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NETGEAR, INC
FORM 10-K
(Annual Report)
Filed 02/26/13 for the Period Ending 12/31/12
Address 350 EAST PLUMERIA DRIVE
SAN JOSE, CA 95134
Telephone 4089078000
CIK 0001122904
Symbol NTGR
SIC Code 3661 - Telephone and Telegraph Apparatus
Industry Communications Services
Sector Services
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2013, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ...SAN JOSE, CA 95134 4089078000 0001122904 NTGR 3661 - Telephone and Telegraph Apparatus Communications Services Services 12/31 http://www.edgar-online.com © Copyright 2013, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use...

  • Page 2
    ... Drive, San Jose, California (Address of principal executive offices) 95134 (Zip Code) Registrant's telephone number, including area code (408) 907-8000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $0.001 Name of each exchange on which...

  • Page 3
    1

  • Page 4
    ... Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and...

  • Page 5
    ...and digital media products to connect users with the Internet and their content and devices. The commercial business unit consists of business networking, storage and security solutions without the cost and complexity of Big IT. The service provider business unit consists of made-to-order and retail...

  • Page 6
    ... in our Powershift partner program. DMRs and VARs may receive sales incentives, marketing support and other program benefits from us. Our DMRs and VARs generally purchase our products through our wholesale distributors. Broadband Service Providers. We also supply our products directly to broadband...

  • Page 7
    ...Products that enable network connectivity and resource sharing are sold in our service provider and retail business units and include Wireless access points and range extenders, which provide a wireless link between a wired network and wireless devices; Wireless network interface cards and adapters...

  • Page 8
    ... business broadband access include firewall, virtual private network and content threat management capabilities that allow for secure interactions between remote offices and business headquarter locations over the Internet. Our connectivity product offerings for the commercial business market...

  • Page 9
    ... development department in order to effectively evaluate new third-party technologies, develop new in-house technologies, and develop and test new products. Our research and development employees work closely with our technology and manufacturing partners to bring our products to market in a timely...

  • Page 10
    ... Ethernet switches and Internet gateway products, and wireless local area network chipsets, which are used in all of our wireless products, from a limited number of suppliers. Our third party manufacturers generally purchase these components on our behalf on a purchase order basis. If these sources...

  • Page 11
    ...Wifi Works, My Media, and X-RAID. We have registered a number of Internet domain names that we use for electronic interaction with our customers including dissemination of product information, marketing programs, product registration, sales activities, and other commercial uses. Seasonal Business We...

  • Page 12
    ...enable everyone in the world to connect to the high speed Internet for information, communication, business transactions, education, and entertainment. From 1983 until 1995, Mr. Lo worked at Hewlett-Packard Company, where he served in various management positions in sales, technical support, product...

  • Page 13
    ... Microcomputer Products, a manufacturer of dial-up modems, where he was head of their retail, e-commerce and DMR channels in the UK. Mr. Soares attended Ridley College, Ontario Canada. Michael F. Falcon has served as our Senior Vice President of Worldwide Operations and Support since January 2009...

  • Page 14
    ... failure to manage our sales channel inventory and warehousing requirements; delay or failure to fulfill orders for our products on a timely basis; allowance for bad debts exposure with our existing customers and new customers, particularly as we expand into new international markets; disruptions or...

  • Page 15
    ... other companies; failure to effectively manage our third party customer support partners which may result in customer complaints and/or harm to the NETGEAR brand; our inability to monitor and ensure compliance with our anti-corruption compliance program and domestic and international anticorruption...

  • Page 16
    ... as televisions, set top boxes and gaming consoles, and our channel customers who may decide to offer self-branded networking products. We also face competition from service providers who may bundle a free networking device with their broadband service offering, which would reduce our sales if we...

  • Page 17
    ... depend in large part upon our ability to identify demand trends in the commercial business, retail, and service provider markets and quickly develop or acquire, and manufacture and sell products that satisfy these demands in a cost effective manner. In order to differentiate our products from our...

  • Page 18
    ... jacks, plastic casings and physical layer transceivers. We also obtain switching fabric semiconductors, which are used in our Ethernet switches and Internet gateway products, and wireless local area network chipsets, which are used in all of our wireless products, from a limited number of suppliers...

  • Page 19
    ... sales channels, we may incur increased and unexpected costs associated with this inventory. We generally allow wholesale distributors and traditional retailers to return a limited amount of our products in exchange for other products. Under our price protection policy, if we reduce the list price...

  • Page 20
    ... product lines and technologies, gain new sales channels or enter into new sales territories. For example, we recently closed two acquisitions. First, in June 2012 we acquired select assets of a small engineering operation in India to enhance our wireless product offerings in our commercial business...

  • Page 21
    ... who may be new to us; overcoming the employee, customer, vendor and supplier turnover that may occur as a result of the acquisition; diverting management's attention from running the day to day operations of our business; and potential post-closing disputes. As part of undertaking an acquisition...

  • Page 22
    ... to competition, such as higher prices, restricted supply, or a reduction in the quality or variety of products available to consumers. We utilize a number of different distribution channels to deliver our products to the end consumer, and regularly enter agreements with resellers of our products at...

  • Page 23
    ... the contemplated closing of the acquisition of the Sierra Wireless AirCard business. The service provider business is challenging and exceptionally competitive. We face a number of challenges associated with penetrating, marketing and selling to the broadband service provider channel that differ...

  • Page 24
    ... limited number of service providers worldwide and the long sales cycles to close deals. For example, Liberty Global, a service provider with operations worldwide, announced in February 2013 that it is entering into an agreement to acquire Virgin Media Limited, one of our significant customers...

  • Page 25
    ... our sales channels. Our sales channels consist of traditional retailers, online retailers, DMRs, VARs, and broadband service providers. Some of these entities purchase our products through our wholesale distributor customers. We generally have no minimum purchase commitments or long-term contracts...

  • Page 26
    ... increased costs have affected our margins and ability to lower prices for our products to stay competitive. Recent labor unrest in China may also affect our ODMs as workers may strike and cause production delays. If our third party manufacturers fail to maintain good relations with their employees...

  • Page 27
    ... malicious software programs that are designed to attack our products and systems, including our internal network, or those of our vendors or customers. Additionally, outside parties may attempt to fraudulently induce our employees or users of our products to disclose sensitive information in order...

  • Page 28
    ...increased product returns, loss of customers and market share, and increased service, warranty and insurance costs. In addition, our reputation and brand could be damaged, and we could face legal claims regarding our products. A product liability or other claim could result in negative publicity and...

  • Page 29
    ... around the world to further our strategic objectives and support our key business initiatives. These investments may include equity or debt instruments of public or private companies, and may be non-marketable at the time of our initial investment. We do not restrict the types of companies in which...

  • Page 30
    ...to offer new or competitive products and increase our costs of production. As a result, our margins, market share, and operating results could be significantly harmed. We also utilize third-party software development companies to develop, customize, maintain and support software that is incorporated...

  • Page 31
    ...continue to develop and market more products containing third-party software, such as our TV connectivity, security and network attached storage products. If the redemption rate for our end-user promotional programs is higher than we estimate, then our net revenue and gross margin will be negatively...

  • Page 32
    ... a competitive disadvantage and harm our business. These new disclosures about our performance may also cause our stock price to decline. As part of this expansion and reorganization, we have also commenced utilizing an alternative customer support model for certain of our end user technical support...

