-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RIBuYfFSpoCiFS0mpJhkIrNFSS5Cs+avXs6+n5OvJrl0nmK77BsfyRrPxxNJud9u fCmkBvx9lLMi3VhFCY0K1g== 0000891618-00-002779.txt : 20000515 0000891618-00-002779.hdr.sgml : 20000515 ACCESSION NUMBER: 0000891618-00-002779 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRICOM INC / DE CENTRAL INDEX KEY: 0000884318 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 770294597 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19903 FILM NUMBER: 628256 BUSINESS ADDRESS: STREET 1: 980 UNIVERSITY AVE CITY: LOS GRATOS STATE: CA ZIP: 95030 BUSINESS PHONE: 4083998200 MAIL ADDRESS: STREET 1: 980 UNIVERSITY AVE CITY: LOS GATOS STATE: CA ZIP: 95030 10-Q 1 QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended MARCH 31, 2000 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from_____ to _____ Commission file number 0-19903 METRICOM, INC. (Exact name of Registrant as specified in its charter) DELAWARE 77-0294597 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 980 UNIVERSITY AVENUE, LOS GATOS, CA 95032-2375 (Address of principal executive offices, including zip code) (408) 399-8200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of common stock outstanding as of April 30, 2000 was 30,623,868. 2 TABLE OF CONTENTS
PAGE ---- SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Operations 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview 11 Results of Operations 11 Liquidity and Capital Resources 16 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 18 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19 SIGNATURE PAGE 20 EXHIBIT INDEX 21
2 3 SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS This document contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that are based on our current expectations about our company and our industry. We use words such as "plan," "expect," "intend," "believe," "anticipate," "estimate" and other similar expressions to identify some forward-looking statements, but not all forward-looking statements include these words. Some of these forward-looking statements relate to the timing of our planned network deployment, the launch of our high-speed service, our market opportunities, our strategy, our anticipated revenues from MCI WorldCom, our competitive position, our management's discussion and analysis of our financial condition and results of operations and the timing and extent of our funding needs. All of our forward-looking statements involve risks and uncertainties. Our actual results may differ significantly from our expectations and from the results expressed in or implied by these forward-looking statements. Some of the factors that could cause our results to differ include our limited experience in marketing our new Ricochet service, the uncertainty of demand for that service, the short timeframe in which we believe we must deploy our high-speed network to be competitive, the magnitude of our deployment and launch, our dependence on third parties to deploy our high-speed network and manufacture modems and other network equipment on a timely and cost-effective basis, the shortage of supply of components experienced by our manufacturers, our dependence on channel partners such as MCI Worldcom and our need to gain acceptance by other channel partners, and risks related to regulatory approvals. These and other risks that we currently consider material are described in the section captioned "Risk Factors" appearing in our 1999 Annual Report on Form 10-K. We urge you to consider these cautionary statements carefully in evaluating our forward-looking statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements to reflect subsequent events and circumstances. 3 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS METRICOM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 2000 1999 ----------- ----------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents ................................... $ 790,970 $ 354,820 Short-term investments ...................................... 290,050 144,521 Restricted short-term investments ........................... 38,423 -- Accounts receivable, net .................................... 1,523 2,387 Inventories, net ............................................ 981 586 Prepaid expenses and other .................................. 11,354 3,116 ----------- ----------- Total current assets .................................... 1,133,301 505,430 Property and equipment, net ................................... 17,653 12,233 Network construction in progress .............................. 138,524 22,034 Other assets .................................................. 15,276 6,950 Restricted long-term investments .............................. 35,183 -- ----------- ----------- Total assets ............................................ $ 1,339,937 $ 546,647 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable ............................................ $ 41,241 $ 9,649 Accrued liabilities ......................................... 26,839 12,642 Note payable ................................................ 224 4,521 ----------- ----------- Total current liabilities ............................... 68,304 26,812 ----------- ----------- Long-term debt ................................................ 237,659 385 ----------- ----------- Other liabilities ............................................. 301 321 ----------- ----------- Redeemable convertible preferred stock ........................ 573,992 573,329 ----------- ----------- Stockholders' Equity (Deficit) Common stock ................................................ 31 25 Warrants to purchase common stock ........................... 61,869 -- Additional paid-in capital .................................. 768,504 283,763 Accumulated deficit ......................................... (370,247) (337,988) Accumulated other comprehensive income (loss) ............... (476) -- ----------- ----------- Total stockholders' equity (deficit) ...................... 459,681 (54,200) ----------- ----------- Total liabilities and stockholders' equity (deficit) .... $ 1,339,937 $ 546,647 =========== ===========
The accompanying notes are an integral part of these condensed consolidated statements. 4 5 METRICOM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED --------------------------------- MARCH 31, 2000 MARCH 31, 1999 -------------- -------------- REVENUES: Service revenues .................... $ 2,334 $ 2,431 Product revenues .................... 889 1,755 -------- -------- Total revenues .................. 3,223 4,186 -------- -------- COSTS AND EXPENSES: Cost of service revenues ............ 13,750 4,433 Cost of product revenues ............ 300 1,326 Research and development ............ 9,623 8,235 Selling, general and administrative ................... 7,989 4,140 -------- -------- Total costs and expenses ............ 31,662 18,134 -------- -------- Loss from operations .............. (28,439) (13,948) Interest expense ...................... (7,471) (1,213) Interest and other income ............. 16,593 143 -------- -------- Net loss .......................... $(19,317) $(15,018) Preferred dividends ................... 12,942 -- -------- -------- Net loss attributable to common stockholders ................. $(32,259) $(15,018) ======== ======== Net loss attributable to common stockholders per share ....... $ (1.15) $ (0.80) ======== ======== Weighted average shares outstanding ................. 28,160 18,873 ======== ========
The accompanying notes are an integral part of these condensed consolidated statements. 5 6 METRICOM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED ----------------------------- MARCH 31, MARCH 31, 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ...................................................... $ (19,316) $ (15,018) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization ............................ 2,057 942 Accretion of long-term debt .............................. 950 -- Non-cash compensation expense ............................ 716 -- Increase in accounts receivable, prepaid expenses and other current assets .............. (7,374) (689) (Increase) decrease in inventories ....................... (394) 742 Increase (decrease) in accounts payable, accrued liabilities and other liabilities ...................... 36,018 (3,464) --------- --------- Net cash provided by (used in) operating activities .. 12,657 (17,487) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment .............................. (7,527) (1,292) Network construction in progress ................................ (116,490) -- (Increase) decrease in other assets ............................. (8,326) 343 Purchase of short-term investments .............................. (224,430) -- Sale of short-term investments .................................. 40,000 -- Purchase of long-term investments ............................... (35,183) -- --------- --------- Net cash used in investing activities ................ (351,956) (949) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock ........................ 477,198 1,159 Proceeds from sale of warrants to purchase common stock ....... 61,869 -- Proceeds from the issuance of long-term debt .................. 236,382 19,978 --------- --------- Net cash provided by financing activities ............. 775,449 21,137 --------- --------- Net increase in cash and cash equivalents ....................... 436,150 2,701 Cash and cash equivalents, beginning of period .................. 354,820 19,141 --------- --------- Cash and cash equivalents, end of period ........................ $ 790,970 $ 21,842 ========= ========= SUMMARY OF NON-CASH TRANSACTIONS: Property and equipment acquired under capital lease ........... $ 51 $ 280 Common stock issued upon conversion of debt ................... $ 4,304 -- Preferred dividends ........................................... $ 12,942 --
