UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2011
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: 001-16073
OPENWAVE SYSTEMS INC.
(Exact name of registrant as specified in its charter)
Delaware | 94-3219054 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
2100 Seaport Blvd.
Redwood City, California |
94063 | |
(Address of principal executive offices) | (Zip Code) |
(650) 480-8000
(Registrants 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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of January 31, 2012 there were 86,376,096 shares of the registrants Common Stock outstanding.
OPENWAVE SYSTEMS INC.
PART I. FINANCIAL INFORMATION |
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Item 1. |
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Financial Statements: |
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3 | ||||
4 | ||||
5 | ||||
6 | ||||
Item 2. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
26 | |||
Item 3. |
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37 | ||||
Item 4. |
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39 | ||||
40 | ||||
Item 1. |
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40 | ||||
Item 1A. |
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40 | ||||
Item 6. |
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52 | ||||
53 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December 31,
2011 |
June 30,
2011 |
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ASSETS | ||||||||
Current assets: |
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Cash and cash equivalents |
$ | 34,052 | $ | 47,266 | ||||
Short-term investments |
28,523 | 33,947 | ||||||
Accounts receivable, net of allowance for doubtful accounts |
26,313 | 22,293 | ||||||
Prepaid and other current assets |
9,062 | 15,808 | ||||||
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Total current assets |
97,950 | 119,314 | ||||||
Property and equipment, net |
4,837 | 6,680 | ||||||
Long-term investments |
7,110 | 15,630 | ||||||
Deposits and other assets |
2,285 | 5,373 | ||||||
Goodwill |
267 | 267 | ||||||
Intangible assets, net |
| 553 | ||||||
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Total assets |
$ | 112,449 | $ | 147,817 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
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Accounts payable |
$ | 5,474 | $ | 7,014 | ||||
Accrued liabilities |
18,692 | 19,810 | ||||||
Accrued settlement related to discontinued operations |
| 12,000 | ||||||
Accrued restructuring costs |
15,736 | 13,660 | ||||||
Deferred revenue |
23,513 | 29,088 | ||||||
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Total current liabilities |
63,415 | 81,572 | ||||||
Accrued restructuring costs, net of current portion |
6,209 | 12,515 | ||||||
Deferred revenue, net of current portion |
5,365 | 9,370 | ||||||
Deferred rent obligations and other |
925 | 1,415 | ||||||
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Total liabilities |
75,914 | 104,872 | ||||||
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Commitments and contingencies |
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Stockholders equity: |
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Common stock |
85 | 85 | ||||||
Additional paid-in capital |
3,193,288 | 3,191,775 | ||||||
Accumulated other comprehensive loss |
(1,766 | ) | (1,592 | ) | ||||
Accumulated deficit |
(3,155,072 | ) | (3,147,323 | ) | ||||
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Total stockholders equity |
36,535 | 42,945 | ||||||
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Total liabilities and stockholders equity |
$ | 112,449 | $ | 147,817 | ||||
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See accompanying notes to condensed consolidated financial statements
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
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License |
$ | 9,578 | $ | 10,072 | $ | 19,492 | $ | 22,404 | ||||||||
Maintenance and support |
10,201 | 13,913 | 20,872 | 27,906 | ||||||||||||
Services |
16,084 | 15,925 | 32,874 | 27,128 | ||||||||||||
Patents |
5 | 1 | 15,026 | 4,001 | ||||||||||||
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Total revenues |
35,868 | 39,911 | 88,264 | 81,439 | ||||||||||||
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Cost of revenues: |
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License |
389 | 481 | 1,284 | 920 | ||||||||||||
Maintenance and support |
3,132 | 3,981 | 6,854 | 8,133 | ||||||||||||
Services |
14,803 | 11,594 | 28,600 | 20,481 | ||||||||||||
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Total cost of revenues |
18,324 | 16,056 | 36,738 | 29,534 | ||||||||||||
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Gross profit |
17,544 | 23,855 | 51,526 | 51,905 | ||||||||||||
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Operating expenses: |
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Research and development |
7,772 | 10,439 | 17,120 | 21,869 | ||||||||||||
Sales and marketing |
7,026 | 11,357 | 15,763 | 22,178 | ||||||||||||
General and administrative |
5,060 | 4,833 | 11,122 | 11,342 | ||||||||||||
Patent initiative expenses |
3,272 | 624 | 4,996 | 727 | ||||||||||||
Restructuring and other related costs |
1,674 | 856 | 6,746 | 1,564 | ||||||||||||
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Total operating expenses |
24,804 | 28,109 | 55,747 | 57,680 | ||||||||||||
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Operating income (loss) from continuing operations |
(7,260 | ) | (4,254 | ) | (4,221 | ) | (5,775 | ) | ||||||||
Interest income |
76 | 105 | 164 | 265 | ||||||||||||
Interest expense |
(67 | ) | (80 | ) | (127 | ) | (163 | ) | ||||||||
Other income (expense), net |
(318 | ) | 185 | (285 | ) | 145 | ||||||||||
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Income (loss) from continuing operations before provision for income taxes |
(7,569 | ) | (4,044 | ) | (4,469 | ) | (5,528 | ) | ||||||||
Income tax expense |
2,822 | 491 | 3,280 | 1,172 | ||||||||||||
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Net income (loss) from continuing operations |
(10,391 | ) | (4,535 | ) | (7,749 | ) | (6,700 | ) | ||||||||
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Discontinued operations: |
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Gain on sale of discontinued operation, net of tax |
$ | | $ | | | 2,236 | ||||||||||
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Net income |
$ | (10,391 | ) | $ | (4,535 | ) | $ | (7,749 | ) | $ | (4,464 | ) | ||||
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Basic net income (loss) per share from: |
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Continuing operations |
$ | (0.12 | ) | $ | (0.05 | ) | $ | (0.09 | ) | $ | (0.08 | ) | ||||
Discontinued operations |
| | | 0.03 | ||||||||||||
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Net income |
$ | (0.12 | ) | $ | (0.05 | ) | $ | (0.09 | ) | $ | (0.05 | ) | ||||
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Shares used in computing basic income (loss) per share |
85,594 | 84,324 | 85,538 | 84,170 | ||||||||||||
Supplemental disclosures: |
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Total other-than-temporary impairments |
$ | | $ | | $ | | $ | | ||||||||
Portion of other-than-temporary impairments included in other comprehensive income |
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Net other-than-temporary impairments |
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Other investment gain |
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Total net investment losses in Other expense, net |
$ | | $ | | $ | | $ | | ||||||||
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See accompanying notes to condensed consolidated financial statements
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
December 31, |
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2011 | 2010 | |||||||
Cash flows from operating activities: |
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Net loss |
$ | (7,749 | ) | $ | (4,464 | ) | ||
Gain on sale of discontinued operation |
| (2,236 | ) | |||||
Adjustments to reconcile net income to net cash used for operating activities: |
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Depreciation and amortization of intangibles |
2,748 | 3,383 | ||||||
Stock-based compensation |
1,219 | 1,279 | ||||||
Non-cash restructuring charges |
399 | 605 | ||||||
Provision for (recovery of) doubtful accounts |
467 | (213 | ) | |||||
Amortization of premiums/discounts on investments, net |
571 | 684 | ||||||
Changes in operating assets and liabilities, net of effect of acquired assets and liabilities: |
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Accounts receivable |
(4,487 | ) | 8,746 | |||||
Prepaid assets, deposits, and other assets |
9,834 | 490 | ||||||
Accounts payable |
(1,362 | ) | (1,841 | ) | ||||
Accrued liabilities |
(1,608 | ) | 636 | |||||
Accrued restructuring costs |
(4,630 | ) | (6,748 | ) | ||||
Deferred revenue |
(9,580 | ) | (6,207 | ) | ||||
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Net cash used for operating activities |
(14,178 | ) | (5,886 | ) | ||||
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Cash flows from investing activities: |
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Purchases of property and equipment |
(530 | ) | (2,635 | ) | ||||
Proceeds from sale of discontinued operation |
| 2,236 | ||||||
Payment of settlement related to discontinued operation |
(12,000 | ) | | |||||
Purchases of short-term investments |
(6,567 | ) | (17,479 | ) | ||||
Proceeds from sales and maturities of short-term investments |
19,760 | 23,332 | ||||||
Purchases of long-term investments |
| (6,057 | ) | |||||
Proceeds from sales and maturities of long-term investments |
7 | 57 | ||||||
Release of restricted cash and investments |
| 216 | ||||||
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Net cash provided by (used for) investing activities |
670 | (330 | ) | |||||
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
184 | 601 | ||||||
Employee stock purchase plan |
110 | 221 | ||||||
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Net cash provided by financing activities |
294 | 822 | ||||||
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Net decrease in cash and cash equivalents |
(13,214 | ) | (5,394 | ) | ||||
Cash and cash equivalents at beginning of period |
47,266 | 60,935 | ||||||
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Cash and cash equivalents at end of period |
$ | 34,052 | $ | 55,541 | ||||
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See accompanying notes to condensed consolidated financial statements
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not contain all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management of Openwave Systems Inc. (the Company or Openwave), the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Companys financial position as of December 31, 2011 and June 30, 2011, and the results of operations for the three and six months ended December 31, 2011 and 2010 and cash flows for the six months ended December 31, 2011 and 2010. The following information should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2011.
Use of Estimates and Business Risks
The preparation of condensed consolidated financial statements in conformity with the accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
On January 12, 2012, Openwave announced its pursuit of strategic alternatives for the mediation and messaging product operations. This may relate in a sale of these product operations, or a portion of them, to more than one third party. On February 1, 2012, the Company announced it entered into an agreement to sell its location product operations for a purchase price of $6.0 million see Note 11 Subsequent Events. As of February 7, 2012, the Company has not entered into any other agreements to sell other product operations, and there can be no guarantee that the Company will. The pursuit of strategic alternatives is designed to allow the Company to focus on monetizing the value of its intellectual property, which is likely to require significant legal expense in pursuing payments for the licensing of the Companys patents. For example, on August 31, 2011, Openwave announced it filed complaints against Apple Inc. and Research In Motion Limited in order to protect its intellectual property on how mobile devices connect to the Internet. This litigation is ongoing. During the first quarter of fiscal 2012, we entered into a license agreement with a third-party whereby we licensed rights to the majority of our patents for a fee of $15.0 million which was received during the second quarter of fiscal 2012. Additionally, during the first quarter of fiscal 2011 we licensed a number of patents to a competitor which generated $4.0 million in patent revenue for the period. The pursuit of patent revenues could result in unpredictable financial results, with significant variability. Furthermore, once the Company determines a sale of a portion of its product operations to be probable, if at all, that portion of its operations could be reflected as a discontinued operation, which could have a material impact on the financial statements.
6
The Company derives more than half of its revenues from U.S. customers, which consists primarily of sales to Sprint Nextel and patent license arrangements. Individual sales to Sprint Nextel can be significant and the timing of these transactions can create significant variability in the timing and level of Company revenues and profitability. For all periods presented, revenues from Sprint Nextel ranged from 18% to 27% of total revenues.
Revenue Recognition
There have been no material changes to the Companys significant accounting policies as provided in Note 2 to the consolidated financial statements included in the Companys Annual Report on Form 10K for the fiscal year ended June 30, 2011.
Stock Based Compensation
The following table illustrates stock-based compensation recognized in the condensed consolidated statements of operations by category of award (in thousands):
Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Stock-based compensation related to: |
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Grants of nonvested stock |
$ | 57 | $ | 42 | $ | 101 | $ | 98 | ||||||||
Stock options granted to employees and directors |
563 | 582 | 944 | 1,105 | ||||||||||||
Employee stock purchase plan |
(13 | ) | (6 | ) | 41 | 76 | ||||||||||
Stock option modification in relation to restructuring |
27 | | 133 | | ||||||||||||
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Stock-based compensation recognized in the condensed consolidated statements of operations |
$ | 634 | $ | 618 | $ | 1,219 | $ | 1,279 | ||||||||
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During the three and six months ended December 31, 2011 and 2010, the tax benefits related to stock option expense were immaterial.
The Company amortizes stock-based compensation for awards granted on a straight-line basis over the requisite service (vesting) period for the entire award.
(a) Assumptions and Activity
The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model and assumptions noted in the following table.
Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Expected volatility |
72.2% - 78.5% | 60.6 - 62.5% | 72.2% - 78.5% | 60.6 - 65.4% | ||||||||||||
Expected dividends |
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Expected term (in years) |
3.60 - 6.07 | 3.90 - 6.16 | 3.60 - 6.07 | 3.90 - 6.16 | ||||||||||||
Risk-free rate |
0.6% - 1.2% | 1.1 - 1.8% | 0.6% - 1.2% | 1.1 - 1.8% |
The Company estimates the expected term for new grants based upon actual post-vesting option cancellation and exercise experience, as well as the average midpoint between vesting and the contractual term for outstanding options. The Companys expected volatility for the expected term of the option is based upon the historical volatility experienced in the Companys stock price, as well as implied volatility in the market traded options on Openwave common stock, when appropriate. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company determines the fair value of nonvested shares based on the NASDAQ closing stock price on the date of grant.
7
(b) Employee Stock Purchase Plan
Under the Openwave Systems Inc. 1999 Employee Stock Purchase Plan (ESPP), eligible employees may purchase common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the Companys common stock as of the beginning and the end of the six month offering periods. The amount of stock-based compensation expense recognized relating to the ESPP during the six months ended December 31, 2011 and 2010 was $41,000 and $0.1 million, respectively.
The fair value used in recording the stock-based compensation expense associated with the ESPP is estimated for each offering period using the Black-Scholes-Merton option pricing model.
The expected term is six months, coinciding with each offering period. Expected volatilities are based on the historical volatility experienced in the Companys stock price, as well as implied volatility in the market traded options on Openwave common stock when appropriate. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. These amounts and assumptions are noted in the following table.
For the Three and Six Months Ended
December 31, |
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2011 | 2010 | |||||||
Expected volatility |
92.0 | % | 47.1 | % | ||||
Expected dividends |
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Expected term (in years) |
0.5 | 0.5 | ||||||
Risk-free rate |
0.1 | % | 0.2 | % |
(c) Equity awards activity
A summary of option activity from July 1, 2011 to December 31, 2011 is presented below (in thousands except per share and year amounts):
Options |
Shares |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term (years) |
Aggregate
Intrinsic Value |
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Outstanding at July 1, 2011 |
9,889 | $ | 3.21 | |||||||||||||
Options granted |
3,993 | 1.80 | ||||||||||||||
Exercised |
(118 | ) | 1.57 | |||||||||||||
Forfeited, canceled or expired |
(2,131 | ) | 2.89 | |||||||||||||
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Outstanding at December 31, 2011 |
11,633 | $ | 2.80 | 6.65 | $ | 790 | ||||||||||
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Vested and expected to vest at December 31, 2011 |
10,095 | $ | 2.95 | 6.29 | $ | 776 | ||||||||||
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Exercisable at December 31, 2011 |
6,004 | $ | 3.69 | 4.54 | $ | 710 | ||||||||||
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The weighted average grant date fair values of options granted during the six months ended December 31, 2011 and 2010 were $0.99 and $0.86, respectively. The total intrinsic value of options exercised during the six months ended December 31, 2011 and 2010 was $47,000 and $0.1 million, respectively. Upon the exercise of options, the Company issues new common stock from its authorized shares.
8
A summary of the activity of the Companys nonvested share awards from July 1, 2011 to December 31, 2011 is presented below (in thousands except per share amounts):
Nonvested Shares |
Shares |
Weighted
Average Grant Date Fair Value Per Share |
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Nonvested at July 1, 2011 |
197 | $ | 2.07 | |||||
Nonvested shares granted |
151 | 1.67 | ||||||
Vested |
(90 | ) | 1.84 | |||||
Forfeited |
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Nonvested at December 31, 2011 |
258 | $ | 1.91 | |||||
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The total fair value of shares vested during the six months ended December 31, 2011 and 2010 was $0.2 million and $0.2 million, respectively. As of December 31, 2011, there was $4.5 million of total unrecognized compensation cost related to all unvested share awards. That cost is expected to be recognized as the awards vest over the next four years.
Stock-based compensation expense impacted the Companys results of operations as follows (in thousands):
Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Stock-based compensation by category: |
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Maintenance and support services |
$ | 41 | $ | 40 | $ | 83 | $ | 85 | ||||||||
Services |
49 | 46 | 103 | 105 | ||||||||||||
Research and development |
107 | 115 | 201 | 246 | ||||||||||||
Sales and marketing |
139 | 161 | 255 | 317 | ||||||||||||
General and administrative |
271 | 256 | 444 | 526 | ||||||||||||
Restructuring |
27 | | 133 | | ||||||||||||
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$ | 634 | $ | 618 | $ | 1,219 | $ | 1,279 | |||||||||
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Recently Issued Accounting Pronouncements
Accounting Standards Update No. 2010-28, IntangiblesGoodwill and Other (Topic 350), When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Update 2010-28). Update 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. Update 2010-28 is effective for fiscal years beginning after December 15, 2011. The adoption of this guidance is not expected to have a material impact on the Companys condensed consolidated financial position, results of operations or cash flows.
9
Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (Update 2011-04). Update 2011-04 amends the requirements related to fair value measurement, in particular changing the wording used to describe many requirements in Generally Accepted Accounting Principles (GAAP) for measuring fair value and for disclosing information about fair value measurements. The amendments also serve to clarify the FASBs intent about the application of existing fair value measurement requirements. The amended guidance is effective for interim and annual periods beginning after December 15, 2011, and is applied prospectively. The Company will adopt this guidance beginning in the third quarter of fiscal 2012. Adoption of this guidance is not expected to have a material impact on the Companys condensed consolidated financial statements.
Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income (Update 2011-05). Update 2011-05 allows the option of presenting the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, Update 2011-05 requires companies to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amended guidance is effective for interim and annual periods beginning after December 15, 2011, and is applied retrospectively. The Company will adopt this guidance beginning in the third quarter of fiscal 2012. Adoption of this guidance is not expected to have a material impact on the Companys condensed consolidated financial statements.
Accounting Standards Update No. 2011-08, IntangiblesGoodwill and Other (Topic 350) Testing Goodwill for Impairment (Update 2011-08), allows entities to use a qualitative approach to test goodwill for impairment. Update 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. Update 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. Adoption of this guidance is not expected to have a material impact on the Companys condensed consolidated financial statements.
10
(2) Net Income (Loss) Per Share
The Company excludes potentially dilutive securities from its diluted net income (loss) per share computation when their effect would be anti-dilutive to the net income (loss) from continuing operations per share computation. The following table sets forth potential shares of common stock that are not included in the diluted net income (loss) per share calculation because to do so would be anti-dilutive for the periods indicated below (in thousands):
Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Weighted average effect of potential common stock: |
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Unvested common stock subject to repurchase |
232 | 213 | 215 | 215 | ||||||||||||
Options that would have been included in the computation of dilutive shares outstanding had the Company reported net income from continuing operations, prior to applying the treasury method |
1,709 | 3,901 | 1,761 | 2,726 | ||||||||||||
Options that were excluded from the computation of dilutive shares outstanding because the total assumed proceeds exceeded the average market value of the Companys common stock during the quarter |
9,615 | 7,410 | 8,866 | 8,097 |
(3) Discontinued Operations
During fiscal 2008, the Company sold its Client operations to Purple Labs, a private company based in Chambéry, France. The terms of the agreement include initial consideration of $20.0 million in cash received by the Company in June 2008, and a note receivable of $5.8 million that was paid in July 2008.
Additionally, upon the sale in June 2008, $4.2 million was placed in escrow by Purple Labs, originally to be held until September 30, 2009, to secure indemnification claims made by Purple Labs, if any. On September 23, 2009, Myriad AG (formerly known as Purple Labs) (Myriad) made claims against the escrow in excess of $4.2 million and therefore the funds were not released from escrow. On September 24, 2010, the parties agreed to release $2.0 million from the escrow to Myriad and the remaining balance of $2.2 million, plus accrued interest, to Openwave. This amount was recognized as a gain on sale of discontinued operations in the first quarter of fiscal 2011.
On August 28, 2011, the Company entered into an agreement with Myriad (the Agreement) for the purposes of settling all existing litigation between the Company and Myriad in connection with the Companys sale of the client business to Purple Labs in June 2008. The Agreement terminated specified sections of an intellectual property licensing agreement which was entered into in connection with the sale of its client business that occurred in June 2008, clarified which patents were transferred with the sale of the client business and which remained the property of Openwave, contained a mutual covenant not to sue, and provided that the Company would pay to Myriad $12.0 million. The payment of $12.0 million occurred in September 2011, and was recorded as a loss on discontinued operations in the fourth quarter of fiscal 2011.
The Client operations financial results have been classified as a discontinued operation in the Companys condensed consolidated statements of operations for each period presented.
The financial results of Client operations included in discontinued operations were as follows (in thousands):
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Gain on sale of discontinued operation |
$ | | $ | | $ | | $ | 2,236 | ||||||||
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Total income from discontinued operation |
$ | | $ | | $ | | $ | 2,236 | ||||||||
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As of December 31, 2011, there were no operational assets or liabilities attributable to Client operations due to the sale of the discontinued operation in June 2008.
11
(4) Geographic, Segment and Significant Customer Information
The Companys Chief Executive Officer (CEO) is considered to be the Companys chief operating decision maker. The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance.
The Company has organized its operations based on a single operating segment.
The Company markets its products primarily from its operations in the United States. International sales are primarily to customers in Japan, Europe, Middle East and Africa. Information regarding the Companys revenues in different geographic regions is as follows (in thousands):
Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
United States |
$ | 11,877 | $ | 18,817 | $ | 43,892 | $ | 37,821 | ||||||||
Americas, excluding the United States |
3,273 | 4,414 | 7,684 | 9,352 | ||||||||||||
Europe, Middle East, and Africa |
7,460 | 5,457 | 12,549 | 11,329 | ||||||||||||
Japan |
8,880 | 8,357 | 16,638 | 17,554 | ||||||||||||
Asia Pacific, excluding Japan |
4,378 | 2,866 | 7,501 | 5,383 | ||||||||||||
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Total revenues |
$ | 35,868 | $ | 39,911 | $ | 88,264 | $ | 81,439 | ||||||||
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As noted in the table above, the Company has derived a significant portion of its revenues from sales to U.S.-based customers during the three and six months ended December 31, 2011 and 2010, of which a significant portion consisted of sales to Sprint Nextel and patent license arrangements. Although the Company intends to broaden its markets through the use of resellers, there can be no assurance that this objective will be achieved.
The Companys long-lived assets residing in countries other than in the United States are insignificant and thus have not been disclosed.
The majority of the Companys revenues have been from a limited number of customers and the Companys sales are concentrated in a single industry segment. During the periods noted below the Company had three significant customers, as shown in the following table:
% of Total Revenue
Three Months Ended December 31, |
% of Total Revenue
Six Months Ended December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Customer: |
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Sprint Nextel |
18 | % | 27 | % | 21 | % | 24 | % | ||||||||
Bouygues Telecom |
12 | % | 1 | % | 5 | % | 1 | % | ||||||||
Microsoft |
| | 17 | % | |
12
(5) Balance Sheet Components
(a) Accounts Receivable, net
The following table presents the components of accounts receivable as of the dates noted (in thousands):
December 31,
2011 |
June 30,
2011 |
|||||||
Accounts receivable |
$ | 20,128 | $ | 16,344 | ||||
Unbilled accounts receivable |
6,774 | 6,093 | ||||||
Allowance for doubtful accounts |
(589 | ) | (144 | ) | ||||
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$ | 26,313 | $ | 22,293 | |||||
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Significant customer accounts receivable balances as a percentage of total gross accounts receivable were as follows:
% of Total Accounts
Receivable |
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December 31,
2011 |
June 30,
2011 |
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Customer: |
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AT&T Mobility |
14 | % | 1 | % | ||||
Bouygues Telecom |
14 | % | 5 | % | ||||
Telefonica Moviles Espana |
11 | % | 13 | % | ||||
Itochu |
10 | % | 17 | % |
(b) Goodwill and Intangible Assets, net
The following table presents activity recorded to goodwill and intangible assets from June 30, 2011 to December 31, 2011 (in thousands):
Balance as of
June 30, 2011 |
Amortization |
Balance as of
December 31, 2011 |
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Goodwill |
$ | 267 | $ | | $ | 267 | ||||||
Intangible assets: |
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Developed and core technology |
553 | (553 | ) | | ||||||||
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$ | 820 | $ | (553 | ) | $ | 267 | ||||||
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Total amortization related to intangible assets was as follows (in thousands):
Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Developed and core technology |
$ | 144 | $ | 403 | $ | 553 | $ | 812 | ||||||||
Customer contracts - support |
| 6 | | 17 | ||||||||||||
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Total amortization of intangible assets |
144 | 409 | 553 | 829 | ||||||||||||
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Amortization of acquired developed and core technology and customer license contracts is included in Cost of Revenues License. Amortization of acquired customer support contracts is included in Cost of Revenue Maintenance and Support.
13
The following tables set forth the carrying amount of intangible assets, net as of the dates noted (in thousands):
December 31, 2011 | June 30, 2011 | |||||||||||||||||||||||
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
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Developed and core technology |
$ | 19,294 | $ | (19,294 | ) | $ | | $ | 19,294 | $ | (18,741 | ) | $ | 553 | ||||||||||
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$ | 19,294 | $ | (19,294 | ) | $ | | $ | 19,294 | $ | (18,741 | ) | $ | 553 | |||||||||||
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(c) Deferred Revenue
As of December 31, 2011 and June 30, 2011, the Company had deferred revenue of $28.8 million and $38.5 million, respectively, consisting of deferred license fees, new version coverage, maintenance and support fees, and professional services fees. Deferred revenue results from amounts billed to the customer but not yet recognized as revenue as of the balance sheet date, since the billing related to one or more of the following:
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amounts billed prior to acceptance of product or service; |
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new version coverage and/or maintenance and support elements prior to the time service is delivered; and |
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license arrangements amortized over a specified future period due to the provision of unspecified future products. |
Amounts in accounts receivable that have corresponding balances included in deferred revenue aggregated to approximately $7.6 million as of both December 31, 2011 and June 30, 2011.
(d) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive losses were as follows as of the dates noted (in thousands):
December 31,
2011 |
June 30,
2011 |
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Net unrealized gains (losses) on marketable securities: |
||||||||
Unrealized gain (loss) on marketable securities not other-than-temporarily impaired |
$ | (8 | ) | $ | 18 | |||
Unrealized loss on marketable securities other-than-temporarily impaired |
(1,009 | ) | (855 | ) | ||||
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Net unrealized loss on marketable securities |
(1,017 | ) | (837 | ) | ||||
Interest on marketable securities |
22 | 16 | ||||||
Cumulative translation adjustments |
(771 | ) | (771 | ) | ||||
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Total Accumulated other comprehensive loss |
$ | (1,766 | ) | $ | (1,592 | ) | ||
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Comprehensive loss is comprised of net income (loss) and changes in unrealized loss on marketable securities (in thousands):
Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss |
$ | (10,391 | ) | $ | (4,535 | ) | $ | (7,749 | ) | $ | (4,464 | ) | ||||
Other comprehensive income (loss): |
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Change in unrealized gain (loss) on marketable securities |
46 | 49 | (180 | ) | 134 | |||||||||||
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Total comprehensive loss |
$ | (10,345 | ) | $ | (4,486 | ) | $ | (7,929 | ) | $ | (4,330 | ) | ||||
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14
(6) Financial Instruments
Cash and cash equivalents
Cash and cash equivalents are comprised of cash and highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Cash equivalents are comprised of short-term investments with an investment rating of any two of the following: Moodys of A-2 or higher, or by Standard & Poors of A1 or higher. The Company is exposed to credit risk in the event of default by the financial institutions or the issuers of these investments to the extent the amounts recorded on the balance sheet are in excess of amounts that are insured by the Federal Deposit Insurance Corporation (FDIC).
Investments
The Companys investment policy is consistent with the definition of available-for-sale securities. From time to time, the Company may sell certain securities but the objectives are generally not to generate profits on short-term differences in price. The following tables show the Companys available-for-sale investments within investments and cash and cash equivalents in the condensed consolidated balance sheet (in thousands):
Expected maturity for the year ending June 30, | Cost Value | Fair Value | ||||||||||||||||||
2012 | 2013 | Thereafter |
December 31,
2011 Total |
December 31,
2011 Total |
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U.S. Government Agencies |
$ | 1,384 | $ | 3,798 | $ | | $ | 5,182 | $ | 5,197 | ||||||||||
Certificates of Deposit |
240 | 2,220 | | 2,460 | 2,459 | |||||||||||||||
Commercial Paper |
3,197 | 698 | | 3,895 | 3,896 | |||||||||||||||
Corporate Bonds |
11,584 | 8,792 | | 20,376 | 20,353 | |||||||||||||||
Auction Rate Securities |
| | 5,237 | 5,237 | 4,228 | |||||||||||||||
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$ | 16,405 | $ | 15,508 | $ | 5,237 | $ | 37,150 | $ | 36,133 | |||||||||||
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December 31, 2011 | ||||||||||||||||
Amortized
cost |
Unrealized
gains |
Unrealized
losses |
Estimated fair
value |
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U.S. Government Agencies |
$ | 5,182 | $ | 15 | $ | | $ | 5,197 | ||||||||
Certificates of Deposit |
2,460 | | (1 | ) | 2,459 | |||||||||||
Commercial Paper |
3,895 | 1 | | 3,896 | ||||||||||||
Corporate Bonds |
20,376 | 10 | (33 | ) | 20,353 | |||||||||||
Auction Rate Securities |
5,237 | | (1,009 | ) | 4,228 | |||||||||||
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$ | 37,150 | $ | 26 | $ | (1,043 | ) | $ | 36,133 | ||||||||
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15
June 30, 2011 | ||||||||||||||||
Amortized cost | Unrealized gains | Unrealized losses |
Estimated
fair value |
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U.S. Government Agencies |
$ | 5,911 | $ | 18 | $ | (2 | ) | $ | 5,927 | |||||||
Commercial Paper |
10,691 | | | 10,691 | ||||||||||||
Certificates of Deposit |
480 | | | 480 | ||||||||||||
Corporate Bonds |
28,095 | 14 | (12 | ) | 28,097 | |||||||||||
Auction Rate Securities |
5,237 | | (855 | ) | 4,382 | |||||||||||
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$ | 50,414 | $ | 32 | $ | (869 | ) | $ | 49,577 | ||||||||
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Temporary and Other-Than-Temporary Impairments On Available-For-Sale Securities
The Company reviews its investments in an unrealized loss position as of each balance sheet date for impairment in accordance with guidance issued by the FASB and the SEC in order to determine whether an impairment is temporary or other-than-temporary (OTTI). When an unrealized loss on a security is considered temporary, the Company records the unrealized loss in other comprehensive income (loss) and not in earnings.
An OTTI occurs when it is anticipated that the amortized cost will not be recovered for a security in an unrealized loss position. In such situations, the amount of OTTI recorded in earnings is the entire difference between the securitys amortized cost and its fair value when either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery of the decline in fair value below amortized cost. If neither of these two conditions exists, only the difference between the amortized cost basis of the security and the present value of projected future cash flows expected to be collected is recognized as an OTTI charge in earnings (credit loss). If the fair value is less than the present value of projected future cash flows expected to be collected, this portion of OTTI relates to other-than credit factors (noncredit loss) and is recorded as other comprehensive income (loss) within stockholders equity.
During both the three and six months ended December 31, 2011 and 2010 there were no OTTI charges in earnings.
The following tables show the gross unrealized losses and fair value of the Companys investments with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
As of December 31, 2011 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair Value |
Unrealized
Loss |
Fair Value |
Unrealized
Loss |
Fair
Value |
Unrealized
Loss |
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Certificates of Deposit |
$ | 1,499 | $ | (1 | ) | $ | | $ | | $ | 1,499 | $ | (1 | ) | ||||||||||
Corporate Bonds |
16,065 | (33 | ) | | | 16,065 | (33 | ) | ||||||||||||||||
Auction Rate Securities |
| | 4,228 | (1,009 | ) | 4,228 | (1,009 | ) | ||||||||||||||||
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$ | 17,564 | $ | (34 | ) | $ | 4,228 | $ | (1,009 | ) | $ | 21,792 | $ | (1,043 | ) | ||||||||||
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16
As of June 30, 2011 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||
U.S. Government Agencies |
$ | 2,300 | $ | (2 | ) | $ | | $ | | $ | 2,300 | $ | (2 | ) | ||||||||||
Corporate Bonds |
14,096 | (12 | ) | | | 14,096 | (12 | ) | ||||||||||||||||
Auction Rate Securities |
| | 4,382 | (855 | ) | 4,382 | (855 | ) | ||||||||||||||||
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$ | 16,396 | $ | (14 | ) | $ | 4,382 | $ | (855 | ) | $ | 20,778 | $ | (869 | ) | ||||||||||
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As of December 31, 2011, the Company had 32 investments in an unrealized loss position. As of June 30, 2011, the Company had 27 investments in an unrealized loss position.
Fair Value Measurement
The FASB has established a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
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Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
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Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
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Level 3: Unobservable inputs reflecting the Companys own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
17
The following tables summarize the Companys financial assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy (in thousands):
Fair value of securities as of December 31, 2011 | ||||||||||||||||
Quoted Prices in Active
Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents: |
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Money Market Funds |
$ | 22,392 | $ | | $ | | $ | 22,392 | ||||||||
U.S. Government Agencies |
500 | | | 500 | ||||||||||||
Short-term investments: |
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Certificates of Deposit |
2,459 | | | 2,459 | ||||||||||||
Commercial Paper |
3,896 | | | 3,896 | ||||||||||||
Corporate Bonds |
18,476 | | | 18,476 | ||||||||||||
U.S. Government Agencies |
3,692 | | | 3,692 | ||||||||||||
Long-term investments: |
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Corporate Bonds |
1,877 | | | 1,877 | ||||||||||||
U.S. Government Agencies |
1,005 | | | 1,005 | ||||||||||||
Auction Rate Securities |
| | 4,228 | 4,228 | ||||||||||||
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Total Assets |
$ | 54,297 | $ | | $ | 4,228 | $ | 58,525 | ||||||||
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Liabilities | ||||||||||||||||
Foreign currency derivatives |
$ | (122 | ) | $ | | $ | | $ | (122 | ) | ||||||
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Total Liabilities |
$ | (122 | ) | $ | | $ | | $ | (122 | ) | ||||||
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Fair value of securities as of June 30, 2011 | ||||||||||||||||
Quoted Prices in Active
Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents: |
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Money Market Funds |
$ | 39,216 | $ | | $ | | $ | 39,216 | ||||||||
Short-term investments: |
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Certificates of Deposit |
240 | | | 240 | ||||||||||||
U.S. Government Agencies |
2,414 | | | 2,414 | ||||||||||||
Corporate Bonds |
20,602 | | | 20,602 | ||||||||||||
Commercial Paper |
10,691 | | | 10,691 | ||||||||||||
Long-term investments: |
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U.S. Government Agencies |
3,513 | | | 3,513 | ||||||||||||
Corporate Bonds |
7,495 | | | 7,495 | ||||||||||||
Certificates of Deposit |
240 | | | 240 | ||||||||||||
Auction Rate Securities |
| | 4,382 | 4,382 | ||||||||||||
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Total Assets |
$ | 84,411 | $ | | $ | 4,382 | $ | 88,793 | ||||||||
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Liabilities | ||||||||||||||||
Foreign currency derivatives |
$ | 115 | $ | | $ | | $ | 115 | ||||||||
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Total Liabilities |
$ | 115 | $ | | $ | | $ | 115 | ||||||||
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Auction Rate Securities (ARS)
As of December 31, 2011, $4.2 million in ARS, recorded in long-term investments on the condensed consolidated balance sheet, were considered illiquid based upon a lack of auction results beginning in fiscal 2008. The Company estimated the fair value of these ARS based on probabilities of potential scenarios: (1) successful auction/early redemption; (2) failing auctions until maturity; or (3) default and the estimated cash flows for each scenario. Other factors were considered, such as the value of the investments held by the issuer and the financial condition and credit ratings of the issuer, insurers, and parent companies, as applicable.
