EXHIBIT 10.1 SALES REPRESENTATIVE AGREEMENT

 

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                                                                    EXHIBIT 10.1

 

                         SALES REPRESENTATIVE AGREEMENT

 

 

 

      This Sales Representative Agreement (the "Agreement") is made and entered

into as of March 31, 2005 (the "Effective Date"), by and between MOBILITY

ELECTRONICS, INC., a Delaware corporation and its affiliates having its

principal office at 17800 N. Perimeter Dr., Suite 200, Scottsdale, Arizona 85255

("Mobility") and MOTOROLA, INC., a Delaware corporation, and its affiliates

having its principal office at 600 North US Highway 45, Libertyville, Illinois

60048 ("Sales Rep"). Mobility and Sales Rep are sometimes each referred to

herein as a "Party" and collectively, as the "Parties".

 

      1. FORMATION OF DIVISION.

 

            (a) Formation. Effective as of the Effective Date, Mobility will,

for purposes of this Agreement, form a division of Mobility for the purpose of

designing, developing, manufacturing, marketing and selling iTip Products (the

"Division"). The Parties acknowledge and agree that the Division will not be a

separate legal entity, but will be part of Mobility.

 

            (b) Resources and Expenses. The Division will utilize employees and

resources of Mobility, but will maintain its own accounting records. The

Division will be allocated the cost of dedicated personnel, resources and

expenses (the "Direct Expenses"), a percentage of the cost of intellectual

property filings, defense, enforcement and protection that is related to iTip

Technology (the "IP Expenses") as provided below and a reasonable portion of any

Mobility shared personnel, resources and expenses incurred on behalf of the

Division (the "Indirect Expenses"); it being agreed and understood that: (i) all

Permitted Sales Revenues (as defined below), cost of goods sold, and Direct

Expenses shall be determined in accordance with generally accepted accounting

principles, consistently applied ("GAAP"); (ii) 50% of the IP Expenses shall be

allocated to the Division, and (iii) a reasonable portion of the quarterly

Indirect Expenses shall be allocated to the Division; provided, however, that

notwithstanding the above, the total sales, marketing, research and development

and general and administrative expenses, Indirect Expenses and IP Expenses of

the Division (excluding the iTip Products Commission (and any similar commission

to any other sales representative of Mobility)) (the "Total Operating Expenses")

shall not exceed (1) if the Permitted Sales Revenues of the Division for any

calendar year is less than $50 million, thirty percent (30%) of the Permitted

Sales Revenue of the Division for such calendar year; (2) if the Permitted Sales

Revenue of the Division for any calendar year is at least $50 million but less

than $100 million, the lesser of (A) twenty five percent (25%) of the Permitted

Sales Revenue of the Division for such calendar year, or (B) the percentage

equal to Mobility's overall sales, marketing, research and development, and

general and administrative expenses as compared to its overall revenues (net of

returns and allowances) for such calendar year (for each calendar year, the

"Maximum Overall Operating Expense Percentage"); (3) if the Permitted Sales

Revenue of the Division for any calendar year is $100 million or more, the

lesser of (A) twenty percent (20%) of the Permitted Sales Revenue of the

Division for such calendar year, or (B) the Maximum Overall Operating Expense

Percentage for such calendar year. The limitations set forth in (1), (2) and (3)

of the previous sentence being collectively referred to as the "Maximum

Percentages".

 

 

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            (c) Management. The Division will be under the management and

control of Mobility.

 

      2. ENGAGEMENT OF SERVICES.

 

            (a) Generally. Sales Rep will serve as Mobility's non-exclusive,

worldwide representative for the sale of Mobility's Computer Products and

Mobility's iTip Products (collectively, the "Mobility Products"). For purposes

of this Agreement:

 

                  (i) "Computer Products" means Mobility's existing line of

            universal power products for computers (including notebook, laptop,

            handheld, tablet computers and the like, but excluding personal

            digital assistants, wireless internet (or e-mail devices),

            smartphones and the like (the "Portable Computers")) and all future

            versions (including expanded functionality), modifications,

            enhancements, and derivatives to such products, and any new

             universal power product for Portable Computers which is 60 watts or

            more in power and is offered for sale by Mobility from time to time.

            Such products may also include features for charging non-computer

            mobile electronic devices. Some of the current Computer Products

            currently offered for sale by Mobility are listed in Exhibit B

            attached hereto.

 

                  (ii) "iTips" means any tip, cord or removable or

            interchangeable item that utilizes iTip Technology to remotely

            program a power product (including the remote programming of any

            iTip Product) to correctly determine and provide the appropriate

            voltage, current and/or power requirements for the purpose of

            operating or charging the battery for an electronic device (e.g.,

            cell phones, PDA's, digital cameras, MP3 players, CD players, and

            the like).

