<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1999.
REGISTRATION NO. 333-85697
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------
Amendment No. 2
to
FORM S-1/A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
----------------------
AETHER SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 52-2186634
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
----------------------
11460 CRONRIDGE DRIVE
OWINGS MILLS, MARYLAND 21117
(410) 654-6400
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------------
DAVID S. OROS
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
11460 CRONRIDGE DRIVE
OWINGS MILLS, MARYLAND 21117
(410) 654-6400
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------------
with copies to:
<TABLE>
<S> <C>
MARK A. DEWIRE, ESQ. EVE N. HOWARD, ESQ.
ROGER J. PATTERSON, ESQ. HOGAN & HARTSON L.L.P.
WILMER, CUTLER & PICKERING 555 13TH STREET, N.W.
2445 M STREET, N.W. WASHINGTON, D.C. 20004
WASHINGTON, D.C. 20037 (202) 637-5600
(202) 663-6000
</TABLE>
----------------------
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 on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PRICE PER SHARE OFFERING PRICE (2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share........... 6,900,000 $15 $103,500,000 $28,773(3)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 900,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(3) The registrant previously paid $20,850 of this amount.
----------------------
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 WHICH 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> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 4, 1999
PROSPECTUS
- ----------------
6,000,000 SHARES
[AETHER LOGO]
COMMON STOCK
------------------------
This is Aether Systems, Inc.'s initial public offering of common stock.
We expect the public offering price to be between $13 and $15 per share.
Currently, no public market exists for the shares. After pricing of the
offering, we expect that the common stock will be quoted on the Nasdaq National
Market under the symbol "AETH."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public
Offering
Price... $ $
Underwriting
Discount... $ $
Proceeds,
before
expenses,
to
Aether
Systems,
Inc.... $ $
</TABLE>
The underwriters may also purchase up to an additional 900,000 shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
------------------------
The date of this prospectus is , 1999
<PAGE> 3
DESCRIPTION OF INSIDE FRONT COVER: The inside front cover contains the
Aether Systems logo and the slogan: "Real Intelligence. Real Time." Below the
logo and slogan are photographs depicting three key aspects of our business:
wireless enterprise services, Aether Intelligent Messaging and OpenSky.
DESCRIPTION OF INSIDE GATEFOLD: At the top of the two-panel foldout is the
following text: "How We Do It. . . Wireless data is complex. We handle every
aspect of extending our customers' application to a variety of wireless networks
and handheld devices."
Graphics description: Below the text is a graphic depicting our business,
roughly portraying the flow of information from our customers' data sources,
through our software and network and customer support center, to various
wireless data networks and finally to various wireless handheld devices. From
left to right, this depiction shows:
- - Icons, with brief text labels, representing the three major business segments
Aether is targeting: Financial services (with the caption "Financial: Trading,
Quotes, News & Alerts"), other industries (with the caption "Other Target
Industries: Health Care, Transportation, Sales Force Automation") and OpenSky
(with the caption "OpenSky Opportunities: Developing Smart Web and E-mail
Access").
- - Each of the above icons connects to a box with the Aether logo. Beneath the
logo will be three separate boxes, each labelled for a different component of
our offerings: "Software Development and Engineering;" "Secure, Reliable
Network Operations Center" and "Complete Customer Support."
- - From the Aether box, there is a set of lines that runs to a box with the
Aether Intelligent Messaging logo, out of which there are lines pointing
further to the right which connect to icons of radio antennas, depicting the
various wireless data networks through which Aether delivers its services.
These antennas carry the text: "Today's Networks" and "Tomorrow's Networks."
- - From the antenna icons, curved lines depict radio waves radiating out to
photographs of the various wireless handheld devices through which Aether
delivers services. These devices include: A generic laptop computer of no
particular brand; a Palm Computing device, a Windows CE notebook computer, a
RIM 950 alphanumeric two-way pager and a wireless phone that is compatible
with the Wireless Applications Protocol. The following text labels accompany
the photographs: "Laptop computers," "Palm Computing devices," "Windows CE
devices," "Text enhanced pagers," "WAP phones."
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Forward Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 31
Management.................................................. 46
Transactions Between Aether and its Officers, Directors or
Significant Stockholders.................................. 57
Principal Stockholders...................................... 61
Description of Capital Stock................................ 64
Shares Eligible for Future Sale............................. 67
Underwriting................................................ 69
Legal Matters............................................... 72
Experts..................................................... 72
Where You Can Find More Information......................... 72
Index to Consolidated Financial Statements.................. F-1
</TABLE>
----------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary does not contain all the information that may be important to
you. You should read the entire prospectus carefully, including the financial
data and related notes beginning on page F-1, before making an investment
decision.
OUR COMPANY
We provide wireless data services and systems enabling people to use
wireless handheld devices for real-time data communications and transactions. We
believe we offer the broadest range of capabilities necessary to design,
develop, sell and support a full range of wireless data services. We can offer
these capabilities because of our engineering expertise, our wireless
integration software and our customer service and network operations center.
Our initial focus is on the financial services industry, including online
trading. We currently offer the Reuters MarketClip service for financial market
price quotes, alerts and information and TradeRunner, a real-time wireless
trading and financial information service offered to the online customers of
Discover Brokerage. We are developing similar services for other major financial
institutions, including Charles Schwab. We recently acquired Mobeo, Inc., a
provider of wireless foreign exchange information services, for a purchase price
of $11.7 million in cash and options to acquire shares of our common stock. The
Mobeo acquisition adds new services that complement our own, establishes our
relationship with additional financial institutions and significantly increases
our subscriber base. We are also targeting other industries, initially by
licensing our package of wireless messaging software and software development
tools known as Aether Intelligent Messaging, or AIM. Finally, we hold a 26%
interest in OpenSky, our new venture with 3Com Corporation, which will pursue
the broader consumer and business mass market for wireless Internet access,
e-mail and Internet and other electronic transactions.
The market for wireless data applications is relatively undeveloped and has
been hindered by significant technological challenges, including incompatible
devices and networks, slow data speeds and uncertain security. We believe these
complexities have given us the opportunity to establish a position as an early
market leader in wireless data services.
We have all the resources necessary to provide our customers with complete
wireless data systems. We have a large, experienced development team, with 27
engineers who have worked an average of ten years in the wireless data field. We
have developed the AIM package of wireless messaging software and software
development tools, which serves as a bridge to integrate diverse corporate
in-house data systems with a wide variety of wireless carrier networks and end
user devices. We operate our own high-security network operations center, which
connects customer and other data to wireless networks, and maintain our own
customer service center. We have also cultivated close relationships with major
wireless network carriers, including AT&T Wireless Services, Bell Atlantic
Mobile and BellSouth Wireless Data and mobile equipment manufacturers, such as
3Com, Ericsson LM and Novatel Wireless, Inc.
Our strategy. Our strategy is to be the dominant provider of wireless data
services and systems by using our engineering expertise, our AIM package of
wireless messaging software and software development tools, our customer service
and network operations center and our other resources to offer businesses
complete systems for wireless data communications and transactions. We seek to
maximize recurring revenue initially by extending online trading and financial
information services to personal organizers, notebook computers, pagers and
mobile phones. Our strategy includes the key elements set forth below.
- Develop the market for existing and new products in the financial
services sector.
- Expand into new industries and international markets.
- Pursue mass-market opportunities, including wireless Internet access,
e-mail and Internet and other electronic transactions.
4
<PAGE> 6
- Expand our customer base and strengthen the Aether brand through enhanced
sales and marketing efforts.
- Maintain and strengthen our strategic relationships with suppliers and
customers.
- Use the expertise we gain by providing engineering services to develop
new Aether products.
- Pursue selective acquisitions to expand our capabilities.
Our services. We develop and support systems for businesses that allow
their employees or customers to access information and conduct transactions
using wireless handheld devices. Our services currently include delivering
real-time wireless financial market information and trading capabilities to
individual investors and financial market professionals. We also license the AIM
package of wireless messaging software and development tools to software
manufacturers and other corporations seeking to add wireless data capabilities
and provide engineering services to businesses seeking to design, develop and
support wireless data systems.
Operating results. We had revenue of $1.4 million in 1996, $1.8 million in
1997, $1.5 million in 1998 and $787,000 in the first six months of 1999. We had
net losses of $417,000 in 1996, $2.7 million in 1997, $4.7 million in 1998 and
$4.3 million in the first six months of 1999. As of June 30, 1999, we had
cumulative losses of $12.2 million. On a pro forma basis, giving effect to the
Mobeo acquisition, we had revenue of $10.1 million in 1998 and $5.8 million in
the first six months of 1999, and we had net losses of $6.8 million in 1998 and
$5.2 million in the first six months of 1999.
Other information. Aether is presently organized as a Delaware limited
liability company known as Aether Systems LLC. Prior to the closing of this
offering, each member of the limited liability company will contribute its units
in the limited liability company to Aether Systems, Inc., a newly-formed
Delaware corporation, in exchange for two and one-half shares of our common
stock. Following this contribution, this limited liability company will merge
into Aether. Unless otherwise indicated, all information in this prospectus
gives effect to our conversion from a limited liability company to a corporation
through this contribution and merger. All references to "we," "us," "our" or
"Aether" in this prospectus mean Aether Systems, Inc. and its subsidiaries or
Aether Systems LLC and its subsidiaries if the reference is as of a time before
completion of the conversion.
Our principal executive offices are located at 11460 Cronridge Drive,
Owings Mills, Maryland 21117, and our telephone number is (410) 654-6400. We
maintain a Web site at www.aethersystems.com. Information contained in our Web
site does not constitute a part of this prospectus.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... 6,000,000 shares
Total common stock to be outstanding after
the offering............................... 26,066,995 shares
Use of proceeds.............................. We intend to use approximately $14.8 million
of net proceeds to repay in full all
indebtedness incurred under our senior
secured interim credit facility, of which
$11.7 million was used to purchase Mobeo,
approximately $0.8 million was used to pay
fees and expenses related to the credit
facility and the remaining $2.3 million was
allocated for general corporate purposes. In
addition, we intend to use approximately $2.5
million of the net proceeds to exercise a
warrant to increase our ownership in OpenSky
from 26% to up to 33% on a fully diluted
basis and approximately $2.0 million to
expand our network operations center over the
next 12 months. We currently intend to use
the remaining net proceeds from the offering
for general corporate purposes, which may
include some or all of the following:
- enhance our sales and marketing activities;
- fund cash flow deficits and working capital
needs;
- enhance Mobeo service offerings;
- fund potential future acquisitions; and
- maintain our interest in OpenSky.
Risk factors................................. See "Risk Factors" beginning at page 8 for a
discussion of factors you should consider
carefully before deciding to invest in shares
of our common stock.
Proposed Nasdaq National Market symbol....... AETH
</TABLE>
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)
The following table summarizes our statements of operations for each of the
years ended December 31, 1996, 1997 and 1998 and for the six-month periods ended
June 30, 1998 and 1999, and our balance sheet as of June 30, 1999. The pro forma
consolidated financial information gives effect to the Mobeo acquisition. The
pro forma net loss per share information gives effect to our conversion from a
limited liability company to a corporation. The pro forma consolidated as
adjusted balance sheet information gives effect to the Mobeo acquisition and our
conversion to a corporation plus the offering of shares covered by this
prospectus and the application of the net proceeds as described in "Use of
Proceeds" at page 17.