18
These ARS were issued by two different entities and are held by two investment firms on the Companys behalf. One of these securities is Triple X structured obligations of special purpose reinsurance entities associated with life insurance companies. One ARS is related to federal education student loans programs. As of December 31, 2011, these instruments were rated BBB by Standard and Poors and Aaa by Moodys and all of the $5.7 million par value of these illiquid investments is insured against defaults of principal and interest by third party insurance companies.
The Companys ARS were measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended December 31, 2011. The fair value was $4.2 million as of December 31, 2011 and $4.4 million as of June 30, 2011.
The following table represents the reconciliation of the beginning and ending balances of the Companys ARS measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended December 31, 2011 (in thousands):
Using Significant
Unobservable Inputs (Level 3) ARS |
||||
Balance at June 30, 2011 |
$ | 4,382 | ||
Sale of ARS |
| |||
Change in unrealized losses included in other comprehensive income |
(154 | ) | ||
Other-than-temporary impairment |
| |||
|
|
|||
Balance at December 31, 2011 |
$ | 4,228 | ||
|
|
(7) Borrowings
Credit Agreement
On January 23, 2009, the Company and Silicon Valley Bank entered into a secured revolving credit facility for up to $40.0 million. On January 20, 2010, the Company entered into two amendments to the $40.0 million revolving credit facility with Silicon Valley Bank to modify the definition of EBITDA. Additionally, on April 14, 2010, the Company entered into another amendment to the $40.0 million revolving credit facility with Silicon Valley Bank to extend the maturity date to January 23, 2012, as well as to modify the commitment fee and several definitions, including EBITDA, Borrowing Base, and Investments. The Company entered into a Waiver and Amendment on April 26, 2011 to modify the EBITDA covenant minimum levels. The Company entered into an Amendment on September 6, 2011 to modify several definitions including the Borrowing Base. On January 23, 2012, the Company entered into an Amendment to extend the maturity of the secured revolving credit facility to February 28, 2012, reduce the amount of the line of credit facility from $40.0 million to $25.0 million, and lower the Borrowing Base from a starting point of $20.0 million to $15.0 million plus eligible accounts receivable. The Company may borrow, repay and re-borrow under the revolving credit facility at any time up to the maturity date. As of December 31, 2011, the revolving credit facility bears interest at 4% per annum. Monthly, the Company is required to pay a fee of 0.03% on any undrawn amounts under the revolving credit facility. For each letter of credit issued, the Company is required to pay 0.75% per annum on the face amount of the letter of credit. Annually, the Company is required to pay a commitment fee to the lender. In January 2010, the Company paid a $0.2 million commitment fee to the lender. In January 2011, the Company paid a $0.1 million commitment fee to the lender.
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As of December 31, 2011, the Company had letters of credit outstanding against the revolving credit facility totaling $18.0 million, reducing the available borrowings on the revolving credit facility. The revolving credit facility requires a monthly borrowing base calculation to determine the amount of the revolving credit facility available for the Company to borrow (Borrowing Base). The Borrowing Base calculation is $20.0 million plus 75% of accounts receivables defined as eligible in the credit agreement. As of December 31, 2011, the Borrowing Base was $22.6 million and the total available for the Company to borrow on the revolving credit facility was $4.6 million, which is the difference between the Borrowing Base calculation of $22.6 million and the amount of outstanding letters of credit amount of $18.0 million.
The revolving credit line is secured by a blanket lien on all of the Companys assets and contains certain financial and reporting covenants customary to these types of credit facilities agreements which the Company is required to satisfy as a condition of the agreement. In particular, the revolving credit facility requires that the Company meet certain minimum four quarter EBITDA amounts, as well as meet a minimum monthly liquidity ratio. In addition, the revolving credit facility requires the Company to provide to the bank annual financial projections, promptly report any material legal actions, and timely pay material taxes and file all required tax returns and reports. Further, without the banks consent, the Company cannot take certain material actions, such as change any material line of business, sell the Companys business, acquire other entities, incur liens, make capital expenditures beyond a certain threshold, or engage in transactions with affiliates. As of December 31, 2011, the Company was in compliance with all debt covenants.
(8) Commitments and Contingencies
Litigation
IPO securities class action
On November 5, 2001, a securities fraud class action complaint was filed in the United States District Court for the Southern District of New York. In re Openwave Systems Inc. Initial Public Offering Securities Litigation, Civ. No. 01-9744 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y.). It is brought purportedly on behalf of all persons who purchased shares of the Companys common stock from June 11, 1999 through December 6, 2000. The defendants are the Company and five of its present or former officers (the Openwave Defendants), and several investment banking firms that served as underwriters of the Companys initial public offering and secondary public offering. Three of the individual defendants were dismissed without prejudice, subject to a tolling of the statute of limitations. The complaint alleges liability under Sections 11 and 15 of the Securities Act of 1933 (the Securities Act) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act), on the grounds that the registration statements for the offerings did not disclose that: (1) the underwriters had agreed to allow certain customers to purchase shares in the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The amended complaint also alleges that false analyst reports were issued by Credit Suisse First Boston, Hambrecht & Quist, Robertson Stephens, and Piper Jaffray. No specific damages are claimed. Similar allegations were made in over 300 other lawsuits challenging public offerings conducted in 1999 and 2000, and the cases were consolidated for pretrial purposes.
20
On April 2, 2009, the parties in all the lawsuits submitted a settlement for the Courts approval. Under the settlement, the Openwave Defendants would not be required to make any cash payment. On October 6, 2009, the Court approved the settlement, under which the Openwave Defendants are not required to contribute any cash. Subsequently, the Court entered a judgment on the settlement. Several notices of appeal were filed by putative class members, challenging the settlement and the judgment. Subsequently, the Court determined that none of the objectors had standing to appeal. One of the putative objectors has filed a notice of appeal of the determination as to him, which appeal has since been dismissed by the Court. As a result of this dismissal, the Company believes the litigation to be concluded. The Company believes a loss is not probable or reasonably estimable. Therefore, no amount has been accrued as of December 31, 2011.
Simmonds v. Credit Suisse Group, et al
On October 3, 2007, Vanessa Simmonds, a purported stockholder of the Company, filed suit in the U.S. District Court for the Western District of Washington (Western District Court) against Credit Suisse Group, Bank of America Corporation, and JPMorgan Chase & Co., the lead underwriters of the Companys initial public offering in June 1999, alleging violations of Section 16(b) of the Exchange Act, 15 U.S.C. § 78p(b). The complaint seeks to recover from the lead underwriters any short-swing profits obtained by them in violation of Section 16(b). The suit names the Company as a nominal defendant, contains no claims against the Company, and seeks no relief from the Company. Simmonds filed an Amended Complaint on February 25, 2008 (the Amended Complaint), naming as defendants Credit Suisse Securities (USA), Robertson Stephens, Inc., J.P. Morgan Securities, Inc., and again naming Bank of America Corporation. The Amended Complaint asserts substantially similar claims as those set forth in the initial complaint.
On March 12, 2009, the Western District Court entered its judgment in the case and granted the moving issuers motion to dismiss, finding plaintiffs demand letters were insufficient to put the issuers on notice of the claims asserted against them. The Western District Court also granted the underwriters motion to dismiss as to the claims arising from the non-moving issuers IPOs, finding plaintiffs claims were time-barred under the applicable statute of limitations.
Following an appeal to the United States Court of Appeals for the Ninth Circuit (the Ninth Circuit), on December 2, 2010, the Ninth Circuit affirmed the Western District Courts decision to dismiss the moving issuers cases on the grounds that plaintiffs demand letters were insufficient to put the issuers on notice of the claims asserted against them and further ordered that the dismissals be made with prejudice. The Ninth Circuit, however, reversed and remanded the Western District Courts decision on the underwriters motion to dismiss as to the claims arising from the non-moving issuers IPOs, finding plaintiffs claims were not time-barred under the applicable statute of limitations. In remanding, the Ninth Circuit advised the non-moving issuers and underwriters to file in the Western District Court the same challenges to plaintiffs demand letters that moving issuers had filed.
On January 18, 2011, the Ninth Circuit denied all petitions for rehearing and petitions for rehearing en banc. On January 25, 2011, the Ninth Circuit granted the underwriters motion to stay the issuance of mandate and ordered that the mandate in the cases involving the non-moving issuers is stayed for ninety days pending the filing of a petition for writ of certiorari in the United States Supreme Court. On January 26, 2011, the Ninth Circuit granted the appellants motion and
21
ruled that the mandate in all cases is stayed for ninety days pending the appellants filing of a petition for writ of certiorari in the United States Supreme Court. On April 5, 2011, the plaintiff filed a Petition for Writ of Certiorari with the United States Supreme Court seeking reversal of the Ninth Circuits December 2, 2010 decision. On April 15, 2011, underwriter defendants filed a Petition for Writ of Certiorari with the United States Supreme Court seeking reversal of the Ninth Circuits December 2, 2010 decision relating to the statute of limitations issue.
On June 27, 2011, the United States Supreme Court denied Simmonds petition regarding the demand issue and granted the underwriters position relating to the statute of limitations issue. The Ninth Circuit mandate for all cases continues to be stayed pending final disposition of the underwriters Petition. Underwriters brief on the merits was submitted on August 18, 2011, and Simmonds brief was submitted on September 26, 2011. Oral argument in that case was held on November 29, 2011.
No amount has been accrued as of December 31, 2011, as a loss is not considered probable or reasonably estimable. The Company has not been informed of any ruling or update as of February 7, 2012.
In the Matter of Certain Devices of Mobile Communication
On August 31, 2011, the Company filed a complaint with the International Trade Commission (ITC) in Washington, DC, with Apple Inc. (Apple), Research In Motion Ltd. and Research In Motion Corp. as proposed respondents, requesting that the ITC bar Apple and the Research In Motion entities (RIM) from importing into the United States their products, including smart devices and tablet computers, that infringe certain of the Companys patents. The complaint alleges that Apple and RIM infringe upon five of the Companys patents that cover technology that give consumers access to the Internet from their mobile devices.
Openwave Systems Inc. v. Apple Inc., Research in Motion Ltd, and Research in Motion Corp.
On August 31, 2011, the Company filed a complaint in the Federal District Court for the District of Delaware against Apple and RIM, again alleging that Apple and RIM products infringe certain of the Companys patents, seeking among other things a declaration that the Companys patents cited in the complaint have been infringed by Apple and RIM and that these patents are valid and enforceable, damages as a result of the infringement, and an injunction against further infringement.
From time to time, the Company may be involved in litigation or other legal proceedings, including those noted above, relating to or arising out of its day-to-day operations or otherwise. Litigation is inherently uncertain, and the Company could experience unfavorable rulings. Should the Company experience an unfavorable ruling, there exists the possibility of a material adverse impact on its financial condition, results of operations, cash flows or on its business for the period in which the ruling occurs and/or in future periods.
Indemnification claims
The Companys software license and services agreements generally include a limited indemnification provision for claims from third parties relating to the Companys intellectual property. As of December 31, 2011, no amount is accrued for indemnifications as there were no existing claims where a loss is considered probable. Historically, costs related to these indemnification provisions have been infrequent and the Company is unable to estimate the maximum potential impact of these indemnification provisions on its future results of operations.
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(9) Restructuring and Other Related Costs
As a result of the Companys change in strategy and its desire to improve its cost structure, the Company has announced several restructurings. These restructuring plans include the restructuring announced during the first quarter of fiscal 2012, and various other restructurings in fiscal 2002 through 2011.
The Company implemented a restructuring plan in fiscal 2012 (the FY2012 Restructuring) to better align the Companys resources among its operational groups, reduce costs and improve operating efficiencies. As such, during the three months ended September 30, 2011, the Company incurred approximately $4.9 million in pre-tax restructuring and related charges associated with the FY2012 Restructurings employee termination benefits. Of these charges, the Company paid approximately $4.0 million in the first six months of fiscal 2012. The Company expects to pay the current accrued charges for employee termination benefits during the third quarter of fiscal 2012. During the second quarter of fiscal 2012, the Company incurred $1.4 million in facility charges associated with restructuring reduction of space used for the Companys headquarters under this plan. Of the remaining $1.2 million facilities related accrual, the Company expects to pay $0.4 million through June 30, 2012 and $0.8 million from July 2012 through June 2013.
The following table sets forth the restructuring liability activity from June 30, 2011 through December 31, 2011 (in thousands):
FY 02 to FY 06
Restructuring Plans |
FY 09
Restructuring Plan |
FY 10
Restructuring Plan |
FY 12
Restructuring Plan |
FY 11
Restructuring Plan |
FY 12
Restructuring Plan |
Total
Accrual |
||||||||||||||||||||||
Facility | Facility | Facility | Facility | Severance | Severance | |||||||||||||||||||||||
Accrual balances as of June 30, 2011 |
$ | 22,927 | $ | 2,283 | $ | 748 | $ | | $ | 217 | $ | | $ | 26,175 | ||||||||||||||
New charges (1) |
(6 | ) | (126 | ) | | | (12 | ) | 4,905 | 4,761 | ||||||||||||||||||
Accretion expense |
194 | 15 | 3 | | | | 212 | |||||||||||||||||||||
Cash paid, net of sublease income |
(3,503 | ) | (232 | ) | (138 | ) | | (205 | ) | (2,123 | ) | (6,201 | ) | |||||||||||||||
|
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|
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Balance as of September 30, 2011 |
$ | 19,612 | $ | 1,940 | $ | 613 | $ | | $ | | $ | 2,782 | $ | 24,947 | ||||||||||||||
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New charges (2) |
39 | | | 1,411 | | 27 | 1,477 | |||||||||||||||||||||
Accretion expense |
171 | 13 | 3 | | | | 187 | |||||||||||||||||||||
Cash paid, net of sublease income |
(2,256 | ) | (232 | ) | (134 | ) | (207 | ) | | (1,837 | ) | (4,666 | ) | |||||||||||||||
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|
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Balance as of December 31, 2011 |
$ | 17,566 | $ | 1,721 | $ | 482 | $ | 1,204 | $ | | $ | 972 | $ | 21,945 | ||||||||||||||
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(1) | Total charges do not include approximately $0.1 million in non-cash stock-based compensation expense as represented on the Companys condensed consolidated statement of operations under restructuring and other costs for the first quarter of fiscal 2012. |
(2) | Total charges do not include approximately $27,000 in non-cash stock-based compensation expense as represented on the Companys condensed consolidated statement of operations under restructuring and other costs for the first quarter of fiscal 2012. |
23
As of December 31, 2011, the Company has sublease contracts in place for all but one of its exited facilities, which provides for approximately $11.0 million of future sublease income from third parties. Future minimum lease payments under non-cancelable operating leases, associated with exited facilities, with terms in excess of one year and future contractual sublease income were as follows at December 31, 2011 (in thousands):
Year ending June 30, |
Contractual
Cash Obligation |
Contractual
Sublease Income |
Estimated
Future Net Cash Outflow |
|||||||||
2012 (remaining) |
$ | 11,103 | $ | (3,485 | ) | $ | 7,618 | |||||
2013 |
19,263 | (6,249 | ) | 13,014 | ||||||||
2014 |
1,627 | (1,019 | ) | 608 | ||||||||
2015 |
508 | (232 | ) | 276 | ||||||||
|
|
|
|
|
|
|||||||
$ | 32,501 | $ | (10,985 | ) | $ | 21,516 | ||||||
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The Companys restructuring liabilities are recorded at net present value. Over time, the net present value increases to equal the amount of the net future cash payments, removing the need for time-based discounting. Accretion expense reflects the increase in the net present value during the relevant period. Future accretion expense on the restructured facility obligations above is $0.5 million, which will be recorded as restructuring expense over the life of the respective leases.
(10) Income Taxes
Income tax expense consisted of foreign withholding tax, foreign corporate tax and foreign deferred tax. Both foreign withholding tax and foreign corporate tax fluctuate quarterly based on the product and geographic mix of the Companys revenue, with a resulting fluctuation in the Companys quarterly effective tax rate.
In light of the Companys history of operating losses, the Company recorded a full valuation allowance for its U.S. federal and state deferred tax assets. The Company intends to maintain this valuation allowance until there is sufficient evidence to conclude that it is more likely than not that the federal and state deferred tax assets will be realized. Under Internal Revenue Code Section 382, the utilization of a corporations net operating loss (NOL) carryforwards is limited following a change in ownership (as defined by the Internal Revenue Code) of greater than 50% within a three-year NOL period. If it is determined that prior equity transactions limit the Companys NOL carryforwards, the annual limitation will be determined by multiplying the market value of the Company on the date of the ownership change by the federal long-term tax-exempt rate. Any amount exceeding the annual limitation may be carried forward to future years for the balance of the NOL carryforward period.
The Company has also recorded a valuation allowance of $2.5 million during the second quarter of fiscal 2012 for most of its foreign deferred tax assets as a result of the Companys announcement that it is pursuing strategic alternatives for the mediation and messaging product operations, which created uncertainty regarding the ability of certain foreign subsidiaries to generate future taxable income. As of December 31, 2011, the Company has net foreign deferred tax assets recorded of approximately $0.1 million, which consists of realizable deferred tax assets in selected countries based upon the Companys conclusion that it is more likely than not that these foreign subsidiaries will earn future taxable profit through transfer pricing.
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The unrecognized tax benefits activity is as follows (in thousands):
Balance as of July 1, 2011 |
$ | 1,027 | ||
Additions based on tax positions related to the current year |
48 | |||
Lapse of statute of limitations |
(369 | ) | ||
Foreign currency fluctuations |
(23 | ) | ||
|
|
|||
Balance as of December 31, 2011 |
$ | 683 | ||
|
|
The total amount of gross unrecognized tax benefits was $0.7 million as of December 31, 2011, all of which would affect the effective tax rate if realized.
Although timing of the resolution and/or closure on the Companys unrecognized tax benefits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.
The Company files U.S. federal, U.S. state and foreign tax returns. The Companys U.S. federal tax returns for fiscal 2009 and 2010 are currently under examination by the Internal Revenue Service. Although the outcome of the examination is uncertain, we do not expect the results to have a material impact on the financial statements. Because of net operating loss carry forwards, substantially all of the Companys tax years, from fiscal 1995 through fiscal 2010, remain open to state tax examinations with the exception of Alabama, Massachusetts and Texas. Most of the Companys foreign jurisdictions have three or four open tax years at any point in time.
(11) Subsequent Events
Sale of location operations
On February 1, 2012 the Company sold its operations related to its location product line to Persistent Telecom Solutions, Inc. (the Purchaser). The terms of the agreement include initial consideration of $5.4 million in cash received by the Company on February 2, 2012. Additionally, $0.6 million was placed in escrow by the Purchaser for a period of one year to secure indemnification claims made by the Purchaser, if any. The Company will provide transition services to the Purchaser through March 31, 2012.
Adoption of shareholder rights plan
On January 28, 2012, the Board of Directors of the Company adopted a Tax Benefits Preservation Agreement, dated January 28, 2012, between the Company and Computershare Trust Company, N.A., as Rights Agent (the Agreement). The Agreement is designed to preserve the Companys substantial tax assets associated with net operating loss carry forwards (NOLs) and built in losses under Section 382 of the Internal Revenue Code. The Companys ability to use its NOLs and built in losses would be limited if there was an ownership change under Section 382. This would occur if shareholders owning (or deemed under Section 382 of the Internal Revenue Code to own) 5% or more of the Companys stock increase their collective ownership of the aggregate amount of outstanding shares of the Company by more than 50 percentage points over a rolling three-year period. The Rights are not exercisable until the Distribution Date and will expire at the earlier of (i) January 29, 2015, (ii) the repeal of Section 382 of the Internal Revenue Code if the Independent Directors determine that this Agreement is no longer necessary for the preservation of Tax Benefits (as defined in the Agreement) or (iii) the beginning of the taxable year of the Company to which the Board determines that no Tax Benefits may be carried forward, unless previously redeemed or exchanged by the Company.
Pursuant to the terms of the Agreement, the Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right (a Right) for each outstanding share of common stock, par value $0.001 per share of the Company (the Common Stock) to stockholders of record as of the close of business on January 29, 2012 (the Record Date). In addition, one Right will automatically attach to each share of Common Stock issued between the Record Date and the Distribution Date (as hereinafter defined). Each Right entitles the registered holder thereof to purchase from the Company a unit consisting of one ten-thousandth of a share (a Unit) of Series A Junior Participating Cumulative Preferred Stock, par value $0.001 per share, of the Company (the Preferred Stock) at a cash exercise price of $15.00 per Unit (the Exercise Price), subject to adjustment, under certain conditions specified in the Agreement. For additional information, please refer to the Companys Registration Statement on Form 8-A and the Companys Current Report on Form 8-K both filed with the Securities and Exchange Commission on January 30, 2012.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based upon current expectations and beliefs of management and are subject to risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by these statements. Words such as anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify forward-looking statements. Forward-looking statements include, among other things, statements regarding our ability to effectively pursue strategic alternatives for our products business, our ability to attract and retain customers, our ability to obtain and expand market acceptance for our products and services, our expectations concerning our future financial performance and potential or expected competition and growth in our markets and markets in which we expect to compete, our business strategy, projected plans and objectives, anticipated cost savings from restructurings, our ability to realize anticipated benefits of our acquisitions on a timely basis, our estimates with respect to future operating results, including, without limitation, earnings, cash flow and revenue and any statements of assumptions underlying the foregoing. These forward-looking statements are only predictions. Risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements include the limited number of potential customers, the highly competitive market for our products and services, technological changes and developments, potential delays in software development and technical difficulties that may be encountered in the development or use of our software, patent litigation, our ability to retain management and key personnel, and the other risks discussed under the subheading Risk Factors in Item 1A, Part II of this Quarterly Report on Form 10-Q, as well as elsewhere in this report. The occurrence of the events described in Risk Factors could harm our business, results of operations and financial condition. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements except as required by law. Readers should carefully review the risk factors described in this section and in Risk Factors below and other risks identified from time to time in our public statements and reports filed with the Securities and Exchange Commission.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes, and Managements Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, which was filed with the Securities and Exchange Commission on September 6, 2011, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q.
Overview of Our Business and Products
Openwave is a global software innovator delivering context-aware mediation and messaging solutions that enable communication service providers and the broader ecosystem to create and deliver smarter services. Since its inception in 1994, Openwave and its predecessor companies have invested in and patented certain intellectual property for the mobile internet industry, some of which we believe are foundational in allowing mobile devices to connect to the Internet.
On January 12, 2012, Openwave announced its pursuit of strategic alternatives for the mediation and messaging product operations. This may relate in a sale of these product operations, or a portion of them, to more than one third party. On February 1, 2012, we announced we entered into an agreement to sell our location product operations for a purchase price of $6.0 million see Note 11 Subsequent Events to the consolidated financial statements. As of February 7, 2012, we have not entered into any agreements to sell other product operations, and there can be no guarantee that we will. The pursuit of strategic alternatives is designed to allow the company to focus on monetizing the value of its intellectual property. For example, on August 31, 2011, Openwave announced it filed complaints against Apple Inc. and Research In Motion Limited in order to protect its intellectual property on how mobile devices connect to the Internet. This litigation is ongoing. During the first quarter of fiscal 2012, we entered into a license agreement with a third-party whereby we licensed rights to the majority of our patents for a fee of $15.0 million which was received during the second quarter of fiscal 2012. Additionally, during the first quarter of fiscal 2011 we licensed a number of patents to a competitor which generated $4.0 million in patent revenue for the period. As we execute our licensing plans, we anticipate the related revenue in future periods to be unpredictable and volatile. Additionally, legal costs associated with our efforts to license and protect our intellectual property and proprietary rights could be material in any given period, and are
26
unpredictable and volatile. Effectively policing and enforcing our intellectual property is time consuming and costly. In addition, there can be no assurance that any ongoing or future litigation will be successful.
While we see demand for mobile data fueling the growth of the mobile web, the increase in demand may not result in an immediate or direct impact on our financial results, as we are dependent upon how and when the mobile carriers respond to these trends and how, whether and when they invest in the required infrastructure. Additionally, the sales cycle generally lasts several quarters, and often can be more than one year.
The cautious spending environment by communication service providers has contributed to reducing our revenues over recent years, and we have also experienced lower-than-expected sales of our new products, which in some cases is a result of slow market adoption, and competition from competitors. In some cases, our customers choose to address capacity issues by purchasing additional hardware rather than improving their networks efficiency with the purchase of additional software. In addition, as the generation of technology platforms (i.e, 2G and 3G) begin to be replaced more quickly, we notice operators are exercising caution in spending on capital additions due to the shorter period of benefit. While we intend to expand our customer base in new regions, increase our sales through channel partners, and monetize our portfolio of intellectual property, our success or failure in these endeavors could have a material effect on our financial condition.
The key performance measures that we use in assessing our business include bookings, backlog, gross margins, operating cash flows and disciplined management of operating expenses. Our goal is to maintain, over time, a book-to-bill ratio of 1:1 or better. This in turn builds backlog and, therefore, predictability of future revenues.
Bookings comprise the aggregate value of all new contractual arrangements executed during a period. We define backlog as the aggregate value of all existing contractual arrangements less revenue recognized to date under these contractual arrangements. For the second quarter of fiscal 2012, bookings were approximately $20.4 million, down $19.8 million, or 49.3%, from approximately $40.2 million for the second quarter of fiscal 2011. Backlog was approximately $117.9 million as of December 31, 2011, down from $174.0 million as of December 31, 2010. Many of our bookings include the ability for customers to cancel services or maintenance. Cancellations of bookings from prior quarters, if any, are treated as a reduction in backlog. For example, during the second fiscal quarter of 2011, our largest booking was the renewal of maintenance for several products for three years, totaling $25.4 million. After the first year, the customer may terminate the renewal for convenience. While we do not expect any material terminations from this booking, it is possible for the customer to do so without penalty. In January 2012, a customer cancelled their managed services contract, effective April 2012, which resulted in a backlog reduction of $6.2 million. Support or hosting agreements that cover multiple years can contribute to the variability in the quarterly amount of bookings achieved, as well as the timing of revenue, billings and collections from those bookings. Generally, revenue resulting from license and services bookings are recognized and collected over approximately two years based upon the dollar-weighted average project time. Support bookings typically cover one to three years. Bookings related to royalty or usage and patent licensing arrangements are recognized concurrently with the related revenue and therefore do not impact backlog.
Bookings that span multiple years are generally recognized, billed and collected over the same period.
The table below presents our gross margin on a GAAP basis and provides a reconciliation to the key metric monitored by management, as this metric excludes items which management does not consider in evaluating our on-going business. Because amortization of intangibles and stock-based compensation are non-cash items, management excludes them from the metric in order to compare Openwave with other companies, as many other companies also exclude these items. Further, investors often use measures such as these to evaluate the financial performance of a company.
Three Months Ended December 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Gross Margin |
$ | 17,544 | 48.9 | % | $ | 23,855 | 59.8 | % | ||||||||
Amortization of intangibles included in Cost of revenues |
144 | 0.4 | % | 409 | 1.0 | % | ||||||||||
Stock based compensation included in Cost of revenues |
90 | 0.3 | % | 86 | 0.2 | % | ||||||||||
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Management Metric |
$ | 17,778 | 49.6 | % | $ | 24,350 | 61.0 | % | ||||||||
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For the remainder of fiscal 2012, in response to lower-than-expected bookings in recent fiscal quarters and our forecast for fiscal 2012, we expect that our gross margins will be between approximately 52% and 56%. However, our gross margin will continue to fluctuate from quarter to quarter, depending on the mix of software, services and hardware delivered during the quarter, which is subject to our customers schedules and demands. Additionally, patent revenues, if any, would cause our gross margin to be higher since these revenues do not have an associated cost of revenue. The timing of these revenues is unpredictable and is not guaranteed. During the three months ended December 31, 2011, our overall gross margin excluding the impact of amortization of intangibles and stock based compensation was 49.6%, compared to 61.0% in the three months ended December 31, 2010. For a breakout of revenue by type, see the tables below under Summary of Operating Results. The decrease in gross margin related to services caused an overall decline in gross margin. This was due to a large project with a customer that yields a very low margin due to customization work that was not funded by the customer. Our goal is to increase the services revenue gross margin through better project management, which in turn would improve our overall gross margin.
Overview of Financial Results During the Three and Six Months Ended December 31, 2011
The following table represents a summary of our operating results from continuing operations for the three and six months ended December 31, 2011, compared with the three and six months ended December 31, 2010 (dollars in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
December 31, |
Percent
Change |
December 31, |
Percent
Change |
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2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
Revenues |
$ | 35,868 | $ | 39,911 | -10 | % | $ | 88,264 | $ | 81,439 | 8 | % | ||||||||||||
Cost of revenues |
18,324 | 16,056 | 14 | % | 36,738 | 29,534 | 24 | % | ||||||||||||||||
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Gross profit |
17,544 | 23,855 | -26 | % | 51,526 | 51,905 | -1 | % | ||||||||||||||||
Operating expenses |
24,804 | 28,109 | -12 | % | 55,747 | 57,680 | -3 | % | ||||||||||||||||
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Operating income (loss) |
(7,260 | ) | (4,254 | ) | 71 | % | (4,221 | ) | (5,775 | ) | -27 | % | ||||||||||||
Interest and other expense, net |
(309 | ) | 210 | -247 | % | (248 | ) | 247 | -200 | % | ||||||||||||||
Income tax expense |
2,822 | 491 | 475 | % | 3,280 | 1,172 | 180 | % | ||||||||||||||||
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Net income (loss) from continuing operations |
$ | (10,391 | ) | $ | (4,535 | ) | 129 | % | $ | (7,749 | ) | $ | (6,700 | ) | 16 | % | ||||||||
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Revenues decreased during the three months ended December 31, 2011 and increased during the six months ended December 31, 2011, compared to the corresponding periods of the prior year. See discussion of Revenues below under the Summary of Operating Results.
Overall, operating expenses decreased during both the three and six months ended December 31, 2011, compared with the corresponding periods of the prior year. These decreases are primarily due to decreases in sales and marketing costs, as discussed in further detail under Summary of Operating Results below.
Operating Environment during the Three and Six Months Ended December 31, 2011
Although mobile data services revenues are growing, the average revenue per user, commonly referred to as ARPU, has remained flat over the last several years for many of our mobile operator customers. Many operators moved to flat rate mobile data revenue plans which have successfully driven mobile data usage. This increased demand is fueling the growth of mobile web traffic, with application stores, social networking and video leading the way. The continuous introduction of new devices (Android-based smartphones, iPhones, tablets and other connected devices) encourages users to consume more data, driving ever-increasing levels of traffic to mobile networks.
Mobile networks were built and managed on the underlying assumption of predictable consumption. Even some 3G networks will not be able to handle the expected increase in mobile traffic. Although operators have announced their planned migrations to next-generation 4G networks, upgrades of their software infrastructure continue to be incremental, with minimal commitment and smaller capacity purchases.
In the infrastructure market overall, we expect to see continued, but cautious capital equipment spending levels by the operators. We believe that some of the products Openwave and our competitors sell will continue to be viewed by
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operators as necessary costs that will maintain, but not grow, monthly ARPU. Other Openwave products and those of our competitors are being viewed as ways to drive additional revenue though innovative ways to monetize the increasing demand for mobile services.
Recent Board of Director Changes
On October 31, 2011, we announced the appointment of Henry R. Nothhaft to the board of directors.
Critical Accounting Policies and Judgments
We believe that there are several accounting policies that are critical to understanding our business and prospects for our future performance, as these policies affect the reported amounts of revenue and other significant areas that involve managements judgment and estimates. These significant accounting policies are:
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Revenue recognition; |
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Allowance for doubtful accounts; |
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Stock-based compensation; |
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Valuation of investments; and |
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Restructuring-related assessments. |
There have been no material changes to our critical accounting policies and estimates since our fiscal year end on June 30, 2011. For further discussion of our critical accounting policies and judgments, please refer to the Notes to our condensed consolidated financial statements included in this Form 10-Q and to our Managements Discussion and Analysis of Financial Condition and Results of Operations and audited consolidated financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011.
Summary of Operating Results
Three and Six Months Ended December 31, 2011 and 2010
Revenues
We generate four different types of revenues: license revenues are primarily associated with the licensing of our software products to communication service providers; maintenance and support revenues are derived from providing support services to communication service providers; services revenues are primarily a result of providing deployment and integration consulting services to communication service providers; and patents revenues are derived from licensing our intellectual property. Service revenues may include a limited amount of packaged solution elements which may be comprised of our software licenses, professional services, third-party software and hardware.
The majority of our revenues have been from a limited number of customers and our sales are concentrated in a single industry segment. During the periods noted below we had three significant customers, as shown in the following table:
% of Total Revenue | % of Total Revenue | |||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Customer: |
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Sprint Nextel |
18 | % | 27 | % | 21 | % | 24 | % | ||||||||
Bouygues Telecom |
12 | % | 1 | % | 5 | % | 1 | % | ||||||||
Microsoft |
| | 17 | % | |
We derived a significant portion of our revenues from sales to U.S. based customers during the three and six months ended December 31, 2011 and 2010, which primarily consisted of sales to Sprint Nextel in both periods. Additionally, we
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recognized a $15.0 million patent license to Microsoft during the three months ended September 30, 2011. Although we intend to broaden our markets, there can be no assurance that this objective will be achieved.
The following table presents key revenue information (dollars in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
December 31, |
Percent
Change |
December 31, |
Percent
Change |
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2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
Revenues: |
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License |
$ | 9,578 | $ | 10,072 | -5 | % | $ | 19,492 | $ | 22,404 | -13 | % | ||||||||||||
Maintenance and support |
10,201 | 13,913 | -27 | % | 20,872 | 27,906 | -25 | % | ||||||||||||||||
Services |
16,084 | 15,925 | 1 | % | 32,874 | 27,128 | 21 | % | ||||||||||||||||
Patents |
5 | 1 | 400 | % | 15,026 | 4,001 | 276 | % | ||||||||||||||||
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Total Revenues |
$ | 35,868 | $ | 39,911 | -10 | % | $ | 88,264 | $ | 81,439 | 8 | % | ||||||||||||
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Percent of revenues: |
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License |
27 | % | 25 | % | 22 | % | 28 | % | ||||||||||||||||
Maintenance and support |
28 | % | 35 | % | 24 | % | 34 | % | ||||||||||||||||
Services |
45 | % | 40 | % | 37 | % | 33 | % | ||||||||||||||||
Patents |
| | 17 | % | 5 | % | ||||||||||||||||||
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Total Revenues |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||
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License Revenues
License revenues decreased by 5% and 13% during the three and six months ended December 31, 2011, as compared with the corresponding periods of the prior year. The decreases in license revenue during these periods were driven by the lower level of license bookings beginning in the fourth quarter of fiscal 2011.
Maintenance and Support Revenues
Maintenance and support revenues decreased by 27% and 25% during the three and six months ended December 31, 2011, respectively, as compared with the corresponding periods of the prior year. These decreases were primarily a result of reductions in renewed support services as some customers have reduced their budgets for their services.
Services Revenues
Services revenue increased by 1% for the three months ended December 31, 2011, as compared with the corresponding period of the prior year. This slight increase in revenues can primarily be attributed to one project generating $3.5 million in services revenues upon the establishment of vendor specific objective evidence (VSOE) in connection with the renewal of maintenance. Upon establishment of VSOE, services revenues, and the associated costs, previously provided and deferred for recognition over the maintenance period were recognized during the quarter. Offsetting this increase were declines related to the completion of various projects since the prior years period.
Services revenue increased by 21% for the six months ended December 31, 2011, as compared with the corresponding period of the prior year. This increase was primarily due to a $4.7 million hardware order delivered in the first quarter of fiscal 2012 as well as the $3.5 million in services revenue in the second quarter of fiscal 2012 discussed immediately above. Additionally, the first fiscal quarter of 2011 experienced unusually low services revenue, $11.2 million, due to the completion of several large projects in that quarter.
