-----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, BLtKRd64xs/hC85nfQztgJN8zWxNIb3Ws59vpBdV4Sk+VsOq9a4O/+tYqabB/qnz B2G9nFC3o6klLuJPZ9axgQ== 0001144204-05-007840.txt : 20050316 0001144204-05-007840.hdr.sgml : 20050316 20050316163300 ACCESSION NUMBER: 0001144204-05-007840 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050316 DATE AS OF CHANGE: 20050316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARKERVISION INC CENTRAL INDEX KEY: 0000914139 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 592971472 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22904 FILM NUMBER: 05685892 BUSINESS ADDRESS: STREET 1: 8493 BAYMEADOWS WAY CITY: JACKSONVILLE STATE: FL ZIP: 32256 BUSINESS PHONE: 9047371367 MAIL ADDRESS: STREET 1: 8493 BAYMEADOWS WAY CITY: JACKSONVILLE STATE: FL ZIP: 32256 10-K 1 v014332_10k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 1O-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from ________to__________ Commission file number 0-22904 PARKERVISION, INC. (Exact name of registrant as specified in its charter) FLORIDA 59-2971472 (State of Incorporation) (I.R.S. Employer ID No.) 8493 BAYMEADOWS WAY JACKSONVILLE, FLORIDA 32256 (904) 737-1367 (Address of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE 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 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K (X). Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No __ As of June 30, 2004, the aggregate market value of the Issuer's Common Stock, $.01 par value, held by non-affiliates of the Issuer was approximately $76,674,918 (based upon $5.70 per share closing price on that date, as reported by The Nasdaq National Market). As of March 10, 2005, 18,007,574 shares of the Issuer's Common Stock were outstanding. Documents incorporated by reference: Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the 2005 Annual Meeting are incorporated by reference into Part III. Table of Contents Forward Looking Statements 3 PART I Item 1. Business 3 Item 2. Properties 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 11 Item 6. Selected Financial Data 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24 Item 8. Consolidated Financial Statements and Supplementary Data 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 52 Item 9A. Controls and Procedures 52 PART III Item 10. Directors and Executive Officers of the Registrant 53 Item 11. Executive Compensation 53 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 53 Item 13. Certain Relationships and Related Transactions 54 Item 14. Principal Accountant Fees and Services 54 PART IV Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K 54 SIGNATURES 58 INDEX TO EXHIBITS 60 2 Forward-Looking Statements We believe that it is important to communicate our future expectations to our shareholders and to the public. This report contains forward-looking statements, including, in particular, statements about our future plans, objectives and expectations under the headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. When used in this Form 10-K and in future filings by ParkerVision, Inc., ("the Company") with the Securities and Exchange Commission, the words or phrases "will likely result", "management expects", "Company expects", "will continue", "is anticipated", "estimated" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on such forward-looking statements, each of which speaks only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected, including the timely development and acceptance of new products, sources of supply and concentration of customers. We have no obligation to publicly release the results of any revisions, which may be made to any forward-looking statements to reflect anticipated events or circumstances occurring after the date of such statements. PART I ITEM 1. BUSINESS GENERAL ParkerVision, Inc. (the "Company") was incorporated under the laws of the state of Florida on August 22, 1989. Prior to the sale of the Company's video division assets in May 2004, the Company was organized in two distinct business segments - - the wireless division and the video division. Subsequent to the sale of the Company's video division assets, the Company's operations consist of the wireless technologies and products business. The Company designs, develops and markets wireless integrated circuits ("ICs") and products based on its proprietary wireless radio frequency ("RF") transceiver technology. The Company's revenues from continuing operations have been generated from the sale of branded, wireless networking products that incorporate the Company's proprietary technology. The Company's longer-term business strategy includes the establishment of relationships with original equipment manufacturers ("OEMs") and original design manufacturers ("ODMs") for the incorporation of the Company's technology into products manufactured by others. These products may take the form of IC's, sub-systems or finished products that incorporate the Company's proprietary technology. It is also possible that the Company may license implementations of the technology to others for incorporation into IC's that contain more comprehensive wireless system functions. The Company believes its proprietary wireless technologies embody significant industry advances that can be commercialized in both the near and longer term. To date, the Company's wireless operations have not generated any significant revenue. The ability for wireless revenues to offset costs is subject to (a) the Company's ability to successfully market its wireless IC's and/or sub-systems to OEMs and ODMs for integration into widely deployed products that are manufactured by others and (b) the Company's ability to successfully market its branded, wireless networking products to end-users, generally for use in residential and commercial applications. 3 RECENT DEVELOPMENTS Sale of Video Division On May 14, 2004, the Company completed the sale of certain designated assets of its video division to Thomson Broadcast & Media Solutions, Inc. and Thomson Licensing, SA (collectively referred to as "Thomson"). The assets sold included the PVTV and CameraMan products, services, patents, patent applications, tradenames, trademarks and other intellectual property, inventory, specified design, development and manufacturing equipment, and obligations under outstanding contracts for products and services and other assets. Certain specified assets related to the video division, such as accounts receivable and certain contracts, were excluded from the transaction. The sales price of the assets was approximately $13.4 million. A portion of the sales price equal to $1.25 million was held by Thomson until May 2005 to indemnify Thomson against breaches of the Company's continuing obligations and its representations and warranties. The Company recognized a gain on the sale of its video division of approximately $11.2 million. The Company's statements of operations have been restated to reflect the video division as discontinued operations. Sale of Equity Securities to Fund Continuing Operations On March 14, 2005, the Company completed the sale of equity securities to institutional and other investors in a private placement transaction. The net proceeds from this transaction of approximately $20.3 million will be used to fund continuing operations. DESCRIPTION OF BUSINESS The Company's continuing operations consist of the design, development and marketing of technologies and products based on its proprietary wireless technology, targeting both residential and commercial consumers and OEM and ODM markets. The Company's core technology, called Direct2Data(TM) or D2D(TM), is a wireless direct conversion radio frequency transceiver technology that may be applied to all areas of wireless communications, regardless of standard, frequency or modulation. The Company has also recently announced its introduction of two new classes of digital RF power amplifiers that are based on extensions of the science and technology of D2D. Products The Company has designed and produced several D2D-based transceiver IC's with a proprietary electronic circuit configuration that enables the creation of practical, high performance transceivers. These proprietary transceivers reduce or eliminate transmission and receiving problems inherent in traditional analog circuits that are commercially available. Wireless products employing D2D technology, when compared to products utilizing traditional electronic circuit designs, have the ability to function at farther distances with increased connection reliability and less power consumption. The Company further believes that D2D-based implementations can enable both size and cost reductions when compared with traditional analog devices due to the technology's ability to eliminate the need for metal shielding of components in the manufacturing process. The Company targeted wireless local area networking ("WLAN") for its initial products. The Company completed its first transceiver chips for the WLAN market in 2002, and in 2003 the Company began marketing its chips to OEMs and ODMs who manufacture and sell WLAN products or application modules that embed WLAN 4 capabilities. The Company found that the unique nature of its technology and related design requirements along with the lack of brand recognition in the marketplace hindered the Company's marketing efforts. In 2003, the Company began pursuing a business strategy of developing its own D2D-based WLAN products for marketing to end-users. The Company believed this strategy would not only generate initial product revenue but would also provide a proof of concept to OEMs and ODMs of the underlying technology. In addition, the Company believed the development of finished products enables better understanding of the manufacturing requirements, design interface needs and other requirements which allows refinement of designs in subsequent generations of IC's. In the fourth quarter of 2003, the Company introduced its first D2D-based WLAN end-user products for wireless Internet data networking applications. These products include a wireless local area networking (WLAN) card, designed for use with laptop computers, a wireless universal serial bus ("USB") adaptor for use with desktop computers and a wireless four-port router for networking applications. All of the Company's initial products are compliant with the 802.11b industry standard for WLAN communications. These products are targeted for the residential and small office/home office ("SoHo") segments of the WLAN market where Broadband Internet access services have become increasingly affordable and available and WLANs provide mobility for users at an affordable alternative to wired networks. The Company offers professional telephone support for its products at no charge and includes a 30-day money-back guarantee to allow the consumer a "risk-free" test of the Company's product performance claims. In addition, the Company warrants its products against defects in workmanship for a period of one year. The Company's immediate branded product development plans include expansion of its WLAN products to products to meet the 802.11g standard and the introduction of a high performance cordless phone utilizing the D2D technology. The Company believes that its 802.11g products will deliver superior data rates at longer distances, require less complex hardware implementations, use less power, and offer more resistance to interference than competing 802.11g products. The Company expects availability of its 802.11g products in the second quarter of 2005. The Company has also been developing a cordless phone product that incorporates its D2D transceivers. The cordless phone product is designed to achieve longer distances and better reliability than typical consumer cordless phones. The Company's cordless phone is also expected to have improved audio quality. The cordless phone product includes attractive battery life and a high quality speaker phone for the handset. The Company is pursuing various potential sales channels for this product which may include OEM's, specialty retailers, mass merchandisers, and direct marketing. The Company's introduction of the cordless phone product is dependent upon achieving certain cost targets for production of the phone as well as the level of interest from the possible distribution channels. In the fourth quarter of 2004, the Company's 802.11b inventory was written down by approximately $2.8 million to reflect a reduction in net realizable value of the inventory. This write down was triggered by a significant price decrease on the Company's 802.11b wireless networking product line in the fourth quarter of 2004, along with the high carrying costs of initial production inventory. Early in 2005, the Company ceased production of its 802.11b products in anticipation of the introduction of its next generation 802.11g products. The Company believes it has sufficient finished goods inventory to meet demand until its new products begin shipping. 5 The Company's retail product expansion will be dependent upon its ability to achieve acceptable gross margins with competitively priced products. In addition, the Company has reduced its exposure to future inventory obsolescence through the implementation of inventory management programs with certain key suppliers to reduce on hand quantities of inventory while still maintaining an adequate supply for production needs. In the first quarter of 2005, the Company announced an extension of the science of its patented D2D technology in the form of a unique digital RF power amplifier technology. This power amplifier technology will specifically target the OEM and ODM markets. This technology enables the production of high performance, low cost radio frequency power amplifiers from common silicon semiconductors. The digital architecture enables models of power amplifiers that inherently perform the function of traditional RF transmitters and eliminate the need for traditional transmitter hardware. Based on this technology, the Company has announced two families of RF power amplifier products - the vector power amplifier (VPA) and the digital power amplifier (DPA). Various models of this product family represent ultra-efficient digital RF power amplifiers that reduce transmitter power consumption for many battery-powered wireless products by 50% to 80%. These power amplifiers will be monolithic (single chip) implementations that can be produced in less expensive, higher volume silicon semiconductor processes than are traditionally used. The Company's digital power amplifiers produced on common semiconductors also have the potential to be designed onto larger system chips which may include other wireless system functions. The company's digital power amplifier DPA family is intended to be incorporated into product designs as a drop-in replacement for traditional analog RF power amplifier modules. The DPA will be a silicon chip versus a multi-component module which is typically used in many of the analog RF power amplifiers today. The company's VPA family of amplifiers eliminates the need for traditional RF transmitters. VPA's receive digital baseband signals that would normally be sent from a product's baseband processor to a traditional RF transmitter. Eliminating the traditional RF transmitter, the VPA converts the digital signal, in a single efficient step, to an on-channel amplified RF carrier. The Company expects to be demonstrating prototypes of its power amplifier technology as well as providing samples of its initial power amplifier IC's in 2005. The Company believes it will be able to demonstrate the use of the technology for a wide range of cellular telephone standards for handset applications, for wireless networking products, for cordless phones and for Bluetooth applications. The Company plans to demonstrate how the technology can be used for products where multiple wireless standards and frequencies are incorporated and where a single monolithic chip implementation can replace the multiple components required in today's traditional analog power amplifier products. The Company further believes its power amplifiers will demonstrate enhancements in one or more features including power efficiency, cost, size and linearity. The Company plans for its initial digital power amplifier product lineup to include models for a variety of applications including cellular telephones, wireless networking applications and multi-band and/or multi-mode applications. The Company's first IC's, which it expects to provide to potential customers in sample form early in the second half of 2005, will be for applications up to 3GHz frequencies. The Company has plans to extend the technology for applications up to 6GHz frequencies. 6 Marketing and Sales The Company currently promotes and sells its WLAN end-user products in the United States and Canada through traditional retailers, online retailers, value added resellers ("VARs") and direct through the Company's own online store. The Company's products are carried in approximately 300 traditional retail locations throughout the United States, the largest of which is CompUSA. The Company sells direct to Micro Center and TigerDirect.com. The majority of the remaining traditional retailers and online retailers are fulfilled through a wholesale distributor, Wynit, Inc. The Company works directly with its retail channel on market development activities including co-advertising, in-store promotions and demonstrations, sales associate training and web advertising. The Company manages its retail sales and marketing efforts through a combination of in-house staff and outside manufacturer's representatives. The Company is currently exploring additional retail channels for commercial product distribution in the US and Canada. In addition to its retail branded products efforts, the Company is currently expanding its in-house sales staff focused on OEM and ODM opportunities for its radio transceivers and its recently introduced power amplifier products. The Company intends to promote its OEM/ODM products to companies worldwide. Competition The Company operates in a highly competitive industry. The Company's WLAN products compete with product offerings from a number of companies with established brand recognition and distribution channels. The Company's principal competitors include the Linksys division of Cisco Systems, D-Link, Netgear, and Belkin. Most of these competitors offer a broader range of products and at prices similar to or lower than that of the Company's products. Most of the Company's competitors have substantially greater financial, technical and sales and marketing resources. As a result, they have larger distribution channels, stronger brand recognition, and a broader access to customers than the Company. The Company believes that its ability to compete with retail, branded products is highly dependent upon its ability to build brand recognition and distribution. The Company seeks competitive advantage based on product performance. The Company also believes it has competitive strengths in its in-house, US based technical support team and its willingness to back its performance claims with a 30-day money-back guarantee. With regard to sales of its integrated circuits, the Company also faces competition from well-established companies in the industry including RF MicroDevices, Anadigics, Maxim, Conexant, Skyworks, Raytheon, Texas Instruments, and Philips, among others. In this market, the Company plans to compete based on product performance, system cost, and the strength of its intellectual property. Production and Supply The Company manufactures certain of its products and subassemblies at its Jacksonville, Florida facility. The Company's operations involve inspection of components, assembly of the products' electronic circuitry and other components, a series of quality specification measurements, and various other computer, visual, and physical tests to certify final performance specifications, and packaging. The Company has sufficient production capacity to satisfy increased demand for the foreseeable future. In addition, the Company believes the production processes for its products could be assumed by third-party manufacturers, if necessary, to satisfy additional capacity requirements. 7 For certain of its products, the Company manufactures the radio subassembly which is then provided to an outside manufacturer for completion of the product. The Company currently has a relationship with a Taiwanese manufacturer for production of certain WLAN products. As the Company expands its product line, it may enter into outsourced product manufacturing arrangements with others for its wireless networking and cordless phone products. The components utilized in the Company's manufacturing operations include D2D transceiver chips and other third-party chips and components. The Company's D2D-based transceiver chips are currently produced under a foundry relationship with Texas Instruments. The Company depends on Texas Instruments to satisfy performance and quality specifications and dedicate sufficient capacity for production of chips within scheduled delivery times. The Company endeavors to mitigate the potential adverse effect of supply interruptions by maintaining an adequate supply of its chips and by developing relationships with additional foundries. In March 2005, the Company announced that its new power amplifier IC's will be produced by IBM Microelectronics. Failure or delay by a foundry to supply chips to the Company, failure or delay by a foundry in meeting the performance or quality specifications, or changes to the foundry process specifications would adversely affect the Company's ability to obtain and deliver chips on a timely and competitive basis. The other component parts of the Company's products are obtained from third-party manufacturers and/or distributors. The Company depends upon these third party suppliers for various critical components to its products, including baseband/mac chips and antennas, among others. The Company mitigates the potential adverse effect of supply interruptions by maintaining sufficient on-hand quantities of long lead-time components. In addition, the Company has recently established inventory management programs with certain key component distributors allowing for maintenance of lower on-hand quantities while ensuring adequate production supply. Where applicable, the Company attempts to enter into licensing or other arrangements whereby the Company secures access to the underlying component technologies to protect against supply interruption. This strategy not only secures supply of current components, it also allows the Company the ability to enhance existing technologies for use in its future products. To date, the Company has entered into such licensing arrangements for baseband/mac WLAN chips and antennas. At December 31, 2004, the Company maintained an inventory of system components of approximately $1.8 million. PATENTS AND TRADEMARKS The Company considers its intellectual property, including patents, patent applications and trademarks, to be significant to the competitive positioning of its business. The Company has a program to file applications for and obtain patents, copyrights, and trademarks in the United States and in selected foreign countries where it believes filing for such protection is appropriate to establish and maintain its proprietary rights in its technology and products. The Company has obtained 59 patents related to its D2D technology and has over 90 patent applications pending in the United States and other countries. The Company estimates the economic life of its patents to be fifteen to twenty years. 8 GOVERNMENT REGULATION The Company utilizes wireless communications in its products. These wireless communications utilize infrared and radio frequency technology that is subject to regulation by the Federal Communications Commission ("FCC") in the United States and similar government agencies in foreign countries. The Company has obtained, is in the process of obtaining, or will obtain all licenses and approvals necessary for the operation of its products and technologies in those countries that it sells products. To date, the Company has not encountered any significant inability or limitations on obtaining required material licenses. There can be no assurance that, in the future, the Company will be able to obtain required licenses or that the FCC or other foreign government agency will not require the Company to comply with more stringent licensing requirements. Failure or delay in obtaining required licenses would have a material adverse effect on the Company. In addition, expansion of the Company's operations into certain foreign markets may require the Company to obtain additional licenses for its products. Amendments to existing statutes and regulations, adoption of new statutes and regulations and the Company's expansion into foreign jurisdictions, could require the Company to alter methods of operations at costs that could be substantial, which could have an adverse effect on the Company. There can be no assurance that the Company will be able, for financial or other reasons, to comply with applicable laws and regulations and licensing requirements. RESEARCH AND DEVELOPMENT For the years ended December 31, 2004, 2003 and 2002, the Company spent approximately $11.4 million, $13.3 million and $12.1 million, respectively, on research and development for continuing operations. The Company's research and development efforts have been devoted to the development of the D2D technology and related technologies and products. EMPLOYEES As of December 31, 2004, the Company had 95 full-time employees, of which 16 are employed in manufacturing, 38 in engineering research and development, 11 in sales and marketing, 10 in product training and support, and 20 in executive management, finance and administration. None of the Company's employees is represented by a labor union. The Company considers its employee relations satisfactory. Since 2002, the Company has outsourced its human resource functions to ADP TotalSource ("ADP"). ADP, a division of Automatic Data Processing, is a professional employer organization that co-employs over 70,000 employees worldwide. As a co-employer, ADP assumes many of the legal and administrative responsibilities of human resources management, health benefits, workers' compensation, payroll, payroll tax compliance and unemployment insurance. AVAILABLE INFORMATION AND ACCESS TO REPORTS The Company files its annual report on Form 10-K and quarterly reports on Form 10-Q, including amendments, as well as its proxy and other reports electronically with the Securities and Exchange Commission ("SEC"). The SEC maintains an Internet site (http://www.sec.gov) where these reports may be obtained at no charge. Copies of any materials filed with the SEC may also be obtained from the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Information on the operation of the SEC Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Copies of these reports may also be obtained via the Company's website 9 (http://www.parkervision.com) via the link "SEC filings". This provides a direct link to the Company's reports on the SEC Internet site. The Company will provide copies of this annual report on Form 10-K and the quarterly reports on Form 10-Q, including amendments, filed during the current fiscal year upon written request to Investor Relations, 8493 Baymeadows Way, Jacksonville, Florida, 32256. These reports will be provided at no charge. In addition, exhibits may be obtained at a cost of $.25 per page plus $5.00 postage and handling. ITEM 2. PROPERTIES The Company's headquarters and manufacturing operations are located in a 33,000 square foot leased facility in Jacksonville, Florida, pursuant to a lease agreement with Jeffrey Parker, Chairman of the Board and Chief Executive Officer of the Company, and Barbara Parker, a related party. The Company believes that its manufacturing facility is adequate for its current and reasonably foreseeable future needs. The Company believes that the physical capacity at its current facility will accommodate expansion, if required. The Company has additional leased facilities in Lake Mary and Melbourne, Florida primarily for engineering staff. The Company believes its properties are in good condition and suitable for the conduct of its business. The Company previously had wireless design operations in a leased facility in Pleasanton, California. Although the operations at this facility ceased in 2001, the Company has a remaining a lease obligation through March 2005. For the year ended December 31, 2002, the remaining estimated future lease obligation for the Pleasanton facility was charged to general and administrative expense. In January 2004, the Company entered into a sublease for the facility that partially reduced its remaining lease obligation. The Company leases a facility in Los Angeles, California that was previously utilized for video division training and sales demonstrations that has a lease term through May 2005. Due to the sale of the video division, the remaining estimated future lease obligation for this facility was charged to discontinued operations in the 2004 Consolidated Statement of Operations. Refer to "Lease Commitments" in Footnote 13 to the Consolidated Financial Statements included in Item 8 for information regarding the Company's outstanding lease obligations. ITEM 3. LEGAL PROCEEDINGS The Company is subject to legal proceedings and claims arising in the ordinary course of its business. The Company, based upon the advice of outside legal counsel, believes that the final disposition of such matters will not have a material adverse effect on its financial position, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Company's common stock is traded under the symbol PRKR on the Nasdaq National Market ("Nasdaq"), which is the principal market for the common stock. Listed below is the range of the high and low bid prices of the common stock for the last three fiscal years, as reported by Nasdaq. The amounts represent inter-dealer quotations without adjustment for retail markups, markdowns or commissions and do not necessarily represent the prices of actual transactions.
2004 2003 2002 --------------------------- --------------------------- --------------------------- High Low High Low High Low ------------ ----------- ----------- ----------- ----------- ----------- 1st Quarter $10.090 $5.450 $9.200 $4.080 $21.790 $17.400 2nd Quarter 7.029 4.000 10.900 5.060 24.850 15.520 3rd Quarter 5.889 3.450 8.470 6.000 18.950 11.160 4th Quarter 9.199 3.890 12.300 7.510 13.990 6.669
HOLDERS As of March 2, 2005, there were 158 holders of record. The Company believes there are at least 1,886 beneficial holders of the Company's common stock. DIVIDENDS To date, the Company has not paid any dividends on its common stock. The payment of dividends in the future is at the discretion of the board of directors and will depend upon the Company's ability to generate earnings, its capital requirements and financial condition, and other relevant factors. The Company does not intend to declare any dividends in the foreseeable future, but instead it intends to retain all earnings, if any, for use in the Company's business. SALES OF UNREGISTERED SECURITIES
If option, warrant or Consideration received and Exemption convertible security, description of underwriting from terms Number or other discounts to market registration of exercise or date of sale Title of security sold price afforded to purchasers claimed conversion - ------------- -------------------- ----------- ------------------------------ ------------- --------------------------- 10/19/04 to Options to 72,000 Options granted - no 4(2) Exercisable for five 11/28/04 purchase common consideration received by years from the date the stock granted to Company until exercise options vest, options three employees vest over five years at pursuant to the an exercise price ranging 2000 Plan from $4.24 to $5.82 per share 12/21/04 Options to 3,250 Options granted - no 4(2) Exercisable for five purchase common consideration received by years from the date of stock granted to Company until exercise grant, options vest seven employees immediately at an pursuant to the exercise price of $7.55 2000 Plan per share
11 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth consolidated financial data for the Company as of the dates and for the periods indicated. The data has been derived from the audited consolidated financial statements of the Company. The selected financial data should be read in conjunction with the consolidated financial statements of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations". The selected financial data for all prior years has been restated to reflect the effects of discontinued operations.