We have provided the pro forma consolidated financial information and the
pro forma consolidated as adjusted balance sheet for informational purposes only
and you should not assume that our results would actually have been as shown if
we had acquired Mobeo, converted to a corporation or completed the offering on
the assumed dates, or that the information projects what our results will be as
a result of the Mobeo acquisition or if we convert to a corporation or complete
the offering. The pro forma consolidated statement of operations information
assumes that the transactions occurred on January 1, 1998, and the pro forma
consolidated balance sheet information assumes that the transactions occurred on
June 30, 1999. See our and Mobeo's financial statements and notes to those
statements included in this prospectus beginning on page F-1.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------ ----------------------------------------
HISTORICAL 1998 HISTORICAL 1999
--------------------------------------- PRO FORMA ------------------------- PRO FORMA
1996 1997 1998 CONSOLIDATED 1998 1999 CONSOLIDATED
----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Subscriber revenue........... $ -- $ 161 $ 549 $ 9,130 $ 125 $ 599 $ 5,646
Engineering services
revenue.................... 1,355 1,625 963 963 436 188 188
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue................ 1,355 1,786 1,512 10,093 561 787 5,834
Gross profit.................. 348 493 411 5,951 190 136 3,426
Total operating expenses...... 601 2,801 5,178 13,398 2,316 4,597 8,963
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating loss................ (253) (2,308) (4,767) (7,447) (2,126) (4,461) (5,537)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss...................... $ (417) $ (2,747) $ (4,693) $ (6,843) $ (2,119) $ (4,320) $ (5,161)
=========== =========== =========== =========== =========== =========== ===========
Pro forma net loss per
share-basic and diluted...... $ (0.04) $ (0.22) $ (0.29) $ (0.31) $ (0.15) $ (0.22) $ (0.20)
=========== =========== =========== =========== =========== =========== ===========
Pro forma weighted average
shares used in computing net
loss per share-basic and
diluted...................... 10,554,795 12,655,901 15,916,383 21,916,383 14,270,568 19,877,855 25,877,855
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------------------
PRO FORMA
PRO FORMA CONSOLIDATED
ACTUAL CONSOLIDATED(1) AS ADJUSTED
------ --------------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 457 $ 3,542 $ 65,149
Working capital (deficit).................................. 3,674 (10,199) 66,621
Total assets............................................... 5,867 25,756 86,916
Total debt(1).............................................. -- 14,830 --
Members' capital........................................... 4,841 5,215 --
Stockholders' equity....................................... -- -- 81,205
</TABLE>
- ---------------
(1) We financed the acquisition of Mobeo with a senior secured interim credit
facility, which will be repaid with the net proceeds of the offering.
7
<PAGE> 9
RISK FACTORS
Investing in our common stock involves risks. You should carefully
consider the following risks together with the other information contained in
this prospectus before deciding to buy our common stock. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also could harm our business, financial condition and operating results.
OUR FUTURE RESULTS ARE UNCERTAIN BECAUSE OUR HISTORICAL REVENUE WAS DERIVED FROM
SERVICES OTHER THAN THOSE WE EXPECT TO BE THE FOCUS OF OUR BUSINESS IN THE
FUTURE.
We only have a limited history selling our current services on which you
can evaluate our business, financial condition and operating results. Although
we commenced operations in January 1996, until March 1997 all of our revenue
came from engineering services and not from monthly service subscriptions or AIM
licensing which we now provide and which will be our focus in the future. In
1997, 91.0% of our revenue was from engineering services and 9.0% was from
subscriber revenue. In 1998, 63.7% of our revenue was from engineering services
(or 9.5% on a pro forma basis including Mobeo) and 36.3% was from subscriber
revenue (or 90.5% on a pro forma basis including Mobeo). In the first six months
of 1999, 23.9% of our revenue was from engineering services (or 3.2% on a pro
forma basis including Mobeo) and 76.1% was from subscriber revenue (or 96.8% on
a pro forma basis including Mobeo). In addition, Transettlements and Reuters
accounted for 61.4% of our engineering services revenue in 1998. We have not had
any AIM licensing revenue through June 1999. Because of this change in focus,
you should not rely on our past performance to evaluate our future performance.
WE HAVE HISTORICALLY INCURRED LOSSES AND THESE LOSSES MAY INCREASE IN THE
FUTURE.
We reported net losses of $416,980, $2.7 million and $4.7 million for the
years ended December 31, 1996, 1997 and 1998, respectively, and a net loss of
$4.3 million for the six months ended June 30, 1999. Because we expect to
continue to incur significant sales and marketing, systems development and
administrative expenses, we will need to generate significant revenue to become
profitable and sustain profitability on a quarterly or annual basis. We may not
achieve or sustain our revenue or profit goals and our losses may continue or
grow in the future. As a result, we may not be able to increase revenue or
achieve profitability on a quarterly or annual basis.
THERE IS NO ESTABLISHED MARKET FOR OUR FINANCIAL DATA AND OTHER SERVICES AND WE
MAY NOT BE ABLE TO SELL ENOUGH OF OUR SERVICES TO BECOME PROFITABLE.
The markets for wireless data services and online trading are still
emerging and continued growth in demand for and acceptance of these services
remains uncertain. Current barriers to market acceptance of these services
include cost, reliability, functionality and ease of use. We cannot be certain
that these barriers will be overcome. We are currently developing financial
trading services for Charles Schwab and Bear Stearns pursuant to preliminary
agreements with these parties and we cannot assure you that Charles Schwab or
Bear Stearns will enter into contracts for our services. Our competitors may
develop alternative wireless data communications systems that gain broader
market acceptance than our systems. If the market for our services does not grow
or grows more slowly than we currently anticipate, we may not be able to attract
customers for our services and our revenues would be adversely affected.
OUR ACQUISITION OF MOBEO, OUR ONLY ACQUISITION TO DATE, MAY NOT DELIVER THE
VALUE WE PAID FOR IT AND MAY RESULT IN EXCESSIVE EXPENSES IF WE DO NOT
SUCCESSFULLY INTEGRATE MOBEO OR IF THE COSTS AND MANAGEMENT RESOURCES WE EXPEND
IN CONNECTION WITH THE INTEGRATION EXCEED OUR EXPECTATIONS.
Our acquisition of Mobeo is our only acquisition to date. Mobeo's revenue
was $8.6 million for the year ended December 31, 1998, which is more than five
times our revenue for that period. We expect that
8
<PAGE> 10
the Mobeo acquisition will have a continuing, significant impact on our
business, financial condition and operating results. The value of Mobeo may be
less than the amount we paid for it if there is:
- a decline of Mobeo's position in the foreign exchange information
services market; or
- a decline of the foreign exchange information services market in general.
The expenses associated with acquiring Mobeo (or any other business we may
acquire) may be greater, and the revenue may be smaller, than expected if:
- we fail to assimilate the acquired assets with our pre-existing business;
- we lose key employees of Mobeo or Aether as a result of the acquisition;
- we are unable to operate effectively in the market for foreign exchange
and commodities information;
- our management's attention is diverted from other business concerns; or
- we assume unanticipated liabilities related to the acquired assets.
Further, we cannot guarantee that we will realize the benefits or strategic
objectives we are seeking to obtain by acquiring Mobeo.
WE MAY NOT ACHIEVE PROFITABILITY IF WE ARE UNABLE TO MAINTAIN, IMPROVE AND
DEVELOP THE WIRELESS DATA SERVICES WE OFFER.
We believe that our future business prospects depend in part on our ability
to maintain and improve our current services and to develop new ones on a timely
basis. Our services will have to achieve market acceptance, maintain
technological competitiveness and meet an expanding range of customer
requirements. As a result of the complexities inherent in our service offerings,
major new wireless data services and service enhancements require long
development and testing periods. We may experience difficulties that could delay
or prevent the successful development, introduction or marketing of new services
and service enhancements. Additionally, our new services and service
enhancements may not achieve market acceptance. If we cannot effectively
maintain, improve and develop services we may not be able to recover our fixed
costs or otherwise become profitable.
IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL
CHANGE, OUR SERVICES MAY BECOME OBSOLETE AND WE MAY LOSE SALES.
The wireless and data communications industries are characterized by
rapidly changing technologies, industry standards, customer needs and
competition, as well as by frequent new product and service introductions. Our
services are integrated with wireless handheld devices and the computer systems
of our corporate customers. Our services must also be compatible with the data
networks of wireless carriers. We must respond to technological changes
affecting both our customers and suppliers. We may not be successful in
developing and marketing, on a timely and cost-effective basis, new services
that respond to technological changes, evolving industry standards or changing
customer requirements. Our ability to grow and achieve profitability will
depend, in part, on our ability to accomplish all of the following in a timely
and cost-effective manner:
- effectively use and integrate new wireless and data technologies;
- continue to develop our technical expertise;
- enhance our wireless data, engineering and system design services;
- develop applications for new wireless networks; and
- influence and respond to emerging industry standards and other changes.
9
<PAGE> 11
WE DEPEND UPON WIRELESS NETWORKS OWNED AND CONTROLLED BY OTHERS. IF WE DO NOT
HAVE CONTINUED ACCESS TO SUFFICIENT CAPACITY ON RELIABLE NETWORKS, WE MAY BE
UNABLE TO DELIVER SERVICES AND OUR SALES COULD DECREASE.
Our ability to grow and achieve profitability partly depends on our ability
to buy sufficient capacity on the networks of wireless carriers such as AT&T
Wireless Services or Bell Atlantic Mobile and on the reliability and security of
their systems. All of our services are delivered using airtime purchased from
third parties. We depend on these companies to provide uninterrupted and "bug
free" service and would not be able to satisfy our customers' needs if they
failed to provide the required capacity or needed level of service. In addition,
our expenses would increase and our profitability could be materially adversely
affected if wireless carriers were to increase the prices of their services. Our
existing agreements with the wireless carriers generally have one-year terms.
Some of these wireless carriers are, or could become, our competitors and if
they compete with us they may decline to provide us with their services.
WE DEPEND ON THIRD PARTIES, PARTICULARLY DISCOVER BROKERAGE, FOR THE MARKETING
AND SALES OF SOME OF OUR SERVICES. IF THE MARKETING EFFORTS OF THESE THIRD
PARTIES ARE NOT EFFECTIVE, WE MAY NOT ACHIEVE A PROFITABLE LEVEL OF SALES.
We rely substantially on the efforts of others to market and sell some of
our wireless data communications services, including wireless trading with
Discover Brokerage. In 1998, third parties paid over $150,000 in marketing
expenses related to our products, which represented 18% of our own sales and
marketing expenses. We cannot control how those who sell and market our service
perform and we cannot be certain that their performance will be satisfactory. If
these third parties fail to market our services or their efforts fail to result
in new customers, we may be unable to attract new customers and our revenue
could be adversely effected.
OUR FAILURE TO DEVELOP RECOGNITION FOR THE AETHER BRAND COULD PREVENT US FROM
ACHIEVING A PROFITABLE LEVEL OF SALES.