  • Page 33
    ... principal administrative, sales, marketing and research and development facilities currently occupy approximately 142,700 square feet in an office complex in San Jose, California, under a lease that expires in March 2018. Our international headquarters occupy approximately 10,000 square feet in an...

  • Page 34
    ... with outside manufacturing vendors as needed to meet anticipated demand for our products. We use third parties to provide warehousing services to us, consisting of facilities in Southern California, Australia, Hong Kong and the Netherlands. Item 3. Legal Proceedings The information set forth under...

  • Page 35
    ... Contents Company Performance Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed "filed" with the SEC or "soliciting material" under the Exchange Act...

  • Page 36
    ... by the Company Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Period Total Number of Shares Purchased (2) Average Price Paid per Share Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2012 - October 28, 2012 October...

  • Page 37
    .... Year Ended December 31, 2012 2011 2010 2009 2008 (In thousands, except per share data) Consolidated Statement of Operations Data: Net revenue Cost of revenue (2) Gross profit Operating expenses: Research and development (2) Sales and marketing (2) General and administrative (2) Restructuring...

  • Page 38
    Table of Contents (2) Stock-based compensation expense was allocated as follows: Year Ended December 31, 2012 2011 2010 (In thousands) 2009 2008 Cost of revenue Research and development Sales and marketing General and administrative $ 1,347 2,787 4,751 5,487 $ 999 2,476 5,136 5,151 $ 913 2,...

  • Page 39
    ... powerline, with a focus on reliability and ease-of-use. Our product line consists of wired and wireless devices that enable networking, broadband access and network connectivity. These products are available in multiple configurations to address the needs of our end-users in each geographic region...

  • Page 40
    ... in our commercial business unit, driven by our newer products in 10Gig Ethernet switches, Unified Storage, and campus wireless LAN targeting the move into the Hybrid Cloud and Access Network environment among small and medium enterprises. In addition, we will continue to closely manage our expenses...

  • Page 41
    .... We analyze historical returns, channel inventory levels, current economic trends and changes in customer demand for our products when evaluating the adequacy of the allowance for sales returns, namely stock rotation returns. Our estimated allowances for returns due to stock rotation can vary from...

  • Page 42
    ... the two-step impairment test for each reporting unit was unnecessary. No goodwill impairment was recognized in the years ended December 31, 2012, 2011 or 2010. We do not believe it is likely that there will be a material change in the estimates or assumptions we use to test for impairment losses on...

  • Page 43
    Table of Contents likely-than-not recognition threshold should be measured in order to determine the tax benefit to be recognized in the financial statements. We include interest expense and penalties related to uncertain tax positions as additional tax expense. 39

  • Page 44
    ...for the periods indicated: Year Ended December 31, 2012 % Change 2011 % Change 2010 (In thousands, except percentage data) Net revenue Cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Restructuring and other charges Litigation...

  • Page 45
    ... product shipments, less allowances for estimated returns for stock rotation and warranty, price protection, end-user customer rebates and other sales incentives deemed to be a reduction of net revenue and net changes in deferred revenue. Year Ended December 31, 2012 % Change 2011 % Change 2010...

  • Page 46
    ...to better manage our product costs and gross margin. Our gross margin can be affected by a number of factors, including fluctuation in foreign exchange rates, sales returns, changes in average selling prices, end-user customer rebates and other sales incentives, and changes in our cost of goods sold...

  • Page 47
    ... and expand into new software and networking product technologies. The following table presents research and development expense, for the periods indicated: Year Ended December 31, 2012 % Change 2011 % Change 2010 (In thousands, except percentage data) Research and development expense Percentage...

  • Page 48
    ... 31, 2012 , from $2.1 million for year ended December 31, 2011 . The expense of $1.2 million was primarily due to employee severance attributable to the consolidation of product groups and the consolidation of the EMEA sales team within our commercial business unit. 2011 vs 2010 Restructuring and...

  • Page 49
    ... of Part II of this Annual Report on Form 10-K. During the year ended December 31, 2011, we recorded a litigation reserve benefit of $201,000 for estimated costs related to the settlement of potential lawsuits or lawsuits already filed against us. During the year ended December 31, 2010, we recorded...

  • Page 50
    ... structure or business may result in changes to the reportable segments disclosed. Segment contribution income includes all product line segment net revenues less the related cost of sales, research and development, and sales and marketing costs. Contribution income is used, in part, to evaluate...

  • Page 51
    ...investments in research and development, as well as product management and marketing costs. 2011 vs 2010 We experienced strong net revenue growth in the retail business unit from 2010 to 2011. The increase was mainly driven by a 34.5% increase in the revenue from our home wireless-N product line due...

  • Page 52
    ... We experienced strong net revenue growth in the commercial business unit from 2010 to 2011. The increase was driven by an increase in demand across our product lines. In particular, revenue from our network storage product line and switch products increased by 15.1% and 18.6%, respectively. We also...

  • Page 53
    ... on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of our common stock. We did not repurchase any shares under this authorization during the years ended December 31, 2012 , 2011 or 2010 . We also repurchase shares to help...

  • Page 54
    ... dates through December 2026. Rent expense in the years ended December 31, 2012 , 2011 , and 2010 was $7.6 million , $7.0 million and $6.4 million , respectively. The terms of some of the office leases provide for rental payments on a graduated scale. We recognize rent expense on a straight-line...

  • Page 55
    ... associated with foreign exchange rate fluctuations due to our international sales and operating activities. These exposures may change over time as business practices evolve and could negatively impact our operating results and financial condition. We began using foreign currency forward contract...

  • Page 56
    ... 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...

  • Page 57
    ...NETGEAR, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2012 December 31, 2011 ASSETS Current assets: Cash and cash equivalents Short-term... Current liabilities: Accounts payable Accrued employee compensation Other accrued liabilities Deferred revenue...

  • Page 58
    Table of Contents NETGEAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2012 2011 2010 Net revenue Cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Restructuring and ...

  • Page 59
    Table of Contents NETGEAR, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended December 31, 2012 2011 2010 Net income Other comprehensive (loss) income, before tax: Unrealized (loss) gain on derivative instruments Unrealized gain on available-for-sale securities Other ...

  • Page 60
    ... NETGEAR, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Common Stock Additional Paid-In Capital Cumulative Other Comprehensive Income (Loss) Shares Amount Retained Earnings Total Balance at December 31, 2009 Change in unrealized gains and losses on available-for-sale...

  • Page 61
    ... made in connection with business acquisitions, net of cash acquired Net cash used in investing activities Cash flows from financing activities: Purchase and retirement of common stock Proceeds from exercise of stock options Proceeds from issuance of common stock under employee stock purchase plan...

  • Page 62
    ... and digital media products to connect people with the Internet and their content and devices. For businesses, the Company provides networking, storage and security solutions without the cost and complexity of Big IT. The Company also supplies leading service providers with made-to-order and retail...

  • Page 63
    ... investments are held and managed by recognized financial institutions. The Company's customers are primarily distributors as well as retailers and broadband service providers who sell or distribute the products to a large group of end-users. The Company maintains an allowance for doubtful accounts...

  • Page 64
    ... goods which are valued at the lower of cost or market, with cost being determined using the first-in, first-out method. The Company writes down its inventories based on estimated excess and obsolete inventories determined primarily by future demand forecasts. At the point of loss recognition, a new...