Patents Revenues
During the first quarter of fiscal 2012, we entered into a license agreement with a third-party whereby we licensed rights to the majority of our patents for a fee of $15.0 million which was received during the second quarter of fiscal 2012. During the first quarter of fiscal 2011, we entered into a license agreement for a fee of $4.0 million plus future royalties from domestic sales of products and related services covered under the patent license after September 22, 2010. We intend
30
to continue to seek monetization opportunities for our intellectual property; however, there can be no guarantee that our efforts will be successful.
Cost of Revenues
The following table presents cost of revenues in dollars, as well as gross margin, by revenue type (dollars in thousands):
Three Months Ended
December 31, |
Percent
Change |
Six Months Ended
December 31, |
Percent
Change |
|||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
Cost of revenues: |
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License |
$ | 389 | $ | 481 | -19 | % | $ | 1,284 | $ | 920 | 40 | % | ||||||||||||
Maintenance and support |
3,132 | 3,981 | -21 | % | 6,854 | 8,133 | -16 | % | ||||||||||||||||
Services |
14,803 | 11,594 | 28 | % | 28,600 | 20,481 | 40 | % | ||||||||||||||||
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Total Cost of Revenues |
$ | 18,324 | $ | 16,056 | 14 | % | $ | 36,738 | $ | 29,534 | 24 | % | ||||||||||||
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Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
Gross margin per related revenue category: |
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License |
96 | % | 95 | % | 93 | % | 96 | % | ||||||||||||||||
Maintenance and support |
69 | % | 71 | % | 67 | % | 71 | % | ||||||||||||||||
Services |
8 | % | 27 | % | 13 | % | 25 | % | ||||||||||||||||
Patents |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||
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Total Gross Margin |
49 | % | 60 | % | 58 | % | 64 | % | ||||||||||||||||
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Cost of License Revenues
Cost of license revenues consists primarily of third-party license fees and amortization of developed technology and technology-related intangible assets related to our acquisitions.
Costs of license revenues decreased by 19% during the three months ended December 31, 2011, as compared with the corresponding period of the prior year. $0.3 million of this decrease in cost of license revenues results from intangible assets relating to technology becoming fully amortized during the quarter ended December 31, 2011. This decrease was offset by a change in the mix of licenses sold, with more license revenue relating to products with third-party components during the three months ended December 31, 2011.
Costs of license revenues increased by 40% during the six months ended December 31, 2011, as compared with the corresponding period of the prior year. The increase in cost of license revenues primarily results from additional royalties generated by revenues from a product in the first quarter of fiscal 2012 which has a higher third-party component than most of our other products, offset by a $.03 million decrease in amortization expense as discussed directly above
Cost of Maintenance and Support Revenues
Cost of maintenance and support revenues consists of compensation and related overhead costs for personnel engaged in support services to communication service providers.
Cost of maintenance and support decreased by 21% and 16% during the three and six months ended December 31, 2011, respectively, as compared with the corresponding periods of the prior year. These decreases are primarily attributed to reduced labor costs in fiscal 2012, as headcount declined by approximately 25% from the prior years period. The decline in the gross margin related to maintenance and support is attributed to lower contracted revenues.
Cost of Services Revenues
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Cost of services revenues consist of compensation and independent consultant costs for personnel engaged in performing professional services, hardware purchased for resale, and related overhead.
Cost of services increased by 28% during the three months ended December 31, 2011, as compared with the corresponding period of the prior year. This increase is a result of the recognition of previously deferred costs associated with a large project discussed above under Services Revenues. The gross margin for services was negatively impacted by this project with a low profit margin as well as increases in estimated project completion times for other projects during the fiscal quarter.
Cost of services increased by 40% during the six months ended December 31, 2011, as compared with the corresponding period of the prior year. This increase is a result of the 21% increase in services revenue during the same period. This increase relates to third-party hardware installed at Sprint Nextel during the three months ended September 30, 2011, as well as the recognition of previously deferred costs associated with a large project discussed above under Services Revenues during the three months ended December 31, 2011. The gross margin was impacted negatively by the factors mentioned above during the three months ended December 31, 2011, as well as the low margin on the Sprint Nextel hardware recognized during the three months ended September 30, 2011.
Cost of Patents Revenues
Openwave has invested in and patented intellectual property for the mobile internet industry. The cost of creating the intellectual property has been reflected in research and development costs over the years as incurred, with the primary purpose of developing intellectual property for sale in the form of enterprise software. Other costs associated with patents are reflected separately in Patent initiative expenses within operating expenses. As such, the gross margin on patents is 100%.
Operating Expenses
The following table represents operating expenses for the three and six months ended December 31, 2011 and 2010, respectively (dollars in thousands):
Three Months Ended
December 31, |
Percent
Change` |
Six Months Ended
December 31, |
Percent
Change |
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2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
Operating expenses: |
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Research and development |
$ | 7,772 | $ | 10,439 | -26 | % | $ | 17,120 | $ | 21,869 | -22 | % | ||||||||||||
Sales and marketing |
7,026 | 11,357 | -38 | % | 15,763 | 22,178 | -29 | % | ||||||||||||||||
General and administrative |
5,060 | 4,833 | 5 | % | 11,122 | 11,342 | -2 | % | ||||||||||||||||
Patent initiative expenses |
3,272 | 624 | 424 | % | 4,996 | 727 | 588 | % | ||||||||||||||||
Restructuring and other related costs |
1,674 | 856 | 96 | % | 6,746 | 1,564 | 331 | % | ||||||||||||||||
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Total Operating Expenses |
$ | 24,804 | $ | 28,109 | -12 | % | $ | 55,747 | $ | 57,680 | -3 | % | ||||||||||||
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Percent of Revenues: |
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Research and development |
22 | % | 26 | % | 19 | % | 27 | % | ||||||||||||||||
Sales and marketing |
20 | % | 28 | % | 18 | % | 27 | % | ||||||||||||||||
General and administrative |
14 | % | 12 | % | 13 | % | 14 | % |
Research and Development Expenses
Research and development expenses consist principally of salary and benefit expenses for software developers, contracted development efforts, related facilities costs and expenses associated with computer equipment used in software development.
During the three months ended December 31, 2011, research and development costs decreased 26% as compared with the corresponding period in the prior year. This decrease is primarily attributable to a decrease in labor costs and travel expenses of approximately $1.2 million related to a reduction in average headcount of approximately 14% as a result of the restructuring initiated in the first quarter of fiscal 2012, as well as lower contingent worker expense of $1.4 million.
During the six months ended December 31, 2011, research and development costs decreased 22% as compared with the corresponding period in the prior year. This decrease is primarily attributable to decreases in labor costs and travel expenses of approximately $2.2 million and $0.7 million in facilities and information technology expenses, related to a reduction in average headcount of approximately 14% as a result of the restructuring initiated in the first quarter of fiscal 2012, as well as lower contingent worker expense of $1.7 million.
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Sales and Marketing Expenses
Sales and marketing expenses include salary and benefit expenses, sales commissions, travel expenses, and related facility costs for our sales and marketing personnel. Sales and marketing expenses also include the costs of trade shows, public relations, promotional materials and other market development programs.
During the three months ended December 31, 2011, sales and marketing costs decreased by 38% as compared with the corresponding period of the prior year. This decrease is primarily due to declines in labor related costs and commissions of $2.4 million and $0.3 million in facilities and information technology expenses, primarily due to a reduction in average headcount of approximately 36% as a result of the restructuring initiated in the first quarter of fiscal 2012. Additionally, there was a decline in expenses for marketing and recruiting costs of $0.5 million, in travel expenses of $0.8 million and a decline in contingent worker expense of $0.2 million from the prior years period.
During the six months ended December 31, 2011, sales and marketing costs decreased by 29% as compared with the corresponding period of the prior year. This decrease is primarily due to declines in labor related costs and commissions of $2.8 million and $0.5 million in facilities and information technology expenses, primarily due to a reduction in average headcount of approximately 36% as a result of the restructuring initiated in the first quarter of fiscal 2012. Additionally, there was a decline in expenses for marketing and recruiting costs of $0.5 million, in travel expenses of $1.3 million, in employee recruiting fees of $0.8 million and a decline in contingent worker expense of $0.3 million from the prior years period.
General and Administrative Expenses
General and administrative expenses consist principally of salary and benefit expenses, travel expenses, and facility costs for our finance, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for doubtful accounts, and expenses associated with computer equipment and software used in administration of the business.
During the three months ended December 31, 2011, general and administrative costs increased 5% compared with the corresponding period in the prior year. This increase is primarily due to an increase of $0.3 million in bad debt costs.
During the six months ended December 31, 2011, general and administrative costs decreased 2% compared with the corresponding period in the prior year. This decrease is primarily due to an overall decline in labor and facilities costs, as Openwave experienced a decline in average headcount of 41% from the prior years period and closed several smaller offices as a result of the restructuring initiated in the first quarter of fiscal 2012.
Patent initiative expenses
Patent initiative expenses include legal and consulting costs related to defending or asserting our patents, as well as labor costs for employees engaged in these activities on a full-time basis.
During the three months ended December 31, 2011, patent initiative expenses increased by 424% compared with the corresponding period in the prior year. This increase is primarily due to a $2.6 million increase in legal expenses associated with patent litigation, which includes legal fees supporting the ITC case filed and announced in August 2011.
During the six months ended December 31, 2011, patent initiative expenses increased 588% compared with the corresponding period in the prior year. This increase is primarily due to a $4.3 million increase in legal expenses associated with patent litigation, which includes legal fees supporting the ITC case filed and announced in August 2011 as well as the settlement related to patents associated with a discontinued operation also announced in August 2011.
Restructuring and Other Related Costs
Restructuring and other related costs for the three months ended December 31, 2011, increased over the same period in the prior year, primarily as a result of the fact that we incurred $1.4 million in facility charges due to the reduction of
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space used for our corporate headquarters under the restructuring plan announced in the first quarter of fiscal 2012. Additionally, there was a decline of $0.1 million in facilities related accretion charges, as well as a decline of $0.5 million in charges related to prior facility restructurings.
Restructuring and other related costs for the six months ended December 31, 2011, increased over the same period in the prior year, primarily as a result of the fact that we implemented a restructuring plan in the first quarter of fiscal 2012. This implementation resulted in new charges of approximately $5.0 million related to labor costs and $1.4 million in facility charges, compared with charges of approximately $1.0 million in the prior years period related to a revision to the estimated sublease terms associated with facilities exited in prior periods. Additionally, there was a decline of $0.2 million in facilities related accretion charges. We expect the activities related to the fiscal 2012 restructuring plan and other planned efficiencies to result in approximately $12.3 million in annual costs savings.
Refer to Note 9 in the notes to the condensed consolidated financial statements for more information.
Amortization of Intangible Assets and Goodwill Impairment
The following table presents the amortization of intangible assets (dollars in thousands):
Three Months Ended
December 31, |
Six Months Ended
December 31, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Developed and core technology |
$ | 144 | $ | 403 | $ | 553 | $ | 812 | ||||||||
Customer contracts - support |
| 6 | | 17 | ||||||||||||
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Total amortization of intangible assets |
144 | 409 | 553 | 829 | ||||||||||||
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Developed and core technology became fully amortized in the second quarter of fiscal 2012.
Acquired customer support contracts became fully amortized in the second quarter of fiscal 2011.
Amortization of developed and core technology and customer contracts for licenses is included in cost of license revenue in our condensed consolidated statements of operations. These assets were amortized over an average useful life of four years.
Amortization of acquired customer support contracts is included in Cost of revenuesMaintenance and support. These assets were amortized over an approximate useful life of three years.
Interest Income
Interest income was approximately $76,000 for the three months ended December 31, 2011 and $0.1 million for the three months ended December 31, 2010. The slight decrease in interest income is primarily attributed to lower interest rates.
Interest income was approximately $0.2 million for the six months ended December 31, 2011, as compared with $0.3 million for the corresponding period of the prior year. The decrease in interest income is primarily attributed to lower investment balances.
Interest Expense
Interest expense was approximately $0.1 million for the three months ended December 31, 2011, relatively unchanged from the corresponding period of the prior year.
Interest expense was approximately $0.1 million for the six months ended December 31, 2011, compared with $0.2 million in the corresponding period of the prior year. The majority of our interest expense relates to the line of credit facility entered into during the third quarter of fiscal 2009.
Income Taxes
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Income tax expense consisted of foreign withholding tax, foreign corporate tax and foreign deferred tax. Both foreign withholding tax and foreign corporate tax fluctuate quarterly based on the product and geographic mix of our revenue, with a resulting fluctuation in our quarterly effective tax rate.
The increase in income tax expense for the three months ended December 31, 2011, compared to the three months ended December 31, 2010, from $0.5 million to $2.8 million, is primarily the result of recording a $2.5 million valuation allowance for most of our foreign deferred tax assets during the three months ended December 31, 2011, as a result of our announcement that we are pursuing strategic alternatives for the mediation and messaging product operations.
The increase in income tax expense for the six months ended December 31, 2011, compared to the six months ended December 31, 2010, from $1.2 million to $3.3 million, is primarily the result of recording a valuation allowance for most of our foreign deferred tax assets during the six months ended December 31, 2011, as discussed above.
In light of our history of operating losses we continue to maintain a full valuation allowance for our U.S. federal and state deferred tax assets. We intend to maintain this valuation allowance until there is sufficient evidence to conclude that it is more likely than not that the federal and state deferred tax assets will be realized. We also maintain a valuation allowance for most of our foreign deferred tax assets due to uncertainty regarding the ability of certain foreign subsidiaries to generate future taxable income. As of December 31, 2011, we have foreign deferred tax assets recorded of $0.1 million in selected countries based upon our conclusion that it is more likely than not that the foreign subsidiaries in the respective countries will earn future taxable profits enabling the realization of their respective deferred tax assets.
Discontinued Operations
During fiscal 2008, we sold our Client operations to Purple Labs, a private company based in Chambéry, France. During the first quarter of fiscal 2011, $2.0 million of the escrowed funds associated with the sale was distributed to Myriad AG (formerly Purple Labs) and the remaining $2.2 million was released to us, and was recorded as an additional $2.2 million gain on sale of discontinued operation in the condensed consolidated statement of operations.
Liquidity and Capital Resources
Working Capital and Cash Flows
The following table presents selected financial information and statistics as of December 31, 2011 and June 30, 2011, and for the six months ended December 31, 2011 and 2010 (dollars in thousands):
December 31, | June 30, | Percent | ||||||||||
2011 | 2011 | Change | ||||||||||
Working capital |
$ | 34,535 | $ | 37,742 | -8 | % | ||||||
Cash and cash investments: |
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Cash and cash equivalents |
$ | 34,052 | $ | 47,266 | -28 | % | ||||||
Short-term investments |
28,523 | 33,947 | -16 | % | ||||||||
Long-term investments |
7,110 | 15,630 | -55 | % | ||||||||
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Total cash and cash investments |
$ | 69,685 | $ | 96,843 | -28 | % | ||||||
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Six Months Ended | ||||||||
December 31, | ||||||||
2011 | 2010 | |||||||
Cash used for operating activities |
$ | (14,178 | ) | $ | (5,886 | ) | ||
Cash provided by (used for) investing activities |
$ | 670 | $ | (330 | ) | |||
Cash provided by financing activities |
$ | 294 | $ | 822 |
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We have obtained a majority of our cash and investments through public offerings of common stock, including a common stock offering in December 2005 which raised $277.8 million in net proceeds. In fiscal 2008, we sold Musiwave and our Client operations, resulting in $56.0 million of proceeds in fiscal 2008, $11.7 million in fiscal 2009, $4.5 million in fiscal 2010 and $2.2 million in fiscal 2011. We also entered into a $40.0 million revolving credit facility on January 23, 2009, which we have amended several times, including an amendment entered into on January 23, 2012 to reduce the revolving credit facility to $25.0 million, lower the Borrowing Base from a starting point of $20.0 million to $15.0 million plus eligible accounts receivable and extend the maturity date to February 28, 2012. Although the Company plans to extend the maturity beyond this date, there can be no guarantee of an extension. Failure to extend the line of credit could potentially result in letters of credit requiring collateral, which would be reflected as Restricted cash as opposed to Cash and equivalents once collateralized.
As of December 31, 2011 and June 30, 2011, we had letters of credit outstanding against the revolving credit facility totaling $18.0 million and $18.2 million, respectively, reducing the available borrowings on the revolving credit facility. The revolving credit facility requires a monthly borrowing base calculation to determine the amount of the revolving credit facility available for us to borrow (Borrowing Base). The Borrowing Base calculation is $20.0 million plus 75% of accounts receivables defined as eligible in the credit agreement. As of December 31, 2011, the Borrowing Base was $22.6 million and the total available for us to borrow on the revolving credit facility was $4.6 million, which is the difference between the Borrowing Base calculation of $22.6 million and the amount of outstanding letters of credit amount of $18.0 million. As of June 30, 2011, the Borrowing Base was $32.1 million and the total available for us to borrow on the revolving credit facility was $13.9 million, which is the difference between the Borrowing Base calculation of $32.1 million and the amount of outstanding letters of credit amount of $18.2 million. Our letters of credit expire between June 2012 and October 2012. We intend to renew them, but there is no guarantee of renewal. The revolving credit line is secured by a blanket lien on all of our assets and contains financial and reporting covenants customary to these types of credit facilities agreements which we are required to satisfy as a condition of the agreement. In particular, the revolving credit facility requires that we meet specified minimum four quarter trailing EBITDA amounts, as well as meet a minimum monthly liquidity ratio. In addition, the revolving credit facility requires us to provide to the bank annual financial projections, promptly report any material legal actions, and timely pay material taxes and file all required tax returns and reports. Further, without the banks consent, we cannot take some material actions, such as change any material line of business, sell our business, acquire other entities, incur liens, make capital expenditures beyond a specified threshold, or engage in transactions with affiliates. As of December 31, 2011, we were in compliance with all debt covenants.
While we believe that our current working capital and anticipated cash flows from operations will be adequate to meet our cash needs for daily operations and capital expenditures for at least the next 12 months, we may elect to raise additional capital through the sale of additional equity or debt securities, or sell some assets. If additional funds are raised through the issuance of additional debt securities, these securities could have rights, preferences and privileges senior to holders of common stock, and the terms of any debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders, and additional financing may not be available in amounts or on terms acceptable to us.
If additional financing is necessary and we are unable to obtain the additional financing, we may be required to reduce the scope of our planned product development and marketing efforts, which could harm our business, financial condition and operating results. In the meantime, we will continue to manage our cash and investment portfolio in a manner designed to facilitate adequate cash and cash equivalents to fund our operations as well as future acquisitions, if any.
Working capital
Our working capital, defined as current assets less current liabilities, decreased by approximately $3.2 million, or 8%, from June 30, 2011 to December 31, 2011. The decrease in working capital balances can primarily be attributed to the use of $18.6 million of cash and cash equivalents and short term investments, primarily as a result of cash used for operations of $14.2 million, which was impacted by the $12.0 million payment related to the settlement of the Myriad litigation,.
Cash used for operating activities
Cash used for operating activities was $14.2 million during the six months ended December 31, 2011. This use of cash is primarily a result of the operating results for the period. We paid $10.9 million of restructuring liabilities during the six months ended December 31, 2011, which included $4.0 million in severance paid to employees impacted by the
36
restructuring announced in August 2011. We expect another $1.0 million of severance to be paid relating to this restructuring plan during the remainder of fiscal 2012.
Cash used for operating activities was $5.9 million during the six months ended December 31, 2010. This use of cash is primarily a result of the $5.8 million operating loss from continuing operations.
Cash provided by (used for) investing activities
Net cash provided by investing activities during the six months ended December 31, 2011 was $0.7 million, which primarily was due to the $13.2 million of maturities from the sale of investments, net of purchases of investments, partially offset by the $0.5 million of property and equipment purchases and the payment of the $12.0 million related to the settlement of the Myriad litigation.
Net cash used for investing activities during the six months ended December 31, 2010 was $0.3 million, which primarily was due to the purchase of property and equipment of $2.6 million, partially offset by the $2.2 million payment received from the release of escrowed funds related to the sale of the Client operations.
Cash flows provided by financing activities
Net cash provided by financing activities during the six months ended December 31, 2011 was $0.3 million, resulting from the exercise of stock options during the period.
Net cash provided by financing activities during the six months ended December 31, 2010 was $0.8 million, resulting from the exercise of stock options during the period.
Operating Lease Obligations and Contractual Obligations
There has been no material change to our contractual obligations during the first six months of fiscal 2012. As such, see our Annual Report on Form 10-K for the fiscal year ended June 30, 2011 for a description of our facility leases and Note 9 in the notes to the condensed consolidated financial statements. We currently have subleased all but one of our restructured facilities which will generate contractual sublease income in aggregate of approximately $11.0 million, resulting in a net future obligation on these properties of approximately $21.5 million through our fiscal 2015. The decrease in our liability for restructured facilities since the fiscal year ended June 30, 2011, relates primarily to payments made in the normal course of business.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
(a) | Foreign Currency Risk |
We operate internationally and are exposed to potentially adverse movements in foreign currency rate changes. We have entered into foreign exchange derivative instruments to reduce our exposure to foreign currency rate changes on receivables, payables and intercompany balances denominated in a nonfunctional currency. The objective of these derivatives is to neutralize the impact of foreign currency exchange rate movements on our operating results. These derivatives may require us to exchange currencies at rates agreed upon at the inception of the contracts. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses of the foreign exchange forward contracts. We do not enter into foreign exchange transactions for trading or speculative purposes, nor do we hedge foreign
37
currency exposures in a manner that entirely offsets the effects of movement in exchange rates. We do not designate our foreign exchange forward contracts as accounting hedges and, accordingly, we adjust these instruments to fair value through earnings in the period of change in their fair value. Net foreign exchange transaction losses included in Other income (expense), net in the accompanying condensed consolidated statements of operations totaled $(0.3) million for the six months ended December 31, 2011. As of December 31, 2011, we have the following forward contracts (notional amounts in thousands):
Currency |
Notional
Amount |
Foreign
Currency per USD |
Date of
Maturity |
|||||||||
AUD |
2,300 | 1.01 | 1/31/2012 | |||||||||
CAD |
4,300 | 0.98 | 1/31/2012 | |||||||||
EUR |
3,700 | 0.77 | 1/31/2012 | |||||||||
JPY |
270,000 | 78.17 | 1/31/2012 |
As of December 31, 2011, the nominal value multiplied by the USD exchange rate of these forward contracts was $14.9 million. Our mark-to-market net unrealized loss on these contracts as of December 31, 2011 was $0.1 million.
In comparison, as of June 30, 2011, we had the following forward contracts (notional amounts in thousands):
Currency |
Notional
Amount |
Foreign
Currency per USD |
Date of
Maturity |
|||||||||
AUD |
1,600 | 1.05 | 7/29/2011 | |||||||||
CAD |
2,100 | 1.01 | 7/29/2011 | |||||||||
EUR |
1,250 | 0.69 | 7/29/2011 | |||||||||
JPY |
200,000 | 80.93 | 7/29/2011 |
As of June 30, 2011, the nominal value multiplied by the USD exchange rate of these forward contracts was $8.2 million. Our mark-to-market net unrealized gain on these contracts as of June 30, 2011 was $0.1 million.
(b) | Interest Rate Risk |
As of December 31, 2011, we had cash and cash equivalents, short-term and long-term investments, and restricted cash and investments of $69.7 million compared to $96.8 million at June 30, 2011. Our exposure to market risks for changes in interest rates relates primarily to money market accounts, certificates of deposit, corporate bonds, government securities, and auction rate securities. We place our investments with high credit quality issuers that have a rating by Moodys of A2 or higher and Standard & Poors of A or higher, and, by policy, limit the amount of the credit exposure to any one issuer. Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with a maturity of less than three months at the date of purchase are considered to be cash equivalents; all investments with maturities of three months or greater are classified as available-for-sale and considered to be short-term investments; all investments with maturities of greater than one year are classified as available-for-sale and considered to be long-term investments.
The following is a chart of the principal amounts of short-term investments and long-term investments by expected maturity at December 31, 2011 (dollars in thousands):
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Expected maturity for the year ending June 30, | Cost Value | Fair Value | ||||||||||||||||||
2012 | 2013 | Thereafter |
December 31,
2011 Total |
December 31,
2011 Total |
||||||||||||||||
U.S. Government Agencies |
$ | 1,384 | $ | 3,798 | $ | | $ | 5,182 | $ | 5,197 | ||||||||||
Certificates of Deposit |
240 | 2,220 | | 2,460 | 2,459 | |||||||||||||||
Commercial Paper |
3,197 | 698 | | 3,895 | 3,896 | |||||||||||||||
Corporate Bonds |
11,584 | 8,792 | | 20,376 | 20,353 | |||||||||||||||
Auction Rate Securities |
| | 5,237 | 5,237 | 4,228 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 16,405 | $ | 15,508 | $ | 5,237 | $ | 37,150 | $ | 36,133 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Weighted-average interest rate |
|
1.0 | % |
In comparison, the following is a table of the principal amounts of short-term investments and long-term investments by expected maturity at June 30, 2011 (dollars in thousands):
Expected maturity for the year ending June 30, | Cost Value | Fair Value | ||||||||||||||||||
2012 | 2013 | Thereafter |
June 30, 2011
Total |
June 30, 2011
Total |
||||||||||||||||
U.S. Government Agencies |
$ | 2,412 | $ | 3,499 | $ | | $ | 5,911 | $ | 5,927 | ||||||||||
Certificates of Deposit |
240 | 240 | | 480 | 480 | |||||||||||||||
Commercial Paper |
10,691 | | | 10,691 | 10,691 | |||||||||||||||
Corporate Bonds |
20,609 | 7,486 | | 28,095 | 28,097 | |||||||||||||||
Auction Rate Securities |
| | 5,237 | 5,237 | 4,382 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 33,952 | $ | 11,225 | $ | 5,237 | $ | 50,414 | $ | 49,577 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Weighted-average interest rate |
|
0.7 | % |
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2011. Based on their evaluation as of December 31, 2011, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Quarterly Report was (i) recorded, processed, summarized and reported within the time periods specified in the SECs rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Openwave have been detected.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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See discussion of Litigation in Note 8 to the condensed consolidated financial statements included in Part I, Item 1 of this Report, which disclosure is incorporated by reference here. These matters were also discussed in Item 3 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2011.
The following risks factors were set forth in Part I, Item 1A, Risk Factors in Openwaves Annual Report on Form 10-K for the fiscal year ended June 30, 2011, which could materially affect Openwaves business, financial condition or future results. These risks are not the only risks facing Openwave; additional risks and uncertainties may not be currently known to or may be deemed immaterial by management but could materially adversely affect Openwaves business, financial condition, and/or operating results. These risks have not changed substantively from those set forth in Openwaves Annual Report on Form 10-K for the fiscal year ended June 30, 2011, except for those that are marked with an asterisk (*).
Risks Related to Our Business
Our efforts to monetize our patents may not be successful and our technology could be misappropriated, which may lead to expensive and time-consuming litigation.
Our ability to compete and continue to provide technological innovation is substantially dependent upon internally-developed technology. We rely on a combination of patent, copyright and trade secret laws to protect our intellectual property or proprietary rights in such technology, although we believe that other factors such as the technological and creative skills of our personnel, new product developments, frequent product and feature enhancements and reliable product support and maintenance are just as essential to maintaining a technology leadership position. We also rely on trademark law to protect the value of our corporate brand and reputation. In addition, we have recently placed increased emphasis on monetizing our patents by pursuing patent licensing agreements. These efforts may not result in additional revenues, and may also result in counter-claims being raised by third parties.
Despite our efforts to license and protect our intellectual property and proprietary rights, unauthorized parties may copy or otherwise obtain and use our products, technology or trademarks. Effectively policing and enforcing our intellectual property is time consuming and costly, and the steps taken by us may not prevent infringement of our intellectual property or proprietary rights in our products, technology and trademarks, particularly in foreign countries where in many instances the local laws or legal systems do not offer the same level of protection as in the United States.
We have brought legal action against Apple Inc. and Research In Motion in our efforts to monetize our patents, which may be expensive and time-consuming and may lead to outcomes and counterclaims against us that may have an adverse effect on our business.
We have filed a complaint with the ITC in Washington, DC, with Apple Inc. (Apple), Research In Motion Ltd. and Research In Motion Corp. as proposed respondents, requesting that the ITC bar Apple and the Research In Motion entities from importing into the United States their products, including smart devices and tablet computers, that infringe Openwave patents cited in the complaint. The complaint alleges that Apple and RIM infringe upon five Openwave patents that cover technology that gives consumers access to the Internet from their mobile devices. We also filed a similar complaint against Apple and RIM in the federal district court of Delaware, asserting the same claims and seeking an injunction and damages. These law suits may be time consuming and costly, and result in the significant diversion of managements attention. Further, as is typical in law suits like these, we expect that Apple and RIM will assert counterclaims challenging the validity of our patents as well as claiming that we are violating their patents. Although we believe that our position is well founded, intellectual property litigation is uncertain, and if we are not able to prevail on our claims, our ability to monetize our patents will be substantially undermined. Further, if Apple and RIM are able to prevail on counterclaims that they may assert, then our ability to conduct our business may be negatively affected.
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Our products may infringe the intellectual property rights of others, subjecting us to claims for infringement, payment of license royalties or other damages.
Our products or solutions, including third party elements, may be alleged to infringe the intellectual property rights of others, subjecting us to claims for infringement, payment of license royalties or other remedies. To the extent the number of our products, solutions, and services increases and their features and content continue to expand, we may increasingly become subject to infringement and other intellectual property claims by third parties. From time to time, we and our customers have received and may receive in the future, offers to license or claims alleging infringement of intellectual property rights, or may become aware of some third party patents that may relate to our products. For example, a number of parties have asserted to standards bodies such as OMA that they own intellectual property rights which may be essential for the implementation of specifications developed by those standards bodies. A number of our products are designed to conform to OMA specifications or those of other standards bodies, and have been, and may in the future be, subject to offers to license or claims of infringement on that basis by individuals, intellectual property licensing entities and other companies, including companies in the telecommunications field with greater financial resources and larger intellectual property portfolios than our own.
Additionally, our customer agreements require that we indemnify our customers for infringement of our intellectual property embedded in their products. In the past we have elected, and in the future we may elect, to take a license or otherwise settle claims of infringement at the request of our customers or otherwise. Any litigation regarding patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations. The complexity of the technology involved, and the number of parties holding intellectual property within the wireless industry, increase the risks associated with intellectual property litigation. Moreover, patent litigation has increased due to the increased number of cases asserted by intellectual property licensing entities as well as increasing competition and overlap of product functionality in our markets. Royalty or licensing arrangements, if required, may not be available on terms acceptable to us, if at all. Any infringement claim successfully asserted against us or against a customer for which we have an obligation to defend could result in costly litigation as well as the payment of substantial damages or an injunction.
We are in a product transition phase and we may not be able to adequately develop, market or sell new products.
Revenues from our legacy products are decreasing, and we are in the process of selling our customers a migration to Openwaves next generation software platforms and tools. The successful customer migration onto our new platforms is critical to our business, and there is no assurance that we are or will be able to market and or sell new products and services in a timely manner. We also intend to continue to develop new products and services. New products or services may be delayed, and new products may not be accepted by the market, or may be accepted for a shorter period than anticipated. New product offerings may not properly integrate into existing or anticipated platforms, or meet existing or anticipated demand and the failure of these offerings to be accepted by the market could have a material adverse effect on our business, operations, financial condition, or reputation. Our sales and operating results may be adversely affected if we are unable to bring new products to market, if customers delay purchases or if acceptance of the new products is slower than expected or to a smaller degree than expected, if at all.
Our pursuit of strategic alternatives for our products business may not result in anticipated benefits. Our pursuit of such strategic alternatives may disrupt our operations and adversely affect our operations and financial results.*
On January 12, 2012, we announced our decision to pursue strategic alternatives for our mediation and messaging products business in an effort to accelerate our return to profitability, strategically align our cost structure with expected revenues and reallocate resources into areas of our business that we believe have more growth potential. We may not be able to successfully complete and realize the expected benefits of our strategy. Our strategy may involve higher costs or a longer timetable, or it may fail to improve our results of operations and cash flows as we anticipate. Our inability to realize these benefits could negatively impact our results of operations. In addition to employee-related costs, our strategy may also subject us to litigation risks and expenses.
Our strategy may have other adverse consequences, such as employee attrition, the loss of employees with valuable knowledge or expertise, a negative impact on employee morale, the deferral or cancellation of purchasing decisions by our customers or a gain in competitive advantage by our competitors over us. Our strategy may place increased demands on our personnel and could adversely affect our ability to attract and
41
retain talent, to develop and enhance our products and services, to service existing customers, to achieve our sales and marketing objectives and to perform our accounting, finance and administrative functions.
We may pursue other strategic alternatives for our business that may adversely impact our operations; and we may not realize all of the anticipated benefits of our prior or any future strategies.
We rely upon a small number of customers for a significant portion of our revenues, and the failure to retain and expand our relationships with these customers could adversely affect our business.
Our customer base consists of a limited number of large communications service providers, which makes us significantly dependent on their plans and the success of their products. Our success, in turn, depends in large part on our continued ability to introduce reliable and robust products that meet the demanding needs of these customers and their willingness to launch, maintain and market commercial services utilizing our products. Moreover, consolidation among these service providers further limits the existing and potential pool of customers for us. Revenue recognized from arrangements with Sprint-Nextel accounted for approximately 22% of our total revenues during the fiscal year ended June 30, 2011, and approximately 21% of our total revenues during the six months ended December 31, 2011. By virtue of their size and the significant portion of our revenue that we derive from this customer, this customer is able to exert significant influence in the negotiation of our commercial arrangements and the conduct of our business with them. If we are unable to retain and expand our business with key customers on favorable terms, our business and operating results will be adversely affected.
Consolidation of communication service providers may impair our ability to attract new customers and negotiate favorable business terms.
The telecommunications industry is rapidly evolving and highly competitive. These factors combined with recent poor economic conditions, resulted in some communications services providers having poor operating results. As a result, some of these communications service providers have consolidated or are working to consolidate or otherwise cease operations. If consolidation continues to occur, we will have a smaller number of current customers as well as a smaller number of potential customers in which to sell our products and services. Further, our ability to negotiate favorable terms with the communications service providers could be impaired, which could increase our expenses and harm our operating results.
We have a history of losses and we may not be able to achieve or maintain consistent profitability.*
We have a history of losses and may not be able to maintain consistent profitability. Except for fiscal 2006, we have incurred annual net losses since our inception. As of December 31, 2011, we had an accumulated deficit of approximately $3.2 billion, which includes approximately $2.1 billion of goodwill amortization and impairment. We expect to continue to spend significant amounts to execute our intellectual property initiatives. Our prospects must be considered in light of the risks, expenses, delays and difficulties frequently encountered by companies engaged in rapidly evolving technology markets like ours.
Our industry changes rapidly as a result of technological and product developments, which may quickly render our products and services less desirable or even obsolete. If we are unable or unsuccessful in supplementing our product offerings, our revenue and operating results may be materially adversely affected.
The industry in which we operate is subject to rapid technological change. The introduction of new technologies in the market, including the delay in the adoption of these technologies, as well as new alternatives for the delivery of products and services will continue to have a profound effect on competitive conditions in our market. We may not be able to develop and introduce new products, services and enhancements that respond to technological changes or evolving industry standards on a timely basis.
More generally, while in the past we have primarily provided specific component sales, in the future we intend to provide more integrated and comprehensive software solutions for our customers. We also intend to develop and license new products and to enter into new product markets. We may not be able to develop and license new products in accordance with our expectations, or at all, our new products may not be adopted by communication service providers, or we may be unable to succeed in new product markets which, in any case, would have a material adverse effect on our business and operating results.
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Because of the rapid technological changes of our industry, our historic product, service, and enhancement offerings may have a shorter life than anticipated. Revenue from such products may decline faster than anticipated, and if our new products, services and enhancements are not accepted by our customers or the market as anticipated, if at all, our business and operating results may be materially and adversely affected.
Our customers face implementation and support challenges in introducing Internet-based services, which may slow their rate of adoption or implementation of the services our products enable.
