<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELETRAC, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4812 48-1172403
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Identification No.)
of incorporation) Employer Classification Code Number)
</TABLE>
------------------------
2323 GRAND STREET
SUITE 1100
KANSAS CITY, MO 64108
(816) 474-0055
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
------------------------------
KAREN C. WIEDEMANN, ESQ.
REBOUL, MACMURRAY, HEWITT, MAYNARD & KRISTOL
45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10111
(212) 841-5700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES TO AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED PRICE PER NOTE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
14% Series B Senior Notes due 2007............... $105,000,000 100% $105,000,000 $31,818.18
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------------------------------------------- ------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus............................... Facing pages; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Inside Front and Outside Back Cover Pages of
Prospectus; "Table of Contents;" "Additional
Information."
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information...................................... "Risk Factors;" "Summary of the Prospectus;"
"Selected Financial Data."
4. Terms of Transaction..................................... "Summary of the Prospectus;" "Risk Factors;"
"The Exchange Offer;" "Description of The New
Notes;" "Certain Federal Income Tax
Considerations."
5. Pro Forma Financial Information.......................... "Prospectus Summary;" "Capitalization;"
"Selected Financial Data;" "Supplemental
Financial Data."
6. Material Contacts with the Company Being Acquired........ *
7. Additional Information Required for Reoffering by Persons
and Parties Deemed to be Underwriters.................. *
8. Interests of Named Experts and Counsel................... "Legal Matters;" "Independent Auditors."
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................. "Undertakings" at Part II of the Registration
Statement.
10. Information with Respect to S-3 Registrants.............. *
11. Incorporation of Certain Information by Reference........ *
12. Information with Respect to S-2 or S-3 Registrants....... *
13. Incorporation of Certain Information by Reference........ *
14. Information with Respect to Registrants Other Than S-3 or
S-2 Registrants........................................ Cover Page of Registration Statement;
"Additional Information;" "Summary of the
Prospectus;" "Risk Factors;" "Use of Proceeds;"
"Capitalization;" "Selected Financial Data;"
"Supplemental Financial Data;" "Management's
Discussion and Analysis of Financial Condition
and Results of Operations;" "Business;"
"Management."
15. Information with Respect to S-3 Companies................ *
16. Information with Respect to S-2 or S-3................... *
17. Information with Respect to Companies Other Than S-3 or
S-2 Companies.......................................... *
18. Information if Proxies, Consents or Authorizations are to
be Solicited........................................... *
19. Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer............ "Management;" "Securities Ownership."
</TABLE>
- ------------------------
* Item is omitted because answer is negative or Item is inapplicable.
<PAGE>
PROSPECTUS
TELETRAC, INC.
OFFER TO EXCHANGE ITS
14% SERIES B SENIOR NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
14% SERIES A SENIOR NOTES DUE 2007
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON [ ], 1997, UNLESS EXTENDED.
Teletrac, Inc., a Delaware corporation ("Teletrac" or the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange $1,000 principal amount of its 14% Series B
Senior Notes due 2007 (the "New Notes"), which will have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its issued and outstanding 14% Series A Senior Notes due
2007 (the "Old Notes" and, collectively with the New Notes, the "Notes"), of
which $105,000,000 aggregate principal amount is outstanding, from the holders
(the "Holders") thereof. The Company will not receive any proceeds from the
Exchange Offer and has agreed to pay "all the expenses incident to the Exchange
Offer. The Company is a wholly owned subsidiary of Teletrac Holding, Inc.
("Holdings").
The terms of the New Notes are identical in all material respects (including
principal amount, interest rate and maturity) to the terms of the Old Notes,
except for certain transfer restrictions and registration rights relating to the
Old Notes. The Notes rank PARI PASSU with all present and future senior
subordinated debt of the Company, and senior to all present and future
subordinated debt of the Company. As of [ ], 1997, the aggregate amount of
outstanding indebtedness (excluding the Notes) of the Company was approximately
$[ ] million. See "Description of the New Notes." Upon a Change of Control
(as defined herein), each Holder of the Notes may require the Company to
repurchase all or a portion of such Holder's Notes at an offer price in cash
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest to the date of repurchase. In the event of a Change of Control, the
Company may not have sufficient funds to satisfy its obligation to repurchase
the Notes and other debt that may come due as a result thereof. See "Description
of the New Notes."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the registration rights agreement
relating to the Old Notes. Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), the Company believes that
the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by Holders thereof
(other than any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such Holders'
business and such Holders have no arrangement with any person to participate in
the distribution of such New Notes. Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. See "Plan of Distribution."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
date the Exchange Offer expires, which will be [ ], 1997, unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. See "The Exchange Offer."
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to the
existing restrictions upon transfer thereof and the Company will have no further
obligation to such holders to provide for registration under the Securities Act
of the Old Notes held by them. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old Notes
could be adversely affected. See "Risk Factors--Consequnces of the Exchange
Offer to Non-Tendering Holders of the Old Notes" and "Exchange Offer--Terms of
the Exchange Offer."
The New Notes will be available initially only in book-entry form. The
Company expects that the New Notes issued pursuant to this Exchange Offer will
be issued in the form of one or more Global Notes (as defined herein), which
will be deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in a Global Note representing the New Notes will
be shown on, and transfers thereof will be effected through, records maintained
by the Depositary and its participants. After the initial issuance of the Global
Notes, New Notes in certificated form will be issued in exchange for a Global
Note only on the terms set forth in the Indenture. See "Description of Exchange
Notes-- Book Entry, Delivery and Form."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1997.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would no be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable security law.
------------------------------
SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY
HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
The Date of this Prospectus is September , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Additional Information................................................................ 2
Summary of the Prospectus............................................................. 4
Risk Factors.......................................................................... 14
The Company........................................................................... 22
Use of Proceeds....................................................................... 22
The Exchange Offer.................................................................... 23
Capitalization........................................................................ 28
Selected Financial Data............................................................... 29
Supplemental Financial Data...........................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 31
Business.............................................................................. 38
Management............................................................................ 56
Securities Ownership.................................................................. 62
Certain Relationships and Related Transactions........................................ 65
Description of Certain Indebtedness................................................... 69
Description of the New Notes.......................................................... 70
Certain Federal Income Tax Considerations............................................. 97
Plan of Distribution.................................................................. 97
Legal Matters......................................................................... 98
Independent Auditors.................................................................. 98
Index to Financial Statements......................................................... F-1
</TABLE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to the
New Notes being offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. The Registration Statement
and the exhibits and schedules thereto may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a web site that contains reports, proxy
statements and other information regarding registrants, including the Company,
that file such information electronically with the Commission. The address of
the Commission's web site is http://www.sec.gov.
As a result of the filing of the Registration Statement with the Commission,
the Company will become subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file periodic reports and other
information with the Commission. The Company's obligation to file periodic
reports with the Commission pursuant to the Exchange Act may be suspended if the
New Notes are held of record by fewer than 300 holders at the beginning of any
fiscal year of the Company, other than the fiscal year in which such
registration statement or registered exchange offer for the New Notes becomes
effective. However, the indenture dated August 6, 1997 (the "Indenture") between
the Company and Norwest Bank Minnesota, National Association, as trustee (the
"Trustee"), provides that the Company must file with the Commission and provide
the holders of the Notes with copies of annual reports and other information,
documents and reports specified in Sections 13 and 15(d) of the Exchange Act as
long as the Notes are outstanding.
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER
OF TRANSMITTAL OR BOTH TOGETHER CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN THE NEW NOTES OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL OR BOTH TOGETHER,
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
Certain market data used throughout this Prospectus were obtained from
industry and government sources. The Company has not independently verified this
market data and makes no representations as to its accuracy.
------------------------
The following trademarks owned by the Company are used in this Prospectus:
Fleet Director-Registered Trademark-, Fleet Reporter-TM-,
OZZ-Registered Trademark-, Winfleet-TM- and Teletracer-TM-.
3
<PAGE>
SUMMARY OF THE PROSPECTUS
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, THE AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO, AND THE FINANCIAL PROJECTIONS
INCLUDED ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERMS "TELETRAC" AND THE "COMPANY" INCLUDE
TELETRAC, INC., ITS PREDECESSORS, ITS SUBSIDIARY AND TELETRAC HOLDINGS, INC., A
HOLDING COMPANY WHOSE SOLE ASSET IS ALL OF THE ISSUED AND OUTSTANDING CAPITAL
STOCK OF TELETRAC, INC. SEE "GLOSSARY" FOR DEFINITIONS OF CERTAIN TERMS USED IN
THIS PROSPECTUS.
THE COMPANY
Teletrac is a leading provider of vehicle location and fleet management
services, including associated two-way digital wireless messaging, to commercial
fleet operators. The Company has developed a proprietary land-based location
technology that provides customers with a low-cost, accurate and reliable real-
time method of locating vehicles in selected metropolitan areas. The Company's
system is designed to enable customers to better manage their mobile workforce,
provide security for their property and personnel and communicate more
effectively with mobile workers.
As of December 31, 1996, the Company operated in six metropolitan markets:
Los Angeles, Miami, Chicago, Detroit, Dallas and Houston. The Company commenced
operations in Orlando in March 1997 and plans to begin providing vehicle
location and fleet management services in eight additional markets by the end of
1998, giving the Company operations in 15 of the largest metropolitan
statistical areas ("MSAs") in the United States, including New York and Boston.
As of June 30, 1997, the Company served over 2,000 commercial fleet accounts,
more than any other provider of fleet vehicle location services, and had 54,430
location and messaging units in service with commercial fleet customers,
including Emery Air Freight, Inc., Tele-Communications, Inc., Budget Rent-a-Car
Corporation, Brinks Incorporated and the Dallas Independent School District. In
its Miami and Los Angeles markets, the Company also uses its proprietary
location systems to provide vehicle location and stolen vehicle recovery
services to consumers. As of June 30, 1997, the Company had 10,697 consumer
units in service.
An investor group led by management formed the Company in August 1995 to
acquire the assets of AirTouch Teletrac (as defined below). AirTouch Teletrac
was established to develop land-based 900 MHz radio networks for wireless
location monitoring and related two-way wireless messaging services. AirTouch
Teletrac developed the technology and software for such networks and constructed
operational systems in six metropolitan markets. The Company acquired the assets
of AirTouch Teletrac in January 1996 (the "Acquisition"). To date, the Company
has placed approximately $58 million in private equity capital. Investors in
such private equity include BancBoston Ventures, Inc.; Burr, Egan, Deleage
Funds; Eos Partners; GCC Investments, Inc.; Kingdon Capital; Toronto Dominion
Capital (U.S.A.), Inc.; and TruePosition, Inc. (formerly Associated RT, Inc.).
COMMERCIAL FLEET MANAGEMENT
Market studies indicate that there are approximately 7.6 million total
commercial fleet vehicles in the 15 markets in which the Company operates or
plans to operate. The Company believes that there is substantial demand for
cost-effective communications services that offer both reliable location
tracking and two-way wireless messaging in metropolitan areas. The Company's
products can be used either alone or in conjunction with other communications
technologies. The Company believes that the majority of its target customers'
vehicles are currently equipped with wireless communications devices that do not
provide automatic location features, such as two-way radio, specialized mobile
radio ("SMR"), pagers and cellular devices. The Company's products and services
allow commercial fleet operators to (i) increase driver productivity and fleet
efficiency, (ii) improve customer service, (iii) limit unauthorized vehicle use,
and (iv) reduce driver overtime. The Company's customers include metropolitan
commercial fleets (such as trade service providers, delivery services, bus and
taxi fleets, ambulance companies, telecommunications
4
<PAGE>
companies, utility companies, municipal government vehicles and law enforcement
agencies) and long-haul trucking fleets when operating within metropolitan
markets.
The Company offers a range of fleet management solutions, depending on the
customer's budget and location and messaging needs. All of these solutions
require the installation of a vehicle location unit ("VLU") in each vehicle. The
VLU is a radio transceiver that receives and transmits signals used to determine
a vehicle's location. In addition to the VLU, commercial fleet customers
generally purchase software or location services from the Company. The Company's
primary software product for commercial fleet operators is Fleet
Director-Registered Trademark-, a proprietary software application that provides
real-time 24-hour-a-day vehicle location through a digitized map displayed on
the customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director-Registered Trademark- can be complemented with the
Company's messaging units, which allow two-way messaging between the fleet
dispatcher and drivers directly from the Fleet Director-Registered Trademark-
screen. The Company also offers Fleet Reporter-TM-, a lower cost alternative to
Fleet Director-Registered Trademark- that provides fleet operators with daily
printed reports of vehicle locations and access to real-time location
information through OZZ-Registered Trademark-, a telephone-operated information
system. In the second half of 1997, the Company intends to introduce
Winfleet-TM-, a Microsoft Windows-Registered Trademark--based application based
on Fleet Director-Registered Trademark- that will not require a dedicated
computer.
The Company believes that its wireless location and related two-way
messaging technology can serve its customers more reliably and more
cost-effectively than competing systems, including those which rely on global
positioning satellite ("GPS") technology combined with other forms of wireless
communication. The Company's location technology, which consists of proprietary
software and land-based transmitters and receivers that are licensed to operate
in the 904-909.75 and 927.75-928 MHz bandwidth, operates reliably in a high-rise
urban setting. GPS-based systems, on the other hand, can lose accuracy in areas
where high-rise buildings or other large structures obstruct the signal between
the satellite and the vehicle. To provide location services for fleet
management, GPS-based systems must also be coupled with a wireless communication
system that transmits location information to the fleet operator. The other
forms of wireless communication used in conjunction with GPS technology, such as
cellular and SMR, generally make the incremental cost of determining and
transmitting a vehicle's location to a fleet operator more expensive than the
Company's technology.
The Company derives its revenues from (i) monthly service fees and (ii)
equipment sales, including sales of VLUs, messaging units and fleet management
software. Once the Company's system is installed in a customer's fleet, the
Company benefits from recurring monthly service fees with minimal additional
selling or other expenses. The total number of the Company's commercial VLUs and
messaging units in service increased from 35,465 as of December 31, 1995 to
43,156 as of December 31, 1996 and to 54,430 as of June 30, 1997.
CONSUMER VEHICLE SERVICES
In its Miami and Los Angeles markets, the Company also uses its proprietary
location systems to provide vehicle location and stolen vehicle recovery
services to consumers. The Company's service locates and tracks stolen vehicles
in real-time and its equipment can be integrated with a vehicle's alarm system
and/or ignition so that it is automatically activated if the vehicle is stolen.
The Company's service also allows a subscriber to initiate vehicle location in
other emergency or roadside assistance situations or remotely unlock the vehicle
doors through the OZZ-Registered Trademark- system.
In 1995, prior to the Acquisition, the Company's predecessor ceased to
actively market its consumer vehicle services. The Company has continued
providing consumer service as a legacy of the business acquired from AirTouch
Teletrac but has not launched any new marketing efforts. While the Company
intends to focus on its commercial business, it is currently exploring various
potential strategies for marketing and distributing its products to consumers,
including through strategic partnerships or third-
5
<PAGE>
party reseller arrangements, and expects to begin expanding its consumer
operations in late 1997 or early 1998.
BUSINESS STRATEGY
The Company's objective is to enhance its position as the leading national
provider of vehicle location and fleet management services in metropolitan areas
by exploiting its proprietary technology and systems. The key elements of the
Company's strategy are:
INCREASE MARKET PENETRATION. In its six original markets, the Company is
rapidly building a trained sales force to market its products and services to
operators of commercial fleets. Prior to the Acquisition, AirTouch Teletrac
terminated all of its active sales and marketing efforts. Since the Acquisition,
the Company has hired approximately 90 direct sales representatives to service
its six original metropolitan markets and the Company believes that it will more
effectively exploit opportunities in its existing markets as its sales force
gains experience. The Company believes it requires a modest penetration of its
target markets to achieve its business plan.
EXPAND GEOGRAPHIC COVERAGE AREAS. In 1996, the Company began constructing
the network infrastructure to expand its coverage from six to 15 metropolitan
markets. In March 1997, the Company introduced commercial fleet services in
Orlando, and the Company expects to introduce commercial fleet services in two
additional markets by the end of 1997 and a further six markets by the end of
1998. In connection with the roll-out of its commercial fleet services, the
Company plans to add over 150 new sales representatives in its new markets by
2001. The Company also holds Federal Communications Commission licenses in 11
additional markets, but the Company expects that it would have to obtain
additional licenses in certain of such 11 markets before it could commence
commercial operations.
CAPITALIZE ON LOW-COST SERVICE. The Company believes that its proprietary
location solutions permit lower cost operation than most competing technologies,
which generally require more expensive hardware, more expensive airtime, or
both. With the Company's technology, the incremental cost of locating a vehicle
and transmitting its location to the fleet operator is nominal, which permits
the Company to provide services for a relatively low monthly fee. This price
structure permits customers to locate all their vehicles simultaneously and
frequently throughout the day (typically, every 15 minutes), which the Company
believes substantially improves the customer's ability to increase fleet
efficiency and monitor driver compliance.
EXTEND PRODUCT OFFERINGS. The Company believes that its ability to expand
and maintain its customer base depends on its continued marketing of
highly-functional, low-cost and user-friendly solutions for fleet management.
The Company plans to offer the first generation of Winfleet-TM-, a
Windows-Registered Trademark--based solution, in the second half of 1997 and has
commenced development of a second generation product. The Company is also
exploring technological improvements that would expand the Company's messaging
capabilities to include additional services such as free text return messaging,
wireless e-mail, fax, database queries, credit card verification and inventory
management.
EXPLOIT NEW BUSINESS OPPORTUNITIES. In conjunction with certain strategic
suppliers, the Company is currently developing a portable miniaturized device
that would permit personal location through the Company's existing networks. In
addition, the Company has discussed joint arrangements with several companies
providing vehicle location coverage in rural locations, which arrangements would
provide cost-effective and reliable coverage nationwide, and has explored other
approaches to providing service to customers operating outside of covered
metropolitan areas.
6
<PAGE>
THE OLD NOTES OFFERING
<TABLE>
<S> <C>
OLD NOTES......................... The Old Notes were sold by the Company on August 6, 1997
to Donaldson, Lufkin & Jenrette Securities Corporation
and TD Securities (USA) Inc. (the "Initial Purchasers")
pursuant to a Purchase Agreement dated July 31, 1997
(the "Purchase Agreement"). The Old Notes were sold to
the Initial Purchasers (the "Unit Offering") together
with certain warrants (the "Warrants") to purchase
shares of the Company's Class A Common Stock ("Common
Stock") in the form of units (the "Units"). The Initial
Purchasers subsequently resold the Old Notes (in the
form of the Units) to qualified institutional buyers
pursuant to Rule 144A under the Securities Act and
pursuant to offers and sales that occurred outside the
United States within the meaning of Regulation S under
the Securities Act.
REGISTRATION RIGHTS AGREEMENT..... Pursuant to the Purchase Agreement, the Company,
Holdings and the Initial Purchasers entered into a
Registration Rights Agreement dated August 6, 1997 (the
"Registration Rights Agreement"), which grants the
holders of the Old Notes certain exchange and
registration rights. The Exchange Offer is intended to
satisfy such exchange rights, which terminate upon the
consummation of the Exchange Offer.
</TABLE>
SUMMARY OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
THE EXCHANGE OFFER................ The Company is offering to exchange up to $105,000,000
aggregate principal amount of its 14% Series B Senior
Subordinated Notes due 2007 (the "New Notes") for a like
principal amount of its 14% Series A Senior Subordinated
Notes due 2007 (the "Old Notes", and collectively with
the New Notes, the "Notes"). The terms of the New Notes
are identical in all material respects (including
principal amount, interest rate and maturity) to the
terms of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old
Notes. See "Description of the New Notes." The issuance
of the New Notes is intended to satisfy obligations of
the Company contained in the registration rights
agreement relating to the Old Notes.
EXPIRATION DATE; WITHDRAWAL OF
TENDER.......................... The Exchange Offer will expire at 5:00 p.m. New York
City time, on [ ], 1997, or such later date and
time to which it is extended. The tender of Old Notes
pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
ACCRUED INTEREST ON THE NEW
NOTES AND THE OLD NOTES......... Each New Note will bear interest from the most recent
date to which interest has been paid or duly provided
for on the Old Note surrendered in exchange for such New
Note or, if no
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
interest has been paid or duly provided for on such Old
Note, from August 6, 1997. Holders of Old Notes whose
Old Notes are accepted for exchange will not receive
accrued interest on such Old Notes for any period from
and after the last date to which interest has been paid
or duly provided for on the Old Notes prior to the
original issue date of the New Notes or, if no such
interest has been paid or duly provided for, will not
receive any accrued interest on such Old Notes, and will
be deemed to have waived, the right to receive any
interest on such Old Notes accrued from and after the
last date to which interest has been paid or duly
provided for on the Old Notes or, if no such interest
has been paid or duly provided for, from and after
August 6, 1997.
PROCEDURES FOR TENDERING.......... Each Holder wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions
contained herein and therein and mail or otherwise
deliver such Letter of Transmittal, or such facsimile,
together with any other required documentation, to
Norwest Bank of Minnesota, National Association, as
Exchange Agent, at the address set forth therein. The
Letter of Transmittal will include a representation by
the tendering Holder that, among other things, (i) the
New Notes to be received pursuant to the Exchange Offer
are being acquired in the ordinary course of the
business of the person receiving such New Notes, (ii)
such holder has no arrangement with another person to
participate in the distribution of such New Notes, (iii)
such holder is not an "affiliate" (as defined in Rule
405 under the Securities Act) of the Company and (iv) if
the tendering Holder is a broker or a dealer (as defined
in the Exchange Act), it acquired the Old Notes for its
own account as a result of market-making activities or
other trading activities and that it has not entered
into any arrangement with the Company or any "affiliate"
of the Company to distribute the New Notes to be
received in the Exchange Offer. In the case of a
broker-dealer that receives New Notes for its own
account in exchange for Old Notes which were acquired by
it as a result of market-making or other trading
activities, the Letter of Transmittal will also include
an acknowledgment that the broker-dealer will deliver a
copy of this Prospectus in connection with the resale by
it of New Notes received pursuant to the Exchange Offer.
See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES.... Holders who wish to accept the Exchange Offer and cannot
complete the procedures for tendering on a timely basis,
may effect a tender according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Procedures
for Tendering."
FEDERAL INCOME TAX CONSEQUENCES... The exchange pursuant to the Exchange Offer will not
result in any income, gain or loss to the Holders or the
Company for Federal income tax purposes. See "Certain
Federal Income Tax Considerations."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
EXCHANGE AGENT.................... Norwest Bank Minnesota, National Association is serving
as Exchange Agent in connection with the Exchange Offer.
The address and telephone number of the Exchange Agent
are set forth in "The Exchange Offer--Exchange Agent".
CONSEQUENCES OF EXCHANGING OLD
NOTES PURSUANT TO THE EXCHANGE
OFFER........................... Generally, based on interpretations by the staff of the
Securities and Exchange Commission, the Company believes
that Holders of Old Notes (other than any Holder which
is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act of 1933, as amended)
who exchange their Old Notes for New Notes pursuant to
the Exchange Offer may offer such New Notes for resale,
resell such New Notes, and otherwise transfer such New
Notes without compliance with the registration and
prospectus delivery provisions of the Securities Act;
provided that such New Notes are acquired in the
ordinary course of such Holder's business and such
Holders have no arrangement with any person to
participate in the distribution of such New Notes. Each
broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution." To
comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for sale
or register the New Notes prior to offering or selling
such New Notes. The Company does not currently intend to
register or qualify the sale of the New Notes in any
such jurisdictions.
UNTENDERED OLD NOTES.............. Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but who do
not tender their Notes will not have any further
exchange rights and such Old notes will contintue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old
Notes could be adversely affected.
CONSEQUENCES OF FAILURE TO
EXCHANGE........................ If a Holder of Old Notes does not exchange such Old
Notes for New Notes pursuant to the Exchange Offer, such
Old Notes will continue to be subject to the
restrictions on transfer contained in the legend
thereon. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act of 1933,
as amended, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act of
1933, as amended, and applicable state securities laws.
See "The Exchange Offer--Consequences of Failure to
Exchange."
</TABLE>
9
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The form and terms of the New Notes are identical in all material respects
to the Old Notes, except for certain transfer restrictions and registration
rights relating to the Old Notes. The Old Notes will evidence the same debt as
the New Notes and both series of Notes will be entitled to the benefits of the
Indenture and treated as a single class of debt securities thereunder. See
"Description of the New Notes."
<TABLE>
<S> <C>
SECURITIES OFFERED................ $105,000,000 principal amount of 14% Series B Senior
Notes due 2007.
MATURITY.......................... August 1, 2007.
INTEREST.......................... Interest on the Notes will accrue at the rate of 14% per
annum and will be payable semi-annually in arrears on
February 1 and August 1 of each year, commencing on
February 1, 1998.
RANKING........................... The Notes will represent senior, unsecured obligations
of the Company, will rank PARI PASSU in right of payment
with all existing and future senior indebtedness of the
Company and will rank senior in right of payment to all
existing and future subordinated indebtedness of the
Company. The Company currently has no indebtedness that
is expressly subordinated in right of payment to the
Notes. Although the Indenture will limit the ability of
the Company and its subsidiaries to incur additional
indebtedness, the Indenture will permit the Company to
incur secured indebtedness under the Credit Facility (as
defined herein), which, if incurred, will effectively
rank senior to the Notes with respect to the assets
securing such indebtedness. See "Risk
Factors--Substantial Leverage and Ability to Service
Debt," "Possible Incurrence of Secured Indebtedness" and
"Description of Certain Indebtedness" As of June 30,
1997, the aggregate amount of outstanding indebtedness
(excluding the Notes) of the Company, on a consolidated
basis, was approximately $1.7 million.
SECURITY.......................... The Company has purchased certain Pledged Securities,
representing funds sufficient to pay the first six
semi-annual interest payments on the Notes (estimated at
approximately $39.9 million), as security for repayment
of the first six interest payments on the Notes. See
"Description of Notes--Security." The Pledged Securities
will be held by the Collateral Agent (as defined herein)
under the Pledge Agreement (as defined herein) pending
disbursement.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
OPTIONAL REDEMPTION............... The Notes will not be redeemable prior to August 1,
2002. Thereafter, the Notes will be redeemable at the
option of the Company, in whole or in part, at the
redemption prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date. See "Description of
Notes--Optional Redemption." Notwithstanding the
foregoing, prior to August 1, 2000, the Company may
redeem outstanding Notes with the net proceeds of one or
more sales of Capital Stock (other than Disqualified
Stock) of the Company or Holdings to one or more persons
at a redemption price equal to 114% of the principal
amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption
date; provided that not less than $68.3 million
aggregate principal amount of Notes remain outstanding
immediately after any such redemption; and such
redemption shall occur within 30 days after the date of
the closing of such sale of Capital Stock.
CHANGE OF CONTROL................. Upon the occurrence of a Change of Control (as defined
herein), each holder of the Notes will have the right to
require the Company to repurchase all or any part of
such holder's Notes at an offer price in cash equal to
101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of purchase. See "Description
of Notes--Repurchase at the Option of Holders--Change of
Control."
CERTAIN COVENANTS................. The Indenture governing the Notes (the "Indenture")
contains certain covenants that limit the ability of the
Company and its Restricted Subsidiaries (as defined
herein) to, among other things, incur additional
Indebtedness (as defined herein), pay dividends or make
other distributions, repurchase Equity Interests (as
defined herein) or subordinated Indebtedness, make
certain other Restricted Payments (as defined herein),
create certain liens, enter into certain transactions
with affiliates, sell assets, issue or sell Equity
Interests or enter into certain mergers and
consolidations. See "Description of Notes--Certain
Covenants." The Credit Facility contains similar
covenants. See "Description of Certain Indebtedness."
</TABLE>
RISK FACTORS
Holders of the Old Notes should consider carefully all of the information
contained in this Prospectus prior to tendering their Old Notes in the Exchange
Offer. In particular, Holders should consider the factors set forth under "Risk
Factors."
11
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
Set forth below is selected historical financial and operating data of the
Company and its predecessors. Certain of such historical financial and operating
data have been derived from the audited consolidated financial statements of the
Company and its predecessors as of and for the periods noted. The financial
information of the Company as of and for the six months ended June 30, 1996 and
1997 is unaudited and is derived from the unaudited consolidated financial
statements of the Company which include all adjustments management considers
necessary for a fair presentation of the Company's financial position and
results of operations in accordance with generally accepted accounting
principles, subject to normal recurring year-end adjustments. The results for
the six months ended June 30, 1997 are not necessarily indicative of the results
to be expected for the full year ending December 31, 1997. The data contained in
the following table should be read in conjunction with "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and the Company's
and its predecessors' audited consolidated financial statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996(2) 1996(2) 1997
---------- ---------- ---------- --------- ----------
<CAPTION>
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 15,336 $ 13,244 $ 15,957 $ 5,941 $ 11,370
Operating loss......................................... (24,473) (36,114) (13,854) (4,829) (13,119)
Net loss............................................... (39,824) (57,380) (13,792) (4,767) (12,801)
OTHER DATA:
EBITDA(3).............................................. $ (19,255) $ (14,753) $ (11,260) $ (3,880) $ (12,120)
Commercial units in service at end of period........... 30,283 35,465 43,156 37,632 54,430
Consumer units in service at end of period............. 10,618 13,814 11,717 12,420 10,697
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(4)
--------- --------------
<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 4,261 $ 57,574
Restricted cash.......................................................................... 1,756 41,704(5)
Total assets............................................................................. 42,022 147,022
Long-term debt........................................................................... 1,746 99,707(6)
Redeemable preferred stock............................................................... 35,815 35,815
Stockholders' deficit.................................................................... (8,167) (8,167)
</TABLE>
- ------------------------
(1) Represents financial and operating data of AirTouch Teletrac for the year
ended December 31, 1994 and for the period January 1, 1995 through December
28, 1995, the date on which AirTouch Teletrac was dissolved.
(2) The Company acquired the assets of the business on January 17, 1996, the
effective date of the Acquisition. From December 29, 1995 to January 16,
1996, the business was operated by AirTouch Services, successor to AirTouch
Teletrac. The results of operations of AirTouch Services for such period
were not material and are not included herein.
12
<PAGE>
(3) EBITDA consists of operating income (loss) before interest, taxes,
depreciation and amortization. EBITDA also excludes refrequencing costs
accrued in the fiscal years ended December 31, 1995 and 1996 and an asset
impairment charge taken in the fiscal year ended December 31, 1995. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Background" and "Business--Regulation--Frequency Conversion."
EBITDA is presented because it is a widely accepted financial indicator of a
company's ability to incur and service debt. EBITDA, however, is not a
measure determined in accordance with generally accepted accounting
principles ("GAAP") and should not be considered in isolation or as a
substitute for or an alternative to net income (loss), cash flow from
operating activities or other income or cash flow data prepared in
accordance with GAAP or as a measure of a company's operating performance or
liquidity.
(4) Adjusted to give effect to the Unit Offering, and the application of the
estimated net proceeds from the Notes, as if the Unit Offering had occurred
on June 30, 1997. See "Use of Proceeds" and "Capitalization." The cash
proceeds from the Unit Offering for the value of the Warrants has not been
reflected in cash and cash equivalents or stockholders' deficit since the
Warrants were sold by Teletrac Holdings, Inc.
(5) Includes the aggregate principal amount of the Pledged Securities, estimated
at approximately $39.9 million. See "Description of Notes--Security."
(6) The Company received gross proceeds from the Unit Offering of $105 million.
The estimated value of the Warrants ($7.0 million) has been reflected as a
debt discount. However, the actual aggregate principal amount of the Notes
is $105 million.
13
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE TENDERING THEIR OLD NOTES IN
THE EXCHANGE OFFER.
This Prospectus contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company or its management primarily with respect to the future operating
performance of the Company. Prospective Holders of the Notes are cautioned that
any such forward-looking statements are not guarantees of future performance and
may involve risks and uncertainties, and that actual results may differ from
those in the forward-looking statements as a result of various factors, many of
which are beyond the control of the Company. The information set forth below and
the information under the heading "Management's Discussion and Analysis of
Results of Operations and Financial Condition" identify important factors that
could cause such differences (the "Cautionary Statements"). All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements. The Company does not intend to update any of its forward-
looking statements.
NET LOSSES AND NEGATIVE EBITDA
The Company and its predecessors have had losses in each year of their
operations, including net losses of $39.8 million, $57.4 million and $13.8
million for the fiscal years ended December 31, 1994, 1995, and 1996,
respectively. For the six months ended June 30, 1996 and 1997, the Company had
losses of $4.8 million and $12.8 million, respectively. In addition, the Company
had an EBITDA deficiency (excluding refrequencing costs and asset impairment) of
$19.3 million, $14.8 million and $11.3 million for such years and $3.9 million
and $12.1 million for such six-month periods. The Company also expects that
operating and net losses and negative EBITDA will increase as the Company
completes its market build-out and that, under its current business plan,
operating and net losses and negative EBITDA will continue at least through
year-end 1998. As of June 30, 1997, the Company had a stockholders' deficit of
approximately $8.2 million.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
As of June 30, 1997, after giving effect to the Unit Offering, the Company's
total outstanding long-term indebtedness would have been approximately $100
million (which excludes the portion of the Unit Offering allocated to the
Warrants) and its total long-term indebtedness-to-total capitalization ratio
would have been 0.74 to 1.0.
The Company has received a commitment letter from Banque Paribas and Fleet
National Bank with respect to a secured revolving credit facility providing up
to $30 million of credit. See "Description of Certain Indebtedness." If such
Credit Facility (as defined herein) is made available to the Company,
substantial borrowings thereunder would have the effect of increasing the
Company's total long-term indebtedness-to-total capitalization ratio, resulting
in a more highly leveraged company than existed prior to the Units Offering.
The ability of the Company to meet its debt service requirements will depend
upon achieving significant and sustained growth in cash flow. The Company
currently anticipates that earnings generated from operations should be
sufficient, together with the Pledged Securities, to provide enough cash flow to
make principal and interest payments on the Notes as they become due. However,
the Company's ability to generate such cash flow is subject to a number of risks
and contingencies. Included among these risks are the possibility that the
Company may not complete its planned geographic expansion on a timely basis,
that
14
<PAGE>
the Company's software products or vehicle location system could experience
performance problems or that utilization could be lower than anticipated.
Accordingly, there can be no assurance as to whether the Company will at any
time have sufficient resources to meet all of its debt service obligations as
they become due.
The Company's current and future debt service requirements could have
important consequences to holders of the Notes, including the following: (i) the
Company's ability to obtain additional financing for future working capital
needs or financing for acquisitions or other purposes will be limited; (ii) a
substantial portion of the Company's cash flow from operations will be dedicated
to the payment of principal and interest on its indebtedness, thereby reducing
funds available for operations; and (iii) the Company may be more vulnerable to
adverse economic conditions than less leveraged competitors and, thus, its
ability to withstand competitive pressures may be limited. The discretion of the
Company's management with respect to certain business matters will be limited by
covenants contained in the Indenture and future debt instruments. Among other
things, the covenants contained in the Indenture restrict, condition or prohibit
the Company from incurring additional indebtedness, creating liens on its
assets, making certain asset dispositions, conducting certain other business and
entering into transactions with affiliates and other related persons. There can
be no assurance that the Company's leverage and such restrictions will not
materially and adversely affect the Company's ability to finance its future
operations or capital needs or to engage in other business activities. Moreover,
a failure to comply with the obligations contained in the Indenture or any
agreements with respect to additional financing could result in an event of
default under such agreements, which could permit acceleration of the related
debt and acceleration of debt under future debt agreements that may contain
cross-acceleration or cross-default provisions. See "Description of the New
Notes."
POSSIBLE INCURRENCE OF SECURED INDEBTEDNESS
The New Notes will represent senior, unsecured obligations of the Company,
will rank PARI PASSU in right of payment with all existing and future senior
indebtedness of the Company and will rank senior in right of payment to all
existing and future subordinated indebtedness of the Company. Although the
Indenture will limit the ability of the Company and its subsidiaries to incur
additional indebtedness, the Indenture will permit the Company to incur secured
indebtedness under the Credit Facility which, if incurred, will effectively rank
senior to the Notes with respect to the assets securing such indebtedness. In
such a case, if the Company's indebtedness under the Credit Facility were to be
accelerated, the holders of such secured indebtedness would be entitled to
payment in full out of the assets securing such indebtedness prior to payment to
holders of the Notes. If the lenders party to, or the holders of, any such
secured indebtedness were to foreclose on the collateral securing the Company's
obligations to them, subject to FCC approval if required, there can be no
assurance that there would be sufficient assets remaining after payment of all
such secured indebtedness to satisfy the claims of holders of the Notes in full.
See "Description of Notes--Certain Covenants" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Liquidity and Capital
Resources--Credit Facility."
RISKS OF EXPANSION AND MANAGEMENT OF GROWTH
The Company is currently operating in seven markets across the United States
and intends to commence commercial operations in an additional two markets in
1997 and six additional markets in 1998. The Company also holds Federal
Communications Commission ("FCC") licenses in 11 additional markets, for a total
of 26 markets, but the Company expects that it would have to obtain additional
licenses in certain of such 11 markets before it could commence commercial
operations. In the future, the Company may acquire FCC licenses to operate in
additional markets. Depending on the development of the Company's business plan,
the geographic scope of the Company's operations may continue to expand rapidly
for the next several years. A portion of the net proceeds of the Unit Offering
will be applied to expand the Company's current operations. There can be no
assurance as to whether, when, or on what
15
<PAGE>
terms the Company will be able to construct its additional networks or that the
construction will prove beneficial to it. If the Company encounters delays or
difficulties in a particular market, it may redirect its expansion to one or
more other markets. The Company may encounter delays in the construction of its
networks, including delays caused by weather and late delivery or installation
of equipment. In addition, the Company will be subject to challenges inherent to
companies experiencing rapid growth. The Company's ability to market its
products on a larger scale while maintaining competitive pricing and customer
service will depend on its ability to implement and continually expand its
operational systems and to recruit, train, manage and motivate both current and
new employees. There can be no assurance that the Company will be able to
effectively expand its operations or manage its expanded operations. Failure to
successfully expand its operations and effectively manage the growth of the
Company could have a material adverse effect on the Company's business.
POTENTIAL FUTURE CAPITAL NEEDS
Based upon its current operating plan, the Company anticipates that the net
proceeds to the Company from the Unit Offering, together with its existing cash
balances and cash flow from operations, will be sufficient to meet the Company's
cash requirements for the foreseeable future. However, the Company's long-term
capital requirements will depend upon numerous factors, including the size and
success of the Company's marketing, sales and customer support efforts, the
demand for the Company's products and services, the pace of the Company's
expansion to new markets, the need for funds to participate and prevail in any
competitive-bidding auctions that the FCC may hold for licenses in any of the
markets in which the Company currently operates or in any of the markets which
the Company wishes to enter, the impact of regulatory requirements (such as the
required conversion of VLUs to a new FCC-mandated frequency band plan), the
scope of the Company's product development efforts and the continuing growth of
the Company's industry. To the extent that the funds generated by the Unit
Offering, together with existing resources and any future earnings or borrowings
under credit facilities, are insufficient to fund the Company's activities, the
Company may need to raise additional funds through public or private financings.
The issuance of additional equity, and the incurrence of additional
indebtedness, by the Company is subject, under certain circumstances, to the
prior approval of the holders of Holdings' Preferred Stock, which may affect the
Company's ability to raise capital in the future. See "Certain Relationships and
Related Transactions." No assurance can be given that additional financing will
be available or that, if available, it will be obtained on terms favorable to
the Company. If adequate funds are not available, the Company may have to reduce
or eliminate expenditures for product development, the marketing of its services
and its market build-out, which would have a material adverse effect on the
Company's business.
RELIANCE ON SOLE SUPPLIER
The Company purchases its VLUs and Base Station Units ("BSUs") from Tadiran
Telematics, Ltd. ("Tadiran"), a leading Israeli technology supplier and a
wholly-owned subsidiary of Tadiran Limited, a publicly traded Israeli company, a
majority of the stock of which is owned by Koor Industries Ltd. The Company's
ability to develop, construct and implement its networks and products on
schedule may be adversely affected by Tadiran's development, manufacturing and
delivery capabilities. While a limited number of other suppliers are available
for these products, it would take some time before a new supplier could reach
full production of these products. There can be no assurance that alternate
suppliers of the Company's equipment and products will be available in the
future or that such suppliers, if available, would be able to manufacture such
equipment and products at an acceptable price. The loss of Tadiran as a supplier
or the inability of another supplier to supply such equipment would have a
material adverse effect on the Company's business.
16
<PAGE>
GOVERNMENT REGULATION
The Company and the wireless telecommunications industry are subject to
federal, state and local regulation with respect to licensing, service
standards, land use and tower site location and other matters. The Company's
operations are subject to recently adopted rules of the FCC that have not been
significantly interpreted by the FCC and that remain subject to reconsideration.
Several parties, including the Company, have requested that the FCC reconsider
various aspects of the newly-adopted rules governing Location and Monitoring
Service ("LMS"). In some cases, the reconsideration requests, if granted by the
FCC, could have a material adverse effect on the Company's business. There can
be no assurance that governmental authorities will not propose or adopt
legislation or regulations that would have a material adverse effect on the
Company's business. Under existing FCC regulations, operating licenses are
issued for five-year terms, subject to renewal by application upon expiration of
their initial terms. Renewal is not automatic, although current FCC regulations
provide that renewal applications may be denied only for specific causes. There
can be no assurance that the Company will continue to hold its operating
licenses in the future.
FACTORS AFFECTING GRANDFATHERED SYSTEMS
FCC rules regulating LMS, adopted in 1995 and modified in March 1996,
established that LMS licenses would be granted on a Major Trading Area ("MTA")
basis, as defined in the 1993 Rand-McNally Commercial Atlas. At the time that it
adopted the new rules governing LMS, the FCC ceased to accept applications for
authorizations for new LMS transmitters. LMS licenses granted prior to the 1995
rules, including those under which the Company operates its systems, were
granted for individual transmitter sites. In its 1995 rules, the FCC established
procedures for the "grandfathering" of those LMS systems that were in operation
or authorized as of February 3, 1995. In order to retain authorization for
grandfathered systems that were authorized by the FCC but not yet constructed as
of February 3, 1995, however, each such grandfathered system must have been
built to the capability of locating a vehicle and otherwise in compliance with
the 1995 rules (as modified) by a deadline date that was ultimately extended to
January 1, 1997. The Company completed construction of multilateration LMS
stations in 26 markets prior to the January 1, 1997 deadline, submitted
modification applications and associated waivers to reflect minor parameter
variations, and obtained special temporary authority from the FCC to operate the
newly constructed stations. The Company recently discovered additional minor
parameter variations and has submitted additional modification applications and
requests for special temporary authority relating to the operation of those
facilities. There can be no assurance that the FCC will grant such applications
or requests. The Company believes that it has met all requirements of the FCC to
retain the grandfathered multilateration LMS systems it has constructed. The
FCC's rules, however, contain no provision for receiving a formal declaration
from the FCC that the Company has met all of the requirements for a
grandfathered LMS licensee.
In addition, the FCC has further required that all LMS systems must conform
the LMS transmitters that had been constructed and that were in operation on
February 3, 1995 to the new LMS frequency band plan by April 1, 1998, the date
on which authority to operate on the previous LMS frequencies will expire. While
the Company already has constructed facilities in all of its markets to comply
with the new band plan and is currently converting the VLUs owned by its current
customers to the new band, there can be no assurance that the Company's systems
constructed prior to February 3, 1995 will comply with the new LMS spectrum band
plan by April 1, 1998. Non-multilateration LMS systems that were operating on
segments of the frequency band that the FCC allocated for multilateration LMS
use in 1995 were grandfathered until April 1, 1998. This means that
multilateration LMS systems such as the Company's may be required to share their
frequencies with non-multilateration systems until next April. See
"Business--Regulation-- Construction and Operation of Grandfathered Systems."
FCC rules also provide that additional licenses to operate an LMS system in
the markets in which a grandfathered system operates may be allocated by
auction. The Company intends to participate in future
17
<PAGE>
auctions of LMS spectrum, including in those markets in which it has a
grandfathered system. Management expects that such auctions will occur in early
1998, and the Company may require additional funds to participate in such
auctions. See "Use of Proceeds" and "Business--Regulation--LMS Spectrum
Auctions." In the event that the Company does not submit the winning bid in a
market in which it operates a grandfathered system, it will have to cooperate
with the winning bidder and will be precluded from further expanding such
grandfathered system. There can be no assurance that in any such auction the
Company will acquire a license to operate its system in each market in which it
currently holds grandfathered licenses, or that its failure to do so would not
require the Company to modify its existing technology to avoid interference with
the winning bidder or otherwise delay or increase the cost of its planned market
build-out. See "Business--Regulation--LMS Spectrum Auctions."
RADIO FREQUENCY INTERFERENCE
The FCC allocated radio frequencies to multilateration LMS on a secondary
basis. This means that LMS operations cannot cause interference to, and may be
required to accept interference from, users of those same or adjacent
frequencies in the Industrial, Scientific, and Medical radio service and in the
Federal government's radiolocation service. In addition, under Part 15 of the
FCC's rules, certain unlicensed radio devices (such as spread spectrum devices
used for local area networks) operate on the same or adjacent frequencies as LMS
systems. Although multilateration LMS systems generally have priority in the use
of their frequencies over such Part 15 devices, the FCC's rules provide a
"safe-harbor" for the operation of Part 15 devices in LMS spectrum. If a Part 15
device is operated in a manner that satisfies those safe-harbor requirements
(which are designed to avoid or minimize the risk of interference to LMS
services), an LMS system that nonetheless suffers interference from such a Part
15 device may have no recourse other than to negotiate with the Part 15 user on
methods for eliminating or reducing the interference. See
"Business--Regulation--Technical Requirements."
The Company's location and communication technology operates through radio
signals, which may experience interference from radio signals on adjacent
frequencies. Interference can reduce system effectiveness. So long as other
users comply with the regulations applicable to their devices or services, the
Company may have no legal recourse even if it experiences significant
interference from other radio signals. In developing or expanding a system in a
metropolitan market, the Company tests for interference and generally expects
that a certain amount of system modification will be required to minimize
interference. There can be no assurance that the Company will not encounter
significant interference with its systems in some or all of its new markets,
which could impair the functioning of its system in such markets and/or increase
the cost of subscriber equipment or system build-out.
In certain portions of its Los Angeles market area, the Company has
experienced interference from paging networks operating on frequencies adjacent
to the new LMS frequency band. Such interference has impaired service to certain
customers, although it has not materially affected the Company's operating
results in Los Angeles. Such interference would be minimized by the installation
of additional transmitters or by enhancement of the filtering capabilities of
the VLU. The Company has applied for waivers to permit the installation of
additional transmitters in Los Angeles and other markets, but there can be no
assurance that the Company will obtain such waivers and the Company's request
for such waivers has been opposed in filings by other parties. Tadiran has also
developed and is testing an enhanced filter in the VLU that is expected to
reduce interference from out-of-band transmissions, but there can be no
assurance that the filter will be effective in the field or will be available at
acceptable cost. In testing its system in San Francisco, the Company has
experienced interference from Part 15 devices at several of its receiver
installations. The Company believes that such interference is primarily caused
by devices that do not comply with the safe-harbor provisions for Part 15
devices operating in the LMS spectrum. There can be no assurance that such
interference can be minimized in a timely manner, or that interference would not
be experienced in other existing or new markets. There can be no assurance, if
such interference is the
18
<PAGE>
result of devices not in compliance with safe-harbor provisions, that the
interference can be minimized in a timely manner.
NETWORK BUILD-OUT
The Company is engineering and designing its own network of transmitters and
receivers. While the Company has secured transmitter sites for each of its
licensed transmitters and has constructed all such transmitters in compliance
with FCC regulations, there can be no assurance that the Company will be able to
secure leases for the receiver sites necessary to construct and operate its
networks within its budgeted time frames and costs. Part of this process
involves identification of the optimal number of sites to receive signals
necessary to deliver the Company's location and associated messaging services.
In this identification process, known as radio frequency ("RF") propagation
analysis, engineers utilize computer software programs to analyze terrain,
topography, building penetration, population concentrations and other factors.
Once sites are identified in the network design process, the Company must secure
leases for the sites upon which it will install antennae, receivers and other
infrastructure equipment. The site acquisition process requires the negotiation
of site leases and verification by the Company that the site owner has obtained
the necessary governmental approvals and permits. The location and development
of sites that are considered desirable from the perspective of maximizing signal
coverage and penetration has become more difficult, due in part to the
saturation of such sites by other wireless service providers. In addition to
site identification and acquisition, the construction of the Company's networks
will require equipment installation and systems testing. Each stage involves
various risks and contingencies, many of which are not within the control of the
Company and any of which could adversely affect the implementation of the
Company's proposed networks.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company is facing increasing competition in the vehicle location and
fleet management industries. The Company faces competition for its services from
companies using GPS technology, as well as cellular, SMR and paging technology.
In addition, a variety of wireless two-way communication technologies are under
development and could result in increased competition for the Company. Certain
of the Company's competitors are larger and have substantially greater financial
and research and development resources and more extensive marketing and selling
organizations than the Company. There can be no assurance that additional
competitors will not enter markets that the Company plans to serve or that the
Company will be able to withstand the competition. Moreover, changes in
technology could lower the cost of competitive services to a level where the
Company's services would become less competitive or where the Company would need
to reduce its service prices in order to remain competitive, which could have a
material adverse effect on the Company's business. See "Business--Competition."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will be
entitled to require the Company to purchase any or all of the Notes held by such
holder at the prices stated herein. In the event that a Change of Control
occurs, the Company would likely be required to refinance the indebtedness
outstanding under the Notes. In addition, the Credit Facility provides that, if
a change of control (as defined therein) occurs, the Company would be required
to repay the indebtedness outstanding under the Credit Facility and the Company
may be required to repay the Notes. There can be no assurance that the Company
would be able to refinance either such indebtedness or, if such refinancing were
to occur, that such refinancing would be on terms favorable to the Company. See
"Description of Notes--Repurchase at the Option of Holders--Change of Control."
19
<PAGE>
RELIANCE ON KEY PERSONNEL
The Company's business is managed by a small group of key executive
officers, the loss of any of whom could have a material adverse effect on the
Company's business. The Company believes that its continued success will depend
in large part on its ability to attract and retain highly skilled and qualified
personnel.
PROPRIETARY RIGHTS AND PATENTS
The Company's success will depend in part upon its ability to protect the
confidentiality of its proprietary technology. The Company currently holds no
material patents and generally seeks to protect its software products and trade
secrets by requiring that its consultants, employees and others with access to
its trade secrets sign nondisclosure and confidentiality agreements. Management
believes that these actions provide appropriate legal protection for the
Company's intellectual property rights in its software products, but there can
be no assurance that such measures will be sufficient. There also can be no
assurance that others will not independently develop similar technologies,
duplicate the Company's technologies or design around aspects of any
technologies developed by the Company. See "Business-- Product Protection."
AirTouch Teletrac brought an action before the United States Patent and
Trademark Trial and Appeal Board against T.A.B. Systems ("TAB") opposing TAB's
registration of the mark "Teletrak." The Trademark Trial and Appeal Board
granted AirTouch Teletrac's motion for summary judgment, but summary judgment
was reversed by the U.S. Court of Appeals for the Federal Circuit. Under the
terms of the Asset Purchase Agreement between AirTouch Teletrac and the Company,
AirTouch Teletrac must pay the costs of any litigation relating to this matter
and must indemnify the Company against any losses relating thereto. AirTouch
Teletrac has notified the Company that it intends to continue to litigate this
matter on its own behalf, as well as on behalf of the Company, and that it will
bear the cost of such litigation. There can be no assurance that AirTouch
Teletrac will be successful in such litigation or will honor its indemnification
obligations (including any costs or losses relating to a change of name, if
required).
DEPENDENCE ON NETWORK OPERATIONS
The Company's operations are dependent upon its ability to protect its
computer and network equipment against damage that may be caused by equipment
failure, fire, weather, earthquakes, power loss or similar events. There can be
no assurance that such events would not disable one or more of the Company's
networks. Because each metropolitan area has its own network control center,
damage to any network control center would disrupt service for the entire
metropolitan area serviced by such control center. Any significant damage to any
one of the Company's networks could have a material adverse effect on the
Company's business. The Company is currently enhancing its location monitoring
system hardware and software to enable it to reduce its number of network
control centers from one in each metropolitan market to three of four regional
network control centers. If such improvements are made, damage to any network
control center would disrupt service for several metropolitan markets serviced
by such control center.
ABSENCE OF A PUBLIC MARKET FOR THE NEW NOTES
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued in August 1997 to certain Qualified Institutional Buyers (as
defined in Rule 144A under the Securities Act) and pursuant to offers and sales
outside the United States within the meaning of Regulation S under the
Securities Act and are eligible for trading in the Private Offerings, Resale and
Trading through Automatic Linkages (PPORTAL) market. The New Notes are
securities for which there currently is no market. If the New Notes are traded,
they may trade at a discount from their face value, depending upon prevailing
interest rates, the market for similar securities and other factors. The Company
does not currently intend
20
<PAGE>
to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. Accordingly, there can be no
assurance as the development or liquidity of any trading market for the New
Notes.
CONSEQUENCES OF THE EXCHANGE OFFER TO NON-TENDERING HOLDERS OF THE OLD NOTES
In the event the Exchange Offer is consummated, the company will not be
required to register the Old Notes. In such event, the New Notes would rank PARI
PASSU with the Old Notes and holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act. A reduction of the principal
amount of the Old Notes as a result of this Exchange Offer may have an adverse
effect on the ability of holders of the Old Notes to transfer such Old Notes.
21
<PAGE>
THE COMPANY
An investor group led by management formed Teletrac, Inc. in August 1995 to
acquire the assets of AirTouch Teletrac. AirTouch Teletrac was established in
1988 to develop land-based 900 MHz radio networks for wireless location
monitoring and related two-way wireless messaging services. Over an eight year
period, AirTouch Teletrac developed the technology and software for such
networks and constructed operational systems in six metropolitan markets.
Teletrac, Inc. acquired the assets of AirTouch Teletrac on January 17, 1996.
The current management of Teletrac has had significant experience in the
wireless communications industry. James A. Queen, the Company's Chief Executive
Officer, together with several members of the Company's current management,
founded and managed Premiere Page, Inc. ("Premiere Page"), a paging company with
operations in Alabama, Illinois and surrounding markets. Premiere Page was
established in 1988, completed an initial public offering of its stock in 1993,
and in 1994 was merged into another paging company, forming the fifth largest
paging company in the nation at the time, based on units in service.
To create a holding company structure, Holdings, Teletrac and all of the
stockholders of Teletrac entered into an Exchange Agreement. Under the terms of
such Exchange Agreement, all of Teletrac's stockholders exchanged their shares
of Common Stock and Preferred Stock of Teletrac for substantially similar shares
of the Common Stock and Preferred Stock of Holdings (the "Exchange"). See
"Certain Relationships and Related Transactions--Exchange Agreement." As a
result of the Exchange, Holdings owns all the outstanding capital stock of
Teletrac, which constitutes its sole asset.
The principal executive offices of Teletrac and Holdings are located at 2323
Grand Street, Suite 1100, Kansas City, Missouri 64108, and its telephone number
is (816) 474-0055.
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of New Notes
pursuant to the Exchange Offer. The proceeds to the Company and Holdings from
the Unit Offering was approximately $100 million, net of discounts and
commissions and estimated offering expenses. The Company used approximately $[ ]
million of such proceeds to purchase the Pledged Securities. See "Description of
Notes-- Security." The Company intends to use the net proceeds from the Unit
Offering (i) to fund expenditures for the continued construction, development
and roll-out of its networks and services, including site construction,
marketing costs and the purchase of system hardware, and (ii) for general
corporate purposes, including the funding of operating losses, working capital
requirements and the possible acquisition of additional radio spectrum in
metropolitan markets. The Company believes that the net proceeds of the Unit
Offering, together with its current cash reserves and cash flow from operations,
are sufficient to build out its operations in the new markets to be opened in
1997 and 1998 and to fund its operations in fifteen markets for the foreseeable
future.
The Company may require additional financing in order to complete the
build-out of its networks in additional markets beyond the markets scheduled to
open in 1997 and 1998. See "Risk Factors--Potential Future Capital Needs" and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources."
22
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
The Holders of the Old Notes currently are entitled to certain registration
rights under the Registration Rights Agreement dated August 6, 1997 (the
"Registration Rights Agreement") among the Company, Donaldson, Lufkin & Jenrette
Securities Corporation and TD Securities (USA) Inc. Pursuant thereto, the
Company became obligated to file with the Commission an Exchange Offer
Registration Statement covering the offer by the Company to the Holders of the
Old Notes to exchange all of the Old Notes for the New Notes. The Exchange Offer
being made hereby, if consummated, will satisfy the Company's obligations under
the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount of
New Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by the holders thereof
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such Holders'
business and such Holders have no arrangement with any person to participate in
the distribution of such New Notes. See MORGAN STANLEY & CO., INC., SEC
No-Action Letter (available June 5, 1991), EXXON CAPITAL HOLDINGS CORPORATION,
SEC No-Action Letter (available May 13, 1988) and SHEARMAN & STERLING, SEC No-
Action Letter (available July 2, 1993).
If any person were to be participating in the Exchange Offer for the
purposes of distributing securities in a manner not permitted by the
Commission's interpretation, such person (i) could not rely on the position of
the staff of the Commission enunciated in EXXON CAPITAL HOLDINGS CORPORATION or
similar interpretive letters and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. See "Plan of Distribution."
As of the date of this Prospectus, there was $105,000,000 aggregate
principal amount of the Old Notes outstanding. This Prospectus, together with
the Letter of Transmittal, is being sent to all such registered holders as of
the date of this Prospectus.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purposes of receiving the New Notes from the Company and
delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
23
<PAGE>
If Old Notes are not tendered, they shall remain outstanding and shall
accrue interest from their date of issue, August 6, 1997, at a rate of 14% per
annum.
In the event the Exchange Offer is consummated, the Company will not be
required to register the Old Notes. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act. See "Risk
Factors--Consequences of the Exchange Offer to Non-Tendering Holders of the Old
Notes."
The term "Expiration Date" shall mean the expiration date set forth on the
Cover Page of this Prospectus, unless the Company in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by written notice and will mail to the record holders of
Old Notes an announcement thereof, each prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. Such
announcement may state that the Company is extending the Exchange Offer for a
specified period of time.
In addition, the Company will issue notice of each such extension by press
release or other public announcement as contemplated by the provisions of Rule
14e-1 promulgated under the Exchange Act.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from August 6, 1997, payable semiannually
on February 1 and August 1 of each year, commencing February 1, 1998, at a rate
of 14% per annum.
PROCEDURES FOR TENDERING
The tender to the Company of Old Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees,
to the Exchange Agent at its address set forth on the back cover of this
Prospectus on or prior to the Expiration Date (or complying with the procedure
for book-entry transfer described below) or (ii) complying with the guaranteed
delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the New Notes to be issued in exchange therefor are to be
issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
book-entry transfer facility) whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company located or
having an office or correspondent in the United States, or by a member firm of a
national securities exchange or of the National Association of Securities
Dealers, Inc., which firm must also be a member of or participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program (any of the
foregoing hereinafter referred to as an "Eligible Institution"). If the New
Notes and/or Old Notes not exchanged are to be delivered to an address other
than that of the registered holder appearing on the note register for the Notes,
the signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
24
<PAGE>
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSTANCE OBTAINED,
AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Old Notes at the book-entry
transfer facility for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the book-entry transfer facility's system may make book-entry
delivery of Old Notes by causing such book-entry, transfer facility to transfer
such Old Notes into the Exchange Agent's account with respect to the Old Notes
in accordance with the book-entry transfer facility's procedures for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's accounts at the book-entry transfer facility,
an appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth on the back cover page
of this Prospectus on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its office listed on the back cover hereof on or prior to the Expiration Date a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the names in which the Old
Notes are registered and, if possible, the certificate numbers of the Notes to
be tendered, and stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange trading days after the date of
execution of such letter, telegram or facsimile transmission by the Eligible
Institution, the Old Notes, in proper form for transfer (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Old Notes being tendered by the above-
described method are deposited with the Exchange Agent within the time period
set forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents), the Company may, at its option,
reject the tender. Copies of a Notice of Guaranteed Delivery which may be used
by Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of New
Notes in exchange for Old Notes tendered pursuant to a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal (and any other required documents) and the tendered
Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of the Company, the Exchange Agent or any
25
<PAGE>
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give such
notification.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of such holder's business, (ii) such holder has
no arrangement with any person to participate in the distribution of such New
Notes, (iii) such holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company and (iv) if such holder is a broker or a dealer
(as defined in the Exchange Act), that it acquired the Old Notes for its own
account as a result of market-making activities on other trading activities and
that it has not entered into any arrangement or understanding with the Company
or any "affiliate" of the Company to distribute the New Notes received in the
Exchange Offer.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written
transmission notice of withdrawal via telegram, telex, facsimile transmission or
letter must be received by the Exchange Agent at its address set forth herein
prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice
of withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Notes), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the depositor
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by the Registrants, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may
be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
The Exchange Offer is not subject to any conditions other than that the
Exchange Offer does not violate applicable law or any applicable interpretation
of the staff of the Commission.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal and
deliveries of completed Letters of Transmittal with tendered Old Notes should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
BY HAND/OVERNIGHT EXPRESS: BY MAIL:
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Norwest Center Norwest Center
Sixth and Marquette Sixth and Marquette
Minneapolis, MN 55479 Minneapolis, MN 55479
</TABLE>
26
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and their affiliates in person, by
telegraph or telephone.
The Company will not make any payments to brokers, dealers, or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes, and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees, but not including transfer taxes, if any, relating to the sale or
disposition of the Old Notes by a holder of the Old Notes, will be paid by the
Company, and are estimated in the aggregate to be $[ ].
27
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Teletrac,
Inc. as of June 30, 1997, as adjusted to give effect to the sale of the Notes.
The table should be read in conjunction with the audited consolidated financial
statements of the Company and its predecessors and the related notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................................ $ 4,261 $ 57,574
---------- -----------
---------- -----------
Restricted cash(1)....................................................................... 1,756 41,704
---------- -----------
---------- -----------
Long-term debt:
Long-term leases payable............................................................... $ 1,746 $ 1,746
Notes(2)............................................................................... -- 97,961
---------- -----------
Total long-term debt..................................................................... 1,746 99,707
Series A Redeemable Preferred Stock, $.01 par value, 190,477 shares authorized and
190,476.19 shares issued and outstanding............................................... 35,815 35,815
Undesignated Preferred Stock, $.01 par value, 190,477 shares authorized and none issued
and outstanding........................................................................ -- --
Stockholders' equity (deficit):
Class A Common Stock, $.01 par value, 1,000,000 shares authorized and 249,000 shares
issued and outstanding................................................................. 2 2
Class B Common Stock, $.01 par value, 70,000 shares authorized and none issued and
outstanding............................................................................ -- --
Additional paid-in capital............................................................... 22,023 22,023
Accumulated deficit...................................................................... (30,192) (30,192)
---------- -----------
Stockholders' deficit.................................................................... (8,167) (8,167)
---------- -----------
Total capitalization..................................................................... $ 29,394 $ 127,355
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Includes the aggregate principal amount of the Pledged Securities, estimated
at approximately $39.9 million. See "Description of Notes--Security."
(2) The Company anticipates gross proceeds from the Unit Offering of $105
million. The estimated value of the Warrants ($7.0 million) has been
reflected as a debt discount. However, the actual aggregate principal amount
of the Notes is $105 million. The cash proceeds from the Unit Offering for
the value of the Warrants has not been reflected in cash and cash
equivalents since the Warrants were sold by Teletrac Holdings, Inc.
28
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
Set forth below are selected historical financial and operating data of the
Company and its predecessors. Certain of such historical financial and operating
data have been derived from the audited consolidated financial statements of the
Company and its predecessors as of and for the periods noted. The financial
information of the Company as of and for the six months ended June 30, 1996 and
1997 is unaudited and is derived from the unaudited consolidated financial
statements of the Company which include all adjustments management considers
necessary for a fair presentation of the Company's financial position and
results of operations in accordance with generally accepted accounting
principles subject to normal recurring year-end adjustments. The results for the
six months ended June 30, 1997 are not necessarily indicative of the results to
be expected for the full year ending December 31, 1997. The data contained in
the following table should be read in conjunction with "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and the Company's
and its predecessors' audited consolidated financial statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSORS(1) THE COMPANY
---------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996(2) 1996(2) 1997
---------- ---------- ---------- ---------- ---------- --------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT UNIT DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:................................. $ 6,805 $ 11,550 $ 15,336 $ 13,244 $ 15,957 $ 5,941 $ 11,370
Operating Expenses
Cost of revenues........................ 7,212 5,748 6,357 4,323 7,031 1,757 5,194
Selling, general and administrative..... 44,336 40,272 28,234 23,674 20,186 8,064 18,296
Refrequencing costs(3).................. -- -- -- 5,936 1,340 406 --
Depreciation and amortization........... 3,844 5,155 5,218 4,458 1,254 543 999
Asset impairment(4)..................... -- -- -- 10,967 -- -- --
---------- ---------- ---------- ---------- ---------- --------- ----------
Total operating expenses.................. 55,392 51,175 39,809 49,358 29,811 10,770 24,489
---------- ---------- ---------- ---------- ---------- --------- ----------
Operating Loss............................ (48,587) (39,625) (24,473) (36,114) (13,854) (4,829) (13,119)
Interest Expense........................ (7,154) (10,318) (15,610) (21,239) (109) (10) (86)
Other................................... (166) 16 259 (27) 171 72 404
---------- ---------- ---------- ---------- ---------- --------- ----------
Net Loss.................................. $ (55,907) $ (49,927) $ (39,824) $ (57,380) $ (13,792) $ (4,767) $ (12,801)
---------- ---------- ---------- ---------- ---------- --------- ----------
---------- ---------- ---------- ---------- ---------- --------- ----------
Other Data:
EBITDA(5)................................. $ (44,743) $ (34,470) $ (19,225) $ (14,753) $ (11,260) $ (3,880) $ (12,120)
Deficiency of earnings to fixed charges
(6)..................................... 55,907 49,927 39,824 57,380 14,132 4,764 15,276
Commercial units in service at end of
period.................................. 9,426 23,903 30,283 35,465 43,156 37,632 54,430
Consumer units in service at end of
period.................................. 4,367 6,688 10,618 13,814 11,717 12,420 10,697
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------- AS OF
1992 1993 1994 1995 1996 JUNE 30, 1997
--------- ---------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
Balance Sheet Data:
Cash and cash equivalents:........................ $ 3,253 $ 1,586 $ 546 -- $ 27,639 $ 4,261
Restricted cash................................... -- -- -- -- 1,256 1,756
Total assets...................................... 42,968 37,392 28,852 11,137 53,713 42,022
Long-term debt.................................... 129,250 170,653 203,285 226,101 1,615 1,746
Redeemable preferred stock........................ -- -- -- -- 33,340 35,815
Partners'/Stockholders' equity (deficit).......... (94,786) (144,713) (184,038) (241,418) 7,111 (8,167)
</TABLE>
- ------------------------
(1) Represents financial and operating data of PacTel Teletrac for the years
ended December 31, 1992 and 1993 and AirTouch Teletrac for the year ended
December 31, 1994 and for the period January 1, 1995 through December 28,
1995, the date on which AirTouch Teletrac was dissolved.
(2) The Company acquired the assets of the business on January 17, 1996, the
effective date of the Acquisition. From December 29, 1995 to January 16,
1996, the business was operated by AirTouch Services, successor to AirTouch
Teletrac. The results of operations of AirTouch Services for such period
were not material and are not included herein.
(3) Refrequencing costs are certain costs accrued in connection with the
conversion of vehicle location units to a new frequency band plan mandated
by the FCC. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Background" and
"Business--Regulation--Frequency Conversion."
(4) Asset impairment for 1995 resulted from the Acquisition, in which the assets
of AirTouch Teletrac were sold for approximately $11.0 million less than the
historical book value of such assets recorded by AirTouch Teletrac. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Background."
(5) EBITDA consists of operating income (losses) before interest, taxes,
depreciation and amortization. EBITDA excludes the accrued refrequencing
costs and asset impairment charge described above. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. EBITDA, however, is not a measure determined in
accordance with GAAP and should not be considered in isolation or as a
substitute for or an alternative to net income (loss), cash flow from
operating activities or other income or cash flow data prepared in
accordance with GAAP or as a measure of a company's operating performance or
liquidity.
(6) For purposes of calculation, earnings consist of the Company's loss before
income taxes and fixed charges. Fixed charges consist of gross interest
expense plus the portion of rental expense under operating leases which has
been deemed by the Company to be representative of interest factor. The
deficiency of earnings to fixed charges represents the additional earnings
required to bring the ratio of earnings to fixed charges to 1.00.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO OF THE COMPANY AND ITS PREDECESSORS AND
"SELECTED FINANCIAL AND OPERATING DATA" APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. SEE "RISK FACTORS."
BACKGROUND
AIRTOUCH TELETRAC OPERATIONS. The Company's vehicle location business was
established in 1988 by PacTel Teletrac, a California partnership whose majority
partner was a wholly-owned subsidiary of Pacific Telesis Group. The partnership
changed its name to AirTouch Teletrac in connection with the spin-off by Pacific
Telesis Group of its wireless operations to AirTouch Communications, Inc.
AirTouch Teletrac was established to develop land-based 900 MHz radio networks
for wireless location monitoring and two-way wireless messaging services. Over
an eight-year period, AirTouch Teletrac developed the technology and software
for such networks, obtained FCC licenses and constructed operational systems in
six metropolitan markets. In addition, AirTouch Teletrac developed the Company's
proprietary software and other products and built a sales and marketing
organization in the six metropolitan markets in which it had operational
networks. Development costs and operating losses were primarily funded through
the issuance of convertible debt of the partnership to the majority partner, a
subsidiary of AirTouch Communications, Inc.
In 1995, AirTouch Teletrac determined to sell its business and, in
connection with that decision, substantially curtailed its marketing efforts.
FORMATION OF THE COMPANY. Teletrac was formed in August 1995 to acquire the
assets of the AirTouch Teletrac business. From its inception in August 1995
through December 31, 1995 the Company's expenses were nominal and the Company
had no revenues.
ACQUISITION OF ASSETS OF AIRTOUCH TELETRAC. On January 17, 1996, the
Company acquired the assets of AirTouch Teletrac in the Acquisition. In
connection with the Acquisition, the Company assumed certain liabilities of
AirTouch Teletrac, but did not assume its long-term debt. The Company accounted
for the Acquisition as a purchase and allocated the purchase price to the assets
purchased and the liabilities assumed. As a result of the sale of the assets for
less than book value, an asset impairment charge of approximately $11.0 million
was recorded by AirTouch Teletrac in 1995.
CHANGES IN BUSINESS STRATEGY. Management has significantly changed the
Company's business strategy since the Acquisition. The primary change has been
to shift the focus of the Company from engineering and product development to
sales and marketing. During 1995, in anticipation of the sale of its business,
AirTouch Teletrac substantially curtailed its marketing efforts. The Company
began increasing sales and marketing activity immediately upon completing the
Acquisition in order to increase market penetration and restore revenue growth.
To date, management has focused the Company's sales efforts exclusively on sales
of commercial fleet equipment and services. The Company has continued providing
consumer service and has allowed dealer arrangements in place at the Acquisition
to continue, but has not launched any new marketing efforts. The Company is
currently exploring various potential strategies for marketing and distributing
its products to consumers, including through strategic partnerships or
third-party reseller arrangements, and expects to begin expanding its consumer
operations in late 1997 or early 1998.
In addition, over the next 18 months, the Company expects to continue
expanding its operations beyond the six markets operating at the time of the
Acquisition. As of December 31, 1996, the Company operated in six metropolitan
markets: Los Angeles, Miami, Chicago, Detroit, Dallas and Houston. The Company
commenced operations in Orlando in March 1997 and plans to initiate commercial
fleet service in San Francisco and San Diego before the end of 1997 and a
further six markets (Washington, D.C./ Baltimore, New York, Boston,
Philadelphia, Indianapolis and Columbus) before the end of 1998. The
31
<PAGE>
Company made capital expenditures and incurred expenses in 1996 and the first
six months of 1997 in connection with network build-out in these markets. The
Company also incurred expenses in connection with the network build-out required
to grandfather its FCC licenses in 11 other metropolitan markets in which it may
commence offering commercial fleet services in the future. See
"Business--Regulation-- Construction and Operation of Grandfathered Systems."
REFREQUENCING COSTS. The FCC has required all LMS systems that were
constructed and in operation as of February 3, 1995 to conform their
already-constructed facilities to a new LMS frequency band plan. The frequency
conversion must be completed by April 1, 1998, the date on which authority to
operate on the previous LMS frequencies will expire. The Company has begun an
active program of converting installed VLUs to operate within the new frequency
band plan. The Company anticipates that the frequency conversion process for its
existing markets will be completed prior to the April 1, 1998 deadline. The
Company estimates that the total cost of such conversion will be approximately
$7.2 million. Approximately $5.9 million of such estimated cost was accrued in
1995 to account for VLUs installed prior to the Acquisition, and the remainder
was accrued in 1996 to account for VLUs installed after the Acquisition that
operated on the old frequency. New markets are being opened with equipment that
conforms to the new band plan requirements and all VLUs sold after December 31,
1996 operate on the new frequency. See "Business--Regulation--Frequency
Conversion."
OPERATING LOSSES. The Company has experienced significant operating and net
losses and negative EBITDA in connection with the build-out of its networks and
the operation of its business, and expects to continue to experience operating
and net losses and negative EBITDA until such time as it develops a
revenue-generating customer base sufficient to fund its operating expenses. See
"Risk Factors--Net Losses and Negative EBITDA." The Company expects to build its
customer base over time by (i) increasing the number of markets in which it
operates from six, as of December 31, 1996, to 15 by the end of 1998 and (ii)
increasing its market penetration by building a larger and more productive sales
force. The Company anticipates that revenues will increase in 1997. The
Company's operations in Los Angeles are currently generating positive EBITDA
(excluding corporate overhead). The Company's management expects several
additional markets to begin generating positive EBITDA (excluding corporate
overhead) by the end of 1997 and the Company as a whole to achieve positive
EBITDA in 1999. However, the Company also expects that operating and net losses
and negative EBITDA will increase as the Company completes its market build-out
and that, under its current business plan, operating and net losses and negative
EBITDA will continue at least through the end of fiscal 1998. See "--Liquidity
and Capital Resources" and "Projected Financial Information."
FINANCIAL STATEMENT PRESENTATION. The audited consolidated financial
statements of Teletrac, Inc. for 1996 include the period prior to the
Acquisition, from January 1, 1996 through January 16, 1996. During such period,
Teletrac, Inc. had no revenues and nominal expenses. No information with respect
to the operations of the fleet management and vehicle location business by
AirTouch Teletrac during such period is included in the financial statements of
Teletrac, Inc.
COMPONENTS OF REVENUES. The Company's revenues are generated from two
primary sources: monthly service fees from customers and the sale of equipment
and software to customers. Commercial customers are charged flat monthly service
fees for vehicle location and related communication services and consumer
customers are charged flat monthly service fees for vehicle location services.
The Company sells VLUs, messaging terminals, personal computers and its
proprietary software to commercial fleet customers, and sells VLUs to consumer
customers. See "Business--Commercial Fleet Management" and "Business--Consumer
Vehicle Services." For the year ended December 31, 1996 and the six months ended
June 30, 1997, service revenues represented approximately 55.9% and 50.8% of
total revenues, respectively, and revenues from equipment sales represented the
remaining 44.1% and 49.2%, respectively. The Company expects that, as it builds
its customer base by expanding into new markets and increasing penetration of
its existing markets, the percentage of its revenues generated by equipment
sales will
32
<PAGE>
initially increase. Over time, as the monthly service fee base grows, the
Company expects that revenues from equipment sales will decrease, and service
revenues will increase, as a percentage of total revenues.
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
REVENUES. Total revenues increased to $11.4 million for the six months
ended June 30, 1997 from $5.9 million for the six months ended June 30, 1996, an
increase of 93%.
Equipment revenues increased to $5.6 million for the six months ended June
30, 1997 from $1.8 million for six months ended June 30, 1996, an increase of
211%, principally due to an increase in the Company's commercial sales efforts.
Following the Acquisition, the Company significantly increased the size of its
salesforce, which did not significantly impact revenues from equipment sales for
the six-month period ended June 30, 1996. Commercial equipment sales were 98%
and 100% of total equipment sales for the 1997 and 1996 periods, respectively.
Service revenues increased to $5.8 million for the six months ended June 30,
1997 from $4.2 million for comparable period of fiscal 1996, an increase of 38%,
primarily due to an increase in the number of commercial units in service to
54,430 at June 30, 1997 from 37,632 at June 30, 1996.
COST OF REVENUES. Cost of revenues includes the cost of equipment and the
direct cost of providing service (network communications, billing, roadside
assistance and bad debt expense). Cost of revenues increased to $5.2 million for
six months ended June 30, 1997 from $1.8 million for six months ended June 30,
1996 primarily as a result of the higher number of new units sold. In addition,
the Company incurred $0.5 million in the first half of 1997 on network
communications costs associated with installing and maintaining its networks in
markets that are not yet opened.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $10.2 million, to $18.3 million, in the
first six months of 1997 from $8.1 million for the six months ended June 30,
1996. The increase was primarily related to increased sales personnel for the
commercial operations, the funding of new product development and increased
administrative support for the growth of the customer base. The Company expensed
$2.0 million in the first half of 1997 relating to research and development for
its new IBSU.
REFREQUENCING COSTS. Refrequencing costs were not accrued for the 1997
period since all units placed in service in 1997 are operating on the new
frequency.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$1.0 million in the first half of 1997 from $0.5 million for the 1996 period,
primarily due to depreciation on additional assets related to the new market
build-out and additional infrastructure in existing markets.
OPERATING LOSSES. Operating losses incurred by the Company were $13.1
million for the six months ended June 30, 1997, as compared to $4.8 million for
the six months ended June 30, 1996, for the reasons discussed above.
EBITDA. EBITDA, which excludes refrequency costs, was $(12.1) million for
the six months ended June 30, 1997, and $(3.9) million for the first half of
1996, for the reasons discussed above.
INTEREST EXPENSE. Interest expense was $86,400 for six months ended June
30, 1997, compared to $10,100 for the first half of 1996. The Company's interest
expense for the first half of 1997 related to $2.0 million of long-term lease
commitments.
NET LOSS. For the reasons discussed above, net loss increased to $12.8
million for the six months ended June 30, 1997 from $4.8 million for the six
months ended June 30, 1996.
33
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995.
REVENUES. Total revenues increased to $16.0 million for 1996 from $13.2
million for 1995, an increase of 21.2%.
Equipment revenues increased to $7.0 million for 1996 from $4.0 million for
1995, an increase of 75.0%, principally due to an increase in the Company's
sales efforts. Commercial equipment sales increased to $6.9 million for 1996
from $2.6 million for 1995, and the number of gross commercial units added
during 1996 increased to approximately 14,500 units from approximately 8,500
units for 1995. Consumer equipment sales declined to $152,000 for 1996 from $1.4
million for 1995 as a result of the Company's decision not to recommence the
marketing of consumer services during the year.
Service revenues increased to $8.9 million for 1996 from $8.6 million for
1995, an increase of 3.5%, primarily due to an increase in the number of
commercial units in service, to 43,156 at December 31, 1996 from 35,465 at
December 28, 1995. The increase in commercial fleet service revenues was
partially offset by a decline in consumer vehicle service revenues for the
reasons discussed above.
COST OF REVENUES. Cost of revenues increased to $7.0 million for 1996 from
$4.3 million for 1995, primarily as a result of the higher number of new units
sold and the larger customer base. In addition, the Company incurred costs
associated with building and maintaining its networks in markets that are not
yet opened.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses declined by $3.5 million, to $20.2 million for 1996 from
$23.7 million for 1995. Selling, general and administrative expenses also
decreased as a percentage of revenues, from 179% for 1995 to 127% for 1996. The
decline was primarily due to $3.2 million in severance and retention payment
expenses incurred by AirTouch Teletrac for 1995 and to decreases in overhead and
administrative costs.
REFREQUENCING COSTS. Refrequencing costs accrued for 1996 were $1.3
million, compared to $5.9 million accrued for 1995. The 1996 accrual reflects
the estimated cost of conversion of VLUs placed in service after the
Acquisition. The 1995 accrual reflects the estimated cost of conversion of VLUs
in service with customers at the time of the Acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization declined by
$3.2 million to $1.3 million for 1996 from $4.5 million for 1995, primarily due
to the lower book value recorded by the Company for the assets acquired in the
Acquisition as compared to the historical cost recorded by AirTouch Teletrac.
The Company expects depreciation to increase for 1997 as assets acquired in
connection with the Company's planned market expansion, which are currently
classified as construction in progress, are placed in service during the year.
ASSET IMPAIRMENT. Because the purchase price paid for the assets of
AirTouch Teletrac was $11.0 million less than the historical cost of such assets
recorded by AirTouch Teletrac, AirTouch Teletrac recorded an asset impairment of
$11.0 million for 1995.
OPERATING LOSSES. Operating losses incurred by the Company were $13.9
million for 1996, compared to $36.1 million for 1995, a reduction of 61%, for
the reasons discussed above.
EBITDA. EBITDA, which excludes refrequencing costs and asset impairment,
was $(11.3) million for 1996 and $(14.8) million for 1995, an improvement of
24%, for the reasons discussed above.
INTEREST EXPENSE. Interest expense was $108,600 for 1996, compared to $21.2
million for 1995. This decline reflects the fact that the Company did not assume
the approximately $226.1 million of long-term debt of AirTouch Teletrac. The
Company's interest expense for 1996 related to $2.0 million of long-term lease
commitments.
34
<PAGE>
NET LOSS. For the reasons discussed above, net loss decreased to $13.8
million for 1996 from $57.4 million for 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994.
REVENUES. Total revenues decreased to $13.2 million for 1995 from $15.3
million for 1994.
Equipment revenues declined to $4.0 million for 1995 from $5.8 million for
1994. As a result of the reduction in sales force implemented by AirTouch
Teletrac in 1995, the gross number of units sold declined to approximately
14,700 for 1995 from approximately 17,700 for 1994.
Service revenues increased to $8.6 million for 1995 from $7.4 million for
1994, an increase of 16.2%. The increase in service revenues is primarily
attributable to the increase in units in service to 49,279 at December 31, 1995
from 40,901 at December 31, 1994.
Revenues for 1995 and 1994 also included $681,000 and $2.1 million,
respectively, of revenues attributable to an engineering consulting contract
between AirTouch Teletrac and Ituran Location and Control Ltd., an Israeli
licensee ("Ituran"), relating to the construction in Israel of a network similar
to the Company's. Construction began in 1994 and was completed in 1995.
COST OF REVENUES. Cost of revenues declined to $4.3 million for 1995 from
$6.4 million for 1994. As indicated above, equipment sales decreased for 1995 as
compared to 1994, which led to a decrease in equipment costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses declined by $4.5 million, to $23.7 million for 1995 from
$28.2 million for 1994. During 1995, AirTouch Teletrac's management made the
decision to sell its assets, at which point AirTouch Teletrac began to reduce
its expenses. The number of employees was reduced from 197 at December 31, 1994
to 117 at December 31, 1995. Reductions were also made in certain administrative
expenses.
REFREQUENCING COSTS. Refrequencing costs accrued for 1995 are the estimated
costs for the conversion of VLUs in service with customers at the time of the
Acquisition. Because the change in frequency was mandated by a 1995 order of the
FCC, there was no expense recorded in 1994.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
declined to $4.5 million for 1995 from $5.2 million for 1994. This decline was
due to a reduction in the aggregate value of the Company's plant, property and
equipment as certain assets became fully depreciated and additional assets were
not acquired.
OPERATING LOSSES. AirTouch Teletrac incurred operating losses of $36.1
million for 1995, compared to $24.5 million for 1994, for the reasons discussed
above.
EBITDA. EBITDA, which excludes refrequencing costs and asset impairment,
was $(14.8) million for 1995 and $(19.3) million for 1994, for the reasons
discussed above.
INTEREST EXPENSE. Interest expense increased to $21.2 million for 1995 from
$15.6 million for 1994 due to the increase in AirTouch Teletrac's long-term debt
to $226.1 million for 1995 from $203.3 million for 1994.
NET LOSS. Net loss increased to $57.4 million for 1995 from $39.8 million
for 1994, for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has required a substantial investment of capital in order to
fund the Acquisition, its subsequent operating losses and the build-out of its
networks in new markets. During 1996, the Company
35
<PAGE>
used $16.2 million of cash in its operating activities, $7.1 million for
purchases of property, plant and equipment and $2.1 million to acquire the
assets of AirTouch Teletrac. For the six months ended June 30, 1997, the Company
used $16.5 million of cash for operating activities and $5.9 million for
purchases of property, plant and equipment. These cash outflows were financed
through private equity placements of common and preferred stock. From November
14, 1995 through December 6, 1996, the Company issued and sold 244,000 shares of
its Class A Common Stock for an aggregate purchase price of $24.4 million
pursuant to the terms of a Stock Purchase Agreement, dated November 14, 1995,
among the Company and certain investors. From March 29, 1996 through December 6,
1996, the Company issued and sold 5,000 shares of its Class A Common Stock for
an aggregate purchase price of $500,000 pursuant to a Subscription Agreement,
dated March 29, 1996, among the Company and certain other investors. On December
6, 1996, the Company issued and sold 190,476.19 shares of its Series A
Redeemable Convertible Participating Preferred Stock for an aggregate purchase
price of $33.0 million pursuant to the terms of a Stock Purchase Agreement,
dated December 6, 1996, among the Company and certain investors. At June 30,
1997, the Company had working capital of $5.3 million and restricted cash of
$1.8 million.
On August 6, 1997, the Company sold 105,000 Units, consisting of an
aggregate $105,000,000 of its 14% Senior Notes due 2007 and 105,000 Warrants,
for an aggregate purchase price of $101,325,000. The Company has purchased $39.9
million of government securities (the "Pledged Securities") which it has pledged
to Norwest Bank, National Association as Collateral Agent to secure the payment
of the first six semi-annual payments of interest on the Notes. The Company
intends to use the net proceeds of such Units Offering (i) to fund expenditures
for the continued construction, development and roll-out of its networks and
services, including site construction, marketing costs and the purchase of
system hardware and (ii) for general corporate purposes, including the funding
of operating losses, working capital requirements and the possible acquisition
of additional radio spectrum in metropolitan markets.
As indicated above, capital expenditures were $7.1 million for 1996 and $5.9
million for the first six months of 1997, primarily for the build-out of the
Company's networks in new markets. The Company currently expects that its
aggregate capital expenditures (excluding the acquisition of spectrum rights)
will be $14.8 million for 1997 and an aggregate $17 million for both 1998 and
1999 combined. These capital expenditures will consist primarily of costs
associated with the opening of new markets in 1997 and 1998. In addition, the
Company's capital expenditure plans also include network design and development,
the maintenance of existing markets and other capital improvements.
CREDIT FACILITY
The Company has received a commitment letter from Banque Paribas and Fleet
National Bank with respect to a secured revolving credit facility (the "Credit
Facility") providing for up to $30 million of credit. Proceeds from the
revolving credit line may be used to provide funding for capital expenditures
and finance the working capital needs of the Company. Indebtedness under the
Credit Facility would be secured by a pledge of the stock of Teletrac, Inc. and
its subsidiaries, together with a security interest in substantially all of the
assets of Teletrac, Inc. See "Description of Certain Indebtedness."
The Credit Facility will contain restrictive covenants that, among other
things, impose limitations on the Company and its subsidiaries with respect to
(i) the incurrence and maintenance of indebtedness, including guarantees, (ii)
the incurrence, creation or maintenance of liens, (iii) the making of dividends
and certain payments, (iv) transactions with affiliates, (v) the disposition of
assets, (vi) the types of acquisitions that can be made and the amount which can
be invested in acquisitions, (vii) the amount of rental payments that can be
incurred, and (viii) consolidations and mergers. The Credit Facility would also
provide for events of default customary in facilities of its type.
The exercise of rights pursuant to the Credit Facility will be subject to
applicable provisions of the Communications Act, including, without limitation,
the requirements for prior FCC approval of the transfer of control or the
assignment of FCC licenses.
36
<PAGE>
AGREEMENTS WITH TADIRAN
The Company has entered into a contract with Tadiran to purchase 200,000
VLUs between October 1996 and October 1998. The agreement permits the Company to
effectively double the period of time in which it takes delivery of VLUs and to
cancel its order at any time, subject to payment of a nominal fee per VLU not
purchased and certain other expenses. In addition, the Company has funded
approximately $2.0 million of research and development costs with Tadiran
related to the Integrated Base Station Unit ("IBSU"), and expects to fund an
additional $2.5 million in the future on this project. See "Business-- Network
and Subscriber Equipment." Although the Company does not have any other material
commitments to fund research and development, such expenditures may occur from
time to time. See "Business-- Network and Subscriber Equipment."
CAPITAL NEEDS FOR NETWORK BUILD-OUT
During 1996 and the first six months of 1997, the Company experienced
significant operating and net losses and negative EBITDA in connection with the
build-out of its networks and the operation of its business. Management
anticipates that such losses and negative EBITDA will continue for the remaining
portion of 1997 and for 1998 as the Company implements its growth strategy. The
Company's Los Angeles operations are currently generating positive EBITDA
(excluding corporate overhead). Management believes that the Company as a whole
will achieve positive EBITDA in 1999 and positive net income in 2000. However,
due to the high level of risk in the Company's industry and in its current
growth strategy, the risk that the Company will not be able to complete its
market build-out on time and within budget, and other risks identified elsewhere
herein, there can be no assurance that such results will be realized. See "Risk
Factors" and "Projected Financial Information."
FCC rules currently provide that additional licenses to operate LMS systems,
including licenses to operate additional LMS systems in the markets in which the
Company operates, may be allocated by auction. The Company intends to
participate in future auctions of LMS spectrum, including in those markets in
which it currently operates. Management expects that such auctions will occur in
early 1998, and the Company may require additional funds to participate in such
auctions. See "Risk Factors," "Use of Proceeds" and "Business--Regulation--LMS
Spectrum Auctions."
