-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NiA1N2KsxRSbD3xOhzaJ0qfhf4Hgq7kNBcw33HWBO3xuE1eBMe/3qBKrVHshDeKT 59FjK9ETeFkqT0vBcnQqAA== 0000915324-99-000007.txt : 19990816 0000915324-99-000007.hdr.sgml : 19990816 ACCESSION NUMBER: 0000915324-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELULAR CORP CENTRAL INDEX KEY: 0000915324 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 363885440 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23212 FILM NUMBER: 99689453 BUSINESS ADDRESS: STREET 1: 647 NORTH LAKEVIEW PARKWAY CITY: VERNON HILLS STATE: IL ZIP: 60061 BUSINESS PHONE: 8474654500 MAIL ADDRESS: STREET 1: 647 NORTH LAKEVIEW PARKWAY CITY: VERNON HILLS STATE: IL ZIP: 60061 10-Q 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1999. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to . Commission File Number 0-23212 Telular Corporation (Exact name of Registrant as specified in its charter) Delaware 36-3885440 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 647 North Lakeview Parkway Vernon Hills, Illinois 60061 (Address of principal executive offices) (Zip Code) (847) 247-9400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the Registrant's common stock, par value $.01, as of June 30, 1999, the latest practicable date, was 9,307,549 shares. TELULAR CORPORATION Index Part I - Financial Information Page No. Item 1. Financial Statements: Consolidated Balance Sheets June 30, 1999 (unaudited) and September 30, 1998 3 Consolidated Statements of Operations (unaudited) Three Months Ended June 30, 1999 and June 30, 1998 4 Consolidated Statements of Operations (unaudited) Nine Months Ended June 30, 1999 and June 30, 1998 5 Consolidated Statement of Stockholders' Equity (unaudited) Period from September 30, 1998 to June 30, 1999 6 Consolidated Statements of Cash Flows (unaudited) Nine Months Ended June 30, 1999 and June 30, 1998 7 Notes to the Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 Part II - Other Information Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Recent Sales of Unregistered Securities 16 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 20 Exhibit Index 21 TELULAR CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) June 30, September 30, 1999 1998 ------------ ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 10,739 $ 19,854 Receivables: Trade, net of allowance for doubtful accounts of $345 and $112 at June 30, 1999 and September 30, 1998, respectively 6,699 4,468 Related parties 1,913 1,268 ------------ ------------ 8,612 5,736 Inventories, net 9,419 11,594 Prepaid expenses and other current asset 1,082 853 ------------ ------------ Total current assets 29,852 38,037 Property and equipment, net 5,615 5,496 Other assets: Excess of cost over fair value of net assets acquired, less accumulated amortization of $1,174 and $785 at June 30, 1999 and September 30, 1998, respectively 3,721 4,111 Intangible assets, less accumulated amortization of $1,058 and $845 at June 30, 1999 and September 30, 1998, respectively 37 250 Long term receivable 0 316 Long term investment 56 525 Deposits and other 75 77 ------------ ------------ 3,889 5,279 ------------ ------------ $ 39,356 $ 48,812 ============ ============ LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade $ 5,103 $ 5,138 Related parties 1,170 1,185 Accrued liabilities 2,557 3,521 ------------ ------------ Total current liabilities 8,830 9,844 Commitments and contingencies 0 0 Redeemable Preferred Stock: Series A convertible preferred stock, $.01 par value; $13,712 and $17,709 liquidation preference at June 30, 1999 and September 30, 1998, respectively; 21,000 shares authorized at June 30, 1999 and September 30, 1998; 12,350 shares and 16,506 shares issued and outstanding at June 30, 1999 and September 30, 1998, respectively. 13,513 18,286 Stockholders' Equity: Preferred stock $.01 par value; 9,979,000 shares authorized at June 30, 1999 and September 30, 1998; none outstanding 0 0 Common stock; $.01 par value; 75,000,000 shares authorized; 9,307,549 and 8,534,298 outstanding at June 30, 1999 and September 30, 1998, respectively 93 346 Additional paid-in capital 122,832 117,326 Deficit (103,911) (95,458) Unrealized loss on investments (394) 75 Treasury stock, 140,000 shares at cost (1,607) (1,607) ------------ ------------ Total stockholders' equity 17,013 20,682 ------------ ------------ Total liabilities, redeemable preferred stock and stockholders' equity $ 39,356 $ 48,812 ============ =========== See accompanying notes
TELULAR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except share data) (Unaudited) Three Months Ended June 30, 1999 1998 ---------- ---------- Net product sales to unrelated parties $ 8,859 $ 8,604 Net product sales to related parties 1,037 0 ---------- ---------- Total net product sales 9,896 8,604 Royalty and royalty settlement revenue 788 53 ---------- ---------- Total revenue 10,684 8,657 Cost of sales 9,584 6,675 ---------- ---------- 1,100 1,982 Engineering and development expenses 1,327 1,787 Selling and marketing expenses 1,690 1,562 General and administrative expenses 975 1,024 Provision for doubtful accounts 215 25 Amortization 161 236 ---------- ---------- Loss from operations (3,268) (2,652) Other income, net 52 103 ---------- ---------- Net loss $ (3,216) $ (2,549) ========== ========== Less: Cumulative dividend on redeemable preferred stock (168) (222) ---------- ---------- Net loss applicable to common shares $ (3,384) $ (2,271) ========== ========== Basic and diluted net loss per common share $ (0.38) $ (0.33) ========== ========== Weighted average number of common shares 8,989,930 8,385,882 ========== ==========
TELULAR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except share data) (Unaudited) Nine Months Ended June 30, 1999 1998 ---------- ---------- Net product sales to unrelated parties $ 24,175 $ 30,970 Net product sales to related parties 1,285 0 ---------- ---------- Total net product sales 25,460 30,970 Royalty and royalty settlement revenue 1,798 1,429 ---------- ---------- Total revenue 27,258 32,399 Cost of sales 21,852 24,284 ---------- ---------- 5,406 8,115 Engineering and development expenses 4,346 6,245 Selling and marketing expenses 5,538 4,945 General and administrative expenses 2,852 3,308 Provision for doubtful accounts 265 75 Amortization 603 708 ---------- ---------- Loss from operations (8,198) (7,166) Other income, net 294 758 ---------- ---------- Net loss $ (7,904) $ (6,408) ========== ========== Less: Cumulative dividend on redeemable preferred stock (549) (691) ---------- ---------- Net loss applicable to common shares $ (8,453) $ (7,099) ========== ========== Basic and diluted net loss per common share $ (0.96) $ (0.86) ========== ========== Weighted average number of common shares 8,850,186 8,255,628 ========== ========== See accompanying notes
Telular Corporation Consolidated Statements of Stockholders' Equity (In Thousands) Unrealized Additional gain (loss) Total Preferred Common Paid-in on Treasury Stockholder's Stock Stock Capital Deficit Investments Stock Equity --------- ------ --------- --------- ---------- -------- ------------ Balance at September 30, 1998 $ 0 $346 $117,326 $ (95,458) $ 75 $ (1,607) $ 20,682 Comprehensive income: Net loss for period from October 1, 1998 to June 30, 1999 0 0 0 (7,904) 0 0 (7,904) Other comprehensive income Unrealized loss on investments 0 0 0 0 (469) 0 (469) --------- Comprehensive income (8,373) --------- One-for-four stock exchange 0 (269) 269 0 0 0 0 Deferred compensation related to stock options 0 0 135 0 0 0 135 Stock issued in connection with services 0 2 219 0 0 0 221 Conversion of preferred stock to common stock 0 14 4,883 0 0 0 4,897 Cumulative dividend on redeemable preferred stock 0 0 0 (549) 0 0 (549) --------- ------ --------- --------- ---------- -------- ---------- Balance at June 30, 1999 0 93 122,832 (103,911) (394) (1,607) 17,013 ========= ====== ========= ========= ========== ======== ========== See accompanying notes.
TELULAR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Nine Months Ended June 30, 1999 1998 ---------- ---------- Operating Activities: Net loss $ (7,904) $ (6,408) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 1,164 1,344 Amortization 603 708 Inventory obsolescence expense 1,980 227 Provision for doubtful accounts 265 75 Compensation expense related to stock options and grants 135 138 Common stock issued for services and compensation 221 219 Equity in net income of affiliate 0 (84) Changes in assets and liabilities: Trade receivables (2,496) 1,803 Related parties receivables, net (645) 3,937 Inventories 195 (723) Prepaid expenses, deposits and other 89 (1,567) Trade accounts payable (35) (420) Related parties accounts payable (15) (3,557) Accrued liabilities (1,389) (513) ---------- ---------- Net cash used in operating activities (7,832) (4,821) Investing Activities: Acquisition of property and equipment (1,283) (2,027) ---------- ---------- Net cash used in investing activities (1,283) (2,027) ---------- ---------- Financing Activities: Proceeds from the issuance of common stock 0 150 ---------- ---------- Net cash provided by financing activities 0 150 ---------- ---------- Net decrease in cash and cash equivalents (9,115) (6,698) Cash and cash equivalents, beginning of period 19,854 28,451 ---------- ---------- Cash and cash equivalents, end of period $ 10,739 $ 21,753 ========== ========== See accompanying notes
TELULAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (Unaudited) 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine months ended June 30, 1999, are not necessarily indicative of the results that may be expected for the full fiscal year ending September 30, 1999. For further information, refer to the consolidated financial statements and the footnotes included in the Annual Report on Form 10-K for the fiscal year ended September 30, 1998. 2. Inventories The components of inventories consist of the following (000's): June 30, September 30, 1999 1998 ---------- ------------- (unaudited) Raw materials $ 5,246 $ 6,709 Finished goods 4,861 5,488 ---------- ------------- 10,107 12,197 Less: Reserve for obsolescence 688 603 ---------- ------------- $ 9,419 $ 11,594 ========== ============= 3. Investment in Wireless Domain Corporation (formerly TelePath Corporation) On June 28, 1996, the Company entered into an agreement to acquire a 33% interest in Wireless Domain Incorporated (WD) in exchange for $1 million in cash and common stock of the Company (Common Stock) valued at approximately $2.2 million. During the year ended September 30, 1997, the Company increased its equity ownership in WD to 50% by purchasing an additional 17% of WD in exchange for $0.5 million in cash and 150,000 shares of Common Stock valued at approximately $0.7 million. Effective October 1, 1997, the Company acquired the remaining 50% of WD. Under the terms of the merger, the Company issued 500,000 shares of Common Stock to the shareholders of WD and relinquished control of the 500,000 shares of Common Stock held by WD. This acquisition was accounted for using the purchase method of accounting. The excess of consideration paid over the fair value of net assets purchased of $4.7 million was recorded as goodwill, which is being amortized over ten years. Prior to October 1, 1997, the Company had accounted for its investment in WD using the equity method. TELULAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 4. Redeemable Preferred Stock In 1997, the Company issued 20,000 shares of Series A Convertible Preferred Stock (the Preferred Stock) for $18.8 million which is net of issuance cost of $1.2 million. The Preferred Stock automatically converts to Common Stock on October 16, 1999 and includes the equivalent of a 5% annual stock dividend. Holders of the Preferred Stock are entitled, at their option, subject to trading volume and other restrictions, to convert Preferred Stock into shares of Common Stock using defined conversion formulas based on the Nasdaq closing bid prices for the Common Stock. In addition, the holders have the option to redeem the Preferred Stock upon the occurrence of : (i) a consolidation or merger with another company; (ii) sale or transfer of substantially all assets; (iii) 50% change in ownership; or (iv) certain triggering events including suspension of the SEC registration statement for the Common Stock to be issued upon conversion of the Preferred Stock, failure to be listed on Nasdaq or another national securities exchange, and notice by the Company of its intention not to comply with proper requests for conversion. The redemption price upon holder redemption is the greater of $1,250 per share and the cash equivalent of the defined conversion formula on the date of redemption. The Company is entitled to require the holders to convert the Preferred Stock and accrued dividends into shares of Common Stock using a defined conversion formula based upon the Nasdaq closing bid prices for Common Stock. In addition, the Company has the right to redeem the Preferred Stock after April 15, 1999 for $1,200 per share plus 120% of the accrued dividends. Holders of the Preferred Stock are not entitled to vote on matters submitted for vote to the stockholders of the Company. The Preferred Stock reflects a beneficial conversion feature that allows holders to convert the security to Common Stock at a discount. The amount of the discount is determined using Nasdaq closing bid prices for the Common Stock. During fiscal year 1997, the Company recorded a $2.2 million provision for Preferred Stock beneficial conversion discount. The offset entry to the above provision increased redeemable Preferred Stock by $2.2 million. This amount will accrete to the Common Stock and additional paid in capital accounts as shares of redeemable Preferred Stock are converted into shares of common stock of the Company. As of June 30, 1999, 7,650 shares of preferred stock have been converted into 1,100,452 shares of Common Stock. 5. Comprehensive Income On October 1, 1998, the Company adopted Statement of Financial Accounting Standard No. 130, Reporting Comprehensive Income (SFAS No. 130). Comprehensive income is defined by SFAS No. 130 as net income plus other comprehensive income, which, under existing accounting standards includes foreign currency items, minimum pension liability and unrealized gains and losses on certain investments in debt and equity securities. Comprehensive income is reported by the Company in the consolidated statement of stockholders' equity. 