreement, is agreed to in writing by an authorized officer of Novatel
Wireless and an authorized representative of Intel. Intel shall submit
in writing firm Purchase Orders which cover the Products Intel is
purchasing and identify (i) the desired Products, (ii) desired quantity,
(iii) requested delivery dates, (iv) destinations of each Product
ordered per shipment and (v) desired method of transportation.
C. Novatel Wireless shall notify Intel in writing within four (4) business
days of receipt of Intel's Purchase Order if Novatel Wireless is unable
to make any scheduled delivery and shall state the reasons therefor. The
absence of such notice constitutes acceptance of the Purchase Order and
commitment to the Release terms.
D. Novatel Wireless shall deliver Products per the Release schedule and
Intel may return non-conforming shipments at Novatel Wireless's risk and
expense.
E. Novatel Wireless shall promptly perform Services as scheduled or shall
promptly notify Intel if unable to perform any scheduled Services and
shall state the reasons.
F. Intel may reschedule any Release in whole or in part prior to the
Release date at no additional charge.
G. Intel may place any portion of a Release on hold by notice that shall
take effect immediately upon receipt. Releases placed on hold will be
rescheduled or terminated in accordance with Section 5 within a
reasonable time.
H. Intel shall have no obligation with respect to the purchase of Products
or Services under this Agreement until such Products are specified in an
issued Purchase Order that contains specific Release dates for specific
Products and, for Products, the other information set forth in Section
7.B.
I. If for any reason Novatel Wireless discontinues the manufacture of any
Product during the term of this Agreement or within one (1) year after
the final delivery under this Agreement, Novatel Wireless shall give
Intel at least twelve (12) months prior written notice of such Product
discontinuance, during which time Intel shall have the option to place a
final Release for such Products for delivery to Intel within an agreed
upon period. If any warranty return claims are made for such
discontinued Products, then such returns will be subject to the warranty
provisions in Section 8.
J. During the term of the Agreement, Novatel Wireless will fulfill Intel's
requirements for the Products prior to supplying any third party with
Products or Substitutable Products. In addition, Novatel Wireless will
fulfill Intel's Purchase Order for Products within *** weeks of
receiving such Purchase Order, provided that such Purchase Order does
not exceed the most recent forecast, and will fulfill any amount by
which the Purchase Order exceeds the most recent forecast (up to ***),
within *** weeks of receiving Intel's Purchase Order.
8. INSPECTION, ACCEPTANCE AND WARRANTY
A. Intel may inspect and test all Products at reasonable times before,
during, and after manufacture. If any inspection or test is made on
Novatel Wireless's premises, Novatel Wireless shall provide reasonable
facilities and assistance for the safety and convenience of Intel's
inspectors in such manner as shall not unreasonably hinder or delay
Novatel Wireless's performance. All Products and Services shall be
received subject to Intel's inspection, testing, approval, and
acceptance at Intel's premises (provided that such inspection, testing,
approval and acceptance is not to exceed a period of ten (10) days)
notwithstanding any inspection or testing at Novatel Wireless's premises
or any prior payment for such Products or Services. All products not
rejected by Intel within ten (10) days will be deemed accepted by Intel.
Products or Services rejected by Intel as not conforming to this
Agreement or Product specifications (including without limitation the
Product Specifications set forth in Exhibit A of the Agreement), whether
provided by Intel or furnished with the Product, may be returned to
Novatel Wireless and in accordance with the terms of this Section at
Novatel Wireless's risk and expense , at Intel's request, shall
immediately be repaired or replaced.
B. Novatel Wireless makes the following warranties regarding Products and
Services furnished hereunder, which warranties shall run from the date
of acceptance of Products or Services by Intel and which shall survive
any delivery, inspection, acceptance, payment, or resale of the
Products:
(i) Novatel Wireless has the necessary right, title, and interest to
provide said Products and Services to Intel, and the Products
will be free of liens and encumbrances;
(ii) Products are new, and of the grade and quality specified;
(iii) Products and Services are free from defects in workmanship and
material, conform to all samples, drawings, descriptions, and
specifications furnished or published by Novatel Wireless, and
to any other agreed-to specifications, including without
limitation the Product Specifications set forth in Exhibit A of
the Agreement. This warranty does not extend to (1) defects,
errors, or nonconformities in a Product due to use other than in
accordance with Novatel Wireless's specifications and (2)
defects, errors or nonconformities in the Product due to
modifications, alterations, additions or changes in the Product
not permitted by this Agreement.
(iv) Products conform to the manufacturing quality provisions set
forth in Exhibit E of the Agreement;
(v) Novatel Wireless has all necessary rights, title, and interest
to grant the rights set forth herein to Intel, free of any
claims, liens, or conflicting rights in favor of any third
party;
(vi) The Product Software licensed in this Agreement is free from
significant programming errors and defects in workmanship and
materials, and substantially complies with functionality and
performance set forth in Novatel Wireless's published
specifications and the specifications set forth in Exhibit A of
the Agreement;
(vii) The Product Software contains no disabling code and is free from
any viruses at the time of delivery to Intel;
C. If Novatel Wireless breaches any of the foregoing warranties, or
Products (including the Product Software) or Services are otherwise
defective or non-conforming, during a period of two (2) years after
Intel's acceptance of Products or Services, Novatel Wireless shall,
promptly repair or replace, such Products and Services. Novatel Wireless
shall bear the cost of shipping and
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
CONFIDENTIAL 73
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shall bear the risk of loss of all defective or non-conforming Products
while in transit.
D. During the warranty period, Intel may give Novatel Wireless written
notice of any defect, deficiency or non-conformance of any Product or
Services, or parts thereof. Novatel Wireless shall, at no cost to Intel,
and with the "Turn-Around Time" defined in Section 8(E), repair or
replace such Products or provide such Services, provided, however, with
respect to Products, that the Products have been maintained in
accordance with Novatel Wireless's specifications as set forth in
Exhibit A of this Agreement and have not been modified by any party
other than Novatel Wireless except as expressly permitted by this
Agreement. Novatel Wireless shall bear the cost of shipping and shall
bear the risk of loss of all defective or non-conforming Products while
in transit, and for the return of the repaired and/or replaced Products
to the appropriate destination. Repaired or replaced Products shall be
subject to the same warranties and remedies as the initial Product for a
period of eighteen (18) months after repair and/or replacement Products
have been received by Intel, or the remainder of the original warranty
period, whichever is longer. Notwithstanding the foregoing, Intel shall
bear all expenses if no fault on the part of Novatel Wireless was found
in the Products returned for repair or replacement. In addition, Novatel
Wireless shall be responsible for all rework costs incurred by Intel as
a result of defective or non-conforming products. For purposes of this
Agreement, the term "rework" means the process of (i) diagnosing,
retrieving, and accessing a non-conforming or defective Product; (ii)
repairing such Product so that it is conforming and free from defects
and/or replacing such Product with an Product which is conforming and
free from defects, (iii) if necessary, reconfiguring an Intel product to
accommodate the repaired or replaced Product or the covered item, (iv)
testing the repaired or replaced Product to ensure that the repaired or
replaced Product is conforming and free from defects; and (v) returning
the Product which is conforming and free from defects to the location
where the non-conforming or defective Product was at the time the
non-conformance or defect was discovered
E. "Turn-Around Time" for purposes of this section means thirty (30) days
from the date on which such defective Product, or defective or
non-conforming part thereof, is furnished to Novatel Wireless for repair
or replacement, until the date on which such replaced or repaired
Product is returned to Intel. With respect to Services, "Turn-Around
Time" for providing the required Services shall be thirty (30) days from
the date Novatel Wireless receives notice that Services are not being
provided as required under the Agreement.