Historically, communications service providers have been relatively slow to implement new, complex services. In addition, communications service providers have encountered greater customer demands to support Internet-based services than they have in the past. We have limited or no control over the pace at which communications service providers implement these new Internet-based services. For instance, on December 21, 2010, the Federal Communications Commission (FCC), enacted new net neutrality rules based on three core principles: (i) transparency; (ii) no blocking; and (iii) no unreasonable discrimination. The transparency rule requires broadband Internet access providers to disclose applicable terms, performance, and network management practices to consumers and third party users. The no blocking rule restricts broadband Internet access providers from blocking lawful content, applications, services, or devices. The no unreasonable discrimination rule prohibits broadband Internet access providers from engaging in unreasonable discrimination in transmitting lawful traffic. The new rules permit broadband service providers to exercise reasonable network management for legitimate network purposes, such as management of congestion, harmful traffic, and network security. The rules also permit usage-based billing, and permit broadband service providers to offer additional specialized services, such as facilities-based IP voice services, without being subject to restrictions on discrimination. Although the new rules encompass both wireline and wireless providers, the rules are less stringent with regard to wireless providers. The FCCs new rules (if they withstand challenges), as well as any additional legislation or regulation, could impose new obligations and restraints on broadband Internet access providers and could limit their ability to manage their networks and services efficiently which could cause a decrease in data traffic, or could cause some of our domestic customers to reduce their perception of the value of some of our mediation offerings, either of which could lessen the demand for our products and services. The failure of communications service providers to introduce and support Internet-based services utilizing our products in a timely and effective manner could have a material adverse effect on our business and operating results.
Our business depends on continued investment and improvement in communication networks by our customers.
Many of our customers and other communication service providers continue to make major investments in next generation networks that are intended to support more complex applications and to provide end users with a more satisfying user experience. If communication service providers delay their deployment of networks or fail to roll out such networks successfully, or determine to continue to increase network capacity and support more complex applications by investment in additional hardware infrastructure rather than software solutions such as ours that optimize the use of existing hardware infrastructure, there could be less demand for our products and services than we expect, which could adversely affect our business and operating results.
In addition, the communications industry has experienced significant fluctuations in capital expenditures and we have recently experienced significant revenue declines from historical peaks. If capital spending and technology purchasing by communication service providers does not continue to include investments in infrastructure software, our revenue would likely decline substantially.
Our market is highly competitive and our inability to compete successfully could adversely affect our operating results.
The market for our products and services is highly competitive. Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we have. Their resources have enabled them to aggressively price, finance and bundle their product offerings to attempt to gain market adoption or to increase market share. If our competitors consolidate, then they will be even larger, and may be able to compete more effectively against us than they currently do. If our competitors offer deep discounts on some of their products in an effort to gain market share or to sell other products or services, we may then need to lower prices of our products and services, change our pricing models, or offer other favorable terms in order to compete successfully, which would likely reduce our margins and adversely affect operating results.
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Although our efforts, on occasion, have been complicated by the marketing efforts of our competitors, we expect that we will continue to compete primarily on the basis of quality, breadth of product and service offerings, functionality, price, strength of customer relationships and time to market.
Our sales cycles are long, subjecting us to the loss or deferral of anticipated orders and related revenue.
Our sales cycle is generally long, often in excess of six months, and unpredictable due to the lengthy evaluation and customer approval process for our products, including internal reviews and capital expenditure approvals. Moreover, the evolving nature of the market for data services via mobile devices may lead prospective customers to postpone their purchasing decisions pending resolution of standards or adoption of technology by others. Accordingly, we may not close sales as anticipated during a given quarter which may lead to a shortfall in revenue or bookings anticipated by us or securities analysts or investors.
Our business is subject to the risks of international operations because we depend on international sales, and any decrease in international sales would adversely affect our operating results.
International sales accounted for approximately 50%, 58% and 51% of our total revenues for the six months ended December 31, 2011 and fiscal years ended June 30, 2011 and 2010, respectively. We currently maintain offices outside of the United States and have sales, engineering and professional services personnel in several countries. Approximately one-half of our employees are located internationally, with 27% of our employees based in our facilities in Belfast, Northern Ireland. Although we have experience operating in foreign jurisdictions like the United Kingdom, Europe, South Africa, Japan and Australia, we are expanding our international operations into areas in which we have little or no operating history. Our ability to manage a global organization is difficult, time consuming and expensive and is subject to a number of risks including, but not limited to:
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Localization of our services, including translation into foreign languages and adaptation for local practices and regulatory requirements; |
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Lack of familiarity with and unexpected changes in foreign regulatory requirements; |
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Longer accounts receivables payment cycles and difficulties in collecting accounts receivables; |
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Difficulties in managing and staffing international operations; |
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Currency exchange rate fluctuations and our ability to manage these fluctuations under our foreign exchange hedging policy; |
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Potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings; |
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Dependence on third parties, including channel partners with whom we have limited experience; |
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Import and export requirements that may prevent us from shipping products or providing services to a particular market and may increase our operating costs; |
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Political, social and economic instability abroad, terrorist attacks and security concerns in general; and |
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Reduced or varied protection for intellectual property rights in some countries. |
Operating in international markets requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.
Changes in foreign currency exchange rates could negatively affect our operating results.
Our primary exposure to movements in foreign currency exchange rates relate to non-U.S. dollar denominated sales in Europe, Japan, Australia, Canada, and some parts of Asia, as well as non-U.S. dollar denominated operating expenses incurred throughout the world. Weakening of foreign currencies relative to the U.S. dollar will adversely affect the U.S. dollar value of our foreign currency-denominated sales and earnings, and generally will lead us to raise international pricing, potentially reducing demand for our products. In some circumstances, due to competition or other reasons, we may decide not to raise local prices to the full extent of the dollars strengthening, or at all, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of foreign
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currencies, while generally beneficial to our foreign currency-denominated sales and earnings, could cause us to reduce international pricing, thereby limiting the benefit; as strengthening of foreign currencies may also increase our cost of product components denominated in those currencies.
We have used derivative instruments, such as foreign exchange forward and option positions, to hedge some exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Margins on sales of our products in foreign countries, and on sales of products that include components obtained from foreign suppliers, could be materially adversely affected by foreign currency exchange rate fluctuations. Accordingly, changes in foreign currency exchange rates relative to the U.S. Dollar could negatively affect our operating results.
Our customer contracts lack uniformity and often are particularly complex, which subjects us to business and other risks.
Our customers are typically large communications service providers. Their substantial purchasing power and negotiating leverage limits our ability to negotiate uniform business terms. As a result, we typically negotiate contracts on a customer-by-customer basis and sometimes determine to accept contract terms not favorable to us in order to close a transaction, including indemnity, limitation of liability, refund, penalty or other terms that expose us to significant risk. We may need to provide indemnification relating to third party components that we provide, and we may or may not have sufficient indemnification provisions from the third parties to fully cover for this risk. The lack of uniformity and the complexity of the terms of these contracts may also create difficulties with respect to ensuring timely and accurate accounting and billing under these contracts. If we are unable to effectively negotiate, enforce and accurately or timely account and bill for contracts with our customers, our business and operating results may be adversely affected.
We rely on estimates to determine arrangement fee revenue recognition for a particular reporting period. If our estimates change, or our customers do not accept deliverables, future expected revenues could adversely change.
We apply the percentage-of-completion method as a primary accounting method to account for revenue from arrangements subject to contract accounting. Applying the percentage-of-completion method requires that we estimate progress on our professional service revenues for a particular period. If, in a particular period, our estimates to project completion change or we estimate project overruns, revenue recognition for such projects in the period may be less than expected or even negative, which could cause us to fail to realize anticipated operating results in a given period. Additionally, a portion of the payments under some of our professional services arrangements are based on customer acceptance of deliverables. If a customer fails to accept the applicable deliverable, we may not be able to recognize the related revenue or receive payment for work that we have already completed, which could adversely affect our business and operating results.
Demand for our technology depends in part on operators maintaining a central role in the mobile value chain, and not being circumvented by emerging players who offer services directly to subscribers.
Our products and services are currently sold almost exclusively for use by mobile and broadband operators. As the industry moves to more open standards, services and applications have emerged from content providers that bypass the mobile and broadband operator and are sold directly to consumers. The threat of operators being disintermediated could have a negative impact to our business. If we do not diversify our customer base beyond the operator community and if the consumer uptake of these new services dilutes operators customer relationship. For Openwave, the loss of operator control over the subscriber experience could threaten our ability to intermediate and add value, and ultimately, lessen demand for our products and services.
We may not be successful in forming or maintaining strategic alliances with other companies, which could adversely affect our product offerings and sales.
Our business strategy depends in part on forming or maintaining strategic alliances with other companies. We may not be able to form the alliances that are necessary to ensure that our products are compatible with third-party products, to enable us to license our software into potential new customers and into potential new markets, and to enable us to continue to enter into new license agreements with our existing customers. We may be unable to maintain existing relationships with
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other companies, to identify the best alliances for our business or enter into new alliances with other companies on acceptable terms, or at all. If we cannot form and maintain significant strategic alliances with other companies as our target markets and technology evolves, our sales opportunities could deteriorate, which could have a material adverse effect on our business and operating results.
If our channel partners are unable to successfully market and sell our services to their customers, then our revenues and business may be adversely affected.*
Historically, we have sold our products and services directly through our sales force. In the future, in addition to our direct sales efforts, we intend to sell our products and services indirectly through our channel partners. Our business will depend on the efforts and the success of these channel partners in marketing and selling our products and services in emerging markets and markets in which we have a limited presence. If our channel partners fail to market and sell our services effectively, our ability to grow our revenue could be reduced and our business may be harmed.
Our software products may contain defects or errors, which could result in rejection of our products, delays in shipment of our products, failure to meet specific milestones, damage to our reputation, product liability and lost revenues.
The software we develop and the associated professional services we offer are complex and must meet stringent technical requirements of our customers. We must develop our products quickly to keep pace with the rapidly changing Internet software and telecommunications markets. Our software products and services may contain undetected errors or defects, especially when first introduced or when new versions are released. We have, in the past, experienced delays in releasing some versions of our products until software problems were corrected. In addition, some of our customer contracts provide for penalties if we fail to meet specific milestones as well as a period during which our products and services are subject to acceptance testing. Failure to achieve acceptance could result in a delay in, or inability to, receive payment. Our products may not be free from errors or defects after commercial shipments have begun, which could result in the rejection of our products and damage to our reputation, as well as lost revenues, diverted development resources and increased service and warranty costs, any of which could harm our business.
We may be unable to effectively manage future growth, if any, that we may achieve.
As a result of our efforts to control costs through restructurings and otherwise, our ability to effectively manage and control any future growth may be limited. To manage any growth, our management must continue to improve our operational, information and financial systems, procedures and controls and expand, train, retain and manage our employees. If our systems, procedures and controls are inadequate to support our operations, any expansion could decrease or stop, and investors may lose confidence in our operations or financial results. If we are unable to manage growth effectively, our business and operating results could be adversely affected, and any failure to develop and maintain adequate internal controls could cause the trading price of our shares to decline substantially.
We may pursue acquisitions or investments in complementary technologies and businesses, which could harm our operating results and may disrupt our business.
In the future, we may pursue acquisitions of, or investments in, complementary technologies and businesses. Acquisitions present a number of potential risks and challenges that could, if not met, disrupt our business operations, increase our operating costs and reduce the value to us of the acquired company. If we make acquisitions, we may not be able to integrate the acquired businesses, products or technologies into our existing business and products. Furthermore, potential acquisitions and investments, whether or not consummated, may divert our managements attention and require considerable cash outlays at the expense of our existing operations. In addition, to complete future acquisitions, we may issue equity securities, incur debt, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could adversely affect our profitability.
Foreign acquisitions involve special risks, including those related to integration of operations across different cultures, languages, legal systems, currency risks, and the particular economic, political, and regulatory risks associated with specific countries. In addition, we may incur significant transaction fees and expenses, including expenses for transactions that may not be consummated. In any event, as a result of future acquisitions, we might need to issue additional equity
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securities, spend our cash, or incur debt or assume significant liabilities, any of which could adversely affect our business and results of operations.
The security provided by our products could be breached, in which case our reputation, business, financial condition and operating results could suffer.
A fundamental requirement for online communications is the secure transmission of confidential information over the Internet. Third-parties may attempt to breach the security provided by our products, or the security of our customers internal systems. If they are successful, they could obtain confidential information about our customers end users, including their passwords, financial account information, credit card numbers or other personal information. Our customers or their end users may file suits against us for any breach in security, which could result in costly litigation or harm our reputation. The perception of security risks, whether or not valid, could inhibit market acceptance of our products. Despite our implementation of security measures, our software is vulnerable to computer viruses, electronic break-ins, intentional overloading of servers and other sabotage, and similar disruptions, which could lead to interruptions, delays, or loss of data. The occurrence or perception of security breaches could harm our business, financial condition and operating results.
Natural or manmade disasters, business interruptions and health epidemics could delay our ability to receive or ship our products, or otherwise disrupt our business.
Our worldwide operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, health epidemics and other natural or manmade disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm our revenue and financial condition and increase our costs and expenses. Our corporate headquarters, and a portion of our research and development activities, are located in Redwood City, California near major earthquake faults. The destruction of our facilities could harm our business. Although we have established a comprehensive disaster recovery plan, our back-up operations may be inadequate and our business interruption insurance may not be enough to compensate us for any losses that may occur. A significant business interruption could result in losses or damages and harm our business.
Our business in countries with a history of corruption and transactions with foreign governments, including with government owned or controlled wireless carriers, increases the risks associated with our international activities.
As we operate and sell internationally, we are subject to the U.S. Foreign Corrupt Practices Act (FCPA) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by the United States and other business entities for the purpose of obtaining or retaining business. We have operations, deal with carriers and make sales in countries known to experience corruption, particularly some emerging countries in East Asia, Eastern Europe and Latin America, and further international expansion may involve more of these countries. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or distributors that could be in violation of various laws including the FCPA, even though these parties are not always subject to our control. We have attempted to implement safeguards to prevent these practices by our employees, consultants, sales agents and resellers. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we may be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.
Compliance with laws, rules and regulations relating to corporate governance and public disclosure may result in additional expenses.
Federal securities laws, rules and regulations, as well as NASDAQ rules and regulations, require companies to maintain extensive corporate governance measures, impose comprehensive reporting and disclosure requirements, set strict independence and financial expertise standards for audit and other committee members and impose civil and criminal penalties for companies and their Chief Executive Officers, Chief Financial Officers and directors for securities law violations. These laws, rules and regulations and the interpretation of these requirements are evolving, and we are making investments to evaluate current practices and to continue to achieve compliance. As a result, our compliance programs
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have increased and will continue to increase general and administrative expenses and have diverted and will continue to divert managements time and attention from revenue-generating activities. Further, in July 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) which includes various provisions requiring the Securities and Exchange Commission to adopt new rules and regulations with respect to enhanced investor protection, corporate governance and executive compensation. We expect the Dodd-Frank Act and the rules and regulations promulgated thereunder to increase our legal and financial compliance costs and to make some activities more time consuming and costly.
We face litigation risks that could have a material adverse effect on our company.
We may be the subject of private or government actions. For example, in the past we have been the subject of several shareholder derivative lawsuits relating to our past option grants and practices. Litigation may be time-consuming, expensive and disruptive to normal business operations, and the outcome of litigation is difficult to predict. The defense of these lawsuits may result in significant expense and a diversion of managements time and attention from the operation of our business, which could impede our ability to achieve our business objectives and an unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations. Additionally, any amount that we may be required to pay to satisfy a judgment or settlement of litigation may not be covered by insurance. Under our charter and the indemnification agreements that we have entered into with our officers and directors, we are required to indemnify, and advance expenses to them in connection with their participation in proceedings arising out of their service to us. There can be no assurance that any of these payments will not be material.
Our investments in marketable securities are subject to market risks which may cause losses and affect the liquidity of these investments.
At December 31, 2011 and June 30, 2011, we held auction-rate securities with a fair market value of approximately $4.2 million and $4.4 million, respectively, and a par value of $5.7 million. Between September 30, 2008 and December 31, 2011, we determined that the declines in the fair value of our remaining auction-rate securities were other-than-temporary and recorded impairment charges equal to $0.5 million, based on our estimate of fair value in our consolidated statement of operations for the corresponding quarters. If the global credit market continues to deteriorate and broker-dealers do not renew their support of auctions for auction-rate securities, our investment portfolio may continue to be impacted, and we could determine that some of these investments are further impaired. In addition, if we were to liquidate our position in these securities, the amount realized could be materially different than the estimated fair value amounts at which we are carrying these investments which could have a material adverse effect on our financial condition.
Adverse changes in general economic or political conditions could adversely affect our operating results.
Our business can be affected by a number of factors that are beyond our control such as general geopolitical and economic conditions, conditions in the financial services markets, the overall demand for our products and services and general political and economic developments. A weakening of the global economy, or economic conditions in the United States or other key markets, could cause delays in and decreases in demand for our products. For example, there is increasing uncertainty about the direction and relative strength of the United States economy because of the various challenges that are currently affecting it. If the challenging economic conditions in the United States and other key countries persist or worsen, other customers may delay or reduce spending. This could result in reductions in sales of our products and services, longer sales cycles, slower adoption of new technologies and increased price competition. Any of these events would likely harm our business, results of operations and financial condition.
Our revolving credit facility with Silicon Valley Bank contains numerous restrictive covenants that limit our discretion in the operation of our business, which could have a materially adverse effect on our business, financial condition and results of operations.
In January 2009, we entered into a $40.0 million secured revolving credit facility with Silicon Valley Bank, as subsequently amended, which contains numerous restrictive covenants that require us to comply with and maintain specified financial tests and ratios, thereby restricting our ability to:
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Incur debt; |
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Incur liens; |
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Redeem or prepay subordinated debt; |
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Make acquisitions of businesses or entities to sell specified assets; |
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Make investments, including loans, guarantees and advances; |
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Make capital expenditures beyond a specified threshold; |
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Engage in transactions with affiliates; |
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Pay dividends or limit the amount of stock repurchases; and |
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Enter into specified restrictive agreements. |
Our ability to comply with covenants contained in our credit agreement may be affected by events beyond our control, including prevailing economic, financial and industry conditions.
Our current credit agreement is secured by a pledge of all of our assets. If we were to default under our current credit agreement, including a default of our financial covenants, and were unable to obtain a waiver or an amendment for such a default, the lenders would have a right to foreclose on our assets in order to satisfy our obligations, if any, under the current credit agreement and could require us to put up cash collateral for any outstanding letter of credit balances. Any such action on the part of the lenders against us could have a materially adverse impact on our business, financial condition and results of operations. On January 23, 2012, we entered into an Amendment to extend the maturity of the secured revolving credit facility to February 28, 2012 and reduce the amount of the line of credit facility from $40.0 million to $25.0 million. If we are unable to extend the maturity of the secured revolving credit facility for an additional twelve month period, our business could be adversely affected.
We depend on recruiting and retaining key management and technical personnel with telecommunications and Internet software experience who are integral in developing, marketing and selling our products.
Because of the technical nature of our products and the dynamic market in which we compete, our performance depends on attracting and retaining key management and other employees. In particular, our future success depends in part on the continued service of many of our current employees, including key executives and key engineers and other technical employees. Competition for qualified personnel in the telecommunications, Internet software and Internet messaging industries is significant, especially in the San Francisco Bay Area in which we are located. We believe that there are only a limited number of persons with the requisite skills to serve in many of our key positions, and it is generally difficult to hire and retain these persons. Furthermore, it may become more difficult to hire and retain key persons as a result of our past restructurings, any future restructurings, and our past stock performance. Competitors and others have in the past, and, may in the future, attempt to recruit our employees. In the event of turnover within key positions, integration of new employees will require additional time and resources, which could adversely affect our business plan. If we are unable to attract or retain qualified personnel, our business could be adversely affected.
Risks Related to Owning Our Common Stock
Our quarterly operating results may fluctuate significantly as a result of factors outside of our control, which could cause the market price of our common stock to decline.
We expect our revenues and operating results to vary from quarter to quarter. As a consequence, our operating results in any single quarter may not meet the expectations of securities analysts and investors, which could cause the price of our common stock to decline. Our revenue, particularly our licensing revenue, is difficult to forecast and is likely to fluctuate from quarter to quarter.
Factors that may lead to significant fluctuation in our operating results include, but are not limited to:
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the success of our plan to pursue strategic alternatives for our product businesses; |
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delays in or cancellation of orders from key customers; |
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the introduction of new products or services or changes in pricing policies by us or our competitors; |
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delays in development, launch, market acceptance or implementation by our customers of our products and services; |
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changes in demand and purchasing patterns of our customers for our products; |
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changes in our revenue mix among license, maintenance and support and professional services; |
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restructuring or impairment charges we may take; |
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revenue recognition and other accounting policies; |
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potential slowdowns or quality deficiencies in the introduction of new telecommunication networks, technologies or handsets for which our solutions are designed; |
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development of new relationships and penetration of new markets and maintenance and enhancement of existing relationships with customers and strategic partners; |
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deferral of customer contracts in anticipation of product or service enhancements; |
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timing of new governmental, statutory and industry association requirements; |
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the relative mix of our North America and international engagements which typically carry lower margins; |
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fluctuations in currency exchange rates; and |
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industry and economic conditions, including competitive pressures. |
Our customers often defer execution of our agreements until the last week of the quarter if they elect to purchase our products. Approximately 75%-80% of our quarterly bookings typically occur in the last month of a quarter and the pattern for revenue generation during that month is normally not linear. Accordingly, we may not recognize revenue as anticipated during a given quarter when customers defer orders, delay the timing of our implementation services or ultimately elect not to purchase our products. Therefore, we could be in a position where we do not achieve our financial targets for a quarter and not determine this until very late in the quarter or after the quarter is over. As a result, our visibility into our revenue to be recognized for future periods is limited.
In addition, our operating results could be impacted by the amount and timing of operating costs and capital expenditures relating to our business and our ability to accurately estimate and control costs. Most of our expenses, such as compensation for current employees and lease payments for facilities and equipment, are largely fixed. In addition, our expense levels are based, in part, on our expectations regarding future revenues. As a result, any shortfall in revenues relative to our expectations could cause significant changes in our operating results from period to period. In this regard, our bookings may not be indicative of revenue that will be recognized in current or subsequent periods. Due to the foregoing factors, we believe period-to-period comparisons of our historical operating results may be of limited use. In any event, we may be unable to meet our internal projections or the projections of securities analysts and investors. If we are unable to do so, we expect that, as in the past, the trading price of our stock may fall dramatically.
In addition, we have in the past and may continue to experience periodic variations in sales to our strategic customers and international markets. These periodic variations occur throughout the year and may lead to fluctuations in our quarterly operating results depending on the impact of any given market during that quarter and could lead to volatility in our stock price.
Provisions of our corporate documents and Delaware law may discourage an acquisition of our business, which could affect our stock price.
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Our charter and bylaws may inhibit changes of control that are not approved by our Board of Directors. In particular, our certificate of incorporation includes provisions for a classified Board of Directors, authorizes the Board of Directors to issue preferred stock without stockholder approval, prohibit cumulative voting in director elections and prohibits stockholders from taking action by written consent. Further, our bylaws include provisions that prohibits stockholders from calling special meetings and require advance notice for stockholder proposals or nomination of directors. We are also subject to Section 203 of the Delaware General Corporation Law, which generally prevents a person who becomes the owner of 15 percent or more of the corporations outstanding voting stock from engaging in specified business combinations for three years unless specified conditions are satisfied. These provisions could have the effect of delaying or preventing changes in control or management.
Our stock price has been and is likely to continue to be volatile and you may not be able to resell shares of our common stock at or above the price you paid, if at all.
The trading price of our common stock has experienced wide fluctuations due to the factors discussed in this risk factors section and elsewhere in this Annual Report. In addition, the stock market in general has, and the NASDAQ Global Market and technology companies in particular have, experienced extreme price and volume fluctuations. These trading prices and valuations may not be sustainable. These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a companys securities, securities class action litigation has often been instituted against companies that experienced such volatility. This litigation, if instituted against us, regardless of its outcome, could result in substantial costs and a diversion of our managements attention and resources.
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See the Index to Exhibits, which follows the signature page of this Quarterly Report on Form 10-Q and which is incorporated herein by reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 8, 2012
O PENWAVE S YSTEMS I NC . | ||
By: |
/s/ Anne Brennan |
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Anne Brennan | ||
Chief Financial Officer | ||
(Principal Financial and Chief Accounting Officer And Duly Authorized Officer) |
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INDEX TO EXHIBITS
Exhibit
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Description |
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3.1 | Restated Certificate of Incorporation of Openwave Systems Inc. (the Company), (incorporated by reference to Exhibit 3.1 to the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 7, 2010 (Commission No. 001-16703)). | |
3.2 | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2003 (Commission No. 001-16703)). | |
3.3 | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2011 (Commission No. 001-16703)). | |
3.4 | Certificate of Designations of Series A Junior Participating Cumulative Preferred Stock of Openwave Systems Inc. classifying and designating the Series A Junior Participating Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form 8-A filed with the Securities and Exchange Commission on January 30, 2012 (Commission No. 001-16703)). | |
4.1 | Form of the Companys Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K filed August 28, 2003). | |
4.2 | Tax Benefits Preservation Agreement, dated as of January 28, 2012, between Openwave Systems Inc. and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Companys Registration Statement on Form 8-A filed on January 30, 2012 (Commission No. 001-16703)). | |
10.1 |
Form Amended and Restated Change of Control Severance Agreement for the Holding Company. |
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10.2 |
Form Amended and Restated Change of Control Severance Agreement for the Messaging Business Unit (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2012 (Commission No. 001-16703)). |
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10.3 |
Form Amended and Restated Change of Control Severance Agreement for the Mediation Business Unit (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2012 (Commission No. 001-16703)). |
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10.4 |
Form Change of Control Severance Agreement for the Holding Company. |
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10.5 | Form Change of Control Severance Agreement for the Messaging Business Unit. | |
10.6 | Form Change of Control Severance Agreement for the Mediation Business Unit. | |
10.7 |
Amended and Restated Executive Severance Benefit Policy. |
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10.8 | Amended and Restated 2006 Stock Incentive Plan. | |
10.9 | Form 2006 Stock Incentive Plan Restricted Stock Unit Grant Notice. | |
10.10 | Amendment No. 6 to Loan and Security Agreement between the Company and Silicon Valley Bank dated January 23, 2012. | |
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
* | XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document. |
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Exhibit 10.1
OPENWAVE SYSTEMS INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the Agreement) is made and entered into by and between (the Employee) and Openwave Systems Inc., a Delaware corporation (the Company), effective as of , 2012 (the Effective Date).
RECITALS
It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control. The Board of Directors of the Company (the Board) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.
The Board believes that it is in the best interests of the Company and its shareholders to provide the Employee with an incentive to continue his or her employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.
The Board believes that it is imperative to provide the Employee with certain benefits upon the Employees termination of employment following a Change of Control that provide the Employee with enhanced financial security and incentive and encouragement to the Employee to remain with the Company notwithstanding the possibility of a Change of Control.
The Board has approved this Agreement and wishes to replace any existing individual agreements or arrangements with the Employee entered into prior to the Effective Date and that relate to severance payments or vesting acceleration with respect to options, restricted stock or other compensatory stock-based awards upon a change of control of the ownership of the Company, with this Agreement which is now the Companys standard form of agreement with its officers with respect to this subject matter.
The benefits which are provided by virtue of this Agreement are in consideration of the Employees future execution of an agreement to certain terms, including a release of all claims against the Company and related parties that releases the Company and such parties from any claims whatsoever arising from or related to the Employees
employment relationship with the Company substantially in the form attached hereto Exhibit A of this Agreement (the Separation and Mutual Release Agreement).
Certain capitalized terms used in the Agreement are defined in Section 6 below.
The parties hereto agree as follows:
TERM OF AGREEMENT . This Agreement became effective on the Effective Date and shall terminate only upon the date that all obligations of the parties hereto with respect to this Agreement have been satisfied. Except as otherwise expressly provided in Section 3(a) below, this Agreement supersedes and replaces any individual agreements or arrangements, or any relevant portions thereof, between the Company or any of its subsidiaries and the Employee entered into prior to the Effective Date that relate to (1) any severance payments or benefits, (2) any other payments or benefits, or (3) any vesting acceleration, lapse of restrictions or other amendment with respect to options or restricted stock of the Company, in each case related to a change of control of the ownership of the Company (however defined in any such agreements or arrangements). Any such individual agreements or arrangements, or any relevant portions thereof addressing this subject matter (whether in the form of offer letters, employment agreements, change of control agreements, severance agreements, transition agreements, severance policies or plans, or otherwise) are hereby terminated and shall no longer have any force or effect.
AT-WILL EMPLOYMENT . The Company and the Employee acknowledge that this Agreement does not change the at-will status of Employees employment with the Company, as defined under applicable law. If the Employees employment terminates for any reason not in connection with a Change of Control, the Employee shall not be entitled to any benefits, damages, awards or compensation under Section 3 of this Agreement but may be entitled to payments or benefits in accordance with the Companys other established employee plans and practices or pursuant to other agreements with the Company.
SEVERANCE AND OTHER BENEFITS .
Termination in Connection with a Change of Control . If the Employees employment terminates as a result of Involuntary Termination at any time during the period commencing two (2) months prior to a Change of Control and ending eighteen (18) months following a Change of Control, then immediately after the later of (i) five (5) business days after the Employees last date of employment with the Company and (ii) seven (7) calendar days after the execution and delivery of the Mutual Separation and Release Agreement,100% of the unvested portion of any stock option, restricted stock or any other compensatory stock award granted to the Employee by the Company and then held by the Employee (except for any stock option, restricted stock or other compensatory stock award which by the express terms of the grant or by express designation by the Board are expressly excluded from the effect of this Agreement) shall automatically be accelerated in full so as to become immediately and completely vested and no longer subject to any contractual restrictions.
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In addition to such vesting acceleration, on the date that such acceleration occurs, the Employee shall receive the following payments and benefits; provided, however, that it is the intention of the parties that the payments described in Section 3(a)(i) shall be made not later than March 15 of the calendar year after the Involuntary Termination occurs, and, if not made by such date, because of the Employees failure to deliver an effective release of claims to the Company on or before March 8, the Employee shall be subject to the six-month delay described in Section 8(f) if applicable:
(i) A lump sum cash payment equal to the Employees then current annual base salary and target annual bonus multiplied by the factor specified below (without taking into account any reduction in base salary which could trigger an Involuntary Termination), less applicable withholding taxes or other withholding obligations of the Company. The factor to be applied to the lump sum payment above shall be two (2) if the Employee is the Chief Executive Officer, one and one-half (1.5) if the Employee is the General Counsel or a member of E-Staff, and one (1) in all other cases; in each case measured as of the date of the event constituting or giving rise to the occurrence of an Involuntary Termination. For example, if the Employee is a member of E-Staff, then the lump sum cash payment shall be equal to one and one-half times the amount equal to the Employees annual base salary plus target annual bonus.
(ii) At the Companys expense, the Company will continue to provide Employee, and eligible dependents or other qualified beneficiaries of Employee, with medical, dental and vision insurance benefit coverage in coordination with the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) eighteen (18) months if the Employee is the Chief Executive Officer, the General Counsel or a member of E-Staff, and twelve (12) months in all other cases, provided that the Employee completes and timely files all necessary COBRA election documentation which will be sent to Employee after the last day of employment. After the periods specified in this Section 3(a)(ii), if Employee wishes to continue such COBRA coverage, Employee will be required to pay all requisite premiums for such continued coverage.
Voluntary Resignation; Termination For Cause . If the Employees employment terminates by reason of the Employees voluntary resignation (which is not an Involuntary Termination) or if the Employee is terminated for Cause, then the Employee shall not be entitled to receive any benefits under this Agreement, but may be entitled to benefits and other rights (if any) as may then be established under the terms of the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
Disability; Death . If the Company terminates the Employees employment as a result of the Employees Disability, or such Employees employment is terminated due to the death of the Employee, then the Employee shall not be entitled to receive any benefits under this Agreement, but may be entitled to benefits and other rights (if any) as may then be established under the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
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Termination Not in Connection With a Change of Control . In the event the Employees employment terminates not in connection with a Change of Control, for any reason or no reason, whether on account of Disability, death, or otherwise, either prior to the period commencing two (2) months before the occurrence of a Change of Control or after the eighteen (18) month period following a Change of Control, then the Employee shall not be entitled to receive severance and any other benefits under this Agreement, but only as may then be established under the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
Mitigation . The Employee shall not be required to mitigate damages or the amount of any payment or benefit provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Employee as a result of employment by another employer or by any retirement benefits received by the Employee after the date of the termination of employment, or otherwise.
ATTORNEY FEES, COSTS AND EXPENSES . The Company shall promptly reimburse the Employee, on a monthly basis, for one-half (1/2) of the reasonable attorney fees, costs and expenses (collectively Fees) incurred by the Employee in connection with any action brought by the Employee to enforce his or her rights hereunder. In the event the Employee is the prevailing party, the Company shall reimburse the Employee for any Fees incurred by the Employee not previously reimbursed by the Company. However, if the Employee is not the prevailing party, the Employee shall immediately repay to the Company all previously paid reimbursements. The prevailing party shall be determined based upon the applicable courts or arbitrators determination of which party prevailed on the major contested issues, with reference to the amount awarded or agreed to and without regard to whether or not the action resulted in a final judgment or was settled.
RESERVED .
DEFINITION OF TERMS . The following terms used in this Agreement shall have the following meanings:
Cause . Cause shall mean (i) gross negligence or willful misconduct in the performance of the Employees duties to the Company; (ii) repeated unexplained or unjustified absences from the Company; (iii) a material and willful violation of any federal or state law which if made public would injure the business or reputation of the Company as reasonably determined by the Board of Directors of the Company; (iv) refusal or willful failure to act in accordance with any specific lawful direction or order of the Company or stated lawful written policy of the Company; (v) commission of any act of fraud with respect to the Company; or (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as reasonably determined by the Board of Directors of the Company.
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Change of Control . Change of Control means the occurrence of any of the following events:
(i) The sale, exchange, lease or other disposition of all or substantially all of the assets of the Company to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) that will continue the business of the Company in the future;
(ii) The sale, exchange, lease or other disposition of both the Mediation Business Unit of the Company and the Messaging Business Unit of the Company (whether through an asset sale or otherwise and whether in a series of related or unrelated transactions) to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act);
(iii) A merger or consolidation involving the Company in which the voting securities of the Company owned by the shareholders of the Company immediately prior to such merger or consolidation do not represent, after conversion if applicable, more than fifty percent (50%) of the total voting power of the surviving controlling entity outstanding immediately after such merger or consolidation; provided that any person who (1) was a beneficial owner (within the meaning of Rules 13d-3 and 13d-5 promulgated under the Exchange Act) of the voting securities of the Company immediately prior to such merger or consolidation, and (2) is a beneficial owner (or is part of a group of related persons that is a beneficial owner) of more than 20% of the securities of the Company immediately after such merger or consolidation, shall be excluded from the list of shareholders of the Company immediately prior to such merger or consolidation for purposes of the preceding calculation); or
(iv) The direct or indirect acquisition of beneficial ownership of at least fifty percent (50%) of the voting securities of the Company by a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act); provided, that person or group of related persons shall not include the Company, a subsidiary of the Company, or an employee benefit plan sponsored by the Company or a subsidiary of the Company (including any trustee of such plan acting as trustee).
For purposes of this section, the Mediation Business Unit of the Company is comprised of the business units of the Company that develop and market service mediation products, including but not limited to, MAG, Integra, Web Adaptor (Openweb), Mobile Edge Security Suite, Passport, Smart Policy, Web Security, Web Optimization, Media Optimization, Amplicity and Analytics, and the Messaging Business Unit of the Company is comprised of the business units of the Company that market and develop Email MX, Richmail and Edge GX.
(c) Disability . Disability shall mean that the Employee has been unable to perform his or her Company duties as the result of his or her incapacity due to physical or mental illness or injury, and such inability, at least twenty-six (26) weeks
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after its commencement, is determined to be total and permanent by a physician selected by the Employee or the Employees legal representative and acceptable to the Company or its insurers (such agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least thirty (30) days written notice by the Company of its intention to terminate the Employees employment. In the event that the Employee resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.