Based on its current operating plan, which includes the expansion of the
Company's operations to 15 markets, management anticipates that the net proceeds
to the Company from the Unit Offering, together with its existing cash balances
and cash flow from operations, will be sufficient to build out its operations in
the new markets planned to open in 1997 and 1998 and meet its other cash
requirements for the foreseeable future. However, the Company believes that it
may have opportunities to expand its business significantly and that access to
capital would enable it to expand more quickly and effectively. See "Risk
Factors--Risks of Expansion and Management of Growth." If the assumptions
underlying the current operating plan are not met, or if the Company expands its
operations beyond the 15 planned markets, the Company would need additional
capital. There can be no assurance that additional financing would be available
or that, if available, it would be obtained on terms favorable to the Company.
See "Risk Factors--Potential Future Capital Needs."
37
<PAGE>
BUSINESS
Teletrac is a leading provider of vehicle location and fleet management
services, including associated two-way digital wireless messaging, to commercial
fleet operators. The Company has developed a proprietary land-based location
technology that provides customers with a low-cost, accurate and reliable real-
time method of locating vehicles in selected metropolitan areas. The Company's
system is designed to enable customers to better manage their mobile workforce,
provide security for their property and personnel and communicate more
effectively with mobile workers.
As of December 31, 1996, the Company operated in six metropolitan markets:
Los Angeles, Miami, Chicago, Detroit, Dallas and Houston. The Company commenced
operations in Orlando in March 1997 and plans to begin providing vehicle
location and fleet management services in eight additional markets by the end of
1998, giving the Company operations in 15 of the largest MSAs in the United
States, including New York and Boston. As of June 30, 1997, the Company served
over 2,000 commercial fleet accounts, more than any other provider of fleet
vehicle location services, and had 54,430 units in service with commercial
customers. In its Miami and Los Angeles markets, the Company also uses its
proprietary location systems to provide vehicle location and stolen vehicle
recovery services to consumers. As of June 30, 1997, the Company had 10,697
consumer units in service.
Market studies indicate that there are approximately 7.6 million total
commercial fleet vehicles in the 15 markets in which the Company operates or
plans to operate. The Company believes that there is substantial demand for
cost-effective communications services that offer both reliable location
tracking and two-way wireless messaging in metropolitan areas. The Company's
products can be used either alone or in conjunction with other communications
technologies. The Company believes that the majority of its target customers'
vehicles are currently equipped with wireless communications devices that do not
provide automatic location features, such as two-way radio, specialized mobile
radio ("SMR"), pagers and cellular devices. The Company's products and services
allow commercial fleet operators to (i) increase driver productivity and fleet
efficiency, (ii) improve customer service, (iii) limit unauthorized vehicle use,
and (iv) reduce driver overtime. The Company's customers include metropolitan
commercial fleets (such as trade service providers, delivery services, bus and
taxi fleets, ambulance companies, telecommunications companies, utility
companies, municipal government vehicles and law enforcement agencies) and
long-haul trucking fleets when operating within metropolitan markets.
The Company offers a range of fleet management solutions, depending on the
customer's budget and location and messaging needs. All of these solutions
involve the installation of a VLU in each vehicle. The VLU is a radio
transceiver that receives and transmits signals used to determine a vehicle's
location. In addition to the VLU, commercial fleet customers generally purchase
software or location services from the Company. The Company's primary product
for commercial fleets is Fleet Director-Registered Trademark-, a proprietary
software application that permits simultaneous location of all fleet vehicles on
a real-time 24-hour-a-day basis through a digitized map displayed on the
customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director-Registered Trademark- can be complemented with the
Company's messaging units, which allow two-way messaging between the fleet
dispatcher and drivers directly from the Fleet Director-Registered Trademark-
screen. The Company also offers Fleet Reporter-TM-, a lower cost alternative to
Fleet Director-Registered Trademark- that provides fleet operators with daily
printed reports of vehicle locations and access to real-time location
information through OZZ-Registered Trademark-, a telephone-operated information
system. In the second half of 1997, the Company intends to introduce
Winfleet-TM-, a Microsoft Windows-Registered Trademark--based application based
on Fleet Director-Registered Trademark- that will not require a dedicated
computer.
The Company believes that its wireless location and two-way messaging
technology can serve its customers more reliably and more cost-effectively than
competing systems, including those which rely on GPS technology combined with
other forms of wireless communication. The Company's location technology, which
consists of proprietary software and land-based transmitters and receivers that
are licensed to operate in the 904-909.75 and 927.75-928 MHz bandwidth, operates
reliably in a high-rise urban setting.
38
<PAGE>
GPS-based systems, on the other hand, can lose accuracy in areas where high-rise
buildings or other large structures obstruct the signal between the satellite
and the vehicle. Unlike the Company's technology, GPS-based location systems
must be coupled with a wireless communication system to transmit location
information to a fleet operator. The other forms of wireless communication used
in conjunction with GPS technology, such as cellular and SMR, generally make the
incremental cost of determining and transmitting a vehicle's location to a fleet
operator more expensive than the Company's technology.
In its Miami and Los Angeles markets, the Company also uses its proprietary
location systems to provide vehicle location and stolen vehicle recovery
services to consumers. The Company's service locates and tracks stolen vehicles
in real time and its equipment can be integrated with a vehicle's alarm system
and/or ignition so that it is automatically activated if the vehicle is stolen.
The Company's service also allows a subscriber to initiate vehicle location in
other emergency or roadside assistance situations.
In 1995, prior to the Acquisition, the Company's predecessor ceased to
actively market its consumer vehicle services. The Company has continued
providing consumer service as a legacy of the business acquired from AirTouch
Teletrac but has not launched any new marketing efforts. While the Company
intends to focus on its commercial business, it is currently exploring various
potential strategies for marketing and distributing its products to consumers,
including through strategic partnerships or third-party reseller arrangements,
and expects to begin expanding its consumer operations in late 1997 or early
1998.
BUSINESS STRATEGY
The Company's objective is to enhance its position as the leading national
provider of vehicle location and fleet management services in metropolitan areas
by exploiting its proprietary technology and systems. The key elements of the
Company's strategy are:
INCREASE MARKET PENETRATION. In its six original markets, the Company is
rapidly building a trained sales force to market its products and services to
operators of commercial fleets. Prior to the Acquisition, AirTouch Teletrac
terminated all of its active sales and marketing efforts. Since the Acquisition,
the Company hired approximately 90 direct sales representatives to service its
six original metropolitan markets and the Company believes that it will more
effectively exploit opportunities in its existing markets as its sales force
gains experience. See "Commercial Fleet Management--Sales, Marketing and
Customer Service." The Company believes it requires a modest penetration of its
target markets to achieve its business plan.
EXPAND GEOGRAPHIC COVERAGE AREAS. In 1996, the Company began constructing
the network infrastructure to expand its coverage from six to 15 metropolitan
markets. In March 1997, the Company introduced commercial fleet services in
Orlando, and the Company expects to introduce commercial fleet services in two
additional U.S. markets by the end of 1997 and a further six markets by the end
of 1998. The Company expects to begin offering commercial fleet service in San
Francisco and San Diego in the third quarter of 1997, and in the remaining
markets during 1998. Management believes that, in addition to providing services
to local fleet operators in its new markets, the planned geographic expansion
will make the Company's services more appealing to regional and national
customers that have fleets in several metropolitan areas. In connection with the
roll-out of its commercial fleet services, the Company plans to add over 150 new
sales representatives in its new markets by 2001. The Company also holds FCC
licenses in 11 additional markets, but the Company expects that it would have to
obtain additional licenses in certain of such 11 markets before it could
commence commercial operations.
CAPITALIZE ON LOW-COST SERVICE. The Company believes that its proprietary
location solutions permit lower cost operation than most competing technologies,
which generally require more expensive hardware, more expensive airtime, or
both. With the Company's technology, the incremental cost of locating a vehicle
and transmitting its location to the fleet operator is nominal, which permits
the Company to provide
39
<PAGE>
services for a relatively low monthly fee. This price structure permits
customers to locate their vehicles frequently throughout the day (typically,
every 15 minutes), which the Company believes substantially improves the
customer's ability to increase fleet efficiency and monitor driver compliance.
The Company believes that the low cost of its products and services also enables
its customers to quickly recover the cost of their purchase by reducing overtime
costs and increasing fleet efficiency. The Company intends to pursue a larger
market share by emphasizing its cost advantage and rapid return on investment.
EXTEND PRODUCT OFFERINGS. The Company believes that its ability to expand
and maintain its customer base depends on its continued marketing of low-cost
and user-friendly solutions for fleet management. The Company plans to offer the
first generation of Winfleet-TM-, a Windows-Registered Trademark--based
solution, in the second half of 1997. The first generation product is a
simplified version of Fleet Director-Registered Trademark- that does not require
a dedicated computer. The second generation of Winfleet-TM- is being designed
with an open client server architecture to permit it to operate on a variety of
hardware platforms and to be integrated with the customer's other management
information systems to serve the needs of customers with more sophisticated
information needs and capabilities. The Company is also developing an Internet
version of its fleet management software. In addition, the Company is exploring
technological improvements that would expand the Company's messaging
capabilities to include additional services such as free text return messaging,
wireless e-mail, fax, database queries, credit card verification and inventory
management.
EXPLOIT NEW BUSINESS OPPORTUNITIES. The Company is considering entering
into a number of strategic alliances and partnerships to develop and offer new
products. In conjunction with certain strategic suppliers, the Company is
currently developing a portable miniaturized device that would permit personal
location through the Company's vehicle location networks. The Company also
licenses its technology to Ituran, which provides location information and
wireless messaging services in Israel, and is pursuing additional opportunities
to license its technology abroad. In addition, the Company has discussed joint
arrangements with several companies providing vehicle location coverage in rural
locations. The Company has developed, and is currently testing, a prototype
hybrid device that combines a VLU for use in covered metropolitan areas and a
GPS location device and a cellular modem that can operate on a cellular digital
packet data ("CDPD") network and/or a traditional cellular system for use
outside the Company's system coverage areas. Such a device could permit
customers to locate vehicles between covered markets (such as Los Angeles and
San Francisco) on long-haul routes or in other areas where the Company does not
currently operate.
COMMERCIAL FLEET MANAGEMENT
TARGET MARKETS
The Company believes that there is substantial demand in metropolitan
markets for cost-effective communications services that offer both reliable
location tracking and two-way wireless messaging for metropolitan fleets and for
long-haul fleets when operating within metropolitan areas. Commercial fleet
operators need a location and messaging solution that can accurately locate
vehicles in urban settings in order to (i) increase driver productivity and
fleet efficiency, (ii) improve customer service, (iii) limit unauthorized
vehicle use, and (iv) reduce driver overtime. Commercial fleet operators also
demand security systems for fleet drivers, vehicles and cargo.
The Company's commercial fleet services provide reliable, low-cost location
information, two-way messaging and fleet management services in real time. The
Company markets its fleet management products both to metropolitan fleets and
long-haul trucking fleets, which may desire to optimize driver efficiency in
metropolitan areas because of the impact on customer service and overall fleet
productivity. The Company believes that urban commercial fleets represent the
largest market for its products. Market studies indicate that there are
approximately 7.6 million total commercial fleet vehicles in the 15 markets in
which the Company currently operates or plans to operate.
40
<PAGE>
Many metropolitan commercial fleet operators have not employed location
information or messaging services because of the lack of low-cost, reliable
location and messaging alternatives. Two-way voice services (such as cellular,
SMR and two-way radio) cost significantly more to provide a similar level of
location services and rely on the driver to report vehicle location. Although
these two-way voice services may also be integrated with GPS-based technologies
to provide location information, these integrated solutions can be unreliable in
a high-rise urban setting and generally require more expensive equipment and/or
higher service fees for a level of service comparable to the Company's. A
significant number of metropolitan fleet vehicles utilize lower-cost one-way
paging services, but such services lack both location tracking and two-way
messaging capabilities. Management believes its commercial fleet service
generates demonstrable cost benefits and efficiency gains for its metropolitan
fleet customers.
The Company believes that its cost-effective network allows it to provide
more comprehensive fleet management services than are available at a competitive
price using another technology. To provide effective fleet monitoring and
management services in an urban or suburban environment, fleet operators need to
frequently update the location of their vehicles. The Company's commercial fleet
customers typically locate every vehicle simultaneously every 15 minutes
throughout the day and send messages to the drivers as needed. Competitive
systems, which rely on more expensive cellular or SMR communications coupled
with a GPS system, generally do not offer a similar level of service at a
similar price. The Company believes that less frequent location information
reduces the effectiveness of fleet management in metropolitan markets.
Due to the diversity of metropolitan commercial fleets, the Company's
customer base ranges from independent plumbers with one or two vehicles to large
municipal bus and ambulance fleets and national delivery companies. The
Company's range of products allows it to provide a fleet management solution to
meet each segment of this market. However, the Company has recently determined
to target marketing and sales efforts primarily at fleets of at least ten
vehicles, which it believes it can service more cost-effectively than smaller
fleets. The Company believes that the expansion of its networks to its new
metropolitan markets will allow it to attract nationwide customers with fleet
operations in a number of metropolitan markets. Among the Company's current
customers are Emery Air Freight, Inc., Budget Rent-a-Car Corporation, Brinks
Incorporated (security transportation), Roto Rooter Corp., Tele-Communications,
Inc., department stores such as Target, and the Dallas Independent School
District.
PRODUCTS AND SERVICES
The Company offers its customers a range of fleet management, communications
and security products. All of the Company's products rely on its networks of
radio transmitters and receivers. Each customer must equip its vehicles with a
VLU in order to use the location and communication features of the Company's
products.
FLEET MANAGEMENT. The Company's fleet management software products and
services are designed to address the needs of a wide range of customers. The
Company believes that software solutions that must be customized to the needs of
individual fleet customers are too expensive and time-consuming to be sold
effectively to any but the largest fleets. By emphasizing its off-the-shelf,
user-friendly software, the Company believes it can attract a wide range of
customers, many of whom would otherwise use less sophisticated communication and
management systems, if any.
FLEET DIRECTOR-REGISTERED TRADEMARK- is a proprietary software application
that provides fleet customers accurate fleet vehicle location through the
customer's detailed digitized map of a metropolitan area displayed on the
customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director-Registered Trademark- displays the position of all
VLU-equipped vehicles at periodic intervals determined by the customer
(typically every 15 minutes), at the time of each communication with a vehicle
and otherwise as specified by the customer. Customers can adjust the level of
map detail through a zoom in/zoom out feature, allowing a customer to
simultaneously view the location of all fleet vehicles or to focus in on a
single vehicle. Fleet operators can
41
<PAGE>
establish "zones of compliance" around their customers' locations, their
drivers' homes, or other locations to detect whether vehicles enter or leave
specific areas. Fleet Director-Registered Trademark- also produces reports that
detail a driver's route and the time of each stop and provides documentation for
customers who require verification of deliveries. Such reports are produced on
screen in real-time and can be faxed or electronically transmitted daily to the
customer by the Company. Real-time location reports can also be saved on the
customer's computer to be retrieved and reviewed on-screen or printed at a later
time.
Fleet Director-Registered Trademark- can also act as a platform from which
the customer can use the Company's two-way communications products (discussed
below) to send and receive messages to and from drivers. Customers can type
messages directly to drivers from the computer on which Fleet
Director-Registered Trademark- operates and send the messages to a single
vehicle, several vehicles or the entire fleet.
Fleet Director-Registered Trademark- operates in a DOS environment on a
dedicated personal computer located in the customer's office. The customer may
maintain a dedicated line to the Company's local network control center to
continually track vehicles and communicate with drivers. Alternatively, the
Fleet Director-Registered Trademark- system may connect with the Company's
system only as needed.
The Company had approximately 1,800 Fleet Director-Registered Trademark-
customer accounts as of June 30, 1997, constituting 90% of its commercial
service customer accounts.
Fleet Reporter-TM- is a lower cost alternative service to Fleet
Director-Registered Trademark- that provides customers with daily hard-copy
reporting of vehicle locations and OZZ-Registered Trademark- mobile information,
but does not require the customer to use a computer. The Company's local network
will periodically (typically every 15 minutes) locate each vehicle in a fleet
and send the Fleet Reporter-TM- customer a daily fax detailing the location of
each vehicle throughout the day. The customer can compare the report to each
driver's time card or delivery log for compliance purposes, or otherwise use
such data to manage its fleet more efficiently. Each customer who subscribes to
Fleet Reporter-TM- can also use the OZZ-Registered Trademark- mobile information
service (discussed below) to locate specific vehicles in real-time using a
telephone, and has access to all of the security features of the Company's
system. Fleet Reporter-TM- does not require the customer to have a computer and
does not provide customers with a communications system. The Company had
approximately 200 Fleet Reporter-TM- customer accounts at June 30, 1997,
constituting 10% of its commercial service customer accounts. WINFLEET-TM- is
the first generation of a Microsoft Windows-Registered Trademark--based software
system that the Company is currently developing. The first generation product,
which would not require a dedicated computer, is a simplified version of Fleet
Director-Registered Trademark-. The second generation of Winfleet-TM- is being
designed with an open client server architecture to permit it to operate on a
variety of hardware platforms and to be integrated with the customer's other
management information systems (such as billing, accounting and human
resources), allowing the customer to use location information to measure and
improve productivity in the field. The Company plans to introduce first
generation Winfleet-TM- to customers in the second half of 1997.
INTERNET SERVICES are currently being developed by the Company to allow
customers to monitor vehicle locations on a detailed map in real-time, but would
not allow communications between a customer and its drivers. This product would
be a lower cost alternative similar to Fleet Reporter-TM-, but would be marketed
to customers with existing computer and Internet capabilities. The Company plans
to introduce an Internet-based product in 1997.
COMMUNICATIONS. The Company offers two communication systems to its Fleet
Director-Registered Trademark- customers. The Mobile Data Terminal ("MDT") is
the Company's more advanced two-way messaging system. It allows for alphanumeric
communications from the fleet operator to its drivers and up to thirty-five pre-
programmed messages from the drivers to the fleet operator. The Status Messaging
Terminal ("SMT") is a low-cost alternative to the MDT. The SMT allows for four
pre-programmed messages which may be sent from the customer to the drivers and
eight pre-programmed messages which may be sent from the drivers to the
customer. The MDT and the SMT are both small terminals typically mounted on the
fleet vehicle's dashboard and are connected to the VLU.
42
<PAGE>
Both the MDT and the SMT automatically provide customers with an electronic
"receipt" when the message is received and therefore do not rely on drivers for
vehicle locations or message delivery. As a result, the Company's system
provides more reliable location information and messages than many competing
technologies. The Company's communication applications generally have lower
service costs than conventional real-time, two-way communication services, such
as cellular, SMR and ESMR services. In 1996, the Company sold approximately
3,200 MDTs and approximately 1,300 SMTs, and approximately 30% of all new units
sold to commercial customers in 1996 were SMTs or MDTs. In the first six months
of 1997, the Company sold approximately 3,900 MDTs and approximately 2,300 SMTs,
and approximately 40% of all new units sold to commercial customers in the
period were SMTs or MDTs.
Upon installation of the IBSU currently under development by Tadiran, the
Company's system will support two-way free text alphanumeric messaging between
the customer and its drivers. In order to offer two-way free text alphanumeric
messaging, however, the Company will also need to develop a new messaging unit
capable of composing free text alphanumeric messages. See "--Network and
Subscriber Equipment".
The following chart sets forth the list price of the Company's commercial
fleet equipment, software and services:
<TABLE>
<CAPTION>
LIST PRICE FOR MONTHLY SERVICE
FUNCTION PRODUCT EQUIPMENT FEE
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Vehicle Location (required Vehicle Location Unit (VLU) $595 per vehicle $25 per vehicle
for all customers)
Fleet Management Fleet $2,695 for Fleet None
Director-Registered Trademark- Director-Registered Trademark-
Software
Fleet Reporter-TM- None $4 per vehicle
Communications Mobile Data Terminal (MDT) $300 per vehicle $14 per vehicle
Status Messaging Terminal $150 per vehicle $4 per vehicle
(SMT)
</TABLE>
SECURITY SERVICES. The Company offers its commercial fleet customers
several vehicle security and driver safety options that operate through the
Company's location networks. A VLU can be connected directly to a vehicle's
alarm system, triggering the Company's security system when the alarm is set
off, or connected to an alarm button either located in the vehicle or carried
remotely by the driver. Customers with Fleet Director-Registered Trademark- may
also establish a "zone of compliance" that activates the Company's security
system when vehicles leave the zone. When the security system is activated, a
signal is sent by the VLU to the Company's local network system which
automatically alerts the customer through Fleet Director-Registered Trademark-.
If the customer does not respond, or if the customer subscribes to Fleet
Reporter-TM-, the Company will telephone the customer directly. If the customer
believes that the vehicle has been stolen or a driver is in danger, the Company
will work directly with the local law enforcement authorities to track the
location of the vehicle in real-time. Many customers also attach VLUs directly
to valuable cargo or to expensive equipment such as construction equipment. The
Company believes it has developed excellent relations with local law enforcement
officials due to the past performance of the Company's location system, and that
such relations contribute to its ability to quickly recover stolen vehicles and
equipment.
SALES AND MARKETING; CUSTOMER SERVICE
The Company uses a direct sales force to sell its commercial vehicle
location and fleet management services, and has a sales force located in each
market where it operates. The Company's sales efforts rely on sales managers who
supervise the sales activities of sales representatives, contact and negotiate
with
43
<PAGE>
larger potential customers, and have authority to negotiate prices within
defined parameters. Sales commissions generally are directly linked to the
number of units a sales person sells.
Following a review conducted by outside consultants, the Company is refining
its sales and marketing efforts in certain respects. To reduce the incremental
cost of sales and customer service, sales representatives are now focusing
marketing and sales efforts primarily on fleets of at least ten vehicles. The
Company has also established a telemarketing staff to help target customers for
potential sales calls and, in a pilot program in its Chicago market, is
developing a customer service staff separate from the sales force to improve
customer support while allowing the sales force to focus efforts exclusively on
selling. In the Company's other markets, sales representatives continue to
participate in ongoing customer service. The Company expects that it will
significantly increase its sales force as it expands into new markets and offer
new services. As of June 30, 1997, the Company's direct sales force consisted of
approximately 100 employees and the Company expects that, as it expands into new
markets, the sales force will grow to approximately 130 employees by the end of
1997 and to approximately 200 employees by the end of 1998.
The Company's advertising and marketing efforts are generally directed to
local and regional markets and its strategy has focused on print advertising in
industry journals, direct mail, videos, telemarketing, industry trade shows and
on-site marketing promotions and demonstrations.
CONSUMER VEHICLE SERVICES
The Company is currently focusing on its core business of commercial fleet
management. As a legacy of the business acquired from AirTouch Teletrac, the
Company has continued providing consumer service (now sold under the name
Teletracer-TM-) and has allowed dealer arrangements in place at the time of the
Acquisition to continue, but has not launched any new marketing efforts. The
Company is exploring various potential strategies for marketing and distributing
its products to consumers, including through strategic partnerships or
third-party reseller arrangements, and expects to begin expanding its consumer
operations in late 1997 or early 1998.
TARGET MARKET
The demand for vehicle security products and services has grown as consumers
have become increasingly concerned with vehicle theft. The consumer vehicle
security industry encompasses a number of security products and services,
including mechanical theft-prevention devices such as The
Club-Registered Trademark-, installed automated vehicle alarms and vehicle
recovery services such as LoJack-Registered Trademark-.
The vehicle security industry has developed rapidly since the late 1970s, as
motor vehicle theft increased dramatically. According to industry sources, an
estimated 22% of all new automobiles (or approximately 2.26 million new
automobiles in 1994) and 62% of luxury vehicles purchased in the United States
are equipped with an electronic car alarm. Vehicle theft and the demand for
vehicle security are particularly high in the metropolitan centers and
surrounding suburbs serviced by the Company.
PRODUCTS AND SERVICES
The Company's proprietary location technology and VLU equipment can be used
for consumer applications without modification. A VLU is installed in a
consumer's vehicle and is generally connected to a security alarm and/or
integrated with the vehicle's internal ignition system. By connecting the unit
to a vehicle security alarm, vehicle recovery service can be initiated
automatically. If the vehicle alarm is triggered, the unit emits an emergency
locate signal, notifying the Company's control center of a potential vehicle
theft. Each regional control center is staffed twenty-four hours a day, seven
days a week with Company employees who contact local law enforcement authorities
and direct them to the location of the stolen vehicle. The Company currently
distributes its consumer product and services through auto dealers, electronic
retailers and other distributors.
44
<PAGE>
The Company's ability to offer automated, reliable and real-time service
differentiates its stolen vehicle recovery service from other available
services. The VLU provides automatic vehicle tracking at the time of theft. This
is in contrast to other vehicle recovery services, such as
LoJack-Registered Trademark-, that require a subscriber to report a vehicle
stolen in order to begin the tracking process. As a result, over the past two
years, of the approximately 214 Teletracer-TM--equipped vehicles that have been
stolen to date in Los Angeles and Miami, approximately 75% were recovered within
two hours of theft and approximately 90% were recovered overall.
The Company also offers a proprietary telephone-operated mobile information
service called OZZ-Registered Trademark-. This service allows its subscribers
telephone access to a computer that will locate a subscriber's vehicle in
real-time and report its location for compliance, security and convenience
purposes. The subscriber calls the Teletrac OZZ-Registered Trademark- telephone
number, enters a personal identification number for the vehicle to be located
and within seconds receives an automated voice response indicating the location
of the vehicle at that time. In addition to providing the customer with the
location of the vehicle, OZZ-Registered Trademark- is a "mobile yellow pages"
that provides the customer the location of nearby prominent businesses or
landmarks from a menu of choices. The customer can call
OZZ-Registered Trademark- and obtain information such as the location of the
nearest fast food restaurant, automatic teller machine, gas station, hospital,
police station, or interstate on-ramp. Teletrac offers OZZ-Registered Trademark-
to both consumer and commercial customers. The OZZ-Registered Trademark- service
can also be used to remotely instruct the VLU to lock/unlock the doors of the
vehicle. The firm that has contracted to provide roadside assistance service for
the Company estimates that 25% of roadside assistance calls are for keys locked
in the vehicle.
All of the Company's consumer customers can also telephone the Company's
call-in Roadside Assistance Program, through which the Company will have a tow
truck sent to the caller's location. Under its Automated Roadside Assistance
Program, offered to its customers at a higher monthly fee, the Company can
direct a tow truck directly to a subscribing customer's location when the
customer presses a roadside assistance button installed in his or her vehicle.
Monthly consumer service fees and equipment sales accounted for $2.5
million, or 16%, of the Company's revenues for 1996 and $1.2 million, or 11%, of
the Company's revenues for the first six months of 1997. The Company had 10,697
consumer VLUs in operation as of June 30, 1997.
POTENTIAL DISTRIBUTION STRATEGIES
AirTouch Teletrac distributed its consumer vehicle recovery system through
indirect channels such as car dealerships and electronics retailers. Before the
Acquisition, AirTouch Teletrac had scaled back its consumer sales efforts.
Current management stopped actively supporting consumer selling efforts in order
to concentrate its sales efforts on commercial markets. The Company is currently
exploring a variety of possible marketing and distribution strategies for a
consumer service, primarily focusing on third-party reseller arrangements or
strategic partnerships with businesses such as home security companies, alarm
companies and large regional auto dealerships. The Company believes such
third-party arrangements would require less overhead than previous distribution
efforts and could permit more cost-effective consumer operations.
TECHNOLOGY
The Company has developed a proprietary, accurate and reliable spread
spectrum-based wireless network architecture that provides for both location
determination and two-way messaging. The Company's low-cost wireless network
architecture permits cost-effective and accurate location and messaging services
in metropolitan areas. The Company's networks use multilateration-based
techniques and land-based receivers for position determination, avoiding the
"line-of-sight" problems that may arise for satellite-based systems in urban
areas where tall buildings can block a satellite's view of a vehicle. The
Company believes that its land-based multilateration techniques are uniquely
appropriate for precise
45
<PAGE>
location determination in urban settings and that it can accurately locate a
vehicle equipped with its equipment in real-time within a range of less than
one-half of an average city block (approximately 150 feet).
In order to locate a subscriber vehicle, the Company's local network
broadcasts a "paging" transmission (the "Forward Link") simultaneously from each
transmitter on the network. The Forward Link is used to transmit both location
commands and alphanumeric messages to the VLU. Each subscriber's vehicle is
equipped with a VLU, a videocassette-sized "transceiver" unit which responds to
the location command of the Forward Link by emitting a response signal (the
"Reverse Link"). The Reverse Link is received by at least four nearby BSU's
which calculate both the time of transmission of the Forward Link and the time
of arrival of the Reverse Link and relay this data, via wireline telephone
networks, to the Network Control Center ("NCC"), the local network's data
processing center. The NCC uses the Company's proprietary network software to
calculate the location of the VLU from the information received by the BSUs. The
NCC consists of the Company's radio-frequency control equipment,
telecommunication access connection computers, proprietary software and the
Company's customer database. The NCC is staffed twenty-four hours a day, seven
days a week by operators who are responsible for location monitoring, system
support and customer service. The NCC instantaneously relays the location
information to a subscriber's Fleet Director-Registered Trademark- software
application or OZZ-Registered Trademark-call-in request (via automated response)
and stores all location information for daily reports to Fleet Reporter-TM- and
Fleet Director-Registered Trademark- subscribers.
The Company's customers can also use the Forward Link to transmit
alphanumeric messages from their centralized dispatch office to their fleet
vehicles and the Reverse Link to transmit more limited messages from vehicles to
the centralized dispatch office. The network system can transmit alphanumeric
messages at a transmission speed of 2,400 bits per second. While the Company's
current networks' capacity is more than sufficient to support its existing
services, the Company's networks may be reconfigured in the future to permit
increased transmission speed and messaging and location capacity. For example,
the messaging capability of the Reverse Link is currently limited by the BSU,
which does not permit alphanumeric messaging. The Company is, however,
developing an advanced version of the BSU, the IBSU, which will permit
alphanumeric messaging through the Reverse Link. See "--Network and Subscriber
Equipment."
46
<PAGE>
TELETRAC NETWORK
The following diagram illustrates the sequence of events that occur when a
customer utilizes the Company's vehicle location and messaging network:
[Schematic chart illustrating the operation of Teletrac's Network.]
NETWORK AND SUBSCRIBER EQUIPMENT
The Company has established a strategic relationship with Tadiran for the
development and supply of several network components, including the VLUs and
BSUs. Tadiran is an Israeli technology company and defense contractor which
specializes in the development and production of communications equipment and
products and is a leading manufacturer of location equipment. Tadiran and the
Company are currently developing a miniaturized version of the VLU for use as a
portable location device. As part of such development, the Company and Tadiran
are also developing a simpler and lower cost VLU.
The Company currently acquires its BSUs exclusively from Tadiran and is
working with Tadiran to develop an upgrade for the BSU, the IBSU, which will
offer significant advantages over current BSUs. The IBSU is expected to
integrate a number of enhanced features, including multichannel capability, and
will permit the Company to use its spectrum more efficiently, increase its
overall network capacity, reduce site operating and build-out costs and permit
longer alphanumeric messages. The Company expects to begin the installation of
the IBSU in its current and planned markets in the second quarter of 1998. There
can be no assurance that the Company and Tadiran will successfully develop the
IBSU or that, if they do, it will be introduced on the current schedule. See
"Risk Factors--Reliance on Sole Supplier."
The Company's network also includes a number of components that are used in
the wireless messaging industry. The Company purchases standard transmitters
from Glenayre Technologies, Inc. and Motorola, Inc. The transmitters, which are
similar to transmitters used in one-way paging networks, transmit the Forward
Link in a manner similar to a paging network. Much of the Company's
communications equipment, its antennas and many other components of its networks
are also available through a number of existing suppliers of wireless messaging
equipment.
As part of ongoing capital improvements, the Company is working on several
enhancements of its operating systems. The Company is enhancing its location
monitoring system hardware and software to improve the operating networks'
functionality and generate overall network operating savings. The planned
network enhancements include a nationwide database to provide vehicle roaming
capabilities between markets. Additionally, the Company's network enhancements
will enable it to reduce its number of NCCs from one in each metropolitan market
to three to four regional NCCs.
COMPETITION
The Company currently faces competition for each type of service it offers.
The Company expects that in the future it will face competition from new
technologies as well as from existing products. Certain of the Company's
competitors are larger and have substantially greater financial and research and
development resources and more extensive marketing and selling organizations
than the Company. There can be no assurance that additional competitors will not
enter markets that the Company already serves or plans to serve or that the
Company will be able to withstand such competition. Moreover, changes in
technology could lower the cost of competitive services to a level where the
Company's services would become less competitive or where the Company would need
to reduce its service prices in order to remain competitive, which could have a
material adverse effect on the Company's business. See "Risk
Factors--Competition and Technological Change."
47
<PAGE>
COMMERCIAL VEHICLE MARKET
The Company knows of three basic classes of products that offer commercial
location and messaging capabilities competitive with the Company's products: (i)
GPS, private satellite and Loran-C systems, (ii) LMS systems and (iii)
traditional wireless communication.
GPS, PRIVATE SATELLITE AND LORAN-C SYSTEMS. GPS, certain private satellite
networks and Loran-C can provide location information, and when paired with a
communications system, may provide a system competitive with the Company's
products. GPS systems receive signals from NAVSTAR satellites, U.S.
government-funded satellites used for position location. GPS systems and certain
private satellite systems use satellite ranging techniques to measure a GPS
device's distance relative to a group of satellites in space. Typically, a GPS
device must be in "sight" of several satellites to receive adequate transmission
data for the determination of relative location on earth. The Loran-C system
uses land-based transmitting stations to send a low-frequency radio signal which
is used by a vehicle to calculate its position relative to the location of other
Loran-C transmitters. Satellite and Loran-C systems are generally not as
effective as LMS networks such as the Company's in metropolitan areas. Because
GPS and other satellite services require "line of sight" to the orbiting
satellite, dense metropolitan areas, parking garages, tunnels or other covered
areas can impact the system's effectiveness and reliability. Loran-C systems
also frequently have difficulty penetrating "metropolitan canyons" and therefore
may provide inaccurate position readings in urban areas.
In most GPS, private satellite and Loran-C vehicle location systems,
vehicle-mounted equipment gathers location data and transmits it by a wireless
communication system to a dispatch center. There are a number of wireless
systems that can be linked to a satellite system or a Loran-C system to transmit
location information to a dispatch center:
- CELLULAR AND PCS COMMUNICATION SYSTEMS--Cellular and PCS systems can
provide local or nationwide networks to transmit location information to a
dispatcher. However, cellular and PCS operators generally price their
airtime at price levels that do not allow for frequent location
information transmittals by vehicles equipped with GPS, private satellite
or Loran-C systems to dispatchers on a cost-basis competitive with the
Company. Most vehicle location systems that link a satellite or Loran-C
location system with a cellular or PCS communication system, such as
HighwayMaster, are best-suited for long-haul trucking fleets. In addition,
in certain U.S. markets, some cellular operators have added a data service
over their existing cellular infrastructure that can improve the cost and
delivery of location information over existing cellular networks. The data
service, called CDPD, is an overlay of a packet switched data service on a
traditional cellular system. CDPD is available in approximately 80
metropolitan markets throughout the U.S., including all the markets, other
than Los Angeles, in which the Company is currently operating or plans to
operate.
- SMR/ESMR--SMR has traditionally been used to serve the needs of local
dispatch services, such as taxis and couriers, which typically broadcast
short messages to a large number of units. Several SMR operators are
constructing Enhanced Specialized Mobile Radio ("ESMR") digital systems
that offer mobile telephone services. Some SMR and ESMR providers are
beginning to integrate GPS with their systems to determine location and
transmit the location information back to the subscriber via the SMR or
ESMR communications network. An ESMR system with GPS location features has
been developed by Geotek Communications, Inc. Geotek is offering an
automatic vehicle location service using its own dedicated ESMR network to
transmit location information. As of June 30, 1997, Geotek was available
in nine metropolitan markets in the U.S. In certain markets, Geotek has
developed a fleet management program incorporating GPS location
information, which is being marketed with monthly service fees compatible
with the Company's standard pricing.
- SATELLITE-BASED COMMUNICATIONS--Satellite-based communication is
accomplished through transmission of a signal from a vehicle-based
transmitter to a satellite, which automatically retransmits the
48
<PAGE>
signal to a dispatcher. Such systems provide seamless nationwide service
for transmitting location information, but do not currently transmit
location data at a cost competitive with the Company's system. Vehicle
location products with satellite-based communications are currently
offered by Orbcomm Global, L.P. and Qualcomm, Inc.
- DEDICATED WIRELESS NETWORKS--ARDIS and RAM are dedicated wireless two-way
data networks that also can be used to transmit location information
through integration with GPS. ARDIS is owned by Motorola and RAM is owned
by a joint venture between RAM Broadcasting Corp. and BellSouth. Both
wireless providers cover primarily metropolitan markets. ARDIS covers
approximately the top 400 markets in the United States, and RAM reports
coverage in approximately the top 100 markets (in both cases, including
all the markets in which the Company currently operates or plans to
operate).
LMS SYSTEMS. The Company knows of other companies that are developing
competitive LMS location and messaging systems. Pinpoint Communications Inc.,
METS Inc./MobileVision, L.P. and Comtrak Inc. each have developed technologies
that use LMS spectrum to provide both location information and messaging. Such
alternative LMS systems are also land-based wireless systems suited for
providing accurate and cost-effective service in metropolitan areas. Current LMS
operators and prospective LMS operators may also benefit from an FCC auction of
three frequency bands, including the band on which the Company's system
operates, for LMS purposes. The Company believes that to date it is the only
company that has established a commercially operational LMS network in the U.S.
TRADITIONAL WIRELESS COMMUNICATION. Many fleet managers use existing SMR,
ESMR, two-way radio, cellular or paging systems to communicate with vehicles and
obtain their location. Such systems are less reliable than the Company's
products, however, because they rely exclusively on drivers to accurately
identify their location.
CONSUMER VEHICLE MARKET
LOJACK-REGISTERED TRADEMARK-. The Company's principal competitor to date in
the consumer vehicle market has been LoJack-Registered Trademark-. The
LoJack-Registered Trademark- system is based on a VHF transponder (essentially a
homing device) with a range of approximately two miles. The
LoJack-Registered Trademark- vehicle recovery system requires a customer to
report a stolen vehicle to LoJack-Registered Trademark-in order to initiate the
location process. Once a stolen vehicle report is received,
LoJack-Registered Trademark- personnel activate the transponder unit located in
the stolen vehicle by transmitting a signal across the area in which the vehicle
was stolen. Police equipped with LoJack-Registered Trademark- equipment track
the signal from the stolen vehicle by the strength of the signal. The
LoJack-Registered Trademark- system is not an automatic, real-time, screen-based
tracking system, and it does not provide the service features of the Company's
OZZ-Registered Trademark- and roadside assistance products.
GPS/CELLULAR SYSTEMS. Several companies have begun to link GPS location
technology with cellular communications to create emergency location systems for
consumer vehicles. Carcop-Registered Trademark-, Onstar-TM- and Lincoln
Rescu-TM- all rely on this technology to provide emergency roadside assistance
and/or stolen car recovery. Such systems, because they are based on GPS locating
technology, can be less effective in metropolitan areas where most auto thefts
occur.
THEFT DETERRENTS. A number of products are currently sold for vehicle theft
deterrence. Consumer products range from The Club-Registered Trademark- to
automatic alarm systems. While such systems do not provide the location
information or range of services of the Company's consumer products, they are
often available at a significantly lower cost.
PRODUCT PROTECTION
The Company currently has no material patents and generally seeks to protect
its proprietary network software, software products and trade secrets by
requiring that its consultants, employees and others with access to such
software and trade secrets sign nondisclosure and confidentiality agreements.
Management
49
<PAGE>
believes that these actions provide appropriate legal protection for the
Company's intellectual property rights in its software and products.
Furthermore, management believes that the competitive position of the Company
depends primarily on the technical competence and creative ability of its
personnel and that its business is not materially dependent on patents,
copyright protection or trademarks. See "Risk Factors-- Proprietary Rights and
Patents."
MIS, ADMINISTRATIVE AND BILLING SYSTEMS
During 1996, the Company centralized all of its accounting, payables,
billing and management information systems in its corporate headquarters in
Kansas City, Missouri, and based its nationwide inventory and order fulfillment
operations at its Los Angeles office. The Company recently converted to a new
billing system which centralizes customer billing to one location, yet allows
the local offices the flexibility to handle customer data input and inquiry,
thus allowing for quicker and more efficient response for sales and customer
service. The Company has also implemented a wide-area network architecture to
provide quick and easy communication and transfer of data among all employees of
the Company.
REGULATION
The construction, operation and acquisition of radio-based systems in the
LMS industry in the U.S. are subject to regulation by the FCC under the
Communications Act. Multilateration LMS is a service operating under new FCC
rules. As such, the LMS rules have not been subject to any significant
interpretation by the FCC in written decisions and remain subject to further
reconsideration. Several parties, including the Company, have requested that the
FCC reconsider various aspects of the newly-adopted rules governing LMS. In some
cases, the reconsideration requests, if granted by the FCC, could have a
material adverse effect on the Company's business. As a result, the application
of these rules in situations that the Company may encounter will present matters
of first impression to the FCC's staff. As a pioneer in this new service, the
Company may operate under rules with significant ambiguities. The Company cannot
predict how changes to or interpretations of these rules may affect its
operations or its business plans.
The FCC regulates LMS services pursuant to rules adopted in a February 1995
LMS Order and modified in a March 1996 LMS Reconsideration Order. The February
1995 LMS Order and the March 1996 LMS Reconsideration Order are hereinafter
together referred to as the "LMS Order."
CONSTRUCTION AND OPERATION OF GRANDFATHERED SYSTEMS
The FCC's 1995 LMS Order established that LMS licenses would be granted in
the future on an MTA basis, as defined in the 1993 Rand-McNally Commercial
Atlas. LMS licenses granted prior to the 1995 rules, including those under which
the Company operates its system, were granted for individual transmitter sites.
The FCC announced that no further applications for authorizations for new
multilateration LMS transmitter sites will be accepted, pending its development
of rules and procedures for auctioning the LMS spectrum. In its 1995 rules, the
FCC established procedures for the "grandfathering" of LMS systems that were in
operation or authorized as of February 3, 1995. In order to maintain
grandfathered status, the Company was required, among other things, to complete
its construction of licensed transmitter sites by January 1, 1997, to a level
where each system would be capable of locating a vehicle and otherwise in
compliance with the 1995 rules (as modified). By December 31, 1996, the Company
had constructed LMS systems capable of locating a vehicle in 26 markets,
including the six markets in which the Company had systems operating prior to
the adoption of the LMS Order.
The grandfathered authorizations issued to the Company allow the operation
of multilateration LMS base stations at particular sites specified in the
authorization. Under present rules, the FCC will not authorize the relocation of
a base station to a site more than two kilometers from an initially authorized
site. To the extent that a previously authorized base site becomes unavailable
or is no longer suitable because of potential interference from nearby radio
facilities, the two-kilometer restriction will limit the
50
<PAGE>
ability of the Company to find optimal alternative sites and, in some instances,
could require that the Company abandon the opportunity to construct or operate a
previously authorized site, or require that the Company accept diminished
performance from some sites. In a few instances, the Company has obtained
waivers from the FCC to permit the relocation of a transmitter site to a
location more than two kilometers from the original site. Due to minor
variations in certain parameters for sites noted during construction, the
Company has submitted applications to the FCC for correction or modification of
its authorizations for such sites. At the Company's request, the FCC granted
special temporary authority for the operation of those sites pending the
processing of the applications, which the Company anticipates will be processed
in the normal course. The Company recently discovered additional minor parameter
violations and has submitted modification applications and requests for special
temporary authority relating to the operation of these facilities.
To prevent grandfathered LMS licensees from expanding coverage into
auctionable territory, current FCC rules do not permit those licensees to
construct additional LMS transmitters. Consequently, grandfathered licensees are
prevented from adding supplemental, or "fill-in," transmitters in locations
where it is discovered that, due to terrain or other obstructions, gaps in
service coverage exists. The Company filed requests for the FCC to change and/or
waive those rules to allow grandfathered LMS licensees to construct "fill-in"
transmitters where the aggregate service territory boundaries are not increased.
The inability of the Company to use "fill-in" transmitters could create
less-than-optimal signal coverage and penetration in certain of the Company's
markets. The Company's requests for reconsideration and waivers, and the
requests for reconsideration filed by other parties, remain pending before the
FCC. There is no assurance that the Company's requests for reconsideration for
waivers to use "fill-in" transmitters will be granted, and they have been
opposed in filings by other parties. There is also no assurance that the
petitions for reconsideration of the FCC's rules for multilateration LMS that
were filed by parties advocating changes that could have a material adverse
effect on the Company's business will not be granted in whole or in part by the
FCC.
FREQUENCY CONVERSION
Grandfathered multilateration LMS systems that were constructed and in
operation as of February 3, 1995, must conform their already-constructed
facilities to a new radio frequency band plan established by the LMS Order. To
comply, the Company is required to change the frequency on which the Forward
Link operates and modify system equipment accordingly. The frequency conversion
must be complete by April 1, 1998, the date on which the authority to operate on
the previous LMS frequencies will expire. Although the frequency conversion only
affects the Company's Forward Link, transition of the Company's operating
facilities to the new band plan will require the modification of both
transmitting and subscriber equipment. The Company constructed transmission
equipment in 1996 that modified the frequency on which the Forward Link operates
in all of its existing markets. The Company's Forward Link in the existing
markets now operates on both the old and the new frequencies, but the Company
still must convert its existing customers' VLUs to conform to the new spectrum
band plan. The Company has begun an active program of converting its existing
customers' VLUs to operate within the new spectrum band plan. The Company
anticipates that the frequency conversion process for existing markets will be
completed prior to the April 1, 1998 deadline. The Company estimates that the
total cost of such conversion will be approximately $7.2 million. There can be
no assurance that the Company will complete its frequency conversion by April 1,
1998 or that the cost to the Company will not exceed $7.2 million. In addition,
non-multilateration LMS systems that were operating on segments of the frequency
band that the FCC allocated for multilateration LMS use in 1995 were
grandfathered until April 1, 1998. This means that multilateration LMS systems
may be required to share their frequencies with such non-multilateration LMS
systems until April 1998.
51
<PAGE>
LMS SPECTRUM AUCTION
In the LMS Order, the FCC concluded that it would award the remaining
spectrum for multilateration LMS through competitive bidding in an auction, a
procedure that the FCC is using for other wireless communications services. The
FCC intends to auction one license in each of three spectrum bands allotted for
multilateration LMS on an MTA basis. The FCC did not issue specific rules and
procedures for the competitive bidding process at the time of adoption of the
LMS Order. Rules and procedures are to be established in a separate proceeding
which has not yet occurred. The FCC has initiated a proceeding to establish
generic rules for the conduct of future spectrum auctions, and public comments
have been filed, but the FCC has not yet issued generic auction rules or the
specific rules for auction of multilateration LMS spectrum. Members of the FCC
staff have told the Company that they expect such auctions to be held in early
1998, although the schedule for such auctions has been subject to repeated
delays. The Company expects to participate in the auction process and to bid on
specific licenses to acquire the additional spectrum necessary to establish
coverage in major metropolitan areas nationwide. The extent of funding that may
be needed by the Company for a successful outcome in these auctions is not yet
known by the Company. The Company understands that the FCC will expect
cooperative arrangements for sharing between grandfathered licensees and the
eventual MTA licensees resulting from the auction. To the extent that the
Company does not submit the winning bid for a license in an MTA in which it
operates a grandfathered system, the Company would be permitted to continue
operating its grandfathered facilities in that MTA, but it would be precluded
from expanding its coverage area within such MTA.
PERMISSIBLE USE RESTRICTIONS AND INTERCONNECTION
In the LMS Order, the FCC stated that it did not intend that LMS be used for
"general messaging purposes." The FCC did modify the existing permissible use
definition, however, so as to authorize multilateration LMS systems to transmit
status and instructional messages, either voice or non-voice, so long as they
are related to the location or monitoring functions of the system. To date, the
FCC has not further interpreted this provision of its rules. At the least,
however, this restriction precludes the Company from offering messaging services
other than as part of its location and monitoring services.
The LMS Order also expanded the permissible use definition to include
location of non-vehicular traffic by multilateration LMS systems whose primary
operations involve location of vehicles. The requirement that an LMS system's
primary operations be location of vehicular traffic may preclude the Company
from having a majority of customers who have subscribed to non-vehicular
location or monitoring services, such as personal location services, and may be
interpreted to impose other restrictions on non-vehicular location and
monitoring services.
In addition, the FCC order requires that interconnection to the public
switched telephone network be on a "store and forward" basis. This requirement
limits the Company's ability to offer real-time voice communications services.
FOREIGN OWNERSHIP
The FCC has not declared whether multilateration LMS will be classified as a
private mobile radio service (PMRS) or as a commercial mobile radio service
(CMRS). Because multilateration LMS is offered on a for-profit basis and can be
connected with the public switched telephone network, however, the Company
believes that it is likely that the FCC will classify multilateration LMS as
CMRS. If the Company's services were reclassified as CMRS rather than as PMRS,
the Company, which holds its FCC authorizations through a wholly-owned
subsidiary, Teletrac License, Inc., would be subject to the foreign ownership
restrictions under the Communications Act that apply to the parent corporations
of CMRS licensees. Under this restriction, non-U.S. persons would not be
permitted to hold, directly or indirectly, in the aggregate, more than 25% of
the ownership or 25% of the voting rights in the Company, absent a waiver or
determination by the FCC that a higher level of foreign ownership would be in
the public interest.
52
<PAGE>
Although the Company is controlled by U.S. citizens, non-U.S. persons
currently hold slightly more than 25% of the ownership of the Company. If the
FCC were to reclassify multilateration LMS as CMRS at a time when the Company's
level of foreign ownership or foreign voting rights exceeded 25%, the Company
would be required to obtain a public interest determination from the FCC
approving its level of foreign ownership or to restructure its ownership to meet
the 25% benchmark. The FCC recently instituted a rule making proceeding to
develop rules to implement the World Trade Organization ("WTO") agreements
scheduled to become effective January 1, 1998. It is anticipated that the WTO
agreements and the FCC's implementing rules will open additional opportunities
for foreign investment in U.S. entities that control CMRS licensees. However, it
is not clear that any relief granted as a result of the FCC's implementation of
the WTO agreements would necessarily exempt the Company from the requirement to
secure a public interest determination from the FCC approving its level of
foreign ownership or to restructure its ownership to meet the 25% benchmark.
TECHNICAL REQUIREMENTS
Multilateration LMS systems must use equipment that is "type-accepted" by
the FCC. Under the type-acceptance procedure, the FCC confirms that the model of
equipment proposed for use in a particular radio service conforms to the
technical requirements for the service as specified in the FCC's rules. All
equipment used by the Company that is required to be type-accepted has been
type-accepted.
Multilateration LMS systems operate on frequencies that have been allocated
to LMS by the FCC on a secondary basis. This means that LMS operations cannot
cause interference to, and may be required to accept interference from, users of
those same or adjacent frequencies in the Industrial, Scientific, and Medical
radio service and in the Federal government's radiolocation service. In
addition, under Part 15 of the FCC's rules, certain unlicensed radio devices
(such as spread spectrum devices used for local area networks) operate on the
same or adjacent frequencies as LMS systems. Although multilateration LMS
systems generally have priority in the use of their frequencies over such Part
15 devices, the FCC's rules provide a "safe harbor" for the operation of Part 15
devices in LMS spectrum. If a Part 15 device is operated in a manner that
satisfies those safe harbor requirements (which were designed to avoid or
minimize the risk of interference to LMS services), an LMS system that
nonetheless suffers interference from such a Part 15 device may have no recourse
other than to negotiate with the Part 15 user on methods for eliminating or
reducing the interference. In addition, as a condition of the LMS license, the
FCC has stated that operators of new LMS systems must perform testing to
demonstrate that the system does not cause unacceptable interference to Part 15
devices. To date, the FCC has specifically declined to specify the nature of
such testing and how they might be used to determine whether the multilateration
LMS system is causing unacceptable interference to Part 15 devices. An
association of entities operating Part 15 devices has asked that the Company
engage in cooperative testing in certain of the markets in which the Company is
operating to ascertain the existence of any potential for interference, and the
Company has expressed its willingness to cooperate in a testing program.
CURRENT FCC APPLICATIONS AND PROCEEDINGS
PENDING APPLICATIONS. The Company has pending before the FCC a request for
waiver to permit the addition of fill-in transmitter sites within the present
coverage area of its grandfathered facilities. In addition, the Company has
pending before the FCC various site-specific applications (together with related
waivers and request for special temporary authority) for minor corrections of
operating parameters and for the relocation of sites within the two kilometer
relocation restriction because of site unavailability and other causes. It is
anticipated that the Company will have other such applications from time to time
in the ordinary course of business.
RECONSIDERATION PROCEEDINGS FOR THE LMS RULES. The FCC is expected to issue
a further order on reconsideration of the March 21, 1996 Reconsideration Order
which would deal with issues related to grandfathered LMS stations. In addition,
the FCC is expected to issue an initial order on reconsideration
53
<PAGE>
of the February 3, 1995 LMS Order dealing with issues raised by petitioners
other than those related to grandfathered LMS providers. The FCC may address the
two proceedings in a single order.
OTHER PROCEEDINGS. Other proceedings pending from time to time at the FCC
may affect the business and operations of the Company. These proceedings
include, but are not limited to, (i) pending proceedings to modify rules for low
power transmitters operating under Part 15 of the FCC's rules that also operate
in the 902-928 MHz frequency band in which the Company operates its LMS systems;
(ii) changes in spectrum allotments and usage restrictions that may permit the
operation of terrestrial location-related services in other bands; (iii) changes
in FCC rules and policies governing interconnection with the switched telephone
network; (iv) the anticipated institution of rule making proceedings to develop
the rules and policies that will govern the auction of the LMS spectrum; (v)
changes in the general licensing rules and policies of the FCC affecting LMS
applications; and (vi) changes in FCC regulatory policies generally governing
the CMRS services (which would affect the Company, to the extent that the FCC
classified multilateration LMS as CMRS).
The Company cannot predict when the FCC will act on any of these matters or
what effect such action may have on its business.
LEGAL PROCEEDINGS
Prior to the Acquisition, PacTel Teletrac (predecessor to AirTouch Teletrac)
brought an action before the United States Patent and Trademark Trial and Appeal
Board against T.A.B. Systems ("TAB") opposing TAB's registration of the mark
"Teletrak." The Trademark Trial and Appeal Board granted PacTel Teletrac's
motion for summary judgment, but summary judgment was reversed by the U.S. Court
of Appeals for the Federal Circuit. Under the terms of the Asset Purchase
Agreement between AirTouch Teletrac and the Company, AirTouch Teletrac must pay
the costs of any litigation relating to this matter and must indemnify the
Company against any losses relating thereto. AirTouch Teletrac has notified the
Company that it intends to continue to litigate this matter on its own behalf as
well as on behalf of the Company, and that it will bear the cost of such
litigation. There can be no assurance that AirTouch Teletrac will be successful
in such litigation or that AirTouch Teletrac will honor its indemnification
obligations (including any costs or losses relating to a change of name, if
required as a result of the litigation).
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. The Company is not currently a party to any
proceeding which, in management's opinion, is likely to have a material adverse
effect on the Company's business.
EMPLOYEES
On June 30, 1997, the Company had 325 employees. Substantially all of the
Company's employees are full-time. The Company's employees are not unionized and
the Company believes that its relations with its employees are good.
FACILITIES AND EQUIPMENT
The Company currently leases approximately 12,800 square feet of office
space in Kansas City, Missouri for its headquarters facility for a term expiring
in 2002. As of June 1997, the Company leased approximately 28,000 square feet in
Garden Grove, California for a term expiring in 2002, as well as office space in
Rolling Meadows, Illinois; Farmington Hills, Michigan; Arlington, Texas; Fort
Lauderdale, Florida; Houston, Texas; Orlando, Florida; San Francisco,
California; and San Diego, California.
As of June 30, 1997, the Company had approximately 400 site and tower leases
for the operation of its transmitters and other equipment on commercial
broadcast towers and at other fixed sites. The Company believes that in general
the terms of its leases are competitive based on market conditions. The Company
believes its facilities are suitable and adequate for its purposes. The Company
relocates its transmission and receiver sites from time to time and does not
anticipate any material problems in obtaining and retaining site and tower
leases in the future.
54
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James A. Queen....................................... 46 Chairman of the Board, Chief Executive Officer and
Director
Lawrence P. Jennings................................. 42 Vice President of Operations
Alan B. Howe......................................... 36 Vice President of Finance and Corporate Development
Steven D. Scheiwe.................................... 36 General Counsel and Secretary
James E. Seng........................................ 52 Vice President of Engineering
Sanford Anstey....................................... 50 Director
Robert Benbow........................................ 60 Director
David J. Berkman..................................... 34 Director
Michael A. Greeley................................... 33 Director
Michael Markbreiter.................................. 34 Director
Marc H. Michel....................................... 36 Director
Brian A. Rich........................................ 36 Director
</TABLE>
Each Director of the Company has been elected pursuant to the terms of the
Stockholders' Agreement. See "Certain Relationships and Related
Transactions--Stockholders' Agreement."
Each Director of the Company is also a Director of Holdings. Mr. Queen is
also Chairman of the Board and Chief Executive Officer of Holdings. Mr. Howe and
Mr. Scheiwe are also Vice Presidents of Holdings and are the Treasurer and
Secretary of Holdings, respectively.
JAMES A. QUEEN has been Chairman of the Board, Chief Executive Officer and
Director of the Company since November 1995. Mr. Queen previously served as
Chairman of the Board and Chief Executive Officer of Premiere Page from its
inception in 1988 through December 1994.
LAWRENCE P. JENNINGS has been Vice President of Operations of the Company
since November 1995. Prior to joining the Company, Mr. Jennings served as Vice
President of Operations of Premiere Page from July 1992 through December 1994.
Prior to joining Premiere Page, Mr. Jennings was General Manager for Centel
Cellular/United Telespectrum, Inc. in Charleston, South Carolina.
ALAN B. HOWE has been Vice President of Finance and Corporate Development of
the Company since November 1995. Prior to joining the Company, Mr. Howe served
as a Director of Corporate Development for Sprint Corp. as well as in various
finance positions within Sprint Corp.'s Wireless Task Force and Corporate
Treasury Group. Mr. Howe's last position at Sprint Corp. was with WirelessCo,
L.P., the PCS joint venture among Sprint Corp., Tele-Communications, Inc.,
Comcast Corporation and Cox Communications, Inc.
STEVEN D. SCHEIWE has been General Counsel and Secretary of the Company
since November 1995. Prior to joining the Company, Mr. Scheiwe had served as
General Counsel and Secretary to Premiere Page and its predecessor companies
from their inception in 1988.
JAMES E. SENG has been Vice President of Engineering of the Company since
February 1996. Prior to joining the Company, Mr. Seng was President of Project
Group 2000, an engineering consulting firm. From 1990 to 1994, Mr. Seng was Vice
President of Engineering at Premiere Page.
SANFORD ANSTEY has been a Director of the Company since December 6, 1996.
Mr. Anstey is Managing Director of BancBoston Capital, BancBoston's private
equity investing subsidiary, and is head of the firm's
56
<PAGE>
media and communications investments team. Mr. Anstey has been employed by
BancBoston Capital since 1988 and is currently a member of the Advisory Board of
Baring Communications Equity, the Board of Directors of Six Flags Entertainment
and the Board of Advisors of Prime Enterprises.
ROBERT BENBOW has been a Director of the Company since November 1995. Mr.
Benbow has been a Vice President of Burr, Egan, Deleage & Co. and a General
Partner in certain funds affiliated with Burr, Egan, Deleage & Co. since 1990.
Mr. Benbow serves as a director of ST Enterprises, a local exchange company;
Golden Sky Systems, Inc.; Incom Communications Corp.; and Brooks Fiber
Properties, Inc. Mr. Benbow also served as a director of U.S. One Communications
Corp., which filed for bankruptcy in 1997, after Mr. Benbow had resigned from
the Board of Directors thereof.
DAVID J. BERKMAN has been a Director of the Company since November 1995. Mr.
Berkman is currently Executive Vice President and a member of the Board of
Directors of The Associated Group, Inc. and has been an employee of the
Associated Group, Inc. or its predecessor for the past fifteen years. Mr.
Berkman is currently Vice Chairman of the Board of Portatel del Sureste, Mexico
and Associated Communications, L.L.C. Mr. Berkman is a former member of the
Board of Directors, and a former member of the Executive Committee, of the
Cellular Telephone Industry Association.
MICHAEL A. GREELEY has been a Director of the Company since December 6,
1996. Mr. Greeley is the Senior Vice President of GCC Investments, the
investment arm of GC Companies, which operates General Cinema Theatres.
Additionally, Mr. Greeley serves as the Senior Investment Officer of GC
Companies, Inc. Prior to this position, Mr. Greeley was a Vice President of
Wasserstein Perella & Co., Inc. Mr. Greeley is currently a director of Global
TeleSystems, Inc. and Crescent Communications.
MICHAEL MARKBREITER has been a Director of the Company since its formation
in November 1995. Mr. Markbreiter has been a portfolio manager at Kingdon
Capital Management Corp. for private equity investments since August 1995. Mr.
Markbreiter co-founded Ram Investment Corp., a venture capital company, and had
previously been a portfolio manager for Asia at Kingdon Capital Management Corp.
MARC H. MICHEL has been a Director of the Company since its formation in
November 1995. Mr. Michel is currently a General Partner of Eos Partners SBIC,
L.P. and a Managing Director of Eos Partners, L.P. Prior to joining Eos in 1994,
Mr. Michel was a Vice President of Merrill Lynch Interfunding Inc., a subsidiary
of Merrill Lynch & Co. Mr. Michel is a director of a number of companies,
including Intervest Holdings.
BRIAN A. RICH has been a Director of the Company since its formation in
November 1995. Mr. Rich is Managing Director of Toronto Dominion Capital
(U.S.A.), Inc., Toronto Dominion Bank's U.S. merchant bank. Prior to this
position, Mr. Rich had been an investment banker in Toronto Dominion's
Communications Finance Group since 1991.
The Company's former Chief Financial Officer resigned in June 1997. During
the search for a replacement, Alan B. Howe, the Company's Vice President of
Finance and Corporate Development, is acting Chief Financial Officer of the
Company.
The executive officers of the Company are elected by the Board of Directors
and serve at its discretion.
All directors are elected annually and hold office until the next annual
meeting of stockholders and until their successors are duly elected and
qualified. Directors do not receive an annual retainer or meeting attendance
fees. However, the Company reimburses non-management directors for expenses
incurred in attending meetings of the Board of Directors.
During 1996, the Board of Directors of the Company held eight meetings. The
only standing committees of the Board of Directors are the Audit Committee and
the Compensation Committee. The current members of the Audit Committee are
Messrs. Benbow, Greeley and Michel. The Audit Committee periodically consults
with the Company's management and independent public accountants on financial
57
<PAGE>
matters, including the Company's internal financial controls and procedures. The
Audit Committee held one meeting in 1996. The current members of the
Compensation Committee are Messrs. Anstey, Berkman and Rich. The Compensation
Committee approves compensation arrangements for the Company's executive
officers and administers the Company's stock option plans. The Compensation
Committee held two meetings in 1996.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information as to the
Chief Executive Officer and the four other highest paid executive officers of
the Company for the fiscal year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
------------------------------------------------------ UNDERLYING
NAME AND OTHER ANNUAL OPTIONS
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION (#)
- ---------------------------------------------- --------- ----------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
James A. Queen Chairman of the Board Chief
Executive Officer........................... 1996 201,000 38,000 -- 24,671
James E. Seng Vice President of Engineering... 1996 87,500 18,500 -- 1,699
Lawrence P. Jennings Vice President of
Operations.................................. 1996 158,000 29,000 -- 3,876
Alan B. Howe Vice President of Finance and
Corporate Development....................... 1996 106,000 19,000 -- 1,699
Steven D. Scheiwe General Counsel and
Secretary................................... 1996 117,000 21,000 -- 4,442
<CAPTION>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION (1) ($)
- ---------------------------------------------- ---------------
<S> <C>
James A. Queen Chairman of the Board Chief
Executive Officer........................... 1,000
James E. Seng Vice President of Engineering... 1,000
Lawrence P. Jennings Vice President of
Operations.................................. 1,000
Alan B. Howe Vice President of Finance and
Corporate Development....................... 1,000
Steven D. Scheiwe General Counsel and
Secretary................................... 1,000
</TABLE>
- ------------------------
(1) Amounts shown for each officer consist of amounts accrued by the Company for
contribution to the Company's 401(k) Savings Plan that are allocable to such
officer.
58
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options to the named executive officers during the fiscal year ended
December 31, 1996:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
---------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(1) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ----------------------------- ------------------- ------------------------- --------------- ------------- --------- ----------
James A. Queen............... 8,224 57.3% 100 2003 464,000 1,724,000
8,224 125
8,223 150
James E. Seng................ 567 3.9% 100 2003 32,000 119,000
566 125
566 150
Lawrence P. Jennings......... 1,292 9.0% 100 2003 73,000 271,000
1,292 125
1,292 150
Alan B. Howe................. 567 3.9% 100 2003 32,000 119,000
566 125
566 150
Steven D. Scheiwe............ 1,481 10.3% 100 2003 84,000 310,000
1,481 125
1,480 150
</TABLE>
- ------------------------
(1) See "--Stock Option Plans."
59
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth the number of options exercised and the value
realized upon exercise by the named executive officers during the fiscal year
ended December 31, 1996 and the value of outstanding options held by such
executive officers as of December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
NUMBER OF SHARES YEAR AT FISCAL YEAR END
ACQUIRED ON EXERCISE END EXERCISABLE/ EXERCISABLE/
NAME OF OPTIONS VALUE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------------------- ------------------------- ------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
James A. Queens...................... -- -- 0/24,671 0/$ 1,190,400
James E. Seng........................ -- -- 0/1,699 0/$ 82,000
Lawrence P. Jennings................. -- -- 0/3,876 0/$ 187,000
Alan B. Howe......................... -- -- 0/1,699 0/$ 82,000
Steven D. Scheiwe.................... -- -- 0/4,442 0/$ 214,400
</TABLE>
- ------------------------
(1) Assumes a price per share of $173.25, the price per share of the Preferred
Stock sold on December 6, 1996.
EMPLOYMENT AGREEMENTS
In November 1995, the Company and Mr. Queen entered into an agreement
pursuant to which Mr. Queen agreed to serve as the Chief Executive Officer of
the Company through December 31, 1998. Under the agreement, Mr. Queen is paid
compensation of $200,000 per year (plus the cost of health insurance) and is
eligible to receive a bonus of up to 25% of his base salary at the discretion of
the Board of Directors. In addition, in 1996 Mr. Queen was granted options to
purchase 24,671 shares of Class A Common Stock at prices ranging from $100 to
$150 per share. One-third of the options granted vest on each of the following
three one-year anniversaries of the date of grant. The agreement also includes a
confidentiality provision and a non-compete provision.
In January 1996, the Company and Mr. Scheiwe entered into an agreement
pursuant to which Mr. Scheiwe agreed to serve as the General Counsel and
Secretary of the Company through December 31, 1998. Under the agreement, Mr.
Scheiwe is paid compensation of $114,200 per year (plus the cost of health
insurance) and is eligible to receive a bonus of up to 20% of his base salary at
the discretion of the Board of Directors. In addition, in 1996 Mr. Scheiwe was
granted options to purchase 4,442 shares of Class A Common Stock at prices
ranging from $100 to $150 per share. One-third of the options granted vest on
each of the following three one-year anniversaries of the date of grant. The
agreement also includes a confidentiality provision and a non-compete provision.
In January 1996, the Company and Mr. Jennings entered into an agreement
pursuant to which Mr. Jennings agreed to serve as the Vice President of
Operations of the Company through December 31, 1998. Under the agreement, Mr.
Jennings is paid compensation of $154,000 per year (plus the cost of health
insurance) and is eligible to receive a bonus of up to 20% of his base salary at
the discretion of the Board of Directors. In addition, in 1996 Mr. Jennings was
granted options to purchase 3,876 shares of Common Stock at prices ranging from
$100 to $150 per share. One-third of the options granted vest on each of the
following three one-year anniversaries of the date of grant. The agreement also
includes a confidentiality provision and a non-compete provision.
STOCK OPTION PLANS
In November 1995, the Company adopted a Stock Option Plan (the "1995 Stock
Plan") which provides for the granting of options to purchase up to 43,060
shares of Class A Common Stock to qualified employees of the Company, all of
which were granted by November 1996. Under the terms of Option Agreements
between the Company and each of Messrs. Queen, Seng, Jennings, Howe and Scheiwe
to date, the Company has granted each of them the right to purchase from the
Company up to 24,671; 1,699; 3,876; 1,699; and 4,442 shares of Class A Common
Stock, respectively, under the terms of the 1995 Stock
60
<PAGE>
Plan. In each case, one-third of the shares may be purchased at an option price
of $100 per share, one-third may be purchased at $125 per share, and the final
one-third may be purchased at $150 per share. One-third of the options granted
vest on each of the following three one-year anniversaries of the date of grant.
The Company also has Option Agreements with certain other employees with similar
terms under which it has granted options to purchase an additional 4,599 shares
of Class A Common Stock pursuant to the 1995 Stock Plan.
In November 1996, the Company adopted the Teletrac, Inc. and its
Subsidiaries 1996 Stock Option and Restricted Stock Purchase Plan (the "1996
Stock Plan") so as to promote the interests of the Company and its stockholders
by providing an opportunity to selected employees, officers and directors of the
Company or any subsidiary thereof to purchase Class A Common Stock of the
Company. The 1996 Stock Plan provides for the granting of non-qualified stock
options and/or incentive stock options ("ISOs") to acquire Class A Common Stock
of the Company and/or by the granting of rights to purchase Class A Common Stock
of the Company subject to certain restrictions ("Restricted Stock").
The 1996 Stock Plan is administered by the Compensation Committee of the
Board of Directors of the Company (the "Compensation Committee"). The
Compensation Committee, upon the approval of the Board of Directors, has the
discretion under the Plan (i) to select the employees who will be granted an
option or right to purchase Class A Common Stock of the Company; (ii) to
designate whether the options will be granted as ISOs or as non-qualified stock
options; (iii) to establish the number of shares of Class A Common Stock of the
Company that may be issued under each option or right; (iv) to determine the
time and the conditions subject to which options may be exercised in whole or in
part; (v) to determine the form of consideration that may be used to purchase
shares of Class A Common Stock of the Company issued upon exercise of an option
or right; (vi) to impose restrictions and/or conditions upon shares of Class A
Common Stock of the Company acquired upon exercise of an option or right; (vii)
to determine the circumstances under which shares of Class A Common Stock of the
Company acquired upon exercise of any option or right may be subject to
repurchase by the Company; (viii) to determine the circumstances under which
shares acquired upon exercise of an option or right may be sold or transferred;
(ix) to establish a vesting provision for any option relating to the time, or
circumstance, when the option may be exercised by a participant; and (x) to
accelerate the time when outstanding options may be exercised.
The Company is currently authorized to issue up to 25,397 shares of Class A
Common Stock under the 1996 Stock Plan. As of [June 30, 1997], options to
purchase [1,500] shares of Class A Common Stock were outstanding under the 1996
Stock Plan, all of which were ISOs. Of such options granted, one-third of the
shares may be purchased at an option price of $175.00 per share, one-third may
be purchased at $218.75 per share, and the final one-third may be purchased at
$262.50 per share. None of the named officers has received stock options under
the 1996 Stock Plan. The Company has not issued any Restricted Stock under the
Plan.
In connection with the creation of a holding company structure for the
Company, the 1995 Stock Plan and the 1996 Stock Plan assumed by Holdings and all
of the outstanding options granted under such Plans were converted to options to
purchase shares of the Class A Common Stock of Holdings on identical terms and
conditions.
401(K) PLAN
The Company maintains a 401(k) Savings Plan for its full-time employees
which permits employee contributions up to 15% of annual compensation to the
plan on a pre-tax basis. In addition, the Company may make a matching
contribution of up to 50% of each participating employee's annual compensation,
not to exceed $1,000, before taxes. The Company may also make additional
discretionary contributions to the Plan in any plan year up to the annual 401(k)
plan contribution limits as defined in the Internal Revenue Code of 1986, as
amended (the "Code"). The Plan is administered by the Compensation Committee.
For the plan year ended December 31, 1996, the Company has accrued an
aggregate of $121,000 for contributions to the Plan in 1997, of which $1000 was
accrued on behalf of each of Messrs. Queen, Seng, Jennings, Howe and Scheiwe,
and all of which has been contributed.
61
<PAGE>
SECURITIES OWNERSHIP
As of the Closing, Holdings will own all the issued and outstanding capital
stock of Teletrac. The following table sets forth certain information regarding
the beneficial ownership of Holdings' Class A Common Stock and Preferred Stock
as of the Closing by (i) certain stockholders or groups of related stockholders
who, individually or as a group, are the beneficial owners of 5% or more of any
class of Holdings Common Stock, (ii) the executive officers and directors of
Holdings and (iii) the executive officers and directors of Holdings as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A COMMON STOCK(1)
PREFERRED STOCK
------------------------- -------------------------
<CAPTION>
NUMBER OF PERCENT NUMBER OF PERCENT
NAME(2) SHARES OF CLASS SHARES OF CLASS
- ------------------------------------------------------------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Burr, Egan, Deleage Funds(3)...................................... 73,088.02 28.0% 23,088.02 12.2%
c/o Burr, Egan Deleage & Co.
One Post Office Square
Boston, MA 02109
Alta Communications Funds(4)...................................... 23,088.01 8.5 23,088.01 12.1
c/o Alta Communications, Inc.
One Embarcadero Center,
Suite 4050
San Francisco, CA 94111
Kingdon Associates, L.P. ......................................... 13,398.99 5.3 5,898.99 3.1
Kingdon Partners, L.P............................................. 13,435.06 5.4 935.06 *
M. Kingdon Offshore NV............................................ 52,025.97 19.2 22,025.97 11.6
52 West 57th Street
New York, NY 10019
Toronto Dominion Capital (U.S.A.), Inc............................ 55,772.01 21.9 5,772.01 3.0
31 West 52nd Street
20th Floor
New York, NY 10019
TruePosition, Inc................................................. 55,772.01 21.9 5,772.01 3.0
3 Bala Plaza East
Suite 502
Bala Cynwyd, PA 19004
Eos Partners SBIC, L.P............................................ 34,772.01 13.6 5,772.01 3.0
320 Park Avenue
22nd Floor
New York, NY 10022
BancBoston Ventures Inc........................................... 34,632.03 12.2 34,632.03 18.2
100 Federal Street
Boston, MA 02110
Chestnut Hill Wireless, Inc....................................... 40,404.04 14.0 40,404.04 21.2
1300 Boylston Street
Chestnut Hill, MA 02167
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------------------------------
CLASS A COMMON STOCK(1)
PREFERRED STOCK
------------------------- -------------------------
NUMBER OF PERCENT NUMBER OF PERCENT
NAME(2) SHARES OF CLASS SHARES OF CLASS
- ------------------------------------------------------------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS:
<S> <C> <C> <C> <C>
James A. Queen(5)................................................. 18,023.00 7.2 0 0
Steven D. Scheiwe(5).............................................. 3,135.00 * 0 0
Lawrence P. Jennings(5)........................................... 2,351.00 * 0 0
James E. Seng(5).................................................. 404.00 * 0 0
Alan B. Howe(5)................................................... 404.00 * 0 0
Sanford Anstey(6)................................................. 34,632.03 13.9 34,632.03 18.2
Robert Benbow(7).................................................. -- -- -- --
David J. Berkman(8)............................................... 55,772.01 22.4 5,772.01 3.0
Michael A. Greeley(9)............................................. 40,404.04 16.2 40,404.04 21.2
Michael Markbreiter(10)........................................... 78,860.02 31.7 28,860.02 15.2
Marc H. Michel(11)................................................ 34,772.01 14.0 5,772.01 3.0
Brian A. Rich(12)................................................. 55,772.01 22.4 5,772.01 3.0
All executives officers and directors as a group 323,394.12 76.2 167,388.15 63.6
(14 persons)(13)................................................
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes all shares issuable upon conversion of the Preferred Stock.
(2) Except as otherwise noted below, the persons named in the table have sole
voting power and investment power with respect to all shares set forth in
the table. The shares listed include shares of Class A Common Stock that may
be acquired upon exercise of presently exercisable options, or options that
will become exercisable within 60 days from the date hereof.
(3) Includes (i) 18,525, shares of Common Stock and 8,554.11 shares of
Preferred Stock owned by Alta Subordinated Debt Partners III, L.P., (ii)
31,145 shares of Common Stock and 14,381.53 shares of Preferred Stock owned
by Alta V Limited Partnership and (iii) 330 shares of Common Stock and
152.38 shares of Preferred Stock owned by Customs House Partners. Alta
Subordinated Debt Partners III, L.P., Alta V Limited Partnership and Customs
House Partners are part of an affiliated group of investment funds referred
to, collectively, as the Burr, Egan, Deleage Funds. The general partner of
Alta Subordinated Debt Partners III, L.P. is Alta Subordinated Debt
Management III, L.P. The general partner of Alta V Limited Partnership is
Alta V Management Partners, L.P. Each of Alta Subordinated Debt Management
III, L.P. and Alta V Management Partners, L.P. exercises sole voting and
investment power with respect to all of the shares held of record by the
investment fund for which it serves as general partner. Burr, Egan, Deleage
& Co., directly or indirectly, provides investment advisory services to each
of the investment funds comprising the Burr, Egan, Deleage Funds. Certain of
the principals of Burr, Egan, Deleage & Co. are partners in Alta
Subordinated Debt Management III, L.P. and Alta V Management Partners, L.P.
and, as such, may be deemed to have or share voting or investment power with
respect to the shares held by the investment fund for which such entity
serves as general partner. The principals of Burr, Egan, Deleage & Co.
disclaim beneficial ownership of all of such shares except to the extent of
their proportionate pecuniary interests therein. Certain principals of Burr,
Egan, Deleage & Co. are general partners of Customs House Partners and may
be deemed to share voting and investment power with respect to the shares
held of record by Customs House Partners. Such principals of Burr, Egan,
Deleage & Co. disclaim beneficial ownership of all of such shares except to
the extent of their proportionate pecuniary interests therein. In addition,
certain principals of Burr, Egan, Deleage & Co. are affiliated with Alta
Communications, Inc.
63
<PAGE>
(4) Includes (i) 22,574.16 shares of Preferred Stock owned by Alta
Communications VI, L.P. and (ii) 513,85 shares of Preferred Stock owned by
Alta Comm S by S, L.L.C. Alta Communications VI, L.P. and Alta Comm S by S
are part of an affiliated group of investment funds referred to,
collectively, as the Alta Communications Funds. The general partner of Alta
Communications VI, L.P. is Alta Communications VI Management Partners, L.P.
Alta Communications VI Management Partners, L.P., exercises sole voting and
investment power with respect to all of the shares held of record by Alta
Communications VI, L.P. Alta Communications, Inc. provides investment
advisory services to each of the funds comprising the Alta Communications
Funds. Certain of the principals of Alta Communications, Inc. are partners
of Alta Communications VI Management Partners, L.P. and as such may be
deemed to have or share voting or investment power with respect to the
shares held by Alta Communications VI, L.P. The principals of Alta
Communications, Inc. disclaim beneficial ownership of all of such shares
except to the extent of their proportionate pecuniary interests therein.
Certain principals of Alta Communications, Inc. are members of Alta Comm S
by S and may be deemed to share voting and investment power with respect to
the shares held of record by Alta Comm S by S. Such principals of Alta
Communications, Inc. disclaim beneficial ownership of such shares except to
the extent of their proportionate pecuniary interests therein. In addition,
certain principals of Alta Communications, Inc. are affiliated with Burr,
Egan, Deleage & Co.
(5) Includes options to purchase shares of Common Stock that are presently
exercisable, or that will become exercisable within 60 days from the date
hereof.
(6) Mr. Anstey may be deemed to beneficially own the shares of capital stock
owned by BancBoston Ventures. Mr. Anstey disclaims beneficial ownership of
such shares.
(7) Mr. Benbow is a general partner of Alta Subordinated Debt Management III,
L.P., Alta V Management Partners, L.P. and Alta Communications VI Management
Partners, L.P. As a general partner of these funds, he may be deemed to
share voting and investment power with respect to the shares of Common Stock
and Preferred Stock owned by the investment funds for which these funds
serve as general partner. Mr. Benbow disclaims beneficial ownership to such
shares except to the extent of his proportionate pecuniary interests
therein. In addition, Mr. Benbow disclaims all beneficial ownership to all
the shares held by Customs House Partners and Alta Comm S by S, L.L.C.
(8) Mr. Berkman may be deemed to beneficially own the shares of capital stock
owned by TruePosition, Inc. Mr. Berkman disclaims beneficial ownership of
such shares.
(9) Mr. Greeley may be deemed to beneficially own the shares of capital stock
owned by Chestnut Hill Wireless. Mr. Greeley disclaims beneficial ownership
of such shares.
(10) Mr. Markbreiter may be deemed to beneficially own the shares of capital
stock owned by Kingdon Associates, L.P., Kingdon Partners, L.P. and M.
Kingdon Offshore NV. Mr. Markbreiter disclaims beneficial ownership of such
shares.
(11) Mr. Michel may be deemed to beneficially own the shares of capital stock
owned by Eos Partners SBIC, Inc. Mr. Michel disclaims beneficial ownership
of such shares.
(12) Mr. Rich may be deemed to beneficially own the shares of capital stock
owned by Toronto Dominion Capital (U.S.A.), Inc. Mr. Rich disclaims
beneficial ownership of such shares.
(13) Includes shares held by (i) BancBoston Ventures Inc. that may be deemed to
be beneficially owned by Mr. Anstey, (ii) TruePosition, Inc. that may be
deemed to be beneficially owned by Mr. Berkman, (iii) Chestnut Hill
Wireless, Inc. that may be deemed to be beneficially owned by Mr. Greeley,
(iv) Kingdon Associates, L.P., Kingdon Partners, L.P. and M. Kingdon
Offshore NV that may be deemed to be beneficially owned by Mr. Markbreiter,
(v) Eos Partners SBIC, L.P. that may be deemed to be beneficially owned by
Mr. Michel and (vi) Toronto Dominion Capital (U.S.A.), Inc. that may be
deemed to be beneficially owned by Mr. Rich. Does not include shares held by
Alta Subordinated Debt Partners III, L.P., Alta V Limited Partnership,
Customs House Partners, Alta Communications VI, L.P. and Alta Comm S by S
that may be deemed to be beneficially owned by Mr. Benbow.
64
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PREFERRED STOCK PURCHASE AGREEMENT
In December 1996, the Company sold 190,476.19 shares of Series A Redeemable
Convertible Participating Preferred Stock to certain investors (the "Preferred
Investors") pursuant to a Stock Purchase Agreement (the "Preferred Stock
Purchase Agreement") dated December 6, 1996 for an aggregate purchase price of
$33.0 million. The Preferred Stock Purchase Agreement was amended and assigned
by the Company to, and assumed by, Holdings pursuant to the terms of the
Exchange Agreement discussed below.
In the Preferred Stock Purchase Agreement assumed by Holdings, Holdings made
certain covenants to the Preferred Investors which survive until such time as
all of the shares of Preferred Stock have either been redeemed or converted to
shares of Common Stock. Such covenants include, among others, a covenant by
Holdings not to declare or pay any dividends or make any distributions of cash,
property or securities of Holdings with respect to any shares of its capital
stock, or directly or indirectly redeem, purchase, or otherwise acquire for
consideration any shares of its capital stock, except as expressly provided in
the Preferred Stock Purchase Agreement or Holdings' Certificate of Incorporation
and except for repurchases of Common Stock at cost by Holdings under employee
stock plans and programs. Holdings also covenanted that, until February 1, 2008
it will not, and will not permit any subsidiary to, without the consent of the
holders of a majority of the outstanding shares of Preferred Stock: (i) issue
any shares of its capital stock senior to or on parity with the Preferred Stock
with respect to dividends, conversions, liquidation, redemptions or special
voting rights, (ii) create, incur, assume, become liable for, or permit to exist
any indebtedness for borrowed money, capital leases, or other similar
commitments or obligations which, for any one such borrowing or series of
related borrowings, is in excess of $250,000, except under the Indenture or the
Credit Facility or as permitted by the Indenture as in effect on the Closing
Date or by the Credit Facility as in effect on the date of execution and
delivery of definitive documentation with respect thereto or indebtedness
incurred to refinance any of the same; PROVIDED, that any such refinancing
indebtedness (a) shall not have an original principal amount exceeding the sum
of the aggregate principal amount of indebtedness refinanced thereby, plus
accrued interest and any applicable premiums, penalties, fees and costs payable
in respect of the indebtedness refinanced thereby, plus out-of-pocket expenses
payable as a result of such refinancing; and (b) having a maturity later than
February 1, 2008 shall not by its terms expressly restrict payments due to the
holders of the Series A Preferred Stock in connection with redemption of such
shares at the option of such holders on or after February 1, 2008 (any such
refinancing indebtedness being hereinafter called "Refinancing Indebtedness"),
(iii) grant or permit to exist any material liens, security interests or
encumbrances on any of Holdings' assets or properties, except under the
Indenture or the Credit Facility or as permitted by the terms of the Indenture
or the Credit Facility (including, without limitation, under any Refinancing
Indebtedness), (iv) enter into any agreement with any party which by its terms
restricts the payments due to the holders of the Preferred Stock as set forth in
Holdings' Certificate of Incorporation, except under the Indenture or the Credit
Facility or as permitted by the Indenture or the Credit Facility (including,
without limitation, under any Refinancing Indebtedness), or (v) authorize any
merger or consolidation of Holdings with or into any other corporation,
partnership or entity (with the result that less than a majority of the
outstanding voting power of the surviving corporation is held by persons who
were stockholders of Holdings immediately prior to such event) or permit the
sale of all or any material portion of the capital stock or assets of Holdings
(other than sales in the ordinary course of business and consistent with past
practices). Holdings also covenanted to the Preferred Investors that it will
not, without the consent of the holders of 66 2/3% of the outstanding shares of
Preferred Stock, authorize or permit the voluntary bankruptcy, reorganization,
liquidation, dissolution or winding up of Holdings. Furthermore, Holdings
covenanted not to make any amendment to its Certificate of Incorporation or
By-laws (a) so as to adversely affect the rights of the holders of the Preferred
Stock with respect to dividends, liquidation preferences or redemption without
the consent of 80% of the outstanding shares of Preferred Stock, or (b) that
adversely affects any other preference, powers, rights or privileges of holders
65
<PAGE>
of the Preferred Stock without the consent of holders of at least 66 2/3% in
interest of the Preferred Stock. Holdings also covenanted that it would not make
any expenditures for fixed or capital assets, or any commitments for such
expenditures, in excess of $1.0 million for a single or series or related
expenditures without the prior approval of the Board of Directors. Following
February 1, 2008, if any shares of Preferred Stock remain outstanding, the
amendments to the Preferred Stock Purchase Agreement effected by the Exchange
Agreement will be of no further force and effect, and certain of the covenants
discussed above will be modified.
In addition, Holdings made certain affirmative covenants to the Preferred
Investors pursuant to the terms of the Preferred Stock Purchase Agreement. Such
covenants include covenants to provide the Preferred Investors with the
financial statements and budget forecasts of Holdings, to pay all taxes owed by
Holdings, to comply with applicable laws and regulations, and to keep its
property insured by financially sound and reputable insurers.
Certain of the Preferred Investors are Small Business Investment Companies
(each an "SBIC") licensed by the Small Business Administration pursuant to 13
C.F.R. Parts 107 and 121 (the "SBIC Regulations"). In the event that, prior to
December 7, 1997, Holdings changes its principal business activity to an
ineligible business activity (within the meaning of the SBIC Regulations),
Holdings will be required to repurchase each share of Preferred Stock held by an
SBIC at the purchase price under the Preferred Stock Purchase Agreement plus all
accrued and unpaid dividends thereon.
STOCKHOLDERS' AGREEMENT
The Company and the current holders of its issued and outstanding capital
stock (the "Stockholders") have entered into a Stockholders' Agreement, dated as
of December 6, 1996 (the "Stockholders' Agreement"). The Stockholders' Agreement
was amended and assigned by the Company to Holdings pursuant to the terms of the
Exchange Agreement described below.
Under the terms of the Stockholders' Agreement, the Stockholders have
certain rights of last refusal and co-sale rights with respect to sales of
Common Stock and/or Preferred Stock of Holdings by other Stockholders. In
addition, the Stockholders' Agreement creates drag-along obligations in the
event that the holders of specified percentages of Common Stock and Preferred
Stock agree to (i) sell or otherwise dispose of the assets of Holdings or a
majority of its capital stock to a non-affiliate of Holdings or certain
Stockholders or (ii) merge Holdings with or into a non-affiliate of Holdings or
certain Stockholders.
Under the Stockholders' Agreement, Holdings also granted the Stockholders
preemptive rights to purchase their pro rata portion of the issuance by Holdings
of (i) shares of capital stock of Holdings, (ii) securities convertible into or
exchangeable for capital stock of Holdings, or (iii) options, warrants or rights
carrying any rights to purchase capital stock of Holdings, all except in
connection with an acquisition or joint venture with a non-affiliate, an
issuance under a Holdings stock option plan, or certain other issuances. The
Stockholders have waived all such preemptive rights with respect to the issuance
of the Warrants (and underlying shares) and certain additional warrants
(including any underlying shares) issued (or which the Company has committed to
issue) at any time within 90 days of the Closing Date.