For the years ended December 31, ------------------------------------------------------------------ 2004 2003 2002 2001 2000 ---------- ---------- ---------- ---------- ---------- (in thousands, except per share amounts) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues, net $ 441 $ 23 $ 0 $ 0 $ 0 Gross margin (2,854) (7) 0 0 0 Operating expenses 19,951 19,104 16,772 15,829 15,067 Interest and other income 217 476 905 1,741 1,949 Loss from continuing operations (22,588) (18,635) (15,867) (14,088) (13,118) Gain (loss) from discontinued operations 7,773 (3,380) (1,405) (2,522) 96 Net loss (14,815) (22,015) (17,272) (16,610) (13,022) Basic and diluted net loss per common share Continuing operations (1.25) (1.21) (1.14) (1.02) (1.03) Discontinued operations 0.43 (0.22) (0.10) (0.18) * Total basic and diluted net loss per common share (0.82) (1.43) (1.24) (1.20) (1.03) CONSOLIDATED BALANCE SHEET DATA: Total assets $ 28,081 $ 42,483 $ 37,745 $ 54,144 $ 63,468 Shareholders' equity 24,758 39,399 34,047 50,547 60,020 Working capital 10,471 23,225 18,992 36,161 45,460
* less than one cent ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES The Company believes that the following are the critical accounting policies affecting the preparation of its consolidated financial statements: 12 REVENUE RECOGNITION Revenue from product sales is generally recognized at the time the product is shipped, provided that persuasive evidence of an arrangement exists, title and risk of loss has transferred to the customer, the sales price is fixed or determinable and collection of the receivable is reasonably assured. The Company sells its products primarily through retail distribution channels, with limited sales direct to end users through its own website and direct value added resellers. Retail distributors are generally given business terms that allow for the return of unsold inventory. In addition, the Company offers a 30-day money back guarantee on its products. With regard to sales through a distribution channel where the right to return unsold product exists, the Company recognizes revenue on a sell-through method utilizing information provided by the distribution channel. In addition, since the Company does not have sufficient history with sales of this nature to establish an estimate of expected returns, it has recorded a return reserve in the amount of 100% of product sales within the 30-day guarantee period. In addition to the reserve for sales returns, gross revenue is reduced for price protection programs, customer rebates and cooperative marketing expenses deemed to be sales incentives under Emerging Issues Task Force, (EITF) Issue 01-19, to derive net revenue. INVENTORY VALUATION Inventories are stated at the lower of cost (as determined under the first-in, first-out method) or market (net realizable value). Cost includes the acquisition of purchased materials, labor and overhead. Purchased materials inventory consists principally of components and subassemblies. The Company's investment in inventory is maintained to meet anticipated future demand for its product and the buildup of safety stock on single-source or long lead-time components. The Company has an inventory reserve for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions indicate a permanent impairment in the carrying value of inventory, additional write-downs may be required to reduce inventory to estimated net realizable value. The Company recorded a $2.8 million write down of inventory to net realizable value at December 31, 2004 (see Note 6 to the financial statements). This write down is included as a separate deduction from gross margin in the accompanying statement of operations. IMPAIRMENT OF LONG LIVED ASSETS Property and equipment, patents, copyrights and other intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from three to twenty years. Management of the Company evaluates the recoverability of long-lived assets periodically and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate impairment exists. No impairments of long lived assets have been identified during any of the periods presented. ACCOUNTING FOR STOCK BASED COMPENSATION The Company accounts for its stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related Interpretations. For employee stock option grants, no stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. If the Company applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), as amended by FASB Statement No. 148, "Accounting for Stock-Based Compensation- Transition and Disclosure", it would recognize stock based employee compensation of $12,213,000, $14,867,000, and $20,060,000 for the years ended December 31, 2004, 2003 and 2002, respectively. The significant amount of employee-based stock compensation is due to the substantial number of options granted under these plans as well as the factors impacting the fair value calculation, including high price volatility of the Company's common stock. 13 RECENT ACCOUNTING PRONOUNCEMENTS On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123(R), "Share-Based Payment" ("FAS 123(R)") which revises FAS 123 and requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. In addition to revising FAS 123, FAS 123(R) supersedes APB. 25, and amends FASB Statement No. 95, "Statement of Cash Flows". The provisions of FAS 123(R) apply to awards that are granted, modified, or settled at the beginning of the interim or annual reporting period that starts after June 15, 2005. The Company will adopt FAS 123(R) effective July 1, 2005 on a modified prospective basis without restatement of prior interim periods. The Company has determined that FAS 123(R) will have a substantial impact on the financial statements of the Company due to its requirement to expense the fair value of employee stock options and other forms of stock-based compensation in the Company's Consolidated Statement of Operations, thereby decreasing income and earnings per share. The Company is currently evaluating and considering the financial accounting, income tax, and internal control implications of FAS 123(R) and the effect that the adoption of this statement may have on its future compensation practices and its consolidated results of operations and financial position. GENERAL The Company has made significant investments in developing its technologies and products, the returns on which are dependent upon the generation of future revenues for realization. The Company has not yet generated revenues sufficient to offset its operating expenses and has used the proceeds from the sale of its equity securities to fund its operations. The Company anticipates increases in revenues from the sale of its wireless technologies and products in 2005; however it does not anticipate that the revenues will be sufficient to offset its operating expenses. For wireless revenues to offset costs, the Company must attract additional OEM and other customers and continue to expand its products and technologies, among other things. The Company intends to continue to use its working capital to support future marketing, sales and research and development activities. No assurance can be given that such expenditures will result in increased sales, new products, or technological advances or that the Company has adequate capital to complete its products or gain market acceptance before requiring additional capital. RESULTS OF OPERATIONS FOR EACH OF THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 Discontinued Operations On May 14, 2004, the Company completed the sale of certain assets of its video division to Thomson. The operations of the video business unit were classified as "net gain (loss) from discontinued operations" when the operations and cash flows of the business unit were eliminated from ongoing operations. The prior years' operating activities for the video business unit have also been reclassified to "net gain (loss) from discontinued operations" in the Company's Statements of Operations. Prior to the sale, essentially all of the Company's revenues were generated by its video division. Net gain (loss) from discontinued operations for the years ended December 31, 2004, 2003 and 2002 below include the following components: 14 2004 2003 2002 ------------ ------------ ------------ Net revenues $ 1,507,955 $ 6,717,179 $ 11,911,913 Cost of goods sold and operating expenses 4,955,098 10,097,292 13,317,071 ------------ ------------ ------------ (Loss) from operations (3,447,143) (3,380,113) (1,405,158) Gain on sale of assets 11,220,469 0 0 ------------ ------------ ------------ Gain (loss) from discontinued operations $ 7,773,326 $ (3,380,113) $ (1,405,158) ============ ============ ============ Continuing Operations Revenues Revenues for the years ended December 31, 2004, 2003 and 2002 were $440,811, $23,013 and $0, respectively. Revenues for the year ended December 31, 2004 included a $250,000 one-time previously deferred royalty payment upon termination of a licensing agreement. The remaining revenues of the Company were generated through sales of wireless consumer products. The Company initiated sales of its wireless products in the fourth quarter of 2003 through direct web sales and an e-retailer relationship with TigerDirect.com. During the third quarter of 2004, the Company expanded its product distribution to additional retail outlets. The Company currently has products in approximately 300 retail storefronts. For the year ended December 31, 2004, TigerDirect.com accounted for 18% of total net product revenues. Revenue from product sales is generally recognized at the time the product is shipped, provided that persuasive evidence of an arrangement exists, title and risk of loss has transferred to the customer, the sales price is fixed or determinable and collection of the receivable is reasonably assured. The Company sells its products primarily through retail distribution channels, with limited sales direct to end users through its own website and direct value added resellers. Retail distributors are generally given business terms that allow for the return of unsold inventory. In addition, the Company offers a 30-day money back guarantee on its products. With regard to sales through a distribution channel where the right to return unsold product exists, the Company recognizes revenue on a sell-through method utilizing information provided by the distribution channel. At December 31, 2004, 2003 and 2002, the Company has deferred revenue from product sales in the distribution channel of $407,403, $0 and $0, respectively. In addition, since the Company does not have sufficient history with sales of this nature to establish an estimate of expected returns, it has recorded a return reserve in the amount of 100% of product sales within the 30-day guarantee period. Revenues for the period ended December 31, 2004, 2003 and 2002 are net of an allowance for sales returns of $97,958, $74,097, and $0, respectively. In addition to the reserve for sales returns, gross revenue is reduced for price protection programs, customer rebates and cooperative marketing costs deemed to be sales incentives under Emerging Issues Task Force, (EITF) Issue 01-19, to derive net revenue. For the years ended December 31, 2004, 2003 and 2002, net revenue was reduced for cooperative marketing costs in the amount of $233,201, $0, and $0, respectively. The Company's ability to increase wireless product revenues will largely depend upon the rate at which the Company is able to secure additional distribution channels, increase brand recognition and customer demand for its products and sufficiently increase production volumes to meet such demand. The Company's longer term strategy includes the sale of chips, chipsets and/or modules to OEM 15 customers for integration into their products. To date the Company has generated no revenue from OEM channels. There can be no assurance that the Company will be able to increase its current level of revenues on a quarterly or annual basis in the future. Gross Margin The gross margins for products and royalties for the years ended December 31 were as follows: 2004 2003 2002 ------------ ------------ ------------ Products $ (3,103,900) $ (6,640) $ 0 Royalties 250,000 0 0 ------------ ------------ ------------ Total $ (2,853,900) $ (6,640) $ 0 ============ ============ ============ The margin recognized on royalty revenues was due to the recognition of a one-time, previously deferred prepaid royalty in connection with the termination of the related licensing agreement. The Company's product margin in 2004 reflects a write down of inventory to net realizable value in the amount of $2,768,854. This write down was triggered by a significant price decrease on the Company's 802.11b wireless networking product line in the fourth quarter of 2004, along with the high carrying costs of initial production inventory. The Company reduced the suggested retail price of its wireless router product by 50% and it other wireless networking products by 20% in the fourth quarter of 2004 in order to bring its pricing more in line with competitors. As a result, the carrying value of the Company's inventory exceeded its net realizable value after deduction of estimated costs to complete and dispose of the inventory. Product margins for 2004 compared to 2003 also reflect the impact of increases in the Company's provision for obsolete inventory that is included in cost of goods sold as well as increases in direct channel marketing costs that are classified as a reduction in revenue. The Company believes its next generation 802.11g wireless networking products will be produced at significantly lower manufactured cost than its current product line. However until introduction and sell through of these new products, expected late in the second quarter of 2005, the Company will continue to sell its 802.11b products at a price approximately equal to the carrying value of the inventory. As a result, the Company does not anticipate generating positive margin dollars on its product sales until introduction of its next generation products. Gross margin may be negatively impacted in future periods by many factors, including fluctuating component costs, start-up costs associated with new product introductions, sales price reductions on products, and channel marketing costs which are netted against revenue. In addition, to the extent that the Company is unable to increase sales volume of its products, additional write downs of inventory may result. Research and Development Expenses The Company's research and development expenses decreased by $1,894,778 or 14%, from $13,317,479 to $11,422,701 in 2004. The Company's research and development expenses increased by approximately $1,192,725 or 10%, from $12,124,754 in 2002 to $13,317,479 in 2003. 16 The decrease in research and development expenses from 2003 to 2004 was primarily due to the Company's ability to obtain, through third parties, certain technologies previously being developed internally by the Company. This resulted in a reduction in wireless engineering staff late in the third quarter of 2003, as well as a reduction in certain third-party development fees. In addition, the Company's wireless prototype foundry expenses decreased from 2003 to 2004, largely due to timing of prototype foundry runs and related foundry costs. These decreases were somewhat offset by an increase in amortization expense due to increases in patent costs and intangible research and development assets. The increase in research and development expenses from 2002 to 2003 was due to an increase in third party development fees and increased wireless prototype chip development expenses including foundry costs and amortization of prepaid licenses fees. These increases were somewhat offset by decreases in facilities cost and recurring software maintenance costs. The Company made reductions in its wireless engineering staffing late in the third quarter of 2003. Due to severance costs and the timing of staff reductions, the full benefits of these reductions were not evident through decreases in research and development expenses until 2004. The markets for the Company's products and technologies are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The Company's ability to successfully develop and introduce, on a timely basis, new and enhanced products and technologies will be a significant factor in the Company's ability to grow and remain competitive. Although the percentage of revenues invested by the Company may vary from period to period, the Company is committed to investing in its research and development programs. The Company anticipates it will use a substantial portion of its working capital for research and development activities in 2005. Marketing and Selling Expenses Marketing and selling expenses increased by $1,484,191 or 148%, from $999,998 in 2003 to $2,484,189 in 2004. Marketing and selling expenses increased by $309,836 or 45% from $690,162 in 2002 to $999,998 in 2003. The increase in marketing and selling expenses from 2003 to 2004 were primarily due to increases in advertising and retail market launch expenses to promote the Company's products and also the addition of marketing and customer support personnel. The Company anticipates marketing and selling expenses to increase in relation to increases in future sales and revenues. The increase in marketing and selling expenses from 2002 to 2003 is primarily due to an increase in the Company's marketing efforts reflected by increased third party consulting fees, advertising and travel expenses. The Company is committed to continuing its investment in marketing and selling efforts in order to continue to increase market awareness and penetration of its products, and anticipates further increases in sales and marketing expenses in 2005 to support the Company's commercialization of its D2D products. General and Administrative Expenses The Company's general and administrative expenses increased by $1,341,898 or 29%, from $4,702,563 in 2003 to $6,044,461 in 2004. The Company's general and administrative expenses increased by $745,377 or 19%, from $3,957,186 in 2002 to $4,702,563 in 2003. General and administrative expenses consist primarily of 17 executive and administrative personnel costs, insurance costs and costs incurred for outside professional services. The increase in general and administrative expenses from 2003 to 2004 is primarily due to increases in corporate outside professional fees and personnel costs, offset somewhat by decreases in corporate insurance costs. The increase in professional fees incurred is due to fees from outside consultants and the Company's external auditors in conjunction with the internal control evaluation as required by Section 404 of the Sarbanes Oxley Act of 2002. The increase in general and administrative expenses from 2002 to 2003 is primarily due to increases in insurance costs and professional fees, including amortization of prepaid services. Other Expense Other expense consists of losses on the disposal or sale of fixed assets no longer in service. For 2003, the loss of $84,007 is due to the sale of an interest in an aircraft. Interest and Other Income Interest and other income represents interest earned on the Company's investment of the proceeds from sales of its equity securities and net gains on the sale and/or maturity of investments. Interest and other income was $217,382, $476,002, and $905,438 for the years ended December 31, 2004, 2003, and 2002, respectively. The decrease of $258,620 from 2003 to 2004 is due to the use of funds to support operations and a decline in interest rates due to a change in the mix of the Company's investment portfolio. The decrease of $429,436 from 2002 to 2003 is due to declining interest rates and the use of funds to support operations, offset somewhat by net gains recognized on the sale of investments. Loss and Loss per Common Share The Company's net loss decreased from $22,014,798 or $1.43 per common share in 2003 to $14,814,543 or $0.82 per share in 2004, representing a net loss decrease of $7,200,255 or $0.61 per common share. The Company's net loss increased from $17,271,822, or $1.24 per common share in 2002 to $22,014,798, or $1.43 per share in 2003, representing a net loss increase of approximately $4,742,976, or $.19 per common share. The results of operations are as follows: 2004 2003 2002 ------------ ------------ ------------ Loss from continuing operations $(22,587,869) $(18,634,685) $(15,866,664) Gain (loss) from discontinued operations 7,773,326 (3,380,113) (1,405,158) ------------ ------------ ------------ Net loss $(14,814,543) $(22,014,798) $(17,271,822) ============ ============ ============ The $7.2 million decrease in net loss from 2003 to 2004 is primarily due to the net gain on the sale of the video business unit assets and decreased research and development expenses. The $4.7 million increase from 2002 to 2003 is due to increased research and development expenses from continuing operations and increased operating losses from discontinued operations. 18 Liquidity and Capital Resources At December 31, 2004, the Company had working capital of approximately $10,471,000 including approximately $7,798,000 in cash, cash equivalents and short-term investments. The Company used cash for operating activities of approximately $21,809,000, $16,507,000 and $14,187,000 for the years ended December 31, 2004, 2003, and 2002, respectively. The increase in cash used for operating activities from 2003 to 2004 was approximately $5,302,000. This increase was primarily due to purchases of inventory components for initial production of wireless networking products and increases in selling, general and administrative expenses from 2003 to 2004. The Company's accounts payable and accrued expenses, in aggregate, increased from $1,857,000 at December 31, 2003 to $2,915,000 at December 31, 2004. This increase of approximately $1,058,000 is primarily due to accrued channel marketing costs, timing of payments on accounts payable and an increase in wages payable as a result of a change in the Company's vacation policy and certain executive bonus accruals at December 31, 2004. The increase in cash used for operating activities from 2002 to 2003 was approximately $2,320,000. This increase is due to the increase in net loss and changes in accounts payable, offset somewhat by changes in accounts receivable. The Company generated cash from investing activities of approximately $10,776,000, $8,742,000, and $10,210,000 for the years ended December 31, 2004, 2003, and 2002, respectively. The cash generated for 2004 is primarily from the proceeds of the sale of the video business unit assets and maturity of investments, offset somewhat by payment for patent costs and other intangible assets. The generation of cash for 2003 and 2002 was primarily from the maturity and sale of investments, net of purchases, and the payment for intangible assets and capital expenditures. The Company incurred approximately $1,953,000 in 2004 in connection with patent costs and the purchase of other intangible assets for use in future products. The Company incurred approximately $1,176,000 and $1,556,000, in connection with patent costs primarily related to the Company's wireless technology in 2003 and 2002, respectively. The Company incurred approximately $996,000, $1,173,000, and $1,319,000, for capital expenditures in 2004, 2003, and 2002, respectively. These capital expenditures primarily represent the purchase of certain research and development software and test equipment, manufacturing equipment, marketing and sales demonstration equipment and computer and office equipment to support additional personnel. At December 31, 2004, the Company was not subject to any significant commitments to make additional capital expenditures. The Company generated no cash from financing activities for the year ended December 31, 2004. The Company generated cash from financing activities of approximately $24,145,000 and $501,000, for the years ended December 31, 2003 and 2002, respectively. The cash generated from financing activities represents proceeds from the exercise of stock options in both years and proceeds from the issuance of common stock in 2003 to institutional and other investors in private placement transactions exempt from registration under the Securities Act of 1933. The Company's future business plans call for continued investment in sales, marketing and product development for its wireless products. The Company's ability to increase wireless product revenues will largely depend upon the rate at which the Company is able to secure additional distribution channels, to increase brand recognition and customer demand for its products, and to sufficiently increase production volumes to meet demand. The overall revenues for 2005 will not be sufficient to cover the operational expenses of the Company for this fiscal year. Although the Company anticipates 19 sales growth in 2005, it does not expect that sales revenues will fully offset the expenses of operations. The expected continued losses and negative cash flow will continue to be funded by the use of its available working capital. On March 14, 2005, ParkerVision received net proceeds of $20.3 million from the sale of equity securities in a private placement transaction. The Company plans to use these proceeds, together with the $7.8 million in cash, cash equivalents and short term investments at December 31, 2004, to fund its future business plans. The Company believes that its current capital resources together with the proceeds of the March 2005 equity financing will be sufficient to support the Company's liquidity requirements at least through December 31, 2005. The long-term continuation of the Company's business plans is dependent upon generation of sufficient revenues from its products to offset expenses. In the event that the Company does not generate sufficient revenues, it will be required to obtain additional funding through public or private financing and/or reduce certain discretionary spending. Management believes certain operating costs could be reduced if working capital decreases significantly and additional funding is not available. In addition, the Company currently has no outstanding long-term debt obligations. Failure to generate sufficient revenues, raise additional capital and/or reduce certain discretionary spending could have a material adverse effect on the Company's ability to achieve its intended long-term business objectives. The Company's contractual obligations and commercial commitments at December 31, 2004 were as follows:
Payments due by period -------------------------------------------------------------- 1 year 2-3 4 - 5 After 5 Contractual Obligations: Total or less years years years ---------- --------- --------- -------- ------- Operating leases 960,000 634,000 326,000 0 0 Unconditional purchase obligations 496,000 496,000 0 0 0 Commercial Commitments 0 0 0 0 0
Risk Factors Affecting Future Results In addition to other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. WE HAVE HAD A HISTORY OF LOSSES WHICH MAY ULTIMATELY COMPROMISE OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN AND CONTINUE IN OPERATIONS. We have had losses in each year since our inception in 1989, and continue to have an accumulated deficit. The net loss for 2004 was $14.8 million. To date, our products have not produced revenues sufficient to cover operating, research and development and overhead costs. We also will continue to make expenditures on research and development and on pursuing patent protection for our intellectual property. We expect that our revenues in the near term will not bring the company to profitability. If we are not able to generate sufficient revenues, and we have insufficient capital resources, we will not be able to implement our business plan and investors will suffer a loss in their investment. This may result in a change in our business strategies. 20 WE EXPECT TO NEED ADDITIONAL CAPITAL IN THE FUTURE, WHICH IF WE ARE UNABLE TO RAISE WILL RESULT IN OUR NOT BEING ABLE TO IMPLEMENT OUR BUSINESS PLAN AS CURRENTLY FORMULATED. Because we have had net losses and, to date, have not generated positive cash flow from operations, we have funded our operating losses from the sale of equity securities from time to time. We anticipate that our business plan will continue to require significant expenditures for research and development, patent protection, manufacturing, marketing and general operations. Our current capital resources are expected to sustain operations for at least the next twelve months. Thereafter, unless we increase revenues to a level that they cover operating expenses or we reduce costs, we will require additional capital to fund these expenses. Financing, if any, may be in the form of loans or additional sales of equity securities. A loan or the sale of preferred stock may result in the imposition of operational limitations and other covenants and payment obligations, any of which may be burdensome to the Company. The sale of equity securities will result in dilution to the current stockholders' ownership. OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGES WHICH IF WE ARE UNABLE TO MATCH OR SURPASS, WILL RESULT IN A LOSS OF COMPETITIVE ADVANTAGE AND MARKET OPPORTUNITY. Because of the rapid technological development that regularly occurs in the microelectronics industry, we must continually devote substantial resources to developing and improving our technology and introducing new product offerings and creating new products. For example, in fiscal year 2004, we spent approximately $11.4 million on research and development, and we expect to continue to spend a significant amount in this area in the future. These efforts and expenditures are necessary to establish and increase market share and, ultimately, to grow revenues. If another company offers better products or our product development lags, a competitive position or market window opportunity may be lost, and therefore our revenues or revenue potential may be adversely affected. IF OUR PRODUCTS ARE NOT COMMERCIALLY ACCEPTED, OUR DEVELOPMENTAL INVESTMENT WILL BE LOST AND OUR FUTURE BUSINESS CONTINUATION WILL BE IMPAIRED. There can be no assurance that our research and development will produce commercially viable technologies and products. If new technologies and products are not commercially accepted, the funds expended will not be recoverable, and our competitive and financial position will be adversely affected. In addition, perception of our business prospects will be impaired with an adverse impact on our ability to do business and to attract capital and employees. FAILING TO ACHIEVE MARKET ACCEPTANCE OF OUR D2D TECHNOLOGY WILL RESULT IN AN ADVERSE IMPACT ON OUR BUSINESS PROSPECTS AND COMPROMISE THE MARKET VALUE OF THE TECHNOLOGY. Our wireless technology represents what we believe to be a significant change in the circuit design of wireless radio-frequency communications. To achieve market acceptance, we will need to demonstrate the benefits of our technology over more traditional solutions through the development of marketable products and aggressive marketing. In many respects, because the D2D technology is a radically different approach in its industry, it is very difficult for us to predict the final economic benefits to users of the technology and the financial rewards that we might expect. If the D2D technology is not established in the market place as an improvement over current, traditional solutions in wireless communications, our business prospects and financial condition will be adversely affected. 21 IF OUR PATENTS AND INTELLECTUAL PROPERTY DO NOT PROVIDE US WITH THE ANTICIPATED MARKET PROTECTIONS AND COMPETITIVE POSITION, OUR BUSINESS AND PROSPECTS WILL BE IMPAIRED. We rely on our intellectual property, including patents and patent applications, to provide competitive advantage and protect us from theft of our intellectual property. We believe that many of our patents are for entirely new technologies. If the patents are not issued or issued patents are later shown not to be as broad as currently believed or otherwise challenged such that some or all of the protection is lost, we will suffer adverse effects from the loss of competitive advantage and our ability to offer unique products and technologies. In addition, there would be an adverse impact on the Company's financial condition and business prospects. IF WE DO NOT COMPLY WITH THE APPROVAL REQUIREMENTS OF THE FEDERAL COMMUNICATIONS COMMISSION IN RESPECT OF OUR PRODUCTS, WE WILL NOT BE ABLE TO MARKET THEM WITH A RESULTING LOSS OF BUSINESS AND PROSPECTS. We must obtain approvals from the United States Federal Communications Commission for the regulatory compliance of our products in the United States. We also may have to obtain approvals from equivalent foreign government agencies where our products are sold internationally. Currently, we have obtained all required approvals. Generally the approval process is routine and takes from one to two months without substantial expense. In the event, however, that approval is not obtained, or there is a change in current regulation that impacts issued approvals or the approval process, there may be an impact on our ability to market products and on our business prospects. IF WE CANNOT DEMONSTRATE THAT OUR D2D PRODUCTS CAN COMPETE IN THE MARKETPLACE AND ARE BETTER THAN CURRENT ELECTRONICS SOLUTIONS, THEN WE WILL NOT BE ABLE TO GENERATE THE SALES WE NEED TO CONTINUE OUR BUSINESS AND OUR PROSPECTS WILL BE IMPAIRED. In respect of the current product offerings, we now face competition from other finished product suppliers such as the Linksys division of Cisco, Netgear, Belkin and D-Link. We also face competition from chip suppliers such as RF MicroDevices, Anadigics, Maxim and Conexant, among others. Our technology may also face competition from other emerging approaches or new technological advances which are under development and have not yet emerged. WE OBTAIN CRITICAL COMPONENTS FOR OUR PRODUCTS FROM VARIOUS SUPPLIERS AND LICENSORS, SOME OF WHICH ARE SINGLE SOURCES, WHICH MAY PUT US AT RISK IF THEY DO NOT FULFILL OUR REQUIREMENTS OR THEY INCREASE PRICES THAT CANNOT BE PASSED ON. We obtain critical components from various suppliers and licensors, some of which are single sources. Because we depends on outside sources for supplies and licenses of various parts of its products, we are at risk that we may not obtain these components on a timely basis or may not obtain them at all. We maintain inventories of many components, and to date, have not experienced any significant problems with respect to obtaining components. In addition, we have neither ended or had terminated any supply arrangements or license of critical components where an alternative has not been readily available. Notwithstanding our past history of supplies, maintaining inventory of some components and having licenses to produce in the event of non-supply, if we are unable to obtain needed components, our business would be disrupted, and we would have to expend some of our resources to modify our products or find new suppliers and work with them to develop appropriate components. We are also at risk for increases in prices imposed by sources over which we have no control. Our inability to obtain components or absorb price increases may have an adverse effect on our own ability to fulfill orders and on our financial condition. WE BELIEVE THAT WE WILL RELY, IN LARGE PART, ON KEY BUSINESS AND SALES RELATIONSHIPS FOR THE SUCCESSFUL COMMERCIALIZATION OF OUR D2D TECHNOLOGY, WHICH 22 IF NOT DEVELOPED OR MAINTAINED, WILL HAVE AN ADVERSE IMPACT ON ACHIEVING MARKET AWARENESS AND ACCEPTANCE AND LOSS OF BUSINESS OPPORTUNITY. To achieve a wide market awareness and acceptance of our D2D technology, as part of our business strategy, we will attempt to enter into a variety of business relationships with other companies which will incorporate the D2D technology into their products and/or market products based on D2D technology through retail or direct marketing channels. These will include OEM and VAR relationships and sales through internet and storefront retailers. These commercialization avenues are in addition to the direct marketing that we are engaged in through our own website. Our successful commercialization of the D2D technology will depend in part on our ability to meet obligations under contracts in respect to the D2D technology and related development requirements and the other parties using the D2D technology as agreed. The failure of the business relationships will limit the commercialization of our D2D technology which will have an adverse impact on our business development and our ability to generate revenues and recover development expenses. AS WE INCREASE OUR MARKETING EFFORTS, WE WILL BECOME MORE RELIANT ON THE SALES EFFORTS OF THIRD PARTIES THAT MAY AFFECT REVENUES. As we increase our consumer product offerings, we will seek various kinds of distribution and sales methodologies which rely on third parties. These will include OEM, VAR, internet resellers and standard retail outlets. To service these sales methods, we will have to maintain inventory and supply sufficient quantities of products to the sales outlets. Therefore, we will have an increased exposure in its inventory quantities and investment and warranty obligations. We also will have to oversee the sales efforts of these outlets to maintain pricing structures, advertising and sales quality and servicing and warranty claims. If we are unable to supply our sales channels or the third parties sell or act in ways that harm our image, market acceptance of our products may be adversely affected with a resulting loss in sales and revenues. MARKETING OF OUR PRODUCTS WILL REQUIRE EXPANSION OF OUR MARKETING STAFF AND ESTABLISHING MARKETING PROGRAMS, WHICH IF NOT EFFECTIVE, MAY RESULT IN LIMITED SALES. We have initiated consumer sales of various products. To do this effectively and reach the mass market for electronic products, we will need to expand our sales staff and marketing programs. If we are unable to find effective sales personnel or establish effective sales programs, we will not be able to fully realize our product offerings or grow sales. A slower growth of sales or the harmful effects of poor marketing could increase expenses and may adversely affect sales and revenues. WE HAVE LIMITED EXPERIENCE IN THE COMMERCIAL DESIGN AND LARGE SCALE MANUFACTURING OF CONSUMER PRODUCTS THAT MAY RESULT IN PRODUCTION INADEQUACIES, DELAYS AND REJECTION. We have limited experience in the commercial design and large scale manufacturing of consumer electronic products. From time to time we have experienced delays in starting production and maintaining production amounts at the quality levels necessary for our products. We outsource the manufacture of certain components and will outsource some of our future consumer products. If there are design flaws or manufacturing errors resulting from our inexperience or by the third party manufacturers, there may be resulting delays while they are corrected. In addition, using others to manufacture on our behalf exposes us to timing, quality and delivery risks. The failure to produce adequate numbers of products, at the quality levels expected by our customers, may result in the loss of acceptance of our consumer products, or result in excessive returns and warranty claims. These may result in loss of commercialization opportunities as well as adversely affect revenues and cause additional, unanticipated expenses. 