  • Page 65
    ... the two-step impairment test for each reporting unit was unnecessary. No goodwill impairment was recognized in the years ended December 31, 2012 , 2011 or 2010 . Long-lived assets Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic...

  • Page 66
    ...of the two-step impairment test for each reporting unit was unnecessary. No impairments to long-lived assets were recognized in the years ended December 31, 2012 , 2011 and 2010 . Product warranties The Company provides for estimated future warranty obligations at the time revenue is recognized. The...

  • Page 67
    ... current period product revenue. Management analyzes historical returns, channel inventory levels, current economic trends and changes in customer demand for the Company's products when evaluating the adequacy of the allowance for sales returns, namely warranty and stock rotation returns. Revenue on...

  • Page 68
    ...retail business unit product offerings and expand its presence into the smart home market. The Company paid $21.6 million of the aggregate purchase price in the third quarter of 2012, and expects to pay the remaining $2.4 million , less amounts used to satisfy certain potential claims, twelve months...

  • Page 69
    ...date of the acquisition after consideration of limitations on the use under U.S. Internal Revenue Code section 382. The deferred tax assets are reduced by deferred tax liabilities recorded for the book basis in intangible assets and in-process research and development ("IPR&D") for which the Company...

  • Page 70
    ... is not material. The Company paid $6.6 million of the aggregate purchase price in the second quarter of 2012, and expects to pay the remaining $0.6 million , less amounts used to satisfy certain claims, twelve months after the closing of the acquisition. The ongoing costs of developing these assets...

  • Page 71
    ...Leaf Networks, LLC ("Leaf"), a developer of virtual networking software. The acquisition qualified as a business acquisition and was accounted for using the purchase method of accounting. The Company believes the acquisition will accelerate the Company's continuing networking technology research and...

  • Page 72
    ...million on the partial sale of one of its cost method investments. Accounts receivable, net As of December 31, 2012 December 31, 2011 Gross accounts receivable Allowance for doubtful accounts Allowance for sales returns Allowance for price protection Total allowances Total accounts receivable, net...

  • Page 73
    ... or abandonment of the associated research and development efforts. Accordingly, during the development period after the date of acquisition, these assets will not be amortized. When the asset reaches technical feasibility, the Company will determine the useful life of the asset, reclassify the...

  • Page 74
    ...the year ended December 31, 2012 and 2011 are as follows: New Segments Old Segment Retail Commercial Service Provider Total Goodwill at December 31, 2010 Relative fair value approach Net additions related to acquisitions Goodwill at December 31, 2011 Goodwill acquired during the period Goodwill at...

  • Page 75
    ... as a separate line item in its Consolidated Statements of Operations. During the year ended December 31, 2012 , the Company incurred $1.2 million in restructuring costs for employee severance related to the consolidation of product groups within our commercial business unit. The Company expects to...

  • Page 76
    ... or settled. Accordingly, the Company uses derivatives to mitigate its business exposure to foreign exchange risk. The Company enters into foreign currency forward contracts in Australian dollars, British pounds, Euros, and Japanese yen to manage the exposures to foreign exchange risk related to...

  • Page 77
    Table of Contents NETGEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cash flow hedges To help manage the exposure of operating margins to fluctuations in foreign currency exchange rates, the Company hedges a portion of its anticipated foreign currency revenue, costs of revenue and ...

  • Page 78
    ...2,257 - - 2,257 Net revenue Cost of revenue Operating expenses $ $ $...2012 , 2011 and 2010 . Non-designated hedges The Company enters into non-designated hedges under the authoritative guidance for derivatives and hedging to manage... program. The Company adjusts its non-designated hedges monthly and...

  • Page 79
    ... per share by application of the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of stock-based compensation cost for future services that the Company has not yet recognized, and the estimated tax benefit that...

  • Page 80
    Table of Contents NETGEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 8. Income Taxes Income before income taxes consists of the following (in thousands): Year Ended December 31, 2012 2011 2010 United States International Total $ $ 102,159 27,123 129,282 $ $ 79,318 44,892...

  • Page 81
    .... The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows: Year Ended December 31, 2012 2011 2010 Tax at federal statutory rate State, net of federal benefit Impact of international operations Stock-based compensation Tax credits Others Provision for...

  • Page 82
    ... for years before 2008. In 2011, the US federal Internal Revenue Service (IRS) commenced an audit of the Company's 2008 and 2009 tax years. The audit was completed in October 2012, and all issues under examination by the IRS were effectively settled. The Company has limited audit activity in various...

  • Page 83
    ...817 The Company has signed various employment agreements with key executives pursuant to which, if their employment is terminated without cause, such employees are entitled to receive their base salary (and commission or bonus, as applicable) for 52 weeks (for the Chief Executive Officer), 39 weeks...

  • Page 84
    ... no liabilities recorded for these agreements as of December 31, 2012 . In its sales agreements, the Company typically agrees to indemnify its direct customers, distributors and resellers for any expenses or liability resulting from claimed infringements of patents, trademarks or copyrights of third...

  • Page 85
    ...a new complaint, which Ruckus did. The initial case management conference occurred on February 11, 2010. On March 25, 2010, the Court ordered a stay until the completion of the reexamination proceedings instigated on the patents in NETGEAR I. Ruckus and the Company in December of 2012 requested that...

  • Page 86
    ...In addition, on May 6, 2011, Ruckus filed a motion to transfer venue to the Northern District of California. The Court denied Ruckus' motion to transfer the case to the Northern District of California and granted the Company leave to file an amended complaint rather than address the Ruckus motion to...

  • Page 87
    .... By July 3, 2012, the Court ordered the Defendants to file a status report reducing its number of prior art references and obviousness combinations, and Defendants filed the status report on the due date. The Court also limited Fujitsu to one motion for summary judgment and allowed Defendants to...

  • Page 88
    ..., XAVB5602 products. The Company answered the complaint on December 21, 2012. Through the Company's membership in RPX Corporation, a company whose market-based solution to patent litigation involves preemptive purchases of patents in the open market, a settlement of the Powerline I and Powerline II...

  • Page 89
    ... Call Management Services in a Virtual Private Network Using Voice or Video Over Internet Protocol" through Harris's VIDA Network and products, the VIDA Telephone Interconnect (VTI), the P7200 Portable Radio, the OpenSky Network and Products, the MASTR III Base Station, and EDACS MASTR III repeater...

  • Page 90
    ... devices from one access point to another so as to provide roaming within a wireless network. The complaint specifically accuses the Company's ProSafe wireless controller of infringing these three patents. On August 15, 2012, ReefEdge filed complaints in Delaware against Aruba Networks Inc., Cisco...

  • Page 91
    ... include integrated access device ("IAD") products that allow users to place and receive both telephone and VoIP calls over the same telephone line, and VIT specifically named the Company's DG 834GV Integrated ADSL2+ Modem and Wireless Router with Voice in the complaint. The Company believes that...

  • Page 92
    ...measures affecting the Company's products are minimum power supply efficiencies and may include required equipment standby modes, which also reduce energy consumption. The EuP Directive was repealed in November of 2009 and replaced by the Energy Related Products ("ErP") Directive, which includes the...