 

                  (iii) "iTip Products" means Mobility's existing line of

            universal power products for use with mobile electronic devices and

            all future versions (including expanded functionality),

            modifications, enhancements, and derivatives to such products, and

            any new universal power products offered for sale by Mobility from

            time to time, which: (i) are 70 watts or less in power; (ii) utilize

            iTip Technology; and (iii) cannot be used to power or charge a

            Portable Computer. Some of the current iTip Products currently

            offered for sale by Mobility are listed in Exhibit B attached

            hereto.

 

                  (iv) "iTip Technology" means the underlying iTip, combination

            AC/DC, simultaneous charging and other related Intellectual Property

            Rights (as defined below) of Mobility that are incorporated into the

            iTips and products of Mobility that utilize iTips, including, but

            not limited to, the patents and patents pending listed on Exhibit A

            attached hereto.

 

            (b) Sales Channels and Territory. Sales Rep shall have the worldwide

right to act as Mobility's sales representative for the sale of Mobility

Products; provided, however, that in the event of any channel conflict issues

affecting Sales Rep, Mobility shall consult with Sales Rep regarding such issues

and give due consideration to the input provided by Sales Rep. Mobility shall

then resolve such issues in a manner which considers the interests of all

Parties

 

 

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and third parties involved in the channel conflict issue (including, without

limitation, consideration of Sales Rep's pre-existing relationships with carrier

customers). In the event that Sales Rep does not accept Mobility's resolution of

the channel conflict issue, Sales Rep can appeal such decision to the Chief

Executive Officer, President or Chief Operating Officer of Mobility, who shall

make the final determination of such channel conflict issue. If following such

final determination Sales Rep still does not accept such resolution, Sales Rep

may terminate this Agreement without liability upon written notice to Mobility,

in which event, this Agreement shall be null and void and of no further force or

effect. Notwithstanding anything in this Agreement to the contrary, Sales Rep

will not have the right to sell Computer Products to the customers identified in

Exhibit C attached hereto, except as approved in advance in writing by Mobility

from time to time. Sales Rep will use good faith efforts to market iTips

Products to its carrier and wireless distributor customers, and to other persons

as agreed to by the Parties. In addition, Sales Rep and Mobility agree to work

together to develop a plan for including iTips in handset packaging.

 

            (c) Sales Policies. All sales activities conducted by Sales Rep

pertaining to the Mobility Products will be in accordance with the sales

policies of Mobility, which sales policies are attached hereto as Exhibit D

(which sales policies may be changed by Mobility from time to time after prior

written notice to, and notice and consultation with, Sales Rep). In the event

that Sales Rep does not accept any change made by Mobility to its sales policy,

Sales Rep can appeal such decision to the Chief Executive Officer, President or

Chief Operating Officer of Mobility, who shall make the final determination of

such sales policy change. If following such final determination Sales Rep still

does not accept such sales policy change, Sales Rep may terminate this Agreement

without liability upon written notice to Mobility, in which event, this

Agreement shall be null and void and of no further force or effect. All orders

for the Mobility Products shall be solicited at prices specified by Mobility.

Sales Rep acknowledges specifically that all sales solicitations are to be made

on the basis of Mobility's sales policy as provided in Exhibit D, as may be

changed as provided above.

 

            (d) Sales Orders. All sales orders and agreements relating to the

purchase of Mobility Products shall be subject to approval by Mobility, and all

contracts and purchase orders shall be executed and placed with Mobility.

Mobility's approval of a sales order or agreement relating to the purchase of

Mobility Products shall be based primarily on Sales Rep's compliance with

Mobility's sales policies. Sales Rep shall promptly notify Mobility with respect

to any and all customers who are interested in purchasing Mobility Products, and

any and all potential customer issues. If Sales Rep desires pre-approval by

Mobility of a sales order for a particular potential customer, Mobility shall,

upon the request of Sales Rep, provide Sales Rep certain terms and conditions

for such pre-approval (e.g., quantity, price, payment terms and delivery

schedule). Notwithstanding anything to the contrary contained in this Agreement,

no order for Mobility Products shall be binding unless accepted in writing by an

authorized representative of Mobility (except that any pre-approved conditions

quoted by Mobility to Sales Rep for a particular potential customer for a

specified order shall be binding upon Mobility for that particular customer

pertaining to such specified order).

 

            (e) Collection Activities. Mobility shall be responsible for the

collection of all accounts receivable relating to the sale of Mobility Products,

but Sales Rep agrees to provide reasonable assistance to Mobility in this area

for customers of Mobility managed by Sales Rep

 

 

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(e.g., making phone calls, requesting payment and/or other communications with

the customer) as reasonably requested by Mobility from time to time.