F. The warranty granted in this Section 8 sets forth Intel's sole and
exclusive remedy and Novatel Wireless's sole and exclusive liability for
any claim of warranty for any Product or Service delivered by Novatel
Wireless.
G. Intel acknowledges that it is not authorized to make any warranty or
representation on behalf of Novatel Wireless or its suppliers regarding
the Products, whether express or implied, other than the warranty terms
set forth in this Section 8.
H. THE WARRANTY MADE UNDER THIS SECTION 8 IS EXPRESSLY IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
9. PRODUCT SPECIFICATIONS/ IDENTIFICATION/ERRATA
A. Novatel Wireless shall not modify the specifications for Products or
Services without Intel's written consent. Novatel Wireless shall notify
Intel at least sixty (60) days in advance of any changes in the
manufacturing process.
B. Novatel Wireless shall cooperate with Intel to provide configuration
control and traceability systems for Products supplied hereunder.
C. Novatel Wireless shall provide Intel with an errata list for each
Product and shall promptly notify Intel in writing of any new errata
with respect to the Products.
10. PACKING AND SHIPMENT
A. All Products shall be prepared for shipment in a manner that: (i)
follows good commercial practice; (ii) is acceptable to common carriers
for shipment at the lowest rate; and (iii) is adequate to ensure safe
arrival. Novatel Wireless shall mark all containers with necessary
lifting, handling and shipping information, Purchase Order number, date
of shipment, and the names of the Intel and Novatel Wireless. Intel
shall notify Novatel Wireless of the method of shipment and expected
delivery date. If no instructions are given, Novatel Wireless shall
select the most cost effective carrier, given the time constraints known
to Novatel Wireless. Novatel Wireless shall ship only the quantity of
Products specified in the Release. Intel may return at Novatel
Wireless's expense any Products in excess of the quantity stated in the
Release.
B. Intel shall manage all freight shipped pursuant to this Agreement unless
Intel indicates, in writing, on the Purchase Order, at the time it is
first submitted to Novatel Wireless, that Novatel Wireless is to manage
the freight with respect to that particular Purchase Order. The party
selected to manage freight shall do so in accordance with the following
terms and conditions:
(i) For Novatel Wireless Managed Freight: All Products shall be
shipped Delivered Duty Paid, Intel's Dock (DDP: Intel's Dock,
Incoterms 2000) for non free trade zone factory sites or
Delivered Duty Unpaid, Intel's Dock (DDU: Intel's Dock,
Incoterms 2000) for free trade zone factory sites. Title and
Risk of loss shall pass to Intel upon delivery of Products to
Intel's Dock.
(ii) For Intel Managed Freight: All Products shall be shipped Free
Carrier, Novatel Wireless's Dock (FCA: Novatel Wireless's Dock,
Incoterms 2000). Title and Risk of loss shall pass to Intel upon
delivery of Products to Intel's agent at the Novatel Wireless
Dock.
11. OWNERSHIP AND BAILMENT RESPONSIBILITIES
A. Any specifications, drawings, schematics, technical information, data,
tools, dies, patterns, masks, gauges, test equipment, and other
materials furnished or paid for by Intel shall: (i) be kept
confidential; (ii) remain or become Intel's property; (iii) be used by
Novatel Wireless exclusively for Intel's orders; (iv) be clearly marked
as Intel's property and segregated when not in use; (v) be kept in good
working condition at Novatel Wireless's expense; and (vi) be shipped to
Intel promptly on demand.
B. Novatel Wireless shall insure Intel's property and be liable for loss or
damage while in Novatel Wireless's possession or control, ordinary wear
and tear excepted.
12. HAZARDOUS MATERIALS
A. If Products or Services provided hereunder include Hazardous Materials,
Novatel Wireless represents and warrants that Novatel Wireless and its
personnel providing Services to Intel understand the nature of and
hazards associated with the design and/or Service of Products including
handling, transportation, and use of such Hazardous Materials, as
applicable to Novatel Wireless. Prior to causing Hazardous Materials to
be on Intel's property, Novatel Wireless shall obtain written approval
from Intel's Site Environmental/Health/ Safety organization. Novatel
Wireless will be fully responsible for and indemnify Intel from any
liability resulting from the actions of Novatel Wireless or its
contractors in connection with: (i) providing such Hazardous Materials
to Intel; and/or (ii) the use of such Hazardous Materials in providing
Services to Intel.
B. Novatel Wireless will timely provide Intel with material safety data
sheets and any other documentation reasonably necessary to enable Intel
to comply with applicable laws and regulations.
C. Novatel Wireless hereby certifies that Products supplied to Intel do not
contain and are not manufactured with any ozone depleting substances, as
those terms are defined by law.
13. CUSTOMS CLEARANCE
Upon Intel's request, Novatel Wireless will promptly provide Intel with
a statement of origin for all Products and with applicable
CONFIDENTIAL 74
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customs documentation for Products wholly or partially manufactured
outside of the country of import.
14. INSURANCE
A. Without limiting or qualifying Novatel Wireless's liabilities,
obligations, or indemnities otherwise assumed by Novatel Wireless
pursuant to this Agreement, Novatel Wireless shall maintain, at its sole
cost and expense, with companies acceptable to Intel, Commercial General
Liability and Automobile Liability Insurance with limits of liability
not less than $1,000,000.00 per occurrence and including liability
coverage for bodily injury or property damage (1) assumed in a contract
or agreement pertaining to Novatel Wireless's business and (2) arising
out of Novatel Wireless's product, Services, or work. Novatel Wireless's
insurance shall be primary, and any applicable insurance maintained by
Intel shall be excess and non-contributing. The above coverages shall
name Intel as additional insured.