6. Segment Disclosures In June 1997, the FASB issued Statement of Financial Accounting Standard No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131), which is effective for years beginning after December 15, 1997. SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company will adopt the new requirements retroactively during the three month period ended September 30, 1999. Management has not completed its review of SFAS No. 131, but anticipates that the adoption of this statement will not have a significant effect on the Company's financial disclosures. TELULAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 7. Contingencies The Company is involved in litigation with Global Emerging Markets North America, Inc. (GEM) over a commission GEM claims in connection with the Preferred Stock issued by the Company in 1997 (see footnote 4 above). On April 5, 1999, the Circuit Court of Cook County (Illinois) awarded GEM $549,305, and the Company appealed that judgement. Subsequent to filing the appeal the litigation was settled for $425,000, which the Company will pay in August 1999. The payment that the Company has agreed to make is deemed to be issuance cost and has been accrued in its financial statements as a reduction to Redeemable Preferred Stock. The Company is involved in other legal proceedings in the ordinary course of business. While all litigation contains an element of uncertainty, based upon discussion with the Company's counsel, except for the GEM case described above, management believes that the outcome of such proceedings will not have a material adverse effect on the Company's consolidated financial position and results of operations. 8. Reverse Stock Split The number of shares of common stock outstanding, the weighed average number of common shares outstanding and basic and diluted net loss per share amounts have all been restated to reflect the one-for-four (1:4) reverse stock split of the Company's common stock on January 27, 1999. 9. Reclassification Certain amounts in the June 30, 1998 financial statements have been reclassified to conform to the June 30, 1999 presentation. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company is in the fixed wireless telecommunications industry. The Company designs, develops, manufactures and markets products based on its proprietary interface technologies, which provide the capability to bridge wireline telecommunications customer premises equipment with cellular-type transceivers for use in wireless communication networks. Applications of the Company's technology include fixed wireless telecommunications as a primary service where wireline systems are unavailable, unreliable or uneconomical, as well as wireless backup systems for wireline telephone systems and wireless alarm signaling (WAS). The Company's principal product lines are: PHONECELL, a line of fixed wireless terminals (FWTs), and TELGUARD, a line of WAS products. The Company is investing in new product development for both analog and digital fixed wireless terminals. As with any emerging market, it is difficult to predict the timing of the market demand. If anticipated sales in any quarter do not occur as expected, expenditure and inventory levels could be disproportionately high, and the Company's operating results for that quarter, and potentially for future quarters, could be adversely affected. Certain factors that could significantly impact expected results are described in the Company's Cautionary Statements Pursuant to the Securities Litigation Reform Act which is attached as Exhibit 99 to the Company's Form 10-K for the period ended September 30, 1998. Results of Operations Third quarter fiscal year 1999 compared to third quarter fiscal year 1998 Total Net Product Sales. Total net product sales includes sales of finished products and components. Sales of FWTs increased 48% and sales of WAS products increased 18% during the third quarter of fiscal year 1999 compared to the same period last year. Sales of components decreased 49% or $1.1 million during the third quarter of fiscal year 1999 compared to the same period last year. The decline in component sales resulted from a $2.1 million decrease in sales to Qualcomm, partially offset by a $1.0 million increase in sales to Motorola. Royalty and Royalty Settlement Revenue. Royalty and royalty settlement revenue increased $0.7 million for the third quarter of fiscal year 1999 compared to the third quarter of fiscal year 1999. This increase resulted primarily from increased royalty revenue from Motorola this year compared to last year. Beginning in fiscal year 1999 Motorola pays the Company royalties as a percentage of its sales on two product lines, Code Division Multiple Access (CDMA) and Advanced Mobile Phone System (AMPS), instead of a single product line, AMPS, as in the previous fiscal year. Cost of sales. Cost of sales increased from $6.7 million for the third quarter of fiscal year 1998 to $9.6 million for the third quarter of fiscal year 1999. During the third quarter of fiscal year 1999 the Company recorded a one-time special charge of $1.5 million (or $.17 per share) to write-off its Extended Total Access Communication System (ETACS) and CDMA inventories. On June 30, 1999, the Company decided to exit the ETACS business and to offer a new generation of CDMA products that are purchased by the Company from Motorola. Excluding this one-time charge, cost of sales for the third quarter of fiscal year 1999 of $8.1 million or 76 percent of sales compares to $6.7 million or 77 percent of sales for the same period of fiscal year 1998. Engineering and Development Expenses. Engineering and development expenses of $1.3 million for the third quarter of fiscal year 1999 decreased approximately 26% or $0.5 million from the same quarter of fiscal year 1998. In fiscal year 1998 the Company had increasing engineering and development expenses as a result of its efforts to bring several new lower cost products and a wider range of products to market. Because many of these new products were completed and introduced to market during fiscal year 1998, the Company has reduced its engineering and development expenses, primarily through reductions in material costs and contracted engineering services. Provision for doubtful accounts. Provision for doubtful accounts increased $0.2 million during the third quarter of fiscal year 1999, compared to the same period last year. The increase is a result of the Company providing reserves for three accounts where the Company's potential exposure exceeds its insurance coverage. Net loss. The Company recorded a net loss of $3.2 million or $0.36 per share for the third quarter in fiscal year 1999 compared to a net loss of $2.5 million or $0.30 per share for the third quarter of fiscal year 1998. Excluding the $1.5 million one-time charge to write-off certain inventories, net loss of $1.7 million or $0.19 per share for the third quarter in fiscal year 1999 compares to net loss of $2.5 million or $0.30 per share for the third quarter of fiscal year 1998. Net loss applicable to common shares. After giving effect to the cumulative preferred stock dividend of $0.2 million for the third quarter of fiscal year 1999, net loss applicable to common shares of $3.4 million or $0.38 per share compared to a net loss of $2.8 million or $0.33 per share for the third quarter of fiscal year 1998. First nine months of fiscal year 1999 compared to first nine months of fiscal year 1998 Total Net Product Sales. Net product sales of $25.5 million for the nine months ended June 30, 1999 decreased 18% from $31.0 million for the nine months ended June 30, 1998. Sales of FWTs decreased 27% from $23.8 million during the first nine months of fiscal year 1998 to $17.4 million during the same period of fiscal year 1999. The decrease resulted primarily from lower shipments to Africa and Philippines during the current year, but also due to economic turmoil in Asia in general and in specific areas of South America. Mexico as well as a few areas of South America have been experiencing increased sales, to help offset weaker sales in the other regions. The Company shipped $10.4 million of FWTs to Guinea, West Africa and Philippines during the first nine months of fiscal year 1998. There have been no sales to these destinations in fiscal year 1999. The sale of WAS products increased approximately 13% from $7.2 million during the nine months ended June 30, 1998 to $8.1 million during the nine months ended June 30, 1999. Net Product sales to related parties of approximately $1.3 million represents sales of radios and components to Motorola. Royalty and Royalty Settlement Revenue. Royalty and royalty settlement revenue increased from $1.4 million during the first nine months of fiscal year 1998 to $1.8 million during the same period of fiscal year 1999. The fiscal year 1998 amount included $1.2 million for the royalty settlement with ORA Electronics, Inc. The fiscal year 1999 amount includes $0.9 million of royalty settlement revenue from Motorola. The amount from Motorola is a wrap-up payment related to the Option Agreement with Motorola. The above payment together with favorable changes in terms granted to the Company by Motorola in connection with the Hungary project comprise the balance of liquidated damages owed the Company by Motorola in connection with the Option Agreement and the Hungary project contract. Further, in connection with the above settlement, the Company has agreed to reduce certain present and future royalties from Motorola. Cost of sales. Cost of sales decreased from $24.3 million for the first nine months of fiscal year 1998 to $21.9 million for the first nine months of fiscal year 1999. During the third quarter of fiscal year 1999 the Company recorded a one-time special charge of $1.5 million (or $.17 per share) to write-off its ETACS and CDMA inventories. On June 30, 1999, the Company decided to exit the ETACS business and to offer a new generation of CDMA products which are purchased by the Company. Excluding this one-time charge, cost of sales for the first nine months of fiscal year 1999 of $20.4 million or 75 percent of sales compares to $24.3 million or 75 percent of sales for the same period of fiscal year 1998. Engineering and Development Expenses. Engineering and development expenses of $4.3 million during the first nine months of fiscal year 1999 decreased approximately 30% or $1.9 million over the first nine months of fiscal year 1998. In fiscal year 1998 the Company had increasing engineering and development expenses as a result of efforts to bring several new lower cost products and a wider range of products to market. Because many of these products were completed and introduced to market during that year, the Company has reduced engineering and development expenses, primarily through reductions in material costs and contracted engineering services. Selling and Marketing Expenses. Selling and marketing expenses for the first nine months of fiscal year 1999 increased 12% or $0.6 million compared to the period of fiscal year 1998. The increase was primarily a result of the Company's efforts to market its new products and increase its sales force to support worldwide sales coverage. The Company has added new direct sales personnel in Western Europe, China, and Turkey during the first nine months of fiscal year 1999. General and Administrative Expenses (G&A). G&A for the first nine months of fiscal year 1999 decreased 14% compared to the first nine months of fiscal year 1998. The decrease is primarily attributable to the reduction of insurance premiums as a result of favorable negotiations with insurance carriers. Provision for doubtful accounts. Provision for doubtful accounts increased $0.2 million during the first nine months of fiscal year 1999, compared to the same period last year. The increase is a result of the Company providing reserves for three accounts where the Company's potential exposure exceeds its insurance coverage. Other Income. Other income during the first nine months of fiscal year 1999 decreased by $0.5 million compared to the same period of fiscal year 1998. The decrease is primarily due to lower interest income due to reduced cash balances during the first nine months of fiscal year 1999 compared to the same nine months of fiscal year 1998. Net loss. The Company recorded a net loss of $7.9 million or $0.89 per share for the first nine months in fiscal year 1999 compared to a net loss of $6.4 million or $0.78 per share for the first nine months of fiscal year 1998. Excluding the $1.5 million one-time charge to write-off certain inventories, net loss of $6.4 million or $0.72 per share for the first nine months of fiscal year 1999 compares to net loss of $6.4 million or $0.72 per share for the first nine months of fiscal year 1998. Net loss applicable to common shares. After giving effect to the cumulative preferred stock dividend of $0.5 million for the first nine months of fiscal year 1999, net loss applicable to common shares of $8.5 million or $0.96 per share compares to a net loss of $7.1 million or $0.86 per share for the first nine months of fiscal year 1998. Liquidity and Capital Resources At June 30, 1999, the Company had $10.7 million in cash and cash equivalents with a working capital surplus of $21.0 million. The increase is primarily the result of temporary changes in working capital, partially offset by lower capital spending. The Company used $9.1 million during the first nine months of fiscal year 1999 compared to $6.7 million of cash used during the same period last year. Cash used for capital spending was $1.3 million during the nine months ended June 30, 1999, compared to $2.0 million during the same period last fiscal year. In 1997, the Company issued 20,000 shares of Series A Convertible Preferred Stock (the Preferred Stock) for $18.8 million, which is net of issuance cost of $1.2 million. The Preferred Stock automatically converts into shares of the Company's common stock (Common Stock) on October 16, 