  • Page 93
    ... by an additional 2,500,000 shares. In July 2010, the Company adopted amendments to the 2006 Plan which increased the number of shares of the Company's common stock that may be issued under the 2006 plan by an additional 1,500,000 shares. In June 2012, the Company adopted amendments to the 2006 Plan...

  • Page 94
    ... purchase stock semi-annually at a price equal to 85% of the fair market value on the purchase date. Since the price of the shares is determined at the purchase date, the Company recognizes expense based on the 15% discount at purchase. For the years ended December 31, 2012 , 2011 , and 2010 , ESPP...

  • Page 95
    ... Company's closing stock price on the last trading day of 2012 and the exercise price, multiplied by the number of shares...WeightedAverage Exercise Price Per Share (In dollars) WeightedAverage Exercise Shares Exercisable (In thousands) Contractual Life (In years) Price Per Share (In dollars) $0.00...

  • Page 96
    ... estimated expected term. The following table sets forth the weighted-average assumptions used to fair value option grants during the years ended December 31, 2012 , 2011 and 2010 based on its historical experience: Year Ended December 31, 2012 Expected life (in years) 2011 2010 Risk-free interest...

  • Page 97
    ... unit consists of made-to-order and retail proven, whole home networking solutions sold to service providers for sale to their customers. Each business unit is managed by a Senior Vice President/General Manager. The Company believes this structure enables it to better focus its efforts on the...

  • Page 98
    ... using discrete asset information. Financial information for each reportable segment and a reconciliation of segment contribution income to income before income taxes is as follows (in thousands, except percentage data): Year Ended December 31, 2012 2011 2010 Net revenues: Retail Commercial Service...

  • Page 99
    ... returns and price protection. For reporting purposes revenue is attributed to each geographic region based on the location of the customer. The following table shows net revenue by geography for the periods indicated (in thousands): Year Ended December 31, 2012 2011 2010 United States Americas...

  • Page 100
    ..., 2012 and 2011 (in thousands): As of December 31, 2012 Quoted market prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Cash equivalents-money-market funds Available-for-sale securities-Treasuries (1) Available-for-sale...

  • Page 101
    ... of the service provider business unit to become a global leader in providing the latest in LTE data networking access devices. The transaction is subject to customary closing conditions, including the receipt of necessary regulatory clearances. Accordingly, the final purchase price is subject...

  • Page 102
    ..." included under Part I of this Annual Report on Form 10-K. We have adopted a Code of Ethics that applies to our Chief Executive Officer and senior financial officers, as required by the SEC. The current version of our Code of Ethics can be found on our Internet site at http://www.netgear.com...

  • Page 103
    ... requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Ethics by posting such information on our website at http://www.netgear.com within four business days following the date of such amendment or waiver. Item 11. Executive Compensation The...

  • Page 104
    ... Financial Data (unaudited) Management's Report on Internal Control Over Financial Reporting (2) Financial Statement Schedule. 52 53 54 55 56 57 58 97 35 The following financial statement schedule of NETGEAR, Inc. for the fiscal years ended December 31, 2012 , 2011 and 2010 is filed as part of...

  • Page 105
    ...13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on the 26th day of February 2013. NETGEAR, INC. Registrant /s/ PATRICK C.S. LO...

  • Page 106
    101

  • Page 107
    ... Purchase Agreement, dated as of January 28, 2013, by and among the registrant, NETGEAR Holdings Limited, NETGEAR International Limited, NETGEAR Canada Limited, NETGEAR Australia PTY, LTD, Sierra Wireless, Inc., Sierra Wireless, Inc., Sierra Wireless America, Inc. and Sierra Wireless (Australia) PTY...

  • Page 108
    ...Registrant hereby agrees to furnish a copy of the omitted schedules and exhibits to the Securities and Exchange Commission upon its request. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purpose of Section...

  • Page 109
    ... Section 4 of the Plan. (b) " Applicable Laws " means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the...

  • Page 110
    ...listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported...

  • Page 111
    ... Board service. " Restricted Stock " means shares of Common Stock acquired pursuant to a grant of Stock Purchase (bb) Rights under Section 11 of the Plan. " Restricted Stock Purchase Agreement " means a written agreement between the Company and the (cc) Optionee evidencing the terms and restrictions...

  • Page 112
    ... of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan . (a) Procedure . Multiple Administrative Bodies . Different Committees with respect to different groups of Service...

  • Page 113
    ... of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option, Stock Purchase Right or Stock Appreciation Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or...

  • Page 114
    ... or her initial service, a Service Provider may be granted Options to purchase up to an additional 750,000 Shares, which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company...

  • Page 115
    ... (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (2) granted to any Employee other than an Employee described in paragraph (A) immediately...

  • Page 116
    ... which, in the case of Shares acquired directly or indirectly from the Company, (A) have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said...

  • Page 117
    ...upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by...

  • Page 118
    ... (i) the difference between the Fair Market Value of a Share on the date of exercise over the exercise price, by (ii) the number of Shares with respect to which the SAR is exercised. 13. Transferability of Options, Stock Purchase Rights and Stock Appreciation Rights . Unless determined otherwise...

  • Page 119
    ... property) or, in the case of a Stock Appreciation Right upon the exercise of which the Administrator determines to pay cash, the fair market value of the consideration, received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if...

  • Page 120
    ... (or restricted stock issued pursuant to a Stock Purchase Right) or Stock Appreciation Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control. 16. Date of Grant...

  • Page 121
    ... the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 21. Stockholder Approval . The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the...

  • Page 122
    ... Optionee Name and address You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Date of Grant Vesting Commencement Date Exercise Price per Share Total Number of Shares Granted Total Exercise...

  • Page 123
    ... any change in his or her residence address. AGREEMENT A. II. Grant of Option . The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set...

  • Page 124
    ... under a formal cashless exercise program implemented by the Company in connection with the Plan; or 4. surrender of other Shares which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares, provided that accepting such Shares, in the sole...

  • Page 125
    ...'s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. H. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE...

  • Page 126
    ...CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE...

  • Page 127
    ... shares (the "Shares") of the Common Stock of NETGEAR, Inc. (the "Company") under and pursuant to the 2003 Stock Plan (the "Plan") and the Stock Option Agreement dated, _____ (the "Option Agreement"). Subject to adjustment in accordance with Section 15 of the Plan, the purchase price for the Shares...

  • Page 128
    ...the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: PURCHASER: Accepted by: NETGEAR, INC. Signature Print Name Address : By Its Address : 350 East Plumeria Drive Santa Clara, CA 95134 Date Received...

  • Page 129
    ...Directors of the Company. " Change of Control " shall mean the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of...

  • Page 130
    ... election of Directors of the Company. (d) " Code " shall mean the Internal Revenue Code of 1986, as amended. (e) " Code Section 423(b) Plan " shall mean an employee stock purchase plan which is designed to meet the requirements set forth in Section 423(b) of the Code, as amended. The provisions of...

  • Page 131
    ... such exchange or system on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean...

  • Page 132
    ... in Section 424(e) of the Code. (s) " Plan " shall mean this Employee Stock Purchase Plan, which includes a Code Section 423(b) Plan and a Non-423(b) Component. (t) " Purchase Price " shall mean 85% of the Fair Market Value of a share of Common Stock on the Exercise Date; provided however, that the...

  • Page 133
    ... A to this Plan and filing it with the Company's payroll office prior to the applicable Offering Date. 6. Payroll Deductions . (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in...