The Stockholders' Agreement has fixed the number of directors of the Board
of Directors of Holdings at eight and will require each of the Stockholders to
vote their shares of Preferred Stock and/or Common Stock for the election to the
Board of Directors of: one individual nominated by certain members of
management, one individual nominated by Burr, Egan, Deleage & Co. and its
affiliates, one individual nominated by Eos Partners SBIC, L.P., one individual
nominated by Kingdon Associates, L.P. and its affiliates, one individual
nominated by TruePosition, Inc. and one individual nominated by Toronto Dominion
Capital (U.S.A.), Inc. In addition, the Stockholders who are holders of
Preferred Stock further agreed to vote their shares of Preferred Stock for the
election to the Board of Directors, as representatives of the holders of
Preferred Stock, one individual nominated by BancBoston Ventures Inc. and one
individual nominated by GCC Investments, Inc. As soon as practicable after the
effective date of the
66
<PAGE>
registration statement filed with the Commission in connection with the Exchange
Offer, the number of directors shall be increased to nine and each of the
Stockholders will be required to vote its shares of Common Stock and/or
Preferred Stock to elect to the Board of Directors an outside nominee selected
by a majority of the Board of Directors.
The consent of a majority of the holders of Holdings' Common Stock and
Preferred Stock, voting as a single class, is required under the Stockholders'
Agreement for Holdings to: (i) authorize or issue any equity security senior to
or on parity with the Preferred Stock, (ii) incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any new or additional
indebtedness or liability except as permitted by the Preferred Stock Purchase
Agreement, as amended, (iii) redeem, purchase or otherwise acquire for value any
shares of Common Stock or of any class of capital stock of Holdings or any of
its outstanding options, warrants or convertible or exchangeable securities,
except for repurchases of Common Stock at cost by Holdings under employee stock
plans and programs, (iv) enter into any transaction or agreement with any
officer, director or shareholder of Holdings, or any wholly or partially owned
subsidiary of Holdings, or any other affiliate of Holdings, except transactions
that are on terms no less favorable than would be available in an arms-length
transaction and that are approved by the Audit Committee, (v) authorize any
merger or consolidation of Holdings with or into any other corporation,
partnership or entity (with the result that less than a majority of the
outstanding voting power of the surviving corporation is held by persons who
were stockholders of Holdings immediately prior to such event) or permit the
sale of all or any material portion of the capital stock or assets of Holdings
(other than sales in the ordinary course of business and consistent with past
practices), or (vi) increase or decrease the total number of authorized shares
of Preferred Stock.
The consent of both the holders of a majority of the issued and outstanding
shares of Common Stock and Preferred Stock voting together as a single class,
and the holders of 66 2/3% of the issued and outstanding shares of Preferred
Stock, is required for Holdings to permit or authorize the voluntary
reorganization, liquidation, dissolution or winding up of Holdings. Furthermore,
Holdings is not permitted to amend its Certificate of Incorporation or By-laws
(a) so as to adversely affect the rights of the holders of the Preferred Stock
with respect to dividends, liquidation preferences or redemption without the
consent of the holders of a majority of the issued and outstanding shares of
Common Stock and Preferred Stock, voting together as a single class, and the
consent of the holders of 80% of the outstanding shares of Preferred Stock, or
(b) so as to adversely affect any other preference, powers, rights or privileges
of holders of the Preferred Stock without the consent of holders of a majority
of the issued and outstanding shares of Common Stock and Preferred Stock, voting
together as a single class, and the consent of the holders of at least 66 2/3%
of the outstanding shares of Preferred Stock.
The rights and obligations of Holdings and the Stockholders pursuant to the
Stockholders' Agreement will remain in effect until the earlier of the sale of
the Company and certain qualified public offerings of the Company's Common
Stock.
REGISTRATION RIGHTS AGREEMENT
The Company and the Stockholders have also entered into an Amended and
Restated Registration Rights Agreement, dated December 6, 1996 (the
"Registration Agreement"). The Registration Agreement was amended and assigned
by the Company to Holdings pursuant to the terms of the Exchange Agreement
described below.
Under the Registration Agreement, the Holdings has agreed, subject to
certain conditions, to effect up to three demand registrations of the Common
Stock held by the Stockholders for a sale to the public under applicable federal
and state securities laws. In addition, the Stockholders have certain
"piggy-back" registration rights and rights to registration on Form S-3. In
consideration for such registration rights, under the Registration Agreement the
Stockholders have agreed not to sell or otherwise dispose of shares of Holdings'
Common Stock for seven days prior to and 180 days following any initial public
offering by
67
<PAGE>
Holdings without the prior written approval of the underwriter for such
offering. The addition of any new holders of Holdings' securities as parties to
the Registration Agreement will require the approval of 75% of existing holders
of Common Stock (or securities exchangeable therefor or convertible thereto).
The approval of the holders of a majority of the shares of Holdings' capital
stock will be required under the Registration Agreement in order for Holdings to
grant registration rights to any other person that are superior to the
registration rights contained in the Registration Agreement. The Registration
Agreement will terminate as to any party thereto (other than Holdings) after an
initial public offering of Holdings' securities at such time as such party holds
less than one percent of Holdings' outstanding Common Stock. The Stockholders
have waived all such registration rights with respect to any registration of the
Notes or Warrants.
EXCHANGE AGREEMENT
The Company, Holdings and the Stockholders have entered into an Exchange
Agreement establishing the holding company structure. Under the terms of the
Exchange Agreement, each of the Stockholders has exchanged their shares of
Company Common Stock and Preferred Stock for substantially similar shares of
Holdings Common Stock and Preferred Stock. The Exchange Agreement also assigned
the Preferred Stock Purchase Agreement, the Stockholders' Agreement and the
Registration Agreement from the Company to Holdings and released the Company
from any liabilities thereunder arising after the date of assignment. Certain
provisions of the Stockholders' Agreement, the Registration Agreement and the
Preferred Stock Purchase Agreement have also been amended to facilitate the Unit
Offering, as described above. Under the Exchange Agreement, each Stockholder has
also subordinated the payment of any amount due to such Stockholder, and all
other rights and claims of such Stockholder, arising under the Exchange
Agreement, the Preferred Stock Purchase Agreement, the Stockholders' Agreement
or the Registration Agreement to the indebtedness of the Company under or
relating to the Notes or otherwise arising under the Indenture or the Credit
Facility.
Under the terms of the Exchange Agreement, Holdings has filed an amendment
to its Certificate of Incorporation. Such amendment extends to February 1, 2008
the date on which the holders of a majority in interest of the Series A
Preferred Stock may require Holdings to redeem all of the outstanding shares of
Series A Preferred Stock. In addition, such amendment includes certain
provisions requiring the affirmative vote of the holders of a majority of the
shares of Preferred Stock, voting as a single class on an as-converted basis,
for Holdings to: (i) authorize or issue, or obligate itself to issue, any equity
security senior to or on parity with the Series A Preferred Stock, (ii) incur,
create, assume, become or be liable in any manner with respect to any new or
additional indebtedness or liability, except under the Indenture or the Credit
Facility, or as permitted by the Indenture as in effect on the Closing Date or
the Credit Facility as in effect on the date of execution and delivery of a
definitive agreement with respect thereto and Refinancing Indebtedness, (iii)
redeem, purchase or otherwise acquire for value any shares of Common Stock or of
any class of capital stock of Holdings, or any of its outstanding options,
warrants or convertible or exchangeable securities, except for repurchases of
shares of Common Stock at cost by Holdings under employee stock plans and
programs, (iv) enter into any transaction or agreement with any officer,
director or stockholder of Holdings, or any wholly or partially owned subsidiary
of Holdings, or any other affiliate of Holdings, except in an arms-length
transaction approved by the Audit Committee, (v) authorize any merger or
consolidation of Holdings with or into any other corporation, partnership or
entity (with the result that less than a majority of the outstanding voting
power of the surviving corporation is held by persons who were stockholders of
Holdings immediately prior to such event) or permit the sale of all or any
material portion of the capital stock or assets of Holdings (other than sales in
the ordinary course of business and consistent with past practices), or (vi)
increase or decrease the total number of authorized shares of Preferred Stock.
In addition, the consent of the holders of 66 2/3% of the issued and outstanding
shares of Preferred Stock is required for Holdings to permit or authorize the
voluntary reorganization, liquidation, dissolution or winding up of Holdings.
Furthermore, Holdings is not permitted to amend its Certificate of Incorporation
or By-laws (a) so as to adversely affect the rights of the holders of the
68
<PAGE>
Preferred Stock with respect to dividends, liquidation preferences or redemption
without the consent of 80% of the outstanding shares of Preferred Stock, or (b)
so as to adversely affect any other preference, powers, rights or privileges of
holders of the Preferred Stock without the consent of holders of at least
66 2/3% of the outstanding shares of Preferred Stock.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the agreements governing the outstanding long-term
indebtedness of the Company and its subsidiaries does not purport to be complete
and is qualified in its entirety by reference to the various agreements
described herein.
CREDIT FACILITY
The Company has received a commitment letter from Banque Paribas and Fleet
National Bank with respect to a secured revolving credit facility (the "Credit
Facility") providing for up to $30 million of credit. Proceeds from the
revolving credit line may be used to provide funding for capital expenditures
and finance the working capital needs of the Company. Indebtedness under the
Credit Facility would be secured by a pledge of the stock of Teletrac, Inc. and
its subsidiaries, together with a security interest in substantially all of the
assets of Teletrac, Inc. See "Description of Certain Indebtedness."
The Credit Facility will contain restrictive covenants that, among other
things, impose limitations on the Company and its subsidiaries with respect to
(i) the incurrence and maintenance of indebtedness, including guarantees, (ii)
the incurrence, creation or maintenance of liens, (iii) the making of dividends
and certain payments, (iv) transactions with affiliates, (v) the disposition of
assets, (vi) the types of acquisitions that can be made and the amount which can
be invested in acquisitions, (vii) the amount of rental payments that can be
incurred, and (viii) consolidations and mergers. The Credit Facility would also
provide for events of default customary in facilities of its type.
The exercise of rights pursuant to the Credit Facility will be subject to
applicable provisions of the Communications Act, including, without limitation,
the requirements for prior FCC approval of the transfer of control or the
assignment of FCC licenses.
69
<PAGE>
DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued pursuant to the Indenture between the Company
and Norwest Bank Minnesota, National Association, as trustee (the "Trustee").
The terms of the New Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The New Notes are subject to all such
terms, and Holders of New Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the New Notes, the Indenture, the Registration Rights Agreement
and the Pledge Agreement does not purport to be complete and is qualified in its
entirety by reference to the New Notes, the Indenture, the Registration Rights
Agreement and the Pledge Agreement, including the definitions in each of such
instruments and agreements of certain terms used below. Copies of the Indenture,
Registration Rights Agreement and Pledge Agreement will be made available to
purchasers of New Notes upon request. The definitions of certain terms as used
in the following summary are set forth below under "--Certain Definitions."
The New Notes will represent senior, unsecured obligations of the Company,
will rank PARI PASSU in right of payment with all existing and future senior
indebtedness of the Company and will rank senior in right of payment to all
existing and future subordinated indebtedness of the Company. Although the
Indenture will limit the ability of the Company and its subsidiaries to incur
additional indebtedness, the Indenture will permit the Company to incur secured
indebtedness under the Credit Facility which, if incurred, will effectively rank
senior to the New Notes with respect to the assets securing such indebtedness.
In such a case, if the Company's debt under the Credit Facility were to be
accelerated, subject to FCC approval if required, the holders of such secured
indebtedness would be entitled to payment in full out of the assets securing
such indebtedness prior to payment to holders of the New Notes. If the lenders
party to, or the holders of, any such secured indebtedness were to foreclose on
the collateral securing the Company's obligations to them, there can be no
assurance that there would be sufficient assets remaining after payment of all
such secured indebtedness to satisfy the claims of holders of the New Notes in
full. The Company currently has no indebtedness that is expressly subordinated
in right and priority of payment to the New Notes.
Under certain circumstances, the Company will be able to designate future
Subsidiaries that it creates or acquires as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to the restrictive covenants set
forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be issued in an aggregate principal amount of $105
million. The New Notes will mature on August 1, 2007. Interest on the New Notes
will accrue at the rate of 14% per annum and will be payable semi-annually in
arrears on February 1 and August 1 of each year, commencing on February 1, 1998,
to Holders of record on the immediately preceding January 15 and July 15.
Interest on the New Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from August 6, 1997
(the "Issue Date"). Interest on the New Notes will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Principal of, premium (if any), interest and Liquidated Damages (if any) on,
the New Notes will be payable at the office or agency of the Company maintained
for such purpose within the City and the State of New York or, at the option of
the Company, payment of interest and Liquidated Damages (if any) may be made by
check mailed to the Holders of the New Notes at their respective addresses set
forth in the register of Holders of the New Notes; provided that if the Holder
of any New Notes has given wire transfer instructions to the Company, the
Company will be required to make all payments with respect to such New Notes by
wire transfer of immediately available funds to the account specified by such
Holder. Until otherwise designated by the Company, the Company's office or
agency will be the office of the Trustee
70
<PAGE>
maintained for such purpose. The New Notes will be issued in registered form,
without coupons, in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The New Notes will not be redeemable prior to August 1, 2002. Thereafter,
the New Notes will be subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest and Liquidated Damages (if any) thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on August 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- -------------------------------------------------------------------------------- ----------------
<S> <C>
2002............................................................................ 107.000%
2003............................................................................ 104.667%
2004............................................................................ 102.333%
2005 and thereafter............................................................. 100.000%
</TABLE>
Notwithstanding the foregoing, prior to August 1, 2000, the Company may
redeem outstanding New Notes with the net proceeds of one or more sales of
Capital Stock (other than Disqualified Stock) of the Company or Holdings
(provided that, in the case of Holdings, proceeds from the sale of such Capital
Stock shall have been contributed to the capital of the Company other than as
Disqualified Stock or Indebtedness) to one or more Persons at a redemption price
equal to 114% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages (if any) thereon to the redemption date; provided,
however, that: (i) not less than $68.3 million aggregate principal amount of New
Notes remain outstanding immediately after any such redemption; and (ii) such
redemption shall occur within 30 days after the date of closing of such sale of
Capital Stock.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemption or sinking
fund payments with respect to the New Notes. However, as described below, the
Company may be obligated, under certain circumstances, to make an offer to
purchase: (i) all outstanding New Notes at a redemption price of 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages (if any) thereon to the date of purchase, upon a Change of Control; and
(ii) outstanding New Notes with a portion of the Net Proceeds of Asset Sales at
a redemption price of 100% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages (if any) thereon to the date of purchase.
See "-- Repurchase at the Option of Holders--Change of Control" and
"--Limitation on Sales of Assets and Subsidiary Interests."
SECURITY
In accordance with the terms of the Indenture, the Company has purchased and
pledged the Pledged Securities to the Trustee as Collateral Agent ("Collateral
Agent") pursuant to a Pledge Agreement ("Pledge Agreement") for the benefit of
the Holders of the Notes in such amount as will be sufficient upon receipt of
scheduled interest and principal payments of such securities, in the opinion of
a nationally recognized firm of independent certified public accountants
selected by the Company, to provide for payment in full of the first six
scheduled interest payments due on the Notes. The Company used $39.9 million of
the net proceeds of the Unit Offering to acquire the Pledged Securities. The
Pledged Securities were pledged by the Company to the Collateral Agent for the
benefit of the Holders of Notes pursuant to the Pledge Agreement and will be
held by the Collateral Agent in the Pledge Account. Pursuant to the Pledge
Agreement, immediately prior to an interest payment date on the Notes, the
Company may either deposit with the Collateral Agent from funds otherwise
available to the Company cash sufficient to pay the
71
<PAGE>
interest scheduled to be paid on such date or the Company may direct the
Collateral Agent to release from the Pledge Account proceeds sufficient to pay
interest then due. In the event that the Company exercises the former option,
the Company may thereafter direct the Collateral Agent to release to the Company
from the Pledge Account proceeds or Pledged Securities in like amount.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent certified public accountants selected by the Company, to
provide for payment in full of the first six scheduled interest payments due on
the Notes (or, in the event an interest payment or payments have been made, an
amount sufficient to provide for payment in full of any interest payments
remaining, up to and including the sixth scheduled interest payment) the
Collateral Agent will be permitted to release to the Company at the Company's
request any such excess amount. The New Notes are secured by a first priority
security interest in the Pledged Securities and in the Pledge Account and,
accordingly, the Pledged Securities and the Pledge Account also secure repayment
of the principal amount of the New Notes to the extent of such security.
Under the terms of the Pledge Agreement, assuming that the Company makes the
first six scheduled interest payments on the Notes in a timely manner, all of
the Pledged Securities will be released from the Pledge Account.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of New Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's New Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages (if any) thereon to the date of purchase
(the "Change of Control Payment"). Within 20 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase New Notes pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the New Notes as a result of a Change of Control.
On the Change of Control Payment date, the Company will, to the extent
lawful:
(i) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(ii) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all New Notes or portions thereof so tendered;
and
(iii) deliver or cause to be delivered to the Trustee the New Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of New Notes or portions thereof being purchased by the
Company.
The Paying Agent will promptly mail to each Holder of New Notes so tendered
the Change of Control Payment for such New Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new New Note equal in principal amount to any unpurchased portion of the New
Note surrendered, if any; provided that each such new New Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
72
<PAGE>
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the time and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
Subject to the limitations discussed below, the Company could in the future
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Due to the highly leveraged structure of the Company, the Company may not have
sufficient funds to be able to repurchase all of the New Notes tendered in a
Change of Control Offer. The failure of the Company to purchase any New Notes
tendered in a Change of Control Offer will constitute an Event of Default under
the Indenture. See "--Events of Default and Remedies."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of New Notes to require the Company to repurchase such New Notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of the Company to another Person may be uncertain.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY INTERESTS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in an Asset Sale unless:
(i) the Company or such Restricted Subsidiary, as the case may be,
engaging in such Asset Sale receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value of the assets sold or otherwise
disposed of; and
(ii) at least 80% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash or Cash Equivalents;
provided, however, that any notes or similar obligations received by any of
the Company or such Restricted Subsidiaries from such transferees that are
immediately converted by the Company or such Restricted Subsidiaries into
cash, shall be deemed to be cash (to the extent of the net cash received)
for purposes of this clause (ii).
Within 180 days after the receipt of any Net Proceeds, the Company may apply
such Net Proceeds to: (i) repay, and thereby permanently reduce the commitments
or amounts available to be reborrowed under, the Bank Credit Facility pursuant
to clause (vi) of the covenant entitled "Incurrence of Indebtedness or Issuance
of Disqualified Stock;" or (ii) an investment in Related Assets or a Related
Business. Pending the final application of any such Net Proceeds, the Company
may temporarily invest such Net Proceeds in any manner that is not prohibited by
the Indenture. Any Net Proceeds that are not applied or invested as provided in
the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate cumulative amount of Excess Proceeds exceeds $5
million, the Company will be required to make an offer to all Holders of New
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of New
Notes that may be purchased out of the Excess Proceeds (and not solely the
amount in excess of $5 million), at an offer price in cash in an amount equal to
100% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages (if any) thereon to the date of purchase, in accordance with
the procedures set forth in the Indenture. To the extent that the aggregate
amount of New Notes tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes in any manner provided by the Indenture. If the aggregate
amount of New Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee will select the New Notes to be purchased on a pro rata
basis. Upon completion of
73
<PAGE>
such offer to purchase, on a pro rata basis the amount of Excess Proceeds will
be reset at zero. The Asset Sale Offer shall remain open for a period of 20
business days or such longer period as may be required by law.
The foregoing provisions will not apply to the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company,
which will be governed by the provisions of the Indenture described below in
"--Merger, Consolidation or Sale of Assets."
SELECTION AND NOTICE OF NEW NOTES FOR REDEMPTION OR REPURCHASE
If less than all of the New Notes are to be redeemed or repurchased pursuant
to any purchase offer required under the Indenture at any time, selection of New
Notes for redemption or repurchase will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the New Notes are listed or, if the New Notes are not so listed, on a pro
rata basis; provided that no New Note with a principal amount of $1,000 or less
shall be redeemed or repurchased in part.
Notices of redemption or repurchase shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption or repurchase date to
each Holder of New Notes to be redeemed or repurchased at its registered
address. If any New Note is to be redeemed or repurchased in part only, the
notice that relates to such New Note shall state the portion of the principal
amount thereof to be redeemed or repurchased. A new New Note in principal amount
equal to the unredeemed or unrepurchased portion will be issued in the name of
the Holder thereof upon cancellation of the original New Note. On and after the
redemption or repurchase date (unless the Company shall default in the payment
of the redemption price, together with accrued and unpaid interest and
Liquidated Damages (if any) to the redemption date), interest will cease to
accrue on the New Notes or portions thereof called for redemption or repurchase.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of
Equity Interests (including, without limitation, any payment in connection
with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries), other than dividends or distributions payable (a)
in Equity Interests (other than Disqualified Stock) of the Company or (b) to
the Company or to any Restricted Subsidiary of the Company;
(ii) purchase, redeem, defease, retire or otherwise acquire or return
for value any Equity Interests of the Company or any Affiliate of the
Company, other than any such Equity Interests owned by the Company or any
Wholly Owned Restricted Subsidiary of the Company;
(iii) make any principal payment on (including at maturity) or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness
that is subordinated (whether pursuant to its terms, by operation of law,
structurally or otherwise) to the New Notes; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
74
<PAGE>
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the immediately preceding fiscal quarter, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Indebtedness to Cash Flow Ratio test set forth in the first paragraph of the
covenant entitled "Incurrence of Indebtedness or Issuance of Disqualified
Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Issue Date (excluding Restricted Payments permitted by clause
(iii) of the next succeeding paragraph), is less than the sum of:
(1) (without duplication) 50% of the Consolidated Net Income of the
Company (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the Issue Date to the end of the
Company's most recently ended fiscal quarter for which financial
statements are available at the time of such Restricted Payment (or, if
such aggregate Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus
(2) 100% of the aggregate net cash proceeds received by the Company
from the issue or sale since the Issue Date of Equity Interests of the
Company or Holdings or of debt securities of the Company or Holdings that
have been converted into such Equity Interests (other than (A) Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Company and (B) Disqualified Stock or debt securities that have been
converted into Disqualified Stock; and provided that, in the case of
Holdings, proceeds from the sale of Equity Interests shall have been
contributed to the capital of the Company other than as Disqualified
Stock or Indebtedness), plus
(3) to the extent that any Restricted Investment that was made after
the Issue Date is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition and taxes, if any)
and (B) the initial amount of such Restricted Investment.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such proceeds that are
utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (2) of the preceding paragraph;
(iii) the repayment, defeasance, redemption or repurchase of
Intercompany Indebtedness (as defined in clause (iv) of the covenant
entitled "Incurrence of Indebtedness or Issuance of Disqualified Stock") or
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than to
a Subsidiary of the Company) of Equity Interests of the Company or Holdings
(other than Disqualified Stock ); provided that the amount of any such net
cash proceeds that are utilized for any such repayment, defeasance,
redemption or repurchase shall be excluded from clause (2) of the preceding
paragraph;
(iv) payments by the Company to Holdings pursuant to the terms of the
Tax Sharing Agreement; and
(v) the purchase of employee stock or incentive options, or capital
stock issued pursuant to the exercise of employee stock or incentive
options, in an aggregate amount not to exceed $500,000 in any calendar year
and in an aggregate amount not to exceed $2.0 million since the date of the
Indenture;
75
<PAGE>
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii) and (v), no Default or
Event of Default shall have occurred and be continuing.
The Company may designate any of its Restricted Subsidiaries to be an
Unrestricted Subsidiary if such designation would not cause a Default and, at
the time of and after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness under the applicable provisions of the first
paragraph of the covenant entitled "Incurrence of Indebtedness or Issuance of
Disqualified Stock;" provided that (i) in no event shall all or any portion of
the material assets or properties (other than cash) owned by the Company on the
Issue Date be transferred to or held by an Unrestricted Subsidiary of the
Company and (ii) notwithstanding the foregoing, the Company may designate any
Restricted Subsidiary which receives the proceeds of an Investment made pursuant
to clause (v) of the definition of Permitted Investments as an Unrestricted
Subsidiary if (1) such designation would not cause a Default and (2) prior to
the date on which such Investment is made, the Company shall not have
transferred to such Subsidiary all or any portion of its material assets as of
the Issue Date. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of:
(i) the net book value of such Investments at the time of such
designation;
(ii) the Fair Market Value of such Investments at the time of such
designation; and
(iii) the original Fair Market Value of such Investments at the time
they were made.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments, if not made in cash, shall be the
Fair Market Value on the date of the Restricted Payment of the asset(s) proposed
to be transferred by the Company or such Restricted Subsidiary, as the case may
be, pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this covenant were computed,
which calculations may be based upon the latest available financial statements
of the Company.
INCURRENCE OF INDEBTEDNESS OR ISSUANCE OF DISQUALIFIED STOCK
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable, contingently
or otherwise, with respect to (collectively, "incur") any Indebtedness
(including, without limitation, Acquired Debt) and that the Company and its
Restricted Subsidiaries will not issue any Disqualified Stock and will not
permit any of their respective Subsidiaries (other than their Unrestricted
Subsidiaries) to issue any shares of preferred Equity Interests; provided,
however, that the Company may incur Indebtedness (including, without limitation,
Acquired Debt) or issue Disqualified Stock if, after giving pro forma effect to
the incurrence of such Indebtedness or the issuance of such Disqualified Stock
and the use of proceeds thereof, the aggregate Indebtedness to Cash Flow Ratio
of the Company does not exceed 5.0 to 1.
The foregoing limitations will not apply to:
(i) Indebtedness represented by the New Notes and the Indenture and any
guarantees of the New Notes issued by any Subsidiary under the terms of the
Indenture;
(ii) Existing Indebtedness;
76
<PAGE>
(iii) Indebtedness incurred by the Company under (A) Hedging
Obligations, provided that (1) the notional principal amount of any interest
rate protection agreement does not significantly exceed the principal amount
of the Indebtedness to which such interest rate protection agreement relates
and (2) any agreements related to fluctuations in currency rates do not
increase the outstanding Indebtedness other than as result of fluctuations
in foreign currency exchange rates, and (B) performance, surety and workers'
compensation bonds or other obligations of a like nature incurred in the
ordinary course of business consistent with past practice;
(iv) Indebtedness of the Company owed to and held by any of its Wholly
Owned Restricted Subsidiaries and Indebtedness of any Wholly Owned
Restricted Subsidiary of the Company owed to and held by the Company or any
of its Wholly Owned Restricted Subsidiaries (the Indebtedness incurred
pursuant to this clause (iv) being hereafter referred to as "Intercompany
Indebtedness"); provided that an incurrence of Indebtedness shall be deemed
to have occurred upon (i) any sale or other disposition of Intercompany
Indebtedness to a Person other than the Company or any of its Restricted
Subsidiaries, (ii) any sale or other disposition of Equity Interests of any
Restricted Subsidiary of the Company which holds Intercompany Indebtedness
such that such Restricted Subsidiary ceases to be a Restricted Subsidiary
after such sale or other disposition or (iii) designation of a Restricted
Subsidiary as an Unrestricted Subsidiary;
(v) Non-Recourse Debt by the Company incurred to finance purchase money
obligations;
(vi) Indebtedness incurred by the Company under a Bank Credit Facility,
provided that the aggregate principal amount at any time outstanding under
this clause (vi) does not exceed $30.0 million less the amount of any such
Indebtedness retired with the Net Cash Proceeds from any Asset Sale (or less
the permanent reduction of any commitments under the Bank Credit Facility),
and less the aggregate principal amount of Indebtedness under this clause
(vi) which is refinanced under clause (vii) below;
(vii) Indebtedness incurred by the Company ("Permitted Refinancing
Indebtedness") incurred to refinance, replace or refund Indebtedness
("Refinanced Indebtedness") incurred pursuant to the Indebtedness to Cash
Flow Ratio test set forth in the first paragraph of this covenant or
pursuant to clauses (i), (ii) or (vi) of this covenant; provided that:
(a) the aggregate principal amount of such Permitted Refinancing
Indebtedness does not exceed the aggregate principal amount of the
Refinanced Indebtedness (including accrued and unpaid interest thereon)
plus the amount of fees and reasonable expenses incurred in connection
therewith;
(b) such Permitted Refinancing Indebtedness shall have a final
maturity equal to or later than, and a Weighted Average Life to Maturity
equal to or greater than, the final maturity and Weighted Average Life to
Maturity of the Refinanced Indebtedness, respectively; and
(c) such Permitted Refinancing Indebtedness shall rank no higher
relative to the New Notes than the Refinanced Indebtedness and in no
event may any Indebtedness of the Company be refinanced with Indebtedness
of any Restricted Subsidiary under this clause (vii);
(viii)Indebtedness incurred by the Company in respect of Capital Lease
Obligations in an aggregate principal amount for all such Persons not to
exceed $10.0 million at any one time outstanding; and
(ix) other Indebtedness of the Company in an aggregate principal amount
not to exceed $5.0 million at any one time outstanding.
77
<PAGE>
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom, or assign or convey any right to receive income
therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the Company or any
of its Restricted Subsidiaries on its Capital Stock or with respect to any
other interest or participation in, or measured by, its profits;
(ii) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries;
(iii) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(iv) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of:
(a) the Indenture, the Pledge Agreement and the New Notes;
(b) Existing Indebtedness;
(c) applicable law;
(d) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired;
(e) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practice;
(f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (iv) above on the property so acquired;
(g) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in
the agreements governing the Refinanced Indebtedness; or
(h) in the case of clauses (a), (b), (d), (e), (f) and (g) above, any
amendments, modifications, restatements, renewals, increases,
supplements, modifications, restatements or refinancings thereof,
provided that such amendments, modifications, restatements or
refinancings are not materially more restrictive with respect to such
dividend and other payment restrictions than those contained in such
instruments as in effect on the date of their incurrence.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company may not, and may not permit any Restricted Subsidiary to, issue,
transfer, convey, sell or otherwise dispose of any shares of Capital Stock of a
Restricted Subsidiary or securities convertible or exchangeable into, or
options, warrants, rights or any other interest with respect to, Capital Stock
of a Restricted Subsidiary to any person other than the Company or a
Wholly-Owned Restricted Subsidiary except (i) in a transaction consisting of a
sale of all the Capital Stock of such Restricted Subsidiary and that complies
with the provisions described under"--Limitation on Sales of Assets and
Subsidiary Interests" above to the extent such provisions apply; (ii) if
required, the issuance, transfer, conveyance, sale or other
78
<PAGE>
disposition of directors' qualifying shares; and (iii) in a transaction in
which, or in connection with which, the Company or a Restricted Subsidiary
acquires at the same time sufficient Capital Stock of such Restricted Subsidiary
to at least maintain the same percentage ownership interest it had prior to such
transaction (and provided that the terms of such Capital Stock, and under which
such Capital Stock is held, are not more disadvantageous to the Company).
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving Person), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another Person
unless:
(i) the Company is the surviving Person or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized and existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the New Notes, the Pledge
Agreement and the Indenture pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee;
(iii) immediately after such transaction, no Default or Event of Default
exists; and
(iv) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (a) will have Consolidated Net Worth immediately after the transaction
but prior to any purchase accounting adjustments resulting from the
transaction equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction; and (b) will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the immediately preceding
fiscal quarter, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Indebtedness to Cash Flow Ratio test set forth
in the first paragraph of the covenant entitled "Incurrence of Indebtedness
or Issuance of Disqualified Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or directly, sell, lease, license,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable arms' length transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(ii) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $2.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and such Affiliate
Transaction is approved by a majority of the disinterested members of the
Board of Directors; and
(b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $5.0 million (other than the execution of a
Bank Credit Facility if Toronto Dominion Capital (U.S.A.), Inc., or an
Affiliate thereof, is a lender thereunder), an opinion as to the fairness
of such Affiliate Transaction to the Company or Restricted Subsidiary
involved in such Affiliate
79
<PAGE>
Transaction from a financial point of view issued by an Independent
Financial Advisor or, with respect to communications-related matters, a
recognized expert in the communications industry;
provided that the following shall be deemed not to be Affiliate Transactions:
(1) any reasonable employment agreement or stock option agreement
entered into by the Company or any of its Restricted Subsidiaries with any
of their respective employees in the ordinary course of business;
(2) transactions between or among the Company and its Wholly Owned
Restricted Subsidiaries;
(3) Restricted Payments permitted by clauses (i) and (ii) of the second
paragraph of the covenant entitled "Restricted Payments" and Permitted
Investments of a type referred to in clauses (i) and (iii) of the definition
of Permitted Investments;
(4) the payment of reasonable fees to directors of the Company or any of
its Restricted Subsidiaries; and
(5) Affiliate Transactions pursuant to agreements in effect on the date
of the Indenture and described in this Prospectus and renewals and
extensions of such agreements on terms no less favorable to the Holders than
the terms of such original agreements and transactions.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES AND HOLDINGS
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the New Notes by such Restricted
Subsidiary and (ii) such Restricted Subsidiary waives, and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; PROVIDED that this paragraph shall
not be applicable to any Guarantee of any Restricted Subsidiary that existed at
the time such Person became a Restricted Subsidiary and was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) PARI PASSU with the New Notes,
then the Guarantee of such Guaranteed Indebtedness shall be PARI PASSU with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the New Notes,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the New Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
that resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Holdings will not, directly or indirectly, Guarantee any Indebtedness of the
Company unless (i) Holdings simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Guarantee of payment of the New Notes
by Holdings and (ii) Holdings waives and will not in any manner whatsoever claim
to take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any Restricted Subsidiary
as a result of any payment by Holdings under its Guarantee. If the Guaranteed
Indebtedness is (A) PARI PASSU with the New Notes, then the Guarantee of such
Guaranteed Indebtedness shall be PARI PASSU with, or subordinated to, the
Holdings Guarantee or (B) subordinated to the New Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Holdings Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the New
Notes.
80
<PAGE>
BUSINESS ACTIVITIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in any business other than that which is
related to the design, development, procurement, installation, operation or
marketing of location, fleet management or related two-way messaging systems and
businesses and reasonably related extensions thereof.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of New Notes:
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations
of the Company and its Restricted Subsidiaries and, with respect to the
annual information only, a report thereon by the Company's independent
certified public accountants; and
(ii) all information that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, together with the information provided in clauses (i) and (ii)
above, the Company will provide supplemental financial information to the extent
permitted by the Commission in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section of such reports or other
section of such reports as appropriate consisting of revenue, expense, earnings
before interest and taxes, net income, capital expenditures, cash, debt,
depreciation and amortization and units in service data for the Company. In the
event the Commission does not permit such supplemental financial information to
be included in such reports, then the Company will supply such information
supplementally to the registered Holders, unless providing such information
supplementally would, in the reasonable judgment of counsel to the Company,
violate applicable law.
In addition, whether or not required by the rules and regulations of the
Commission, but only if then permitted by the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability and make such information available to securities analysts,
investors and prospective investors upon request. The Company will furnish to
the Holders or beneficial holders of New Notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d) (4) under the Securities Act until such time
as the Company either exchanges all of the New Notes for the Exchange New Notes
or has registered all of the New Notes for resale under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) default for 30 days in the payment when due of interest on, or
Liquidated Damages (if any) with respect to, any of the New Notes;
(ii) default in payment when due (whether at maturity, upon redemption
or repurchase, or otherwise) of the principal of or premium (if any) on any
of the New Notes;
(iii) failure to comply with the provisions described under the captions
"--Repurchase at the Option of Holders--Change of Control," "--Repurchase at
the Option of Holders--Limitations on Sales of Assets and Subsidiary
Interests" or "--Certain Covenants--Merger, Consolidation or Sale of
Assets;"
(iv) failure by the Company or any of its Restricted Subsidiaries for 30
days after notice to comply with any of their other covenants in the
Indenture or the New Notes other than those referred to in clauses (i), (ii)
and (iii) above;
81
<PAGE>
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default:
(a) is caused by a failure to pay principal of, or premium, if any,
or interest on, such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness (a "Payment Default"); or
(b) results in the acceleration (which acceleration has not been
rescinded) of such Indebtedness prior to its express maturity, and, in
each case described in clauses (a) and (b) of this clause (v), the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated,
aggregates $3.5 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments (other than any judgments as to which a reputable insurance
company has accepted full liability and whose bond, premium or similar
charge therefor is not in excess of $3.5 million) aggregating in excess of
$3.5 million, which judgments are not paid, discharged or stayed within 60
days after their entry;
(vii) breach by the Company of any representation or warranty set forth
in the Pledge Agreement, or default by the Company in the performance of any
covenant set forth in the Pledge Agreement, or repudiation by the Company of
any of its obligations under the Pledge Agreement or the unenforceability of
the Pledge Agreement against the Company for any reason which in any one
case or in the aggregate results in a material impairment of the rights
intended to be afforded thereby;
(viii)termination or loss, for any reason, of any material FCC license
or permit necessary for the operation of the Company's business in the
manner and in accordance with the plan of operations described in this
Prospectus (unless (i) the Company or any of its Subsidiaries is contesting
in good faith the loss of such license or permit at the FCC and has not
exhausted its remedies at the FCC; and (ii) the Company (together with any
Subsidiary) continues to have the right to use such license or permit if
previously obtained); and
(ix) certain events of bankruptcy or insolvency with respect to the
Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing with respect to the New
Notes, the Trustee or the Holders of at least 25% of the aggregate principal
amount of the then outstanding New Notes may declare all the New Notes to be due
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency with respect
to the Company, any Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding New Notes will become due and payable without further action or
notice. Holders of the New Notes may not enforce the Indenture or the New Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding New Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the New Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal,
premium, interest or Liquidated Damages, if any) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the New Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable upon the acceleration of the New
Notes. If an Event of Default occurs prior to August 1, 2002 by reason of any
such willful action (or inaction), by or on behalf of the Company with the
intention of avoiding the prohibition on redemption of the New Notes prior to
August 1, 2002, then the
82
<PAGE>
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the New Notes.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture, except a continuing Default or Event of
Default in the payment of principal, premium, interest or Liquidated Damages, if
any, on the New Notes.
The Company is required to deliver to the Trustee quarterly a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the New Notes, the Indenture or the Pledge
Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of New Notes, by accepting a New
Note, waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the New Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes ("Legal
Defeasance") except for:
(i) the rights of Holders of outstanding New Notes to receive payments
in respect of the principal of, premium (if any), interest and Liquidated
Damages (if any) on, such New Notes when such payments are due from the
trust referred to below;
(ii) the Company's obligations with respect to the New Notes concerning
issuing temporary New Notes, registration of New Notes, mutilated,
destroyed, lost or stolen New Notes and the maintenance of an office or
agency for payment and money for security payments held in trust;
(iii) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
(iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the New Notes. In the event Covenant Defeasance
occurs, certain events (other than non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "--Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the New
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the New Notes:
(i) the Company must irrevocably deposit with the Trustee, in trust for
the benefit of the Holders of the New Notes, cash in U.S. dollars,
non-callable Government Securities or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent certified public accountants, to pay the principal of, premium
(if any), interest and Liquidated Damages (if any) on, the outstanding New
Notes on the stated maturity or on the applicable redemption date, as the
case may be, and the Company must specify whether the New Notes are being
defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that:
83
<PAGE>
(A) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling, or
(B) since the date of the Indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect, and based thereon such opinion of counsel shall
confirm, that the Holders of the outstanding New Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding New Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had
not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day (or such other applicable
date) following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of New Notes over the other creditors of
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(viii)the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Notes selected for redemption. Also, the Company is not required to
transfer or exchange any New Notes for a period of 15 days before a selection of
New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of such New
Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture, the New
Notes and the Pledge Agreement may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the New Notes then
outstanding (including consents obtained in connection with a purchase of, or
tender offer or exchange offer for, New Notes), and any existing default or
compliance with
84
<PAGE>
any provision of the Indenture, the New Notes or the Pledge Agreement may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding New Notes (including consents obtained in connection with a
tender offer or exchange offer for New Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Note held by a non-consenting Holder):
(i) reduce the principal amount of New Notes whose Holders must consent
to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any New
Note or alter the provisions with respect to the redemption of the New Notes
(other than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders") or reduce the prices at
which the Company shall offer to purchase such New Notes pursuant to the
covenants described above under the caption "--Repurchase at the Option of
Holders";
(iii) reduce the rate of or change the time for payment of interest on
any New Note;
(v) make any New Note payable in money other than that stated in the New
Notes;
(vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of New Notes to receive
payments of principal of, premium (if any), interest or Liquidated Damages
(if any) on, the New Notes;
(vii) waive a redemption payment with respect to any New Note; or
(viii)make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company and the Trustee may amend or supplement the Indenture, the
New Notes or the Pledge Agreement to cure any ambiguity, defect or
inconsistency, to provide for uncertificated New Notes in addition to or in
place of certificated New Notes, to provide for the assumption of the Company's
obligations to Holders of New Notes in the case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
Holders of New Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if the Trustee acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
85
<PAGE>
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person:
(i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of such
specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or
into or becoming a Restricted Subsidiary of such specified Person; and
(ii) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities (or the equivalent)
of a Person shall be deemed to be control.
"ASSET SALE" means:
(i) the sale, lease, conveyance or other disposition (collectively,
"dispositions") of any assets (including, without limitation, by way of a
sale and leaseback) in one or a series of related transactions; and
(ii) the issuance by any of the Company's Restricted Subsidiaries of
Equity Interests or the disposition by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of their Subsidiaries;
in the case of either clause (i) or (ii) above, whether in a single transaction
or a series of related transactions: (a) that have a Fair Market Value in excess
of $5.0 million; or (b) for net proceeds in excess of $5.0 million.
Notwithstanding the foregoing: (i) the sale of inventory in the ordinary course
of business; (ii) a disposition of assets by the Company to a Wholly Owned
Restricted Subsidiary of the Company or by a Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company; (iii) an issuance of Equity Interests by a Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company; (iv) a Restricted Payment that is permitted by the covenant entitled
"Restricted Payments"; and (v) the sale of assets that have become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company will be deemed not to be Asset Sales. A disposition of
all or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the covenants described above
under the captions "--Repurchase at the Option of Holders--Change of Control"
and/or "-- Certain Covenants--Merger, Consolidation or Sale of Assets" and not
by the provisions of the covenant described under the caption "--Repurchase at
the Option of Holders--Limitation on Sales of Assets and Subsidiary Interests."
"BANK CREDIT FACILITY" means one or more credit facilities (whether a term
or a revolving facility) of the type customarily entered into with commercial
banks, between the Company, on the one hand, and any commercial banks, financial
institutions or other lenders, on the other hand, which Bank Credit Facilities
are by their terms designated as a "Bank Credit Facility" for purposes of the
Indenture.
86
<PAGE>
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(iii) in the case of a partnership, partnership interests (whether
general or limited); and
(iv) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH CONSIDERATION" means any consideration received from an Asset Sale in
the form of cash or Cash Equivalents, in either case in U.S. dollars or freely
convertible into U.S. dollars.
"CASH EQUIVALENTS" means:
(i) United States dollars;
(ii) Government Securities;
(iii) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Eligible Institution;
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any Eligible Institution;
(v) commercial paper having the highest rating obtainable from Moody's
or S&P and in each case maturing within six months after the date of
acquisition; and
(vi) shares of any mutual funds or other pooled investment vehicles, in
each case having assets in excess of $500 million, investing solely in
investment of the types described in (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition, in one
transaction or a series of related transactions, directly or indirectly,
including through a liquidation or dissolution, of all or substantially all
of the assets of the Company and its Restricted Subsidiaries to any Person
or group (as such term is used in Section 13(d) of the Exchange Act);
(ii) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(iii) any Person or group (as defined above), other than any of the
Existing Stockholders or their respective Affiliates, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of the Voting Equity
Interests of the Company, including by way of merger, consolidation or
otherwise; or
(iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"COLLATERAL AGENT" means the collateral agent under the Pledge Agreement.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period, plus, to the extent
deducted or otherwise excluded in computing such Consolidated Net Income:
87
<PAGE>
(i) an amount equal to any extraordinary loss plus any net loss realized
in connection with a sale of assets;
(ii) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period;
(iii) Consolidated Interest Expense less consolidated interest income of
such Person and its Restricted Subsidiaries for such period; and
(iv) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash charges (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve
for cash charges in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period; in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Restricted Subsidiary shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to
the extent (and in the same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted
at the date of determination to be distributed by dividend to such Person by
such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Restricted Subsidiary or its stockholders.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, noncash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financing, and net payments (if any) pursuant
to Hedging Obligations).
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(i) the Net Income of any Person that is accounted for by the equity
method of accounting shall be included, but only to the extent of the amount
of dividends or distributions actually paid in cash to the referent Person
or a Wholly Owned Restricted Subsidiary thereof;
(ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such Net Income is not at the
date of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary or its stockholders;
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(iv) the cumulative effect of a change in accounting principles shall be
excluded; and
(v) the Net Income of any Unrestricted Subsidiary shall be included only
to the extent of the amount of dividends or distributions actually paid in
cash to the referent Person or a Restricted Subsidiary thereof.
88
<PAGE>
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date:
(i) the consolidated equity of the equity holders of such Person and its
consolidated Restricted Subsidiaries as of such date; plus
(ii) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred Equity Interests (other
than Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to
the extent of any cash received by such Person upon issuance of such
preferred stock; minus
(iii) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going-concern business
made within 12 months after the acquisition of such business) subsequent to
the date of the Indenture in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person; minus
(iv) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Restricted Subsidiaries; minus
(v) all unamortized debt discount and expense and unamortized deferred
charges as of such date.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
that, by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or upon the happening of any event: (i)
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise; or (ii) is redeemable or is convertible or exchangeable for
Indebtedness at the option of the Holder thereof, in whole or in part, on or
prior to the date on which the New Notes mature.
"ELIGIBLE INSTITUTION" means a domestic commercial banking institution that
has combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A" or higher according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of the Company in existence on
the Issue Date, until such amounts are repaid.
"EXISTING STOCKHOLDERS" means any stockholder of the Company who or which
beneficially owned more than 5.0% of the Class A Common Stock as of the date of
the Indenture.
"FAIR MARKET VALUE" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arms'-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided that the Fair Market Value of
any such asset or assets shall be determined by the Board of Directors of the
Company, acting in good faith, and which determination shall be evidenced by an
Officers' Certificate delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements
89
<PAGE>
by such other entity as have been approved by a significant segment of the
accounting profession and which are in effect on the Issue Date.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" OR "GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under: (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements; (ii) foreign currency hedge
obligations; and (iii) other agreements or arrangements designed to protect such
Person against fluctuations in interest and foreign currency rates.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable to the
extent that any such accrued expense or trade payable is not more than 90 days
overdue or is otherwise being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is assumed by such
Person and, in the event such indebtedness is not assumed by, and is otherwise
non-recourse to, such Person, the amount of such indebtedness shall be deemed to
equal the greater of book value or Fair Market Value of such asset) and, to the
extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person.
"INDEBTEDNESS TO CASH FLOW RATIO" means, with respect to any Person as of
any date of determination, the ratio of:
(i) total Indebtedness of such Person and its Restricted Subsidiaries as
of such date to;
(ii) four times Consolidated Cash Flow of such Person and its Restricted
Subsidiaries for the most recently ended fiscal quarter for which financial
statements of such Person are available (the "Measurement Period");
provided, however, that: (a) in making such computation, the total Indebtedness
of such Person and its Restricted Subsidiaries shall include the total amount of
funds outstanding and available under any credit facilities; and (b) in the
event such Person or any of its Restricted Subsidiaries consummates a material
acquisition or sale of assets subsequent to the commencement of the Measurement
Period, then the Indebtedness to Cash Flow Ratio shall be calculated giving pro
forma effect to such material acquisition or sale of assets as if the same had
occurred at the beginning of the Measurement Period.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the good faith
judgment of the Board of Directors of the Company (evidenced by a unanimous
resolution of the Board of Directors of the Company as set forth in an Officers'
Certificate delivered to the Trustee), qualified to perform the task for which
it has been engaged and is disinterested and independent with respect to the
Company and its Affiliates.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans, Guarantees, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course
90
<PAGE>
of business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"JOINT VENTURE" means a Person in a Related Business in which the Company
holds 50% or less of the Voting Equity Interests.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"MOODY'S" means Moody's Investors Service, Inc.
"NET INCOME" means, with respect to any Person, the net income (or loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however;
(i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with:
(a) any sale of assets (including, without limitation, dispositions
pursuant to sale and leaseback transactions); or
(b) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of its Subsidiaries; and
(ii) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on such extraordinary or nonrecurring
gain (but not loss).
"NET PROCEEDS" means the aggregate cash consideration received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale in
the form of cash or Cash Equivalents (including, without limitation, any cash
received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements and
provided that any such amount not so required to be paid for taxes shall be
deemed to constitute Net Proceeds at the time such amount is not retained for
such purpose), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets (including Equity Interests) that were
the subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or asset (including Equity Interests) established in
accordance with GAAP (provided that the amount of any such reserve shall be
deemed to constitute Net Proceeds at the time such reserve shall have been
released or is not otherwise required to be retained for such purpose).
"NON-RECOURSE DEBT" means Indebtedness:
(i) as to which neither the Company nor any of its Restricted
Subsidiaries:
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness);
(b) is directly or indirectly liable (as a guarantor or otherwise);
or
(c) constitutes the lender;
(ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time
91
<PAGE>
or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(iii) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate
signed by the Chief Executive Officer or President and the chief financial
and/or accounting officer of such Person.
"PERMITTED INVESTMENT" means:
(i) any Investment in the Company or in any Wholly Owned Restricted
Subsidiary of the Company;
(ii) any Investments in cash or Cash Equivalents;
(iii) Investments by the Company or any of its Restricted Subsidiaries in
a Person if, as a result of such Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Wholly Owned Restricted Subsidiary of
the Company;
(iv) any Investment made solely as a result of the receipt of non-Cash
Consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "Repurchase at the
Option of Holders--Limitation on Sales of Assets and Subsidiary Interests;"
and
(v) any Investment made by the Company or any of its Restricted
Subsidiaries in a Related Business; provided that at the time any such
Investment is made, such Investment will not cause the aggregate amount of
Investments at any one time outstanding under this clause (v) to exceed $6.0
million.
"PERMITTED LIENS" means:
(i) Liens securing the New Notes;
(ii) Liens in favor of the Company;
(iii) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any of its Restricted
Subsidiaries; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or such Restricted Subsidiary;
(iv) Liens on property existing at the time of acquisition thereof by
the Company or any of its Restricted Subsidiaries, provided that such Liens
were in existence prior to the contemplation of such acquisition;
(v) Liens to secure the performance of statutory obligations, surety,
appeal or performance bonds or other obligations of a like nature or
mechanics' or purchase money Liens incurred in the ordinary course of
business;
(vi) Liens existing on the Issue Date;
(vii) Liens on inventory or accounts receivable securing Indebtedness
incurred under clause (vi) of the covenant entitled "Incurrence of
Indebtedness or Issuance of Disqualified Stock," or
92
<PAGE>
securing Permitted Refinancing Indebtedness incurred pursuant to the
Indenture to refinance Indebtedness incurred under clause (vi) of the
covenant entitled "Incurrence of Indebtedness or Issuance of Disqualified
Stock;"
(viii) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(ix) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries; and
(x) Liens securing Indebtedness under the Bank Credit Facility incurred
in accordance with clause (vi) of the covenant entitled "Incurrence of
Indebtedness or Issuance of Disqualified Stock."
"PERSON" means any individual, corporation, limited liability company,
limited liability partnership, partnership (general or limited), joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PLEDGE ACCOUNT" means the account established with the Collateral Agent
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities.
"PLEDGE AGREEMENT" means the Pledge Agreement dated as of the date of the
Indenture by and between the Company and the Collateral Agent governing the
Pledge Account.
"PLEDGED SECURITIES" means the U.S. government securities purchased by the
Company with a portion of the net proceeds from the Unit Offering to be
deposited in the Pledge Account and pledged as security for the New Notes.
"RELATED ASSETS" means all assets used in connection with the design,
development, procurement, installation, operation or marketing of location or
related two-way messaging systems and any activities or assets ancillary
thereto.
"RELATED BUSINESS" means any business relating to the design, procurement,
installation and operation of location, fleet management or related two-way
messaging systems and business and reasonably related extensions thereof.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person that
is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture.
"SUBSIDIARY" means, with respect to any Person:
(i) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of such Person (or a combination thereof); and
(ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
93
<PAGE>
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement between the Company
and Holdings as in effect on the date of the Indenture.
"UNRESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person
that is designated by such Person as an Unrestricted Subsidiary pursuant to a
resolution of its Board of Directors, but only if and for so long as such
Subsidiary:
(i) has no Indebtedness other than Non-Recourse Debt;
(ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company;
(iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation:
(1) to subscribe for additional Equity Interests; or
(2) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results;
(iv) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and
(v) in the case of a corporate entity or limited liability company, has
at least one director on its board of directors and at least one executive
officer, in each case who is not a director or executive officer of the
Company or any of its Restricted Subsidiaries.
Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee within 45 days of such
designation a certified copy of the resolution of the Board of Directors giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant entitled "Incurrence
of Indebtedness or Issuance of Disqualified Stock," the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if:
(i) such Indebtedness is permitted under the covenant entitled
"Incurrence of Indebtedness or Issuance of Disqualified Stock;" and
(ii) no Default or Event of Default would be in existence following such
designation.
Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee within 45 days of such
designation a certified copy of the resolution of the Board of Directors giving
effect to such designation and an Officers' Certificate that such designation
complied with the conditions of the immediately preceding sentence.
"VOTING EQUITY INTERESTS" means the Equity Interests in a corporation or
other Person with voting power under ordinary circumstances entitling the
holders thereof to elect or appoint the board of directors, executive committee
or other governing body of such corporation or Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
94
<PAGE>
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(i) the sum of the products obtained by multiplying: (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(ii) the then outstanding principal of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and one or more other Wholly Owned Restricted
Subsidiaries of such Person.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were initially issued in the form of one or more global notes
(the "Global Note"). The Global Note was deposited on the date of the closing of
the sale of the Old Notes, or on behalf of, the Depositary and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Purchasers),
banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participant") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of New Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such New Notes.
Payments in respect of the principal of, premium, if any, and interest on
any New Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the Persons in
whose names the New Notes, including the Global Note, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, none of the Company or the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of New Notes (including principal, premium, if any, and
interest), although the Company understands that it is the Depositary's practice
to immediately credit the accounts of the relevant Participants with such
payment in accounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of the New Notes
will be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
An entire Global Security may be exchanged for definitive New Notes in
registered, certificated form ("Certificated Securities") if (i) DTC (x)
notifies the Issuers that it is unwilling or unable to continue as
95
<PAGE>
depositary for the Global Securities and the Issuers thereupon fail to appoint a
successor depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Issuers, at their option, notify the
Trustee in writing that they elect to cause the issuance of Certificated
Securities or (iii) there shall have occurred and be continuing to occur a
Default or an Event of Default with respect to the New Notes. In any such case,
the Issuers will notify the Trustee in writing that, upon surrender by the
Participant and Indirect Participants of their interest in such Global Security,
Certificated Securities will be issued to each person that such Participant and
Indirect Participants and DTC identify as being the beneficial owner of the
related New Notes. In addition, subject to certain conditions, any Person having
a beneficial interest in the Global Note may, upon request to the Trustee,
exchange such beneficial interest for New Notes in definitive form. Upon any
such issuance, the Trustee is required to register such New Notes in the name
of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof). Such New Notes would be issued in fully registered
form.
Neither the Issuers nor the Trustee will be liable for any delay by the
holder of the Global Securities or DTC in identifying the beneficial owners of
New Notes, and the Issuers and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Security or
DTC for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes (including
principal, premium, if any, and interest) be made in immediately available
funds. Secondary trading in long-term notes and debentures of corporate issuers
is generally settled in clearing-house or next-day funds. In contrast, the New
Notes are expected to be eligible to trade in the PORTAL Market and to trade in
the Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in the New Notes will therefore be required by the
Depositary to be settled in immediately available funds. No assurance can be
given as to the effect, if any, of such settlement arrangements on trading
activity in the New Notes.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the New Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar is not required to
transfer or exchange any New Note selected for redemption. Also, the Registrar
is not required to transfer or exchange any New Note for a period of 15 days
before a selection of the New Notes to be redeemed.
The registered holder of a New Note will be treated as the owner of it for
all purposes.
GOVERNING LAW
The Indenture and the New Notes are governed by and construed in accordance
with the laws of the State of New York.
THE TRUSTEE
The Trustee acts as trustee under the Indenture and may, from time to time,
act as depositary for funds of, make loans to, and perform other services for,
the Company in the ordinary course of business.
96
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences of the exchange of Old Notes for New Notes as of the date hereof.
The discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below. PERSONS CONSIDERING THE EXCHANGE OF OLD
NOTES FOR NEW NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an "exchange" for federal income tax purposes because
the New Notes should not be considered to differ materially in kind or extent
from the Old Notes. Rather, the New Notes received by a holder of Old Notes
should be treated as a continuation of the Old Notes in the hands of such
holder. As a result, there should be no federal income tax consequences to a
holder exchanging Old Notes for the New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. In
addition for a period of 90 days after the Expiration Date, all dealers
effecting transactions in the New Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may, receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such person may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The Company has no
arrangement or understanding with any broker or dealer to distribute the New
Notes received in the Exchange Offer.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal.
97
<PAGE>
LEGAL MATTERS
The validity of the Securities will be passed upon for the Company by
Reboul, MacMurray, Hewitt, Maynard & Kristol, New York, New York. Reboul,
MacMurray, Hewitt, Maynard & Kristol owns an aggregate 458 shares of Class A
Common Stock of Holdings, constituting less than 1% of the outstanding shares of
Class A Common Stock of Holdings.
INDEPENDENT AUDITORS
The consolidated balance sheets of AirTouch Teletrac General Partnership as
of December 28, 1995 and Teletrac, Inc. as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity (partners'
capital/deficiency) and cash flows for the years then ended included in this
Prospectus and elsewhere in this Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent auditors, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The consolidated balance sheet of AirTouch Teletrac General Partnership as
of December 31, 1994 and the related consolidated statements of operations,
partners' capital/deficiency and cash flows for the year then ended included in
this Prospectus and elsewhere in this Registration Statement have been audited
by Coopers & Lybrand LLP, independent auditors.
98
<PAGE>
GLOSSARY
ACQUISITION--the purchase of the assets of AirTouch Teletrac by the Company
on January 17, 1996.
AIRTOUCH TELETRAC--AirTouch Teletrac, a California general partnership, its
predecessor, PacTel Teletrac, and its successor, AirTouch Services.
RPU--Average revenue per subscriber unit per month.
BSU--Base Station Unit, a wireless transmission receiver which records the
Reverse Link communications from a VLU.
CMRS--Commercial Mobile Radio Service, a FCC classification of wireless
telecommunications services.
COMMON STOCK--Class A Common Stock, par value $.01 per share, and Class B
Common Stock, par value $.01 per share, of the Company.
COMPANY--Teletrac, Inc., its predecessors and its subsidiary, Teletrac
License, Inc.
COMMUNICATIONS ACT--The Communications Act of 1934, as amended.
ESMR--Enhanced Specialized Mobile Radio, an advanced, digital version of
Specialized Mobile Radio ("SMR").
FCC--The Federal Communications Commission.
FLEET DIRECTOR-REGISTERED TRADEMARK---A product of the Company that allows
fleet customers to track the real-time location of fleet vehicles and
communicate with those vehicles. Fleet Director-Registered Trademark- can be
combined with a Mobile Data Terminal ("MDT") or a Status Messaging Terminal
("SMT") to provide two-way communication between a customer and its drivers.
FLEET REPORTER-TM---A lower cost alternative to Fleet
Director-Registered Trademark-, Fleet Reporter-TM- is a service offered by the
Company to provide daily vehicle location reports to customers.
FORWARD LINK--A wireless digital radio transmission, emitted simultaneously
from each transmitter on the Company's network, which transmits location
commands and/or messages to a VLU.
GPS--The Global Positioning Satellite system, which uses U.S.
government-funded satellites to provide location information.
IBSU--Integrated Base Station Unit, an advanced version of the BSU receiver,
currently under development, which will permit multichannel capability and
free-text alphanumeric messaging.
LMS--Location and Monitoring Services.
LORAN-C--A system that uses land-based transmitting stations emitting
low-frequency radio signals to provide location information.
MDT--Mobile Data Terminal, the Company's more advanced two-way messaging
system, is a small terminal, connected to the VLU, and typically mounted on a
vehicle's dashboard.
MSA--Metropolitan Statistical Area, as defined in the 1993 Rand-McNally
Commercial Atlas.
MTA--Major Trading Area, as defined in the 1993 Rand-McNally Commercial
Atlas.
MULTILATERATION--a technique that locates a transceiver by measuring its
distance from a number of known locations.
NCC--the local Network Control Center located in each metropolitan market,
which consists of RF control equipment, telecommunications access connection
computers and the Company's data base. The
99
<PAGE>
NCC uses algorithms and multilateration techniques to determine the location of
VLUs and relays the information to the subscriber.
OZZ-REGISTERED TRADEMARK---A product of the Company marketed to both
consumer and commercial customers, which provides a telephone-operated mobile
information service. In addition, OZZ-Registered Trademark- provides a "mobile
yellow pages," informing the customer of the prominent businesses or landmarks
near a vehicle's location.
PCS--A type of wireless telephone system that uses light-weight, inexpensive
handheld sets and communicates via low power antennas.
PMRS--Private Mobile Radio Service, a FCC classification of wireless
telecommunications services.
PORTAL--The Private Offering, Resale and Trading through Automated Linkages
market.
PREFERRED STOCK--The Series A Redeemable Convertible Participating Preferred
Stock, par value $.01 per share, of the Company or Holdings, as applicable, and
one or more series of undesignated preferred stock, par value $.01 per share, of
the Company or Holdings, as applicable, which has been reserved for issuance
upon automatic conversion of the Series A Preferred Stock as provided in the
Certificate of Incorporation.
REVERSE LINK--A response signal, providing location and messaging
information, emitted from a VLU after the receipt of a Forward Link.
SMR--Specialized Mobile Radio, a two-way wireless voice communications
system.
SMT--Status Messaging Terminal, the Company's lower cost two-way messaging
system offered as an alternative to the MDT, is a small terminal, connected to
the VLU and typically mounted on a vehicle's dashboard.
TADIRAN--Tadiran Telematics, Ltd., a leading Israeli technology supplier and
a wholly-owned subsidiary of Tadiran Limited, a publicly traded Israeli company
a majority of the stock of which is owned by Koor Industries Ltd.
TELETRACER-TM---The name under which the Company markets its consumer
product.
VLU--Vehicle Location Unit, a "transceiver" unit which receives location
commands and messages, transmits response signals to the base stations
indicating its location and initiates preprogrammed messages.
WINFLEET-TM---A product currently under development by the Company, expected
to be introduced in the second half of 1997. Winfleet-TM- is a Microsoft
Windows-Registered Trademark--based application similar to Fleet
Director-Registered Trademark-, but which does not require a dedicated computer.
100
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TELETRAC, INC.
- -----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
Condensed Consolidated Balance Sheet as of June 30, 1997 (unaudited)....................................... F-2
Condensed Consolidated Statements of Operations for the six months ended June 30, 1996 and 1997
(unaudited).............................................................................................. F-3
Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 1996 and 1997
(unaudited).............................................................................................. F-4
Notes to Condensed Consolidated Financial Statements....................................................... F-5
FISCAL YEAR 1996
Report of Arthur Andersen LLP, Independent Auditors........................................................ F-6
Consolidated Balance Sheet as of December 31, 1996......................................................... F-7
Consolidated Statement of Operations for the year December 31, 1996........................................ F-8
Consolidated Statement of Stockholder Equity for the year ended December 31, 1996.......................... F-9
Consolidated Statement of Cash Flows for the year ended December 31, 1996.................................. F-10
Notes to Consolidated Financial Statements................................................................. F-11
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
FISCAL YEAR 1995
Report of Arthur Andersen LLP, Independent Auditors........................................................ F-17
Balance Sheet as of December 28, 1995...................................................................... F-18
Statement of Operations for the period from January 1, 1995 through December 28, 1995...................... F-19
Statement of Cash Flows for the period from January 1, 1995 through December 28, 1995...................... F-20
Notes to Financial Statements.............................................................................. F-21
FISCAL YEAR 1994
Report of Coopers & Lybrand LLP, Independent Auditors...................................................... F-26
Balance Sheet as of December 31, 1994...................................................................... F-27
Statement of Operations for the year ended December 31, 1994............................................... F-28
Statement of Partners' Deficit............................................................................. F-29
Statement of Cash Flows for the year ended December 31, 1994............................................... F-30
Notes to Financial Statements.............................................................................. F-31
</TABLE>
F-1
<PAGE>
TELETRAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $4,260,617
Accounts receivable, net of allowance.......................................... 5,338,196
Inventory...................................................................... 5,049,063
Prepaid expenses and other..................................................... 3,230,160
----------
Total current assets................................................... 17,878,036
RESTRICTED CASH................................................................ 1,756,304
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $2,200,580.......... 21,704,545
LICENSES AND OTHER, net of amortization........................................ 683,099
----------
Total assets........................................................... $42,021,984
----------
----------
</TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable............................................................... $ 3,450,075
Current portion of long-term obligations....................................... 221,934
Accrued expenses............................................................... 1,841,262
Unearned revenue and contracts................................................. 2,069,468
Refrequency liability.......................................................... 4,683,327
Other current liabilities...................................................... 361,031
-----------
Total current liabilities.................................................. 12,627,097
-----------
LONG-TERM OBLIGATIONS.......................................................... 1,746,397
PREFERRED STOCK, redeemable cumulative, 15% dividend, 190,477 shares authorized
and 190,476.19 shares issued and outstanding................................. 35,815,000
PREFERRED STOCK, undesignated, 190,477 shares authorized, none issued and
outstanding.................................................................. --
STOCKHOLDERS' EQUITY:
Common stock, Class A $.01 par value, 507,934 shares authorized and 249,000
issued and outstanding..................................................... 2,490
Common stock, Class B, $.01 par value 70,000 shares authorized, none issued
or outstanding............................................................. --
Paid-in-capital.............................................................. 22,022,656
Accumulated deficit.......................................................... (30,191,656)
-----------
Total stockholders' deficit................................................ (8,166,510)
-----------
Total liabilities and stockholders' deficit................................ $42,021,984
-----------
-----------
</TABLE>
The accompanying notes are an intergral part of these condensed consolidated
financial statements.
F-2
<PAGE>
TELETRAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
<S> <C> <C>
1996 1997
------------- --------------
OPERATING REVENUES................................................................. $ 5,941,049 $ 11,369,923
OPERATING EXPENSES:
Cost of revenues................................................................. 1,757,416 5,193,562
Selling and advertising.......................................................... 1,830,403 6,210,714
General and administrative....................................................... 6,233,735 10,045,381
Research & development costs..................................................... -- 2,040,047
Refrequencing costs.............................................................. 405,639 --
Depreciation and amortization.................................................... 543,430 999,234
------------- --------------
Loss from operations........................................................... (4,829,574) (13,119,015)
OTHER EXPENSE (INCOME):
Interest expense................................................................... 10,077 86,429
Interest and other income.......................................................... (72,476) (404,784)
------------- --------------
Loss before income taxes....................................................... (4,767,175) (12,800,660)
INCOME TAXES....................................................................... -- --
------------- --------------
NET LOSS........................................................................... $ (4,767,175) $ (12,800,660)
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
F-3
<PAGE>
TELETRAC, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1996 1997
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................................................... $ (4,767,175) $ (12,800,660)
Adjustments to reconcile net loss to net cash used in operating activities--
Depreciation and amortization.................................................. 543,430 999,234
Changes in working capital and other assets and liabilities, net of acquisition
and refrequencing liability.................................................. (1,683,863) (2,158,911)
Refrequency liability.......................................................... 405,639 (2,550,894)
------------- --------------
Total adjustments............................................................ (734,794) (3,710,571)
------------- --------------
Cash used in operating activities.......................................... (5,501,969) (16,511,231)
------------- --------------
INVESTING ACTIVITIES:
Acquisition of property and equipment............................................ (4,124,383) (5,867,320)
Acquisition of Airtouch Teletrac................................................. (2,098,875) (1,000,000)
------------- --------------
Cash used in investing activities.......................................... (6,223,258) (6,867,320)
------------- --------------
FINANCING ACTIVITIES:
Issuance of common stock, net.................................................... 12,272,314 --
------------- --------------
Cash provided by financing activities...................................... 12,272,314 --
------------- --------------
NET CHANGE IN CASH................................................................. 547,087 (23,378,551)
CASH AND CASH EQUIVALENTS, beginning of period..................................... 310,688 27,639,168
------------- --------------
CASH AND CASH EQUIVALENTS, end of period........................................... $ 857,775 $ 4,260,617
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
<PAGE>
TELETRAC, INC.
NOTES TO CONDENSED CONSOLIDATED
UNAUDITED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include the
accounts of Teletrac, Inc. and its wholly-owned subsidiary. All significant
intercompany transactions have been eliminated.
The unaudited condensed consolidated financial statements for the six months
ended June 30, 1996 and 1997 do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements and should be read in connection with the annual 1996
financial statements and related notes included elsewhere in this Prospectus.
The unaudited condensed consolidated financial statements presented herein
include, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for such period.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results of operations for the full year.
2. CHANGE IN EQUIPMENT REVENUE RECOGNITION
Operating results for the six months ended June 30, 1997 reflect a change in
equipment revenue recognition for sales of commercial systems. Revenues are
recognized upon installation. Previously, revenues were recognized upon order of
the equipment. The impact of the change is not material to the Company's current
and prior operating results and is consistent with industry practices. For the
six months ended June 30, 1997, the effects of the change reduced reported
revenues and cost of revenues by $1.8 million and $1.3 million, respectively.
F-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Teletrac, Inc.:
We have audited the accompanying consolidated balance sheet of Teletrac,
Inc. (a Delaware corporation) and subsidiary, as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Teletrac, Inc., and
subsidiary as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
February 5, 1997
F-6
<PAGE>
TELETRAC, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $27,639,168
Accounts receivable- less allowances of $460,000............................. 2,504,173
Inventory- less reserves of $155,642......................................... 2,782,932
Prepaid expenses and other current assets.................................... 2,113,076
----------
Total current assets..................................................... 35,039,349
RESTRICTED CASH................................................................ 1,256,285
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,221,666.......... 16,845,801
LICENSES AND OTHER, net of accumulated amortization of $38,355................. 571,899
----------
Total assets............................................................. $53,713,334
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $1,547,566
Accrued expenses............................................................. 1,483,338
Notes payable................................................................ 1,001,015
Current portion of leases payable............................................ 381,325
Refrequencing liability...................................................... 7,234,158
----------
Total current liabilities................................................ 11,647,402
----------
LONG-TERM LEASES PAYABLE....................................................... 1,615,344
PREFERRED STOCK, undesignated, 190,477 shares authorized, none issued or
outstanding.................................................................. --
PREFERRED STOCK, redeemable cumulative, 15% dividend, 190,477 shares authorized
and 190,476.19 shares issued and outstanding................................. 33,340,000
STOCKHOLDERS' EQUITY:
Common stock, Class A, $0.01 par value, 507,934 shares authorized and 249,000
issued and outstanding..................................................... 2,490
Common stock, Class B, $0.01 par value, 70,000 shares authorized and none
issued or outstanding...................................................... --
Paid-in capital.............................................................. 22,024,094
Accumulated deficit.......................................................... (14,915,996)
----------
Total stockholders' equity............................................... 7,110,588
----------
Total liabilities and stockholders' equity............................... $53,713,334
----------
----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-7
<PAGE>
TELETRAC, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
OPERATING REVENUES............................................................. $15,956,984
OPERATING EXPENSES:
Cost of revenues............................................................. 7,030,847
Selling, general and administrative.......................................... 14,035,038
Engineering.................................................................. 5,149,488
Research and development..................................................... 1,001,000
Refrequencing costs.......................................................... 1,340,315
Depreciation and amortization................................................ 1,254,049
-----------
Loss from operations....................................................... (13,853,753)
-----------
OTHER EXPENSE (INCOME):
Interest expense............................................................. 108,600
Interest income.............................................................. (170,884)
-----------
Total other income......................................................... (62,284)
-----------
Loss before income taxes................................................... (13,791,469)
INCOME TAXES................................................................... --
-----------
NET LOSS....................................................................... $(13,791,469)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-8
<PAGE>
TELETRAC, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- PAID-IN ACCUMULATED
CLASS A CLASS B CAPITAL DEFICIT
--------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995..................................... $ 190 $ 37 $ 2,267,025 $ (784,527)
Issuance of common stock....................................... 1,980 283 21,634,814 --
Conversion of Class B common to Class A common................. 320 (320) -- --
Cost of issuance of preferred stock............................ -- -- (1,877,745) --
Net loss....................................................... -- -- -- (13,791,469)
Preferred stock dividends...................................... -- -- -- (340,000)
--------- ----- ------------- --------------
BALANCE, December 31, 1996..................................... $ 2,490 $ -- $ 22,024,094 $ (14,915,996)
--------- ----- ------------- --------------
--------- ----- ------------- --------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-9
<PAGE>
TELETRAC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss..................................................................... $(13,791,469)
Adjustments to reconcile net loss to cash used in operating activities--
Depreciation and amortization.............................................. 1,254,049
Changes in working capital and other assets and liabilities, net of
acquisition--
Receivables.............................................................. (1,668,164)
Restricted cash.......................................................... 66,904
Inventory................................................................ (2,674,519)
Prepaids and other....................................................... (1,448,858)
Accounts payable and accrued expenses.................................... 2,084,258
Deferred revenue......................................................... (745,221)
Refrequencing liability.................................................. 1,298,088
Other liabilities........................................................ (609,872)
Cash used in operating activities...................................... (16,234,804)
-----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net.............................. (7,097,173)
Acquisition of AirTouch Teletrac............................................. (2,098,875)
-----------
Cash used in investing activities...................................... (9,196,048)
-----------
FINANCING ACTIVITIES:
Issuance of common stock, net................................................ 21,637,077
Issuance of preferred stock, net............................................. 31,122,255
-----------
Cash provided by financing activities.................................. 52,759,332
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................................... 27,328,480
CASH AND CASH EQUIVALENTS, beginning of year................................... 310,688
-----------
CASH AND CASH EQUIVALENTS, end of year......................................... $27,639,168
-----------
-----------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the year for interest....................................... $ 107,549
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-10
<PAGE>
TELETRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BUSINESS ACTIVITIES:
Teletrac, Inc. (the Company), and its wholly owned subsidiary, Teletrac
Licensing, Inc., are licensed by the Federal Communications Commission (FCC) to
construct and operate radio location networks for the purpose of locating,
tracking and communicating with commercial fleet and consumer vehicles as a
result of its acquisition of AirTouch Teletrac (see Note 2). The Company has
operating networks in six U.S. cities, Chicago, Dallas, Detroit, Houston, Los
Angeles and Miami, and has site specific licenses in approximately 20 additional
cities. The networks consist of antennas, transmission and receiving equipment,
customer-owned vehicle locating units (VLUs) that receive and transmit signals,
and operating centers that interpret and relay the transmissions.
SIGNIFICANT RISKS AND UNCERTAINTIES
The Company and its predecessors have incurred losses in each year of
operations. The Company expects to continue to incur net losses as it pursues
plans to expand its operating networks, product offerings and customer base.
There can be no assurance that the Company will be profitable in the future.
The Company is facing increased competition for its services. Certain of the
Company's competitors are larger and have substantially greater financial,
research and development and sales and markting capabilities. Additionally,
there can be no assurance additional competitors will not enter markets that the
Company serves or plans to serve and that the Company will be able to withstand
the competition. Moreover, changes in technology could lower the cost of
competitive services to a level where the Company's services would be less
competitive, which could have a material adverse effect on the Company's
business and the ability to realize its assets.
2. PURCHASE OF AIRTOUCH TELETRAC:
On January 17, 1996, the Company purchased the assets of AirTouch Teletrac, a
California general partnership, from AirTouch Services, for $3,099,000 in cash,
and the assumption of certain liabilities and working capital as defined. An
amount of $2,099,000 was paid at closing, with $1,000,000 due one year from the
date of closing. Funds necessary for the closing were provided by the current
common stockholders of the Company through sales of common stock. The allocation
of purchase price was made first to the current assets and liabilities and
assumed liabilities, and the remainder to the long-term assets in proportion to
the fair values of the assets, as follows (in thousands):
<TABLE>
<CAPTION>
ASSETS AND
LIABILITIES
ACQUIRED
JANUARY 17,
1996
---------------
<S> <C>
Working capital.............................................................. $ 217
Property and equipment....................................................... 8,218
Licenses..................................................................... 600
Refrequencing liability...................................................... (5,936)
-------
Total.................................................................. $ 3,099
-------
-------
</TABLE>
F-11
<PAGE>
TELETRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. ACCOUNTING POLICIES:
USE OF ESTIMATES
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 period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company services the commercial market for use in fleet management and the
consumer market for individual vehicle tracking. The commercial systems include
VLUs, computer hardware, and vehicle tracking software. The sales of commercial
systems are recognized upon shipment of the system, and the commercial service
fee revenues are recognized monthly as the services are provided.
The VLUs for the consumer market are sold along with monthly service contracts.
Service revenues for the consumer market may be paid in advance and are
recognized monthly as earned. Unearned service fees are recorded as deferred
revenue and included in accrued expenses in the accompanying balance sheet.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be temporary cash investments
with an original maturity of three months or less.
INVENTORIES
Inventories consist of VLUs, computer systems and other receiving and
transmitting equipment held for sale. Inventory is stated at the lower of cost
or market using the first-in, first-out method of valuation.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consist of the following (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
COST LIVES
--------- -----------
<S> <C> <C>
System equipment...................................................... $ 4,832 7
Computers and office equipment........................................ 2,412 3
Furniture and fixtures................................................ 578 7
Other................................................................. 471 3-7
Construction in progress.............................................. 9,774
---------
Property and equipment................................................ 18,067
Less--Accumulated depreciation........................................ 1,221
---------
Net property and equipment............................................ $ 16,846
---------
---------
</TABLE>
Repairs, maintenance and renewal of minor items are charged to expense as
incurred. Major renewals and improvements are capitalized and depreciated over
their remaining useful lives. Leasehold improvements
F-12
<PAGE>
TELETRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
are amortized using the straight-line method over the lesser of the estimated
useful life of the asset or the remaining term of the underlying lease.
LICENSES
Licenses, as acquired from AirTouch Services, represent a long-term intangible
asset that allows FCC authorization to broadcast at designated frequencies. They
are amortized using the straight-line method over 15 years. FCC license terms
are for 5-year periods with unlimited options to renew for subsequent 5-year
periods.
INCOME TAXES
The Company is a C corporation for federal income tax purposes. Deferred tax
assets or liabilities are computed based on the difference between the financial
statement and income tax basis of assets and liabilities applying tax
regulations existing at the end of the reporting period. The Company has fully
reserved its deferred tax asset, principally the net operating loss carryforward
generated, as of December 31, 1996.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include Teletrac, Inc., and
its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
4. STOCKHOLDERS' EQUITY:
The Company's Restated Certificate of Incorporation, dated December 4, 1996,
provides for 958,888 authorized shares of capital stock, consisting of 507,934
shares of authorized Class A common stock at $0.01 par value per share, 70,000
shares of authorized Class B common stock at $0.01 par value per share, 190,477
shares of authorized Series A Redeemable Convertible Participating preferred
stock at $0.01 par value per share, and 190,477 shares of authorized
undesignated preferred stock at $0.01 par value per share.
COMMON STOCK
The Class A common stock and Class B common stock are substantially identical in
all respects and entitle the holders to the same rights, preferences and
privileges. However, owners of Class B common stock have no right to vote on any
matters to be voted on by the Company's stockholders except as a separate class
on any proposed merger or consolidation of the Company, or any recapitalization
or reorganization in which shares of Class B common stock would receive
treatment different from or be exchanged for consideration different on a per
share basis from the consideration received with respect to or in exchange for
shares of Class A common stock. Owners of Class B common stock, upon the
occurrence of certain conversion events, have the right to exchange equivalent
shares of their Class B common stock for shares of Class A common stock. In
December 1996 all then outstanding Class B common stock was converted into Class
A common stock.
F-13
<PAGE>
TELETRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
PREFERRED STOCK
During December 1996, 190,476.19 shares of $0.01 par value Series A Redeemable
Convertible Participating preferred stock were issued for net cash proceeds of
$31,122,255. They entitle holders to receive cumulative, compounding dividends
at the rate of 15 percent per annum. Dividends accrue on a daily basis from the
issuance date and are payable as declared by the board of directors. As of
December 31, 1996, $340,000 was accrued for dividends. Holders are entitled to
voting rights, preference on liquidation, voluntary equal share conversion into
common stock at a defined conversion price, and automatic equal share conversion
into common stock after either a qualified public stock offering or a certain
non-qualified public stock offering as defined. Additionally, on or after
December 4, 2001, at the election of the holders of a majority of the
outstanding preferred stock, the Company is obligated to redeem the preferred
stock at a cash price equal to the liquidation preference amount of $173.25 per
share plus cumulative unpaid dividends. From and after December 4, 2003 the
redemption price will be equal to the greater of the liquidation preference
amount or the fair market value of the preferred stock.
STOCK OPTIONS
The Company has two stock option plans, the 1995 Stock Option Plan (the 1995
Plan) and the 1996 Stock Option Plan (the 1996 Plan). The Company accounts for
these plans in accordance with Accounting Principles Board Opinion No. 25 under
which no compensation cost has been recognized in 1996. Had compensation cost
been recognized in accordance with Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock Based Compensation," the Company's
operating loss would have been increased by $506,000 for the year ended 1996.
The plans permit grants of nonqualified, and incentive stock options. The
Company has reserved 43,060 and 25,083 shares of its common stock under the 1995
Plan and the 1996 Plan, respectively. Under the 1995 Plan the exercise prices
and vesting periods of the options are as follows:
<TABLE>
<CAPTION>
DATE PRICE VESTING AMOUNT
- --------------------------------------------------------------- --------- ---------------------
<S> <C> <C>
One year after grant........................................... $ 100 One-third of grant
Two years after grant.......................................... 125 One-third of grant
Three years after grant........................................ 150 One-third of grant
</TABLE>
During 1996, 43,060 options were granted under the 1995 Plan at a weighted
average price of $125. The weighted average fair value of the options issued
during 1996 was $119. No options were canceled or exercised during 1996. During
1996, 510 options were forfeited. The options outstanding at December 31, 1996,
have a weighted average remaining contract life of approximately seven years and
none were exercisable as of December 31, 1996.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for the 1996 grants: risk-free interest rate from 5.48 to 6.87
percent; an expected option life of 7 years; and no expected dividend yields.
Options granted under the 1996 Plan must have exercise prices equal to the fair
market value as determined by the board of directors, and the term of the
options shall not exceed ten years from grant date. No shares under the 1996
Plan have been granted.
F-14
<PAGE>
TELETRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. CAPITAL LEASES:
The Company holds leases on telephony and frequency receiving and transmitting
equipment for periods greater than one year. Minimum payments under such capital
leases are as follows (in thousands):
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
1997........................................ $ 381 $ 187 $ 568
1998........................................ 403 147 550
1999........................................ 446 104 550
2000........................................ 494 56 550
Thereafter.................................. 273 10 283
----------- ----- ---------
$ 1,997 $ 504 $ 2,501
----------- ----- ---------
----------- ----- ---------
</TABLE>
6. REFREQUENCING LIABILITY:
In 1995 the FCC issued an order which requires the Company to relocate its
existing operating frequency from a portion of the 925 MHz band to a portion of
the 927 MHz band. As a result, the Company has recorded a liability, including
$5,936,000 assumed in the acquisition, for the cost of implementing the order so
that the Company can continue to deliver its contractual service obligation to
its customers. The cost recorded during 1996 of $1,340,000 represents the
estimated costs to comply with this obligation for all customers added to
service during 1996.
7. EMPLOYEE BENEFIT PLANS:
The Company sponsors a defined contribution profit sharing 401(k) plan which
covers all full-time employees. The benefits of this plan are based on years of
service, the employee's compensation, employee contributions and earnings of
plan assets. The Company's funding policy is to contribute an amount equal to
$0.50 for every dollar contributed by the employees up to $1,000 annually. The
Company has accrued $121,000 during 1996.
8. INCOME TAXES:
Deferred income taxes are provided for temporary differences between the
financial accounting basis and tax basis of assets and liabilities and temporary
differences in reporting income and expense.
The Company has net operating losses (NOLs) which it can carryforward up to 15
years to reduce taxable income in the future. The Company's NOLs and Alternative
Minimum Tax (AMT) NOLs total approximately $13,300,000 and $12,700,000,
respectively. The NOLs and AMT NOLs may be utilized through 2011. The Company
has fully reserved these deferred tax assets and has provided no income tax
benefit related thereto.
F-15
<PAGE>
TELETRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The components of net deferred tax assets (liabilities) are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
<S> <C> <C> <C>
CURRENT NONCURRENT TOTAL
----------- ----------- ---------
Deferred tax asset--
NOL.......................................................... $ -- $ 5,040
Allowance for doubtful accounts.............................. 175 --
Start-up costs, capitalized for income tax purposes, net .... -- 279
Other........................................................ 88 --
Deferred tax liabilities..................................... (32) (26)
----------- -----------
Net deferred tax assets...................................... $ 231 $ 5,293 $ 5,524
----------- -----------
----------- -----------
Tax asset reserve............................................ (5,524)
---------
Net deferred taxes........................................... $ --
---------
---------
</TABLE>
The Company's utilization of its NOLs many be limited in the future due to its
issuance of preferred stock and the IRS regulations pertaining to change in
control.
9. COMMITMENTS AND CONTINGENCIES:
The Company has operating leases for office space and antenna sites for periods
greater than one year. Minimum payments under such operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1997................................................ $ 2,399
1998................................................ 2,353
1999................................................ 1,844
2000................................................ 1,265
Thereafter.......................................... 841
---------
$ 8,702
---------
---------
</TABLE>
The Company purchases all of its VLU's from a single foreign supplier, and has
entered into a commitment with the supplier to purchase 200,000 units beginning
October 1996, through October 1998. The agreement allows the Company to extend
this period until November 2000 and has a provision to buy-out of the commitment
at a nominal fee. As of December 31, 1996, the remaining purchase commitment is
approximately $35,700,000, including $1,500,000 which has been prepaid by the
Company. Related to this commitment, at December 31, 1996, the Company
maintained a $1,750,000 irrevocable letter of credit to support the purchase of
the VLU's, of which $1,250,000 is funded and is recorded as restricted cash in
the accompanying balance sheet. Additionally, the Company has committed to
acquire other equipment and fund certain research and development activities of
approximately $2,900,000 and $3,500,000, respectively.
The Company is party to certain litigation and claims arising in the normal
course of business. In the opinion of management, the amount of liability
arising from these lawsuits would not be material to the financial position or
results of operations of the Company.
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Teletrac, Inc:
We have audited the accompanying balance sheet of AirTouch Teletrac General
Partnership as of December 28, 1995, and the related statements of operations
and changes in partners' deficit and cash flows for the period from January 1,
1995, to December 28, 1995. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AirTouch Teletrac General
Partnership as of December 28, 1995, and the results of its operations and its
cash flows for the period from January 1, 1995, to December 28, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
May 1, 1996
F-17
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
BALANCE SHEET
DECEMBER 28, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash........................................................................ $ --
Accounts receivable, net of allowance for doubtful accounts of $290,094..... 1,804,213
Inventory................................................................... 501,915
Other current assets........................................................ 394,916
------------
Total current assets.................................................. 2,701,044
PROPERTY, PLANT AND EQUIPMENT, net............................................ 7,836,070
INTANGIBLE ASSETS, net........................................................ 600,000
------------
Total assets.......................................................... $ 11,137,114
------------
------------
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
<S> <C>
CURRENT LIABILITIES:
Accounts payable--Trade..................................................... $ 183,875
Due to affiliates........................................................... 15,995,945
Accrued salaries and benefits............................................... 2,910,760
Other current liabilities................................................... 1,203,747
------------
Total current liabilities............................................. 20,294,327
REFREQUENCING LIABILITY....................................................... 5,936,070
CONVERTIBLE DEBT.............................................................. 226,100,585
OTHER NON-CURRENT LIABILITIES................................................. 224,088
------------
Total liabilities..................................................... 252,555,070
COMMITMENTS AND CONTINGENCIES (Notes 1 and 5)
PARTNERS' DEFICIT............................................................. (241,417,956)
------------
Total liabilities and partners' deficit............................... $ 11,137,114
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
FOR THE PERIOD FROM JANUARY 1, 1995 TO DECEMBER 28, 1995
<TABLE>
<S> <C>
REVENUES...................................................................... $ 13,244,367
OPERATING EXPENSES:
Cost of products sold....................................................... 4,322,710
Selling, general and administrative......................................... 23,673,935
Depreciation and amortization............................................... 4,458,454
Asset impairment............................................................ 10,966,716
Refrequencing costs......................................................... 5,936,070
------------
Loss from operations...................................................... (36,113,518)
OTHER EXPENSES:
Interest expense............................................................ 21,239,650
Other, net.................................................................. 26,988
------------
Net loss.................................................................. (57,380,156)
PARTNERS' DEFICIT:
Balance, December 31, 1994.................................................. (184,037,800)
------------
Balance, December 28, 1995.................................................. $(241,417,956)
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO DECEMBER 28, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss..................................................................... $(57,380,156)
Adjustments to reconcile net loss to net cash used for operating activities--
Depreciation and amortization.............................................. 4,458,454
Asset impairment........................................................... 10,966,716
Refrequencing costs........................................................ 5,936,070
Changes in operating assets and liabilities--
Accounts receivable, net................................................. 633,387
Inventory................................................................ 1,046,485
Other current assets..................................................... (45,916)
Accounts payable--Trade.................................................. (461,118)
Due to affiliates........................................................ 11,150,645
Increase in other liabilities.............................................. 165,371
-----------
Net cash used for operating activities................................. (23,530,062)
-----------
INVESTING ACTIVITIES:
Retirements of property, plant and equipment, net............................ 110,160
-----------
Net cash provided by investing activities.............................. 110,160
-----------
FINANCING ACTIVITIES:
Proceeds from convertible debt............................................. 22,905,585
Other...................................................................... (31,483)
-----------
Net cash provided by financing activities.............................. 22,874,102
-----------
NET DECREASE IN CASH........................................................... (545,800)
CASH, December 31, 1994........................................................ 545,800
-----------
CASH, December 28, 1995........................................................ $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest to affiliate.......................................... $ 9,763,242
Cash paid for income taxes................................................... --
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1995
1. ORGANIZATION AND NATURE OF BUSINESS:
NATURE OF OPERATIONS
AirTouch Teletrac General Partnership (the Partnership) was formed on December
16, 1987, under the laws of the State of California. The Partnership has been
licensed by the Federal Communications Commission (FCC) to construct and operate
radio location networks. During 1995 the Partnership operated in six U.S. cities
as follows: Chicago, Dallas, Detroit, Houston, Los Angeles and Miami.