1999 and includes the equivalent of a 5% annual stock dividend. Holders of the Preferred Stock are entitled, at their option, subject to trading volume and other restrictions, to convert Preferred Stock into shares of Common Stock using defined conversion formulas based on the Nasdaq closing bid prices for the Common Stock. In addition, the holders have the option to redeem the Preferred Stock upon the occurrence of a (i) consolidation or merger with another company; (ii) sale or transfer of substantially all assets; (iii) 50% change in ownership; or (iv) certain triggering events including suspension of the SEC registration statement for the Common Stock to be issued upon conversion of the Preferred Stock, failure to be listed on Nasdaq or another national securities exchange, and notice by the Company of its intention not to comply with proper requests for conversion. The redemption price upon holder redemption is the greater of $1,250 per share and the cash equivalent of the defined conversion formula on the date of redemption. The Company is entitled to require the holders to convert the Preferred Stock and accrued dividends into shares of Common Stock using a defined conversion formula based upon the Nasdaq closing bid prices for the Common Stock. In addition, the Company has the right to redeem the Preferred Stock after April 15, 1999 for $1,200 per share plus 120% of the accrued dividends. Holders of the Preferred Stock are not entitled to vote on matters submitted for vote to the stockholders of the Company. As of June 30, 1999, 7,650 shares of preferred stock have been converted into 1,100,452 shares of Common Stock. On July 30, 1999, the Company agreed to a written proposal from The CIT Group, Inc. (CIT) to provide a credit facility with maximum borrowings of $10.0 million (the Proposed Loan), and paid a deposit to CIT to commence due diligence procedures. Borrowings under the Proposed Loan will be subject to borrowing base requirements and other restrictions. The Proposed Loan would mature on August 10, 2003. If consummated, the Company will grant stock options and pay additional financing fees to CIT on the date of closing. As of June 30, 1999, the Company estimated its borrowing capacity under the Proposed Loan would be $7.7 million. The Proposed Loan would replace a previous Loan and Security Agreement with Fleet Capital Corporation (the successor to Sanwa Business Credit Corporation) which was terminated on July 15, 1999. If the Proposed Loan is approved, the Company expects to borrow funds from time to time to fund working capital requirements, to fund future product development efforts and to sustain significant levels of cash reserves which are required to qualify for large sales opportunities. Based upon its current operating plan, the Company believes its existing capital resources, including the Proposed Loan and proceeds from the issuance of Preferred Stock, should enable it to maintain its current and planned operations. Cash requirements may vary and are difficult to predict given the nature of the developing markets targeted by the Company. The amount of royalty income from the Company's licensees is unpredictable, but could have an impact on the Company's actual cash flow. The Company requires letters of credit or qualification for export credit insurance underwritten by third party credit insurance companies or the Export-Import Bank of the United States on a substantial portion of its international sales orders. Also, to mitigate the effects of currency fluctuations on the Company's results of operations, the Company endeavors to conduct all of its international transactions in U.S. dollars. To date, the Company's sales have not been adversely affected by currency fluctuations; however, as the Company's international operations grow, foreign exchange or the inflation of a foreign currency may pose greater risks for the Company, and the Company may be required to develop and implement additional strategies to manage these risks. Impact of the Year 2000 Issue Recently, national attention has focused on the potential problems and associated costs resulting from computer programs that have been written using two digits rather than four to define the applicable year. These programs treat all years as occurring between 1900 and 1999 and do not self-correct to reflect the upcoming change in the century. If not corrected, computer applications could fail or create erroneous results by or at the Year 2000. In 1998, management conducted a formal assessment of its significant information technology systems, including computers used in its production and manufacturing functions. Based upon this assessment, management developed an action plan to modify its internal software and hardware (imbedded chips) so that its computer systems will function properly with respect to dates in the Year 2000 and thereafter. The cost of such modifications, including testing and implementation, was not significant and was funded with available cash. Although the Company has completed all known changes to its internal computer systems and has obtained certification of year 2000 compliance from its key external software providers, there can be no absolute assurance that all of the Company's internal systems will operate properly in the Year 2000 and beyond. The Company is prepared to operate the business without the benefit of internal uter systems should its systems fail to operate after December 31, 1999. The Company does not conduct any of its purchase transactions through computer systems that interface directly with suppliers. However, the Company has initiated a formal assessment of its significant suppliers to determine the extent to which the Company would be vulnerable if those third parties fail to remedy Year 2000 issues. To date, the Company has received written responses from most of its suppliers. The Company has evaluated these responses and is now monitoring the progress of suppliers that are not fully ready for the Year 2000. Where the Company determines that critical suppliers will not be ready for the Year 2000, the Company will take appropriate actions. The Company currently has no material systems that interface directly with customers. Further, the Company has not entered into any significant supply contracts that extend beyond December 31, 1999. The Company's large customers beyond December 31, 1999 will likely be new customers due to the project nature of its business. However, as a global company that operates in many different countries, some of which may not be addressing the Year 2000 problem as aggressively as the United States, there can be no assurances that future customers will be Year 2000 compliant. Moreover, because markets for the Company's products are dependent on third parties, such as wireless local loop network providers, management cannot fully assess the impact that the Year 2000 problem will have on future sales. The Company has reviewed each of its product lines and has determined that its products will operate properly in the Year 2000 and beyond. However, for some industries, the Company's products are integrated with other companies' products and sold as combined product, by another companies. There can be no assurances that such combined products, current and future, will operate properly in the Year 2000 and beyond. The cost of the Company's efforts to prepare for the Year 2000 was approximately $100,000, of which approximately 50% was incurred during the current fiscal year. Management will continue to monitor this issue, particularly the possible impact of third-party Year 2000 compliance on the Company's operations. Management believes that it is Year 2000 ready and does not anticipate any additional preparation cost. Nevertheless, because it is not possible to anticipate all future outcomes, especially when third parties are involved, there could be circumstances in which the Company is adversely affected by Year 2000 problems. The loss of revenue from such occurrences has not been estimated. Outlook The statements contained in this outlook are based on current expectations. These statements are forward looking, and actual results may differ materially. Based upon observed trends, the Company believes that the market for FWTs will experience substantial growth over the next five years. Nearer term prospects should enable the Company to grow, but at more modest rates. The economic turmoil in Asia, a key market for the Company's products, will negatively impact growth prospects in the near term. However, the Company has identified significant near term opportunities primarily in Africa, Brazil, Dominican Republic, Mexico, Malaysia, Turkey and Venezuela. Each of these markets will develop at a different pace, and the sales cycle for these regions are several months or quarters, but market indications remain positive. The Company is well positioned with a wide range of products and an expanded sales force to capitalize on these market opportunities. Statements contained in this filing, other than historical statements, consist of forward-looking information. The Company's actual results may vary considerably from those discussed in the Outlook section and elsewhere in this filing as a result of various risks and uncertainties. For example, there are a number of uncertainties as to the degree and duration of the Company's revenue momentum, which could impact the Company's ability to be profitable as lower sales may likely result in lower margins. In addition, product development expenditures, which are expected to benefit future periods, are likely to have a negative impact on near term earnings. Other risks and uncertainties, which are discussed in Exhibit 99 to the Company's Form 10-K for the period ended September 30, 1998, include the risk that technological change could render the Company's technology obsolete, the risk of litigation, the Company's ability to develop new products, the Company's dependence on contractors and Motorola, the Company's ability to maintain quality control, the risk of doing business in developing markets, the Company's dependence on research and development, the uncertainty of additional funding, the potential for redemption of preferred stock, the effects of control by existing shareholders, the effect of changes in management, intense industry competition and uncertainty in the development of wireless service generally. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In 1998, the Company received 300,000 shares of common stock of ORA Electronics, Inc. (ORA stock) in connection with the settlement of litigation. ORA stock is traded on Nasdaq's Over The Counter (OTC) system. Although ORA stock is subject to price fluctuations associated with all securities that are traded on the OTC system, the Company has the right to receive additional shares of ORA stock to ensure the fair market value of the settlement consideration received in stock is equivalent to $1.5 million on February 1, 2000. The Company frequently invests available cash and cash equivalents in short term instruments such as: certificates of deposit, commercial paper and money market accounts. Although the rate of interest available on such investments may fluctuate over time, each of the Company's investments is made at a fixed interest rate over the duration of the investment. All of these investments have maturities of less than 90 days. The Company believes its exposure to market risk fluctuates for these investments is not material as of June 30, 1999. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of trade accounts receivable. Credit risks with respect to trade receivables are limited due to the diversity of customers comprising the Company's customer base. The Company generally receives irrevocable letters of credit that are confirmed by U.S. banks to reduce its credit risk. Further, the Company purchases credit insurance for all significant open accounts outside of the United States. The Company performs ongoing credit evaluations and charges uncollectible amounts to operations when they are determined to be uncollectible. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is involved in litigation with Global Emerging Markets North America, Inc. (GEM) over a commission GEM claims in connection with the Preferred Stock issued by the Company in 1997. On April 5, 1999, the Circuit Court of Cook County (Illinois) awarded GEM $549,305, and the Company appealed that judgement. Subsequent to filing the appeal the litigation was settled for $425,000, which the Company will pay in August 1999. Item 2. CHANGES IN SECURITIES AND RECENT SALES OF UNREGISTERED SECURITIES Changes in Securities Under the terms of the Series A Convertible Preferred Stock issued on April 16, 1997 and June 6, 1997, for so long as such stock is outstanding, dividends may be paid on the Common Stock only out of retained earnings of the Company generated after April 1, 1997. Under the terms of the Proposed Loan, the Company will be prohibited from paying cash dividends during the term of the Loan. Recent Sales of Unregistered Securities During the three months ended June 30, 1999, the Company issued 25,602 shares of Common Stock valued at $78,406 to the law of firm of Hamman and Benn for legal services. These issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, as they did not involve a public offering of securities. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (listed by number according to Exhibit table of Item 601 in Regulation S-K) Number Description Reference ------ ---------------------------- ----------------------------- 3.1 Certificate of Incorporation Filed as Exhibit 3.1 to Registration Statement No. 33-72096 (the Registration Statement) 3.2 Amendment No. 1 to Certificate Filed as Exhibit 3.2 of Incorporation to the Registration Statement 3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to the of Incorporation Registration Statement 3.4 Amendment No. 3 to Certificate Filed as Exhibit 3.4 to Form of Incorporation 10-Q filed February 16, 1999 3.5 Amendment No. 4 to Certificate Filed as Exhibit 3.5 to Form of Incorporation 10-Q filed February 16, 1999 3.6 By-Laws Filed as Exhibit 3.4 to the Registration Statement 4.1 Loan Agreement with LaSalle Filed as Exhibit 4.1 National Bank and Amendment to Form 10-K filed December thereto 27, 1995 4.2 Debenture Agreements dated Filed as Exhibit 4.2 December 11, 1995 to Form 10-K filed December 27, 1995 4.3 Certificate of Designations, Filed as Exhibit 99.2 Preferences, and Rights of Form 8-K filed Series A Convertible Preferred April 25, 1997 Stock 4.4 Loan and Security Agreement with Filed as Exhibit 4.2 to Sanwa Business Credit Corporation Form 10-Q filed August 14, 1997 10.1 Consulting Agreement with Filed as Exhibit 10.1 William L. De Nicolo to the Registration Statement 10.2 Employment Agreement with Filed as Exhibit 10.1 to Form Kenneth E. Millard 10-Q filed August 14, 1996 10.3 Stock Option Agreement with Filed as Exhibit 10.2 to Form Kenneth E. Millard 10-Q filed August 14, 1996 10.4 Stock Purchase Agreement By Filed as Exhibit and Among Telular Corporation 10.3 to Form 10-Q and TelePath Corporation (which filed August 14, 1996 had changed its name to Wireless Domain, Incorporated) 10.5 Appointment of Larry J. Ford Filed as Exhibit 10.2 to Form 10-Q filed May 1, 1995 10.6 Option Agreement with Motorola Filed as Exhibit 10.6 dated November 10, 1995 to Form 10-K filed December 26, 1996(1) 10.7 Amendment No. 1 dated September Filed herewith 24, 1996 to Option Agreement with Motorola 10.8 Amendment No. 2 dated April 30, Filed herewith (1) 1999 to Option Agreement with Motorola 10.9 Stock Purchase Agreement Filed as Exhibit 10.11 between Motorola, Inc. and to the Registration Statement Telular Corporation dated September 20, 1993 10.10 Patent Cross License Agreement Filed as Exhibit 10.12 between Motorola, Inc. and the to the Registration Company, dated March 23, 1990 Statement(1) and Amendments No. 1, 2 and 3 thereto 10.11 Amendment No 4 to Patent Cross Filed herewith (1) License Agreement between Motorola, Inc. and the Company dated May 3, 1999 10.12 Exclusive Distribution and Filed as Exhibit 10.14 Trademark License Agreement the Registration between Telular Canada Inc. Statement(1) and the Company, dated April 1, 1989, and Amendments thereto 10.13 Amended and Restated Shareholders Filed as Exhibit 10.15 Agreement dated November 2, 1993 to the Registration Statement(1) 10.14 Amendment No. 1 to Amended and Filed as Exhibit 10.24 Restated Shareholders the Registration Agreement, dated January 24, 1994 Statement 10.15 Amendment No. 2 to Amended and Filed as Exhibit 10.5 Restated Shareholders Agreement, to the Form 10-Q filed dated June 29, 1995 July 28, 1995 10.16 Amended and Restated Registration Filed as Exhibit 10.16 Rights Agreement dated November to the Registration 2, 1993 Statement 10.17 Amendment No. 1 to Amended and Filed as Exhibit 10.25 Restated Registration Rights to the Registration Agreement, dated January 24, Statement 1994 10.18 Amended and Restated Employee Filed as Exhibit 10.17 Stock Option Plan to Form 10-K filed December 26, 1996 10.19 Stock Option Grant to Filed as Exhibit 10.7 Independent Directors to Form 10-Q filed July 28, 1995 10.20 Securities Purchase Agreement Filed as Exhibit 99.1 to dated April 16, 1997, by and Form 8-K filed between Telular Corporation and April 25, 1997 purchasers of the Series A Convertible Preferred Stock 10.21 Registration Rights Agreement Filed as Exhibit 99.3 to dated April 16, 1997, by and Form 8-K filed between Telular Corporation and April 25, 1997 purchasers of the Series A Convertible Preferred Stock 10.22 Securities Purchase Agreement Filed as Exhibit 99.3 to dated June 6, 1997, by and Registration Statement on between Telular Corporation and Form S-3, Registration purchasers of the Series A No. 333-27915, as amended Convertible Preferred Stock by Amendment No. 1 filed June 13, 1997, and further Amended by Amendment No. 2 filed July 8, 1997 (Form S-3) 10.23 Registration Rights Agreement Filed as Exhibit 99.4 to dated June 6, 1997, by and Form S-3 between Telular Corporation and purchasers of the Series A Convertible Preferred Stock 10.24 Agreement and Plan of Merger by Filed as Exhibit 10.21 and among Wireless Domain to Form 10-K filed Incorporated (formerly TelePath), December 19, 1998 Telular-WD (a wholly-owned subsidiary of Telular) and certain stockholder of Wireless Domain Incorporated 10.25 Employment Agreement with Daniel Filed as Exhibit 10.22 D. Giacopelli to Form 10-Q filed February 13, 1998 10.26 Employment Agreement with Robert Filed as Exhibit 10.23 C. Montgomery to Form 10-Q filed February 13, 1998 10.27 OEM Equipment Purchase Agreement Filed herewith (1) for WAFU dated April 30, 1999 11 Statement regarding computation Filed herewith of per share earnings 27 Financial data schedule Filed herewith (1) Confidential treatment granted with respect to redacted portions of documents. (b) Reports on Form 8-K The Company did not file any report on Form 8-K during the three months ended June 30, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. Telular Corporation Date August 13, 1999 By: /s/ Kenneth E. Millard ----------------- ------------------------- Kenneth E. Millard President & Chief Executive Officer Date August 13, 1999 /s/ Jeffrey L. Herrmann ----------------- ------------------------- Jeffrey L. Herrmann Senior Vice President & Chief Financial Officer Exhibit Index Number Description Reference ------ ---------------------------- ----------------------------- 3.1 Certificate of Incorporation Filed as Exhibit 3.1 to Registration Statement No. 33-72096 (the Registration Statement) 3.2 Amendment No. 1 to Certificate Filed as Exhibit 3.2 of Incorporation to the Registration Statement 3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to the of Incorporation Registration Statement 3.4 Amendment No. 3 to Certificate Filed as Exhibit 3.4 to Form of Incorporation 10-Q filed February 16, 1999 3.5 Amendment No. 4 to Certificate Filed as Exhibit 3.5 to Form of Incorporation 10-Q filed February 16, 1999 3.6 By-Laws Filed as Exhibit 3.4 to the Registration Statement 4.1 Loan Agreement with LaSalle Filed as Exhibit 4.1 National Bank and Amendment to Form 10-K filed December thereto 27, 1995 4.2 Debenture Agreements dated Filed as Exhibit 4.2 December 11, 1995 to Form 10-K filed December 27, 1995 4.3 Certificate of Designations, Filed as Exhibit 99.2 Preferences, and Rights of Form 8-K filed Series A Convertible Preferred April 25, 1997 Stock 4.4 Loan and Security Agreement with Filed as Exhibit 4.2 to Sanwa Business Credit Corporation Form 10-Q filed August 14, 1997 10.1 Consulting Agreement with Filed as Exhibit 10.1 William L. De Nicolo to the Registration Statement 10.2 Employment Agreement with Filed as Exhibit 10.1 to Form Kenneth E. Millard 10-Q filed August 14, 1996 10.3 Stock Option Agreement with Filed as Exhibit 10.2 to Form Kenneth E. Millard 10-Q filed August 14, 1996 10.4 Stock Purchase Agreement By Filed as Exhibit and Among Telular Corporation 10.3 to Form 10-Q and TelePath Corporation (which filed August 14, 1996 had changed its name to Wireless Domain, Incorporated) 10.5 Appointment of Larry J. Ford Filed as Exhibit 10.2 to Form 10-Q filed May 1, 1995 10.6 Option Agreement with Motorola Filed as Exhibit 10.6 dated November 10, 1995 to Form 10-K filed December 26, 1996(1) 10.7 Amendment No. 1 dated September Filed herewith 24, 1996 to Option Agreement with Motorola 10.8 Amendment No. 2 dated April 30, Filed herewith (1) 1999 to Option Agreement with Motorola 10.9 Stock Purchase Agreement Filed as Exhibit 10.11 between Motorola, Inc. and to the Registration Statement Telular Corporation dated September 20, 1993 10.10 Patent Cross License Agreement Filed as Exhibit 10.12 between Motorola, Inc. and the to the Registration Company, dated March 23, 1990 Statement(1) and Amendments No. 1, 2 and 3 thereto 10.11 Amendment No 4 to Patent Cross Filed herewith (1) License Agreement between Motorola, Inc. and the Company dated May 3, 1999 10.12 Exclusive Distribution and Filed as Exhibit 10.14 Trademark License Agreement the Registration between Telular Canada Inc. Statement(1) and the Company, dated April 1, 1989, and Amendments thereto 10.13 Amended and Restated Shareholders Filed as Exhibit 10.15 Agreement dated November 2, 1993 to the Registration Statement(1) 10.14 Amendment No. 1 to Amended and Filed as Exhibit 10.24 Restated Shareholders the Registration Agreement, dated January 24, 1994 Statement 10.15 Amendment No. 2 to Amended and Filed as Exhibit 10.5 Restated Shareholders Agreement, to the Form 10-Q filed dated June 29, 1995 July 28, 1995 10.16 Amended and Restated Registration Filed as Exhibit 10.16 Rights Agreement dated November to the Registration 2, 1993 Statement 10.17 Amendment No. 1 to Amended and Filed as Exhibit 10.25 Restated Registration Rights to the Registration Agreement, dated January 24, Statement 1994 10.18 Amended and Restated Employee Filed as Exhibit 10.17 Stock Option Plan to Form 10-K filed December 26, 1996 10.19 Stock Option Grant to Filed as Exhibit 10.7 Independent Directors to Form 10-Q filed July 28, 1995 10.20 Securities Purchase Agreement Filed as Exhibit 99.1 to dated April 16, 1997, by and Form 8-K filed between Telular Corporation and April 25, 1997 purchasers of the Series A Convertible Preferred Stock 10.21 Registration Rights Agreement Filed as Exhibit 99.3 to dated April 16, 1997, by and Form 8-K filed between Telular Corporation and April 25, 1997 purchasers of the Series A Convertible Preferred Stock 10.22 Securities Purchase Agreement Filed as Exhibit 99.3 to dated June 6, 1997, by and Registration Statement on between Telular Corporation and Form S-3, Registration purchasers of the Series A No. 333-27915, as amended Convertible Preferred Stock by Amendment No. 1 filed June 13, 1997, and further Amended by Amendment No. 2 filed July 8, 1997 (Form S-3) 10.23 Registration Rights Agreement Filed as Exhibit 99.4 to dated June 6, 1997, by and Form S-3 between Telular Corporation and purchasers of the Series A Convertible Preferred Stock 10.24 Agreement and Plan of Merger by Filed as Exhibit 10.21 and among Wireless Domain to Form 10-K filed Incorporated (formerly TelePath), December 19, 1998 Telular-WD (a wholly-owned subsidiary of Telular) and certain stockholder of Wireless Domain Incorporated 10.25 Employment Agreement with Daniel Filed as Exhibit 10.22 D. Giacopelli to Form 10-Q filed February 13, 1998 10.26 Employment Agreement with Robert Filed as Exhibit 10.23 C. Montgomery to Form 10-Q filed February 13, 1998 10.27 OEM Equipment Purchase Agreement Filed herewith (1) for WAFU dated April 30, 1999 11 Statement regarding computation Filed herewith of per share earnings 27 Financial data schedule Filed herewith (1) Confidential treatment granted with respect to redacted portions of documents. EX-11 2 Exhibit (11) - Statement Re: Computation of Earnings Per Share and Pro Forma Earnings Per Share (1999)
Three Months Ended June 30, 1999 1998 -------------- ------------- Average number of shares outstanding 8,989,930 8,385,882 ============== ============= Net loss $ (3,216,000) $ (2,549,000) Less: cumulative dividend on redeemable preferred stock $ (168,000) $ (222,000) -------------- ------------- Loss applicable to common shares $ (3,384,000) $ (2,771,000) ============== ============= Net loss per share $ (0.38) $ (0.33) ============== =============
EX-27 3
5 1,000 3-MOS SEP-30-1999 JUN-30-1999 10739 0 8957 345 9419 29852 11231 5616 39356 8830 0 13513 0 93 16920 39356 9896 10684 9584 9584 4101 215 0 (3216) 0 (3216) 0 (168) 0 (3384) (0.38) (0.38)
EX-10.27 4 Exhibit 10.27 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE BEEN OMITTED FROM THE ATTACHED EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED PORTIONS HAVE BEEN REPLACED BY AN X ENCLOSED BY BRACKETS ([X]). Motorola - Buyer OEM EQUIPMENT PURCHASE AGREEMENT FOR WAFU This Agreement is entered into as of the 30 day of April, 1999 between Motorola, Inc. through its Network Solutions Sector, with offices at 1475 West Shure Drive, Arlington Heights, Illinois 60004 (Motorola) and Telular, Inc., with offices at 647 North Lakeview Parkway, Vernon Hills, IL 60089 (Buyer). 1. PRODUCTS AND PRICES. Buyer agrees to purchase and Motorola agrees to sell Products during the term of this Agreement under the terms and conditions set forth in this Agreement. The Products and the applicable prices are as set forth in Attachment A. 2. SPECIFICATIONS AND CHANGES TO SPECIFICATIONS. The Products are warranted, under the terms of Attachment B, Limited Commercial Warranty, to comply with Motorola's applicable specifications, which are set forth in Attachment C, (the Specifications). Motorola will obtain Buyer's written approval before implementing in the Products any change to the Specifications that materially adversely affects the Products' compatibility with Compatible Products (as hereinafter defined), performance, features or physical appearance. Motorola otherwise reserves the right to make changes to the Products. Compatible Products shall mean the RJ11 connector and the RJ45 connector (each, as more fully described in Attachment C to this Agreement) and Lucent and Motorola infrastructure equipment. Motorola agrees to provide updated, completed product literature to Telular within thirty (30) days of commercial shipment of the Product(s) to the field, to reflect any changes implemented in the Product(s). 3. TERM. The term of this Agreement will commence as of the date set forth above and will terminate 60 months later, subject to earlier termination as provided in this Agreement. 4. ORDERS. Buyer may issue orders to Motorola under the terms of this Agreement. The only effect of any terms and conditions in Buyer's orders or elsewhere will be to request the time and place of delivery and number of units to be delivered, subject to Motorola's acceptance, but they will not change, alter or add to these terms and conditions in any other way. Orders are also subject to the terms in Attachment E, Unit Forecasting Process - Telular/Motorola. 5. EXPORT CONTROLS: Buyer agrees to comply with applicable export laws, regulations and orders. Specifically, but without limitation, Buyer agrees that it will not resell, reexport or ship, directly or indirectly, any Product, or technical data in any form without obtaining appropriate export or reexport license from the United States Government. Buyer acknowledges that the export laws, regulations and orders applicable to Products may differ from item to item and/or from time to time. Buyer agrees that violation of any provision of this Paragraph will constitute just cause for immediate termination of the Agreement by Motorola without liability to Buyer. 