  • Page 134
    ... any withholding required to make available to the Company or the employing Designated Subsidiary, as applicable, any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Eligible Employee. 7. Grant of Option . On the Offering Date of each Offering Period, each...

  • Page 135
    ...(ii) the number of shares available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Offering Date or Exercise Date, as applicable, in...

  • Page 136
    ... number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 1,000,000 shares of Common Stock. (b) Until the shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company...

  • Page 137
    ... Company, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan, the maximum number of shares each participant may purchase each Offering Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock...

  • Page 138
    ... by setting a New Exercise Date and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall occur before the date of the Company's proposed Change of Control. The Administrator shall notify each participant in writing, at least ten (10) business days...

  • Page 139
    ...comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall...

  • Page 140
    ... Application Offering Date:_____ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) 1. _____ hereby elects to participate in the NetGear, Inc. Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock...

  • Page 141
    ... any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding...

  • Page 142
    Employee's Social Security Number: Employee's Address I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated:_____ Signature of Employee Spouse's Signature (If beneficiary other than spouse) - 3-

  • Page 143
    ...the NETGEAR, Inc. Employee Stock Purchase Plan which began on the "Offering Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period and that such notice is being given prior to the Exercise Date for the Offering Period. He or she hereby directs the Company to pay...

  • Page 144
    EXECUTION COPY ASSET PURCHASE AGREEMENT by and among NETGEAR, INC., NETGEAR HOLDINGS LIMITED, NETGEAR INTERNATIONAL LIMITED, NETGEAR CANADA LIMITED, NETGEAR AUSTRALIA PTY LTD, SIERRA WIRELESS, INC., SIERRA WIRELESS AMERICA, INC., and SIERRA WIRELESS (AUSTRALIA) PTY LTD January 28, 2013

  • Page 145
    ...24 Transfer of Acquired Assets; Risk of Loss ARTICLE 3 PURCHASE PRICE25 3.1 3.2 3.3 3.4 Purchase Price 25 26 Purchase Price Adjustment Allocation Withholding 28 29 ARTICLE 4 CLOSING29 4.1 4.2 4.3 Closing 29 29 31 Closing Deliveries Closing Conditions ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF...

  • Page 146
    ... 45 46 Customers and Suppliers Employee Matters 46 Employee Benefits Plans Legal Proceedings 49 48 Compliance with Laws; Permits Brokerage Fees 50 50 49 Related Party Transactions Credit Support Anticorruption 50 50 50 Export Control Laws AirCard Products; Product Defect and Warranty Books...

  • Page 147
    - ii -

  • Page 148
    ... to Be Taken . Cooperation Regarding Intellectual Property Matters ARTICLE 9 EMPLOYEE MATTERS66 9.1 9.2 9.3 9.4 9.5 Employment Offers 66 67 Sellers Payment of Pre-Closing Wages and Seller Benefit Plan Contributions 280G Information Buyers' 401(k) Plan 67 67 67 No Third Party Beneficiaries...

  • Page 149
    - iii -

  • Page 150
    TABLE OF CONTENTS (cont'd) 13.6 13.7 13.8 13.9 13.10 13.11 13.12 13.13 13.14 Specific Performance Other Remedies 78 79 78 No Third Party Beneficiaries Entire Agreement Governing Law 79 79 79 81 Dispute Resolution Consent to Jurisdiction WAIVER OF JURY TRIAL Counterparts 81 81 - iv -

  • Page 151
    ...Property Not Located at Carlsbad Schedule 1.1(yyyy) Transferred Trademarks Schedule 2.7(a)(i) Excluded Sellers Facilities Schedule 2.7(a)(ii) Post-Closing Buyers Facilities Schedule 4.3(a)(iii) IT Systems Schedule 4.3(b)(vi)(A) Schedule 4.3(b)(vi)(B) Schedule 4.3(b)(xi)(A) Transferred Permits Buyer...

  • Page 152
    ...AGREEMENT (this " Agreement ") is made and entered into as of January 28, 2013 by and among NETGEAR, INC., a Delaware corporation (" US Buyer "), NETGEAR HOLDINGS LIMITED, a limited company organized under the laws of Ireland and a subsidiary of US Buyer (" IP Buyer "), NETGEAR INTERNATIONAL LIMITED...

  • Page 153
    ... mean Sellers' and their Subsidiaries' worldwide business and operations of designing, developing, manufacturing, testing, marketing, supporting, distributing and selling AirCard Products, including (i) the design, development, manufacture and testing of AirCard Products, including both internal...

  • Page 154
    ... " AirCard Products " shall mean mobile broadband devices (including USB Modems, mobile hotspots and PC cards) (and all components thereof), consisting of (i) the products and services listed in Section 5.24(a)(i) of the Sellers Disclosure Schedule and prior versions thereof; in each case together...

  • Page 155
    ... such failure. (n) " Business Software " shall mean any and all versions of any Software that is (i) developed for the use, programming, verification, testing, support or operation of AirCard Products, or (ii) distributed together with an AirCard Product, either preloaded on such AirCard Product or...

  • Page 156
    ..., restricted share unit, fringe benefit, tuition refund, service award, company car or car allowance, scholarship, housing or living allowances, relocation, medical, dental, vision, life or accidental dismemberment, disability, accident, sick pay, sick leave, accrued leave, vacation, paid time off...

  • Page 157
    ... financial institutions refuse or are unable to perform the requested services, Buyers and Sellers shall negotiate in good faith to select different, mutually acceptable financial institutions. (ff) " Escrow Agreement " shall mean the escrow agreement between the Escrow Agent, each Buyer and each...

  • Page 158
    ...) patents and applications therefor and all other rights corresponding thereto (" Patents "); trade-secret rights and all other rights in confidential business or technical information; " Intellectual Property Rights " shall mean all of the following in any jurisdiction throughout the world and all...

  • Page 159
    ..." shall mean all Other IP in and to the Shared Technology, other than (i) the Licensed Technology, and (ii) the Shared Technology listed or described on Schedule 1.1(xxxx)(ii) that is included in the Transferred Technology as NonPrime Transferred Technology. " Key Employee Non-Competition Agreements...

  • Page 160
    ... mean each employee and independent contractor of the AirCard Business whose name is set forth on Section 5.15(a)(i) of the Sellers Disclosure Schedule. (jjj) " Open Source Software " shall mean any Software that is subject to any: "open source," "copyleft," or other similar types of license terms...

  • Page 161
    ...Date " shall mean September 30, 2012. (sss) " Registered IP " shall mean all the Intellectual Property Rights that are the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any Governmental Authority. " Release " shall mean any release...

  • Page 162
    ..., manufacturing, testing, marketing, supporting, distributing and selling of the products, Business Software and services available for sale, as of the date hereof (and all components and prior versions thereof), and the products and Business Software currently under development, all as listed or...

  • Page 163
    ... " shall mean (i) Software (including software development kits, APIs, computer programs, codecs, interfaces, software implementations of algorithms and models and methodologies), whether in Source Code, Object Code, or other form, (ii) databases, compilations, collections of data and data, (iii...

  • Page 164
    ... Acquired Rights Directive. (oooo) " Transferred Books and Records " shall mean the business records, personnel records, sales order files, purchase order files, engineering order files, warranty and repair files, supplier lists, customer lists, dealer, representative and distributor lists, market...