The set up of the location network is capital intensive, and the Partnership has
been dependent upon the financial support of its majority partner, Location
Technologies Inc. (LTI), and its parent, AirTouch Communications.
The principal operation consists of tracking vehicles through signals sent by
Vehicle Location Units (VLUs) placed in a vehicle and received by a base unit.
The system processes the signals and provides the location and movement of a
vehicle on an electronic map grid display.
OWNERSHIP
During 1995 certain of the partners, North American Teletrac and International
Teletrac Services, sold all ownership interests in the Partnership to AirTouch
Services (ATS) and LTI. LTI also transferred two percent of its ownership
interest in the Partnership to ATS during 1995. Prior to the dissolution of the
Partnership on December 28, 1995, the partners' ownership interests were as
follows:
<TABLE>
<S> <C>
Location Technologies, Inc., a wholly owned subsidiary
of AirTouch Services............................................... 73%
AirTouch Services, a wholly owned subsidiary of
AirTouch Communications............................................ 27%
</TABLE>
On December 28, 1995, LTI merged with ATS, thereby dissolving the Partnership by
operation of law. Accordingly, the accompanying financial statements are as of
December 28, 1995, and for the period from January 1, 1995, to December 28,
1995. No material transactions or events of the business occurred between
December 28, 1995, and December 31, 1995.
SUBSEQUENT SALE OF ASSETS
On January 17, 1996, ATS sold substantially all of the assets previously owned
by the Partnership to Teletrac, Inc., a Delaware corporation, for $2,500,000,
the assumption of the refrequencing liability, and an adjustment for working
capital, as defined. An amount of $1,500,000 was paid in cash at closing, with
$1,000,000 due on the earlier of one year from the date of closing or the date
on which the order issued by the FCC addressing emission mask standards for
multilateration vehicle location systems shall have become final.
As a result of the subsequent sale, management determined that the net
realizable value of the long- term assets (property, plant, equipment and
intangible assets) was less than net book value. The impairment of property,
plant and equipment, FCC licenses, and goodwill of $2,249,000, $2,610,000, and
$6,108,000, respectively, was recorded in the 1995 statement of operations.
F-21
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 28, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Partnership serviced the commercial market for use in fleet management and
the consumer market for individual vehicle tracking. The commercial systems
include VLUs, computer hardware, and vehicle tracking software. The sales of
commercial systems are recognized upon shipment of the system, and the
commercial service fee revenues are recognized monthly as the services are
provided based on the number of VLUs in the fleet.
The VLUs for the consumer market were manufactured by third parties and were
sold to consumers through unrelated retailers. The Company's service contracts
to individual consumers were initiated by the retailers. Service revenues for
the consumer market may be paid in advance and are recognized monthly as earned.
Unearned service fees are recorded as deferred revenue and included in other
current liabilities in the accompanying balance sheet.
INVENTORIES
Inventories consist of VLUs, computer systems and related components. Inventory
is stated at the lower of cost or market using the first-in, first-out method of
valuation.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were recorded at cost. Subsequent to 1995
substantially all of the Partnership's assets were sold (Note 1). As a result,
property, plant and equipment were determined to be impaired and were recorded
at their net realizable values as of December 28, 1995. Property, plant and
equipment includes the following:
<TABLE>
<S> <C>
Equipment...................................................... $22,896,113
Office furniture and equipment................................. 1,276,205
Vehicles....................................................... 349,296
Leasehold improvements......................................... 190,085
----------
24,711,699
Less- Accumulated depreciation and amortization................ (16,875,629)
----------
Net property, and equipment.................................. $7,836,070
----------
----------
</TABLE>
F-22
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 28, 1995
Repairs, maintenance and renewal of minor items were charged to expense as
incurred. Major renewals and improvements are capitalized and depreciated over
their remaining useful lives. Depreciation is recorded using the straight-line
method over the applicable estimated useful lives as follows:
<TABLE>
<S> <C>
Equipment......................................................... 3-7 years
Office furniture and equipment.................................... 5 years
Vehicles.......................................................... 3 years
</TABLE>
Leasehold improvements were amortized using the straight-line method over the
lesser of the estimated useful life of the asset or the remaining terms of the
underlying lease.
INTANGIBLE ASSETS
Intangible assets represent the cost of acquiring FCC licenses as well as
goodwill resulting from an acquisition of a previous network partner. Both FCC
licenses and goodwill were amortized using the straight-line method over 20
years. FCC license terms are for a five-year period with unlimited options to
renew for subsequent five-year periods. As discussed above, subsequent to 1995
substantially all of the Partnership's assets were sold (Note 1). As a result,
the intangible assets were determined to be impaired and were recorded at their
net realizable values as of December 28, 1995. The goodwill previously recorded
was fully impaired and the FCC licenses were written down to $600,000.
PARTNERSHIP INCOME ALLOCATION
Partnership profits and losses were allocated based on the partners' percentage
ownership interest in the Partnership during the year.
INCOME TAXES
No provision has been made for federal or state income taxes since such taxes,
if any, are the responsibility of the individual partners.
3. RELATED-PARTY TRANSACTIONS:
CONVERTIBLE DEBT
The Partnership had convertible debt payable to LTI. Interest on the debt was at
prime plus 2 percent on the outstanding debt balance. Included in the due to
affiliate balance at December 28, 1995, is interest payable of approximately
$15,900,000.
The debt was collateralized by the equipment, inventory, accounts receivable,
and all proceeds and products of the Partnership. The debt was not assumed by
the new owners (Note 1).
The outstanding principal balance could have been converted into shares of
AirTouch Teletrac stock if the Partnership would have elected to undertake an
initial public offering. In conjunction with the merger of ATS and LTI,
discussed in Note 1, the debt was eliminated.
INSURANCE
The Partnership was covered under an insurance policy held by an affiliate.
Insurance expense passed through by this affiliate for the period from January
1, 1995, to December 28, 1995, was $244,000.
F-23
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 28, 1995
4. EMPLOYEE BENEFITS:
EMPLOYEE INCENTIVE PLANS
The Partnership maintained a short-term incentive plan (STIP) for certain
employees which was based on the achievement of certain performance measures and
targets. Costs related to the STIP of approximately $673,000 have been recorded
in the 1995 statement of operations.
The Partnership also maintained an Equity Incentive Plan (EI Plan) for certain
key employees. Under the EI Plan the Partnership was authorized to grant stock
appreciation rights (SARs) to the key employees which are exercisable over a
specified period of time based on the price of the AirTouch Communications
stock. Cost of approximately $211,000 is included in the 1995 statement of
operations.
SEVERANCE AND STAY-ON PROGRAM
As a result of a planned downsizing of the Partnership's operations and the
subsequent sale of the assets, the Partnership severed its employment
relationships with substantially all of its employees during 1995 and through
early 1996. The severance program provided for severance payments to be made to
employees in accordance with a formula that considers years of service and
salary. Severance payments were made when the employment relationships were
severed, which in certain instances occurred in 1996. All costs related to the
severance program, which totaled approximately $2,400,000, have been recorded in
the 1995 statement of operations.
In addition to the severance program, certain employees were provided an added
incentive to continue working for the Partnership after the sale was announced
to provide closure and transition of the Partnership's activities (Stay-On
Plan). Generally, those eligible employees were paid 25% of their monthly salary
times the number of months worked subsequent to June 1, 1995, with partial
months being credited as full months. Costs related to the Stay-On Plan which
relate to services provided in 1995 were approximately $804,000.
5. COMMITMENTS AND CONTINGENCIES:
SIGNIFICANT SUPPLIER AGREEMENTS
The Partnership entered into several purchase agreements with a foreign
supplier, the Partnership's sole supplier of VLUs, whereby VLUs would be
supplied at a set price, provided prepayments were made to finance the
production of the units. At December 28, 1995, the total open commitments under
these agreements were approximately $1,900,000.
The Partnership entered into an agreement with a software company to develop and
update the mapping software utilized in all of the Partnership's operating
locations to track vehicles. In 1995 the Partnership paid a fee of $325,000 for
the service which expired in January 1996.
The Partnership also had various other purchase commitments outstanding at
year-end of approximately $1,185,000.
Substantially all significant supplier agreements were assumed by or
renegotiated by Teletrac, Inc.
LEASES
The Partnership leased various facilities under noncancellable operating leases
expiring through 2000. Most of the leases were either assumed by or subleased to
Teletrac, Inc.
F-24
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 28, 1995
Total rental expense under all operating leases was $2,027,000 for the period
from January 1, 1995, to December 28, 1995.
OTHER
The Partnership was party to a dispute regarding the registration of the
trademark "Teletrac" by an unrelated party. No accrual has been made in the
accompanying financial statements for this contingency since management is
unable to establish the likelihood of loss, if any, which may be incurred.
The Partnership was a party to various other lawsuits arising in the ordinary
course of business. In the opinion of management, based on a review of such
litigation with legal counsel, any losses resulting from these actions are not
expected to materially impact the financial position or results of operations of
the Partnership.
6. REFREQUENCING COSTS:
In 1995 the FCC issued an order which required the Partnership to relocate its
existing operating frequency from a portion of the 925 MHz band to a portion of
the 927 MHz band. As a result, the Partnership has recorded a liability and a
related expense for the cost of implementing the order in order to continue
delivering the Partnership's contractual service obligation to its customers.
The cost recorded of $5,936,070 represents the estimated cost to comply with
this obligation to customers at December 28, 1995.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
AirTouch Teletrac General Partnership
We have audited the accompanying balance sheet of AirTouch Teletrac General
Partnership (the "Partnership") as of December 31, 1994, and the related
statements of operations, partners' deficit, and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The Partnership is currently in negotiations for the sale of substantially
all of the Partnership's assets and assumption of certain liabilities. See Note
11.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AirTouch Teletrac General
Partnership as of December 31, 1994, and results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going-concern. As discussed in Note 2, the
Partnership has incurred net losses and negative cash flows from operations. In
addition, the Partnership is highly leveraged and has relied substantially on
continued financial support from its general partner, which is a wholly-owned
subsidiary of AirTouch Communications. As discussed in Note 2, this financial
support may not continue. These factors raise substantial doubt about the
Partnership's ability to continue as a going-concern. Plans in regard to these
matters are also described in Note 2 as well as Note 11. The financial
statements do not include any adjustment that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND LLP
Newport Beach, California
February 3, 1995, except for
Note 11, as to which the
date is September 8, 1995
F-26
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1994
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash........................................................................... $ 545,800
Accounts receivable, less allowance for doubtful accounts of $479,700.......... 2,437,600
Inventory, net of reserve of $154,200.......................................... 1,548,400
Other current assets........................................................... 349,000
----------
Total current assets......................................................... 4,880,800
Property, plant and equipment, net............................................. 14,017,400
Intangible assets, net......................................................... 9,954,000
----------
Total assets................................................................. $28,852,200
----------
----------
</TABLE>
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable--trade........................................................ $ 791,000
Due to affiliates.............................................................. 4,845,300
Accrued salaries and benefits.................................................. 2,467,000
Other current liabilities...................................................... 1,501,500
-----------
Total current liabilities.................................................... 9,604,800
Net indebtedness to ITS........................................................ 49,500,000
Convertible debt............................................................... 153,695,000
Capital leases, net of current portion......................................... 82,800
Loan payable................................................................... 7,400
-----------
Total liabilities............................................................ 212,890,000
Commitments and contingencies (Notes 7 and 10)................................. --
Partners' deficit.............................................................. (184,037,800)
-----------
Total liabilities and partners' deficit........................................ $28,852,200
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Revenues....................................................................... $15,336,000
Operating expenses:
Cost of revenues........................................................... 6,356,800
Selling and advertising.................................................... 1,814,100
Salaries and benefits...................................................... 14,747,700
General and administration................................................. 11,672,300
Depreciation and administration............................................ 5,218,200
-----------
Loss from operations..................................................... (24,473,100)
Other expense (income):
Interest expense........................................................... 15,610,100
Interest income............................................................
Other...................................................................... (258,700)
-----------
Net loss................................................................. ($39,824,500)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Balance, December 31, 1993.................................................... ($144,713,300)
Capital contribution.......................................................... 500,000
Net loss for the year......................................................... (39,824,500)
------------
Balance, December 31, 1994.................................................... ($184,037,800)
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
CASH FROM (USED FOR) OPERATING ACTIVITIES:
Net loss..................................................................... $(39,824,500)
Adjustments to reconcile net loss for items current not affecting operating
cash flows:
Depreciation and amortization.............................................. 5,218,200
Loss on disposal of fixed assets........................................... 1,263,200
Changes in operating assets and liabilities:
Accounts receivable, net................................................. 701,000
Inventory, net........................................................... 47,900
Other current assets..................................................... 1,128,200
Accounts payable--trade.................................................. (750,800)
Due to affiliates........................................................ 1,598,800
Accrued salaries and benefits............................................ (2,405,700)
Other current liabilities................................................ (289,600)
-----------
Cash used for operating activities....................................... (33,313,300)
-----------
CASH USED FOR INVESTING ACTIVITIES:
Additions to property, plant and equipment................................... (858,600)
-----------
Cash used for investing activities....................................... (858,600)
-----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from convertible debt............................................... 32,695,000
Partner capital contributions................................................ 500,000
Loan repayment............................................................... (9,300)
Payment on capital lease obligation.......................................... (53,500)
-----------
Cash provided by financing activities.................................... 33,132,200
-----------
Change in cash........................................................... (1,039,700)
-----------
Beginning cash................................................................. 1,585,500
-----------
Ending cash.................................................................... $ 545,800
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS:
AirTouch Teletrac General Partnership (the "Partnership") was formed on
December 16, 1987 under the laws of the State of California. The Partnership has
been licensed by the Federal Communications Commission ("FCC") to construct and
operate radio location networks in 127 U.S. cities. Since its inception, the
Partnership was subcontracting the operations of the network to International
Teletrac Systems, Inc. ("ITS"), a wholly-owned subsidiary of North American
Teletrac ("NAT"), an affiliate, under an operating and supply agreement.
Effective March 31, 1992, the Partnership exercised its option to acquire
substantially all operations, assets, and liabilities (except certain debt--see
Note 6) of ITS (the "Acquisition").
Prior to October 1991, the Partnership was precluded by a judicial consent
decree from, among other things, having an investment in, or participating in
the management of, ITS or obtaining any information about ITS not available to
the general public. However, the Partnership purchased an option to acquire ITS
and guaranteed ITS' debt (Note 6) thereby assuming most of ITS' business risk.
Accordingly, the acquired assets, liabilities, and results of operations of ITS
have been consolidated in the Partnership's financial statements for all periods
presented herein.
At the time of exercise of the option, the Partnership recorded goodwill of
$6,913,800 which approximates the cash paid to ITS. During 1993, an additional
$603,500 was paid on behalf of ITS and, accordingly, has been recorded as
goodwill.
In consideration for its contribution of certain assets and liabilities, ITS
was allocated a 24% partnership interest which was transferred from NAT's
original interest. Accordingly, at December 31, 1994, the partners' ownership
interests are as follows:
<TABLE>
<S> <C>
Location Technologies, Inc. ("LTI"), a wholly-owned
subsidiary of AirTouch Communications...................... 51%
North American Teletrac ("NAT").............................. 25%
International Teletrac Systems, Inc. ("ITS"), a wholly-owned
subsidiary of NAT.......................................... 24%
</TABLE>
Prior to April 1, 1994, LTI was a wholly-owned subsidiary of PacTel
Corporation, which in turn was 86.1% owned by Pacific Telesis Group. On April 1,
1994, the Wireless Division of Pacific Telesis Group spun off and formed a
separate company operating as AirTouch Communications.
At December 31, 1994, the Partnership operated in six cities. The set up of
the location network is capital intensive, and the Partnership is currently
dependent upon the financial support of its majority partner, LTI and its
parent, AirTouch Communications.
Vehicles are tracked through signals sent by Vehicle Location Units ("VLUs")
placed in the vehicle and received by base stations which have been
strategically installed throughout the coverage area. The signals are processed
by the base stations and sent by telephone to the master station. The system
then determines the location of the vehicle and movement on an electronic map
grid display. The master station can relay the tracking information to the
commercial fleet dispatcher or law enforcement agencies.
2. MANAGEMENT'S PLANS:
The Partnership's financial statements have been prepared on a going-concern
basis which contemplates the realization of assets and a liquidation of
liabilities in the ordinary course of business. The
F-31
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. MANAGEMENT'S PLANS: (CONTINUED)
Partnership has incurred substantial net losses and negative cash flows from
operations. In addition, the Partnership has a working capital deficiency and is
highly leveraged.
To date, substantially all of the cash to fund the operations of the
Partnership had been provided by its affiliate, LTI, in the form of convertible
debt. This financial support may not continue.
There is a pending sale to sell substantially all of the Partnership's
assets to a third party who will also assume certain of the Partnership's
liabilities. See discussion of this pending sale in Note 11.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION:
The Partnership services the commercial market for use in fleet management
and the consumer market for individual vehicle tracking. The commercial systems
include VLUs, computer hardware, and vehicle tracking software. The sales of
commercial systems are recognized upon shipment of the system, and the
commercial service fee revenues are recognized monthly based on the number of
VLUs in the fleet.
The VLUs for the consumer market are manufactured by third parties and are
sold to consumers through unrelated retailers. The Company's service contracts
to individual consumers are initiated by the retailers. Service revenues for the
consumer market are usually paid in advance and are recognized monthly as
earned. Unearned service fees are recorded as deferred revenue and included in
other current liabilities in the accompanying balance sheets.
INVENTORIES:
Inventories consist of VLUs and computer systems for commercial customers
and are stated at the lower of cost or market using the first-in, first-out
method of valuation. The Company has $140,600 of inventory on consignment with
third parties at December 31, 1994.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, are depreciated using the
straight-line method over their estimated useful lives, which are generally as
follows:
<TABLE>
<S> <C>
Equipment................................................. 3-7 years
Office furniture and equipment............................ 5 years
Vehicles.................................................. 3 years
</TABLE>
Leasehold improvements are amortized using the straight-line method over the
lesser of the estimated useful life of the asset or the remaining terms of the
underlying lease.
Repairs, maintenance, and renewal of minor items are charged to expense as
incurred. Major renewals and improvements are capitalized and depreciated over
the remaining useful lives of the assets.
INTANGIBLE ASSETS:
Intangible assets represent the cost of acquiring FCC licenses as well as
goodwill resulting from the Acquisition. Both FCC licenses and goodwill are
amortized using the straight-line method over twenty
F-32
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
years. The Partnership periodically reviews these intangible assets to determine
if its carrying costs will be recovered from future operations and, accordingly,
a reduction in carrying value should be recorded. No such reductions have
occurred to date.
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred.
ADVERTISING:
Advertising costs are expensed as incurred.
PARTNERSHIP INCOME:
Subsequent to the Acquisition, Partnership's profits and losses are
allocated based on the partners' percentage ownership interest in the
Partnership.
INCOME TAXES:
No provisions have been made for federal or state income taxes since such
taxes, if any, are the responsibility of the individual partners.
STATEMENT OF CASH FLOWS:
The Company prepares its statement of cash flows using the indirect method
as prescribed by Statement of Financial Accounting Standards No. 95. The Company
considers all investment instruments at date of purchase with maturities of less
than three months to be cash equivalents. The Partnership paid $13,780,500 in
interest in 1994. (See Note 6 for interest paid on convertible debt.) In 1994,
the Partnership did not enter into any capital lease obligations for new
equipment.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31, 1994 consist of the following:
<TABLE>
<S> <C>
Equipment...................................................... $22,958,400
Office furniture and equipment................................. 1,262,400
Vehicles....................................................... 385,100
Leasehold improvements......................................... 175,400
----------
24,781,300
Less, accumulated depreciation and amortization................ 10,763,900
----------
$14,017,400
----------
----------
</TABLE>
F-33
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INTANGIBLE ASSETS:
Intangible assets at December 31, 1994 consist of the following:
<TABLE>
<S> <C>
FCC licenses.................................................... $4,719,300
Goodwill........................................................ 7,517,300
12,236,600
Less, accumulated depreciation and amortization................. 2,282,600
---------
$9,954,000
---------
---------
</TABLE>
FCC licenses represent the cost of acquiring these licenses and are
amortized over a period of 20 years. FCC license term is for a 5-year period
with unlimited options to renew for subsequent 5-year periods.
Goodwill results from the application of the purchase method of accounting
with respect to the Acquisition.
6. RELATED PARTY TRANSACTIONS:
NET INDEBTEDNESS TO ITS:
The net indebtedness at December 31, 1994 represents the following:
<TABLE>
<S> <C>
Preferred capital account...................................... $69,700,000
Note receivable from ITS....................................... (20,200,000)
----------
$49,500,000
----------
----------
</TABLE>
Pursuant to the Acquisition, ITS has a "Preferred Capital Account" on which
the Partnership is required to make quarterly payments to ITS at prime plus 3%.
The Preferred Capital Account has all the debt features associated with the ITS
outstanding debt ($49,500,000--see next paragraph) and a $20,200,000 note
payable to the Partnership. These two debt instruments were not part of the
Acquisition and therefore not assumed by the Partnership. However, the note
receivable from ITS was reclassified and netted against the Preferred Capital
Account to reflect the substance of this transaction. The note receivable bears
interest at prime plus 3% (11.5% at December 31, 1994) and matures May 1998.
Subsequent to year-end, the Partnership intends to assign its preferred capital
account of $49,500,000 and ITS' equity in the Partnership to AirTouch Services,
an affiliate. In addition, the Partnership intends to assign the preferred
capital account of $20,200,000 and the related note receivable to LTI.
The Partnership guarantees the outstanding debt of ITS. The guaranteed debt
outstanding balance at December 31, 1994 was $49,500,000. Of this amount,
$9,500,000 is due no later than December 20, 1995, and the remaining balance is
due no later than January 31, 1996. The outstanding debt of ITS is held by
AirTouch Services, a wholly-owned subsidiary of AirTouch Communications.
CONVERTIBLE DEBT:
The Partnership has convertible debt payable to LTI. The Partnership pays
interest quarterly at prime plus 2% on the outstanding debt balance. Included in
the due to affiliate balance at December 31, 1994 is
F-34
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS: (CONTINUED)
interest payable of $3,879,800. Interest paid to the affiliate for the year
ended December 31, 1994 was $13,862,600. The principal balance is due when the
debt matures as follows:
<TABLE>
<S> <C>
1998.......................................................... $37,500,000
1999.......................................................... 52,600,000
2000.......................................................... 63,595,000
-----------
$153,695,000
-----------
-----------
</TABLE>
The debt is collateralized by the equipment, inventory, accounts receivable,
and all proceeds and products of the Partnership.
The outstanding debt's principal may be converted into shares of AirTouch
Teletrac stock if the Partnership elects to undertake an initial public
offering. After conversion, LTI and its affiliates' aggregate stock ownership
cannot exceed 70% of the total outstanding shares. However, subsequent to
year-end, the intent is that the debt will be held by AirTouch Services due to a
proposed merger of LTI and AirTouch Services, with AirTouch Services as the
surviving entity.
DEPENDENCE ON AFFILIATE:
Substantially all of the cash to fund the operations of the Partnership has
been provided by its affiliate, LTI, in the form of convertible debt.
INSURANCE:
The Partnership is covered under an insurance policy held by an affiliate.
Insurance expense passed through by this affiliate for the year ended December
31, 1994 was $57,600.
7. COMMITMENTS:
SIGNIFICANT SUPPLIER AGREEMENTS:
On July 30, 1991 and July 1, 1993, ITS and AirTouch Teletrac entered into
several purchase agreements with a foreign supplier whereby VLUs would be
supplied at a set price, provided ITS made prepayments to finance the production
of the units. At December 31, 1994, the total open commitments under these
agreements amounted to $3,725,300.
MAINTENANCE AGREEMENT:
Effective January 1, 1991, ITS entered into a 5-year agreement with the
aforementioned supplier whereby the supplier will perform maintenance and repair
on all base stations purchased by ITS from that supplier. At December 31, 1994,
the total remaining commitment on this agreement is approximately $241,000.
ROYALTIES:
ITS entered into an agreement with a software company to develop the mapping
software utilized in all the Partnership's operating locations to track
vehicles.
F-35
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS: (CONTINUED)
The Partnership pays a royalty fee for each copy of mapping software sold to
an end user (corporate customer).
In addition, beginning January 1, 1993, the Partnership has guaranteed to
pay an operational fee of $1,500 per month for each metropolitan area on line
for updates to the mapping software. At December 31, 1994, there were 6 cities
on line and the resulting minimum operational fee commitment amounts to $4,500
for 1995.
For commercial customers using the mapping software (tracking their own
vehicles), the Partnership pays a monthly fee per vehicle.
The above agreement had an original expiration date of January 14, 1995.
This agreement has been amended, which extends the term of the agreement for one
year through January 14, 1996 under the original terms and conditions of the
original agreement except for the payment terms which have been revised to a
flat fee of $325,000 payable in four equal installments during the term of the
agreement.
Total operational fees and royalties for the year ended December 31, 1994
amounted to approximately $256,125.
LEASES:
The Partnership leases various facilities under noncancellable operating
leases expiring through 1997. The Company is responsible for maintenance,
repairs, taxes, and insurance on these operating leases.
Future minimum rental payments required under operating leases that have
initial or remaining noncancellable lease terms in excess of one year are as
follows:
<TABLE>
<S> <C>
1995............................................................ $ 921,200
1996............................................................ 665,700
1997............................................................ 147,200
---------
$1,734,100
---------
---------
</TABLE>
Total rental expense under all operating leases was $2,443,600 for the year
ended December 31, 1994.
8. EMPLOYEE BENEFIT PLAN:
On December 1, 1993, the Partnership revised the profit sharing plan which
qualifies as a cash or deferred arrangement under Section 401(k) of the Internal
Revenue Code. Under this plan, eligible participating employees may elect to
contribute up to 25% of their monthly salaries. The Partnership contributes to
the plan on behalf of the participating employee an amount equal to 25% of
employee contributions to a maximum of $2,000 per employee per calendar year.
Participants are at all times fully vested in their contributions and in the
Partnership's contributions according to the following schedule:
<TABLE>
<CAPTION>
YEARS OF SERVICE VESTED PERCENTAGE
- ---------------------------------------------------------------------------- -----------------
<S> <C>
2........................................................................... 30%
3........................................................................... 50%
4........................................................................... 75%
5........................................................................... 100%
</TABLE>
F-36
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLAN: (CONTINUED)
The Partnership's contributions to the plan for the year ended December 31,
1994 amounted to approximately $201,400.
9. MAJOR SUPPLIER:
The Partnership purchases substantially all of its equipment from one
supplier.
10. CONTINGENCIES:
The Partnership is a party to various lawsuits arising in the ordinary
course of business. In the opinion of management, based on a review of such
litigation with legal counsel, any losses resulting from these actions are not
expected to materially impact the financial condition of the Partnership.
11. SUBSEQUENT EVENT (UNAUDITED):
Under an Asset Purchase Agreement, drafted in August of 1995, between
AirTouch Services and a third party, there is a pending sale of substantially
all of the Partnership's assets and assumption of certain liabilities. The
purchase price for the above is estimated to be $5,000,000. In addition, if
certain events occur relating to FCC actions prior to Buyer capital or
contractual commitment, it is estimated that an additional sum of $6,800,000
will be paid in two equal installments without interest on the first and second
anniversaries of the closing date or the date on which such FCC action is
issued, whichever is later.
If the sale is consummated under its terms as drafted, the Partnership may
incur significant losses. Such loss, assuming a $5,000,000 purchase price, is
estimated to be approximately $25,000,000.
F-37
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware ("DGCL")
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may indemnify such person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation to procure a judgment in its favor
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses (including attorneys' fees) which he actually
and reasonably incurred in connection therewith. The indemnification provided is
not deemed to be exclusive of any other rights to which an officer or director
may be entitled under any corporation's by-law, agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, the Company has adopted a By-Law
which provides that, to the fullest extent permitted by DGCL, the Company shall
indemnify any person made or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, other than one by or in the
right of the Company to procure a judgment in its favor, whether civil,
criminal, administrative or investigate, by reasons of the fact that he is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
defense or settlement of any such action or proceeding, or in connection with an
appeal thereon, except in relation to matters as to which such person is
adjudged to have breached his duty to the Company. Under Section 145 of the
DGCL, such indemnification shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any By-Law of the
Company, agreement, vote of stockholders or disinterested directors or
otherwise, including insurance purchased and maintained by the Company, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Company has purchased and maintains insurance to protect persons
entitled to indemnification pursuant to its By-Laws and the DGCL against
expenses, judgments, fines and amounts paid in settlement, to the fullest extent
permitted by the DGCL.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation, dated September 18, 1995.
3.2 Certificate of Amendment to Restated Certificate of Incorporation, dated December 4, 1996.
3.3 By-laws, adopted as of November 14, 1995
4.1 Indenture between the Registrant and Norwest Bank Minnesota, National Association, as Trustee, dated
August 6, 1997.
4.2 Registration Rights Agreement, dated August 6, 1997, among the Registrant, Teletrac Holdings, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and TD Securities (USA) Inc.
5 Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol**
10.1 VLU Production Agreement, dated as of September 6, 1996, between Tadiran, Ltd. and the Registrant.*
10.2 Amendment to VLU Production Agreement, dated as of May 28, 1997, between Tadiran, Ltd. and the
Registrant.*
10.3 Mobile Data Terminal Purchase Agreement, dated as of February 8, 1996, between Micronet, Inc. and the
Registrant.*
10.4 Amendment to Mobile Data Terminal Purchase Agreement, dated September 16, 1996, between Micronet,
Inc. and the Registrant.*
10.5 Value Added Reseller License Agreement, dated June 3, 1997, between Etak, Inc. and the Registrant.*
10.6 Pledge Agreement, dated August 6, 1997, between the Registrant and Norwest Bank Minnesota, National
Association, as Collateral Agent.
21.1 Subsidiaries of Registrant
23.1 Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (included in their opinion filed as Exhibit
5)**
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Coopers & Lybrand LLP
24.1 Power of Attorney of the Board of Directors (included in the Signature Page)
25 Statement on Form T-1 of Eligibility of Trustee**
99.1 Form of Letter of Transmittal**
99.2 Form of Notice of Guaranteed Delivery**
99.3 Form of Exchange Agent Agreement between the Registrant and Norwest Bank Minnesota, National
Association, dated as of [ ]**
</TABLE>
- ------------------------
* Certain information in this Exhibit is deleted pursuant to a request with
the Securities and Exchange Commission for confidential treatment.
** To be filed by amendment.
<TABLE>
<C> <S>
(ii) Financial Statement Schedules.
[None.]
</TABLE>
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person in connection with the securities being
registered) the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post
effective amendment all information concerning a transaction, and the company
being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in New York, New York on September 5,
1997.
TELETRAC, INC.
/S/ JAMES A. QUEEN
---------------------------------------------
James A. Queen
Chairman of the Board of Directors,
Chief Executive Officer, and Director
The undersigned Directors and Officers of Teletrac, Inc., hereby appoint
James A. Queen and Steven D. Scheiwe, or either of them individually, as
attorney-in-fact for the undersigned, with full power of substitution for, and
in the name, place and stead of the undersigned, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
any and all amendments (including post-effective amendments) and exhibits to
this Registration Statement on Form S-4 and any and all applications and other
documents to be filed with the Securities and Exchange Commission pertaining to
the registration of the securities covered hereby, with full power and authority
to do and perform any and all acts and things whatsoever requisite and necessary
or desirable, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman Of The Board,
/s/ JAMES A. QUEEN Chief Executive Officer
- ------------------------------ and Director (Principal September 5, 1997
James A. Queen Executive Officer)
Vice President Of
/s/ ALAN B. HOWE Finance and Corporate
- ------------------------------ Development(Principal September 5, 1997
Alan B. Howe Financial Officer)
/s/ CHARLES SCHEIWE
- ------------------------------ Controller (principal September 5, 1997
Charles Scheiwe Accounting Officer)
- ------------------------------ Director September 5, 1997
Sanford Anstey
/s/ ROBERT BENBOW
- ------------------------------ Director September 5, 1997
Robert Benbow
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ DAVID J. BERKMAN
- ------------------------------ Director September 5, 1997
David J. Berkman
/s/ MICHAEL A. GREELEY
- ------------------------------ Director September 5, 1997
Michael A. Greeley
/s/ MICHAEL MARKBREITER
- ------------------------------ Director September 5, 1997
Michael Markbreiter
/s/ MARC H. MICHEL
- ------------------------------ Director September 5, 1997
Marc H. Michel
- ------------------------------ Director September 5, 1997
Brian A. Rich
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation, dated September 18, 1995.
3.2 Certificate of Amendment to Restated Certificate of Incorporation, dated December 4, 1996.
3.3 By-laws, adopted as of November 14, 1995.
4.1 Indenture between the Registrant and Norwest Bank Minnesota, National Association, as
Trustee, dated August 6, 1997.
4.2 Registration Rights Agreement, dated August 6, 1997, among the Registrant, Teletrac
Holdings, Inc., Donaldson, Lufkin & Jenrette Securities Corporation and TD Securities
(USA) Inc.
5 Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol.**
10.1 VLU Production Agreement, dated as of September 6, 1996, between Tadiran, Ltd. and
Telectrac, Inc.*
10.2 Amendment to VLU Production Agreement, dated as of May 28, 1997, between Tadiran, Ltd. and
the Registrant.*
10.3 Mobile Data Terminal Purchase Agreement, dated as of February 8, 1996, between Micronet,
Inc. and the Registrant.*
10.4 Amendment to Mobile Data Terminal Purchase Agreement, dated September 16, 1996, between
Micronet, Inc. and the Registrant.*
10.5 Value Added Reseller License Agreement, dated June 3, 1997, between Etak, Inc. and the
Registrant.*
10.6 Pledge Agreement, dated August 6, 1997, between the Registrant and Norwest Bank Minnesota,
National Association, as Collateral Agent.
21.1 Subsidiaries of Registrant
23.1 Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (included in their opinion filed as
Exhibit 5)**
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Coopers & Lyrand LLP
24.1 Power of Attorney of the Board of Directors (included in the Signature Page)
25 Statement on Form T-1 of Eligibility of Trustee.**
99.1 Form of Letter of Transmittal**
99.2 Form of Notice of Guaranteed Delivery**
99.3 Form of Exchange Agent Agreement between the Registrant and Norwest Bank Minnesota, National
Association, dated as of [ ]**
</TABLE>
- ------------------------
* Certain information in this Exhibit is deleted pursuant to a request with
the Securities and Exchange Commission for confidential treatment.
** To be filed by amendment.
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
or
TELETRAC, INC.
Teletrac, Inc. (the "Corporation"), a corporation organized under the
Delaware General Corporation Law (the "Law") on August 24, 1995, for the purpose
of amending and restating its Certificate of Incorporation before having
received payment for stock, pursuant to Sections 241 and 245 of the Law, hereby
certifies that the Certificate of Incorporation is amended and restated to read
in its entirety as follows:
FIRST. The name of the Corporation is Teletrac, Inc.
SECOND. Its registered office in the State of Delaware is located at
1209 Orange Street, in the City of Wilmington, County of New Castle. The
registered agent in charge thereof is The Corporation Trust Company.
THIRD. The purpose or purposes of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, and to have and exercise all the
powers conferred by the laws of the State of Delaware upon corporations formed
under the General Corporation Law of the State of Delaware.
FOURTH.
A. AUTHORIZED SHARES
The total number of shares of capital stock which the Corporation has
authority to issue is four hundred and twenty thousand (420,000) shares,
consisting of:
(1) three hundred and fifty thousand (350,000) shares of Class A
Common Stock, one cent par value ($0.01) per share (the "Class A Common"); and
(2) seventy thousand (70,000) shares of Class B Common Stock, one
cent par value ($0.01) per share (the "Class B Common").
The Class A Common and the Class B Common are hereafter collectively
referred to as the "Common Stock."
B. COMMON STOCK
Except as otherwise provided in this Part B or as otherwise required
by applicable law, all shares of Class A Common and Class B Common shall be
identical in all respects and
<PAGE>
shall entitle the holders thereof to the same rights, preferences and
privileges, subject to the same qualifications, limitations and restrictions, as
set forth herein.
Section 1. VOTING RIGHTS.
Except as otherwise provided in this Part B or as otherwise required
by applicable law, the holders of Class A Common shall be entitled to one vote
per share on all matters to be voted on by the Corporation's stockholders, and
the holders of Class B Common shall have no right to vote on any matters to be
voted on by the Corporation's stockholders; provided that the holders of the
Class B Common shall have the right to vote as a separate class on any merger or
consolidation of the Corporation with or into another entity or entities, or any
recapitalization or reorganization, in which shares of Class B Common would
receive or be exchanged for consideration different on a per share basis from
the consideration received with respect to or in exchange for shares of Class A
Common or would otherwise be treated differently from shares of Class A Common,
except that shares of Class B Common may, without such a separate class vote,
receive or be exchanged for non-voting securities (except as otherwise required
by law) which are otherwise identical on a per share basis in amount and form to
the voting securities received with respect to or in exchange for the Class A
Common so long as (i) such non-voting securities are convertible into voting
securities on the same terms as the Class B Common is convertible into Class A
Common and (ii) all other consideration is equal on a per share basis.
Section 2. DIVIDENDS.
As and when dividends are declared or paid with respect to shares of
Common Stock, whether in cash, property or securities of the Corporation, the
holders of Class A Common and the holders of Class B Common shall be entitled to
receive such dividends pro rata at the same rate per share of each class of
Common Stock; provided that (i) if dividends are declared or paid in shares of
Class A Common or Class B Common, the dividends payable in shares of Class A
Common shall be payable to holders of Class A Common and the dividends payable
in shares of Class B common shall be payable to holders of Class A Common and
(ii) if the dividends consist of other voting securities of the Corporation, the
Corporation shall make available to each holder of Class B Common, at such
holder's request, dividends consisting of non-voting securities (except as
otherwise required by law) of the Corporation which are otherwise identical to
the voting securities and which are convertible into such voting securities on
the same terms as the Class B Common is convertible into the Class A Common.
2
<PAGE>
Section 3. LIQUIDATION.
The holders of the Class A Common and the holders of the Class B
Common shall be entitled to participate pro rata at the same rate per share of
each class of Common Stock in all distributions to the holders of the Common
Stock in any liquidation, dissolution or winding up of the Corporation.
Section 4. CONVERSION.
4A. CONVERSION OF CLASS B COMMON
(i) In connection with the occurrence (or the expected occurrence an
described in (iii) below) of any Conversion Event, each holder of Class B Common
shall be entitled to convert into an equal number of shares of Class A Common
any or all of the shares of such holders Class B Common being (or expected to
be) distributed, disposed of or sold in connection with such Conversion Event.
(ii) For purposes of this paragraph 4A, a "Conversion Event" shall
mean (a) any public offering or public sale of securities of the Corporation
(including a public offering registered under the Securities Act of 1933 and a
public sale pursuant to Rule 144 of the Securities and Exchange Commission or
any similar rule then in force), (b) any sale of securities of the Corporation
to a person or group of persons (within the meaning of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), if, after such sale, such person or
group of persons in the aggregate would own or control securities which possess
in the aggregate the ordinary voting power to elect a majority of the
Corporation's directors (provided that such sale has been approved by the
corporation's Board of Directors or a committee thereof), (c) any sale of
securities of the Corporation to a person or group of persons (within the
meaning of the 1934 Act) if, after such sale, such person or group of persons in
the aggregate would own or control securities of the Corporation (excluding any
Class B Common being converted and disposed of in connection with such
Conversion Event) which possess in the aggregate the ordinary voting power to
elect a majority of the corporation's directors, (d) any sale of securities of
the Corporation to a person or group of persons (within the meaning of the 1934
Act) if, after such sale, such person or group of persons would not, in the
aggregate, own, control or have the right to acquire more than two percent (2%)
of the outstanding securities of any class of voting securities of the
Corporation, and (e) a merger, consolidation or similar transaction involving
the Corporation if, after such transaction, a person or group of persons (within
the meaning of the 1934 Act) in the aggregate would own or control securities
which possess in the aggregate the ordinary voting power to elect a majority of
the surviving Corporation's directors (provided that the transaction has been
3
<PAGE>
approved by the Corporation's Board of Directors or a committee thereof). For
purposes of this paragraph 4A, a "person" shall include any natural person and
any Corporation, partnership, joint venture, trust, unincorporated organization
and any other entity or organization.
(iii) Each holder of Class B Common shall be entitled to convert
shares of Class B Common in connection with any conversion Event if such holder
reasonably believes that such Conversion Event shall be consummated, and a
written request for conversion from any holder of Class B Common to the
Corporation stating such holder's reasonable belief that a Conversion Event
shall occur shall be conclusive and shall obligate the Corporation to effect
such conversion in a timely manner so as to enable each such holder to
participate in such Conversion Event. The Corporation shall not cancel the
shares of Class B Common so converted before the tenth day following such
Conversion Event and shall reserve such shares until such tenth day for
reissuance in compliance with the next sentence. If any shares of Class B
Common are converted into shares of Class A Common in connection with a
Conversion Event and such shares of Class A Common are not actually distributed,
disposed of or sold pursuant to such Conversion Event, such shares of Class A
Common shall be promptly exchanged back into the same number of shares of Class
B Common.
(iv) Notwithstanding any other provision hereof, in the event that the
initial holder of the Class B Common is licensed by the U.S. Small Business
Administration as a Small Business Investment Company (an "SBIC") on or before
September 1, 1996, then such initial holder shall be entitled to convert the
Class B Common held by such holder into Class A Common within 3 months after the
date such license is effective, and in the event that any entity controlling,
controlled by or under common control with such initial holder is licensed as an
SBIC on or before September 1, 1996, then any Class B Common held by such
affiliate of the initial holder will be convertible into Class A Common within 3
months after the date such license is effective.
4B. CONVERSION PROCEDURE.
(i) Unless otherwise provided in connection with a Conversion Event,
each conversion of shares of Class B Common into shares of Class A Common shall
be effected by the surrender of the certificate or certificates representing the
shares to be converted at the principal office of the Corporation at any time
during normal business hours, together with a written notice by the holder of
such Class B Common stating that such holder desires to convert the shares, or a
stated number of the shares, of Class B Common represented by such certificate
or certificates into Class A Common. Unless otherwise provided in connection
with a Conversion Event, each conversion shall be deemed to have been effected
as of the close of business on the date on which
4
<PAGE>
such certificate or certificates have been surrendered and such notice has been
received, and at such time the rights of the holder of the converted Class B
Common as such holder shall cease and the person or persons in whose name or
names the certificate or certificates for shares of Class A Common are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Class A Common represented thereby.
(ii) Promptly after the surrender of certificates and the receipt of
such written notice, the Corporation shall issue and deliver in accordance with
the surrendering holder's instructions (a) the certificate or certificates for
the Class A Common issuable upon such conversion and (b) a certificate
representing any Class B Common which was represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which was not converted.
(iii) The issuance of certificates for Class A Common upon conversion
of Class B Common shall be made without charge to the holders of such shares for
any issuance tax in respect thereof or other cost incurred by the in connection
with such conversion and the related issuance of Class A Common.
(iv) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Class A Common, solely for the purpose
of issuance upon the conversion of the Class B Common, such number of shares of
Class A Common issuable upon the conversion of all outstanding Class B Common.
All shares of Class A Common which are so issuable shall, when issued, be duly
and validly issued, fully paid and nonassessable and free from all taxes, liens
and charges. The Corporation shall take all such actions as may be necessary to
assure that all such shares of Class A Common may be so issued without violation
of any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Class A Common may be listed
(except for official notice of issuance which shall be immediately transmitted
by the Corporation upon issuance).
(v) The Corporation shall not close its books against the transfer of
Class B Common or of Class A Common issued or issuable upon conversion of Class
B Common in any manner which would interfere with the timely conversion of Class
B Common. The Corporation shall assist and cooperate with any holder of Class B
Common required to make any governmental filings or obtain any governmental
approval prior to or in connection with any conversion of Class B Common
hereunder (including, without limitation, making any filings required to be made
by the Corporation).
5
<PAGE>
4C. STOCK SPLITS. If the Corporation in any manner subdivides or
combines the outstanding shares of one Class of Common Stock, the outstanding
shares of the other class of Common Stock shall be proportionately subdivided or
combined in a similar manner.
Section 5. AMENDMENT AND WAIVER.
No amendment or waiver of any provision of this Part B shall be
effective without the prior approval of (i) the holders of a majority of the
then outstanding shares of Class B Common voting as a separate class and (ii)
the holders of a majority of the then outstanding shares of Class A Common
voting as a separate class.
FIFTH. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors of the Corporation shall have the power to
adopt, and to alter or amend, the Bylaws, to fix the amount to be reserved as
working capital, and to authorize and cause to be executed mortgages and liens
(without limit as to the amount) upon the property of this Corporation.
SEVENTH. The stockholders and directors shall have the power to hold
their meetings and keep the books, documents and papers of the Corporation
within or outside the State of Delaware and at such place or places as may be
from time to time designated by the Bylaws or by resolution of the stockholders
or directors, except as otherwise required by the laws of the State of Delaware.
EIGHTH. The objects, purposes and powers specified in any clause or
paragraph of this Certificate of Incorporation shall be in no way limited or
restricted by reference to or inference from the terms of any other clause or
paragraph of this Certificate of Incorporation. The objects, purposes and
powers in each of the clauses and paragraphs of this Certificate of
Incorporation shall be regarded as independent objects, purposes and powers.
The objects, purposes and powers specified in this Certificate of Incorporation
are in furtherance and not in limitation of the objects, purposes and powers
conferred by statute.
NINTH. The Corporation shall have the power to indemnity its
officers, directors, employees and agents and such other persons as may be
designated as set forth in the Bylaws, to the full extent permitted by the laws
of the State of Delaware. A director shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duties as a director, provided that the liability of a director (i) for any
breach of the director's loyalty to the Corporation
6
<PAGE>
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of Title 8 of the Delaware Code, or (iv) for any transaction from
which the director derived an improper personal benefit shall not be eliminated
or limited hereby.
TENTH. The Corporation shall have perpetual existence.
The undersigned, Roger J. Traversa, for the purpose of amending and
restating the certificate of Incorporation under the laws of the State of
Delaware, does hereby make, file and record this Restated Certificate of
Incorporation and does hereby certify that the facts herein stated are true, and
has accordingly hereunto set his hand and seal.
/s/ Roger J. Traversa
-------------------------------
Roger J. Traversa, Incorporator
Dated: September 18, 1995
7
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TELETRAC, INC.
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
The undersigned, being the elected Vice President and Secretary of
TELETRAC INC., a corporation organized and existing under the laws of the State
of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: that the name of the corporation is Teletrac, Inc.
SECOND: that Article FOURTH, Section A, of the Restated Certificate
of Incorporation of the Corporation is hereby amended and restated in its
entirety to read as follows:
"FOURTH.
I. AUTHORIZED SHARES
The total number of shares of capital stock which the Corporation
has authority to issue is nine hundred fifty-eight thousand eight hundred
eighty-eight (958,888) shares, consisting of:
(1) five hundred seven thousand nine hundred and thirty-four
(507,934) shares of Class A Common Stock, one cent par value ($0.01) per
share (the "Class A Common");
(2) seventy thousand (70,000) shares of Class B Common Stock, one
cent par value ($0.01) per share (the "Class B Common");
(3) one hundred ninety thousand four hundred seventy-seven
(190,477) shares of Series A Redeemable Convertible Participating Preferred
Stock, one cent par value ($0.01) per share ("Series A Preferred Stock");
and
(4) one hundred ninety thousand four hundred seventy-seven
(190,477) shares of Preferred Stock, one cent par value ($0.01) per share,
with such designations, rights,
<PAGE>
preferences and privileges and such qualifications, limitations and
restrictions as the Board of Directors shall determine from time to time
pursuant to Subpart IIA hereof ("Undesignated Preferred Stock").
The Class A Common and the Class B Common are hereafter
collectively referred to as the "Common Stock." The Series A Preferred
Stock and the Undesignated Preferred Stock are hereafter collectively
referred to as the "Preferred Stock."
II. PREFERRED STOCK
A. UNDESIGNATED PREFERRED STOCK. The Undesignated Preferred Stock
may be issued from time to time in one or more series of any number of shares
pursuant to Section 4(k) of Subpart IIB hereof, provided that the aggregate
number of shares issued and not canceled of any and all such series, together
with the aggregate number of shares of Series A Preferred Stock then
outstanding, shall not exceed 190,477 shares. Subject to the foregoing, the
Board of Directors of the Corporation is hereby authorized to determine and
alter all rights, preferences and privileges and qualifications, limitations and
restrictions thereof (including, without limitation, voting rights and the
limitation and exclusion thereof) granted to or imposed upon any wholly unissued
series of Preferred Stock and the number of shares constituting any such series
and the designation thereof, and to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
series subsequent to the issue of shares of that series then outstanding.
B. SERIES A REDEEMABLE CONVERTIBLE PARTICIPATING PREFERRED STOCK.
The relative rights, preferences, restrictions and other matters relating to the
Series A Preferred Stock are as follows:
1. DIVIDENDS.
(a) The holders of the Series A Preferred Stock shall be
entitled to receive cumulative, compounding dividends ("Cumulative
Dividends") at a rate per annum of fifteen percent (15%) or $25.9875 per
share. Such dividends shall accrue on a daily basis, shall be cumulative
from the date of original issue and shall be payable out of funds legally
available therefor, when and as declared by the Board of Directors and, in
any event, upon redemption of the Series A Preferred Stock or any
liquidation of the Corporation. Each such Cumulative Dividend shall be
paid to the holders of record of shares of the Series A Preferred Stock as
they appear on the stock register on the applicable record date, and in the
event that Cumulative Dividends are
2
<PAGE>
not paid as of any calendar year end, such dividends shall thereafter
compound and accrue additional Cumulative Dividends at the applicable
dividend rate.
(b) For so long as any shares of Series A Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for
payment on any shares of any other class or classes of stock of the
Corporation or any series thereof (other than the other series of Preferred
Stock, if any), nor shall any shares of capital stock be redeemed,
purchased or otherwise acquired for any consideration (or any moneys to be
paid to or made available for a sinking fund for the redemption of any such
shares) by the Corporation (except (i) by conversion into or exchange for
shares of the Corporation ranking junior to the Preferred Stock as to
dividends and upon liquidation, (ii) for conversion of any series of
Preferred Stock to another series of Preferred Stock and (iii) for
repurchases of shares of Common Stock by the Corporation under employee
stock plans and programs approved by the Board of Directors), provided that
the repurchase price does not exceed the lesser of (i) the purchase price
paid to the Company for such shares and (ii) the fair market value of such
shares at the time of such repurchase (as determined by the Board of
Directors in its sole discretion).
(c) In addition, the holders of the Series A Preferred Stock
shall be entitled to receive out of funds legally available therefor,
dividends (other than dividends paid in additional shares of Common Stock
or the Special Dividend (as defined below)) at the same rate as dividends
are paid with respect to the Common Stock (treating each share of Series A
Preferred Stock as being equal to the maximum number of shares of Common
Stock into which each such share of Series A Preferred Stock could then be
converted pursuant to the provisions of Section 4 hereof).
(d) In addition to the Cumulative Dividends provided for in this
Section 1 and notwithstanding anything to the contrary set forth in this
Section 1, a dividend may be declared by the Board of Directors of the
Corporation on the Series A Preferred Stock, each other series of Preferred
Stock (if any), and the Common Stock with respect to all or any portions of
the net proceeds received by the Corporation in connection with a spinoff
or sale, in whole or in part, of assets of the Corporation which constitute
a separate business unit or operation (a "Special Dividend"). Such Special
Dividend shall be first paid in the ratio of
3
<PAGE>
1.7325 to 1.00 on each share of the Preferred Stock (unless otherwise
provided under the terms of any other series of Preferred Stock) and the
Common Stock, respectively, until such time as an aggregate of $173.25
shall have been paid on each share of Preferred Stock (unless otherwise
provided under the terms of any other series of Preferred Stock), and
thereafter any remaining balance of the proceeds of the Special Dividend
shall be paid ratably to the holders of Common Stock and the holders of
Preferred Stock, treating each share of Series A Preferred Stock as being
equal to the maximum number of shares of Common Stock into which such share
of Series A Preferred Stock could then be converted pursuant to the
provisions of Section 4 hereof.
2. PREFERENCE ON LIQUIDATION.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, the holders of the Series A Preferred Stock shall be
entitled to receive in cash, on a PRO RATA basis with the holders of any
other series of Preferred Stock (if any) in accordance with the terms
thereof and prior and in preference to any distribution of any assets,
capital, surplus or earnings of the Corporation to the holders of any other
capital stock of the Corporation junior to the Preferred Stock, an amount
equal to $173.25 per share for each share of Series A Preferred Stock then
held by such holder (adjusted for any stock split, combination,
consolidation, or stock distributions or stock dividends with respect to
such shares) plus a sum equal to all Cumulative Dividends (whether or not
earned or declared) on such shares of the Series A Preferred Stock to the
date of final distribution (the "Liquidation Preference Amount"); PROVIDED,
HOWEVER, that if upon any such liquidation, dissolution or winding up of
the Corporation the holders of the outstanding shares of Series A Preferred
Stock would receive more than the Liquidation Preference Amount if their
shares were converted into Common Stock pursuant to the provisions of
Section 4 hereof immediately prior to the record date for distributions in
connection with such event, then the holders of the Series A Preferred
Stock shall be entitled to receive, in lieu of the Liquidation Preference
Amount, in cash, PRO RATA with the holders of any other series of Preferred
Stock (if any) in accordance with the terms thereof and prior and in
preference to any distribution of any assets, capital, surplus or earnings
of the Corporation to the holders of any other capital stock of the
Corporation, an amount equal to the ratable share of the assets and funds
available for distribution to holders of Common Stock, with such
distributions to be made as if each share of Preferred
4
<PAGE>
Stock had been converted into the maximum number of shares of Common Stock
issuable upon the conversion of such share of Preferred Stock immediately
prior to such event. If the assets and funds available for distribution
among the holders of the Preferred Stock shall be insufficient to permit
the payment to the holders of the Series A Preferred Stock of the full
Liquidation Preference Amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Preferred Stock (on an as-converted basis). The
provisions of this Section 2 shall not in any way limit the right of the
holders of Series A Preferred Stock to elect to convert their shares into
Common Stock pursuant to Section 4 prior to or in connection with any such
event.
(b) The following shall be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 2 (with each
such event being referred to herein as a "Corporate Disposition") and the
holders of Series A Preferred Stock shall be entitled to the application of
the provisions of this Section 2 upon the occurrence of such Corporate
Disposition UNLESS the holder or holders of not less than sixty-six and
two-thirds percent (662/3%) of the outstanding shares of Preferred Stock
(with all series of Preferred Stock voting together as a single class, on
an as-converted basis) shall have elected the application of the provisions
of Section 4(j) hereof: (i) a merger or consolidation of the Corporation
with or into another corporation (with the result that less than a majority
of the outstanding voting power of the surviving corporation is held by
persons who were stockholders of the Corporation immediately prior to such
event); (ii) the sale or transfer of all or substantially all of the
properties and assets of the Corporation and its subsidiaries; or (iii) any
purchase of shares of capital stock of the Corporation (either through a
negotiated stock purchase or a tender for such shares) by a person or
entity not affiliated with the Corporation or any of its stockholders, the
effect of which is that such party beneficially owns at least a majority of
the voting power of the outstanding shares of capital stock of the
Corporation immediately after such purchase. Notwithstanding anything to
the contrary set forth in this Section 2, in the event of a Corporate
Disposition on or before December 4, 1998, the holders of the Series A
Preferred Stock shall be entitled to receive, in lieu of the Liquidation
Preference Amount, in cash, PRO RATA with the holders of any other series
of Preferred Stock (if any) in accordance with the terms thereof and prior
and in preference to any distribution of assets, capital, surplus or
earnings of the Corporation to the
5
<PAGE>
holders of any other capital stock of the Corporation, an amount equal to
$259.88 per share of Series A Preferred Stock (adjusted for any stock
split, combination, consolidation, or stock distributions or stock
dividends with respect to such share), UNLESS the holder or holders of not
less than sixty-six and two-thirds percent (662/3%) of the outstanding
shares of Preferred Stock (with all series of Preferred Stock voting
together as a single class, on an as-converted basis) expressly waive in
writing the application of the provisions of this Section 2 in connection
with such Corporate Disposition. The provisions of this Section 2 shall
not in any way limit the rights of the holders of Series A Preferred Stock
to elect the application of the provisions of Section 4(j) hereof in
connection with a Corporate Disposition.
3. VOTING.
(a) GENERAL. Except as otherwise expressly provided herein or
as required by law, the holder of each share of Series A Preferred Stock
shall be entitled to vote on all matters submitted to a stockholder vote or
consent. Each share of Series A Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the maximum number
of shares of Common Stock into which each share of Series A Preferred Stock
is then convertible in accordance with the provisions of Section 4 hereof
at the record date for the determination of stockholders entitled to vote
on such matter or, if no record date is established, at the date such vote
is taken or any written consent of stockholders is solicited. Except as
otherwise expressly provided herein (including without limitation the
provisions of Section 6 hereof) or as required by law, the holders of
shares of Preferred Stock and the Common Stock shall vote together as a
single class on all matters.
(b) BOARD OF DIRECTORS. The holders of the Preferred Stock
shall be entitled to vote as a class (with all series of Preferred Stock
voting together as a single class, on an as-converted basis) for the
election of two (2) directors. The remainder of the directors shall be
elected by the holders of the Preferred Stock and the Common Stock voting
together as a single class. In any vote by the holders of the Preferred
Stock, each share of Series A Preferred Stock shall be entitled to the
number of votes determined as provided in Section 3(a).
6
<PAGE>
4. CONVERSION RIGHTS. The holders of Series A Preferred Stock shall
have conversion rights as follows:
(a) VOLUNTARY CONVERSION. At any time, each holder of shares of
Series A Preferred Stock shall be entitled, without the payment of any
additional consideration, to cause any or all outstanding shares of Series
A Preferred Stock held by such holder to be converted into the number of
fully-paid and nonassessable shares of Class A Common Stock which results
from dividing the Conversion Price (as defined below) then in effect at the
time of conversion into the Conversion Value of the Series A Preferred
Stock, which shall be $173.25 per share. The "Conversion Price" shall be
$173.25 per share of Common Stock, subject to adjustment from time to time
as provided in this Section 4. If a holder of Series A Preferred Stock
elects to convert under this Section 4(a), such holder shall deliver to the
Corporation a written notice of conversion specifying (i) the number of
shares of Series A Preferred Stock to be converted, (ii) the name or names
in which such holder wishes the certificate or certificates for Common
Stock and for any Series A Preferred Stock not to be so converted to be
issued and (iii) the address to which such holder wishes delivery to be
made of such new certificates to be issued upon such conversion.
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock shall automatically be converted, without the payment of any
additional consideration, into shares of Common Stock on the basis provided
in Section 4(a) above (i) upon the closing of an underwritten public
offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), covering the
offer and sale of Common Stock of the Corporation to the public at an
initial public offering price of not less than $354.38 per share (subject
to adjustment for stock splits, stock dividends, recapitalizations and the
like) and resulting in gross proceeds of at least
$30,000,000 (a "Qualified Public Offering"), or (ii) upon the written
election of the holder or holders of not less than sixty-six and two-thirds
percent (662/3%) percent of the outstanding Preferred Stock (with all
series of Preferred Stock voting together as a single class, on an
as-converted basis) made in connection with the closing of an underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of Common Stock of the
Corporation to the public which does not constitute a Qualified Public
Offering (a "Public Offering").
7
<PAGE>
(c) CONVERSION PROCEDURES. Any holder of Series A Preferred
Stock converting such shares into shares of Common Stock, or whose shares
are automatically converted pursuant to Section 4(b), shall surrender the
certificate or certificates representing the Series A Preferred Stock being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the
transfer agent for the Series A Preferred Stock or such office or offices
in the continental United States of an agent for conversion as may from
time to time be designated by notice to the holders of the Series A
Preferred Stock by the Corporation, or shall deliver an Affidavit of Loss
with respect to such certificates. Upon surrender of a certificate
representing Series A Preferred Stock for conversion, the Corporation shall
issue and send by hand delivery, by courier or by first class mail (postage
prepaid) to the holder thereof or to such holder's designee, at the address
designated by such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a
certificate or certificates representing Series A Preferred Stock, only
part of which are to be converted, the Corporation shall issue and send to
such holder or such holder's designee, in the manner set forth in the
preceding sentence, a new certificate or certificates representing the
number of shares of Series A Preferred Stock which shall not have been
converted. The issuance and delivery of certificates for Common Stock upon
conversion of Series A Preferred Stock will be made without charge to the
holders of such shares for any issuance tax in respect thereof or other
costs incurred by the Corporation in connection with such conversion and
the related issuance of such stock.
(d) EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock upon a conversion of Series A
Preferred Stock into shares of Common Stock at the option of the holder(s)
thereof pursuant to Section 4(a) or by operation of Section 4(b) hereof
shall be effective as of the surrender of the certificate or certificates
for the Series A Preferred Stock to be converted, duly assigned or endorsed
for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto) or delivery of an Affidavit of Loss with respect
to such certificates. The issuance by the Corporation of shares of Common
Stock upon a conversion of Series A Preferred Stock into Common Stock
pursuant to Section 4(b) hereof upon a Qualified Public Offering or a
Public Offering shall be
8
<PAGE>
deemed to be effective immediately prior to the closing of such Qualified
Public Offering or Public Offering. On and after the effective date of
conversion, the person or persons entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock.
(e) NO IMPAIRMENT. The Corporation shall not, by amendment of
its charter documents or through any 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 hereunder by
the Corporation but shall at all times in good faith assist in the carrying
out of all the provisions of this Section 4 and in the taking of all such
action as may be necessary or appropriate in order to protect the
conversion and other rights of the holders of the Series A Preferred Stock
against impairment.
(f) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Series A Preferred Stock any fractional share of
Common Stock issuable upon any conversion of such Series A Preferred Stock,
but in lieu thereof may make a cash payment for fair market value in
respect thereof in any manner permitted by law.
(g) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Series A Preferred Stock
as herein provided, free from any preemptive rights or other obligations,
such number of shares of Class A Common Stock as shall from time to time be
issuable upon the conversion of all the Series A Preferred Stock then
outstanding. The Corporation shall prepare and shall use its best efforts
to obtain and keep in force such governmental or regulatory permits or
other authorizations as may be required by law, excluding permits or
authorizations relating to registration under Federal or state securities
laws, in order to enable the Corporation lawfully to issue and deliver to
each holder of record of Series A Preferred Stock such number of shares of
its Common Stock as shall from time to time be sufficient to effect the
conversion of all Series A Preferred Stock then outstanding and convertible
into shares of Class A Common Stock.
(h) ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price in
effect from time to time shall be subject to
9
<PAGE>
adjustment from and after December 4, 1996 and through the effective date
of the conversion of all of the then outstanding Series A Preferred Stock
and regardless of whether any shares of Series A Preferred Stock are then
issued and outstanding as follows:
(I) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. Upon
the issuance of additional shares of Common Stock as a dividend or
other distribution on outstanding Common Stock, the subdivision of
outstanding shares of Common Stock into a greater number of shares of
Common Stock, or the combination of outstanding shares of Common Stock
into a smaller number of shares of Common Stock, the Conversion Price
shall, simultaneously with the happening of such dividend, subdivision
or split, be adjusted by multiplying the then effective Conversion
Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant
to this Section 4(h)(I) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination
of stockholders entitled to receive such dividend or distribution (on
a retroactive basis) and in the case of a subdivision or combination
shall become effective immediately as of the effective date thereof.
(II) SALE OF COMMON STOCK. In the event the Corporation
shall at any time, or from time to time, issue, sell or exchange any
shares of Common Stock (including shares held in the Corporation's
treasury but excluding any shares of Common Stock issued (i) upon
conversion of the Preferred Stock, or (ii) upon the exercise of
Excluded Options (as defined in Section 4(h)(III) below)), for a
consideration per share less than the Conversion Price in effect
immediately prior to the issuance, sale or exchange of such shares,
then, and thereafter successively upon each such issuance, sale or
exchange, the Conversion Price in effect immediately prior to the
issuance, sale or exchange of such shares shall forthwith be reduced
to an amount determined by multiplying such Conversion Price by a
fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock of all class-
10
<PAGE>
es outstanding immediately prior to the issuance of such
additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion,
exercise or exchange of any outstanding Preferred Stock, options,
warrants, rights or convertible or exchangeable securities), plus
(ii) the number of shares of Common Stock which the total
aggregate consideration received by the Corporation for the total
number of such additional shares of Common Stock so issued would
purchase at the Conversion Price (prior to adjustment), and
(B) the denominator of which shall be (i) the number
of shares of Common Stock of all classes outstanding immediately
prior to the issuance of such additional shares of Common Stock
(excluding treasury shares but including all shares of Common
Stock issuable upon conversion, exercise or exchange of any
outstanding Preferred Stock, options, warrants, rights or
convertible or exchangeable securities), plus (ii) the number of
such additional shares of Common Stock so issued.
(III) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE SECURITIES.
In the event the Corporation shall at any time or from time to time,
issue options, warrants or rights to subscribe for shares of Common
Stock (other than (a) any options or warrants to purchase up to 68,457
shares of Common Stock granted to officers, directors, employees,
consultants, advisors or agents of the Corporation granted or issued
pursuant to employee stock option plans and programs approved by the
compensation committee of the Corporation's Board of Directors,
(b) any warrants for shares of Common Stock issued to a bank or other
financial institution in connection with the Corporation's incurrence
of up to $25,000,000 of senior debt on competitive terms approved by
the Board of Directors, or (c) any warrants for shares of Common Stock
issued to third party purchasers of up to $100 million of high yield
debt issued by the Corporation on or before December 4, 1997 on
competitive market terms approved by the Corporation's Board of
Directors (collectively, the "Excluded Options")), or issue any
securities convertible into or exchangeable for shares of Common
Stock, for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined below) by the aggregate number
of shares of Common Stock that would
11
<PAGE>
be issued if all such options, warrants, rights or convertible or
exchangeable securities were exercised, converted or exchanged to the
fullest extent permitted by their terms) less than the Conversion
Price in effect immediately prior to the issuance of such options,
warrants, rights or convertible or exchangeable securities, the
Conversion Price in effect immediately prior to the issuance of such
options, warrants, rights or convertible or exchangeable securities
shall forthwith be reduced to an amount determined by multiplying such
Conversion Price by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such options, rights or convertible or
exchangeable securities (excluding treasury shares but including
all shares of Common Stock issuable upon conversion, exercise or
exchange of any outstanding Preferred Stock, options, warrants,
rights or convertible securities), plus (ii) the number of shares
of Common Stock which the total amount of consideration received
by the Corporation for the issuance of such options, warrants,
rights or convertible or exchangeable securities plus the minimum
amount set forth in the terms of such security as payable to the
Corporation upon the exercise, conversion or exchange thereof
(the "Net Aggregate Consideration") would purchase at the
Conversion Price prior to adjustment, and
(B) the denominator of which shall be (i) the number
of shares of Common Stock of all classes outstanding immediately
prior to the issuance of such options, warrants, rights or
convertible or exchangeable securities (excluding treasury shares
but including all shares of Common Stock issuable upon
conversion, exercise or exchange of any outstanding Preferred
Stock, options, warrants, rights or convertible or exchangeable
securities), plus (ii) the aggregate number of shares of Common
Stock that would be issued if all such options, warrants, rights
or convertible or exchangeable securities were exercised,
converted or exchanged.
(IV) EXPIRATION OR CHANGE IN PRICE. If the consideration
per share provided for in any options, warrants or rights to subscribe
for shares of Common
12
<PAGE>
Stock or any securities exchangeable for or convertible into shares of
Common Stock changes at any time, the Conversion Price in effect at
the time of such change shall be readjusted to the Conversion Price
which would have been in effect at such time had such options,
warrants rights or convertible or exchangeable securities provided for
such changed consideration per share (determined as provided in
Section 4(h)(III) hereof), at the time initially granted, issued or
sold; PROVIDED, that such adjustment of the Conversion Price will be
made only as and to the extent that the Conversion Price effective
upon such adjustment remains less than or equal to the Conversion
Price that would be in effect if such options, warrants, rights or
convertible or exchangeable securities had not been issued. No
adjustment of the Conversion Price shall be made under this Section 4
upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise of any options, warrants or other
subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible or exchangeable
securities if an adjustment shall previously have been made upon the
issuance of such options, warrants, rights or convertible or
exchangeable securities. Any adjustment of the Conversion Price shall
be disregarded if, as, and when the rights to acquire shares of Common
Stock upon exercise or conversion of the options, warrants, rights or
convertible or exchangeable securities which gave rise to such
adjustment expire or are canceled without having been exercised, so
that the Conversion Price effective immediately upon such cancellation
or expiration shall be equal to the Conversion Price in effect at the
time of the issuance of the expired or canceled warrants, options,
rights or convertible securities, with such additional adjustments as
would have been made to that Conversion Price had the expired or
canceled warrants, options, rights or convertible securities not been
issued.
(i) OTHER ADJUSTMENTS. In the event the Corporation shall make
or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a non-cash dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock,
then and in each such event lawful and adequate provision shall be made so
that the holders of Series A Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock receivable
13
<PAGE>
thereupon, the number of securities of the Corporation which they would
have received had their Series A Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period
from the date of such event to and including the Conversion Date (as that
term is hereafter defined), retained such securities receivable by them as
aforesaid during such period.
If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 4),
then and in each such event the holder of each share of Series A Preferred
Stock shall have the right thereafter to convert such share into the kind
and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change, by holders of
the number of shares of Common Stock into which such shares of Series A
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(j) MERGERS AND OTHER REORGANIZATIONS. If (x) at any time or
from time to time there shall be (i) a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange
of shares provided for elsewhere in this Section 4), (ii) a merger or
consolidation of the Corporation with or into another corporation (with the
result that less than a majority of the outstanding voting power of the
surviving corporation is held by persons who were stockholders of the
Corporation immediately prior to such event) or (iii) the sale of all or
substantially all of the Corporation's properties and assets to any other
person and (y) the holders of sixty-six and two-thirds percent (662/3%) of
the outstanding shares of Preferred Stock (with all series of Preferred
Stock voting together as a single class, on an as-converted basis)
expressly elect in writing to have the provisions of this Section 4(j), and
not the provisions of Section 2, apply to such transaction, then, as a part
of and as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that
the holders of the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock the number of
shares of stock or
14
<PAGE>
other securities or property of the Corporation or of the successor
corporation resulting from such merger or consolidation or sale, to which
such holders would have been entitled upon such capital reorganization,
merger, consolidation or sale had such holders converted their shares of
Series A Preferred Stock into Common Stock immediately prior to such
capital reorganization, merger, consolidation, or sale. In any such case,
appropriate provisions shall be made with respect to the rights of the
holders of the Series A Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section 4
(including without limitation provisions for adjustment of the Conversion
Price and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be, with
respect to any shares of stock, securities or assets to be deliverable
thereafter upon the conversion of the Series A Preferred Stock. The
provisions of this Section 4(j) shall not in any way limit the rights of
the holders of Series A Preferred Stock under Section 2 hereof if an
election to have this Section 4(j) apply to such transaction is not made by
such holders.
(k) EXCEPTIONS TO ADJUSTMENT OF CONVERSION PRICE.
Notwithstanding anything herein to the contrary, in the event that (x) the
Corporation completes an issuance of new securities (for purposes of this
paragraph, the "New Securities") that results in an adjustment of the
Conversion Price pursuant to Sections 4(h)(II) or 4(h)(III) and which the
holders of Series A Preferred Stock had a right to purchase pursuant to
Article IV of a certain Stockholders Agreement dated December 4, 1996 by
and among the Corporation and certain of its stockholders (the
"Stockholders Agreement") and (y) any holder of the Series A Preferred
Stock does not purchase its pro rata share (as defined in Article IV of the
Stockholders Agreement) of such New Securities, then such holder (a
"Non-Participating Holder") shall not be entitled to the benefits of
Section 4(h)(II) or Section 4(h)(III), as applicable, with respect to any
adjustment to the Conversion Price resulting from that issuance or any
future issuances of New Securities and all of such Non-Participating
Holder's shares of Series A Preferred Stock shall immediately and
automatically, without further action by such Non-Participating Holder, be
converted on a share-for-share basis to a new series of Preferred Stock,
which shall be identical in all respects to the Series A Preferred Stock
except that (i) the Conversion Price of such new series of Preferred Stock
shall be equal to the Conversion Price of the Series A Preferred Stock in
effect immediately prior to the issuance of
15
<PAGE>
such New Securities and (ii) the terms of such new series of Preferred
Stock shall not contain any provision for adjustment thereof similar to
Sections 4(h)(II) or (III) hereof. Prior to the issuance of any new series
of Preferred Stock (a) the Board of Directors shall designate the number of
shares and the series of Preferred Stock to be issued in accordance with
this Section 4(k) at that time and (b) the Corporation shall file all
certificates and take all actions necessary to effectuate the foregoing.
Any holder of Series A Preferred Stock whose shares are automatically
converted pursuant to this Section 4(k) into shares of a new series of
Preferred Stock shall surrender the certificate or certificates
representing the Series A Preferred Stock so converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed
stock powers relating thereto), at the principal executive office of the
Corporation or the offices of the transfer agent for the Series A Preferred
Stock or such office or offices in the continental United States of an
agent for conversion as may from time to time be designated by notice to
the holders of the Series A Preferred Stock by the Corporation, or shall
deliver an Affidavit of Loss with respect to such certificates. Upon
surrender of a certificate representing Series A Preferred Stock for
conversion under this Section 4(k), the Corporation shall issue and send by
hand delivery, by courier or by first class mail (postage prepaid) to the
holder thereof or to such holder's designee, at the address designated by
such holder, a certificate or certificates for the number of shares of the
new series of Preferred Stock to which such holder shall be entitled upon
such automatic conversion. The issuance and delivery of certificates for a
new series of Preferred Stock upon conversion of Series A Preferred Stock
will be made without charge to the holders of such shares for any issuance
tax in respect thereof or other costs incurred by the Corporation in
connection with such conversion and the related issuance of such stock.
Each share of Series A Preferred Stock converted pursuant to this
Section 4(k) shall be canceled and retired as provided in Section 7 hereof.
In the event that any Non-Participating Holder fails to surrender its
certificates as provided hereunder, such certificate shall nonetheless
represent only the right to receive a new series of Preferred Stock, as
provided hereunder.
(l) WAIVER. The holder or holders of not less than sixty-six
and two-thirds percent (662/3%) of the outstanding Preferred Stock (with
all series of Preferred Stock voting together as a single class, on an
as-converted basis)
16
<PAGE>
may, by written notice to the Corporation, waive any adjustment to the
Conversion Price required under this Section 4.
(m) NOTICES. In each case of an adjustment or readjustment of
the Conversion Price, the Corporation will furnish each holder of Series A
Preferred Stock with a certificate, prepared by the chief financial officer
of the Corporation, showing such adjustment or readjustment, and stating in
detail the facts upon which such adjustment or readjustment is based.
5. REDEMPTION.
(a) At any time on or after December 4, 2001, at the election of
the holders of a majority of the outstanding Preferred Stock (with all
series of Preferred Stock voting together as a single class, on an
as-converted basis), the Corporation shall redeem each share of Series A
Preferred Stock then outstanding for a cash price (the "Redemption Price")
equal to the Liquidation Preference Amount, together with each share of all
other series of Preferred Stock (if any) in accordance with the terms
thereof; PROVIDED, HOWEVER, that from and after December 4, 2003, the
Redemption Price shall be equal to the greater of (i) the Liquidation
Preference Amount or (ii) the fair market value of the Series A Preferred
Stock as of the date of redemption (the "Redemption Date") as determined in
accordance with Section 5(d) below.
(b) TERMINATION OF RIGHTS. From and after the Redemption Date,
unless there shall have been a default in payment or tender by the
Corporation of the Redemption Price, all rights of the holders with respect
to such redeemed shares of Series A Preferred Stock (except the right to
receive the Redemption Price in accordance with the terms hereof upon
surrender of their certificate) shall cease and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to
be outstanding for any purpose whatsoever.
(c) INSUFFICIENT FUNDS. If the funds of the Corporation legally
available for redemption of shares of Series A Preferred Stock and all
other series of Preferred Stock (if any) to be redeemed on the Redemption
Date are insufficient to redeem the total number of shares of Series A
Preferred Stock and such other series of Preferred Stock (if any), the
Corporation shall use those funds which are legally available to redeem the
maximum possible number of such shares ratably among the holders of such
shares to be
17
<PAGE>
redeemed. At any time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of Series A Preferred
Stock and such other series of Preferred Stock (if any), such funds will
immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on the Redemption Date but which
it has not redeemed at the Redemption Price together with any accrued
interest thereon as provided below. If any shares of Series A Preferred
Stock are not redeemed because the Corporation failed to pay or tender to
pay the aggregate Redemption Price on all outstanding shares of Preferred
Stock, (i) all shares which have not been redeemed shall remain outstanding
and entitled to all the rights and preferences provided herein, and the
Corporation shall pay interest on the unpaid portion of the Redemption
Price for the unredeemed portion at a per annum rate equal to twenty
percent (20%) or the maximum rate of interest permitted under applicable
law, whichever is less and (ii) if such Redemption Price shall remain
unpaid for a period of nine (9) months, then the Board of Directors shall
take all actions that it deems necessary to fund the Redemption Price,
including, without limitation, the sale or liquidation of the Corporation.
(d) FAIR MARKET VALUE DETERMINATION.
(i) If the Corporation's Common Stock is publicly traded at
the Redemption Date, the Fair Market Value of each share of Series A
Preferred Stock shall equal the product of the number of shares of
Common Stock into which each share of the Series A Preferred Stock may
then be converted MULTIPLIED by the average closing price for the
Corporation's Common Stock for the thirty (30) trading days
immediately preceding the Redemption Date.
(ii) If the Corporation's Common Stock is not publicly
traded on the Redemption Date, the Fair Market Value shall be
determined in accordance with the following provisions. Within
fifteen (15) days after the redemption election by the holders of
Preferred Stock pursuant to Section 5(a), the Corporation shall
deliver to each holder of Series A Preferred Stock its estimate of the
Fair Market Value of the Series A Preferred Stock and an estimate of
the fair market value of all other shares of Preferred Stock (if any)
to be redeemed. If the holders of sixty-six and two-thirds percent
(662/3%) of the outstanding shares of the Preferred Stock (with all
series of Preferred Stock voting
18
<PAGE>
together as a single class, on an as-converted basis) do not object in
writing to the Corporation's estimate of the Fair Market Value of any
series of Preferred Stock within fifteen (15) days after receipt of
the Corporation's written notice thereof, such estimate shall be the
Fair Market Value for purposes of determining the Redemption Price of
the Series A Preferred Stock. If the holders of sixty-six and
two-thirds percent (662/3%) of the outstanding shares of the Preferred
Stock (with all series of Preferred Stock voting together as a single
class, on an as-converted basis) do timely object to the Corporation's
estimate of Fair Market Value, the Corporation and such holders shall
seek for a ten-day period thereafter to negotiate the Fair Market
Value in good faith. If the Corporation and the holders of sixty-six
and two-thirds percent (662/3%) of the outstanding shares of the
Preferred Stock (with all series of Preferred Stock voting together as
a single class, on an as-converted basis) are unable to agree upon
such Fair Market Value by the end of such period, each of the
Corporation and the holders (acting at the direction of a majority of
the outstanding shares of Preferred Stock (with all series of
Preferred Stock voting together as a single class, on an as-converted
basis)) shall, within ten (10) days thereafter, select an unaffiliated
investment banking firm of nationally recognized standing in the
telecommunications industry to appraise the Fair Market Value of the
Series A Preferred Stock. Each such firm will deliver its appraisal
of the Fair Market Value within fifteen (15) days thereafter, and if
the lower appraisal is at least ninety percent (90%) of the higher
appraisal, the arithmetic mean of the two shall be the Fair Market
Value. If the two appraisals vary by more than ten percent (10%), the
two firms shall promptly select a third investment banking firm of
nationally recognized standing in the telecommunications industry.
Such third firm shall, within ten (10) days thereafter, deliver its
appraisal of the Fair Market Value of the Series A Preferred Stock,
the two appraisals which are closest together in value shall be
averaged and such amount shall be the Fair Market Value for purposes
of determining the Redemption Price.
(iii) When determining the Fair Market Value of the
Series A Preferred Stock, the appraisers shall consider, among other
factors, book value, replacement value, comparable public company
valuations, earnings, the value of future cash flows of the Corpo-
19
<PAGE>
ration and its subsidiaries as an on-going enterprise and the sale of
various combinations of the individual assets of the Corporation and
its subsidiaries as well as a sale of the Corporation and its
subsidiaries as a whole, choosing the manner of sale which maximizes
the aggregate value of the assets being sold, and shall make no
deduction, discount or other subtraction whatsoever for the possible
minority status of any such holder or for any lack of marketability of
any shares of stock held by such holder or any restrictions on
transfer thereof. All costs of the appraisals under this Section 5(d)
shall be borne by the Corporation.
6. RESTRICTIONS AND LIMITATIONS. So long as the Series A Preferred
Stock remains outstanding, the Corporation shall not without the affirmative
vote or written consent of the holders of a majority of the then outstanding
shares of the Preferred Stock (with all series of Preferred Stock voting
together as a single class, on an as-converted basis), or such higher percentage
as is set forth below (adjusted appropriately for stock splits, stock dividends
and the like):
(i) Authorize or issue, or obligate itself to issue, any
other equity security senior to or on a parity with the Series A
Preferred Stock as to liquidation preferences, redemptions or dividend
rights or with any special voting rights (other than with respect to
issuances of any other series of Preferred Stock);
(ii) Incur, create, assume, become or be liable in any
manner with respect to, or permit to exist, any new or additional
indebtedness or liability (except to the extent expressly permitted
under the Stock Purchase Agreement dated as of December 4, 1996 among
the Company and the other parties identified on the signature pages
thereto (the "Stock Purchase Agreement"));
(iii) Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose) any
shares of Common Stock or of any other class of capital stock of the
Corporation or any of the Corporation's outstanding options, warrants
or convertible or exchangeable securities, except for repurchases of
shares of Common Stock at cost by the Corporation under employee stock
plans and programs approved by the Board of Directors;
20
<PAGE>
(iv) Enter into any transaction or agreement with any
officer, director or stockholder of the Corporation or any wholly- or
partially-owned subsidiary of the Corporation, or any entity that
controls, is controlled by or under common control with, the
Corporation, except for any transaction or agreement on terms no less
favorable to the Corporation than would be available in a bona fide
arm's-length transaction with a non-affiliated person or entity and
which has been approved by the Audit Committee of the Board of
Directors of the Corporation;
(v) Authorize any merger or consolidation of the
Corporation with or into any other corporation, partnership or entity
(with the result that less than a majority of the outstanding voting
power of the surviving corporation is held by persons who were
stockholders of the Corporation immediately prior to such event) or
permit the sale of all or any material portion of the capital stock or
assets of the Company (other than sales in the ordinary course of
business and consistent with past practices);
(vi) Authorize or permit the bankruptcy, reorganization,
liquidation, dissolution or winding up of the Corporation without the
vote or affirmative written consent of holders of sixty-six and
two-thirds percent (662/3%) of the outstanding shares of Preferred
Stock (with all series of Preferred Stock voting together as a single
class, on an as-converted basis);
(vii) Amend the charter documents of the Corporation so
as to adversely effect the rights of the holders of Series A Preferred
Stock with respect to dividends, liquidation preferences or redemption
without the vote or affirmative written consent of holders of eighty
percent (80%) of the outstanding shares of Preferred Stock (with all
series of Preferred Stock voting together as a single class, on an
as-converted basis) or, amend the charter documents or by-laws of the
Corporation in any manner that adversely affects any other
preferences, powers, rights or privileges of the holders of Series A
Preferred Stock without the vote or affirmative written consent of
holders of at least sixty-six and two-thirds percent (662/3%) of the
outstanding Shares of Preferred Stock (with all series of Preferred
Stock voting together as a single class, on an as-converted basis); or
21
<PAGE>
(viii) Increase or decrease (other than by conversion as
permitted hereby) the total number of authorized shares of Preferred
Stock.
7. NO REISSUANCE OF SERIES A PREFERRED STOCK. No share or shares of
the Series A Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion (including, without limitation, conversion of
Series A Preferred Stock into Undesignated Preferred Stock under Section 4(k)
hereof) or otherwise shall be reissued, and all such shares shall be canceled,
retired and eliminated from the shares which the Corporation shall be authorized
to issue. The Corporation may from time to time take such appropriate corporate
action as may be necessary to reduce the authorized number of shares of the
Series A Preferred Stock accordingly.
8. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or substantially all
of the assets of the Corporation to any other corporation, or any other entity
or person, or any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, the Corporation shall mail to each holder of Series A
Preferred Stock at least twenty (20) days prior to the record date specified
therein, a notice specifying (a) the date of such record date for the purpose of
such dividend or distribution and a description of such dividend or
distribution, (b) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (c) the time, if any, that is to be fixed, as
to when the holders of record of Preferred Stock and Common Stock (or other
securities) shall be entitled to exchange their shares of Preferred Stock and
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
Section 9. OTHER RIGHTS. Except as otherwise provided in the charter
documents of the Corporation, as amended, shares of Series A Preferred Stock and
shares of Common Stock shall be identical in all respects (each share of Series
A Preferred Stock having equivalent rights to the maximum number of shares of
Common Stock into which it is then convertible), shall have the same powers,
preferences and rights, without preference of any
22
<PAGE>
such class or share over any other such class or share, and shall be treated as
a single class of stock for all purposes.
Section 10. MISCELLANEOUS.
(a) All notices referred to herein shall be in writing, and all
notices hereunder shall be deemed to have been given upon the earlier of
delivery thereof by hand delivery, by courier, or by standard form of
telecommunication, addressed: (i) if to the Corporation, to its principal
executive office (Attention: President) and to the transfer agent, if any,
for the Series A Preferred Stock or other agent of the Corporation
designated as permitted hereby, (ii) if to any holder of the Preferred
Stock or Common Stock, as the case may be, to such holder at the address of
such holder as listed in the stock record books of the Corporation (which
may include the records of any transfer agent for the Preferred Stock or
Common Stock, as the case may be) or (iii) to such other address as the
Corporation or any such holder, as the case may be, shall have designated
by notice similarly given.
(b) The Corporation may appoint, and from time to time discharge and
change, a transfer agent of the Series A Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send
notice thereof by hand delivery, by courier, by standard form of
telecommunication or by first class mail (postage prepaid), to each holder
of record of Series A Preferred Stock.
C. ADDITIONAL SERIES OF CONVERTIBLE REDEEMABLE PARTICIPATING
PREFERRED STOCK. The Board of Directors is hereby authorized to designate and
issue additional series of Preferred Stock in accordance with Section 4(k) of
Subpart IIB above. The terms of such additional series of Preferred Stock shall
be identical to the terms of the Series A Preferred Stock at the time of such
designation, except that (i) each additional series of Preferred Stock shall not
have provisions similar to Section 4(h)(2) of Subpart IIB above and (ii) the
Board of Directors shall designate the conversion price for such additional
series of Preferred Stock.
III. COMMON STOCK
Except as otherwise provided in this Part III or as otherwise required
by applicable law, all shares of Class A Common and Class B Common shall be
identical in all respects and shall entitle the holders thereof to the same
rights, preferences
23
<PAGE>
and privileges, subject to the same qualifications, limitations and
restrictions, as set forth herein.
Section 1. VOTING RIGHTS.
Except as otherwise provided in this Part III or as otherwise required
by applicable law, the holders of Class A Common shall be entitled to one vote
per share on all matters to be voted on by the Corporation's stockholders, and
the holders of Class B Common shall have no right to vote on any matters to be
voted on by the Corporation's stockholders; provided that the holders of the
Class B Common shall have the right to vote as a separate class on any merger or
consolidation of the Corporation with or into another entity or entities, or any
recapitalization or reorganization, in which shares of Class B Common would
receive or be exchanged for consideration different on a per share basis from
the consideration received with respect to or in exchange for shares of Class A
Common or would otherwise be treated differently from shares of Class A Common,
except that shares of Class B Common may, without such a separate class vote,
receive or be exchanged for non-voting securities (except as otherwise required
by law) which are otherwise identical on a per share basis in amount and form to
the voting securities received with respect to or in exchange for the Class A
Common so long as (i) such non-voting securities are convertible into voting
securities on the same terms as the Class B Common is convertible into Class A
Common and (ii) all other consideration is equal on a per share basis.
Section 2. DIVIDENDS.
As and when dividends are declared or paid with respect to shares of
Common Stock, whether in cash, property or securities of the Corporation, the
holders of Class A Common and the holders of Class B Common shall be entitled to
receive such dividends pro rata at the same rate per share of each class of
Common Stock; provided that (i) if dividends are declared or paid in shares of
Class A Common or Class B Common, the dividends payable in shares of Class A
Common shall be payable to holders of Class A Common and the dividends payable
in shares of Class B common shall be payable to holders of Class A Common and
(ii) if the dividends consist of other voting securities of the Corporation, the
Corporation shall make available to each holder of Class B Common, at such
holder's request, dividends consisting of non-voting securities (except as
otherwise required by law) of the Corporation which are otherwise identical to
the voting securities and which are convertible into such voting securities on
the same terms as the Class B Common is convertible into the Class A Common.