 

            (f) Rolling Forecast. Mobility and Sales Rep will work together to

formulate, on a monthly basis, a detailed, non-binding, rolling 12-month

forecast for: (i) Sales Rep's sales of Mobility Products (broken-down by

product, customer and geography) on behalf of Mobility; and (ii) Mobility's

manufacturing and delivery schedule and backlog, with the first forecast being

completed on or prior to April 30, 2005.

 

            (g) Customer Support and Other Product Issues. Except as otherwise

specified herein, Mobility shall be responsible for all Mobility Product related

issues (and expenses), including, without limitation, technical support and

warranty issues. Furthermore, Sales Rep will not hold any inventory under this

Agreement nor will Sales Rep be responsible for any costs of distribution

programs established by Mobility. Notwithstanding the above, all of the costs

and expenses described above in this subsection (g) shall be considered costs

and expenses of the Division and shall be paid for by the Division.

 

            (h) Representations and Warranties. Mobility represents and warrants

that it is under no obligation or restriction, and it will not assume or incur

any such obligation or restriction, that does or would in any material way

interfere or conflict with the performance of this Agreement by Mobility.

Mobility represents and warrants that (i) it has and will have full and

sufficient title and/or right and interest to the Mobility Products and

underlying technology to grant the rights to Sales Rep that are granted pursuant

to this Agreement; and (ii) neither the execution or performance by Mobility of

this Agreement, nor the consummation of any transactions contemplated herein

does or will (a) violate any law, order, regulation or ruling applicable to

Mobility, or (b) infringe any intellectual or other property, personal or

contract rights of any third party. To the extent permitted under Regulation FD,

Mobility agrees to promptly inform Sales Rep upon the occurrence of: (i)

Mobility's receipt of any third party intellectual property infringement claims

and any third party material lawsuits, in either case, which affects the

Division or the iTip Technology; (ii) any change to the composition of

Mobility's senior management team; and (iii) any decision by Mobility to undergo

a Change in Control (as defined in Section 8(b)) or to enter into a joint

venture, partnership or acquire all or substantially all of the assets of a

third party, in any case. which affects the Division or the iTip Technology.

 

            (i) Most Favored Sales Representative. Mobility represents and

warrants that it will not enter into any sales representative agreement related

to iTip Products which provides for a "profits participation" type of sharing

arrangement similar to that of Section 3(a) below on terms and conditions more

favorable than those set forth in this Agreement.

 

      3. COMMISSIONS.

 

            (a) Commissions for iTip Products. Mobility will pay Sales Rep a

commission, payable on a calendar quarterly basis, equal to twenty-four and one

half percent (24.5%) of the "Pre-Commission EBIT" earned by the Division during

each calendar quarter (collectively, the "iTip Products Commission"); provided,

however, if Pre-Commission EBIT for any period is a negative number (i.e., a

loss for such period) (an "EBIT Loss"), then the EBIT

 

 

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Loss shall be allocated entirely to Mobility, and for any subsequent period(s)

in which there is a positive pre-Commission EBIT, Mobility shall be allocated

all of such Pre-Commission EBIT until Mobility recovers all EBIT Loss previously

allocated to Mobility. For purposes of calculating the Commission, the following

terms shall have the following meanings:

 

                  (i) "Pre-Commission EBIT" means Permitted Sales Revenues of

            the Division for iTip Products less: (1) returns and allowances for

            iTip Products; (2) cost of goods sold of the Division for iTip

            Products (excluding cost of goods sold for products where the

            revenue is excluded from the definition of Permitted Sales Revenue

            (as provided in such definition)); (3) the Direct Expenses of the

            Division; (4) the IP Expenses; and (5) the Indirect Expenses of the

            Division.

 

                  (ii) "Permitted Sales Revenues" means all revenues (including

            without limitation, licensing revenues and sales revenues) of the

            Division for iTip Products and/or iTip Technology, excluding: (1)

            the Computer Portion of the sales revenues attributable to any

            product that is an iTip Product, but is bundled with any one or more

            Computer Products; and (2) revenues generated from the sale of the

            products through the RadioShack Channel during the transition period

             as provided for in Exhibit E attached hereto. As used above, (i)

            "Computer Portion" shall mean that portion of sales revenue for the

            bundled product multiplied by a fraction, the numerator of which

            shall be the manufactured suggested retail price of the Computer

            Product contained in such bundled product, and the denominator of

            which shall be the manufactured suggested retail price of the iTip

            Product portion of the bundled product plus the manufactured

            suggested retail price of the Computer Product contained in such

            bundled product (provided, however, that the portion remaining after

            excluding the Computer Portion must be greater than the

             manufacturing cost of the iTip Product portion of the bundled

            product); and (ii) "RadioShack Channels" shall mean RadioShack

            Corporation's retail stores (including its dealer/franchise stores,

            but excluding its Sam's Club program, and its Sprint kiosk program)

            in the United States and its territories and Mexico, and

            RadioShack.com.