6. [X] 7. DELIVERY AND PAYMENT. (a). All deliveries are FOB Motorola's plant. Shipping will be to Buyer's designated location at Telular, 647 North Lakeview Parkway, Vernon Hills, and IL 60061, with shipping charges prepaid and invoiced to Buyer. The parties agree that orders shall be shipped in accordance with the chart titled Factory Delivery Schedule contained in Attachment E. Subject to Motorola's approval of Buyer's credit, each such delivery will be separately invoiced and payment from Buyer will be due thirty (30) days from the date thereof without regard to other deliveries. -IN NO EVENT WILL MOTOROLA BE LIABLE FOR INCREASED COST, LOSS OF PROFITS OR GOOD WILL OR ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES due to late delivery or non- delivery of the Products. Motorola reserves the right, in its sole discretion, to change Buyer's credit limit or to impose credit terms, including without limitation the requirement that Buyer provide an acceptable letter of credit or make full or partial advance payment, as conditions to Motorola's acceptance of any order or the delivery of any Products. In the event Buyer has not made payment to Motorola of any amount due in accordance with the applicable payment terms, Motorola, at its option, may offset such amount against any payments due or that become due from Motorola (or its affiliates) to Buyer, including without limitation, payment due Buyer under the Motorola-Telular Cross Licensing Agreement dated March 23, 1990, Amendment Number 1, dated August 24, 1992, Amendment Number 2, dated August 24, 1992 and Amendment Number 3, dated September 20, 1993. Buyer authorizes any such offset and agrees that upon such an offset, the amount offset will be deemed to have been paid Buyer. (b). Title to the Products sold will pass to Buyer at the FOB point. (c). Buyer hereby grants to Motorola a security interest and lien upon Buyer's Products which shall extend only until the applicable Products are paid for by Telular. Buyer agrees to cooperate in whatever manner necessary to assist Motorola in perfecting and recording such security interest and lien upon request. 8. PRODUCT MODIFICATIONS. Buyer represents and agrees that the Products do not require mechanical or electrical alteration. Any modifications or alterations to the Products could void Motorola's obligations under the Limited Commercial Warranty (see Attachment B, IV (c)). In addition, modifications or alterations to the Products could affect the reparability of Products by the Motorola Repair Center. 9. TECHNICAL ASSISTANCE. Motorola's Limited Commercial Warranty will not be enlarged by, and no obligation or liability will arise out of, Motorola's rendering of technical advice, facilities or service in connection with Buyer's purchase of Products. Buyer represents and agrees that the Product design does not require customization of Product by Motorola or Motorola engineering support. Buyer will provide first-line technical and service support for Products. However, Motorola will provide back-up technical support directly to Telular and not to Telular's customers when necessary from its technical service center at Motorola Inc., Network Solutions Sector, technical services center. Buyer will be solely responsible for arranging for onsite service, installation, maintenance, and programming of the Products. Engineering support is not included under this Agreement; however, Motorola may, in its discretion, make engineering support available to Buyer by separate agreement that may also involve additional charges. 10. CONTINUATION OF SUPPLY: Motorola agrees that in the event it shall cease manufacturing the Products or products equivalent to the Products, Motorola shall use its best efforts to obtain, engage or otherwise provide for an alternate source (which may include without limitation, a sector, group or division of Motorola other than the Network Solutions Sector) to supply to Buyer such Products. If Motorola is unable to do so, Motorola agrees to take reasonable actions to enable Buyer to have the Products manufactured by an alternative source. 11. INTEROPERABILITY TESTING. Motorola agrees to have every revision of the Product delivered to Telular interoperability tested for standard CDG stage 2 on a minimum of Motorola and Lucent infrastructure. Completed results from these tests and any CDG stage 2 interoperability tests with other infrastructure providers which Motorola may undertake in its sole discretion will be forwarded to Telular. This Agreement is initially based on Rev 2.3 including analog fax. 12. COMPLIANCE TESTING. Telular agrees to perform a compliance test by Telular for each new customer for which an order is received. Orders will not be accepted until this compliance testing is successfully completed. All trouble reports generated in this process will be reported to Motorola technical service center. Motorola will advise Telular within thirty (30) days of any actions that may be implemented. 13. WARRANTY. Motorola warrants the Products, in accordance with its Limited Commercial Warranty attached to this Agreement as Attachment B, to Buyer only and to no other party. Motorola makes no representation or warranty of any other kind, express or implied. MOTOROLA SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Buyer understands and agrees that Motorola will not be responsible in any way for any warranty which Buyer may extend to its customers except as provided in Attachment B. 14. RESTRICTIONS ON QUANTITY OF SALES. Telular agrees that it may not sell more than [X] units that it purchases in 1999 and 2000 from Motorola at [X] per unit in the aggregate to an operator. 15. FORCE MAJEURE. Motorola will not be liable for any delay or failure to perform due to any cause beyond its control. Causes include but are not limited to strikes, acts of God, acts of Buyer, interruptions of transportation or inability to obtain necessary labor, materials or facilities, or default of any supplier. The delivery schedule will be considered extended by a period of time equal to the time lost because of any excusable delay. 16. PATENT AND COPYRIGHT INDEMNIFICATION. (a). Motorola agrees to defend, at its expense, any suits against Buyer based upon a claim that any Product(s) furnished hereunder directly infringes a U.S. patent or copyright and to pay costs and damages finally awarded in any such suit, provided that Motorola is notified promptly in writing of the suit and at Motorola's request and at its expense is given control of said suit and all requested assistance for defense of same. Buyer agrees that if any Product(s) furnished hereunder becomes or in Motorola's opinion is likely to be the subject of such a claim or is enjoined as a result of such suit, Buyer will permit Motorola at its option and at no expense to Buyer, (i) to obtain for Buyer the right to use or sell said Product(s); or (ii) to substitute an equivalent product reasonably acceptable to Buyer and extend this indemnity thereto; or (iii) if neither of the foregoing options are available on terms which are reasonable in Motorola's judgment, Motorola will accept the return of Product(s) and reimburse Buyer the purchase price therefor, less a reasonable charge for reasonable wear and tear. This indemnity does not extend to any suit based upon any infringement or alleged infringement of any patent or copyright by the alteration of any Product(s) furnished by Motorola or by the combination, operation or use of any Products(s) furnished by Motorola with other elements nor does it extend to any products(s) of Buyer's own design, specification or formula. The foregoing states the entire liability of Motorola for patent or copyright infringement. (b). IN NO EVENT WILL MOTOROLA BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM INFRINGEMENT OR ALLEGED INFRINGEMENT OF PATENTS, TRADEMARKS OR COPYRIGHTS. 17. LOGOS, TRADEMARKS AND USE OF MOTOROLA NAME (a) Some Products will carry Buyers designated logo and trade name or such other logo or trade name, and may be marketed by Buyer as such. (b) Some Products will be marked with Motorola's logos, trademarks, and or tradenames as Motorola deems appropriate. In order that Motorola may protect its trademarks, trade names, corporate slogans, corporate logo, goodwill and product designations, Buyer, without the express written consent of Motorola, will have no right to use any such marks, names, slogans or designations of Motorola in the sale, 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. Except as provided for in Attachment D, Buyer further agrees not to advertise or otherwise publicly disclose that Motorola is the manufacturer or supplier of the Products. 18. LICENSE DISCLAIMER. Nothing contained herein will be deemed to grant either directly or by implication, estoppel, or otherwise, any license under any patents, copyrights, trademarks or trade secrets of Motorola. 19. TAXES. Buyer agrees (i) to pay and be responsible for all taxes imposed by any federal, state, county or local governmental authority with respect to the Products or upon the ordering, purchase, sale, ownership, delivery, leasing, possession, use, operation, return or other disposition thereof, excepting federal, state, county or local taxes based on or measured by the net income of Motorola or (ii) prior to shipment, to provide Motorola with a valid certificate of exemption acceptable by the appropriate taxing authority. 20. LIMITATION OF LIABILITY. EXCEPT FOR PERSONAL INJURY, MOTOROLA'S TOTAL LIABILITY WHETHER FOR BREACH OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE, IS LIMITED TO THE PRICE OF THE PARTICULAR PRODUCTS SOLD HEREUNDER WITH RESPECT TO WHICH LOSSES OR DAMAGES ARE CLAIMED. BUYER'S SOLE REMEDY IS TO REQUEST MOTOROLA AT MOTOROLA'S OPTION TO EITHER REFUND THE PURCHASE PRICE, REPAIR OR REPLACE PRODUCT(S) THAT ARE NOT AS WARRANTED. IN NO EVENT WILL MOTOROLA BE LIABLE FOR ANY LOSS OF USE, LOSS OF TIME, INCONVENIENCE, COMMERCIAL LOSS, LOST PROFITS OR SAVINGS OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES TO THE FULL EXTENT SUCH MAY BE DISCLAIMED BY LAW. NO ACTION WILL BE BROUGHT FOR ANY BREACH OF THIS AGREEMENT MORE THAN ONE (1) YEAR AFTER THE ACCRUAL OF SUCH CAUSE OF ACTION EXCEPT FOR MONEY DUE UPON OPEN ACCOUNT. 21. PARTY RELATIONSHIP. This Agreement does not create any agency, joint venture or partnership between Buyer and Motorola. Buyer will not impose or create any obligation or responsibility, express or implied, or make any promises, representations or warranties on behalf of Motorola, other than as expressly provided herein. 22. TYPE APPROVAL. Under Paragraph 2, Attachment C and Attachment B, the Products are warranted to comply with certain type approval requirements which are referenced in the Specifications. Buyer will be solely responsible for all other type approval and registration requirements, including without limitation such requirements that apply to the Product. 23. TERMINATION. (a). Either party will be considered to be in default if any of the following occurs: (i) it assigns this Agreement or any of its rights under this Agreement in violation of Paragraph 27; (ii) it fails to perform any material obligation under this Agreement; (iii) it makes an assignment for the benefit of its creditors, or a receiver, trustee in bankruptcy or similar officer is appointed to take charge of its assets; (iv) it files for relief under state or federal bankruptcy laws; or (v) there is a substantial change in its control and in the case of Telular, the change of control is through a transaction with a competitor of Motorola. (b). If Telular is not in default pursuant to the foregoing sentence, Motorola will be considered in default if it fails to deliver duly ordered Products within thirty (30) days of the time periods described in the Factory Delivery Schedule set forth in Attachment E. (c). In the event of a default, the non-defaulting party may terminate this Agreement by notice if the other party has not cured the default within 30 days after its receipt of notice of default. (d). Nothing contained in this Agreement will be deemed to create any express or implied obligation on either party to renew or extend this Agreement or to create any right to continue this Agreement on the same terms and conditions contained in it. All sums owed by either party to the other under this Agreement will become due and payable immediately upon the termination or expiration of this Agreement. 24. U.S. GOVERNMENT SALES. In the event that Buyer elects to sell Motorola products or services to the U.S. Government or any foreign, state, county, municipal or other governmental entity, or to a prime contractor selling to any such governmental entity, Buyer remains solely and exclusively responsible for compliance with all procurement statutes and regulations governing such sales. Motorola makes no representations, certifications or warranties whatsoever with respect to the ability of its goods, services or prices to satisfy any such statutes or regulations. Failure of Buyer to conduct any sales to such a government entity or to such a prime contractor in strict accordance with applicable laws and regulations will constitute a default under this Agreement. 25. DISPUTE RESOLUTION. Motorola and Buyer will attempt to settle any claim or controversy arising out of this Agreement through consultation and negotiation in the spirit of mutual friendship and cooperation. If such attempts fail, then the dispute will be mediated by a mutually acceptable mediator to be chosen by Motorola and Buyer within 45 days after notice by one of the parties demanding such mediation. Neither party may unreasonably withhold consent to the selection of a mediator, and the parties will share the costs of the mediation equally. The parties may also agree to replace mediation with some other form of non- binding alternative dispute resolution, such as neutral fact- finding or a mini-trial. Any dispute which the parties cannot so resolve between themselves within six months of the date of the initial demand by any party will be finally determined by judicial proceedings. The use of such a procedure will not be construed to affect adversely the rights of any party under the doctrines of laches, waiver or estoppel. Nothing in this Paragraph will prevent either party from resorting to judicial proceedings if (a) good faith efforts to resolve a dispute under these procedures have been unsuccessful or (b) interim resort to a court is believed necessary to prevent serious and irreparable injury to that party or others. 