24
<PAGE>
Section 3. LIQUIDATION.
The holders of the Class A Common and the holders of the Class B
Common shall be entitled to participate pro rata at the same rate per share of
each class of Common Stock in all distributions to the holders of the Common
Stock in any liquidation, dissolution or winding up of the Corporation.
Section 4. CONVERSION.
4A. CONVERSION OF CLASS B COMMON
(i) In connection with the occurrence (or the expected occurrence an
described in (iii) below) of any Conversion Event, each holder of Class B Common
shall be entitled to convert into an equal number of shares of Class A Common
any or all of the shares of such holders Class B Common being (or expected to
be) distributed, disposed of or sold in connection with such Conversion Event.
(ii) For purposes of this paragraph 4A, a "Conversion Event" shall
mean (a) any public offering or public sale of securities of the Corporation
(including a public offering registered under the Securities Act of 1933 and a
public sale pursuant to Rule 144 of the Securities and Exchange Commission or
any similar rule then in force), (b) any sale of securities of the Corporation
to a person or group of persons (within the meaning of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), if, after such sale, such person or
group of persons in the aggregate would own or control securities which possess
in the aggregate the ordinary voting power to elect a majority of the
Corporation's directors (provided that such sale has been approved by the
corporation's Board of Directors or a committee thereof), (c) any sale of
securities of the Corporation to a person or group of persons (within the
meaning of the 1934 Act) if, after such sale, such person or group of persons in
the aggregate would own or control securities of the Corporation (excluding any
Class B Common being converted and disposed of in connection with such
Conversion Event) which possess in the aggregate the ordinary voting power to
elect a majority of the corporation's directors, (d) any sale of securities of
the Corporation to a person or group of persons (within the meaning of the 1934
Act) if, after such sale, such person or group of persons would not, in the
aggregate, own, control or have the right to acquire more than two percent (2%)
of the outstanding securities of any class of voting securities of the
Corporation, and (e) a merger, consolidation or similar transaction involving
the Corporation if, after such transaction, a person or group of persons (within
the meaning of the 1934 Act) in the aggregate
25
<PAGE>
would own or control securities which possess in the aggregate the ordinary
voting power to elect a majority of the surviving Corporation's directors
(provided that the transaction has been approved by the Corporation's Board of
Directors or a committee thereof). For purposes of this paragraph 4A, a
"person" shall include any natural person and any Corporation, partnership,
joint venture, trust, unincorporated organization and any other entity or
organization.
(iii) Each holder of Class B Common shall be entitled to convert
shares of Class B Common in connection with any conversion Event if such holder
reasonably believes that such Conversion Event shall be consummated, and a
written request for conversion from any holder of Class B Common to the
Corporation stating such holder's reasonable belief that a Conversion Event
shall occur shall be conclusive and shall obligate the Corporation to effect
such conversion in a timely manner so as to enable each such holder to
participate in such Conversion Event. The Corporation shall not cancel the
shares of Class B Common so converted before the tenth day following such
Conversion Event and shall reserve such shares until such tenth day for
reissuance in compliance with the next sentence. If any shares of Class B
Common are converted into shares of Class A Common in connection with a
Conversion Event and such shares of Class A Common are not actually distributed,
disposed of or sold pursuant to such Conversion Event, such shares of Class A
Common shall be promptly exchanged back into the same number of shares of Class
B Common.
(iv) Notwithstanding any other provision hereof, in the event that the
initial holder of the Class B Common is licensed by the U.S. Small Business
Administration as a Small Business Investment Company (an "SBIC") on or before
September 1, 1996, then such initial holder shall be entitled to convert the
Class B Common held by such holder into Class A Common within 3 months after the
date such license is effective, and in the event that any entity controlling,
controlled by or under common control with such initial holder is licensed as an
SBIC on or before September 1, 1996, then any Class B Common held by such
affiliate of the initial holder will be convertible into Class A Common within 3
months after the date such license is effective.
4B. CONVERSION PROCEDURE.
(i) Unless otherwise provided in connection with a Conversion Event,
each conversion of shares of Class B Common into shares of Class A Common shall
be effected by the surrender of the certificate or certificates representing the
shares to be converted at the principal office of the Corporation at any time
during normal business hours, together with a written notice by
26
<PAGE>
the holder of such Class B Common stating that such holder desires to convert
the shares, or a stated number of the shares, of Class B Common represented by
such certificate or certificates into Class A Common. Unless otherwise provided
in connection with a Conversion Event, each conversion shall be deemed to have
been effected as of the close of business on the date on which such certificate
or certificates have been surrendered and such notice has been received, and at
such time the rights of the holder of the converted Class B Common as such
holder shall cease and the person or persons in whose name or names the
certificate or certificates for shares of Class A Common are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Class A Common represented thereby.
(ii) Promptly after the surrender of certificates and the receipt of
such written notice, the Corporation shall issue and deliver in accordance with
the surrendering holder's instructions (a) the certificate or certificates for
the Class A Common issuable upon such conversion and (b) a certificate
representing any Class B Common which was represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which was not converted.
(iii) The issuance of certificates for Class A Common upon conversion
of Class B Common shall be made without charge to the holders of such shares for
any issuance tax in respect thereof or other cost incurred by the in connection
with such conversion and the related issuance of Class A Common.
(iv) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Class A Common, solely for the purpose
of issuance upon the conversion of the Class B Common, such number of shares of
Class A Common issuable upon the conversion of all outstanding Class B Common.
All shares of Class A Common which are so issuable shall, when issued, be duly
and validly issued, fully paid and nonassessable and free from all taxes, liens
and charges. The Corporation shall take all such actions as may be necessary to
assure that all such shares of Class A Common may be so issued without violation
of any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Class A Common may be listed
(except for official notice of issuance which shall be immediately transmitted
by the Corporation upon issuance).
(v) The Corporation shall not close its books against the transfer of
Class B Common or of Class A Common issued or issuable upon conversion of Class
B Common in any manner which
27
<PAGE>
would interfere with the timely conversion of Class B Common. The Corporation
shall assist and cooperate with any holder of Class B Common required to make
any governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Class B Common hereunder (including, without
limitation, making any filings required to be made by the Corporation).
4C. STOCK SPLITS. If the Corporation in any manner subdivides or
combines the outstanding shares of one Class of Common Stock, the outstanding
shares of the other class of Common Stock shall be proportionately subdivided or
combined in a similar manner.
Section 5. AMENDMENT AND WAIVER.
No amendment or waiver of any provision of this Part III shall be
effective without the prior approval of (i) the holders of a majority of the
then outstanding shares of Class B Common voting as a separate class and (ii)
the holders of a majority of the then outstanding shares of Class A Common
voting as a separate class."
THIRD: that the Board of Directors of the Corporation has declared
that such amendment is advisable and that the capital of the Corporation will
not be reduced under, or by reason of, the foregoing amendment.
FOURTH: that by unanimous written consent of the Board of Directors of
the Corporation, resolutions were duly adopted proposing and recommending the
adoption of the foregoing amendment to the Restated Certificate of
Incorporation. Thereafter, by written consent of a majority of the holders of
the outstanding Common Stock of the Corporation, said amendment was approved and
adopted.
28
<PAGE>
IN WITNESS WHEREOF, TELETRAC, INC. has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Steven D. Scheiwe, its
Secretary, who hereby acknowledges under penalties of perjury that the facts
herein stated are true and that this certificate is his act and deed, this
fourth day of December, 1996.
TELETRAC, INC.
By
--------------------------------
Secretary
29
<PAGE>
Exhibit 3.3
BYLAWS
OF
TELETRAC, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be located at 1209 Orange Street, in the
City of Wilmington, Country of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware and the United States as the Board of
Directors may from time to time determine or as the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings of the stockholders for the election
of directors shall be held at such place an time as may be fixed from time to
time by the Board of Directors, or at such other place either within or
without the State of Delaware or the United States, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of the notice thereof. Meetings of
stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware or the United States, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of the stockholders shall be held on such date
and at such time as shall be designated from time to time by the Board of
Directors. At the annual meeting, the stockholders shall elect the Board of
Directors and shall transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and
time of the meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting to each stockholder entitled to vote
at such meeting.
Section 4. Special meetings of the stockholders for any purpose or purposes,
unless otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, may be called by the Chief Executive Officer and shall be
called by the Chief Executive Officer or Secretary at the request in writing
of a majority of the Board of Directions or at the request in writing of
stockholders owning a majority of the entire capital stock of the corporation
issued and outstanding and entitled to vote. Such requests shall state the
purpose or purposes of the proposed meeting.
Section 5. Written notice of a special meting shall state the place, date
and time of the meeting and the purpose or purposes for which the
<PAGE>
meeting and the purpose or purposes for which the meeting is called and
shall be given not less than ten (10) nor more than sixty (60) days before
the date of the meeting to each stockholder entitled to vote at such meeting.
Section 6. Business transacted at any special meeting of the stockholders
shall be limited to the purpose or purposes stated in the notice, unless the
holders of a majority of the issued and outstanding shares entitled to vote
otherwise consent thereto either at the special meeting or in writing
executed subsequent to the meeting.
Section 7. The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every annual or special
meeting of the stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to examination by any stockholder for
any purpose germane to the meeting during ordinary business hours, and for a
period of at least ten (10) days prior to the meeting is to held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time thereof and may be inspected by any stockholder who is present
at the meeting.
Section 8. The holders of a majority of the issued and outstanding shares
entitled to vote thereat, who are present in person or represented by proxy
at the meeting, shall constitute a quorum at all annual and special meetings
of the stockholders for the transaction of business, unless otherwise
provided by statute the Certificate of Incorporation or these Bylaws. IF,
however, such quorum shall not b e present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have the power to adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such adjourned meeting,
at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally
described in the notice to the stockholders. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any annual or special meeting, the
vote of the holders of a majority of the stock having voting power present
in person or represented by proxy at the meeting shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of statute, the Certificate of Incorporation or these Bylaws a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 10. Unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, each stockholder shall at every annual or
special meeting of the stockholders be entitled to one vote in person or by
proxy for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted or acted upon after a period of
three years from its date, unless the proxy provides for a longer period.
2
<PAGE>
Section 11. Unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken
at any annual or special meeting of the stockholders may be taken without a
meeting, without prior notice and without a vote if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
stock of the corporation having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Such
consent shall be filed with the Secretary of the corporation. Prompt notice
of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors that constitutes the Board of Directors
shall be at least one (1) and not more than ten (10). The first Board of
Directors shall initially consist of the number of directors as shall be
specified at the organizational meeting of the corporation. Thereafter,
within the limits above specified, the number of directors shall be
determined by resolution of the Board of Directors or by the stockholders of
the Common Stock at the annual meeting. The directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 2 of
this Article. Each director shall hold office until his successor is elected
and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole
remaining director. The directors so chosen shall hold office until the next
annual election and until their successors are duly elected and qualified,
unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by its Board of
Directors, which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute, the Certificate of
Incorporation or these Bylaws directed or required to be exercised or done by
the stockholders.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. The Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware or the
United States.
Section 2. The first meeting of each newly elected Board of Directors shall
be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting. No notice of such meeting to the newly
elected directors shall be necessary in order legally to constitute the
meeting, provided a quorum shall be present. If the stockholders fail to fix
the time or place of the first meeting of the newly elected Board of
Directors or if this meeting is not held at the time
3
<PAGE>
and place so fixed by the stockholders, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors or as shall be specified in a
written waiver signed by all of the directors.
Section 3. Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by the
Board of Directors.
Section 4. Special meetings of the Board of Directors may be called by the
Chief Executive Officer on three (3) days notice to each director, either
personally, by mail or by telegram. Such meetings shall be called by the
Chief Executive Officer or Secretary in like manner and on like notice on the
written request of a majority of the directors.
Section 5. At all regular and special meetings of the Board of Directors, a
simple majority of the directors shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors, unless otherwise specifically provided by statute, the Certificate
of Incorporation or these Bylaws. If a quorum is not present at any meeting
of the Board of Directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until a quorum shall be present.
Section 6. Unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board of Directors or the
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board of
Directors.
ARTICLE V
COMMITTEES OF DIRECTORS
Section 1. The Board of Directors may, by resolution passed by a majority of
the whole Board, designate one or more committees, each consisting of two or
more directors of the corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 2. Except as provided below, any committee, to the extent provided
in the resolutions of the Board of Directors and in these Bylaws, shall have
and may exercise all of the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers that may
require it. No committee, however, shall have the power or authority to
amend the Certificate of Incorporation; to adopt an agreement of merger or
consolidation; to recommend to the stockholders the sale, lease, exchange or
other disposition of all or substantially all of the
4
<PAGE>
corporation's property and assets; to recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution; or to amend
these Bylaws; further, unless a resolution of the Board of Directors, these
Bylaws, or the Certificate of Incorporation expressly so provides, no
committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger.
Section 3. A committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 4. Each committee shall keep regular minutes of its meetings and
shall file them with the minutes of the proceedings of the Board of Directors
when required.
ARTICLE VI
COMPENSATION OF DIRECTORS
Section 1. Unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, the Board of Directors shall have the
authority to fix the compensation of the directors.
Section 2. The directors may be paid their expenses, if any, of attending
meetings of the Board of Directors. Such payments may take the form of a
fixed sum for attendance at each meeting or a stated salary as a director.
Members of committees may be allowed like compensation for attending
committee meetings.
Section 3. No payment permitted under this Article VI shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
ARTICLE VII
OFFICERS
Section 1. The officers of the corporation shall be designated by the Board
of Directors, by election, and, unless otherwise required by the General
Corporation Law of the State of Delaware, may include a Chief Executive
Officer, a Chairman, a President, a Vice President, a Secretary an a
Treasurer. The Board of Directors may also elect such other officers and
agents as it deems necessary, including Vice-President and one or more
Assistant Secretaries and Assistant Treasurers. Any number of offices may be
held by the same person, unless otherwise provided by statute, the
Certificate of Incorporation or these Bylaws.
Section 2. The officers of the corporation shall be elected by the Board of
Directors at the Board's first meeting after each annual meeting of
stockholders.
Section 3. The officers of the corporation shall hold office until their
successors are chosen and qualified. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors whenever in its judgment the best
interests of the corporation will be served thereby. Any vacancy occurring
in any office of the corporation shall be filled by the Board of Directors.
5
<PAGE>
Section 4. The salaries of all officers and agents of the corporation shall
be fixed by the Board of Directors.
Section 5. The Chief Executive Officer shall preside at all meetings of the
stockholders, and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The Chief Executive Officer shall execute
under the seal of the corporation bonds, mortgages and other contracts
requiring a seal, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof is
expressly delegated by the Board of Directors to some other officer or agent
of the corporation.
Section 6. In the absence of the Chief Executive Officer or in the event of
his inability or refusal to act, the Vice-President (or in the event there
are more than one, the Vice-President in the order designated, or in the
absence of any designation, then in the order of their election) shall
perform the duties of the Chief Executive Officer and, when so acting, shall
have all the powers of and be subject to all the restrictions upon the Chief
Executive Officer. The Vice-President shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
Section 7. The Secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all of the proceedings of the
meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for any committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors
and shall perform such other duties as may be prescribed by the Board of
Directors or the Chief Executive Officer, under whose supervision he shall
be. The Secretary shall have custody of the corporate seal of the
corporation, and he, or an Assistant Secretary, shall have the authority to
affix the same to any instrument requiring it, and (when so affixed) it may
be attested by his signature or by the signature of such Assistant Secretary.
The Board of Directors may give general authority to any other officer to
affix the seal of the corporation and to attest the affixing by his signature.
Section 8. The Assistant Secretary, or if there are more than one, the
Assistant Secretaries in the order determined by the Board of Directors (or
if there is no such determination, then in the order of their election),
shall, in the absence of the Secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Secretary
and shall perform such other duties and have such other powers as the Board
of Directors may from time to time prescribe.
Section 9. The Treasurer shall have custody of the corporate funds and
securities and shall keep full and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the corporation in such depositories as may be
designated by the Board of Directors.
Section 10. The Treasurer shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the
6
<PAGE>
Chief Executive Officer, and the Board of Directors at the Board's regular
meetings or when the Board so requires, an account of all his transactions
as Treasurer and of the financial condition of the corporation.
Section 11. If required by the Board of Directors, the Treasurer shall
give the corporation a bond (which shall be renewed every six years) in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for
the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation.
Section 12. The Assistant Treasurer, or if there are more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there is no such determination, then in the order of their election), shall,
in the absence of the Treasurer or in the event of his inability or refusal
to act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VIII
NOTICES
Section 1. Whenever, under the provisions of the statute, the Certificate of
Incorporation or these Bylaws, notice is required to be give to any director or
stockholder, it shall not be construed to mean solely personal notice, but such
notice may be given in writing by mail addressed to such director or stockholder
at his address as it appears on the records of the corporation with postage
thereon prepaid, and such notice shall be deemed to be given at the same time
when the same is deposited in the United States mail. Notice to directors may
also be given by telegram, facsimile or telecopy or via courier and, in such
instances, shall be deemed given when received.
Section 2. Whenever any notice is required to be given under the provisions
of statute, the Certificate of Incorporation or these Bylaws, a waiver thereof
in writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE IX
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by the Chairman or Vice-Chairman of the Board of
Directors, or the Chief Executive Office or a Vice-President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by the stockholder in the corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile if the certificate is manually signed on behalf of a transfer agent or
a registrar (other than the corporation itself or
7
<PAGE>
an employee of the corporation). In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, the certificate may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
Section 3. The Board of Directors may direct that a new certificate or
certificates be issued in place of any certificate or certificates therefore
issued by the corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
to be lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates or his legal representative to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by the
proper evidence of succession, assignment or authority to transfer, the
corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, or entitled to express consent to corporate action in
writing without any meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date that shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, or more than sixty (60) days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new date for the
adjourned meeting.
Section 6. The corporation shall be entitled to recognize the exclusive
rights of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner. The corporation shall be entitled to hold
liable for calls and assessments a person registered on its books as the owner
of shares. The corporation shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, regardless of whether the corporation shall have express or other notice
thereof, unless otherwise provided by statute, the Certificate of Incorporation
of these Bylaws.
8
<PAGE>
ARTICLE X
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, unless otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid in cash,
property, o in shares of stock, unless otherwise provided by statute, the
Certificate of Incorporation or these Bylaws. Before payment of any divided,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time, in their
absolute discretion, may equalizing dividends, repairing or maintaining any
property of the corporation, or for such other purpose or purposes as the Board
of Directors shall think conducive to the interests of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. ANNUAL STATEMENTS. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
Section 3. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
designate by resolution of the Board of Directors.
Section 5. INDEMNIFICATION. The corporation shall have the power to
indemnify its offices, directors, employees and agents of the corporation, and
such other persons as designate by the Board of Directors, to the full extent as
permitted under the laws of the State of Delaware. Subject to applicable
provisions of the Delaware General Corporation Law, the corporation shall
indemnify, defend, and hold harmless each employee, officer or other agent of
the corporation, each member of the Board of Directors, any person or entity
that has designated a member of the Board of Directors (but only to the extent
such person or entity suffers any liability, loss, or damage as a result of the
actions of such member of the Board of Directors) (all indemnified persons being
referred to as "Indemnified Persons" for purposes of this Section 5), from any
liability, loss, or damage incurred by the Indemnified Person by reason of any
act performed or omitted to be performed by the Indemnified Person in connection
with the business of the corporation, including costs and attorneys' fees (which
attorneys' fees may be paid as incurred) and any amounts expended in the
settlement of any claims of liability, loss, or damage; provided, however, that,
if inaction of an Indemnified Person, indemnification under this Section 5 shall
be available only if (1) either (A) the Indemnified Person, at the time of such
action or inaction, determined, in good faith, that its or his course of conduct
was in, or not opposed to, the best interests of the corporation, or (B) in the
case of inaction by the Indemnified Person, the Indemnified Person id not intend
its or his inaction to be harmful or opposed to the best interests of the
corporation, and (2) the action or inaction did not constitute fraud, gross
negligence, breach or fiduciary duty (which shall not be construed to encompass
mistakes in judgment or any
9
<PAGE>
breach of any Indemnified Person's duty of care that did not constitute gross
negligence), or willful misconduct by the Indemnified Person.
Section 6. SEAL. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization, and the name of the State
of Delaware. The seal may be used by causing its or a facsimile thereof to be
impressed, affixed or otherwise reproduced.
Section 7. AMENDMENTS. Unless such power is reserved to the stockholders
by statute, the Certificate of Incorporation or these Bylaws, these Bylaws may
be altered, amended or repealed or new Bylaws adopted either by the stockholders
or the Board of Directors (when such power is conferred upon the Board of
Directors by the Certificate of Incorporation, and subject to repeal or change
by action of the stockholders) at any annual meeting of the stockholders or
regular meeting of the Board of Directors, or at any special meeting of the
stockholders or the Board of Directors (if notice of such alteration, amendment,
repeal or adoption of new Bylaws is contained in the notice of such special
meeting), by a vote of a majority of the holders of stock having voting power
present in person or represented by proxy at such meeting at which there is a
quorum, or by a vote of a majority of the directors present at such meeting at
which there is a quorum (whichever is applicable).
Section 8. STOCKHOLDERS AGREEMENT. In the event of any conflict or
inconsistency between any provision of these Bylaws and the provisions of any
Stockholders Agreement among Teletrac, Inc. and the stockholders thereof (the
"Stockholders Agreement"), the provisions of the Stockholders Agreement shall
govern.
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TELETRAC, INC.
$105,000,000
14% SENIOR NOTES DUE 2007
_________________________
_________
INDENTURE
Dated as of August 6, 1997
_________
_________
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
_________
Trustee
and
Collateral Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.................... 1
Section 1.01. Definitions............................................. 1
Section 1.02. Other Definitions....................................... 18
Section 1.03. Incorporation by Reference of Trust Indenture Act....... 19
Section 1.04. Rules of Construction................................... 19
ARTICLE 2. THE NOTES..................................................... 20
Section 2.01. Form and Dating......................................... 20
Section 2.02. Restricted Notes........................................ 25
Section 2.03. Global Notes............................................ 25
Section 2.04. Form of Execution and Authentication.................... 27
Section 2.05. Registrar and Paying Agent.............................. 27
Section 2.06. Paying Agent to Hold Money in Trust..................... 28
Section 2.07. Lists of Holders of the Notes........................... 28
Section 2.08. Transfer and Exchange................................... 28
Section 2.09. Replacement Notes....................................... 35
Section 2.10. Outstanding Notes....................................... 36
Section 2.11. Treasury Notes.......................................... 36
Section 2.12. Temporary Notes......................................... 36
Section 2.13. Cancellation............................................ 37
Section 2.14. Defaulted Interest...................................... 37
Section 2.15. Record Date............................................. 37
Section 2.16. CUSIP and CINS Numbers.................................. 37
ARTICLE 3. REDEMPTION.................................................... 38
Section 3.01. Notices to Trustee...................................... 38
Section 3.02. Selection of Notes to be Redeemed....................... 38
Section 3.03. Notice of Redemption.................................... 38
Section 3.04. Effect of Notice of Redemption.......................... 39
Section 3.05. Deposit of Redemption Price............................. 39
Section 3.06. Notes Redeemed in Part.................................. 40
Section 3.07. Optional Redemption..................................... 40
Section 3.08. Mandatory Redemption.................................... 41
Section 3.09. Offer to Purchase by Application of Excess Proceeds..... 41
ARTICLE 4. COVENANTS..................................................... 43
Section 4.01. Payment of Notes........................................ 43
Section 4.02. Maintenance of Office or Agency......................... 43
Section 4.03. Reports................................................. 44
Section 4.04. Compliance Certificate; Notice of Default............... 45
Section 4.05. Taxes and Other Claims.................................. 45
Section 4.06. Stay, Extension and Usury Laws.......................... 45
Section 4.07. Restricted Payments..................................... 46
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries.......................................... 49
Section 4.09. Incurrence of Indebtedness or Issuance of Disqualified
Stock................................................. 50
Section 4.10. Merger, Consolidation or Sale of Assets................. 52
Section 4.11. Transactions with Affiliates............................ 53
Section 4.12. Liens................................................... 54
Section 4.13. Additional Guarantees................................... 54
Section 4.14. Offer to Purchase Upon Change of Control................ 55
Section 4.15. Maintenance of Properties and Insurance................. 56
Section 4.16. Limitation on Issuances and Sales of Capital Stock
of Restricted Subsidiaries............................ 57
Section 4.17. Business Activities..................................... 57
Section 4.18. Limitation on Sales of Assets and Subsidiary Interests.. 57
ARTICLE 5. SUCCESSORS.................................................... 58
ARTICLE 6. DEFAULTS AND REMEDIES......................................... 58
Section 6.1. Events of Default....................................... 58
Section 6.2. Acceleration............................................ 61
Section 6.3. Other Remedies.......................................... 61
Section 6.4. Waiver of Past Defaults................................. 62
Section 6.5. Control by Majority..................................... 62
Section 6.6. Limitation on Suits..................................... 62
Section 6.7. Rights of Holders of Notes to Receive Payment........... 63
Section 6.8. Collection Suit by Trustee.............................. 63
Section 6.9. Trustee May file Proofs of Claim........................ 63
Section 6.10. Priorities.............................................. 64
Section 6.11. Undertaking for Costs................................... 64
<PAGE>
ARTICLE 7. TRUSTEE....................................................... 65
Section 7.01. Duties of Trustee....................................... 65
Section 7.02. Rights of Trustee....................................... 66
Section 7.03. Individual Rights of Trustee............................ 67
Section 7.04. Trustee's Disclaimer.................................... 67
Section 7.05. Notice of Defaults...................................... 67
Section 7.06. Reports by Trustee to Holders of the Notes.............. 67
Section 7.07. Compensation and Indemnity.............................. 68
Section 7.08. Replacement of Trustee.................................. 69
Section 7.09. Successor Trustee by Merger, Etc........................ 70
Section 7.10. Eligibility; Disqualification........................... 70
Section 7.11. Preferential Collection of Claims Against Company....... 70
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE...................... 70
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance............................................ 70
Section 8.02. Legal Defeasance and Discharge.......................... 71
Section 8.03. Covenant Defeasance..................................... 71
Section 8.04. Conditions to Legal or Covenant Defeasance.............. 71
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions................. 73
Section 8.06. Repayment to Company.................................... 74
Section 8.07. Reinstatement........................................... 74
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.............................. 74
Section 9.01. With Consent of Holders of Notes........................ 74
Section 9.02. Without Consent of Holders of Notes..................... 75
Section 9.03. Compliance with Trust Indenture Act..................... 76
Section 9.04. Revocation and Effect of Consents....................... 76
Section 9.05. Notation on or Exchange of Notes........................ 76
Section 9.06. Trustee to Sign Amendments, Etc......................... 76
Section 9.07. Payments for Consents................................... 77
Section 9.08. Effect of Supplemental Indentures....................... 77
ARTICLE 10. COLLATERAL AND SECURITY....................................... 77
Section 10.01. Collateral Documents..................................... 77
Section 10.02. Execution of Collateral Documents........................ 78
ARTICLE 11. MISCELLANEOUS................................................. 78
Section 11.01. Trust Indenture Act Controls............................. 78
Section 11.02. Notices.................................................. 78
Section 11.03. Communication by Holders of Notes with Other Holders of
Notes.................................................. 79
Section 11.04. Certificate and Opinion as to Conditions Precedent....... 80
Section 11.05. Statements Required in Certificate or Opinion............ 80
Section 11.06. Rules by Trustee and Agents.............................. 80
Section 11.07. No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders......................... 81
Section 11.08. Governing Law............................................ 81
Section 11.09. No Adverse Interpretation of Other Agreements............ 81
Section 11.10. Successors............................................... 81
Section 11.11. Severability............................................. 81
Section 11.12 Counterpart Originals.................................... 81
Section 11.13 Table of Contents, Headings, Etc......................... 81
<PAGE>
EXHIBITS
EXHIBIT A FORM OF NOTE
EXHIBIT C-1 [FORM OF CERTIFICATION TO BE GIVEN BY HOLDERS OF BENEFICIAL
INTEREST IN A REGULATION S TEMPORARY GLOBAL NOTE]
EXHIBIT C-2 [FORM OF CERTIFICATION TO BE GIVEN BY THE EUROCLEAR OPERATOR OR
CEDEL BANK, SOCIETE ANONYME]
EXHIBIT C-3 [FORM OF CERTIFICATION TO BE GIVEN BY TRANSFEREE OF BENEFICIAL
INTEREST IN A REGULATION S TEMPORARY GLOBAL NOTE]
EXHIBIT C-4 FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE OF RESTRICTED NOTE
TO [RESTRICTED] [RESTRICTED GLOBAL] [UNRESTRICTED] [UNRESTRICTED
GLOBAL] [REGULATION S TEMPORARY GLOBAL] NOTE
EXHIBIT C-5 FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE OF RESTRICTED
GLOBAL NOTE TO REGULATION S TEMPORARY GLOBAL NOTE (Exchanges or
transfers pursuant to Section 2.06(d)(iii) of the Indenture)
EXHIBIT C-6 FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE OF RESTRICTED
GLOBAL NOTE TO UNRESTRICTED GLOBAL NOTE (Exchanges or transfers
pursuant to Section 2.08(d)(iii) of the Indenture)
EXHIBIT C-7 FORM OF INSTRUCTION FOR EXCHANGE EXCHANGE INSTRUCTIONS TELETRAC,
INC., 14% Senior Notes due 2007
EXHIBIT C-8 FORM OF CERTIFICATION FOR TRANSFER OF RESTRICTED [GLOBAL] NOTE,
TRANSFEREE CERTIFICATION
v
<PAGE>
INDENTURE dated as of August 6, 1997 between Teletrac, Inc. (the
"Company"), a Delaware corporation, and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee") and as Collateral Agent (as defined in
the Pledge Agreement).
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the 14% Senior Notes due
2007:
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person:
(i) Indebtedness of any other Person existing at the time such
other Person is merged with or into or became a Restricted Subsidiary of such
specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Restricted Subsidiary of such specified Person; and
(ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Affiliate" of any specified Person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities (or the equivalent)
of a Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Agent Members" has the meaning set forth in Section 2.03(e).
"Applicable Procedures" has the meaning set forth in Section 2.06(d)(iii).
<PAGE>
"Asset Sale" means:
(i) the sale, lease, conveyance or other disposition
(collectively "dispositions") of any assets (including, without limitation, by
way of a sale and leaseback) in one or a series of related transactions; and
(ii) the issuance by any of the Company's Restricted Subsidiaries
of Equity Interests or the disposition by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of their Subsidiaries,
in the case of either clause (i) or (ii) above, whether in a single transaction
or a series of related transactions: (a) that have a Fair Market Value in
excess of $5 million; or (b) for net proceeds in excess of $5 million.
Notwithstanding the foregoing: (i) the sale of inventory in the ordinary course
of business; (ii) a disposition of assets by the Company to a Wholly Owned
Restricted Subsidiary or by a Restricted Subsidiary of the Company to the
Company or to a Wholly Owned Restricted Subsidiary of the Company; (iii) an
issuance of Equity Interests by a Restricted Subsidiary of the Company to the
Company or to a Wholly Owned Restricted Subsidiary of the Company; and (iv) a
Restricted Payment that is permitted by Section 4.07; and (v) the sale of assets
that have become worn out, obsolete or damaged or otherwise unsuitable for use
in connection with the business of the Company shall not be deemed to be Asset
Sales.
"Bank Credit Facility" means one or more credit facilities (whether a term
or a revolving facility) of the type customarily entered into with commercial
banks, between the Company, on the one hand, and any commercial banks, financial
institutions or other lenders, on the other hand, which Bank Credit Facilities
are by their terms designed as a "Bank Credit Facility" for purposes of this
Indenture.
"Bankruptcy Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Bankruptcy Law" means title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease" means, at the time any determination thereof is made, any
lease of property, real or personal, in respect of which the present value of
the minimum rental commitment would be capitalized on a balance sheet of the
lessee in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on the balance sheet in accordance
with GAAP.
-2-
<PAGE>
"Capital Stock" means:
(i) in the case of a corporation, corporate stock;
(ii) In the case of an association or business entity, and any
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(iii) in the case of a partnership, partnership interests
(whether general or limited); and
(iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Consideration" means any consideration received from an Asset Sale in
the form of cash or Cash Equivalents, in either case in U.S. dollars or freely
convertible into U.S. dollars.
"Cash Equivalents" means:
(i) U.S. dollars;
(ii) Government Securities;
(iii) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Eligible Institution;
(iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any Eligible Institution;
(v) commercial paper having the highest rating obtainable from
Moody's or S&P and in each case maturing within six months after the date of
acquisition; and
(vi) shares of any mutual funds or other pooled investment
vehicles, in each case having assets of $500 million, investing solely in
investments of the types described in (i) through (v) above.
"CEDEL" means Cedel Bank, societe anonyme.
-3-
<PAGE>
"Change of Control" means:
(i) the sale, lease, transfer, conveyance or other disposition,
in one transaction or a series of related transactions, directly or indirectly,
including through a liquidation or dissolution, of all or substantially all of
the assets of the Company and its Restricted Subsidiaries to any Person or group
(as such term is used in Section 13 (d) of the Exchange Act);
(ii) the adoption of a plan relating to the liquidation or
dissolution of the Company;
(iii) any Person or group (as defined above), other than any of
the Existing Stockholders or their respective Affiliates, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total voting power of the Voting Equity Interests of the
Company, including by way of merger, consolidation or otherwise; or
(iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.
"Collateral" has the meaning set forth in the Pledge Agreement.
"Collateral Agent" means the Collateral Agent under the Pledge Agreement.
"Collateral Documents" means the Pledge Agreement and any financing
statements filed pursuant thereto.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period, plus, to the extent
deducted or otherwise excluded in computing such Consolidated Net Income;
(i) an amount equal to any extraordinary loss plus any net loss
realized in connection with a sale of assets;
(ii) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period;
(iii) Consolidated Interest Expense less consolidated interest
income of such Person and its Restricted Subsidiaries for such period; and
(iv) depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash charges (excluding
any such non-cash charge to the
-4-
<PAGE>
extent that it represents an accrual of or cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period;
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization and other non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be distributed by dividend to such
Person by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its stockholders.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount noncash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital lease Obligations,
commission, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financing, and net payments (if any) pursuant
to Hedging Obligations).
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
that:
(i) the Net Income of any Person that is accounted for by the
equity method of accounting shall be included, but only to the extent of the
amount of dividends or distributions actually paid in cash to the referent
Person or a Wholly Owned Restricted Subsidiary thereof;
(ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such Net Income is not at the
date of determination permitted without any prior governmental approval (which
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted Subsidiary or its
stockholders;
(iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded;
-5-
<PAGE>
(iv) the cumulative effect of a change in accounting principles
shall be excluded; and
(v) the Net Income of any Unrestricted Subsidiary shall be
included only to the extent of the amount of dividends or distributions actually
paid in cash to the referent Person or a Restricted Subsidiary thereof.
"Consolidated Net Worth" means, with respect to any Person as of any date:
(i) the consolidated equity of the equity holders of such
Person and its consolidated Restricted Subsidiaries as of such date; plus
(ii) the respective amounts reported on such Person's balance
sheet as of such date with respect to any series of preferred Equity Interests
(other than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of any cash received by such Person upon issuance of such preferred
stock; minus
(iii) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going-concern
business made within 12 months after the acquisition of such business)
subsequent to the date of this Indenture in the book value of any asset owned by
such Person or a consolidated Subsidiary of such Person; minus
(iv) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Restricted Subsidiaries; minus
(v) all unamortized debt discount and expense and unamortized
deferred charges as of such date.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of this Indenture or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 or such other address as to which the Trustee
may give notice to the Company.
"Custodian" means Norwest Bank Minnesota, National Association, and any
successor custodian, as custodian of the Global Notes for DTC under custody
agreements, or any similar successor agreement or agreements.
-6-
<PAGE>
"Depositary" means, with respect to the Global Notes, DTC or such other
Person as shall be designated as Depositary by the Company pursuant to this
Indenture.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that, by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or upon the happening of any event: (i)
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise; or (ii) is redeemable or is convertible or exchangeable for
Indebtedness at the option of the Holder thereof, in whole or in part, on or
prior to the date on which the Notes mature.
"DTC" means the Depository Trust Company, a New York corporation.
"Eligible Institution" means a domestic commercial banking institution that
has combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A" or higher according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Euroclear" means the Euroclear System, operated by Morgan Guaranty Trust
Company of New York, Brussels Office.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means 14% Senior Secured Notes Due 2007 issued by the
Company, and containing terms identical to those of the Original Notes (except
that such Exchange Notes shall have been issued in an exchange offer registered
under the Securities Act), that are issued and exchanged for the Original Notes
pursuant to the Registration Rights Agreement and this Indenture.
"Existing Indebtedness" means the Indebtedness of the Company in existence
on the Issue Date until such amounts are repaid.
"Existing Stockholders" means any stockholder of the Company who or which
beneficially owns more than 5.0% of the Class A Common Stock, on a fully diluted
basis, as of the date of this Indenture.
"FCC" means the Federal Communications Commission.
-7-
<PAGE>
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided that the Fair Market Value of
any such asset or assets shall be determined by the Board of Directors of the
Company, acting in good faith, and which determination shall be evidenced by an
Officers' Certificate delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession and which are in effect on the Issue Date.
"Global Note" means any Regulation S Temporary Global Note, any Restricted
Global Note or any Unrestricted Global Note, as the case may be.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"Guarantee" or "guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantor" means any entity that executes, pursuant to the terms of this
Indenture, a Guarantee of the obligations of the Company under the Notes, and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under: (i) interest rate swap agreements, (ii) foreign currency
hedge obligations; and (iii) other agreements or arrangements designed to
protect such Person against fluctuations in interest and foreign currency rates.
"Holder" means a Person in whose name a Note is registered.
"Holdings" means Teletrac Holdings, Inc., a Delaware corporation.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any
-8-
<PAGE>
Hedging Obligations, except any such balance that constitutes an accrued expense
or trade payable to the extent that any such accrued expense or trade payable is
not more than 90 days overdue or is otherwise being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person and, in the event such indebtedness is not assumed by,
and is otherwise non-recourse to, such Person, the amount of such indebtedness
shall be deemed to equal the greater of the book value or Fair Market Value of
such asset) and, to the extent not otherwise included, the Guarantee by such
Person of any indebtedness of any other Person.
"Indebtedness to Cash Flow Ratio" means, with respect to any Person as of
any date of determination, the ratio of:
(i) total Indebtedness of such Person and its Restricted
Subsidiaries as of such date to;
(ii) four times Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for the most recently ended fiscal quarter for
which financial statements of such Person are available (the "Measurement
Period");
provided, however, that: (a) in making such computation, the total Indebtedness
of such Person and its Restricted Subsidiaries shall include the total amount of
funds outstanding and available under any credit facilities; and (b) in the
event such Person or any of its Restricted Subsidiaries consummates a material
acquisition or sale of assets subsequent to the commencement of the Measurement
Period, then the Indebtedness to Cash Flow Ratio shall be calculated giving pro
forma effect to such material acquisition or sale of assets as if the same had
occurred at the beginning of the Measurement Period.
"Indenture" means this Indenture, as originally executed or as amended or
supplemented from time to time.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the good
faith judgment of the Board of Directors of the Company (evidenced by a
unanimous resolution of the Board of Directors of the Company as set forth in an
Officers' Certificate delivered to the Trustee), qualified to perform the task
for which it has been engaged and is disinterested and independent with respect
to the Company and its Affiliates.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation and TD Securities (USA) Inc.
-9-
<PAGE>
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans, guarantees, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities and all other items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under this Indenture.
"Joint Venture" means a Person in a Related Business in which the Company
holds 50% or less of the Voting Equity Interests.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" has the meaning set forth in Section 5 of the
Registration Rights Agreement.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the net income (or loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(i) any gain (but not loss), together with any related provision
for taxes on such gain (but not loss), realized in connection with:
(a) any sale of assets (including, without limitation,
dispositions pursuant to sale and leaseback transactions); or
-10-
<PAGE>
(b) the disposition of any securities by such Person or any
of its Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Subsidiaries; and
(ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash consideration received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale in
the form of cash or Cash Equivalents (including, without limitation, any cash
received upon the sale or other disposition of any noncash consideration
received in any Asset Sale), net of the direct costs relating to such Asset sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred, as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements, and
provided that any such amount not so required to be paid for taxes shall be
deemed to constitute Net Proceeds at the time such amount is not retained for
such purpose), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets (including Equity Interests) that were
the subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or asset (including Equity Interests) established in
accordance with GAAP (provided that the amount of any such reserve shall be
deemed to constitute Net Proceeds at the time such reserve shall have been
released or is not otherwise required to be retained for such purpose).
"Non-Recourse Debt" means Indebtedness:
(i) as to which neither the Company nor any of its Restricted
Subsidiaries:
(a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
Indebtedness);
(b) is directly or indirectly liable (as a guarantor or
otherwise); or
(c) constitutes the lender;
(ii) no default with respect to which (including any rights that
the holders thereof may have to take enforcement action against any
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
-11-
<PAGE>
(iii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Company or
any of its Restricted Subsidiaries.
"Notes" means the Original Notes and the Exchange Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated July 31, 1997
relating to the offering of the Units.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary
or any Vice-President of such Person.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer or President and the chief financial
and/or accounting officer of such Person.
"Opinion of Counsel" means an opinion from legal counsel, who may be an
employee of or counsel to the Company (or any Guarantor, if applicable), any
Subsidiary of the Company (or any Guarantor, if applicable) or the Trustee.
"Original Notes" means the 14% Senior Notes due 2007 issued under this
Indenture on the date of this Indenture.
"Owner Securities Certification" has the meaning specified in Section
2.01(b)(ii).
"Permitted Investment" means:
(i) any Investment in the Company or in any Wholly Owned
Restricted Subsidiary of the Company;
(ii) any Investment in Cash Equivalents;
(iii) Investments by the Company or any of its Restricted
Subsidiaries in a Person if, as a result of such Investment:
(a) such Person becomes a Wholly Owned Restricted
Subsidiary of the Company;
-12-
<PAGE>
(b) such Person is merged, consolidated or amalgamated with
or into,or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company or any Wholly Owned Restricted
Subsidiary of the Company;
(iv) any Investments made solely as a result of the receipt of
non-Cash Consideration from an Asset Sale that was made pursuant to and in
compliance with Section 4.15; and
(v) any Investment made by the Company or any of its Restricted
Subsidiaries in a Related Business; provided that, at any time any such
Investment is made, such Investment will not cause the aggregate amount of
Investments at any one time outstanding under this clause (v) to exceed $6
million.
"Permitted Liens" means:
(i) Liens securing the Notes;
(ii) Liens in favor of the Company;
(iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any of its
Restricted Subsidiaries, provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with
the Company or such Restricted Subsidiary;
(iv) Liens on property existing at the time of acquisition
thereof by the Company or any of its Restricted Subsidiaries, provided that
such Liens were in existence prior to the contemplation of such
acquisition;
(v) Liens to secure the performance of statutory obligations,
surety, appeal or performance bonds or other obligations of a like nature
or mechanics' or purchase money Liens incurred in the ordinary course of
business;
(vi) Liens existing on the Issue Date;
(vii) Liens on inventory or accounts receivable securing
Indebtedness incurred in accordance with Section 4.09(vi) hereof or
securing Permitted Refinancing Indebtedness incurred pursuant hereto to
refinance Indebtedness in accordance with Section 4.09(vi) hereof;
(viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any
-13-
<PAGE>
reserve or other appropriate provision as shall be required in conformity
with GAAP shall have been made therefor;
(ix) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries; and
(x) Liens securing Indebtedness under the Bank Credit Facility
incurred in accordance with Section 4.09(vi) hereof.
"Permitted Refinancing Indebtedness" has the meaning set forth in Section
4.09 hereof.
"Person" means any individual, corporation, limited liability company,
limited liability partnership, partnership (general or limited), joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Pledge Account" means the account established with the Collateral Agent
pursuant to Pledge Agreement for the deposit of the Pledged Securities.
"Pledge Agreement" means the Pledge Agreement dated as of the date of this
Indenture by and between the Company and the Collateral Agent governing the
Pledge Account.
"Pledged Securities" means the U.S. government securities purchased by the
Company with a portion of the net proceeds from the Offering to be deposited in
the Pledge Account and pledged as security for the payment of the first six
semi-annual interest payments on the Notes.
"Preferred Equity Interest", in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"Purchase Agreement" means the Purchase Agreement, dated July 31, 1997,
among the Company, Teletrac Holdings, Inc. and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" within the meaning of Rule
144A.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Temporary Global Note" has the meaning set forth in Section
2.01(b)(i).
-14-
<PAGE>
"Related Assets" means all assets used in connection with the design,
development, procurement, installation, operation or marketing of location or
related two-way messaging systems and any activities or assets ancillary
thereto.
"Related Business" means any business relating to the design, procurement,
installation and operation of location, fleet management or related two-way
messaging systems and business and reasonably related extensions thereof.
"Registration Rights Agreement" means the Registration Rights Agreement
among the Company, Donaldson, Lufkin & Jenrette Securities Corporation and TD
Securities USA) Inc.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Global Note" has the meaning set forth in Section 2.01(c).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the period (a) beginning on and including the
later of (i) the Offering Date (as defined in the Offering Memorandum) and (ii)
the Issue Date and (b) ending on the later of (i) 40 days thereafter and (ii)
the Separation Date.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" means the date on which the Notes and Warrants will be
separately transferable, which date shall be the earliest of (i) the date that
is 180 days following the Closing Date, (ii) the Commencement of the Exchange
Offer (as defined in the Offering Memorandum), (iii) the date a shelf
registration statement with respect to the Notes is declared effective, (iv)
such date as Donaldson, Lufkin & Jenrette Securities Corporation shall determine
in its sole discretion, and (v) in the event a Change of Control occurs, the
date the Company mails the required notice thereof to the Holders.
-15-
<PAGE>
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in
effect on the date of this Indenture.
"Subsidiary" means, with respect to any Person:
(i) any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or more
of the other Subsidiaries of such Person (or a combination thereof); and
(ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Supplemental Indenture" means any supplemental indenture relating to this
Indenture.
"Tax Sharing Agreement" means the Tax Sharing Agreement between the Company
and Holdings as in effect on the date hereof.
"TIA" means the Trust Indenture Act of 1939 as in effect on the date on
which this Indenture is qualified under the TIA.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unit" means the Units offered pursuant to the Offering Memorandum,
consisting of one Original Note and one Warrant.
"Unrestricted Global Note" has the meaning set forth in Section 2.01(b)(i).
"Unrestricted Subsidiary" of a Person means any Subsidiary of such Person
that is designated by such Person as an Unrestricted Subsidiary pursuant to a
resolution of its Board of Directors, but only if and for so long as such
Subsidiary:
(i) has no Indebtedness other than Non-Recourse Debt;
(ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or
understanding are no less
-16-
<PAGE>
favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
Company;
(iii) is a Person with respect to which neither the Company nor
any of its Restricted Subsidiaries has any direct or indirect obligation:
(a) to subscribe for additional Equity Interests; or
(b) to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified
levels of operating results;
(iv) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and
(v) in the case of a corporate entity or limited liability
company, has at least one director on its board of directors and at least
one executive officer, in each case who is not a director or executive
officer of any of the Company or any of its Restricted Subsidiaries.
Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee within 45 days of such
designation a certified copy of the resolution of the Board of Directors
giving effect to such designation and on Officers' Certificate certifying
that such designation complied with the foregoing conditions and was
permitted by the covenant set forth in Section 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as
an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant set forth in Section 4.09 hereof,
the Company shall be in default of such covenant). The Board of Directors of
the Company may at any time designate an Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be
an incurrence of Indebtedness by a Restricted Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if:
(i) such Indebtedness is permitted under the Section 4.09 hereof, and
(ii) no Default or Event of Default would be in existence following
such designation.
Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee within 45 days of such
designation
-17-
<PAGE>
a certified copy of the resolution of the Board of Directors giving effect to
such designation and an Officers' Certificate that such designation complied
with the conditions of the immediately preceding sentence.
"Voting Equity Interests" means the Equity Interest in a corporation or
other Person with voting power under ordinary circumstances entitling the
holders thereof to elect or appoint the board of directors, executive committee
or other governing body of such corporation or Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
"Warrant" means a Warrant to purchase .537495 shares of the Class A Common
Stock, par value $.01 per share, of the Company.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(i) the sum of the products obtained by multiplying: (a) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity,
in respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(ii) the then outstanding principal of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and one or more other Wholly Owned Restricted
Subsidiaries of such Person.
Section 1.02. Other Definitions.
Term Defined in
Section
"Asset Sale Offer"..................................... 3.09
"Affiliate Transaction"................................ 4.11
"Change of Control Offer".............................. 4.15
"Change of Control Payment"............................ 4.15
"Change of Control Payment Date"....................... 4.15
"Covenant Defeasance".................................. 8.03
"Event of Default"..................................... 6.01
"Excess Proceeds"...................................... 4.19
"incur"................................................ 4.09
"Intercompany Indebtedness"............................ 4.09
-18-
<PAGE>
Term Defined in
Section
"Legal Defeasance"..................................... 8.02
"Offer Amount"......................................... 3.09
"Offer Payment"........................................ 4.21
"Offer Payment Date"................................... 4.21
"Offer Period"......................................... 3.09
"Offer to Purchase".................................... 4.21
"Paying Agent"......................................... 2.04
"Payment Default"...................................... 6.01
"Permitted Refinancing"................................ 4.09
"Purchase Date"........................................ 3.09
"Refinancing Indebtedness"............................. 4.09
"Registrar"............................................ 2.04
"Restricted Payments".................................. 4.07
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes and any Guarantee of the Notes;
"indenture security Holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means each of the Company and any successor obligor
upon the Notes or any Guarantor.
All other terms used in this Indenture that are defined by the TIA, defined
by reference to another statute or defined by SEC rule under the TIA have the
meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
-19-
\
<PAGE>
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating.
(a) The Original Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibits A-1 through A-3 hereto, the terms
of which are incorporated in and made a part of this Indenture. The Exchange
Notes and the Trustee's certificate of authentication shall be substantially in
the form of Exhibit B hereto. The Notes may have notations, legends or
endorsements approved as to form by the Company, and required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be issuable only in denominations of $1,000 and
integral multiples thereof.
(b)(i) Notes that are to be offered and resold by the Initial Purchasers
in reliance on Regulation S shall be issued initially in the form of a single
temporary Global Note (a "Regulation S Temporary Global Note") in fully
registered form without interest coupons, substantially in the form of Exhibit
A-1 hereto, with such applicable legends as are provided for in subsection (d)
hereof. Any Regulation S Temporary Global Note shall be duly executed by the
Company and authenticated by the Trustee, as provided herein, and shall be
registered in the name of the Depositary or its nominee and deposited with the
Trustee, at its New York office, as custodian for the Depositary, for credit to
the respective accounts of beneficial owners of such Note (or to such other
accounts as they may direct) at Euroclear or CEDEL. On or after the termination
of the Restricted Period, interests in the Regulation S Temporary Global Note
will be exchangeable for an unrestricted Global Note (an "Unrestricted Global
Note"), in definitive, fully registered form without interest coupons,
substantially in the form of Exhibit A-2 hereto, with such applicable legends as
are provided for in subsection (d) and in accordance with clause (ii) below.
The aggregate principal amount of a Regulation S Temporary Global Note and an
Unrestricted Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depositary,
as hereinafter provided.
-20-
<PAGE>
(ii) A holder of a beneficial interest in a Regulation S Temporary
Global Note may receive payments of interest on such Regulation S Temporary
Global Note only after delivery by such Person to Euroclear or CEDEL, as the
case may be, of a written certification (an "Owner Securities Certification")
substantially in the form of Exhibit C-1 hereto, and upon delivery by
Euroclear or CEDEL, as the case may be, to the Paying Agent of a
certification or certifications (each, a "Depositary Securities
Certification") substantially in the form of Exhibit C-2 hereto. The
delivery by such holder of a beneficial interest in such Regulation S
Temporary Global Note of such certification shall constitute an irrevocable
instruction by such holder to Euroclear or CEDEL, as the case may be, to
exchange such holder's beneficial interest in the Regulation S Temporary
Global Note for a beneficial interest in the Unrestricted Global Note upon
the expiration of the Restricted Period in accordance with the next
succeeding paragraph. No interest shall be paid to any holder of a
beneficial interest in a Regulation S Temporary Global Note until the
foregoing Owner Securities Certification has been provided to Euroclear or
CEDEL, as the case may be, by such holder and no interest shall be paid to
Euroclear or CEDEL on such holder's interest in a Regulation S Temporary
Global Note unless Euroclear or CEDEL, as the case may be, has provided a
Depositary Securities Certification to the Paying Agent with respect to such
interest.
Upon (i) the expiration of the Restricted Period, (ii) receipt by
Euroclear or CEDEL, as the case may be, and the Paying Agent of the
certificates described in the preceding paragraph, (iii) receipt by the
Depositary of (1) written instructions given in accordance with the
Applicable Procedures from an Agent Member directing the Depositary to credit
or cause to be credited to a specified Agent Member's account a beneficial
interest in the Unrestricted Global Note in a principal amount equal to that
of the beneficial interest in such Regulation S Temporary Global Note and (2)
a written order given in accordance with the Applicable Procedures regarding
the account of the Agent Member, and the Euroclear or CEDEL account for which
such Agent Member's account is held, to be credited with, and the account of
the Agent Member to be debited for, such beneficial interest and (iv) receipt
by the Trustee of notification from the Depositary of the transactions
described in (iii) above, the Trustee, as Registrar, shall instruct the
Depositary to reduce the principal amount of such Regulation S Temporary
Global Note and to increase the principal amount of such Unrestricted Global
Note, by the principal amount of the beneficial interest in such Regulation S
Temporary Global Note to be so transferred, and to credit or cause to be
credited to the account of the person specified in such instructions a
beneficial interest in such Unrestricted Global Note having a principal
amount equal to the amount by which the principal amount of such Regulation S
Temporary Global Note was reduced upon such transfer.
(c) Notes that are to be offered and resold by the Initial Purchasers in
accordance with Rule 144A shall be issued in definitive, fully registered form
without interest coupons, substantially in the form of Exhibit A-3 hereto, with
such applicable legends as are provided for in subsection (d) below. Such Notes
may be issued in the form of a single Global Note (the "Restricted Global
Notes"). Restricted Global Notes shall be duly executed by the Company and
authenticated by the Trustee as provided herein and
-21-
<PAGE>
shall be registered in the name of a nominee of the Depositary and deposited
with the Trustee, at its New York office, as custodian for the Depositary, for
credit to the respective account of beneficial owners of such Restricted Global
Notes. The aggregate principal amount of a Restricted Global Note may from time
to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary, as hereinafter provided.
(d) The Notes shall be issued in the form of one or more Global Notes and
the Depository Trust Company, its nominees, and their respective successors,
shall act as the Depositary with respect thereto. Each Global Note shall (i) be
registered in the name of the Depositary for such Global Note or the nominee of
such Depositary, and (ii) shall bear a legend substantially to the following
effect:
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN."
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO HEREIN.
Each Restricted Note shall bear the following legend on the face thereof:
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHIN THE UNITED
-22-
<PAGE>
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH IN THE SECOND SENTENCE HEREOF. BY ITS ACQUISITION HEREOF
OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) (A "QIB") OR (B) IT IS NOT A U.S. PERSON, IS NOT
ACQUIRING THIS SECURITY FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON
AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT
IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k)
(TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE
SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT
ON THE DATE OF THE TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER), (E) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902
OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
-23-
<PAGE>
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
The Trustee must refuse to register any transfer of a Note bearing such legend
that would violate the restrictions described in such legend.
Each Regulation S Temporary Global Note shall bear a legend
substantially in the following form:
THIS NOTE IS A REGULATION S TEMPORARY GLOBAL NOTE WITHIN THE
MEANING OF THE INDENTURE REFERRED TO HEREINAFTER. INTERESTS IN
THIS REGULATION S TEMPORARY GLOBAL NOTE MAY NOT BE OFFERED OR
SOLD TO A U.S. PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD (AS
DEFINED IN THE INDENTURE), AND NO TRANSFER OR EXCHANGE OF AN
INTEREST IN THIS REGULATION S TEMPORARY GLOBAL NOTE MAY BE MADE
FOR AN INTEREST IN A RESTRICTED GLOBAL NOTE OR IN AN UNRESTRICTED
GLOBAL NOTE UNTIL AFTER THE LATER OF THE DATE OF TERMINATION OF
THE RESTRICTED PERIOD AND THE DATE ON WHICH THE OWNER SECURITIES
CERTIFICATION AND THE DEPOSITARY SECURITIES CERTIFICATION
RELATING TO SUCH INTEREST HAVE BEEN PROVIDED IN ACCORDANCE WITH
THE TERMS OF THE INDENTURE, TO THE EFFECT THAT THE BENEFICIAL
OWNER OR OWNERS OF SUCH INTEREST ARE NOT U.S. PERSONS.
Prior to the Separation Date, each Note shall bear a legend
substantially in the following form:
THE NOTES REPRESENTED BY THIS CERTIFICATE WERE INITIALLY ISSUED
AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000
AGGREGATE PRINCIPAL AMOUNT OF 14% SENIOR NOTES DUE 2007 OF
TELETRAC, INC. (THE "NOTES") AND ONE WARRANT TO PURCHASE SHARES
OF CLASS A COMMON STOCK OF TELETRAC HOLDINGS, INC. (THE
"WARRANTS"). THE WARRANTS AND THE NOTES WILL NOT TRADE
SEPARATELY UNTIL THE EARLIEST OF (I) 180 DAYS AFTER THE CLOSING
DATE OF THE SALE OF THE UNITS, (II) THE COMMENCEMENT OF AN
EXCHANGE OFFER
-24-
<PAGE>
WITH RESPECT TO THE NOTES OR THE EFFECTIVENESS OF A SHELF REGISTRATION
STATEMENT FOR THE NOTES, (III) SUCH DATE AS DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION IN ITS SOLE DISCRETION MAY DETERMINE,
OR (IV) IN THE EVENT OF A "CHANGE IN CONTROL" (AS DEFINED IN THE
INDENTURE GOVERNING THE NOTES), THE DATE TELETRAC, INC. MAILS THE
REQUIRED NOTICE THEREOF TO THE HOLDERS OF THE NOTES.
(e) The Notes are being offered and sold by the Company to the
Initial Purchasers pursuant to the Purchase Agreement.
Section 2.02. Restricted Notes.
During the period beginning on the Issue Date and ending on the date
two years from the Closing Date, all Notes offered and sold to QIBs in reliance
on Rule 144A shall be deemed "Restricted Notes" and shall bear on their face,
and be subject to the restrictions on transfer provided in, the legend set forth
therefor in Section 2.01(d); provided, however, that the term "Restricted Notes"
shall not include Notes as to which restrictions have been terminated in
accordance with Section 2.08(c).
Section 2.03. Global Notes.
(a) Notwithstanding any other provision of this Indenture, a Global
Note shall not be exchanged in whole or in part for a Note registered in the
name of any person other than the Depositary or one or more of its nominees
thereof, unless (1) the Depositary (A) notifies the Company that it is unwilling
or unable to continue as Depositary for such Global Note and the Company
thereupon fails to appoint a successor Depositary within 90 days or (B) ceases
to be a clearing agency registered under the Exchange Act, (2) there shall have
occurred and be continuing an Event of Default, or an event which with notice or
lapse of time or both would become an Event of Default with respect to the
Notes, or (3) the Company, at its sole option, notifies the Trustee in writing
that it elects to cause the issuance of certificated Notes; provided, however,
that no exchange may be made pursuant to this clause (3) in respect of any
interest in a Regulation S Temporary Global Note unless and until the Restricted
Period shall have expired and the certifications required by Section 2.08(b)(ii)
shall have been provided in respect of such interest. Any Global Note shall be
so exchanged from time to time in whole and not in part as directed by the
Depositary. Any Note issued in exchange for a Global Note or any portion
thereof shall be a Global Note, provided, however, that any such Note so issued
that is registered in the name of a Person other than the Depositary or a
nominee thereof shall not be a Global Note.
(b) Notes issued in exchange for a Global Note or any portion thereof
shall be issued in definitive, fully registered form, shall have an aggregate
principal
-25-
<PAGE>
registered in such names and be in such authorized denominations as the
Depositary shall designate and shall bear the applicable legends provided for
herein. Any Global Note to be exchanged in whole shall be surrendered by the
Depositary to the Transfer Agent located in the Borough of Manhattan, The
City of New York, to be so exchanged. With regard to any Global Note to be
exchanged in part, either such Global Note shall be so surrendered or
exchanged or, if the Trustee is acting as custodian for the Depositary or its
nominee with respect to such Global Note, the principal amount thereof shall
be reduced, by an amount equal to the portion thereof to be so exchanged, by
means of an appropriate adjustment made on the records of the Trustee. Upon
any such surrender or adjustment, the Trustee shall authenticate and deliver
the Note issuable on such exchange to or upon the order of the Depositary or
an authorized representative thereof. Any Note delivered in exchange for the
Global Note or any portion thereof shall, except as otherwise provided by
Section 2.08, bear the legend regarding transfer restrictions required by
Section 2.01(d).
(c) Subject to the provisions in the legends required by
Section 2.01(d) above, the registered Holder may grant proxies and otherwise
authorize any Person, including Agent Members and Persons who may hold
interests in Agent Members, to take any action that such Holder is entitled
to take under this Indenture.
(d) In the event of the occurrence of any of the events specified in
paragraph (a) of this Section 2.05, the Company will promptly make available to
the Trustee a reasonable supply of certificated Notes in definitive, fully
registered form.
(e) Neither members of, nor participants in, the Depositary ("Agent
Members") nor any other Person on whose behalf Agent Members may act shall have
any rights under this Indenture with respect to any Global Note held on their
behalf by the Depositary or under the Global Note, and the Depositary may be
treated by the Company, the Trustee and any agent of the Company or the Trustee
as the absolute owner of such Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Note. With respect to any Global Note deposited on behalf of the subscribers
for the Notes represented thereby with the Trustee as custodian for the
Depositary for credit to their respective accounts (or to such other accounts as
they may direct) at Euroclear or CEDEL, the provisions of the "Operating
Procedures of the Euroclear System" and the "Terms and Conditions Governing Use
of Euroclear" and the "Management Regulations" and "Instructions to
Participants" of CEDEL, respectively, shall be applicable to Global Notes.
-26-
<PAGE>
Section 2.04. Form of Execution and Authentication.
Two Officers of the Company shall sign the Notes for the Company by manual
or facsimile signature.
If an Officer whose signature is on a Note no longer holds that office at
the time the Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature of the Trustee shall be conclusive evidence that
the Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Notes for original issue up to an
aggregate principal amount of $105,000,000 of the Notes exchanged therefor.
The aggregate principal amount of Notes outstanding at any time shall not
exceed the amount set forth herein except as provided in Section 2.09.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as
an Agent to deal with the Company or any Affiliate of the Company.
Section 2.05. Registrar and Paying Agent.
The Company shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange (including any
co-registrar, the "Registrar") and (ii) an office or agency where Notes may
be presented for payment ("Paying Agent"). The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company may
appoint one or more co-registrars and one or more additional paying agents.
The term "Paying Agent" includes any additional paying agent. The Company
may change any Paying Agent, Registrar or co-registrar without prior notice
to any Holder of a Note. The Company shall notify the Trustee and the Trustee
shall notify the Holders of the Notes of the name and address of any Agent
not a party to this Indenture. Neither the Company nor any Affiliate may act
as Paying Agent. The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, which shall
incorporate the provisions of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee of the name and address of any such Agent. If the Company
fails to maintain a Registrar or Paying Agent, or fails to give the foregoing
notice, the Trustee shall act as such, and shall be entitled to appropriate
compensation in accordance with Section 7.07.
-27-
<PAGE>
The Company initially appoints the Trustee as Registrar, Paying Agent and
agent for service of notices and demands in connection with the Notes.
Section 2.06. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
the Holders of the Notes or the Trustee all money held by the Paying Agent
for the payment of principal of, premium, if any, and interest on the Notes,
and shall notify the Trustee of any Default by the Company in making any such
payment. While any such Default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time
may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company)
shall have no further liability for the money delivered to the Trustee. If
the Company acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders of the Notes all money held by it
as Paying Agent.
Section 2.07. Lists of Holders of the Notes.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of Holders of the Notes and shall otherwise comply with TIA Section 312(a).
If the Trustee is not the Registrar, the Company shall furnish to the
Trustee at least seven Business Days before each interest payment date and at
such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Holders of the Notes, including the aggregate principal amount
of the Notes held by each thereof, and the Company shall otherwise comply
with TIA Section 312(a).
Section 2.08. Transfer and Exchange.
(a) General. At the option of each Holder but subject to the
provisions of this Section 2.08, Notes may be exchanged for other Notes of
any authorized denomination or denominations and of the same aggregate
principal amount, upon surrender of the Notes to be exchanged at any office
or agency of the Trustee appointed in or pursuant to Section 2.05 for such
purpose. Subject to the terms of this Section 2.08, upon surrender for
registration of transfer of any Note at any such office or agency of the
Trustee, the Company shall prepare and execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denomination or
denominations and of the same aggregate principal amount.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
-28-
<PAGE>
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the company and the Registrar (it being understood that,
until notice to the contrary is given to Holders of Notes, the Company and
the Registrar shall each be deemed to have approved the form of instrument of
transfer, if any, printed on any definitive Note), duly executed by the
Holder or such Holder's attorney duly authorized in writing.
No service charge shall be made for any registration, registration
of transfer or exchange of Notes, but the Company and the Trustee shall have
the right to require payment from the Holder requesting any such registration
of transfer or exchange of an amount in United States Dollars sufficient to
pay or discharge any stamp duty, tax or other governmental charge or
insurance charge that may be imposed in connection with such registration of
transfer or exchange.
The Company shall not be required to register the transfer of, or
exchange, any Note called for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
(b) Redemption Period. Neither the Company nor the Trustee shall
be required (i) to issue Notes, to register the transfer of Notes or to
exchange Notes during a period beginning at the opening of business fifteen
(15) days before the day of the mailing of a notice of redemption with
respect to less than all of the Notes and ending at the close of business on
the day of such mailing, or (ii) to register the transfer of Notes or to
exchange Notes being redeemed in whole or in part, except the unredeemed
portion of any Note being redeemed in part.
(c) Restricted Notes. Every Restricted Note, including any Note
issued upon transfer or exchange thereof, shall be subject to the
restrictions on transfer provided in the legend required to be set forth on
the face of such Restricted Note pursuant to Section 2.01, unless such
restrictions on transfer shall be waived by the written consent of the
Company, and the Holder of each Restricted Note, by such Holder's acceptance
thereof, agrees to be bound by such restrictions on transfer. Whenever any
Restricted Note is presented or surrendered for registration of transfer or
for exchange for a Note registered in a name other than that of the Holder,
such Restricted Note must be accompanied by a transferor's certificate in
substantially the form set forth in Exhibit C-4 and, in the case of transfers
of Restricted Notes pursuant to Rule 144A, a transferee's certificate
substantially in the form set forth in Exhibit C-8. The Registrar shall not
be required to accept for such registration of transfer or exchange any
Restricted Note unless such Registrar is satisfied that the restrictions on
transfer as set forth in this Indenture have been complied with.
The restrictions imposed by this Section 2.08(c) and Section 2.02
upon the transferability of any particular Restricted Note shall cease and
terminate when such Restricted Note (i) has been sold pursuant to an
effective registration statement, (ii) may
-29-
<PAGE>
be transferred pursuant to Rule 144 (or any successor provision thereto),
unless the Holder thereof is an affiliate of the Issuer within the meaning of
Rule 144 (or such successor provision), or (iii) has been transferred
pursuant to Regulation S. Any Restricted Note as to which such restrictions
on transfer shall have expired in accordance with their terms or shall have
terminated may, upon surrender of such Restricted Note for exchange to the
Registrar in accordance with the provisions of this Section 2.08
(accompanied, in the event that such restrictions on transfer have terminated
by reason of a transfer pursuant to Rule 144 or any successor provision, by
an opinion of counsel having substantial experience in practice under the
Securities Act and otherwise reasonably acceptable to the Issuer, addressed
to the Issuer and in form acceptable to the Issuer, to the effect that the
transfer of such Restricted Note has been made in compliance with Rule 144 or
such successor provision) be exchanged for a new Note, of like aggregate
principal amount, which shall not bear the restrictive legend required by
Section 2.01(d). The Company shall inform the Trustee of the effective date
of any registration statement registering the Notes under the Securities Act.
The Trustee shall not be liable for any action taken or omitted to be taken
by it in good faith in accordance with the aforementioned opinion of counsel
or registration statement.
As used in the preceding two paragraphs of this Section 2.08(c), the
term "transfer" encompasses any sale, pledge, transfer or other disposition
of any Restricted Note.
(d) Transfer of Global Notes and Interests Therein. Notwithstanding
any other provision of this Indenture or the Notes, transfers of a Global Note,
in whole or in part, and transfers of interests therein of the kind described
in clauses (iii), (iv) or (v) below, shall be made only in accordance with this
Section 2.08(d), and all transfers of an interest in a Regulation S Temporary
Global Note shall comply with Sections 2.08(d)(ii), (v) and (vi) below.
(i) General. A Global Note may not be transferred, in whole or in
part, to any person other than the Depositary or a nominee thereof, and no
such transfer to any such other person may be registered; provided,
however, that this clause (i) shall not prohibit any transfer of a Note
that is issued in exchange for a Global Note but is not itself a Global
Note. No transfer of a Note to any person shall be effective under this
Indenture or the Notes unless and until such Note has been registered in
the name of such person. Nothing in this Section 2.08(d)(i) shall prohibit
or render ineffective any transfer of a beneficial interest in a Global
Note effected in accordance with the other provisions of this Section
2.08(d).
(ii) Regulation S Temporary Global Note. If the holder of a
beneficial interest in a Regulation S Temporary Global Note wishes at any
time to transfer such interest to a person who wishes to take delivery
thereof in the form of a beneficial interest in such Regulation S Temporary
Global Note, such transfer may be effected, subject to Applicable
Procedures (as defined below), only in
-30-
<PAGE>
accordance with this Section 2.08(d)(ii). Upon delivery (i) by a
beneficial owner of an interest in a Regulation S Temporary Global Note to
Euroclear or CEDEL, as the case may be, of an Owner Securities
Certification, (ii) by the transferee of such beneficial interest in the
Regulation S Temporary Global Note to Euroclear or CEDEL, as the case may
be, of a written certification (a "Transferee Securities Certification")
substantially in the form of Exhibit C-3 hereto and (iii) by Euroclear or
CEDEL, as the case may be, to the Trustee of a Depositary Securities
Certification, the Trustee may direct either Euroclear or CEDEL, as the
case may be, to reflect on its records the transfer of a beneficial
interest in the Regulation S Temporary Global Note from the beneficial
owner providing the Owner Securities Certification to the Person providing
the Transferee Securities Certification.
(iii) Restricted Global Note to Regulation S Temporary Global
Note. If the holder of a beneficial interest in a Restricted Global Note
wishes at any time to transfer such interest to a person who wishes to take
delivery thereof in the form of a beneficial interest in a Regulation S
Temporary Global Note, such transfer may be effected, subject to the rules
and procedures of the Depositary, Euroclear and CEDEL, in each case to the
extent applicable (the "Applicable Procedures"), only in accordance with
the provisions of this Section 2.06(d)(iii). Upon receipt by (1) the
Depositary of (A) written instructions given in accordance with the
Applicable Procedures from an Agent Member directing the Depositary to
credit or cause to be credited to a specified Agent Member's account a
beneficial interest in a Regulation S Temporary Global Note in a principal
amount equal to that of the beneficial interest in such Restricted Global
Note, (B) a written order given in accordance with the Applicable
Procedures containing information regarding the account of the Agent Member
(and the Euroclear or CEDEL account, as the case may be) to be credited
with, and the account of the Agent Member to be debited for, such
beneficial interest and (C) a certificate in substantially the form of
Exhibit C-5 attached hereto given by the holder of such beneficial interest
and (2) the Trustee, as Registrar, at its office in The City of New York of
(A) notification from the Depositary of the transaction described in (1)
above and (B) the certificate described in (1)(C) above, the Trustee, as
Registrar, shall instruct the Depositary to reduce the principal amount of
a Restricted Global Note, and to increase the principal amount of a
Regulation S Temporary Global Note by the principal amount of the
beneficial interest in the Restricted Global Note to be so transferred, and
to credit or cause to be credited to the account of the person specified in
such instructions (which shall be the Agent Member for Euroclear or CEDEL
or both, as the case may be) a beneficial interest in such Regulation S
Temporary Global Note having a principal amount equal to the amount by
which the principal amount of the Restricted Global Note was reduced upon
such transfer.
(iv) Restricted Global Note to Unrestricted Global Note. If the
holder of a beneficial interest in a Restricted Global Note wishes at any
time to transfer
-31-
<PAGE>
such interest to a person who wishes to take delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note, such transfer may
be effected, subject to the Applicable Procedures, only in accordance with
this Section 2.08(d)(iv). Upon receipt by (1) the Depositary of (A)
written instructions given in accordance with the Applicable Procedures
from an Agent Member directing the Depositary to credit or cause to be
credited to a specified Agent Member's account a beneficial interest in an
Unrestricted Global Note in a principal amount equal to that of the
beneficial interest in such Restricted Global Note, (B) a written order
given in accordance with the Applicable Procedures containing information
regarding the account of the Agent Member (and, in the case of any such
transfer pursuant to Regulation S, the Euroclear or CEDEL account for which
such Agent Member's account is held) to be credited with, and the account
of the Agent Member to be debited for, such beneficial interest and (C) a
certificate in substantially the form of Exhibit C-6 attached hereto given
by the holder of such beneficial interest and (2) the Trustee, as
Registrar, at its office in The City of New York of (A) notification from
the Depositary of the transaction described in (1) above and (B) the
certificate described in (1)(C) above, the Trustee, as Registrar, shall
instruct the Depositary to reduce the principal amount of a Restricted
Global Note, and to increase the principal amount of an Unrestricted Global
Note by the principal amount of the beneficial interest in the Restricted
Global Note to be so transferred, and to credit or cause to be credited to
the account of the person specified in such instructions a beneficial
interest in such Unrestricted Global Note having a principal amount equal
to the amount by which the principal amount of the Restricted Global Note
was reduced upon such transfer.
(v) Regulation S Temporary Global Note or Unrestricted Global Note to
Restricted Global Note. If the holder of a beneficial interest in a
Regulation S Temporary Global Note on or after the termination of the
Restricted Period, or the holder of a beneficial interest in an
Unrestricted Global Note at any time, wishes to transfer such interest to a
person who wishes to take delivery thereof in the form of a beneficial
interest in the Restricted Global Note, such transfer may be effected,
subject to the Applicable Procedures and only in accordance with this
Section 2.08(d)(v) provided, that with respect to any transfer of a
beneficial interest in a Regulation S Temporary Global Note (except a
transfer pursuant to Section 2.08(d)(vii)(2)) the transferor and Euroclear
or CEDEL, as the case may be, must have previously delivered the
certificates described in the first paragraph of Section 2.08(b)(ii) with
respect to such beneficial interest. Upon receipt by (1) the Depositary of
(A) written instructions given in accordance with the Applicable Procedures
from an Agent Member, directing the Depositary to credit or cause to be
credited to a specified Agent Member's account a beneficial interest in the
Restricted Global Note equal to that of the beneficial interest in a
Regulation S Temporary Global Note or an Unrestricted Global Note to be so
transferred and (B) a written order given in accordance with the Applicable
Procedures containing information regarding the account of the Agent
-32-
<PAGE>
Member to be credited with, and the account of the Agent Member (or, if
such account is held for Euroclear or CEDEL, the Euroclear or CEDEL
account, as the case may be) to be debited for, such beneficial interest,
and (2) the Trustee, as Registrar, at its office in The City of New York of
notification from the Depositary of the transaction described in (1) above,
the Trustee, as Registrar, shall instruct the Depositary to reduce the
principal amount of such Regulation S Temporary Global Note or Unrestricted
Global Note as the case may be and increase the principal amount of the
Restricted Global Note, by the principal amount of the beneficial interest
in such Regulation S Temporary Global Note or Unrestricted Global Note to
be so transferred, and to credit or cause to be credited to the account of
the person specified in such instructions a beneficial interest in such
Restricted Global Note having a principal amount equal to the amount by
which the principal amount of such Regulation S Temporary Global Note or
Unrestricted Global Note was reduced upon such transfer.
(vi) Interests in Regulation S Temporary Global Note to be Held
Through Euroclear or CEDEL. Until the later of the termination of the
Restricted Period and the provision of the certifications required by
Section 2.01(b)(ii), interests in any Regulation S Temporary Global Note
may be held only through Agent Members acting for and on behalf of
Euroclear and CEDEL, and any purchaser of Notes in a sale made in reliance
on Regulation S may not sell or offer to sell such Notes within the United
States or to a U.S. Person or for the account or benefit of a U.S. Person
within the meaning of Regulation S.
(vii) Other Exchanges. (1) In the event that a Global Note or
any portion thereof is exchanged for Notes other than Global Notes, such
other Notes may in turn be exchanged (on transfer or otherwise) for Notes
that are not Global Notes or for beneficial interests in a Global Note (if
any is then outstanding) only in a manner consistent with the provisions of
clauses (i) through (vi) above (including the certification requirements
intended to insure that transfers of beneficial interests in a Global Note
comply with Rule 144A, Rule 144 or Regulation S, as the case may be) and
any Applicable Procedures, as may be from time to time adopted by the
Company and the Trustee; provided, that, except as permitted in paragraph
(2) hereof, no beneficial interest in a Regulation S Temporary Global Note
shall be exchangeable for a definitive Note until the expiration of the
Restricted Period and then only if the certifications described in Section
2.01(b)(ii) have been provided in respect of such interest.
(2) Notwithstanding any other provision of this Section 2.08, an
Initial Purchaser may exchange beneficial interests in a Regulation S
Temporary Global Note held by it for one or more Restricted Notes
(including an interest in a Restricted Global Note) only after delivery by
such Initial Purchaser of instructions for such exchange substantially in
the form of Exhibit C-7. Upon receipt of the instruction described in the
preceding sentence, the Trustee shall instruct the Depositary to reduce the
principal amount of a Regulation S
-33-
<PAGE>
Temporary Global Note by the principal amount of the beneficial interest in
such Regulation S Temporary Global Note to be so transferred and either (A)
the Trustee shall instruct the Depositary to increase the principal amount
of the Restricted Global Note and credit or cause to be credited to the
account of the Initial Purchasers a beneficial interest in such Restricted
Global Note having a principal amount equal to the amount by which the
principal amount of the Regulation S Temporary Global Note was reduced upon
such transfer or (B) authenticate and deliver one or more Restricted Notes
in the aggregate principal amount of the beneficial interest in the
Regulation S Temporary Global Note to be so transferred, pursuant to the
instructions described in the first sentence of this subclause (2).
(e) Transfer of Restricted Notes (Other Than a Restricted Global
Note) to a Global Note. If the holder of a Restricted Note (other than a
Restricted Global Note) wishes at any time to transfer such Note to a person
who wishes to take delivery thereof in the form of a beneficial interest in a
Restricted Global Note, a Regulation S Temporary Global Note or an
Unrestricted Global Note, such transfer may be effected, subject to the other
provisions of this Indenture and the Applicable Procedures, only in
accordance with this Section 2.08(e). Upon receipt by (1) the Depositary of
(A) written instructions given in accordance with the Applicable Procedures
from an Agent Member directing the Depositary to credit or cause to be
credited to a specified Agent Member's account a beneficial interest in a
Restricted Global Note, a Regulation S Temporary Global Note or an
Unrestricted Global Note, as the case may be, in a principal amount equal to
the principal amount of the Restricted Note to be so transferred, (B) a
written order given in accordance with the Applicable Procedures containing
information regarding the account of the Agent Member (and, in the case of
any transfer pursuant to Regulation S, the Euroclear and CEDEL account for
which such Agent Member's account is held, or if such account is held for
Euroclear or CEDEL, the Euroclear or CEDEL account, as the case may be) to be
credited with such beneficial interest and (C) an appropriately completed
certificate substantially in the form of Exhibit C-4 hereto and (2) the
Trustee of (A) the Restricted Note to be transferred, (B) notification from
the Depositary of the transaction described in (1) above and (C) the
certificate described in (1)(C) above, the Trustee shall cancel the
Restricted Note and instruct the Depositary to increase the principal amount
of a Restricted Global Note, Regulation S Temporary Global Note or
Unrestricted Global Note, as the case may be, by the principal amount of the
Restricted Note so transferred, and to credit or cause to be credited to the
account of the person specified in such instructions (which, in the case of
any increase in the principal amount of such Regulation S Temporary Global
Note, shall be the Agent Member for Euroclear or CEDEL or both, as the case
may be) a corresponding principal amount of such Restricted Global Note, such
Regulation S Temporary Global Note or such Unrestricted Global Note. Any
transfer of a Restricted Note to a person who wishes to take delivery thereof
in the form of a beneficial interest in a Global Note other than a Restricted
Global Note may only be effected in accordance with Regulation S or Rule 144.
-34-
<PAGE>
(f) Notwithstanding any other provision of this Section 2.08,
transfers of any Note or a beneficial interest in a Global Note made in
reliance on Rule 144A may be effected only after delivery to the Depositary
or the Trustee by the proposed transferee of an appropriately completed
certificate substantially in the form of Exhibit C-8.
(g) Successive registrations and registrations of transfers and
exchanges as aforesaid may be made from time to time as desired, and each
such registration shall be noted on the Register. No service charge shall be
made for any registration of transfer or exchange of the Notes, but the
Trustee may require payment of a sum sufficient to cover any stamp duty, tax
or other governmental charge or insurance charge payable in connection
therewith and any other amounts required to be paid by the provisions of the
Notes.
(h) All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
(i) The Company shall not be required (i) to issue Notes, to
register the transfer of Notes or to exchange Notes during a period beginning
at the opening of business fifteen (15) days before the day of the mailing of
a notice of redemption of Notes being redeemed under Section 3.03 and ending
at the close of business on the day of such mailing, or (ii) to register the
transfer of Notes or to exchange Notes being redeemed in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
Section 1.029. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Note, the Company shall issue and the Trustee, upon the written order of
the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements for replacements of Notes are
met. If required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent or any authenticating
agent from any loss which any of them may suffer if a Note is replaced. Each of
the Company and the Trustee may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company.
-35-
<PAGE>
Section 2.10. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01, it ceases to be outstanding and interest on it ceases to accrue.
Subject to Section 2.11, a Note does not cease to be outstanding because
the Company, a Subsidiary of the Company or an Affiliate of the Company holds
the Note.
Section 2.11. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any Subsidiary of the Company or any Affiliate of the Company shall
be considered as though not outstanding, except that for purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes which a Responsible Officer knows to
be so owned shall be so considered. Notwithstanding the foregoing, Notes
that are to be acquired by the Company, any Subsidiary of the Company or an
Affiliate of the Company pursuant to an exchange offer, tender offer or other
agreement shall not be deemed to be owned by the Company, a Subsidiary of the
Company or an Affiliate of the Company until legal title to such Notes passes
to the Company, such Subsidiary or such Affiliate, as the case may be.
Section 2.12. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that
the Company and the Trustee consider appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee, upon
receipt of the written order of the Company signed by two Officers of the
Company, shall authenticate definitive Notes in exchange for temporary Notes.
Until such exchange, temporary Notes shall be entitled to the same rights,
benefits and privileges as definitive Notes.
-36-
<PAGE>
Section 2.13. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation and shall destroy canceled
Notes (subject to the record retention requirement of the Exchange Act),
unless the Company directs canceled Notes to be returned to it. The Company
may not issue new Notes to replace Notes that it has redeemed or paid or that
have been delivered to the Trustee for cancellation. All canceled Notes held
by the Trustee shall be destroyed and certification of their destruction
delivered to the Company, unless by a written order, signed by two Officers
of the Company, the Company shall direct that canceled Notes be returned to
it.
Section 2.14. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders of
the Notes on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior
to the payment date, in each case at the rate provided in the Notes. The
Company shall, with the consent of the Trustee, fix or cause to be fixed each
such special record date and payment date. At least 15 days before the
special record date, the Company (or the Trustee, in the name of and at the
expense of the Company) shall mail to Holders of the Notes a notice that
states the special record date, the related payment date and the amount of
such interest to be paid.
Section 2.15. Record Date.
The record date for purposes of determining the identity of Holders of
the Notes entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided
for in TIA Section 316(c).
Section 2.16. CUSIP and CINS Numbers.
The Company in issuing the Notes may use "CUSIP" and "CINS" numbers and,
if it does so, the Trustee shall use the CUSIP and CINS numbers in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP and CINS numbers printed in the notice or on the Notes
and that reliance may be placed only on the other identification numbers
printed on the Notes. The Company will promptly notify the Trustee of any
change in the CUSIP and CINS numbers.
-37-
<PAGE>
ARTICLE 3.
REDEMPTION
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07, it shall furnish to the Trustee, at least 30 days
but not more than 60 days before a redemption date, an Officers' Certificate
setting forth (i) the redemption date, (ii) the principal amount of Notes to
be redeemed, (iii) the redemption price and (iv) the redemption provision
being relied on for such redemption..
Section 3.02. Selection of Notes to be Redeemed or Repurchased.
If less than all of the Notes are to be redeemed at any time, the
selection of Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any,
on which the Notes are listed, or if the Notes are not so listed on a pro
rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate; provided that no Notes with a principal
amount of $1,000 or less shall be redeemed in part.
Notices of redemption or repurchase shall be mailed by first class mail
at least 30 days but not more than 60 days before the redemption or
repurchase date to each Holder of Notes to be redeemed or repurchased at its
registered address. If any Note is to be redeemed or repurchased in part
only, the notice that relates to such Note shall state the portion of the
principal amount thereof to be redeemed or repurchased. A new Note in
principal amount equal to the unredeemed or unrepurchased portion will be
issued in the name of the Holder thereof upon cancellation of the original
Notes. On and after the redemption or repurchase date (unless the Company
shall default in the payment of the redemption price, together with accrued
and unpaid interest and Liquidated Damages (if any) to the redemption date),
interest will cease to accrue on the Notes or portions thereof called for
redemption or repurchase.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09, the redemption notice shall be
mailed in accordance with the provisions of Section 3.03, shall identify the
Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) the provision being relied on for such redemption;
-38-
<PAGE>
(d) if any Note is being redeemed in part only, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion shall be issued;
(e) the name and address of the Paying Agent;
(f) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(g) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(h) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(i) that no representation is made as to the correctness or accuracy
of the CUSIP and CINS numbers, if any, listed in such notice or printed on
the Notes.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days (unless a shorter period
is acceptable to the Trustee) prior to the redemption date, an Officers'
Certificate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03, Notes
called for redemption become due and payable on the redemption date at the
redemption price.
Section 3.05. Deposit of Redemption Price.
On or prior to any redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price of
and accrued interest on all Notes to be redeemed on that date. The Trustee or
the Paying Agent shall promptly return to the Company any money deposited with
the Trustee or the Paying Agent by the Company in excess of the amounts
necessary to pay the redemption price of, and accrued interest on, all Notes to
be redeemed.
On and after the redemption date, interest shall cease to accrue on the
Notes or the portions of Notes called for redemption. If a Note is redeemed on
or after an interest record date but on or prior to the related interest payment
date, then any accrued and
-39-
<PAGE>
unpaid interest shall be paid to the Person in whose name such Note was
registered at the close of business on such record date. If any Note called for
redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest shall be
paid on the unpaid principal, from the redemption date until such principal is
paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes.
Section 3.06. Notes Redeemed in Part.
Upon surrender and cancellation of a Note that is redeemed in part, the
Company shall issue and the Trustee shall authenticate for the Holder of the
Notes at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption
The Notes will not be redeemable prior to August 1, 2002. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest and Liquidated Damages (if any) thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on August 1 of the years indicated below:
Year Redemption Price
---- ----------------
2002.................................. 107.000%
2003.................................. 104.667%
2004.................................. 102.333%
2005 and thereafter................... 100.000%
Notwithstanding the foregoing, prior to August 1, 2000, the Company may
redeem outstanding Notes with the net proceeds of one or more sales of Capital
Stock (other than Disqualified Stock) of the Company or Holdings (provided that,
in the case of Holdings, proceeds from the sale of such Capital Stock shall have
been contributed to the capital of the Company other than as Disqualified Stock
or Indebtedness) to one or more Persons at a redemption price equal to 114% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages (if any) thereon to the redemption date; provided, however, that: (i)
not less than $68.3 million aggregate principal amount of Notes remain
outstanding immediately after any such redemption; and (ii) such redemption
shall occur within 30 days after the date of closing of such sale of Capital
Stock.
-40-
<PAGE>
Section 3.08. Mandatory Redemption.
Except as set forth in Sections 3.09 and 4.14 below, the Notes will not be
subject to any mandatory redemption or sinking fund provisions.
Section 3.09. Offer to Purchase by Application of Excess Proceeds from Asset
Sale.
When the cumulative amount of Excess Proceeds (as defined in Section 4.19)
exceeds $5 million, the Company shall be make an offer to all Holders of the
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes
that may be purchased out of such Excess Proceeds (and not solely the amount in
excess of $5 million), at an offer price in cash in an amount equal to 100% of
the principal amount thereof, together with accrued and unpaid interest and
Liquidated Damages (if any) thereon to the date of purchase fixed for the
closing of such offer in accordance with the procedures set forth in this
Indenture. To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes as provided under this
Indenture. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, on a pro rata basis, the amount of Excess Proceeds shall be reset at
zero.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the maximum principal amount of Notes that may be
purchased with such Excess Proceeds (which maximum principal amount of Notes
shall be the "Offer Amount") or, if less than the Offer Amount has been
tendered, all Notes tendered in response to the Asset Sale Offer.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued interest shall be paid to
the Person in whose name a Note is registered at the close of business on such
record date, and no additional interest shall be payable to Holders who tender
Notes pursuant to the Asset Sale Offer.