  • Page 165
    ... pending applications therefor or renewals thereof) set forth on Schedule 1.1(vvvv) . (wwww) " Transferred Tangible Propert y" shall mean (i) all Tangible Property located in the Carlsbad, California premises and used in, held for use in or necessary for the operation of the AirCard Business, other...

  • Page 166
    ... Final Adjusted Cash Purchase Price Governmental Approvals GST HST In-Licenses Indemnification Claim International Buyer IP Assignment Agreement IP Buyer Loss Threshold M2M Material Contracts Non-Assignable Assets Non-Patent IP Non-Paying Party Non-Prime Transferred Technology - 15 2.3 Preamble...

  • Page 167
    Term Non-Competition and Non-Solicitation Agreement Out-Licenses Party Parties Patents Paying Party Post-Closing Buyers Facility Post-Closing Statement Pre-Closing Statement Prime Transferred Technology Purchase Price Related Party Resolution Period Response Retained Business Confidential ...

  • Page 168
    ... or document. ARTICLE 2 THE TRANSACTIONS Sale and Transfer of Assets . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing 2.1 Sellers shall (and, where applicable, shall cause their Subsidiaries to), in accordance with the Bills of Sale, sell, transfer, assign...

  • Page 169
    ...; the Transferred Trademarks; the Transferred Other IP; (f) an undivided joint ownership interest in all Joint IP, including all books and records embodying such Joint IP (for the purposes of this Article 2 , "undivided joint ownership interest" means that, subject to the terms of this Agreement...

  • Page 170
    ...the Closing Date; (o) all Employee Benefit Plans; (p) all assets and other rights sold or otherwise transferred or disposed of in the ordinary course of business consistent with past practice between the date of this Agreement and the Closing not in violation of the terms of this Agreement; (q) all...

  • Page 171
    ...their Subsidiaries prior to the Closing in the ordinary course of the AirCard Business for goods and services that are required to be delivered or performed following the Closing; (i) (j) all obligations and liabilities relating to Transferred Employees to the extent set forth in Article 9 ; and all...

  • Page 172
    ... part of their respective businesses...meaning of Section 280G of the Code as a result of the Transactions; (f) all Liabilities for Wages of Transferred Employees earned prior to the Closing; (g) all Liabilities under or relating to the Employee Benefit Plans and/or Employee Non-Competition Agreements...

  • Page 173
    ... use, sale, import, export and manufacture of AirCard Products, the Prime Transferred Technology or the Shared Technology (including the Non-Prime Transferred Technology and the Licensed Technology), prior to the Closing; (n) all Liabilities relating to (i) repairs, exchanges, returns and warranty...

  • Page 174
    ... to be an Acquired Asset or an Assumed Liability, respectively, which was not transferred and/or delivered to Buyers and their Subsidiaries at Closing, in each case of clauses (i) and (ii), without further consideration paid by either Party and the relevant Schedules to this Agreement shall be...

  • Page 175
    ... located at the facilities set forth on Schedule 2.7(a)(ii) , which facilities are to be purchased, assigned or transferred to Buyers and their Subsidiaries and not subleased or otherwise occupied by Sellers or any of their Subsidiaries following the applicable Closing pursuant to this Agreement...

  • Page 176
    ...that are not Transferred Employees. Any costs and expenses incurred by Buyers and Sellers related to the foregoing shall be addressed in the Transition Services Agreement. ARTICLE 3 PURCHASE PRICE 3.1 Purchase Price (a) Subject to the terms and conditions of this Agreement, the purchase price to be...

  • Page 177
    ..." number, in U.S. dollars, as defined in Section 3.2(a)(ii) of the Sellers Disclosure Schedule. (iii) " Closing MDF Liabilities " shall mean the U.S. dollar amount of all Liabilities in respect of marketing development funds under the Transferred Contracts in existence at the Time of Closing...

  • Page 178
    ... and other relevant documentation and information of Buyers related to the AirCard Business, and Buyers shall make available their employees knowledgeable about the information used in, and the preparation of, the Post-Closing Statement. Sellers shall have fifteen (15) Business Days following their...

  • Page 179
    ... than the Final Adjusted Cash Purchase Price, then within five (5) Business Days after such final determination, Sellers, jointly and severally, shall deliver to Buyers an amount in U.S. dollars equal to such excess in immediately available funds by wire transfer to an account or accounts designated...

  • Page 180
    ... Adjusted Cash Purchase Price minus an amount equal to the the Cross-License Agreement, executed by each applicable Seller; the Joint Development Agreement, executed by each applicable Seller; the Transition Services Agreement, executed by Canadian Seller; the Non-Competition and Non-Solicitation...

  • Page 181
    ... applicable Buyer; the Joint Development Agreement, executed by each applicable Buyer; the Transition Services Agreement, executed by US Buyer; the Non-Competition and Non-Solicitation Agreement, executed by each applicable Buyer; the Bills of Sale, executed by each applicable Buyer; the Assignment...

  • Page 182
    ...IT Systems . All software development to support data management and the automated transmission (sending and receiving) of data to and from customers, suppliers and third parties supporting the AirCard Business, as specified on Schedule 4.3(a)(iii) , shall have been completed, tested and approved by...

  • Page 183
    ... and warranties that address matters only as of a specified date, which shall have been true and correct in all material respects as of such date). (C) Each of the representations and warranties of Sellers set forth in this Agreement (other than in Section 5.1 (Sellers Organization and Good Standing...

  • Page 184
    ... of the transfer of each such Transferred Permit in form and substance reasonably satisfactory to Buyers. (B) Each Permit set forth on Schedule 4.3(b)(vi)(B) shall have been obtained by Buyers so as to enable Buyers to own and operate the AirCard Business on the Closing Date after the Closing in the...

  • Page 185
    ...any of the other Transaction Agreements or otherwise), in each case, sufficient to enable Buyers and their Subsidiaries to continue to design, develop, manufacture, test, market, support, distribute and sell AirCard Products uninterrupted from and after the Closing in a manner substantially the same...

  • Page 186
    ...set forth in the disclosure schedule delivered by Sellers to Buyers concurrently with the execution and delivery of this Agreement, dated as of the date hereof (the " Sellers Disclosure Schedule ") (referencing the appropriate section, subsection, paragraph and subparagraph numbers of this Agreement...

  • Page 187
    ... duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation. Each Seller and its applicable Subsidiaries has all necessary corporate power and authority to carry on the AirCard Business and to own and use the Acquired Assets. (b) US Seller, being a non...

  • Page 188
    ... in connection with the AirCard Business, and (ii) all of the specifications, files, records, data, documentation and other similar materials that specify the designs of the 9x15 Modules as of the Closing Date (as 9x15 Modules is defined in the Cross-License Agreement) or relate to the manufacture...

  • Page 189
    ...timely filed, and such Tax Returns are true and correct in all material respects and have been completed in accordance with applicable Law. (b) Except for matters that would not adversely affect Buyers or their Subsidiaries, their operation of the AirCard Business, or their ownership of the Acquired...

  • Page 190
    .... (c) The Transferred Inventory which is not in transit is located at facilities of or used by the AirCard Business (including customer facilities, and distribution and/or logistics facilities) and has not been consigned to any Person not a party to this Agreement. Since the Reference Date, Sellers...