The accompanying notes are an integral part of these condensed consolidated statements. 6 7 METRICOM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The condensed consolidated financial statements of Metricom, Inc. (the "Company") presented in this Form 10-Q are unaudited. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) which are necessary for a fair presentation of operations for the three-month periods ended March 31, 2000 and March 31, 1999. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, as filed with the Securities and Exchange Commission. Certain amounts on the accompanying consolidated financial statements have been reclassified from the previously reported balances to conform to the 2000 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three-month periods ended March 31, 2000 and March 31, 1999 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. NOTE 2. INVESTMENTS The Company's investments in securities are considered available-for-sale and are recorded at their fair values as determined by quoted market prices with any unrealized holding gains or losses classified as a separate component of stockholders' equity. Upon sale of the investments, any previously unrealized gains or losses are recognized in results of operations. NOTE 3. NETWORK CONSTRUCTION IN PROGRESS In 1999, the Company began deployment of its high-speed Ricochet networks in a number of markets in the United States. As of March 31, 2000, the Company had incurred and capitalized $138.5 million of costs associated with network deployment. Network deployment costs include labor costs for site acquisition, radio frequency engineering, zoning and 7 8 construction management, as well as material costs for equipment and component inventory. As commercial service is launched in each market, the capitalized costs associated with the network equipment assets in each market will be transferred to Property and Equipment and depreciated over an estimated useful life of four years. NOTE 4. LONG-TERM DEBT, COMMON STOCK AND PREFERRED STOCK OFFERINGS In February 2000, the Company, together with its wholly owned finance subsidiary, Metricom Finance, Inc., as co-issuers and co-obligors, issued $300 million aggregate principal amount of 13% Senior Notes due 2010. Metricom Finance has no independent assets or operations. The Company has fully and unconditionally guaranteed the obligations of Metricom Finance, Inc. under the notes. Interest on the notes will be payable on February 15 and August 15 of each year, beginning August 15, 2000. The notes will mature on February 15, 2010. The notes were offered together with warrants to purchase 1,425,000 shares of common stock of the Company at an initial exercise price of $87.00 per share. Each warrant enables the holder to purchase 4.75 shares of common stock and is exercisable on or after August 15, 2000. Each warrant was sold for $212.06 per each associated $1,000 principal amount of notes, and each note was sold for $787.94. The warrants will expire on February 15, 2010. Net proceeds to the Company from the notes and warrants offering was approximately $291.8 million, $73.1 million of which was deposited in a restricted pledge account to secure the payment of the first four scheduled interest payments on the notes. In February 2000, the Company issued 5,750,000 shares of common stock at $87.00 per share in a public offering. Net proceeds to the Company were approximately $473.2 million, after deducting underwriting discounts, commissions and estimated offering expenses. In November 1999, the Company issued and sold to MCI WorldCom, Inc. 30 million shares of newly-designated Series A1 preferred stock at a price of $10 per share, and the Company issued and sold to Vulcan Ventures 30 million shares of newly-designated Series A2 preferred stock at a price of $10 per share, for gross aggregate proceeds to the Company of $600 million. Both series of preferred stock bear cumulative dividends at the rate of 6.5% per annum for three years, payable in cash or additional shares of preferred stock. In addition, each series has the right to elect one director to the Company's Board of Directors, although voting rights otherwise will be generally limited to specified matters. The preferred stock is subject to mandatory redemption by the Company at the original issuance price in 10 years following initial issuance and to redemption at the option of the holder upon the occurrence of specified changes in control or major acquisitions. Both series of preferred stock will accrete at approximately $2.7 million per year over the ten-year period from the beginning aggregate net book value of $573 million up to its redemption value of $600 million. This accretion will be charged against retained earnings (accumulated deficit). 8 9 NOTE 5. COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, --------------------------- 2000 1999 -------- -------- Net loss attributable to common stockholders ................... $(32,259) $(15,018) Other comprehensive income/(loss): Unrealized holding loss on available-for-sale securities ....... (476) -- -------- -------- Comprehensive income (loss) .................................... $(32,735) $(15,018) ======== ========
NOTE 6. BASIC AND DILUTED NET LOSS PER SHARE Basic and diluted net loss per share has been computed using the weighted average number of shares of common stock outstanding. Potential common equivalent shares from options and warrants to purchase common stock and from conversion of the convertible preferred stock have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive. NOTE 7. SEGMENT REPORTING The Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," during the fourth quarter of 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by chief operating decision makers or decision-making groups in deciding how to allocate resources and in assessing performance. The information in the following table is derived directly from the Company's internal financial reporting used for corporate management purposes. The Company evaluates its segments' performance based on several factors, of which the primary financial measures are revenue and gross margin. Corporate overhead and other costs are not allocated to business segments for management reporting purposes. The Company does not allocate assets by segment for management reporting purposes. All of the Company's operations are located in the United States. The Company's reportable operating segments include Ricochet and UtiliNet. Ricochet designs and manufactures and markets wireless data communications solutions. UtiliNet manufactures and markets customer-owned networks and related products. In February 2000, UtiliNet technology was 9 10 licensed to Schlumberger Resources Management Services, Inc. The agreement grants Schlumberger the exclusive right to design, manufacture and sell UtiliNet products in return for license and royalty fees. A summary of operating results by reportable operating segment in the first quarter of 2000 is as follows:
THREE MONTHS ENDED MARCH 31, ------------------------ 2000 1999 ------- ------- Ricochet Revenue .............. $ 2,707 $ 2,900 Utilinet Revenue .............. 516 1,286 ------- ------- Total ..................... $ 3,223 $ 4,186 ======= ======= Cost of Service Ricochet ...... $13,750 $ 4,427 Cost of Service Utilinet ...... -- 6 ------- ------- Total ..................... $13,750 $ 4,433 ======= ======= Cost of Product Ricochet ...... $ 135 $ 786 Cost of Product Utilinet ...... 165 540 ------- ------- Total $ 300 $ 1,326 ======= =======
NOTE 8. NEW ACCOUNTING STANDARDS In June 1998, FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, hedging activities and exposure definition. The pronouncement is effective for fiscal years beginning after June 15, 2000. The Company believes the pronouncement will not have a material effect on its financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company will adopt SAB 101 as required in the second quarter of 2000. The Company does not believe the adoption of SAB101 will have a material effect on the Company's consolidated results of operations and financial position. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Since inception, we have devoted significant resources to the development, deployment and commercialization of our wireless network products and services. Historically, a significant portion of our revenues has been derived primarily from the development contracts and sales of customer-owned networks and related products, known as UtiliNet, to utility companies. In recent years, we have deployed a commercial wireless data network known as Ricochet in various metropolitan areas of the United States. The Company currently provides Ricochet commercial service in the San Francisco Bay Area, the Seattle and Washington D.C. metropolitan areas. In 1999, we completed development of our new high-speed service, which has demonstrated in Company tests to provide the same service as Ricochet, but at faster downstream speeds of up to 128 kbps. We are currently in the process of deploying our high-speed service in various metropolitan areas in the United States. While we believe we are substantially on track with the overall national network deployment described in our 1999 Annual Report on Form 10-K, the planned New York service area launch is facing delays relating to timeframes for zoning approvals as well as utility agreement negotiations. In addition, further negotiations for poletop access rights in three other planned service areas are proceeding slowly, and we are currently assessing the impact on these market area launches. In February 2000, in order to focus our operations on deployment of our high-speed network, we entered into an agreement to license our UtiliNet technology to Schlumberger Resources Management Services, Inc. The agreement grants Schlumberger the exclusive right to design, manufacture and sell UtiliNet products in return for license and royalty fees. We do not expect UtiliNet to be a significant source of revenues in the future. We currently derive substantially all of our revenues from subscriptions paid to us by users of our current Ricochet service. After we launch our high-speed service, planned to occur during the late summer of 2000, we expect to derive substantially all of our revenues from subscription fees paid to us by channel partners, which will resell our service directly to their customers. After the launch of our high-speed service, we expect to curtail our business operations related to our current Ricochet service. As we deploy our high-speed network and launch our high-speed service, we expect our operating expenses to increase significantly from historical levels and to exceed revenues for the foreseeable future. We expect to generate substantial net losses to common stockholders for the foreseeable future. RESULTS OF OPERATIONS Revenues Currently, we derive revenues from the sale of our services and products. We derive service revenues from Ricochet subscriber fees and Ricochet modem rentals, and we recognize these revenues ratably over the service period. We derive product revenues from the sale of UtiliNet products and Ricochet modems and recognize these revenues upon shipment. 