Upon the commencement of any Asset Sale Offer, the Company shall send, by
first class mail, a notice to each of the Holders of the Notes, with a copy to
the Trustee. The notice shall contain all instructions and materials necessary
to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The
notice, which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and the length of time the Asset Sale Offer shall remain open;
-41-
<PAGE>
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d) that any Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Company, a Depositary, if appointed by the Company, or a
Paying Agent at the address specified in the notice at least three business
days before the Purchase Date;
(f) that Holders shall be entitled to withdraw their election if the
Company, Depositary or Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that
such Holder is withdrawing his election to have the Note purchased;
(g) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
(h) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered.
On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes or portion thereof
tendered, and deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, Depositary or Paying Agent,
as the case may be, shall promptly (but in any case not later than five days
after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Note tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee shall authenticate and mail or deliver such new Note, to such Holder
equal in principal amount to any unpurchased portion of the Note surrendered.
Any Note not so accepted shall be promptly mailed or delivered by the Company to
the
-42-
<PAGE>
Holder thereof. The Company shall publicly announce the results of the Asset
Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company, holds as of 10:00 a.m.
Eastern Time on the due date money deposited by the Company in immediately
available funds and designated for and sufficient to pay all principal, premium,
if any, and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
the then applicable interest rate on the Notes to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain an office or agency (which may be an office of
the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where
Notes may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
-43-
<PAGE>
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
Section 4.03. Reports.
Whether or not required by the rules and regulations of the Commission, so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes:
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of
operations of the Company and its Restricted Subsidiaries and, with respect
to the annual information only, a report thereon by the Company's
independent certified public accountants; and
(ii) all information that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, together with the information provided in clauses (i) and (ii)
above, the Company will provide supplemental financial information to the extent
permitted by the Commission in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section of such reports or other
section of such reports as appropriate consisting of revenue, expense, earnings
before interest and taxes, net income, capital expenditures, cash, debt,
depreciation and amortization and units in service data for the Company. In the
event the Commission does not permit such supplemental financial information to
be included in such reports, then the Company will supply such information
supplementally to the registered Holders, unless providing such information
supplementally would, in the reasonable judgment of counsel to the Company,
violate applicable law.
In addition, whether or not required by the rules and regulations of the
Commission, but only if then permitted by the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability and make such information available to securities analysts,
investors and prospective investors upon request. The Company will furnish to
the Holders or beneficial holders of Notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act until such time
as the Company either exchanges all of the Notes for the Exchange Notes or has
registered all of the Notes for resale under the Securities Act.
-44-
<PAGE>
Section 4.04. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 30 days after the end
of each of the Company's fiscal quarters, an Officers' Certificate stating that
a review of the activities of the Company and its Subsidiaries during the
preceding fiscal quarter has been made under the supervision of the signing
Officers with a view to determining whether each has kept, observed, performed
and fulfilled its obligations under this Indenture and the Collateral Documents,
and further stating, as to each such Officer signing such certificate, that to
the best of his or her knowledge each entity has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and the Collateral
Documents and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture or the Collateral Documents,
including, without limitation, a default in the performance or breach of Section
4.07, Section 4.09, Section 4.10, Section 4.15 or Section 4.20 (or, if a Default
or Event of Default shall have occurred, describing all such Defaults or Events
of Default of which he or she may have knowledge and what action each is taking
or proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action each is taking or proposes to take with respect thereto.
(b) The Company shall, so long as any of the Notes are outstanding, deliver
to the Trustee, forthwith upon any Officer becoming aware of (i) any Default or
Event of Default, (ii) any default under any of the Collateral Documents or
(iii) any default under any Indebtedness referred to in Section 6.01(v), an
Officers' Certificate specifying such Default, Event of Default or default and
what action the Company or any of its Affiliates is taking or proposes to take
with respect thereto.
Section 4.05. Taxes and Other Claims.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, (i) all material taxes, assessments, and governmental
levies, and (ii) all material lawful claims for labor, materials and supplies
that, if unpaid, would by law become a Lien upon its properties or any
Subsidiaries' properties except, in each case, as contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders.
Section 4.06. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all
-45-
<PAGE>
benefit or advantage of any such law, and covenants that it shall not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the execution of every such
power as though no such law has been enacted.
Section 4.07. Restricted Payments.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries, to, directly or indirectly: (i) declare or pay any dividend or
make any distribution on account of any Equity Interests of the Company
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries),
other than dividends or distributions payable (a) in Equity Interests (other
than Disqualified Stock) of the Company or (b) to the Company or to any
Restricted Subsidiary of the Company; (ii) purchase, redeem, defease, retire or
otherwise acquire or retire for value any Equity Interests of the Company or any
Affiliate of the Company, other than any such Equity Interests owned by the
Company or any Wholly Owned Restricted Subsidiary of the Company; (iii)
voluntarily purchase, redeem, defease or otherwise acquire or retire for value
any Indebtedness that is expressly subordinated in right of payment to the
Notes, except in accordance with the scheduled mandatory redemption or repayment
provisions set forth in the original documentation governing such Indebtedness;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the immediately preceding fiscal quarter, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Indebtedness
to Cash Flow Ratio test set forth in the first paragraph of Section 4.09 hereof;
and
(3) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the Issue Date (excluding Restricted Payments permitted by clause (iii) of the
next succeeding paragraph), is less than the sum (without duplication) of:
(A) 50% of the Consolidated Net Income of the Company (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most recently
ended fiscal quarter for which financial statements are available at the
time of such Restricted Payment (or, if such aggregate Consolidated Net
Income for such period is a deficit, less 100% of such deficit); plus
-46-
<PAGE>
(B) 100% of the aggregate net cash proceeds received by the Company
from the issue or sale, since the Issue Date, of Equity Interests of the
Company or Holdings or of debt securities of the Company or Holdings that
have been converted into such Equity Interests (other than (x) Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Company and (y) Disqualified Stock or debt securities that have been
converted into Disqualified Stock; and provided that, in the case of
Holdings, proceeds from the sale of Equity Interests shall have been
contributed to the capital of the Company other that as Disqualified Stock
or Indebtedness; plus
(C) to the extent that any Restricted Investment that was made after
the Issue Date is sold for cash or otherwise liquidated or repaid for cash,
the lesser of (x) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (y) the
initial amount of such Restricted Investment.
(b) The provisions set forth in paragraph (a) above shall not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Indenture;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such proceeds that are
utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (3)(B) of paragraph (a) above;
(iii) the repayment, defeasance, redemption or repurchase of
Intercompany Indebtedness or Indebtedness with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity
Interests of the Company or Holdings (other than Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized
for any such repayment, defeasance, redemption or repurchase shall be
excluded from clause (3)(B) of paragraph (a) above;
(iv) payments by the Company to Holdings pursuant to the terms of the
Tax Sharing Agreement; and
(v) the purchase of employee stock or incentive options, or capital
stock issued pursuant to the exercise of employee stock or incentive
options or pursuant to employee restricted stock purchase plans in an
aggregate amount not to exceed
-47-
<PAGE>
$500,000 in any calendar year and in an aggregate amount not to exceed $2.0
million since the date of this Indenture,
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii) and (v), no Default or
Event of Default shall have occurred and be continuing.
(c) The Company may designate any of its Restricted Subsidiaries to be an
Unrestricted Subsidiary if such designation would not cause a Default and, at
the time of and after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness under the applicable provisions of the first
paragraph of Section 4.09 hereof; provided that (i) in no event shall or any
portion of the material assets or properties (other than cash) owned by the
Company on the Issue Date be transferred to or held by an Unrestricted
Subsidiary of the Company and (ii) notwithstanding the foregoing, the Company
may designate any Restricted Subsidiary which receives the proceeds of an
Investment made pursuant to clause (v) of the definition of Permitted
Investments as an Unrestricted Subsidiary if (1) such designation would not
cause a Default and (2) prior to the date on which such Investment is made, the
Company shall not have transferred to such Subsidiary all or any portion of its
material assets as of the Issue Date. For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
subsection (a) of this Section 4.07. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of:
(i) the net book value of such Investments at the time of such
designation;
(ii) the Fair Market Value of such Investments at the time of such
designation; and
(iii) the original Fair Market Value of such Investments at the
time they were made.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
(d) The amount of all Restricted Payments, if not made in cash, shall be
the Fair Market Value on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment. Not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers's Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations
-48-
<PAGE>
required by this covenant were computed, which calculations may be based upon
the latest available financial statements of the Company.
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on its Capital Stock or with respect to
any other interest or participation in, or measured by, its profits;
(ii) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries;
(iii) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(iv) transfer any of its properties or assets to the Company or any
of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of:
(a) this Indenture, the Pledge Agreement and the Notes;
(b) Existing Indebtedness;
(c) applicable law;
(d) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired;
(e) customary non-assignment provisions in leases entered into
in the ordinary course of business and consistent with past practice;
(f) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature
described in clause (iv) above on the property so acquired;
-49-
<PAGE>
(g) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Refinanced Indebtedness; or
(h) in the case of clause (a), (b), (d), (e), (f) and (g) above,
any amendments, modifications, restatements, renewals, increases,
supplements, modifications, restatements or refinancings thereof,
provided that such amendments, modifications, restatements or
refinancings are not materially more restrictive with respect to such
dividend and other payment restrictions than those contained in such
instruments as in effect on the date of their incurrence.
Section 4.09. Incurrence of Indebtedness or Issuance of Disqualified Stock.
The Company shall not, and the Company shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable, contingently
or otherwise, with respect to (collectively, "incur") any Indebtedness
(including, without limitation, Acquired Debt) and the Company and its
Restricted Subsidiaries shall not, issue any Disqualified Stock and will not
permit any of their respective Subsidiaries (other than their Unrestricted
Subsidiaries) to issue any shares of Preferred Equity Interest; provided,
however, that, the Company may incur Indebtedness (including, without
limitation, Acquired Debt) or issue Disqualified Stock if, after giving pro
forma effect to the incurrence of such Indebtedness or the issuance of such
Disqualified Stock and the use of proceeds thereof, the aggregate Indebtedness
to Cash Flow Ratio of the Company does not exceed 5.0 to 1.
The foregoing limitations will not apply to:
(i) Indebtedness represented by the Notes and this Indenture
and any guarantees of the Notes issued by any Subsidiary under the
terms of this Indenture.
(ii) Existing Indebtedness;
(iii) Indebtedness incurred by the Company under (A) Hedging
Obligations, provided that (1) the notional principal amount of any
interest rate protection agreement does not significantly exceed the
principal amount of the Indebtedness to which such interest rate
protection agreement relates and (2) any agreements related to
fluctuations in currency rates do not increase the outstanding
Indebtedness other than as a result of fluctuations in foreign
currency exchange rates, and (B) performance, surety and workers'
compensation bonds or other obligations of a like nature incurred in
the ordinary course of business consistent with past practice;
-50-
<PAGE>
(iv) Indebtedness of the Company owed to and held by any of its
Wholly Owned Restricted Subsidiaries and Indebtedness of any Wholly
Owned Restricted Subsidiaries of the Company owed to and held by the
Company or any of its Wholly Owned Restricted Subsidiaries (the
Indebtedness incurred pursuant to this clause (iv) being hereafter
referred to as "Intercompany Indebtedness"); provided that an
incurrence of Indebtedness shall be deemed to have occurred upon (i)
any sale or other disposition of Intercompany Indebtedness to a Person
other than the Company or any of its Restricted Subsidiaries, (ii) any
sale or other disposition of Equity Interests of any Restricted
Subsidiary of the Company which holds Intercompany Indebtedness such
that such Restricted Subsidiary ceases to be a Restricted Subsidiary
after such sale or other disposition or (iii) designation of a
Restricted Subsidiary as an Unrestricted Subsidiary;
(v) Non-Recourse Debt by the Company incurred to finance purchase
money obligations;
(vi) Indebtedness incurred by the Company under a Bank Credit
Facility, provided that the aggregate principal amount at any time
outstanding under this clause (vi) does not exceed $30.0 million less
the amount of any such Indebtedness retired with the Net Cash Proceeds
from any Asset Sale (or less the permanent reduction of any
commitments under the Bank Credit Facility), and less the aggregate
principal amount of Indebtedness under this clause (vi) which is
refinanced under clause (vii) below;
(vii) Indebtedness incurred by the Company ("Permitted Refinancing
Indebtedness") incurred to refinance, replace or refund Indebtedness
("Refinanced Indebtedness") incurred pursuant to the Indebtedness to
Cash Flow Ratio test set forth in the first paragraph of this covenant
or pursuant to clauses (i), (ii) or (vi) of this covenant; provided
that:
(a) the aggregate principal amount of such Permitted
Refinancing Indebtedness does not exceed the aggregate principal
amount of the Refinanced Indebtedness (including accrued and
unpaid interest thereon) plus the amount of fees and reasonable
expenses incurred in connection therewith;
(b) such Permitted Refinancing Indebtedness shall have final
maturity equal to or later than, and a Weighted Average Life to
Maturity equal to or greater than, the final maturity and
Weighted Average Life to Maturity of the Refinanced Indebtedness,
respectively; and
(c) such Permitted Refinancing Indebtedness shall rank no
higher relative to the Notes than the Refinanced Indebtedness and
in no event may any Indebtedness of the Company be refinanced
with Indebtedness of any Restricted Subsidiary under this clause
(vii);
-51-
<PAGE>
(viii) Indebtedness incurred by the Company in respect of Capital
Lease Obligations in an aggregate principal amount for all such Persons not
to exceed $10.0 million at any one time outstanding; and
(ix) other Indebtedness of the Company in an aggregate principal
amount not to exceed $5.0 million at any one time outstanding.
Section 4.10. Merger, Consolidation or Sale of Assets.
The Company shall not consolidate or merge with or into (whether or not the
Company is the surviving Person), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions to, another Person unless:
(i) the Company is the surviving Person or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized and existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company under the Notes, the
Pledge Agreement and this Indenture pursuant to a supplemental indenture in
form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction, no Default or Event of
Default exists; and
(iv) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made (a) will have Consolidated Net Worth immediately after the
transaction but prior to any purchase accounting adjustments resulting from
the transaction equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction; and (b) will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the immediately preceding
fiscal quarter, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Indebtedness to Cash Flow Ratio test set forth
in the first paragraph of Section 4.09 hereof.
-52-
<PAGE>
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, sell, lease, license, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable arm's length transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(ii) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $2.0 million, a resolution of the Board of
Directors of the Company set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i)
above and such Affiliate Transaction is approved by a majority of the
disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $5.0 million (other than the execution of a
Bank Credit Facility if Toronto Dominion Capital (U.S.A.), Inc., or an
Affiliate thereof, is a lender thereunder), an opinion as to the
fairness of such Affiliate Transaction to the Company or Restricted
Subsidiary involved in such Affiliate Transaction from a financial
point of view issued by an Independent Financial Advisor or, with
respect to communications-related matters, a recognized expert in the
communications industry;
provided, that the following shall be deemed not to be Affiliate Transactions:
(1) any reasonable employment agreement or stock option
agreement entered into by the Company or any of its Restricted
Subsidiaries with any of their respective employees in the ordinary
course of business;
(2) transactions between or among the Company and its Wholly
Owned Restricted Subsidiaries;
(3) Restricted Payments permitted by clauses (i) and (ii) of the
second paragraph of Section 4.07 hereof and Permitted Investments of a
type referred to in clauses (i) and (iii) of the definition of
Permitted Investments;
-53-
<PAGE>
(4) the payment of reasonable fees to directors of the Company
or any of its Restricted Subsidiaries; and
(5) Affiliate Transactions pursuant to agreements in effect on
the date of this Indenture and described in the Offering Memorandum
and renewals and extensions of such agreements on terms no less
favorable to the Holders than the terms of such original agreements
and transactions.
Section 4.12. Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom, or assign or convey any right to receive income therefrom,
except Permitted Liens.
Section 4.13. Additional Guarantees.
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers to the Trustee a supplemental indenture to this Indenture providing
for a Guarantee ("Subsidiary Guarantee") of payment by such Restricted
Subsidiary of all of the Company's obligations under the Notes and this
Indenture on the terms set forth in this indenture and (ii) such Restricted
Subsidiary waives, and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee; provided that this paragraph shall not be applicable to any Guarantee
of any Restricted Subsidiary that existed at the time such Person became a
Restricted Subsidiary and was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (a) pari passu with the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee
at least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited under the terms of this Indenture) or (ii) the release or discharge
of the Guarantee that resulted in the creation of such Subsidiary guarantee,
except a discharge or release by or as a result of payment under such Guarantee.
-54-
<PAGE>
Section 4.14. Offer to Purchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder shall have a
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages (if any) thereon to the date of purchase (the
"Change of Control Payment"). Within 20 days following the date upon which the
Change of Control occurred (the "Change of Control Date"), the Company shall
send, by first class mail, a notice to each Holder, with a copy to the Trustee,
which notice shall govern the terms of the Change of Control Offer. The notice
to the Holders shall contain all instructions and materials necessary to enable
such Holders to tender Notes pursuant to the Change of Control Offer. Such
notice shall state:
(i) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Notes tendered and not withdrawn shall be
accepted for payment;
(ii) the purchase price (including the amount of accrued interest)
and Liquidated Damages (if any) and the purchase date (which shall be no
earlier than 30 days nor later than 45 days from the date such notice is
mailed, other than as may be required by law) (the "Change of Control
Payment Date");
(iii) that any Note not tendered will continue to accrue interest;
(iv) that, unless the Company defaults in making payment therefor,
any Note accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(v) that Holders electing to have a Note purchased pursuant to a
Change of Control Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the
Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than five Business Days prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Notes the Holder delivered for purchase and a statement that such Holder is
withdrawing such Holder's election to have such Notes purchased;
(vii) that Holders whose Notes are purchased only in part will be
issued new Notes in a principal amount equal to the unpurchased portion of
the Notes
-55-
<PAGE>
surrendered; provided that each Note purchased and each new Note issued
shall be in an original principal amount of $1,000 or integral multiples
thereof; and
(vii) the circumstances and relevant facts regarding such Change of
Control.
(b) On or before the Change of Control Payment Date, the Company shall to
the extent lawful (i) accept for payment all Notes or portions thereof property
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent in U.S. dollars, an amount equal to the Change of Control Payment in
respect of all Notes or portions thereof so tendered and (iii) deliver or cause
to be delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent shall promptly mail to each
Holder of Notes so accepted the Change of Control Payment for such Notes, and
the Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to such Holders a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered; provided that each such new Note
will be in a principal amount of $1,000 or an integral multiple thereof. Any
Notes not so accepted shall be promptly mailed by the Company to the Holder
thereof. For purposes of this Section 4.14, the Trustee shall act as the Paying
Agent.
Any amounts remaining after the purchase of Notes pursuant to a Change
of Control Offer shall be returned by the Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent the
provisions of any securities laws or regulations conflict with the provisions
under this Section 4.14, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under this Section 4.14 by virtue thereof.
The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
(c) The provisions of Subsections (a) and (b) above shall not apply if a
third party makes the Change of Control Offer in the manner, at the time and
otherwise in compliance with the requirements set forth in this Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
Section 4.15. Maintenance of Properties and Insurance.
The Company shall, and shall cause each of its Subsidiaries to, maintain
its properties in good working order and condition (subject to ordinary wear and
tear) and make all reasonably necessary repairs, renewals, replacements,
additions and
-56-
<PAGE>
improvements required for it to actively conduct and carry on its business;
provided, however, that nothing in this Section 4.15 shall prevent the Company
or any of its Subsidiaries from discontinuing the operation and maintenance of
any of its properties if such discontinuance is, in the good faith judgment of
the Board of Directors or other governing body of the Company desirable in the
conduct of its businesses and is not disadvantageous in any material respect to
the Holders.
Section 4.16. Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable into,
or options, warrants, rights or any other interest with respect to, Capital
Stock of a Restricted Subsidiary to any person other than the Company or a
Wholly-Owned Restricted Subsidiary except (i) in a transaction consisting of a
sale of all other Capital Stock of such Restricted Subsidiary and that complies
with the provisions of Section 4.18 hereof, to the extent such provisions apply;
(ii) if required, the issuance, transfer, conveyance, sale or other disposition
of directors' qualifying shares; and (iii) in a transaction in which, or in
connection with which, the company or a Restricted Subsidiary acquires at the
same time sufficient Capital Stock of such Restricted Subsidiary to at least
maintain the same percentage ownership it had prior to such transaction (and
provided that the terms of such Capital Stock, and under which such Capital
Stock is held are not more disadvantageous to the Company).
Section 4.17. Business Activities.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any business other than that which is related to the
design, development, procurement, installation, operation or marketing of
location, fleet management or related two-way messaging systems and businesses
and reasonably related extensions thereof.
Section 4.18. Limitation on Sales of Assets and Subsidiary Interests.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless
(i) The Company or such Restricted Subsidiary, as the case may be,
engaging in such Asset Sale receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the assets sold or
otherwise disposed of; and
(ii) at least 80% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash or Cash equivalents;
provided, however, that any notes or similar obligations received by any of
the Company or such Restricted Subsidiaries from such transferees that are
immediately
-57-
<PAGE>
converted by the Company or such Restricted Subsidiaries into cash, shall
be deemed to be cash (to the extent of the net cash received) for purposes
of this clause (ii).
Within 180 days after the receipt of any Net Proceeds, the Company may
apply such Net Proceeds to: (i) repay, and thereby permanently reduce the
commitments or amounts available to be borrowed under the Bank Credit Facility
pursuant to clause (vi) of the covenant set forth in Section 4.09 hereof, or
(ii) an investment in Related Assets or a Related Business. Pending the final
application of any such Net Proceeds, the Company may temporarily invest such
Net Proceeds in ant manner that is not prohibited by this Indenture. Any Net
Proceeds that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds" for purposes of
Section 3.09 hereof.
ARTICLE 5.
SUCCESSORS
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 4.10, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the Company shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of interest on,
or Liquidated Damages (if any) with respect to, any of the Notes;
(ii) default in payment when due (whether at maturity, upon
redemption or repurchase, or otherwise) of the principal of or premium (if
any) on any of the Notes;
-58-
<PAGE>
(iii) failure to comply with the provisions set forth in Section
4.10, 4.14 or 4.18 hereof;
(iv) failure by the Company or any of its Restricted Subsidiaries
for 30 days after notice to comply with any of their other covenants in
this Indenture or the Notes other than those referred to in clauses (i),
(ii) and (iii) above;
(v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists, or is created after the date of this Indenture, which default:
(a) is caused by a failure to pay principal of, or premium, if
any, or interest on, such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness (a "Payment Default"); or
(b) results in the acceleration (which acceleration has not been
rescinded) of such Indebtedness prior to its express maturity,
and, in each case described in clauses (a) and (b) of this clause (v), the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $3.5
million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries
to pay final judgments (other than any judgments as to which a reputable
insurance company has accepted full liability and whose bond, premium or
similar charge therefor is not in excess of $3.5 million) aggregating in
excess of $3.5 million, which judgments are not paid, discharged or stayed
within 60 days after their entry;
(vii) breach by the Company of any representation or warranty set
forth in the Pledge Agreement, or default by the Company in the performance
of any covenant set forth in the Pledge Agreement, or repudiation by the
Company of any of its obligations under the Pledge Agreement or the
unenforceability of the Pledge Agreement against the Company for any reason
which in any one case or in the aggregate results in a material impairment
of the rights intended to be afforded thereby;
-59-
<PAGE>
(viii) termination or loss, for any reason, of any material FCC
License or permit necessary for the operation of the Company's business in
the manner and in accordance with the plan of operations described in the
Offering Memorandum (unless (i) the Company or any of its Subsidiaries is
contesting in good faith the loss of such license or permit at the FCC and
has not exhausted its remedies at the FCC; and (ii) the Company (together
with any Subsidiary) continues to have the right to use such license or
permit if previously obtained);
(ix) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Company, any Restricted
Subsidiary which constitutes, or any group of Restricted Subsidiaries that,
taken together, would constitute, a Significant Subsidiary, in an
involuntary case or proceeding under any applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law or (B) a decree
or order adjudging the Company, such Restricted Subsidiary or such
Restricted Subsidiaries, bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company, such Restricted Subsidiary or
such Restricted Subsidiaries, under any applicable Federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company, such Restricted
Subsidiary or such Restricted Subsidiaries, or of any substantial part of
its or their property, or ordering the winding up or liquidation of its or
their affairs, and the continuance of any such decree or order for relief
or any such other decree or order unstayed and in effect for a period of 60
consecutive days;
(x) the commencement by the Company, any such Restricted
Subsidiary or such Restricted Subsidiaries of a voluntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Company, such Restricted
Subsidiary or such Restricted Subsidiaries in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it
of a petition or answer or consent seeking reorganization or relief under
any applicable Federal or state law, or the consent by it to the filing of
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company, such Restricted Subsidiary or such Restricted
Subsidiaries, or of any substantial part of its or their property, or the
making by it or them of an assignment for the benefit of creditors, or the
admission by it or them in writing of its or their inability to pay its or
their debts generally as they become due, or the taking of corporate action
by the Company or such Restricted Subsidiary or such Restricted
Subsidiaries, in furtherance of any such action.
-60-
<PAGE>
Section 6.2. Acceleration.
If any Event of Default occurs and is continuing, the Trustee by notice to
the Company, or the Holders of at least 25% in aggregate principal amount of the
then outstanding Notes by written notice to the Company and the Trustee, may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default specified in clause (ix) or (x) of
Section 6.01(v), all outstanding Notes shall become and be immediately due and
payable without further action or notice. Holders of the Notes may not enforce
this Indenture or the Notes except as provided in this Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium, interest or Liquidated Damages, if any) if it
determines that withholding notice is in such Holders' interest. The Holders of
a majority in aggregate principal amount of the Notes then outstanding by
written notice to the Trustee may on behalf of all of the Holders waive any
existing Default or Event of Default and its consequences hereunder except a
continuing Default or Event of Default in the payment of principal, premium,
interest or Liquidated Damages, if any, on the Notes.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to Section
3.07, an equivalent premium shall also become and be immediately due and payable
to the extent permitted by law. If an Event of Default occurs prior to August
1, 2002 by reason of any such willful action (or inaction) by or on behalf of
the Company with the intention of avoiding the prohibition on redemption of the
Notes prior to August 1, 2002, then the premium specified herein shall also
become due and payable to the extent permitted by law upon the acceleration of
the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with this Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes, this Indenture or any of the Collateral Documents.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the
-61-
<PAGE>
Trustee or any Holder of a Note in exercising any right or remedy accruing upon
an Event of Default shall not impair the right or remedy or constitute a waiver
of or acquiescence in the Event of Default. All remedies are cumulative to the
extent permitted by law.
Section 6.4. Waiver of Past Defaults.
The Holders of a majority in aggregate principal amount of Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the Notes waive an existing Default or Event of Default and its consequences
under this Indenture, except a continuing Default or Event of Default in the
payment of the principal, premium, interest or Liquidated Damages, if any, on
the Notes. Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 6.5. Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on it. However, the Trustee may refuse to follow any direction that conflicts
with the law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
Section 6.6. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
-62-
<PAGE>
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
The foregoing limitations shall not apply to a suit instituted by a Holder
for the enforcement of the payment of principal and premium (if any) or interest
and Liquidated Damages (if any) on such Note on or after the respective due
dates set forth in such Note (including upon acceleration thereof) or the
institution of any proceeding with respect to this Indenture or any remedy
hereunder, including, without limitation, acceleration, by the Holders of a
majority in principal amount of outstanding Notes, provided that upon
institution of any proceeding or exercise of any remedy, such Holders provide
the Trustee with prompt notice thereof.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.7. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, interest and
Liquidated Damages, if any, on the Note, on or after the respective due dates
expressed in the Note, or to bring suit for the enforcement of any such payment
on or after such respective dates, shall not be impaired or affected without the
consent of the Holder of the Note.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(i) or 6.01(ii) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.9. Trustee May file Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), the Company's creditors or the Company's
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder of
a Note to make such payments to the Trustee, and in the event that
-63-
<PAGE>
the Trustee shall consent to the making of such payments directly to the Holders
of the Notes, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07. To the
extent that the payment of any such compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties which the Holders of the Notes may be entitled to receive
in such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder of a Note any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder of a Note thereof,
or to authorize the Trustee to vote in respect of the claim of any Holder of a
Note in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable on the
Notes for principal, premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes under this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder of a Note
-64-
<PAGE>
pursuant to Section 6.07, or a suit by Holders of more than 10% in principal
amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to the Trustee against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee security and
indemnity satisfactory to the Trustee against loss, liability, or expense that
might be incurred by it in compliance with such request or direction.
(g) Except with respect to Section 4.04, the Trustee shall have no duty to
inquire as to the performance of the Company's covenants in Article 4. In
addition, the Trustee shall not be deemed to have knowledge of any Default or
Event of Default except (i) any Event of Default occurring pursuant to Sections
4.01, 4.03 and 4.04 or (ii) any Default
-66-
<PAGE>
or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
Trustee (if any of the Notes are registered pursuant to the Securities Act), or
resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture, the Notes, the Pledge Agreement or
the Pledged Securities it shall not be accountable for the Company's use of the
proceeds from the Notes or any money paid to the Company or upon the Company's
direction under any provision of this Indenture, it shall not be responsible for
the use or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement or recital herein or
any statement in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment of
principal of, premium, if any, or interest on any Note, the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the Holders
of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15, beginning with the May 15 following the
date of this Indenture, the Trustee shall, to the extent that any of the events
described in TIA Section 313(a) occurred within the previous twelve months, but
not otherwise, mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a). The Trustee also shall
comply with TIA Section 313(b). The Trustee shall also transmit by mail all
reports as required by TIA Section 313(c).
-67-
<PAGE>
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the SEC and each stock exchange on
which any Notes are listed. The Company shall promptly notify the Trustee when
any Notes are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, except any such
loss, liability or expense as may be attributable to the gross negligence,
willful misconduct or bad faith of the Trustee. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need
not pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal and interest on
particular Notes. Such Lien shall survive the satisfaction and discharge of
this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(ix) or 6.01(x) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
-68-
<PAGE>
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company and obtaining the prior written
approval of the FCC, if so required by the Communications Act, including Section
310(d) and the rules and regulations promulgated thereunder. The Holders of at
least a majority in principal amount of the then outstanding Notes may remove
the Trustee by so notifying the Trustee and the Company in writing. The Company
may remove the Trustee (subject to the prior written approval of the FCC, if
required by the Communications Act, including Section 310(d), and the rules and
regulations promulgated thereunder) if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) the Trustee is no longer in compliance with the foreign ownership
provisions of Section 310 of the Communications Act and the rules and
regulations promulgated thereunder.
(d) a Bankruptcy Custodian or public officer takes charge of the
Trustee or its property; or
(e) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Holder of a Note who has been a
Holder of a Note for at least six months fails to comply with Section 7.10, such
Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
-69-
<PAGE>
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07. Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
the Company's obligations under Section 7.07 shall continue for the benefit of
the retiring Trustee.
Section 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, shall be subject to supervision or examination by federal or
state authority and shall have a combined capital and surplus of at least $25
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section
310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may at its option, by an appropriate board resolution evidenced
by an Officers' Certificate, at any time (subject to 10-day prior written
notification to the Trustee), elect to have the provisions of either Section
8.02 or 8.03 applied to the outstanding Notes upon compliance with the
conditions set forth below in this Article 8.
-70-
<PAGE>
Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section 8.01
applicable to this Section, the Company shall be deemed to have been discharged
from its obligations with respect to the outstanding Notes on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, such Defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the outstanding Notes
and to have satisfied all its other obligations under such Notes and this
Indenture insofar as such Notes are concerned (and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of outstanding Notes to receive, solely
from the trust fund described in Section 8.04 and as more fully set forth in
such Section, payments in respect of the principal of, premium (if any),
interest and Liquidated Damages (if any) on, such Notes when such payments are
due from the Trust referred to below; (ii) the Company's obligations with
respect to the Notes concerning the issuance of temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payment and money for security payments held in trust;
(iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder
the Company's obligations in connection therewith; and (iv) the Legal Defeasance
of this Article 8.
Section 8.03. Covenant Defeasance.
Upon the Company's exercise of the option provided in Section 8.02
applicable to this Section, (i) the Company shall be released from its
obligations under Sections 4.03, 4.04, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15, 4.16, 4.17 and 4.18 and Article 5 and (ii) the occurrence of
an event specified in Section 6.01(iv) or (v), shall not be deemed to be an
Event of Default, on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"). For this purpose, such Covenant
Defeasance means that the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document, but the remainder of
this Indenture and such Notes shall be unaffected thereby.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.02 or Section 8.03 to the outstanding Notes:
(i) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee in trust for the benefit of the Holders of the
Notes, cash in U.S. dollars, non-callable Government Securities or a
combination
-71-
<PAGE>
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent certified public accountants, to
pay the principal of, premium (if any), interest and Liquidated Damages (if
any) on, the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether
the Notes are being defeased to maturity or to a particular redemption
date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that:
(A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling, or
(B) since the date of this Indenture, there has been a change in
the applicable federal income tax law,
in either case to the effect, and based thereon such opinion of counsel
shall confirm, that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred:
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
-72-
<PAGE>
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day (or such other applicable
date) following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(viii) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06, all money and Government Securities (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this Section 8.05, the "Trustee") pursuant to
Section 8.04 in respect of the outstanding Notes shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Notes of all sums due and to become due thereon in respect
of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to Section 8.04 hereof or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or Government Securities held by it as provided in Section
8.04 which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a)), are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
-73-
<PAGE>
Section 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Note and remaining unclaimed for two years after such principal,
and premium, if any, or interest has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as a secured creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustees thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States Dollars
or Government Notes in accordance with Section 8.02 or 8.03, as the case may be,
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with Section 8.02 or 8.03, as the case may be; provided,
however, that, if the Company makes any payment of principal of, premium, if
any, or interest on any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. With Consent of Holders of Notes.
Except as provided in the next succeeding paragraph, this Indenture, the
Notes and the Pledge Agreement may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of this Indenture, the Notes or the Pledge
Agreement may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes).
-74-
<PAGE>
Section 9.02. Without Consent of Holders of Notes.
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Note held by a non-consenting Holder):
(i) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any Notes
or alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants set forth in Sections 3.09, 4.14
and 4.18 hereof) or reduce the prices at which the Company shall offer to
purchase such Notes pursuant to Sections 3.09, 4.14 or 4.18 hereof;
(iii) reduce the rate of or change the time for payment of
interest on any Note;
(iv) waive a Default or Event of Default in the payment of principal
of, or premium (if any), interest or Liquidated Damages (if any) on, the
Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in aggregate principal amount of the Notes and a waiver
of the payment default that resulted from such acceleration);
(v) make any Notes payable in money other than that stated in the
Notes;
(vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of, or premium (if any), interest or Liquidated
Damages (if any) on, the Notes;
(vii) waive a redemption payment with respect to any Note; or
(viii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Notes or
the Pledge Agreement to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with requirements of the Commission in
-75-
<PAGE>
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended or supplemental Indenture that complies with the TIA as then
in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder of a Note and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder of a Note or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder of a Note.
The Company may fix a record date for determining which Holders of the
Notes must consent to such amendment, supplement or waiver. If the Company
fixes a record date, the record date shall be fixed at (i) the later of 30 days
prior to the first solicitation of such consent or the date of the most recent
list of Holders of Notes furnished to the Trustee prior to such solicitation
pursuant to Section 2.07 or (ii) such other date as the Company shall designate.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, Etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The
Company may not sign an amendment or supplemental Indenture until the Board of
Directors approves it.
-76-
<PAGE>
Section 9.07. Payments for Consents.
None the Company nor any of its Subsidiaries may, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of a Note for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of this Indenture or the
Notes unless such consideration is offered to be paid or agreed to be paid to
all Holders of the Notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
Section 9.08. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article 9, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
ARTICLE 10.
COLLATERAL AND SECURITY
Section 10.01. Collateral Documents.
Upon the Closing of the Offering, the Company shall purchase and pledge to
the Collateral Agent pursuant to the Pledge Agreement, for the benefit of the
Holders, the Pledged Securities in such amount as will be sufficient upon
receipt of scheduled interest and principal payments of such securities, in the
opinion of a nationally recognized firm of independent firm of independent
certified public accountants selected by the Company, to provide for payment in
full of the first six scheduled interest payments due on the Notes. The payment
of the first six scheduled interest payments on the Notes will be secured by a
first priority interest in the Pledged Securities and the Pledge Account.
Pursuant to the terms of the Pledge Agreement, upon timely payment to the
Holders of the first six interest payments on the Notes, all Pledged Securities
will be released from the Pledge Account.
Each Holder of Notes, by its acceptance thereof, consents and agrees to the
terms of the Collateral Documents (including, without limitation, the provisions
providing for foreclosure and release of Collateral) as the same may be in
effect or may be amended from time to time in accordance with its terms and
authorizes and directs the Collateral Agent to enter into the Collateral
Documents and to perform its obligations and exercise its rights thereunder in
accordance therewith. The Company shall deliver to the Collateral Agent copies
of all Collateral Documents, and shall do or cause to be done all such acts and
things as may be necessary or proper, or as may be required by the provisions of
the Collateral Documents, to assure and confirm to the Collateral Agent the
-77-
<PAGE>
security interest in the Collateral contemplated hereby, by the Collateral
Documents or any part thereof, as from time to time constituted, so as to render
the same available for the security and benefit of this Indenture and of the
Notes secured hereby, according to the intent and purposes herein expressed.
The Company shall take, or shall cause its Subsidiaries to take, any and all
actions reasonably required to cause the Collateral Documents to create and
maintain, as security for the first six semi-annual payments of interest on the
Notes, a valid and enforceable perfected Lien in and on all the Collateral, in
favor of the Collateral Agent for the benefit of the Holders of Notes, superior
to and prior to the rights of all third Persons and subject to no other Liens
than Permitted Liens, except for those Liens with respect to which the
Collateral Documents or this Indenture expressly contemplate prior or pari passu
Liens.
Section 10.02. Execution of Collateral Documents.
Simultaneously with the execution of this Indenture, the Company and the
Collateral Agent shall execute the Collateral Documents.
ARTICLE 11.
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), the imposed duties shall control.
Section 11.02. Notices.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person or mailed by first class mail
(registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company:
Teletrac, Inc.
2323 Grand, Suite 1100
Kansas City, MO
Telecopier No.: (816) 474-3475
Attention: James A. Queen
With a copy to:
Reboul, MacMurray, Hewitt, Maynard
& Kristol
45 Rockefeller Plaza
New York, NY 10111
Telecopier No.: (212) 841-5725
Attention: Robert A. Schwed, Esq.
If to the Trustee:
Norwest Bank Minnesota, National Association
Norwest Center, Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Telecopier No: (612) 667-9825
Attention: Corporate Trust Administration
-78-
<PAGE>
The Company or the Trustee, by notice to the other may designate additional
or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders of Notes)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder of a Note shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder of a Note or any defect in
it shall not affect its sufficiency with respect to other Holders of Notes.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders of Notes, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 1.113. Communication by Holders of Notes with Other Holders of Notes.
Holders of the Notes may communicate pursuant to TIA Section 312(b) with
other Holders of Notes with respect to their rights under this Indenture or the
Notes. The
-79-
<PAGE>
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to
the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied.
Section 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders of Notes. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
-80-
<PAGE>
Section 11.07. No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders.
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, this Indenture or the Pledge
Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of the Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
Section 11.08. Governing Law.
The internal law of the State of New York shall govern and be used to
construe this Indenture and the Notes.
Section 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or its Subsidiaries. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 11.10. Successors.
All agreements of the Company in this Indenture and the Notes shall bind
its successor. All agreements of the Trustee in this Indenture shall bind its
successor.
Section 11.11. Severability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 11.12 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 11.13 Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
-81-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
TELETRAC, INC.,
a Delaware corporation
By:________________________________
Name: James A. Queen
Title: Chief Executive Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By:________________________________
Name: Raymond S. Haverstock
Title: Vice President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By:________________________________
Name: Raymond S. Haverstock
Title: Vice President
<PAGE>
EXHIBIT C-1
[FORM OF CERTIFICATION TO BE GIVEN BY HOLDERS OF
BENEFICIAL INTEREST IN A REGULATION S
TEMPORARY GLOBAL NOTE]
OWNER SECURITIES CERTIFICATION
TELETRAC, INC.
14% Senior Notes, CUSIP No. ___
Reference is hereby made to the Indenture, dated as of August 6, 1997
(the "Indenture"), between Teletrac, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This is to certify that, as of the date hereof, $______ of the
above-captioned Notes are beneficially owned by non-U.S. person(s). As used in
this paragraph, the term "U.S. person" has the meaning given to it by Regulation
S under the Securities Act of 1933, as amended.
We undertake to advise you promptly by tested telex or facsimile on or
prior to the date on which you intend to submit your certification relating to
the Notes held by you for our account in accordance with your operating
procedures if any applicable statement herein is not correct on such date, and
in the absence of any such notification it may be assumed that this
certification applies as of such date.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceedings.
This certificate and the statements contained herein are made for your benefit
and the benefit of the Issuer and the Initial Purchasers.
Dated: __________, ____
By:___________________________________
As, or as agent for, the beneficial
owner(s) of the Notes to which this
certificate relates.
C-1-1
<PAGE>
EXHIBIT C-2
[FORM OF CERTIFICATION TO BE GIVEN
BY THE EUROCLEAR OPERATOR OR
CEDEL BANK, SOCIETE ANONYME]
DEPOSITARY SECURITIES CERTIFICATION
TELETRAC, INC.
14% Senior Notes, CUSIP No. ___
Reference is hereby made to the Indenture, dated as of August 6, 1997,
(the "Indenture"), between Teletrac, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This is to certify that, with respect to U.S. $_______ principal
amount of the above-captioned Notes, except as set forth below, we have received
in writing, by tested telex or by electronic transmission, from member
organizations appearing in our records as persons being entitled to a portion of
the principal amount of Notes set forth above (our "Member Organizations"),
certifications with respect to such portion, substantially to the effect set
forth in the Indenture.(1)
We further certify (i) that we are not making available herewith for
exchange (or, if relevant, exercise of any rights or collection of any interest)
any portion of the Regulation S Temporary Global Note (as defined in the
Indenture) excepted in such certifications and (ii) that as of the date hereof
we have not received any notification from any of our Member Organizations to
the effect that the statements made by such Member Organizations with respect to
any portion of the part submitted herewith for exchange (or, if relevant,
exercise of any rights or collection of any interest) are no longer true and
cannot be relied upon as of the date hereof.
- ------------------------------
(1) Unless Morgan Guaranty Trust Company of New York, London Branch is
otherwise informed by the Agent, the long form certificate set out in the
Operating Procedures will be deemed to meet the requirements of this sentence.
C-2-1
<PAGE>
We understand that this certification is required in connection
with certain securities laws of the United States. In connection therewith,
if administrative or legal proceedings are commenced or threatened in
connection with which this certification is or would be relevant, we
irrevocably authorize you to produce this certification to any interested
party in such proceedings. This certificate and the statements contained
herein are made for your benefit and the benefit of the Issuer and the
Initial Purchasers.
Dated: _____________, ____
Yours faithfully,
[MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
Brussels office, as operator of the Euroclear
System]
or
[CEDEL BANK, SOCIETE ANONYME]
By____________________________
C-2-2
<PAGE>
EXHIBIT C-3
[FORM OF CERTIFICATION TO BE GIVEN BY
TRANSFEREE OF BENEFICIAL INTEREST IN A
REGULATION S TEMPORARY GLOBAL NOTE]
TRANSFEREE SECURITIES CERTIFICATION
TELETRAC, INC.
14% Senior Notes, CUSIP No. ___
Reference is hereby made to the Indenture, dated as of August 6, 1997,
(the "Indenture"), between Teletrac, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
For purposes of acquiring a beneficial interest in the Regulation S
Temporary Global Note, the undersigned certifies that it is not a U.S. Person as
defined by Regulation S under the Securities Act of 1933, as amended.
We undertake to advise you promptly by facsimile on or prior to the
date on which you intend to submit your certification relating to the Notes held
by you in which we intend to acquire a beneficial interest in accordance with
your operating procedures if any applicable statement herein is not correct on
such date, and in the absence of any such notification it may be assumed that
this certification applies as of such date.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding.
This certificate and the statements contained herein are made for your benefit
and the benefit of the Issuer and the Initial Purchasers.
Dated: ___________, ____
By:_____________________________
As, or as agent for, the beneficial acquiror of
the Notes to which this certificate relates.
C-3-1
<PAGE>
EXHIBIT C-4
FORM OF CERTIFICATION FOR TRANSFER
OR EXCHANGE OF RESTRICTED NOTE TO
[RESTRICTED](1)[RESTRICTED GLOBAL](1)
[UNRESTRICTED](2)(3)[UNRESTRICTED GLOBAL](2) (3)
[REGULATION S TEMPORARY GLOBAL](4)NOTE
(Transfers and exchanges pursuant to Section 2.08(c)
of the Indenture)
Norwest Bank Minnesota, National Association,
as Trustee
[ ]
[ ]
[ ]
Attention: Corporate Trust Services Department
Re: Teletrac, Inc. 14% Senior Notes
due 2007 (the "Notes")
Reference is hereby made to the Indenture, dated as of August 6, 1997,
(the "Indenture"), between Teletrac, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $________ principal amount of Restricted Notes
held in definitive form (CUSIP No. ____) by [insert name of transferor] (the
"Transferor"). The Transferor has requested an exchange or transfer of such
Notes.
_____________________
(1) Use for transfer of Restricted Note for Unrestricted Note or interest in
Restricted Global Note.
(2) Use for transfers of Restricted Note for Unrestricted Note or interest in
Unrestricted Global Note.
(3) Use for transfer of Restricted Note pursuant to Rule 903 or Rule 904 after
termination of Restricted Period.
(4) Use for transfers of Restricted Note pursuant to Rule 903 or Rule 904 prior
to termination of Restricted Period.
C-4-1
<PAGE>
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that (i) such Notes are owned by the Transferor
and are being exchanged without transfer or (ii) such transfer has been effected
pursuant to and in accordance with (a) Rule 903 or Rule 904 under the Securities
Act of 1933, as amended (the "Act"), (b) Rule 144 under the Act or (c) Rule 144A
under the Act, and accordingly the Transferor does hereby further certify that
[(A) the offer of the Notes was not made to a person in the
United States;
(B) either:
(i) at the time the buy order was originated, the
transferee was outside the United States or the Transferor and
any person acting on its behalf reasonably believed that the
transferee was outside the United States, or
(ii) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither
the Transferor nor any person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States;
(C) no directed selling efforts have been made in contravention
of the requirements of Rule 903 (b) or 904(b) of Regulation S, as
applicable; and
(D) the transaction is not part of a plan or scheme to evade the
registration requirements of the Act.](5)(6)[the Notes have been
transferred in a transaction permitted by Rule 144](7)[the transfer
has been effected pursuant to and in accordance with Rule 144A under
the Act and, accordingly, the Transferor does hereby further certify
that the Notes are being transferred to a Person that the Transferor
reasonably believes is purchasing the Notes for its own account, or
for one or more accounts with respect to which such Person exercises
sole investment
(5) Use for transfer of Restricted Note pursuant to Rule 903 or Rule 904 after
termination of Restricted Period.
(6) Use for transfers of Restricted Note pursuant to Rule 903 or Rule 904 prior
to termination of Restricted Period.
(7) Use for transfers of Restricted Note for Unrestricted Note or interest in
Unrestricted Global Note.
C-4-2
<PAGE>
investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A,
in each case in a transaction meeting the requirements of Rule 144A
and in accordance with any applicable securities laws of any state
of the United States.](8)
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding.
This certificate and the statements contained herein are made for your benefit
and the benefit of the Issuer and the Initial Purchasers.
Dated: ___________, ____
By:_____________________________
[Insert Name of Transferor]
By:_____________________________
Name:
Title:
cc: Teletrac, Inc.
____________________
(8) Use for transfer of Restricted Note for Unrestricted Note or interest in
Restricted Global Note.
C-4-3
<PAGE>
EXHIBIT C-5
FORM OF CERTIFICATION FOR TRANSFER OR
EXCHANGE OF RESTRICTED GLOBAL NOTE TO REGULATION S
TEMPORARY GLOBAL NOTE
(Exchanges or transfers pursuant to
Section 2.08(d)(iii) of the Indenture)
Norwest Bank Minnesota, National Association,
as Trustee
[ ]
[ ]
[ ]
Attention: Corporate Trust Services Department
Re: Teletrac, Inc. 14% Senior Notes
due 2007 (the "Notes")
Reference is hereby made to the Indenture, dated as of August 1, 1997,
(the "Indenture"), between Teletrac, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to U.S. $________ principal amount of Notes which
are held in the form of the Restricted Global Note (CUSIP No. ____) with the
Depositary in the name of [insert name of transferor] (the "Transferor"). The
Transferor has requested an exchange or transfer of such beneficial interest for
an interest in the Regulation S Temporary Global Note (CUSIP No. __) to be held
with the Depositary in the name of [Euroclear] [Cedel Bank, societe anonyme].
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Notes and pursuant
to and in accordance with Regulation S under the Securities Act of 1933, as
amended (the "Securities Act"), and accordingly the Transferor does hereby
certify that:
(1) the offer of the Notes was not made to a person in the United
States;
C-5-1
<PAGE>
[(2) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting on its
behalf reasonably believed that the transferee was outside the United
States;](1)
[(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on our behalf knows that the transaction was pre-arranged
with a buyer in the United States;]1
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;
and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding.
This certificate and the statements contained herein are made for your benefit
and the benefit of the Issuer and the Initial Purchasers.
[Insert Name of Transferor]
By:_____________________________
Name:
Title:
Dated: _______________
cc: Teletrac, Inc.
____________________
(1) Insert one of these provisions, which come from the definition of "offshore
transaction" in Regulation S.
C-5-2
<PAGE>
EXHIBIT C-6
FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE OF
RESTRICTED GLOBAL NOTE TO
UNRESTRICTED GLOBAL NOTE
(Exchanges or transfers pursuant to
Section 2.08(d)(iv) of the Indenture)
Norwest Bank Minnesota, National Association,
as Trustee
[ ]
[ ]
[ ]
Attention: Corporate Trust Services Department
Re: Teletrac, Inc. 14% Senior Notes
due 2007 (the "Notes")
Reference is hereby made to the Indenture, dated as of August 6, 1997,
(the "Indenture"), between Teletrac, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to U.S. $________ principal amount of Notes which
are held in the form of the Restricted Global Note (CUSIP No. ____) with the
Depositary in the name of [insert name of transferor] (the "Transferor"). The
Transferor has requested an exchange or transfer of such beneficial interest in
the Securities for an interest in the Unrestricted Global Note (CUSIP No. ____).
In connection with such request, and in respect of such Notes, the
Transferor does hereby certify that such exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Notes and, (i)
with respect to transfers made in reliance on Regulation S under the Securities
Act of 1933, as amended (the "Securities Act"), the Transferor does hereby
certify that:
(1) the offer of the Notes was not made to a person in the United
States;
[(2) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting on its
behalf reasonably believed that the transferee was outside the United
States;](1)
_____________________
(1) Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
C-6-1
<PAGE>
[(2) the transaction was executed in, on or through the facilities of
a designated offshore securities market and neither the Transferor nor any
person acting on our behalf knows that the transaction was pre-arranged
with a buyer in the United States;]1
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;
and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
and (ii) with respect to transfers made in reliance on Rule 144 under the
Securities Act, certify that the Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding.
This certificate and the statements contained herein are made for your benefit
and the benefit of the Issuer and the Initial Purchasers.
[Insert Name of Transferor]
By:_____________________________
Name:
Title:
Dated: _______________
cc:
C-6-2
<PAGE>
EXHIBIT C-7 (1)
FORM OF INSTRUCTION FOR EXCHANGE
EXCHANGE INSTRUCTIONS
TELETRAC, INC.
14% Senior Notes due 2007
Pursuant to Section 2.08(d)(vii)(2) of the Indenture, dated as of
August 6, 1997 (the "Indenture"), between Teletrac, Inc. and Norwest Bank
Minnesota, National Association, as Trustee, [Name of Initial Purchaser] hereby
requests that $________ aggregate principal amount of the above-captioned Notes
held by you for our account in the Regulation S Temporary Global Note (CUSIP
No. ___) (as defined in the Indenture) be exchanged for one or more Restricted
[Global] Rate Notes [(CUSIP No. ____)] in the denominations and registered in
the names of the holders requested as set forth below:
Denominations Registered Name
____________________ ____________________________________
____________________ ____________________________________
____________________ ____________________________________
____________________ ____________________________________
Dated: _______________ [Name of Initial Purchaser]
By:_____________________________
(1) For use prior to the exchange of a Regulation S Temporary Global Note for
one or more Restricted Notes.
C-7-1
<PAGE>
EXHIBIT C-8
FORM OF CERTIFICATION FOR TRANSFER
OF RESTRICTED [GLOBAL](1)NOTE
TRANSFEREE CERTIFICATION
Norwest Bank Minnesota, National Association,
as Trustee
[ ]
[ ]
[ ]
Attention: Corporate Trust Services Department
Re: Teletrac, Inc. 14% Senior Notes
due 2007 (the "Notes")
Reference is hereby made to the Indenture, dated as of August 6, 1997,
(the "Indenture"), between Teletrac, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $________ principal amount of Restricted Notes
held in definitive form (CUSIP No. ____) (the "Transferred Note") by [insert
name of transferor] (the "Transferor"). The Transferor has requested an
exchange or transfer of such Notes to the undersigned transferee (the
"Transferee") and the Transferee is aware that the transfer to it is being made
in reliance on Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act").
In connection with such request and in respect of the Transferred
Notes, the Transferee does hereby certify that such transfer has been effected
pursuant to and in accordance with Rule 144A under the Securities Act and,
accordingly, the Transferee does hereby further certify that the Transferee is
purchasing the Transferred Notes for its own account, or for one or more
accounts with respect to which the Transferee exercises sole investment
discretion, and the Transferee and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States.
(1) Include if relates to interest in Global Note.
C-8-1
<PAGE>
We understand that the Transferred Notes have not been and will not be
registered under the Securities Act and may not be offered, sold, pledged or
otherwise transferred without registration under the Securities Act, except
(a)(1) to a person whom the Transferee reasonably believes is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
purchasing for its own account or for the account of a qualified institutional
buyer in a transaction meeting the requirements of Rule 144A or (2) pursuant to
an exemption from registration under the Securities Act in accordance with Rule
144 thereunder (if available) or (3) in a transaction outside the United States
in compliance with the provisions of Regulation S under the Securities Act and
(B) in each case in accordance with any applicable securities laws of any state
of the United States or other applicable jurisdiction.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding.
This certificate and the statements contained herein are made for your benefit
and the benefit of the Issuer and the Initial Purchaser.
Dated: _______________
[Insert Name of Transferee]
By:_____________________________
Name:
Title:
cc: Teletrac, Inc.
C-8-2
<PAGE>
================================================================================
NOTE EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of August 6, 1997
by and between
Teletrac, Inc.
and
Donaldson, Lufkin & Jenrette Securities Corporation
and
TD Securities
================================================================================
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of August 6, 1997 by and between Teletrac, Inc., a Delaware
corporation (the "COMPANY"), on the one hand, and Donaldson, Lufkin & Jenrette
Securities Corporation and TD Securities (USA) Inc. (each a "PURCHASER" and,
collectively, the "PURCHASERS"), on the other hand. Each of the Purchasers has
agreed to purchase from the Company and Teletrac Holdings, Inc. ("HOLDINGS" and,
together with the Company, the "ISSUERS") units (the "Units"), with each Unit
consisting of $1,000 principal amount of the Company's 14% Senior Notes due 2007
(the "ORIGINAL NOTES") and one warrant (collectively, the "WARRANTS") to
purchase shares of Class A Common Stock, par value $0.01 per share, of Holdings.
This Agreement is made pursuant to the Purchase Agreement, dated July
31, 1997 (the "PURCHASE AGREEMENT"), by and among the Company, Holdings and the
Purchasers. In order to induce the Purchasers to purchase the Units, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Purchasers set forth in Section 2 of the Purchase Agreement.
The parties hereto, intending legally to be bound, hereby agree as
follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
BROKER-DEALER: Any broker or dealer registered under the Exchange
Act.
CLOSING DATE: The date of this Agreement.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: A Registered Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company
to the Trustee or any office or agency of the Trustee under the Indenture of
Exchange Notes in the same aggregate principal amount as the aggregate principal
amount of Original Notes that were tendered by Holders thereof pursuant to the
Exchange Offer.
DAMAGES PAYMENT DATE: With respect to the Notes, each Interest
Payment Date.
EFFECTIVENESS TARGET DATE: As defined in Section 5.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE NOTES: The Company's 14% Exchange Notes due 2007 to be
issued pursuant to the Indenture in the Exchange Offer.
<PAGE>
EXCHANGE OFFER: The registration by the Company under the Act of the
Exchange Notes under a Registration Statement under which the Company offers the
Holders of all outstanding Transfer Restricted Notes the opportunity to exchange
all such outstanding Transfer Restricted Notes held by such Holders for Exchange
Notes in an aggregate principal amount equal to the aggregate principal amount
of the Transfer Restricted Notes tendered in such Exchange Offer by such
Holders.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Purchasers propose to
sell the Units (i) to certain "qualified institutional buyers," as such term is
defined in Rule 144A under the Act and (i) pursuant to offers and sales that
occur outside the United States within the meaning of Regulation S under the
Act.
GUARANTEE: As defined in the Indenture.
HOLDERS: As defined in Section 2(b) hereof.
INDEMNIFIED HOLDER: As defined in Section 8(a) hereof.
INDENTURE: The Indenture, dated as of August 6, 1997, between the
Company, Norwest Bank Minnesota, National Association, as trustee (the
"TRUSTEE"), Collateral Agent and Registrar, pursuant to which the Notes are to
be issued, as such Indenture is amended or supplemented from time to time in
accordance with the terms thereof.
INTEREST PAYMENT DATE: As defined in the Notes.
NASD: National Association of Securities Dealers, Inc.
NOTES: The Original Notes and the Exchange Notes.
PERSON: An individual, partnership, corporation, limited liability
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof or any other entity.
PROSPECTUS: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
PURCHASER: As defined in the preamble hereto.
RECORD HOLDER: With respect to any Damages Payment Date relating to
Notes, each Person who is a Holder of Notes on the record date with respect to
the Interest Payment Date on which such Damages Payment Date shall occur.
REGISTRAR: As defined in the Indenture.
-2-
<PAGE>
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Notes pursuant to the
Shelf Registration Statement, which is filed pursuant to the provisions of this
Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
SHELF FILING DEADLINE: As defined in Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
TRANSFER RESTRICTED NOTES: Each Note, until the earliest to occur of
(a) the date on which such Note is exchanged by a person other than a
Broker-Dealer for an Exchange Note in the Exchange Offer, (b) following the
exchange of such Note by a Broker-Dealer in the Exchange Offer for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such Broker-Dealer on or prior to the date of such sale a copy of the
Prospectus contained in the Exchange Offer Registration Statement, (c) the date
on which such Note has been effectively registered under the Act and disposed of
in accordance with a Shelf Registration Statement and (d) the date on which such
Note is distributed to the public pursuant to Rule 144 under the Act or could be
so distributed under such Rule by a non-affiliate of the Company.
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) TRANSFER RESTRICTED NOTES. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Notes.
(b) HOLDERS OF TRANSFER RESTRICTED NOTES. A Person is deemed to be a
holder of Transfer Restricted Notes (each, a "HOLDER") whenever such Person owns
Transfer Restricted Notes.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Company shall (i) file with the
Commission as soon as practicable after the Closing Date, but in no event later
than 30 days after the Closing Date, a Registration Statement under the Act
relating to the Exchange Notes and the Exchange Offer, (ii) use its best efforts
to have such Registration Statement become effective on or prior to 90 days
after the Closing Date, and (iii) in connection with the foregoing, file (A) all
pre-
-3-
<PAGE>
effective amendments to such Registration Statement as may be necessary in order
to cause such Registration Statement to become effective, (B) if applicable, a
post-effective amendment to such Registration Statement pursuant to Rule 430A
under the Act and (C) cause all necessary filings in connection with the
registration and qualification of the Exchange Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer, and (iv) commence the Exchange Offer and use its best efforts to
issue on or prior to 30 business days after the date on which the Exchange Offer
was declared effective by the Commission, Exchange Notes in exchange for all
Original Notes. The Exchange Offer shall be on the appropriate form to permit
registration of the Exchange Notes to be offered in exchange for the Transfer
Restricted Notes and to permit resales of Notes held by Broker-Dealers as
contemplated by Section 3(c) below. The Company shall also cause to be
registered with the Commission any Guarantee of the Company's obligations under
the Notes which may be issued at a later date by Holdings or any Restricted
Subsidiary (as defined in the Indenture), as contemplated by the terms of the
Indenture.
(b) The Company shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; PROVIDED, HOWEVER, that in no
event shall such period be less than 20 business days. The Company shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the Notes shall be included in the Exchange
Offer Registration Statement. The Company shall use its best efforts to cause
the Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 business days thereafter.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus in the Exchange Offer Registration Statement that
any Broker-Dealer who holds Original Notes that are Transfer Restricted Notes
and that were acquired for its own account as a result of market-making
activities or other trading activities (other than Transfer Restricted Notes
acquired directly from the Company), may exchange such Original Notes pursuant
to the Exchange Offer; however, such Broker-Dealer may be deemed to be an
"underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with any resales of
the Exchange Notes received by such Broker-Dealer in the Exchange Offer, which
prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such resales by Broker-Dealers that the Commission
may require in order to permit such resales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Notes held by any such Broker-Dealer except to the extent required by the
Commission as a result of a change in policy after the date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of Notes acquired by Broker-Dealers for
their own accounts as a result of market-making activities or other trading
activities, and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period equal to the shorter of (i) one year
from the date on which the Exchange Offer Registration Statement is declared
effective and (ii) the date on
-4-
<PAGE>
which all Exchange Notes acquired in the Exchange Offer by Broker-Dealers have
been sold to the public by such Broker-Dealers.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Company is not permitted to file
an Exchange Offer Registration Statement or permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy (after the procedures set forth in Section 6(a) below have
been complied with) or (ii) if any Holder of Transfer Restricted Notes shall
notify the Company within 20 business days after the Consummation of the
Exchange Offer (A) that such Holder is prohibited by applicable law or
Commission policy from participating in the Exchange Offer, or (B) that such
Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and that the Prospectus contained in
the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder, or (C) that such Holder is a Broker-Dealer and owns
Notes acquired directly from the Company or one of its affiliates, then the
Company shall
(x) file a shelf registration statement pursuant to
Rule 415 under the Act, which may be an amendment to the Exchange
Offer Registration Statement (in either event, the "SHELF REGISTRATION
STATEMENT") on or prior to the earlier to occur of (1) the 30th day
after the date on which the Company determines that it is not
permitted to file the Exchange Offer Registration Statement and
(2) the 30th day after the date on which the Company receives notice
from a Holder of Transfer Restricted Notes as contemplated by clause
(ii) above (such earlier date being the "SHELF FILING DEADLINE"),
which Shelf Registration Statement shall provide for resales of all
Transfer Restricted Notes the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof; and
(y) use its best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the
60th day after the Shelf Filing Deadline.
The Company shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for resales of Notes by the Holders of Transfer Restricted Notes
entitled to the benefit of this Section 4(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
two years following the Closing Date or until such earlier date as the Transfer
Restricted Notes held by non-affiliates of the Company are tradeable without
restriction under Rule 144(k) under the Act.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH
THE SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Notes may
include any of its Transfer Restricted Notes in any Shelf Registration Statement
pursuant to this Agreement unless and until such Holder furnishes to the Company
in writing, within 20 days after receipt of a request therefor, such information
as the
-5-
<PAGE>
Company may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder
of Transfer Restricted Notes shall be entitled to Liquidated Damages pursuant to
Section 5 hereof unless and until such Holder shall have used its best efforts
to provide all such reasonably requested information. Each Holder as to which
any Shelf Registration Statement is being effected agrees to furnish promptly to
the Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) the Company fails to file any of the Registration Statements
required by this Agreement with the Commission on or prior to the date specified
for such filing in this Agreement, (ii) any of such Registration Statements has
not been declared effective by the Commission on or prior to the date specified
for such effectiveness in this Agreement (the "EFFECTIVENESS TARGET DATE"),
(iii) the Company fails to Consummate the Exchange Offer within 30 business days
after the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement, or (iv) any Registration Statement required by this
Agreement is declared effective but thereafter ceases to be effective or usable
for its intended purpose during the periods specified in this Agreement without
being succeeded promptly by a post-effective amendment to such Registration
Statement that cures such failure and that is itself immediately declared
effective (each such event referred to in clauses (i) through (iv), a
"REGISTRATION DEFAULT"), the Company hereby agrees to pay liquidated damages
("LIQUIDATED DAMAGES") to each Holder of Transfer Restricted Notes, with respect
to the first 90-day period immediately following the occurrence of such
Registration Default, in an amount equal to $.05 per week per $1,000 principal
amount of Transfer Restricted Notes held by such Holder for each week or portion
thereof that the Registration Default continues. The amount of the Liquidated
Damages shall increase by an additional $.05 per week per $1,000 in principal
amount of Transfer Restricted Notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages of $.50 per week per $1,000 principal amount of Transfer
Restricted Notes. All accrued Liquidated Damages shall be paid to Record
Holders by the Company by wire transfer of immediately available funds or by
federal funds check on each Damages Payment Date, as provided in the Indenture.
Following the cure of all Registration Defaults relating to any particular
Transfer Restricted Notes, the accrual of Liquidated Damages with respect to
such Transfer Restricted Notes will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Note at the time
such note ceases to be a Transfer Restricted Note shall survive until such time
as all such obligations with respect to such Note shall have been satisfied in
full.
SECTION 6. REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, the Company shall comply with all of the provisions of Section
6(c) below, shall use its best efforts to effect such exchange to permit the
sale of Transfer Restricted Notes being sold in accordance with the intended
method or methods of distribution thereof, and shall comply with all of the
following provisions:
-6-
<PAGE>
(1) If in the reasonable opinion of counsel to the Company there
is a question as to whether the Exchange Offer is permitted by applicable
law, the Company hereby agrees to seek a no-action letter or other
favorable decision from the Commission allowing the Company to Consummate
an Exchange Offer for such Original Notes. The Company hereby agrees to
pursue the issuance of such a decision to the Commission staff level but
shall not be required to take commercially unreasonable action to effect a
change of Commission policy. The Company hereby agrees, however, to (A)
participate in telephonic conferences with the Commission, (B) deliver to
the Commission staff an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that
such an Exchange Offer should be permitted and (C) diligently pursue a
resolution (which need not be favorable) by the Commission staff of such
submission.
(2) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Notes shall furnish, upon the request of the Company, prior to the
Consummation thereof, a written representation to the Company (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate of
the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in,
a distribution of the Exchange Notes to be issued in the Exchange Offer and
(C) it is acquiring the Exchange Notes in its ordinary course of business.
In addition, all such Holders of Transfer Restricted Notes shall, if
necessary, otherwise reasonably cooperate in the Company's preparations for
the Exchange Offer. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to participate
in a distribution of the Notes to be acquired in the Exchange Offer (1)
could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in MORGAN
STANLEY AND CO., INC. (available June 5, 1991) and EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), as interpreted in the Commission's
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K
if the resales are of Exchange Notes obtained by such Holder in exchange
for Original Notes acquired by such Holder directly from the Company.
(3) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in EXXON CAPITAL
HOLDINGS CORPORATION (available May 13, 1988), MORGAN STANLEY AND CO., INC.
(available June 5, 1991) and, if applicable, any no-action letter obtained
pursuant to clause (i) above and (B) including a representation that the
Company has not entered into any arrangement or understanding with any
Person to distribute the Exchange Notes to be received in the Exchange
Offer and that, to the best of the Company's information and belief, each
Holder participating in the Exchange Offer is acquiring the Exchange Notes
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Exchange Notes
received in the Exchange Offer.
-7-
<PAGE>
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Notes being sold in accordance with
the intended method or methods of distribution thereof, and pursuant thereto the
Company will as expeditiously as possible prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Notes in accordance with the intended method or methods of
distribution thereof.
(c) GENERAL PROVISIONS. In connection with any Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Notes (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
Notes by Broker-Dealers), the Company shall:
(1) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable;
upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale
of Transfer Restricted Notes during the period required by this Agreement,
the Company shall file promptly an appropriate amendment to such
Registration Statement, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause (A) or (B), use
its best efforts to cause such amendment to be declared effective and such
Registration Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter;
(2) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary
to keep the Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, as applicable, or such shorter period as
will terminate when all Transfer Restricted Notes covered by such
Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
the applicable provisions of Rules 424 and 430A under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(3) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement under the Act or of the suspension by any
state securities commission of the qualification of the Transfer Restricted
Notes for offering or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes, (D) of the existence of any
fact or the happening of any event that makes any statement of a material
fact made in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any document incorporated by reference therein
untrue, or that requires
-8-
<PAGE>
the making of any additions to or changes in the Registration Statement or
the Prospectus in order to make the statements therein not misleading. If
at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Notes under state securities or Blue Sky laws, the Company shall
use its best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time;
(4) furnish to each of the selling Holders named in any
Registration Statement or Prospectus and each of the underwriter(s), if
any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review of
such Holders and underwriter(s), if any, for a period of at least five
business days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which a selling Holder of Transfer Restricted
Notes covered by such Registration Statement or the underwriter(s), if any,
shall reasonably object within five business days after the receipt
thereof. A selling Holder or underwriter, if any, shall be deemed to have
reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission other than a material
misstatement or omission that is made in reliance upon and in conformity
with information relating to any of the Holders furnished in writing to the
Company by any of the Holders expressly for use therein;
(5) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders named therein and to
the underwriter(s), if any, make the Company's representatives available
for discussion of such document and other customary due diligence matters,
and include such information in such document prior to the filing thereof
as such selling Holders or underwriter(s), if any, reasonably may request;
(6) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney or accountant retained by
such selling Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Company and
cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter, attorney
or accountant in connection with such Registration Statement subsequent to
the filing thereof and prior to its effectiveness;
(7) if requested by any selling Holders or the underwriter(s),
if any, promptly incorporate in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders and underwriter(s), if any, may
reasonably request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Notes, information with respect to the principal amount of
Transfer Restricted Notes being sold to such underwriter(s), the purchase
price being paid therefor and any other terms of the offering of the
Transfer Restricted Notes to be sold in such offering; and make all
required filings of such Prospectus supplement or post-effective amendment
as soon as
-9-
<PAGE>
practicable after the Company is notified of the matters to be incorporated
in such Prospectus supplement or post-effective amendment;
(8) cause the Transfer Restricted Notes covered by the
Registration Statement to be rated with the appropriate rating agencies, if
so requested by the Holders of a majority in aggregate principal amount of
Notes covered thereby or the underwriter(s), if any;
(9) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(10) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company hereby
consents to the use of the Prospectus and any amendment or supplement
thereto by each of the selling Holders and each of the underwriter(s), if
any, in connection with the offering and the sale of the Transfer
Restricted Notes covered by the Prospectus or any amendment or supplement
thereto;
(11) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take all such
other actions in connection therewith in order to expedite or facilitate
the disposition of the Transfer Restricted Notes pursuant to any
Registration Statement contemplated by this Agreement, all to such extent
as may be reasonably requested by any Purchaser or by any Holder of
Transfer Restricted Notes or underwriter in connection with any sale or
resale pursuant to any Registration Statement contemplated by this
Agreement; and whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten Registration, the
Company shall:
(A) furnish to each Purchaser, each selling Holder and each
underwriter, if any, in such substance and scope as they may request
and as are customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the Consummation of the
Exchange Offer and, if applicable, the effectiveness of the Shelf
Registration Statement:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed by (y) the
President or any Vice President and (z) a principal financial or
accounting officer of the Company, confirming, as of the date
thereof, the matters set forth in paragraphs (a), (b), (c) and
(d) of Section 6 of the Purchase Agreement and such other matters
as such parties may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company, covering the matters set forth in paragraph (e) of
Section 9 of the Purchase Agreement and such other matter as such
parties may reasonably request, and in any event including a
statement to the effect that such counsel has participated in
conferences with officers and other representatives of the
Company, representatives of the independent public accountants
for the Company, the Purchasers' representatives and the
Purchasers'
-10-
<PAGE>
counsel in connection with the preparation of such Registration
Statement and the related Prospectus and have considered the
matters required to be stated therein and the statements
contained therein, although such counsel has not independently
verified the accuracy, completeness or fairness of such
statements; and that such counsel advises that, on the basis of
the foregoing (relying as to materiality to a large extent upon
facts provided to such counsel by officers and other
representatives of the Company and without independent check or
verification), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective, and, in the
case of the Exchange Offer Registration Statement, as of the date
of Consummation, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
that the Prospectus contained in such Registration Statement as
of its date and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in any
Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness
of the Shelf Registration Statement, as the case may be, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(h) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (11), if any.
If at any time the representations and warranties of the Company
contemplated in clause (A)(1) above cease to be true and correct, the
Company shall so advise the Purchasers and the underwriter(s), if any, and
each selling Holder promptly and, if requested by such Persons, shall
confirm such advice in writing;
(12) prior to any public offering of Transfer Restricted Notes,
cooperate with the selling Holders, the underwriter(s), if any, and its
counsel in connection with the registration and qualification of the
Transfer Restricted Notes under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s) may request and do
any and all other acts or
-11-
<PAGE>
things reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Notes covered by the Shelf
Registration Statement; PROVIDED, HOWEVER, that the Company shall not be
required to register or qualify as a foreign corporation where it is not
now so qualified or to take any action that would subject it to the service
of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction
where it is not now so subject;
(13) shall issue, upon the request of any Holder of Original
Notes covered by the Shelf Registration Statement, Exchange Notes, having
an aggregate principal amount equal to the aggregate principal amount of
Original Notes surrendered to the Company by such Holder in exchange
therefor or being sold by such Holder; such Exchange Notes to be registered
in the name of such Holder or in the name of the purchaser(s) of such
Notes, as the case may be; in return, the Original Notes held by such
Holder shall be surrendered to the Company for cancellation;
(14) cooperate with the selling Holders and the underwriter(s),
if any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Notes to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Notes to be in
such denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two business days prior to any
sale of Transfer Restricted Notes made by such underwriter(s);
(15) use its best efforts to cause the Transfer Restricted Notes
covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be reasonably
necessary to enable the seller or sellers thereof or the underwriter(s), if
any, to consummate the disposition of such Transfer Restricted Notes,
subject to the proviso contained in clause (12) above;
(16) if any fact or event contemplated by clause (c)(3)(D) above
shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Notes, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(17) provide a CUSIP number for all Transfer Restricted Notes not
later than the effective date of the Registration Statement and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Notes which are in a form eligible for deposit with the
Depository Trust Company;
(18) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its reasonable best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Notes to consummate the disposition of such Transfer Restricted
Notes;
-12-
<PAGE>
(19) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to
its security holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
for the twelve-month period (A) commencing at the end of any fiscal quarter
in which Transfer Restricted Notes are sold to underwriters in a firm or
best efforts Underwritten Offering or (B) if not sold to underwriters in
such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement;
(20) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate with the Trustee
and the Holders of Notes to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the terms
of the TIA; and execute and use its best efforts to cause the Trustee to
execute, all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner;
(21) cause all Transfer Restricted Notes covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by
the Holders of a majority in aggregate principal amount of Original Notes
or the managing underwriter(s), if any; and
(22) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 and
Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Note that,
upon receipt of any notice from the Company of the existence of any fact of the
kind described in Section 6(c)(3) hereof, such Holder will forthwith discontinue
disposition of Transfer Restricted Notes pursuant to the applicable Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(2) hereof, or until it is
advised in writing (the "ADVICE") by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus. If so directed by
the Company, each Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Transfer Restricted Notes that was current at
the time of receipt of such notice. In the event the Company shall give any
such notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(3) hereof to and including the
date when each selling Holder covered by such Registration Statement shall have
received the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(4) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made by
-13-
<PAGE>
any Purchaser or Holder with the NASD (and, if applicable, the fees and expenses
of any "qualified independent underwriter" and its counsel that may be required
by the rules and regulations of the NASD)); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws;
(iii) all expenses of printing (including printing certificates for the Notes to
be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and, subject to Section 7(b) below, the Holders of Transfer
Restricted Notes; (v) all application and filing fees in connection with listing
Notes on a national securities exchange or automated quotation system pursuant
to the requirements hereof; and (vi) all fees and disbursements of independent
public accountants of the Company (including the expenses of any special audit
and comfort letters required by or incident to such performance).
Notwithstanding the foregoing, or anything in this Agreement to the contrary,
each Holder shall pay all underwriting discounts and commissions of any
underwriters with respect to any Securities sold by it.
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Purchasers and the Holders of Transfer Restricted Notes being tendered in the
Exchange Offer and/or resold pursuant to the "Plan of Distribution" contained in
the Exchange Offer Registration Statement or registered pursuant to the Shelf
Registration Statement, as applicable, for the reasonable fees and disbursements
of not more than one counsel, who shall be Paul, Hastings, Janofsky & Walker LLP
or such other counsel as may be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Notes for whose benefit such Registration
Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder
and (ii) each person, if any, who controls (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"INDEMNIFIED HOLDER"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of one counsel to all
Indemnified Holders) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by an untrue
statement or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to any of the Holders
furnished in writing to the Company by any of the Holders expressly for use
therein.
-14-
<PAGE>
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company, such Indemnified Holder (or the Indemnified Holder controlled by
such controlling person) shall promptly notify the Company in writing (PROVIDED,
that the failure to give such notice shall not relieve the Company of its
obligations pursuant to this Agreement). Such Indemnified Holder shall have the
right to employ its own counsel in any such action and the fees and expenses of
such counsel shall be paid, as incurred, by the Company (regardless of whether
it is ultimately determined that an Indemnified Holder is not entitled to
indemnification hereunder); PROVIDED, HOWEVER, that the Company shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for more than the
reasonable fees and expenses of one firm of attorneys (in addition to any local
counsel) at any time for all such Indemnified Holders, which firm shall be
designated by the Indemnified Holders. The Company shall be liable for any
settlement of any such action or proceeding effected with the Company's prior
written consent, which consent shall not be withheld unreasonably, and the
Company agrees to indemnify and hold harmless any Indemnified Holder from and
against any loss, claim, damage, liability or expense by reason of any
settlement of any action effected with the written consent of the Company. The
Company shall not, without the prior written consent of each Indemnified Holder,
settle or compromise or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, claim, litigation or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Holder is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Holder from all liability arising out of such action, claim,
litigation or proceeding.
(b) Each Holder of Transfer Restricted Notes agrees, severally and
not jointly, to indemnify and hold harmless the Company and its respective
directors, officers, and any person controlling (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Company, and the respective
officers, directors, partners, employees, representatives and agents of each
such person, to the same extent as the foregoing indemnity from the Company to
each of the Indemnified Holders, but only with respect to claims and actions
based on information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company or its directors or officers or
any such controlling person in respect of which indemnity may be sought against
a Holder of Transfer Restricted Notes, such Holder shall have the rights and
duties given the Company and the Company or its directors or officers or such
controlling person shall have the rights and duties given to each Holder by the
preceding paragraph. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the proceeds received
by such Holder upon the sale of the registrable Notes giving rise to such
indemnification obligation.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Holders on the other hand from their sale of
Transfer Restricted Notes or if such allocation is not permitted by applicable
law, the relative fault of the Company on the one hand and of the
-15-
<PAGE>
applicable Holders on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the applicable Holders on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
applicable Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 8(a),
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company and each Holder of Transfer Restricted Notes agree that it
would not be just and equitable if contribution pursuant to this Section 8(c)
were determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, none of the
Holders (and its related Indemnified Holders) shall be required to contribute,
in the aggregate, any amount in excess of the amount by which the total discount
received by such Holder with respect to the Original Notes exceeds the amount of
any damages which such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Holders' obligations to
contribute pursuant to this Section 8(c) are several in proportion to the
respective principal amount of Original Notes held by each of the Holders
hereunder and not joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Notes remain outstanding, to make available to any Holder or
beneficial owner of Transfer Restricted Notes in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Notes from
such Holder or beneficial owner, the information required by Rule 144A(d)(4)
under the Act in order to permit resales of such Transfer Restricted Notes
pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted Notes on
the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of such
underwriting arrangements.
-16-
<PAGE>
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Notes covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Notes in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Notes included in such
offering; PROVIDED, that such investment bankers and managers must be reasonably
satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) REMEDIES. The Company agrees that monetary damages (including
the Liquidated Damages contemplated hereby) would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has
not previously entered into any agreement granting any registration rights with
respect to its securities to any Person, except as described in the Preliminary
Offering Memorandum dated July 16, 1997 relating to the initial sale of the
Transfer Restricted Notes. The rights granted to the Holders hereunder do not
in any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof, except as described in the Preliminary Offering Memorandum, dated July
16, 1997 relating to the initial sale of the Transfer Restricted Notes.
Notwithstanding the foregoing, the Company has obtained from each holder of any
of its securities who would otherwise be entitled to have such securities
registered together with the Transfer Restricted Notes, a valid, effective and
enforceable waiver of any registration rights such holder has with respect to
the Transfer Restricted Notes.
(c) ADJUSTMENTS AFFECTING THE NOTES. The Company will not take any
action, or permit any change to occur, with respect to the Notes that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Notes. Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose securities are being tendered pursuant to the Exchange Offer
and that does not affect directly or indirectly the rights of other Holders
whose securities are not being tendered pursuant to such Exchange Offer may be
given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Notes being tendered or registered.
-17-
<PAGE>
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
Teletrac, Inc.
2323 Grand, Suite 1100
Kansas City, MO 64108-2670
Telecopier No.: (816) 424-3475
Attention: James A. Queen
With a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Telecopier No.: (212) 841-5725
Attention: Robert A. Schwed, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Notes; PROVIDED, HOWEVER,
that this Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such successor or
assign acquired Transfer Restricted Notes from such Holder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE CONFLICT OF LAW RULES THEREOF.
-18-
<PAGE>
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Notes. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TELETRAC, INC.
By: /s/ James A. Queen
--------------------------------
Name: James A. Queen
Title: Chief Executive Officer
TELETRAC HOLDINGS, INC.
By: /s/ James A. Queen
--------------------------------
Name: James A. Queen
Title: Chief Executive Officer
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
------------------------------
Name:
Title:
TD SECURITIES (USA) INC.
By:
------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TELETRAC, INC.
By:
--------------------------------
Name:
Title:
TELETRAC HOLDINGS, INC.
By:
--------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Craig Packer
------------------------------
Name: Craig Packer
Title: Vicer President
TD SECURITIES (USA) INC.
By:
------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TELETRAC, INC.
By:
--------------------------------
Name:
Title:
TELETRAC HOLDINGS, INC.
By:
--------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
------------------------------
Name:
Title:
TD SECURITIES (USA) INC.
By: /s/ Thomas W. Regan Jr.
------------------------------
Name: Thomas W. Regan Jr.
Title: Managing Director
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
Exhibit 10.1
VLU PRODUCTION AGREEMENT
This VLU Production Agreement (the "Agreement") is made as of September 6, 1996
(the "Effective Date") by and between Tadiran Ltd., a company duly organized and
existing under the laws of Israel, through its Telematics Division ("Seller" or
"Tadiran"), and Teletrac Inc., a corporation registered in Delaware ("Buyer" or
"Teletrac") (jointly - the "Parties").
THE PARTIES THEREFORE AGREE AS FOLLOWS
1. AGREEMENT TO PURCHASE AND SELL
Within the term of this Agreement (two years from the date hereof), Buyer
shall purchase from Seller, and Seller shall sell to Buyer [****] [****]
Vehicle Location Units ("VLUs"). The Parties hereby acknowledge that
[****] [****] VLUs ordered on February 26, 1996 (purchase order number
[****]) ("the [****] Order") is included in the above [****] VLUs and this
Agreement shall apply to the [****] VLUs in full, including the [****]
Order. Within 7 days hereof Teletrac shall issue a purchase order for the
additional [****] ([****]) VLUS.
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
2. UNIT SPECIFICATIONS AND CHANGES
2.1 The VLUs shall fully comply with the VLU technical specifications, as
set forth in Exhibit "A" attached hereto (the "Specifications").
2.2 Subject to provisions of Section 15 below, the Parties may negotiate
changes to the specifications which shall be implemented in a manner
that will not interrupt the then current production of VLUs. The
Parties shall determine by mutual consent the corresponding adjustment
in prices and the delivery schedule, and this Agreement shall be
modified in writing accordingly.
3. PURCHASE PRICE/PAYMENT TERMS
3.1 The basic purchase price for each VLU shall be US $ [****] ([****]) per
unit for the [****] Order and US $[****] ([****] US Dollars and [****]
cents) per unit, exclusive of G.S.P., for the remaining [****] VLUs
(respectively - the "Purchase Price"). Should the G.S.P. apply during the
term of this Agreement, the cost of the G.S.P. shall be added to the
Purchase Price. During the term of this Agreement, from time to time,
Seller shall use its best efforts to reduce the costs that were the basis
of its initial determination of US $[****] as the appropriate purchase
price
2
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
and shall pass through to Teletrac any such cost reductions, as it
achieves. This undertaking does not constitute the grant to Teletrac of a
right to audit Tadiran's books, records or financial statements.
3.2 Subject to the provisions of Section 4 below, The Basic Price includes
freight, handling, insurance, and other delivery costs (all as of the
Effective Date and shall be adjusted accordingly upon any change in the
above), predicated upon the Seller's shipment to Garden Grove, California
("Buyer's Facility") or any other single facility in the United States
provided that the Buyer shall pay the difference in additional delivery
costs from Buyer's Facility to the final destination.
3.3 The invoice of VLUs shall contain, at a minimum, the purchase price in US
dollars, purchase order number, invoice date, quantity, description,
invoice number, reference to this Agreement, ship to name and address, bill
to name and address, emit to name and address and method and name of
carrier.
3.4 TERMS OF PAYMENT. Terms for the payment of the Purchase Price are as
defined in Exhibit "B" attached hereto.
3
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
4. DELIVERY TERMS
4.1 DELIVERY SCHEDULE. Seller shall ship the VLUs to Buyer according to the
delivery schedule attached as Exhibit "C" (the "Delivery Schedule"). The
monthly delivery rate (as set forth in Exhibit "C" or amended by the
Parties) may be increased by up to [****]% or decreased by up to [****]% by
means of a 60 days prior written notice. In no event shall the monthly
delivery rate be increased in excess of 20,000 VLUs or decreased below
[****] VLUs.
4.2 DELIVERY POINT. All VLUs shall be delivered by Seller FOB Seller's
facilities in Holon, Israel or a facility of any of Seller's subcontractors
(not necessarily in Israel). Title and risk of loss shall pass from Seller
to Buyer at Seller's facilities or subcontractors' facility.
4.3 SHIPMENT POINT. Upon request by Buyer, Seller shall arrange for and pay
the cost of packaging, insurance and freight to Buyer's Facility. US
federal, state and local taxes shall be the responsibility of Buyer.
4.4 METHOD OF SHIPMENT. Method of shipment and selection of carrier is to be
determined by Seller. Seller agrees to ship VLUs by methods that support
the Delivery Schedule as specified herein. If Seller is late in expected
delivery date, Seller shall use and pay for the most expeditious
4
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
shipment means. Seller shall, at its sole expense, provide for all
crating, packaging and packing in shipping containers that are designed to
provide adequate protection for the VLUs during shipment. Buyer shall
incur all additional costs, of in-bound freight when, at Buyer's request,
VLUs are expedited. Seller shall use reasonable efforts to comply with
such requests.
4.5 TAXES. All prices are inclusive of all present export duties (including
brokerage fees) and all Seller's corporate income taxes, duties, tariffs,
fees, levies, charges, federal, state and local sales taxes and other
compulsory payments arising out of or in connection with any such sale or
order, if payable under the laws in force in Israel, including any Israeli
governmental agency operating under the authority of such laws shall be
paid by Seller.
4.6 All claims for shortages in the number of VLUs which have been delivered to
Teletrac shall be made to Tadiran within 60 days of the actual delivery of
the VLUs to Teletrac.
5. REQUEST FOR DEVIATIONS
The Parties may request reasonable deviations from the Specifications in
writing. Requests for deviations must clearly identify the following:
description of the deviation; reference the individual Specification being
deviat-
5
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
ed; term of deviation, i.e. temporary or permanent; number of VLUs
affected; Effective Date; effect of deviation on any other technical or
performance Specification, including whether, following the deviation, the
Unit remains within the applicable margin or tolerance; anticipated delay,
if any, in Delivery Schedule due to deviation; and reason for deviation.
Deviations may be made only if a written addendum describing the deviations
(including the change, if any, in Delivery Schedule) has been mutually
agreed upon and signed by both parties.
6. WARRANTY
Seller hereby warrants the VLUs to be in compliance with the Specifications
and to be free from defects in materials and workmanship for the shorter
of: (a) three years from the date of delivery to Buyer or (b) two years
from the date the VLUs have been delivered by Buyer to third party. The
crystal to be in full compliance with the Specifications and to be free
from defects in materials and workmanship for the period of five years from
the date of receipt at Buyer's Facility. The warranty periods defined
above shall be referred to as the Warranty Period. Seller shall have the
option of either repairing or replacing VLUs found to be defective during
the Warranty Period. Time to repair or replace shall not exceed 90 days
from the date of actual
6
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
delivery of the item to Seller's facility. Seller also warrants the
merchantability and fitness for use within the Specifications of the VLUs.
Following the expiration of the Warranty Period, Seller shall be obligated
to provide maintenance support for VLUs for a period of 15 years in
accordance with a schedule of parts and labor rates which it shall
periodically publish. Seller's schedules for parts and labor rates shall
be effective 30 days following the delivery of the schedule.
6.1 Buyer acknowledges that the warranty contained in this Section 6 above
shall not apply to damage, deterioration or malfunctions which are caused
by:
6.1.1 The improper removal or installation of VLUs.
6.1.2 Accidents, acts of nature, misuse, abuse, negligence, neglect,
unauthorized product modification or failure to follow proper
instruction procedure.