 

            (b) Commissions for Computer Products. Mobility will pay Sales Rep a

commission, payable on a calendar quarterly basis, equal to three percent (3.0%)

of the sales price (net of returns and allowances) for any Computer Product sold

by Sales Rep under this Agreement during each calendar quarter; provided,

however, for any Computer Product bundled with any iTip Product, such commission

shall be reduced by the three percent (3.0%) of the iTip Portion (the "Computer

Products Commission", and collectively with the iTip Products Commission, the

"Commissions"). As used above, "iTip Portion" shall mean that portion of sales

revenue for the bundled product multiplied by a fraction, the numerator of which

shall be the manufactured suggested retail price of the iTip Product contained

in such bundled product, and the denominator of which shall be the manufactured

suggested retail price of the iTip Product portion of the bundled product plus

the manufactured suggested retail price of the Computer Product contained in

such bundled product.

 

            (c) Payments. Within twenty (20) days after the end of each calendar

quarter, Mobility shall provide a report to Sales Rep setting forth the

Commission due to Sales Rep for

 

 

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such calendar quarter (the "Commission Report"), and shall pay such Commissions

concurrent with the delivery of the Commission Report.

 

            (d) Audit Rights. Mobility agrees to make and maintain such books,

records and accounts as are reasonably necessary to verify the accuracy of the

Commissions payments made to Sales Rep. Mobility agrees that it will, at the

sole expense of Sales Rep, permit Sales Rep's auditors to have reasonable access

to Mobility's business records and books of account, upon at least five (5)

business days' prior notice and no more than once during each fiscal year,

during Mobility's normal business hours for the purpose of determining whether

the appropriate Commissions have been made to Sales Rep for the prior 12-month

period. If any such audit discloses that Mobility has underpaid Sales Rep,

Mobility agrees to pay any shortfall within thirty (30) days; provided, however,

if Mobility disagrees with any underpayment, Mobility will direct its auditors

to engage in discussions with Sales Rep's auditors in order to reach a mutually

agreeable resolution of the issue. If any such audit discloses an underpayment

of over five percent (5%) of amounts otherwise owed to Sales Rep, Mobility shall

reimburse Sales Rep for the reasonable costs of the audit. If any audit

discloses any overpayment to Sales Rep by Mobility, Sales Rep shall refund the

amount of such overpayment within thirty (30) days. Notwithstanding anything to

the contrary contained in this subsection (d), if during a calendar year the

Total Operating Expenses (expressed as a percentage of the Permitted Sales

Revenue of the Division) do not exceed the Maximum Overall Operating Expense

Percentage for such calendar year, then in no event may Sales Rep audit or

question any determination by Mobility to incur a particular cost or expense or

take a particular action (e.g., hire personnel, purchase equipment, develop a

product, sue for intellectual property infringement, etc); although Sales Rep

may audit whether the allocation was proper.

 

            (e) Commissions Adjustments. Returns, allowances, other deductions

from the sale price, or any other adjustments to the Commissions calculations

shall be debited or credited, as appropriate, during the calendar quarter in

which they arise.

 

      4. EXPENSES. Mobility shall have no liability for any expenses that may be

incurred by Sales Rep to carry out its obligations under this Agreement. Sales

Rep agrees that it shall incur no expense chargeable to Mobility except as may

be specifically authorized in advance and in writing by an authorized officer of

Mobility.

 

      5. MARKETING MATERIALS. Mobility will provide, without cost to Sales Rep,

reasonable supplies of standard advertising literature and samples which

Mobility deems to be required to encourage and facilitate the sale of the

Mobility Products. In the event that a customer or potential customer desires or

requires specialized marketing materials and/or advertising allowances in order

to undertake a marketing or advertising program involving Mobility Products,

Mobility and Sales Rep shall work together to determine the extent of Mobility's

financial commitment thereto, if any; it being the intent of the Parties that

Mobility will incur such types of expenses in situations where it is

economically justified or "standard practice" (e.g., carrier co-op programs).

Such commitments by Mobility will be deemed Direct Expenses of the Division.

 

      6. NON-COMPETITION AND RESTRICTED ACTIVITIES.

 

 

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            (a) Sales Rep