Our sales and marketing activities to date have been limited. Our sales and
marketing expenses were $840,455 for the year ended December 31, 1998 and
$555,428 for the six months ended June 30, 1999. We intend to increase the
market presence of our brand over time, which will require us to increase the
amount we spend on sales and marketing. We have applied for, but have not
received, federal trademark registrations for the names "Aether," "Aether
Systems" or "AIM" and we may not be able to use these names effectively or at
all if we fail to obtain such registrations due to conflicting marks or
otherwise. As a result of the Mobeo acquisition, we expect to market Mobeo's
products under their existing brands. We may lose existing customers or fail to
attract new customers if the Aether and Mobeo brands are not well received by
our customers, if our marketing efforts are not productive, if we are otherwise
unsuccessful in increasing our brand awareness or if our competition has greater
brand recognition.
WE MAY FAIL TO SUPPORT OUR ANTICIPATED GROWTH IN OPERATIONS WHICH COULD REDUCE
DEMAND FOR OUR SERVICES AND MATERIALLY ADVERSELY AFFECT OUR REVENUE.
Our business strategy is based on the assumption that the number of
subscribers to our services, the amount of information they want to receive and
the number of services we offer will all increase. We must continue to develop
and expand our systems and operations to accommodate this growth. The expansion
and adaptation of our customer service and network operations center requires
substantial financial, operational and management resources. We may be unable to
expand our operations for one or more of the following reasons:
- we may not be able to locate or hire at reasonable compensation rates
qualified engineers and other employees necessary to expand our capacity;
- we may not be able to obtain the hardware necessary to expand our
capacity;
10
<PAGE> 12
- we may not be able to expand our customer service, billing and other
related support systems; and
- we may not be able to obtain sufficient additional capacity from wireless
carriers.
Due to the limited deployment of our services to date, the ability of our
systems and operations to connect and manage a substantially larger number of
customers while maintaining superior performance is unknown. Any failure on our
part to develop and maintain our wireless data services as we experience rapid
growth could significantly reduce demand for our services and materially
adversely affect our revenue.
WE DEPEND ON RECRUITING AND RETAINING KEY MANAGEMENT AND TECHNICAL PERSONNEL
WITH WIRELESS DATA AND SOFTWARE EXPERIENCE AND WE MAY NOT BE ABLE TO DEVELOP NEW
PRODUCTS OR SUPPORT EXISTING PRODUCTS IF WE CANNOT HIRE OR RETAIN QUALIFIED
EMPLOYEES.
Because of the technical nature of our products and the dynamic market in
which we compete, our performance depends on attracting and retaining key
employees. Competition for qualified personnel in the wireless data and software
industries is intense and finding qualified personnel with experience in both
industries is even more difficult. We believe there are only a limited number of
individuals with the requisite skills in the field of wireless data
communication, and it is becoming increasingly difficult to hire and retain
these persons. Competitors and others have in the past attempted, and may in the
future attempt, to recruit our employees. Each of our 27 engineers has entered
into a non-compete agreement with us for a period of ten months after they leave
Aether. These agreements will not prevent our engineers from leaving or working
for competitors relatively soon after they leave us.
We currently maintain a key person life insurance policy for David S. Oros,
our chairman, chief executive officer and president. We do not maintain
insurance policies for any of our 81 other employees.
WE MAY NOT HAVE ADEQUATELY PROTECTED OUR INTELLECTUAL PROPERTY RIGHTS, WHICH
COULD ALLOW COMPETITORS TO DEVELOP SIMILAR PRODUCTS USING SIMILAR TECHNOLOGY AND
THUS REDUCE OUR SALES AND REVENUE.
We currently do not have patents on any of our intellectual property, and
we cannot assure you we will be successful in protecting any of our intellectual
property through patent law. We rely primarily on trade secret laws, copyright
law and confidentiality agreements to protect our intellectual property. If we
are not adequately protected, other companies with sufficient engineering
expertise could quickly develop competing products based on our intellectual
property and reduce our sales and thus our revenue.
WE MAY BE SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR INTELLECTUAL PROPERTY
RIGHTS AND INCUR COSTS OF DEFENSE AND POSSIBLY ROYALTIES OR LOSE THE RIGHT TO
USE TECHNOLOGY IMPORTANT TO PROVIDING OUR SERVICES.
The telecommunications and software industries are characterized by the
existence of a large number of patents and frequent litigation based on
allegations of patent infringement or other violations of intellectual property
rights. As the number of participants in our market increases, the possibility
of an intellectual property claim against us could increase. Mobeo has received
at least one claim that it has infringed patents developed by other parties. Any
intellectual property claims, with or without merit, could be time-consuming and
expensive to litigate or settle, could require us to enter into costly royalty
arrangements and could divert management attention from administering our
business.
WE MAY BE SUBJECT TO LIABILITY FOR TRANSMITTING INFORMATION, AND OUR INSURANCE
COVERAGE MAY BE INADEQUATE TO PROTECT US FROM THIS LIABILITY.
We may be subject to claims relating to information transmitted over
systems we develop or operate. These claims could take the form of lawsuits for
defamation, negligence, copyright or trademark infringement or other actions
based on the nature and content of the materials. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to cover all costs incurred in defense of potential
claims or to indemnify us for all liability that may be imposed.
11
<PAGE> 13
DISRUPTION OF OUR SERVICES DUE TO ACCIDENTAL OR INTENTIONAL SECURITY BREACHES
MAY HARM OUR REPUTATION CAUSING A LOSS OF SALES AND COULD INCREASE OUR EXPENSES.
A significant barrier to the growth of wireless data services or
transactions on the Internet or by other electronic means has been the need for
secure transmission of confidential information. Our systems could be disrupted
by unauthorized access, computer viruses and other accidental or intentional
actions. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches. If a
third-party were able to misappropriate our users' personal or proprietary
information or credit card information, we could be subject to claims,
litigation or other potential liabilities that could materially adversely impact
our revenue and may result in the loss of customers.
ANY TYPE OF SYSTEMS FAILURE COULD REDUCE SALES, OR INCREASE COSTS OR RESULT IN
CLAIMS OF LIABILITY.
Our existing wireless data services-TradeRunner, Reuters MarketClip and its
predecessor AirBroker and the Mobeo services-are dependent on real-time,
continuous feeds from Reuters Selectfeed Plus and others. The ability of our
subscribers to make securities trades through Discover Brokerage requires timely
and uninterrupted connections with our wireless network carriers. Any disruption
from our satellite feeds or backup landline feeds could result in delays in our
subscribers' ability to receive information or execute trades. There can be no
assurance that our systems will operate appropriately if we experience a
hardware or software failure or if there is an earthquake, fire or other natural
disaster, a power or telecommunications failure, an act of God or an act of war.
A failure in our systems could cause delays in transmitting data, and as a
result we may lose customers or face litigation that could involve material
costs and distract management from operating our business.
OUR ABILITY TO SELL NEW AND EXISTING SERVICES AT A PROFIT COULD BE IMPAIRED BY
COMPETITORS.
Intense competition could develop in the market for services we offer. We
developed our software using standard industry development tools. Many of our
agreements with wireless carriers, wireless handheld device manufacturers and
data providers are non-exclusive. Our competitors may use the same products and
services in competition with us. With time and capital, it would be possible for
competitors to replicate our services. Our competitors could include wireless
network carriers such as AT&T Wireless Services and Bell Atlantic Mobile,
software developers such as Microsoft Corporation and Phone.com and systems
integrators such as International Business Machines Corporation. Many of our
competitors have significantly greater resources than we do. Furthermore,
competitors may develop a different approach to marketing the services we
provide in which subscribers may not be required to pay for the information
provided by our services. Competition could reduce our market share or force us
to lower prices to unprofitable levels. Additional information regarding our
competition is described under "Business-Competition" at page 43.
WE MAY LOSE THE OPPORTUNITY TO PURSUE DESIRABLE PROJECTS TO OPENSKY.
David S. Oros, our chairman, chief executive officer and president, also
serves as chairman of OpenSky and Janice M. Roberts, one of our nominees for
director, is a director of OpenSky. OpenSky is a separate business in which we
have an equity interest that is developing applications for wireless access to
the Internet and related applications such as wireless e-mail access. Mr. Oros
and Ms. Roberts may learn of business opportunities that are appropriate for
both OpenSky and us, and Mr. Oros and Ms. Roberts may not be required to make
those opportunities available to us. If OpenSky pursues opportunities that we
would have an interest in pursuing, our business may fail to grow or our
existing business may suffer. Mr. Oros and Ms. Roberts may also have other
conflicts of interest with Aether because of their positions with OpenSky and
OpenSky's contractual relationships with Aether and 3Com. We describe those
contracts in "Transactions between Aether and its Officers, Directors or
Significant Stockholders-OpenSky" at page 57.
12
<PAGE> 14
AN INTERRUPTION IN THE SUPPLY OF PRODUCTS AND SERVICES THAT WE OBTAIN FROM THIRD
PARTIES COULD CAUSE A DECLINE IN SALES OF OUR SERVICES.
In designing, developing and supporting our wireless data services, we rely
on wireless carriers, wireless handheld device manufacturers, content providers
and software providers. These suppliers may experience difficulty in supplying
us products or services sufficient to meet our needs or they may terminate or
fail to renew contracts for supplying us these products or services on terms we
find acceptable. Any significant interruption in the supply of any of these
products or services could cause a decline in sales of our services unless and
until we are able to replace the functionality provided by these products and
services. Specifically, Novatel Wireless, Inc. and Sierra Wireless Inc. are our
only suppliers of wireless modems, which are an integral hardware component to
our services. It can be difficult to obtain these wireless modems and their
parts. We also depend on third parties to deliver and support reliable products,
enhance their current products, develop new products on a timely and
cost-effective basis and respond to emerging industry standards and other
technological changes. In addition, we rely on the ability of our content
providers-Reuters, Bridge Information Systems America, the New York Stock
Exchange, Inc., the Chicago Board of Trade, the Nasdaq Stock Market, Inc. and
the Options Price Reporting Authority-to continue to provide us with
uninterrupted access to the news and financial information we provide to our
customers. The failure of third parties to meet these criteria, or their refusal
or failure to deliver the information for whatever reason, could materially harm
our business.
OUR SALES CYCLE IS LONG, AND OUR STOCK PRICE COULD DECLINE IF SALES ARE DELAYED
OR CANCELLED.
Quarterly fluctuations in our operating performance are exacerbated by the
length of time between our first contact with a business customer and the first
revenue from sales of services to that customer or end user. Because our
services represent a significant investment for our business customers, we spend
a substantial amount of time educating them regarding the use and benefits of
our services and they, in turn, spend a substantial amount of time performing
internal reviews and obtaining capital expenditure approvals before purchasing
our services. As much as a year may elapse between the time we approach a
business customer and the time we begin to deliver services to a customer or end
user. Any delay in sales of our services could cause our quarterly operating
results to vary significantly from projected results, which could cause our
stock price to decline. In addition, we may spend a significant amount of time
and money on a potential customer that ultimately does not purchase our
services.
OUR SALES OF FINANCIAL DATA AND TRADING SERVICES COULD GO DOWN IF THERE IS A
DECLINE IN SECURITIES TRADING.
In the six months ended June 30, 1999, we earned 76.1% (or 96.8% on a pro
forma basis giving effect to the Mobeo acquisition) of our revenue from services
that provide financial information and wireless trading capability. If there is
a prolonged decline in the overall level of securities trading, or online
trading in particular, our operating results may decline. A decline in
securities trading may result from:
- loss of confidence in the reliability or security of online trading
systems;
- government regulation of the securities industry or online trading; or
- a downturn in the stock market.