6.1.3 Repair or attempted repair by any person not authorized by
Seller.
6.2 Buyer also acknowledges that Buyer shall be responsible and shall bear all
costs and charges related to the deinstallation of defective VLUs and
reinstallation of the VLUs, Seller shall bear the cost of shipment of the
VLUs from Buyer to Seller and back.
7
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
6.3 THE WARRANTIES CONTAINED IN THIS SECTION 6 ARE IN LIEU OF ALL OTHER
WARRANTIES WHETHER ORAL, WRITTEN, OR EXPRESS, IMPLIED OR STATUTORY. SELLER
SHALL NOT BE LIABLE FOR ANY BUSINESS EXPENSES, LOSS OF PROFIT,
INCONVENIENCE, OR DAMAGE, INCLUDING DIRECT, INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES RESULTING FROM VLU DEFECTS WHETHER RESULTING FROM
BREACH OF WARRANTY OR ANY OTHER LEGAL THEORY. SELLER DISCLAIMS ALL
LIABILITY, WHETHER IN CONTRACT, TORT, WARRANTY OR OTHERWISE TO ANY THIRD
PARTY OTHER THAN BUYER. NOTWITHSTANDING THE ABOVE, SELLER SHALL REMAIN
LIABLE TO BUYER (AND ONLY TO BUYER) UNDER THE ABOVE WARRANTY FOR THE
DURATION OF THE WARRANTY PERIOD, DESPITE PASSAGE OF TITLE TO THE VLUs TO
ANY THIRD PARTIES.
7. CONFIDENTIALITY AND PROPRIETARY RIGHTS
Neither party shall, without the prior written consent of the other party,
use (for any purpose other than that contemplated by this Agreement) or
disclose or divulge to any third party the terms and conditions of this
Agreement or any documents, specifications or information, including
technical information, received from the other party under or in connection
with this Agreement, provided, however, that Seller may disclose to any
third party, including its employees and subcontractors (provided they have
executed
8
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
an appropriate NDA), in connection with the manufacture of the VLUs, the
documents, specifications or information received from Buyer, to the extent
that in Seller's reasonable opinion it is necessary for the purposes of
this Agreement. Seller shall have the right to disclose any information
reasonably necessary to file for patent and other intellectual property
rights protection. At all times Seller shall retain exclusive proprietary
rights in the VLU (including design, configurations, drawings,
specifications, etc.) and nothing herein may be construed as granting any
intellectual property rights in the VLU to the Buyer.
8. USE OF NAME OR TRADEMARKS
Seller shall print any name or mark requested by Buyer on the VLUs in
addition to the name "Tadiran". Buyer shall be liable for an infringement
of copyright or trademarks as a result of any name or mark requested by
Buyer on the VLUs. If Buyer elects to use another name in addition to the
name "Tadiran", Buyer shall give Seller such name or mark to be used on the
VLUs at least 90 days prior to the delivery date for such VLUs.
9
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
9. FORCE MAJEURE
If performance by Seller of its obligations hereunder is prevented by force
majeure, affecting the activities of Seller or any party connected with the
sale, manufacture, supply, shipment or delivery of VLUs, including but not
limited to, acts of God, flood, typhoon, earthquake, tidal wave, landslide,
fire, plague, commotion, strike, labor disturbances, blockade, arrest or
restraint of government, requisition of vessel or aircraft, explosion, war,
government request, guidance, order or regulation or the boycotting of
Israeli goods, or any other unforeseeable causes or circumstances beyond
the reasonable control of Seller, then Seller shall not be liable for loss
or damage or failure or delay in performing its obligations under this
Agreement; provided, however, that Seller promptly fulfills its obligations
under this Agreement immediately after such force majeure ceases.
Notwithstanding the foregoing, Teletrac may terminate this Agreement, by
written notice to Tadiran, if performance by Tadiran is prevented by force
majeure for a period of more than 90 days.
10. COMPLIANCE
10.1 COMPLIANCE WITH AGREEMENT. Parties hereby agree to fully cooperate with
each other and to sell and buy VLUs which fully comply with the terms,
conditions, provisions and
10
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
Specifications of this Agreement, including the exhibits attached hereto
for price set forth herein to be paid in a timely manner.
10.2 COMPLIANCE WITH LAW. Parties shall be in compliance with (as to their
respective roles as manufacturer or operator/seller) and the VLUs shall be
in compliance with all federal, state and municipal regulations governing
the sale and use of the VLUs. The Parties shall cooperate in obtaining
necessary government agency approvals. Seller shall notify Buyer thirty
days prior to submission to any governmental agency as to the nature of the
submission. Buyer may elect to jointly apply for such agency approval,
registration or listing. Buyer shall incur the cost of obtaining and
maintaining a requested listing, approval or registration.
10.3 COMPLIANCE WITH PROPRIETARY RIGHTS REQUIREMENTS. Seller shall retain the
right to use all technology, know-how, copyright, trademark and patent
rights used in producing the VLUs. The Parties agree that Seller shall
retain all rights to file for patents on the VLUs or any other protection
of intellectual property relating to the VLUs.
11
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
11. INDEMNIFICATION
11.1 SELLER'S INDEMNIFICATION FOR ACTIONS. Subject to limitations listed below,
Seller shall indemnify, defend and hold harmless Buyer from and against all
claims, liabilities, obligations, damages, losses, deficiencies, costs,
shipping and transportation expenses, payments and expenses (including
court costs and reasonable attorney's fees), lawsuits, actions and other
proceedings, judgments and awards (collectively, "Claims") (other than
Claims due to the fault of Buyer or a failure of the VLU to perform in
accordance with the specifications), including, without limitation, Claims
of personal injury and death, arising directly out of any act or omission
of Seller, under this Agreement, including Claims of product liability.
Buyer acknowledges that the coverage of this indemnification does not
include patent infringements of the Buyer or any other breach of
obligations of Buyer contained in the Specifications. In no event shall
Seller be liable for indirect or consequential damages.
11.1.1 Buyer shall give Seller notice of any Claim within 10 business days
after Buyer's receipt of such Claim.
11.1.2 Buyer shall empower Seller to conduct the defense of any Claim and
shall cooperate fully with such defense.
12
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
Seller shall have full authority to conduct the defense.
11.1.3 Buyer shall not be entitled to settle a Claim without the express
written permission of Seller.
11.1.4 Provided that Seller advances the funds necessary to defend a Claim,
Buyer shall be obligated to defend such Claim.
11.2 BUYER'S INDEMNIFICATION FOR ACTIONS. Buyer shall indemnify, defend and
hold harmless Seller from and against all Claims (other than Claims due to
the fault of Seller), including, without limitation, Claims of personal
injury and death, arising, out of any act or omission of Buyer, or Buyer's
agents or employees, in connection with this Agreement.
11.2.1 Seller shall give Buyer notice of any Claim within 10 business days
after Seller's receipt of such Claim.
11.2.2 Seller shall consult regularly with Buyer in connection with the
defense of any Claim.
11.2.3 Seller shall not be entitled to settle a Claim without the express
written permission of Buyer.
11.2.4 Provided that Buyer advances the funds necessary to defend a Claim,
Seller shall be obligated to defend such Claim.
13
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
11.3 PROPRIETARY RIGHTS INDEMNIFICATION. Seller shall indemnify, defend and
hold harmless the Buyer from and against any Claims resulting or arising
from or in connection with Seller's violation of any third party's trade
secrets, proprietary information, trademarks, copyrights or patent rights
in connection with services, work or VLUs provided under this Agreement.
Buyer shall indemnify, defend and hold harmless the Seller from and against
any Claims resulting or arising from or in connection with Buyer's
violation of any third party's trade secrets, proprietary information,
trademarks, copyrights or patent rights in connection with services, work
or VLUs provided under this Agreement.
11.4 PROPRIETARY RIGHTS INDEMNIFICATION. Buyer shall indemnify, defend and hold
harmless the Seller from and against any Claims resulting or arising from
or in connection with Seller's violation of any third party's trademarks or
copyrights in connection with name or mark requested by Buyer pursuant to
Section 8 above.
11.5 COOPERATION. Each party agrees to promptly notify the other of any Claim
and to cooperate fully in the defense thereof or any negotiations related
thereto, and neither
14
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
shall enter into any settlement without the consent of the other party.
12. CONTRACT ADMINISTRATION
Alan B. Howe ("Howe") or his duly appointed successor shall administer the
terms of this Agreement on behalf of Buyer, and Roman Sternberg
("Sternberg") or his duly appointed successor shall administer the terms of
this Agreement on behalf of Seller.
13. NOTICES
Any notice, request or demand required to be made or given hereunder by any
party shall be deemed to be duly given or made upon receipt. The notice,
request or demand must be sent by air courier or registered or certified
airmail, or facsimile to the respective addresses of the parties set forth
below, or at such other address as has been given by either party to the
other in writing in accordance with the terms of this Agreement.
Teletrac Inc.
8900 State Line Rd., Suite 500
Leawood, Kansas 66206
Attention: Alan B. Howe
With a copy to: Steven D. Scheiwe
Tadiran Ltd., Telematics Division
26 Hashoftim Street
Holon, 58102 Israel
Attention: Roman Sternberg
With a copy to: Layla Chertow
15
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
14. TERMINATION
Each party shall have the right, as set forth below, to terminate this
Agreement without prejudice to any rights that it may have, whether under
the provisions of this Agreement, in law or in equity or otherwise, upon
the occurrence of any of the following events, hereinafter called
"Defaults".
(a) Either party, if the other party defaults in the performance of a
material obligation, provided for in this Agreement; or
(b) Either party, if the other party files a voluntary petition in
bankruptcy, files any voluntary petition seeking any reorganization,
arrangement, readjustment, liquidation, dissolution or similar relief
under the present or any future federal or state bankruptcy or
insolvency act; fails to remove an involuntary petition for a
reorganization, arrangement, readjustment, liquidation, dissolution or
similar relief under the present or any future federal or state
bankruptcy or insolvency act within 60 days after the filing of such
petition, or appoints a trustee, receiver or liquidator of its
properties.
Notwithstanding the above, a corporate reorganization or spin off not
under bankruptcy or insolvency proce-
16
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
dures shall not be considered a default, unless there is an intention
to abandon the business.
The party claiming a Default shall give written notice of termination to
the party alleged to be in Default in accordance with the notice provision
set forth in Section 13. The defaulting party shall have 90 business days
in which to correct any such Default, and failing such, this Agreement
shall terminate. If the defaulting party shall, within ten business days,
notify the other party in writing that it disputes the asserted Default,
and the matter cannot be resolved by mutual agreement of the parties, the
matter shall be submitted to binding mediation as hereinafter provided.
15. DECREASE OF QUANTITIES AND TERMINATION OF PRODUCTION
Buyer may decrease the total quantity of the VLUs he has undertaken to
purchase under Section 1.1 above under the following conditions:
15.1 Buyer must give Seller prior written notice of Buyer's election to
decrease the quantities of VLUs to be delivered under this Agreement
("Decrease Notice"). Notwithstanding the above, Buyer may not
decrease the [****] Order.
17
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
15.2 Should the consequences of Decrease Notice require any changes in
overall delivery schedule, the Parties shall determine a new delivery
schedule by mutual consent. In any event the quantities of the VLUs
to be supplied after the Decrease Notice shall be more than the
quantities scheduled to be supplied within 4 months following the date
of the Decrease Notice.
15.3 Buyer shall compensate Seller in the amount of US$[****] per each VLU,
canceled in accordance with Sub-sections 15.1 and 15.2 above.
15.4 Buyer may give Seller Decrease Notice of cancellation of all further
deliveries, and, in such case, Buyer shall cover the following costs:
a. [****]% of the total price of the VLUs shipped prior to the
Decrease Notice;
b. [****]% of the total price of the ordered VLUs planned to be
shipped during 30 days immediately following the date of the Decrease
Notice;
c. [****]% of the total price of the ordered VLUs planned to be
shipped within 30-60 days from the date of the Decrease Notice;
18
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
d. [****]% of the total price of the ordered VLUs planned to be
shipped within 60-90 days from the date of the Decrease Notice;
e. US$ [****] per each VLU related to the order canceled as a result
of this termination of production.
"Planned to be shipped" shall be interpreted in accordance with the
last update of the monthly delivery rate.
In such case all inventory becomes the property of Buyer, including
all parts and partly completed units. Seller shall ship same (at
Buyer's expense) to a destination requested by Buyer.
16. BINDING MEDIATION
16.1 If one or more disputes arise between the parties with respect to the
obligations and responsibilities of either party under this Agreement, any
such dispute shall be resolved in accordance with the process described in
this Section 16, provided, however, that if either party determines that
provisional relief (e.g. a temporary restraining order or preliminary
injunction) is required to provide temporary relief, nothing herein shall
prevent the aggrieved party from applying to a court for provisional
relief. An application for provisional relief to a court shall not relieve
either party of its obligation under this
19
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
Section 14 and shall not alter the power of the mediator to determine the
rights and obligations of the Parties under this Agreement.
16.1.1 Either party may initiate the dispute resolution process by sending a
written notice (which the parties hereby agree will automatically toll
any applicable statute of limitations) of the alleged dispute and the
alleged wrong suffered, to the members of the Dispute Resolution
Committee, consisting of the following individuals at Seller and Buyer
or their successors, who shall be persons holding positions at a level
substantially equivalent to those named ("Dispute Committee"):
SELLER BUYER
------ -----
General Manager The Chairman of the Board
Telematics Division
16.1.2 Upon receipt of any such notice, the Dispute Committee, using all
available and relevant resources of their respective companies, shall
promptly investigate the facts and circumstances surrounding the
disputes and shall meet (either in person or by telephone) to attempt
to resolve the dispute. Any resolution reached, either informally or
in such a meeting, shall be committed to writing and signed by the
Dis-
20
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
pute Committee and communicated to the appropriate management of the
parties for implementation. This resolution shall be conclusive and
binding upon the parties.
16.1.3 If a dispute is not resolved by the Dispute Committee, any party may
pursue its action as set forth in Section 16.2 below.
16.1.4 Each of the parties specifically acknowledges and agrees that remedies
at law for any breach of this Agreement would be inadequate, and that
the parties, in addition to any other relief available, shall be
entitled to specific performance of all of the provisions of this
Agreement.
16.2 Within 5 days after the Dispute Committee has failed to resolve any
dispute, the parties shall meet to discuss and agree upon the
qualifications which they desire a mediator to possess.
Any party may suggest one or more candidates to fill the position of
mediator.
The parties shall then attempt to select a mutually acceptable
candidate.
16.2.1 Once a candidate has been agreed upon by the parties, the candidate
shall be invited to serve as the mediator. If the candidate declines
to do so, the parties
21
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
shall meet or confer again to select another qualified candidate.
This process shall be repeated until a mediator is selected and agrees
to serve. If, however, after 30 days, the parties are unable to agree
upon a mediator, the mediator shall be selected by the President of
the New York Arbitration Association, whose selection shall be binding
upon the parties.
16.2.2 During the selection and mediation processes, each party shall
disclose to the other party any circumstances known to it which would
create any reasonable doubt about the impartiality or neutrality of an
individual who is being considered as a potential mediator or who is
serving as the mediator. The candidate or mediator may be asked to
explain such circumstances and be required to disclose any information
which would constitute grounds for doubt as to the candidate's or the
mediator's impartiality or neutrality. If any such circumstances have
been disclosed, either before or after the individual's appointment as
mediator, the candidate or mediator shall not serve or continue to
serve unless both parties agree.
16.2.3 The mediator's compensation rate shall be determined and agreed upon
at or prior to the mediator's appointment. The mediator's
compensation and all other inci-
22
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
dental costs incurred during the mediation process will be shared
equally by the parties.
16.2.4 The mediator shall be neutral and impartial and shall use the laws of
the State of New York to resolve the dispute between the parties.
16.2.5 The mediator shall control the procedural aspects of the mediation.
The parties shall cooperate fully with the mediator at all times.
16.2.6 The mediator is free to meet and communicate separately with each
party.
16.2.7 The mediator shall, in consultation with the parties, fix the agenda
for all meetings.
16.2.8 Each party may be represented by counsel, who shall be authorized to
recommend settlement options to their principals.
16.2.9 The mediation process shall be conducted expeditiously and shall be
completed in less than 120 days from the date the mediator was
selected. Each representative shall make every effort to be available
for meetings, and the mediator shall ensure that he is able to devote
all the time necessary to quickly and effectively mediate the dispute.
16.2.10 The entire mediation process shall remain confidential. The parties
or the mediator shall not disclose
23
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
information regarding the process, including settlement terms, unless
the parties agree otherwise. The mediator may obtain assistance and
independent expert advice with the agreement of and at the expense of
the parties.
16.2.11 The mediator shall not be liable for any good faith act or omission in
connection with his role as mediator.
16.2.12 The mediation shall take place in New York City.
16.2.13 The mediator's decision shall be final and binding upon both parties.
17. NEW YORK LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York as the same or any succeeding provision of
law may be in effect from time to time. For the purposes of any dispute
between the parties, this Agreement shall be construed as if all parties
were resident and doing business in New York. If there are any ambiguities
in the Agreement, such ambiguities shall not be construed against either
party on the basis of who drafted the documents.
24
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
18. MISCELLANEOUS PROVISIONS
18.1 RELATIONSHIP OF PARTIES. This Agreement does not constitute and shall not
be construed as constituting a partnership or joint venture between The
Parties. Neither party shall represent that it is an agent for the other
party. Both parties acknowledge that the relationship of Seller and Buyer
shall be and at all times remain one of an independent contractor, and so
shall represent themselves to third parties. Neither party has the right
to bind the other in any manner.
18.2 SUCCESSORS. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective executors, heirs, legal
representatives, successors and assigns.
18.3 ASSIGNMENT. Parties shall not assign, transfer or sell any of their rights
hereunder to any third party without the prior written permission of the
other Party, which permission shall not be unreasonably withheld; provided,
however, that Teletrac may assign this agreement, without the permission
from Tadiran, as part of sale or transfer of all or substantially all of
its assets and business. Notwithstanding the above Tadiran may assign this
agreement to its subsidiary created as part of a corporate reorganization,
provided Tadiran shall guarantee the performance of such
25
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
subsidiary. No rights hereunder shall devolve by operation of law or
otherwise upon any assignee, receiver, liquidator, trustee or other party.
The VLUs delivered hereunder shall be manufactured only by Tadiran Ltd.,
its legitimate assigns or Tadiran LTD's subcontractors.
18.4 NO WAIVER. Failure of either party to insist upon strict performance of
any of the terms, conditions, provisions or Specifications within this
Agreement (including the exhibits), or the delay in exercising any of its
remedies, shall not constitute a waiver of such terms conditions,
provisions or Specifications or a waiver of any default thereof nor the
remedy of such default.
18.5 SURVIVAL OF OBLIGATIONS. Each party's obligations under this Agreement
which, by their nature, would continue beyond termination or expiration of
this Agreement, including by way of illustration only and not limitation,
Section 4 or any Section related to confidentiality, warranty and
indemnification, shall survive termination or expiration of this Agreement
by either party for any reason.
18.6 ENTIRE AGREEMENT. This Agreement, together with all exhibits hereto,
constitute the entire agreement and understanding between the parties as to
the subject matter of this Agreement, and supersedes all previous
communications,
26
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
representations or agreements. Any other document issued by Buyer shall be
deemed to be issued only for administrative convenience and no term or
condition thereof, including any purchase order, shall supersede the terms
and conditions of this Agreement.
18.7 REMEDIES. Except as specifically set forth in this Agreement, all remedies
available to either party for breach of this Agreement are cumulative, and
may be exercised concurrently or separately, and the exercise of any one
remedy shall not be deemed an election of such remedy to the exclusion of
other remedies.
18.8 HEADINGS. The paragraph headings used in this Agreement are for
convenience of reference only, and shall not in any way limit or amplify
the terms and provisions hereof, nor enter into the interpretation of this
Agreement.
18.9 BINDING AGREEMENT. The persons executing this Agreement on behalf of the
parties have been duly and validly authorized to do so, and this Agreement
is a valid and binding obligation of the parties.
18.10 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which shall constitute
one and the same Agreement.
27
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
18.11 SEVERABILITY. If any term of this Agreement shall be unlawful, void
or unenforceable, such term shall be deemed omitted to the extent
prohibited or invalid, but the remainder of this Agreement shall not
be invalidated and shall be given effect as far as possible. If any
term hereof is found by a court or arbitrator to be over-broad, such
term shall be limited to the extent required to make it enforceable.
18.12 MODIFICATION. This Agreement may not be modified, supplemented or
otherwise changed except by a written instrument executed by both
parties.
18.13 ATTORNEY'S FEES. If any action or proceeding (judicial or
non-judicial) is brought to interpret any term or provisions of this
Agreement, the prevailing party shall be entitled to costs and
reasonable attorney's fees in addition to any other relief to which it
is entitled.
28
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE SIGNED THIS
AGREEMENT AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
TELETRAC INC.
By /s/ James A. Queen
-----------------------------
TADIRAN LTD.
By /s/ Eddy Kafry
-----------------------------
28
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
VLU AGREEMENT
EXHIBIT A
SPECIFICATIONS
[****]
30
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
VLU AGREEMENT
EXHIBIT B
TERMS OF PAYMENT
1. A combination of a downpayment and a Standby Letter of Credit will be
provided.
[****]
2. The payment for the delivered VLUs will be made upon shipment.
31
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
VLU AGREEMENT
EXHIBIT C
DELIVERY SCHEDULE
The following is a projected delivery schedule for VLUs:
October 1996 [****]
November 1996 [****]
December 1996 [****]
January 1997 [****]
February 1997 [****]
March 1997 [****]
April 1997 [****]
May 1997 [****]
June 1997 [****]
July 1997 until completion [****]
A final "Baseline Schedule" will be summarized not later than October 10, 1996.
In any event, the minimum quantities to be delivered will be as follows:
October 1996 [****]
November 1996 [****]
December 1996 [****]
January 1997 [****]
February 1997 [****]
March 1997 [****]
April 1997 [****]
May 1997 [****]
32
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
June 1997 [****]
July 1997 until completion [****]
33
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
Exhibit 10.2
Amendment
to VLU Production Agreement
This Amendment to VLU Production Agreement dated September 6, 1996
("Amendment") is made as of May 28, 1997 by and between Tadiran Ltd. ("Seller"
or "Tadiran") and Teletrac Inc. ("Buyer" or "Teletrac").
Whereas, due to interference with proper function of the VLU caused by
unrelated third parties (the "Interference"), Specifications of the VLU Exhibit
"A" to the Agreement have to be modified; and
Whereas, in order to resolve the above problem, Teletrac requested
Tadiran, in accordance with the Agreement, to change the Specifications of the
VLU and develop a modified VLU (the "Modified VLU"); and
Whereas, the Parties wish to cooperate in order to resolve the above
problem.
The Parties hereby agree as follows:
1. Terms used in this Agreement shall have the same meaning as
defined in the Agreement.
2. Based on data and information provided by Teletrac and
independently confirmed by Tadiran, Tadiran shall make all
reasonable efforts to develop a Modified VLU which shall provide
technical solution to the Interference. Joint teams of Tadiran
and Teletrac (the "Joint Team") shall cooperate in definition of
the changes. Upon development of the Modified VLU the Joint Team
shall perform laboratory and field tests in order to determine
the suitability of the technical solution. Should the solution
be found acceptable, it shall be approved by the Joint Team.
3. The Parties hereby acknowledge that the above development shall
require joint efforts of both Parties. If the proposed technical
solutions are not successful, despite their efforts, the Parties
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
shall coordinate further steps in order to resolve the problem of
Interferences.
4. Upon approval of the Joint Team, the Specifications shall be
changed in writing in accordance with the approved technical
solution (the "Revised Specifications"), which shall be signed by
both Parties. The Parties hereby undertake to make reasonable
efforts to approve the Revised Specifications and to instruct
their members of the Joint Team to promote the approval of the
technical solution in the speediest and most efficient manner.
5. Upon approval of Revised Specifications, Tadiran shall submit to
Teletrac a proposal for retrofit costs (excluding R&D) and for
adjustment of the price for all new VLU Units to be ordered under
the Agreement.
5.1. It is hereby agreed that the retrofit costs shall not exceed
US $**** per Unit if **** has to be replaced and US $****
per Unit, if **** have to be replaced. The Parties shall
add the retrofit costs to the VLU price defined in the
Agreement for all retrofit Units.
5.2. It is hereby agreed that the price for all new VLU Units to
be ordered under the Agreement shall be adjusted but shall
not exceed US $**** per Unit, if **** has to be replaced or
US $**** per Unit, if **** have to be replaced.
5.3. The above "not to exceed" estimates are based on assumption
that the cost of **** to Tadiran shall not exceed US $****.
If the cost of **** exceeds US $****, the difference shall
be added to the above "not to exceed" estimates.
5.4. As soon as production facilities could be readjusted and the
prices be agreed upon (the "Modification Effective Date"),
all Units ordered under the Agreement shall be Modified VLUs
and manufactured in accordance with the Revised
Specifications.
2
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
6. In order to preserve the production capacity established under
the Agreement and within the framework of mutual cooperation, the
Parties hereby agree to the following changes in the on-going
production of the VLUs:
6.1. from the date of execution of this Amendment until
Modification Effective Date, the VLU's shall be manufactured
without components which require modification and without
final acceptance tests. These VLUs shall be delivered to
bonded warehouse in Thailand and upon such delivery the
title to these VLUs shall pass to Teletrac ("Warehouse
VLUs"). Tadiran represents and Teletrac shall have the
right to verify that the storing conditions in the bonded
warehouse are adequate. Teletrac shall have the right to
inspect the bonded warehouse from time to time.
The cost of storage and insurance premium for the duration
of the storage in the bonded warehouse (up to four months)
shall be paid by Tadiran. If by the end of the four-month
period the Revised Specifications have not been approved,
Tadiran shall complete the manufacture of the Warehouse VLUs
and shall ship them to Teletrac, unless the Parties agree to
continue their joint development effort.
6.2. Starting with the Modification Effective Date, all Warehouse
VLUs shall be modified according to Revised Specifications
and delivered to Teletrac in accordance with the Agreement
at a minimum monthly rate of **** Units a month (in addition
to regular deliveries as per section 6.3 below). Warranty
for Warehouse VLUs shall begin upon actual delivery to
Teletrac in accordance with the Agreement.
6.3. For the duration of the development of the Modified VLUs
until Modification Effective Date, the monthly delivery rate
defined in the Agreement may be decreased to **** VLUs. For
the purpose of determination of the monthly delivery rate,
delivery to the bonded
3
<PAGE>
[****Deleted Pursuant to a Request for Confidential Treatment.]
warehouse shall be considered a "delivery." On Modification
Effective Date the monthly delivery rate of regular
deliveries shall be raised to a minimum of **** Units a
month.
6.4. Notwithstanding the above, it is hereby agreed that payments
for Warehouse VLUs shall be made in the following manner:
****% of the payment due for each delivery shall be paid
upon delivery to the bonded warehouse and the other ****%
plus retrofit costs shall be paid upon shipment of the
Modified VLUs in accordance with the Agreement. For
avoidance of doubt these terms of payment shall apply to
Warehouse VLUs only and terms of payment for any other VLUs
shall be in accordance with the Agreement.
The Letter of Credit issued under the Agreement in favor of
Tadiran shall apply to all payments under the Agreement and
under this Amendment.
7. All other provisions of the Agreement unless amended specifically
herein shall remain intact and Teletrac shall remain importer of
record of all VLUs and Modified VLUs.
/s/ Alan B. Howe /s/ Eddy Kafry
- ------------------------------ ----------------------------------
Teletrac Tadiran
Alan B. Howe Eddy Kafry
Vice President - Finance and President and CEO Tadiran
Corporate Development Telematics
4
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
Exhibit 10.3
MOBILE DATA TERMINAL
PURCHASE AGREEMENT
This Mobile Data Terminal Purchase Agreement (this "Agreement") by and
between Teletrac Inc., 7391 Lincoln Way, Garden Grove, California 92641
("Teletrac") and Micronet Ltd., 7 Hashalom Road, Tel-Aviv, Israel 67892
("Micronet"), is made effective as of the 8th day of February, 1996. The
parties hereby agree as follows:
1. AGREEMENT TO PURCHASE AND SELL.
1.1 SALE OF PRODUCTS. Teletrac shall purchase from Micronet a minimum of ****
Terminals, and Micronet shall sell to Teletrac a minimum of **** Terminals, on
the terms set forth herein and on the attached purchase order #****. Terminals
are defined as Micronet's production level Net-950 Mobile Data terminals. The
description and technical, engineering, and operational specifications for the
Terminals and the protocol (the "Specifications") are set forth in Appendix "A",
all of the terms of which are incorporated herein by this reference. Micronet
shall imprint serial numbers (including bar coded serial numbers) on the back
panel of each Terminal, and shall print, in white, "Net-950" on each Terminal.
1.2 INITIAL ORDER. Teletrac hereby places a firm and irrevocable order for
**** Terminals from Micronet (the "Initial Order"), all of which will be
purchased in accordance with the terms and conditions of this agreement.
1.3 SUBSEQUENT ORDERS. After the Initial Order for **** Terminals ordered
hereunder have been purchased, orders for additional Terminals shall be in
writing and shall specify arrival dates of not less than 10 weeks from delivery
of the order to Micronet. Micronet may, by written notification delivered to
Teletrac within 10 working days of Micronet Receipt of a subsequent order, elect
not to fill the subsequent order. If Micronet does not notify Teletrac of its
election to not fill the subsequent order, the order shall be filled as
described in this paragraph 1.3 and in accordance with the other terms of this
Agreement. All subsequent orders shall be for at least **** Terminals per
order. The prices set forth in paragraph 3.1 shall apply to subsequent orders,
but shall be subject to an annual increase on each anniversary of the effective
date of this Agreement, in an amount
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
equal to the increase in the U.S. Consumer Price Index ("CPI") over the prior
12-month period. Micronet shall use its reasonable efforts to expeditiously
fill subsequent orders.
1.4 PURCHASE ORDERS. Purchase orders will be issued by Teletrac for purposes
of administration of delivery and quantity schedules. No term or condition of
any purchase order shall supersede the terms and conditions of this agreement.
In the event of any conflict between the terms of any purchase order and this
Agreement, the terms of this Agreement shall control. Micronet shall promptly
honor and fulfill all purchase orders in accordance with the terms and
conditions of this Agreement.
2. QUALITY CONTROL.
2.1 DEVELOPMENT. Micronet acknowledges and agrees that Teletrac is not a
participant in the development of the Terminals and is not liable for the
design, any design defects, product liability, strict liability (i.e, liability
without fault), or failure of the Terminals to meet the Specifications.
2.2 TEST UNITS. Teletrac acknowledges that it has been supplied **** test
units and that it has tested these units and found them acceptable and
conforming to the specifications and that the plastics and graphics are also
acceptable. Teletrac confirms that Micronet may proceed with production units
based on these test units. The test units shall be included in the count of
Spare terminals as defined in Paragraph 5.2.
2.3 ACCEPTANCE/REJECTION OF TERMINALS. Within two weeks of receipt, Teletrac
shall inspect all incoming Terminals (each shipment of Terminals shall be
referred to as a "Lot") to insure compliance with the Specifications. Teletrac
may reject the total lot received (if more than ****% of the Lot does not comply
with Specifications), or portions of the Lot, as to those Terminals that do not
comply with Specifications. Teletrac shall inspect Terminals on a sampling
basis. Rejected Terminals shall be promptly returned to Micronet; provided,
however, that rejected Terminals shall be Held so that they can be shipped in
bulk, and will be shipped to Micronet not more frequently than once per month.
Micronet shall bear all costs of freight, duty, insurance and other costs
incurred in returning the Terminals to Micronet and shipping new Terminals to
replace the rejected Terminals to Teletrac. Micronet acknowledges and agrees
that timely receipt of conforming Terminals is critical to Teletrac and that
Teletrac shall suffer severe damages if substantial numbers of Terminals are
non-conforming. The parties recognize that the full impact of such breach would
be very difficult to assess and it would be difficult to fix the actual amount
of damages. Therefore, to avoid possible disputes, the parties agree that if
more than
2
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
****% of a Lot is rejected and returned, Micronet shall pay to Teletrac
liquidated damages of US $**** per rejected Terminal per day beginning after the
tenth day following Micronet's receipt of each non-conforming Terminal unit
replaced. This amount shall be invoiced and paid by Micronet within 30 calendar
days of receipt of invoice. If not paid by Micronet, the amount shall be
applied against monies owed for Terminals. The amount established under this
paragraph for liquidated damages represents a reasonable attempt by the parties
to state an amount that bears a reasonable relationship to actual damages and
does not constitute a penalty. Notwithstanding anything in this paragraph to
the contrary, Teletrac shall specify the reasons for the rejection and give
Micronet an opportunity to discuss the rejection prior to imposition of the
liquidated damages described in this paragraph.
3. PAYMENT.
3.1 PRICE. The purchase price for each Terminal (including bracket and screws)
shall be U.S. $**** per unit (the "Purchase Price"). The Purchase Price
includes packaging, export duties, Israeli taxes, and handling costs. Except as
otherwise provided herein, Teletrac is responsible for insurance and shipping
costs and shall select the carrier. Teletrac is also responsible for import
duties and U.S. taxes, provided that Micronet includes with each shipment a
"Country of Origin Certificate (Form A)".
3.2 INVOICING. Invoices for Terminals shall contain, at a minimum, the
Purchase Price in U.S. dollars, purchase order number, invoice date, quantity,
description, invoice number, reference to this Agreement, ship to name and
address, remit to name and address and method and name of carrier.
3.3 TERMS OF PAYMENT.
DOWN PAYMENT. Teletrac, by Bank wire transfer, shall make a down payment
to Micronet's account in the amount of U.S. $**** within 4 business days of the
effective date of this Agreement. Micronet shall Invoice Teletrac for this
amount. The down payment shall be applied towards the last shipment payment.
Payments for all other shipments, as per paragraph 4 below, will be made by wire
transfer immediately prior to each delivery.
4. SHIPMENT.
4.1 SHIPMENT TERMS. Unless Teletrac notifies Micronet otherwise, as provided
in Paragraph 12.2, Teletrac hereby orders **** Terminals to be shipped to
Teletrac's facility described in paragraph 4.3, on the dates set forth in the
following Shipment Schedule:
3
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
- ------------ ------------- ------------------------------------------------
Number of Terminal Date shipped to Teletrac Facility
Terminals Type
- ------------ ------------- ------------------------------------------------
**** Net-950 Within 35 calendar days after effective date.
**** Net-950 Within 14 calendar days thereafter
**** Net-950 Within 60 Calendar days thereafter
- ------------ ------------- ------------------------------------------------
NOTE:
Micronet is allowed to accelerate shipments without limitation on quantities and
Teletrac is owed to payment terms as specified in Paragraph 3.3 above.
Shipment dates are conditional on Teletrac complying on time with payment terms
of paragraph 3.3 above.
4.2 LATE DELIVERIES. Micronet acknowledges and agrees that time is of the
essence in shipment of the Terminals and Teletrac shall suffer severe damages if
conforming Terminals are not shipped in accordance with the Shipment schedule.
The parties recognize that the full impact of such a breach would be very
difficult to assess and it would be difficult to fix the actual amount of
damages. Therefore to avoid possible disputes the parties agree that if the
shipment schedule slips by more than 15 working days due to Micronet's failure
to ship conforming Terminals, a late charge of U.S. $**** per terminal per
working day shall be imposed until the breach is cured; provided, however,that
the late charges for orders shipped under the Initial Order shall not exceed
$****.
The late charge will be invoiced by Teletrac and paid by Micronet within 30
calendar days of date of invoice. If not paid by Micronet, the amount shall be
applied against monies owed for terminals.
The amount established under this paragraph for liquidated damages represents a
reasonable attempt by the parties to state an amount that bears a reasonable
relationship to actual damages and does not constitute a penalty.
4.3 RESCHEDULING SHIPMENT DATES
Teletrac allows Micronet to accelerate shipment dates and to deliver
Teletrac bigger quantities than those stipulated in Paragraph 4.1 above.
4
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
4.4 FOB POINT. All Terminals are F.O.B Ben-Gurion Airport, Israel, unless
Teletrac notifies Micronet that Terminals are to be sent by ship rather than
air. Shipment address is Teletrac location at 7391 Lincoln Way, Garden Grove,
California 92641.
4.5 TITLE, RISK OF LOSS, INSURANCE. Title to the Terminals and risk of loss or
damage shall pass from Micronet to Teletrac upon Micronet's delivery to the
carrier at the F.O.B. point.
4.6 METHOD OF SHIPMENT. Micronet shall at its sole expense, provide for all
crating, packaging and packing in shipping containers that are designed to
provide adequate protection for the Terminals during shipping. Each Terminal is
to be bundled with its necessary bracket and screws and washers, appropriately
protected. Terminals shall be packaged in bulk in quantities of up to 50.
5. WARRANTY AND SERVICE TERMS.
5.1 WARRANTY TERMS. Micronet hereby warrants the Terminals to be in full
compliance with the Specifications and to be free from defects in workmanship
and materials (the "Warranty") for the shorter of two years from the date of
arrival at Teletrac's facility or one year after the Terminals have been
delivered by Teletrac to a third party customer ("the warranty period").
Teletrac will provide Micronet with monthly reports containing the serial
numbers of all terminals delivered to customers during the preceding month.
Micronet also warrants the merchantability and fitness for use of the
terminals. Terminals that are repaired or replaced during the Warranty Period
shall be warranted for the longer of the period of time remaining under the
original warranty period or 90 working days. Micronet hereby (a) consents to
Teletrac's right at Teletrac's option to assign the warranty, or the
remaining portion thereof, to Teletrac's customers, and (b) agrees to perform
the obligations described in this paragraph 5 for the benefit of such
customers. During the Warranty Period Micronet shall bear all out of pocket
costs to repair or replace defective Terminals, including, without
limitation, all costs of returning the Terminals to Micronet and shipping
repaired or replaced Terminals to Teletrac.
5.2 PROCEDURES. Micronet shall, at its cost, manufacture and ship to Teletrac,
with the first shipment, **** additional terminals. These along with the ****
approved test units will serve as "Spare Terminals". Teletrac shall as
necessary, replace defective Terminals with Spare Terminals, or replace parts
from the Spare Terminals, accumulating the defective Terminals until the earlier
of (a) 10 defective Terminals are being held, or (b)
5
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
3 months have passed since Teletrac's last shipment of defective Terminals to
Micronet. Teletrac will then notify Micronet by FAX of the number of defective
Terminals it will ship to Micronet. Within 3 working days of receipt of
Teletrac's FAX stating the number of defective Terminals being shipped, Micronet
shall (a) provide Teletrac a Return Material Authorization ("RMA") number by FAX
and (b) ship to Teletrac's California facility an equal number of replacement
Terminals to be used as Spare Terminals. Spare Terminals will not be used for
any purpose other than as replacement for defective Terminals. The procedures
described in this paragraph shall apply to service during the Warranty and
thereafter, except that post-warranty repairs will be subject to the charges
described in paragraphs 5.5 and 5.6 below. RMA numbers must be used in all
correspondence with Micronet and must be clearly marked on all packages and
boxes shipped to Micronet. Defective Terminals shall be sent to:
MICRONET LTD
7 HASHALOM ROAD
TEL-AVIV, ISRAEL 67892
Or if after May 1st 1996 to:
MICRONET LTD
IRIS BUILDING, 27 HAMETZUDA ST
AZUR, ISRAEL 58001
5.3 TIME OF REPAIR OR REPLACE. If the number of defective Terminals exceeds
the number of Spare Terminals held by Teletrac, the additional defective
Terminals shall be repaired or replaced by Micronet within 14 working days, plus
transit time from Micronet to Teletrac, from the date the defective Terminals
are delivered to Micronet. Micronet acknowledges and agrees that time is of the
essence in Teletrac's receipt of repaired or replaced Terminals.
5.4 FAILURES. The failure rate will be considered too high if it exceeds any
of the following: (a) ****% of the units in a single shipment fail the
acceptance tests; (b) ****% (cumulative) delivered within a 12 month period
fail the acceptance tests; or (c) ****% of the units delivered to customers
and in warranty do not function in full compliance with the specifications.
Malfunctions falling under the limitations in section 5.8 shall not be
counted as failures. If the failure rate is too high Micronet shall use its
best efforts to make required engineering or production changes as promptly
as possible to prevent the continued occurrence of such failures. Teletrac
may require a total recall of Terminals if such step is appropriate.
Micronet shall
6
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
not be liable for consequential damages or lost profits or loss of business
opportunity by a third party customer.
5.5 POST-WARRANTY REPAIR. For 12 months following the termination of the
Warranty Period, Terminals shall be repaired for U.S. $**** per hour. Parts
shall be billed at Micronet's then prevailing rates. After this 12 month
period, parts and labor shall be charged at Micronet's then prevailing rates,
not to exceed the annual increase in the U.S CPI over the prior 12-month period.
Repaired Terminals shall be in full compliance with the Specifications and will
be free from defects in material and workmanship for 90 working days from the
date the repaired Terminals or Replacement Terminals have been delivered to
Teletrac or to Teletrac's customer.
5.6 FREIGHT AND OTHER COSTS AFTER WARRANTY PERIOD. After the Warranty period,
Teletrac shall bear all costs of shipping defective Terminals to Micronet and
cost of returning the repaired or replaced Terminals to Teletrac or Teletrac's
customer. Teletrac is responsible, on its own or through a qualified
independent contractor, for installation, deinstallation, and reinstallation of
all Terminals after the Warranty Period.
5.7 CONTINUING AVAILABILITY AND CORRECTIONS. Micronet shall, for a period of
five years from the effective date of this Agreement, maintain a repair facility
in Tel-Aviv or another location that is no more costly to ship to and will
require no longer transit periods than the Tel-Aviv facility and shall for the
same period, maintain service and repair capability, including spare parts
availability. Upon the termination of the Warranty Period, Micronet shall, at
its cost, perform the following services for a period of two years and six
months from the effective date of this Agreement: (a) correct any original
design or manufacturing defects that were not detected prior to shipment of the
production Terminals if such defects can be corrected on a reasonable basis; and
(b) correct any firmware defects within 30 days of notification of such defects.
Micronet shall, for a period of 5 years from the effective date of this
agreement, correct other defects in the Terminals (including the firmware) and
work with Teletrac on modifications and enhancements to the design and
performance of the Terminals (including the firmware) at the presently existing
hourly rate for Micronet's personnel, plus an annual percentage increase equal
to the increase in the U.S. CPI over the prior 12-month period. The terms of
this Paragraph 5 shall survive the termination of this agreement.
5.8 LIMITATIONS ON WARRANTY. This warranty shall not apply to Terminals which
have been subject to accident, improper storage, mishandling, unauthorized
alteration, misuse, vandalism, neglect or which have not been properly installed
or maintained.
7
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
6. TELETRAC'S NAME AND TRADE MARKS.
Micronet shall not print or use the Teletrac name, logo, or other trade marks,
service marks, trade names, or similar indicia which Teletrac owns or becomes
licensed or sub-licensed to use (the "Teletrac Marks"). Micronet acknowledges
that Teletrac is the owner of the Teletrac Marks and that Micronet has no
interest in or right to use the Teletrac Marks.
7. NO CONSEQUENTIAL DAMAGES.
Without affecting Micronet's right to claim ordinary damages for Teletrac's
breach hereunder, in no event shall Teletrac be liable for incidental,
consequential or special damages, including, without limitation, frustration of
economic or business expectations, loss of profits, or loss of sales, arising
under or related to this Agreement or by reason of Teletrac's purchase or
failure to purchase Terminals hereunder.
8. INDEMNIFICATION
8.1 MICRONET'S INDEMNIFICATION FOR ACTIONS. On demand, Micronet shall
indemnify, defend and hold harmless Teletrac and each corporation, partner,
affiliate, subsidiary, parent, joint venture, officer, agent, employee,
director, shareholder, representative, successor and assign of Teletrac
(collectively, the "Indemnified Teletrac Parties") from and against all claims,
liabilities, obligations, damages, losses, deficiencies, costs, payments and
expenses (including, without limitation, court costs and reasonable attorney's
fees), lawsuits, actions and other proceedings, judgments and awards
(collectively, "Claims") including without limitation claims of personal injury
and death (a) to the extent that such Claims result from or arise directly or
indirectly, out of any act or omission of Micronet, or Micronet's agents or
employees, in connection with this Agreement or services provided hereunder, and
(b) any Claims that arise out of the failure of Micronet's Terminals, including,
without limitation, Claims of product liability, strict liability, design
defect, or third party Claims of breach of Warranty (collectively, "Product
Claims"); provided, however, that Micronet shall not indemnify Teletrac for
Claims that arise out of the failure of Teletrac's installation, radiolocation
system or services.
8.2 TELETRAC'S INDEMNIFICATION. On demand, Teletrac shall indemnify, defend
and hold harmless Micronet and each corporation, partner, affiliate, subsidiary,
parent, joint venture, officer, agent, employee, director, shareholder,
representative, successor and assign of Micronet from and against all Claims,
including, without limitation, Claims of personal injury and death (a) to the
extent that such Claims result from or arise,
8
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
directly or indirectly, out of any act or omission of Teletrac, or Teletrac's
agents or employees, in connection with this Agreement or services provided
hereunder; provided, however, that Teletrac shall not indemnify Micronet for
Product Claims, or Claims that arise out of the failure of Micronet's Terminals.
8.3 PROPRIETARY RIGHTS INDEMNIFICATION. On demand, Micronet shall indemnify,
defend and hold harmless, Teletrac from and against any Claims resulting or
arising from or in connection with the violation or infringement of any third
party's trade secrets, proprietary information, trademarks, copyrights or patent
rights ("Proprietary Rights Claims") in connection with services, work or
Terminals provided by Micronet under this agreement; provided, however, that
Micronet shall not be required to indemnify Teletrac against any Proprietary
Rights Claims from third parties arising out of Specifications provided by
Teletrac. If Teletrac is enjoined or otherwise prevented by any administrative
or legal order from using or selling the Terminals due to such a violation or
alleged violation, Micronet shall take such action as is necessary to clear the
infringement claim, as follows:
(a) Replace the Terminals, without additional charge, with a compatible,
functionally equivalent and non infringing product;
(b) Modify the Terminals to avoid the infringement;
(c) Obtain a license for Micronet's continued use of the Terminals and pay any
fee required for such license; or
(d) If none of the foregoing alternatives is available despite Micronet's best
efforts, Micronet shall repurchase such Terminals from Teletrac at the price
Teletrac paid Micronet, and Teletrac shall sell such Terminals to Micronet at
such price, without waiving any other rights, remedies or claims for damages
Teletrac may have at law, in equity or under this agreement.
8.4 SURVIVAL. The parties' obligations to indemnify as described in this
Paragraph 8 shall survive the expiration or termination of this Agreement by
either party for any reason.
8.5 COOPERATION. Each party agrees to promptly notify the other of any Claim
and to cooperate fully in the defense thereof or any negotiations related
thereto, and neither shall enter into any settlement without the consent of the
other party.
9. RIGHTS AND OBLIGATIONS
9.1 NON INFRINGEMENT. Micronet represents that it owns or has the right to use
(and Teletrac hereby grants to Micronet the
9
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
right to use, for the purpose specified herein, Teletrac's Specifications) all
technology, know how, copyright, trademark, patent, and intellectual property
rights used in producing the Terminals or as are otherwise necessary to
consummate the transactions contemplated by this Agreement.
9.2 MICRONET'S DESIGN RIGHTS.
(a) Teletrac shall not duplicate or reverse engineer Micronet's proprietary
circuitry, firmware, software, or circuit diagrams used in the design and
manufacture of the Terminals ("Micronet's Design"). Micronet acknowledges that
Micronet's Design does not include Teletrac's Specifications, which are the
proprietary property of Teletrac.
(b) Teletrac shall not provide a Terminal to any third party manufacturer for
purposes of duplicate or reverse engineering Micronet's Design. Micronet
acknowledges that Teletrac has no control over the conduct of any third party
manufacturer or other party and is not liable therefor.
(c) Teletrac shall not provide to a third party manufacturer copies of
correspondence or documentation written or prepared by Teletrac and provided to
Micronet in connection with Micronet's design. Teletrac may distribute its
Specifications.
(d) Teletrac shall not provide to a third party manufacturer copies of
correspondence or documentation (including mock-ups, designs, diagrams, charts,
and reports) written or prepared by Micronet and provided to Teletrac in
connection with Micronet's Design; provided, however, that Teletrac may
distribute materials intended for use by installers, service providers, and end
users (including service manuals installation documents, and manuals intended
for product and users).
10. INSURANCE. At all times during the term of this agreement, Micronet, at
its sole expense, shall maintain in full force and effect a policy of commercial
general liability insurance, including coverage against claims for Bodily
Injury, Personal Injury, Property Damage and Advertizing Injury caused by or
occurring in conjunction with the operation of Micronet's business including all
activities authorized or required to be performed under this Agreement. Such
insurance coverage shall designate ATT and its agents, employees, general
partners, officers and directors as Additional Insureds and shall be maintained
under one or more policies of insurance from an insurance company(s)
satisfactory to Teletrac and shall provide a minimum liability protection of
$**** per occurrence for bodily and personal injury or death, $**** per
occurrence for property damage and $**** per occurrence for product liability.
Micronet
10
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
shall give Teletrac prompt written notice of any material modification,
cancellation/ or non-renewal of any insurance required by this agreement.
Teletrac may terminate this Agreement immediately without notice to Micronet if
any insurance required by this Agreement is canceled.
11. NOTICES
Any notice, request or demand required to be made or given hereunder by any
party must be in writing and shall be deemed to be duly given or made one day
after it has been sent by air courier; upon telephonic confirmation of receipt
if sent by fax; or ten days after it was mailed if mailed by prepaid, registered
or certified mail addresses of the parties set forth below, or at such other
address as has been given by either party to the other in writing in accordance
with the terms of this Agreement.
TELETRAC INC.
7391 Lincoln Way
Garden Grove, CA 92641
MICRONET LTD
7 HASHALOM ROAD
TEL-AVIV, ISRAEL 67892
Or if after May 1st 1996 to:
MICRONET LTD
IRIS BUILDING, 27 HAMETZUDA ST
AZUR, ISRAEL 58001
12. TERMINATION
This agreement may be terminated as set forth below:
12.1 TERMINATION WITHOUT CAUSE. Following the fulfillment of Teletrac's
obligations pertaining to the Initial Order, Teletrac may terminate this
Agreement, without cause, and cancel any orders for any additional Terminals
that have been ordered but not shipped, upon 90 days' prior written notice.
12.2 FOR BREACH. The appropriate party may, by written notice to the other,
terminate this Agreement without prejudice to any rights that it may have,
whether under the provisions of this agreement (including Teletrac's rights to
liquidated damages, as set forth in Paragraphs 2.4 and 4.2), in law or in
equity, or otherwise, upon the occurrence of any of the following events:
11
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
(a) By Teletrac, if Micronet fails to meet any dates set forth in the Shipment
Schedule, following 30 days written notice and opportunity to cure within such
notice period; or
(b) By Teletrac, if (a) ****% or more of the terminals received in a single
shipment or (b) ****% (cumulative) delivered within a 12 month period or (c)
****% of the units delivered to customers and in warranty; do not function in
substantial compliance with the Specifications, following 30 days' written
notice and opportunity to cure within such notice; or
(c) By Teletrac, if a government agency with jurisdiction over the operation,
function, production or sale of the Terminals or over Teletrac's services or
operations (by way of an example, but not limited to, the Federal Communication
Commission) has determined that the Terminal is defective; or
(d) Except for the breaches described in subparagraphs 12.2(a), (b) or (c), by
either party, if there is a material breach or default in the other's
performance of its obligations hereunder, following 30 day's written notice and
opportunity to cure within such notice period; or
(e) By either party, if the other party files or has filed against it a
petition under any bankruptcy or insolvency act or has appointed a trustee,
receiver, or liquidator of its properties.
13. ARBITRATION. All disputes that may arise in connection with this Agreement
that are not adjusted by the parties themselves shall be submitted to binding
arbitration in Los Angeles, California under the rules and regulations then
prevailing of the American Arbitration Association. Teletrac shall select one
arbitrator, Micronet shall select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. All costs of arbitration, including
each party's attorneys' fees shall be paid by the non-prevailing party. The
award shall be binding and conclusive on each of the parties and may be used on
or enforced by the party in whose favor it runs in a court of competent
jurisdiction in Los Angeles, California (including the United States District
Court for the Central District of California). Pending resolution of any
dispute , if requested in writing by Teletrac, Micronet shall proceed diligently
with the performance of its obligations hereunder, including the shipment of
Terminals, and Teletrac shall make payment therefor on the basis set forth in
the applicable paragraphs of this agreement.
14. FORCE MAJEURE.
12
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
If an event of force majeure, including but not limited to acts of God, flood,
earthquake, landslide, fire, war, blockage, requisition of vessel, or aircrafts,
explosion, governmental request, order or regulations or any other unforeseeable
causes or circumstances beyond the control of Micronet, and without its fault or
negligence, directly affects the ability of Micronet to manufacture and ship the
Terminals then Micronet shall not be liable in damages for its delay in
performing its obligations hereunder, on a day for day basis as to the days of
force majeure; provided however, that Micronet shall promptly fulfill its
obligations under this agreement after the force majeure ceases.
If an event of force majeure occurs which will prevent Micronet from shipping
the Terminals for more than 120 calendar days, Teletrac shall have the automatic
and immediate right to obtain a complete and accurate set of design and
production technology documents sufficiently detailed to enable a third party to
manufacture the Terminals. ("Technology Documents"). The Technology Documents
shall be revised and updated as changes are made to the Terminals or the
manufacturing process during the term of this agreement.
15. MISCELLANEOUS PROVISIONS
15.1 RELATIONSHIP OF PARTIES. This agreement does not constitute
partnership or joint venture between Teletrac and Micronet. Both parties
acknowledge that the relationship of Micronet to Teletrac shall be one of an
independent contractor.
15.2 GOVERNING LAW. This agreement and any dispute or claim arising from
this Agreement shall be governed, construed and interpreted in accordance
with the laws of the state of California without regard to any rule of
conflicts of law.
15.3 JURISDICTION. The parties hereby consent to the personal
jurisdiction of an arbitrator or court located in Los Angeles, California and
of the United States District Court for the Central District of California.
It is the specific intent of the parties that this Agreement not be construed
in accordance with or governed by the laws of Israel and that Israeli courts
have no jurisdiction over this Agreement or any dispute or claim arising from
this agreement except as may be necessary to enforce an award of the
arbitrator or court. The parties expressly agree that the United Nations
Conventions on Contracts for the International Sale of Goods and the Hague
Convention shall not apply to the construction or interpretation of this
Agreement or affect any of its provisions.
Initials /s/ AH Initials
----------------- ----------------
13
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
15.4 ASSIGNMENT. Micronet shall not assign, transfer, or sell any of the
rights of Teletrac hereunder without the prior permission of Teletrac.
15.5 NO WAIVER. Failure of Teletrac to insist upon strict performance of
any of the terms, conditions, provisions, or specifications within this
Agreement, or the delay in exercising any of its remedies, shall not
constitute a waiver of such terms, conditions, provisions, or Specifications
or a waiver of any default.
15.6 SURVIVAL OF OBLIGATIONS. Obligations under this Agreement which by
their nature would continue beyond termination or expiration of this
Agreement, including by way of illustration only and not limitation,
paragraphs related to Warranty and Indemnification, shall survive termination
or expiration of this Agreement by either party for any reason.
15.7 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties as to the subject matter of this
Agreement and supersedes all previous written or oral communications,
representations or agreements. This Agreement may not be modified except by
written instrument executed by both parties.
15.8 REMEDIES. All remedies available to either party for breach of this
Agreement are cumulative and may be exercised concurrently or separately, and
the exercise of any one remedy shall not be deemed an election of such remedy
to the exclusion of other remedies.
15.9 HEADINGS. The paragraph headings used in this Agreement are for
convenience of reference only and shall not in any way limit or amplify the
terms and provisions hereof, nor enter into the interpretation of this
Agreement.
15.10 BINDING AGREEMENT. The persons executing this Agreement on behalf
of the parties have been duly and validly authorized to do so, and this
Agreement is a valid and binding obligation of the parties.
15.11 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which shall constitute one
and the same Agreement.
15.12 SEVERABILITY. If any terms of this Agreement shall be unlawful,
void or unenforceable, such term shall be deemed omitted to the extent
prohibited or invalid, but the remainder of this Agreement shall not be
invalidated and shall be given effect as far as possible. If any term hereof
is found by a court or
14
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
arbitrator to be overbroad, such term shall be limited to the extent required to
make it enforceable.
15.13 DOLLARS. All money amounts specified in this Agreement are in U.S
dollars.
Executed as of the day and year first above written.
Teletrac Inc.
By: Steven D. Scheiwe
-------------------------------
Title: Secretary
-----------------------------
Signature: /s/ Steven D. Scheiwe
-------------------------
Micronet Ltd.
By: Eli Nahum
--------------------------------
Title: Vice President Engineering
-----------------------------
Signature: /s/ Eli Nahum
-------------------------
15
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
- --------------------------------------------------------------------------------
MESSAGE DATA TERMINAL (MDT)
NET-950
SPECIFICATIONS
VER. E, FEBRUARY 4, 1996
TELETRAC, INC. PROPRIETARY
- --------------------------------------------------------------------------------
<PAGE>
MDT Specification Revision E February 1, 1996
1. SCOPE
-----
This document defines the specifications of the Message Data Terminal (MDT)
to be integrated with the Teletrac system Vehicle Location Units (VLUs).
****
2
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
Exhibit 10.4
SEPTEMBER 16 1996
REF: 1345
AMENDMENT FOR:
Mobile Data Terminal- Purchase Agreement
The following will amend the existing agreement, between Teletrac Inc. and
Micronet Ltd for the purchasing of Mobile Data Terminals as originally signed by
both parties on February 8th 1996.
This amendment is in pursuance of Teletrac official letter dated September 12th
1996 and signed by Teletrac's Vice President for Finance Mr. Alan B Howe
applying for additional **** MDTs to be supplied on equal quarterly basis.
This amendment will become effective and part of the existing agreement between
Teletrac Inc. and Micronet upon authorized signatures by both parties.
Teletrac Inc. Micronet Ltd.
By: Steve Scheiwe By: Eli Nahum
---------------------- ------------------------
Title: Secretary Title: Vice President Engin.
------------------- ---------------------
Signature: /s/ Steve Scheiwe Signature: /s/ Eli Nahum
----------------- -----------------
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
1. AGREEMENT TO PURCHASE AND SELL.
1.1 SALE OF PRODUCTS. "Teletrac shall purchase from Micronet a minimum of ****
Terminals and Micronet shall sell to Teletrac a minimum of **** Terminals,
on the terms set forth herein and on the attached purchase order # ______"
The rest of this paragraph remains unchanged.
1.2 INITIAL ORDER. "Teletrac hereby places a firm and irrevocable order for
**** Terminals from Micronet (the "Initial Order"), all of which will be
purchased in accordance with the terms and conditions of the existing
agreement from February 8th 1996 and its amendments from September 16th
1996."
1.3 "INCREMENTAL ORDERS. Within the time period of the Initial Order for ****
Terminals, ordered hereunder, incremental orders for additional Terminals
shall be in writing and shall specify arrival dates of not less than 12
weeks from delivery of the order to Micronet. All incremental orders shall
be for at least **** terminals per order and shall be filled in accordance
with this amendment and the other terms of the existing agreement.
SUBSEQUENT ORDERS After the Initial Order for **** Terminals, ordered
hereunder, have been purchased and supplied, subsequent orders for
additional Terminals shall be in writing and shall specify arrival dates of
not less than 12 weeks from delivery of the order to Micronet. Micronet
may, by written notification delivered to Teletrac within 10 working days
of Micronet receipt of a subsequent order, elect not to fill the subsequent
order. If Micronet does not notify Teletrac of its election to not fill
the subsequent order, the order shall be filled as described in the
existing agreement. All subsequent orders shall be for at least ****
Terminals per order.
The rest of this paragraph remains unchanged.
3. PAYMENT
3.1 PRICE
"The purchase price for each Terminal (including bracket and screws) shall
be:
$ U.S $**** (****) per unit (the "Purchase Price") for an order of ****
Terminals.
and
$ U.S $**** (****) per unit (the "Purchase Price") for an order of ****
Terminals. Additional orders for Terminals within the time period of such
an order but in lower quantities as specified in paragraph 1.3 shall still
be priced at $**** Ea."
The rest of this paragraph remains unchanged.
<PAGE>
[****Deleted pursuant to a request for confidential treatment.]
3.3 TERMS OF PAYMENT
Teletrac, by Bank wire transfer, shall make a down payment to Micronet's
account in the amount of U.S. $**** (****) within 4 business days of the
signature of this amendment. Micronet shall invoice Teletrac for this
amount. The down payment shall be applied towards the last shipment
payment.
Incremental orders shall require ****% down payment to be credited upon
payment of balance due prior to actual delivery.
Payments in full for all shipments, as per paragraph 4 below less down
payment credited to last shipment will be made by wire transfer immediately
prior to each delivery."
4. SHIPMENT
4.1 SHIPMENT TERMS. Unless Teletrac notifies Micronet otherwise, as provided
in Paragraph 12.2, Teletrac hereby orders **** Terminals to be shipped to
Teletrac's facility described in paragraph 4.3, on the dates set forth in
the following Shipment Schedule:
- ---------------------- --------------------- ------------------------------
- ---------------------- --------------------- ------------------------------
Number of Terminals Terminal Type Date shipped to Teletrac
Facility
- ---------------------- --------------------- ------------------------------
**** Net-950 January 1 st 1997
- ---------------------- --------------------- ------------------------------
**** Net-950 April 1 st 1997
- ---------------------- --------------------- ------------------------------
**** Net-990 July 1 st 1997
- ---------------------- --------------------- ------------------------------
**** Net-990 October 1 st 1997
- ---------------------- --------------------- ------------------------------
- ---------------------- --------------------- ------------------------------
The rest of the paragraph remains unchanged.
2
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Exhibit 10.5
ETAK, INC.
THE DIGITAL MAP COMPANY
VALUE ADDED RESELLER
LICENSE AGREEMENT
TELETRAC, INC.
AGREEMENT NO. VAR-96-023
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
TABLE OF CONTENTS
ARTICLE 1: PARTIES, BACKGROUND AND DEFINITIONS...................... 1
1.1 Parties to Agreement.......................................... 1
1.2 Background.................................................... 1
1.3 Definitions................................................... 1
1.4 Escrow Agreement.............................................. 2
ARTICLE 2: APPOINTMENT OF TELETRAC AND GRANT OF LICENSE........ 2
2.1 Appointment................................................... 2
2.2 Grant of Development License.................................. 2
2.3 Grant of Right to Sublicense.................................. 2
2.4 Sublicenses................................................... 3
2.5 Authorized Usage.............................................. 3
2.6 Unauthorized Usage............................................ 3
2.7 Ownership..................................................... 3
2.8 Authorized Type of Hardware and Environment................... 3
2.9 Object Code and Data Only..................................... 4
2.10 Copyrights.................................................... 4
2.11 Duplication of Products....................................... 4
2.12 Source Code................................................... 5
ARTICLE 3: ORDERS AND PAYMENT TERMS............................ 7
3.1 License Fees, Royalties....................................... 7
3.2 Shipment of Licensed Products................................. 7
3.3 Order Procedure............................................... 7
3.4 Shipment Terms................................................ 7
3.5 Payment Terms................................................. 7
ARTICLE 4: PROTECTION OF ETAK'S INTELLECTUAL PROPERTY.......... 8
4.1 Confidentiality of the Licensed Products...................... 8
4.2 Assistance.................................................... 8
ARTICLE 5: DEMONSTRATION PRODUCTS.............................. 8
5.1 Demonstrations................................................ 9
5.2 Demonstration and Other No-Charge Copies...................... 9
ARTICLE 6: WARRANTIES, UPDATES AND DISCLAIMER THEREOF.......... 9
6.1 Limited Warranty By Etak...................................... 9
6.2 Teletrac Express Warranty..................................... 10
(i)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
ARTICLE 7: INDEMNIFICATION.......................................... 10
7.1 Indemnification by Etak....................................... 10
7.2 Indemnification by Teletrac................................... 11
ARTICLE 8: LIMITATION ON ETAK LIABILITY............................. 12
ARTICLE 9: RECORDS, REPORTS AND AUDITS.............................. 13
9.1 Required Records.............................................. 13
9.2 Audit......................................................... 13
ARTICLE 10: TERM AND RENEWAL......................................... 13
ARTICLE 11: TERMINATION, EFFECTS THEREOF AND REMEDIES................ 13
11.1 Termination Events........................................... 13
11.2 Survival..................................................... 14
11.3 Return of Information........................................ 14
ARTICLE 12: GENERAL PROVISIONS....................................... 14
12.1 Final Agreement; Status of Former Agreements................. 14
12.2 Governing Law; Jurisdiction.................................. 14
12.3 Product Changes.............................................. 15
12.4 Arbitration.................................................. 15
12.5 Notices...................................................... 15
12.6 Severability................................................. 15
12.7 No Waiver.................................................... 15
12.8 Attorney Fees................................................ 16
12.9 Assignment................................................... 16
12.10 Force Majeure................................................ 16
12.11 Compliance with Laws......................................... 17
12.12 Government Rights............................................ 17
12.13 No Joint Relationship........................................ 17
(ii)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
LIST OF EXHIBITS
Exhibit A-1: Licensed Product and Services
Exhibit A-2: Derivative Product, Schedule of Fees, and Royalties
Exhibit B: Etak End User License Agreement
Exhibit C: Computer Configurations on Which Teletrac May Use the Products
Exhibit D: Preferred Escrow Agreement
Exhibit E: Source Code Addendum
(iii)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
AGREEMENT NO. VAR-96-023
ARTICLE 1: PARTIES, BACKGROUND AND DEFINITIONS
1.1 PARTIES TO AGREEMENT. This Etak, Inc. Value Added Reseller Agreement
(the "Agreement") is entered into by and between Etak, Inc., a California
corporation ("Etak") and Teletrac, Inc., a Delaware corporation ("Teletrac"),
and is effective as of the date countersigned by Etak below.
1.2 BACKGROUND. Etak set forth on Exhibit A-1 as it
develops and distributes digital may be amended.
geographic data, geographic
access software, navigation (b) "Products" means
products, and related materials. Licensed Products and Derivative
VAR wishes to obtain a Products.
non-exclusive, object code only
license to combine certain of (c) "Teletrac Products"
Etak's products with VAR's own means all software, data,
products to create a derivative documentation and related
product which will be sublicensed materials that: (i) are or were
by VAR to End Users. created by Teletrac or by a party
other than Teletrac and licensed
Etak and Teletrac enter or purchased by Teletrac, and
into this Agreement for the (ii) in either case the party
purpose of superseding and creating them did so without
replacing all former Agreements infringing on any of Etak's
and Amendments with this intellectual property rights
Agreement, including the Escrow arising from contract or law.
Agreement Subscription Letter
dated January 14, 1992. (d) "Derivative
Products" means all works
1.3 DEFINITIONS. In this acquired by or created by or for
Agreement, the following are Teletrac which are based upon or
defined terms: incorporate all or part of one or
more Licensed Products, such as a
(a) "Licensed Products" revision, modification,
means all software ("Software"), translation, abridgment,
data ("Data"), documentation and condensation, expansion,
related materials as listed on collection, compilation or any
Exhibit A-1 hereto, as amended other form in which such Licensed
from time to time by the mutual Products may be recast,
consent of the parties. Teletrac transformed or adapted.
shall not be entitled to receive,
Etak shall not be obligated to
deliver, and Teletrac shall
refuse delivery of, any items
other than those expressly
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
(e) "End User" means that those employees and
any third party who is granted contractors before obtaining the
the right to use any of the Products have executed
Products or receives information confidentiality, non-disclosure
as a result of the use of the and proprietary rights agreements
Products. consistent with the provisions of
this Agreement, and provided
1.4 ESCROW AGREEMENT. further that those contractors
Concurrently herewith, Etak shall are not competitors of Etak.
deliver a Preferred Escrow Teletrac shall not be liable in
Agreement in the form attached money damages to Etak for
hereto as Exhibit D to be disclosing Licensed Products to a
executed by Teletrac and returned contractor who is a competitor of
to Etak for further processing, Etak, provided that Teletrac
prior to its effectiveness. obtains a representation and
Teletrac shall pay all fees warranty from each contractor
associated with this escrow signing a contract with Teletrac
account. after the date of this Agreement
stating that the contractor is
ARTICLE 2: APPOINTMENT OF not a competitor of Etak;
TELETRAC AND GRANT nevertheless, Etak shall be
OF LICENSE entitled to injunctive relief
against Teletrac and such
2.1 APPOINTMENT. Etak competitor. Upon request Etak
hereby appoints Teletrac, on a will advise Teletrac whether a
non-exclusive basis, and Teletrac particular company is considered
accepts such appointment as an a competitor of Etak.
authorized Etak Value Added
Reseller. 2.3 GRANT OF RIGHT TO
SUBLICENSE. Etak hereby grants
2.2 GRANT OF DEVELOPMENT to Teletrac the non-exclusive,
LICENSE. Etak hereby grants to non-transferable right to
Teletrac a non-exclusive, sublicense the Products to End
nontransferable, license to use Users. Etak also grants to
each Licensed Product for the Teletrac the right to duplicate
limited purpose of in-house Products for distribution to End
development by Teletrac Users, provided that (i) Teletrac
(including through the use of has paid to Etak all fees and
outside contractors, provided royalties due in accordance with
that said outside contractors Exhibit A; and (ii) Teletrac
have executed a nondisclosure and complies with all provisions of
confidentiality agreement in this Agreement. In marketing
accordance with section 4.1 Products to End Users, Teletrac
hereof), of Derivative Products. shall have the right to use third
Teletrac may create and use a parties to procure End Users, but
maximum of **** copies for in all
in-house development by Teletrac.
"In-house development" means use
as necessary within the scope of
this Agreement by employees and
contractors with a need to know
to enable Teletrac's authorized
uses, provided
2
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
cases Teletrac itself must 2.6 UNAUTHORIZED USAGE.
directly sublicense the Products Teletrac shall not use the
to End Users; provided, however, Products to provide a service or
that Teletrac shall have the for any other use involving the
right to distribute the Products processing of data of other
through authorized resellers, persons or entities, except that
distributors and agents of Teletrac is permitted to use the
Teletrac provided that all such Products to communicate the
resellers, distributors and location of the Teletrac
agents enter into sublicense and transceiver or Teletrac icons to
distribution agreements with the End User, the End User's
Teletrac on terms reviewed and designee, a Teletrac subscriber,
approved by Etak, including a Reseller, or a recipient of a
without limitation provisions television news broadcast. The
protecting Etak's intellectual "Teletrac transceiver" means
property rights in accordance Teletrac radiolocation software
with this Agreement. employing the **** through ****
mHz frequency range only in the
2.4 SUBLICENSES. Teletrac United States and the Teletrac
and/or its authorized resellers, network. "Teletrac icons" means
distributors and agent shall points of interest selected by
deliver the Products to the End Teletrac or the End User.
User in shrinkwrapped form with a Teletrac shall not use the
shrinkwrap end user license which Products for any purpose except
conforms in all material respects as expressly authorized by this
to the Teletrac end user license Article 2. Teletrac shall not
agreement attached hereto as provide any Product(s) to any End
Exhibit B, or Teletrac may use an User, or any portion thereof,
agreement executed by the End except by tangible media. Except
User which agreement contains as specifically authorized in
substantially the same terms and this Article 2, Teletrac shall
conditions as Exhibit B; for not use the Products for any
either agreement, adjustments may other purpose.
be made as appropriate to reflect
various applications by the End 2.7 OWNERSHIP. This
Users as such applications are Agreement does not constitute a
permitted under this Agreement. transfer of any title or interest
in the Licensed Products, and
2.5 AUTHORIZED USAGE. Etak reserves all rights in the
Teletrac is authorized to use the Licensed Products not expressly
Products to communicate the granted to Teletrac by this
location of the Teletrac Agreement. Any portion of the
transceiver or Teletrac icons, as Licensed Products that is
defined in Section 2.6, to End modified or merged into another
Users via telephone lines, computer program by Teletrac,
including the BBS server or
password-enabled internet access,
or other wire or wireless means.
3
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
or is combined with other shall bear the same trademarks,
programs or data to form logos, copyright notices and
Derivative Products, shall proprietary legends as the
continue to be subject to the Licensed Product which Teletrac
provisions of this Agreement, and received from Etak, and Teletrac
Etak retains ownership of all shall not remove such notice or
such Licensed Products and all alter or augment it (except for
such portions. However, Teletrac adding Teletrac's own copyright
shall be owner of any item which notice for Teletrac Products
Teletrac demonstrates to be a delivered therewith).
Teletrac Product. Specifically, Teletrac shall
conspicuously display Etak's
2.8 AUTHORIZED TYPE OF copyright/restricted rights
HARDWARE AND ENVIRONMENT. notice and logo on the display
Teletrac may use or sublicense screen, in the code, in the
the Products on any type of manuals, and on the storage
hardware or environment, but medium for each Product, in
Etak's limited warranty for the accordance with reasonable
Products shall apply only to the written instructions from Etak.
type of hardware and environment
set forth in Exhibit C. 2.11 DUPLICATION OF PRODUCTS.
Teletrac shall not duplicate,
2.9 OBJECT CODE AND DATA manufacture, copy or reproduce
ONLY. This license from Etak is any Products, or any portion
for object code and data only. thereof, except as necessary for
Except as expressly permitted (i) internal use as expressly
herein, or in the source code permitted in this Article 2; (ii)
escrow agreement attached hereto distribution to its End Users as
as Exhibit E, Teletrac shall not part of a Derivative Product or
obtain access to or any use of in connection with the licensing
Etak source code, and Etak does of a Teletrac Product; (iii)
not grant (except to the extent back-up and archival purposes;
expressly set forth in section and (iv) one copy for each
2.12 of this Agreement) any Teletrac salesperson of the
rights whatsoever in Etak's database(s) included within that
source code. Teletrac shall not salesperson's assigned territory.
derive or attempt to derive the Under no circumstances shall
source code or structure of all Teletrac grant permission to any
or any portion of the Licensed third parties to duplicate,
Products by reverse engineering, manufacture, copy or reproduce
disassembly, decompilation or any any Products, or any portion
other means. thereof, and Teletrac's
agreements with third parties
2.10 COPYRIGHTS. The shall expressly prohibit such
Licensed Products are copyrighted dupli-
by Etak, and unauthorized copying
of the Licensed Products, or any
portion thereof, is expressly
prohibited. Teletrac shall
ensure that each copy of a
Product and any portion thereof
4
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
cation, manufacture, copying and od. Notwithstanding the
reproduction. However, Teletrac foregoing, Etak shall have no
shall be authorized to contract a obligation whatsoever to make any
third party vendor for volume corrections or changes to the
duplication purposes only, Source Code. Further, any
provided that vendor is support services regarding Source
contractually under a Code requested by Teletrac and
confidential/nondisclosure which Etak in its discretion
provision and shall be prohibited agrees to provide shall be paid
from using the Licensed for at Etak's then standard
Product(s) or Product(s) for any hourly engineering rates
other purpose. For purposes of (presently $**** per hour).
this Section 2.11, loading the
Product on a single central (c) Teletrac may also use
processing unit for permitted, the Source Code to create an
licensed use by an authorized End executable object code
User shall not constitute compilation under the operating
"duplication." system(s) as defined on
Attachment A of Exhibit E, or
2.12 SOURCE CODE. Etak has under any other operating system
provided to Teletrac a copy of Teletrac shall adopt in the
the source code for MapAccess future and that Etak approves in
libraries (the "Source Code") as writing. That object code
listed on Exhibit A-l. Except compilation shall be subject to
under the conditions expressly all terms and conditions
set forth in Exhibit E, Etak applicable to Source Code under
shall not be obligated to this Agreement. Etak shall have
deliver, and Teletrac shall not no obligation whatsoever, under
be entitled to receive source any circumstances, to assist
code for any other Licensed Teletrac in this compilation, and
Products. The Source Code has Etak makes no warranty or
been provided to Teletrac on the representation that such
following terms and conditions: compilation can be accomplished
at all or with any degree of
(a) ADDITIONAL RESTRICTIONS success. However, if Etak in its
FOR SOURCE CODE. The Source Code discretion chooses to provide
shall be subject to all terms and support services to Teletrac
conditions applicable to Licensed regarding the QNX project, or any
Products in this Agreement, and future project, Teletrac shall
shall also be subject to the pay for such services at Etak's
following additional restrictions: then standard hourly engineering
rates (presently $**** per hour).
(b) Teletrac may use the
Source Code for the purpose of (d) Except as expressly
analysis. Teletrac may request permitted in this section 2.12
Etak to make corrections or
changes to the Source Code at
Etak's then standard hourly
engineering rates (presently
$**** per hour) within a mutually
agreeable and reasonable time
peri-
5
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
and except under the conditions most confidential and sensitive
expressly set forth in Exhibit E, data, and shall indemnify and
Teletrac shall make no use of the hold harmless Etak from any
Source Code. Teletrac failure to do so.
specifically is prohibited from
creating any derivative products (h) Teletrac agrees that
of or from the Source Code, or only Teletrac's employees and
from modifying, altering or contractors having a need to know
correcting the Source Code, shall have access to any Source
except as necessary pursuant to Code in any form, and Teletrac
this section 2.12 and except agrees that it will implement
under the conditions expressly appropriate action by
set forth in Exhibit E. instruction, agreement or
otherwise with its employees and
(e) Only one copy of Source contractors permitted access to
Code may be in use, and that copy Source Code to satisfy its
shall be stored on a single CPU. obligations and restrictions
One additional copy of Source under this Agreement with respect
Code may be kept for archival to use, copying, modification,
purposes. Except as expressly nondisclosure, protection and
permitted above in this section security of Source Code.
2.12 (and except under the
conditions expressly set forth in (i) Teletrac agrees that
Exhibit E), Source Code shall not money damages are inadequate to
be copied, in whole or in part on protect Etak's rights under this
any medium. section 2.12 and that Etak shall
be entitled to specific
(f) Etak's copyright/ performance to protect its rights
proprietary notice shall be under this section 2.12, in
prominently included on the addition to any other remedies to
original and any and all copies which it may be entitled.
of the Source Code, and on the
medium on which Source Code is (j) SOURCE CODE IS PROVIDED
stored. "AS IS." ETAK MAKES NO EXPRESS
OR IMPLIED WARRANTY OF ANY KIND
(g) Teletrac acknowledges WITH REGARD TO THE SOURCE CODE,
that Source Code is the INCLUDING WITHOUT LIMITATION, THE
unpublished work of Etak and IMPLIED WARRANTIES OF
contains valuable trade secrets. MERCHANTABILITY AND FITNESS FOR A
Teletrac shall not publish or PARTICULAR PURPOSE. ETAK MAKES
permit others to publish Source NO REPRESENTATION OR WARRANTY
Code. Teletrac shall not THAT TELETRAC CAN SUCCESSFULLY
disclose Source Code to any USE SOURCE CODE. NO WARRANTY,
persons except as expressly INSTALLATION, TRAINING OR SIMILAR
authorized by this Agreement.
Teletrac shall take all
commercially reasonable steps to
ensure that the confidentiality
of the Source Code shall not be
compromised, at least consistent
with the precautions taken for
Teletrac's own
6
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
SERVICES WILL BE PROVIDED BY ETAK accordance with the Schedule of
FOR SOURCE CODE, ANY EXECUTABLE Fees set forth in Exhibit A-2.
OBJECT CODE, OR ANY APPLICATION
PROGRAM OR FILE AFFECTED BY THE 3.2 SHIPMENT OF LICENSED
SOURCE CODE. PRODUCTS. Etak or Etak's
designee shall ship to Teletrac
(k) TELETRAC ACKNOWLEDGES any Licensed Products ordered by
THAT MODIFICATIONS TO SOURCE Teletrac under this Agreement
CODE, OR USE OF ANY DERIVATIVE within a commercially reasonable
PRODUCT COULD ADVERSELY AFFECT time after receipt of Teletrac's
THE PERFORMANCE OF THE UNALTERED order therefor.
PORTION OF THE SOFTWARE, AND/OR
UNALTERABLY AND IRRETRIEVABLY 3.3 ORDER PROCEDURE. All
CORRUPT TELETRAC'S DATA. orders by Teletrac shall be
TELETRAC ASSUMES ALL SUCH RISK controlled by the terms and
AND HEREBY RELEASES ETAK FROM ANY conditions of this Agreement.
OBLIGATION OR LIABILITY ARISING Any proposed variation from or
THEREFROM. ETAK SHALL IN ITS addition to these terms and
DISCRETION MAKE THE FINAL conditions appearing on any
DETERMINATION AS TO THE CAUSE OF purchase order, invoice or other
SUCH DATA CORRUPTION OR ADVERSE document submitted by Teletrac or
SOFTWARE PERFORMANCE. Etak shall be null and void,
unless specifically accepted in a
(l) Teletrac agrees to writing signed by an authorized
indemnify and hold Etak harmless officer of Etak. Purchase orders
against any and all loss or are not valid until accepted in
damage in any way arising out of writing by Etak. Shipments will
or in connection with Source Code be scheduled by Etak only upon
furnished hereunder. receipt of a duly executed
purchase order from Teletrac and
(m) Except under the upon acceptance of the purchase
conditions expressly set forth in order by Etak.
Exhibit E, upon termination or
expiration of this Agreement for 3.4 SHIPMENT TERMS. All
any reason whatsoever, Teletrac Licensed Products licensed under
shall immediately return to Etak this Agreement shall be shipped
the original and all copies of F.O.B, Teletrac's destination
the Source Code, and any location, from a facility of
derivatives thereof, and shall Etak. Etak is responsible for
certify to Etak in writing that all shipping, insurance and
it has done so and that it shall related charges, and all risk of
make no further use of such damage or loss to the Licensed
materials. Products shall pass to Teletrac
at Teletrac's facility upon
ARTICLE 3: ORDERS AND PAYMENT tender by the
TERMS
3.1 LICENSE FEES, ROYALTIES.
Teletrac shall pay Etak fees in
7
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
carrier to Teletrac; however, ployees, agents and
Teletrac shall be responsible for representatives, in confidence
all freight charges except for and except as expressly permitted
those due to a re-shipment caused by this Agreement, shall not be
by defective media. used, duplicated or disclosed by
any of them in any form for the
3.5 PAYMENT TERMS. Teletrac use or benefit of any person or
shall pay to Etak a fixed fee in entity, nor reproduced,
the amount of ****. Teletrac transcribed, imitated or
shall make payments to Etak in simulated in whole or in part,
the amounts and on the dates set except for sublicenses to End
forth on Exhibit A-2. Etak may Users in accordance with this
refuse to ship, or may delay the Agreement. Teletrac may disclose
shipment of, any Licensed relevant aspects of the
Products on order and/or any Confidential Items to its
agreed-upon maintenance update if employees, agents or
Teletrac becomes delinquent in representatives only to the
the payment of any of its extent that such disclosure is
obligations to Etak. All reasonably necessary to
outstanding amounts which are not Teletrac's use of the
paid when due shall bear interest Confidential Items pursuant to
at the rate of the lesser of (i) this Agreement, provided that
**** percent per month; or (ii) Teletrac shall take all
the maximum allowable statutory reasonable steps to ensure that
rate at the time. All prices are the Confidential Items are not
net of any local, state or disclosed or duplicated in
federal taxes, fees, assessments contravention of this Agreement
or other levies, which shall be by its employees, agents or
the sole obligation of Teletrac. representatives, including but
Teletrac shall pay to Etak all not limited to, the execution of
applicable local, state and a written confidentiality
federal taxes and levies unless agreement by each such person.
Teletrac has presented to Etak a Teletrac shall take all other
valid and appropriate certificate reasonable steps to maintain the
of exemption from those taxes and confidentiality of the Licensed
levies. Products and to protect the
Licensed Products from
ARTICLE 4: PROTECTION OF misappropriation or misuse,
ETAK'S INTELLECTUAL PROPERTY unauthorized duplication or
distribution, including without
4.1 CONFIDENTIALITY OF THE limitation, the exercise by
LICENSED PRODUCTS. The Licensed Teletrac of at least the same
Products, including all aspects degree of care Teletrac employs
thereof used or incorporated in in protecting its own most
Derivative Products, together valuable confidential information.
with all materials and knowledge
related thereto (the
"Confidential Items"), are
obtained by Teletrac, and its
em-
8
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
4.2 ASSISTANCE. Teletrac ARTICLE 6: WARRANTIES, UPDATES
shall notify Etak promptly if AND DISCLAIMER THEREOF
Teletrac learns of any
misappropriation of the Products 6.1 LIMITED WARRANTY BY
or use of the Products by anyone ETAK. SET FORTH BELOW IS
in any manner not expressly ETAK'S LIMITED WARRANTY FOR THE
authorized by this Agreement, and LICENSED PRODUCTS.
shall fully cooperate with any
efforts by Etak to prevent any (a) Etak warrants to
misappropriation or misuse of the Teletrac that the Software
Products. In the event of any Licensed Products (that is
violation or suspected violation Licensed Products consisting of
of any provision of Article 4 software) in the version and
hereof, Teletrac shall level that is current on the date
immediately notify Etak and of initial delivery to Teletrac
shall, at its reasonable expense, will, for ninety (90) days from
assist Etak in the enforcement of that date, substantially conform
Article 4 against any current or to the specifications contained
former employee, agent or in Etak's documentation for that
representative of Teletrac or any version, when used on the
End User to the extent Etak authorized computer hardware;
chooses to enforce this Article that the Data Licensed Products
4. However, Etak shall not be (that is Licensed Products
obligated to enforce any of its consisting of data) in the
rights hereunder. version and level that is current
on the date of initial delivery
ARTICLE 5: DEMONSTRATION to Teletrac will, for one (1)
PRODUCTS year from that date,
substantially conform to the
5.1 DEMONSTRATIONS. specifications contained in
Teletrac shall be entitled to Etak's documentation for that
demonstrate the operation and version, when used on the
capabilities of the Products to authorized computer hardware; and
any potential customer. If that the media containing the
demonstration involves the Licensed Products will be free of
installation of Products on a manufacturing defects on the date
potential or existing customer's of initial delivery to Teletrac.
equipment, such installation will
be made according to the (b) Teletrac acknowledges
requirements of Section 2.5 of that the Licensed Products are
this Agreement, except as complex products and may contain
expressly permitted otherwise some non-conformities, defects or
below in this section 5.1. errors. Etak does
5.2 DEMONSTRATION AND OTHER
NO-CHARGE COPIES. Teletrac shall
be authorized to provide
demonstration copies of products
to prospective clients and copies
at no charge to law enforcement
agencies.
9
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
not warrant that the Licensed to correct nonconformities
Products will meet Teletrac's resulting from Teletrac's
needs or expectations, that modification of the Licensed
operations of the Licensed Products, Teletrac shall be
Products will be error-free or charged for and agrees to pay for
uninterrupted, or that all custom programming at Etak's then
nonconformities can or will be current standard hourly rate.
corrected. Teletrac must notify
Etak in writing within the (e) This Limited Warranty is
applicable warranty period set void if any non-conformity has
forth above of any claim that the resulted from accident abuse,
Licensed Products do not meet misuse, or misapplication. This
this Limited Warranty. Etak's Limited Warranty is for
SOLE OBLIGATION and Teletrac's Teletrac's exclusive benefit and
SOLE REMEDY under this Limited is non-transferable. Teletrac
Warranty is for Etak to use conclusively agrees that under
reasonable efforts to repair or all circumstances this Limited
replace the Licensed Products or Warranty fulfills its essential
to provide an avoidance procedure purpose.
at Etak's expense within a
commercially reasonable time so (f) THE EXPRESS WARRANTY
that the Licensed Products PROVIDED IN SECTIONS 6.1(a)
substantially conform to the THROUGH (f) IS A LIMITED WARRANTY
specifications contained in the AND IT IS THE ONLY WARRANTY MADE
Documentation, or at Etak's BY ETAK. ETAK MAKES AND TELETRAC
option, to refund the fees AND END USER RECEIVE NO OTHER
previously paid by Teletrac for WARRANTY, WHETHER EXPRESS OR
the Licensed Products involved. IMPLIED, AND ALL WARRANTIES OF
If Teletrac is unable to describe MERCHANTABILITY AND FITNESS FOR
the claimed non-conformity with ANY PARTICULAR PURPOSE ARE
sufficient specificity to enable EXPRESSLY EXCLUDED. THE STATED
Etak to replicate it on Etak's EXPRESS WARRANTY IS THE EXCLUSIVE
hardware at Etak's premises, then REMEDY FOR DAMAGES AND IS IN LIEU
no non-conformity shall be deemed OF ALL LIABILITIES OR OBLIGATIONS
to exist. OF ETAK. NO ORAL OR WRITTEN
ADVICE OR INFORMATION PROVIDED BY
(c) If the media containing ETAK OR ANY OF ITS AGENTS OR
the Licensed Products possess EMPLOYEES SHALL CREATE A WARRANTY
manufacturing defects, Etak will OR IN ANY WAY INCREASE THE SCOPE
provide Teletrac with a OF THIS LIMITED WARRANTY, AND
replacement copy of the Licensed TELETRAC AND END USER ARE NOT
Products within a commercially ENTITLED TO RELY ON ANY SUCH
reasonable time after receipt of ADVICE OR INFORMATION.
notice of the defective copy from
Teletrac.
(d) If Teletrac modifies or
attempts to modify the Licensed
Products, this Limited Warranty
shall terminate immediately. If
Etak elects, in its sole discretion,
10
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
6.2 TELETRAC EXPRESS any portions thereof as may be
WARRANTY. Teletrac represents contained in Derivative Products)
and warrants that it possesses used within the scope of this
the financial resources, Agreement infringe any patents,
technical facilities and skill, copyrights, trade secrets or
and all other requirements other intellectual property
necessary for its timely and full rights of any third party created
performance pursuant to the terms by United States federal law or
and conditions of this Agreement. the law of any of the United
Teletrac further represents that States, provided that, after
it is an experienced, expert and Teletrac became aware of such
knowledgeable licensor of Claim, Teletrac notified Etak in
computer software and data, and writing of such Claim within
is competent to create, market sufficient time to enable Etak to
and support Derivative Products. take action to fully protect
Etak's rights without any adverse
ARTICLE 7: INDEMNIFICATION impact on Etak's position.