23 UNTIL WE ARE ABLE TO SELL PRODUCT IN LARGE VOLUMES, OUR MANUFACTURING AND SALES EXPENSES PER UNIT WILL HAVE AN ADVERSE IMPACT ON GROSS MARGINS. New products offerings may be manufactured in low quantities resulting in higher per unit costs to produce. These costs will reduce gross margins. It is possible that the costs to produce may not be fully recoverable resulting in write downs of inventory. This will have a negative impact on our financial condition and results of operations. WE ARE HIGHLY DEPENDENT ON MR. JEFFERY PARKER AS OUR CHIEF EXECUTIVE OFFICER WHOSE SERVICES, IF LOST, WOULD HAVE AN ADVERSE IMPACT ON THE LEADERSHIP OF THE COMPANY AND INDUSTRY AND INVESTOR PERCEPTION ABOUT OUR FUTURE. Because of Mr. Parker's position in the company and the respect he has garnered in the industries in which we operate and from the investment community, the loss of the services of Mr. Parker might be seen as an impediment to the execution of the our business plan. If Mr. Parker were no longer available to the company, investors may experience an adverse impact on their investment. Mr. Parker has an employment contract that expires in September 2005. We maintain key-employee life insurance for our benefit on Mr. Parker. IF WE ARE UNABLE TO ATTRACT THE HIGHLY SKILLED EMPLOYEES WE NEED FOR RESEARCH AND DEVELOPMENT AND SALES AND SERVICING, IT WILL NOT BE ABLE TO EXECUTE ITS RESEARCH AND DEVELOPMENT PLANS OR PROVIDE THE HIGHLY TECHNICAL SERVICES THAT OUR PRODUCTS REQUIRE. Our business is very specialized, and therefore it is dependent on having skilled and specialized employees to conduct our research and development activities, manufacturing, marketing and support. The inability to obtain these kinds of persons will have an adverse impact on our business development because persons will not obtain the information or services expected in the markets and may prevent us from successfully implementing our current business plans. THE OUTSTANDING OPTIONS AND WARRANTS MAY AFFECT THE MARKET PRICE AND LIQUIDITY OF THE COMMON STOCK. At December 31, 2004, we had 18,006,324 shares of common stock outstanding and had 5,390,218 exercisable options and warrants for the purchase shares of common stock. On December 31, 2005 and 2006, there will be 6,387,050 and 6,642,460, respectively of the currently outstanding options and warrants exercisable. All of the underlying common stock of these securities is or will be registered for sale to the holder or for public resale by the holder. The amount of common stock available for the sales may have an adverse impact on our ability to raise capital and may affect the price and liquidity of the common stock in the public market. In addition, the issuance of these shares of common stock will have a dilutive effect on current stockholders' ownership. PROVISIONS IN THE CERTIFICATE OF THE INCORPORATION AND BY-LAWS COULD HAVE EFFECTS THAT CONFLICT WITH THE INTEREST OF STOCKHOLDERS. Some provisions in our certificate of incorporation and by-laws could make it more difficult for a third party to acquire control. For example, the board of directors has the ability to issue preferred stock without stockholder approval, and there are pre-notification provisions for director nominations and submissions of proposals from stockholders to a vote by all the stockholders under the by-laws. Florida law also has anti-takeover provisions in its corporate statute. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. None. 24 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements PAGE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 26 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets - December 31, 2004 and 2003 28 Consolidated Statements of Operations - for the years ended December 31, 2004, 2003 and 2002 29 Consolidated Statements of Shareholders' Equity - for the years ended December 31, 2004, 2003 and 2002 30-31 Consolidated Statements of Cash Flows - for the years ended December 31, 2004, 2003 and 2002 32 Notes to Consolidated Financial Statements - December 31, 2004, 2003 and 2002 33-52 FINANCIAL STATEMENT SCHEDULE: Schedule II - Valuation and Qualifying Accounts 59 Schedules other than those listed have been omitted since they are either not required, not applicable or the information is otherwise included. 25 REPORT OF CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of ParkerVision, Inc.: We have completed an integrated audit of ParkerVision, Inc.'s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements and financial statement schedule In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of ParkerVision, Inc. and its subsidiary at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Internal control over financial reporting Also, in our opinion, management's assessment, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. 26 A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP Jacksonville, Florida March 16, 2005 27 PARKERVISION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2004 AND 2003
2004 2003 ------------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 6,434,901 $ 17,467,875 Short-term investments available for sale 1,363,571 3,008,427 Accounts receivable, net of allowance for doubtful accounts of $19,164 and $64,159 at December 31, 2004 and 2003, respectively 310,400 988,849 Interest and other receivables 1,277,497 54,407 Inventories, net 2,625,763 2,476,985 Prepaid expenses and other current assets 1,781,595 2,312,385 ------------- ------------- Total current assets 13,793,727 26,308,928 PROPERTY AND EQUIPMENT, net 3,372,894 4,860,261 OTHER ASSETS, net 10,914,017 11,313,621 ------------- ------------- Total assets 28,080,638 42,482,810 ============= ============= CURRENT LIABILITIES: Accounts payable 857,954 693,820 Accrued expenses: Salaries and wages 1,130,860 592,369 Warranty reserves 4,853 199,084 Professional fees 202,787 143,893 Purchase commitments 194,000 0 Other accrued expenses 524,930 228,057 Deferred revenue 407,403 1,226,929 ------------- ------------- Total current liabilities 3,322,787 3,084,152 ------------- ------------- COMMITMENTS AND CONTINGENCIES (Notes 3, 13 and 16) -- -- ------------- ------------- SHAREHOLDERS' EQUITY: Common stock, $.01 par value, 100,000,000 shares authorized, 18,006,324 and 17,959,504 shares issued and outstanding at December 31, 2004 and 2003, respectively 180,063 179,595 Warrants outstanding 14,573,705 16,807,505 Additional paid-in capital 120,488,205 118,048,964 Accumulated other comprehensive (loss) income (427) 31,746 Accumulated deficit (110,483,695) (95,669,152) ------------- ------------- Total shareholders' equity 24,757,851 39,398,658 ------------- ------------- Total liabilities and shareholders' equity $ 28,080,638 $ 42,482,810 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 28 PARKERVISION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
2004 2003 2002 ------------ ------------ ------------ Product revenue $ 190,811 $ 23,013 $ 0 Royalty revenue 250,000 0 0 ------------ ------------ ------------ Net revenues 440,811 23,013 0 Cost of goods sold 525,857 29,653 0 Write down of inventory to net realizable value 2,768,854 0 0 ------------ ------------ ------------ Gross margin (2,853,900) (6,640) 0 ------------ ------------ ------------ Research and development expenses 11,422,701 13,317,479 12,124,754 Marketing and selling expenses 2,484,189 999,998 690,162 General and administrative expenses 6,044,461 4,702,563 3,957,186 Loss on disposal of property and equipment 0 84,007 0 ------------ ------------ ------------ Total operating expenses 19,951,351 19,104,047 16,772,102 ------------ ------------ ------------ Interest and other income 217,382 476,002 905,438 ------------ ------------ ------------ Loss from continuing operations (22,587,869) (18,634,685) (15,866,664) Gain (loss) from discontinued operations (including gain on the disposal of $11,220,469 in 2004) 7,773,326 (3,380,113) (1,405,158) ------------ ------------ ------------ Net loss (14,814,543) (22,014,798) (17,271,822) Unrealized (loss) gain on investment securities (32,173) (279,123) 159,510 ------------ ------------ ------------ Comprehensive loss $(14,846,716) $(22,293,921) $(17,112,312) ============ ============ ============ Basic and diluted net loss per common share: Continuing operations $ (1.25) $ (1.21) $ (1.14) Discontinued operations 0.43 (0.22) (0.10) ------------ ------------ ------------ Basic and diluted net loss per common share $ (0.82) $ (1.43) $ (1.24) ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 29 PARKERVISION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
2004 2003 2002 ------------ ------------ ------------ CONVERTIBLE PREFERRED SHARES - BEGINNING OF YEAR 0 13,678 27,356 Conversion of preferred stock to common stock 0 (13,678) (13,678) ------------ ------------ ------------ CONVERTIBLE PREFERRED SHARES - END OF YEAR 0 0 13,678 ============ ============ ============ PAR VALUE OF CONVERTIBLE PREFERRED SHARES - BEGINNING OF YEAR $ 0 $ 13,678 $ 27,356 Conversion of preferred stock to common stock 0 (13,678) (13,678) ------------ ------------ ------------ PAR VALUE OF CONVERTIBLE PREFERRED SHARES - END OF YEAR $ 0 $ 0 $ 13,678 ============ ============ ============ COMMON SHARES - BEGINNING OF YEAR 17,959,504 13,989,329 13,913,806 Issuance of common stock upon exercise of options and warrants 0 16,100 52,600 Issuance of restricted common stock as employee compensation 46,820 27,778 6,291 Issuance of common stock in private offering 0 3,465,151 0 Issuance of common stock as payment for license fees and services 0 388,158 0 Conversion of preferred stock to common stock 0 72,988 16,632 ------------ ------------ ------------ COMMON SHARES - END OF YEAR 18,006,324 17,959,504 13,989,329 ============ ============ ============ PAR VALUE OF COMMON STOCK - BEGINNING OF YEAR $ 179,595 $ 139,893 $ 139,138 Issuance of common stock upon exercise of options and warrants 0 161 526 Issuance of restricted common stock as employee compensation 468 278 63 Issuance of common stock in private offering 0 34,652 0 Issuance of common stock as payment for license fees and services 0 3,881 0 Conversion of preferred stock to common stock 0 730 166 ------------ ------------ ------------ PAR VALUE OF COMMON STOCK - END OF YEAR $ 180,063 $ 179,595 $ 139,893 ============ ============ ============ WARRANTS OUTSTANDING - BEGINNING OF YEAR $ 16,807,505 $ 16,807,505 $ 16,807,505 Expiration of warrants (2,233,800) 0 0 ------------ ------------ ------------ WARRANTS OUTSTANDING - END OF YEAR $ 14,573,705 $ 16,807,505 $ 16,807,505 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 30 PARKERVISION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued) FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
2004 2003 2002 ------------- ------------- ------------- ADDITIONAL PAID-IN CAPITAL - BEGINNING OF YEAR $ 118,048,964 $ 90,428,998 $ 89,804,504 Issuance of common stock upon exercise of options and warrants 0 136,881 500,059 Issuance of restricted common stock as employee compensation 205,441 129,846 110,923 Issuance of common stock in private offering 0 23,994,172 0 Issuance of common stock as payment for license fees and services 0 3,346,119 0 Conversion of preferred stock to common stock 0 12,948 13,512 Expiration of warrants 2,233,800 0 0 ------------- ------------- ------------- ADDITIONAL PAID-IN CAPITAL - END OF YEAR $ 120,488,205 $ 118,048,964 $ 90,428,998 ============= ============= ============= ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME - BEGINNING OF YEAR $ $ 310,869 $ 151,359 31,746 Change in unrealized (loss) gain on investments (32,173) (279,123) 159,510 ------------- ------------- ------------- ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME - END OF YEAR $ $ 31,746 $ 310,869 (427) ============= ============= ============= ACCUMULATED DEFICIT - BEGINNING OF YEAR $ (95,669,152) $ (73,654,354) $ (56,382,532) Net loss (14,814,543) (22,014,798) (17,271,822) ------------- ------------- ------------- ACCUMULATED DEFICIT - END OF YEAR $(110,483,695) $ (95,669,152) $ (73,654,354) ============= ============= ============= TOTAL SHAREHOLDERS' EQUITY - BEGINNING OF YEAR $ 39,398,658 $ 34,046,589 $ 50,547,330 Issuance of common stock upon exercise of options and warrants 0 137,042 500,585 Issuance of restricted common stock as employee compensation 205,909 130,124 110,986 Issuance of common stock and warrants in private offering 0 24,028,824 0 Issuance of common stock as payment for license fees and services 0 3,350,000 0 Comprehensive loss (14,846,716) (22,293,921) (17,112,312) ------------- ------------- ------------- TOTAL SHAREHOLDERS' EQUITY - END OF YEAR $ 24,757,851 $ 39,398,658 $ 34,046,589 ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 31 PARKERVISION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(14,814,543) $(22,014,798) $(17,271,822) ------------ ------------ ------------ Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,101,138 2,952,475 2,950,859 Amortization of premium on investments 42,683 155,848 281,377 Provision for obsolete inventories 320,533 401,271 521,573 Write-down of inventory to net realizable value 2,768,854 0 0 Stock compensation 1,005,909 972,471 1,275,394 Gain on sale of discontinued operations (11,220,469) 0 0 Gain on sale of investments 0 (228,960) (158,482) Loss on sale of equipment 0 84,007 51,643 Changes in operating assets and liabilities, net of disposition: Accounts receivable, net 758,953 1,169,728 (1,211,942) Inventories (5,535,571) 212,628 707,082 Prepaid and other assets 105,062 402,920 (1,435,399) Accounts payable and accrued expenses 1,261,072 (837,919) 85,028 Deferred revenue 397,845 223,463 17,854 ------------ ------------ ------------ Total adjustments (6,993,991) 5,507,932 3,084,987 ------------ ------------ ------------ Net cash used in operating activities (21,808,534) (16,506,866) (14,186,835) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments available for sale 0 (5,603,060) (16,786,291) Proceeds from maturity/sale of investments 1,570,000 16,256,385 29,863,504 Proceeds from sale of video business unit assets and other property and equipment 12,153,939 437,855 7,660 Purchase of property and equipment (995,567) (1,172,715) (1,318,947) Payment for patent costs (1,952,812) (1,175,998) (1,556,178) ------------ ------------ ------------ Net cash provided by investing activities 10,775,560 8,742,467 10,209,748 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 0 24,145,241 500,585 ------------ ------------ ------------ Net cash provided by financing activities 0 24,145,241 500,585 ------------ ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS (11,032,974) 16,380,842 (3,476,502) CASH AND CASH EQUIVALENTS, beginning of year 17,467,875 1,087,033 4,563,535 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, end of year $ 6,434,901 $ 17,467,875 $ 1,087,033 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 32 PARKERVISION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002 1. THE COMPANY AND NATURE OF BUSINESS ParkerVision, Inc. (the "Company") was incorporated under the laws of the state of Florida on August 22, 1989. Following the sale of its video operations in May 2004 (Note 3), the Company operates in a single segment - wireless technologies and products. The Company operates in a highly competitive industry with rapidly changing and evolving technologies and an increasing number of market entrants. The Company's potential competitors have substantially greater financial, technical and other resources than those of the Company. The Company has made significant investments in developing its technologies and products, the returns on which are dependent upon the generation of future revenues for realization. The Company has not yet generated sufficient revenues to offset its expenses and, thus, has utilized proceeds from the sale of its equity securities to fund its operations. In March 2005, the Company received net proceeds of approximately $20.3 million from the sale of its equity securities (Note 19). In the opinion of management, the Company's working capital as of December 31, 2004, along with the proceeds of the March 2005 sale of equity securities, is sufficient to meet its liquidity needs through at least December 31, 2005. The Company also believes it will be able to generate increased revenues and additional capital, if necessary, to sustain its operations on a longer-term basis. 2. LIQUIDITY AND CAPITAL RESOURCES The Company has made substantial investment in developing the technologies for its products, the returns on which are dependent upon the generation and realization of future revenues. The Company has incurred losses from operations and negative cash flows in every year since inception and has utilized the proceeds from the sale of its equity securities to fund operations. For the year ended December 31, 2004, the Company incurred a net loss of approximately $14.8 million and negative cash flows from operations of approximately $21.8 million. At December 31, 2004, the Company had an accumulated deficit of approximately $110.5 million and working capital of approximately $10.5 million. Although management expects to generate additional revenues in 2005 from sales of its products, it does not anticipate that these revenues will be sufficient to offset the expenses from continued investment in product development and marketing activities. Therefore, management expects operating losses and negative cash flows to continue in 2005 and possibly beyond. As more fully discussed in Note 19, in March 2005, the Company obtained equity financing that it believes, along with existing financial resources, will allow for sufficient liquidity to fund operations through at least December 31, 2005. The long-term continuation of the Company's business plans is dependent upon generation of sufficient revenues from its products to offset expenses. In the event that the Company does not generate sufficient revenues, it will be required to obtain additional funding through public or private financing and/or reduce certain discretionary spending. Management believes certain operating 33 costs could be reduced if working capital decreases significantly and additional funding is not available. In addition, the Company currently has no outstanding long-term debt obligations. Failure to generate sufficient revenues, raise additional capital and/or reduce certain discretionary spending could have a material adverse effect on the Company's ability to achieve its intended long-term business objectives. 3. DISCONTINUED OPERATIONS On May 14, 2004, the Company completed the sale of certain designated assets of its video division to Thomson Broadcast & Media Solutions, Inc. and Thomson Licensing, SA (collectively referred to as "Thomson"). The assets sold included the PVTV and CameraMan products, services, patents, patent applications, tradenames, trademarks and other intellectual property, inventory, specified design, development and manufacturing equipment, and obligations under outstanding contracts for products and services and other assets. Certain specified assets related to the video division, such as accounts receivable and certain contracts, were excluded from the transaction. Thomson extended offers to and received acceptances from thirty-one of the persons employed in connection with the video division who transferred employment effective May 14, 2004. The net book value of assets and liabilities sold to Thomson include the following:
Patents, net of accumulated amortization of $731,890 $ 681,444 Inventories, net of reserves for obsolescence of $1,095,354 1,702,797 Furniture and equipment, net of accumulated depreciation of $913,431 584,059 Prepaids and other deposits 37,364 Deferred revenue (1,217,371) Warranty reserves (202,911) ----------- $ 1,585,382 =========== Inventories sold consisted of the following: Purchased materials $ 1,069,897 Work in process 100,089 Finished goods 359,174 Spare parts and demonstration inventory 1,268,991 ----------- ----------- 2,798,151 Less allowance for inventory obsolescence (1,095,354) ----------- $ 1,702,797 =========== Property and equipment sold consisted of the following: Manufacturing and office equipment $ 1,347,138 Tools and dies 150,352 ----------- 1,497,490 Less accumulated depreciation (913,431) ----------- $ 584,059 ===========
The sales price of the assets was approximately $13.4 million, which included $11.25 million paid at closing, a $0.9 million price adjustment paid in July 2004 and a $1.25 million price holdback payable in May 2005. The price adjustment represents the net book value of assets and liabilities sold, 34 excluding intangible assets. The price holdback represents a portion of the sales price held by Thomson to indemnify Thomson against breaches of the Company's continuing obligations and its representations and warranties. This amount, which has been recorded in interest and other receivables, is payable in May 2005 and will earn interest until paid. The Company recognized a gain on the sale of discontinued operations of $11,220,469 which is net of losses on the disposal of remaining assets related to the video operations of $598,088. The net loss on disposal of the remaining video assets included a write down of inventory of $594,609, a loss on the disposal of property and equipment of $83,983, net of accumulated depreciation of $2,316,294, and a gain from the recovery of previously reserved accounts receivable of $80,504. The Company agreed not to compete with the business of the video division for five years after the closing date. The Company also agreed not to seek legal recourse against Thomson in respect of its intellectual property that was transferred or should have been transferred if used in connection with the video operations. Thomson was granted a license to use the "ParkerVision" name for a limited time in connection with the transition of the video business to the integrated operations Thomson. For a period of up to six months after the closing, the Company assisted Thomson in transitioning the video business into Thomson's operations. This included providing Thomson's employees with office space, training in respect of the business and the products and services, contract manufacturing, and certain general administrative functions. The Company was reimbursed at cost and at cost-plus depending on the service and the length of time for which the service was provided. The Company sublet to Thomson a portion of its office space from May 2004 to August 2004. The purchase agreement provides that each party will indemnify the other for damages incurred as a result of the breach of their respective representations and warranties and failure to observe their covenants. In general, the representations and warranties will survive for 18 months after the closing and will not be affected by any investigation by the other party. Each party is obligated to indemnify the other up to $4,000,000, once a threshold of $150,000 in damages is achieved. Additionally, the Company must indemnify Thomson against intellectual property claims for an unlimited period of time, without any minimum threshold, and with a separate maximum of $5,000,000. Certain other claims by Thomson will not be limited as to time or amount. Thomson will be permitted to offset their claims against the amount held back on the sales price and other amounts due the Company through May 14, 2005 at which time the holdback amount must be paid to the Company. Currently, the Company is not aware of any claims against the holdback amount. The operations of the video business unit were classified as discontinued operations when the operations and cash flows of the business unit were eliminated from ongoing operations. The prior years' operating activities for the video business unit have also been reclassified to "Loss from discontinued operations" in the accompanying Statements of Operations. Net gain (loss) from discontinued operations for the years ended December 31, 2004, 2003 and 2002 below include the following components: 2004 2003 2002 ------------ ------------ ------------ Net revenues $ 1,507,955 $ 6,717,179 $ 11,911,913 Cost of goods sold and operating expenses 4,955,098 10,097,292 13,317,071 ------------ ------------ ------------ Loss from operations (3,447,143) (3,380,113) (1,405,158) Gain on sale of assets 11,220,469 0 0 ------------ ------------ ------------ Gain (loss) from discontinued operations $ 7,773,326 $ (3,380,113) $ (1,405,158) ============ ============ ============ 35 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION Effective October 2, 2000, the Company formed a wholly owned subsidiary, D2D, LLC. The consolidated financial statements include the accounts of ParkerVision, Inc. and D2D, LLC, after elimination of all significant inter-company transactions and accounts. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The more significant estimates made by management include the allowance for doubtful accounts receivable, reserves for sales returns, inventory reserves for potential excess or obsolete inventory, the impairment of assets and amortization period for intangible and long-lived assets, and warranty reserves. Actual results could differ from the estimates made. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, the Company considers cash and cash equivalents to include cash on hand, interest-bearing deposits, overnight repurchase agreements and investments with original maturities of three months or less when purchased. INVESTMENTS Investments consist of funds invested in U.S. Treasury notes, U.S. Treasury bills and mortgage-backed securities guaranteed by the U.S. government. The Company accounts for investment securities under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." These investments are classified as available for sale and are intended to be held for indefinite periods of time and are not intended to be held to maturity. Securities available for sale are recorded at fair value. Net unrealized holding gains and losses on securities available for sale, net of deferred income taxes, are included as a separate component of shareholders' equity in the consolidated balance sheet until these gains or losses are realized. If a security has a decline in fair value that is other than temporary, then the security will be written down to its fair value by recording a loss in the consolidated statement of operations. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance is based on management's assessment of the collectibility of customer accounts. Management regularly reviews the allowance by considering factors such as historical experience, age of the account balance and current economic conditions that may affect a customer's ability to pay. If the creditworthiness of the Company's customers were to deteriorate, or if actual defaults are higher than historical experience, additional allowances would be required. INVENTORIES Inventories are stated at the lower of cost (as determined under the first-in, first-out method) or market (net realizable value). Cost includes the acquisition of purchased materials, labor and overhead. Purchased materials inventory consists principally of components and subassemblies. The Company's investment in inventory is maintained to meet anticipated future demand for its product and the buildup of safety stock on single-source or long lead-time 36 components. The Company has an inventory reserve for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions indicate a further reduction in the carrying value of inventory, additional write-downs may be required to reduce inventory to estimated net realizable value. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation. Depreciation is determined using the straight-line method over the following estimated useful lives: Manufacturing and office equipment 5-7 years Tools and dies 5-7 years Leasehold improvements 7-10 years Aircraft 20 years Furniture and fixtures 7 years Computer equipment and software 3-5 years The cost and accumulated depreciation of assets sold or retired are removed from their respective accounts, and any resulting net gain or loss is recognized in the accompanying consolidated statements of operations. The Company accounts for impairment of property and equipment in accordance SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets." The carrying value of the asset is reviewed on a regular basis for the existence of facts, both internally and externally, that may suggest impairment. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the assets exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the assets. The Company did not recognize impairment charges related to property and equipment in any of the periods presented. INTANGIBLE ASSETS Patents, copyrights and other intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from three to twenty years. Management of the Company evaluates the recoverability of intangible assets periodically and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate impairment exists. No impairments of intangible assets have been identified during any of the periods presented. REVENUE RECOGNITION Revenue from products sales is generally recognized at the time the product is shipped, provided that persuasive evidence of an arrangement exists, title and risk of loss has transferred to the customer, the sales price is fixed or determinable and collection of the receivable is reasonably assured. The Company sells its products primarily through retail distribution channels, with limited sales direct to end users through its own website and direct value added resellers. Retail distributors are generally given business terms that allow for the return of unsold inventory. In addition, the Company offers a 30-day money back guarantee on its products. With regard to sales through a distribution channel where the right to return unsold product exists, the Company recognizes revenue on a sell-through method utilizing information provided by the distribution channel. At December 31, 2004 and 2003, the Company had deferred revenue from product sales in the distribution channel of $407,403 and $0, 37 respectively. In addition, since the Company does not have sufficient history with sales of this nature to establish an estimate of expected returns, it has recorded a return reserve in the amount of 100% of product sales within the 30-day guarantee period. Revenues for the period ended December 31, 2004, 2003 and 2002 are net of allowances for sales returns of $97,958, $74,097, and $0, respectively. In addition to the reserve for sales returns, gross revenue is reduced for price protection programs, customer rebates and cooperative marketing expenses deemed to be sales incentives under Emerging Issues Task Force, (EITF) Issue 01-19, to derive net revenue. For the years ended December 31, 2004 and 2003, net revenue was reduced for cooperative marketing costs in the amount of $233,201 and $0, respectively. SHIPPING AND HANDLING FEES AND COSTS The Company includes shipping and handling fees billed to customers in net revenue in accordance with EITF Issue 00-10, "Accounting for Shipping and Handling Fees and Costs". Shipping and handling costs associated with outbound freight are included in sales and marketing expenses and totaled $29,234, $2,123 and $0 for the years ended December 31, 2004, 2003 and 2002, respectively. WARRANTY COSTS The Company warrants its products against defects in workmanship and materials for approximately one year. Estimated costs related to warranties are accrued at the time of revenue recognition and are included in cost of sales. The warranty obligations related to the Company's PVTV and camera products were transferred to Thomson upon sale of the assets of the video business unit (see Note 3). For the years ended December 31, 2004, 2003 and 2002, warranty expenses from continuing operations were $4,853, $0 and $0, respectively. Warranty expenses from discontinued operations were $10,587, $55,729 and $106,974 for the years ended December 31, 2004, 2003 and 2002, respectively. A reconciliation of the changes in the aggregate product warranty liability for the years ended December 31, 2004 and 2003 is as follows:
Warranty Reserve Debit(Credit) ---------------------- 2004 2003 --------- --------- Balance at the beginning of the year $(199,084) $(248,230) Accruals for warranties issued during the year (15,441) (55,729) Accruals related to pre-existing warranties (including changes in estimates) 0 0 Settlements made (in cash or in kind) during the year 6,761 104,875 Reduction as a result of discontinued operations 202,911 0 --------- --------- Balance at the end of the year $ (4,853) $(199,084) ========= =========
The Company offered extended service and support contacts related to its discontinued operations. A reconciliation of the changes in the aggregate deferred revenue from extended service contracts for the years ended December 31, 2004 and 2003 is as follows:
Deferred Revenue from Extended Service Contracts Debit(Credit) ---------------------- 2004 2003 --------- --------- Balance at the beginning of the year $(561,584) $(383,704) Accruals for contracts issued during the year (129,875) (737,617) Revenue recognized during the year 236,428 559,737 Reduction as a result of discontinued operations 455,031 0 --------- --------- Balance at the end of the year $ 0 $(561,584) ========= =========
38 ADVERTISING COSTS Advertising costs are charged to operations when incurred. The Company incurred advertising costs related to continuing operations of $215,747, $64,917, and $0 for the years ended December 31, 2004, 2003 and 2002, respectively. LOSS PER COMMON SHARE Basic loss per common share is determined based on the weighted-average number of common shares outstanding during each year. Diluted loss per common share is the same as basic loss per common share as all common share equivalents are excluded from the calculation, as their effect is anti-dilutive. The weighted-average number of common shares outstanding for the years ended December 31, 2004, 2003, and 2002, was 17,989,135, 15,446,857, and 13,941,068, respectively. The total number of options and warrants to purchase 6,620,603, 7,007,767, and 6,518,250, shares of common stock that were outstanding at December 31, 2004, 2003, and 2002, respectively, were excluded from the computation of diluted earnings per share as the effect of these options and warrants would have been anti-dilutive. IMPAIRMENT OF ASSETS SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as modified by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" requires that long-lived assets, including property and equipment and intangibles other than goodwill of an entity, be tested for recoverability whenever events or circumstances suggest that their values may be impaired. In performing the review for recoverability, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, an impairment write-down to fair value (representing the carrying amount that exceeds the discounted expected future cash flows) would be recorded as a period expense. SFAS No. 142, "Goodwill and Other Intangible Assets", requires that goodwill and intangible assets with indefinite lives be reviewed at least annually for impairment. As of December 31, 2004, the Company has no goodwill or intangible assets with indefinite lives. COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive income and its components. The Company's other comprehensive income (loss) is comprised of net unrealized gains (losses) on investments available-for-sale which are included, net of tax, in accumulated other comprehensive income in the consolidated statements of shareholders' equity. CONSOLIDATED STATEMENTS OF CASH FLOWS The Company paid no interest or taxes during 2004, 2003 or 2002. On May 14, 2004 the Company issued 46,820 shares of restricted common stock, valued at approximately $206,000, under the terms of the 2000 Performance Equity Plan to former employees as part of the severance package pertaining to the discontinued operations (see Note 3). Warrants previously issued by the Company in conjunction with a private placement in the amount of $2,233,800 expired in 2004 and were reclassified to additional paid in capital. 39 During 2003, the Company issued restricted common stock as compensation to employees with an aggregate fair value of approximately $130,000. On April 28, 2003, the Company issued restricted common stock, valued at approximately $2,400,000, under the terms of the 2000 Performance Equity Plan as consideration for professional services (see Note 17). On September 19, 2003 the Company issued restricted common stock, valued at approximately $950,000, as consideration for a license agreement (see Note 17). During 2002, the Company issued restricted common stock as compensation to employees with an aggregate fair value of approximately $111,000. INCOME TAX POLICY The provision for income taxes is based on income before taxes as reported in the accompanying consolidated statements of operations. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns, in accordance with SFAS No. 109. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence it is more likely than not that the benefit of such assets will not be realized. ACCOUNTING FOR STOCK BASED COMPENSATION At December 31, 2004, the Company has two stock-based employee compensation plans, which are described more fully in Note 16. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. For employee stock option grants, no stock-based employee compensation cost is reflected in net loss, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on the net loss and loss per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation", as amended by FASB Statement No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", to stock-based employee compensation.