B. Novatel Wireless shall also maintain statutory Workers' Compensation
coverage, including a Broad Form All States Endorsement in the amount
required by law, and Employers' Liability Insurance in the amount of
$1,000,000.00 per occurrence.
C. If Novatel Wireless is providing any professional service to Intel,
Novatel Wireless shall maintain Professional Liability Insurance
(including errors and omissions coverage) with liability limits not less
than $1,000,000.
D. Novatel Wireless shall provide Intel with properly executed
certificate(s) of insurance prior to commencement of any operation
hereunder and shall notify Intel, no less than thirty (30) days in
advance, of any reduction or cancellation of the above coverages. Such
certificates shall be sent to the attention of Intel's Material
Representative at the address forth in the Notices section of this
Agreement.
15. COMPLIANCE WITH LAWS AND RULES
A. Novatel Wireless shall comply with all national, state, and local laws
and regulations governing the manufacture, transportation, import,
export, and/or sale of Items and/or the performance of Services in the
course of this Agreement. In the United States, these may include, but
are not limited to, Department of Commerce including U. S. Export
Administration regulations, Securities Exchange Commission,
Environmental Protection Agency, and Department of Transportation
regulations applicable to Hazardous Materials. Neither Novatel Wireless
nor any of its subsidiaries will export/re-export any technical data,
process, product, or service, directly or indirectly (including the
release of controlled technology to foreign nationals from controlled
countries), to any country for which the United States government or any
agency thereof requires an export license or other government approval
without first obtaining such license. In addition, Novatel Wireless
agrees not to provide foreign nationals from controlled countries as
employees or contractors for work on any Intel site. For a current list
of "Controlled Countries" refer to http://www.bxa.doc.gov.
B. Novatel Wireless agrees to abide by all Intel's rules and regulations
while on Intel's premises or performing Services including, but not
limited to, safety, health and Hazardous Material management rules, and
rules prohibiting misconduct on Intel's premises including, but not
limited to, use of physical aggression against persons or property,
harassment, and theft. Novatel Wireless will perform only those Services
identified on Addendum "A" and will work only in areas designated for
such Services. Novatel Wireless shall take all reasonable precautions to
ensure safe working procedures and conditions for performance on Intel's
premises and shall keep Intel's site neat and free from debris.
C. Novatel Wireless represents and agrees that it is in compliance with
Executive Order 11246 and implementing Equal Employment Opportunity
regulations, the Vietnam Era Veterans' Readjustment Assistance Act as
amended by the Veterans Employment Opportunities Act of 1998 (to
include: Vietnam-era Veterans and other Veterans who served on active
duty during a war or campaign or expedition for which a campaign badge
has been authorized), and the Immigration Act of 1987, unless exempted
or inapplicable.
E. Novatel Wireless shall comply with all applicable laws regarding
non-discrimination in terms and conditions of employment, payment of
minimum wage and legally mandated employee benefits and compliance with
mandated work hours. Novatel Wireless shall comply with all applicable
laws regarding employment of underage or child labor and shall not
employ children under the age of 16.
16. INTENTIONALLY OMITTED.
17. SECURITY
Novatel Wireless confirms that to the best of its knowledge, employees
of Novatel Wireless performing work at Intel's facilities have no record
of criminal convictions involving drugs, assaultive or combative
behavior, or theft within the last five years. Novatel Wireless
understands that such employees may be subject to criminal history
investigations by Intel at Intel's expense and will be denied access to
Intel's facilities if any such criminal convictions are discovered.
18. INTENTIONALLY OMITTED.
19. ELECTRONIC TRANSACTIONS
A. Subject to the terms and conditions of this Section, the parties agree
to receive electronic documents and accept electronic signatures
relating to transactions contemplated by the Agreement, including
Releases, Purchase Orders, Purchase Order Acknowledgments, Invoices and
other transactions as may be agreed by the parties from time to time.
Electronic documents and electronic signatures shall be a substitute for
paper-based documents and signatures, and the legal validity of a
transaction will not be denied on the ground that it is not in writing.
B. All electronic documents shall be transmitted through the use of EDI,
XML or other WEB based transmission formats. Electronic documents may be
transmitted or received electronically directly by the parties or
through designated third party communication network service providers
with which either party may contract. Each party agrees to designate all
transmissions as confidential and protect all electronic documents from
improper or unauthorized access in accordance with Section 10 of the
Agreement. Information contained in any electronic document or otherwise
exchanged electronically between the parties shall be considered the
confidential information of the disclosing party and shall be maintained
in accordance with Section 10 of the Agreement.
C. For purposes of this Agreement, an electronic signature shall mean
information or data in electronic form that is attached to or logically
associated with an electronic document and executed or adopted with the
intent to sign the electronic document. An oral communication or a
recording of an oral communication shall not qualify as an electronic
signature. Nothing in this section shall be construed to limit or
otherwise affect the rights of either party to assert that an electronic
signature is a forgery, is used without authority, or otherwise is
invalid for reasons that would invalidate the effect of a signature in
written form.
D. Novatel Wireless acknowledges that its use of Intel's websites is at
Novatel Wireless's own risk and that Intel makes no representations or
warranties of any kind whatsoever regarding Intel's websites (including
any software, hardware, equipment, communications providers or
connections), whether express or implied, written or oral, including any
warranty that the Intel's websites will be operational at any particular
time, free from outages or errors, compatible with any other computer or
telecommunications hardware or software, fit for any particular purpose,
or any warranty arising out of course of performance, course of dealing
or usage of trade. Novatel Wireless hereby releases Intel from any and
all liability of any kind whatsoever arising out of Novatel Wireless's
use of or inability to access Intel's website.
CONFIDENTIAL 75
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20. USE OF INTELS PASSWORDS
A. During the term of the Agreement, Intel may provide Novatel Wireless's
employees and/or agents with user names and passwords ("Password[s]")
for access to certain of Intel's confidential websites ("Website[s]").
Intel may revoke a Password and access rights to any Website, at any
time without notice to Novatel Wireless. Novatel Wireless agrees that
the Passwords are the confidential information of Intel and shall be
maintained in accordance with Section 10 of the Agreement.
B. Passwords will only be granted to Novatel Wireless's employees or agents
that execute an on-line password use agreement. Novatel Wireless agrees
that this on-line password use agreement will be a valid and binding
agreement when executed by such employees or agents. Novatel Wireless
agrees to take all reasonable efforts to ensure that such employees and
agents comply with the terms of such password use agreements and to
notify Intel within ten (10) business days of such an employee or agent
terminating their employment with Novatel Wireless.