(d) E-Staff. E-Staff shall mean the senior executives of the Company who report directly to the Chief Executive Officer.
(e) Involuntary Termination . Involuntary Termination shall mean the Companys termination of Employees employment or the Employees resignation from the Company, as applicable, in either case upon or within 3 months after the occurrence of any of the following events: (i) without the Employees express written consent, the material reduction of the Employees duties, authority, responsibilities, job title or reporting relationships relative to the Employees duties, authority, responsibilities, job title, or reporting relationships as in effect immediately prior to such reduction, or the assignment to the Employee of such reduced duties, authority, responsibilities, job title, or reporting relationships; (ii) without the Employees express written consent, a material reduction, without good business reasons, of the facilities and perquisites (including office space, secretarial support, other support staff, and location) available to the Employee immediately prior to such reduction; (iii) a material reduction by the Company in the base salary of the Employee as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of employee benefits, including bonuses, to which the Employee was entitled immediately prior to such reduction with the result that the Employees overall benefits package is materially reduced; (v) the relocation of the Employee to a facility or a location more than twenty-five (25) miles from the Employees then present location, without the Employees express written consent; (vi) any termination of the Employee by the Company which is not effected for Disability or for Cause, or any actual or purported termination effected by the Company for Disability or for Cause for which the grounds relied upon are not valid; (vii) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 7(a) below; or (viii) any act or set of facts or circumstances which would, under California case law or statute, constitute a constructive termination of the Employee. For purposes of clause (i) of the immediately preceding sentence, the Employees responsibilities shall be deemed to be materially reduced if the Employee is no longer an executive officer (in the case of current executive officers) or on the executive officer management staff (in the case of current E-Staff) of such ultimate parent entity. Notwithstanding the foregoing, an Involuntary Termination only shall be deemed to have occurred upon the Employees resignation from the Company if (i) the Employee provides notice to the Company within ninety (90) days after the initial occurrence of the event forming the basis for the resignation and (ii) the Company fails to substantially cure the event within thirty (30) days after receiving notice.
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SUCCESSORS .
Companys Successors . Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Companys business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term Company shall include any successor to the Companys business and/or assets which executes and delivers the assumption agreement described in this Section 7(a) or which becomes bound by the terms of this Agreement by operation of law or otherwise.
Employees Successors . The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employees personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
MISCELLANEOUS .
General . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given either (i) when personally delivered or sent by facsimile or (ii) five (5) days after being mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him or her at the home address or facsimile number which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices or notices sent by facsimile shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its General Counsel or Chief Financial Officer.
Governing Law; Jurisdiction and Venue . This Agreement shall be governed by the internal laws of the State of California. Both Employee and the Company hereby agree to the jurisdiction and venue of the courts of the State of California and Federal Courts of the United States of America located within the County of Santa Clara for all actions relating to this Agreement. Employee further agrees that service upon Employee in any such action or proceeding may be made by first class mail, certified or registered, to the Employees address as last appearing on the records of the Company or by personal service on Employee.
Counterparts; Facsimile . This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. The executed copy of this Agreement may be delivered by facsimile or in original form.
Waiver . If either party should waive any breach of any provisions of this Agreement, they shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
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Headings . The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof or to affect the meaning thereof.
Construction; Six-Month Delay for Specified Employees . It is the intent of the parties hereto that this Agreement be in compliance with Section 409A of the Code and the Treasury Regulations promulgated thereunder. If any amounts to be paid under Section 3(a)(i) hereof are determined to constitute non-qualified deferred compensation subject to Internal Revenue Code Section 409A, then such amounts payable to specified employees of the Company (as that term is defined in Treasury Regulation Section 1.409A-1(i)) shall be delayed for six months in accordance with Treasury Regulation Section 1.409A-3(i)(2), but only to the extent necessary to avoid the imposition of the 20 percent additional tax imposed pursuant to Internal Revenue Code Section 409A(a) as a result of the application of Internal Revenue Code Section 409A(a)(2)(B)(i).
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the date set forth above.
COMPANY | OPENWAVE SYSTEMS INC. | |||
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Name: Michael Mulica | ||||
Title: President and CEO | ||||
EMPLOYEE | Signature: |
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Name: |
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EXHIBIT A
DO NOT SIGN BELOW UNLESS AND UNTIL OPENWAVE SYSTEMS INC. HAS ADVISED YOU THAT YOU ARE ELIGIBLE FOR A SEVERANCE PAYMENT PURSUANT TO THE TERMS OF YOUR CHANGE OF CONTROL SEVERANCE AGREEMENT.
RELEASE OF CLAIMS
1. In exchange for the severance payment and other benefits described in Section 3 of my Change of Control Severance Agreement with Openwave Systems Inc. (the Company), I and my successors and assigns release the Company and its successors and assigns, and each of their respective parents, divisions, subsidiaries, and affiliated entities, and each of those entities respective current and former shareholders, investors, directors, officers, employees, agents, attorneys, insurers, legal successors and assigns, from any and all claims, actions and causes of action, whether now known or unknown, that I have, or at any other time had, or shall or may have against those released parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time up to and including the date on which I sign this Release of Claims, including, but not limited to, any claims of wrongful termination, breach of express or implied contract, fraud, negligent misrepresentation, defamation, infliction of emotional distress, retaliation or national origin, race, age, sex, disability, sexual orientation or other discrimination or harassment under the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Fair Employment and Housing Act, or any other applicable law. This Release of Claims will not apply to any rights or claims that cannot be released as a matter of law, including any statutory indemnity rights, to any claims under the terms of the Indemnity Agreement entered into by me and the Company, if any, and it will not apply to any claims that arise after the date on which I sign this Release of Claims.
2. I acknowledge that I have read section 1542 of the Civil Code of the State of California which, in its entirety, states:
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
I hereby waive any rights that I have under section 1542 of the Civil Code of the State of California (or any similar provision of the laws of any other jurisdiction) to the fullest extent that I may lawfully waive such rights pertaining to this Release of Claims, and I affirm that it is my intention to release all known and unknown claims that I have against the parties released in Paragraph 1 above.
3. I acknowledge that I have been paid all earned wages and accrued, unused vacation/paid time off that I earned during my employment with the Company.
4. I agree that I will not, at any time in the future, make any critical or disparaging statements about the Company, its products or its employees, unless such statements are made truthfully in response to a subpoena or other legal process. The Company agrees that its officers and directors will not, at any time in the future, make any critical or disparaging statements about me to any third party, unless such statements are made truthfully in response to a subpoena or other legal process.
5. I acknowledge that I have returned to the Company all Company property and documents (whether in paper or electronic form, and all copies thereof) and any Company proprietary or confidential information (and all reproductions thereof, in whole or in part) that were in my possession, custody, or control. I acknowledge and agree that following the termination of my employment with the Company, I continue to be bound by, and will comply with, the terms of the Confidential Information and Invention Assignment Agreement between me and the Company of , 20 .
6. This Release of Claims constitutes the entire agreement between the Company and me with regard to the subject matter hereof. Both parties acknowledge that they have carefully read and fully understand this Release of Claims and I have not relied on any statement, written or oral, which is not set forth in this document. Both parties understand and agree that this Release of Claims cannot be modified or amended except by a document signed by me and an authorized officer of the Company.
I UNDERSTAND THAT I SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS RELEASE OF CLAIMS AND THAT I AM GIVING UP ANY LEGAL CLAIMS I HAVE AGAINST THE PARTIES RELEASED ABOVE BY SIGNING THIS RELEASE OF CLAIMS. I ALSO UNDERSTAND THAT I MAY HAVE UP TO 21 DAYS TO CONSIDER AND SIGN THIS RELEASE OF CLAIMS, THAT I MAY REVOKE THIS RELEASE OF CLAIMS AT ANY TIME DURING THE SEVEN DAY PERIOD AFTER I SIGN IT BY WRITTEN NOTICE OF REVOCATION TO THE GENERAL COUNSEL OF THE COMPANY, AND THAT THIS RELEASE OF CLAIMS WILL NOT BECOME EFFECTIVE UNLESS I DO NOT REVOKE IT DURING THAT SEVEN DAY PERIOD. I ACKNOWLEDGE THAT I HAVE READ AND UNDERSTAND THIS RELEASE OF CLAIMS, AND I AM SIGNING THIS RELEASE OF CLAIMS KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE SEVERANCE PAYMENT AND BENEFITS DESCRIBED ABOVE, WHICH PAYMENT AND BENEFITS I AM NOT ENTITLED TO RECEIVE EXCEPT AS A RESULT OF SIGNING THIS RELEASE OF CLAIMS.
[Signature page follows.]
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Dated: , 20 | Signature: |
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Name: |
OPENWAVE SYSTEMS INC. | ||||
Dated: , 20 | By: |
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Its: |
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Exhibit 10.4
OPENWAVE SYSTEMS INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the Agreement) is made and entered into by and between (the Employee) and Openwave Systems Inc., a Delaware corporation (the Company), effective as of , 2012 (the Effective Date).
RECITALS
It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control. The Board of Directors of the Company (the Board) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.
The Board believes that it is in the best interests of the Company and its shareholders to provide the Employee with an incentive to continue his or her employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.
The Board believes that it is imperative to provide the Employee with certain benefits upon the Employees termination of employment following a Change of Control that provide the Employee with enhanced financial security and incentive and encouragement to the Employee to remain with the Company notwithstanding the possibility of a Change of Control.
The Board has approved this Agreement and wishes to replace any existing individual agreements or arrangements with the Employee entered into prior to the Effective Date and that relate to severance payments or vesting acceleration with respect to options, restricted stock or other compensatory stock-based awards upon a change of control of the ownership of the Company, with this Agreement which is now
the Companys standard form of agreement with its officers with respect to this subject matter.
The benefits which are provided by virtue of this Agreement are in consideration of the Employees future execution of an agreement to certain terms, including a release of all claims against the Company and related parties that releases the Company and such parties from any claims whatsoever arising from or related to the Employees employment relationship with the Company substantially in the form attached hereto Exhibit A of this Agreement (the Separation and Mutual Release Agreement).
Certain capitalized terms used in the Agreement are defined in Section 6 below.
The parties hereto agree as follows:
TERM OF AGREEMENT . This Agreement became effective on the Effective Date and shall terminate only upon the date that all obligations of the parties hereto with respect to this Agreement have been satisfied. Except as otherwise expressly provided in Section 3(a) below, this Agreement supersedes and replaces any individual agreements or arrangements, or any relevant portions thereof, between the Company or any of its subsidiaries and the Employee entered into prior to the Effective Date that relate to (1) any severance payments or benefits, (2) any other payments or benefits, or (3) any vesting acceleration, lapse of restrictions or other amendment with respect to options or restricted stock of the Company, in each case related to a change of control of the ownership of the Company (however defined in any such agreements or arrangements). Any such individual agreements or arrangements, or any relevant portions thereof addressing this subject matter (whether in the form of offer letters, employment agreements, change of control agreements, severance agreements, transition agreements, severance policies or plans, or otherwise) are hereby terminated and shall no longer have any force or effect.
AT-WILL EMPLOYMENT . The Company and the Employee acknowledge that this Agreement does not change the at-will status of Employees employment with the Company, as defined under applicable law. If the Employees employment terminates for any reason not in connection with a Change of Control, the Employee shall not be entitled to any benefits, damages, awards or compensation under Section 3 of this Agreement but may be entitled to payments or benefits in accordance with the Companys other established employee plans and practices or pursuant to other agreements with the Company.
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SEVERANCE AND OTHER BENEFITS .
Termination in Connection with a Change of Control . If the Employees employment terminates as a result of Involuntary Termination at any time during the period commencing two (2) months prior to a Change of Control and ending eighteen (18) months following a Change of Control, then immediately after the later of (i) five (5) business days after the Employees last date of employment with the Company and (ii) seven (7) calendar days after the execution and delivery of the Mutual Separation and Release Agreement,100% of the unvested portion of any stock option, restricted stock or any other compensatory stock award granted to the Employee by the Company and then held by the Employee (except for any stock option, restricted stock or other compensatory stock award which by the express terms of the grant or by express designation by the Board are expressly excluded from the effect of this Agreement) shall automatically be accelerated in full so as to become immediately and completely vested and no longer subject to any contractual restrictions.
In addition to such vesting acceleration, on the date that such acceleration occurs, the Employee shall receive the following payments and benefits; provided, however, that it is the intention of the parties that the payments described in Section 3(a)(i) shall be made not later than March 15 of the calendar year after the Involuntary Termination occurs, and, if not made by such date, because of the Employees failure to deliver an effective release of claims to the Company on or before March 8, the Employee shall be subject to the six-month delay described in Section 8(f) if applicable:
(i) A lump sum cash payment equal to the Employees then current annual base salary and target annual bonus multiplied by the factor specified below (without taking into account any reduction in base salary which could trigger an Involuntary Termination), less applicable withholding taxes or other withholding obligations of the Company. The factor to be applied to the lump sum payment above shall be two (2) if the Employee is the Chief Executive Officer, one and one-half (1.5) if the Employee is the General Counsel or a member of E-Staff, and one (1) in all other cases; in each case measured as of the date of the event constituting or giving rise to the occurrence of an Involuntary Termination. For example, if the Employee is a member of E-Staff, then the lump sum cash payment shall be equal to one and one-half times the amount equal to the Employees annual base salary plus target annual bonus.
(ii) At the Companys expense, the Company will continue to provide Employee, and eligible dependents or other qualified beneficiaries of Employee, with medical, dental and vision insurance benefit coverage in coordination with the
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provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) eighteen (18) months if the Employee is the Chief Executive Officer, the General Counsel or a member of E-Staff, and twelve (12) months in all other cases, provided that the Employee completes and timely files all necessary COBRA election documentation which will be sent to Employee after the last day of employment. After the periods specified in this Section 3(a)(ii), if Employee wishes to continue such COBRA coverage, Employee will be required to pay all requisite premiums for such continued coverage.
Voluntary Resignation; Termination For Cause . If the Employees employment terminates by reason of the Employees voluntary resignation (which is not an Involuntary Termination) or if the Employee is terminated for Cause, then the Employee shall not be entitled to receive any benefits under this Agreement, but may be entitled to benefits and other rights (if any) as may then be established under the terms of the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
Disability; Death . If the Company terminates the Employees employment as a result of the Employees Disability, or such Employees employment is terminated due to the death of the Employee, then the Employee shall not be entitled to receive any benefits under this Agreement, but may be entitled to benefits and other rights (if any) as may then be established under the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
Termination Not in Connection With a Change of Control . In the event the Employees employment terminates not in connection with a Change of Control, for any reason or no reason, whether on account of Disability, death, or otherwise, either prior to the period commencing two (2) months before the occurrence of a Change of Control or after the eighteen (18) month period following a Change of Control, then the Employee shall not be entitled to receive severance and any other benefits under this Agreement, but only as may then be established under the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
Mitigation . The Employee shall not be required to mitigate damages or the amount of any payment or benefit provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Employee as a result of
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employment by another employer or by any retirement benefits received by the Employee after the date of the termination of employment, or otherwise.
ATTORNEY FEES, COSTS AND EXPENSES . The Company shall promptly reimburse the Employee, on a monthly basis, for one-half (1/2) of the reasonable attorney fees, costs and expenses (collectively Fees) incurred by the Employee in connection with any action brought by the Employee to enforce his or her rights hereunder. In the event the Employee is the prevailing party, the Company shall reimburse the Employee for any Fees incurred by the Employee not previously reimbursed by the Company. However, if the Employee is not the prevailing party, the Employee shall immediately repay to the Company all previously paid reimbursements. The prevailing party shall be determined based upon the applicable courts or arbitrators determination of which party prevailed on the major contested issues, with reference to the amount awarded or agreed to and without regard to whether or not the action resulted in a final judgment or was settled.
RESERVED .
DEFINITION OF TERMS . The following terms used in this Agreement shall have the following meanings:
Cause . Cause shall mean (i) gross negligence or willful misconduct in the performance of the Employees duties to the Company; (ii) repeated unexplained or unjustified absences from the Company; (iii) a material and willful violation of any federal or state law which if made public would injure the business or reputation of the Company as reasonably determined by the Board of Directors of the Company; (iv) refusal or willful failure to act in accordance with any specific lawful direction or order of the Company or stated lawful written policy of the Company; (v) commission of any act of fraud with respect to the Company; or (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as reasonably determined by the Board of Directors of the Company.
Change of Control . Change of Control means the occurrence of any of the following events:
(i) The sale, exchange, lease or other disposition of all or substantially all of the assets of the Company to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) that will continue the business of the Company in the future;
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(ii) The sale, exchange, lease or other disposition of both the Mediation Business Unit of the Company and the Messaging Business Unit of the Company (whether through an asset sale or otherwise and whether in a series of related or unrelated transactions) to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act);
(iii) A merger or consolidation involving the Company in which the voting securities of the Company owned by the shareholders of the Company immediately prior to such merger or consolidation do not represent, after conversion if applicable, more than fifty percent (50%) of the total voting power of the surviving controlling entity outstanding immediately after such merger or consolidation; provided that any person who (1) was a beneficial owner (within the meaning of Rules 13d-3 and 13d-5 promulgated under the Exchange Act) of the voting securities of the Company immediately prior to such merger or consolidation, and (2) is a beneficial owner (or is part of a group of related persons that is a beneficial owner) of more than 20% of the securities of the Company immediately after such merger or consolidation, shall be excluded from the list of shareholders of the Company immediately prior to such merger or consolidation for purposes of the preceding calculation); or
(iv) The direct or indirect acquisition of beneficial ownership of at least fifty percent (50%) of the voting securities of the Company by a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act); provided, that person or group of related persons shall not include the Company, a subsidiary of the Company, or an employee benefit plan sponsored by the Company or a subsidiary of the Company (including any trustee of such plan acting as trustee).
For purposes of this section, the Mediation Business Unit of the Company is comprised of the business units of the Company that develop and market service mediation products, including but not limited to, MAG, Integra, Web Adaptor (Openweb), Mobile Edge Security Suite, Passport, Smart Policy, Web Security, Web Optimization, Media Optimization, Amplicity and Analytics, and the Messaging Business Unit of the Company is comprised of the business units of the Company that market and develop Email MX, Richmail and Edge GX.
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(c) Disability . Disability shall mean that the Employee has been unable to perform his or her Company duties as the result of his or her incapacity due to physical or mental illness or injury, and such inability, at least twenty-six (26) weeks after its commencement, is determined to be total and permanent by a physician selected by the Employee or the Employees legal representative and acceptable to the Company or its insurers (such agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least thirty (30) days written notice by the Company of its intention to terminate the Employees employment. In the event that the Employee resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.
(d) E-Staff. E-Staff shall mean the senior executives of the Company who report directly to the Chief Executive Officer.
(e) Involuntary Termination . Involuntary Termination shall mean the Companys termination of Employees employment or the Employees resignation from the Company, as applicable, in either case upon or within 3 months after the occurrence of any of the following events: (i) without the Employees express written consent, the material reduction of the Employees duties, authority, responsibilities, job title or reporting relationships relative to the Employees duties, authority, responsibilities, job title, or reporting relationships as in effect immediately prior to such reduction, or the assignment to the Employee of such reduced duties, authority, responsibilities, job title, or reporting relationships; (ii) without the Employees express written consent, a material reduction, without good business reasons, of the facilities and perquisites (including office space, secretarial support, other support staff, and location) available to the Employee immediately prior to such reduction; (iii) a material reduction by the Company in the base salary of the Employee as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of employee benefits, including bonuses, to which the Employee was entitled immediately prior to such reduction with the result that the Employees overall benefits package is materially reduced; (v) the relocation of the Employee to a facility or a location more than twenty-five (25) miles from the Employees then present location, without the Employees express written consent; (vi) any termination of the Employee by the Company which is not effected for Disability or for Cause, or any actual or purported termination effected by the Company for Disability or for Cause for which the grounds
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relied upon are not valid; (vii) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 7(a) below; or (viii) any act or set of facts or circumstances which would, under California case law or statute, constitute a constructive termination of the Employee. For purposes of clause (i) of the immediately preceding sentence, the Employees responsibilities shall be deemed to be materially reduced if the Employee is no longer an executive officer (in the case of current executive officers) or on the executive officer management staff (in the case of current E-Staff) of such ultimate parent entity. Notwithstanding the foregoing, an Involuntary Termination only shall be deemed to have occurred upon the Employees resignation from the Company if (i) the Employee provides notice to the Company within ninety (90) days after the initial occurrence of the event forming the basis for the resignation and (ii) the Company fails to substantially cure the event within thirty (30) days after receiving notice.
SUCCESSORS .
Companys Successors . Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Companys business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term Company shall include any successor to the Companys business and/or assets which executes and delivers the assumption agreement described in this Section 7(a) or which becomes bound by the terms of this Agreement by operation of law or otherwise.
Employees Successors . The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employees personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
MISCELLANEOUS .
General . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given either (i) when personally delivered or sent by facsimile or (ii) five (5) days after being mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him or her at the home address or facsimile number which he or she most recently communicated to the
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Company in writing. In the case of the Company, mailed notices or notices sent by facsimile shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its General Counsel or Chief Financial Officer.
Governing Law; Jurisdiction and Venue . This Agreement shall be governed by the internal laws of the State of California. Both Employee and the Company hereby agree to the jurisdiction and venue of the courts of the State of California and Federal Courts of the United States of America located within the County of Santa Clara for all actions relating to this Agreement. Employee further agrees that service upon Employee in any such action or proceeding may be made by first class mail, certified or registered, to the Employees address as last appearing on the records of the Company or by personal service on Employee.
Counterparts; Facsimile . This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. The executed copy of this Agreement may be delivered by facsimile or in original form.
Waiver . If either party should waive any breach of any provisions of this Agreement, they shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
Headings . The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof or to affect the meaning thereof.
Construction; Six-Month Delay for Specified Employees . It is the intent of the parties hereto that this Agreement be in compliance with Section 409A of the Code and the Treasury Regulations promulgated thereunder. If any amounts to be paid under Section 3(a)(i) hereof are determined to constitute non-qualified deferred compensation subject to Internal Revenue Code Section 409A, then such amounts payable to specified employees of the Company (as that term is defined in Treasury Regulation Section 1.409A-1(i)) shall be delayed for six months in accordance with Treasury Regulation Section 1.409A-3(i)(2), but only to the extent necessary to avoid the imposition of the 20 percent additional tax imposed pursuant to Internal Revenue Code Section 409A(a) as a result of the application of Internal Revenue Code Section 409A(a)(2)(B)(i).
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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the date set forth above.
COMPANY | OPENWAVE SYSTEMS INC. | |||||
|
||||||
Name: Michael Mulica | ||||||
Title: President and CEO |
EMPLOYEE | Signature: |
Name: |
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EXHIBIT A
DO NOT SIGN BELOW UNLESS AND UNTIL OPENWAVE SYSTEMS INC. HAS ADVISED YOU THAT YOU ARE ELIGIBLE FOR A SEVERANCE PAYMENT PURSUANT TO THE TERMS OF YOUR CHANGE OF CONTROL SEVERANCE AGREEMENT.
RELEASE OF CLAIMS
1. In exchange for the severance payment and other benefits described in Section 3 of my Change of Control Severance Agreement with Openwave Systems Inc. (the Company), I and my successors and assigns release the Company and its successors and assigns, and each of their respective parents, divisions, subsidiaries, and affiliated entities, and each of those entities respective current and former shareholders, investors, directors, officers, employees, agents, attorneys, insurers, legal successors and assigns, from any and all claims, actions and causes of action, whether now known or unknown, that I have, or at any other time had, or shall or may have against those released parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time up to and including the date on which I sign this Release of Claims, including, but not limited to, any claims of wrongful termination, breach of express or implied contract, fraud, negligent misrepresentation, defamation, infliction of emotional distress, retaliation or national origin, race, age, sex, disability, sexual orientation or other discrimination or harassment under the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Fair Employment and Housing Act, or any other applicable law. This Release of Claims will not apply to any rights or claims that cannot be released as a matter of law, including any statutory indemnity rights, to any claims under the terms of the Indemnity Agreement entered into by me and the Company, if any, and it will not apply to any claims that arise after the date on which I sign this Release of Claims.
2. I acknowledge that I have read section 1542 of the Civil Code of the State of California which, in its entirety, states:
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
I hereby waive any rights that I have under section 1542 of the Civil Code of the State of California (or any similar provision of the laws of any other jurisdiction) to the fullest extent that I may lawfully waive such rights pertaining to this Release of Claims, and I affirm that it is my intention to release all known and unknown claims that I have against the parties released in Paragraph 1 above.
3. I acknowledge that I have been paid all earned wages and accrued, unused vacation/paid time off that I earned during my employment with the Company.
4. I agree that I will not, at any time in the future, make any critical or disparaging statements about the Company, its products or its employees, unless such statements are made truthfully in response to a subpoena or other legal process. The Company agrees that its officers and directors will not, at any time in the future, make any critical or disparaging statements about me to any third party, unless such statements are made truthfully in response to a subpoena or other legal process.
5. I acknowledge that I have returned to the Company all Company property and documents (whether in paper or electronic form, and all copies thereof) and any Company proprietary or confidential information (and all reproductions thereof, in whole or in part) that were in my possession, custody, or control. I acknowledge and agree that following the termination of my employment with the Company, I continue to be bound by, and will comply with, the terms of the Confidential Information and Invention Assignment Agreement between me and the Company of , 20__.
6. This Release of Claims constitutes the entire agreement between the Company and me with regard to the subject matter hereof. Both parties acknowledge that they have carefully read and fully understand this Release of Claims and I have not relied on any statement, written or oral, which is not set forth in this document. Both parties understand and agree that this
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Release of Claims cannot be modified or amended except by a document signed by me and an authorized officer of the Company.
I UNDERSTAND THAT I SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS RELEASE OF CLAIMS AND THAT I AM GIVING UP ANY LEGAL CLAIMS I HAVE AGAINST THE PARTIES RELEASED ABOVE BY SIGNING THIS RELEASE OF CLAIMS. I ALSO UNDERSTAND THAT I MAY HAVE UP TO 21 DAYS TO CONSIDER AND SIGN THIS RELEASE OF CLAIMS, THAT I MAY REVOKE THIS RELEASE OF CLAIMS AT ANY TIME DURING THE SEVEN DAY PERIOD AFTER I SIGN IT BY WRITTEN NOTICE OF REVOCATION TO THE GENERAL COUNSEL OF THE COMPANY, AND THAT THIS RELEASE OF CLAIMS WILL NOT BECOME EFFECTIVE UNLESS I DO NOT REVOKE IT DURING THAT SEVEN DAY PERIOD. I ACKNOWLEDGE THAT I HAVE READ AND UNDERSTAND THIS RELEASE OF CLAIMS, AND I AM SIGNING THIS RELEASE OF CLAIMS KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE SEVERANCE PAYMENT AND BENEFITS DESCRIBED ABOVE, WHICH PAYMENT AND BENEFITS I AM NOT ENTITLED TO RECEIVE EXCEPT AS A RESULT OF SIGNING THIS RELEASE OF CLAIMS.
[Signature page follows.]
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Dated: , 20 | Signature: | |||||
Name: |
OPENWAVE SYSTEMS INC. | ||||||
Dated: , 20 | By: | |||||
Its: |
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Exhibit 10.5
OPENWAVE SYSTEMS INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the Agreement) is made and entered into by and between (the Employee) and Openwave Systems Inc., a Delaware corporation (the Company), effective as of , 2012 (the Effective Date).
RECITALS
It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control. The Board of Directors of the Company (the Board) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.
The Board believes that it is in the best interests of the Company and its shareholders to provide the Employee with an incentive to continue his or her employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.
The Board believes that it is imperative to provide the Employee with certain benefits upon the Employees termination of employment following a Change of Control that provide the Employee with enhanced financial security and incentive and encouragement to the Employee to remain with the Company notwithstanding the possibility of a Change of Control.
The Board has approved this Agreement and wishes to replace any existing individual agreements or arrangements with the Employee entered into prior to the Effective Date and that relate to severance payments or vesting acceleration with respect to options, restricted stock or other compensatory stock-based awards upon a change of control of the ownership of the Company, with this Agreement which is now the Companys standard form of agreement with its officers with respect to this subject matter.
The benefits which are provided by virtue of this Agreement are in consideration of the Employees future execution of an agreement to certain terms, including a release of all claims against the Company and related parties that releases the Company and such parties from any claims whatsoever arising from or related to the Employees
employment relationship with the Company substantially in the form attached hereto Exhibit A of this Agreement (the Separation and Mutual Release Agreement).
Certain capitalized terms used in the Agreement are defined in Section 6 below.
The parties hereto agree as follows:
TERM OF AGREEMENT . This Agreement became effective on the Effective Date and shall terminate only upon the date that all obligations of the parties hereto with respect to this Agreement have been satisfied. Except as otherwise expressly provided in Section 3(a) below, this Agreement supersedes and replaces any individual agreements or arrangements, or any relevant portions thereof, between the Company or any of its subsidiaries and the Employee entered into prior to the Effective Date that relate to (1) any severance payments or benefits, (2) any other payments or benefits, or (3) any vesting acceleration, lapse of restrictions or other amendment with respect to options or restricted stock of the Company, in each case related to a change of control of the ownership of the Company (however defined in any such agreements or arrangements). Any such individual agreements or arrangements, or any relevant portions thereof addressing this subject matter (whether in the form of offer letters, employment agreements, change of control agreements, severance agreements, transition agreements, severance policies or plans, or otherwise) are hereby terminated and shall no longer have any force or effect.
AT-WILL EMPLOYMENT . The Company and the Employee acknowledge that this Agreement does not change the at-will status of Employees employment with the Company, as defined under applicable law. If the Employees employment terminates for any reason not in connection with a Change of Control, the Employee shall not be entitled to any benefits, damages, awards or compensation under Section 3 of this Agreement but may be entitled to payments or benefits in accordance with the Companys other established employee plans and practices or pursuant to other agreements with the Company.
SEVERANCE AND OTHER BENEFITS .
Termination in Connection with a Change of Control . If the Employees employment terminates as a result of Involuntary Termination at any time during the period commencing two (2) months prior to a Change of Control and ending eighteen (18) months following a Change of Control, then immediately after the later of (i) five (5) business days after the Employees last date of employment with the Company and (ii) seven (7) calendar days after the execution and delivery of the Mutual Separation and Release Agreement,100% of the unvested portion of any stock option, restricted stock or any other compensatory stock award granted to the Employee by the Company and then held by the Employee (except for any stock option, restricted stock or other compensatory stock award which by the express terms of the grant or by express designation by the Board are expressly excluded from the effect of this Agreement) shall automatically be accelerated in full so as to become immediately and completely vested and no longer subject to any contractual restrictions.
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In addition to such vesting acceleration, on the date that such acceleration occurs, the Employee shall receive the following payments and benefits; provided, however, that it is the intention of the parties that the payments described in Section 3(a)(i) shall be made not later than March 15 of the calendar year after the Involuntary Termination occurs, and, if not made by such date, because of the Employees failure to deliver an effective release of claims to the Company on or before March 8, the Employee shall be subject to the six-month delay described in Section 8(f) if applicable:
(i) A lump sum cash payment equal to the Employees then current annual base salary and target annual bonus multiplied by the factor specified below (without taking into account any reduction in base salary which could trigger an Involuntary Termination), less applicable withholding taxes or other withholding obligations of the Company. The factor to be applied to the lump sum payment above shall be two (2) if the Employee is the Chief Executive Officer, one and one-half (1.5) if the Employee is the General Counsel or a member of E-Staff, and one (1) in all other cases; in each case measured as of the date of the event constituting or giving rise to the occurrence of an Involuntary Termination. For example, if the Employee is a member of E-Staff, then the lump sum cash payment shall be equal to one and one-half times the amount equal to the Employees annual base salary plus target annual bonus.
(ii) At the Companys expense, the Company will continue to provide Employee, and eligible dependents or other qualified beneficiaries of Employee, with medical, dental and vision insurance benefit coverage in coordination with the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) eighteen (18) months if the Employee is the Chief Executive Officer, the General Counsel or a member of E-Staff, and twelve (12) months in all other cases, provided that the Employee completes and timely files all necessary COBRA election documentation which will be sent to Employee after the last day of employment. After the periods specified in this Section 3(a)(ii), if Employee wishes to continue such COBRA coverage, Employee will be required to pay all requisite premiums for such continued coverage.
Voluntary Resignation; Termination For Cause . If the Employees employment terminates by reason of the Employees voluntary resignation (which is not an Involuntary Termination) or if the Employee is terminated for Cause, then the Employee shall not be entitled to receive any benefits under this Agreement, but may be entitled to benefits and other rights (if any) as may then be established under the terms of the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
Disability; Death . If the Company terminates the Employees employment as a result of the Employees Disability, or such Employees employment is terminated due to the death of the Employee, then the Employee shall not be entitled to receive any benefits under this Agreement, but may be entitled to benefits and other rights (if any) as may then be established under the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
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Termination Not in Connection With a Change of Control . In the event the Employees employment terminates not in connection with a Change of Control, for any reason or no reason, whether on account of Disability, death, or otherwise, either prior to the period commencing two (2) months before the occurrence of a Change of Control or after the eighteen (18) month period following a Change of Control, then the Employee shall not be entitled to receive severance and any other benefits under this Agreement, but only as may then be established under the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
Mitigation . The Employee shall not be required to mitigate damages or the amount of any payment or benefit provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Employee as a result of employment by another employer or by any retirement benefits received by the Employee after the date of the termination of employment, or otherwise.
ATTORNEY FEES, COSTS AND EXPENSES . The Company shall promptly reimburse the Employee, on a monthly basis, for one-half (1/2) of the reasonable attorney fees, costs and expenses (collectively Fees) incurred by the Employee in connection with any action brought by the Employee to enforce his or her rights hereunder. In the event the Employee is the prevailing party, the Company shall reimburse the Employee for any Fees incurred by the Employee not previously reimbursed by the Company. However, if the Employee is not the prevailing party, the Employee shall immediately repay to the Company all previously paid reimbursements. The prevailing party shall be determined based upon the applicable courts or arbitrators determination of which party prevailed on the major contested issues, with reference to the amount awarded or agreed to and without regard to whether or not the action resulted in a final judgment or was settled.
RESERVED .
DEFINITION OF TERMS . The following terms used in this Agreement shall have the following meanings:
Cause . Cause shall mean (i) gross negligence or willful misconduct in the performance of the Employees duties to the Company; (ii) repeated unexplained or unjustified absences from the Company; (iii) a material and willful violation of any federal or state law which if made public would injure the business or reputation of the Company as reasonably determined by the Board of Directors of the Company; (iv) refusal or willful failure to act in accordance with any specific lawful direction or order of the Company or stated lawful written policy of the Company; (v) commission of any act of fraud with respect to the Company; or (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as reasonably determined by the Board of Directors of the Company.
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Change of Control . Change of Control means the occurrence of any of the following events:
(i) The sale, exchange, lease or other disposition of all or substantially all of the assets of the Company to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) that will continue the business of the Company in the future;
(ii) The sale, exchange, lease or other disposition of the Messaging Business Unit of the Company (whether through an asset sale or otherwise) to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act);
(iii) A merger or consolidation involving the Company in which the voting securities of the Company owned by the shareholders of the Company immediately prior to such merger or consolidation do not represent, after conversion if applicable, more than fifty percent (50%) of the total voting power of the surviving controlling entity outstanding immediately after such merger or consolidation; provided that any person who (1) was a beneficial owner (within the meaning of Rules 13d-3 and 13d-5 promulgated under the Exchange Act) of the voting securities of the Company immediately prior to such merger or consolidation, and (2) is a beneficial owner (or is part of a group of related persons that is a beneficial owner) of more than 20% of the securities of the Company immediately after such merger or consolidation, shall be excluded from the list of shareholders of the Company immediately prior to such merger or consolidation for purposes of the preceding calculation); or
(iv) The direct or indirect acquisition of beneficial ownership of at least fifty percent (50%) of the voting securities of the Company by a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act); provided, that person or group of related persons shall not include the Company, a subsidiary of the Company, or an employee benefit plan sponsored by the Company or a subsidiary of the Company (including any trustee of such plan acting as trustee).