11 12 Total revenues decreased to $3.2 million in the first quarter of 2000 from $4.2 million for the same period of 1999, primarily due to a decrease in product revenues. Product revenues declined to $0.9 million for the first quarter of 2000 from $1.8 million for the same period of last year as a result of our licensing of our UtiliNet technology to Schlumberger. Service revenues decreased to $2.3 million in the first quarter of 2000 from $2.4 million in the same period of 1999. This decrease was primarily the result of a decrease in UtiliNet service revenues of approximately $0.3 million, offset by a $0.2 million increase in Ricochet service revenues. Ricochet service revenues increased as a result of a 10% increase in subscribers as of March 31, 2000 compared with March 31, 1999. Total UtiliNet revenues decreased to $0.5 million in the first quarter of 2000 from $1.3 million in the same period of 1999 as a result of our licensing of our UtiliNet technology to Schlumberger. We expect that our UtiliNet revenues will continue to decline significantly in the future as a result of our focus on the launch of our high-speed service. In the future, after we launch our high-speed service, we expect to curtail our business operations related to our current Ricochet service. We expect to derive substantially all of our future revenues from subscription fees paid to us by channel partners. We anticipate that our channel partners will pay us subscription fees based on flat rates for each user they enroll for our service. We will require each of our channel partners to charge its subscribers a flat rate for use of our service, although each channel partner will set the particular rate it charges its customers. We currently have two channel partner relationships. In June 1999 and April 2000, MCI WorldCom and Juno Online Services, Inc., respectively, entered into agreements with us to sell our high-speed service to their customers. In our agreement with MCI Worldcom, MCI WorldCom has agreed to pay us a per-subscriber fee, subject to an agreed minimum revenue level of at least $388 million over the five years following the launch of our service, assuming that our deployment schedule is not delayed, that we place our network into service on schedule and that we meet quality-of-service and network performance standards. Subject to these limitations, we currently expect MCI WorldCom to pay us the following minimum amounts during the first five years after we launch our service: First year............................. $ 5.6 million Second year............................ 40.6 million Third year............................. 83.6 million Fourth year............................ 117.4 million Fifth year............................. 141.0 million
Notwithstanding the foregoing, if MCI WorldCom's sales efforts result in fewer subscribers than MCI WorldCom has agreed contractually to provide, but the number of subscribers provided by MCI WorldCom and its authorized resellers nevertheless represent more than a specified percentage of our total users, MCI WorldCom will pay us only the greater of a per-subscriber rate for each of its subscribers or the subscription fees we receive from all of our other channel partners, which could be substantially less than the minimum revenues we currently expect from 12 13 MCI WorldCom. Accordingly, our ability to achieve the minimum revenue levels we expect from our agreement with MCI WorldCom may depend on our ability to enter into channel agreements with one or more large channel partners that can successfully sell subscriptions to our service so that subscribers provided by MCI WorldCom and its resellers represent less than the threshold percentage of our total users. In addition, if our deployment schedule is delayed or if we fail to meet deployment schedule deadlines or fail to comply with quality-of-service standards relating to data transmission performance, network availability, coverage and latency, ease of use and size of modems, all as specified in our agreement, MCI WorldCom may delay or reduce its minimum payments to us or, in the case of a deployment delay in excess of 12 months, may terminate the contract. Cost of Revenues Cost of service revenues consists primarily of network operations costs, real estate management costs and depreciation expense on network equipment. Network operations costs include the costs associated with the field managers, engineers and technicians who operate and maintain our high-speed network, as well as the costs associated with field offices we maintain, including our network operations centers. Network operations costs also include the telecommunications costs we incur to transmit data between our wired access points and network interface facilities and the Internet. Real estate management costs include the costs associated with the maintenance of lease agreements for our poletop radios, wired access points and network interface facilities and the ongoing rental payments for these sites. Real estate management costs also consist of the internal and external labor costs associated with maintaining right-of-way agreements in the markets where our network is currently deployed. Cost of service revenues in the first quarter of 2000 was $13.8 million compared with $4.4 million in the same period of 1999. The significant increase was due to increases in staffing, property, telecommunications and support costs associated with the deployment of our new high-speed service in various markets. Staffing of personnel who manage network deployment increased by over 400% from March 31, 1999 to March 31, 2000. In the twelve months ending March 31, 2000, we opened up ten new operations field offices. We expect all components of our cost of service revenues to continue to increase significantly and rapidly as we expand the scope of our operations through the deployment of our high-speed network. Cost of product revenues consists primarily of the inventory and manufacturing costs associated with Ricochet modem and UtiliNet product sales. Cost of product revenues decreased to $0.3 million in the first quarter of 2000 from $1.3 million in the first quarter of 1999. Ricochet cost of product revenues as a percentage of Ricochet product revenues declined to 37% in the first quarter of 2000 compared with 106% in the first quarter of 1999 as a result of increased shipments of refurbished modems for which the majority of costs have been charged to operations in previous periods. UtiliNet cost of product revenues as a percentage of UtiliNet product revenues declined to 32% in the first quarter of 2000 from 53% in the first quarter of 1999 as a result of higher selling prices and lower allocated costs in 2000. We expect Ricochet cost of product revenues to increase in 2000 as we sell modem inventory directly to 13 14 MCI WorldCom or other channel partners for resale to new subscribers to our high-speed service. In subsequent years, we anticipate that our channel partners may begin to purchase modems directly from our licensed third-party manufacturers. Research and Development Research and development costs include the costs incurred to develop our network technology and subscriber modems, as well as to obtain rights-of-way and related site agreements in markets where we plan to offer service. Research and development expenses increased to $9.6 million in the first quarter of 2000 from $8.2 million in the same period of 1999. The increase was primarily due to an increase in costs incurred to obtain right-of-way and site agreements in metropolitan areas where we currently plan to offer service. Right-of-way acquisition costs included in research and development increased to $4.4 million in the first quarter of 2000 from $3.1 million in the same period of 1999. We plan to continue to spend a substantial amount on staffing and support needed to obtain right-of-way agreements in markets under development. We plan to spend a substantial amount on the development of our networking products to reduce the cost of our system components, increase the speed and performance of our services and develop additional applications for our services. We also plan to continue to improve and upgrade our network and service to address the emerging demands for mobile data access. As a result, we expect that research and development costs will continue to increase significantly in absolute dollars for the foreseeable future. Selling, General and Administrative Selling, general and administrative expenses include our corporate overhead and the costs associated with our efforts to obtain and support our channel partners, promote the Ricochet brand and our high-speed service, and develop and implement our marketing strategy for our service and modems. Selling, general and administrative expenses increased to $8.0 million for the first quarter of 2000 from $4.1 million for the first quarter of 1999. Approximately three-quarters of the increase was due to increases in administrative staff and the labor, travel and support costs associated with supporting the widespread deployment of our high-speed service. Approximately one-quarter of the increase in 2000 was due to increased product marketing, advertising and public relations expenditures related to commercialization of the high-speed service. We expect selling, general and administrative costs to increase significantly from historical levels as we implement our planned advertising campaign related to the launch of the various phases of our high-speed service. We expect to spend more than $50 million on sales and marketing efforts in 2000 and substantially more in 2001. We also expect to continue to expand our corporate and administrative infrastructure to support our planned growth. 14 15 Interest and Other Income and Interest Expense Interest and other income increased to $16.6 million in the first quarter of 2000 from $0.1 million in the same period of 1999 due primarily to a significantly higher average balance of cash, cash equivalents and investments on hand in 2000. As a result of the November 1999 sale of our preferred stock for net proceeds of $573.2 million and the February 2000 sale of common stock, 13% senior notes due 2010 and warrants to purchase common stock, we have over $1 billion on hand. We are using these cash resources to fund the deployment of our network, to fund operating losses and working capital requirements through the first two phases of our network deployment, and to fund interest on long-term debt and dividends on our preferred stock outstanding. Pending these uses, we have invested this cash in high-quality, short-term, interest-bearing securities. Accordingly, in the short-term, we expect to continue to generate a substantial amount of interest income, although this interest income will decline rapidly over time as we use this cash. Interest expense increased to $7.5 million in the first quarter of 2000 from $1.2 million in the same period of 1999 as a result of the increase in our outstanding debt in 2000. Due to our senior notes and warrants offering in February 2000, we have approximately $300 million in outstanding debt. The senior notes require semi-annual cash interest payments commencing August 15, 2000. We have deposited approximately $73.1 million of the net proceeds from the sale of the senior notes in a pledge account to secure the first four interest payments on these securities. We therefore will continue to incur a substantial expense, a portion of which will be non-cash, for interest on these obligations. If we incur additional debt in the future to fund our expansion plans, our interest costs will increase. Preferred Dividends In November 1999, we issued 60,000,000 shares of preferred stock to Vulcan Ventures Incorporated and MCI WorldCom, Inc. for gross proceeds of $600 million. Each share of preferred stock bears a cumulative dividend at the rate of $.65 per year for the first three years after issuance, which we may pay in cash or in additional shares of preferred stock. We have historically paid and currently expect to continue to pay future dividends on the preferred stock in cash. Because the preferred stock sold to Vulcan Ventures is immediately convertible into common stock at the holder's option at a conversion price of $10.00 per share, which was below $11.06, the per share closing price of our common stock on the date immediately prior to our execution of the preferred stock purchase agreement, we recorded an additional dividend of $31.8 million in the fourth quarter of 1999 to reflect the beneficial conversion privilege associated with this series of preferred stock. The preferred stock issued to MCI WorldCom is also deemed to have been issued with a beneficial conversion privilege. However, that series of preferred stock does not begin to become convertible into common stock at the holder's option until May 2002. As a result, this discount will be amortized over the 48-month period, which began in November 1999, during which this series of preferred stock becomes convertible into common stock at the holder's 15 16 option. Accordingly, for both series of preferred stock in the aggregate, we will record preferred stock dividends in addition to our cash dividend on the preferred stock as follows: 2000................ $10.1 million 2001................ $10.1 million 2002................ $7.8 million 2003................ $2.6 million