C. Novatel Wireless and Novatel Wireless's employees and/or agents are
authorized to use Passwords only for accessing the Websites for the
business purposes intended by Intel and for no other purpose. All
information found on the Website or downloaded, transferred, printed or
otherwise obtained from the Website is the Confidential Information of
Intel and is subject to the terms and conditions of the CNDA referenced
on the signature page of this Agreement. Before accessing and receiving
Confidential Information from the Website, Novatel Wireless's employees
and/or agents must electronically accept the terms and conditions of the
electronic Confidential Information Transmittal Record ("CITR") found on
the Website, which the parties agree will substitute for the CITR
procedure in the CNDA. Intel will record and store a record of each and
every time Novatel Wireless's employees and/or agents access the Website
with the Password. In addition to the terms and conditions of the CNDA,
Novatel Wireless's employees and/or agents will comply with any other
restrictions found on the Website.
CONFIDENTIAL 76
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EXHIBIT B-1
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
103
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
104
EXHIBIT B-2
INTENTIONALLY OMITTED
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EXHIBIT B-3
CERTIFICATE OF ORIGINALITY
This Certificate of Originality must be completed by Novatel Wireless when
furnishing software material (program product or offering and related
documentation, or other software material) for Intel.
One Certificate of Originality can cover one complete product, even if that
product includes multiple modules. However, a separate Certificate of
Originality must be completed for the code and another for its related
documentation (if any.)
Please leave no questions blank. Write "not applicable" or "N/A" if a question
is not relevant to the furnished software material.
1. Name of the software material (provide complete identification,
including version, release and modification numbers for programs and
documentation):________________________________________________________
2. Was the software material or any portion thereof written by any party
other than you, or your employees working within their job assignment?
Yes ______ No ______ If Yes, provide the following information:
(a) Indicate if the whole of the software material or only a portion
thereof was written by such party, and identify such portion:__
_______________________________________________________________________
(b) Specify for each involved party:
(i) Name: _________________________________________________
(ii) Company: ______________________________________________
(iii) Address: ______________________________________________
(iv) If the party is a company, how did it acquire title to
the software material (e.g., software material was
written by company's employees as part of their job
assignment)?
(v) If the party is an individual, did s/he create the
software material while employed by or under contractual
relationship with another party? Yes ______ No ______
If Yes, provide name and address of the other party and
explain the nature of the obligations: ________________
(c) How did you acquire tittle to the software material written by
the other party? ______________________________________________
3. Was the software material or any portion thereof derived from any third
party's pre-existing material(s)? Yes ______ No ______
If Yes, provide the following information for each of the pre-existing
materials:
(a) Name of the materials: ________________________________________
(b) Owner: ________________________________________________________
(c) How did you get the right to use the pre-existing material (s)_
_______________________________________________________________________
4. Identify below, or in an attachment, any other circumstances that might
affect Intel's ability to reproduce and market this software product,
including:
(a) Confidentiality or trade secrecy of pre-existing materials: ___
_______________________________________________________________________
(b) Known or possible royalty obligations to others: ______________
(c) Pre-existing material developed for another party or customer
(including government) where you may not have retained full
rights to the material: _______________________________________
(d) Materials acquired from a person or company possibly not having
title to them: ________________________________________________
(e) Other circumstances: __________________________________________
NOVATEL WIRELESS:
____________________________________________
Signature:__________________________________
Printed Name :______________________________
Title: _____________________________________
Date: ______________________________________
CONFIDENTIAL 80
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EXHIBIT B-4
ASSIGNMENT OF INTELLECTUAL PROPERTY
In consideration of the disclosure of Intellectual Property and Confidential
Information of Intel and the compensation paid by Intel to ("Assignor") under
the Intel Corporation Purchase Agreement/Goods & Services No._____, effective
("Agreement") the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
Assignor has created or obtained exclusive title to the following work(s)
(hereinafter "Work") entitled:
1.
2.
In this Agreement, "Work" means all works, including literary works, pictorial,
graphic and sculptural works, architectural works, works of visual art, mask
works, and any other work that may be the subject matter of copyright
protection; advertising and marketing concepts; information; data; formulas;
designs; models; drawings; computer programs; including all documentation,
related listings, design specifications, and flowcharts, trade secrets, and any
inventions including all processes, machines, manufactures and compositions of
matter, and any other invention that may be the subject of patent protection;
and all statutory protection obtained or obtainable thereon including those in
foreign countries.
The undersigned hereby assigns to Intel all right, title, and interest to all
Work created by Assignor arising out of or utilized by the Assignor in the
performance of the Agreement, and the ownership of the same shall be vested
solely in Intel. In respect to copyrights, this assignment shall be effective
for the entire duration of the copyrights and shall include, but not be limited
to all rights to derivative works. Assignor waives all rights of attribution,
and integrity for specific works created by Assignor under the Agreement in
respect of all marketing, advertising, and commercial uses thereof.
Assignor represents and warrants that the Work is original; that neither the
Assignor's interest in the Work nor the copyright therein is encumbered or
subject to any undisclosed lien or charge; and that Assignor is free to make the
present assignment and has no legal obligation or prior commitment that is
inconsistent with this Agreement.
ASSIGNOR
Signature: _________________________________
Printed Name:_______________________________
Date:_______________________________________
CONFIDENTIAL 81
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EXHIBIT C
108
EXHIBIT C-1
Manufacturing Package
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
109
EXHIBIT C-2
Design Package
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
110
EXHIBIT C-3
ESCROW PROVISIONS
1. Manufacturing Package and Design Package Deposit. Within thirty days
after the Effective Date, Novatel Wireless shall deliver to the escrow
agent identified below (the "Escrow Agent", respectively), such
documents and other specified media comprising the Manufacturing and
Design Packages, respectively, consisting of the software, firmware,
schematics, process specifications, etc. as set forth in Exhibits C-1
and C-2, respectively as are then available to Novatel Wireless (it
being understood by Intel that the Products are still under development
and that the remaining portions of the Manufacturing and Design Packages
will be delivered to the Escrow Agent when available to Novatel Wireless
as set forth in Exhibits C-1 and C-2). Novatel Wireless shall deliver
the Manufacturing and Design Packages to the Escrow Agent at the
following address:
Data Securities International, Inc.