2004 2003 2002 ---------------- ---------------- ---------------- Net loss, as reported $ (14,814,543) $ (22,014,798) $ (17,271,822) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (12,213,448) (14,867,054) (20,060,070) ---------------- ---------------- ---------------- Pro forma net loss $ (27,027,991) $ (36,881,852) $ (37,331,892) ================ ================ ================ Basic net loss per common share: As reported $ (0.82) $ (1.43) $ (1.24) ================ ================ ================ Pro forma $ (1.50) $ (2.39) $ (2.68) ================ ================ ================
RECENT ACCOUNTING PRONOUNCEMENTS On December 16, 2004 the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123(R), Share-Based Payment (FAS 123(R)). FAS 123(R) revises FASB Statement No. 123, Accounting for Stock-Based Compensation (FAS 123) and requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. In addition to revising FAS 123, FAS 123(R) supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and amends FASB Statement No. 95, Statement of Cash Flows (FAS 95). The provisions of FAS 123(R) apply to awards that are 40 granted, modified, or settled at the beginning of the interim or annual reporting period that starts after June 15, 2005. The Company will adopt FAS 123(R) effective July 1, 2005 on a modified prospective basis without restatement of prior interim periods. The Company has determined that FAS 123(R) will have a substantial impact on the financial statements of the Company due to its requirement to expense the fair value of employee stock options and other forms of stock-based compensation in the Company's Consolidated Statement of Operations, thereby decreasing income and earnings per share. The Company is currently evaluating and considering the financial accounting, income tax, and internal control implications of FAS 123(R) and the effect that the adoption of this statement may have on its future compensation practices and its consolidated results of operations and financial position. RECLASSIFICATIONS Certain reclassifications have been made to the 2003 and 2002 consolidated financial statements in order to conform to the 2004 presentation. 5. INVESTMENTS At December 31, 2004 and 2003, short-term investments included investments classified as available-for-sale reported at their fair value based on quoted market prices of $1,363,571 and $3,008,427, respectively. For the years ended December 31, 2004, 2003, and 2002, the Company realized gains on the sale of investments of $0, $228,960 and $158,482, respectively. For the years ended December 31, 2004, 2003, and 2002, unrealized (losses) gains of $(32,173), $(279,123), and $159,510, respectively, were recognized in other comprehensive income. 6. INVENTORIES Inventories consisted of the following at December 31, 2004 and 2003: 2004 2003 ----------- ----------- Purchased materials $ 1,837,364 $ 1,869,542 Work in process 165,709 185,041 Finished goods 831,435 404,765 Spare parts and demonstration inventory 0 1,207,097 ----------- ----------- 2,834,508 3,666,445 Less allowance for inventory obsolescence (208,745) (1,189,460) ----------- ----------- $ 2,625,763 $ 2,476,985 =========== =========== In the fourth quarter of 2004, the Company reduced the carrying value of its inventories by $2,768,854 with the majority of the write-down relating to the reduction of work in process and finished goods inventories to net realizable value. The Company lowered the selling price on its current product line in November 2004. This price adjustment, along with the high carrying costs of initial production inventory, resulted in the carrying value of inventory exceeding the net realizable value of the inventory after deduction of direct selling expenses. This charge is included as a separate component of cost of goods sold. 7. INTEREST AND OTHER RECEIVABLES Interest and other receivables consisted of the following at December 31, 2004 and 2003: 41 2004 2003 ---------- ---------- Purchase price hold back receivable due from sale of video division assets $1,250,000 $ 0 Interest receivable 15,497 34,359 Other receivables 12,000 20,048 ---------- ---------- $1,277,497 $ 54,407 ========== ========== 8. PREPAID EXPENSES Prepaid expenses and other consisted of the following at December 31, 2004 and 2003: 2004 2003 ---------- ---------- Prepaid insurance $ 627,307 $ 942,999 Prepaid services 800,000 800,000 Other prepaid expenses 354,288 569,386 ---------- ---------- $1,781,595 $2,312,385 ========== ========== Prepaid services represent the current portion of consulting services prepaid with shares of the Company's common stock in April 2003 as discussed in Note 17. 9. PROPERTY AND EQUIPMENT, NET Property and equipment, at cost, consisted of the following at December 31, 2004 and 2003: 2004 2003 ------------ ------------ Manufacturing and office equipment $ 10,378,483 $ 12,727,865 Tools and dies 234,140 850,842 Leasehold improvements 735,932 748,976 Aircraft 340,000 340,000 Furniture and fixtures 592,237 592,237 ------------ ------------ 12,280,792 15,259,920 Less accumulated depreciation (8,907,898) (10,399,659) ------------ ------------ $ 3,372,894 $ 4,860,261 ============ ============ Depreciation expense related to property and equipment was $1,814,892, $1,974,126, and $1,999,111 in 2004, 2003, and 2002, respectively. Depreciation related to discontinued operations of $159,467, $426,782 and $494,229 in 2004, 2003 and 2002, respectively, is included in gain (loss) from discontinued operations. 10. OTHER ASSETS Other assets consisted of the following at December 31, 2004 and 2003: 42
2004 ---------------------------------------------- Gross Carrying Accumulated Amount Amortization Net Value ------------ ------------ ------------ Patents and copyrights $ 10,486,165 $ (2,462,477) $ 8,023,688 Prepaid licensing fees 2,405,000 (1,029,250) 1,375,750 Other intangible assets 841,140 (116,825) 724,315 Prepaid services, non current portion 200,000 0 200,000 Deposits and other 590,264 0 590,264 ------------ ------------ ------------ $ 14,522,569 $ (3,608,552) $ 10,914,017 ============ ============ ============
2003 ---------------------------------------------- Gross Carrying Accumulated Amount Amortization Net Value ------------ ------------ ------------ Patents and copyrights $ 10,787,826 $ (2,638,862) $ 8,148,964 Prepaid licensing fees 2,030,000 (415,333) 1,614,667 Other intangible assets 364,830 (364,830) 0 Prepaid services, non current portion 1,000,000 0 1,000,000 Deposits and other 549,990 0 549,990 ------------ ------------ ------------ $ 14,732,646 $ (3,419,025) $ 11,313,621 ============ ============ ============
The Company has pursued an aggressive schedule for filing and acquiring patents related to its wireless technologies. Patent costs represent legal and filing costs incurred to obtain patents and trademarks for product concepts and methodologies developed by the Company. Capitalized patent costs are being amortized over the estimated lives of the related patents, ranging from fifteen to twenty years. Prepaid services represent the long-term portion of consulting services paid with shares of the Company's common stock in April 2003 as discussed in Note 17. The current portion of prepaid services is included in prepaid expenses and other (Note 8). Prepaid licensing fees represent costs incurred to obtain licenses for use of certain technologies in future products. These fees include fees of $950,000 paid with shares of the Company's common stock in September 2003 as discussed in Note 17. Prepaid license fees are being amortized over their estimated economic lives, generally three to five years. Other intangible assets represent intellectual property acquired from others which are amortized over their estimated economic lives, generally three years. Amortization expense for the years ended December 31, 2004, 2003 and 2002 is as follows: 43
Amortization Expense ------------------------------------ Weighted average estimated life (in years) 2004 2003 2002 --------- ---------- ---------- ---------- Patents and copyrights 17 555,504 $ 657,842 $ 678,723 Prepaid licensing fees 4 613,917 295,166 120,167 Prepaid compensation 3 0 0 243,488 Non-compete 2 0 0 31,250 Other intangibles 3 116,825 25,341 121,608 ---------- ---------- ---------- Total amortization 11 $1,286,246 $ 978,349 $1,195,236 ========== ========== ==========
Amortization of prepaid compensation in 2002 represents compensation under employment agreements in connection with the acquisition of assets from Signal Technologies Inc. ("STI") in 2000. This prepaid compensation was amortized to expense over the term of the related employment agreements, or approximately three years. Amortization of non-compete assets in 2002 is also related to assets acquired from STI. Amortization related to discontinued operations of $65,637, $182,883 and $139,032 for 2004, 2003 and 2002, respectively is included in gain (loss) from discontinued operations. Future estimated amortization expense for other assets that have remaining unamortized amounts as of December 31, 2004 were as follows: 2005 $1,471,773 2006 1,392,461 2007 820,836 2008 533,532 2009 533,532 11. PURCHASE OF ASSETS On July 9, 2004, the Company entered into an asset purchase agreement with Consumerware Incorporated for the purchase of all the assets relating to the Aero 2000 cordless telephone. The purchase was concluded on July 15, 2004. The purchase price was approximately $1,050,000. A portion of the purchase price, equal to $100,000 was held in escrow as security for the indemnification obligations of Consumerware until November 2004, at which time it was paid in full. ParkerVision acquired all the intellectual property including designs, schematics and software related to the cordless phone valued at approximately $841,000 as well as high volume production tooling valued at approximately $159,000 and certain component inventory valued at approximately $50,000. The intellectual property is being amortized over a three-year period and is charged to expense in the statement of operations. The tooling purchased is being depreciated over a three-year period and is charged to expense in the statement of operations. 12. INCOME TAXES AND TAX STATUS The Company accounts for income taxes in accordance with SFAS No.109, "Accounting for Income Taxes." As a result of current losses and full deferred 44 tax valuation allowances for all periods, no current or deferred tax provision (benefit) was recorded for 2004, 2003, and 2002. A reconciliation between the provision for income taxes and the expected tax benefit using the federal statutory rate of 34% for the years ended December 31, 2004, 2003 and 2002 is as follows:
2004 2003 2002 ----------- ----------- ----------- Tax benefit at statutory rate $(5,036,945) $(7,382,964) $(5,872,419) State tax benefit (518,509) (760,011) (604,514) Increase in valuation allowance 6,382,942 8,330,346 7,062,479 Research and development credit (733,481) (319,560) (671,999) Other (94,007) 132,189 86,453 ----------- ----------- ----------- $ 0 $ 0 $ 0 =========== =========== ===========
The Company's deferred tax assets and liabilities relate to the following sources and differences between financial accounting and the tax bases of the Company's assets and liabilities at December 31, 2004 and 2003: 2004 2003 ------------ ------------ Gross deferred tax assets: Net operating loss carryforward $ 40,904,485 $ 37,220,093 Research and development credit 8,092,946 6,919,376 Inventories 1,355,883 609,572 Accrued liabilities 180,733 159,229 Patents and other 1,502,009 1,445,598 ------------ ------------ 52,036,056 46,353,868 Less valuation allowance (51,246,748) (44,863,806) ------------ ------------ 789,308 1,490,062 ------------ ------------ Gross deferred tax liabilities: Depreciation 261,532 425,405 Deferred revenue 152,776 389,657 Restricted stock issuance 375,000 675,000 ------------ ------------ 789,308 1,490,062 ------------ ------------ Net deferred tax asset $ 0 $ 0 ============ ============ The Company has recorded a valuation allowance to state its deferred tax assets at estimated net realizable value due to the uncertainty related to realization of these assets through future taxable income. The valuation allowance for deferred tax assets as of December 31, 2004 and 2003 was $51,246,748 and $44,863,806, respectively. At December 31, 2004, the Company had net operating loss and research and development tax credit carryforwards for income tax purposes of approximately $109,078,626 and $8,092,946, respectively, which expire in varying amounts from 2008 through 2024. The Company's ability to benefit from the net operating loss and research and development tax credit carryforwards could be limited under certain provisions of the Internal Revenue Code if ownership of the Company changes by more than 50%, as defined. To the extent that net operating loss carryforwards, if realized, relate to the portion associated with stock-based compensation, the resulting benefit will be credited to shareholders' equity, rather than results of operations. 45 13. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company's headquarters and manufacturing operations are located in Jacksonville, Florida, pursuant to a non-cancelable lease agreement with related parties (see Note 14). The lease is on a triple net basis and currently provides for a monthly base rental payment of $23,276 through February 2007, with an option for renewal. The Company leases office space in Lake Mary, Florida for a wireless design center. The lease term, as amended, commenced in September 2000 and provides for a monthly rental payment of approximately $32,100 through September 2005 and $9,140 from October 2005 through December 2005. The Company leases office space in Pleasanton, California under a non-cancelable lease agreement which commenced in March 2000 and provides for a monthly rental payment of approximately $13,700 through March 2005. The Company ceased its operations in Pleasanton at the end of 2001. Although the operations at this facility ceased in 2001, the Company has a remaining lease obligation through March 2005. For the year ended December 31, 2002, the remaining estimated future lease obligation for this facility in the amount of approximately $357,000 was charged to general and administrative expense in the 2002 Consolidated Statement of Operations. In January 2004, the Company entered into a sublease agreement for this facility that partially offset its remaining lease obligation. The Company leases a facility in Los Angeles, California that was previously utilized for video division training and sales demonstrations that has a lease term through May of 2005. Due to the sale of the video division, the remaining estimated future lease obligation for this facility of approximately $29,000 was charged to general and administrative expense in the 2004 Consolidated Statement of Operations in 2004. The Company leases approximately 800 square feet in Melbourne, Florida for a wireless design center. The lease term commenced in November 2003 and provides for a monthly base rental payment of approximately $1,200 through November 2005. In addition to sales tax payable on base rental amounts, certain leases obligate the Company to pay property taxes, maintenance and repair costs. Rent expense, net of sublease income, for the years ended December 31, 2004, 2003 and 2002 was $758,718, $882,454, and $1,403,075, respectively. Future minimum lease payments under all non-cancelable operating leases that have initial or remaining terms in excess of one year as of December 31, 2004 were as follows: 2005 $634,000 2006 279,000 2007 47,000 --------- $960,000 ========= PURCHASE COMMITMENTS At December 31, 2004 the Company had recorded an accrual for a purchase commitment of $194,000 related to its net realizable value write down of inventory (Note 6). The Company has additional purchase commitments with four suppliers totaling approximately $302,000 for the purchase of materials through December 2005. These commitments represent non-cancelable blanket purchase orders for long lead time or single source components. The Company had no outstanding purchase commitments at December 31, 2003. 46 For the year ended December 31, 2004, three suppliers of significant components, Zyxel Communications, Texas Instruments and Arrow Electronics, accounted for approximately 13%, 11% and 10% of the Company's total component purchases, respectively. Prior to 2004, the Company's significant suppliers were suppliers of components related to its discontinued operations. For the year ended December 31, 2003, three suppliers of significant components, Panasonic, Canon USA, Inc. and Snell and Wilcox accounted for approximately 15%, 14% and 12% of the Company's total component purchases, respectively. For the year ended December 31, 2002, four suppliers of significant components of the Company's PVTV system, Leitch Incorporated, Panasonic, Snell and Wilcox, and Television Equipment Association accounted for approximately 12%, 12%, 14% and 12% of the Company's total component purchases, respectively. No other supplier accounted for more than 10% of the Company's component purchases in 2004, 2003 or 2002. LEGAL PROCEEDINGS The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. The Company believes, based upon advice from outside legal counsel, that the final disposition of such matters will not have a material adverse effect on its financial position, results of operations or liquidity. 14. RELATED-PARTY TRANSACTIONS The Company leases its manufacturing and headquarters office facilities from the Chairman and Chief Executive Officer of the Company and Barbara Parker, a related party. The lease's current terms obligate the Company through February 28, 2007 at a monthly base rental payment of $23,276, with an option for renewal. The Company paid approximately $1,801,000 in 2002 for patent-related legal services to a law firm, of which Robert Sterne, a Company director during 2002, is a partner. The Company paid Todd Parker, a director and related party, approximately $75,000 for consulting services in 2002. In March 2003, the Company sold 495,050 shares of its common stock in a private placement transaction to members of the Parker family, including CEO Jeffrey Parker, at a market price of $5.05 per share. 15. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and accounts receivable. At December 31, 2004, the Company had cash balances on deposit with banks that exceeded the balance insured by the F.D.I.C. The Company maintains its cash investments with what management believes to be quality financial institutions and limits the amount of credit exposure to any one institution. For the year ended December 31, 2004, one credit customer, TigerDirect.com accounted for approximately 18% of the Company's total net revenues. Thomson accounted for 77% of accounts receivable at December 31, 2004. The Company closely monitors extensions of credit and has never experienced significant credit losses. 47 16. STOCK OPTIONS, WARRANTS AND STOCK-BASED COMPENSATION PLANS: 1993 STOCK PLAN The Company adopted a stock plan in September 1993 (the "1993 Plan"). The 1993 Plan, as amended, provided for the grant of options and other Company stock awards to employees, directors and consultants, not to exceed 3,500,000 shares of common stock. The plan provided for benefits in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted share awards, bargain purchases of common stock, bonuses of common stock and various stock benefits or cash. Options granted to employees and consultants under the 1993 Plan vest for periods up to ten years and are exercisable for a period of five years from the date the options vest. Options granted to directors under the 1993 Plan are exercisable immediately and expire ten years from the date of grant. As of September 10, 2003, the Company was no longer able to issue grants under the 1993 Plan. 2000 PERFORMANCE EQUITY PLAN The Company adopted a performance equity plan in July 2000 (the "2000 Plan"). The 2000 Plan provides for the grant of options and other Company stock awards to employees, directors and consultants, not to exceed 5,000,000 shares of common stock. The plan provides for benefits in the form of incentive stock options, nonqualified stock options, and stock appreciation rights, restricted share awards, stock bonuses and various stock benefits or cash. Options granted to employees and consultants under the 2000 Plan generally vest for periods up to five years and are exercisable for a period of five years from the date the options become vested. Options granted to directors under the 2000 Plan are generally exercisable immediately and expire ten years from the date of grant. Options to purchase 1,420,370 shares of common stock were available for future grants under the 2000 Plan at December 31, 2004. The following table summarizes option activity in aggregate under the 1993 and 2000 Plans for each of the years ended December 31:
2004 2003 2002 ------------------------ ------------------------ ------------------------ Wtd. Avg. Wtd. Avg. Wtd. Avg. Shares Ex. Price Shares Ex. Price Shares Ex. Price ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at beginning of year 5,545,366 $ 22.13 4,534,224 $ 25.98 3,761,573 $ 27.90 Granted 685,750 5.36 1,243,800 8.05 846,701 17.00 Exercised 0 (16,100) 6.21 (32,600) 12.29 Forfeited (752,560) 13.28 (203,598) 23.39 (41,450) 28.96 Expired (115,354) 20.73 (12,960) 18.62 0 0.00 ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at end of year 5,363,202 $ 21.24 5,545,366 $ 22.13 4,534,224 $ 25.98 ========== ========== ========== ========== ========== ========== Exercisable at end of year 4,132,817 $ 23.40 3,623,958 $ 23.83 2,709,330 $ 24.68 ========== ========== ========== ========== ========== ========== Weighted average fair value of options granted $ 3.87 $ 3.97 $ 10.05 ========== ========== ==========
48 NON-PLAN OPTIONS/WARRANTS The Company has granted options and warrants outside the 1993 and 2000 Plans for employment inducements, non-employee consulting services, and for underwriting and other services in connection with securities offerings. Non-plan options and warrants are generally granted with exercise prices equal to fair market value at the date of grant. The following table summarizes activity related to non-plan options and warrants for each of the years ended December 31:
2004 2003 2002 ---------------------------- ---------------------------- ---------------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Shares Ex. Price Shares Ex. Price Shares Ex. Price ------------ ------------ ------------ ------------ ------------ ------------ Outstanding at beginning of year 1,462,401 $ 39.62 1,984,026 $ 34.56 2,004,026 $ 34.26 Granted 0 0 0 Exercised 0 0 (20,000) 5.00 Forfeited 0 (476,625) 21.38 0 Expired (205,000) $ 22.04 (45,000) 9.58 0 ------------ ------------ ------------ ------------ ------------ ------------ Outstanding end of Year 1,257,401 $ 42.49 1,462,401 $ 39.62 1,984,026 $ 34.56 ============ ============ ============ ============ ============ ============ Exercisable at end of year 1,257,401 $ 42.49 1,439,901 $ 39.88 1,749,098 $ 36.28 ============ ============ ============ ============ ============ ============ Weighted average fair value of options granted N/A N/A N/A ============ ============ ============
The options outstanding at December 31, 2004 under all plans, including the non-plan options and warrants, have exercise price ranges and weighted average contractual lives as follows:
Options Outstanding Options Exercisable ------------------------------------------------------ ---------------------------------- Number Wtd. Avg. Number Range of Exercise Outstanding at Remaining Wtd. Avg. Exercisable at Wtd. Avg. Prices December Contractual Exercise December 31, Exercise 31, 2004 Life Price 2004 Price - ----------------------- ----------------- -------------- -------------- ---------------- ------------- $3.99-$5.82 568,650 10 years $4.94 6,650 $5.09 $6.00-$9.00 976,650 7 years $7.91 693,500 $7.84 $9.06-$13.05 297,750 3 years $11.53 282,500 $11.58 $13.64-$20.39 1,148,601 4 years $16.92 1,082,201 $16.92 $20.47-$29.96 1,441,218 5 years $24.76 1,296,216 $25.09 $31.00-$44.75 1,308,259 6 years $37.85 1,281,759 $37.82 $48.00-$61.50 879,475 7 years $55.52 747,392 $56.30 ----------------- ---------------- 6,620,603 5,390,218 ================= ================
The fair value of each employee option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2003, 2002 and 2001: 49
2004 2003 2002 ------------------- --------------------- --------------------- Expected volatility 77%-79% 74%-78% 48%-71% Risk free interest rate 2.99%-4.80% 1.30%-3.25% 2.74%-5.29% Expected life 5-10 years 5-10 years 5-11 years Dividend yield -- -- --
17. STOCK AUTHORIZATION AND ISSUANCE PREFERRED STOCK In March 2000, the Company issued 79,868 shares of Series D Preferred Stock, $1 par value, $25 stated value, for the acquisition of substantially all of the assets of STI. The Company also issued an aggregate of 34,151 shares of Series A, B, and C Preferred Stock, $1 par value, $25 stated value as signing bonuses and compensation under employment contracts for certain employees of STI. The preferred stock was converted into approximately 73,000, 16,600 and 86,000 shares of common stock in March 2003, 2002 and 2001, respectively. As of December 31, 2004 the Company has no outstanding preferred stock. COMMON STOCK On May 14, 2004 the Company issued 46,820 shares of restricted common stock, valued at approximately $206,000, under the terms of the 2000 Performance Equity Plan to former employees as part of the severance package pertaining to the discontinued operations (Note 3). On November 14, 2003, ParkerVision consummated the sale of an aggregate of 2,310,714 shares of common stock in a private placement to a limited number of institutional and other investors in a private placement pursuant to offering exemptions under the Securities Act of 1933. These shares were subsequently registered for resale under an S-3 registration statement. These shares were sold at a price of $8.75 per share for gross proceeds of $20,218,747. ParkerVision engaged Wells Fargo Securities LLC as placement agent pursuant to an agreement dated October 23, 2003, under which it paid an aggregate of $1,243,124 in fees and expenses in connection with the offering. On September 3, 2003, the Company entered into a license agreement with SkyCross, Inc. ("SkyCross") for certain antenna technology to be utilized in current and future products for the Company's wireless division. In consideration for the license, the Company issued 138,158 shares of restricted common stock with an aggregate value of $950,000 or $6.88 per share. These shares were subsequently registered for resale by SkyCross under an S-3 registration statement. On April 28, 2003, the Company entered into a written agreement with a corporate third party to conceive and develop new business opportunities for the Company. In consideration of the services to be rendered over a three-year term, the Company issued 250,000 shares of restricted common stock, under the terms of the 2000 Performance Equity Plan with an aggregate value of approximately $2,400,000, or $9.60 per share. These shares were subsequently registered for resale under an S-3 registration statement. The shares are fully vested and non-forfeitable, and they are subject to a sales limitation of a maximum of 83,334 shares per year. The $2,400,000 was capitalized as prepaid services and is being amortized to expense over the three-year term of the related agreement (Notes 8 and 10). On March 26, 2003, the Company received $5,078,200 from the sale of an aggregate of 1,154,437 shares of its common stock in private placement transactions pursuant to Section 4(2) of the Securities Act of 1933, as amended. These shares 50 were subsequently registered for resale under an S-3 registration statement. Leucadia National Corporation and another third party purchased 659,387 shares of common stock at a price of $3.91 per share. The Parker family, including CEO Jeffrey Parker, purchased 495,050 shares of common stock at the market price of $5.05 per share. 18. QUARTERLY FINANCIAL DATA (UNAUDITED) The quarterly financial data presented below has been reclassified to reflect discontinued operations. (in thousands except for per share data)
For the year For the three months ended ended ------------------------------------------------------------ March 31, June 30, September 30, December 31, December 31, 2004 2004 2004 2004 2004 ------------ ------------ ------------ ------------ ------------ Revenues $ 296 $ 64 $ 62 $ 19 $ 441 Gross margin 248 (17) (21) (3064) (2854) Net loss from continuing operations (3,973) (3,921) (5,007) (9,687) (22,588) Gain (loss) from discontinued operations (1,390) 9,179 (81) 65 7,773 ------------ ------------ ------------ ------------ ------------ Net income (loss) $ (5,363) $ 5,258 $ (5,088) $ (9,622) $ (14,815) ============ ============ ============ ============ ============ Basic and diluted net loss per common share: Continuing operations $ (0.22) $ (0.22) $ (0.28) $ (0.53) $ (1.25) Discontinued operations (0.08) 0.51 0.00 0.00 0.43 ------------ ------------ ------------ ------------ ------------ Total $ (0.30) $ 0.29 $ (0.28) $ (0.53) $ (0.82) ============ ============ ============ ============ ============
For the year For the three months ended ended ------------------------------------------------------------ March 31, June 30, September 30, December 31, December 31, 2003 2003 2003 2003 2003 ------------ ------------ ------------ ------------ ------------ Revenues $ 0 $ 0 $ 0 $ 23 $ 23 Gross margin 0 0 0 (7) (7) Net loss from continuing operations (4,733) (4,255) (4,792) (4,855) (18,635) Loss from discontinued operations (825) (794) (835) (926) (3,380) ------------ ------------ ------------ ------------ ------------ Net loss $ (5,558) $ (5,049) $ (5,627) $ (5,781) $ (22,015) ============ ============ ============ ============ ============ Basic and diluted net loss per common share: Continuing operations $ (0.33) $ (0.28) $ (0.31) $ (0.29) $ (1.21) Discontinued operations (0.06) (0.05) (0.05) (0.06) (0.22) ------------ ------------ ------------ ------------ ------------ Total $ (0.39) $ (0.33) $ (0.36) $ (0.35) $ (1.43) ============ ============ ============ ============ ============
Gross margin for the fourth quarter of 2004 reflects a $2.8 million write down of inventory to net realizable value as further discussed in Note 6. 51 19. SUBSEQUENT EVENT On March 14, 2005, ParkerVision consummated the sale of an aggregate of 2,880,000 shares of common stock to a limited number of institutional and other investors in a private placement transaction pursuant to offering exemptions under the Securities Act of 1933. The shares, which represent 14% of the Company's outstanding common stock on an after-issued basis, were sold at a price of $7.50 per share, for net proceeds of approximately $20.3 million. Warrants to purchase an additional 720,000 shares of common stock were issued in connection with the transaction for no additional consideration. The warrants are immediately exercisable at an exercise price of $9.00 per share and expire on March 10, 2010. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiary is made known to the officers who certify the Company's financial reports and to other members of senior management and the Board of Directors. Based on their evaluation as of December 31, 2004, the chief executive officer and chief financial officer of the Company have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Management's Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria established in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2004. Our management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein. 52 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the caption "Election of Directors" in the Company's definitive Proxy Statement for its 2005 Annual Meeting of Stockholders, which will be filed with the Commission pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as amended, (the "2005 Proxy Statement"), is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained under the caption "Election of Directors - Executive Compensation" in the 2005 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity Compensation Plan Information The following table gives the information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2004, including the 1993 Stock Plan, the 2000 Performance Equity Plan and other miscellaneous plans.