Both series of preferred stock will accrete at approximately $2.7 million per year in total over the ten-year period from the beginning aggregate net book value of $573 million up to its aggregate face value of $600 million. This accretion will be charged against retained earnings (accumulated deficit). In the first quarter of 2000, preferred dividends included $9.7 million of accrued dividends payable, $2.5 million of beneficial conversion privilege and $0.7 million of accretion related to the preferred stock. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations and capital expenditures primarily through the public and private sale of equity and debt securities. In 1996, we completed a private placement of 8% Convertible Subordinated Notes due 2003 with net proceeds of approximately $43.4 million. In January 1998, we completed a private placement of common stock with Vulcan Ventures with net proceeds of approximately $53.7 million. In November 1999, we completed a private placement of redeemable convertible preferred stock with Vulcan Ventures and MCI WorldCom with net proceeds of approximately $573 million. In February 2000, we completed a public offering of common stock with net proceeds of approximately $473 million and a public offering of 13% senior notes due 2010 and warrants to purchase common stock with available net proceeds of approximately $219 million, after establishing the required reserve to secure the first four interest payments on the notes. This large amount of indebtedness could adversely affect our business, for example, by requiring us to dedicate a substantial portion of our cash flow from operations to required payments on indebtedness or limiting our ability to acquire additional financing in the future. See "Risk Factors - We have a substantial amount of debt, which could adversely affect our business, financial condition and results of operations" in our 1999 Annual Report on Form 10-K. Since inception, we have devoted significant resources to the development, deployment and commercialization of wireless network products and services. As a result, as of March 31, 2000, we had incurred $370 million of cumulative net losses. Our operations have required substantial capital investments for the purchase of network equipment, modems and computer and office equipment. 16 17 Including network construction in progress, capital expenditures were $124.0 million during the first quarter of 2000. Network construction in progress included approximately $50.3 million in the first quarter of 2000 related to the purchase of component inventory located at our vendors. We expect that our vendors holding this inventory will use these components in the manufacture and assembly of network equipment for us in 2000. We expect that capital expenditures will significantly increase in the future as a result of our ongoing deployment and commercialization of the high-speed network. Our principal uses of cash for the foreseeable future will be to fund the deployment of our high-speed network, to fund operating losses and to pay interest on our debt securities issued in February 2000, as well as dividends on our preferred stock. Based on our current projections, we believe that our cash, cash equivalents and unrestricted investments of approximately $1.08 billion as of March 31, 2000 will be sufficient to fund the first two phases of our network deployment. We believe that, in addition to the funds on hand at March 31, 2000, we will require additional cash resources of approximately $300 million to enable us to complete the three-phase deployment of our network, as well as for the other purposes described above. However, the funds we may actually require to complete any phase of the deployment may vary materially from our estimates. In addition, we could incur unanticipated costs or be required to alter our plans in order to respond to changes in competitive or other market conditions, which could require us to raise additional capital sooner than we expect. Further, although it is not our current intention to do so, we may decide to use a portion of our cash resources to acquire licensed spectrum or to license, acquire or invest in new products, technologies or businesses that we consider complementary to our business. We cannot assure you that the additional capital we will require to complete the third phase of our network deployment or for these other purposes will be available on commercially reasonable terms or at all. If we are unable to secure additional financing as necessary, we may need to delay or curtail our expansion plans. See in our 1999 Annual Report on Form 10-K, "Risk Factors -- We will require significant additional capital in the future to fund our continuing development, deployment and marketing of our high-speed network and service." Our current and future operations will require substantial capital investments for the purchase of our network equipment, which consists primarily of network radios, wired access points and network interface facilities. Significant labor costs associated with deploying our network equipment include design of the network, site acquisition, zoning, construction and installation of equipment. In July 1999, we entered into an agreement with Sanmina Corporation to manufacture our poletop radios and network radios installed at wired access points. In October 1999, we entered into agreements with Wireless Facilities, Inc., General Dynamics Worldwide Telecommunications Systems and Whalen & Company to provide us with expertise and personnel to assist with the deployment of our network. At March 31, 2000, we had outstanding commitments to purchase approximately $325 million of network equipment and related labor from these suppliers. 17 18 We expect to incur significant expenditures to procure high-speed modems in the future. We have agreed to purchase 47,700 modems from our current modem supplier, Alps Electric (USA), Inc., in 2000, representing a commitment of approximately $20 million. In January 2000, we entered into a two-year agreement with NatSteel Electronics, Ltd. for the purchase of additional modems. In November 1999 and October 1999, we entered into agreements with Sierra Wireless and Novatel, respectively to develop and manufacture custom personal computer card modems. We have agreed with both Sierra Wireless and Novatel to purchase a minimum of 150,000 units in the first year of deliveries from each, representing a total commitment of approximately $68 million. We anticipate that deliveries from Alps will begin during the second quarter of 2000 and deliveries from Sierra Wireless and Novatel will begin in early 2001. In April 2000, we entered into an agreement with National Semiconductor Corporation to integrate the Ricochet modem technology onto a microchip set. In December 1999, we called our $45 million aggregate principal amount of convertible notes due 2003 for redemption on January 10, 2000. As of December 31, 1999, $40.7 million of the notes had been converted into approximately 2.8 million shares of common stock. In the first quarter of 2000, the remaining $4.3 million of notes outstanding were converted to 0.3 million of shares of our common stock at a conversion price of $14.55 per share. As a result of the conversion, we issued an aggregate of 3,064,963 shares of our common stock to the former convertible note holders. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to financial market risk, including changes in interest rates and marketable securities prices, relates primarily to our investment portfolio, long-term debt and redeemable convertible preferred stock outstanding. Our cash equivalents and short-term investments subject to interest rate risk are primarily highly liquid corporate debt securities from high credit quality issuers. We do not have any significant investments in foreign currencies and we do not have any foreign exchange contracts or derivative instruments. We performed a sensitivity analysis to assess the impact of a change in interest rates. In the analysis, the fair value of our investment portfolio would not be significantly impacted by a 100-basis point change in interest rates, due primarily to the fixed rate, short-term nature of our portfolio. The fair value of our redeemable convertible preferred stock would not change materially in the event of a 100-basis point change in interest rates, due primarily to the fixed and relatively short-term nature of its 6.5% coupon rate. We estimate that the fair value of our long-term debt would decrease or increase by approximately $12 million in the event of a 100-basis point increase or decrease, respectively, in interest rates. 18 19 PART II. OTHER INFORMATION ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS In February 2000, we issued senior notes under an indenture and supplemental indenture with Bank One Trust Company, N.A., as trustee. We will be restricted by the terms of the indenture and supplemental indenture from taking various actions, such as incurring additional indebtedness, paying dividends, repurchasing junior indebtedness, making investments, entering into transactions with affiliates, merging or consolidating with other entities and selling all or substantially all of our assets. These restrictions could also limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business or the economy in general or otherwise conduct necessary corporate activities. For information with respect to shares of common stock issued upon conversion of our convertible notes due 2003, see Part I, Item 2: "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." These shares were issued pursuant to the exemption provided by Section 3(a)(9) under the Securities Act of 1933, as amended, in an exchange with our existing security holders exclusively where no commission or other remuneration was paid for soliciting the exchange. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 10.1* Agreement and Supplemental Agreement No. 1 for Electronic Manufacturing Services between the Company and Sanmina Corporation, dated as of July 2, 1999. 27.1 Financial Data Schedule b. Reports on Form 8-K: (i) Report on Form 8-K filed January 28, 2000 regarding a press release announcing the impact of industry-wide component shortages. (ii) Report on Form 8-K filed February 7, 2000 filing forms of underwriting agreement and supplemental indenture relating to the senior notes and warrants offering. (iii) Report on Form 8-K filed February 10, 2000 and amended on February 16, 2000 reporting the closing of the public offering of common stock and senior notes with warrants and including related underwriting and other agreements, certificates and documents. - ---------------------- *Certain portions have been deleted pursuant to a confidential treatment request. 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. METRICOM, INC. (Registrant) Date: May 12, 2000 /s/ TIMOTHY A. DREISBACH --------------------------- Timothy A. Dreisbach Chief Executive Officer and Chairman of the Board of Directors /s/ JAMES E. WALL --------------------------- James E. Wall Chief Financial Officer (Principal Financial and Accounting Officer) 20 21 EXHIBIT INDEX 10.1* Agreement and Supplemental Agreement No. 1 for Electronic Manufacturing Services with Sanmina Corporation, dated July 2, 1999. 27.1 Financial Data Schedule
- ---------------------- *Certain portions have been deleted pursuant to a confidential treatment request. 21 EX-10.1 2 EXHIBIT 10.1 1 EXHIBIT 10.1 *TEXT OMITTED AND FILED SEPARATELY UNDER 17 C.F.R. SECTIONS 200.80(b)(4) 200.83 AND 240.24b-2 SANMINA CORPORATION AGREEMENT FOR ELECTRONIC MANUFACTURING SERVICES This Agreement between METRICOM, INC., hereinafter referred to as "Customer," and SANMINA CORPORATION, hereinafter referred to as "Sanmina" is entered into on July 2nd, 1999. Sanmina shall perform manufacturing services for the Customer under the terms and conditions set forth herein. I. TERM. This Agreement shall be in effect for twenty-four (24) months from the date of this Agreement. Unless the parties agree to extend such initial term of the Agreement, for any period, prior to the termination of such initial term, the Agreement shall terminate. II. SCOPE OF WORK PERFORMED. Customer wishes Sanmina to manufacture a range of Electronics products or Assemblies on behalf of Customer at the prices identified in Exhibit A. Sanmina and the Customer shall mutually agree upon a delivery schedule for the Products. A. Customer shall be liable for Material that Sanmina procures or otherwise contracts for in order to manufacture the products per the customer Bill-of-Materials (BOM) that Customer wishes to buy from Sanmina on a turnkey basis. B. This liability shall be determined by defining the process that incurs this liability and describing the situations or circumstances under which Customer is liable for Material that Sanmina has procured. C. Sanmina shall purchase components for the Products in accordance with a vendor list approved by Sanmina and the Customer ("AVL"). In the event Sanmina cannot purchase a component from an approved vendor for any reason, including unavailability or commercial infeasibility of the purchase of such components, Sanmina may purchase such components from an alternate vendor with the prior written consent of the Customer. III. GENERAL PLANNING AND PROCUREMENT PROCESS A. On the date this Agreement is executed and the first business day of each calendar month thereafter, the Customer shall provide Sanmina with firm, monthly, rolling purchase orders covering a minimum period of three (3) months ("Purchase Order"). 1 2 B. On the same dates, the Customer shall provide Sanmina with additional monthly, rolling nine (9) month forecast ("Forecast") covering nine (9) months immediately following the Purchase Order period. Forecast does not incur any liability for either Sanmina or Customer except that of any long lead-time parts for which the forecast would cause procurement activity, and, even in such a situation such liability for Customer would be limited per section IV and it sub-sections. Within 30-days of this agreement or at the earliest possible date thereafter, Sanmina will provide a summary of all components used on the BOM showing each parts NCNR status, lead-time, standard cost, minimum buy quantity, ABC code. C. Sanmina will take the Purchase Orders and Forecast referred to in III(A) and III(B) above and generate a Master Production Schedule (MPS) for a twelve-month period using the process described in Section III(D) below. D. This MPS will define the master plan on which Sanmina will base its procurement, internal capacity projections and commitments. 1. Sanmina will use the Purchase Orders referred to in A to generate the first three months of the MPS. 2. Sanmina will use the Forecast referred to in B to generate the second nine months of the MPS. 3. The MPS created as described above does not incur any liability for either Sanmina (except to fulfill the binding Purchase Orders) or Customer except that of any long lead-time parts for which the forecast would cause procurement activity, and, even in such a situation such liability for Customer would be limited per section IV and it sub-sections. In the event Sanmina needs to procure NCNR material, utilizing Customer forecast, beyond the 3 months firm PO, written agreement must be attained from the Customer. E. Sanmina will process the MPS through industry-standard MRP software that will convert the MPS reflecting Customer's Purchase Orders and Forecasts into requirements for components that are required to make these products. In doing so, Sanmina will off-set the requirements for receipt of components or materials by allowing for the time required to build the products per the following times: 1. In-Circuit Test/Functional Test - 5 Working Days 2. Assembly - 7 Working Days 3. Kitting - 2 Working Days 4. Material Handling - 2 Working Days F. Per this agreement Sanmina will plan and schedule material to be at Sanmina eleven working days before the products are due to ship to Customer where no Test is required, and sixteen working days before the products are due to ship to Customer where Test is required. 2 3 G. Sanmina will also release (launch) orders to suppliers of materials sometime prior to the anticipated date that the material is needed (per section III(E) above). When these orders are launched will depend on the Vendor Lead-Time that Sanmina will determine from time to time and maintain as a parameter of Sanmina's manufacturing or materials planning systems. H. Sanmina, through its MRP System will also issue an instruction (MRP Signal) to its procurement group to buy a part approximately seven days before the order is due to be placed per section F above. I. When Sanmina places an order with its suppliers per the sections above, Sanmina will order parts in various quantities (defined in periods-worth-of-supply) that are defined by the part's ABC Classification. This classification as well as the expected distribution or characteristics of various classes of parts, and, the periods-worth-of-supply (Periods-of-Supply) that will be bought for each class of part is shown on Table 1. Table 1. ABC Classifications, Descriptions and Periods-of-Supply
PERIODS WORTH OF EXPECTED PERCENTAGE SUPPLY TO BE EXPECTED PERCENTAGE OF TOTAL VALUE (OF BOUGHT WITH EACH PART CLASS OF TOTAL PARTS GROSS REQUIREMENTS) ORDER ---------- -------------- ------------------- ----- A 3% 80% 2 Weeks B 17% 17% 8 Weeks C 80% 3% 6 Months
J. In addition to ordering parts for various periods-of-supply, Sanmina will order parts according to various minimum-buy quantities, tape and reel quantities, and, multiples of packaging quantities. K. The components Sanmina purchases or orders to fulfill the Purchase Order and the Forecast on behalf of the Customer to manufacture the Products, and any associated expenses related to purchasing, ordering, manufacturing (labor and overhead), shipping, storing and eliminating such components and agreed upon mark-up shall constitute a part of the Customer's Total Liability ("Total Liability"). IV. LIABILITIES FOR MATERIALS A. Customer's liability for material that Sanmina has procured is limited to the following: 1. Parts that Sanmina, having ordered per the guidelines above, cannot cancel prior to their receipt. This includes parts that may not be cancelable by virtue of having 3 4 insufficient time between the MRP signal to cancel and the expected or real receipt date at Sanmina. Sanmina is to advise customer of non-cancelable items prior to order placement by providing the information referred to in section III (D.3). 2. Parts that Sanmina, having ordered per the guidelines above, cannot return to the suppliers that the parts came from, where the value of the parts exceed $500 in total, and where Sanmina has made reasonable efforts to return the parts (for no more than four weeks) or use for another requirement within Sanmina. Sanmina is to advise Customer the list of non-returnable items prior to order placement. Customer recognizes that some parts may have been returnable when procured from a supplier by Sanmina, but nevertheless may subsequently become non-returnable by virtue of some processing that Sanmina may cause to have done to the parts in preparation for the use of those parts in manufacturing. 3. Parts that are worth less than $500 in total and where Sanmina is not required to attempt return. B. Where Sanmina is able to return parts with a re-stocking or other fees, those fees shall also become part of Customer's Total Liability. C. If necessary and with the Customer's written consent, Sanmina shall purchase any necessary tools to fulfill the Purchase Order and Forecast. Such tools shall be deemed a part of the Customer's Total Liability. All such tooling purchased by Sanmina shall remain the Customer's property, shall be subject to a security interest perfected on behalf of Customer, and Sanmina shall return such tooling (normal wear and tear excepted) to the Customer upon request, the completion of the relevant order or the termination of the Agreement. D. Customer's liability for the material defined in the previous sections will be at the quoted cost agreed between Sanmina and Customer plus an agreed margin of 5% (five percent) plus a materials burden of 5%. V. RESCHEDULES. The Customer may reschedule delivery dates of Products subject to the following matrix:
NOTICE PRIOR TO PERCENT OF ORIGINAL ORIGINAL QUANTITY THAT CAN BE DELIVERY DATE RESCHEDULED ------------- ----------- 0 to 30 days 0% 31 to 60 days 15% 61 to 90 days 30% Beyond 90 Days 100%