OUR SOFTWARE MAY CONTAIN DEFECTS OR ERRORS, AND OUR SALES COULD GO DOWN IF THIS
INJURES OUR REPUTATION OR DELAYS SHIPMENTS OF OUR SOFTWARE.
The AIM package of wireless messaging and software development tools we
develop is complex and must meet the stringent technical requirements of our
customers. We must develop our services quickly to keep pace with the rapidly
changing software and telecommunications markets. Software as complex as ours is
likely to contain undetected errors or defects, especially when first introduced
or when new versions are released. Our software may not be free from errors or
defects after delivery to customers have begun, which could result in the
rejection of our software or services, damage to our reputation, lost revenue,
diverted development resources and increased service and warranty costs.
13
<PAGE> 15
OUR YEAR 2000 COMPLIANCE EFFORTS MAY INVOLVE SIGNIFICANT TIME AND EXPENSE, AND
UNCORRECTED PROBLEMS COULD HARM OUR BUSINESS.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January 1,
2000, computer systems and software used by many companies in a wide variety of
industries, including technology, transportation, utilities, finance and
telecommunications will produce erroneous results or fail unless they have been
modified or upgraded to process date information correctly. Although our expense
of preparing for possible year 2000 problems has been less than $100,000 to
date, future year 2000 compliance efforts could involve significant time and
expense, and uncorrected problems could result in material costs or loss of
revenue. We may face claims based on year 2000 issues arising from the
integration of multiple products, including ours, within an overall system. Our
customers may also cease or delay purchase and installation of new complex
systems, such as our software products, as a result of, and during, their own
internal year 2000 testing. Similarly, our wireless network carriers and
suppliers could face similar year 2000 problems which could result in a
disruption in our ability to provide services.
THE STOCKHOLDER AGREEMENT AMONG OUR MAJOR STOCKHOLDERS WILL HAVE THE EFFECT OF
ALLOWING THEM TO CONTROL EIGHT OF OUR TEN DIRECTORS, WHICH WILL LIMIT THE
ABILITY OF NEW INVESTORS TO INFLUENCE CONTROL OF AETHER.
We expect NexGen Technologies, L.L.C., Telcom-ATI Investors, L.L.C.,
Reuters MarketClip Holdings Sarl, a subsidiary of Reuters Group plc, and 3Com
Corporation-who will together hold 66% of the shares of common stock outstanding
after the offering-to enter into a stockholder agreement that will govern voting
for our directors. The agreement will provide that each party will vote all of
its shares for two directors nominated by NexGen, two directors nominated by
Telcom-ATI Investors, two directors nominated jointly by NexGen and Telcom-ATI
Investors and one director nominated by each of Reuters and 3Com. As a result,
eight directors of our board will effectively be chosen by these major
stockholders. As we currently have authorized only ten directors, the voting
rights of our stockholders other than these major stockholders will effectively
apply to only two of our directors. In addition to its effect on the voting
rights of our new investors, the stockholder agreement could have the effect of
delaying or preventing a change in control.
WE MAY NEED ADDITIONAL CAPITAL AND WE MAY NOT BE ABLE TO OBTAIN IT, WHICH COULD
PREVENT US FROM CARRYING OUT OUR BUSINESS STRATEGY.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to fund our operating needs
for at least the next 12 months, including the expansion of our sales and
marketing program and any acquisitions we may pursue in the next 12 months.
Thereafter, we expect to require additional financing in an amount that we
cannot determine at this time. After the offering, we do not have any bank
credit facility or other working capital credit line under which we may borrow
funds for working capital or other general corporate purposes. If our plans or
assumptions change or are inaccurate, we may be required to seek capital sooner
than anticipated. We may need to raise funds through public or private debt or
equity financings.
If funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders may be reduced and the
holders of new equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. If additional funds are
raised through a bank credit facility or the issuance of debt securities, the
holder of this indebtedness would have rights senior to the rights of the
holders of our common stock and the terms of this indebtedness could impose
restrictions on our operations. If we need to raise additional funds, we may not
be able to do so on terms favorable to us, or at all. If we cannot raise
adequate funds on acceptable terms, we may not be able to continue to fund our
operations.
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<PAGE> 16
NEW LAWS AND REGULATIONS THAT IMPACT OUR INDUSTRY COULD INCREASE OUR COSTS OR
REDUCE OUR OPPORTUNITIES TO EARN REVENUE.
We are not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to businesses in general. However, in the future, we may
become subject to regulation by the FCC or another regulatory agency. In
addition, the wireless carriers who supply us airtime are subject to regulation
by the FCC and regulations that affect them could increase our costs or reduce
our ability to continue selling and supporting our services.
OUR STOCK PRICE, LIKE THAT OF MANY TECHNOLOGY COMPANIES, MAY BE VOLATILE.
We expect that the market price of our common stock will be volatile. We
are involved in a highly visible, rapidly changing industry and stock prices in
our and similar industries have risen and fallen in response to a variety of
factors, including:
- announcements of technological or competitive developments;
- acquisitions or strategic alliances;
- the gain or loss of a significant customer or order;
- changes in estimates of our financial performance or changes in
recommendations by securities analysts regarding us or our industry; and
- changes in investor perceptions of the industry or the particular product
or service an issuer provides.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
Provisions of our certificate of incorporation and bylaws and provisions of
Delaware law could delay, defer or prevent an acquisition or change of control
of Aether or otherwise adversely affect the price of our common stock. For
example, our bylaws limit the ability of stockholders to call a special meeting.
Our certificate of incorporation also permits our board to issue shares of
preferred stock without stockholder approval which means that the board could
issue shares with special voting rights or other provisions that could deter a
takeover. In addition to delaying or preventing an acquisition, the issuance of
a substantial number of preferred shares could adversely affect the price of the
common stock. Please refer to "Description of Capital Stock" at page 64 for a
more detailed discussion of these provisions.
UPON COMPLETION OF THIS OFFERING, YOU WILL EXPERIENCE DILUTION.
Our tangible assets are readily identified assets like property, equipment,
cash, securities and accounts receivable. The value of these assets on our pro
forma balance sheet minus the value of our liabilities equals $2.53 per share,
giving effect to the Mobeo acquisition and the completion of this offering. The
offering price (assuming an offering price of $14 per share) exceeds this amount
by $11.47. Therefore, you will be paying more for a share of stock than the
value reflected in our accounts of tangible assets for that share. If we were
forced to sell all our assets and distribute all the proceeds, you would not
recover the amount you paid for shares unless we can sell the assets for more
than the value we report for our tangible assets. We also have outstanding a
large number of stock options and warrants to purchase common stock with
exercise prices significantly below the price of shares in this offering. You
will experience further dilution to the extent these options or warrants are
exercised.
WE EXPECT ABOUT 19,499,495 SHARES OF COMMON STOCK TO BECOME AVAILABLE FOR SALE
180 DAYS FROM THE DATE OF THIS PROSPECTUS, AND SALES OF THESE SHARES MAY DEPRESS
OUR SHARE PRICE.
After this offering, we will have outstanding 26,066,995 shares of common
stock. Sales of a substantial number of our shares of common stock in the public
market following this offering-or the expectation of such sales-could cause the
market price of our common stock to drop. All the shares sold in
15
<PAGE> 17
this offering will be freely tradable. The remaining common shares outstanding
after this offering will be available for sale in the public markets as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
----------------------------- ----------------
<S> <C>
, 2000 (180 days after the date of this
prospectus)............................................... 19,499,495
At various times thereafter upon the expiration of one-year
holding periods........................................... 567,500
</TABLE>
Of these shares, 19,441,995 shares are subject to a limitation on the
number of shares that can be sold in any three-month period. We have agreed,
however, to register the resale of substantially all of these shares upon demand
beginning one year after the date of this prospectus.
We intend to file a registration statement to register all shares of common
stock that we may issue to our employees under our equity incentive plan. After
this registration statement is effective, shares issued upon exercise of stock
options will be eligible for resale in the public market without restriction. As
of September 30, 1999, options to purchase 2,549,855 shares of our common stock
were issued and outstanding.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements relating to, among
other things, future results of operations, our plans and expectations regarding
our future services and operations and our investment in OpenSky, and general
industry and business conditions applicable to Aether. These include projections
about the industry contained on pages 31 to 32. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to a number of
risks, uncertainties and assumptions about Aether, including those we describe
in the "Risk Factors" section of this prospectus. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
prospectus might not occur. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
We use market data and industry forecasts and projections throughout this
prospectus, which we have obtained from internal surveys, market research,
publicly available information and industry publications. Industry publications
generally state that the information they provide has been obtained from sources
believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. The forecasts and projections are based on
industry surveys and the preparers' experience in the industry and there is no
assurance that any of the projected amounts will be achieved. Similarly, we
believe that the surveys and market research we or others have performed are
reliable, but we have not independently verified this information. Neither we
nor any of the underwriters represents that any such information is accurate.
16
<PAGE> 18
USE OF PROCEEDS
We expect to receive approximately $76.8 million in net proceeds from the
sale of 6,000,000 shares of common stock in this offering, assuming an initial
public offering price of $14 per common share. We estimate the net proceeds will
be approximately $88.5 million if the underwriters' over-allotment option is
exercised in full. We estimate the expenses of this offering will be
approximately $1.3 million.
The principal purposes of this offering are to obtain additional working
capital, to create a public market for our common stock and to facilitate our
future access to public equity markets. We intend to use approximately $14.8
million of net proceeds to repay in full all indebtedness incurred under the
senior secured interim credit facility, of which $11.7 million was used to
purchase Mobeo, approximately $0.8 million was used to pay fees and expenses
related to the credit facility, and the remaining $2.3 million was allocated for
general corporate purposes. In addition, we intend to use approximately $2.5
million of the net proceeds to exercise a warrant to increase our ownership in
OpenSky from 26% to up to 33% on a fully diluted basis. We currently intend to
use the remaining net proceeds from the offering for general corporate purposes,
which we expect will include approximately $2.0 million over the next year to
expand our network operations center. We also may use proceeds to purchase
additional interests in OpenSky to maintain our percentage interest in OpenSky
if OpenSky issues additional equity interests. The amount necessary for this
purpose would depend on the amount and price of equity interests issued by
OpenSky. Although we have not developed any specific plans to date, we may also
use remaining proceeds for the following purposes:
- enhance our sales and marketing activities;
- fund cash flow deficits and working capital needs;
- enhance Mobeo service offerings; and
- fund potential future acquisitions.
Pending these uses, the net proceeds of this offering will be invested in
short-term, investment grade, interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock or,
when we were organized as a limited liability company, made any distributions to
our members. We currently intend to retain earnings, if any, to support the
development of our business and do not anticipate paying cash dividends for the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account factors such as
our financial condition, operating results and current and anticipated cash
needs.
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<PAGE> 19
CAPITALIZATION
The table below sets forth the following information as of June 30, 1999:
- our actual capitalization;
- our pro forma capitalization giving effect to Mobeo acquisition as
if completed on June 30, 1999; and
- our capitalization adjusted to give effect to (1) the pro forma
adjustments described above, (2) the sale of 6,000,000 shares of
common stock at an assumed initial public offering price of $14 per
share in this offering after deducting the underwriting discounts
and commissions we expect to pay in connection with this offering
and estimated offering expenses payable by us and (3) our conversion
from a limited liability company to a corporation.