Number of securities remaining available for Number of securities future issuance under to be issued upon Weighted-average equity compensation exercise of exercise price of plans (excluding outstanding options, outstanding options, securities reflected in Plan Category warrants and rights warrants and rights column (a)) ------------- ------------------- -------------------- -------------------------- ( a ) ( b ) ( c ) Equity compensation plans approved by security holders 5,363,202 $22.13 1,420,370 Equity compensation plans not approved by security holders 115,000 $23.25 None ----------------------- -------------------------- Total 5,478,202 1,420,370 ======================= ==========================
The equity compensation plans reported upon in the above table not approved by security holders include: i) Options to purchase an aggregate of 25,000 shares granted to two directors in March 1999 at exercise prices of $23.25 per share. These options were immediately vested and expire in March 2009. ii) Options to purchase 100,000 shares granted to an employee in March 1999 at an exercise price of $23.25. These options vest ratably over five years and expire in May 2009. As of December 31, 2004, options to purchase 90,000 shares were outstanding. 53 The information contained under the caption "Security Ownership of Certain Beneficial Owners" in the 2005 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the caption "Election of Directors - Certain Relationships and Related Transactions" in the 2005 Proxy Statement is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information contained under the caption "Election of Directors - Audit Committee Information and Report" in the 2005 Proxy Statement is incorporated herein by reference. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) EXHIBITS Exhibit Number Description ------- ------------------------------------------------------------------- 3.1 Articles of Incorporation, as amended (incorporated by reference from Exhibit 3.1 of Registration Statement No. 33-70588-A) 3.2 Amendment to Amended Articles of Incorporation dated March 6, 2000 (incorporated by reference from Exhibit 3.2 of Annual Report on Form 10-K for the year ended December 31, 1999) 3.3 Bylaws, as amended (incorporated by reference from Exhibit 3.2 of Annual Report on Form 10-K for the year ended December 31, 1998) 3.4 Amendment to Certificate of Incorporation dated July 17, 2000 (incorporated by reference from Exhibit 3.1 of Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 4.1 Form of common stock certificate (incorporated by reference from Exhibit 4.1 of Registration Statement No. 33-70588-A) 4.2 Purchase Option between the Registrant and Tyco Sigma Ltd. dated May 22, 2000 (incorporated by reference from Exhibit 4.1 of Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 4.3 Purchase Option between the Registrant and Leucadia National Corporation dated May 22, 2000 (incorporated by reference from Exhibit 4.2 of Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 4.4 Purchase Option between the Registrant and David M. Cumming dated May 22, 2000 (incorporated by reference from Exhibit 4.3 of Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 54 4.5 Purchase Option between the Registrant and Peconic Fund Ltd. dated May 22, 2000 (incorporated by reference from Exhibit 4.4 of Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 4.6 Purchase Option between the Registrant and Texas Instruments, Inc. dated March 8, 2001(incorporated by reference from exhibit 4.7 of Annual Report on Form 10-K for the year ended December 31, 2000) 4.7 Form of Warrant between the Registrant and each of the investors in the March 2005 private placement who are the Selling Shareholders * 10.1 Lease dated March 1, 1992 between the Registrant and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way, Jacksonville, Florida (incorporated by reference from Exhibit 10.1 of Registration Statement No. 33-70588-A) 10.2 1993 Stock Plan, as amended (incorporated by reference from the Company's Proxy Statement dated October 1, 1996) 10.3 Stock option agreement dated October 11, 1993 between the Registrant and Jeffrey Parker (incorporated by reference from Exhibit 10.13 of Registration Statement No.33-70588-A) 10.4 First amendment to lease dated March 1, 1992 between the Registrant and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way, Jacksonville, Florida (incorporated by reference from Exhibit 10.21 of Annual Report on Form 10-KSB for the year ended December 31, 1995) 10.5 Second amendment to lease dated March 1, 1992 between the Registrant and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way, Jacksonville, Florida (incorporated by reference from Exhibit 10.1 of Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 1996) 10.6 Third amendment to lease dated March 1, 1992 between the Registrant and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way, Jacksonville, Florida (incorporated by reference from Exhibit 10.19 of Annual Report on Form 10-KSB for the period ended December 31, 1996) 10.7 Fourth amendment to lease dated March 1, 1992 between the Registrant and Jeffrey Parker and Barbara Parker for 8493 Baymeadows Way, Jacksonville, Florida (incorporated by reference from Exhibit 10.8 of the Annual Report on Form 10-K for the period ended December 31, 2001) 10.8 Subscription agreement between the Registrant and Tyco Sigma Ltd dated May 22, 2000 (incorporated by reference from Exhibit 10.1 of Quarterly Report on Form 10-Q for the period ended June 30, 2000) 10.10 Subscription agreement between the Registrant and Leucadia National Corporation dated May 22, 2000 (incorporated by reference from 55 Exhibit 10.2 of Quarterly Report on Form 10-Q for the period ended June 30, 2000) 10.11 Transfer and registration rights agreement between the Registrant and Peconic Fund Ltd. dated May 22, 2000 (incorporated by reference from Exhibit 10.3 of Quarterly Report on Form 10-Q for the period ended June 30, 2000) 10.12 Subscription agreement between the Registrant and Texas Instruments, Inc. dated March 8, 2001 (incorporated by reference fro the Exhibit 10.16 of the Annual Report on Form 10-K for the period ended December 31, 2000) 10.13 Employment agreement dated September 7, 2000 between Jeffrey Parker and Registrant (incorporated by reference from Exhibit 10.1 of Quarterly Report on Form 10-Q for the period ended June 30. 2001) 10.14 Stock option agreement dated September 7, 2000 between Jeffrey Parker and Registrant (incorporated by reference from Exhibit 10.2 of Quarterly Report on Form 10-Q for the period ended June 30. 2001) 10.15 Stock option agreement dated September 7, 2000 between Jeffrey Parker and Registrant (incorporated by reference from Exhibit 10.3 of Quarterly Report on Form 10-Q for the period ended June 30. 2001) 10.16 Employment agreement dated March 6, 2002 between David Sorrells and Registrant (incorporated by reference from Exhibit 10.21 of Annual Report on Form 10-K for the period ended December 31, 2001) 10.17 2000 Performance Equity Plan (incorporated by reference from Exhibit 10.11 of Registration Statement No. 333-43452) 10.18 Development and Foundry Agreement between Registrant and Texas Instruments dated March 8, 2001 (incorporated by reference from Exhibit 10.3 of Registration Statement No. 333-110712) 10.19 Form of 2002 Indemnification Agreement for Directors and Officers (incorporated by reference from Exhibit 10.1 of Quarterly Report on Form 10-Q for the period ended September 30, 2002) 10.20 Subscription agreement between the Registrant and Leucadia National Corporation dated March 26, 2003 (incorporated by reference from Exhibit 10.24 of Annual Report on Form 10-K for the period ended December 31, 2002) 10.21 Subscription agreement between the Registrant and Jeffrey Parker dated March 26, 2003 (incorporated by reference from Exhibit 10.25 of Annual Report on Form 10-K for the period ended December 31, 2002) 10.22 Subscription agreement between the Registrant and Barbara Parker dated March 26, 2003 (incorporated by reference from Exhibit 10.26 of Annual Report on Form 10-K for the period ended December 31, 2002) 56 10.23 Subscription agreement between the Registrant and Todd Parker dated March 26, 2003 (incorporated by reference from Exhibit 10.27 of Annual Report on Form 10-K for the period ended December 31, 2002) 10.24 Subscription agreement between the Registrant and Stacie Wilf dated March 26, 2003 (incorporated by reference from Exhibit 10.28 of Annual Report on Form 10-K for the period ended December 31, 2002) 10.25 Subscription agreement between the Registrant and David Cumming dated March 26, 2003 (incorporated by reference from Exhibit 10.29 of Annual Report on Form 10-K for the period ended December 31, 2002) 10.26 Form of SkyCross, Inc. License Agreement dated September 3, 2003 (incorporated by reference from Exhibit 10.1 of Registration Statement No. 333-108954) 10.27 Form of Stock Purchase Agreement with each of the investors in the November 2003 private placement who are the Selling Stockholders (incorporate by reference from Exhibit 10.1 of Registration Statement No. 333-110712) 10.28 Asset Purchase Agreement and related ancillary agreements, dated as of February 25, 2004, among the Company, Thomson and Thomson Licensing (incorporated by reference from Exhibits 2.1, 10.1, 10.2, 10.3, 10.4, 10.4 and 10.6 of Current Report on Form 8-K for the event date of February 25, 2004) 10.29 Form of Stock Purchase Agreement with each of the investors in the March 2005 private placement who are the Selling Stockholders * 10.30 List of investors for Subscription Agreement and Warrant dated March 10, 2005* 22.1 Table of Subsidiaries* 23.1 Consent of PricewaterhouseCoopers LLP* 31.1 Rule 13a-14 and 15d-14 Certification of Jeffrey Parker* 31.2 Rule 13a-14 and 15d-14 Certification of Cynthia Poehlman* 32.1 Section 1350 Certification of Jeffrey Parker and Cynthia Poehlman* * Filed herewith (B) REPORTS ON FORM 8-K. 1. Form 8-K, dated November 19, 2004. Item 5.02 - Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. Report of retirement of William Hightower, President of ParkerVision, Inc. 57 SIGNATURES In accordance with Section 13 of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PARKERVISION, INC. Date: March 15, 2005 By: /s/ Jeffrey L. Parker --------------------- Jeffrey L. Parker Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- By: /s/ Jeffrey L. Parker Chief Executive Officer and Chairman March 15, 2005 --------------------- of the Board (Principal Executive Officer) Jeffrey L. Parker By: /s/ Todd Parker Vice President and Director March 15, 2005 --------------- Todd Parker By: /s/ Cynthia L. Poehlman Chief Financial Officer (Principal Accounting March 15, 2005 ----------------------- Officer) Cynthia L. Poehlman By: /s/ David F. Sorrells Chief Technical Officer and Director March 15, 2005 --------------------- David F. Sorrells By: /s/ Stacie Wilf Secretary and Treasurer March 15, 2005 --------------- Stacie Wilf By: /s/ William A. Hightower Director March 15, 2005 ------------------------ William A. Hightower By: /s/ Richard A. Kashnow Director March 15, 2005 ----------------------- Richard A. Kashnow By: /s/ John Metcalf Director March 15, 2005 ---------------- John Metcalf By: /s/ William L. Sammons Director March 15, 2005 ---------------------- William L. Sammons By: Director March 15, 2005 ---------------------- Nam P. Suh By: /s/ Papken der Torossian Director March 15, 2005 ------------------------- Papken der Torossian
58 PARKERVISION, INC. AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II
Valuation Allowance for Balance at Provision Balance at Inventory Beginning Charged to End of Obsolescence of Period Expense Write-Offs Period - ---------------------------- ------------- ----------- ------------ ------------- Year ended December 31, 2002 $ 979,570 $ 521,573 $ (668,841) $ 832,302 Year ended December 31, 2003 832,302 401,271 (44,113) 1,189,460 Year ended December 31, 2004 1,189,460 320,533 (1,301,248) 208,745 The inventory provision charged to expense includes charges related to discontinued operations of $521,573, $401,271 and $100,000 for the years end December 31, 2002, 2003 and 2004, respectively.
Balance at Beginning of Balance at End Valuation Allowance for Income Taxes Period Provision Write-Offs of Period - --------------------------------------- ----------------- ---------------- ------------ ---------------- Year ended December 31, 2002 $29,470,980 $7,062,479 $0 $36,533,459 Year ended December 31, 2003 36,533,459 8,330,347 0 44,863,806 Year ended December 31, 2004 44,863,806 6,382,942 0 51,246,748
59 Index to Exhibits 4.7 Form of Warrant between the Registrant and each of the investors in the March 2005 private placement who are the Selling Shareholders 10.29 Form of Stock Purchase Agreement with each of the investors in the March 2005 private placement who are the Selling Stockholders 10.30 List of investors for Subscription Agreement and Warrant dated March 10, 2005 22.1 Table of Subsidiaries 23.1 Consent of PricewaterhouseCoopers LLP 31.1 Rule 13a-14 and 15d-14 Certification of Jeffrey Parker 31.2 Rule 13a-14 and 15d-14 Certification of Cynthia Poehlman 32.1 Section 1350 Certification of Jeffrey Parker and Cynthia Poehlman 60
EX-4.7 2 v014332_ex4-7.txt EXHIBIT 4.7 THE SECURITIES EVIDENCED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. WARRANT TO PURCHASE COMMON STOCK OF PARKERVISION, INC. (void after March 10, 2010) No. W-<> THIS CERTIFIES THAT, for value received, <> or registered assigns (the "Holder"), subject to the terms and conditions herein set forth, is entitled to purchase from ParkerVision, Inc., a Florida corporation (the "Company"), at any time before 5:00 p.m. New York City time on March 10, 2010 (the "Termination Date"), <> (<>) shares (the "Warrant Shares") of the Company's common stock, $.01 par value per share (the "Common Stock"), at a price per share equal to the Warrant Price (as defined below) upon exercise of this Warrant pursuant to Section 5 hereof. The number of Warrant Shares is subject to adjustment under Section 2. 1. Definitions. As used in this Warrant, the following terms have the definitions ascribed to them below: (a) "Business Day" means any day other than a Saturday, Sunday or a day on which commercial banks in The City of New York, New York are authorized or required by law or executive order to remain closed. (b) "Issuance Date" means March 10, 2005. (c) "Offering Warrants" shall have the meaning ascribed to the term in Section 9. (d) "Optional Redemption Date" means, with respect to the redemption of this Warrant pursuant to Section 6, the Business Day, selected by the Company in accordance with Section 6, on which this Warrant is to be redeemed. (e) "Optional Redemption Period" means the period that commences on March 10, 2007 and ends on March 10, 2010. (f) "Optional Redemption Price" means $0.01. (g) "Other Purchase Agreements" means the several Purchase Agreements, dated as of March 10, 2005, by and between the Company and the respective initial holders of the Other Warrants. (h) "Other Warrants" means the several Warrants to purchase Common Stock of the Company issued by the Company pursuant to the Other Purchase Agreements, or any such Warrant issued upon transfer thereof or in replacement of any such Warrant that is lost, stolen, destroyed or mutilated, as the same may be amended or supplemented in accordance with the terms hereof and thereof. (i) "Person" means any individual, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. (j) "Principal Market" means at any time Nasdaq or such other U.S. market or exchange which is the principal market on which the Common Stock is then listed for trading. (k) "Purchase Agreement" means that certain Stock and Warrant Purchase Agreement dated as of March 10, 2005 between the Company and the initial Holder of this Warrant. (l) "Registration Period" shall have the meaning ascribed to such term in Section 7.1(c) of the Purchase Agreement. (m) "Trading Day" means at any time a day on which the Principal Market is open for the general trading of securities. (n) "VWAP" of any security on any Trading Day means the volume-weighted average price of such security on such Trading Day on the Principal Market, as reported by Bloomberg Financial, L.P., based on a Trading Day from 9:30 a.m., Eastern Time, to 4:00 p.m., Eastern Time, using the AQR Function, for such Trading Day. (o) "Warrant Price" means $9.00 per share subject to adjustment under Section 2. 2. Adjustments and Notices. The Warrant Price and/or the Warrant Shares shall be subject to adjustment from time to time in accordance with this Section 2. The Warrant Price and/or the Warrant Shares shall be adjusted to reflect all of the following events that occur on or after the Issuance Date. (a) Subdivision, Stock Dividends or Combinations. In case the Company shall at any time subdivide the outstanding shares of the Common Stock or shall issue a stock dividend with respect to the Common Stock, the Warrant Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and the number of Warrant Shares for which this Warrant may be exercised immediately prior to such subdivision or the issuance of such dividend shall be proportionately increased. In case the Company shall at any time combine the outstanding shares of the Common Stock, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, and the number of Warrant Shares for which this Warrant may be exercised immediately prior to such combination shall be proportionately decreased. In each of the foregoing cases, the adjustment shall be effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. -2- (b) Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, the Holder shall be entitled to receive, upon exercise of this Warrant, the number and kind of securities that Holder would have received if this Warrant had been exercised immediately before the record date for such reclassification, exchange, substitution, or other event. The Company or its successor shall promptly issue to Holder a new warrant for such new securities. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 2 including, without limitation, adjustments to the Warrant Price and to the number of securities issuable upon exercise or conversion of the new warrant. The provisions of this Section 2(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. (c) Reorganization, Merger etc. In case of any merger or consolidation of the Company into or with another corporation where the Company is not the surviving corporation, or sale, transfer or lease (but not including a transfer or lease by pledge or mortgage to a bona fide lender) of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition to closing any such reorganization, merger or sale, duly execute and deliver to the Holder hereof a new warrant so that the Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise or conversion of the unexercised portion of this Warrant, and in lieu of the Warrant Shares theretofore issuable upon exercise or conversion of this Warrant, the kind and amount of shares of stock, other securities, money and property that would have been receivable upon such reorganization, merger or sale by the Holder with respect to the Warrant Shares if this Warrant had been exercised immediately before the consummation of such transaction. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 2. The provisions of this subparagraph (c) shall similarly apply to successive transactions of the type described in this subparagraph (c). (d) Certificate of Adjustment. In each case of an adjustment or readjustment of the Warrant Price, the Company, at its own expense, shall cause its Principal Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to the Holder. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based. No adjustment of the Warrant Price shall be required to be made unless it would result in an increase or decrease of at least one cent, but any adjustments not made because of this sentence shall be carried forward and taken into account in any subsequent adjustment otherwise required hereunder. (e) No Impairment. The Company shall not, by amendment of its charter, by-laws or other organizational documents, or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall subject to Section 10 at all times in good faith assist in carrying out all of the provisions of this Section 2 and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Section 2 against impairment. -3- (f) Fractional Shares. No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of shares to be issued shall be rounded down to the nearest whole share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying the Holder an amount computed by multiplying the fractional interest by the fair market value of a full share. 3. No Shareholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle the Holder to any of the rights of a shareholder of the Company. 4. Reservation of Stock. The Company will reserve from its authorized and unissued stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares issuable upon the exercise of this Warrant. 5. Exercise of Warrant. (a) This Warrant may be exercised by the Holder hereof, in whole or in part, at any time prior to the termination of this Warrant, at the election of the Holder hereof (with the notice of exercise substantially in the form attached hereto as Attachment 1 duly completed and executed), by the surrender of this Warrant at the principal office of the Company or transfer agent and the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company of an amount equal to the then applicable Warrant Price multiplied by the number of Warrant Shares then being purchased. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Warrant Shares issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full Warrant Shares issuable upon such exercise. (b) Notwithstanding anything to the contrary contained in Section 5(a), if the Holder elects to exercise this Warrant during the Registration Period and at a time when a Registration Statement covering the resale by the Holder of shares of Common Stock issuable upon the exercise of this Warrant is not effective or available for use by the Holder, the Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election substantially in the form attached hereto as Attachment 1 duly completed and executed (a "Net Exercise"). The Company shall issue to a Holder who Net Exercises a number of Warrant Shares computed using the following formula: Y (A - B) --------- X = A -4- Where X = The number of Warrant Shares to be issued to the Holder. Y = The number of Warrant Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation). A = The fair market value of one (1) Warrant Share (at the date of such calculation). B = The Warrant Price (as adjusted to the date of such calculation). For purposes of this Section 5, the fair market value of a Warrant Share shall mean: (i) If traded on a securities exchange, the Nasdaq National Market or Nasdaq SmallCap Market, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange or market over the five trading days immediately prior to the Determination Date; (ii) If traded on the Nasdaq Stock Market (other than the Nasdaq National Market or Nasdaq SmallCap Market) or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date; and (iii) If there is no public market for the Common Stock, the fair market value shall be the price per Warrant Share that the Company could obtain from a willing buyer for Warrant Shares sold by the Company from authorized but unissued Warrant Shares, as such prices shall be determined in good faith by the Company's Board of Directors. In the event that this Warrant is exercised pursuant to this Section 5 in connection with the consummation of the Company's sale of its Common Stock or other securities pursuant to a registration statement under the Securities Act of 1933, as amended (other than a registration statement relating either to sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a Rule 145 transaction) (a "Public Offering"), the fair market value per Warrant Share shall be the per share offering price to the public of the Public Offering. 6. Optional Redemption. (a) Optional Redemption. At any time during the Optional Redemption Period, the Company shall have the right on one occasion only to redeem this Warrant in whole or in part as provided herein by payment of the Optional Redemption Price pursuant to this Section 6 on the Optional Redemption Date, so long as the following conditions precedent are satisfied: -5- (i) a Registration Statement covering the resale by the Holder of shares of Common Stock issuable upon the exercise of this Warrant is effective and available for use by the Holder; (ii) on at least 15 Trading Days in the period of 20 consecutive Trading Days ending on and including a Trading Day that is not more than five Trading Days prior to the date the Company gives the Optional Redemption Notice, the VWAP of the Common Stock shall have been at least 200 percent of the Warrant Price in effect on such Trading Day; and (iii) on the date the Optional Redemption Notice is given, the Company has funds available to pay the Optional Redemption Price on the Optional Redemption Date, (b) Procedures for Exercising Optional Redemption. In order to exercise its right of redemption under this Section 6, the Company shall give an Optional Redemption Notice to the Holder not less than ten Trading Days or more than twenty Trading Days prior to the Optional Redemption Date, stating that: (i) the Company is exercising its right to redeem this Warrant in accordance with this Section 6; (ii) the number of shares of Common Stock subject to this Warrant to be redeemed; (iii) the amount of the Optional Redemption Price payable on the Optional Redemption Date; (iv) the Optional Redemption Date; (v) that all of the conditions of this Section 6 entitling the Company to call this Warrant for redemption have been met. On the Optional Redemption Date (or such later date as the Holder surrenders this Warrant to the Company) the Company shall pay to or upon the order of the Holder, by wire transfer of immediately available funds to such account as shall be specified for such purpose by the Holder. (c) The Company shall not be entitled to give the OptionalRedemption Notice or to redeem any portion of this Warrant with respect to which the Holder has given a Notice of Exercise on or prior to the date the Company gives the Optional Redemption Notice. Notwithstanding the giving of the Optional Redemption Notice, the Holder shall be entitled to exercise all or any portion of this Warrant, at any time until the Optional Redemption Date, in accordance with the terms of this Warrant, by giving a notice of exercise. On and after the Optional Redemption Date, the Holder shall have no further rights except to receive, upon surrender of this agreement the Optional Redemption Price. -6- (d) In order that the Company shall not discriminate among the Holder and the holders of the Other Warrants, the Company agrees that the redemption of this Warrants pursuant to this Section 6 shall be made at the same time as a redemption by the Company of the Other Warrants and that such redemption shall be made pro rata based on the number of shares of Common Stock issuable upon the exercise of this Warrant and the Other Warrants outstanding on the date the Company gives the Optional Redemption Notice. In order that the Company not discriminate among the Holders and the holders of the Other Warrants, the Company agrees that it shall not redeem any of the other Warrants pursuant to the provisions thereof similar to this Section 6(c) unless the Company simultaneously redeems this Warrant in accordance with this Section 6(c). 7. Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof as a whole or in part, provided that the transferor provides, at the Company's request, an opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act. 8. Legends. Upon issuance, the certificate or certificates evidencing any Warrant Shares shall bear legends as set forth in the Purchase Agreement. 9. Purchase Agreement. This Warrant is one of a number of warrants (the "Offering Warrants") issued pursuant to the Purchase Agreement, and the Warrant Shares shall be entitled to the rights conferred thereon under the Purchase Agreement, including without limitation the registration rights provided in Section 7 thereof. 10. Termination. This Warrant shall terminate at 5:00 p.m. New York City time on the Termination Date. 11. Miscellaneous. This Warrant shall be governed by the laws of the State of New York, as such laws are applied to contracts to be entered into and performed entirely in New York by New York residents. The parties hereby agree that all actions or proceedings arising directly or indirectly from or in connection with this Warrant shall be litigated only in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York located in New York County, New York. The Company consents and submits to the jurisdiction and venue of the foregoing courts and consents that any process or notice of motion or other application to either of said courts or a judge thereof may be serviced on the Company inside or outside the State of New York or the Southern District of New York (but with respect to any party hereto, such consent shall not be deemed a general consent to jurisdiction and service for any third parties) by registered mail, return receipt requested, directed to the Company at its address proved in or pursuant to this Warrant (and service so made shall be deemed complete three days after the same has been posted as aforesaid) or by personal service or in such other manner as may be permissible under the rules of said courts. The Company hereby waives any right to object to a proceeding in such courts based on inconvenience of the forum and waives any right to a jury trial in connection with any litigation pursuant to this Warrant. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder. All notices and other communications from the Company to the Holder of this Warrant shall be delivered personally or by facsimile transmission or mailed by first class mail, postage prepaid, to the address or facsimile number furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address or facsimile number to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. Upon receipt of -7- evidence satisfactory to the Company of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Common Stock. -8- ISSUED: March 10, 2005 PARKERVISION, INC. By:__________________________________ Name:________________________________ Title:_________________________________ -9- ATTACHMENT 1 NOTICE OF EXERCISE TO: PARKERVISION, INC. 1. The undersigned hereby: |_| elects to purchase __________ shares of Common Stock of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or |_| elects to exercise its net issuance rights pursuant to Section 5(b) of the attached Warrant with respect to __________ shares of Common Stock. 2. The undersigned hereby represents and warrants to the Company that the representations and warranties made in Section 5.1 of the Stock and Warrant Purchase Agreement by and between the Investor and the Company dated March 10, 2005, are true and correct as of this date. 3. Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below: ------------------------------ (Name in which certificate(s) are to be issued) ------------------------------- (Address) -------------------------------- (Name of Warrant Holder) By: ----------------------------- Title: -------------------------- Date signed: -------------------- -10- ATTACHMENT 2 PARKERVISION, INC. OPTIONAL REDEMPTION NOTICE TO: -------- (Name of Holder) 1. Pursuant to the terms of the Warrant to purchase Common Stock (the "Warrant"), ParkerVision, Inc., a Florida corporation (the "Company"), the Company hereby notifies the above-named Holder that the Company is exercising its right to redeem the Warrant in accordance with Section 6 of the Warrant as set forth below: (i) The number of shares of Common Stock of the Company issuable pursuant to the Warrant to be redeemed is _________. (ii) The Optional Redemption Price is _________. (iii) The Optional Redemption Date is . 2. All of the conditions of Section 6 of the Warrant for this redemption have been satisfied. 3. Capitalized terms used herein and not otherwise defined herein have the respective meanings provided in the Warrant. Date PARKERVISION, INC. ------------------- By: ------------------------------- Title: ---------------------------- -11- EX-10.29 3 v014332_ex10-29.txt EXHIBIT 10.29 PROPOSED FINANCING OF ParkerVision BY READING THE INFORMATION CONTAINED WITHIN THIS DOCUMENT, THE RECIPIENT AGREES WITH PARKERVISION, INC. AND WELLS FARGO SECURITIES, LLC TO MAINTAIN IN CONFIDENCE SUCH INFORMATION, TOGETHER WITH ANY OTHER NON-PUBLIC INFORMATION REGARDING PARKERVISION, INC. OBTAINED FROM PARKERVISION, INC., WELLS FARGO SECURITIES, LLC OR THEIR AGENTS DURING THE COURSE OF THE PROPOSED FINANCING. PARKERVISION, INC. AND WELLS FARGO SECURITIES, LLC HAVE CAUSED THESE MATERIALS TO BE DELIVERED TO YOU IN RELIANCE UPON SUCH AGREEMENT AND UPON RULE 100(B)(2)(II) OF REGULATION FD AS PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION. [LOGO] Wells Fargo Securities CONFIDENTIAL SUMMARY OF TERMS AND CONDITIONS This Confidential Summary of Terms and Conditions is not intended to be contractually binding, other than the section entitled "Confidential Information," and is subject in all respects (other than with respect to such section) to the execution of the Stock Purchase Agreement. Issuer:................................. ParkerVision, Inc., a Florida corporation (the "Company"). Securities Offered:..................... Up to 2,880,000 shares (the "Shares") of common stock, par value $.01 per share (the "Common Stock"), and Warrants (the "Warrants") to purchase up to 720,000 shares of Common Stock (the "Warrant Shares"), in each case subject to adjustment by the Company (the "Offering"). Pre- and Post-Offering Capitalization Type Pre-Financing Post-Financing of the Company:......................... ---- Shares(1) Shares(2) ------ ------ Common Stock 18,007,574 20,887,574 Stock Options and Warrants(3) 6,620,603 7,340,603 Total 24,628,177 28,228,177 (1) As of December 31, 2004. (2) Assumes 2,880,000 Shares and Warrants to purchase 720,000 Warrant Shares sold by the Company in the Offering. (3) Includes outstanding options that were vested as of or vest within 60 days after December 31, 2004 but excludes unvested options covering 1,198,099 shares. Purchase Price: ........................ The purchase price of the Common Stock sold in the Offering will be determined based upon the negotiations between the Company and the investors participating in this Offering (the "Investors"). Use of Proceeds to Company:........... For continued research and development, manufacturing and marketing, working capital and general corporate purposes. Subscription Date and Closing Date: The Company and each Investor shall execute a Stock and Warrant Purchase Agreement in substantially the form set forth herein and each Investor shall execute an Investor Questionnaire in substantially the form set forth herein. The date as of which the Company has executed Stock and Warrant Purchase Agreements with Investors for the purchase of at least 2,400,000 Shares and Warrants to purchase at least 600,000 Warrant Shares and has notified the placement agent for this Offering in writing that it is no longer accepting Stock and Warrant Purchase Agreements from Investors is sometimes referred to herein as the "Subscription Date." The closing of the Offering shall occur, and certificates representing the Shares and the Warrants shall be issued to the Investors and funds paid to the Company therefor, on March 10, 2005 (the "Closing Date").