A. As an example, if the Customer notifies Sanmina in writing between 31 and 60 days prior to the scheduled delivery date of the Products, the Customer may reschedule a maximum of 15% of the total amount of the Products to be delivered on such date. 4 5 B. For a decrease in quantity of Products to be delivered on a specific delivery date, Sanmina and the Customer shall mutually agree upon a date to deliver the undelivered Products within 45 days from the original delivery date. C. For an increase in quantity of Products to be delivered on a specific delivery date, Sanmina, on a best effort basis, will attempt to accommodate such increase. D. Any change in the delivery dates of any Product for a period exceeding 45 days in the aggregate shall be deemed a cancellation by the Customer with respect to such Products. If the Customer's schedule change results in additional expenses to Sanmina to store such Products or to acquire additional components, such additional expenses shall be deemed Part of the Customer's Total Liability. VI. REVISIONS. In the event the Customer requests an engineering change to a product, Sanmina shall notify the Customer in writing of any impact on the cost and/or scheduled delivery of such Products within five (5) business days of the receipt of Customer's request. Unless the Customer consents to the amended notification from Sanmina, the requested engineering change shall be deemed canceled. Any increases in the cost of the Products resulting from such Engineering Change Order ("ECO") shall be deemed a part of the Customer's Total Liability as defined above. Similarly, any parts made obsolete or excess as a result of such an ECO shall be deemed part of the Customer's Total Liability. Sanmina will make reasonable effort to return or use in another application obsolete ECO related material where each part exceed $500 value in total. Such efforts are limited to 4 weeks duration. VII. CANCELLATIONS. The Customer may cancel any order by notifying Sanmina in writing at least 90 days prior to the delivery date of such order. Within 30 days of such cancellation, Sanmina shall provide the Customer with the amount of the Total Liability related to such canceled order. The Customer shall pay such cancellation amount to Sanmina on a net 30-day basis. After receipt of such cancellation amount, Sanmina shall deliver to the Customer, at the Customer's expense, any components purchased but unused as a result of such cancellation or scrap such components, at the discretion of the Customer. VIII. PRICING. The prices for the Products are shown in Exhibit A and shall remain fixed for the term of this Agreement with the following exceptions: A. ECO - Engineering Change Order (referred to in section VI) B. Material variations on the market prices of components. The costed BOM will be reviewed every quarter with the intent of cost reduction. IX. COST REDUCTION. Sanmina will make every reasonable effort to improve component pricing as well as improvements to test and assembly processes so as to decrease final pricing. Sanmina and CUSTOMER will meet every to manage a joint and ongoing cost reduction program as outlined in the Cost Reduction Plan, Exhibit B. 5 6 X. DELIVERY. A. Delivery of all items under this Agreement shall be in compliance with a Customer order fulfillment process which will be mutually developed and agreed to by Sanmina and Customer. B. Sanmina shall deliver the Products on the agreed upon delivery dates. Time is of the essence in delivery. C. Unless otherwise specified by the Customer, Sanmina shall transport the Products by the method Sanmina deems most advantageous, to the address specified in writing by CUSTOMER. All reasonable freight, insurance and other shipping expenses from the delivery point shall be borne Customer. Specifications for special packaging will be provided by Customer. Expense for special packaging will be borne by Customer. XI. TRAINING. Customer will perform initial training of Sanmina personnel. Upon satisfactory completion, Sanmina will assume responsibility for ongoing training. XII. TEST EQUIPMENT. A. Customer will provide Sanmina with one set of test equipment, which shall remain the property of Customer. Additional sets of equipment as needed will be provided by Sanmina. Customer will be responsible for cost of the additional equipment. Customer must approve additional equipment costs and purchase of equipment in writing prior to Sanmina supplying this equipment. B. Sanmina will assume responsibility for calibration and repair of equipment at the customers expense. Upon completion of 100K radios, calibration cost will be shared at 50/50 between Sanmina and Customer. XIII. PAYMENT AND INVOICING. A. Payment terms will be net 30 days from invoice date. Sanmina will provide the Customer with a credit limit set at (to be determined). In the event that the Customer exceeds this credit limit or has outstanding invoices for more than 60 days, Sanmina may stop shipments of Products to Customer until the Customer makes sufficient payment to bring its account consistent with terms outlined above. Sanmina may reduce the credit limit with written notice to the Customer. XIV. WARRANTY. A. Sanmina warrants that the Products shall be free from any defects in materials and workmanship for a period of one year from the date of delivery. Warranty on third-party components is limited to the warranty provided by the component manufacturer. Sanmina shall pass on any unexpired warranty for such Vendor Components provided by third-party vendors or passed on by such third-party vendors from the original manufacturers until the expiration of such warranties or up to a maximum of one (1) year from date of manufacture of the Product by 6 7 Sanmina, whichever is shorter. As the Customer's sole remedy under the warranty, Sanmina will, at no charge, rework, repair and retest or replace any such Products returned to Sanmina and found to contain defects. Warranty coverage does not include failures due to the Customer design errors, the supply or selection of improper or defective parts or materials used by the Customer, damages caused by the Customer's misuse, unauthorized repair or negligence. Sanmina does not assume any liability for expendable items such as lamps and fuses. Sanmina reserves the right to inspect the Products and verify that they are defective or non-conforming. Sanmina's total liability shall be limited to the value of the Product supplied under this Agreement. B. The performance of any repair or replacement by Sanmina does not extend the warranty period for any Products beyond the period applicable to the Products originally delivered. C. EXCEPT FOR THE ABOVE EXPRESS WARRANTIES, SANMINA MAKES AND THE CUSTOMER RECEIVES NO WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND SANMINA SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. XV. GENERAL INDEMNITY. A. The Customer shall indemnify Sanmina against, and hold it harmless from any loss, cost, liability or expense (including court costs and the reasonable fees of attorneys and other professionals) to the extent that such loss, cost, liability or expense arises out of, or in connection with, in whole or in part, (A) infringements of any patent, trademark, copyright or other intellectual property of the Customer or (B) any negligence or willful misconduct by the Customer, its employees or agents and subcontractors, including but not limited to any such act or omission that contributes to: (i) any bodily injury, sickness, disease, or death; (ii) any injury or destruction to tangible or intangible property of the injured party or any loss of use resulting therefrom; or (iii) any violation of any statute, ordinance or regulation; provided that Sanmina shall give Customer prompt written notice of such claim, sole control over the defense or settlement of such claim, and reasonable assistance in such defense or settlement at Customer's request and expense. B. Sanmina shall indemnify Customer against, and hold it harmless from any loss, cost, liability or expense (including without limitation court costs and the reasonable fees of attorneys and other professionals) to the extent that such loss, cost, liability or expense arises out of, or in connection with, in whole or in part, any negligence or willful misconduct by Sanmina, its employees or agents and subcontractors, including but not limited to any such act or omission that contributes to: (i) any bodily injury, sickness, disease, or death; (ii) any injury or destruction to tangible or intangible property of the injured party or any loss of use resulting therefrom; or (iii) any violation of any statute, ordinance or regulation; provided that Customer shall give Sanmina prompt written notice of such claim, sole control over the defense or settlement of such claim, and reasonable assistance in such defense or settlement at Sanmina's request and expense. 7 8 XVI. QUALITY, INSPECTION AND REPORTING. A. The Customer will have the right at all reasonable times, to visit Sanmina's plant to inspect the work performed on the Products. Inspection of the work shall not relieve Sanmina of any of its obligations under the Agreement or purchase orders. Sanmina shall provide Customer with all mutually agreed upon quality reports at agreed upon intervals. Sanmina reserves the right to restrict the Customer's access to the plant or any area within it as necessary to protect confidential information of Sanmina or its other customers. B. Customer and Sanmina will implement a joint quality improvement program that will develop and implement a continuous quality improvement. XVII. CONFIDENTIALITY. A. All Confidential Information shall be treated as confidential and not disclosed or transferred by the recipient to third parties, other than the recipient's agents and employees who need to know such information to serve the recipient and who are obligated to treat such information as confidential. All Confidential Information shall remain the sole property of the disclosing party, and the receiving party shall have no interest in or rights with respect thereto except as expressly set forth in this Agreement. Each party agrees to maintain all such Confidential Information in confidence to the same extent that it protects its own similar Confidential Information, which in no event will be less than reasonable care. "Confidential Information" is defined as information in written, graphic, or electronic form identified by a party as its confidential or proprietary information, or if initially disclosed in any other form, identified at the time of disclosure as confidential or proprietary and subsequently reduced to writing within thirty (30) days. Without limiting the foregoing, the terms and conditions of this Agreement are the Confidential Information of both parties. B. EXCEPTIONS. The foregoing restriction on disclosure shall not apply with respect to any information which (a) becomes generally known or publicly available through no act or failure to act on the part of the receiving party; (b) is furnished to others by the disclosing party without restriction on disclosure; (c) is known by the receiving party at the time of receiving such information as evidenced by its records; (d) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction on disclosure; or (e) was developed independently of this Agreement without obligation of confidentiality. XVIII. LICENSE GRANT; OWNERSHIP A. LICENSE GRANT. 