[Attn: Contract Administration
6165 Greenwich Drive
Suite 220
San Diego, CA 92122
Telephone: (619) 457-5199
Facsimile: (619) 457-4252]
2. Delivery of Updates. During the term of the Agreement and pursuant to
Sections 4.5 and 5.4 of the Agreement, Novatel Wireless shall provide
Updates to the Manufacturing and Design Packages. Novatel Wireless shall
give written notice to Intel and Escrow Agent, before delivering the
Manufacturing and Design Packages of the applicable Release to Escrow
Agent, stating that the Manufacturing and Design Packages are ready for
delivery. Upon ten (10) days prior written notice, Intel will have the
right to have a third party consultant as agreed between the parties and
subject to an obligation of confidentiality present at Novatel
Wireless's site in San Diego, California, to inspect the Manufacturing
and Design Packages to ensure that they are complete and accurate prior
to their delivery to the Escrow Agent. Such inspection shall occur
during regular business hours and at mutually agreeable times. The
parties understand and agree that the role of the third party consultant
is only to review the materials and that the designated Novatel Wireless
engineer(s) will be responsible for actually preparing the materials.
Following completion of the review, the parties' representatives shall
jointly ensure that the Manufacturing and Design Packages are sent
immediately by overnight courier to the Escrow Agent at the address set
forth above.
3. Escrow Agreement. Within ten days of the execution of this Agreement, the
parties shall enter into an escrow agreement in a form mutually agreeable to the
parties and with the Escrow Agent. In the event Intel believes that and Escrow
Event has occurred, Intel shall send notice to Novatel Wireless that and Escrow
Event has occurred and Novatel Wireless shall have two (2) business days to
consent or object to such characterization, if Novatel Wireless objects to such
characterization, the parties shall submit the matter to a third-party
consultant (the "Consultant") selected either 1) by mutual agreement; or 2) if
the parties cannot agree, by allowing the American Arbitration Association to
appoint an independent arbitrator for the parties. The parties shall submit
arguments and the Consultant who will decide the matter based upon the
submissions of the parties and shall render a decision on the matter within ten
(10) days after its referral to the Consultant. If the Consultant rules that an
Escrow Event has occurred, the Consultant must then also determine, based on the
parties arguments, the appropriate portion of the Design Package to release from
escrow (ie. that portion expressly required in order for Intel to provide
111
itself the specific Product Support which Novatel Wireless failed to provide),
and promptly order the release of such portion of the Design Package. Any use of
the Design Package by Intel for this purpose of replacing failed Product Support
shall be limited to replacement of the failed Product Support, and any other use
by Intel of the released portion of the Design Package is prohibited. Intel
covenants and agrees that it shall not provide such written certification unless
an Escrow Event has occurred or Intel has notified Novatel Wireless that Intel
is exercising its option to license the Design Package or the Manufacturing
Package, as the case may be. Novatel Wireless will incur all expenses billed by
the Escrow Agent directly relating to the escrow and the escrow agreement but
not any other costs incurred by Intel relating to the escrow or escrow
agreement.
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CONFIDENTIAL
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EXHIBIT D
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EXHIBIT D
SUPPORT AND TRAINING REQUIREMENTS
DEFINITIONS
Error definition and severity shall mean the following:
a) A "critical" error is one that causes a critical service of the
device to fail, resulting in interruption of basic service
severely degrading the performance of the device. There is
generally no recovery or workaround for this type of error.
b) An "important" error is one that degrades basic service on the
device and some functions of the device are either nor available
or not adequate. There is no convenient workaround available for
this type of error.
c) A "minor" error is one that causes results in unexpected or
incorrect behavior but does not prevent operation of the device.
Minor errors will normally have convenient workarounds.
d) A "discretionary" error is one that is a suggestion or comment
by the user.
PRODUCT SUPPORT
1. Customer Support Contacts
Parties will assign designated technical support specialist at their
respective centralized customer support locations. Parties will also
assign a designated contact for escalation and provide that contact to
the other party. Novatel Wireless will be responsible for first line
customer support if Intel *** any Novatel Wireless *** Product.
Intel will be responsible for first line customer support for any Intel
*** Product.
2. Bug Information
Novatel Wireless will provide Intel copies of Novatel Wireless's
customer support database.
3. Customer support Escalation Procedure
a) If Intel is unable to solve a customer problem related to the
Products, it shall submit to Novatel Wireless a written
explanation of the problem (a problem report along with an end
user report if applicable) along with a severity designation as
outlined in the procedure below. Novatel Wireless shall
acknowledge the receipt of such submitted problem reports within
one business day of such submission. Novatel Wireless will
assist the Intel in solving such problems as outlined in the
procedure below. Such assistance will be available to the Intel
at no cost, at least during Intel's normal business hours (8-5pm
PST), for so long as Intel continues to purchase the Products.
For support provided outside that period, a mutually agreed
charge shall be established for such
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
114
assistance.
b) There will be weekly meetings, at Intel's request, between the
Parties' technical support specialists to discuss such problem
reports, the respective problems, solutions to existing
problems, and for Novatel Wireless to provide Product Changes
(and work-arounds) to current problems. This meeting will
generally be a conference call, but at times may be a
face-to-face meeting (at each parties expense) depending upon
the severity of the problems.
c) The Parties agree that Intel shall receive one of the following
resolutions to the problem:
Complete resolution, which results in the problem's
resolution and removal from the problem list.
Interim workaround, which results in delivering an
interim patch and giving Intel a date for a complete
resolution. The problem will be tracked through the
Parties' weekly support meeting.
The problem is logged as a bug and Intel is given an
interim workaround or a projected resolution date. The
bug is tracked through the Parties' weekly support
meeting.
d) Problem expected response time
a) For each error type, Novatel Wireless has a specific
numbers of days to acknowledge the problem, and a
specific number of days to respond with a fix, plan for
a fix, or have the problem logged for a future update.
Note that all time frames listed below assume that
correction of the specified problem is possible within
the allowed time frame. Novatel Wireless commits to
making every reasonable effort to meet these time
frames. If a fix or workaround is not possible within
the allowed time frame, Novatel Wireless will work with
Intel to provide an estimate of the time required to
correct the problem, will use its reasonable efforts to
correct the problem as close to the allowed time frame
as possible, and will report regularly to Intel until
corrective action is complete.
b) The parties shall use good faith to escalate response
times when necessary from time to time. Milestones below
are based on indicated days after problem is reported to
Novatel Wireless.
c) Time-frames below are based on indicated days after
problem is reported to Novatel Wireless.
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NUMBERS IN DAYS CRITICAL IMPORTANT MINOR DISCRETIONARY
- --------------- -------- --------- ----- -------------
RESPOND 1 3 10 30
FIX, PLAN, OR LOG 3 5 90 90
e) Customer Support Contacts
Parties will assign designated technical support specialists at their
respective centralized customer support locations. Parties will also
assign a designated contact for escalation and provide that contact to
the other party.