-2- Warrants: The Warrants will be immediately exercisable and may be exercised until the fifth anniversary of the Closing Date. The exercise price of the Warrants will be determined based upon the negotiations between the Company and the Investors. The Warrant shall have the rights, preferences, privileges and restrictions as set forth in the form of Warrant attached as Exhibit B to the Stock and Warrant Purchase Agreement. Investor Qualifications: ............... Each Investor must be an "accredited investor" as defined in Regulation D of the Securities Act of 1933, as amended (the "Securities Act"), and must represent and warrant to the Company that it is acquiring the Shares, the Warrant and the Warrant Shares for investment with no present intention of distributing any of the Shares, Warrants or Warrant Shares or must satisfy certain conditions in respect of the investment. The Stock and Warrant Purchase Agreement contains other appropriate representations and warranties of the Investor to the Company. As part of the Stock and Warrant Purchase Agreement signature page, the Company has included certain questions for each Investor to complete regarding such Investor. In addition, the Investor Questionnaire set forth herein contains questions for each Investor regarding its status as an "accredited investor." The Company will use the answers from each Investor as part of its own procedures to confirm the accuracy of the statements as to such Investor in the Registration Statement, including the information in the sections to be entitled "Selling Stockholders" and "Plan of Distribution." The Investors might be deemed "underwriters" as that term is defined in the Securities Act. Underwriters have statutory responsibilities as to the accuracy of any Registration Statement used by them. Registration of Common Stock:........... The Company will use its reasonable commercial efforts, subject to receipt of necessary information from the Investors, to cause a Registration Statement on Form S-3 relating to the resale of the Common Stock (including the Warrant Shares underlying the Warrants) by the Investors to be filed with the Securities and Exchange Commission within 30 days following the Closing Date and to cause such Registration Statement to become effective within 90 days of the Closing Date. Subject to certain blackout periods, the Company is obligated to use reasonable commercial efforts, with respect to each Investor's Shares, and Warrant Shares issued upon the exercise of the Warrant, purchased in the Offering, to maintain the Registration Statement's effectiveness until the earlier of (i) the date on which all Shares and Warrant Shares then held by the Investor may be immediately sold to the public under Rule 144(k) of the Securities Act or (ii) such time as all Shares and Warrant Shares purchased by such Investor in the Offering have been sold pursuant to a registration statement. Liquidated Damages:..................... In the event that the Registration Statement: (i) is not filed by the Company within 30 days after the Closing Date; (ii) is not declared effective by the SEC on or prior to 90 days after the Closing Date; or (iii) once effective, ceases to be effective and available to Investor for any continuous period that exceeds 30 days or for one or more periods that exceed in the aggregate 60 days in any 12-month period (each, a "Registration Default"), the Company shall pay the Investors, for each 30-day period of a Registration Default, an amount in cash equal to 1% of the aggregate purchase price paid by Investors; provided that in no event shall the aggregate amount of cash to be paid exceed 10% of the aggregate purchase price. The foregoing payments shall apply on a pro rata basis for any portion of a 30-day period of a Registration Default.
-3- Limitations on Sales Pursuant to To resell Shares and Warrant Shares pursuant to the Registration Registration Statement:................. Statement, the Investor will be required to: (a) Deliver, prior to selling any Shares or Warrant Shares, a current prospectus of the Company to the transferee (or arrange for delivery to the transferee's broker). Upon receipt of a written request therefor, the Company has agreed to provide an adequate number of current prospectuses to each Investor and to supply copies to any other parties requiring such prospectuses. In certain circumstances, the Company may suspend the effectiveness of the Registration Statement for certain periods of time during which the Investors will not be able to resell their Shares and Warrant Shares. In the event of such a suspension, the Company will notify each Investor in writing and, subject to certain conditions, will use reasonable commercial efforts to cause the use of the prospectus so suspended to be resumed as soon as reasonably practicable within 20 business days after such suspension begins, and will promptly deliver a revised prospectus, if applicable, for each Investor's use. (b) Deliver the stock certificate along with the Certificate of Subsequent Sale in the form attached to the Stock and Warrant Purchase Agreement to the Company and its transfer agent so that the Shares and Warrant Shares may be properly transferred. Share Certificates:..................... Certificates evidencing the Shares and Warrants delivered to each Investor on the Closing Date will bear a restrictive legend stating that the Shares and Warrants have been sold pursuant to the Stock and Warrant Purchase Agreement and that they (including the Warrant Shares underlying the Warrants) may not be resold except as permitted under the Securities Act pursuant to a Registration Statement that has been declared effective or an exemption therefrom, and may be resold subject to certain limitations and procedures agreed to in the Stock and Warrant Purchase Agreement. Indemnification:........................ By executing the Stock and Warrant Purchase Agreement, each Investor will agree to indemnify the Company against certain liabilities. Risk Factors:........................... The Shares, Warrants and Warrant Shares offered hereby involve a high degree of risk. See the disclosure relating to the risks affecting the Company set forth in the documents filed by the Company with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
-4- Nasdaq National Market ("Nasdaq") Symbol: PRKR Confidential Information:............... The recipient of this Confidential Summary of Terms and Conditions and the materials attached hereto agrees with the Company and Wells Fargo Securities, LLC to maintain in confidence this disclosed information, together with any other non-public information regarding the Company obtained from the Company, Wells Fargo Securities, LLC or their agents during the course of the proposed Offering. The Company and Wells Fargo Securities, LLC have caused these materials to be delivered to you in reliance upon such agreement and upon Rule 100(b)(2)(ii) of Regulation FD as promulgated by the Securities and Exchange Commission. Company's Counsel: ..................... Graubard Miller, The Chrysler Building, 405 Lexington Avenue, 19th Avenue, New York, NY 10174 Transfer Agent:......................... American Stock Transfer & Trust Company Placement Agent:........................ The Company has engaged Wells Fargo Securities, LLC to act as placement agent in connection with the Offering. The placement agent will receive from the Company a fee based on a percentage of the gross proceeds from the sale of the Shares and Warrants. Placement Agent's Counsel:.............. Goodwin Procter LLP, Exchange Place, Boston, MA 02109; tel. (617) 570-1067, fax (617) 523-1231; Attn: Jocelyn M. Arel
-5- INSTRUCTION SHEET FOR INVESTOR (to be read in conjunction with the entire Stock and Warrant Purchase Agreement, the Warrant and the Investor Questionnaire) A. Complete the following items in the Stock and Warrant Purchase Agreement and in the Investor Questionnaire: 1. Provide the information regarding the Investor requested on the signature page (page 9). Please submit a separate Stock and Warrant Purchase Agreement and Investor Questionnaire for each individual fund/entity that will hold the Shares and Warrants. The Stock and Warrant Purchase Agreement and the Investor Questionnaire must be executed by an individual authorized to bind the Investor. 2. Return the signed Stock and Warrant Purchase Agreement and Investor Questionnaire to: ParkerVision, Inc. 8493 Baymeadows Way Jacksonville, FL 32256 Attn: Cindy Poehlman Phone: (904) 737-1367 ext.116 Fax: (904) 448-6301 And fax copies to: Wells Fargo Securities, LLC 600 California Street Suite 1600 San Francisco, CA 94108 Attn: Seth Rubin Phone: (415) 954-8332 Fax: (415) 954-8309 And Graubard Miller 600 Third Avenue New York, NY 10016 Attn: David Alan Miller Phone: (212) 818-8661 Fax: (212) 818-8881 An executed original Stock and Warrant Purchase Agreement and Investor Questionnaire or a fax thereof must be received by 2:00 p.m., New York City time, on a date to be determined and distributed to the Investor at a later date. B. Instructions regarding the transfer of funds for the purchase of Shares and Warrant Shares will be faxed to the Investor by the Company at a later date. C. To resell the Shares and Warrant Shares after the Registration Statement covering the Shares and Warrant Shares is effective: 1. Provided that a Suspension of the Registration Statement pursuant to Section 7.2(c) of the Stock and Warrant Purchase Agreement is not then in effect pursuant to the terms of the Stock and Warrant Purchase Agreement, the Investor may sell Shares and Warrant Shares under the Registration Statement, subject to the notification provisions in the Stock and Warrant Purchase Agreement, provided that it arranges for delivery of a current Prospectus to the transferee. The Company has agreed to furnish to the Investor such number of copies of the Registration Statement, Prospectuses and Preliminary Prospectuses as the Investor may reasonably request. -6- 2. The Investor must also deliver to the Company's transfer agent, with a copy to the Company, a Certificate of Subsequent Sale in the form attached as Exhibit A to the Stock and Warrant Purchase Agreement, so that the Shares and Warrant Shares may be properly transferred. -7- STOCK AND WARRANT PURCHASE AGREEMENT ParkerVision, Inc. 8493 Baymeadows Way Jacksonville, FL 32256 Ladies & Gentlemen: The undersigned, [__________] (the "Investor"), hereby confirms its agreement with you as follows: 1. This Stock and Warrant Purchase Agreement (the "Agreement") is made as of March 10, 2005 between ParkerVision, Inc., a Florida corporation (the "Company"), and the Investor. 2. The Company has authorized the sale and issuance of up to 2,880,000 shares (the "Shares") of common stock of the Company, $.01 par value per share (the "Common Stock"), and Warrants (the "Warrants") to purchase up to 720,000 shares of Common Stock at an exercise price of $9.00 per share (the "Warrant Shares") to certain investors in a private placement (the "Offering"). 3. The Company and the Investor agree that the Investor will purchase from the Company and the Company will issue and sell to the Investor [__________] Shares and a Warrant to purchase [__________] Warrant Shares, for a purchase price of $7.50 per share, or an aggregate purchase price of $[_____], pursuant to the Terms and Conditions for Purchase of Shares and Warrants attached hereto as Annex I and incorporated herein by reference as if fully set forth herein (the "Terms and Conditions"). This Stock and Warrant Purchase Agreement, together with the Terms and Conditions which are incorporated herein by reference as if fully set forth herein, may hereinafter be referred to as the "Agreement." Unless otherwise requested by the Investor, certificates representing the Shares and the Warrant purchased by the Investor will be registered in the Investor's name and address as set forth below. The Warrant shall have the rights, preferences, privileges and restrictions as set forth in the form of Warrant attached as Exhibit B. 4. The Investor represents that, except as set forth below, (a) it has had no position, office or other material relationship within the past three years with the Company or persons known to it to be affiliates of the Company, (b) neither it, nor any group of which it is a member or to which it is related, beneficially owns (including the right to acquire or vote) any securities of the Company and (c) it has no direct or indirect affiliation or association with any NASD member as of the date hereof. Exceptions: - -------------------------------------------------------------------------------. (If no exceptions, write "none." If left blank, response will be deemed to be "none.") -8- Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for that purpose. By executing this Agreement, the Investor acknowledges that the Company may use the information in paragraph 4 above and the name and address information below in preparation of the Registration Statement (as defined in Annex 1). This Agreement may be executed in separate counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. AGREED AND ACCEPTED: - ------------------- ParkerVision, Inc. Investor: ------------------------------------- By: ------------------------------------------- - -------------------------- By: Jeffrey L. Parker Print Name: ----------------------------------- Title: Chairman and Chief Executive Officer Title: ---------------------------------------- Address: -------------------------------------- Tax ID No.: ----------------------------------- Contact name: --------------------------------- Telephone: ------------------------------------ Name in which shares should be registered (if different): ----------------------------------------------- -9- ANNEX I TERMS AND CONDITIONS FOR PURCHASE OF SHARES AND WARRANTS 1. Authorization and Sale of the Shares. Subject to these Terms and Conditions, the Company has authorized the sale of up to 2,880,000 Shares and Warrants to purchase up to 720,000 Warrant Shares. The Company reserves the right to increase or decrease this number. 2. Agreement to Sell and Purchase the Shares; Subscription Date. 2.1 At the Closing (as defined in Section 3), the Company will sell to the Investor, and the Investor will purchase from the Company, upon the terms and conditions hereinafter set forth, the number of Shares and a Warrant to purchase the number of Warrant Shares each as set forth in Section 3 of the Stock and Warrant Purchase Agreement to which these Terms and Conditions are attached at the purchase price set forth thereon. 2.2 The Company may enter into the same form of Stock and Warrant Purchase Agreement, including these Terms and Conditions, with other investors (the "Other Investors") and expects to complete sales of Shares and Warrants to them. (The Investor and the Other Investors are hereinafter sometimes collectively referred to as the "Investors," and the Stock and Warrant Purchase Agreement to which these Terms and Conditions are attached and the Stock and Warrant Purchase Agreements (including attached Terms and Conditions) executed by the Other Investors are hereinafter sometimes collectively referred to as the "Agreements.") The Company may accept executed Agreements from Investors for the purchase of Shares and Warrants commencing upon the date on which the Company provides the Investors with the proposed purchase price per Share plus Warrant exercise price and concluding upon the date (the "Subscription Date") on which the Company has (i) executed Agreements with Investors for the purchase of at least 2,400,000 Shares and Warrants to purchase at least 600,000 Warrant Shares, and (ii) notified Wells Fargo Securities, LLC, in its capacity as placement agent for this transaction, in writing that it is no longer accepting additional Agreements from Investors for the purchase of Shares and Warrants. The Company may not enter into any Agreements after the Subscription Date except in respect of up to 5,280 Shares and 1,320 Warrant Shares offered to Tyco Sigma Limited, Leucadia National Corporation and David Cumming pursuant to the exercise of pre-emptive rights previously granted to such persons (the "Pre-emptive Rights"). 2.3 The obligations of each Investor under any Agreement are several and not joint with the obligations of any Other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Agreement. Nothing contained herein, and no action taken by any Investor hereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby, provided that such obligations or the transactions contemplated hereby may be modified, amended or waived in accordance with Section 9 below. Each Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement (provided, that such rights may be modified, amended or waived in accordance with Section 9 below), and it shall not be necessary for any Other Investor to be joined as an additional party in any proceeding for such purpose. 3. Delivery of the Shares at Closing. The completion of the purchase and sale of the Shares and Warrants (the "Closing") shall occur on March 10, 2005 (the "Closing Date"), at the offices of the Company's counsel. At the Closing, the Company shall deliver to the Investor one or more stock certificates representing the number of Shares and a Warrant representing the number of Warrant Shares, in each case as set forth pursuant to Section 3 of the Stock and Warrant Purchase Agreement, each such certificate to be registered in the name of the Investor or, if so indicated on the signature page of the Stock and Warrant Purchase Agreement, in the name of a nominee designated by the Investor. The Company's obligation to issue and deliver the Shares and Warrant to the Investor shall be subject to the following conditions, any one or more of which may be waived by the Company: (a) receipt by the Company of a certified or official bank check or wire transfer of funds in the full amount of the purchase price for the Shares and Warrant being purchased hereunder as set forth in Section 3 of the Stock and Warrant Purchase Agreement; (b) completion of the purchases and sales under the Agreements with the Other Investors; and (c) the accuracy of the representations and warranties made by the Investors and the fulfillment of those undertakings of the Investors to be fulfilled prior to the Closing. -10- The Investor's obligation to purchase the Shares and Warrant shall be subject to the following conditions, any one or more of which may be waived by the Investor: (a) Investors shall have executed Agreements for the purchase of at least 2,400,000 Shares and Warrants to purchase at least 600,000 Warrant Shares, (b) the representations and warranties of the Company set forth herein shall be true and correct as of the Closing Date in all material respects (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), (c) the Investor shall have received such documents as such Investor shall reasonably have requested, including, a standard opinion of the Company's counsel as to the matters set forth in Section 4.2 and as to exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), of the sale of the Shares, (d) there shall not have occurred a suspension or material limitation in trading in the Company's Common Stock on the Nasdaq National Market, (e) all consents, approvals or authorizations of any person required for the valid authorization, execution and delivery by the Company of this Agreement or for the consummation of the transactions contemplated by this Agreement shall have been obtained and (f) no action or proceeding by or before any court, administrative body or governmental agency shall have been instituted or threatened by a third party which seeks to enjoin, restrain or prohibit this Agreement or consummation of the transactions contemplated by this Agreement. 4. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, the Investor, as follows: 4.1 Organization. The Company is duly organized and validly existing in good standing under the laws of the jurisdiction of its organization. Each of the Company and its Subsidiaries (as defined in Rule 405 under the Securities Act) has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and as described in the documents filed by the Company under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), since the end of its most recently completed fiscal year through the date hereof, including, without limitation, its most recent report on Form 10-K (the "Exchange Act Documents") and is registered or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the location of the properties owned or leased by it requires such qualification and where the failure to be so qualified would have a material adverse effect upon the condition (financial or otherwise), earnings, business, properties or operations of the Company and its Subsidiaries, considered as one enterprise (a "Material Adverse Effect"), and no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. 4.2 Due Authorization and Valid Issuance. The Company has all requisite power and authority to execute, deliver and perform its obligations under the Agreements and the Warrants, and the Agreements and the Warrants have been duly authorized and validly executed and delivered by the Company and constitute legal, valid and binding agreements of the Company enforceable against the Company in accordance with their terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Shares and the Warrant being purchased by the Investor hereunder and the Warrant Shares issuable pursuant to the Warrant will, upon issuance and payment therefor pursuant to the terms hereof, be duly authorized, validly issued, fully-paid and nonassessable. 4.3 Non-Contravention. The execution and delivery of the Agreements and the Warrants, the issuance and sale of the Shares and the Warrants under the Agreements and the Warrant Shares under the Warrant, the fulfillment of the terms of the Agreements and the Warrants and the consummation of the transactions contemplated thereby will not (A) conflict with or constitute a violation of, or default (with the passage of time or otherwise) under, (i) any material bond, debenture, note or other evidence of indebtedness, lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any Subsidiary is a party or by which it or any of its Subsidiaries or their respective properties are bound (other than notice required to be delivered to each of Tyco Sigma Limited, Leucadia National Corporation and David Cumming relating to the Pre-emptive Rights in respect of the Shares), (ii) the charter, by-laws or other organizational documents of the Company or any Subsidiary, or (iii) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company or any Subsidiary or their respective properties, except in the case of clauses (i) and (iii) for any such conflicts, violations or defaults which are not reasonably likely to have a Material Adverse Effect or (B) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of the Company or any Subsidiary or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them is bound or to which any of the material property or assets of the Company or any Subsidiary is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States or any other person is required for the execution and delivery of the Agreements and the Warrants, and the valid issuance and sale of the Shares and Warrants to be sold pursuant to the Agreements, and the valid issuance of the Warrant Shares under the Warrant, other than such as have been made or obtained, and except for any post-closing securities filings or notifications required to be made under federal or state securities laws. -11- 4.4 Capitalization. The capitalization of the Company as of September 30, 2004 is as set forth in the most recent applicable Exchange Act Documents, increased as set forth in the next sentence. The Company has not issued any capital stock since that date other than pursuant to (i) employee benefit plans disclosed in the Exchange Act Documents, or (ii) outstanding warrants, options or other securities disclosed in the Exchange Act Documents. The Shares and the Warrants to be sold pursuant to the Agreements, and the Warrant Shares to be issues pursuant to the Warrants, have been duly authorized, and when issued and paid for in accordance with the terms of the Agreements and the Warrants, as the case may be, will be duly and validly issued, fully paid and nonassessable. The outstanding shares of capital stock of the Company have been duly and validly issued and are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and were not issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as set forth in or contemplated by the Exchange Act Documents, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any unissued shares of capital stock or other equity interest in the Company or any Subsidiary, or any contract, commitment, agreement, understanding or arrangement of any kind to which the Company is a party or of which the Company has knowledge and relating to the issuance or sale of any capital stock of the Company or any Subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options. Without limiting the foregoing, no preemptive right, co-sale right, right of first refusal, registration right, or other similar right exists with respect to the Shares, the Warrants or the Warrant Shares or the issuance and sale thereof. No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Shares, the Warrants and the Warrant Shares. The Company owns the entire equity interest in each of its Subsidiaries, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest, other than as described in the Exchange Act Documents. Except as disclosed in the Exchange Act Documents, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Common Stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company's stockholders. 4.5 Legal Proceedings. There is no material legal or governmental proceeding pending or, to the knowledge of the Company, threatened to which the Company or any Subsidiary is or may be a party or of which the business or property of the Company or any Subsidiary is subject that is not disclosed in the Exchange Act Documents. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers. 4.6 No Violations. Neither the Company nor any Subsidiary is in violation of its charter, bylaws, or other organizational document, or in violation of any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company or any Subsidiary, which violation, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect, or is in default (and there exists no condition which, with the passage of time or otherwise, would constitute a default) in any material respect in the performance of any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other material agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or by which the properties of the Company or any Subsidiary are bound, which would be reasonably likely to have a Material Adverse Effect. 4.7 Governmental Permits, Etc. With the exception of the matters which are dealt with separately in Sections 4.1, 4.12, 4.13 and 4.14, each of the Company and its Subsidiaries has all necessary franchises, licenses, certificates and other authorizations from any foreign, federal, state or local government or governmental agency, department, or body that are currently necessary for the operation of the business of the Company and its Subsidiaries as currently conducted and as described in the Exchange Act Documents except where the failure to currently possess could not reasonably be expected to have a Material Adverse Effect. -12- 4.8 Intellectual Property. Except as specifically disclosed in the Exchange Act Documents (i) to the Company's knowledge, each of the Company and its Subsidiaries owns or possesses sufficient rights to conduct its business in the ordinary course, including, without limitation, rights to use all material patents, patent rights, industry standards, trademarks, copyrights, licenses, inventions, trade secrets, trade names and know-how (collectively, "Intellectual Property") described or referred to in the Exchange Act Documents as owned or possessed by it or that are necessary for the conduct of its business as now conducted or as proposed to be conducted except where the failure to currently own or possess would not have a Material Adverse Effect, (ii) to the Company's knowledge, neither the Company nor any of its Subsidiaries is infringing, or has received any notice of, or has any knowledge of, any asserted infringement by the Company or any of its Subsidiaries of, any rights of a third party with respect to any Intellectual Property that, individually or in the aggregate, would have a Material Adverse Effect and (iii) neither the Company nor any of its Subsidiaries has received any written notice of, or has any actual knowledge of, infringement by a third party with respect to any Intellectual Property rights of the Company or of any Subsidiary that, individually or in the aggregate, would have a Material Adverse Effect. Except as noted below, the Intellectual Property does not include any Publicly Available Software and the Company has not used Publicly Available Software in whole or in part in the development of any part of Intellectual Property in a manner that may subject the Company or Intellectual Property in whole or in part, to all or part of the license obligations of any Publicly Available Software. "Publicly Available Software" means each of (i) any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software, open source software (e.g., Linux), or similar licensing and distribution models; and (ii) any software that requires as a condition of use, modification, and/or distribution of such software that such software or other software incorporated into, derived from, or distributed with such software (a) be disclosed or distributed in source code form; (b) be licensed for the purpose of making derivative works; or (c) be redistributable at no or minimal charge. Publicly Available Software includes, without limitation, software licensed or distributed under any of the following licenses or distribution models similar to any of the following: (a) GNU General Public License (GPL) or Lesser/Library GPL (LGPL), (b) the Artistic License (e.g., PERL), (c) the Mozilla Public License, (d) the Netscape Public License, (e) the Sun Community Source License (SCSL), the Sun Industry Source License (SISL), and the Apache Server License. The Company uses Publicly Available Software in its five port wireless router product which is currently being developed. 4.9 Financial Statements. (a) The financial statements of the Company and the related notes contained in the Exchange Act Documents present fairly, in accordance with generally accepted accounting principles, the financial position of the Company and its Subsidiaries as of the dates indicated, and the results of its operations and cash flows for the periods therein specified consistent with the books and records of the Company and its Subsidiaries except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which are not expected to be material in amount and to adjustment for certain preliminary unaudited 2004 year end information (the "2004 Preliminary Year End Information") provided to Investors in connection with this Offering. Such financial statements (including the related notes) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified, except as may be disclosed in the notes to such financial statements, or in the case of unaudited statements, as may be permitted by the Securities and Exchange Commission (the "SEC") on Form 10-Q under the Exchange Act and except as disclosed in the Exchange Act Documents. The other financial information contained in the Exchange Act Documents and the 2004 Preliminary Year End Information has been prepared on a basis consistent with the financial statements of the Company. (b) After giving effect to the transactions contemplated by this Agreement and the other agreements contemplated by the Offering, the Company believes that it will have adequate working capital to sustain its operations as currently conducted and pursuant to the current business plan for at least the twelve months after the Closing Date. (c) Except as set forth in any Exchange Act Documents, there are no obligations of the Company to officers, directors, stockholders or employees of the Company other than (i) for payment of salary for services rendered and for bonus payments; (ii) reimbursements for reasonable expenses incurred on behalf of the Company; (iii) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company); and (iv) obligations listed in the Company's financial statements. Except as described above or in any Exchange Act Filings, none of the officers, directors or, to the best of the Company's knowledge, key employees or stockholders of the Company or any members of their immediate families, are indebted to the Company, individually or in the aggregate, in excess of $60,000 or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, other than passive investments in publicly traded companies (representing less than one percent (1%) of such company) which may compete with the Company. Except as described above, no officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company and no agreements, understandings or proposed transactions are contemplated between the Company and any such person. Except as set forth in any Exchange Act Documents, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. -13- 4.10 No Material Adverse Change. Except as disclosed in the Exchange Act Documents and the 2004 Preliminary Year End Information provided to Investors, since September 30, 2004, there has not been (i) any material adverse change in the financial condition or earnings of the Company and its Subsidiaries considered as one enterprise, (ii) any material adverse event affecting the Company or its Subsidiaries, (iii) any obligation, direct or contingent, that is material to the Company and its Subsidiaries considered as one enterprise, incurred by the Company, except obligations incurred in the ordinary course of business, (iv) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its Subsidiaries, or (v) any loss or damage (whether or not insured) to the physical property of the Company or any of its Subsidiaries which has been sustained which has a Material Adverse Effect. 