  • Page 191
    ...or lapse of time) constitute or result in a violation by Sellers or any of their Subsidiaries of, or a failure on the part of Sellers or any of their Subsidiaries to comply with, any Environmental Law that is applicable to the AirCard Business, any of the Acquired Assets or any Transferred Leasehold...

  • Page 192
    ... in or on the Transferred Leasehold Property. 5.12 Intellectual Property All AirCard Products offered for sale as of the date hereof are subject to, and compliant with, the RoHS (a) Section 5.12(a)(i) of the Sellers Disclosure Schedule sets forth a list or description of Shared Technology which is...

  • Page 193
    ... that is otherwise within the Transferred Technology) in existence as of the date hereof and as used by Sellers in the operation of the AirCard Business as of the date hereof, nor (ii) the use, sale, import, export and manufacture of the AirCard Products and Business Software that are, as of the...

  • Page 194
    ... Rights in connection with the AirCard Business. No item of Transferred IP or Licensed IP (excluding the Sagemcom and Wavecom Patents) is subject to any outstanding Order or settlement agreement or stipulation in litigation that restricts in any manner the use, provision, transfer, assignment or...

  • Page 195
    ... applicable SDK license agreement. Neither Sellers nor any of their Subsidiaries has any duty or obligation (whether present, contingent or otherwise) to deliver, license or make available the Source Code for any AirCard Product for Business Software that is, as of the date hereof, under development...

  • Page 196
    ...the date hereof and all Transferred Contracts. For purposes of this Agreement, " Material Contracts " means the following Contracts relating to the AirCard Business (whether in whole or in part): (i) all purchase or supply agreements with customers of the AirCard Business (including distributors and...

  • Page 197
    ...) decrease the rates of supply of Transferred IP, Licensed IP or AirCard related products or services in a manner that is materially inconsistent with the historical rates of supply of such products and services. 5.15 Employee Matters (a) The names of the Offered Employees are set forth on Section...

  • Page 198
    ...15(g) of the Sellers Disclosure Schedule sets forth the identities (by employee ID number) and work places of all Offered Employees whose employment was terminated by Sellers during the ninety (90) day period prior to the Closing Date other than as part of the transfer of employment from the Sellers...

  • Page 199
    ...set out in Section 5.15(j) of the Sellers Disclosure Schedule, as of the date hereof, no Offered Employee is currently in receipt of or, to the Knowledge of Sellers, has threatened to claim under a long term disability or permanent health insurance scheme or policy within the next twelve (12) months...

  • Page 200
    ... failure to comply with, any Law that is applicable to the AirCard Business, any of the Acquired Assets, any of the Licensed IP or the Assumed Liabilities. (b) Section 5.18(b) of the Sellers Disclosure Schedule sets forth a complete and accurate list of all material Permits pursuant to which Sellers...

  • Page 201
    ..., orders, authorizations, registrations, declarations and filings with any Governmental Authority required for (i) the export, import and reexport of products, services, Software and technologies used in, held for use in or necessary for the operation of the AirCard Business and (ii) releases of...

  • Page 202
    ...(f) of the Sellers Disclosure Schedule sets forth the true, complete and accurate export control classifications applicable to the AirCard Products offered for sale as of the date hereof. 5.24 AirCard Products; Product Defect and Warranty (a) The AirCard Products are listed on Section 5.24(a)(i) of...

  • Page 203
    ...25 of the Sellers Disclosure Schedule, the Transferred Books and Records have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. 5.26 Complete Copies of Materials . Sellers have made available to Buyers true, correct and...

  • Page 204
    ...any adjustments to the Estimated Adjusted Cash Purchase Price or the Final Adjusted Cash Purchase Price contemplated by this Agreement). 6.7 GST/HST Registration . NETGEAR Holdings Limited and NETGEAR International Limited are not registered for GST or HST under Part IX of the Excise Tax Act (Canada...

  • Page 205
    ... with all requirements of Law, Orders and contractual obligations applicable to the operation of the (d) use commercially reasonable efforts to (i) preserve intact the AirCard Business, (ii) keep available the services of the AirCard Business's officers, employees and agents and (iii) maintain...

  • Page 206
    ... that would affect the Acquired Assets; (d) grant any severance, change in control, termination pay or similar pay benefits (in cash or otherwise) to any Offered Employee, including any officer, except as required under the terms of any pre-existing employment agreement or arrangement disclosed in...

  • Page 207
    ... Agreement and the other Transaction Agreements, including using reasonable best efforts to (a) cause the conditions precedent set forth in Section 4.3 to be satisfied as soon as practicable after the date hereof, (b) obtain all necessary actions or non-actions, waivers, consents, approvals, Orders...

  • Page 208
    ... full rights of ownership of the AirCard Business and the Acquired Assets. 8.3 Access to Information . (a) During the period from the date hereof and prior to the earlier of the Closing or the termination of this Agreement, except as otherwise prohibited by applicable Law (it being understood and...

  • Page 209
    ... the meaning of the Amended and Restated Confidentiality Agreement, dated as of July 27, 2011, by and between the Parties (the " Confidentiality Agreement "). (b) For a period of five (5) years after the Closing, unless required by Law or Order to disclose any Business Confidential Information, as...

  • Page 210
    ..., products, financial condition, services, or research or development of the AirCard Business, or the suppliers, distributors, customers, employees, independent contractors or other business relations of the AirCard Business, including the following: (i) internal business and financial information...

  • Page 211
    ... Agreement, after the Closing) without the use of any Retained Business Confidential Information or any Transaction Confidential Information disclosed by Sellers or their Affiliates. For the avoidance of doubt, Non-Prime Transferred Technology and Buyer Owned Developed Technology listed on Schedule...

  • Page 212
    ... Subsidiaries or in connection with a business combination involving, or change of control of, Sellers; provided that prior to disclosing such copies, Sellers shall have entered into a customary confidentiality agreement with the recipient of such copies restricting the disclosure and use of such...

  • Page 213
    ... and during the term of the Transition Services Agreement, whether such copies are in paper form, on computer media or stored in another form. 8.9 Bulk Sales . It will not be practicable to comply or to attempt to comply with the procedures of the Uniform Commercial Code or other bulk sales laws or...

  • Page 214
    ... or other financial statements of the AirCard Business in connection with the Transactions. (b) From and after the Closing, upon the request of US Buyer, Sellers shall (i) use their reasonable best efforts to cause its independent accounting firm to deliver to the SEC any auditor's consent that is...

  • Page 215
    ... gross margin for each month, and the amount of inventory, accrued warranty and marketing development fund liabilities as of each month end, for the AirCard Business that are prepared in a manner consistent with the AirCard Business Financial Statements within twenty (20) days after each month end...

  • Page 216
    ... Management Services not contemplated in the ACMS Marketing Requirements, Sellers agree to negotiate with Buyers, in good faith, commercially reasonable terms and conditions, including release schedule and applicable fees, for the development and operation of such new features and services requested...

  • Page 217
    ...this purpose the Key Employees), in each case effective as of the Closing, on the same or better terms as existed immediately prior to the date hereof with respect to salary and on comparable terms, in the aggregate, with respect to bonus and employee benefits (other than long term equity incentives...

  • Page 218
    ... later than thirty (30) days following the Closing Date. Without limiting the generality of the foregoing, Sellers, jointly and severally, shall pay or provide to Transferred Employees all earned but untaken vacation pay and all commissions, bonus and vested restricted stock units properly earned up...