IMPLEMENTATION SERVICES
1. Novatel Wireless shall provide an engineering focal contact for
Intel
a) Available Normal Novatel Wireless Business Hours based
on the location in which the engineering contact
resides.
b) Engineering focal point must have access to both
hardware and software engineering; otherwise expertise
in both areas is required.
c) Novatel Wireless will make reasonable efforts to provide
schematic and board design review for any device using
the *** .
d) Novatel Wireless will make reasonable efforts to provide
schematic and board design review for any module built
by Intel from the design and manufacturing package.
e) Novatel will make reasonable efforts to provide
facilities for test and evaluation of the RF subsystem
on any device produced by Intel containing Novatel
Wireless radios or *** .
2. Manufacturing Test Engineering Support. The Implementation
Services provided by Novatel Wireless pursuant to Section 3.3 of
the Agreement shall include without limitation the following:
a) Novatel Wireless will test and functional validation
plans for manufacturing tests.
b) Novatel Wireless will provide any software test code
using for manufacturing validation and test.
c) Novatel Wireless will provide necessary design
specifications for jigs used in manufacturing validation
and test.
d) Onsite support for manufacturing test validation at
Intel or manufacturer of choice. If such request is made
by Intel subsequent to Intel or Intel's Manufacturer(s)
achieving a functional test yield of *** as provided
in Section 3.3 of the Agreement, Intel shall reimburse
Novatel Wireless for the expenses incurred by Novatel
Wireless in fulfilling such request.
TRAINING
1. Novatel Wireless to provide one day of hardware training per new
module release and interface supported a minimum of 90 days
before the release is generally
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CONFIDENTIAL
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
116
available.
2. Novatel Wireless to provide one day of software training per new
software update or release if the new release or update adds or
removes functionality. Training to be provided a minimum of 45
days before the release is generally available.
3. Novatel Wireless to provide one week of support training per
released product or Intel manufactured product based on the
Novatel Wireless design package.
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EXHIBIT E
118
EXHIBIT E
QUALITY ASSURANCE REQUIREMENTS
PURPOSE
This document outlines Intel's minimum expectations for information submitted
and actions taken by Novatel Wireless to manage and continuously improve the
quality and reliability of products purchased by Intel.
CONTENTS
1. Quality Definitions
2. Quality Systems
3. Workmanship Standards
4. Data Reporting Format
5. Equipment Calibration
6. Part Placement Inspection
7. Wave Soldering Machines
8. Post ICT Part/Solder Inspection
9. Packaging Requirements
10. Outgoing Quality Audit (OQA)
11. Training
12. Incoming Inspection at Intel
13. Quality Telephone Call
14. Engineering Change Notification (ECN) Approval Process
15. MRB Review
16. Process Change Notification (PCN) Approval Process
17. Design Approval and Revision Control
18. Quality Action Notification (QAN)
19. Customer Line Fallout FA/CA
20. Supplier Control
21. Material Handling
22. 1000 DPM Quality Plan
1. QUALITY DEFINITIONS
1.) I.P.C.-A-610B: Workmanship standard for Printed circuit board
assemblies created by the Institute for Interconnecting and Packaging of
Electronic Circuits.
2.) Intel Workmanship Standards: Workmanship standards created by Intel
for the manufacture of printed circuit board assemblies
(Doc#99-0007-001).
3.) Mil-Std 105E: Military Standard covering Sampling and Inspection
procedures.
4.) A.Q.L.: Acceptable Quality Level.
5.) I.S.O.: International Standards Organization.
6.) DPM: Defective Parts per Million.
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7.) C.L.F.: Customer Line Fallout at Intel customer location measured in
defective parts per million.
8.) F.L.F.: Factory Line Fallout at Intel factory measured in defective
parts per million.
9.) O.R.T.: On-going Reliability Testing at Supplier factory specifying
type of environmental chamber used; sampling, and duration of testing
2. QUALITY SYSTEM
Novatel Wireless is responsible for developing and implementing a
quality system based on an ISO program. Novatel Wireless should be ISO
certified or planning to do so within the next calendar year. Novatel
Wireless will be expected to maintain certification as long as they are
building products for Intel.
3. WORKMANSHIP STANDARDS
Intel will judge supplier quality to Intel Workmanship Standards
(Doc#99-0007-001) . For items not addressed in the IWS document then
defer to IPC-A-610B.
4. DATA REPORTING FORMAT
Novatel Wireless shall submit quality data to Intel on a regular basis.
This data will consist of Novatel Wireless product, factory and critical
parameter performance. The following is a list of the data that will be
sent to Intel:
1. Supplier Initial Test Yield Data -Sent monthly
2. Supplier Final Test Yield Data -Sent monthly
3. Supplier Out-going Quality Audit -Sent monthly
4. Supplier ORT -Sent monthly
Item 4, ORT test data to be available by the end of ***.
Data to be sent monthly should arrive before the 15th of each month for
the previous month's data. Data reported to: Materials Quality Engineer.
Novatel Wireless will work with Intel to detail the content of the
report, and will pass on to our supplier as our data reporting
requirements.
5. EQUIPMENT CALIBRATION
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Novatel Wireless mechanical measuring instruments, tools, test equipment
will be calibrated at a specified interval of time to ensure accuracy of
measurement. Novatel Wireless will keep records which show the equipment
location, calibration date due data and the equipment's detail. Novatel
Wireless QC will ensure that the calibration is done on schedule.
6. PART PLACEMENT INSPECTION
For all Intel production runs, Novatel Wireless will require its
supplier to inspect two boards per line every two hours prior to wave
solder for proper placement of all components. Novatel Wireless will
require its supplier to maintain a record of parts found missing or
incorrectly placed, segregated by placement station. Trends, reversed
diodes and electrolytic capacitors will require written corrective
action. Novatel Wireless will require its supplier to retain records for
at least one year and these will be available to Intel upon request.
7. WAVE SOLDERING MACHINES
Novatel Wireless will require its supplier to check wave solder heat
profile at the beginning of each production run.
Novatel Wireless will require its supplier to use X-bar r charts to
monitor and control the wave soldering machines' flux density, conveyer
speed, pre-heat temperature(s), solder wave height, and solder pot
temperature. Novatel Wireless will require its supplier to take sample
readings for charts four times daily. Novatel Wireless will require its
supplier to check solder pot cleaning system every 2 hrs. (if
applicable) Novatel Wireless will require its supplier to retain all
charts for a period of at least one year and be made available to Intel
upon request.
8. POST ICT PART/SOLDER INSPECTION:
Novatel Wireless will require its supplier to perform sample inspections
of all parts not included in ICT for proper placement, type,
orientation, and solder joint quality. Novatel Wireless will require its
supplier to provide a list of these components and a layout drawing with
parts highlighted for use by inspector for each Intel P/N.