This table should be read in conjunction with our financial statements and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 22. Details regarding pro
forma adjustments are set forth in the Unaudited Pro Forma Condensed
Consolidated Financial Information beginning on page F-29.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------------------------------
PRO PRO FORMA
FORMA CONSOLIDATED
ACTUAL CONSOLIDATED AS ADJUSTED
---------- ------------ ---------------
<S> <C> <C> <C>
Short-term debt:(1)
Notes payable........................................ $ -- $14,830,000 $ --
---------- ----------- -----------
Total short-term debt........................ -- 14,830,000 --
---------- ----------- -----------
Limited liability company equity....................... 4,840,882 5,214,882 --
Stockholders' equity:(2)
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; 0 shares issued and outstanding (pro
forma consolidated, as adjusted).................. -- -- --
Common stock, $0.01 par value; 50,000,000 shares
authorized; 26,066,995 shares issued and
outstanding (pro forma consolidated, as
adjusted)......................................... -- -- 260,670
Additional paid-in-capital........................... -- -- 81,774,212
Accumulated deficit(1)............................... -- -- (830,000)
---------- ----------- -----------
Total stockholders' equity................... -- -- 81,204,882
---------- ----------- -----------
Total capitalization......................... $4,840,882 $ 5,214,882 $81,204,882
========== =========== ===========
</TABLE>
- ---------------
(1) We financed the acquisition of Mobeo with a senior secured interim credit
facility, which will be repaid with the net proceeds of the offering.
Deferred financing fees of $830,000 will be expensed at that time.
(2) The conversion from an LLC to a corporation has been accounted for on a
historical cost basis.
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<PAGE> 20
DILUTION
If you invest in our shares of common stock, your interest will be diluted
by the amount of the difference between the public offering price per share of
common stock and the pro forma as adjusted net tangible book value per share of
common stock after this offering.
Our pro forma net tangible book value as of June 30, 1999 was
$(11,309,116), or $(0.57) per share of common stock, after giving effect to:
- the Mobeo acquisition; and
- the conversion of Aether from a limited liability company to a
corporation and the exchange of units of the limited liability company
into shares of common stock of the corporation.
Pro forma net tangible book value per share is equal to our total tangible
assets less total liabilities, divided by the number of outstanding shares of
common stock.
After giving effect to our sale of 6,000,000 shares of common stock in this
offering at an assumed initial public offering price of $14.00 per share of
common stock, and after deducting the commissions and estimated offering
expenses, our as adjusted pro forma net tangible book value as of June 30, 1999
would have been $65,510,884, or $2.53 per share of common stock. This figure
represents an immediate increase in net tangible book value of $3.10 per share
of common stock to existing stockholders and an immediate dilution of $11.47 per
share of common stock to new investors. Dilution is determined by subtracting
the net tangible book value per share of common stock after the offering from
the amount of cash a new investor pays for a share of common stock. The
following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $14.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $(0.57)
Increase per share attributable to this offering.......... $ 3.10
------
Pro forma net tangible book value per share after this
offering.................................................. $ 2.53
------
Dilution per share to new investors in this offering........ $11.47
======
</TABLE>
The table below shows on a pro forma basis as of June 30, 1999, after
giving effect to the acquisition of Mobeo and the conversion of Aether from a
limited liability company into a corporation, the difference between our
existing stockholders and our new investors with respect to the number of common
shares purchased, the total consideration paid and the average price per share
paid, before deducting discounts and commissions and estimated offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 19,877,855 76.8% $ 16,010,052 16.0% $ 0.81
New investors........................... 6,000,000 23.2 84,000,000 84.0 14.00
---------- ----- ------------ -----
Total............................ 25,877,855 100.0 100,010,052 100.0
========== ===== ============ =====
</TABLE>
If the underwriters exercise their over-allotment option in full, the
number of shares of common stock held by new investors will increase to
6,900,000, or 25.8% of the total common shares outstanding after this offering.
As of June 30, 1999, as adjusted to reflect the conversion of Aether from a
limited liability company to a corporation, we had outstanding options to
purchase 1,931,250 shares under our equity incentive plan at a weighted average
exercise price of $1.04. In addition, we expect to have options to purchase 5.2
million shares available for future grant under our equity incentive plan. If
the option holders exercise these outstanding options, or any options we grant
in the future, there will be further dilution to new investors.
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share amounts)
The table that follows presents portions of our financial statements and
are not complete. You should read the following selected consolidated financial
data together with our financial statements and related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998, and the balance sheet
data as of December 31, 1997 and 1998, are derived from our financial
statements, which have been audited by KPMG LLP, independent auditors, and which
are included in this prospectus beginning on page F-1. The balance sheet data as
of December 31, 1996 are derived from audited financial statements that do not
appear in this prospectus. The statement of operations data for the six months
ended June 30, 1998 and 1999 are derived from our unaudited financial statements
included in this prospectus beginning on page F-1 and include, in the opinion of
our management, all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for the fair presentation of our
financial position and results of operations for those periods. The historical
results presented below are not necessarily indicative of the results to be
expected for any future fiscal year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" beginning on page 22.
The pro forma consolidated financial information gives effect to the Mobeo
acquisition. The pro forma net loss per share information gives effect to our
conversion from a limited liability company to a corporation. The pro forma
consolidated as adjusted balance sheet information gives effect to the
acquisition of Mobeo and the conversion to a corporation plus the offering of
shares covered by this prospectus and the application of the net proceeds as
described in "Use of Proceeds" on page 17.
We have provided the pro forma consolidated information and the pro forma
consolidated as adjusted balance sheet for informational purposes only and you
should not assume that our results would actually have been as shown if we had
acquired Mobeo or if we had converted to a corporation or completed the offering
on the assumed dates, or that the information projects what our results will be
as a result of the Mobeo acquisition or after we convert to a corporation and
complete the offering. The pro forma consolidated statement of operations
information assumes that the transactions occurred on January 1, 1998, and the
pro forma consolidated balance sheet information assumes that the transactions
occurred on June 30, 1999. See our and Mobeo's financial statements and notes to
those statements included in this prospectus beginning on page F-1.
20
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
HISTORICAL 1998
-------------------------------------- PRO FORMA
1996 1997 1998 CONSOLIDATED
---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Subscriber revenue.............. $ -- $ 161 $ 549 $ 9,130
Engineering services revenue.... 1,355 1,625 963 963
---------- ----------- ----------- -----------
Total revenue............... 1,355 1,786 1,512 10,093
Cost of subscriber revenue...... -- 447 797 3,838
Cost of engineering services
revenue....................... 1,007..... 846 304 304
---------- ----------- ----------- -----------
Total cost of revenue....... 1,007 1,293 1,101 4,142
---------- ----------- ----------- -----------
Gross profit................ $ 348 $ 493 $ 411 $ 5,951
Operating expenses:
Research and development........ 161 734 1,267 1,764
General and administrative...... 395 1,505 2,773 4,591
Selling and marketing........... -- 333 840 2,353
Depreciation and amortization... 45 189 265 3,023
Unit option and warrant
expense....................... -- 40 33 1,667
---------- ----------- ----------- -----------
Total operating expenses...... 601 2,801 5,178 13,398
---------- ----------- ----------- -----------
Operating loss................... (253) (2,308) (4,767) (7,447)
Interest income, net............. 8 7 74 79
Gain (loss) on disposal of
assets.......................... -- -- -- (14)
Equity in earnings (losses) of
investments..................... (172) (144) -- --
Realized loss on sale of
investment...................... -- (302) -- --
Other............................ -- -- -- --
---------- ----------- ----------- -----------
Net loss before income tax...... $ (417) $ (2,747) $ (4,693) $ (7,382)
---------- ----------- ----------- -----------
Income tax provision............ -- -- -- 539
Net loss........................ (417) (2,747) (4,693) (6,843)
Pro forma net loss per
share-basic and diluted....... $ (0.04) $ (0.22) $ (0.29) $ (0.31)
========== =========== =========== ===========
Pro forma weighted average
shares used in computing net
loss per share-basic and
diluted....................... 10,554,795 12,655,901 15,916,383 21,916,383
========== =========== =========== ===========
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
HISTORICAL 1999
------------------------- PRO FORMA
1998 1999 CONSOLIDATED
----------- ----------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Subscriber revenue.............. $ 125 $ 599 $ 5,646
Engineering services revenue.... 436 188 188
----------- ----------- -----------
Total revenue............... 561 787 5,834
Cost of subscriber revenue...... 200 531 2,288
Cost of engineering services
revenue....................... 171 120 120
----------- ----------- -----------
Total cost of revenue....... 371 651 2,408
----------- ----------- -----------
Gross profit................ $ 190 $ 136 $ 3,426
Operating expenses:
Research and development........ 589 1,002 1,429
General and administrative...... 1,273 1,583 2,518
Selling and marketing........... 314 555 1,359
Depreciation and amortization... 124 194 1,577
Unit option and warrant
expense....................... 16 1,263 2,080
----------- ----------- -----------
Total operating expenses...... 2,316 4,597 8,963
----------- ----------- -----------
Operating loss................... (2,126) (4,461) (5,537)
Interest income, net............. 7 141 156
Gain (loss) on disposal of
assets.......................... -- -- --
Equity in earnings (losses) of
investments..................... -- -- --
Realized loss on sale of
investment...................... -- -- --
Other............................ -- -- (50)
----------- ----------- -----------
Net loss before income tax...... $ (2,119) $ (4,320) $ (5,431)
----------- ----------- -----------
Income tax provision............ -- -- 270
Net loss........................ (2,119) (4,320) (5,161)
Pro forma net loss per
share-basic and diluted....... $ (0.15) $ (0.22) $ (0.20)
=========== =========== ===========
Pro forma weighted average
shares used in computing net
loss per share-basic and
diluted....................... 14,270,568 19,877,855 25,877,355
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999,
-------------------------------------------
AS OF DECEMBER 31, PRO FORMA
----------------------------------- PRO FORMA CONSOLIDATED
1996 1997 1998 ACTUAL CONSOLIDATED(1) AS ADJUSTED
---------- --------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 51 $ 132 $ 1,755 $ 457 $ 3,542 $65,149
Working capital (deficit)................... 181 (323) 7,519 3,674 (10,199) 66,621
Total assets................................ 1,269 822 8,765 5,867 25,756 86,916
Total debt(1)............................... -- 150 -- -- 14,830 --
Members' capital............................ 1,101 74 8,030 4,841 5,215 --
Stockholders' equity........................ -- -- -- -- -- 81,205
</TABLE>
- ---------------
(1) We financed the acquisition of Mobeo through a senior secured interim credit
facility, which will be repaid with the net proceeds of this offering.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following description of our financial condition and
results of operations in conjunction with the financial statements and the notes
thereto and the unaudited pro forma condensed consolidated financial information
included in this prospectus beginning on page F-1.
OVERVIEW
Aether Systems LLC was originally formed as Aeros, L.L.C. in January 1996.
We changed our name to Aether Technologies International, L.L.C. effective
August 1996 and to Aether Systems LLC effective September 1999. Immediately
before we complete this offering, the limited liability company will be
converted into a corporation called Aether Systems, Inc.