  • Page 219
    ...details, within ten (10) days of receipt of such notice of payment, the Non-Paying Party shall reimburse the Paying Party for the Non-Paying Party's shares of such Straddle Period Taxes. 10.2 Transfer Taxe s. All sales, use, transfer, value-added, goods and services, recording, ad valorem, privilege...

  • Page 220
    ...the other hand, will make available to the other, as reasonably requested, all information, records or documents relating to Liability for Taxes with respect to the Acquired Assets, the Assumed Liabilities, or the AirCard Business for all periods prior to the Closing Date (including Straddle Periods...

  • Page 221
    ... and remain in full force and effect until 11:59 p.m. (California time) on the first (1st) anniversary of the Closing Date, at which time such representations and warranties shall terminate; (ii) indefinitely; (iii) the IP Representations and the right to obtain indemnification, compensation or...

  • Page 222
    ...to the limitations set forth in this Article 12 , from and after the Closing, each of the Sellers, jointly and severally, shall indemnify and hold harmless Buyers and their Subsidiaries and their respective directors, officers, employees, Affiliates and other persons who control or are controlled by...

  • Page 223
    ... be affected by any investigation conducted with respect to, or any knowledge acquired (or that could or should have been acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy of, inaccuracy in of or compliance...

  • Page 224
    ...Final Adjusted Cash Purchase Price; provided , however , that the limitations contained in this Section 12.3(c) shall not apply to any nonfulfillment or breach of any covenant or other agreement contained in Section 8.5 and Section 8.7 . (d) So long as the amount available in the Escrow Fund exceeds...

  • Page 225
    ... to work in a cooperative and collaborative manner shall be referred to the Chief Executive Officers of the Canadian Seller and US Buyer for resolution. If resolution satisfactory to Buyers, acting reasonably and in good faith, is not reached within fifteen (15) Business Days of the date Buyers...

  • Page 226
    ...)-day period, the Indemnifying Party shall be deemed to have irrevocably agreed and consented to indemnify, compensate and reimburse the Indemnified Party in respect of such items of Loss pursuant to the terms of this Agreement. 12.5 Third Party Claims . In the event any claim, demand, complaint or...

  • Page 227
    ..., (b) the next Business Day, if sent by a nationally-recognized overnight delivery service (unless the records of the delivery service indicate otherwise), (c) three (3) Business Days after deposit in the United States mail, certified and with proper postage prepaid, addressed as follows; or...

  • Page 228
    ... the close of normal business hours or on a non-Business Day): (i) if to Buyers, to: NETGEAR, Inc. 350 E. Plumeria Dr. San Jose, CA 95134 Attention: General Counsel Facsimile: (408) 907-8000 with a copy (which shall not constitute notice) to: Wilson Sonsini Goodrich & Rosati Professional Corporation...

  • Page 229
    ... the Acquired Assets), in whole or in part, to any Affiliate, (b) either Party may assign their rights and obligations pursuant to this Agreement, in whole or in part, to an entity that succeeds to all or substantially all of the business of such Party (whether by sale of stock, sale of assets...

  • Page 230
    ..., document, instrument or agreement executed in connection herewith nor be relied upon other than the Parties hereto and their permitted successors or assigns. The representations and warranties in this Agreement are the product of negotiations among the Parties and are for the sole benefit of...

  • Page 231
    ... shall enter such orders as may be necessary to permit the preservation of such Person or Person(s) and such deposition(s) shall not count with respect to any limit imposed by agreement or otherwise on the number of discovery depositions allowed to be taken in connection with the arbitration...

  • Page 232
    ... such service of process shall be effective upon delivery. Nothing herein shall affect the right to serve process in any other manner permitted by applicable Law. The Parties hereto hereby waive any right to stay or dismiss any action or proceeding under or in connection with this Agreement brought...

  • Page 233
    instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such party forever waives any such defense, except to the extent that such ...

  • Page 234
    IN WITNESS WHEREOF, the Parties have duly executed this Agreement to be effective as of the date first above written. NETGEAR, INC. By: /s/ Patrick C. S. Lo Name: Patrick C. S. Lo Title: Chairman, CEO [Signature Page to Asset Purchase Agreement]

  • Page 235
    IN WITNESS WHEREOF, the Parties have duly executed this Agreement to be effective as of the date first above written. NETGEAR HOLDINGS LIMITED By: /s/ Christopher Page Name: Christopher Page Title: Director [Signature Page to Asset Purchase Agreement]

  • Page 236
    IN WITNESS WHEREOF, the Parties have duly executed this Agreement to be effective as of the date first above written. NETGEAR INTERNATIONAL LIMITED By: /s/ Patrick C. S. Lo Name: Patrick C. S. Lo Title: Director [Signature Page to Asset Purchase Agreement]

  • Page 237
    IN WITNESS WHEREOF, the Parties have duly executed this Agreement to be effective as of the date first above written. NETGEAR CANADA LIMITED By: /s/ Andrew Kim Name: Andrew Kim Title: Director [Signature Page to Asset Purchase Agreement]

  • Page 238
    IN WITNESS WHEREOF, the Parties have duly executed this Agreement to be effective as of the date first above written. NETGEAR AUSTRALIA PTY LTD By: /s/ Patrick C. S. Lo Name: Patrick C. S. Lo Title: Director [Signature Page to Asset Purchase Agreement]

  • Page 239
    ... to be effective as of the date first above written. SIERRA WIRELESS, INC. By: /s/ Jason W. Cohenour Name: Jason W. Cohenour Title: CEO SIERRA WIRELESS AMERICA, INC. By: /s/Jason W. Cohenour Name: Jason W. Cohenour Title: CEO SIERRA WIRELESS (AUSTRALIA) PTY LTD By: /s/ David McLennan Name: David...

  • Page 240
    ... KONG LIMITED NETGEAR Italy Srl NETGEAR JAPAN GK Netgear Luxembourg SARL NETGEAR MEXICO S. DE R.L. NETGEAR NETHERLANDS B.V. NETGEAR NEW ZEALAND NETGEAR POLAND SP ZOO Netgear Research India Pvt. Ltd. NETGEAR SWITZERLAND GMBH NETGEAR TAIWAN CO LTD NETGEAR TECHNOLOGIES PRIVATE LIMITED NETGEAR U.K. LTD

  • Page 241
    ... 333-181892) of NETGEAR, Inc. of our report dated February 26, 2013 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP San Jose, California February 26...

  • Page 242
    ... information; and 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. b. Date: February 26, 2013 /s/ PATRICK C.S. LO Patrick C.S. Lo Chairman and Chief Executive Officer NETGEAR...

  • Page 243
    ... information; and 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. b. Date: February 26, 2013 By: /s/ CHRISTINE M. GORJANC Christine M. Gorjanc Chief Financial Officer NETGEAR...

  • Page 244
    ... OF 2002 In connection with the Annual Report of NETGEAR, Inc. (the "Company") on Form 10-K for the year ended December 31, 2012 , as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick C.S. Lo, Chairman and Chief Executive Officer of the Company, certify...

  • Page 245
    ...OF 2002 In connection with the Annual Report of NETGEAR, Inc. (the "Company") on Form 10-K for the year ended December 31, 2012 , as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christine M. Gorjanc, Chief Financial Officer of the Company, certify, pursuant...