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9. PACKAGING REQUIREMENTS
Adherence to Intel Specification General Supplier Packaging Standard,
Intel Doc #662394 is required.
Packaging must prevent any functional damage to units contained therein,
when the package is dropped from a height of 99.14cm onto a flat
concrete surface. Boxes arranged on palette for shipment will be secured
using stretch-wrap or cardboard. Novatel Wireless will ship no packages
to Intel which are damaged without prior approval from Intel Material
Engineering.
Intel reserves the right, for one time as to each modem SKU, to place
sensors in and on Novatel Wireless packaging at Novatel Wireless's
factories for the purpose of collecting data on the forces being
experienced by Intel-bound modems during shipment. This data can and
will be used by Intel to drive continuous improvement in packaging
methods and revisions to this section of the Quality Management Plan.
10. OUTGOING QUALITY AUDIT (OQA):
Outgoing Quality Audit to be performed on all Intel products. This audit
will be performed on each production lot in accordance with MIL-STD
105E, single sample size, level II inspection level, AQL (critical 0%,
major .65% , min 1.5%). Samples will be randomly selected from boxed
units. Units will be unpacked, inspected, tested, and repacked for
shipment. All rejected lots will be re-tested or screened by production
using electrical or mechanical inspections as applicable. A checklist
will be used to document all OQA inspections, test parameters and their
relative classifications (critical, major, or minor). A current copy of
this list will be made available to Intel upon request. This list will
include, but is not limited to, the following inspections: packing,
visual, safety, and electrical tests (per Novatel Wireless Test Spec).
11. TRAINING
Prior to allocation of jobs, all new production personnel and inspectors
at Novatel Wireless qualified suppliers shall be trained to Novatel
Wireless workmanship standards and QC system, both on and off the job as
necessary.
12. INCOMING INSPECTION AT INTEL
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Intel does reserve the right to perform incoming inspections at Intel
facilities and/or outgoing inspections at Supplier's facility on
Intel-bound product as necessary. If necessary, Intel will use a
statistical sampling method deemed appropriate whereby any one failure
will be cause for rejection of the entire lot. Disposition of the lot
will be determined by Intel Materials Engineer and may include return
for credit or repair. Novatel Wireless agrees to perform a 100% screen
of lot(s) if requested by Intel Materials Engineer.
13. QUALITY TELEPHONE CALL
A monthly Quality call will be established at a mutually agreed upon
time to discuss all on-going issues such as:
a) Product Change Notification's (PCNs)
b) Failure analysis of fallouts
c) Business issues
d) Quality Action Notice's (QANs)
e) New Issues
f) ld issues
The following job titles and functions to be represented by both Buyer
and Supplier on the monthly quality call include:
a) Engineering Manager - scope includes but not limited to general
engineering issues and ECNs
b) Production Supervisor and/or Manager - scope includes but not
limited to PCNs
c) QC Supervisor and/or Manager - scope includes but not limited to
FA of fallouts and CAs
d) Account Manager - scope includes but not limited to business and
new issues
Novatel Wireless will schedule the quality telephone call meeting when
production starts.
14. ENGINEERING CHANGE NOTIFICATION (ECN) APPROVAL PROCESS
All ECN'S that affect the fit, form, and/or function of the power supply
will require Intel's approval before implementation. In certain
instances Intel may require Novatel Wireless to submit samples for
approval. Novatel Wireless will notify Intel at least 60 days prior to
proposed implementation date, with exceptions made for safety assurance
and lines down avoidance.
15. MRB REVIEW
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Novatel Wireless will perform MRB reviews for special or urgent issues
(safety, etc.).
16. PROCESS CHANGE NOTIFICATION (PCN) APPROVAL PROCESS
Novatel Wireless process changes, if deemed to have an effect by Novatel
Wireless on Intel product quality, will require Intel's approval before
implementation. Novatel Wireless will provide justification and/or
additional details if requested by Intel. Novatel Wireless will notify
Intel at least 60 days prior to proposed implementation date, with
exceptions made for safety assurance and lines down avoidance.
17 DESIGN APPROVAL AND REVISION CONTROL
Novatel Wireless shall complete all elements of the following test
procedures for new Intel modem designs. Test results must be reviewed by
Intel Materials Engineer, and Intel must have a hard copy on file prior
to being released for production.
1. Novatel Wireless Design Review Procedures
2. Novatel Wireless Q.A. and Reliability Procedures
Novatel Wireless shall maintain a document control system which insures
that the latest revision of all prints, specifications, and drawings is
used for all Intel production, inspection and testing. Only component
specifications issued by Intel Commodity Management should be considered
valid for production purposes.
18. QUALITY ACTION NOTIFICATION (QAN)
A QAN will take priority over all sustaining issues and a teleconference
call/meeting between Intel and Novatel Wireless will take place with 24
hours to formulate strategy and exchange information. Intel expects
Novatel Wireless to take ownership of all supplier-attributable quality
excursions, and provide immediate containment plan(s) for an issue and
root cause analysis/long term corrective action. Intel's expectation for
Novatel Wireless response time is: short term CA/containment methods
within 48 hours of notification.
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19. CUSTOMER LINE FALLOUT FA/CA
Intel expects that Novatel Wireless will provide failure analysis and
short term containment and corrective actions within 48 hours of receipt
of customer failures. Long-term corrective action will be received
within 10 business days. All reports will be sent to both the regional
Intel office involved, and Intel Materials Engineer.
20 SUPPLIER CONTROL
Novatel Wireless shall maintain a supplier control system which assures
that purchased material and services are of sufficient quality to
conform to Intel specified requirements. Novatel Wireless shall use and
control Purchase Orders to ensure that the correct information is
communicated to Novatel Wireless. Novatel Wireless shall perform
manufacturing/quality system audits of all key component suppliers
periodically to ensure their continuous improvement. For each sub
component purchased, Novatel Wireless shall implement one or both of the
following:
1. Require statistical process control (SPC) and test data from
suppliers to assure conformance to specified requirements.
2. Perform incoming inspections at a statistical sampling rate
sufficient to assure conformance to specified requirements.
Novatel Wireless will retain records of incoming inspections, SPC data,
and audit reports for at least one year and make them available to Intel
upon request.
21. MATERIAL HANDLING
Novatel Wireless shall maintain a material handling system which ensures
that all incoming material are handled properly to avoid physical
damage, temperatures beyond those recommended for materials, or other
conditions which might degrade the quality and/or reliability of the
materials. This system must assure that no material is stored beyond its
recommended shelf-life. All non-conforming material must be tagged, and
placed away from conforming materials in a controlled area designated
for non-conforming material only.