From our inception until March 1997, we primarily provided wireless
engineering services, including the development of wireless software
applications for customers. In March 1997, we began offering services that
provide the users of wireless handheld devices access to real-time financial
information. During 1997, we made a strategic decision to focus a significant
portion of our engineering resources on the development of these and other
wireless data services and systems, including our AIM package of wireless
messaging software and software development tools (also known as a software
platform) and other wireless data applications. This resulted in a decrease in
engineering services revenue as a percentage of total revenue and an increase in
subscriber revenue as a percentage of total revenue. We expect this trend to
continue in the foreseeable future with an increasing percentage of our revenue
being derived from subscriber revenue. We also expect to derive revenue from the
licensing of our AIM software platform.
Our subscriber base was 150 and 687 for the years ended December 31, 1997
and December 31, 1998, respectively, and 982 for the six months ended June 30,
1999. The growth in subscribers over these periods was primarily the result of
the attraction of new subscribers to the service. Reuters MarketClip yearly
subscriptions started to expire in March 1999 and 75% of all subscribers
eligible to renew during the period from March to June 1999 renewed their
contracts for an additional one year period. Subscriber revenue was $161,400 and
$549,057 for the years ended December 31, 1997 and 1998, respectively, and
$598,810 for the six months ended June 30, 1999. Engineering services revenue
was $1.4 million, $1.6 million and $1.0 million for the years ended December 31,
1996, 1997 and 1998, respectively, and $188,274 for the six months ended June
30, 1999. We incurred net losses of approximately $416,980, $2.7 million and
$4.7 million for years ended December 31, 1996, 1997 and 1998, respectively, and
$4.4 million for the six months ended June 30, 1999.
For the six months ended June 30, 1999, our cost to acquire subscribers was
greater than the revenue we expect to derive from those customers over the
initial one-year contract term. In the future, we expect that revenue from new
customers will exceed subscriber acquisition costs as the number of subscribers
increases to cover our fixed costs.
On September 28, 1999, we acquired Mobeo, Inc. Mobeo provides employees and
customers of major banks and financial institutions with real-time price quotes
and news for foreign exchange, government securities and commodities markets on
wireless handheld devices. On a pro forma basis, giving effect to the Mobeo
acquisition, our revenue for the six months ended June 30, 1999 was $5.8
million. Mobeo accounted for 87% of this revenue.
Mobeo's subscriber base was 2,811 and 3,339 at December 31, 1997 and
December 31, 1998, respectively, and 3,356 at June 30, 1999. The net increase in
subscriber base from the end of 1997 to the end of 1998 was due to new
subscriptions of 1,660 and termination of 1,132 subscriptions. The net increase
in subscribers from December 31, 1998 to June 30, 1999 was due to the
termination of 591 subscriptions, and 608 new subscriptions. We believe that a
substantial number of the terminations and additions are the result of changes
in personnel at financial institutions whose traders are Mobeo subscribers.
Mobeo subscriber revenue was $7.1 million and $8.6 million for the years ended
December 31, 1997 and 1998, respectively, and $5.0 million for the six months
ended June 30, 1999. Mobeo (on a stand-
22
<PAGE> 24
alone basis) reported net income for the six months ended June 30, 1998 and 1999
of $278,870 and $19,677, respectively. The decrease from 1998 to 1999 was
primarily attributable to increases in operating expenses of $726,250 offset in
part by an increase in gross profits of $345,880 as described in detail in
Results of Operations, below. On a stand-alone basis, Mobeo reported a net loss
for the years ended December 31, 1998 and 1997 of $100,893 and $387,656,
respectively. The decrease in net loss from 1998 to 1999 was primarily
attributable to an increase in gross profits of $1.6 million partially offset by
an increase in operating expenses of $1.2 million as described in detail in
Results of Operations below. Mobeo has reported net losses for full years and
net income for partial years because, as a closely held company, Mobeo has
recorded as compensation expense in each year amounts paid to senior officers at
year-end that typically equalled income earned during the year. As a result of
our acquisition of Mobeo, most of this compensation expense to senior officers
will no longer be paid as these senior officers are no longer employed by Mobeo
or us.
In August 1999, we entered into a joint venture with 3Com called OpenSky.
We and 3Com formed OpenSky to pursue opportunities in the emerging consumer and
business mass markets for wireless internet access, e-mail and Internet and
other electronic transaction applications. We have entered into a letter
agreement with OpenSky that requires OpenSky to pay us $3 million over a
12-month period ending in June 2000 in exchange for engineering services. We
have also given OpenSky a perpetual, non-exclusive, non-assignable, royalty
free, worldwide license to our AIM software platform. We have the right to offer
OpenSky's services to our subscribers in exchange for a monthly fee of $3 per
subscriber.
Since our inception, we have invested significant capital to build our
customer service and network operations center. Additionally, we have incurred
significant operating costs to develop our AIM software platform and other
software applications and to grow our business. As a result, we have incurred
operating losses since our inception. Part of our strategy is to continue to
invest in business development, research and development and marketing and
advertising. As a result, we expect to continue to incur operating losses for at
least the next several quarters.
RESULTS OF OPERATIONS
We derive our revenue from the sale of wireless data services and by
providing wireless engineering services. As a result of the Mobeo acquisition,
we also derive revenue from the sale of Mobeo's wireless foreign exchange
information services. Revenue from wireless data services consists of:
- a one time non-refundable activation fee, which we recognize upon service
activation;
- monthly service fees, which we recognize as services are provided to the
subscriber; and
- monthly exchange fees for access to financial information from the
securities exchanges and markets, which we recognize as services are
provided to the subscriber. We remit these fees to the various exchanges
and markets on a regular basis.
As part of our service offerings, we also provide our subscribers with the
option to purchase wireless handheld devices from us at cost, which we bill over
the initial term of the contract.
We also expect to derive revenue from the licensing of our AIM software
platform. We currently have one customer who is licensing our AIM software
platform but anticipate additional customers in the future.
Contracts with our wireless data subscribers are for a one-year period and
include a termination penalty if cancelled by the subscriber before the one-year
term expires. These contracts are generally renewable at the option of the
subscriber for additional one-year periods or otherwise continue on a monthly
basis until cancelled by the subscriber. Revenue from wireless engineering
services consists of amounts billed to our customers for engineering time on an
hourly basis or on a fixed per project basis. This revenue is recognized as the
work is performed.
Cost of subscriber revenue consists primarily of airtime costs, financial
data costs, wireless handheld device costs and securities exchange and market
fees. Our airtime costs are determined by agreements we have with several
wireless carriers. Typically, we have one-year contracts to buy data network
capacity either for an agreed amount of kilobytes at a flat fee or on a
cents-per-kilobyte basis. Cost of engineering
23
<PAGE> 25
services revenue consists of cash compensation and related costs for engineers
and other non-reimbursed, project-related costs.
Research and development expenses consist primarily of cash compensation
and related costs for engineers engaged in research and development activities
and, to a lesser extent, costs of materials relating to these activities. We
expense research and development costs as we incur them. General and
administrative expenses consist primarily of cash compensation and related costs
for general corporate and business development personnel, along with rent and
other costs. Selling and marketing expenses consist primarily of advertising and
promotions, sales and marketing personnel, travel and entertainment and other
costs.
Depreciation and amortization expenses consist primarily of depreciation
expenses arising from equipment purchased for our network operations center and
other property and equipment purchases. On a pro forma basis, giving effect to
the Mobeo acquisition, depreciation and amortization expenses consist primarily
of amortization related to goodwill and other intangibles to be recognized as a
result of the Mobeo acquisition.
Equity-based expenses consist of expenses recorded to account for the
difference, on the date of grant, between the fair market value and the exercise
price of stock options issued to employees and the fair value of equity-based
awards to non-employees.
Net interest income consists primarily of interest earned on cash and cash
equivalents and short-term investments, net of fees paid to fund managers and
interest expense on monies borrowed.
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Subscriber revenue. Subscriber revenue increased from $124,576 for the six
months ended June 30, 1998 to $598,810 for the six months ended June 30, 1999.
The increase was primarily due to additional subscribers associated with the
launch of Reuters MarketClip, and we expect a significant portion of future
revenue to come from financial services and online trading products.
On a pro forma basis, giving effect to the Mobeo acquisition, subscriber
revenue for the six months ended June 30, 1999 was $5.6 million. Mobeo accounted
for 89% of this subscriber revenue. Subscriber revenue for Mobeo increased from
$4.5 million for the six months ended June 30, 1998 to $5.0 million for the six
months ended June 30, 1999. This increase was primarily due to price increases
for Mobeo's foreign exchange information services.
Engineering services revenue. Engineering services revenue decreased from
$436,090 for the six months ended June 30, 1998 to $188,274 for the six months
ended June 30, 1999. This decrease was primarily due to our decision to focus
our efforts on developing our AIM software platform and on wireless data
services.
Cost of subscriber revenue. Cost of subscriber revenue increased from
$199,559 for the six months ended June 30, 1998 to $530,823 for the six months
ended June 30, 1999. The increase was primarily due to an increase in the number
of subscribers to Reuters MarketClip, which was launched in March 1998. We
expect the number of subscribers for financial services and online trading
products to increase, resulting in an increase in the cost of subscriber
revenue.
On a pro forma basis, giving effect to the Mobeo acquisition, cost of
subscriber revenue for the six months ended June 30, 1999 was $2.3 million.
Mobeo accounted for 77% of this cost. Cost of subscriber revenue for Mobeo
increased from $1.5 million for the six months ended June 30, 1998 to $1.8
million for the six months ended June 30, 1999. This increase was primarily due
to an increase in airtime charges of $630,000 offset by cost savings of $330,000
relating to a change in financial data providers.
Cost of engineering services revenue. Cost of engineering services revenue
decreased from $170,812 for the six months ended June 30, 1998 to $119,829 for
the six months ended June 30, 1999. This decrease was primarily due to a
decrease in engineering services as discussed above.
24
<PAGE> 26
Research and development expenses. Research and development expenses
increased from $589,148 for the six months ended June 30, 1998 to $1.0 million
for the six months ended June 30, 1999. This increase was primarily due to the
hiring of additional engineers for increased research and development activities
associated with the development of our AIM software platform and wireless data
services. We expect to continue to make substantial investments in research and
development and anticipate that these expenses will continue to increase.
On a pro forma basis, giving effect to the Mobeo acquisition, research and
development expenses for the six months ended June 30, 1999 were $1.4 million.
Mobeo accounted for 30% of these expenses. Research and development expenses for
Mobeo increased from $168,355 for the six months ended June 30, 1998 to $427,210
for the six months ended June 30, 1999. This increase was primarily due to
additional expenses associated with the development of wireless software
applications.
General and administrative expenses. General and administrative expenses
increased from $1.3 million for the six months ended June 30, 1998 to $1.6
million for the six months ended June 30, 1999. This increase was primarily due
to the addition of personnel performing general corporate and business
development activities. We expect general and administrative expenses to
increase as we add personnel and incur additional expenses related to the
anticipated growth of our business and our operation as a public company.
On a pro forma basis, giving effect to the Mobeo acquisition, general and
administrative expenses for the six months ended June 30, 1999 were $2.5
million. Mobeo accounted for 37% of these expenses. General and administrative
expenses for Mobeo increased from $1.2 million for the six months ended June 30,
1998 to $1.5 million for the six months ended June 30, 1999, before pro forma
adjustment. This increase was primarily due to increased personnel and related
costs.