For purposes of this section, the Messaging Business Unit of the Company is comprised of the business units of the Company that market and develop Email MX, Richmail and Edge GX.
(c) Disability . Disability shall mean that the Employee has been unable to perform his or her Company duties as the result of his or her incapacity due to physical or mental illness or injury, and such inability, at least twenty-six (26) weeks after its commencement, is determined to be total and permanent by a physician selected by the Employee or the Employees legal representative and acceptable to the Company or its insurers (such agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least thirty (30) days written notice by the Company of its intention to terminate the Employees employment.
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In the event that the Employee resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.
(d) E-Staff. E-Staff shall mean the senior executives of the Company who report directly to the Chief Executive Officer.
(e) Involuntary Termination . Involuntary Termination shall mean the Companys termination of Employees employment or the Employees resignation from the Company, as applicable, in either case upon or within 3 months after the occurrence of any of the following events: (i) without the Employees express written consent, the material reduction of the Employees duties, authority, responsibilities, job title or reporting relationships relative to the Employees duties, authority, responsibilities, job title, or reporting relationships as in effect immediately prior to such reduction, or the assignment to the Employee of such reduced duties, authority, responsibilities, job title, or reporting relationships; (ii) without the Employees express written consent, a material reduction, without good business reasons, of the facilities and perquisites (including office space, secretarial support, other support staff, and location) available to the Employee immediately prior to such reduction; (iii) a material reduction by the Company in the base salary of the Employee as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of employee benefits, including bonuses, to which the Employee was entitled immediately prior to such reduction with the result that the Employees overall benefits package is materially reduced; (v) the relocation of the Employee to a facility or a location more than twenty-five (25) miles from the Employees then present location, without the Employees express written consent; (vi) any termination of the Employee by the Company which is not effected for Disability or for Cause, or any actual or purported termination effected by the Company for Disability or for Cause for which the grounds relied upon are not valid; (vii) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 7(a) below; or (viii) any act or set of facts or circumstances which would, under California case law or statute, constitute a constructive termination of the Employee. For purposes of clause (i) of the immediately preceding sentence, the Employees responsibilities shall be deemed to be materially reduced if the Employee is no longer an executive officer (in the case of current executive officers) or on the executive officer management staff (in the case of current E-Staff) of such ultimate parent entity. Notwithstanding the foregoing, an Involuntary Termination only shall be deemed to have occurred upon the Employees resignation from the Company if (i) the Employee provides notice to the Company within ninety (90) days after the initial occurrence of the event forming the basis for the resignation and (ii) the Company fails to substantially cure the event within thirty (30) days after receiving notice.
SUCCESSORS .
Companys Successors . Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Companys business and/or assets shall assume the
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obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term Company shall include any successor to the Companys business and/or assets which executes and delivers the assumption agreement described in this Section 7(a) or which becomes bound by the terms of this Agreement by operation of law or otherwise.
Employees Successors . The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employees personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
MISCELLANEOUS .
General . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given either (i) when personally delivered or sent by facsimile or (ii) five (5) days after being mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him or her at the home address or facsimile number which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices or notices sent by facsimile shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its General Counsel or Chief Financial Officer.
Governing Law; Jurisdiction and Venue . This Agreement shall be governed by the internal laws of the State of California. Both Employee and the Company hereby agree to the jurisdiction and venue of the courts of the State of California and Federal Courts of the United States of America located within the County of Santa Clara for all actions relating to this Agreement. Employee further agrees that service upon Employee in any such action or proceeding may be made by first class mail, certified or registered, to the Employees address as last appearing on the records of the Company or by personal service on Employee.
Counterparts; Facsimile . This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. The executed copy of this Agreement may be delivered by facsimile or in original form.
Waiver . If either party should waive any breach of any provisions of this Agreement, they shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
Headings . The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof or to affect the meaning thereof.
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Construction; Six-Month Delay for Specified Employees . It is the intent of the parties hereto that this Agreement be in compliance with Section 409A of the Code and the Treasury Regulations promulgated thereunder. If any amounts to be paid under Section 3(a)(i) hereof are determined to constitute non-qualified deferred compensation subject to Internal Revenue Code Section 409A, then such amounts payable to specified employees of the Company (as that term is defined in Treasury Regulation Section 1.409A-1(i)) shall be delayed for six months in accordance with Treasury Regulation Section 1.409A-3(i)(2), but only to the extent necessary to avoid the imposition of the 20 percent additional tax imposed pursuant to Internal Revenue Code Section 409A(a) as a result of the application of Internal Revenue Code Section 409A(a)(2)(B)(i).
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the date set forth above.
COMPANY | OPENWAVE SYSTEMS INC. | |||
|
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Name: Michael Mulica | ||||
Title: President and CEO | ||||
EMPLOYEE | Signature: |
|
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Name: |
|
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EXHIBIT A
DO NOT SIGN BELOW UNLESS AND UNTIL OPENWAVE SYSTEMS INC. HAS ADVISED YOU THAT YOU ARE ELIGIBLE FOR A SEVERANCE PAYMENT PURSUANT TO THE TERMS OF YOUR CHANGE OF CONTROL SEVERANCE AGREEMENT.
RELEASE OF CLAIMS
1. In exchange for the severance payment and other benefits described in Section 3 of my Change of Control Severance Agreement with Openwave Systems Inc. (the Company), I and my successors and assigns release the Company and its successors and assigns, and each of their respective parents, divisions, subsidiaries, and affiliated entities, and each of those entities respective current and former shareholders, investors, directors, officers, employees, agents, attorneys, insurers, legal successors and assigns, from any and all claims, actions and causes of action, whether now known or unknown, that I have, or at any other time had, or shall or may have against those released parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time up to and including the date on which I sign this Release of Claims, including, but not limited to, any claims of wrongful termination, breach of express or implied contract, fraud, negligent misrepresentation, defamation, infliction of emotional distress, retaliation or national origin, race, age, sex, disability, sexual orientation or other discrimination or harassment under the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Fair Employment and Housing Act, or any other applicable law. This Release of Claims will not apply to any rights or claims that cannot be released as a matter of law, including any statutory indemnity rights, to any claims under the terms of the Indemnity Agreement entered into by me and the Company, if any, and it will not apply to any claims that arise after the date on which I sign this Release of Claims.
2. I acknowledge that I have read section 1542 of the Civil Code of the State of California which, in its entirety, states:
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
I hereby waive any rights that I have under section 1542 of the Civil Code of the State of California (or any similar provision of the laws of any other jurisdiction) to the fullest extent that I may lawfully waive such rights pertaining to this Release of Claims, and I affirm that it is my intention to release all known and unknown claims that I have against the parties released in Paragraph 1 above.
3. I acknowledge that I have been paid all earned wages and accrued, unused vacation/paid time off that I earned during my employment with the Company.
4. I agree that I will not, at any time in the future, make any critical or disparaging statements about the Company, its products or its employees, unless such statements are made truthfully in response to a subpoena or other legal process. The Company agrees that its officers and directors will not, at any time in the future, make any critical or disparaging statements about me to any third party, unless such statements are made truthfully in response to a subpoena or other legal process.
5. I acknowledge that I have returned to the Company all Company property and documents (whether in paper or electronic form, and all copies thereof) and any Company proprietary or confidential information (and all reproductions thereof, in whole or in part) that were in my possession, custody, or control. I acknowledge and agree that following the termination of my employment with the Company, I continue to be bound by, and will comply with, the terms of the Confidential Information and Invention Assignment Agreement between me and the Company of , 20 .
6. This Release of Claims constitutes the entire agreement between the Company and me with regard to the subject matter hereof. Both parties acknowledge that they have carefully read and fully understand this Release of Claims and I have not relied on any statement, written or oral, which is not set forth in this document. Both parties understand and agree that this Release of Claims cannot be modified or amended except by a document signed by me and an authorized officer of the Company.
I UNDERSTAND THAT I SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS RELEASE OF CLAIMS AND THAT I AM GIVING UP ANY LEGAL CLAIMS I HAVE AGAINST THE PARTIES RELEASED ABOVE BY SIGNING THIS RELEASE OF CLAIMS. I ALSO UNDERSTAND THAT I MAY HAVE UP TO 21 DAYS TO CONSIDER AND SIGN THIS RELEASE OF CLAIMS, THAT I MAY REVOKE THIS RELEASE OF CLAIMS AT ANY TIME DURING THE SEVEN DAY PERIOD AFTER I SIGN IT BY WRITTEN NOTICE OF REVOCATION TO THE GENERAL COUNSEL OF THE COMPANY, AND THAT THIS RELEASE OF CLAIMS WILL NOT BECOME EFFECTIVE UNLESS I DO NOT REVOKE IT DURING THAT SEVEN DAY PERIOD. I ACKNOWLEDGE THAT I HAVE READ AND UNDERSTAND THIS RELEASE OF CLAIMS, AND I AM SIGNING THIS RELEASE OF CLAIMS KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE SEVERANCE PAYMENT AND BENEFITS DESCRIBED ABOVE, WHICH PAYMENT AND BENEFITS I AM NOT ENTITLED TO RECEIVE EXCEPT AS A RESULT OF SIGNING THIS RELEASE OF CLAIMS.
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Exhibit 10.6
OPENWAVE SYSTEMS INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the Agreement) is made and entered into by and between (the Employee) and Openwave Systems Inc., a Delaware corporation (the Company), effective as of , 2012 (the Effective Date).
RECITALS
It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control. The Board of Directors of the Company (the Board) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.
The Board believes that it is in the best interests of the Company and its shareholders to provide the Employee with an incentive to continue his or her employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.
The Board believes that it is imperative to provide the Employee with certain benefits upon the Employees termination of employment following a Change of Control that provide the Employee with enhanced financial security and incentive and encouragement to the Employee to remain with the Company notwithstanding the possibility of a Change of Control.
The Board has approved this Agreement and wishes to replace any existing individual agreements or arrangements with the Employee entered into prior to the Effective Date and that relate to severance payments or vesting acceleration with respect to options, restricted stock or other compensatory stock-based awards upon a change of control of the ownership of the Company, with this Agreement which is now the Companys standard form of agreement with its officers with respect to this subject matter.
The benefits which are provided by virtue of this Agreement are in consideration of the Employees future execution of an agreement to certain terms, including a release of all claims against the Company and related parties that releases the Company and such parties from any claims whatsoever arising from or related to the Employees
employment relationship with the Company substantially in the form attached hereto Exhibit A of this Agreement (the Separation and Mutual Release Agreement).
Certain capitalized terms used in the Agreement are defined in Section 6 below.
The parties hereto agree as follows:
TERM OF AGREEMENT . This Agreement became effective on the Effective Date and shall terminate only upon the date that all obligations of the parties hereto with respect to this Agreement have been satisfied. Except as otherwise expressly provided in Section 3(a) below, this Agreement supersedes and replaces any individual agreements or arrangements, or any relevant portions thereof, between the Company or any of its subsidiaries and the Employee entered into prior to the Effective Date that relate to (1) any severance payments or benefits, (2) any other payments or benefits, or (3) any vesting acceleration, lapse of restrictions or other amendment with respect to options or restricted stock of the Company, in each case related to a change of control of the ownership of the Company (however defined in any such agreements or arrangements). Any such individual agreements or arrangements, or any relevant portions thereof addressing this subject matter (whether in the form of offer letters, employment agreements, change of control agreements, severance agreements, transition agreements, severance policies or plans, or otherwise) are hereby terminated and shall no longer have any force or effect.
AT-WILL EMPLOYMENT . The Company and the Employee acknowledge that this Agreement does not change the at-will status of Employees employment with the Company, as defined under applicable law. If the Employees employment terminates for any reason not in connection with a Change of Control, the Employee shall not be entitled to any benefits, damages, awards or compensation under Section 3 of this Agreement but may be entitled to payments or benefits in accordance with the Companys other established employee plans and practices or pursuant to other agreements with the Company.
SEVERANCE AND OTHER BENEFITS.
Termination in Connection with a Change of Control . If the Employees employment terminates as a result of Involuntary Termination at any time during the period commencing two (2) months prior to a Change of Control and ending eighteen (18) months following a Change of Control, then immediately after the later of (i) five (5) business days after the Employees last date of employment with the Company and (ii) seven (7) calendar days after the execution and delivery of the Mutual Separation and Release Agreement,100% of the unvested portion of any stock option, restricted stock or any other compensatory stock award granted to the Employee by the Company and then held by the Employee (except for any stock option, restricted stock or other compensatory stock award which by the express terms of the grant or by express designation by the Board are expressly excluded from the effect of this Agreement) shall automatically be accelerated in full so as to become immediately and completely vested and no longer subject to any contractual restrictions.
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In addition to such vesting acceleration, on the date that such acceleration occurs, the Employee shall receive the following payments and benefits; provided, however, that it is the intention of the parties that the payments described in Section 3(a)(i) shall be made not later than March 15 of the calendar year after the Involuntary Termination occurs, and, if not made by such date, because of the Employees failure to deliver an effective release of claims to the Company on or before March 8, the Employee shall be subject to the six-month delay described in Section 8(f) if applicable:
(i) A lump sum cash payment equal to the Employees then current annual base salary and target annual bonus multiplied by the factor specified below (without taking into account any reduction in base salary which could trigger an Involuntary Termination), less applicable withholding taxes or other withholding obligations of the Company. The factor to be applied to the lump sum payment above shall be two (2) if the Employee is the Chief Executive Officer, one and one-half (1.5) if the Employee is the General Counsel or a member of E-Staff, and one (1) in all other cases; in each case measured as of the date of the event constituting or giving rise to the occurrence of an Involuntary Termination. For example, if the Employee is a member of E-Staff, then the lump sum cash payment shall be equal to one and one-half times the amount equal to the Employees annual base salary plus target annual bonus.
(ii) At the Companys expense, the Company will continue to provide Employee, and eligible dependents or other qualified beneficiaries of Employee, with medical, dental and vision insurance benefit coverage in coordination with the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) eighteen (18) months if the Employee is the Chief Executive Officer, the General Counsel or a member of E-Staff, and twelve (12) months in all other cases, provided that the Employee completes and timely files all necessary COBRA election documentation which will be sent to Employee after the last day of employment. After the periods specified in this Section 3(a)(ii), if Employee wishes to continue such COBRA coverage, Employee will be required to pay all requisite premiums for such continued coverage.
Voluntary Resignation; Termination For Cause . If the Employees employment terminates by reason of the Employees voluntary resignation (which is not an Involuntary Termination) or if the Employee is terminated for Cause, then the Employee shall not be entitled to receive any benefits under this Agreement, but may be entitled to benefits and other rights (if any) as may then be established under the terms of the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
Disability; Death . If the Company terminates the Employees employment as a result of the Employees Disability, or such Employees employment is terminated due to the death of the Employee, then the Employee shall not be entitled to receive any benefits under this Agreement, but may be entitled to benefits and other rights (if any) as may then be established under the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
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Termination Not in Connection With a Change of Control . In the event the Employees employment terminates not in connection with a Change of Control, for any reason or no reason, whether on account of Disability, death, or otherwise, either prior to the period commencing two (2) months before the occurrence of a Change of Control or after the eighteen (18) month period following a Change of Control, then the Employee shall not be entitled to receive severance and any other benefits under this Agreement, but only as may then be established under the Companys other then-existing severance and benefits plans and programs or pursuant to other agreements with the Company.
Mitigation . The Employee shall not be required to mitigate damages or the amount of any payment or benefit provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Employee as a result of employment by another employer or by any retirement benefits received by the Employee after the date of the termination of employment, or otherwise.
ATTORNEY FEES, COSTS AND EXPENSES . The Company shall promptly reimburse the Employee, on a monthly basis, for one-half (1/2) of the reasonable attorney fees, costs and expenses (collectively Fees) incurred by the Employee in connection with any action brought by the Employee to enforce his or her rights hereunder. In the event the Employee is the prevailing party, the Company shall reimburse the Employee for any Fees incurred by the Employee not previously reimbursed by the Company. However, if the Employee is not the prevailing party, the Employee shall immediately repay to the Company all previously paid reimbursements. The prevailing party shall be determined based upon the applicable courts or arbitrators determination of which party prevailed on the major contested issues, with reference to the amount awarded or agreed to and without regard to whether or not the action resulted in a final judgment or was settled.
RESERVED .
DEFINITION OF TERMS . The following terms used in this Agreement shall have the following meanings:
Cause . Cause shall mean (i) gross negligence or willful misconduct in the performance of the Employees duties to the Company; (ii) repeated unexplained or unjustified absences from the Company; (iii) a material and willful violation of any federal or state law which if made public would injure the business or reputation of the Company as reasonably determined by the Board of Directors of the Company; (iv) refusal or willful failure to act in accordance with any specific lawful direction or order of the Company or stated lawful written policy of the Company; (v) commission of any act of fraud with respect to the Company; or (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as reasonably determined by the Board of Directors of the Company.
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Change of Control . Change of Control means the occurrence of any of the following events:
(i) The sale, exchange, lease or other disposition of all or substantially all of the assets of the Company to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the Exchange Act) that will continue the business of the Company in the future;
(ii) The sale, exchange, lease or other disposition of the Mediation Business Unit of the Company (whether through an asset sale or otherwise) to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act);
(iii) A merger or consolidation involving the Company in which the voting securities of the Company owned by the shareholders of the Company immediately prior to such merger or consolidation do not represent, after conversion if applicable, more than fifty percent (50%) of the total voting power of the surviving controlling entity outstanding immediately after such merger or consolidation; provided that any person who (1) was a beneficial owner (within the meaning of Rules 13d-3 and 13d-5 promulgated under the Exchange Act) of the voting securities of the Company immediately prior to such merger or consolidation, and (2) is a beneficial owner (or is part of a group of related persons that is a beneficial owner) of more than 20% of the securities of the Company immediately after such merger or consolidation, shall be excluded from the list of shareholders of the Company immediately prior to such merger or consolidation for purposes of the preceding calculation); or
(iv) The direct or indirect acquisition of beneficial ownership of at least fifty percent (50%) of the voting securities of the Company by a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act); provided, that person or group of related persons shall not include the Company, a subsidiary of the Company, or an employee benefit plan sponsored by the Company or a subsidiary of the Company (including any trustee of such plan acting as trustee).
For purposes of this section, the Mediation Business Unit of the Company is comprised of the business units of the Company that develop and market service mediation products, including but not limited to, MAG, Integra, Web Adaptor (Openweb), Mobile Edge Security Suite, Passport, Smart Policy, Web Security, Web Optimization, Media Optimization, Amplicity and Analytics.
(c) Disability . Disability shall mean that the Employee has been unable to perform his or her Company duties as the result of his or her incapacity due to physical or mental illness or injury, and such inability, at least twenty-six (26) weeks after its commencement, is determined to be total and permanent by a physician selected by the Employee or the Employees legal representative and acceptable to the Company or its insurers (such agreement as to acceptability not to be unreasonably withheld).
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Termination resulting from Disability may only be effected after at least thirty (30) days written notice by the Company of its intention to terminate the Employees employment. In the event that the Employee resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.
(d) E-Staff. E-Staff shall mean the senior executives of the Company who report directly to the Chief Executive Officer.
(e) Involuntary Termination . Involuntary Termination shall mean the Companys termination of Employees employment or the Employees resignation from the Company, as applicable, in either case upon or within 3 months after the occurrence of any of the following events: (i) without the Employees express written consent, the material reduction of the Employees duties, authority, responsibilities, job title or reporting relationships relative to the Employees duties, authority, responsibilities, job title, or reporting relationships as in effect immediately prior to such reduction, or the assignment to the Employee of such reduced duties, authority, responsibilities, job title, or reporting relationships; (ii) without the Employees express written consent, a material reduction, without good business reasons, of the facilities and perquisites (including office space, secretarial support, other support staff, and location) available to the Employee immediately prior to such reduction; (iii) a material reduction by the Company in the base salary of the Employee as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of employee benefits, including bonuses, to which the Employee was entitled immediately prior to such reduction with the result that the Employees overall benefits package is materially reduced; (v) the relocation of the Employee to a facility or a location more than twenty-five (25) miles from the Employees then present location, without the Employees express written consent; (vi) any termination of the Employee by the Company which is not effected for Disability or for Cause, or any actual or purported termination effected by the Company for Disability or for Cause for which the grounds relied upon are not valid; (vii) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 7(a) below; or (viii) any act or set of facts or circumstances which would, under California case law or statute, constitute a constructive termination of the Employee. For purposes of clause (i) of the immediately preceding sentence, the Employees responsibilities shall be deemed to be materially reduced if the Employee is no longer an executive officer (in the case of current executive officers) or on the executive officer management staff (in the case of current E-Staff) of such ultimate parent entity. Notwithstanding the foregoing, an Involuntary Termination only shall be deemed to have occurred upon the Employees resignation from the Company if (i) the Employee provides notice to the Company within ninety (90) days after the initial occurrence of the event forming the basis for the resignation and (ii) the Company fails to substantially cure the event within thirty (30) days after receiving notice.
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SUCCESSORS .
Companys Successors . Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Companys business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term Company shall include any successor to the Companys business and/or assets which executes and delivers the assumption agreement described in this Section 7(a) or which becomes bound by the terms of this Agreement by operation of law or otherwise.
Employees Successors . The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employees personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
MISCELLANEOUS .
General . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given either (i) when personally delivered or sent by facsimile or (ii) five (5) days after being mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him or her at the home address or facsimile number which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices or notices sent by facsimile shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its General Counsel or Chief Financial Officer.
Governing Law; Jurisdiction and Venue . This Agreement shall be governed by the internal laws of the State of California. Both Employee and the Company hereby agree to the jurisdiction and venue of the courts of the State of California and Federal Courts of the United States of America located within the County of Santa Clara for all actions relating to this Agreement. Employee further agrees that service upon Employee in any such action or proceeding may be made by first class mail, certified or registered, to the Employees address as last appearing on the records of the Company or by personal service on Employee.
Counterparts; Facsimile . This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. The executed copy of this Agreement may be delivered by facsimile or in original form.
Waiver . If either party should waive any breach of any provisions of this Agreement, they shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
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Headings . The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof or to affect the meaning thereof.
Construction; Six-Month Delay for Specified Employees . It is the intent of the parties hereto that this Agreement be in compliance with Section 409A of the Code and the Treasury Regulations promulgated thereunder. If any amounts to be paid under Section 3(a)(i) hereof are determined to constitute non-qualified deferred compensation subject to Internal Revenue Code Section 409A, then such amounts payable to specified employees of the Company (as that term is defined in Treasury Regulation Section 1.409A-1(i)) shall be delayed for six months in accordance with Treasury Regulation Section 1.409A-3(i)(2), but only to the extent necessary to avoid the imposition of the 20 percent additional tax imposed pursuant to Internal Revenue Code Section 409A(a) as a result of the application of Internal Revenue Code Section 409A(a)(2)(B)(i).
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the date set forth above.
COMPANY | OPENWAVE SYSTEMS INC. | |||
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Name: Michael Mulica | ||||
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EMPLOYEE | Signature: |
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EXHIBIT A
DO NOT SIGN BELOW UNLESS AND UNTIL OPENWAVE SYSTEMS INC. HAS ADVISED YOU THAT YOU ARE ELIGIBLE FOR A SEVERANCE PAYMENT PURSUANT TO THE TERMS OF YOUR CHANGE OF CONTROL SEVERANCE AGREEMENT.
RELEASE OF CLAIMS
1. In exchange for the severance payment and other benefits described in Section 3 of my Change of Control Severance Agreement with Openwave Systems Inc. (the Company), I and my successors and assigns release the Company and its successors and assigns, and each of their respective parents, divisions, subsidiaries, and affiliated entities, and each of those entities respective current and former shareholders, investors, directors, officers, employees, agents, attorneys, insurers, legal successors and assigns, from any and all claims, actions and causes of action, whether now known or unknown, that I have, or at any other time had, or shall or may have against those released parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time up to and including the date on which I sign this Release of Claims, including, but not limited to, any claims of wrongful termination, breach of express or implied contract, fraud, negligent misrepresentation, defamation, infliction of emotional distress, retaliation or national origin, race, age, sex, disability, sexual orientation or other discrimination or harassment under the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Fair Employment and Housing Act, or any other applicable law. This Release of Claims will not apply to any rights or claims that cannot be released as a matter of law, including any statutory indemnity rights, to any claims under the terms of the Indemnity Agreement entered into by me and the Company, if any, and it will not apply to any claims that arise after the date on which I sign this Release of Claims.
2. I acknowledge that I have read section 1542 of the Civil Code of the State of California which, in its entirety, states:
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
I hereby waive any rights that I have under section 1542 of the Civil Code of the State of California (or any similar provision of the laws of any other jurisdiction) to the fullest extent that I may lawfully waive such rights pertaining to this Release of Claims, and I affirm that it is my intention to release all known and unknown claims that I have against the parties released in Paragraph 1 above.
3. I acknowledge that I have been paid all earned wages and accrued, unused vacation/paid time off that I earned during my employment with the Company.
4. I agree that I will not, at any time in the future, make any critical or disparaging statements about the Company, its products or its employees, unless such statements are made truthfully in response to a subpoena or other legal process. The Company agrees that its officers and directors will not, at any time in the future, make any critical or disparaging statements about me to any third party, unless such statements are made truthfully in response to a subpoena or other legal process.
5. I acknowledge that I have returned to the Company all Company property and documents (whether in paper or electronic form, and all copies thereof) and any Company proprietary or confidential information (and all reproductions thereof, in whole or in part) that were in my possession, custody, or control. I acknowledge and agree that following the termination of my employment with the Company, I continue to be bound by, and will comply with, the terms of the Confidential Information and Invention Assignment Agreement between me and the Company of , 20 .
6. This Release of Claims constitutes the entire agreement between the Company and me with regard to the subject matter hereof. Both parties acknowledge that they have carefully read and fully understand this Release of Claims and I have not relied on any statement, written or oral, which is not set forth in this document. Both parties understand and agree that this Release of Claims cannot be modified or amended except by a document signed by me and an authorized officer of the Company.
I UNDERSTAND THAT I SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS RELEASE OF CLAIMS AND THAT I AM GIVING UP ANY LEGAL CLAIMS I HAVE AGAINST THE PARTIES RELEASED ABOVE BY SIGNING THIS RELEASE OF CLAIMS. I ALSO UNDERSTAND THAT I MAY HAVE UP TO 21 DAYS TO CONSIDER AND SIGN THIS RELEASE OF CLAIMS, THAT I MAY REVOKE THIS RELEASE OF CLAIMS AT ANY TIME DURING THE SEVEN DAY PERIOD AFTER I SIGN IT BY WRITTEN NOTICE OF REVOCATION TO THE GENERAL COUNSEL OF THE COMPANY, AND THAT THIS RELEASE OF CLAIMS WILL NOT BECOME EFFECTIVE UNLESS I DO NOT REVOKE IT DURING THAT SEVEN DAY PERIOD. I ACKNOWLEDGE THAT I HAVE READ AND UNDERSTAND THIS RELEASE OF CLAIMS, AND I AM SIGNING THIS RELEASE OF CLAIMS KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE SEVERANCE PAYMENT AND BENEFITS DESCRIBED ABOVE, WHICH PAYMENT AND BENEFITS I AM NOT ENTITLED TO RECEIVE EXCEPT AS A RESULT OF SIGNING THIS RELEASE OF CLAIMS.
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Exhibit 10.7
OPENWAVE SYSTEMS INC.
AMENDED AND RESTATED
EXECUTIVE SEVERANCE BENEFIT POLICY
I NTRODUCTION
This Openwave Systems Inc. Amended and Restated Executive Severance Benefit Policy (the Policy) is dated to be effective as of September 15, 2011. The purpose of the Policy is to provide for the payment of severance benefits to Eligible Executives (as defined below) of Openwave Systems Inc. (the Company) whose employment with the Company terminates as a result of an Involuntary Termination. This Policy will be subordinated to any severance benefit arrangement, change of control severance agreement or employment agreement that provides for severance benefits in existence between the Eligible Executive and the Company, notwithstanding the terms of any such arrangement or agreement, and any benefits under any such arrangement or agreement will be paid prior to any payments under this Policy, which payments will be reduced by any amounts paid under any such arrangement or agreement.
Section 1. D EFINITIONS
For purposes of the Policy, the following terms are defined as follows:
Base Salary means the Eligible Executives annual base salary as in effect during the last regularly scheduled payroll period immediately preceding the effective date of termination.
Cause means: (i) theft, dishonesty, misconduct, or falsification of any employment or Company records; (ii) improper disclosure of the Companys confidential or proprietary information: (iii) any action by the Eligible Executive which as a material detrimental effect on the Companys reputation or business as reasonably determined by the Company; (iv) the Eligible Executives failure or inability to perform any reasonably assigned duties; (v) the Eligible Executives violation of any Company policy; (vi) the Eligible Executives conviction (including any plea of guilty or no contest) for any criminal act that impairs his ability to perform his duties under this Policy; or (vii) the Eligible Executives breach of any agreement with the Company.
Eligible Executive means (i) the Chief Executive Officer of the Company, (ii) those officers of the Company on the U.S. payroll at the level of Vice President and above who report directly to the Chief Executive Officer and are members of E-Staff and (iii) the General Counsel of the Company.
Involuntary Termination means the Companys termination of the Eligible Executives employment, which termination is not effected for Cause, or any actual or purported termination effected by the Company for Cause when no Cause exists. Involuntary Termination also means the Eligible Executives resignation from the Company within 3 months after the occurrence of any of the following events: (i) without the Eligible Executives express written consent, the significant reduction of the Eligible Executives duties, authority, responsibilities, job title, or reporting relationships relative to the Eligible Executives duties, authority, responsibilities, job title, or reporting relationships as in effect immediately prior to such reduction, or the assignment to the Eligible Executive of such reduced duties, authority, responsibilities, job title, or reporting relationships; (ii) without the Eligible Executives express written consent, a material reduction, without good business reasons, of the facilities and perquisites (including office space, secretarial support, other support staff, and location) available to the Eligible Executive immediately prior to such reduction; (iii) without the Eligible Executives express written consent, a reduction by the Company of ten percent (10%) or more in the base salary of the Eligible Executive as in effect immediately prior to such reduction (unless such reduction is part of a program generally applicable to other executives of the Company); (iv) a material reduction by the Company in the kind or level of employee benefits, including bonuses, to which the Eligible Executive was entitled immediately prior to such reduction with the result that the Eligible Executives overall benefits package is significantly reduced (unless such reduction is part of a program generally applicable to other executives of the Company); (v) the relocation of the Eligible Executive to a facility or a location more than twenty five (25) miles from the Eligible Executives then present location, without the Eligible Executives express written consent; (vi) the failure of the Company to obtain the assumption of this Policy by any successors to the Company contemplated in Seciton 10(a) below; or (vii) any act or set of facts or circumstances which would, under California case law or statute, constitute a constructive termination of the Eligible Executive. Provided, however, that in each case, the Eligible Executives resignation shall not be an Involuntary Termination under this provision unless (X) the Eligible Executive provides the Companys General Counsel with written notice of the applicable event or circumstance within 30 days after the Eligible Executive first has knowledge of it, which notice specifically identifies the event or circumstance that the Eligible Executive believes constitutes grounds for an Involuntary Termination, and (Y) the Company fails to correct the event or circumstance so identified within 30 days after receipt of such notice
Policy Administrator means the Company.
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Section 2. E LIGIBILITY F OR B ENEFITS
General Rules.
Subject to the requirements set forth in this Section 3, the Company will provide the severance benefits described in Section 4 of the Policy to an Eligible Executive whose termination of employment with the Company is an Involuntary Termination.
(i) In order to be eligible to receive benefits under the Policy, the Eligible Executive must execute a general waiver and release, which includes certain representations, in substantially the form attached hereto as E XHIBIT A, E XHIBIT B , or E XHIBIT C , as appropriate, and such release must become effective in accordance with its terms. The Company, in its sole discretion, may modify the form of the required release to comply with applicable law and will determine the form of the required release.
Exceptions to Benefit Entitlement. The Eligible Executive will not receive benefits under the Policy in any of the following circumstances, as determined by the Company in its sole discretion:
(ii) The Eligible Executive has executed an individually negotiated employment contract or agreement with the Company relating to severance benefits that is in effect on his or her termination date, in which case such Eligible Executives severance benefit, if any, will be governed by the terms of such individually negotiated employment contract or agreement and will be governed by this Policy only to the extent that the reduction pursuant to Section 5(a) below does not entirely eliminate benefits under this Plan.
The Company terminates the Eligible Executives employment with the Company, and such termination does not constitute an Involuntary Termination.
(iii) The Eligible Executive terminates employment with the Company for any reason or no reason other than, as described in Section 2(d) above, a resignation within ninety (90) days following the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 10(a) below. Such terminations include, but are not limited to, the Eligible Executives resignation, retirement or failure to return from a leave of absence on the scheduled date.
The Eligible Executives employment terminates as a result of his or her death or Disability. Disability shall mean that the Eligible Executive has been unable to perform his or her Company duties as the result of his or her incapacity due to physical or mental illness or injury, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Eligible Executive or the Eligible Executives legal representative and acceptable to the Company or its insurers (such Agreement as to acceptability not to be unreasonably withheld).
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Section 3. A MOUNT OF B ENEFIT
Salary Continuation. The Eligible Executive shall continue to receive Base Salary for a period of six (6) months. Such amounts shall be paid in regular installments on the normal payroll dates of the Company and will be subject to all required tax withholding.
Medical Coverage Continuation . For Eligible Executives who elect to continue health insurance coverage under the Openwave Systems Inc. health plans pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), the Company shall pay the full premium cost of such coverage on behalf of the Eligible Executive, as well as the Eligible Executives spouse and dependents, if any, for the lesser of six (6) months or until the Eligible Executive and his or covered dependents, if any, become eligible for health insurance coverage through another source.
Educational Assistance Plan . Educational assistance benefits shall be extended to the end of the then current course term for any Eligible Executive enrolled in a class previously approved by the Company at the time of his or her Involuntary Termination.
Outplacement Assistance . The Eligible Executive shall be eligible to receive up to six (6) months outplacement assistance in the form determined by the Company offered through a third-party vendor selected by the Company.
Section 4. L IMITATIONS ON B ENEFITS
Certain Reductions and Offsets. Notwithstanding any other provision of the Policy to the contrary, any amounts payable to the Eligible Executive under this Policy will be reduced by any payments by the Company to such individual under any other policy, plan, program or arrangement, including, without limitation, the Openwave Systems Inc. Severance Plan for Eligible U.S. Employees, any change of control severance agreement or employment agreement between the Eligible Executive and the Company that provides for severance benefits in existence, or any contract between the Eligible Executive and any entity, to the extent such payments are conditioned, at least in part, on termination of employment and are based on the Eligible Executives continued receipt of his or her Base Salary. Furthermore, to the extent that any federal, state or local laws, including, without limitation, so-called plant closing laws, require the Company to give advance notice or make a payment of any kind to an Eligible Executive because of that Eligible Executives involuntary termination due to a layoff, reduction in force, plant or facility closing, sale of business, change of control, or any other similar event or reason, the benefits payable under this Policy will either be reduced or eliminated. The benefits provided under this Policy are intended to satisfy any and all statutory obligations that may arise out of an Eligible Executives involuntary termination of employment for the foregoing reasons, and the Policy Administrator will so construe and implement the terms of the Policy.
Mitigation. Except as otherwise specifically provided herein, the Eligible Executive will not be required to mitigate damages or the amount of any payment provided under this Policy by seeking other employment or other form of remuneration for services, nor will the amount of any
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payment provided for under this Policy be reduced by any compensation earned by any Eligible Executive as a result of employment by another employer or any retirement benefits received by such Eligible Executive after his or her Involuntary Termination.
Termination of Benefits. Benefits under this Policy will terminate immediately if the Eligible Executive, at any time, violates any proprietary information or confidentiality obligation to the Company, including his or her obligations under the Companys Confidential Information and Invention Assignment Agreement, or any obligations under this Policy, including but not limited to the obligations described in Section 6 below.