4.11 Disclosure. The representations and warranties of the Company contained in this Section 4 as of the date hereof and as of the Closing Date, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Except with respect to the material terms and conditions of the transaction contemplated by the Agreements and the Warrants , which shall be publicly disclosed by the Company pursuant to Section 16(b) hereof, and except for the 2004 Preliminary Year End Information provided to Investors, which information shall be publicly disclosed by the Company on or prior to March 31, 2005, the Company confirms that neither it nor any person acting on its behalf has provided Investor with any information that the Company believes constitutes material, non-public information. The Company understands and confirms that Investor will rely on the foregoing representations in effecting transactions in securities of the Company. 4.12 Nasdaq Compliance. The Company's Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq Stock Market, Inc. National Market (the "Nasdaq National Market"), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or de-listing the Common Stock from the Nasdaq National Market, nor has the Company received any notification that the SEC or the National Association of Securities Dealers, Inc. ("NASD") is contemplating terminating such registration or listing. 4.13 Reporting Status. The Company has filed in a timely manner all documents that the Company was required to file under the Exchange Act during the 12 months preceding the date of this Agreement. The Company currently is eligible to use Form S-3 to register the Shares to be offered for the account of the Investors. The following documents complied in all material respects with the SEC's requirements as of their respective filing dates, and the information contained therein as of the date thereof did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading: (a) Annual Report on Form 10-K for the year ended December 31, 2003, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, Proxy Statements on Schedule 14A filed on March 26, 2004, April 6, 2004 and April 28, 2004 and Current Reports on Form 8-K filed on March 2, 2004, March 11, 2004, May 18, 2004 and November 19, 2004; and (b) all other documents, if any, filed by the Company with the SEC during the one-year period preceding the date of this Agreement pursuant to the reporting requirements of the Exchange Act. 4.14 Listing. The Company shall comply with all requirements of the NASD and SEC with respect to the issuance of the Shares, the Warrant and the Warrant Shares, and the listing of the Shares and Warrant Shares on the Nasdaq National Market. 4.15 No Manipulation of Stock. The Company has not taken and will not, in violation of applicable law, take, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares or the Warrant Shares. -14- 4.16 Company not an "Investment Company". The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the "Investment Company Act"). To the best knowledge of the Company, the Company is not, and immediately after receipt of payment for the Shares and Warrants will not be, an "investment company" or an entity "controlled" by an "investment company" within the meaning of the Investment Company Act and shall conduct its business in a manner so that it will not become subject to the Investment Company Act. 4.17 Foreign Corrupt Practices. Neither the Company, nor to the best knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any corrupt funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended. 4.18 Accountants. To the Company's knowledge, PricewaterhouseCoopers, LLP, who the Company expects will consent to the incorporation by reference of its report dated February 28, 2004 with respect to the consolidated financial statements of the Company included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 into the Registration Statement (as defined below) and the prospectus which forms a part thereof, are independent accountants as required by the Securities Act and the rules and regulations promulgated thereunder. 4.19 Contracts. The contracts described in the Exchange Act Documents that are material to the Company are in full force and effect on the date hereof, and neither the Company nor, to the Company's knowledge, any other party to such contracts is in breach of or default under any of such contracts which would have a Material Adverse Effect. The Company has filed with the SEC all contracts and agreements required to be filed by the Exchange Act. 4.20 Taxes. The Company has filed all necessary federal, state and foreign income and franchise tax returns when due (or obtained appropriate extensions for filing) and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been or might be asserted or threatened against it which would have a Material Adverse Effect. 4.21 Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Shares and the Warrants to be sold to the Investor hereunder will be, or will have been, fully paid or provided for by they Company and all laws imposing such taxes will be or will have been fully complied with. Upon the issuance of the Warrants Shares pursuant to the Warrant all stock transfer or other taxes (other than income taxes) which are required to be paid in connection therewith will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with. 4.22 Private Offering. Assuming the correctness of the representations and warranties of the Investors set forth in Section 5 hereof, the offer and sale of Shares and the Warrants hereunder is and, upon exercise of the Warrants, the issuance of the Warrant Shares will be exempt from registration under the Securities Act. The Company has not distributed and will not distribute prior to the Closing Date any offering material in connection with this Offering and sale of the Shares and the Warrants other than the documents of which this Agreement is a part or the Exchange Act Documents. The Company has not in the past nor will it hereafter take any action independent of the placement agent to sell, offer for sale or solicit offers to buy any securities of the Company which would bring the offer, issuance or sale of the Shares and the Warrants as contemplated by this Agreement, or the issuance of the Warrant Shares pursuant to the Warrant within the provisions of Section 5 of the Securities Act, unless such offer, issuance or sale was or shall be within the exemptions of Section 4 of the Securities Act. Neither the Company nor any person acting on behalf of the Company (other than Wells Fargo Securities, LLC) has offered or sold any of the Shares by any form of general solicitation or general advertising. The Company has offered the Shares for sale only to the Investors and certain other "accredited investors" within the meaning of Rule 501 under the Securities Act. 4.23 Disclosure Controls and Procedures. The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company maintains a system of internal control over financial reporting (as such term is defined in the Exchange Act ) sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action -15- is taken with respect to any differences. The Company's certifying officers are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act) for the Company and they have (a) designed such disclosure controls and procedures , or caused such disclosure controls and procedures to be designed under their supervision, to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the periods in which the Exchange Act Documents have been prepared; (b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in the applicable Exchange Act Documents their conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by such Exchange Act Documents based on such evaluation; and (c) since the last evaluation date referred to in (b) above, there have been no material changes in the Company's internal control over financial reporting (as such term is defined in the Exchange Act) or, to the Company's knowledge, in other factors that could significantly affect the Company's internal control over financial reporting. 4.24 Transactions With Affiliates. Except as disclosed in the Exchange Act Documents, none of the officers or directors of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer or director or, to the knowledge of the Company, any entity in which any officer or director has a substantial interest or is an officer, director, trustee or partner. 4.25 No Registration Rights. Other than the registration rights granted to the Investors in Section 7 of this Agreement, no person has the right, which right has not been waived, to require the Company or any Subsidiary to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the SEC or the issuance and sale of the Shares, Warrants or Warrant Shares. 5. Representations, Warranties and Covenants of the Investor. 5.1 The Investor represents and warrants to, and covenants with, the Company that: (i) either (A) the Investor is an "accredited investor" as defined in Regulation D under the Securities Act and the Investor is also knowledgeable, sophisticated and experienced in making, and is qualified to make decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Shares and the Warrant, including investments in securities issued by the Company and investments in comparable companies, and has requested, received, reviewed and considered all information it deemed relevant in making an informed decision to purchase the Shares or (B) the Company has made available to the Investor, prior to the date hereof, the opportunity to ask questions of and receive complete and correct answers from representatives of the Company concerning the terms and conditions of the Shares and to obtain any additional information relating to the financial condition and business of the Company and the Investor has such knowledge and experience in financial and business matters that the Investor is capable of evaluating the merits and risks of the investment in the Shares and the Warrant; (ii) the Investor is acquiring the number of Shares and the Warrant to purchase the number of Warrant Shares, each as set forth in Section 3 of the Stock and Warrant Purchase Agreement in the ordinary course of its business and for its own account for investment only and with no present intention of distributing any of such Shares, Warrant or Warrant Shares or any arrangement or understanding with any other persons regarding the distribution of such Shares, Warrant or Warrant Shares; (iii) the Investor will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares, Warrant or Warrant Shares except in compliance with the Securities Act, applicable state securities laws and the respective rules and regulations promulgated thereunder; (iv) the Investor has answered all questions on the Investor Questionnaire for use in preparation of the Registration Statement and the answers thereto are true, correct and complete as of the date hereof and will be true, correct and complete as of the Closing Date; (v) the Investor will notify the Company of any change in any of such information immediately prior to the Closing; and (vi) the Investor has, in connection with its decision to purchase the number of Shares and the Warrant to purchase the number of Warrant Shares, each as set forth in Section 3 of the Stock and Warrant Purchase Agreement, relied only upon the Exchange Act Documents and the representations and warranties of the Company contained herein. The Investor understands that its acquisition of the Shares and the Warrant has not been registered under the Securities Act or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of the Investor's investment intent as expressed herein. Subject to compliance with the Securities Act, applicable securities laws and the respective rules and regulations promulgated thereunder, nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Shares Warrant or Warrant Shares for any period of time. The Investor has completed or caused to be completed and delivered to the Company the Investor Questionnaire, which questionnaire is true, correct and complete in all material respects. -16- 5.2 The Investor acknowledges, represents and agrees that no action has been or will be taken in any jurisdiction outside the United States by the Company that would permit an offering of the Shares, Warrant or Warrant Shares or possession or distribution of offering materials in connection with the issue of the Shares, Warrant or Warrant Shares in any jurisdiction outside the United States where legal action by the Company for that purpose is required. Each Investor outside the United States will comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells or delivers Shares, the Warrant or Warrant Shares or has in its possession or distributes any offering material, in all cases at its own expense. 5.3 The Investor hereby covenants with the Company not to make any sale of the Shares, Warrant or Warrant Shares without complying with the provisions of this Agreement and without causing the prospectus delivery requirement under the Securities Act to be satisfied (whether by delivery of the Prospectus or pursuant to and in compliance with an exemption from such requirement), and the Investor acknowledges that the certificates evidencing the Shares and Warrant Shares will be imprinted with a legend that prohibits their transfer except in accordance therewith. The Investor acknowledges that there may occasionally be times when the Company determines that it must suspend the use of the Prospectus forming a part of the Registration Statement, as set forth in Section 7.2(c). 5.4 The Investor agrees to promptly upon receipt approve the plan of distribution for the Registration Statement sent to it by the Company pursuant to 7.1(h). 5.5 If requested by the Company, the Investor will provide for presentation in the Registration Statement, the names of the persons with investment and voting authority over the Shares or Warrant Shares acquired hereunder and register thereon, unless otherwise agreed to between such Investor and the Company. 5.6 The Investor further represents and warrants to, and covenants with, the Company that (i) the Investor has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) this Agreement constitutes a valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the Investors herein may be legally unenforceable. 5.7 Neither the Investor nor any person acting on its behalf or at its direction has engaged in any purchase or sale of Common Stock (including without limitation any short sale, pledge, transfer, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act) during the ten trading days immediately preceding the date of this Agreement. Investor agrees with the Company that the Company will be irreparably harmed if the Investor engages in short sales and similar hedging transactions, therefore Investor agrees that it will not directly or indirectly make or participate in any sale of the shares of common stock of the Company, including "short sales" as defined in Rule 200 under Regulation SHO, whether or not exempt, until the earlier of (i) effective date of the Registration Statement or (ii) the 120th day after the Closing Date. Investor will not use any of the restricted Shares or the Warrant acquired pursuant to this Agreement, or the Warrant Shares acquired pursuant to the Warrant, to cover any short position in the Common Stock of the Company if doing so would be in violation of applicable securities laws and otherwise will comply with federal securities laws in the holding and sale of the Shares. 5.8 The Investor understands that nothing in the Exchange Act Documents, this Agreement or any other materials presented to the Investor in connection with the purchase and sale of the Shares and the Warrant constitutes legal, tax or investment advice. The Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Shares and the Warrant. 5.9 The Company acknowledges and agrees that Investor does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Sections 5 and 16(a) of this Agreement, or in the Investor Questionnaire. 5.10 The Investor hereby acknowledges that the Shares and Warrants purchased pursuant to this Agreement are being purchased in full satisfaction of the Investor's pre-emptive rights pursuant to Section 8 of the Subscription Agreement between the Investor and the Company dated March 26, 2003, in respect of the Shares sold by the Company pursuant to the Agreements and hereby waives its notice right pursuant to such provision in respect of the Shares sold by the Company pursuant to the Agreements. -17- 6. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company and the Investor herein shall survive the execution of this Agreement, the delivery to the Investor of the Shares and the Warrant being purchased and the payment therefor. 7. Registration of the Shares; Compliance with the Securities Act. 7.1 Registration Procedures and Other Matters. The Company shall: (a) subject to receipt of necessary information from the Investors after prompt request from the Company to the Investors to provide such information, prepare and file with the SEC, within 30 days after the Closing Date, a registration statement on Form S-3 (the "Registration Statement") to enable the resale of the Shares and the Warrant Shares by the Investors from time to time through the automated quotation system of the Nasdaq National Market or in privately-negotiated transactions; (b) subject to receipt of necessary information from the Investors after prompt request from the Company to the Investors to provide such information, use its reasonable commercial efforts to cause the Registration Statement to become effective on or prior to the 90th day after the Closing Date; (c) use its reasonable commercial efforts to prepare and file with the SEC such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement current, effective and free from any material misstatement or omission to state a material fact for a period (the "Registration Period") not exceeding, with respect to each Investor's Shares purchased hereunder and the Warrant Shares purchased under the Warrant, the earlier of (i) the date on which all Shares and Warrant Shares then held by the Investor may be immediately sold to the public under Rule 144(k) of the Securities Act or (ii) such time as all Shares purchased by such Investor in this Offering and Warrant Shares issuable pursuant to the Warrant have been sold pursuant to a registration statement; (d) furnish to the Investor with respect to the Shares and the Warrant Shares registered under the Registration Statement such number of copies of the Registration Statement, Prospectuses and Preliminary Prospectuses in conformity with the requirements of the Securities Act and such other documents as the Investor may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares or Warrant Shares by the Investor; provided, however, that the obligation of the Company to deliver copies of Prospectuses or Preliminary Prospectuses to the Investor shall be subject to the receipt by the Company of reasonable assurances from the Investor that the Investor will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such Prospectuses or Preliminary Prospectuses; (e) file documents required of the Company for normal blue sky clearance in states specified in writing by the Investor and use its reasonable commercial efforts to maintain such blue sky qualifications during the period the Company is required to maintain the effectiveness of the Registration Statement pursuant to Section 7.1(c); provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; (f) bear all expenses in connection with the procedures in paragraph (a) through (e) of this Section 7.1 (other than underwriting discounts or commissions, brokers' fees and similar selling expenses, and any other fees or expenses incurred by the Investor, including attorney fees of the Investor) and the registration of the Shares and Warrant Shares pursuant to the Registration Statement; (g) advise the Investor, promptly after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use its reasonable commercial efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued; and -18- (h) provide a "Plan of Distribution" section of the Registration Statement that is reasonably acceptable to all Investors and which, at a minimum, states that the selling stockholders may transfer the Shares in various circumstances as permitted to the fullest extent of the law and SEC practice, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of the Prospectus, and shall otherwise be in all material respects in the form attached hereto as Exhibit B, subject to any revisions required by the SEC. Notwithstanding anything to the contrary herein, the Registration Statement shall cover only the Shares and the Warrant Shares. In no event at any time before the Registration Statement becomes effective with respect to the Shares and the Warrant Shares shall the Company publicly announce or file any other registration statement, other than registrations on Form S-8, without the prior written consent of a majority in interest of the Investors. The Company understands that the Investor disclaims being an underwriter, but if the SEC deems the Investor to be an underwriter the Company shall not be relieved of any obligations it has hereunder; provided, however that if the Company receives notification from the SEC that the Investor is deemed an underwriter, then the period by which the Company is obligated to submit an acceleration request to the SEC shall be extended to the earlier of (i) the 90th day after such SEC notification, or (ii) 120 days after the initial filing of the Registration Statement with the SEC. If required by the rules and regulations promulgated by the SEC, the Company may disclose the names of those Investors that may be deemed underwriters in the Registration Statement. 7.2 Transfer of Shares After Registration; Suspension. (a) The Investor agrees that it will not effect any disposition of the Shares or its right to purchase the Shares or the Warrant Shares that would constitute a sale within the meaning of the Securities Act except as contemplated in the Registration Statement referred to in Section 7.1 and as described below or as otherwise permitted by law, and that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Investor or its plan of distribution. (b) Except in the event that paragraph (c) below applies, the Company shall (i) if deemed necessary by the Company, prepare and file from time to time with the SEC a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafter delivered to purchasers of the Shares and Warrant Shares being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) provide the Investor copies of any documents filed pursuant to Section 7.2(b)(i) as the Investor may reasonably request; and (iii) inform each Investor that the Company has complied with its obligations in Section 7.2(b)(i) (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify the Investor to that effect, will use its reasonable commercial efforts to secure the effectiveness of such post-effective amendment as promptly as possible and will promptly notify the Investor pursuant to Section 7.2(b)(i) hereof when the amendment has become effective). (c) Subject to paragraph (d) below, in the event (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related Prospectus or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares or the Warrant Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; or (iv) of any event or circumstance which, upon the advice of its counsel, necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; then the Company shall deliver a certificate in writing to the Investor (the "Suspension Notice") to the effect of the foregoing and, upon receipt of such Suspension Notice, the Investor will refrain from selling any Shares and Warrant Shares pursuant to the Registration Statement (a "Suspension") until the Investor's receipt of copies -19- of a supplemented or amended Prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. In the event of any Suspension, the Company will use its reasonable commercial efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable within 20 business days after the delivery of a Suspension Notice to the Investor. In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Investor, the Investor shall be entitled to specific performance in the event that the Company fails to comply with the provisions of this Section 7.2(c). (d) Notwithstanding the foregoing paragraphs of this Section 7.2, the Investor shall not be prohibited from selling Shares or Warrant Shares under the Registration Statement as a result of Suspensions on more than two occasions of not more than 30 days each in any twelve month period, unless, in the good faith judgment of the Company's Board of Directors, upon the written opinion of counsel of the Company, the sale of Shares and Warrant Shares under the Registration Statement in reliance on this paragraph 7.2(d) would be reasonably likely to cause a violation of the Securities Act or the Exchange Act and result in liability to the Company. (e) Provided that a Suspension is not then in effect, the Investor may sell Shares under the Registration Statement, provided that it arranges for delivery of a current Prospectus to the transferee of such Shares. Upon receipt of a request therefor, the Company has agreed to provide an adequate number of current Prospectuses to the Investor and to supply copies to any other parties requiring such Prospectuses. (f) In the event of a sale of Shares or Warrant Shares by the Investor pursuant to the Registration Statement, the Investor must also deliver to the Company's transfer agent, with a copy to the Company, a Certificate of Subsequent Sale substantially in the form attached hereto as Exhibit A, so that the Shares and Warrant Shares may be properly transferred. 7.3 Indemnification. For the purpose of this Section 7.3: (i) the term "Selling Stockholder" means the Investor and any affiliate of such Investor; (ii) the term "Registration Statement" shall include the Prospectus in the form first filed with the SEC pursuant to Rule 424(b) of the Securities Act or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, and any exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 7.1; and (iii) the term "Untrue Statement" means any untrue statement or alleged untrue statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (a) The Company agrees to indemnify and hold harmless each Selling Stockholder from and against any losses, claims, damages or liabilities to which such Selling Stockholder may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) any breach of the representations or warranties of the Company contained herein or failure to comply with the covenants and agreements of the Company contained herein, (ii) any Untrue Statement, or (iii) any failure by the Company to fulfill any undertaking included in the Registration Statement as amended or supplemented from time to time, and the Company will reimburse such Selling Stockholder for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, or preparing to defend any such action, proceeding or claim, provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an Untrue Statement made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Stockholder specifically for use in preparation of the Registration Statement, as amended or supplemented from time to time (including, without limitation, information set forth in the Investor Questionnaire), or the failure of such Selling Stockholder to comply with its covenants and agreements contained in Section 7.2 hereof respecting sale of the Shares or Warrant Shares or any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Selling Stockholder prior to the pertinent sale or sales by the Selling Stockholder. The Company shall reimburse each Selling Stockholder for the indemnifiable amounts provided for herein on demand as such expenses are incurred. -20- (b) The Investor agrees to indemnify and hold harmless the Company (and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company) from and against any losses, claims, damages or liabilities to which the Company (or any such officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) any failure to comply with the covenants and agreements contained in Section 7.2 hereof respecting sale of the Shares and Warrant Shares, or (ii) any Untrue Statement if such Untrue Statement was made in reliance upon and in conformity with written information furnished by or on behalf of the Investor specifically for use in preparation of the Registration Statement, as amended or supplemented from time to time (including, without limitation, information set forth in the Investor Questionnaire), and the Investor will reimburse the Company (or such officer, director or controlling person), as the case may be, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim. The Investor shall reimburse the Company or such officer, director or controlling person, as the case may be, for the indemnifiable amounts provided for herein on demand as such expenses are incurred. Notwithstanding the foregoing, the Investor's aggregate obligation to indemnify the Company and such officers, directors and controlling persons shall be limited to the net amount received by the Investor from the sale of the Shares less the amount of any other claims, damages or liabilities paid by the Investor in connection with such Investor's sale of the Shares. (c) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 7.3, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying person will not relieve it from any liability which it may have to any indemnified person under this Section 7.3 (except to the extent that such omission materially and adversely affects the indemnifying person's ability to defend such action) or from any liability otherwise than under this Section 7.3. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified person promptly after receiving the aforesaid notice from such indemnified person, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof, provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld or delayed. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding. (d) If the indemnification provided for in this Section 7.3 is unavailable to or insufficient to hold harmless an indemnified person under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying person shall contribute to the amount paid or payable by such indemnified person as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Investor, as well as any other Selling Shareholders under such Registration Statement on the other in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an Untrue Statement, whether the Untrue Statement relates to information supplied by the Company on the one hand or an Investor or other Selling Shareholder on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Untrue Statement. The Company and the Investor agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Investor and other Selling Shareholders were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified person as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), the Investor shall not be required to contribute any amount in excess of the amount by which the net amount received by the Investor from the sale of the Shares to which such loss relates exceeds the amount of any damages which such Investor has otherwise been required to pay by reason of such Untrue Statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Investor's obligations in this subsection to contribute shall be in proportion to its Investor sale of Shares and Warrant Shares to which such loss relates and shall not be joint with any other Selling Shareholders. -21- (e) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 7.3, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 7.3 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement as required by the Securities Act and the Exchange Act. The parties are advised that federal or state public policy as interpreted by the courts in certain jurisdictions may be contrary to certain of the provisions of this Section 7.3, and the parties hereto hereby expressly waive and relinquish any right or ability to assert such public policy as a defense to a claim under this Section 7.3 and further agree not to attempt to assert any such defense. 