1. TECHNOLOGY LICENSE. Subject to the terms and conditions of this Agreement, Customer hereby grants to Sanmina during the term of this Agreement a nonexclusive, non-transferable, worldwide, royalty-free license, without right to sublicense, to make the Products in accordance with the specifications and to sell such Products to Customer. 8 9 2. SOFTWARE LICENSE. Subject to the terms and conditions of this Agreement, Customer grants to Sanmina during the term of this Agreement a nonexclusive, non-transferable, worldwide, royalty-free license, without right to sublicense, to reproduce and use any software that Customer provides Sanmina for incorporation in the Products (the "Software") in object code form only. Sanmina shall not reverse compile, reverse engineer or otherwise disassemble the Software. No rights to prepare derivative works or to display the Software are granted hereunder. 3. SOURCE CODE. Subject to the terms and conditions of this Agreement, Customer may disclose to Sanmina the source code for the Software for purposes of enabling Sanmina to port the Software as set forth in Exhibit A. Such disclosure shall take place only at Customer's facilities. The source code shall be retained at Customer's facilities and shall not be removed therefrom by Sanmina, and any disclosure of source code, and all notes made by Sanmina pertaining thereto shall be treated as Customer's Confidential Information pursuant to the terms of this Agreement. Customer shall provide Sanmina with access to materials and equipment located at Customer's facilities and the support reasonably needed in connection with the porting effort. Except as needed to port the Customer Software as set forth in Exhibit A, no copyright rights to reproduce, prepare derivative works, perform, display or distribute the Software in source code format are granted to Sanmina hereunder. B. OWNERSHIP. Sanmina acknowledges and agrees that Customer is and shall remain the sole owner of any materials, tooling, designs, schematics, Software, specifications or other information (including without limitation Confidential Information) that Customer provides Sanmina pursuant to this Agreement (collectively, the "Customer Technology"). Any improvements to the Technology (the "Improvements") created during this Agreement by either party shall be owned by Customer. Sanmina acknowledges and agrees that it has no rights in or to the Technology, and any Improvements other than the license rights specifically granted herein. XIX. TERMINATION. A. Either party may, without penalty, terminate this Agreement upon 180 days written notice to the other party in either one of the following events: The other party materially breaches this Agreement and such breach remains uncured for thirty (30) days following written notice of breach the non breaching party; The other party becomes involved in any voluntary or involuntary bankruptcy or other insolvency petition or proceeding for the benefit of its creditors, and such petition, assignment or proceeding is not dismissed within sixty (60) days after it was filed. B. Upon termination, Sanmina shall provide the Customer with an invoice of the Customer's Total Liabilities. In addition, if the Customer is the breaching party, the Customer shall be liable for all work-in-progress and any outstanding charges. Upon termination, 9 10 Customer shall pay all invoiced charges in net thirty (30) days. In addition, Sections XIV, XV, XVII, XVIII.B, XIX.B, XX and XXI shall survive any termination or expiration of this Agreement. XX. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING IN ANY WAY OUT OF THIS AGREEMENT. THIS LIMITATION WILL APPLY EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN. XXI. MISCELLANEOUS A. GOVERNING LAW. This Agreement will be governed by and interpreted under the laws of the State of California, without reference to conflict of laws principles. B. JURISDICTION. For any dispute arising out of this Agreement, the parties consent to personal and exclusive jurisdiction of and venue in the state and federal courts within Santa Clara County, California. C. ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and therein and merge all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. The failure by either party to enforce any rights thereunder will not be construed as a waiver of any rights of such party. D. ASSIGNMENT. Sanmina shall not assign this Agreement nor any of its rights or obligations hereunder without the prior written consent of Customer. The rights and liabilities of the parties hereto will bind and incur to the benefit of their successors, executors or administrators. E. NOTICES. Any required notices thereunder will be given in writing at the address of each party set forth above, or to such other address as either party may substitute by written notice to the other in the manner contemplated herein, and will be deemed served when delivered by facsimile or mail or when tendered in person. F. FORCE MAJEURE. Neither party will be liable to the other for any default thereunder if such default is caused by an event beyond such party's control, including without limitation acts or failures to act of the other party, component shortages, unavailability of transportation, floods, fires, governmental requirements and acts of God (a "Force Majeure Event"). In the event of threatened or actual non-performance as a result of any of the above causes, the non-performing party will exercise commercially reasonable efforts to avoid and cure such non-performance. Should a Force Majeure Event prevent a party's performance thereunder 10 11 for a period in excess of ninety (90) days, then the other party may elect to terminate this Agreement by written notice thereof. G. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed an original and all of which together will constitute one instrument. SANMINA CORPORATION METRICOM, INC. Signed: /s/ Rick LaPonzina Signed: /s/ Robert Mott ------------------------------- ----------------------------- Name: Rick LaPonzina Name: Robert Mott ------------------------------- ----------------------------- Title: VP of Sales and Administration Title: Senior VP of Eng. And Mfg. ------------------------------- ----------------------------- 11 12 EXHIBIT A PRICE LIST Poletop [***] Eradio [***] WCS [***] Installation Kit [***] Note: Price is subject to change due to material and process. - ---------- * CONFIDENTIAL TREATMENT REQUESTED 12 13 EXHIBIT B COST REDUCTION PLAN DEDICATED COST REDUCTION TEAM Sanmina will organize a team whose focus will be to reduce cost. This team will consist of Front-End Engineers, Purchasing Agents, Manufacturing Engineers and RF Engineers. We will work aggressively with Metricom to reduce cost yet maintain quality, delivery and flexibility. DESIGN FOR MANUFACTURABILITY (FRONT-END COST SAVINGS) For future reference, DFM is a large part of Sanmina's Value Added Services. Sanmina's PWB NPI Group can provide Metricom feedback on stack-up material selection, DFM parameters and enhancements, electrical performance simulation, panelizations and cost-abatement recommendations. The resources offered can also provide Metricom Design Engineers the front-end suggestions for testability, manufacturability and componentary. This exercise will allow a smooth new product introduction, prototype and into production. MATERIAL COST SAVINGS Sanmina Purchasing Department will work with suppliers to negotiate aggressive contracts, which will allow on going material cost reductions. Such contracts will include shorter leadtimes, which will in turn allow much more flexibility to Metricom yet at reduced cost. Sanmina's goal is to reduce material cost by 10-13% annually. Sanmina and Metricom will review material cost on a quarterly basis at which time new cost will be implemented. FURTHER MATERIAL COST SAVINGS Sanmina will review material mark up as soon as Metricom meets or exceeds 15k/M rate at which time new pricing will be implemented. PROCESS IMPROVEMENTS (LABOR COST SAVINGS) Sanmina Engineers will work with Metricom to expedite the "learning curve". Furthermore, Sanmina Engineers will work towards developing a manufacturing process flow, which will improve cost effectivity. Upon completion of the first 22k pieces, Sanmina Engineers will provide feedback on manufacturing process improvements. Both Metricom and Sanmina will review the process flow on a quarterly basis thereafter, at which time new cost will be implemented. 13 14 FURTHER LABOR COST SAVINGS Sanmina will review labor rate once Metricom meets or exceeds 8k/M rate, equivalent to 96k/Y, at which time reduced rate will be implemented. ICT IMPLEMENTATION (TEST COST SAVINGS) Sanmina will dedicate a team of Test Engineers to develop ICT Programs and Fixtures. Complex products such as Metricom's, benefit from ICT as it will improve functional test yield. RF TEST YIELD IMPROVEMENTS AND TIME REDUCTION (TEST COST SAVINGS) Sanmina RF Engineers will work closely with Metricom Engineers to improve yields and reduce test time. Sanmina will organize a RF team of Engineers who will focus on improvements in both board level test yields and time, system level test yields and time. The improvement in yields and reduction in test time will allow this program to run more cost effectively. During the quarterly cost review such cost savings will be realized and implemented. FURTHER TEST COST SAVINGS During the initial production of the program Sanmina will dedicate RF Engineers to work with Metricom. Such RF Engineers have the expertise and experience to reach the goals set by Metricom Test Engineers. During this process, Sanmina Test Technicians will be trained to perform test and debug. Once Sanmina has reached a satisfactory yield, Test Technicians will perform test on a full time basis. At this time, Sanmina will review the test rate and reduced rate will be implemented. LONGTERM COST SAVINGS Sanmina offers low cost manufacturing alternatives where mature products can be transferred. This transfer will be completely invisible to Metricom. Sanmina will ramp up at the low cost facility and phase out at the current facility. 