Non-Duplication of Benefits. No Eligible Executive is eligible to receive benefits under this Policy more than one time.
Indebtedness of Eligible Executives. If the Eligible Executive is indebted to the Company or an affiliate of the Company at his or her termination date, the Company reserves the right to offset any severance payments under the Policy by the amount of such indebtedness.
(f) Application of Section 409A. Notwithstanding any provision of this Policy to the contrary, if, at the time of an Eligible Executives termination of employment with the Company, the Eligible Executive is a specified employee as defined in Section 409A of the U.S. Internal Revenue Code of 1986, as amended (the Code), and one or more of the payments or benefits received or to be received by the Eligible Executive pursuant to this Policy would constitute deferred compensation subject to Section 409A, no such payment or benefit will be provided under this Policy until the earliest of (A) the date which is six (6) months after the Eligible Executives separation from service for any reason, other than death or disability (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of the Eligible Executives death or disability (as such term is used in Section 409A(a)(2)(C) of the Code) or (C) the effective date of a change in the ownership or effective control of the Company (as such term is used in Section 409A(a)(2)(A)(v) of the Code). The provisions of this Section 5(f) shall only apply to the extent required to avoid the Eligible Executives incurrence of any tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder. If, notwithstanding the application of this Section 5(f) to one or more payments or benefits provided under this Policy, the Eligible Executive would still incur any tax or interest under Section 409A of the Code or any regulations or Treasury guidance promulgated thereunder with respect to one or more payments or benefits provided pursuant to the provisions of this Policy, the Company may reform such provisions to maintain to the maximum extent practicable the original intent of the applicable provisions without violating the provisions of Section 409A of the Code.
Section 5. N ON -C OMPETITION
As an executive of the Company, each Eligible Executive has acquired and will continue to acquire knowledge of sensitive and confidential information relating to product development road maps, marketing plans, competitive plans and pricing strategies and trade secrets (the Confidential Information). The Confidential Information which the Company has provided and will provide to an Eligible Executive could play a significant role were the Eligible Executive to directly or indirectly be engaged in any business in Competition (as hereinafter defined) with the Company or its subsidiaries. As a condition to being entitled to any of the benefits described in Section 4 of this Policy, for a period of
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six months following the date of Involuntary Termination, absent the prior written consent of the Company, an Eligible Executive shall not, directly or indirectly, either as principal, manager, agent, consultant, officer, stockholder, partner, investor, lender or employee or in any other capacity, carry on, be engaged in or have any financial interest in (other than an ownership position of less than 2 percent in any company whose shares are publicly traded), any business, which is in Competition with the existing business of the Company or its subsidiaries (Competitive Activity).
For purposes of this Section 6, a business shall be deemed to be in Competition with the Company or its subsidiaries if it is engaged in or has taken concrete steps toward engaging in the business of providing (A) software or systems that enable Internet connectivity or enable or provide data services on mobile devices (such as messaging and location or location related services) to communication service providers or enterprise customers, whether the software is located on the server or the client (e.g., mobile device), or (B) messaging software to communication service providers, Internet service providers or enterprise customers, either as carried on or being developed by the Company or its affiliates as of the date of the Eligible Executives Involuntary Termination, in all cities, counties, states and countries in which the business of the Company or its affiliates is then being conducted or its products are being sold.
Section 6. R IGHT T O I NTERPRET P LAN ; A MENDMENT AND T ERMINATION
Exclusive Discretion. The Policy Administrator will have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Policy and to construe and interpret the Policy and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Policy, including, but not limited to, the eligibility to participate in the Policy and amount of benefits paid under the Policy. The rules, interpretations, computations and other actions of the Policy Administrator will be binding and conclusive on all persons.
Amendment or Termination. The Company reserves the right to amend or terminate this Policy or the benefits provided hereunder at any time; provided, however, that no such amendment or termination will affect the right to any unpaid benefit of any Eligible Executive whose termination date has occurred prior to amendment or termination of the Policy. Any action amending or terminating the Policy will be in the form of a written resolution adopted by either the Board or of the Compensation Committee of the Board.
Section 7. T ERMINATION OF C ERTAIN E MPLOYEE B ENEFITS
All benefits (including but not limited to health insurance, life insurance, disability and 401(k) plan coverage) will terminate as of the Eligible Executives termination date (except to the extent that a continuation or conversion privilege may be available thereunder).
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Section 8. N O I MPLIED E MPLOYMENT C ONTRACT
The Company and the Eligible Executive acknowledge that the Eligible Executives employment is and shall continue to be at-will, as defined under applicable law. If the Eligible Executives employment terminates for any reason other than an Involuntary Termination, the Eligible Executive shall not be entitled to any benefits, damages, awards or compensation under Section 4 of this Policy, but may be entitled to payments or benefits in accordance with the Companys other established employee plans and practices or pursuant to other agreements with the Company.
S UCCESSORS
Companys Successors . Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Companys business and/or assets will assume the obligations under this Policy and agree expressly to perform the obligations under this Policy in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Policy, the term Company will include any successor to the Companys business and/or assets which executes and delivers the assumption agreement described in this Section 10(a) or which becomes bound by the terms of this Policy by operation of law or otherwise.
Eligible Executives Successors. The terms of this Policy and all rights of the Eligible Executive hereunder will inure to the benefit of, and be enforceable by, the Executives personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
Section 9. L EGAL C ONSTRUCTION
This Policy is intended to be governed by and will be construed in accordance with the Employee Retirement Income Security Act of 1974, as amended (ERISA) and, to the extent not preempted by ERISA, the laws of the State of California.
Section 10. C LAIMS , I NQUIRIES A ND A PPEALS
Applications for Benefits and Inquiries. Any application for benefits, inquiries about the Policy or inquiries about present or future rights under the Policy must be submitted to the Policy Administrator in writing.
Denial of Claims. In the event that any application for benefits is denied in whole or in part, the Policy Administrator must notify the applicant, in writing, of the denial of the application, and of the applicants right to review the denial. The written notice of denial will be set forth in a manner designed to be understood by the applicant and will include specific reasons for the denial, specific references to the Policy provision upon which the denial is based, a description of any information or material that the Policy Administrator needs to complete the review and an explanation of the Policys review procedure.
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This written notice will be given to the applicant within ninety (90) days after the Policy Administrator receives the application, unless special circumstances require an extension of time, in which case, the Policy Administrator has up to an additional ninety (90) days for processing the application. If an extension of time for processing is required, written notice of the extension will be furnished to the applicant before the end of the initial ninety (90) day period.
This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Policy Administrator is to render its decision on the application. If written notice of denial of the application for benefits is not furnished within the specified time, the application will be deemed to be denied. The applicant will then be permitted to appeal the denial in accordance with the Review Procedure described below.
Request for a Review. Any person (or that persons authorized representative) for whom an application for benefits is denied (or deemed denied), in whole or in part, may appeal the denial by submitting a request for a review to the Policy Administrator within sixty (60) days after the application is denied (or deemed denied). The Policy Administrator will give the applicant (or his or her representative) an opportunity to review pertinent documents in preparing a request for a review. A request for a review will be in writing and will be addressed to:
Openwave Systems Inc.
2100 Seaport Boulevard
Redwood City, California 94063
Attn: Senior Vice President of Human Resources
A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the applicant feels are pertinent. The Policy Administrator may require the applicant to submit additional facts, documents or other material as it may find necessary or appropriate in making its review.
Decision on Review. The Policy Administrator will act on each request for review within sixty (60) days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional sixty (60) days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the applicant within the initial sixty (60) day period. The Policy Administrator will give prompt, written notice of its decision to the applicant. In the event that the Policy Administrator confirms the denial of the application for benefits in whole or in part, the notice will outline, in a manner calculated to be understood by the applicant, the specific Policy provisions upon which the decision is based. If written notice of the Policy Administrators decision is not given to the applicant within the time prescribed in this Subsection (d), the application will be deemed denied on review.
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Rules and Procedures. The Policy Administrator will establish rules and procedures, consistent with the Policy and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing benefit claims. The Policy Administrator may require an applicant who wishes to submit additional information in connection with an appeal from the denial (or deemed denial) of benefits to do so at the applicants own expense.
Exhaustion of Remedies. No legal action for benefits under the Policy may be brought until the claimant (i) has submitted a written application for benefits in accordance with the procedures described by Section 12(a) above, (ii) has been notified by the Policy Administrator that the application is denied (or the application is deemed denied due to the Policy Administrators failure to act on it within the established time period), (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 12(c) above and (iv) has been notified in writing that the Policy Administrator has denied the appeal (or the appeal is deemed to be denied due to the Policy Administrators failure to take any action on the claim within the time prescribed by Section 12(d) above).
Section 11. B ASIS O F P AYMENTS T O A ND F ROM P LAN
All benefits under the Policy will be paid by the Company. The Policy will be unfunded, and benefits hereunder will be paid only from the general assets of the Company.
Section 12. O THER P OLICY I NFORMATION
Employer Identification Numbers. The Employer Identification Number assigned to the Company (which is the Policy Sponsor as that term is used in ERISA) by the Internal Revenue Service is 94-3219054.
Agent for the Service of Legal Process. The agent for the service of legal process with respect to the Policy is Openwave Systems Inc., 2100 Seaport Boulevard, Redwood City, California, 94063.
Policy Sponsor and Administrator. The Policy Sponsor and the Policy Administrator of the Policy is Openwave Systems Inc., 2100 Seaport Boulevard, Redwood City, California, 94063. The Policy Sponsors and Policy Administrators telephone number is (650) 480-8000. The Policy Administrator is the named fiduciary charged with the responsibility for administering the Policy.
Section 15. M ISCELLANEOUS
(a) Notice . Notices and all other communications contemplated by this Policy will be in writing and will be deemed to have been duly given either (i) when personally delivered or sent by facsimile or (ii) five (5) days after being mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Eligible Executive, mailed notices shall be addressed to him or her at the home address or facsimile number which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices or notices sent by facsimile shall be
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addressed to its corporate headquarters, and all notices shall be directed to the attention of its General Counsel.
(b) No Waiver . The failure of a party to insist upon strict adherence to any term of this Policy on any occasion shall not be considered a waiver of such partys rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Policy.
(c) Severability . In the event that any one or more of the provisions of this Policy shall be or become invalid, illegal or unenforceable in any respect or to any degree, the validity, legality and enforceability of the remaining provisions of this Policy shall not be affected thereby. The parties intend to give the terms of this Policy the fullest force and effect so that is any provision shall be found to be invalid or unenforceable, the court reaching such conclusion may modify or interpret such provision in a manner that shall carry out the parties intent and shall be valid and enforceable.
Headings . The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof or to affect the meaning thereof.
Specific Performance. If in the opinion of any court of competent jurisdiction the covenants described in Sections 5(c) and 6 of this Policy are not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provision or provisions of this covenant as to the court shall appear not reasonable and to enforce the remainder of the covenant as so amended. Any breach of the covenants contained in Sections 5(c) and 6 would irreparably injure the Company. Accordingly, the Companys remedies at law for a breach or threatened breach of any of the provisions of Section 5(c) and 6 would be inadequate and, in the event of such a breach or threatened breach, the Company may, without posting any bond, in addition to pursuing any other remedies it may have in law or in equity, obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available against the Eligible Executive from any court having jurisdiction over the matter, restraining any further violation of this Policy by the Eligible Executive.
Withholding Taxes . The Company may withhold from any amounts payable under this Policy such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
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S ECTION 16. E XECUTION
To record the adoption of the Policy as set forth herein, Openwave Systems Inc. has caused its duly authorized officer to execute the same.
O PENWAVE S YSTEMS I NC . | ||
By: |
|
|
Mike Mulica , President and | ||
Chief Executive Officer |
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Exhibit 10.8
OPENWAVE SYSTEMS, INC.
AMENDED AND RESTATED
2006 STOCK INCENTIVE PLAN
A. Adopted by the Board on November 29, 2006 and originally approved by the shareholders of the Company on January 17, 2007.
B. Amended by the Committee on October 20, 2008, inter alia , to increase the Share Reserve to seventeen million (17,000,000), and subsequently approved by shareholders of the Company on December 4, 2008.
C. Amended by the Committee on November 11, 2011, to eliminate the minimum vesting period for Restricted Stock Bonuses, Restricted Stock Purchase Rights and Restricted Stock Units. Shareholder approval was not required.
C. Termination Date: November 29, 2016.
I. PURPOSES
1.1 Eligible Stock Award Recipients . The persons eligible to receive Stock Awards are the Employees and Consultants of the Company and its Affiliates.
1.2 Available Stock Awards . The types of stock awards that may be granted under this Plan shall be: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Restricted Stock Bonuses, (iv) Restricted Stock Purchase Rights, (v) Stock Appreciation Rights, (vi) Phantom Stock Units, (vii) Restricted Stock Units, (viii) Performance Share Bonuses, and (ix) Performance Share Units.
1.3 General Purpose . The Company, by means of this Plan, seeks to create incentives for eligible Employees (including officers) and Consultants of the Company and to maximize the long term value of the Company by granting awards to acquire the Common Stock of the Company (or awards, the value of which is measured with reference to the Common Stock of the Company).
II. DEFINITIONS
2.1 Affiliate means a parent or subsidiary of the Company, with parent meaning an entity that controls the Company directly or indirectly, through one or more intermediaries, and subsidiary meaning an entity that is controlled by the Company directly or indirectly, through one or more intermediaries. Solely with respect to the granting of any Incentive Stock Options, Affiliate means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
2.2 Beneficial Owner means the definition given in Rule 13d-3 promulgated under the Exchange Act.
2.3 Board means the Board of Directors of the Company.
2.4 Change in Control means the occurrence of any of the following events:
(i) Any person or group is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company, including by way of merger, consolidation or otherwise;
(ii) The sale, exchange, lease or other disposition of all or substantially all of the assets of the Company to a person or group of related persons, as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act;
(iii) A merger or consolidation or similar transaction involving the Company;
(iv) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the Directors are Incumbent Directors; or
(v) A dissolution or liquidation of the Company.
2.5 Code means the Internal Revenue Code of 1986, as amended.
2.6 Committee means the committee appointed by the Board in accordance with Section 3.3 of the Plan.
2.7 Common Stock means the common shares of the Company.
2.8 Company means Openwave Systems Inc., a Delaware corporation.
2.9 Consultant means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the board of directors of an Affiliate. However, the term Consultant shall not include either Directors who are not compensated by the Company for their services as a Director or Directors who are compensated by the Company solely for their services as a Director.
2.10 Continuous Service means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Service shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other leave of absence as approved by the Board or the chief executive officer of the Company provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Affiliates or its successor.
2.11 Covered Employee means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.
2.12 Director means a member of the Board of Directors of the Company.
2.13 Disability means the inability of an individual, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that individuals position
with the company or an Affiliate of the Company because of the sickness or injury of the individual, or as may be otherwise defined under applicable local laws.
2.14 Employee means any person employed by the Company or an Affiliate. Service as a Director or compensation by the Company or an Affiliate solely for services as a Director shall not be sufficient to constitute employment by the Company or an Affiliate.
2.15 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.16 Fair Market Value means, as of any date, the value of the Common Stock as determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation (Nasdaq) System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported), as quoted on such exchange or system on the day of determination or, if the stock exchange or national market system on which the Common Stock trades is not open on the day of determination, the last business day prior to the day of determination;
(ii) If the Common Stock is quoted on the Nasdaq System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and the low asked prices for the Common Stock on the day of determination or, if the stock exchange or national market system on which the Common Stock trades is not open on the day of determination, the last business day prior to the day of determination; or
(iii) In the absence of any established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board.
2.17 Full-Value Stock Award shall mean any of a Restricted Stock Bonus, Restricted Stock Units, Phantom Stock Units, Performance Share Bonus, or Performance Share Units.
2.18 Incentive Stock Option means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
2.19 Incumbent Directors shall mean Directors who either (i) are Directors of the Company as of the date the Plan first becomes effective pursuant to Article XV hereof or (ii) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those Directors whose election or nomination was not in connection with any transaction described in subsections (i), (ii), or (iii) of Section 2.4, or in connection with an actual or threatened proxy contest relating to the election of Directors to the Company.
2.20 Interim Plan shall mean the Openwave Systems, Inc. 2006 Interim (Non-Stockholder Approved) Stock Incentive Plan, which was approved by the Board on November 1, 2006.
2.21 Non-Employee Director means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a
consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (Regulation S-K)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a non-employee director for purposes of Rule 16b-3.
2.22 Nonstatutory Stock Option means an Option not intended to qualify as an Incentive Stock Option.
2.23 Officer means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
2.24 Option means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
2.25 Option Agreement means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.
2.26 Optionholder means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
2.27 Outside Director means a Director who either (i) is not a current employee of the Company or an affiliated corporation (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an affiliated corporation receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an affiliated corporation at any time and is not currently receiving direct or indirect remuneration from the Company or an affiliated corporation for services in any capacity other than as a Director; or (ii) is otherwise considered an outside director for purposes of Section 162(m) of the Code.
2.28 Participant means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.
2.29 Performance Share Bonus means a grant of shares of the Companys Common Stock not requiring a Participant to pay any amount of monetary consideration, and which grant is subject to the provisions of Section 7.6 of the Plan.
2.30 Performance Share Unit means the right to receive the value of one (1) share of the Companys Common Stock at the time the Performance Share Unit vests, with the further right to elect to defer receipt of that value otherwise deliverable upon the vesting of an award of Performance Share Units to the extent permitted in the Participants Stock Award Agreement. These Performance Share Units are subject to the provisions of Section 7.7 of the Plan.
2.31 Phantom Stock Unit means the right to receive the value of one (1) share of the Companys Common Stock, subject to the provisions of Section 7.4 of the Plan.
2.32 Plan means this Openwave Systems Inc. 2006 Stock Incentive Plan.
2.33 Restricted Stock Bonus means a grant of shares of the Companys Common Stock not requiring a Participant to pay any amount of monetary consideration, and which grant is subject to the provisions of Section 7.1 of the Plan.
2.34 Restricted Stock Purchase Right means the right to acquire shares of the Companys Common Stock upon the payment of the agreed-upon monetary consideration, subject to the provisions of Section 7.2 of the Plan.
2.35 Restricted Stock Unit means the right to receive the value of one (1) share of the Companys Common Stock at the time the Restricted Stock Unit vests, with the further right to elect to defer receipt of that value otherwise deliverable upon the vesting of an award of restricted stock to the extent permitted in the Participants agreement. These Restricted Stock Units are subject to the provisions of Section 7.5 of the Plan.
2.36 Rule 16b-3 means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
2.37 Securities Act means the Securities Act of 1933, as amended.
2.38 Stock Appreciation Right means the right to receive an amount equal to the Fair Market Value of one (1) share of the Companys Common Stock on the day the Stock Appreciation Right is redeemed, reduced by the deemed exercise price or base price of such right, subject to the provisions of Section 7.3 of the Plan.
2.39 Stock Award means any Option award, Restricted Stock Bonus award, Restricted Stock Purchase Right award, Stock Appreciation Right award, Phantom Stock Unit award, Restricted Stock Unit award, Performance Share Bonus award, Performance Share Unit award, or other stock-based award. These Awards may include, but are not limited to those listed in Section 1.2.
2.40 Stock Award Agreement means a written agreement, including an Option Agreement, between the Company and a holder of a Stock Award setting forth the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.
2.41 Ten Percent Shareholder means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.
III. ADMINISTRATION
3.1 Administration by Board . The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in Section 3.3.
3.2 Powers of Board . The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be
permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 14 of the Plan.
(iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary, desirable, convenient or expedient to promote the best interests of the Company that are not in conflict with the provisions of the Plan.
(v) To authorize any person to execute on behalf of the Company any instrument required to effect the grant of a Stock Award previously granted by the Board.
(vi) To determine whether Stock Awards will be settled in shares of Common Stock, cash or in any combination thereof.
(vii) To establish a program whereby Participants designated by the Board can reduce compensation otherwise payable in cash in exchange for Stock Awards under the Plan.
(viii) To impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any shares of Common Stock issued as a result of or under a Stock Award, including, without limitation, (A) restrictions under an insider trading policy and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers.
(ix) To provide, either at the time a Stock Award is granted or by subsequent action, that a Stock Award shall contain as a term thereof, a right, either in tandem with the other rights under the Stock Award or as an alternative thereto, of the Participant to receive, without payment to the Company, a number of shares of Common Stock, cash or a combination thereof, the amount of which is determined by reference to the value of the Stock Award.
(x) To adopt sub-plans and/or special provisions applicable to Stock Awards regulated by the laws of a jurisdiction other than and outside of the United States. Such sub-plans and/or special provisions may take precedence over other provisions of the Plan, with the exception of Article IV of the Plan, but unless otherwise superseded by the terms of such sub-plans and/or special provisions, the provisions of the Plan shall govern.
3.3 Delegation to Committee .
The Board may delegate administration of the Plan to a committee (Committee) consisting solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. The Committee may exercise, in connection with the administration of the Plan, any of the powers and authority granted to the Board under the Plan, and the Committee may delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or the subcommittee, as applicable), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more Directors who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate to a committee of one or more Directors who are not Non-Employee Directors the authority to grant Stock Awards to eligible persons who are either (a) not then subject to Section 16 of the Exchange Act or (b) receiving a Stock Award as to which the Board or Committee elects not to comply with Rule 16b-3 by having two or more Non-Employee Directors grant such Stock Award. Furthermore, within the scope of such authority, the Board may delegate to a committee of one or more officers of the Company to designate employees to receive options and other rights to acquire shares of Common Stock and the number of such options or other rights in accordance with the requirements of Section 157(c) of the Delaware General Corporation Law.
This Section 3.3 of the Plan, is subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.
3.4 Effect of Boards Decision . All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.
3.5 Compliance with Section 16 of Exchange Act . With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with the applicable conditions of Rule 16b-3, or any successor rule thereto. To the extent any provision of this Plan or action by the Board fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board. Notwithstanding the above, it shall be the responsibility of such persons, not of the Company or the Board, to comply with the requirements of Section 16 of the Exchange Act; and neither the Company nor the Board shall be liable if this Plan or any transaction under this Plan fails to comply with the applicable conditions of Rule 16b-3 or any successor rule thereto, or if any person incurs any liability under Section 16 of the Exchange Act.
IV. SHARES SUBJECT TO THE PLAN
4.1 Share Reserve . Subject to the provisions of Section 12 of the Plan relating to adjustments upon changes in Common Stock, the maximum aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards shall not exceed seventeen million (17,000,000) shares of Common Stock (Share Reserve). Each share of Common Stock issued pursuant to a Stock Award issued either under this Plan or the Interim Plan (as the term Stock Award is defined pursuant to the Interim Plan) shall reduce the Share Reserve by one (1) share; provided, however , that for each Full-Value Stock Award, the Share Reserve shall be reduced by one and one-half (1.5) shares. To the extent that a distribution pursuant to a Stock Award is made in cash, the Share Reserve shall be reduced by the number of shares of Common Stock subject to the redeemed or exercised portion of the Stock Award. Notwithstanding any other provision of the Plan to the contrary, the maximum aggregate number of shares of Common Stock that may be issued under the Plan pursuant to Incentive Stock Options is seventeen million
(17,000,000) shares of Common Stock (ISO Limit), subject to the adjustments provided for in Section 12 of the Plan.
4.2 Reversion of Shares to the Share Reserve .
(i) If any Stock Award granted under this Plan shall for any reason (A) expire, be cancelled or otherwise terminate, in whole or in part, without having been exercised or redeemed in full, (B) be reacquired by the Company prior to vesting, or (C) be repurchased at cost by the Company prior to vesting, the shares of Common Stock not acquired by Participant under such Stock Award shall revert or be added to the Share Reserve and become available for issuance under the Plan; provided, however, that shares of Common Stock shall not revert or be added to the Share Reserve that are (a) tendered in payment of an Option, (b) withheld by the Company to satisfy any tax withholding obligation, or (c) purchased by the Company with proceeds from the exercise of Options, and provided, further, that shares of Common Stock covered by a Stock Appreciation Right, to the extent that it is exercised and settled in shares of Common Stock, and whether or not shares of Common Stock are actually issued to the Participant upon exercise of the Stock Appreciation Right, shall be considered issued or transferred pursuant to the Plan.
4.3 Source of Shares . The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.
V. ELIGIBILITY
5.1 Eligibility for Specific Stock Awards . Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees and Consultants.
5.2 Ten Percent Shareholders . A Ten Percent Shareholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.
5.3 Annual Section 162(m) Limitation . Subject to the provisions of Section 12 of the Plan relating to adjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be granted Incentive Stock Options, Nonstatutory Stock Options, or Stock Appreciation Rights covering more than [two and a half million (2,500,000)] shares of Common Stock during any fiscal year. The foregoing provision applies to both continuing and newly hired Employees.
5.4 Consultants .
(i) A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (Form S-8) is not available to register either the offer or the sale of the Companys securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (1) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the
Securities Act, if applicable, and (2) that such grant complies with the securities laws of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and advisors only if (A) they are natural persons; (B) they provide bona fide services to the issuer, its parents, or its majority owned subsidiaries; and (C) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuers securities.
VI. OPTION PROVISIONS
Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased upon exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
6.1 Term . Subject to the provisions of Section 5.2 of the Plan regarding grants of Incentive Stock Options to Ten Percent Shareholders, no Option shall be exercisable after the expiration of ten (10) years from the date it was granted.
6.2 Exercise Price of an Incentive Stock Option . Subject to the provisions of Section 5.2 of the Plan regarding Ten Percent Shareholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
6.3 Exercise Price of a Nonstatutory Stock Option . The exercise price of each Nonstatutory Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
6.4 Consideration . The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash or by check at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option): (1) by delivery to the Company of other Common Stock, (2) pursuant to a same day sale program to the extent permitted by law, (3) reduction of the Companys liability to the Optionholder, (4) by any other form of consideration permitted by law, but in no event shall a promissory note or other form of deferred payment constitute a permissible form of consideration for an Option granted under the Plan, or (5) by some combination of the foregoing. In the absence of a provision to the contrary in the individual Optionholders Option Agreement, payment for
Common Stock pursuant to an Option may only be made in the form of cash, check, or pursuant to a same day sale program.
Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes).
6.5 Transferability of an Incentive Stock Option . An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
6.6 Transferability of a Nonstatutory Stock Option . A Nonstatutory Stock Option shall be transferable to family members to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability to family members, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
6.7 Vesting Generally . Options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Board. The vesting provisions of individual Options may vary. If vesting is based on the Participants Continuous Service, such Options generally will vest in equal monthly installments over a three (3) year period; provided, however, that vesting for new hires will occur as to one-third (1/3 rd ) of the Options after one (1) year from the grant date and as to the remaining two-thirds (2/3 rds ) of the Options in equal monthly installments over the subsequent two (2) years. Notwithstanding the foregoing, the vesting of Options may be conditioned or accelerated upon achievement of performance criteria as determined by the Board or its delegatee. The provisions of this Section 6.7 are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.
6.8 Termination of Continuous Service . In the event an Optionholders Continuous Service terminates (other than upon the Optionholders death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time as is specified in the Option Agreement (and in no event later than the expiration of the term of such Option as set forth in the Option Agreement). If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. In the absence of a provision to the contrary in the individual Optionholders Option Agreement, the Option shall remain exercisable for three (3) months following the termination of the Optionholders Continuous Service; provided, however, that if the Optionholders Continuous Service is terminated for Cause (as defined in the Option Agreement), the Option immediately shall terminate.
6.9 Extension of Termination Date . An Optionholders Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholders Continuous Service (other than upon the Optionholders death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act or other applicable securities law, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement or (ii) the expiration of a period of three (3) months after the termination of the Optionholders Continuous Service during which the exercise of the Option would not be in violation of such registration requirements or other applicable securities law. The provisions of this Section 6.9 notwithstanding, in the event that a sale of the shares of Common Stock received upon exercise of his or her Option would subject the Optionholder to liability under Section 16(b) of the Exchange Act, then the Option will terminate on the earlier of (1) the fifteenth (15 th ) day after the last date upon which such sale would result in liability, or (2) two hundred ten (210) days following the date of termination of the Optionholders employment or other service to the Company (and in no event later than the expiration of the term of the Option).
6.10 Disability of Optionholder . In the event that an Optionholders Continuous Service terminates as a result of the Optionholders Disability, the Optionholder may exercise his or her Option to the extent that the Optionholder was entitled to exercise such Option as of the date of termination, but only within such period of time as is specified in the Option Agreement (and in no event later than the expiration of the term of such Option as set forth in the Option Agreement). If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. In the absence of a provision to the contrary in the individual Optionholders Option Agreement, the Option shall remain exercisable for twelve (12) months following such termination.
6.11 Death of Optionholder . In the event (i) an Optionholders Continuous Service terminates as a result of the Optionholders death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholders Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholders estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholders death pursuant to Section 6.5 or 6.6 of the Plan, but only within such period of time as is specified in the Option Agreement (and in no event later than the expiration of the term of such Option as set forth in the Option Agreement). If, after death, the Option is not exercised within the time specified in the Option Agreement, the Option shall terminate. In the absence of a provision to the contrary in the individual Optionholders Option Agreement, the Option shall remain exercisable for eighteen (18) months following the Optionholders death.
6.12 Early Exercise Generally Not Permitted . The Companys general policy is not to allow the Optionholder to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the vesting of the Option. If, however, an Option Agreement does permit such early exercise, any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate.
VII. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS
7.1 Restricted Stock Bonuses . Each Restricted Stock Bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate.
Restricted Stock Bonuses shall be paid by the Company in shares of the Common Stock of the Company. The terms and conditions of Restricted Stock Bonus agreements may change from time to time, and the terms and conditions of separate Restricted Stock Bonus agreements need not be identical, but each Restricted Stock Bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration . A Restricted Stock Bonus may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit; provided, however , that in the case of a Restricted Stock Bonus to be made to a new Employee or Consultant who has not performed prior services for the Company, the Company shall require such consideration to be paid as will ensure compliance with the General Corporation Law of the State of Delaware.
(ii) Vesting . Shares of Common Stock awarded under the Restricted Stock Bonus agreement shall be subject to a share reacquisition right in favor of the Company in accordance with a vesting schedule to be determined by the Board or its delegatee and set forth in the Participants Restricted Stock Bonus agreement.
(iii) Termination of Participants Continuous Service . In the event a Participants Continuous Service terminates, the Company shall automatically reacquire without cost any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the Restricted Stock Bonus agreement.
(iv) Transferability . Rights to acquire shares of Common Stock under the Restricted Stock Bonus agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Bonus agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the Restricted Stock Bonus agreement remains subject to the terms of the Restricted Stock Bonus agreement.
7.2 Restricted Stock Purchase Rights . Each Restricted Stock Purchase Right agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the Restricted Stock Purchase Right agreements may change from time to time, and the terms and conditions of separate Restricted Stock Purchase Right agreements need not be identical, but each Restricted Stock Purchase Right agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Purchase Price . The purchase price under each Restricted Stock Purchase Right agreement shall be such amount as the Board shall determine and designate in such Restricted Stock Purchase Right agreement. The purchase price shall not be less than one hundred percent (100%) of the Common Stocks Fair Market Value on the date such award is made or at the time the purchase is consummated.
(ii) Consideration . The purchase price of Common Stock acquired pursuant to the Restricted Stock Purchase Right agreement shall be paid either: (A) in cash or by check at the time of purchase; or (B) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant to the extent permitted by law.
(iii) Vesting . Absent a provision to the contrary in the Participants Restricted Stock Purchase Right agreement, so long as the Participant remains in Continuous Service with the Company, a Restricted Stock Purchase Right granted to the Participant shall vest as to a schedule to be determined by the Board in its discretion. Shares of Common Stock acquired under the Restricted Stock Purchase Right agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.
(iv) Termination of Participants Continuous Service . In the event a Participants Continuous Service terminates, the Company may repurchase any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the Restricted Stock Purchase Right agreement.
(v) Transferability . Rights to acquire shares of Common Stock under the Restricted Stock Purchase Right agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Purchase Right agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the Restricted Stock Purchase Right agreement remains subject to the terms of the Restricted Stock Purchase Right agreement.
7.3 Stock Appreciation Rights . Two types of Stock Appreciation Rights (SARs) shall be authorized for issuance under the Plan: (1) stand-alone SARs and (2) stapled SARs.
(i) Stand-Alone SARs . The following terms and conditions shall govern the grant and redeemability of stand-alone SARs:
(A) The stand-alone SAR shall cover a specified number of underlying shares of Common Stock and shall be redeemable upon such terms and conditions as the Board may establish. Upon redemption of the stand-alone SAR, the holder shall be entitled to receive a distribution from the Company in an amount equal to the excess of (i) the aggregate Fair Market Value (on the redemption date) of the shares of Common Stock underlying the redeemed right over (ii) the aggregate base price in effect for those shares.
(B) The number of shares of Common Stock underlying each stand-alone SAR and the base price in effect for those shares shall be determined by the Board in its sole discretion at the time the stand-alone SAR is granted. In no event, however, may the base price per share be less than one hundred percent (100%) of the Fair Market Value per underlying share of Common Stock on the grant date.
(C) The distribution with respect to any redeemed stand-alone SAR may be made in shares of Common Stock valued at Fair Market Value on the redemption date, in cash, or partly in shares and partly in cash, as the Board shall in its sole discretion deem appropriate; provided, however, that the total number of shares subject to the SAR shall be counted in reducing the Share Reserve to the extent the SAR is exercised.
(ii) Stapled SARs . The following terms and conditions shall govern the grant and redemption of stapled SARs:
(A) Stapled SARs may only be granted concurrently with an Option to acquire the same number of shares of Common Stock as the number of such shares underlying the stapled SARs.
(B) Stapled SARs shall be redeemable upon such terms and conditions as the Board may establish and shall grant a holder the right to elect among (i) the exercise of the concurrently granted Option for shares of Common Stock, whereupon the number of shares of Common Stock subject to the stapled SARs shall be reduced by an equivalent number, (ii) the redemption of such stapled SARs in exchange for a distribution from the Company in an amount equal to the excess of the Fair Market Value (on the redemption date) of the number of vested shares which the holder redeems over the aggregate base price for such vested shares, whereupon the number of shares of Common Stock subject to the concurrently granted Option shall be reduced by any equivalent number, or (iii) a combination of (i) and (ii).
(C) The distribution to which the holder of stapled SARs shall become entitled under this Section 7 upon the redemption of stapled SARs as described in Section 7.3(ii)(B) above may be made in shares of Common Stock valued at Fair Market Value on the redemption date, in cash, or partly in shares and partly in cash, as the Board shall in its sole discretion deem appropriate; provided, however, that the total number of shares subject to the stapled SAR shall be counted in reducing the Share Reserve to the extent the stapled SAR is exercised.
7.4 Phantom Stock Units . The following terms and conditions shall govern the grant and redeemability of Phantom Stock Units:
(i) Phantom Stock Unit awards shall be redeemable by the Participant upon such terms and conditions as the Board may establish; provided, however, that if vesting is based on Continuous Service, the length of service required shall be no less than three (3) years. Notwithstanding the foregoing, the vesting of a Phantom Stock Unit award may be conditioned or accelerated upon the achievement of performance criteria as determined by the Board or its delegatee. The value of a single Phantom Stock Unit shall be equal to the Fair Market Value of a share of Common Stock, unless the Board otherwise provides in the terms of the Stock Award Agreement. The holder of a Phantom Stock Unit shall not have a right to dividend equivalents.
(ii) The distribution with respect to any exercised Phantom Stock Unit award may be made in shares of Common Stock valued at Fair Market Value on the redemption date, in cash, or partly in shares and partly in cash, as the Board shall in its sole discretion deem appropriate.