26. CONFIDENTIALITY. The parties agree that the existence and types of products, quantities, prices, and dates in this Agreement are confidential and will not be disclosed by either party to third parties, and will only be disclosed to their own employees on a need to know basis; provided that subject to Motorola's prior written approval, Buyer may disclose such information as may be required for public securities filings. The confidentiality obligations of the parties shall survive termination of this Agreement for twelve (12) months. 27. NOTICES. Any notices given under this Agreement must be in writing and be either delivered personally or sent by certified mail, return receipt requested, addressed to the appropriate party at the address stated on the first page of this Agreement (or to a new address provided by notice to the other party) and will be effective upon receipt or at such time as delivery is refused upon presentation. 28. GENERAL. This Agreement constitutes the entire and final expression of agreement between the parties pertaining to the subject matter thereof and supersedes all prior and contemporaneous negotiations, offers, discussions, arrangements, promises, representations, agreements, letters of intent or understandings of the parties whether written, oral or otherwise, in connection therewith. The parties agree that, although this Agreement makes reference to the Motorola-Telular Licensing Agreement dated March 23, 1990 the subject matter of this Agreement does not include the subject matter of the Motorola- Telular Cross Licensing Agreement dated March 23, 1990 and this Agreement in no way supersedes the Motorola-Telular Cross Licensing Agreement dated March 23, 1990. No alterations or modifications of this Agreement will be binding upon either Buyer or Motorola unless made in writing and signed by an authorized representative of each. If any term or provision of this Agreement is to any extent held by a court or other tribunal to be invalid, void or unenforceable, insofar as it is in conflict with law, the remaining rights and obligations of the parties will be construed and enforced as if the Agreement did not contain the particular term or provision held to be invalid, void or unenforceable. No assignment of this Agreement or of any right granted therewith will be made by Buyer without the prior written consent of Motorola. The failure of any party to enforce, at any time, any provision of this Agreement will not be construed as a waiver of such provision or of the right of any party thereafter to enforce such provision. This Agreement will be enforced and construed in accordance with the laws of the State of Illinois. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. SELLER: BUYER: MOTOROLA, INC., by and through its TELULAR, INC. Network Solutions Sector By: /s/ Daniel Coombes By: /s/ Robert Montgomery Title: SR VP & GM Title: Exec VP and COO Date: 4/30/99 Date: 5/3/99 Attachments A. Products and Prices B. Limited Commercial Warranty C. Specifications D. Policy for the Use of Motorola Name/Trademarks and Product Descriptions E. Unit Forecasting Process - Telular/Motorola Attachment A Motorola - Telular Confidential and Proprietary CDMA Fixed Wireless Terminals, Accessories and Services Price List Products ---------- Model: ST1056 800MHz FWT ST1001 1.9GHz FWT Includes: Battery, power supply, spike, antenna, bracket, instruction manual, plain box. Unit Pricing Quantity 1999 -------- ----- [X] [X] [X] [X] *Up to [X] units not purchased or shipped in year 1999 will be available for purchase in year 2000 at the price of [X] Quantity 2000 2001 2002 -------- ----- ----- ----- [X] [X] [X] [X] [X] [X] [X] [X] Accessory Pricing: Model: ST1006 Field Programming Kit (Two required per 1,000 FWTs) Includes: 5 PC to FWT Programming Cables, 5 DB9M/DB25F Connector Adapters, & 10 Pigtail Cables Price: [X] Note: This pricing is valid for the accessories relating to the [X] FWTs purchased during 1999 and 2000 for [X]. Standard pricing will apply to other purchases. Model: STKF4001 Digital Data Cable Price: [X] Model: STNN4003 Lead Acid Battery Price: [X] Models: STLN4123B, STLN4124B, STLN4125B, STLN4126B, STLN4127B, STLN4128B Power Cube Price [X] Services: Technical Training 2 classes of 8 participants. Sales Training 2 classes of 8 participants. All other subsequent training classes will be charged at Motorola's standard pricing. ATTACHMENT B Motorola - Buyer LIMITED COMMERCIAL WARRANTY I. WHAT THIS WARRANTY COVERS AND FOR HOW LONG: MOTOROLA, INC. (Motorola) warrants that the Products (including accessories) shall comply with the applicable Specifications and shall be free from defects in material and workmanship under normal use and service for a period of fifteen (15) months from date of shipment. Motorola, at its option, shall at no charge either repair. replace or refund the purchase price of the Product during the warranty period, provided it is returned by Buyer in accordance with the terms of this warranty to the Motorola Network Solutions Sector Repair center. Repair or replacement, at Motorola's option, may include the replacement of parts, boards or Products with functionally equivalent reconditioned items. Repaired and replacement items are warranted for the balance of the original warranty period. All replaced items shall become the property of Motorola. Such action on the part of Motorola shall be the full extent of Motorola's liability hereunder, and Buyers exclusive remedy. Buyer shall be responsible for all costs and expenses incurred by Buyer including without limitation any handling, labor or transportation charges. This express warranty Is extended by Motorola, Inc., 1475 W. Shure Drive, Arlington Heights, Illinois 60004, to Buyer only and not to Buyer's customers or users of Buyer's Products. II. HOW TO OBTAIN WARRANTY SERVICE Product covered under this warranty shall only be accepted from and returned to Buyer's central warranty depot. Buyer's dealers, distributors, agents, and end users cannot submit items to Motorola's Network Solutions Sector Repair center or other authorized Motorola cellular Warranty centers under this warranty. To receive warranty service, the defective or non-compliant Product should be sent by Buyer freight pre-paid to: Motorola Network Solutions Sector Repair Center, accompanied by a completed Motorola Repair Processing Form to the address designated in such Form. Blank forms shall be supplied to Buyer by Motorola on request. III. WARRANTY CONDITIONS: This is the complete warranty for the Products manufactured by Motorola and sold to Buyer. Motorola assumes no obligation or liability for additions or modifications to this warranty unless made in writing and signed by an officer of Motorola. Unless made in separate written agreement between Motorola and Buyer, Motorola does not warrant the installation, field maintenance or service of the Products or parts. Motorola cannot be responsible in any way for any ancillary equipment not furnished by Motorola which is attached to or used in connection with the Products or for operation of the Products with any ancillary equipment and all such equipment is expressly excluded from this warranty. Furthermore, Motorola cannot be responsible for any damage to the Products resulting from the use of ancillary equipment not furnished by Motorola for use with the Products. When the Product is used in conjunction with ancillary or peripheral equipment not manufactured by Motorola, Motorola does not warrant the operation of the Product/peripheral combination, and Motorola shall honor no warranty claim where the Product is used in such a combination and it is determined by Motorola that there is no fault with the Product. Motorola disclaims liability for range, coverage, availability, or operation of the Cellular System which is provided by the Carrier. IV. WHAT THIS WARRANTY DOES NOT COVER: (a) Defects, non-compliance or damage resulting from use of the Product in other than its normal and customary manner. (b) Defects, noncompliance or damage from misuse, accident or neglect. (c) Defects, noncompliance or damage from improper testing, operation, maintenance, installation, adjustment, or any alteration or modification of any kind. (d) Product disassembled or repaired in such a manner as to adversely affect performance or prevent adequate inspection and testing to verify any warranty claim. (e) Product which has had the serial number removed or made illegible. (f) Defects, non-compliance or damage due to spills of food or liquid. (g) All plastic surfaces and all other externally exposed parts that are scratched or damaged due to customer normal use. (h) Product rented. (i) Costs and expenses, including without limitation handling, labor and transportation, incurred in returning Product for warranty service to Motorola's Network Solutions Sector Repair Center. V. GENERAL PROVISIONS: THIS WARRANTY IS GIVEN IN LIEU OF ALL OTHER EXPRESS WARRANTIES. IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE DISCLAIMED. FURTHER, AS THE CELLULAR CARRIER IS NOT CONTROLLED BY MOTOROLA, NO WARRANTY IS MADE AS TO COVERAGE, AVAILABILITY OR GRADE OF SERVICE PROVIDED BY THE CELLULAR CARRIER. IN NO EVENT SHALL MOTOROLA BE LIABLE FOR DAMAGES IN EXCESS OFTHE PURCHASE PRICE OF THE PRODUCT, FOR ANY LOSS OF USE, LOSS OF TIME, INCONVENIENCE, COMMERCIAL LOSS, LOST PROFITS OR SAVINGS OR OTHER INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE SUCH PRODUCT. TO THE FULL EXTENT SUCH MAY BE DISCLAIMED BY LAW. VI. SOFTWARE PROVISIONS: Laws in the United States and other countries preserve for Motorola certain exclusive rights for copyrighted Motorola software such as the exclusive rights to reproduce in copies and distribute copies of such Motorola software. Motorola software may be copied into, used in and redistributed with only the Product associated with such Motorola software. No other use, including without limitation, disassembly of such Motorola software or exercise of exclusive rights in such Motorola software is permitted. ATTACHMENT C Motorola - Buyer SPECIFICATIONS Item 1 ST1056 800MHZ FWT; ST1001 1.9GHZ FWT Item 2 ST1006 Field Programming Kit Item 3 STKF4001 Digital Data Cable Item 4 STNN4003 Lead Acid Battery All information is provided on a Non-Disclosure, limited distribution basis. Item 1: ST1056A 800MHZ FWT; ST1001A 1.9GHZ FWT Attachment C Section 2: CDMA FWT Technical Specifications The purpose of this section is to describe or define the minimum performance specifications of a Motorola CDMA FWT. Some features require infrastructure support to be fully utilized. 2.1 FWT General Characteristics _ ST1056A 800MHZ FWT; ST1001A 1.9GHZ FWT Table 2.1.1: FWT General Characteristics and Features Category Units Description ----------------- ------------ --------------------------- Unit Summary ********* **************** Indoor Unit Yes Stylish Molded Housing Single Line Unit Yes Supports a single telephone line. Programming/Test Port1 Yes Via the RJ-11 jack using Motorola's custom FWT-PDS software. Installation Support Yes FWT Programming and Tools2 Diagnostics Software, Motorola custom RJ-11 electronic interface cable, and PC with a suitable serial port. Post Origination DTMF Yes Processes DTMF for Tones transmission over the air from FWT to land only. Hook Flash support Yes On/Off hook transition utilized to engage system features such as call waiting, call forwarding. Coverage Measurement Yes When placed into the Indicator2 coverage measurement mode, Note: This feature is the service LED on the top currently available of the unit represents a only while using the relative RF coverage level FWT in the Local by flashing at different dialtone mode. rates. The more frequent the flashes the occur, the better the coverage. See installation manual for details. Visual Indicators Yes SERVICE LED: (LED's) - Green ON: Detects CDMA carrier - OFF: Out of service or service is unavailable POWER/FAILURE LED - Green ON Steady: No faults present & operating from an external power source Slow blink: Operating from battery Fast blink: Operating from low battery - Red ON: Failure Fault detected - Red Slow Blink: Indicates a dead battery Distinctive Ringing and Yes Programmable 15-65 Hz. Cadence (default 20 Hz). Local Dial Tone Yes Programmable (default Bellcore). Registration Yes Time based Hand-off Yes Supports hard, soft, and softer hand off. Note 1: FWT-PDS software and RJ-11 electronic interface cable not included. Note 2: Requires appropriate software license. All information is provided on a Non-Disclosure, limited distribution basis. Item 1: ST1056A 800MHZ FWT; ST1001A 1.9GHZ FWT Attachment C Table 2.1.2: FWT Interfaces and Standards Category Range- Description Units -------------------- ------- ------------------------- Physical Interfaces ******** ***************** Antenna Connection TNC receptacle, 50 ohms. TELCO Generic 6 pin modular receptacle is used to support the RJ12 interface. Method of Interface Loop start tip and ring via RJ-12. Ground start is not supported. Main Power Jack for Coaxial DC receptacle, 5.5 Wall Cube or other mm external, 2.1mm internal approved power sources. contact. Center positive Auxiliary Power Input Standard 2 pin MOLEX Jack receptacle, standard 0.100" For battery connections center spacing. only. Battery On/Off Switch Toggle type. Allows manual control to disable battery powered operation. Technology ******** ************ Speech coding technique 8K or 13K QCELP, or 8K EVRC Speech vocoder rates Kbps 8 Kbps or 13 Kbps RF modulation type QPSK for Forward Link, OQPSK for Reverse Link Multiple access type No CDMA only. (Analog hand down not allowed). Authentication IS-95A (ST1056) technique J-STD-008 (ST1001) Encryption technique Inherent within IS-95A and J-STD-008 Standards ********* ********** IS-95A CDMA Air Yes Supports 8K & 13K CDMA Only, Interface with TSB-74 dual mode operation such as (ST1056) AMPs/NAMPs is not supported. J-STD-008 (ST1001) IS-96-A Service Option 1 Yes 8K QCELP voice service IS-127 Service Option 3 Yes 8K EVRC voice service IS-733 Service Option 17 Yes 13K QCELP voice service IS-98A Mobile RF Yes Supports CDMA Only, dual Minimum Standards mode operation such as (ST1056) AMPs/NAMPs is not supported. J-STD-008 (ST1001) IS-126-A Yes Digital loop back. Requires Service Option 2 (8K) infrastructure system Service Option 9 (13K) support and FWT PDS connection. UL1492/CSA-C22.2 No. 1 Yes Safety standards used for Standard for Safety of Cellular Phones. Audio-Video Products and Accessories. EMI FCC part. Yes Part 15, Subpart J. Compliant with select Yes Requires infrastructure CDMA support for full utilization Development Group Stage 2 tests. Compliant with select Yes Requires infrastructure CDMA Development Group support for full utilization Stage 3 tests. Caller ID Yes Requires a compatible Per Bellcore GR-30-CORE external viewing device and infrastructure support for message delivery. Note: While in a call, the FWT will not deliver the ID information for call waiting. All information is provided on a Non-Disclosure, limited distribution basis. Item 1: ST1056A 800MHZ FWT; ST1001A 1.9GHZ FWT Attachment C Table 2.1.3: FWT Mechanical Characteristics Category Range- Description Units ---------------------- ------- ---------------------- Environmental ******** ********* Operating Temperature .C [X] ambient (indoor) Range (min/max) Battery derating required at above [X] Humidity % [X] RH, non condensing Installation ******** ************** Optimal installation See installation manual for proper installation procedures. Installation density A minimum distance of 3 (co-existence) meters should be maintained between two or more FWTs installed in the same location. Physical ********* ************ Physical dimensions (h mm 61 mm high x 215 mm wide x x w x d) 165 mm long (w/o antenna) or [2.4" x 8.5" x 6.5"] Weight Kg <1.6 Kg with the internal battery Mounting technique Desk top or wall mounted. An optional high security mounting bracket option is available. (See Security Below) Mounting recommendation Near a window sill or ledge favoring the CDMA system. Desk mount Yes Integral feet. Wall mount Yes Integral Mounting Tabs. Security Yes Optional Steel wall mounting bracket with pad locking tabs. Unit Color Ivory over Gray. All information is provided on a Non-Disclosure, limited distribution basis. Item 1: ST1056A 800MHZ FWT; ST1001A 1.9GHZ FWT Attachment C Table 2.1.4: FWT Power Characteristics Category Range- Description Units --------------------- ----------- ----------------------- Wall Transformer ********** ********* Input voltage range(s). 120V Optional Class II self Wall cube options are 220V protecting wall cubes are available with regional 240V sourced to be compatible plugs and line with regional electric voltages. UL for utility requirements. 110/120V models CE or TUV for 220/240V models Output voltage 14V DC +/- @ 850 milliampere, 100% duty (nominal) 5% cycle. A standard 5.5 mm coaxial DC plug with a 2.1mm positive(+) tip connection is used. Reverse Voltage Yes Mechanical Reverse Voltage Protection Protection FWT Std Power Input ********* ********** FWT Input Voltage 14V DC to The FWT is specification nominal 15.5V DC compliant and operates safely while within these supply ranges FWT Lower Voltage Input 10-13.9V The FWT will safely operate Extreme within these extended ranges but with reduced battery charging capacity. FWT Upper Voltage Input 15.6-18V The FWT will safely operate Extreme within these extended ranges. FWT box power < 8 W < 7 watts typical (TX @ full dissipation power and full rate) Auxiliary Power Input ********* ********* Input voltage range 13V Min Designed to be connected to 15V Max an external high capacity battery. 14V nominal for spec operation. Reverse Voltage Yes Mechanical Reverse Voltage Protection Protection Internal Battery ********* ********* Battery Type 12V, 2 Ahr Sealed Lead-Acid Mechanical Polarity Yes Polarized connector Reversal Recharge time 20 hr Max 90% charged at 25C, nominal line, new battery Battery Talk Time 2 Hour Min Using fully charged battery, nominal link power, and 0.42 VAF. Battery Standby Time 4 Hour Min Using fully charged battery and non slotted mode operation. At the end of 4 hours of standby, battery reserves will support a single call with a VAF of 0.42 for 3 minutes duration. Battery Standby Time 8 Hour Min Using fully charged battery and using slotted mode operation. At the end of 8 hours of standby, battery reserves will support a single call with a VAF of 0.42 for 3 minutes duration. Low/Dead Battery Yes Blinking Power LED/Blinking Alarming Red LED All information is provided on a Non-Disclosure, limited distribution basis. Item 1: ST1056A 800MHZ FWT; ST1001A 1.9GHZ FWT Attachment C Table 2.1.5: FWT Telco Characteristics Category Range- Description Units --------------------- --------- ------------------------- Ringing ********* ********* Battery Backed Ringing Yes Min Ring Voltage (ac Vrms 40 Vrms @ max loop length & component) max REN load Ring Voltage (dc VDC -75 to -21 VDC. -55 VDC component) typical. Ring Frequency Hz Type A Ringer: 17 to 23 Hz (programmable) per FCC part 68.312 Type B Ringer: 15 to 68 HZ per FCC part 68.312 REN Load (Max) Type A [X] REN Where 1 REN load = 7000 ohms Type B [X] REN Table 2.1.6: ST 1056 FWT RF Characteristics Category Range- Description Units -------------------- ---------- ------------------------- Functional ********* ********* IS-95-A CDMA Only IS-98-A CDMA Only Transmitter ********* ********* Reverse Link frequency MHz 824-849 range Mobile Station Class Class III Guaranteed Minimum RF mW 200 mW as defined by IS-98-A power output section 10.4.5 Channel spacing MHz 1.25 MHz Receiver ********* ********* Forward Link frequency MHz 869-894 range All information is provided on a Non-Disclosure, limited distribution basis. Item 1: ST1056A 800MHZ FWT; ST1001A 1.9GHZ FWT Attachment C Table 2.1.7: ST1001 FWT RF Characteristics Category Range- Description Units --------------------- --------- ------------------------- Functional ********* ********* J-STD-008 (ST1001A) CDMA Only J-STD-018 (ST1001A) CDMA Only Transmitter ********* ********* Reverse Link frequency MHz 1850-1910 range Mobile Station Class Class II Guaranteed Minimum RF mW 200 mW as defined by J-STD- power output 018 section 4.4.5 Channel spacing MHz 1.25 MHz Receiver ********* ********* Forward Link frequency MHz 1930-1990 (ST 1001A) range All information is provided on a Non-Disclosure, limited distribution basis. Item 1: ST1006AC Field Programming Kit Attachment C 1.1 Field Programming - ST1006C The FWT is provisioned with the FWT-PDS. Parameters which require programming before operation include the Mobile ID, System ID, Network ID, and channel number assignments. In addition, numerous parameters which describe how the FWT behaves may be programmed if desired. Table 1.1.1: FWT Programmer Port Characteristics Topic of Description Range/Units Method or recommendation ----------------------- ------------- ------------------------- Physical Connection N/A RJ-12 to DB-9, Motorola electronic programmer cable. This kit includes a DB9 to DB25 adapter. Communications Protocol Asynchronous RS-232 N81 Communications Data 19.2 Kbps Rate using PDS Communications Data -8 Kbps Rate using IS-99 based OTASD2 Time for PDS to prepare Minutes Dependent on computing software upgrade file platform speed and available for local or remote memory it will take from 3 upgrade. to 20 minutes to preprocess the file. Typical Time to Upgrade Minutes Less than 15 minutes when FWT Operating Software done locally. Approximately [X] when done remotely using Over-The-Air Software Download. Visual Indicators while Yes SERVICE LED: upgrading (LED's) - Blinks with a 75% cadence while a software codeplug download is in process and the FWT see's service. - Blinks with a 25% cadence while a software codeplug download is in progress and the FWT does not see service. Time to Provision Minutes Less than 5 minutes when (excluding upgrade of done locally. operating software). Programmer Version Version FWT-PDS V2.10 is backward 2.1 or compatible with the ST1000A later. Note 1: When using the Motorola electronic programmer cable, RTS and DTR must be asserted high and low respectively in order for the cable to function properly. Note 2: OTASD requires OPTIONAL infrastructure/network support. All information is provided on a Non-Disclosure, limited distribution basis. Item 3: STKF4001A Digital Data Cable Attachment C 2.4 Connectors: 2.4.1 Connector A 2.4.1.1 Body material: Natural polycarbonate UL 94V-2 rated\ 2.4.1.2 Contact: Phosphor bronze, plated with 0.76 to 1.27 x E-3 MM (30 to 50 micro- inches) gold over 1.27 to 3.81 x E-3 MM (50 150 micro-inches) nickel. 2.4.1.3 Overmold material: PVC, black color. 2.4.2 Connector B 2.4.2.1 Body material: Nylon, flame retardant, 94V-O rated, glass filled, black. 2.4.2.2 Shell material: Steel, zinc plated and yellow chromated. 2.4.2.3 Contacts: Beryllium copper or phosphor bronze, plated with 0.76 to 1.27 x E-3 MM (30 to 50 micro-inches) gold over 1.27 to 3.81 x E-3 MM (50 to 150 micro-inches) nickel in contact area, plating in solder of contact to be in tin lead. 2.4.2.4 Overmold material: PVC, black color. 2.4.2.5 Motorola logo shall be molded in. The maximum height of the logo embossment shall be 0.8 MM. The minimum overall dimension of the logo shall be 5 MM. The placement, size, and color of the logo shall comply to Motorola identity guidelines. 2.5 Cable 2.5.1 Jacket material: PVC, black color, matte finish 2.5.2 Conductor: 30 AWG3 conductors of tin plated copper. 2.6 Insulation resistance: 500 ME60HMS minimum between any two conductors, after one minute electrification at 100 VDC. 2.7 Voltage breakdown: shall withstand 500 VRMS, 60 Hz, for one minute between any two conductors. 3.0 Performance Requirements: 3.1 Environmental 3.1.1 Operating temperature range: [X] 3.1.2 Storage temperature range: [X] 3.1.3 Humidity range: [X] relative humidity All information is provided on a Non-Disclosure, limited distribution basis. Item 4: STNN4003A Lead Acid Battery Attachment C Internal Battery ********** *********** --------------------- ----------- --------------------------- Battery Type 12V, 2 Ahr Sealed Lead-Acid Mechanical Polarity Yes Polarized connector Reversal Recharge time 20 hr Max 90% charged at 25C, nominal line, new battery Battery Talk Time 2 Hour Min Using fully charged battery, nominal link power, and 0.42 VAF. Battery Standby Time 4 Hour Min Using fully charged battery and non slotted mode operation. At the end of 4 hours of standby, battery reserves will support a single call with a VAF of 0.42 for 3 minutes duration. Battery Standby Time 8 Hour Min Using fully charged battery and using slotted mode operation. At the end of 8 hours of standby, battery reserves will support a single call with a VAF of 0.42 for 3 minutes duration. Low/Dead Battery Yes Blinking Power LED/Blinking Alarming Red LED ATTACHMENT D Motorola - Buyer POLICY FOR THE USE OF MOTOROLA NAME/TRADEMARKS AND PRODUCT DESCRIPTIONS I. USE OF THE MOTOROLA NAME/TRADEMARKS 1. Telular shall make no reproduction of the Motorola mark, the Motorola logo, the stylized M design logo or any stylized version of the Motorola name. 2. Other than as outlined below, Telular shall make no use of the Motorola name. II. PRODUCT PROMOTIONAL LITERATURE 1. In any Telular Fixed Product promotional literature which is used in connection with Product(s) supplied by Motorola, Telular may use the following: This unit is manufactured by Motorola, Inc. 2. When such information statement is used, it shall not be more prominent than Telular's name and company information. III. WRITTEN RESPONSE TO BIDS, PROPOSALS, TENDERS When Telular is required by bid specifications or written indication from end-user and/or equipment purchasers to divulge the manufacturer of components within the Telular Fixed Product, Telular may state that Motorola is the manufacturer of the fixed product and provide the Specifications contained in Attachment C. IV. ADVERTISING. PRESS RELEASES 1. As part of advertising in trade publications of specific Motorola Product(s) manufactured for Telular under this Agreement, Telular may use the Motorola name in the manner outlined in Paragraph II (above), but Telular may not use the Motorola logo or trademark, or stylized M design logo, or any stylized version of the Motorola name.. 2. Apart from the above, Telular is not authorized to use the Motorola name, logo, trademark, or stylized M design logo, in any media advertising or press releases without the express written consent of Motorola on a case-by-case basis. V. CUSTOMER PRESENTATIONS Telular may use the Motorola name in Customer presentations provided that reference to Motorola is limited to the sentence highlighted in Paragraph II (above). ATTACHMENT E Motorola - Buyer UNIT FORECASTING PROCESS - TELULAR/MOTOROLA The following procedure will be used by Telular to forecast, order and pay for the Product. The process is designed to allow for the greatest flexibility possible in maintaining customer delivery requirements. 1. The central handling point for all scheduling and ordering will be the Director of Purchasing at Telular. This person, or his designee, will be responsible for compiling and coordinating all ordering activity with Motorola on a monthly basis. 2. By the tenth of each month, Telular will provide a firm order quantity for the following month's requirements for the Products. Also, a forecast for three additional months will be provided at the same time. 3. Unless otherwise agreed, the firm order quantity will not vary from what had been forecasted for that month on the previous month's schedule by more than [X]. Forecasted months two and three will not vary by more than [X] from the previous schedule's month three and four. The fourth month on each schedule is open. 4. Telular, will review all the order quantities in relation to the previous forecast and advise if any changes are necessary. This review will be completed by the tenth of the month, in time for the orders to be placed. Orders will specify quantity and planned destination, if units are to be drop shipped. If with respect to any purchase order placed for Products, Telular give notice of cancellation less than [X] days prior to the scheduled ship date, Telular shall be charged a cancellation fee of [X] of the purchase price of the affected Products. 