7.4 Termination of Conditions and Obligations. The conditions precedent imposed by Section 5 or this Section 7 upon the transferability of the Shares and Warrant Shares shall cease and terminate as to any particular number of the Shares when such Shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering such Shares or at such time as an opinion of counsel reasonably satisfactory to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act. 7.5 Information Available. So long as the Registration Statement is effective covering the resale of Shares owned by the Investor, the Company will furnish to the Investor: (a) as soon as practicable after it is available, one copy of (i) its Annual Report to Stockholders (which Annual Report shall contain financial statements audited in accordance with generally accepted accounting principles by a national firm of certified public accountants), (ii) its Annual Report on Form 10-K and (iii) its Quarterly Reports on Form 10-Q (the foregoing, in each case, excluding exhibits); (b) upon the request of the Investor, all exhibits excluded by the parenthetical to subparagraph (a) of this Section 7.5 as filed with the SEC and all other information that is made available to shareholders; and (c) upon the reasonable request of the Investor, an adequate number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; and upon the reasonable request of the Investor, the President or the Chief Financial Officer of the Company (or an appropriate designee thereof) will meet with the Investor or a representative thereof at the Company's headquarters to discuss all information relevant for disclosure in the Registration Statement covering the Shares and Warrant Shares and will otherwise cooperate with any Investor conducting an investigation for the purpose of reducing or eliminating such Investor's exposure to liability under the Securities Act, including the reasonable production of information at the Company's headquarters; provided, that the Company shall not be required to disclose any confidential information to or meet at its headquarters with any Investor until and unless the Investor shall have entered into a confidentiality agreement in form and substance reasonably satisfactory to the Company with the Company with respect thereto. 7.6 Legend; Restrictions on Transfer. The certificate or certificates for the Shares and the Warrants (and any securities issued in respect of or exchange for the Shares or Warrants) shall be subject to a legend or legends restricting transfer under the Securities Act and referring to restrictions on transfer herein, such legend to be substantially as follows: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. -22- The Company and the Investor acknowledge and agree that the Investor may, as permitted by law, from time to time pledge pursuant to a bona fide margin agreement or grant a security interest in some or all of the Shares and Warrants and, if required under the terms of such arrangement, Investor may, as permitted by law, transfer pledged or secured Shares and Warrants to the pledgees or secured parties. So long as Investor is not an affiliate of the Company, such a pledge or transfer would not be subject to approval or consent of the Company, provided that, upon the request of the Company, a legal opinion of legal counsel to the pledgee, secured party or pledgor shall be obtained. At the Investor's expense, so long as the Shares and Warrants are subject to the legend required by this Section 7.6, the Company will use its reasonable commercial efforts to execute and deliver such reasonable documentation as a pledgee or secured party of Shares and Warrants may reasonably request in connection with a pledge or transfer of the Shares and Warrants including such amendments or supplements to the Registration Statement and Prospectus as may be reasonably required. The foregoing does not affect Investor's obligations pursuant to Section 7.2(a). 7.7 Liquidated Damages. The Company and Investor agree that Investor will suffer damages if the Company fails to fulfill its obligations pursuant to Section 7.1 and 7.2 hereof and that it would not be possible to ascertain the extent of such damages with precision. Accordingly, the Company hereby agrees to pay liquidated damages ("Liquidated Damages") to Investor under the following circumstances: (a) if the Registration Statement is not filed by the Company on or prior to 30 days after the Closing Date (such an event, a "Filing Default"); (b) if the Registration Statement is not declared effective by the SEC on or prior to the 90th day after the Closing Date (such an event, an "Effectiveness Default"); or (c) if the Registration Statement (after its effectiveness date) ceases to be effective and available to Investor for any continuous period that exceeds 30 days or for one or more period that exceeds in the aggregate 60 days in any 12-month period (such an event, a "Suspension Default" and together with a Filing Default and an Effectiveness Default, a "Registration Default"). In the event of a Registration Default, the Company shall as Liquidated Damages pay to Investor, for each 30 day period of a Registration Default, an amount in cash equal to 1% of the aggregate purchase price paid by Investor pursuant to this Agreement up to a maximum of 10% of the aggregate purchase price of the Shares, provided that Liquidation Damages in respect of a Suspension Default shall not be payable in relation to any Shares not owned by the Investor at the time of the Suspension Default. The Company shall pay the Liquidated Damages as follows: (i) in connection with a Filing Default, on the 30th day after the Closing Date, and each 16th day thereafter until the Registration Statement is filed with the SEC; (ii) in connection with an Effectiveness Default, on the 91st day after the Closing Date and each 30th day thereafter until the Registration Statement is declared effective by the SEC; or (iii) in connection with a Suspension Default, on either (x) the 31st consecutive day of any Suspension or (y) the 61st day (in the aggregate) of any Suspensions in any 12-month period, and each 30th day thereafter until the Suspension is terminated in accordance with Section 7.2. Notwithstanding the foregoing, the Company shall have no liability for Liquidated Damages to any Investor who is not named in an effective Registration Statement as a result of any action or inaction of such Investor. The Liquidated Damages payable herein shall apply on a pro rata basis for any portion of a 30-day period of a Registration Default. 8. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed (A) if within the United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, or (B) if delivered from outside the United States, by International Federal Express (or other recognized international express courier) or facsimile, and shall be deemed given (i) if delivered by first-class registered or certified mail, three business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one business day after so mailed, (iii) if delivered by International Federal Express (or other recognized international express courier), two business days after so mailed, (iv) if delivered by facsimile, upon electronic confirmation of receipt and shall be delivered as addressed as follows: (a) if to the Company, to: ParkerVision, Inc. 8493 Baymeadows Way Jacksonville, FL 32256 Attn: Jeffrey Parker and Cindy Poehlman (b) with a copy to: Graubard Miller The Chrysler Building 405 Lexington Avenue, 19th Floor New York, NY 10174 Attn: David Alan Miller -23- (c) if to the Investor, at its address on the signature page hereto, or at such other address or addresses as may have been furnished to the Company in writing. 9. Changes. This Agreement may be modified, amended or waived only pursuant to a written instrument signed by the Company and (a) Investors holding a majority of the Shares issued and sold in the Offering, provided that such modification, amendment or waiver is made with respect to all Agreements and does not adversely affect the Investor without adversely affecting all Investors in a similar manner; or (b) the Investor. 10. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. 11. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York, without giving effect to the principles of conflicts of law. The parties hereby agree that all actions or proceedings arising directly or indirectly from or in connection with this Agreement shall be litigated only in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York located in New York County, New York. The Company consents and submits to the jurisdiction and venue of the foregoing courts and consents that any process or notice of motion or other application to either of said courts or a judge thereof may be serviced on the Company inside or outside the State of New York or the Southern District of New York (but with respect to any party hereto, such consent shall not be deemed a general consent to jurisdiction and service for any third parties) by registered mail, return receipt requested, directed to the Company at its address proved in or pursuant to this Agreement (and service so made shall be deemed complete three days after the same has been posted as aforesaid) or by personal service or in such other manner as may be permissible under the rules of said courts. The Company hereby waives any right to object to a proceeding in such courts based on inconvenience of the forum and waives any right to a jury trial in connection with any litigation pursuant to this Agreement. 13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. 14. Entire Agreement. This Agreement and the Warrants constitute the entire agreement between the parties hereto and supersedes any prior understandings or agreements concerning the purchase and sale of the Shares and the resale registration of the Shares. 15. Rule 144. The Company covenants that it will timely file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Investor holding Shares purchased hereunder or Warrant Shares purchased under the Warrants made after the first anniversary of the Closing Date, make publicly available such information as necessary to permit sales pursuant to Rule 144 under the Securities Act), and it will take such further action as any such Investor may reasonably request, all to the extent required from time to time to enable such Investor to sell Shares purchased hereunder and Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of the Investor, the Company will deliver to such holder a written statement as to whether it has complied with such information and requirements. -24- 16. Confidential Information. (a) The Investor represents to the Company that, at all times during the Company's offering of the Shares, the Investor has maintained in confidence (i) all the material terms and conditions of the transaction contemplated by the Agreements and the Warrants and (ii) the 2004 Preliminary Year End Information provided to Investors (collectively, the "Confidential Information"), and covenants that it will continue to maintain in confidence such Confidential Information until the earlier of (i) such Confidential Information becomes generally publicly available other than through a violation of this provision by the Investor or its agents or (ii) March 31, 2005. (b) The Company shall on the Closing Date issue a press release disclosing the material terms of the transactions contemplated hereby (including at least the number of Shares and Warrants sold and proceeds therefrom). The Company shall not publicly disclose the name of Investor, or include the name of Investor in any filing with the SEC or any state and federal regulatory agency or the Nasdaq (other than the filing of the Agreements with the SEC pursuant to the Exchange Act), without the prior written consent of Investor, except to the extent such disclosure is required by law, regulation or Nasdaq regulations. The Company shall publicly disclose the 2004 Preliminary Year End Information on or prior to March 31, 2005. 17. No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 18. Knowledge. The term "knowledge" in this Agreement shall mean the knowledge of the directors and officers of the Company after due inquiry. -25- PARKERVISION, INC. INVESTOR QUESTIONNAIRE (ALL INFORMATION WILL BE TREATED CONFIDENTIALLY) To: ParkerVision, Inc. 8493 Baymeadows Way Jacksonville, FL 32256 This Investor Questionnaire ("Questionnaire") must be completed by each potential investor in connection with the offer and sale of the shares of the common stock, par value $.01 per share (the "Common Stock"), and Warrants to purchase shares of Common Stock, of ParkerVision, Inc. (collectively the "Securities"). The Securities are being offered and sold by ParkerVision, Inc. (the "Corporation") without registration under the Securities Act of 1933, as amended (the "Act"), and the securities laws of certain states, in reliance on the exemptions contained in Section 4(2) of the Act and on Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws. The Corporation must determine that a potential investor meets certain suitability requirements before offering or selling Securities to such investor. The purpose of this Questionnaire is to assure the Corporation that each investor will meet the applicable suitability requirements. The information supplied by you will be used in determining whether you meet such criteria, and reliance upon the private offering exemption from registration is based in part on the information herein supplied. This Questionnaire does not constitute an offer to sell or a solicitation of an offer to buy any security. Your answers will be kept strictly confidential. However, by signing this Questionnaire you will be authorizing the Corporation to provide a completed copy of this Questionnaire to such parties as the Corporation deems appropriate in order to ensure that the offer and sale of the Securities will not result in a violation of the Act or the securities laws of any state and that you otherwise satisfy the suitability standards applicable to purchasers of the Securities. All potential investors must answer all applicable questions and complete, date and sign this Questionnaire. Please print or type your responses and attach additional sheets of paper if necessary to complete your answers to any item. A. BACKGROUND INFORMATION Name: --------------------------------------------------------------------------- Business Address: --------------------------------------------------------------- (Number and Street) (City) (State) (Zip Code) Telephone Number: (___) -------------------------------------------------------- Residence Address: -------------------------------------------------------------- (Number and Street) (City) (State) (Zip Code) Telephone Number: (___) -------------------------------------------------------- If an individual: Age: Citizenship: Where registered ----- ------------ to vote: ----------------- If a corporation, partnership, limited liability company, trust or other entity: Type of entity: -------------------------------------------------------- State of formation: Date of formation: --------------------- -------------------- -26- Social Security or Taxpayer Identification No. ---------------------------------- Send all correspondence to (check one): __Residence Address __Business Address Current ownership of securities of the Corporation: __________ shares of common stock, par value $.01 per share (the "Common Stock") options to purchase __________ shares of Common Stock. B. STATUS AS ACCREDITED INVESTOR I. The undersigned is an "accredited investor" as such term is defined in Regulation D under the Act, as at the time of the sale of the Securities the undersigned falls within one or more of the following categories (Please initial one or more, as applicable): ____ (1) a bank as defined in Section 3(a)(2) of the Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the Act; an investment company registered under the Investment Corporation Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; a Small Business Investment Corporation licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with the investment decisions made solely by persons that are accredited investors; ____ (2) a private business development company as defined in Section 202(a)(22) of the Investment Adviser Act of 1940; ____ (3) an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities offered, with total assets in excess of $5,000,000; ____ (4) a natural person whose individual net worth, or joint net worth with that person's spouse, at the time of such person's purchase of the Securities exceeds $1,000,000; ____ (5) a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; ____ (6) a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; and ____ (7) an entity in which all of the owners are accredited investors (as defined above). II. The undersigned is not an "accredited investor" as such term is defined in Regulation D under the Act, as at the time of the sale of the Securities, and each of the following statements is true and correct: _________ (initial) (a) The Company has made available to the undersigned, during the course of this transaction and prior to the acquisition of the Securities, the opportunity to ask questions of and receive complete and correct answers from representatives of the Company concerning the terms and conditions of the Securities and to obtain any additional information relating to the financial condition and business of the Company; -27- (b) The undersigned has such knowledge and experience in financial and business matters that the undersigned is capable of evaluating the merits and risks of the investment in the Securities; (c) The undersigned has received or been given access to all information required to be furnished to the undersigned pursuant to Rule 502(b) of the Securities Act. C. REPRESENTATIONS The undersigned hereby represents and warrants to the Corporation as follows: 1. Any purchase of the Securities would be solely for the account of the undersigned and not for the account of any other person or with a view to any resale, fractionalization, division, or distribution thereof. 2. The information contained herein is complete and accurate and may be relied upon by the Corporation. 3. There are no suits, pending litigation, or claims against the undersigned that could materially affect the net worth of the undersigned as reported in this Questionnaire. 4. The undersigned acknowledges that there may occasionally be times when the Corporation determines that it must suspend the use of the Prospectus forming a part of the Registration Statement (as such terms are defined in the Stock Purchase Agreement to which this Questionnaire is attached), as set forth in Section 7.2(c) of the Stock Purchase Agreement. The undersigned is aware that, in such event, the Securities will not be subject to ready liquidation, and that any Securities purchased by the undersigned would have to be held during such suspension. The overall commitment of the undersigned to investments which are not readily marketable is not excessive in view of the undersigned's net worth and financial circumstances, and any purchase of the Securities will not cause such commitment to become excessive. The undersigned is able to bear the economic risk of an investment in the Securities. 5. The undersigned has carefully considered the potential risks relating to the Corporation and a purchase of the Securities, and fully understands that the Securities are speculative investments which involve a high degree of risk of loss of the undersigned's entire investment. Among others, the undersigned has carefully considered each of the risks identified in the Exchange Act Documents. IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this 10th day of March, 2005, and declares under oath that it is truthful and correct. Print Name By: -------------------------------------------- Signature Title: ----------------------------------------- (required for any purchaser that is a corporation, partnership, trust or other entity) -28- [COMPANY LETTERHEAD] _________, 200_ Re: ParkerVision, Inc.; Registration Statement on Form S-3 Dear Selling Shareholder: Enclosed please find five (5) copies of a prospectus dated ______________, 200[__] (the "Prospectus") for your use in reselling your shares of common stock, $.01 par value (the "Shares"), of ParkerVision, Inc. (the "Company"), under the Company's Registration Statement on Form S-3 (Registration No. 333- ) (the "Registration Statement"), which has been declared effective by the Securities and Exchange Commission. AS A SELLING SHAREHOLDER UNDER THE REGISTRATION STATEMENT, YOU HAVE AN OBLIGATION TO DELIVER A COPY OF THE PROSPECTUS TO EACH PURCHASER OF YOUR SHARES, EITHER DIRECTLY OR THROUGH THE BROKER-DEALER WHO EXECUTES THE SALE OF YOUR SHARES. The Company is obligated to notify you in the event that it suspends trading under the Registration Statement in accordance with the terms of the Stock and Warrant Purchase Agreement between the Company and you. During the period that the Registration Statement remains effective and trading thereunder has not been suspended, you will be permitted to sell your Shares which are included in the Prospectus under the Registration Statement. Upon a sale of any Shares under the Registration Statement, you or your broker will be required to deliver to the Transfer Agent, [Name of Transfer Agent] (1) your restricted stock certificate(s) representing the Shares, (2) instructions for transfer of the Shares sold, and (3) a representation letter from your broker, or from you if you are selling in a privately negotiated transaction, or from such other appropriate party, in the form of Exhibit A attached hereto (the "Representation Letter"). The Representation Letter confirms that the Shares have been sold pursuant to the Registration Statement and in a manner described under the caption "Plan of Distribution" in the Prospectus and that such sale was made in accordance with all applicable securities laws, including the prospectus delivery requirements. Please note that you are under no obligation to sell your Shares during the registration period. However, if you do decide to sell, you must comply with the requirements described in this letter or otherwise applicable to such sale. Your failure to do so may result in liability under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Please remember that all sales of your Shares must be carried out in the manner set forth under the caption "Plan of Distribution" in the Prospectus if you sell under the Registration Statement. The Company may require an opinion of counsel reasonably satisfactory to the Company if you choose another method of sale. YOU SHOULD CONSULT WITH YOUR OWN LEGAL ADVISOR(S) ON AN ONGOING BASIS TO ENSURE YOUR COMPLIANCE WITH THE RELEVANT SECURITIES LAWS AND REGULATIONS. IN ORDER TO MAINTAIN THE ACCURACY OF THE PROSPECTUS, YOU MUST NOTIFY THE UNDERSIGNED UPON THE SALE, GIFT, OR OTHER TRANSFER OF ANY SHARES BY YOU, INCLUDING THE NUMBER OF SHARES BEING TRANSFERRED, AND IN THE EVENT OF ANY OTHER CHANGE IN THE INFORMATION REGARDING YOU WHICH IS CONTAINED IN THE PROSPECTUS. FOR EXAMPLE, YOU MUST NOTIFY THE UNDERSIGNED IF YOU ENTER INTO ANY ARRANGEMENT WITH A BROKER-DEALER FOR THE SALE OF SHARES THROUGH A BLOCK TRADE, SPECIAL OFFERING, EXCHANGE DISTRIBUTION OR SECONDARY DISTRIBUTION OR A PURCHASE BY A BROKER-DEALER. DEPENDING ON THE CIRCUMSTANCES, SUCH TRANSACTIONS MAY REQUIRE THE FILING OF A SUPPLEMENT TO THE PROSPECTUS IN ORDER TO UPDATE THE INFORMATION SET FORTH UNDER THE CAPTION "PLAN OF DISTRIBUTION" IN THE PROSPECTUS. Should you need any additional copies of the Prospectus, or if you have any questions concerning the foregoing, please write to me at ParkerVision, Inc., 8493 Baymeadows Way, Jacksonville, FL 32256. Thank you. Sincerely, -29- Exhibit A CERTIFICATE OF SUBSEQUENT SALE [Name of Transfer Agent] [Address of Transfer Agent] RE: Sale of Shares of Common Stock of ParkerVision, Inc. (the "Company") pursuant to the Company's Prospectus dated ________, 200[__] (the "Prospectus") Dear Sir/Madam: The undersigned hereby certifies, in connection with the sale of shares of Common Stock of the Company included in the table of Selling Shareholders in the Prospectus, that the undersigned has sold the shares pursuant to the Prospectus and in a manner described under the caption "Plan of Distribution" in the Prospectus and that such sale complies with all securities laws applicable to the undersigned, including, without limitation, the Prospectus delivery requirements of the Securities Act of 1933, as amended. Selling Shareholder (the beneficial owner): Record Holder (e.g., if held in name of nominee): ------------------------------- Restricted Stock Certificate No.(s): -------------------------------------------- Number of Shares Sold: ---------------------------------------------------------- Date of Sale: ------------------------------------------------------------------- In the event that you receive a stock certificate(s) representing more shares of Common Stock than have been sold by the undersigned, then you should return to the undersigned a newly issued certificate for such excess shares in the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you should place a stop transfer on your records with regard to such certificate. Very truly yours, Dated: By: ----------------------- -------------------------------------- Print Name: ------------------------------ Title: ----------------------------------- cc: ParkerVision, Inc. 8493 Baymeadows Way Jacksonville, FL 32256 Attn: Chief Financial Officer -30- Exhibit B FORM OF PLAN OF DISTRIBUTION The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein: - ordinary brokerage transactions and transactions in which the broker- dealer solicits purchasers; - block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; - purchases by a broker-dealer as principal and resale by the broker- dealer for its account; - an exchange distribution in accordance with the rules of the applicable exchange; - privately negotiated transactions; - short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC; - through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; - broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; - a combination of any such methods of sale; and - any other method permitted pursuant to applicable law. The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus. In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. After the effectiveness of the registration statement, the selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). -31- The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering. Upon any exercise of the warrants by payment of cash, however, we will receive the exercise price of the warrants. The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule. The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be "underwriters" within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are "underwriters" within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus. In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with. We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act. We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus. We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which the shares may be sold pursuant to Rule 144(k) of the Securities Act. -32-
EX-10.30 4 v014332_ex10-30.txt EXHIBIT 10.30 LIST OF INVESTORS FOR SUBSCRIPTION AGREEMENT AND WARRANT LIST OF INVESTORS Number Number Name of Investor of Shares of Warrants - ---------------- --------- ----------- Special Situations Fund III, L.P. 320,000 80,000 Special Situations Cayman Fund, L.P. 80,000 20,000 Special Situations Private Equity Fund, L.P. 172,000 43,000 Special Situations Technology Fund, L.P. 32,000 8,000 Special Situations Technology Fund II, L.P. 196,000 49,000 Goldman Sachs Asset Management, L.P. 120,000 30,000 SEI Institutional Investments Trust Small Cap Fund 25,000 6,250 Optimix Investment Management Limited 19,000 4,750 SEI U.S. Small Companies Fund 12,000 3,000 J B Were Global Small Companies Fund 6,500 1,625 SEI Institutional Investments Trust, Small Cap Fund 30,000 7,500 Seligman Global Fund Series, Inc. 40,000 10,000 SEI Institutional Managed Trust, Small Cap Growth Fund 70,000 17,500 Pension Plan for Management and Professional Employees of Telus Corporation 1,500 375 Retail Employees Superannuation Trust 13,000 3,250 TELUS Corporation Foreign Equity Active Pool 3,500 875 Wellington Management Portfolios (Dublin) - Global Smaller Companies Equity Portfolio 20,500 5,125 J B Were Global Small Companies Pooled Fund 50,000 12,500 Telstra Super Pty Ltd. 8,000 2,000 Clifford J. Kalista 401K 50,000 12,500 Phyllis D. Kalista 401K 10,000 7,500 Clifford J. Kalista and Phyllis D. Kalista JTWROS 60,000 15,000 Lyxor/Balboa Fund, Ltd. 116,100 29,025 The Chelonia Fund, LP 13,500 3,375 The Balboa Fund, Ltd. 30,600 7,650 The Balboa Fund, LP 39,800 9,950 Jody Miller 10,000 2,500 Sandor Capital Master Fund LP 34,000 8,500 David Cumming 5,280 1,320 PRAMHOLD & Co. 80,000 20,000 Banco Del Gottardo 66,666 16,666 Precept Capital Master Fund, GP 33,333 8,333 William J. Harrison 10,000 2,500 Robert S. Colman Trust u/d/t 3/13/85 50,000 12,500 Sherleigh Associates Defined Benefits Pension Plan 133,333 33,333 Sherleigh Associates Profit Sharing Plan 133,333 33,333 Northwood Capital Partners, L.P. 75,000 18,750 Cabernet Partners, L.P. 50,000 12,500 Chardonnay Partners, L.P. 20,000 5,000 VFT Special Ventures, Ltd. 20,023 5,005 Insignia Partners, L.P. 60,000 15,000 Sean McDermott 3,000 750 Anthony McDermott 22,000 5,500 Richard A. Jacoby 10,000 2,500 The Ecker Family Partnership 10,000 2,500 Amir L. Ecker 25,000 6,250 Amir L. Ecker IRA_UBS Financial Services Custodian 30,000 7,500 Dennis L. Adams 50,000 12,500 SRB Greenway Capital, L.P. 15,186 3,796 SRB Greenway Capital, (QP), L.P. 108,146 27,036 SRB Greenway Offshore Operating Fund, L.P. 10,001 2,500 SF Capital 133,333 33,333 ACT Capital Partners, LP 50,000 12,500 Barbara Parker 46,666 11,666 Brenda Mittelman 10,000 2,500 Henry Mittelman Revocable Living Trust 30,000 7,500 Gregory L. Berlacher 6,700 1,675 EX-22.1 5 v014332_ex22-1.txt EXHIBIT 22.1 Table of Subsidiaries Name State of Incorporation - ------------------ ----------------------------------------- D2D, LLC Virginia EX-23.1 6 v014332_ex23-1.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-58286, 333-106798, and No. 333-110712) and the Registration Statements on Form S-8 (Nos. 33-93658, 333-43452, 333-62497, and 333-89284) of ParkerVision, Inc. of our report dated March 16, 2005 relating to the consolidated financial statements, consolidated financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP - ---------------------------------------- PricewaterhouseCoopers LLP Jacksonville, Florida March 16, 2005 EX-31.1 7 v014332_ex31-1.txt EXHIBIT 31.1 SECTION 302 CERTIFICATION I, Jeffrey L. Parker, certify that: 1. I have reviewed this Annual Report on Form 10-K of ParkerVision, Inc.; 2. based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 16, 2005 Name:/s/Jeffrey L. Parker -------------- -------------------- Title: Chief Executive Officer ----------------------- EX-31.2 8 v014332_ex31-2.txt EXHIBIT 31.2 SECTION 302 CERTIFICATION I, Cynthia Poehlman certify that: 1. I have reviewed this Annual Report on Form 10-K of ParkerVision, Inc.; 2. based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 16, 2005 Name:/s/Cynthia Poehlman ------------------- Title: Chief Financial Officer ----------------------- EX-32.1 9 v014332_ex32-1.txt EXHIBIT 32.1 SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of ParkerVision, Inc. (the "Company") on Form 10-K for the period ended December 31, 2004 as filed with the Securities and Exchange Commission (the "Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: March 16, 2005 Name:/s/Jeffrey L. Parker Title: Chief Executive Officer Dated: March 16, 2005 Name:/s/Cynthia Poehlman Title: Chief Financial Officer
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