7.1 INDEMNIFICATION BY ETAK. (c) If, as a result of any
claim of infringement of the type
(a) Teletrac shall notify described in this Section 7.1,
Etak immediately upon learning of Etak is enjoined or otherwise
any threatened or asserted claim prevented by an administrative or
that the Licensed Products legal order from licensing or
infringe any patents, copyrights, sublicensing any Licensed
trade secrets or other Product, or Teletrac is enjoined
intellectual property rights of or otherwise prevented by an
any third party. Etak shall have administrative or legal order
the sole right to control the from using any Licensed Product,
defense and negotiation of all or if Etak believes that such
such claims, and Teletrac shall injunction is likely or that any
fully cooperate in Etak's defense Licensed Product is likely to
of all such claims. become the subject of a claim of
infringement of the intellectual
(b) Etak shall protect, property rights of any third
defend (or in Etak's discretion, party, Etak shall (at Etak's
settle), indemnify and hold option) at its expense, either
Teletrac harmless from any and (i) procure the right for
all claims, demands, liabilities, Teletrac or Teletrac's End User
obligations, deficiencies, to continue to use said Licensed
losses, damages, actions, suits, Product, (ii) replace or modify
proceedings, assessments, the Licensed Product so as to
judgments or settlements make it non-infringing but
(collectively, "Claims"), substantially functionally
including all reasonable costs
and expenses related thereto such
as attorneys' fees, that are
asserted against Teletrac or
Teletrac's End Users to the
extent that the Licensed Products
(or
11
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
equivalent, or, if in Etak's all reasonable costs and expenses
judgment the foregoing options related thereto such as
are not available on commercially attorneys' fees, to the extent
reasonable terms or are that they:
impracticable, terminate this
Agreement and refund the (a) Arise from or are
unamortized portion of the fees connected with the development,
previously paid by Teletrac for modification, use or distribution
the use of said Licensed Product. of the Derivative Products or
Calculation of the unamortized Teletrac Products, including
portion of the fees shall be pro without limitation, any
rated over the life of the unauthorized reproduction,
Agreement. warranty violations, inadequate
installation, maintenance,
(d) Etak shall not have any defects in design, workmanship,
liability under this Article 7 to materials or otherwise, or any
the extent that a claim of misrepresentation or breach of
infringement is based upon the any covenant or agreement by
use of the Licensed Products in Teletrac relating to any of said
combination with other hardware products; or,
or products not furnished or made
by Etak, the use of the Licensed (b) Arise from or are
Products in practicing any connected with any breach by
infringing process (other than an Teletrac of any provision of this
infringing process created and Agreement; or,
used by Etak), the modification
of the Licensed Products or any (c) Are the direct or
portion thereof by anyone other indirect result of any asserted
than Etak, or application or use or proven obligations of Etak, to
of the Licensed Products in a the extent any such asserted or
manner for which they were not proven obligations of Etak (i)
designed or specified by Etak. arise in whole or in part from
any intentional misconduct,
(e) Sections 7.1(a) through negligence, omission or
7.1(e) state the entire and unperformed obligation of or by
exclusive obligation of Etak to Teletrac or Teletrac's agents or
Teletrac or Teletrac's End User employees; or (ii) are the direct
for any claim of infringement or indirect result of any claim
relating to the Licensed Products. by an End User of Teletrac
against Etak, except for such
7.2 INDEMNIFICATION BY claims as are covered by Section
TELETRAC. Teletrac shall 7.1.
protect, defend, indemnify and
hold Etak harmless from any and (d) If Etak and Teletrac are
all claims, demands, liabilities, both named as defendants in a
obligations, deficiencies, lawsuit in which it is un-
losses, damages, actions, suits,
proceedings, assessments,
judgments or settlements
(collectively, "Claims"),
including
12
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
clear whether or to what extent OR DEMAND AGAINST TELETRAC
Etak and/or Teletrac should BY ANY OTHER PERSON, ORGANIZATION
provide indemnity under this OR ENTITY (EXCEPT AS EXPRESSLY
Article 7, then each party shall SET FORTH IN ARTICLE 7). ETAK
bear its own costs and attorneys' SHALL NOT BE LIABLE TO TELETRAC
fees until this issue is BECAUSE OF ANY EXPIRATION,
resolved. At that point, it is TERMINATION OR FAILURE TO RENEW
intended under this Article 7 OR EXTEND THIS AGREEMENT, OR FOR
that the principles of FAILURE TO TIMELY DELIVER
comparative indemnity be applied, PRODUCT. IF ETAK'S LIMITED
so that Etak and Teletrac each is WARRANTY OR LIMITATION OF
responsible for indemnity in LIABILITY SET FORTH IN THIS
proportion to its own culpability. AGREEMENT SHALL FOR ANY REASON
WHATSOEVER BE HELD UNENFORCEABLE
ARTICLE 8: LIMITATION ON ETAK OR INAPPLICABLE, TELETRAC AGREES
LIABILITY THAT ETAK'S LIABILITY SHALL NOT
EXCEED **** PERCENT (****%) OF
IN NO EVENT SHALL ETAK BE THE FEES PAID BY TELETRAC TO ETAK
LIABLE FOR ANY CLAIM OR LOSS WITH RESPECT TO THE LICENSED
INCURRED BY TELETRAC (INCLUDING PRODUCTS THAT ARE THE SUBJECT OF
WITHOUT LIMITATION COMPENSATORY, THE CLAIM.
INCIDENTAL, INDIRECT, SPECIAL,
CONSEQUENTIAL OR EXEMPLARY ARTICLE 9: RECORDS, REPORTS
DAMAGES, LOST PROFITS, LOST SALES AND AUDITS
OR BUSINESS, EXPENDITURES,
INVESTMENTS, OR COMMITMENTS IN 9.1 REQUIRED RECORDS.
CONNECTION WITH ANY BUSINESS, Teletrac shall prepare and
LOSS OF ANY GOODWILL, OR DAMAGES maintain at its expense complete
RESULTING FROM LOST DATA OR and accurate books and records
INABILITY TO USE DATA) documenting its compliance with
IRRESPECTIVE OF WHETHER ETAK HAS the terms of this Agreement. The
BEEN INFORMED OF, KNEW OF, OR books and records prepared by
SHOULD HAVE KNOWN OF THE Teletrac shall be retained for a
LIKELIHOOD OF SUCH DAMAGES, minimum of three (3) years from
EXCEPT AS EXPRESSLY PROVIDED IN the date on which this Agreement
ARTICLES 6 AND 7. THIS is terminated.
LIMITATION APPLIES TO ALL CAUSES
OF ACTION IN THE AGGREGATE, 9.2 AUDIT. During the
INCLUDING WITHOUT LIMITATION initial term hereof, any renewal
BREACH OF CONTRACT, BREACH OF periods, and for a period of one
WARRANTY, NEGLIGENCE, STRICT (1) year after expiration or
LIABILITY, MISREPRESENTATION, AND termination of this Agreement,
OTHER TORTS. TELETRAC FURTHER Etak shall have the right
AGREES THAT ETAK SHALL NOT BE
LIABLE IN ANY EVENT FOR ANY
DAMAGES INCURRED BY TELETRAC, END
USER, OR BY ANY OTHER PERSON,
ORGANIZATION OR ENTITY AS A
RESULT OF TELETRAC OR END USER'S
MISUSE OF ANY OF THE PRODUCTS.
NOR SHALL ETAK BE LIABLE FOR ANY
CLAIM
13
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
at its expense and upon ARTICLE 11: TERMINATION,
reasonable notice, to examine or EFFECTS THEREOF AND REMEDIES
have examined by its authorized
representative, Teletrac's books 11.1 TERMINATION EVENTS.
and records relevant to license
agreement, sublicense agreements (a) Etak may terminate this
and third party vendor and/or Agreement immediately, without
distributor agreements to judicial action and (i) with ten
determine or verify Teletrac's (10) days' notice with
performance hereunder. opportunity to cure ff VAR
violates any of the provisions of
ARTICLE 10: TERM AND RENEWAL Articles 2 or 4; and (ii) with
thirty (30) days' notice if VAR
Unless terminated earlier commits a material breach of any
pursuant to any provision of other provision of this Agreement
Article 11, this Agreement shall or otherwise fails materially to
commence on the later date below fulfill any of its obligations
the parties' signatures, and hereunder and VAR fails to cure
shall continue in force until such breach within the thirty
February 14, 1998, at which time (30) day notice period, or if VAR
this Agreement will expire neglects or fails to conduct its
automatically, unless renewed as business in a manner that
provided in Exhibit A-2. represents fairly Etak products
Teletrac does not have or acquire and the good name, goodwill and
by execution of this Agreement, reputation of Etak.
by performance hereunder, or
otherwise, any vested right with (b) Either party hereto may
respect to the distribution of terminate this Agreement
Products or the renewal of this immediately upon written notice
Agreement. If Etak continues a to the other party without
business relationship with opportunity for cure if, whether
Teletrac after termination or voluntarily or involuntarily, any
non-renewal of this Agreement, process or proceeding of any
that relationship shall not be court is instituted against such
construed as a renewal of this party by attachment or levy or
Agreement or a waiver of execution, in insolvency or
termination, but such bankruptcy, or in receivership,
relationship shall be "at will," or if any general assignment is
terminable at any time with or made or attempted to be made for
without cause or notice by either the benefit of creditors by such
party, and all such transactions party.
shall be governed by terms
otherwise identical to the 11.2 SURVIVAL. Termination
relevant provisions of this of this Agreement for any
Agreement, unless the parties
have executed a new written
agreement superseding this
Agreement.
14
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
reason shall not relieve Teletrac sive statement of the terms of
of its obligations to make full their agreement.
payment of the fixed fee or any
other amounts that are owed by 12.2 GOVERNING LAW;
Teletrac to Etak. In addition, JURISDICTION. This Agreement and
Sections 2.7, 2.9, 2.10, 2.11, all aspects of the relationship
Article 4, Article 7, Article 8, between Etak and Teletrac shall
Article 9, Article 10, Section be governed by and construed in
11.3, and Article 12 (other than accordance with the internal laws
Section 12.9) hereof shall of the State of California.
survive any such termination or
expiration for at least as long 12.3 PRODUCT CHANGES.
as Teletrac uses or has access to Teletrac agrees that Etak has the
the Products, but in no event right to modify any of the
less than the applicable statute Licensed Products at any time
of limitations period. whatsoever without notice or
discontinue any of the Licensed
11.3 RETURN OF INFORMATION. Products at any time whatsoever,
Promptly upon termination or with one hundred eighty (180)
expiration, Teletrac shall, at days' prior written notice to
its expense, return to Etak all Teletrac. If Etak modifies or
copies of the Products, related discontinues any Licensed
materials, and other materials Product, Etak shall have no
developed by or belonging to Etak obligation to modify, replace, or
which are in possession or make any refund with respect to
control of Teletrac. Licensed Products previously
Concurrently therewith, a duly delivered to Teletrac.
authorized officer of Teletrac
shall certify in writing to Etak 12.4 ARBITRATION. Any
that Teletrac has made every dispute arising out of, connected
reasonable effort to return all with or relating to this
such materials to Etak and that Agreement, the past, present or
to the best of Teletrac's future relationship between Etak
knowledge and information all and Teletrac, or the termination
have been returned to Etak. or non-renewal of this Agreement
or of the relationship between
ARTICLE 12: GENERAL PROVISIONS Etak and Teletrac, whether
sounding in contract, tort or
12.1 FINAL AGREEMENT; STATUS otherwise, shall be finally
OF FORMER AGREEMENTS. This resolved exclusively by
Agreement may be amended, arbitration. Such arbitration
altered, or modified only by a shall be conducted by a panel of
writing so stating its purpose, three arbitrators. To the
and signed by both parties. This greatest
Agreement and the attached
Exhibits supersede all prior and
contemporaneous agreements and
understandings between the
parties relating to their subject
matter and are the complete and
exclu-
15
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
extent practicable, the jurisdiction, that
arbitrators shall be appointed provision shall be severed from
from a pool of arbitrators who this Agreement as to such
are stated to have experience or jurisdiction (but, to the extent
expertise in the computer permitted by law, not elsewhere),
industry. The arbitration shall and shall not affect the
proceed in accordance with the remainder hereof.
then existing California
Arbitration Act, California Code 12.7 NO WAIVER. No waiver of
of Civil Procedure Section 1280, any obligation or right of either
et seq. Any award made by the party shall be effective unless
arbitration panel, however in writing, executed by the party
constituted, shall be final, against whom it is being
binding and conclusive on all enforced. Any such waiver shall
parties for all purposes and not preclude a party from
judgment may be entered thereon exercising any other right or
by any state or federal court later exercising the same right.
having jurisdiction.
12.8 ATTORNEY FEES. If
12.5 NOTICES. Any notice, either party commits a material
request or demand is required to breach of this Agreement, such
be given or made hereunder in party shall pay to the other
writing, and may be delivered in party all reasonable costs and
person, by certified or expenses incurred by such other
registered mail, postage prepaid, party in enforcing its rights
or by overnight courier. All under this Agreement, including
notices shall be addressed to the without limitation, costs and
party and address set forth at attorneys' fees to the extent the
the end of this Agreement, unless other party substantially
and until a party provides prevails on its claims.
written notice of a new address
for receipt of notice. All 12.9 ASSIGNMENT. This
notices shall be deemed received Agreement shall inure to the
when (i) received; or (ii) when benefit of and shall be binding
delivery is first attempted by upon the parties hereto and their
the carrier at the address of respective successors, legal
record, whichever occurs first. representatives and permitted
A copy of all notices to Etak assigns, except that Teletrac
shall also be sent by Teletrac to shall not assign or transfer this
Etak's Chief Financial Officer Agreement or any part hereof
with a copy in separate envelope without Etak's prior written
to Attn: Contracts. Etak shall consent, which consent shall not
send all notices to Teletrac to be unreasonably withheld. This
Teletrac's General Counsel. restriction on assignments or
transfers shall
12.6 SEVERABILITY. If any
provision of this Agreement or
the application thereof to any
party or circumstance shall to
any extent be invalid or
unenforceable in any
16
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
apply to assignments or transfers and warrant in writing that
by operation of law, as well as Teletrac has fully complied with
by contract, merger or this provision.
consolidation. Any attempted
assignment or transfer in 12.10 FORCE MAJEURE. Except
derogation of this prohibition is for payments due to Etak from
void. Notwithstanding the Teletrac pursuant to this
foregoing, Teletrac shall be Agreement, neither party shall be
permitted to assign this liable for nonperformance or
Agreement, with prior notice to delays in performance hereunder
Etak and provided that Teletrac if caused by factors beyond its
has not committed an uncured reasonable control, including
material breach of which it has without limitation, acts of God,
been given notice of any acts of public enemy, acts of
provision of this Agreement, to: government or courts of law or
(a) any company that may result equity, civil war, insurrection
from a merger, reorganization, or or riots, interruption of
consolidation by or with transportation, embargo,
Teletrac; or (b) any company to litigation or other private or
which Teletrac sells all or public proceedings, accident,
substantially all its assets or inability to procure materials,
stock; or (c) the stockholders of prohibition of import or export
Teletrac, or to any affiliate of of materials, government orders,
Teletrac or the stockholders of regulations, restrictions,
Teletrac; provided, however, that priorities or rationing, or
only one such assignment is strikes, lockouts or other labor
permitted (to any non-affiliate disputes, fires, floods,
of Teletrac), and further explosions, earthquakes or other
provided that the assignee must casualties.
be an "acceptable third party" in
Etak's judgment. An "acceptable 12.11 COMPLIANCE WITH LAWS.
third party" means a third party Teletrac acknowledges and
who is not a competitor of Etak understands that the Products may
and who will abide by all be Subject to restrictions on
proprietary rights and other exportation and reexportation
provisions of this Agreement. If pursuant to the United States
Teletrac seeks to make an Export Administration
assignment to other than an Regulations, 15 CFR Parts
"acceptable third party," then 368-399. Prior to export of any
Etak shall have the right, within Product, Teletrac represents and
thirty (30) days of receiving warrants that it will be familiar
written notice thereof from with the requirements of the
Teletrac, to terminate this Export Administration Regulations
Agreement, in which event and will comply strictly with
Teletrac shall return to Etak all those requirements in all
Products, source code and all transactions
associated documentation, all
copies thereof, all portions
thereof, and shall make no
further use thereof in any form
or manner, and an authorized
officer of Teletrac shall
certify, represent
17
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
involving any Products supplied FOR PURPOSE OF ANY PUBLIC
by Etak hereunder. Teletrac DISCLOSURE PROVISION UNDER ANY
shall comply with all applicable FEDERAL, STATE OR LOCAL LAW, IT
laws and regulations, and IS AGREED THAT THESE PRODUCTS ARE
maintain all required licenses TRADE SECRET AND PROPRIETARY
and permits. COMMERCIAL PRODUCTS AND NOT
SUBJECT TO DISCLOSURE.
12.12 GOVERNMENT RIGHTS. If
any Product is used in any 12.13 NO JOINT RELATIONSHIP.
fashion, directly or indirectly, Teletrac and Etak are independent
in connection with foreign or contractors and neither has nor
domestic government contracting shall have any power, nor will
or subcontracting, including either represent that either has
without limitation, Teletrac's any power to bind the other
performance of any government party, or to assume or create any
contracts or subcontracts, then obligation or responsibility,
Teletrac shall ensure that the express or implied, on behalf of
government entity receives the other party or in the other
nothing more than the right to party's name. This Agreement
use the Products pursuant to a shall not be construed as
sublicense agreement equivalent constituting Teletrac and Etak as
to that allowed under section 2.4 employees, agents, partners,
of this Agreement. Teletrac joint venturers, franchisers or
shall inform any government franchisees, to create any other
entity or prime contractor with form of legal association or
which it is contracting exactly arrangement which might impose
how it intends to use the liability upon Etak or Teletrac
Products in connection with its for any act or failure to act of
government contracts, that such the other.
Products are proprietary to Etak
and that Teletrac has no right to
grant to the government entity or
prime contractor any rights in
the Products. THE SOFTWARE IS A
"COMMERCIAL ITEM", AS THAT TERM
IS DEFINED AT 48 C.F.R 2.101 (OCT
1995) CONSISTING OF "COMMERCIAL
COMPUTER SOFTWARE" AND "COMMERCIAL
COMPUTER DOCUMENTATION," AS SUCH
TERMS ARE USED IN 48 C.F.R. 12.212
(SEPT. 1995). CONSISTENT WITH
48 C.F.R. 12.212 AND 48 C.F.R.
227.7202-1 THROUGH 227.7202-4
(JUNE 1995), ALL U.S. GOVERNMENTAL
END USERS ACQUIRE THE SOFTWARE
WITH ONLY THOSE LICENSE RIGHTS
SET FORTH HEREIN. THE PRODUCTS
ARE COPYRIGHT -C- 1984-1997 BY ETAK.
UNPUBLISHED. ALL RIGHTS RESERVED
UNDER THE COPYRIGHT LAWS OF THE
UNITED STATES.
18
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
latest day and year written below.
Teletrac, Inc. Etak, Inc.
a Delaware corporation a California corporation
2323 Grand, Suite 1100 1430 O'Brien Drive
Kansas City, Missouri 64108-2670 Menlo Park, California 94025
(816) 474-0055 (415) 328-3825
Fax: (816) 474-3475
By: /s/ Steven D. Scheiwe By: /s/ Steven T. Dodds
---------------------- -------------------------
Name: Steven D. Scheiwe Name: Steven T. Dodds
--------------------- ------------------------
Title: Secretary Title: VP of Product Marketing
-------------------- & Sales
-----------------------
19
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
EXHIBIT A-1
LICENSED PRODUCT AND SERVICES
STANDARD - RELEASED LICENSED PRODUCT:
A. SOFTWARE
****
B. DATA
****
NON-STANDARD/NON-RELEASED LICENSED PRODUCT
A. SOFTWARE
****
B. DATA
N/A
SOURCE CODE
****
SERVICES
Teletrac shall be entitled to **** hours of telephone technical support at
no additional charge. Etak support services can be reached via telephone
at 1-800-765-0555. For any support requested by Teletrac in excess of this
time, Teletrac shall pay to Etak an amount equal to Etak's then current
support rate (current rate of $****/hour; minimum 1 hour).
A-1(1)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
EXHIBIT A-2
DERIVATIVE PRODUCT, SCHEDULE OF FEES, AND ROYALTIES
The terms set forth in this Exhibit A-2 supersede any prior Schedule of Fees and
Royalties agreed to between the parties, and apply only to the Derivative
Product set forth below in Section 1 below. A new Exhibit A-2 must be submitted
for each Derivative Product to be covered under this Agreement.
1. DERIVATIVE PRODUCT TO WHICH THIS SCHEDULE APPLIES:
Teletrac Radiolocation software employing the **** through **** mHz
frequency range only in the United States and the Teletrac network and
Teletrac points of interest (icons).
2. FEES PAYABLE:
For those items listed in Exhibit A-1, Teletrac shall pay to Etak a fixed
fee in the amount of **** dollars ($****). These fees exclude escrow fees
or engineering fees.
$ **** payable upon signature
$ **** payable on 04/14/97
$ **** payable on 07/14/97
$ **** payable on 10/14/97
RENEWAL OPTION. Providing that Teletrac is not in any material breach of
this Agreement, including but not limited to making timely payment of all
fees due Etak, Teletrac shall have the right to renew this Agreement for an
additional term of one (1) year by providing Etak with written notice no
later than November 14, 1997 of its intent to renew. Payment of fees for
the renewal term shall be as follows:
$ **** payable on 02/14/98
$ **** payable on 05/14/98
$ **** payable on 08/14/98
$ **** payable on 11/14/98
CUSTOM DATA MERGING OPTION. Etak will provide custom data merging services
for adjoining ECAs at the rate of **** Dollars ($****) per ECA merged. For
example, the price to merge two (2) adjoining ECAs is $**** and $**** for
each additional ECA merged to the original two.
3. STANDARD DATA UPDATES:
A-2(1)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
Providing that Teletrac is not in any material breach of this Agreement,
including but not limited to making timely payment of all fees due Etak,
Teletrac shall be entitled to receive quarterly updates of Etak's standard
MapAccess data for the geographic areas provided for in Exhibit A-1 as they
are generally released by Etak.
Teletrac shall be entitled to receive updates of Etak's standard US
MapAccess data as they are generally released by Etak. Etak typically
provides full sets for the US updates in January with modifications/deltas
typically provided in April, July and October.
Teletrac shall be entitled to receive updates of Etak's custom merged ECA's
for Los Angeles, CA; Houston, TX; Miami, FL; Detroit, MI; Chicago, IL;
Dallas, TX. Etak will provide these updates no sooner than ninety (90)
days after contract execution. Etak will not provide updates of these
custom merged ECAs after initial delivery.
4. ADVERTISEMENTS
Teletrac shall not place any advertising by third parties in or onto
Derivative Products unless Etak and Teletrac first agree in writing upon a
mutually acceptable arrangement concerning the revenue or potential revenue
of such advertising.
5. CONFIDENTIALITY
Neither party shall discuss or disclose the terms of the Agreement or this
Exhibit with any third party, other than its legal counsel and accountant,
without prior written consent from the other party, which consent shall not
be unreasonably withheld.
Teletrac, Inc. Etak, Inc.
a Delaware corporation a California corporation
2323 Grand, Suite 1100 1430 O'Brien Drive
Kansas City, Missouri 64108-2670 Menlo Park, California 94025
(816) 474-0055 (415) 328-3825
Fax: (816) 474-3475
By:_____________________________ By:__________________________
Name:___________________________ Name:________________________
A-2(2)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
Title:__________________________ Title:
Date:___________________________ Date:________________________
A-2(3)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
EXHIBIT B
ETAK END USER LICENSE AGREEMENT
SAMPLE ONLY - DO NOT USE
1. GRANT OF LICENSE. Licensor grants User a non-transferable, non-exclusive
five (5) year license to use the software, data and/or documentation as
defined in the attached quotation (the "Products"), solely for internal use
by User's business, only with one central processing unit at any one time.
User may not copy, reverse engineer, translate, port, modify or make
derivative works of the Products. User may not rent, disclose, publish,
sell, assign, lease, sublicense, market, or transfer the Products or use them
in any manner not expressly authorized by this Agreement. User shall not
derive or attempt to derive the source code or structure of all or any
portion of the Products by reverse engineering, disassembly, decompilation or
any other means. User shall not use the Products to operate a service bureau
or for any other use involving the processing of data of other persons or
entities. User may not use the data Products with any software other than
the software Products provided to User under this license agreement.
User does not receive any, and Licensor retains all, ownership rights in the
Products. The Products are copyrighted and may not be copied, even if
modified or merged with other Products. User shall not alter or remove any
copyright notice or proprietary legend contained in or on the Products.
Licensor's supplier shall be a third party beneficiary of Licensor's rights
under this Agreement, but is not a party hereto and shall have no obligation
hereunder.
2. LIMITED WARRANTY AND LIABILITY. Licensor warrants that the Products in
the version and level that is current on the date of initial shipment to User
will, for ninety (90) days from that date, substantially conform to
Licensor's specifications, when used in a computer environment approved by
Licensor. The Products are complex and may contain some non-conformities,
defects or errors. Licensor does not warrant that the Products will meet User
needs or expectations, that operations of the Products will be error-free or
uninterrupted, or that all nonconformities can or will be corrected.
User must notify Licensor within the 90-day warranty period of any warranty
claim. Licensor's SOLE OBLIGATION and User's SOLE REMEDY under this Limited
Warranty is for Licensor, at Licensor's option, to
B(1)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
use reasonable efforts to repair or replace the Products or to provide an
avoidance procedure within a commercially reasonable time so that the
Products substantially conform to the specifications contained in Licensor's
documentation, or, in Licensor's sole discretion, to refund the amount of the
initial license fee previously paid by User for the non-conforming Product
unit(s).
This Limited Warranty is void if any non-conformity has resulted from accident,
abuse, misuse, misapplication, or modification by someone other than Licensor.
This Limited Warranty is non-transferable.
THE EXPRESS WARRANTY IN THIS SECTION 2 IS A LIMITED WARRANTY AND IT IS THE ONLY
WARRANTY MADE BY LICENSOR. LICENSOR MAKES AND USER RECEIVES NO OTHER WARRANTY,
WHETHER EXPRESS OR IMPLIED, AND ALL WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR ANY PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED. THE STATED EXPRESS WARRANTY
IS THE EXCLUSIVE REMEDY FOR DAMAGES AND IS IN LIEU OF ALL LIABILITIES OR
OBLIGATIONS OF LICENSOR.
IN NO EVENT SHALL LICENSOR BE LIABLE FOR ANY DAMAGES, CLAIM OR LOSS INCURRED BY
USER (INCLUDING WITHOUT LIMITATION COMPENSATORY, INCIDENTAL, DIRECT, INDIRECT,
SPECIAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES, LOST PROFITS, LOST SALES OR
BUSINESS, EXPENDITURES, INVESTMENTS, OR COMMITMENTS IN CONNECTION WITH ANY
BUSINESS, LOSS OF ANY GOODWILL, OR DAMAGES RESULTING FROM LOST DATA OR INABILITY
TO USE DATA) IRRESPECTIVE OF WHETHER LICENSOR HAS BEEN INFORMED OF, KNEW OF, OR
SHOULD HAVE KNOWN OF THE LIKELIHOOD OF SUCH DAMAGES, EXCEPT AS EXPRESSLY
PROVIDED IN SECTION 2. THIS LIMITATION APPLIES TO ALL CAUSES OF ACTION IN THE
AGGREGATE, INCLUDING WITHOUT LIMITATION BREACH OF CONTRACT, BREACH OF WARRANTY,
NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION, AND OTHER TORTS. IF LICENSOR'S
LIMITED WARRANTY OR LIMITATION OF LIABILITY SET FORTH IN THIS AGREEMENT SHALL
FOR ANY REASON WHATSOEVER BE HELD UNENFORCEABLE OR INAPPLICABLE, USER AGREES
THAT LICENSOR'S LIABILITY SHALL NOT EXCEED FIFTY PERCENT (50%) OF THE LICENSE
FEES PAID BY USER TO ETAK WITH RESPECT TO THE PRODUCT UNIT(S) AT ISSUE. Some
states do not allow the exclusion or limitation of incidental or consequential
damages or the limitation of duration of an implied warranty, so the limitation
or exclusion herein may not apply to User. This warranty shall not be
applicable to the extent that any provision of this warranty Is prohibited by
any federal, state or local law which cannot be preempted. This warranty gives
User specific legal rights, and User may also have other rights which vary from
state to state.
3. MISCELLANEOUS. This is the exclusive Agreement between Licensor and User
regarding its subject matter. User may not assign any part
B(2)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
of this Agreement without Licensor's prior written consent. This Agreement
shall be governed by the internal laws of California. User shall pay any
taxes on the Products or transactions, except for those based on Licensor's
annual net income.
If any provision of this Agreement is declared invalid or unenforceable, the
remaining provisions of this Agreement shall remain in effect. Any notice
under this Agreement shall be delivered by U.S. certified mail, return
receipt requested, or by overnight courier to Licensor at the address below.
U.S. GOVERNMENT RESTRICTED RIGHTS
If any Product is used in any fashion, directly or indirectly, in connection
with foreign or domestic government contracting or subcontracting, including
without limitation, USER's performance of any government contracts or
subcontracts, then USER shall ensure that the government entity receives
nothing more than RESTRICTED RIGHTS to use the Products pursuant to a
sublicense agreement equivalent to that allowed under section 2.4 of this
Agreement. USER shall inform any government entity or prime contractor with
which it is contracting exactly how it intends to use the Products in
connection with its government contracts, that such Products are proprietary
to Etak and that Licensee has no right to grant to the government entity or
prime contractor any rights in the Products. THE SOFTWARE IS A "COMMERCIAL
ITEM", AS THAT TERM IS DEFINED AT 48 C.F.R 2.101 (OCT. 1995) CONSISTING OF
"COMMERCIAL COMPUTER SOFTWARE" AND "COMMERCIAL COMPUTER DOCUMENTATION," AS
SUCH TERMS ARE USED IN 48 C.F.R. 12.212 (SEPT 1995). CONSISTENT WITH 48
C.F.R. 12.212 AND 48 C.F.R. 227.7202-1 THROUGH 227.7202-4 (JUNE 1995), ALL
U.S. GOVERNMENTAL END USERS ACQUIRE THE SOFTWARE WITH ONLY THOSE LICENSE
RIGHTS SET FORTH HEREIN. FOR PURPOSE OF ANY PUBLIC DISCLOSURE PROVISION
UNDER ANY FEDERAL, STATE OR LOCAL LAW, IT IS AGREED THAT THESE PRODUCTS ARE
TRADE SECRET AND PROPRIETARY COMMERCIAL PRODUCTS AND NOT SUBJECT TO
DISCLOSURE.
(company) Etak, Inc.
a (state) corporation a California corporation
(address) 1430 O'Brien Drive
(state, city, zip) Menlo Park, California 94025
(phone) (415) 328-3825
By:_____________________________ By:____________________________
Name:___________________________ Name:__________________________
Title:__________________________ Title:_________________________
B(3)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
Date:___________________________ Date:__________________________
B(4)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
EXHIBIT C
COMPUTER CONFIGURATIONS ON WHICH
TELETRAC MAY USE THE PRODUCTS
An environment is a combination of processor type, compiler and operating
system.
ENVIRONMENT:
****
TOOLS TO BE USED:
****
****
C(1)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
EXHIBIT D
PREFERRED ESCROW AGREEMENT
Account Number ______________
This Agreement is effective _______________, 19___ among Data Securities
International, Inc. ("DSI"), Etak, Inc. ("Depositor") and Teletrac, Inc.
("Preferred Beneficiary"), who collectively may be referred to in this
Agreement as "the parties."
A. Depositor and Preferred Beneficiary have entered or will enter into a
license agreement, development agreement, and/or other agreement regarding
certain proprietary technology of Depositor (referred to in this Agreement as
"the license agreement").
B. Depositor desires to avoid disclosure of its proprietary technology
except under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is critical
to Preferred Beneficiary in the conduct of its business and, therefore,
Preferred Beneficiary needs access to the proprietary technology under
certain limited circumstances.
D. Depositor and Preferred Beneficiary desire to establish an escrow with
DSI to provide for the retention, administration and controlled access of the
proprietary technology materials of Depositor.
E. The parties desire this Agreement to be supplementary to the license
agreement pursuant to 11 United States [Bankruptcy] Code, Section 365(n).
ARTICLE 1 -- DEPOSITS
1.1 OBLIGATION TO MAKE DEPOSIT. Upon the signing of this Agreement by the
parties, Depositor shall deliver to DSI the proprietary information and other
materials ("deposit materials") required to be deposited by the license
agreement or, if the license agreement does not identify the materials to be
deposited with DSI, then such materials will be identified on an Attachment
A. If Attachment A is applicable, it is to be prepared and signed by
Depositor and Preferred Beneficiary. DSI shall have no obligation with
respect to the preparation, signing or delivery of Attachment A.
1.2 IDENTIFICATION OF TANGIBLE MEDIA. Prior to the delivery of the deposit
materials to DSI, Depositor shall conspicuously label for
D(1)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
identification each document, magnetic tape, disk, or other tangible media
upon which the deposit materials are written or stored. Additionally,
Depositor shall complete Attachment B to this Agreement by listing each such
tangible media by the item label description, the type of media and the
quantity. The Attachment B must be signed by Depositor and delivered to DSI
with the deposit materials. Unless and until Depositor makes the initial
deposit with DSI, DSI shall have no obligation with respect to this
Agreement, except the obligation to notify the parties regarding the status
of the deposit account as required in Section 2.2 below.
1.3 DEPOSIT INSPECTION. When DSI receives the deposit materials and the
Attachment B, DSI will conduct a deposit inspection by visually matching the
labeling of the tangible media containing the deposit materials to the item
descriptions and quantity listed on the Attachment B. In addition to the
deposit inspection, Preferred Beneficiary may elect to cause a verification
of the deposit materials in accordance with Section 1.6 below.
1.4 ACCEPTANCE OF DEPOSIT. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item
descriptions and quantity on Attachment B, DSI will date and sign the
Attachment B and mail a copy thereof to Depositor and Preferred Beneficiary.
If DSI determines that the labeling does not match the item descriptions or
quantity on the Attachment B, DSI will (a) note the discrepancies in writing
on the Attachment B; (b) date and sign the Attachment B with the exceptions
noted; and (c) provide a copy of the Attachment B to Depositor and Preferred
Beneficiary. DSI's acceptance of the deposit occurs upon the signing of the
Attachment B by DSI. Delivery of the signed Attachment B to Preferred
Beneficiary is Preferred Beneficiary's notice that the deposit materials have
been received and accepted by DSI.
1.5 DEPOSITOR'S REPRESENTATIONS. Depositor represents as follows:
a. Depositor lawfully possesses all of the deposit materials deposited
with DSI;
b. With respect to all of the deposit materials, Depositor has the right
and authority to grant to DSI and Preferred Beneficiary the rights as
provided in this Agreement;
c. The deposit materials are not subject to any lien or other
encumbrance; and
D(2)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
d. The deposit materials consist of the proprietary information and other
materials identified either in the license agreement or Attachment A,
as the case may be.
1.6 VERIFICATION. Preferred Beneficiary shall have the right, at Preferred
Beneficiary's expense, to cause a verification of any deposit materials. A
verification determines, in different levels of detail, the accuracy,
completeness, sufficiency and quality of the deposit materials. If a
verification is elected after the deposit materials have been delivered to
DSI, then only DSI, or at DSI's election an independent person or company
selected and supervised by DSI, may perform the verification.
1.7 DEPOSIT UPDATES. Unless otherwise provided by the license agreement,
Depositor shall update the deposit materials within 60 days of each release
of a new version of the product which is subject to the license agreement.
Such updates will be added to the existing deposit. All deposit updates
shall be listed on a new Attachment B and the new Attachment B shall be
signed by Depositor. Each Attachment B will be held and maintained
separately within the escrow account. An independent record will be created
which will document the activity for each Attachment B. The processing of all
deposit updates shall be in accordance with Sections 1.2 through 1.6 above.
All references in this Agreement to the deposit materials shall include the
initial deposit materials and any updates.
1.8 REMOVAL OF DEPOSIT MATERIALS. The deposit materials may be removed
and/or exchanged only on written instructions signed by Depositor and
Preferred Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 2 -- CONFIDENTIALITY AND RECORD KEEPING
2.1 CONFIDENTIALITY. DSI shall maintain the deposit materials in a secure,
environmentally safe, locked receptacle which is accessible only to
authorized employees of DSI. DSI shall have the obligation to reasonably
protect the confidentiality of the deposit materials. Except as provided in
this Agreement, DSI shall not disclose, transfer, make available, or use the
deposit materials. DSI shall not disclose the content of this Agreement to
any third party. If DSI receives a subpoena or other order of a court or
other judicial tribunal pertaining to the disclosure or release of the
deposit materials, DSI will immediately notify the parties to this Agreement.
It shall be the responsibility of Depositor and/or Preferred Beneficiary to
challenge any such order; provided, however, that DSI does not waive its
rights to present its position with respect to any
D(3)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
such order. DSI will not be required to disobey any court or other judicial
tribunal order. (See Section 7.5 below for notices of requested orders.)
2.2 STATUS REPORTS. DSI will issue to Depositor and Preferred Beneficiary a
report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request
of any party to this Agreement.
2.3 AUDIT RIGHTS. During the term of this Agreement, Depositor and Preferred
Beneficiary shall each have the right to inspect the written records of DSI
pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
ARTICLE 3 -- GRANT OF RIGHTS TO DSI
3.1 TITLE TO MEDIA. Depositor hereby transfers to DSI the title to the media
upon which the proprietary information and materials are written or stored.
However, this transfer does not include the ownership of the proprietary
information and materials contained on the media such as any copyright, trade
secret, patent or other intellectual property rights.
3.2 RIGHT TO MAKE COPIES. DSI shall have the right to make copies of the
deposit materials as reasonably necessary to perform this Agreement. DSI
shall copy all copyright, nondisclosure, and other proprietary notices and
titles contained on the deposit materials onto any copies made by DSI. With
all deposit materials submitted to DSI, Depositor shall provide any and all
instructions as may be necessary to duplicate the deposit materials including
but not limited to the hardware and/or software needed.
3.3 RIGHT TO SUBLICENSE UPON RELEASE. As of the effective date of this
Agreement, Depositor hereby grants to DSI a non-exclusive, irrevocable,
perpetual, and royalty-free license to sublicense the deposit materials to
Preferred Beneficiary upon the release, if any, of the deposit materials in
accordance with Section 4.5 below. Except upon such a release, DSI shall not
sublicense or otherwise transfer the deposit materials.
ARTICLE 4 -- RELEASE OF DEPOSIT
4.1 RELEASE CONDITIONS. As used in this Agreement, "Release Conditions"
shall mean the following:
D(4)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
a. Depositor's failure to carry out obligations imposed on it pursuant to
the license agreement; or
b. Depositor's failure to continue to do business in the ordinary course.
4.2 FILING FOR RELEASE. If Preferred Beneficiary believes in good faith that
a Release Condition has occurred, Preferred Beneficiary may provide to DSI
written notice of the occurrence of the Release Condition and a request for
the release of the deposit materials. Upon receipt of such notice, DSI shall
provide a copy of the notice to Depositor, by certified mail, return receipt
requested, or by commercial express mail.
4.3 CONTRARY INSTRUCTIONS. From the date DSI mails the notice requesting
release of the deposit materials, Depositor shall have ten business days to
deliver to DSI Contrary Instructions. "Contrary Instructions" shall mean the
written representation by Depositor that a Release Condition has not occurred
or has been cured. Upon receipt of Contrary Instructions, DSI shall send a
copy to Preferred Beneficiary by certified mail, return receipt requested, or
by commercial express mail. Additionally, DSI shall notify both Depositor
and Preferred Beneficiary that there is a dispute to be resolved pursuant to
the Dispute Resolution section (Section 7.3) of this Agreement. Subject to
Section 5.2, DSI will continue to store the deposit materials without release
pending (a) joint instructions from Depositor and Preferred Beneficiary, (b)
resolution pursuant to the Dispute Resolution provisions, or (c) order of a
court.
4.4 RELEASE OF DEPOSIT. If DSI does not receive Contrary Instructions from
the Depositor, DSI is authorized to release the deposit materials to the
Preferred Beneficiary or, if more than one beneficiary is registered to the
deposit, to release a copy of the deposit materials to the Preferred
Beneficiary. However, DSI is entitled to receive any fees due DSI before
making the release. This Agreement will terminate upon the release of the
deposit materials held by DSI.
4.5 USE LICENSE FOLLOWING RELEASE. Unless otherwise provided in the license
agreement, upon release of the deposit materials in accordance with this
Article 4, Preferred Beneficiary shall have a non-exclusive, nontransferable,
irrevocable right to use the deposit materials for the sole purpose of
continuing the benefits afforded to Preferred Beneficiary by the license
agreement. Preferred Beneficiary shall be obligated to maintain the
confidentiality of the released deposit materials.
D(5)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
ARTICLE 5 -- TERM AND TERMINATION
5.1 TERM OF AGREEMENT. The initial term of this Agreement is for a period of
one year. Thereafter, this Agreement shall automatically renew from
year-to-year unless (a) Depositor and Preferred Beneficiary jointly instruct
DSI in writing that the Agreement is terminated; or (b) the Agreement is
terminated by DSI for nonpayment in accordance with Section 5.2. If the
deposit materials are subject to another escrow agreement with DSI, DSI
reserves the right, after the initial one year term, to adjust the
anniversary date of this Agreement to match the then prevailing anniversary
date of such other escrow arrangements.
5.2 TERMINATION FOR NONPAYMENT. In the event of the nonpayment of fees owed
to DSI, DSI shall provide written notice of delinquency to all parties to
this Agreement. Any party to this Agreement shall have the right to make the
payment to DSI to cure the default. If the past due payment is not received
in full by DSI within one month of the date of such notice, then DSI shall
have the right to terminate this Agreement at any time thereafter by sending
written notice of termination to all parties. DSI shall have no obligation
to take any action under this Agreement so long as any payment due to DSI
remains unpaid.
5.3 DISPOSITION OF DEPOSIT MATERIALS UPON TERMINATION. Upon termination of
this Agreement by joint instruction of Depositor and Preferred Beneficiary,
DSI shall destroy, return, or otherwise deliver the deposit materials in
accordance with Depositor's instructions. Upon termination for nonpayment,
DSI may, at its sole discretion, destroy the deposit materials or return them
to Depositor. DSI shall have no obligation to return or destroy the deposit
materials if the deposit materials are subject to another escrow agreement
with DSI.
5.4 SURVIVAL OF TERMS FOLLOWING TERMINATION. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
a. Depositor's Representations (Section 1.5).
b. The obligations of confidentiality with respect to the deposit
materials.
c. The licenses granted in the sections entitled Right to Sublicense Upon
Release (Section 3.3) and Use License Following Release (Section 4.5),
if a release of the deposit materials has occurred prior to
termination.
D(6)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
d. The obligation to pay DSI any fees and expenses due.
e. The provisions of Article 7.
f. Any provisions in this Agreement which specifically state they survive
the termination or expiration of this Agreement.
ARTICLE 6 -- DSI'S FEES
6.1 FEE SCHEDULE. DSI is entitled to be paid its standard fees and expenses
applicable to the services provided. DSI shall notify the party responsible
for payment of DSI's fees at least 90 days prior to any increase in fees.
For any service not listed on DSI's standard fee schedule, DSI will provide a
quote prior to rendering the service, if requested.
6.2 PAYMENT TERMS. DSI shall not be required to perform any service unless
the payment for such service and any outstanding balances owed to DSI are
paid in full. All other fees are due upon receipt of invoice. If invoiced
fees are not paid, DSI may terminate this Agreement in accordance with
Section 5.2. Late fees on past due amounts shall accrue at the rate of one
and one-half percent per month (18% per annum) from the date of the invoice.
ARTICLE 7 -- LIABILITY AND DISPUTES
7.1 RIGHT TO RELY ON INSTRUCTIONS. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be
genuine. DSI may assume that any employee of a party to this Agreement who
gives any written notice, request, or instruction has the authority to do so.
DSI shall not be responsible for failure to act as a result of causes beyond
the reasonable control of DSI.
7.2 INDEMNIFICATION. DSI shall be responsible to perform its obligations
under this Agreement and to act in a reasonable and prudent manner with
regard to this escrow arrangement. Provided DSI has acted in the manner
stated in the preceding sentence, Depositor and Preferred Beneficiary each
agree to indemnify, defend and hold harmless DSI from any and all claims,
actions, damages, arbitration fees and expenses, costs, attorney's fees and
other liabilities incurred by DSI relating in any way to this escrow
arrangement.
7.3 DISPUTE RESOLUTION. Any dispute relating to or arising from this
Agreement shall be resolved by arbitration under the Commercial Rules of the
American Arbitration Association. Unless otherwise agreed by
D(7)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
Depositor and Preferred Beneficiary, arbitration will take place in San
Diego, California, U.S.A. Any court having jurisdiction over the matter may
enter judgment on the award of the arbitrator(s). Service of a petition to
confirm the arbitration award may be made by First Class mail or by
commercial express mail, to the attorney for the party or, if unrepresented,
to the party at the last known business address.
7.4 CONTROLLING LAW. This Agreement is to be governed and construed in
accordance with the laws of the State of California, without regard to its
conflict of law provisions.
7.5 NOTICE OF REQUESTED ORDER. If any party intends to obtain an order from
the arbitrator or any court of competent jurisdiction which may direct DSI to
take, or refrain from taking any action, that party shall:
a. Give DSI at least two business days' prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's obligation,
DSI be paid in full for any past due fees and be paid for the
reasonable value of the services to be rendered pursuant to such
order; and
c. Ensure that DSI not be required to deliver the original (as opposed to
a copy) of the deposit materials if DSI may need to retain the
original in its possession to fulfill any of its other duties.
ARTICLE 8 -- GENERAL PROVISIONS
8.1 ENTIRE AGREEMENT. This Agreement, which includes the Exhibits described
herein, embodies the entire understanding among the parties with respect to
its subject matter and supersedes all previous communications,
representations or understandings, either oral or written. No amendment or
modification of this Agreement shall be valid or binding unless signed by all
the parties hereto, except that Attachment A need not be signed by DSI,
Attachment B need not be signed by Preferred Beneficiary and Attachment C
need not be signed.
8.2 NOTICES. All notices, invoices, payments, deposits and other documents
and communications shall be given to the parties at the addresses specified
in the attached Attachment C. It shall be the responsibility of the parties
to notify each other as provided in this Section in the event of a change of
address. The parties shall have
D(8)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
the right to rely on the last known address of the other parties. Unless
otherwise provided in this Agreement, all documents and communications may be
delivered by First Class mail.
8.3 SEVERABILITY. In the event any provision of this Agreement is found to
be invalid, voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Agreement, such
invalidity, voidability or unenforceability shall affect neither the validity
of this Agreement nor the remaining provisions herein, and the provision in
question shall be deemed to be replaced with a valid and enforceable
provision most closely reflecting the intent and purpose of the original
provision.
8.4 SUCCESSORS. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI shall
have no obligation in performing this Agreement to recognize any successor or
assign of Depositor or Preferred Beneficiary unless DSI receives clear,
authoritative and conclusive written evidence of the change of parties.
Etak, Inc. Teletrac, Inc.
Depositor Preferred Beneficiary
By:_____________________________ By:__________________________
Name:___________________________ Name:________________________
Title:__________________________ Title:_______________________
Date:___________________________ Date:________________________
Data Securities International, Inc.
By:________________________________
Name:______________________________
Title:_____________________________
Date:______________________________
D(9)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
ATTACHMENT A TO EXHIBIT D
MATERIALS TO BE DEPOSITED
Account Number ____________________
Depositor represents to Preferred Beneficiary that deposit materials delivered
to DSI shall consist of the following:
****
Etak, Inc. Teletrac, Inc.
Depositor Preferred Beneficiary
By:_____________________________ By:__________________________
Name:___________________________ Name:________________________
Title:__________________________ Title:_______________________
Date:___________________________ Date:________________________
D(9)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
ATTACHMENT B TO EXHIBIT D
DESCRIPTION OF DEPOSIT MATERIALS
Account Number______________________________________________________
Depositor Company Name: Etak, Inc.
DEPOSIT TYPE: _______ Initial ______ Supplemental
ENVIRONMENT:
Host System CPU/OS_______________ Version___________ Backup_________
Source System CPU/OS_____________ Version___________ Compiler ______
Special Instructions:_______________________________________________
DEPOSIT COPYING REQUIREMENT:
Hardware needed:____________________________________________________
Software needed/Instructions:_______________________________________
DEPOSIT MATERIALS:
Attachment B Name____________________________ Version_______________
Item label description Media Quantity
**** **** ****
For Depositor, I certify that the For DSI, I certify that the
above described deposit materials deposit inspection has been
have been transmitted to DSI: completed (any exceptions are
noted above):
By_______________________________ By____________________________
Print Name_______________________ Print Name____________________
Date_____________________________ Date of Acceptance____________
ISE__________ EX. B#__________
D(11)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
Send materials to: DSI, 9555 Chesapeake Dr. #200, San Diego, CA 92123
ATTACHMENT C TO EXHIBIT D
DESIGNATED CONTACT
Account Number_____________________
Notices, deposit material returns Invoices to Depositor should be
and communications to Depositor addressed to:
should be addressed to:
Company Name: Mgr. Contract Company Name: Mgr. Contract
Administration Administration
Address: 1430 O'Brien Drive Address: 1430 O'Brien Drive
Menlo Park, CA 94025 Menlo Park, CA 94025
____________________ ____________________
Designated Contact: Angela Gomez Designated Contact: Angela Gomez
Telephone: (415) 617-4446 Telephone: (415) 617-4446
Facsimile: (415) 617-4456 Facsimile: (415) 617-4456
Notices and communications to Invoices to Preferred Beneficiary
Preferred Beneficiary should be should be addressed to:
addressed to:
_________________________________
Company Name:____________________ _________________________________
Address:_________________________ _________________________________
_________________________ _________________________________
_________________________ Contact:_________________________
Designated Contact:______________ _________________________________
Telephone:_______________________ _________________________________
Facsimile:_______________________ _________________________________
Requests from Depositor or Preferred Beneficiary to change the designated
contact should be given in writing by the designated contact or an authorized
employee of Depositor or Preferred Beneficiary.
Contracts, deposit materials and Invoice inquiries and fee
notices to DSI should be remittances to DSI should be
addressed to: addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
D(12)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Date:_________________________________
D(13)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
Etak, Inc.
Value Added Reseller Agreement
EXHIBIT E
SOURCE CODE ADDENDUM
Etak, Inc. ("Etak") and Teletrac ("USER") agree that USER shall have
access to and use of certain Etak Software "Software") source code in
accordance with the terms and conditions of this Addendum ("Addendum").
1. DELIVERY OF SOURCE. Upon execution of this Addendum by both parties,
Etak shall deliver to USER source code for Etak Software ("Source"), as
specified in Attachment A to this Addendum. USER shall be entitled to retain
and use Source only if USER continues to fully comply with all of USER's
obligations under the USER Agreement.
2. LICENSE. Etak hereby grants to USER, subject to the terms and conditions
of this Addendum, a nontransferable, non-exclusive license to (i) load Source
on a single CPU at USER's primary business facility in the United States; and
(ii) permit up to three (3) "Designated Employees" of USER to access and use
Source for the sole purpose of "porting" Source to a specified single target
"platform." The single target platform is specified in Attachment A.
"Designated Employee" shall mean a full-time employee of USER who has signed
a non-disclosure agreement with respect to use, confidentiality, security and
other restrictions regarding Source that is consistent with this Addendum.
USER shall indicate on Attachment A the name and title of the Designated
Employees. "Porting" shall mean using Source to create object code that is
executable on the target platform and that duplicates the functionality of
Source (the "Ported Code"). "Platform" shall mean a combination of hardware
and operating system. Upon termination of this Addendum, USER shall return
Source and all copies thereof to Etak and shall certify in writing that USER
has done so and that USER shall make no further use of Source.
Etak also hereby grants to USER, subject to the terms and conditions of this
Addendum, a non-transferable, non-exclusive license (valid as long as the
USER Agreement is in effect) to sublicense the Ported Code to End Users as a
Licensed Product under the terms and conditions of the USER Agreement, as
modified by this Addendum. However, USER shall not sublicense the Ported
Code separately, but only in combination with application software created by
USER. All Ported Code shall be considered a Derivative Product under the
terms of the USER Agreement. USER agrees to provide to Etak a complete and
correct copy of the Ported Code and the "makefile file" used to create the
Ported Code, as well as all associated documentation used in the Porting,
promptly upon creation thereof. However, Etak agrees that it will not
provide a copy of the Ported Code to any third party unless Etak has first
generally released the Ported Code as an Etak Product, in which case Etak may
provide the Ported Code
E(1)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
to any third party in accordance with Etak's standard distribution practices.
USER agrees not to use Source for any purpose except as specifically
permitted above in this Section 2. By way of example, and not by way of
limitation, USER shall not reverse engineer, analyze, or modify Source
(except for modifications that are necessary to create operational Ported
Code), nor shall USER rent, disclose, publish, sell, assign, lease,
sublicense, market, or transfer Source to any third party. USER shall not
ship, load or use Source outside the United States. Etak shall provide to
USER source code only for Etak Software as specified in Attachment A, and not
for any other Etak software.
3. PROTECTION OF SOURCE. USER acknowledges that Source is the unpublished,
copyrighted work of Etak, contains valuable trade secrets, and Etak reserves
all rights in the Source not expressly granted to USER by this Addendum.
USER shall not publish or permit others to publish Source. No title to or
ownership of Source is hereby transferred to USER. USER's rights shall at
all times be subject to the use, non-disclosure and other restrictions
contained in this Addendum
USER agrees that Source shall not be duplicated, copied, manufactured or
reproduced in any manner, except for a single archival backup copy. USER
agrees to mark the original and the archival copy with a human-readable
legend stating (i) "CONFIDENTIAL TO AND PROPERTY OF ETAK, INC."; (ii)
"SUBJECT TO USE RESTRICTIONS IN ETAK, INC. LICENSE AGREEMENT"; and (iii)
"COPYRIGHT ETAK, INC. 1984-1997." USER shall not remove or alter such marking.
Source, including all aspects thereof, together with all materials and
knowledge related thereto (the "Confidential Items"), are obtained by USER,
and its employees, agents and representatives, in confidence and in trust and
except as expressly permitted by this Addendum, shall not be used, duplicated
or disclosed by any of them in any form for the use or benefit of any person
or entity, nor reproduced, transcribed, imitated or simulated in whole or in
part. USER shall take all reasonable steps to ensure that the Confidential
Items are not disclosed or duplicated in contravention of this Addendum, to
maintain the confidentiality of Confidential Items and to protect
Confidential Items from misappropriation or misuse, unauthorized duplication
or distribution, including without limitation the exercise by USER of at
least the same degree of care USER employs in protecting its own most
valuable confidential information. USER shall notify Etak promptly if USER
learns of any misappropriation of the Confidential Items or use of the
Confidential Items by anyone in any manner not expressly authorized by this
Addendum, and shall fully
E(2)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
cooperate with any efforts by Etak to prevent any misappropriation or misuse
of Confidential Items.
USER agrees that money damages are inadequate to protect Etak's rights under
this Addendum and that Etak shall be entitled to specific performance to protect
its rights hereunder, in addition to any other remedies to which it may be
entitled.
4. DISCLAIMER OF WARRANTIES, LIABILITY.
4.1 SOURCE IS PROVIDED "AS IS" AND "WITH ALL FAULTS." ETAK MAKES NO EXPRESS OR
IMPLIED WARRANTY OF ANY KIND WITH REGARD TO THE SOURCE, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND TITLE. ETAK MAKES NO REPRESENTATION OR WARRANTY THAT USER CAN
SUCCESSFULLY USE SOURCE. NO WARRANTY, INSTALLATION, TRAINING OR SIMILAR
SERVICES WILL BE PROVIDED BY ETAK FOR SOURCE. THE ENTIRE RISK OF PERFORMANCE
AND USE OF SOURCE IS ASSUMED BY USER, WITH USER'S EXPRESS UNDERSTANDING THAT USE
OF SOURCE COULD ADVERSELY AFFECT THE FUNCTIONING OF SOFTWARE OR CORRUPT DATA.
NO ORAL OR WRITTEN ADVICE OR INFORMATION PROVIDED BY ETAK OR ANY OF ITS AGENTS
OR EMPLOYEES SHALL CREATE A WARRANTY AND USER IS NOT ENTITLED TO RELY ON ANY
SUCH ADVICE OR INFORMATION. IF USER REQUESTS, ETAK WILL PROVIDE REASONABLE
CONSULTING SERVICES REGARDING THE SOURCE AT ETAK'S THEN STANDARD TIME AND
MATERIALS RATES.
4.2 IN NO EVENT SHALL ETAK BE LIABLE FOR ANY CLAIM OR LOSS INCURRED BY USER
(INCLUDING WITHOUT LIMITATION COMPENSATORY, INCIDENTAL INDIRECT, SPECIAL,
CONSEQUENTIAL OR EXEMPLARY DAMAGES, LOST PROFITS, LOST SALES OR BUSINESS,
EXPENDITURES, INVESTMENTS, OR COMMITMENTS IN CONNECTION WITH ANY BUSINESS, LOSS
OF ANY GOODWILL, OR DAMAGES RESULTING FROM LOST DATA OR INABILITY TO USE DATA)
IRRESPECTIVE OF WHETHER ETAK HAS BEEN INFORMED OF, KNEW OF, OR SHOULD HAVE KNOWN
OF THE LIKELIHOOD OF SUCH DAMAGES. THIS LIMITATION APPLIES TO ALL CAUSES OF
ACTION IN THE AGGREGATE, INCLUDING WITHOUT LIMITATION BREACH OF CONTRACT, BREACH
OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION, AND OTHER TORTS.
USER FURTHER AGREES THAT ETAK SHALL NOT BE LIABLE IN ANY EVENT FOR ANY DAMAGES
INCURRED BY USER OR BY ANY OTHER PERSON, ORGANIZATION OR ENTITY AS A RESULT OF
USER'S MISUSE OF SOURCE. NOR SHALL ETAK BE LIABLE FOR ANY CLAIM OR DEMAND
AGAINST USER BY ANY OTHER PERSON, ORGANIZATION OR ENTITY. ETAK SHALL NOT BE
LIABLE TO USER BECAUSE OF ANY EXPIRATION, TERMINATION OR FAILURE TO RENEW OR
EXTEND THIS ADDENDUM, OR FOR FAILURE TO TIMELY DELIVER SOURCE. IF ETAK'S
WARRANTY DISCLAIMER OR LIMITATION OF LIABILITY SET FORTH IN THIS ADDENDUM SHALL
FOR ANY REASON WHATSOEVER BE HELD UNENFORCEABLE OR INAPPLICABLE, USER AGREES
THAT ETAK'S LIABILITY SHALL NOT EXCEED THE FEE PAID BY USER TO ETAK IN
ACCORDANCE WITH SECTION 1 OF THIS ADDENDUM.
E(3)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
4.3 USER shall protect, defend, indemnify and hold Etak harmless from any and
all claims, demands, liabilities, obligations, deficiencies, losses, damages,
actions, suits, proceedings, assessments, judgments or settlements (including
all reasonable costs and expenses related thereto such as attorneys' fees), that
arise from or are connected with the USER's use of possession of Source or
Ported Code, or, arise from or are connected with any breach by USER of any
provision of this Addendum.
5. TERMINATION. This Addendum shall continue in full force and effect for
the term of the USER Agreement and shall terminate immediately upon
termination of the USER Agreement for any reason. In addition, either party
may terminate this Addendum if the other party fails, neglects or refuses to
comply with the terms of this Addendum.
6. MISCELLANEOUS.
6.1 USER's receipt of any Source shall be deemed conclusive evidence of
USER's agreement that such materials are governed by this Addendum. USER
acknowledges that Etak has made no commitment and has no obligation to
release Source for any future upgrades, enhancements or releases of Software,
or for any other software.
6.2 The terms and conditions of Article 11, "Miscellaneous" of the USER
Agreement are incorporated herein by reference. In the event of any
conflict, the terms and conditions of this Addendum shall govern the use of
Source and the parties' rights and obligations related thereto.
6.3 Except as expressly modified by this Addendum, the USER Agreement remains
in full force and effect in accordance with its terms. USER cannot use
Source in any manner to violate the terms and conditions of the USER
Agreement.
6.4 All of USER's obligations under this Addendum shall survive the
termination of this Addendum or the USER Agreement.
Teletrac, Inc. Etak, Inc.
a Delaware corporation a California corporation
2323 Grand, Suite 1100 1430 O'Brien Drive
Kansas City, Missouri 64108-2670 Menlo Park, California 94025
(816) 474-0055 (415) 328-3825
By:_____________________________ By:__________________________
Name:___________________________ Name:________________________
E(4)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
Title:__________________________ Title:_______________________
Date:___________________________ Date:________________________
E(5)
<PAGE>
[**** Deleted pursuant to a request for Confidential Treatment.]
Etak, Inc.
Value Added Reseller Agreement
ATTACHMENT A TO EXHIBIT E
I. Description of Etak Software Source
****
II. Single Target Platform or Specified Single Operating System
****
III. Designated Employees Who Will Access Source
Name:__________________ Title:_____________________
Name:__________________ Title:_____________________
Name:__________________ Title:_____________________
E(6)
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of August 6, 1997, between Teletrac, Inc., a Delaware
corporation (the "PLEDGOR") and Norwest Bank Minnesota, National Association, as
collateral agent (the "COLLATERAL AGENT"), for the holders of the Notes (as
defined herein). Capitalized terms used but not otherwise defined herein shall
have the meanings given to such terms in the Indenture (as defined herein).
W I T N E S S E T H:
WHEREAS, the Pledgor, the Collateral Agent and the Trustee (as defined
in the Indenture) have entered into that certain Indenture dated as of August 6,
1997 (as amended, restated, supplemented or otherwise modified from time to
time, the "INDENTURE"), pursuant to which the Pledgor is issuing $105,000,000
aggregate principal amount of 14% Senior Notes due 2007 (the "NOTES"), which are
to be issued, together with warrants to purchase shares of Class A Common Stock,
par value $0.01, of Holdings, as Units;
WHEREAS, the Pledgor has agreed, pursuant to the Indenture and the
Purchase Agreement dated July 31, 1997 by and among the Pledgor, Teletrac
Holdings, Inc. ("Holdings"), Donaldson, Lufkin & Jenrette Securities Corporation
and TD Securities (USA) Inc., to (i) purchase a portfolio of Government
Securities initially consisting of those securities listed on Exhibit A hereto
(together with any replacement or substitute securities, the "PLEDGED
SECURITIES") in an amount sufficient, upon receipt of the scheduled interest and
principal payments in respect of the Pledged Securities, in the opinion of a
nationally recognized firm of independent certified public accountants selected
by the Pledgor, to provide for payment in full of the first six semi-annual
scheduled interest payments due on the Notes, and (ii) place the Pledged
Securities in the Pledge Account (as defined herein) held by the Collateral
Agent for the benefit of the holders of the Notes;
WHEREAS, the Pledgor is to be the sole legal and beneficial owner of
the Pledged Securities; and
WHEREAS, to secure the payment and performance by the Pledgor of its
obligations under the Indenture and the Notes (collectively, the "OBLIGATIONS"),
the Pledgor has agreed to pledge to the Collateral Agent for its benefit and for
the ratable benefit of the holders of the Notes a security interest in the
Pledged Securities and the Pledge Account and to execute and deliver this Pledge
Agreement.
NOW, THEREFORE, the parties hereto, intending legally to be bound,
hereby agree as follows:
1. PLEDGE AND GRANT OF SECURITY INTEREST.
The Pledgor hereby pledges to the Collateral Agent for the ratable
benefit of the holders of the Notes, and grants to the Collateral Agent for the
ratable benefit of the holders of the Notes, a continuing first priority
security interest in and to (i) all of the Pledgor's right, title and interest
in the Pledged Securities and the Pledge Account, (ii) all certificates or other
<PAGE>
evidence of ownership representing the Pledged Securities and the Pledge
Account, and (iii) all products and proceeds of any of the Pledged Securities,
including without limitation, all dividends, interest, principal payments, cash,
options, warrants, rights, instruments, subscriptions and other property or
proceeds from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the Pledged
Securities (collectively, the "COLLATERAL").
2. SECURITY FOR OBLIGATIONS.
This Pledge Agreement and the Collateral secure the prompt and
complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of the first six semi-annual scheduled interest
payments due on the Notes.
3. DELIVERY OF COLLATERAL; PLEDGE ACCOUNT; INTEREST; SUBSTITUTION
OF COLLATERAL.
(a) All certificates or instruments representing or evidencing the
Pledged Securities shall be delivered to and held by or on behalf of the
Collateral Agent pursuant hereto and shall be in suitable form for transfer and
delivery, or shall be accompanied by instruments of transfer or assignment, duly
executed in blank all in form and substance satisfactory to the Collateral Agent
or shall be delivered to the Collateral Agent through the book-entry facilities
of the applicable depositary.
(b) Concurrently with the execution and delivery of this Pledge
Agreement, the Collateral Agent shall establish an account entitled the
"TELETRAC PLEDGE ACCOUNT" for the deposit of the Pledged Securities (the "PLEDGE
ACCOUNT") at its office at Sixth and Marquette, Minneapolis, Minnesota
55479-0069. Subject to the other terms and conditions of this Pledge Agreement,
all funds or other property accepted by the Collateral Agent pursuant to this
Pledge Agreement shall be held in the Pledge Account for the ratable benefit of
the holders of the Notes, and the proceeds of any such Pledged Securities shall
remain on deposit in the Pledge Account until withdrawn in accordance with this
Agreement. If and to the extent the Pledged Securities comprise certificated
securities (as defined in Section 8-102 of the Uniform Commercial Code in the
State of New York), such securities shall be registered in the name of the
Collateral Agent and its custodian, as collateral agent for the benefit of the
holders of the Notes, and possession thereof shall be maintained by the
Collateral Agent within the State of New York.
(c) All interest earned on or other distributions or amounts paid
with respect to any Collateral shall be retained in the Pledge Account and may
be reinvested from time to time pending disbursement pursuant to the terms
hereof.
(d) Pending disbursement of funds from the Pledge Account pursuant
to the terms hereof, the Collateral Agent may reinvest any interest or other
amounts received in respect of the Pledged Securities in money market deposit
accounts issued or offered by an Eligible Institution, which may be Norwest Bank
Minnesota, National Association; provided that any monies so reinvested and the
securities acquired thereby shall be (i) held as Collateral in the Pledge
Account, (ii) subject in all respects to the security interest created hereby
and (iii) otherwise subject to the terms hereof.
-2-
<PAGE>
4. DISBURSEMENTS.
(a) Not less than five Business Days prior to the date of any of
the first six semi-annual scheduled interest payments due on the Notes, the
Pledgors may direct the Collateral Agent in writing to transfer from the Pledge
Account to the Trustee in its capacity as Paying Agent, funds necessary to
provide for payment in full or of any portion of the next scheduled interest
payment on the Notes. Upon receipt of such written request, the Collateral
Agent shall take such action as is necessary to provide for the payment of such
interest payment on the Notes directly to the Trustee as Paying Agent from
proceeds of the Pledged Securities held in the Pledge Account.
(b) If the Pledgor elects to pay any of the first six semi-annual
scheduled interest payments (or portion thereof) on the Notes from a source of
funds other than the Pledge Account (the "PLEDGOR'S FUNDS"), then the Pledgor
may on at least two Business Days' prior written notice and, after payment in
full of such interest payment, direct the Collateral Agent in writing to release
to the Pledgor or as it may direct an amount of funds from the Pledge Account
less than or equal to the amount of Pledgor's Funds so expended. Upon receipt
of such written direction from the Pledgor, together with the certificate
described in the following sentence, the Collateral Agent shall take such action
as is necessary to provide for the payment to the Pledgor or its designee of the
amount requested from the Pledge Account. Prior to any release of funds to the
Pledgor or its designee from the Pledge Account pursuant to this Section 4(b),
the Pledgor shall deliver to the Collateral Agent an Officer's Certificate
stating that such use of the Pledgor's Funds has been duly authorized by all
necessary corporate action or bylaws, does not contravene or constitute a
default under any provision of applicable law, regulation or the certificate of
incorporation or bylaws, of the Pledgor, or of any material agreement, judgment,
injunction, order, decree or other instrument binding upon the Pledgor, and does
not result in the creation or imposition of any Lien on any asset of the
Pledgor.
(c) If at any time the amount of Pledged Securities exceeds 100% of
the amount sufficient, in the opinion of a nationally recognized firm of
independent certified public accountants selected by the Pledgor, to provide for
payment in full of the first six semi-annual scheduled interest payments due on
the Notes (or, in the event any interest payments have been made on the Notes,
an amount sufficient to provide for payment in full of all interest payments
then remaining up to and including the first six semi-annual scheduled interest
payments), then, in such event, the Pledgor may direct the Collateral Agent in
writing to release to the Pledgor or as it directs an amount less than or equal
to such excess. Upon receipt of such written direction from the Pledgor,
together with the opinion of a nationally recognized firm of independent
certified public accountants with respect to the value of the Pledged
Securities, the Collateral Agent shall take such action as is necessary to
provide for the payment to the Pledgor or its designee of the amount requested
from the Pledge Account.
(d) Upon payment in full of the first six semi-annual scheduled
interest payments on the Notes, the security interest in the Collateral
evidenced by this Pledge Agreement shall terminate and be of no further force
and effect. Furthermore, upon release of any Collateral from the Pledge Account
in accordance with the terms of this Pledge Agreement, the security interest
evidenced by this Pledge Agreement in the Collateral so released shall terminate
and be of no further force and effect.
-3-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES.
The Pledgor hereby represents and warrants that:
(a) The execution, delivery and performance by the Pledgor of this
Pledge Agreement has been duly authorized by the Pledgor and does not contravene
or constitute a default under any provision of applicable law, regulation or the
certificate of incorporation or bylaws of the Pledgor, or of any judgment,
injunction, order, decree or any material agreement or instrument binding upon
the Pledgor, and does not result in the creation of imposition of any Lien on
any asset of the Pledgor, except for the security interests granted under this
Pledge Agreement.
(b) No financing statement covering the Pledged Securities is on
file in any public office, other than financing statements filed pursuant to
this Pledge Agreement.
(c) Upon the delivery to the Collateral Agent of the certificates,
if any, representing the Pledged Securities, any filing of financing statements
required by the Uniform Commercial Code (the "UCC") and notation on the records
of the Collateral Agent that it holds the Pledged Securities as pledgee, the
pledge of the Collateral pursuant to this Pledge Agreement constitutes a valid
and perfected first priority security interest in and to the Collateral,
securing the payment and performance of the Obligations for the ratable benefit
of the holders of the Notes, enforceable as such against all creditors of the
Pledgor and any persons purporting to purchase any of the Collateral from the
Pledgor.
(d) No consent of any other person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any governmental
authority or regulatory body, is required either (i) for the pledge by the
Pledgor of the Collateral pursuant to this Pledge Agreement or for the
execution, delivery or performance of this Pledge Agreement by the Pledgor
(except for any filings and notations necessary to perfect the security interest
created hereby in the Collateral) or (ii) for the exercise by the Collateral
Agent of the rights provided for in this Pledge Agreement or the remedies in
respect of the Collateral pursuant to this Pledge Agreement.
(e) The pledge of the Collateral pursuant to this Pledge Agreement
is not prohibited by any applicable law or government regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation, Regulations G,
T, U and X of the Board of Governors of the Federal Reserve System).
6. FURTHER ASSURANCES.
The Pledgor agrees to promptly take such actions and to execute and
deliver or cause to be executed and delivered, or use its best efforts to
procure, such stock or bond powers, proxies, assignments, instruments and such
other or different writings as the Collateral Agent may reasonably request, all
in form and substance satisfactory to the Collateral Agent, deliver any
instruments to the Collateral Agent and take any other actions that are
necessary or, in the opinion of the Collateral Agent, desirable, to perfect,
continue the perfection of, confirm and assure the first priority of the
Collateral Agent's security interest in the Collateral, to protect the
Collateral against the rights, claims or interests of third persons, or to
otherwise effect the purposes of this Pledge Agreement. Notwithstanding the
foregoing, the Collateral Agent shall
-4-
<PAGE>
have no duty or obligation to ensure the maintenance or perfection of any
security interest hereunder.
7. COVENANTS.
The Pledgor covenants and agrees with the Collateral Agent and the
holders of the Notes from the after the date of this Pledge Agreement until the
earlier of payment in full in cash of (A) each of the first six semi-annual
scheduled interest payments due on the Notes under the terms of the Indenture or
(B) all Obligations due and owing under the Indenture and the Notes in the event
such Obligations become due and payable prior to the payment of the first six
semi-annual scheduled interest payments on the Notes, as follows:
(a) The Pledgor agrees that it (i) will not sell or otherwise
dispose of, or grant any option or other interest with respect to, any of the
Collateral, (ii) will not create or permit to exist any Lien upon or with
respect to any of the Collateral, except for the Liens created pursuant to this
Pledge Agreement, and (iii) will at all times be the sole beneficial owner of
the Collateral.
(b) The Pledgor agrees that it will not (i) enter into any
agreement or understanding that purports to or may restrict or inhibit the
Collateral Agent's rights or remedies hereunder, including, without limitation,
the Collateral Agent's right to sell or otherwise dispose of the Collateral, or
(ii) with regard to the Collateral, fail to pay or discharge any tax, assessment
or levy of any nature due with respect thereto later than five days prior to the
date of any proposed sale under any judgment, writ or warrant of attachment.
8. POWER OF ATTORNEY.
(a) The Pledgor hereby appoints and constitutes the Collateral
Agent as the Pledgor's attorney-in-fact to exercise to the fullest extent
permitted by law all of the following powers upon and at any time after the
occurrence and during the continuance of an Event of Default:
(i) collection of proceeds of any Collateral;
(ii) conveyance of any item of Collateral to any purchaser thereof
as specified herein;
(iii) giving of any notices or recording of any Liens pursuant to
Section 6 hereof;
(iv) making any payments or taking any acts pursuant to Section 9
hereof; and
(v) paying or discharging taxes or Liens levied or placed upon the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Collateral Agent in its sole
discretion, and any such payments made by the Collateral Agent shall become
Obligations of the Pledgor to the Collateral Agent, due and payable immediately
upon demand.
(b) The Collateral Agent's authority under this Section 8 shall
include, without limitation, the authority to endorse and negotiate any checks
or instruments representing proceeds of Collateral in the name of the Pledgor,
execute and give receipt for any certificate of
-5-
<PAGE>
ownership or any document constituting Collateral, transfer title to any item of
Collateral, to the extent permitted by applicable law, sign the Pledgor's name
on all financing statements or any other documents deemed necessary or
appropriate by the Collateral Agent to preserve, process or perfect the security
interest in the Collateral, and to file the same, and to prepare, sign the
Pledgor's name and file any notice of Lien, and to take any other actions
arising from or incident to the powers granted to the Collateral Agent in this
Pledge Agreement. This power of attorney is coupled with an interest and shall
be irrevocable by the Pledgor.
9. COLLATERAL AGENT MAY PERFORM.
If the Pledgor fails to perform any agreement contained herein, the
Collateral Agent may, but shall not be obligated to, itself perform or cause
performance of such agreement, and the reasonable expenses incurred by or on
behalf of the Collateral Agent in connection therewith shall be payable by the
Pledgor under Section 13 hereof.
10. NO ASSUMPTION OF DUTIES; REASONABLE CARE.
The rights and powers granted to the Collateral Agent hereunder are
being granted in order to preserve and protect the security interest of the
Collateral Agent and the holders of Notes in and to the Collateral granted
hereby and shall not be interpreted to, and shall not, impose any duties on the
Collateral Agent in connection therewith other than those imposed under
applicable law.
11. INDEMNITY.
The Pledgor shall indemnify, defend and hold harmless the Collateral
Agent and its directors, officers, agents and employees from and against all
claims, actions, obligations, losses, liabilities and expenses, including costs,
fees and disbursements of counsel, the costs of investigations, and claims for
damages, arising from the Collateral Agent's performance under this Pledge
Agreement, except insofar as the same may have been caused by the bad faith,
gross negligence or willful misconduct of such indemnified person. The
obligations of the Pledgor under this Section 11 shall survive the resignation
or removal of the Collateral Agent and the termination of this Agreement.
12. REMEDIES UPON EVENT OF DEFAULT.
If an Event of Default shall have occurred:
(a) The Collateral Agent shall have and may exercise with reference
to the Collateral any or all of the rights and remedies of a secured party under
the UCC in effect in the State of New York, and as otherwise granted herein or
under any other applicable law or under any other agreement now or hereafter in
effect executed by the Pledgor, including, without limitation, the right and
power to sell, at public or private sale or sales, or otherwise dispose of, or
otherwise utilize the Collateral and any part or parts thereof, in any manner
authorized or permitted under said UCC after default by a debtor, and to apply
the proceeds thereof toward payment of any costs and expenses and attorneys'
fees and expenses thereby incurred by the Collateral Agent and toward payment of
the Obligations in such order or manner as the Collateral Agent may elect.
Specifically, and without limiting the foregoing, the Collateral Agent shall
have the right to take possession of all or any part of the Collateral or any
security therefor and of all books, records, papers and documents of the Pledgor
or in the Pledgor's possession or control relating to the Collateral that are
not already in the Collateral Agent's possession, and for such
-6-
<PAGE>
purpose may enter upon any premises upon which any of the Collateral or any
security therefor or any of said books, records, papers and documents are
situated and remove the same therefore without any liability for trespass or
damages thereby occasioned. To the extent permitted by law, the Pledgor
expressly waives any notice of sale or other disposition of the Collateral and
all other rights or remedies of the Pledgor or formalities prescribed by law
relative to sale or disposition of the Collateral or exercise of any other right
or remedy of the Collateral Agent existing after Default or Event of Default
hereunder. To the extent any such notice is required and cannot be waived, the
Pledgor agrees that if such notice is given in the manner provided in Section 17
hereof at least three days before the time of the sale or disposition, such
notice shall be deemed reasonable and shall fully satisfy any requirement for
giving of said notice. The Collateral Agent shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Collateral Agent may adjourn any public or private sale. The Pledgor further
agrees to use its best efforts to do or cause to be done all such other acts as
may be necessary to effect the intention of this Section 12.
(b) All rights to marshalling of assets of the Pledgor, including
any such right with respect to the Collateral, are hereby waived by the Pledgor.
The Pledgor shall not contest or support any other person in contesting the
validity or priority of the security interests created under this Pledge
Agreement.
13. FEES AND EXPENSES.
The Pledgor shall, upon demand, pay to the Collateral Agent the amount
of the fees (which shall be in an amount previously agreed by the Pledgor and
the Collateral Agent) and any and all reasonable expenses (including, without
limitation, the reasonable fees, expenses and disbursements of counsel, experts
and agents retained by the Collateral Agent) that the Collateral Agent may incur
in connection with (i) the administration of this Pledge Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Collateral Agent and the holders of the Notes
hereunder, or (iv) the failure by the Pledgor to perform or observe any of the
provisions hereof.
14. SECURITY INTEREST ABSOLUTE.
All rights of the Collateral Agent and the holders of the Notes, and
the security interests created hereunder, and all obligations of the Pledgor
hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any Liens
on any other collateral for all or any of the Obligations; or
(d) any other circumstances that might otherwise constitute a
defense available to, or a discharge of, the Pledgor in respect of the
Obligations or of this Pledge Agreement.
-7-
<PAGE>
15. CONTINUING SECURITY INTEREST; TERMINATION.
(a) This Pledge Agreement shall create a continuing security
interest in and to the Collateral and shall, unless otherwise provided in the
Indenture or in this Pledge Agreement, remain in full force and effect until the
earlier of the payment in full in cash of (i) each of the first six semi-annual
scheduled interest payments due on the Notes under the terms of the Indenture
and (ii) all Obligations due and owing under the Indenture and the Notes in the
event such Obligations become payable or are otherwise discharged prior to the
payment of the first six semi-annual scheduled interest payments on the Notes.
This Pledge Agreement shall be binding upon the Pledgor, its successors and
assigns, and shall inure, together with the rights and remedies of the
Collateral Agent hereunder, to the benefit of the Collateral Agent and the
holders of the Notes and their respective successors, transferees and assigns.
(b) This Pledge Agreement shall terminate upon the earlier of
payment in full in cash of (i) each of the first six semi-annual scheduled
interest payments due on the Notes under the terms of the Indenture and (ii) all
Obligations due and owing under the Indenture and the Notes in the event such
obligations become payable or are otherwise discharged prior to the payment of
the first six semi-annual scheduled interest payments on the Notes. At such
time, the Collateral Agent shall, at the written request of the Pledgor,
reassign and redeliver to the Pledgor all of the Collateral hereunder that has
not been sold, disposed of, retained or applied by the Collateral Agent in
accordance with the terms of this Pledge Agreement and the Indenture. Such
reassignment and redelivery shall be without warranty (either express or
implied) by or recourse to the Collateral Agent, except as to the absence of any
prior assignments by the Collateral Agent of its interest in the Collateral, and
shall be at the expense of the Pledgor.
16. AUTHORITY OF THE COLLATERAL AGENT.
(a) The Collateral Agent shall have and be entitled to exercise all
powers hereunder that are specifically granted to the Collateral Agent by the
terms hereof, together with such powers as are reasonably incident thereto. The
Collateral Agent may perform any of its duties hereunder or in connection with
the Collateral by or through agents or employees and shall be entitled to retain
counsel and to act in reliance upon the advice of counsel concerning all such
matters. None of the Collateral Agent, any director, officer, employee,
attorney or agent of the Collateral Agent nor the holders of the Notes shall be
liable to the Pledgor for any action taken or omitted to be taken by it or them
hereunder, except for its or their own bad faith, gross negligence or willful
misconduct, nor shall the Collateral Agent be responsible for the validity,
effectiveness or sufficiency hereof or of any document or security furnished
pursuant hereto. The Collateral Agent and its directors, officers, employees,
attorneys and agents shall be entitled to rely on any communication, instrument
or document believed by it or them to be genuine and correct and to have been
signed or sent by the proper Person or Persons.
(b) The Pledgor acknowledges that the rights and responsibilities
of the Collateral Agent under this Pledge Agreement with respect to any action
taken by the Collateral Agent or the exercise or non-exercise by the Collateral
Agent of any option, right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Pledge Agreement shall, as
between the Collateral Agent and the holders of the Notes, be governed by the
Indenture and by such other agreements with respect thereto as may exist from
time to time among them, but, as between the Collateral Agent and the Pledgor,
the Collateral Agent shall be conclusively presumed to be acting as agent for
the holders of the Notes with full and valid authority so to act or refrain from
acting, and the Pledgor shall not be obligated or entitled to make any inquiry
respecting such authority.
-8-
<PAGE>
(c) The Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement and no implied
covenants or obligations shall be read into this Agreement against the
Collateral Agent. The Collateral Agent shall not be deemed to have knowledge of
an Event of Default under the Indenture unless informed in writing by any
Pledgor or the holder of any Note.
(d) The Collateral Agent shall not be required to exercise any
remedies hereunder unless requested in writing to do so by the holders of a
majority in principal amount of the outstanding Notes and only if furnished with
indemnity satisfactory to the Collateral Agent. The Collateral Agent may
consult with counsel and shall not be liable for any action taken in good faith
in reliance upon advice of counsel, except for gross negligence or willful
misconduct. The Collateral Agent makes no representation or warranty and shall
have no responsibility concerning the value or validity of the Collateral or the
validity or perfection of the pledge thereof.
(e) The Collateral Agent may at any time on 30 days notice to the
Pledgor and the holders of the Notes resign hereunder. Upon any such
resignation, the Pledgor shall promptly appoint another financial institution to
act as Collateral Agent hereunder and such resignation shall become effective
upon the acceptance of the appointment by the successor.
(f) The Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which an ordinary person accords its own property, it being understood that
neither the Collateral Agent nor the holders of the Notes shall have
responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not any such Person has or is deemed to have knowledge of
such matters, or (ii) taking any necessary steps to preserve rights against any
parties with respect to any Collateral.
17. NOTICES.
Any communication, notice or demand to be given hereunder shall be
duly given hereunder if given in the form and manner required by the Indenture,
and delivered to any recipient's address as set forth in the Indenture, or in
such other form and manner or to such other address as shall be designated by
any party hereto to each other party hereto in a written notice delivered in
accordance with the terms of the Indenture.
18. NO WAIVER; CUMULATIVE RIGHTS.
No failure on the part of the Collateral Agent to exercise and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Collateral Agent
or any right, remedy or power hereunder preclude any other or future exercise of
any other right, remedy or power. Each and every right, remedy and power hereby
granted to the Collateral Agent or allowed it by law or other agreement shall be
cumulative and not exclusive, and may be exercised by the Collateral Agent from
time to time.
-9-
<PAGE>
19. BENEFITS OF PLEDGE AGREEMENT.
Nothing in this Pledge Agreement, whether express or implied, shall
give to any Person other than the parties hereto and their successors hereunder,
and the holders of the Notes, any benefit or any legal or equitable right,
remedy or claim under this Pledge Agreement.
20. APPLICABLE LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK. TO INDUCE THE COLLATERAL AGENT TO ENTER
INTO THIS PLEDGE AGREEMENT, THE PLEDGOR HEREBY IRREVOCABLY AGREES THAT, SUBJECT
TO THE COLLATERAL AGENT'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS
THAT IN ANY MANNER ARISE OUT OF OR IN CONNECTION WITH OR ARE IN ANY WAY RELATED
TO THIS PLEDGE AGREEMENT SHALL BE LITIGATED IN COURTS LOCATED WITHIN THE COUNTY
OF NEW YORK, STATE OF NEW YORK. THE PLEDGOR HEREBY CONSENTS TO THE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF
NEW YORK. THE PLEDGOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF
ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL TO THE PLEDGOR'S NOTICE
ADDRESS SPECIFIED HEREIN. THE PLEDGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BETWEEN THE PLEDGOR AND THE
COLLATERAL AGENT IN ACCORDANCE WITH THIS PARAGRAPH. EACH OF THE PLEDGOR AND THE
COLLATERAL AGENT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING THAT IN ANY MANNER ARISES OUT
OF OR IN CONNECTION WITH OR IS IN ANY WAY RELATED TO THIS PLEDGE AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
(b) THE PROVISIONS OF THIS SECTION 20 ARE A MATERIAL INDUCEMENT FOR
THE COLLATERAL AGENT ENTERING INTO THIS PLEDGE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY. THE PLEDGOR HEREBY ACKNOWLEDGES THAT IT HAS REVIEWED THE
PROVISIONS OF THIS SECTION 20 WITH INDEPENDENT COUNSEL.
21. EXECUTION IN COUNTERPARTS.
This Pledge Agreement may be executed in any number of counterparts,
each of which shall be an original, but such counterparts shall together
constitute one and the same instrument.
22. SETTLEMENT.
Amounts, if any, held in the Pledge Account pending settlement of
purchase of the Pledged Securities shall constitute Collateral hereunder, shall
be held by the Collateral Agent for the benefit of the Holders of the Notes and
a portion thereof equal to the aggregate price paid for such Pledged Securities
shall be released by the Collateral Agent (without further direction or
instruction required from any other party hereto) against delivery of such
Pledged Securities, and any excess funds remaining in the Pledge Account after
giving effect to such settlement shall be promptly forwarded to the Pledgor.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TELETRAC, INC.
By: /s/ James A. Queen
-------------------------------
Name: James A. Queen
Title: Chief Executive Officer
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ Raymond S. Havarstock
-------------------------------
Name: Raymond S. Havarstock
Title: Vice President
<PAGE>
<TABLE>
<CAPTION>
August 5, 1997
GOVERNMENT SECURITIES PORTFOLIO
-------------------------------
PROPOSED TELETRAC, INC. INTEREST RESERVE
Bond Interest Interest Payment
Name Cusip Face Cost Maturity Payment Date Amount
---- ----- ---- ---- -------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1. USTN 5% 1/31/98 912827W57 $6,972,000.00 $6,960,253.70 1/31/98 Feb. 1, 1998 (Sun.) $7,145,833.33
2. USTN 5.25% 7/31/98 912827L67 $6,984,000.00 $6,964,879.40 7/31/98 Aug. 1, 1998 (Sat.) $7,350,000.00
3. USTN 5% 1/31/99 912827N65 $6,838,000.00 $6,766,647.00 1/31/99 Feb. 1, 1999 (Mon.) $7,350,000.00
4. USTN 5.875% 7/31/99 9128273B6 $6,578,000.00 $6,583,273.13 7/31/99 Aug. 1, 1999 (Sun.) $7,350,000.00
5. USTN 7.75% 1/31/00 912827S60 $6,158,000.00 $6,418,836.50 1/31/00 Feb. 1, 2000 (Tues.) $7,350,000.00
6. USTN 6.125% 7/31/00 912827U67 $6,210,000.00 $6,239,489.10 7/31/00 Aug. 1, 2000 (Tues.) $7,350,000.00
------------ ------------ ------------
$39,933,378.83
Price Cushion 25,000.00
---------
TOTAL $39,740,000.00 $39,958,378.83 $43,895,833.33
============= ============= =============
</TABLE>
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
Teletrac License, Inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
Registration Statement on Form S-4.
/s/ ARTHUR ANDERSEN LLP
Kansas City, Missouri,
September 3, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Teletrac Holdings,
Inc. on Form S-4 of our report dated February 3, 1995, except for Note 11, as to
which the date is September 8, 1995, on our audit of the financial statements of
AirTouch Teletrac General Partnership as of and for the year ended December 31,
1994. We also consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand LLC
Newport Beach, California
September 3, 1997