5. Orders will be sent to Telular's designated Motorola sales representative at, Motorola Inc., NSS, 1701 Golf Road, 8th Floor. IL35, Rolling Meadows, IL 60008. 6. The Product will then be shipped directly from Motorola to Telular at 647 North Lakeview Parkway, Vernon Hill, IL 60061 or drop ship destination; with invoicing sent to Telular, at such address. Telular is ultimately responsible for timely payment of invoices. 7. Telular will provide a yearly forecast on request with reasonable notice from Motorola. Motorola commits to the following factory delivery schedule. FACTORY DELIVERY SCHEDULE Quantity Forecasted Product Non-Forecasted Product --------- ------------------ -------------------- [X] [X] [X] [X] [X] [X] [X] [X] [X] NOTE: LEAD TIMES REPRESENT DELIVERY TIMING AFTER ORDER ENTRY DATE EX-10.8 5 Exhibit 10.8 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE BEEN OMITTED FROM THE ATTACHED EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED PORTIONS HAVE BEEN REPLACED BY AN X ENCLOSED BY BRACKETS ([X]). AMENDMENT NO. 2 DATED APRIL 30, 1999 TO OPTION AGREEMENT BETWEEN MOTOROLA, INC. AND TELULAR CORPORATION This Amendment is effective this day of April 30, 1999, between Motorola, Inc., a Delaware Corporation, acting by and through its Network Solutions Sector (hereinafter Motorola), and Telular Corporation, a Delaware Corporation (hereinafter Telular). Each of Motorola and Telular may be referred to herein individually as a Party, or collectively as the Parties. WHEREAS, on November 10, 1995, Motorola and Telular entered into an Option Agreement (hereinafter referred to as the Option Agreement); and WHEREAS, Motorola and Telular have previously amended the Option Agreement (Amendment No. 1 dated November 11, 1996); WHEREAS, Motorola and Telular desire to again amend the Option Agreement in certain respects; NOW THEREFORE, in consideration of the mutual obligations contained herein, the Parties hereby agree as follows: 1. Except as set forth herein, and as contained in Amendment No. 1, all capitalized terms not defined herein shall have the meanings given to them in the Option Agreement. 2. The parties agree that payment of $897,794 made by Motorola to Telular on March 30, 1999, satisfies in full, Motorola's contractual obligations under paragraph 3 of the Option Agreement, as amended, and no additional amounts shall be due and payable by Motorola to Telular pursuant to such paragraph 3. 3. The Agreement is hereby amended by: A. Replacing Paragraphs 4.2.1, 4.2.2 and 4.2.3 in the Option Agreement with a new paragraph 4.2.1 as follows: 4.2.1 The terms and conditions governing the purchase and sale of WAFU Products by Motorola to Telular is contained in Attachment 1 to Amendment No. 2 dated April 30, 1999 to Option Agreement between Motorola and Telular, entitled OEM Equipment Purchase Agreement for WAFU, dated April 30, 1999 (the OEM Agreement). B. Replacing the second sentence of paragraph 5 in the Option Agreement with a new sentence as follows: Commencing on the date of execution of this Agreement and ending on the date of expiration of the patents identified in paragraph 1 of this Agreement, notwithstanding anything to the contrary contained in the Motorola Telular Cross Licensing Agreement dated March 23, 1990, as amended, the royalty rate for all CDWA WFAUs that Motorola sells directly to third parties, without Telular repackaging, is [X], provided, however, that the royalty rate shall be increased to [X] if Telular duly terminates the OEM Agreement based on a default under paragraph 23(b) of such OEM Agreement. 1. Nothing herein contained shall in any way alter, waive, annul, vary or affect any terms, conditions or provisions of the Option Agreement, except as specifically provided herein, it being the intent of the parties hereto that all of the terms, conditions and provisions of the Option Agreement shall continue in full force and effect, except as specifically amended. IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed by their proper and duly authorized officers as of the day and year first above written. MOTOROLA, INC., by and through its TELULAR CORPORATION Network Solutions Sector Signature: /s/ Daniel Coombes Signature: /s/ Robert C. Montgomery Printed/Typed Name: Daniel Coombes Printed/Typed Name: Robert C. Montgomery Title: Sr VP & GM Title: Exec VP and COO EX-10.11 6 Exhibit 10.11 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE BEEN OMITTED FROM THE ATTACHED EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED PORTIONS HAVE BEEN REPLACED BY AN X ENCLOSED BY BRACKETS ([X]). AMENDMENT NO. 4 TO PATENT CROSS LICENSING AGREEMENT BETWEEN MOTOROLA, INC. AND TELULAR, INC. EFFECTIVE MARCH 23, 1990, As amended by AMENDMENT NOS. 1, 2 and 3 This Amendment No. 4 is made as of the date of the last to sign below (Amendment No. 4 Execution Date), to the above- captioned Licensing Agreement between MOTOROLA, INC., a corporation organized and existing under the laws of the State of Delaware, United States of America, having its principal place of business at 1303 E. Algonquin Road, Schaumburg, Illinois 60196 (hereinafter MOTOROLA) and TELULAR, INC., an Illinois corporation having its principal place of business at 647 North Lakeview, Vernon Hills, Illinois 60061 (hereinafter TELULAR). WHEREAS, MOTOROLA and TELULAR wish to amend the above- captioned Patent Cross-Licensing Agreement in order to amend definitions therein and to remove restrictions against MOTOROLA with respect to selling certain products in certain countries. NOW, THEREFORE, MOTOROLA and TELULAR agree to amend the Patent Cross-Licensing Agreement as follows: I. Paragraph 6(b) shall be amended to read: 6. Licensed Product (b) Integrated Product or Integrated Transceiver shall mean any Cellular-Type Transceiver which has a Cellular-Type Interface integrated into the circuitry of the Cellular-Type Transceiver or internally coupled thereto, and is manufactured to be contained within a cabinet or enclosure as a single unit. The Integrated Product may be removable coupled to a Booster Product; I. Paragraph 7(a) shall be amended to read: 6. Cellular Related Devices (a) Cellular-Type Transceiver shall mean any cellular type radio-technology transceiver device for utilization within a wireless transmission network, system or technology; I. Paragraph 10(a)(i) shall be amended to read: 10(a) Geographic Area shall mean the whole world with the following exceptions: (i) The license granted in paragraph 14 to MOTOROLA shall be limited to Accessory Products and Integrated Products only in Puerto Rico, the Dominican Republic and the Bahamas. MOTOROLA shall notify its customers or distributors who purchase the Accessory Product or Integrated Product of the limitation contained in this paragraph with regards to the use of the Accessory Product or Integrated Product in a Fixed Product. The limitation contained in this paragraph shall not apply to a Fixed Product which operates on a code-division multiple access (CDMA) air- interface. I. Paragraph 19(a)(ii) shall be amended to read: 19. Royalty (a) MOTOROLA agrees to pay TELULAR the following percentage royalty calculated on MOTOROLA's net sales of each class of product as follows: (i) For each Fixed Product leased used for commercial purpose, sold or otherwise disposed of by MOTOROLA under the Non-Exclusive License granted in paragraph 14(b) a) [X] of Fixed Products; b) [X] of Fixed Products; and c) [X] of Fixed Products; d) notwithstanding the above, [X] of Fixed Products which operate on a CDMA air-interface and which MOTOROLA sells directly to third parties, without TELULAR repackaging, provided, however, that the royalty rate shall be as recited in Sections 19(a)(ii)(a) 19(a)(ii)(c) above if TELULAR duly terminates the OEM Equipment Purchase Agreement for WFAU dated April 30, 1999 based on a default under paragraph 23(b) of that Agreement; I. MOTOROLA and TELULAR agree that all other terms and conditions of the Patent Cross-License Agreement, as amended in Amendment Nos. 1, 2 and 3, remain the same and this Amendment No. 4 shall control any conflict between the identified paragraphs of this Amendment No. 4 and the corresponding paragraphs of the above-captioned License Agreement as previously amended. IN WITNESS THEREOF, MOTOROLA and TELULAR have caused this Amendment No. 4 to be signed in duplicate originals by their duly authorized representatives as of the date written beneath their respective signatures. MOTOROLA, INC. TELULAR, INC. By: /s/ Daniel Coombes By: /s/ Robert C. Montgomery Name: Daniel Coombes Name: Robert C. Montgomery Title: SR VP and GM Title: Exec VP and COO Date: 4/30/99 Date: 5/3/99 EX-10.7 7 Exhibit 10.7 AMENDMENT NO. 1 DATED SEPTEMBER 24, 1996 TO OPTION AGREEMENT BETWEEN MOTOROLA, INC. AND TELULAR CORPORATION This Amendment is effective this 24th day September, 1996 between Motorola, Inc., a Delaware corporation, acting by and through its Cellular Infrastructure Group (hereinafter Motorola), and Telular Corporation, a Delaware corporation (hereinafter) Telular). Each of Motorola and Telular may be referred to herein individually as a Party, or collectively as the Parties. WHEREAS, on November 10, 1995, Motorola and Telular entered into an option agreement (hereinafter referred as the Option Agreement); and WHEREAS, Motorola and Telular desire to amend the Option Agreement in certain respects; NOW THEREFORE, in consideration of the mutual obligations contained herein, the parties hereby agree as follows: 1. Except as set forth herein, all capitalized terms not defined herein shall have the meanings given to them in the Option Agreement. 2. The Option Agreement is hereby amended by adding a new paragraph 12, as follows: 12. Dispute Resolution 12.1 The validity, performance, and all matters relating to the effect of this Option Agreement and any amendment hereto shall be governed by the laws of the state of Illinois, USA. The parties will attempt to settle any dispute, claim or controversy arising out of this Agreement through consultation and negotiation in good faith and in a spirit of mutual cooperation. If those attempts fail, then the dispute will be mediated by a mutually-acceptable mediator to be chosen by the parties within 20 days after written notice by either Party demanding mediation. Neither Party may unreasonably withhold its consent to the selection of a mediator, and the Parties will share the costs of the mediation (or other alternative dispute resolution) equally. Each party shall pay its own attorneys' fees and other costs. The mediator shall be knowledgeable about the telecommunications industry and relevant areas of law. By mutual agreement, however, the Parties may postpone mediation until each has completed some specified but limited discovery about the dispute. 12.2 Any dispute which the Parties cannot resolve between them through negotiation or mediation within four months of the date of the initial demand for it by one of the Parties may be submitted for final resolution to the American Arbitration Association for proceedings in Chicago, Illinois, U.S.A. under its rules. Under no circumstances shall the arbitrator(s) have any authority to award punitive damages. Judgement on the arbitrator's award will be binding and may then by entered in any court which has proper jurisdiction. 12.3 Notwithstanding the foregoing, any disputes with respect to intellectual property rights shall be submitted to the courts and not be subject to the provisions of this section 12. 3. Motorola hereby confirms that it approves the PhoneCell SXH project as an appropriate project to be funded by Motorola pursant to the terms of Section 2 of the Option Agreement. Following execution of this Amendment, Motorola will deliver to Telular a check in the amount of $843,694.65 in reimbursement for the funds previously expended by Telular for such project. Motorola continues to believe that this project was to be included in the price of the units quoted in paragraph 6 of the Purchase Order Addendum dated March 8, 1996 (the Purchase Order Addendum), and the Parties agree that Motorola's payment of such amount out of the development funds shall not be deemed as waiving Motorola's right to assert in any mediation or arbitration that the quoted purchase price was intended to include the PhoneCell SXH project. 4. The parties have been engaging in various discussions relating to certain modifications to the Option Agreement and to the prices for Phases II and III units as set forth in the Purchase Order Addendum; this Amendment is not intended as resolving or dispensing of any issues pertaining to the Option Agreement or the Purchase Order Addendum. This Amendment shall not be deemed in any way to prejudice any rights or either of the Parties, except with regard to the approval of the project described in Section 3 above, and the arrangements regarding dispute resoultion in Section 2 above. 5. Nothing herein contained shall in any way alter, waive, annul, vary or affect any terms, conditions or provisions of the Option Agreement, except as specifically provided herein, it being the intent of the parties hereto that all of the terms, conditions and provisions of the Option Agreement shall continue in full force and effect, except as hereby amended. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to by duly executed by their proper and duly authorized officers as of the day and year first above written. MOTOROLA, INC TELULAR CORPORATION /s/ Martin H. Singer /s/ Kenneth Millard -------------------- --------------------- Signature Signature Martin H. Singer Kenneth Millard ------------------- -------------------- Printed/Typed Name Printed/Typed Name VP & GM Wireless Access President/CEO Business Development Director ----------------------------- --------------------- Title Title -----END PRIVACY-ENHANCED MESSAGE-----