Selling and marketing expenses. Selling and marketing expenses increased
from $313,775 for the six months ended June 30, 1998 to $555,428 for the six
months ended June 30, 1999. Of this increase $170,075 was primarily due to an
increase in advertising and promotion costs related to the launch of Reuters
MarketClip in March 1998 and $71,578 was due to an increase in personnel related
expenses. We expect selling and marketing expenses to increase significantly as
we incur additional expenses to increase brand awareness and add personnel.
On a pro forma basis, giving effect to the Mobeo acquisition, selling and
marketing expenses for the six months ended June 30, 1999 were $1.4 million.
Mobeo accounted for 59% of these expenses. Selling and marketing expenses for
Mobeo increased from $1.0 million for the six months ended June 30, 1998 to $1.3
million for the six months ended June 30, 1999, before pro forma adjustment.
This increase was primarily due to increased personnel costs of $118,300 and
increased advertising and marketing costs of $126,450.
Depreciation and amortization. Depreciation and amortization expenses
increased from $123,820 for the six months ended June 30, 1998 to $193,523 for
the six months ended June 30, 1999. This increase was primarily due to an
increase in the purchase of property and equipment related to the expansion of
our corporate offices.
On a pro forma basis, giving effect to the Mobeo acquisition, depreciation
and amortization expenses for the six months ended June 30, 1999 were $1.6
million. This amount primarily reflects amortization related to goodwill and
other intangibles to be recognized as a result of the Mobeo acquisition.
Unit option and warrant expense. Unit option and warrant expense increased
from $16,290 for the six months ended June 30, 1998 to $1.3 million for the six
months ended June 30, 1999. Of this increase $861,990 was primarily due to the
fact that warrants held by 3Com to acquire 57,466 units became exercisable in
the six months ended June 30, 1999 and $384,920 relates to an increase in the
number of options that vested during the period with exercise prices less than
the fair value on the date of grant.
On a pro forma basis, giving effect to the Mobeo acquisition, unit option
and warrant expense for the six months ended June 30, 1999 was $2.1 million. The
increase from Aether's historical amount is
25
<PAGE> 27
primarily due to expenses associated with options expected to be granted to the
selling stockholders of Mobeo for consulting and employee services.
Interest income, net. Net interest income increased from $7,035 for the six
months ended June 30, 1998 to $140,753 for the six months ended June 30, 1999.
The increase was primarily due to increased cash balances as a result of our
private placement financings completed in August 1998 and October 1998.
FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Subscriber revenue. There was no subscriber revenue recognized for the year
ended December 31, 1996. Subscriber revenue increased from $161,400 to $549,057
for the years ended December 31, 1997 and December 31, 1998, respectively. The
increase in subscriber revenue was primarily due to the launch of Reuters
MarketClip in March 1998.
On a pro forma basis, giving effect to the Mobeo acquisition, subscriber
revenue for the year ended December 31, 1998 was $9.1 million. Mobeo accounted
for 94% of this subscriber revenue. Subscriber revenue for Mobeo increased from
$6.5 million to $7.1 million for the years ended December 31, 1996 and December
31, 1997, respectively and to $8.6 million for the year ended December 31, 1998.
The increase from 1996 to 1997 was primarily due to an increase in the number of
subscribers and the increase from 1997 to 1998 was primarily due to price
increases for Mobeo's foreign exchange information services.
Engineering services revenue. Engineering services revenue increased from
$1.4 million to $1.6 million for the years ended December 31, 1996 and December
31, 1997, respectively, and decreased to $1.0 million for the year ended
December 31, 1998. The increase in engineering services revenue from 1996 to
1997, was primarily due to increased engineering services activities. One of our
investors accounted for approximately 83% and 37% of engineering services
revenue for 1996 and 1997, respectively. The decrease in engineering services
revenue from 1997 to 1998 was primarily due to our decision to focus our efforts
on developing our AIM software platform and wireless data services.
Cost of subscriber revenue. There was no cost of subscriber revenue for the
year ended December 31, 1996. Cost of subscriber revenue increased from $447,480
to $797,165 for the years ended December 31, 1997 and December 31, 1998,
respectively. We began to incur costs of subscriber revenue in 1997 with the
March 1997 launch of our AirBroker service. The increase in the cost of
subscriber revenue from 1997 to 1998 was primarily due to the launch of the
Reuters MarketClip service in March 1998. We expect the number of subscribers
for financial services and on-line trading products to increase resulting in an
increase in the cost of subscriber revenue.
On a pro forma basis, giving effect to the Mobeo acquisition, cost of
subscriber revenue for the year ended December 31, 1998 was $3.8 million. Mobeo
accounted for 79% of these costs. Cost of subscriber revenue for Mobeo increased
from $2.9 million for the year ended December 31, 1996 to $3.1 million for the
year ended December 31, 1997 and decreased to $3.0 million for the year ended
December 31, 1998. The increase from 1996 to 1997 was primarily due to an
increase in the number of subscribers and the decrease from 1997 to 1998 was
primarily due to cost savings related to a change in financial data providers.
Cost of engineering services revenue. Cost of engineering services revenue
decreased from $1.0 million to $846,140 for the years ended December 31, 1996
and December 31, 1997, respectively, and decreased to $304,137 for the year
ended December 31, 1998. These decreases were primarily due to our decision to
focus our efforts on developing our AIM software platform and wireless data
services.
Research and development expenses. Research and development expenses
increased from $160,597 to $733,630 for the years ended December 31, 1996 and
December 31, 1997, respectively, and increased to $1.3 million for the year
ended December 31, 1998. These increases in research and development expenses
were primarily due to the hiring of additional engineers for increased research
and development activities associated with the development of our AIM software
platform and wireless data services.
26
<PAGE> 28
On a pro forma basis, giving effect to the Mobeo acquisition, research and
development expenses for the year ended December 31, 1998 were $1.8 million.
Mobeo accounted for 28% of these expenses. Research and development expenses for
Mobeo increased from $94,609 to $174,867 for the years ended December 31, 1996
and December 31, 1997, respectively and to $496,570 for the year ended December
31, 1998. The increase from 1997 to 1998 was primarily due to an increase in the
number of engineering personnel and the increase from 1997 to 1998 was primarily
due to additional expenses associated with the development of wireless software
applications.
General and administrative expenses. General and administrative expenses
increased from $395,209 to $1.5 million for the years ended December 31, 1996
and December 31, 1997, respectively and increased to $2.8 million for the year
ended December 31, 1998. These increases were primarily due to the addition of
personnel performing general corporate and business development functions.
On a pro forma basis, giving effect to the Mobeo acquisition, general and
administrative expenses for the year ended December 31, 1998 were $4.6 million.
Mobeo accounted for 40% of these expenses. General and administrative expenses
for Mobeo increased from $1.1 million to $1.9 million for the years ended
December 31, 1996 and December 31, 1997, respectively, and to $2.7 million for
the year ended December 31, 1998, before pro forma adjustment. The increase from
1996 to 1997 was primarily due to a $235,000 increase in personnel and related
costs and a $40,000 increase in network support costs. In addition, general and
administrative expenses were reduced in 1996 by the reversal of $336,000
reserved in 1995 for a potential liability related to a data provider contract
termination and general and administrative expenses increased by $122,000 in
1997 due to a change in accounting policy relating to inventory of paging
equipment. The increase from 1997 to 1998 was primarily due to increased
personnel and related costs.
Selling and marketing expenses. There were no selling and marketing
expenses for the year ended December 31, 1996. Selling and marketing expenses
increased from $333,191 to $840,455 for the years ended December 31, 1997 and
December 31, 1998, respectively. Of this increase $324,152 was primarily due to
an increase in advertising and promotion costs related to the launch of Reuters
MarketClip in March 1998 and $183,112 relates to an increase in personnel and
costs associated with sales and marketing.
On a pro forma basis, giving effect to the Mobeo acquisition, selling and
marketing expenses for the year ended December 31, 1998 were $2.4 million. Mobeo
accounted for 64% of these expenses. Selling and marketing expenses for Mobeo
increased from $1.6 million to $1.8 million for the years ended December 31,
1996 and December 31, 1997, respectively, and to $2.3 million for the year ended
December 31, 1998 before pro forma adjustment. The increase from 1996 to 1997
was primarily due to a $50,000 increase in marketing costs, a $40,000 increase
in advertising costs and a $70,000 increase in sales commissions. The increase
from 1997 to 1998 was primarily due to increased personnel overhead costs.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased from $45,245 to $189,160 for the years ended December 31,
1996 and December 31, 1997, respectively, and increased to $264,685 for the year
ended December 31, 1998. These increases were primarily due to additional
capital expenditures.
On a pro forma basis, giving effect to the Mobeo acquisition, depreciation
and amortization expenses for the year ended December 31, 1998 were $3.0
million. This amount primarily reflects amortization related to goodwill and
other intangibles to be recognized as a result of the Mobeo acquisition.
Unit option and warrant expense. There was no unit option and warrant
expense for the year ended December 31, 1996. Unit option and warrant expense
decreased from $40,277 to $32,580 for the years ended December 31, 1997 and
December 31, 1998, respectively. The increase in unit option and warrant expense
for 1997 and the decrease for 1998 reflect changes in the extent to which
options became exercisable during the period with exercise prices less than the
fair value on the date of grant.
On a pro forma basis, giving effect to the Mobeo acquisition, unit option
and warrant expense for the year ended December 31, 1998 were $1.7 million. The
increase from Aether's historical amount is
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primarily due to expenses associated with options expected to be granted to the
selling stockholders of Mobeo for consulting and employee services.
Interest income, net. Net interest income decreased from $8,491 to $7,788
for the years ended December 31, 1996 and December 31, 1997, respectively, and
increased to $74,180 for the year ended December 31, 1998. The increase for 1998
was primarily due to increased cash balances as a result of our private
placement financings completed in August 1998 and October 1998.
Equity in losses of joint venture. Our equity in the loss of Real World
Solutions, a joint venture, was $172,487 and $70,368 for the years ended
December 31, 1996 and December 31, 1997, respectively. These amounts related to
losses of Real World Solutions recorded by us under the equity method of
accounting.
Realized loss on sale of investment in joint venture. In the year ended
December 31, 1997, we sold our interest in Real World Solutions and recorded a
loss of $302,145.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
private placements of our equity securities, which have resulted in net proceeds
of $15.7 million through June 30, 1999. As of June 30, 1999, we had $4.4 million
in cash and short-term investments and $3.7 million of working capital.
Net cash used in operating activities was $346,200, $1.5 million and $4.4
million for the years ended December 31, 1996, 1997 and 1998, respectively, and
$2.5 million for the six months ended June 30, 1999. The principal use of cash
in each of these periods was to fund our losses from operations.
Net cash used in investing activities was $1.2 million, $209,723, and $6.5
million for the years ended December 31, 1996, 1997 and 1998, respectively, and
cash provided from investing activities was $1.6 million for the six months
ended June 30, 1999. Cash used in investing activities for the year ended
December 31, 1996 was primarily for the purchase of a joint venture interest in
Real World Solutions and for purchases of property and equipment. Cash used in
investing activities for the year ended December 31, 1997 was primarily for the
purchase of property and equipment offset in part by proceeds from the sale of
our joint venture interest in Real World Solutions. Cash used in investing
activities for the year ended December 31, 1998 was primarily for the purchase
of short-term investments. For the six months ended June 30, 1999 we generated
cash from investment activities from the sale of short-term investments offset
in part by the purchase of property and equipment.