14 15 SUPPLEMENTAL AGREEMENT NO. 1 OF THE AGREEMENT FOR ELECTRONIC MANUFACTURING SERVICES BETWEEN SANMINA CORPORATION AND METRICOM DC, L.L.C THIS SUPPLEMENTAL AGREEMENT for the purchase and consignment of Radio Kits, effective on the date last signed by both parties is between METRICOM DC, L.L.C., (hereinafter referred to as "Customer"), METRICOM, INC. (HEREINAFTER REFERRED TO AS "METRICOM, INC."), and SANMINA CORPORATION, (hereinafter referred to as "Sanmina"). There is currently in full force and effect between Metricom, Inc. and Sanmina an Agreement for Electronic Manufacturing Services, dated July 2, 1999 (hereinafter referred to as the "Agreement"). Customer, hereby, agrees to the terms and conditions of the Agreement, and the parties to the Agreement, intending to be legally bound, mutually agree that it is hereby supplemented as follows: I. PREAMBLE WHEREAS, Customer will purchase [***] Radio Kits, as defined herein, from Sanmina for [***] WHEREAS, Customer will consign the Radio Kits purchased to Sanmina for use in the manufacture of Customer's Radios. WHEREAS, Sanmina will invoice Customer for the finished Radios upon delivery, and Customer will pay Sanmina the invoiced amount for delivered Radios minus Customer's credit of [***]/Radio Kit for Consigned Goods. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows (and as hereinabove set forth): - ---------- * CONFIDENTIAL TREATMENT REQUESTED 1 16 II. DEFINITIONS A. Approved Components: electronic components listed in the Bill of Materials for Customer's Radios, current as of the date of this Supplemental Agreement, No. 1. B. Radio Kit: One "Complete Radio Kit" is comprised of all the Approved Components necessary to manufacture one Customer Radio. A "Partial" Radio Kit is one that is missing some amount of necessary Approved Components to make it a Complete Radio Kit. C. Radio: electronic devices manufactured by Sanmina to Customer's specifications. D. Consigned Goods: Complete and Partial Radio Kits owned by Customer, located at Sanmina, and used exclusively for the manufacture of Customer's Radios. III. TERM OF SUPPLEMENTAL AGREEMENT NO. 1 This Supplemental Agreement No. 1 will be in effect until one of the following occurs: (1) Sanmina completely exhausts the supply of Consigned Goods by delivering an equal amount of finished Radios to Customer, under the terms and conditions of the Agreement and this Supplemental Agreement No. 1; or (2) either party terminates the Agreement or this Supplemental Agreement No. 1. IV. TERMINATION OF MODIFICATION A. This Supplemental Agreement No. 1 may be terminated: i) by any party under the provisions set forth in Section XIX "Termination" of the Agreement, or ii) by Customer if Sanmina fails to deliver [***] finished radios to Customer, based on current design, within six (6) months from the execution of this Supplemental Agreement No. 1. Delivery based on material availability of supply chain specified by Customer B. In the event of termination of this Supplemental Agreement No. 1 and/or the Agreement for any reason, Sanmina will surrender to Customer all Radio Kits purchased by Customer and consigned to Sanmina, less the amount of Consigned Goods already manufactured into finished Radios and delivered and accepted by Customer. Should there be a shortage of components and Sanmina can only return "Partial" Radio Kits, the parties will mutually agree on how Customer will be compensated for the shortfall in components. If the parties are unable to mutually agree upon how Customer is to be compensated for the shortfall in components, Customer may accept some combination of Approved Components equal in value to the shortfall, or pursue any other remedies it has under the law. - ---------- * CONFIDENTIAL TREATMENT REQUESTED 2 17 C. In the event of termination as provided in Section IV. B., Sanmina, at Customer's option, will return all Consigned Goods by: (1) making them available for pick-up by Customer; or (2) at Sanmina's expense, package and transport the remaining Consigned Goods by common carrier to location(s) designated by Customer within the continental United States. Consigned Goods that are to be transported will be packaged and labeled in accordance with Customer's specific shipping instructions. V. PURCHASE TERMS AND OBLIGATIONS On a date to be agreed upon by the parties, but no later than March 27, 2000, the parties will do the following: (1) Sanmina will prepare a report for Customer estimating the number of Radio Kits in its inventory and their respective percentage of completion. The cost of the Radio Kits to Customer will be [***]. (2) Sanmina will provide documentation which evidences its good title to the Radio Kits and/or the components comprising the Radio Kits; (3) Following receipt of the information set forth in section (1) and (2), Customer will make payment to Sanmina in the amount of [***], and take title to [***] of Radio Kits; (4) Once title to the Radio Kits has passed to Customer, Customer will consign the Radio Kits ("Consigned Good") to Sanmina for use in the manufacture of Customer's Radios; (5) Customer will be invoiced for the finished Radios upon delivery at the selling price for the Radios set forth in APPLICABLE ORDER(s) TO THE AGREEMENT. (6) Customer will pay Sanmina the invoiced amount for delivered Radios minus Customer's credit of [***]/Radio Kit for Consigned Goods, subject to the standard payment provisions set forth in THE AGREEMENT. VI. TITLE OF GOODS AND CONSIGNMENT Title to the Radio Kits will pass from Sanmina to Customer, upon receipt of payment by Sanmina from Customer. Upon passage of title, Customer will consign the Radio Kits to Sanmina ("Consigned Goods"). - ---------- * CONFIDENTIAL TREATMENT REQUESTED 3 18 VII. WARRANTY OF TITLE Sanmina warrants that it holds title to the Approved Components comprising the Radio Kits free and clear of any encumbrances, attachments, and/or liens. Prior to Customer's purchase of the Radio Kits, Sanmina will provide Customer documentation evidencing its clear title to the Radio Kits. Sanmina shall indemnify and hold harmless Customer and its affiliates, and the directors, shareholders, agents and employees of each of them ("Indemnitees"), from and against any fine, penalty, loss, cost, damage, injury, claim, expense or liability (individually and collectively "Liabilities") as a result of encumbrances, attachments, and/or liens against the Inventory purchased by Customer, whether known or unknown. Upon request of Customer, Sanmina shall, at no cost or expense to any Indemnitee, defend and/or settle any claim, proceeding, appellate proceeding, or suit against Indemnitees for Liabilities, whether or not litigation is actually commenced, or the allegations are groundless or contain language that creates the potential for Liabilities, and pay any costs, attorney fees, and any judgment and/or settlement that may be incurred by any Indemnitee, under this section or the enforcement of its rights under this section. VII. RISK OF LOSS Sanmina shall bear the risk of loss and indemnify Customer for any loss or damage to, and/or destruction of any Consigned Goods held by SANMINA UNTIL THOSE GOODS HAVE BEEN DELIVERED TO AND ACCEPTED BY CUSTOMER. Sanmina shall notify Customer promptly of any loss or damage to, and/or destruction of Consigned goods held by Sanmina, and shall make every reasonable effort to repair Consigned Goods that are damaged, and/or replace Consigned Goods that have been destroyed to avoid delay in the manufacture of Customer's Radios. Sanmina shall make reasonable efforts to safeguard the Consigned Goods from loss, damage, and destruction while in Sanmina's control, custody, or possession. The Consigned Goods shall remain segregated from other inventory held by Sanmina. IX. INSURANCE Without limiting in any way Sanmina's indemnification obligations hereunder, Sanmina shall maintain at its expense commercial general liability (CGL) insurance with coverage limits of not less than [***] combined single limit per occurrence. Such insurance shall provide protection against any claims and/or liabilities including, but not limited to, claims for property - ---------- * CONFIDENTIAL TREATMENT REQUESTED 4 19 damage, which may arise or result from this Supplemental Agreement No. 1. Such insurance shall include contractual liability coverage as well as Product and Completed Operations Liability Insurance for all obligations assumed hereunder. Sanmina agrees the insurance shall be issued by companies who hold a current rating of not less then "A" according to Best's Key Rating Guide, shall name Customer as additional an insured in matters covered by this Supplemental Agreement No. 1, shall provide that said insurance is primary coverage with respect to this insured. Sanmina agrees to maintain any additional insurance requirements specified hereunder and to notify Customer thirty (30) days in advance of any change or lapse in any of the coverages specified herein or therein. X. WARRANTY Nothing in this Supplemental Agreement No. 1 will modify the rights and obligations of the parties as provided in Section XIV "Warranty" of the Agreement. XI. INVENTORY COSTS Sanmina is solely responsible for any and all costs incurred in connection with the storage, warehousing, and inventory of the Consigned Goods. XII. ENTIRE AGREEMENT THIS SUPPLEMENTAL AGREEMENT NO. 1, INCLUDING ALL SUBORDINATE DOCUMENTS ATTACHED TO OR REFERENCED IN THIS SUPPLEMENTAL AGREEMENT ARE MADE A PART HEREOF BY REFERENCE AND SHALL CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER. THIS AGREEMENT SUPERSEDES ALL PRIOR ORAL AND WRITTEN COMMUNICATIONS, AGREEMENTS AND UNDERSTANDINGS OF THE PARTIES WITH RESPECT TO THE SUBJECT OF THIS AGREEMENT. XIII. AMENDMENTS, MODIFICATIONS AND WAIVERS NO PROVISIONS OF THIS SUPPLEMENTAL AGREEMENT, NO. 1 SHALL BE DEEMED WAIVED, AMENDED OR MODIFIED BY ANY PARTY HERETO, UNLESS SUCH WAIVER, AMENDMENT OR MODIFICATION IS IN WRITING AND SIGNED BY A DULY AUTHORIZED REPRESENTATIVE OF EACH OF THE PARTIES HERETO. XIV. EXCEPT AS MODIFIED BY THIS SUPPLEMENTAL AGREEMENT ALL OF THE TERMS AND CONDITIONS OF THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT AND ARE INCORPORATED BY REFERENCE HEREIN, AND SHALL HAVE THE FULL FORCE AND EFFECT AS IF THEY WERE PROVIDED HEREIN. (Signature Page Follows) 5 20 IN WITNESS THEREOF, the parties have caused this Supplemental Agreement No. 1 to be executed by their duly authorized representatives. 6 21 METRICOM, INC. By: /s/ Timothy A. Dreisbach --------------------------------- Timothy A. Dreisbach --------------------------------- (Print Name) Title: Chairman and CEO --------------------------------- Date Signed: March 24, 2000 ------------------------- METRICOM DC, L.L.C. By: /s/ Timothy A. Dreisbach --------------------------------- Timothy A. Dreisbach --------------------------------- (Print Name) Title: Chairman and CEO --------------------------------- Date Signed: March 24, 2000 ------------------------- 7 22 SANMINA CORPORATION By: /s/ Steven J. Deblock --------------------------------- Steven J. Deblock --------------------------------- (Print Name) Title: VP Operations --------------------------------- Date Signed: 3/22/00 ------------------------- 8 EX-27.1 3 EXHIBIT 27.1
5 1000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 790,970 328,473 3,122 (1,599) 981 1,133,301 55,995 (38,342) 1,339,937 68,304 237,659 573,992 0 31 459,650 1,339,937 889 3,223 300 14,050 17,612 0 (7,471) (32,259) 0 (32,259) 0 0 0 (32,259) (1.15) (1.15)
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