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22. 1000 DPM QUALITY PLAN
Schedule to reduce DPM is as follows:
Q2 2000 1800DPM
Q3 1500DPM
Q4 1000DPM
Action to reduce DPM are the following:
a) Implement shop floor system and closed loop corrective action
plans
b) Total process review implementation in ***.
c) Double inspection line implementation in ***.
Detailed standard procedures for above items are documented for internal
control purposes.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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EXHIBIT F
INTENTIONALLY OMITTED
127
EXHIBIT G
128
[DOUBLE-CLICK HERE TO BEGIN]
CORPORATE NON-DISCLOSURE AGREEMENT ("CNDA")
PRE-SIGNED VERSION - ASMO & EMEA ONLY
INSTRUCTIONS
PLEASE NOTE: This form is for ASMO and EMEA only, including Ireland and Israel.
This form should not be used for IJKK, APAC or Russia. The instructions for
completing the blanks on the CNDA are as follows:
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CNDA number.
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(h) Return: Keep one signed original for your records, and return one signed
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129
AGREEMENT DATE: Wednesday, August 02, 2000 CNDA# 6983494
CORPORATE NON-DISCLOSURE AGREEMENT
This Corporate Non-Disclosure Agreement ("Agreement") is entered into and made
effective as of the date set forth above, by and between Intel Corporation and
its majority owned worldwide subsidiaries ("Intel"), and the Participant, as
identified below, and its majority owned worldwide subsidiaries (the
"Participant"). Unless the Participant indicates on the Participant's line below
that this Agreement will apply only to a specific division or location, this
Agreement will apply to the Participant's entire company worldwide.
THE PARTIES AGREE AS FOLLOWS:
1. CONFIDENTIAL INFORMATION TRANSMITTAL FORM. The confidential, proprietary
and trade secret information of the disclosing party ("Confidential
Information") to be disclosed hereunder is that information which (i) is
described in the Confidential Information Transmittal Record ("CITR")
executed from time to time hereafter and (ii) is marked with a
"confidential", "proprietary", or similar legend. CITRs are subject to
the terms of this Agreement. CITRs will be executed, in writing or in
electronic form, by the parties prior to the disclosure of Confidential
Information. All Confidential Information received from the disclosing
party will be in tangible form. To be considered Confidential
Information, non-tangible visual and/or verbal disclosures must be
identified as confidential prior to disclosure and reduced to writing,
marked as provided above and delivered to the receiving party within
thirty (30) days of the original date of disclosure. A mutually signed
CITR form will suffice as a writing for such non-tangible disclosures
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description of the Confidential Information disclosed, the names of the
representatives of the parties and the date when the disclosure covered
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2. OBLIGATIONS OF RECEIVING PARTY. The receiving party will maintain the
confidentiality of the Confidential Information of the disclosing party
with at least the same degree of care that it uses to protect its own
confidential and proprietary information, but no less than a reasonable
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INTEL CONTACT: Debashis Chowdhury M/S: Ch6-329 TEL. NO: (480) 554 2582
AGREED:
INTEL CORPORATION PARTICIPANT: Novatel Wireless Inc.
2200 Mission College Blvd. ----------------------------
Santa Clara, CA 95052-8119 (Company Name, Division/Sub,
if applicable)
----------------------------
/s/ SEAN MALLONEY (Street Address)
- ---------------------------
Sean Malloney ----------------------------
Vice President (City) (State) (Zip)
Director, Sales and Marketing
----------------------------
Signature of Authorized
Representative (e.g.
President or V.P.)
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Printed Name & Title
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MODIFICATIONS TO THIS CNDA WILL RENDER THIS CNDA AND INTEL'S SIGNATURE NULL AND
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130
EXHIBIT H
131
EXHIBIT H
INTEROPERABILITY STATEMENT OF WORK
This statement of work covers Intel's use and integration of radio *** into
its designs. It is meant as a process placeholder for a more detailed Statement
of Work that will include dates, times, resources, and deliverables by each
party, in the form of Part C of Exhibit B-1 of the Agreement , which shall be
mutually agreed by the parties. The first statement of work will be done for the
*** for both *** and *** and additional statements of work will be
mutually agreed by the parties for the ***. An outline for the
Statement of Work for the *** is set forth below.
1) Novatel Wireless shall provide *** specifications, and
schematics to Intel for use in *** for the ***
listed in Exhibit A of the Agreement.
2) Hardware Design Review (after Intel completes initial hardware
design) (approx. *** )
a. Intel will provide to Novatel Wireless a schematic
layout package for its production design incorporating
one of the Novatel Wireless *** .
b. Novatel Wireless will review with Intel the design and
provide feedback to Intel on any performance
improvements or errors that are found in the design.
c. Intel will perform any needed changes and modifications
on the design and submit it to Novatel Wireless for a
final review.
d. A final design review will take place on the hardware
design package with both parties signing off on the
Intel design.
3) Software Design Review (After Intel completes initial software
design) (Approx. *** )
a. Intel will provide to Novatel Wireless a SW architecture
design document that details Intel's use of the
*** design SW features and functionality Intel is
planning to use.
b. Novatel Wireless will review the design in detail with
Intel's software engineers providing feedback on
performance improvement, errors, and or features that
are not available or functioning in the ***.
c. Intel will perform changes and modifications to the
software design and submit it to Novatel Wireless for a
final review.
d. A final design review will take place on the SW
architecture design with both parties signing off on the
Intel design.
4) Onsite Integration (When boards are ready and *** is
available) (Approx. *** )
a. At Intel's request, Novatel Wireless will provide onsite
hardware engineering support for board bring up,
diagnostics, and debugging of the Intel ***
incorporating the *** from Novatel Wireless.
b. At Intel's request, Novatel Wireless will provide onsite
software engineering support for software bring up,
diagnostics, and debugging of the software interfaces
between the embedded *** software stack and the ***.
5) Resources
Each party shall provide sufficient resources to perform the
obligations ascribed to it in
107
CONFIDENTIAL
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
132
this Exhibit B.
108
CONFIDENTIAL
133
EXHIBIT I
INTENTIONALLY OMITTED
134
EXHIBIT J
135
EXHIBIT J-1
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
136
***
CONFIDENTIAL 113
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
137
EXHIBIT J-2
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
114
CONFIDENTIAL
138
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
115
CONFIDENTIAL
139
Exhibit J-3
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
116
CONFIDENTIAL
140
***
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
117
CONFIDENTIAL
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this Amendment
No. 6 to Registration Statement No. 333-42570.
/s/ Arthur Andersen LLP
San Diego, California
November 10, 2000