7.5 Restricted Stock Units . The following terms and conditions shall govern the grant and redeemability of Restricted Stock Units:
A Restricted Stock Unit is the right to receive the value of one (1) share of the Companys Common Stock at the time the Restricted Stock Unit vests. The holder of a Restricted Stock Unit shall not have the right to dividend equivalents. To the extent permitted by the Board in the terms of his or her Restricted Stock Unit agreement, a Participant may elect to defer receipt of the value of the shares of Common Stock otherwise deliverable upon the vesting of an award of Restricted Stock Units, so long as such deferral election complies with applicable law, including to the extent applicable, the Employment Retirement Income Security Act of 1974, as amended (ERISA). An election to defer such delivery shall be irrevocable and shall be made in writing on a form acceptable to the Company. The election form shall be filed prior to the vesting date of
such Restricted Stock Units in a manner determined by the Board. When the Participant vests in such Restricted Stock Units, the Participant will be credited with a number of Restricted Stock Units equal to the number of shares of Common Stock for which delivery is deferred. Restricted Stock Units may be paid by the Company by delivery of shares of Common Stock, in cash, or a combination thereof, as the Board shall in its sole discretion deem appropriate, in accordance with the timing and manner of payment elected by the Participant on his or her election form, or if no deferral election is made, as soon as administratively practicable following the vesting of the Restricted Stock Unit.
Each Restricted Stock Unit agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Restricted Stock Unit agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit agreements need not be identical, but each Restricted Stock Unit agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration . A Restricted Stock Unit may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit. The Board shall have the discretion to provide that the Participant pay for such Restricted Stock Unit with cash or other consideration permissible by law.
(ii) Vesting . Restricted Stock Units shall vest in accordance with a vesting schedule to be determined by the Board or its delegatee and set forth in the Participants Restricted Stock Bonus agreement. (iii) Termination of Participants Continuous Service . The unvested portion of the Restricted Stock Unit award shall expire immediately upon the termination of Participants Continuous Service.
(iv) Transferability . Rights to acquire the value of shares of Common Stock under the Restricted Stock Unit agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Unit agreement, as the Board shall determine in its discretion, so long as any Common Stock awarded under the Restricted Stock Unit agreement remains subject to the terms of the Restricted Stock Unit agreement.
7.6 Performance Share Bonuses . Each Performance Share Bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. Performance Share Bonuses shall be paid by the Company in shares of the Common Stock of the Company. The terms and conditions of Performance Share Bonus agreements may change from time to time, and the terms and conditions of separate Performance Share Bonus agreements need not be identical, but each Performance Share Bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration . A Performance Share Bonus may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit. In the event that a Performance Share Bonus is granted to a new Employee or Consultant who has not performed prior services for the Company, the Performance Share Bonus will not be awarded until the Board determines that such person has rendered services to the Company for a sufficient period of time to ensure proper issuance of the shares in compliance with the General Corporation Law of the State of Delaware.
(ii) Vesting . Vesting shall be based on the achievement of certain performance criteria, whether financial, transactional or otherwise, as determined by the Board. Vesting shall be subject to the Performance Share Bonus agreement. Generally, a Performance Share Bonus shall not fully vest in less than one (1) year. Notwithstanding the foregoing, the vesting of a Performance Share Bonus may be accelerated upon the achievement of performance criteria as determined by the Board or its delegatee. Upon failure to meet performance criteria, shares of Common Stock awarded under the Performance Share Bonus agreement shall be subject to a share reacquisition right in favor of the Company in accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participants Continuous Service . In the event a Participants Continuous Service terminates, the Company shall reacquire any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the Performance Share Bonus agreement.
(iv) Transferability . Rights to acquire shares of Common Stock under the Performance Share Bonus agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Performance Share Bonus agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the Performance Share Bonus agreement remains subject to the terms of the Performance Share Bonus agreement.
7.7 Performance Share Units . The following terms and conditions shall govern the grant and redeemability of Performance Share Units:
A Performance Share Unit is the right to receive the value of one (1) share of the Companys Common Stock at the time the Performance Share Unit vests. The holder of a Performance Share Unit shall not have a right to dividend equivalents. To the extent permitted by the Board in the terms of his or her Performance Share Unit agreement, a Participant may elect to defer receipt of the value of shares of Common Stock otherwise deliverable upon the vesting of an award of performance shares. An election to defer such delivery shall be irrevocable and shall be made in writing on a form acceptable to the Company. The election form shall be filed prior to the vesting date of such performance shares in a manner determined by the Board. When the Participant vests in such performance shares, the Participant will be credited with a number of Performance Share Units equal to the number of shares of Common Stock for which delivery is deferred. Performance Share Units may be paid by the Company by delivery of shares of Common Stock, in cash, or a combination thereof, as the Board shall in its sole discretion deem appropriate, in accordance with the timing and manner of payment elected by the Participant on his or her election form, or if no deferral election is made, as soon as administratively practicable following the vesting of the Performance Share Unit.
Each Performance Share Unit agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Performance Share Unit agreements may change from time to time, and the terms and conditions of separate Performance Share Unit agreements need not be identical, but each Performance Share Unit agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration . A Performance Share Unit may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit.
The Board shall have the discretion to provide that the Participant pay for such Performance Share Unit with cash or other consideration permissible by law.
(ii) Vesting . Vesting shall be based on the achievement of certain performance criteria, whether financial, transactional or otherwise, as determined by the Board. Vesting shall be subject to the Performance Share Unit agreement. Generally, a Performance Share Unit may not fully vest in less than one (1) year. Notwithstanding the foregoing, the vesting of a Performance Share Unit may be accelerated upon achievement of performance criteria as determined by the Board or its delegatee.
(iii) Termination of Participants Continuous Service . The unvested portion of any Performance Share Unit shall expire immediately upon the termination of Participants Continuous Service.
(iv) Transferability . Rights to acquire the value of shares of Common Stock under the Performance Share Unit agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Performance Share Unit agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the Performance Share Unit agreement remains subject to the terms of the Performance Share Unit agreement.
XIII. COVENANTS OF THE COMPANY
8.1 Availability of Shares . During the term of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.
8.2 Securities Law Compliance . The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise, redemption or satisfaction of the Stock Awards; provided, however , that this undertaking shall not require the Company to register under the Securities Act the Plan or any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock related to such Stock Awards unless and until such authority is obtained.
IX. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.
X. CANCELLATION AND RE-GRANT OF OPTIONS
10.1 Subject to Section 10.2, the Board shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options, Stock Appreciation Rights and/or Restricted Stock Purchase Rights under the Plan and/or (ii) with the consent of the affected Participants, the cancellation of any outstanding Options, Stock Appreciation Rights and/or Restricted Stock Purchase Rights under the Plan and the grant in substitution therefor of new Options, Stock Appreciation Rights and/or Restricted Stock Purchase Rightss under the Plan covering the same or a different number of shares of Common Stock, but, in the case of Options or Stock Appreciation Rights, having an exercise price per share not less than one hundred percent (100%) of the Fair Market Value and, in the case of an Incentive Stock Option granted to a Ten Percent Shareholder (as described in Section 5.2 of the Plan), having an exercise price not
less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the new grant date. Notwithstanding the foregoing, the Board may grant an Option or a Stock Appreciation Right with an exercise price lower than that set forth above if such Option or Stock Appreciation Right is granted as part of a transaction to which Section 424(a) of the Code applies.
10.2 Prior to the implementation of any such repricing or cancellation of one or more outstanding Options, Stock Appreciation Rights and/or Restricted Stock Purchase Rights as described in Section 10.1, the Board shall obtain the approval of the shareholders of the Company to the extent required by any New York Stock Exchange, Nasdaq or other securities exchange listing requirements, or applicable law.
10.3 Shares subject to an Option or a Stock Appreciation Right cancelled under this Section 10 shall continue to be counted against the maximum award of Options and/or Stock Appreciation Rights permitted to be granted pursuant to Section 5.3 of the Plan. The repricing of an Option or a Stock Appreciation Right under this Section 10, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option or Stock Appreciation Right and the grant of a substitute Option or Stock Appreciation Right; in the event of such repricing, both the original and the substituted Options and/or Stock Appreciation Rights shall be counted against the maximum awards of Options and/or Stock Appreciation Rights permitted to be granted pursuant to Section 5.3 of the Plan. The provisions of this Section 10.3 shall be applicable only to the extent required by Section 162(m) of the Code.
XI. MISCELLANEOUS
11.1 Acceleration of Exercisability and Vesting . The Board (or Committee, if so authorized by the Board) shall have the power to accelerate exercisability and/or vesting of any Stock Award granted pursuant to the Plan upon a Change in Control or upon the death, Disability or termination of Continuous Service of the Participant. In furtherance of such power, the Board or Committee may accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding any provisions in the Stock Award Agreement to the contrary.
11.2 Shareholder Rights . No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to a Stock Award except to the extent that the Company has issued the shares of Common Stock relating to such Stock Award.
11.3 No Employment or Other Service Rights . Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, or (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with the Company or an Affiliate.
11.4 Incentive Stock Option $100,000 Limitation . To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds One Hundred Thousand dollars ($100,000), or such other limit as may be set by law, the Options or portions
thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.
11.5 Investment Assurances . The Company may require a Participant, as a condition of exercising or redeeming a Stock Award or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participants knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of acquiring the Common Stock; (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participants own account and not with any present intention of selling or otherwise distributing the Common Stock; and (iii) to give such other written assurances as the Company may determine are reasonable in order to comply with applicable law. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws, and in either case otherwise complies with applicable law. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable laws, including, but not limited to, legends restricting the transfer of the Common Stock.
11.6 Withholding Obligations . To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state, local, or foreign tax withholding obligation relating to the exercise or redemption of a Stock Award or the acquisition, vesting, distribution, or transfer of Common Stock under a Stock Award by any of the following means (in addition to the Companys right to withhold from any compensation or other amounts payable to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant, provided, however , that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unnumbered shares of Common Stock.
11.7 Section 409A . Notwithstanding anything in the Plan to the contrary, it is the intent of the Company that all Stock Awards granted under this Plan shall not cause an imposition of the additional taxes provided for in Section 409A(a)(1)(B) of the Code; furthermore, it is the intent of the Company that the Plan shall be administered so that the additional taxes provided for in Section 409A(a)(1)(B) of the Code are not imposed. In the event that the Company determines in good faith that any provision of this Plan does not comply with Section 409A of the Code, the Company may amend this Plan to the minimum extent necessary to cause the Plan to comply.
XII. ADJUSTMENTS UPON CHANGES IN STOCK
12.1 Capitalization Adjustments . If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, spinoff, dividend in property other than cash, stock split, liquidating dividend, extraordinary
dividends or distributions, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Board or, if applicable, the Committee, shall make appropriate and proportionate adjustments to the class(es) and maximum number of securities subject to the Plan pursuant to Section 4.1 above, the maximum number of securities that can be made subject to an award granted to any Employee pursuant to Section 5.3 above, and the class(es) and number of securities or other property and price per share of the securities or other property subject to outstanding Stock Awards. The Board, or the Committee, if applicable, shall make such adjustments in its sole discretion, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction without receipt of consideration by the Company.)
12.2 Adjustments Upon a Change in Control .
(i) In the event of a Change in Control as defined in Section 2.4(i) through 2.4(iv), such as an asset sale, merger, or change in Board composition, then the Board or the board of directors of any surviving entity or acquiring entity may provide or require that the surviving or acquiring entity shall: (1) assume or continue all or any part of the Stock Awards outstanding under the Plan or (2) substitute substantially equivalent stock awards (including an award to acquire substantially the same consideration paid to the shareholders in the transaction by which the Change in Control occurs) for those outstanding under the Plan. In the event any surviving entity or acquiring entity refuses to assume or continue such Stock Awards or to substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the Board in its sole discretion and without liability to any person may: (1) provide for the payment of a cash amount in exchange for the cancellation of a Stock Award equal to the product of (x) the excess, if any, of the Fair Market Value per share of Common Stock at such time over the exercise or redemption price, if any, times (y) the total number of shares then subject to such Stock Award; (2) continue the Stock Awards; or (3) notify Participants holding an Option, Stock Appreciation Right, Phantom Stock Unit, Restricted Stock Unit or Performance Share Unit that they must exercise or redeem any portion of such Stock Award (including, at the discretion of the Board, any unvested portion of such Stock Award) at or prior to the closing of the transaction by which the Change in Control occurs and that the Stock Awards shall terminate if not so exercised or redeemed at or prior to the closing of the transaction by which the Change in Control occurs. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised or redeemed prior to the closing of the transaction by which the Change in Control occurs. The Board shall not be obligated to treat all Stock Awards, even those that are of the same type, in the same manner.
(ii) In the event of a Change in Control as defined in Section 2.4(v), such as a dissolution of the Company, all outstanding Stock Awards shall terminate immediately prior to such event.
XIII. AMENDMENT OF THE PLAN AND STOCK AWARDS
13.1 Amendment of Plan . The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 of the Plan relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary to satisfy the requirements of Section 422 of the Code, any New York Stock Exchange, Nasdaq or other securities exchange listing requirements, or other applicable law or regulation.
13.2 Shareholder Approval . The Board may, in its sole discretion, submit any other amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.
13.3 Contemplated Amendments . It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.
13.4 No Material Impairment of Rights . Rights under any Stock Award granted before amendment of the Plan shall not be materially impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.
13.5 Amendment of Stock Awards . The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards subject to and consistent with the terms of the Plan, including Sections 13.1 and 13.2; provided, however , that the rights of the Participant under any Stock Award shall not be materially impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.
XIV. TERMINATION OR SUSPENSION OF THE PLAN
14.1 Plan Term . The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10 th ) anniversary of the date that the Plan is adopted. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
14.2 No Material Impairment of Rights . Suspension or termination of the Plan shall not materially impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant.
XV. EFFECTIVE DATE OF PLAN
The Plan shall become effective immediately following its approval by the shareholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board (the Effective Date). No Stock Awards may be granted under the Plan prior to the time that the shareholders have approved the Plan.
XVI. CHOICE OF LAW
The law of the State of California shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such states conflict of laws rules. Notwithstanding the foregoing, with respect to matters affecting the Plan that are addressed by the General Corporation Law of the State of Delaware, the laws of the State of Delaware shall control.
Exhibit 10.9
O PENWAVE S YSTEMS I NC .
2006 S TOCK I NCENTIVE P LAN
R ESTRICTED S TOCK U NIT G RANT N OTICE
( FOR RESTRICTED STOCK UNIT AWARDS TIME - BASED VESTING )
Openwave Systems Inc. (the Company), pursuant to its 2006 Stock Incentive Plan (the Plan), hereby provides notice (Grant Notice) of the grant to Participant of the number of restricted stock units set forth below (Award). This Award is subject to all of the terms and conditions as set forth herein and in the Restricted Stock Unit Agreement and the Plan, which are attached hereto and incorporated herein in their entirety.
Participant: |
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Grant Date: |
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Vesting Commencement Date: |
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Number of Restricted Stock Units: |
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Vesting Schedule: The Award shall vest in full on [ ]
Additional Terms/Acknowledgements: The undersigned Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Restricted Stock Unit Agreement and the Plan. Participant further acknowledges that as of the Grant Date, this Grant Notice, the Restricted Stock Unit Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the acquisition of stock in the Company under the Plan and supersede all prior oral and written agreements on that subject.
O PENWAVE S YSTEMS INC . | P ARTICIPANT : | |||||||||
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A TTACHMENTS : Restricted Stock Unit Agreement and 2006 Stock Incentive Plan.
Attachment I
Restricted Stock Unit Agreement
OPENWAVE SYSTEMS INC.
2006 S TOCK I NCENTIVE P LAN
R ESTRICTED S TOCK U NIT A GREEMENT
( FOR RESTRICTED STOCK UNIT AWARDS TIME - BASED VESTING )
Pursuant to the terms of the Restricted Stock Unit Grant Notice (Grant Notice) and this Restricted Stock Unit Agreement (Agreement) (collectively, the Award), Openwave Systems Inc. (the Company) grants you restricted stock units pursuant to the Companys 2006 Stock Incentive Plan (Plan), subject to the restrictions and conditions contained herein. Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your Award are as follows:
G RANT OF U NITS . The Company hereby grants to you the aggregate number of restricted stock units (the Units) specified in your Grant Notice. Each Unit represents the right to receive one (1) share of Common Stock upon vesting.
P AYMENT ; T AX W ITHHOLDING . No cash payment is required for the Units, although you will be required to tender payment in a form acceptable to the Company for the amount of any withholding taxes due, including but not limited to those amounts due as a result of the award or vesting of the Units or the issuance of any shares of Common Stock following the vesting of the Units. Such amount may be delivered to the Company by any of the following means (in addition to the Companys right to withhold from any compensation or other amounts payable to you by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to you, provided, however , that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of Common Stock.
V ESTING . Subject to the limitations and special acceleration provisions contained herein, the Units will vest as provided in the Grant Notice, provided that vesting will cease upon the termination of your employment with the Company and its Subsidiaries and Affiliates (Termination). A Termination shall be deemed to occur if (i) you are a Consultant or Non-Employee Director at the time of grant (Grant Date) and subsequently become an Employee or (ii) you are an Employee on the Grant Date and subsequently become a Consultant or Non-Employee Director. The unvested portion of your Award will expire upon Termination.
C ONVERSION OF U NITS AND I SSUANCE OF S HARES . Upon the vesting date (or accelerated vesting date, if applicable), one (1) share of Common Stock shall be issuable for each whole Unit that vests on such date (the Shares), subject to the terms and provisions of the Plan and this Agreement. Thereafter, the Company will transfer such Shares to you upon satisfaction of any tax withholding obligations. Any fractional Unit shall be settled in cash and shall not be converted into a fractional Share. The number of Units subject to your Award shall be adjusted from time to time for changes in capitalization, as provided in the Plan.
S PECIAL A CCELERATION AND / OR R EDUCTION . Subject to subsection 5(e) below, the vesting of the Units shall be accelerated in the following circumstances:
If you are designated as an employee that that provides services to both the Mediation Business Unit and Messaging Business Unit of the Company (a Whole Company Employee), the vesting of the Units shall be accelerated in full in the event of the sale, exchange, lease or other disposition of both the Mediation Business Unit and the Messaging Business Unit of the Company (whether through an asset sale or otherwise and whether in a series of related or unrelated transactions) to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) (the Business Units Sale), provided, however, that if such Business Units Sale does not occur by June 30, 2012, the Units shall be subject to reduction in accordance with subsection 5(e) below.
If you are designated as an employee that provides services solely to the Messaging Business Unit of the Company whether by the Company or an Affiliate (a Messaging Business Unit Employee), the vesting of the Units shall be accelerated in full in the event of the sale, exchange, lease or other disposition of the Messaging Business Unit of the Company (whether through an asset sale or otherwise) to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) (the Messaging Business Unit Sale), provided, however, that if such Messaging Business Unit Sale does not occur by June 30, 2012, the Units shall be subject to reduction in accordance with subsection 5(e) below.
If you are designated as an employee that provides services solely to the Mediation Business Unit of the Company whether by the Company or an Affiliate (a Mediation Business Unit Employee), the vesting of the Units shall be accelerated in full in the event of the sale, exchange, lease or other disposition of the Mediation Business Unit of the Company (whether through an asset sale or otherwise) to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) (the Mediation Business Unit Sale), provided, however, that if such Medication Business Unit Sale does not occur by June 30, 2012, the Units shall be subject to reduction in accordance with subsection 5(e) below.
Notwithstanding the foregoing Sections 5(a), (b) and (c), the vesting of the Units shall be accelerated in full upon the occurrence of any of the events set forth in subsections d (i), (ii) or (iii) hereof.
the sale, exchange, lease or other disposition of the entire business of the Company and its Affiliates (whether through an asset sale or otherwise and whether in a series of related or unrelated transactions) to a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act);
a merger or consolidation involving the Company in which the voting securities of the Company owned by the shareholders of the Company immediately prior to such merger or consolidation do not represent, after conversion if applicable, more than fifty percent (50%) of the total voting power of the surviving controlling entity outstanding immediately after such merger or consolidation; provided that any person who (1) was a beneficial owner (within the meaning of Rules 13d-3 and 13d-5 promulgated under the Exchange Act) of the voting securities of the Company immediately prior to such merger or consolidation, and (2) is a beneficial owner (or is part of a group of related persons that is a beneficial owner) of more than 20% of the securities of the Company immediately after such merger or consolidation, shall be excluded from the list of shareholders of the Company immediately prior to such merger or consolidation for purposes of the preceding calculation); or
the direct or indirect acquisition of beneficial ownership of at least fifty percent (50%) of the voting securities of the Company by a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act); provided, that person or group of related persons shall not include the Company, a subsidiary of the Company, or an employee benefit plan sponsored by the Company or a subsidiary of the Company (including any trustee of such plan acting as trustee).
Notwithstanding subsections 5(a), (b) and (c), if, by June 30, 2012, the Company has not completed the sale, exchange, lease or other disposition of (i) both its Mediation Business Unit and Messaging Business Unit (as contemplated by subsection 5(a) above) in the case of Whole Company Employees, (ii) its Messaging Business Unit (as contemplated by subsection 5(b) above) in the case of Messaging Business Unit Employees, (iii) its Mediation Business Unit (as contemplated by subsection 5(c) above) in the case of Mediation Business Employee, fifty percent (50%) of the number of Units originally granted to you as specified in the Grant Notice shall be forfeited.
For purposes of this Section 5, the Mediation Business Unit of the Company is comprised of the business units of the Company that develop and market service mediation products, including but not limited to, MAG, Integra, Web Adaptor (Openweb), Mobile Edge Security Suite, Passport, Smart Policy, Web Security, Web Optimization, Media Optimization, Amplicity and Analytics, and the Messaging Business Unit of the Company is comprised of the business units of the Company that market and develop Email MX, Richmail and Edge GX.
S ECURITIES L AW C OMPLIANCE . You will not be issued any Shares upon the vesting of your Award unless the Shares are either (a) then registered under the Securities Act or (b) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. Your Award must also comply with other applicable laws and regulations governing the Award, and you will not receive such Shares if the Company determines that such receipt would not be in material compliance with such laws and regulations.
T RANSFERABILITY . None of the Units or any beneficial interest therein may be transferred in any manner other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, you may designate a beneficiary for the Shares that may be issuable upon the vesting of the Units, in the event of your death, by completing the Companys approved beneficiary designation form and filing such form with the Companys Human Resources Department. The terms of this Agreement shall be binding upon your executors, administrators, heirs, successors, and transferees.
A WARD N OT A S ERVICE C ONTRACT . Your Award is not an employment or service contract, and nothing in your Award shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or on the part of the Company or an Affiliate to continue your employment.
T AX C ONSEQUENCES . You agree that you have had the opportunity to review with your own tax advisors the federal, state, local and foreign income and employment tax consequences of the grant to you of the Award and the vesting of the Award. You are
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relying solely on the advice of your own advisors and not on statements or representations of the Company or any of its agents. You understand that you (and not the Company) will be responsible for your own tax liability as a result of the grant or vesting of your Award.
N OTICES . Any notices provided for in your Award or the Plan shall be given in writing and shall be deemed effective upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
M ISCELLANEOUS .
The rights and obligations of the Company under your Award shall be transferable by the Company to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Companys successors and assigns.
You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.
You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.
R EPAYMENT /F ORFEITURE . Any benefits you may receive hereunder shall be subject to repayment or forfeiture as may be required to comply with (a) any applicable listing standards of a national securities exchange adopted in accordance with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations of the U.S. Securities and Exchange Commission adopted thereunder, (b) similar rules under the laws of any other jurisdiction and (c) any policies adopted by the Company to implement such requirements, all to the extent determined by the Company in its discretion to be applicable to you.
S EVERABILITY . The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
G OVERNING P LAN D OCUMENT . Your Award is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan shall control.
C HOICE OF L AW ; G OVERNING L AW . The law of the State of California shall govern all questions concerning the construction, validity and interpretation of the Plan, without regard to such states conflict of laws rules. Notwithstanding the foregoing, with respect to matters affecting the Plan that are addressed by the General Corporation Law of the State of Delaware, the laws of the State of Delaware shall control, without regard to such states conflict of laws rules. You hereby agree to submit to the jurisdiction and venue of the courts of the State of California and Federal Courts of the United States of America located within the Northern District of California for all actions relating to the Units, the Shares, the Notice of Grant, this Agreement, or the Plan. You further agree that service may be made upon you in any such action or proceeding by first class, certified or registered mail, to the last address you provided to the Company.
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Attachment II
2006 Stock Incentive Plan
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Exhibit 10.10
AMENDMENT NO. 6 TO
LOAN AND SECURITY AGREEMENT
T HIS A MENDMENT N O . 6 TO L OAN AND S ECURITY A GREEMENT (this Amendment ) is entered into as of this 23rd day of January, 2012, by and between O PENWAVE S YSTEMS I NC . , a Delaware corporation ( Borrower ) and S ILICON V ALLEY B ANK ( Bank ). Capitalized terms used herein without definition shall have the same meanings given them in the Loan Agreement (defined below).
R ECITALS
A. Borrower and Bank have entered into that certain Loan and Security Agreement dated as of January 23, 2009 (as amended to date and as may be further amended, restated, supplement or otherwise modified from time to time, the Loan Agreement ), pursuant to which the Bank has agreed to extend and make available to Borrower certain advances of money.
B. Borrower desires that Bank amend the Loan Agreement upon the terms and conditions more fully set forth herein.
C. Subject to the representations and warranties of Borrower, and upon the terms and conditions set forth in this Amendment, Bank is willing to amend the Loan Agreement as specified herein.
A GREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound, the parties hereto agree as follows:
1. Amendments to Loan Agreement .
1.1 Section 13.1 (Definitions) . The following definitions in Section 13.1 of the Loan Agreement are hereby amended and restated in their entirety as follows:
Borrowing Base is (i) $15,000,000 plus (ii) the lesser of (a) $10,000,000 and (b) 75% of Eligible Accounts, as determined by Bank from Borrowers most recent Borrowing Base Certificate; provided, however, Bank may decrease the foregoing percentage in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.
Revolving Line is an Advance or Advances in an amount equal to Twenty Five Million Dollars ($25,000,000).
Revolving Line Maturity Date is February 28, 2012.
1.2 Section 13.1 (Definitions) . Subsection (d) of the definition of Eligible Accounts is hereby amended and restated in its entirety as follows:
(d) Accounts billed and payable outside of the United States unless (i) supported by letter(s) of credit acceptable to Bank, (ii) owing by Alcatel-Lucent, up to an aggregate maximum of $1,500,000 at any time, (iii) owing by Telecom Italia and Vodafone Italia, up to a combined aggregate maximum of $500,000 at any time, or (iv) are owing by (A) NEC Corporation and its Subsidiaries up to an aggregate maximum of $1,000,000 at any time, (B) Telstra and its Subsidiaries up to an aggregate maximum of $1,000,000 at any time, and (C) Vodafone and its Subsidiaries up to an aggregate maximum of $1,000,000 at any time, including but not limited to Vodacom or (v) that Bank otherwise approves of in writing;
1.3 Exhibit B (Borrowing Base Certificate) . The form of Borrowing Base Certificate (Exhibit B to the Loan Agreement) is amended and restated in its entirety and attached hereto as Exhibit B.
2. B ORROWER S R EPRESENTATIONS A ND W ARRANTIES . Borrower represents and warrants that:
(a) immediately upon giving effect to this Amendment (i) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (ii) no Event of Default has occurred and is continuing;
(b) Borrower has the corporate power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
(c) the certificate of incorporation and by-laws of Borrower (collectively, Organizational Documents ) delivered to Bank on or prior to the date hereof are true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect as of the date hereof, and Borrower shall promptly deliver to Bank any amendments, supplements, restatements or other modifications to such Organizational Documents;
(d) the execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized by all necessary corporate action on the part of Borrower;
(e) this Amendment has been duly executed and delivered by the Borrower and is the binding obligation of Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors rights; and
(f) as of the date hereof, Borrower has no defenses against the obligations to pay any amounts under the Obligations. Borrower acknowledges that Bank has acted in good faith and has conducted in a commercially reasonable manner its relationships with Borrower in connection with this Amendment and in connection with the Loan Documents.
Borrower understands and acknowledges that Bank is entering into this Amendment in reliance upon, and in partial consideration for, the above representations and warranties, and agrees that such reliance is reasonable and appropriate.
3. L IMITATION . The amendments set forth in this Amendment shall be limited precisely as written and shall not be deemed (a) to be a forbearance, waiver or modification of any other term or condition of the Loan Agreement or of any other instrument or agreement referred to therein or to prejudice any right or remedy which Bank may now have or may have in the future under or in connection with the Loan Agreement or any instrument or agreement referred to therein; (b) to be a consent to any future amendment or modification, forbearance or waiver to any instrument or agreement the execution and delivery of which is consented to
hereby, or to any waiver of any of the provisions thereof; or (c) to limit or impair Banks right to demand strict performance of all terms and covenants as of any date. Except as expressly amended hereby, the Loan Agreement shall continue in full force and effect.
4. E FFECTIVENESS . This Amendment shall be deemed effective upon the satisfaction of all the following conditions precedent:
4.1 Amendment . Borrower and Bank shall have duly executed and delivered this Amendment to Bank.
4.2 Amendment Fee . Borrower shall have paid Bank an amendment fee in the amount of $6,500.
4.3 Payment of Bank Expenses . Borrower shall have paid all Bank Expenses (including all reasonable attorneys fees and reasonable expenses) incurred through the date of this Amendment
5. C OUNTERPARTS . This Amendment may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument. All counterparts shall be deemed an original of this Amendment.
6. I NTEGRATION . This Amendment and any documents executed in connection herewith or pursuant hereto contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, offers and negotiations, oral or written, with respect thereto and no extrinsic evidence whatsoever may be introduced in any judicial or arbitration proceeding, if any, involving this Amendment; except that any financing statements or other agreements or instruments filed by Bank with respect to Borrower shall remain in full force and effect.
7. G OVERNING L AW ; V ENUE . THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California.
[ SIGNATURE PAGE FOLLOWS ]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above.
B ORROWER : |
O PENWAVE S YSTEMS I NC ., a Delaware corporation |
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By |
/s/Anne Brennan |
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Name: |
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Title: |
CFO |
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B ANK : | S ILICON V ALLEY B ANK | |||
By |
/s/ Tom Smith |
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Name: |
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Title: |
Managing Director |
EXHIBIT B - BORROWING BASE CERTIFICATE
Borrower: OPENWAVE SYSTEMS INC.
Lender: SILICON VALLEY BANK
Commitment Amount: $25,000,000
ACCOUNTS RECEIVABLE |
||||||
1. |
Accounts Receivable (invoiced) Book Value as of |
$ | ||||
2. |
Additions (please explain on reverse) |
$ | ||||
3. |
TOTAL ACCOUNTS RECEIVABLE |
$ | ||||
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) |
||||||
4. |
Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms | $ | ||||
5. |
Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have not been paid within ninety (90) days of invoice date | $ | ||||
6. |
Accounts billed in the United States and owing from an Account Debtor which does not have its principal place of business in the United States or Canada (other than the Province of Quebec) unless such Accounts are otherwise Eligible Accounts and (i) covered in full by credit insurance satisfactory to Bank, less any deductible, (ii) supported by letter(s) of credit acceptable to Bank, (iii) supported by a guaranty from the Export-Import Bank of the United States, (iv) are owing by (A) Alcatel-Lucent, up to an aggregate maximum of $1,500,000 at any time, and (B) Telecom Italia and Vodafone Italia, up to a combined aggregate maximum of $500,000 at any time, or (v) that Bank otherwise approves of in writing | $ | ||||
7. |
Accounts billed and payable outside of the United States unless (i) supported by letter(s) of credit acceptable to Bank, (ii) owing by Alcatel-Lucent, up to an aggregate maximum of $1,500,000 at any time, (iii) owing by Telecom Italia and Vodafone Italia, up to a combined aggregate maximum of $500,000 at any time, or (iv) are owing by (A) NEC Corporation and its Subsidiaries up to an aggregate maximum of $1,000,000 at any time, (B) Telstra and its Subsidiaries up to an aggregate maximum of $1,000,000 at any time, and (C) Vodafone and its Subsidiaries up to an aggregate maximum of $1,000,000 at any time, including but not limited to Vodacom or (v) that Bank otherwise approves of in writing | $ | ||||
8. |
Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called contra accounts, accounts payable, customer deposits or credit accounts), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the ordinary course of its business | $ | ||||
9. |
Accounts for which the Account Debtor is Borrowers Affiliate, officer or employee | $ | ||||
10. |
Accounts with credit balances over ninety (90) days from invoice date, provided that, notwithstanding the foregoing, in the case of Accounts owing from Alcatel-Lucent, Telecom Italia or Vodafone Italia, Eligible Accounts shall not include Accounts with credit balances over ninety (90) days from the last day of the calendar month during which the applicable invoice was issued | $ | ||||
11. |
Accounts owing from an Account Debtor, including Affiliates, whose total obligations to Borrower exceed twenty-five (25%) of all Accounts (other than Sprint, which shall not exceed 50%), for the amounts that exceed that percentage, unless Bank approves in writing | $ |
9
12. |
Accounts owing from an Account Debtor which is a United States government entity or any department, agency,
or instrumentality thereof unless Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended |
$ | ||||
13. |
Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a sale guaranteed, sale or return, sale on approval, or other terms if Account Debtors payment may be conditional | $ | ||||
14. |
Accounts owing from an Account Debtor that has not been invoiced or where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings) | |||||
15. |
Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrowers failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts) | $ | ||||
16. |
Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtors satisfaction of Borrowers complete performance (but only to the extent of the amount withheld; sometimes called retainage billings) | $ | ||||
17. |
Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust | $ | ||||
18. |
Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called bill and hold accounts) | $ | ||||
19. |
Accounts for which the Account Debtor has not been invoiced | $ | ||||
20. |
Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrowers business | $ | ||||
21. |
Intentionally deleted | $ | ||||
22. |
Accounts subject to chargebacks or others payment deductions taken by an Account Debtor (but only to the extent the chargeback is determined invalid and subsequently collected by Borrower) | $ | ||||
23. |
Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business; and | $ | ||||
24. |
Accounts for which Bank in its good faith business judgment determines collection to be doubtful | $ | ||||
25. |
TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS (the sum of #4 through #24) | $ | ||||
26. |
Eligible Accounts (#3 minus #25) | $ | ||||
27. |
ELIGIBLE AMOUNT OF ACCOUNTS (75% of #26) | $ | ||||
28. |
BORROWING BASE ($15,000,000 plus the lesser of $10,000,000 and #27) | $ | ||||
BALANCES | ||||||
29. |
Maximum Loan Amount | $ | 25,000,000 |
10
30. | Total Funds Available [the lesser of #29 or #28] | $ | ||
31. | Present balance owing on Line of Credit | $ | ||
32. | Outstanding under Sublimits | $ | ||
33. | RESERVE POSITION (#30 minus #31 and #32) | $ |
The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.
BANK USE ONLY | ||||||||||||
COMMENTS: | Received by: |
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AUTHORIZED SIGNER | ||||||||||||
Date: |
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By: |
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Verified: |
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Authorized Signer | AUTHORIZED SIGNER | |||||||||||
Date: |
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Date: |
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Compliance Status: | Yes No |
11
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, Michael C. Mulica, certify that:
1. I have reviewed this Form 10-Q of Openwave Systems Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: February 8, 2012 | ||
/s/ Michael C. Mulica |
||
Michael C. Mulica | ||
Chief Executive Officer |
12
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, Anne Brennan, certify that:
1. I have reviewed this Form 10-Q of Openwave Systems Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: February 8, 2012 | ||
/s/ Anne Brennan |
||
Anne Brennan | ||
Chief Financial Officer |
13
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Openwave Systems Inc. on Form 10-Q for the quarterly period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Michael C. Mulica, as Chief Executive Officer of Openwave Systems Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Openwave Systems Inc.
/s/ Michael C. Mulica |
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Michael C. Mulica | ||||||
February 8, 2012 | Chief Executive Officer |
In connection with the Quarterly Report of Openwave Systems Inc. on Form 10-Q for the quarterly period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Anne Brennan, as Chief Financial Officer of Openwave Systems Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Openwave Systems Inc.
/s/ Anne Brennan |
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Anne Brennan | ||||||
February 8, 2012 | Chief Financial Officer |
14