Net cash provided by financing activities was $1.6 million, $1.8 million
and $12.5 million for the years ended December 31, 1996, 1997 and 1998,
respectively. Cash provided by financing activities in each of these periods was
primarily attributable to proceeds from additional private sales of our equity
securities. There was no financing activity in the six months ended June 30,
1999.
For the remainder of 1999, we expect to have the following expenditures and
requirements:
- $11.7 million for the Mobeo acquisition;
- $2.5 million to exercise a warrant to increase our interest in OpenSky;
- $1.0 million for expansion of our network operations center;
- enhancement of Mobeo's service offerings;
- increases in sales and marketing expenditures;
- research and development; and
- other working capital needs to grow our business.
We may also need funds to complete any acquisitions we may decide to pursue.
On September 28, 1999, we borrowed $14.8 million under a senior secured
interim credit facility with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, one of the underwriters of this
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offering and Merrill Lynch Capital Corporation. The loan is due and payable one
year from the closing date, with the possibility of a single extension up to one
year. We can prepay the loan at any time without any penalty. Interest on
borrowings under the credit facility will accrue at a rate of, at our option,
either LIBOR plus a specified margin which increases over time or the lender's
base rate plus a specified margin which also increases over time. The current
interest rate per annum is 11.1%. The facility is secured by substantially all
of our assets and the assets of our subsidiaries. The subsidiaries have also
guaranteed repayment under the credit facility. The credit facility contains
terms and conditions typical for credit facilities of this type and size and
also includes financial covenants. We intend to repay the loan in full upon
completion of this offering, at which time the credit facility will terminate.
In connection with this credit facility, Merrill Lynch Capital Corporation
has received warrants to purchase up to 2,419,690 shares of our common stock for
no consideration which only become exercisable if the credit facility is not
repaid in a timely manner. If we repay the loan in full out of the proceeds of
the offering, the warrants will become void and no shares will be issued.
YEAR 2000 READINESS
Many currently installed computer systems and software products are coded
to accept or recognize only two digits rather four digits to define the year in
the date code field. These systems and software products will need to accept
four digit year entries to distinguish 21st century dates from 20th century
dates. Systems and products that are not corrected to do this could cause a
disruption of operations including a temporary inability to process
transactions, send invoices or engage in other normal business activities. We
maintain a significant number of computer software systems and operating systems
across our entire organization which are potentially subject to year 2000
problems.
We have taken several steps to prepare for the year 2000 transition. We
developed all our in-house software, including our AIM software platform, using
four digit date codes. We run all these applications on hardware and operating
systems that we have determined are year 2000 compliant. All our computer
hardware has been inventoried and checked against the manufacturers' year 2000
compliance declarations. All non-compliant hardware has been upgraded if
possible, or replaced. All third-party software, including operating systems and
applications, have been inventoried and checked against the manufacturers'
compliance statements. We have upgraded and fixed software as recommended by the
manufacturers.
We are actively seeking assurances from external entities that could affect
our business. We have been advised by our data providers, landline and wireless
network carriers, device manufacturers and current corporate customers that
their systems that might impact our own systems are year 2000 compliant. We are
currently seeking year 2000 compliance statements from the network carriers
whose networks we use. We have asked these carriers to provide us with responses
by September 1, 1999.
We are developing a contingency plan to deal with failures that may occur
during the year 2000 transition. By the end of October 1999, we expect to finish
our contingency plan which will involve developing alternate methods to provide
mission-critical functions if they fail.
The most likely worst case scenario would be the failure of the landline or
wireless networks that carry data to us or from us to our customers. If this
happened, we would not be able to deliver our services to our customers and we
may lose revenue.
Any failure on the part of Mobeo or its data providers or network carriers
to maintain computer hardware and software that is year 2000 compliant could
adversely impact our business. In connection with the Mobeo acquisition, Mobeo
has represented to us that its computer hardware and software are year 2000
compliant.
Although we have taken the steps described above to make our systems year
2000 compliant, we may experience material problems and expenses associated with
year 2000 compliance that could adversely
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affect our business, results of operations and financial condition. If the
assurances we have received from third parties or Mobeo regarding their
compliance are inaccurate we may experience disruption resulting in additional
expense and loss of revenue. We are also subject to outside forces that might
generally affect industry and commerce, such as year 2000 compliance failures by
utility or transportation companies. If our customers experience disruptions
related to our services and software systems, they may begin litigation against
us even if the disruptions were caused by their own systems or software provided
by others.
We have purchased most of our equipment within the last four years, which
has kept the costs of year 2000 compliance efforts to a minimum. All
non-compliant software and equipment has been upgraded or replaced at a cost
that is not material to us and our total costs relating to year 2000 compliance
have been less than $100,000. Based on our review of compliance to date, we do
not expect any future costs related to year 2000 compliance to be material.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The
statement, as amended, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The statement is not expected to affect us as we
currently do not engage or plan to hold derivative instruments or engage in
hedging activities.
QUALITATIVE AND QUANTITATIVE DISCLOSURE REGARDING MARKET RISK
We have limited exposure to financial market risks, including changes in
interest rates. We manage our interest rate risk exposure by investing in debt
obligations with varying maturity dates. We have $14.8 million in floating rate
debt. We have not entered into any agreements that hedge the effect of changes
in rates on this indebtedness. At June 30, 1999, we had short-term investments
of approximately $4.0 million. These short-term investments consisted of highly
liquid investments in debt obligations of the U.S. Government and other
highly-rated entities with maturities of up to 30 years. These investments are
classified as available-for-sale and are considered short-term, because we
expect to sell them within 12 months. These investments are subject to interest
rate risk and will fall in value if market interest rates increase. At June 30,
1999, the value of our short-term investments was approximately $190,000 less
than our cost. If market interest rates continue to rise, the value of our
short-term investments will continue to decrease. We expect to sell these
investments prior to maturity, and therefore we may not realize the full value
of these investments. We currently hold no derivative instruments and do not
earn foreign-source income. We expect to invest only in debt obligations issued
by the U.S. government with maturities of less than one year.
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BUSINESS
OVERVIEW
We provide wireless data services and systems enabling people to use
wireless handheld devices for real-time data communications and transactions. We
believe we offer the broadest range of capabilities necessary to design,
develop, sell and support a full range of wireless data services. We can offer
these capabilities because of our engineering expertise, our wireless
integration software and our customer service and network operations center.
MARKET OPPORTUNITY
Growth of the Internet, Intranets and Extranets
The Internet and businesses' internal data networks, or intranets, have
emerged as global communications channels that allow users to share information
and conduct real-time business electronically. According to publicly available
industry estimates, there were approximately 150 million users of the Internet
at the end of 1998 and the number of users will increase to 500 million by the
end of 2003. Technology and communications research firm International Data
Corporation, or IDC, has published estimates that by 2001 there will be 133
million global intranet users. Businesses are also increasingly employing
extranets, which allow them to communicate and conduct transactions
electronically with their customers and suppliers. Forrester Research forecasts
that business to business electronic and internet commerce in the U.S. will
increase from an estimated $100 billion in 1999 to $1,300 billion in 2003. All
of the projections and estimates in this "Market Opportunity" section are based
on the qualifications described on page 16 of this prospectus.
Growth of Mobile Communications
Individuals are increasingly using mobile devices for convenience and
enhanced productivity when away from their home or office. The Yankee Group, a
technology and communications market research firm, estimates that in the U.S.
there were approximately 68.7 million subscribers to wireless voice services at
the end of 1998 and that there will be 152.8 million by the end of 2003. Use of
wireless telecommunications has grown rapidly as cellular, paging and personal
communications systems, or PCS, have become more widely available and affordable
for both the business and mass consumer markets. Advances in technology,
regulatory changes, the introduction of new service providers and price
reductions have contributed to this growth.
Growth of Wireless Data Applications and Communications
We believe an increasing number of people will carry wireless devices for
data communications rather than for voice communications alone. The latest
wireless communications devices in the United States, including handheld
personal organizers, notebook computers, pagers and mobile phones, are smaller,
less expensive, have longer battery life and more features than earlier devices.
Dataquest estimates that the U.S. wireless data market will grow from 3 million
subscribers in 1999 to 36 million subscribers in 2003.
The market for wireless data applications is driven by the increased
reliance on the Internet, intranets and extranets and the emergence of a mobile
workforce. IDC forecasts that the remote and mobile workforce in the United
States will grow from 35.7 million individuals at the end of 1999 to 47.1
million at the end of 2003. Having grown accustomed to and dependent on the
information and applications available on their personal computers, we believe
workers and consumers want access to similar information when away from their
office or home.
Attractiveness of Financial Market Applications
The availability of real-time information, price quotes and trading
capabilities is critical to financial market participants, both professionals
and individuals. We believe that news, stock prices and other
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financial information are among the most accessed content on the Internet. The
Internet has also enabled the growth of online trading activity. According to
the Yankee Group, the number of U.S. households investing online is expected to
continue its rapid growth, from 5.1 million in 1998 to 24.6 million in 2003.
Increased Outsourcing Trends
As information technology, or IT, systems have become more complex,
companies have increasingly outsourced many of their IT requirements. U.S. firms
are now spending 20% of their IT budgets on outsourcing services, according to
the industry trade publication Internet Week. These include packaged application
software implementation and support, customer support and network development
and maintenance. Companies are choosing to focus on their core businesses and
seeking to reduce costs associated with developing and maintaining IT networks
and software applications. In addition, by outsourcing, companies avoid major
challenges faced in hiring and retaining qualified IT employees and realize
increased time-to-market benefits.
THE AETHER SOLUTION
Through our engineering staff, our AIM package of wireless messaging
software and development tools (also known as a software platform) and our
customer service and network operations center, we provide the services and
resources necessary to deliver wireless data systems. Our capabilities address
most of the common issues companies face when building wireless data systems.
Issue: Wireless data communications systems are complex.
Many information technology managers lack the engineers and system
resources to design, develop, install and maintain new software and
systems that give their companies' workforces and customers mobile
access to internal desktop applications.
Solution: We provide comprehensive wireless communications services.
We have all the resources necessary to design, develop, install and
maintain wireless data communications systems for customers. We have 27
engineers who have on average more than ten years of wireless data
experience. Our engineers use our AIM software platform to extend
corporate applications to almost any wireless environment. We have
established relationships with the leading wireless network carriers,
including AT&T Wireless Services, Bell Atlantic Mobile, BellSouth
Wireless Data and Ameritech Corp. We have negotiated favorable airtime
agreements with these carriers, allowing us to offer our end users
flat-rate pricing no matter how much data is transmitted or where a
device is used. Our network operations center offers a secure gateway to
wireless networks for data delivered to us by our customers, and our
customer service center provides devices and call center support to end
users. We provide as many, or as few, of these elements as customers
require to develop their systems.
Issue: There is a wide variety of incompatible standards.
To build a wireless data system, a business must integrate incompatible
networks, devices and operating systems. Companies often require
multiple networks to meet the needs of their workers and customers,
based on their geographic location and preferred devices, which may use
different communications protocols. This can involve complex
negotiations with several wireless carriers. Additionally, companies
typically use a variety of operating systems for their internal data
applications.
Solution: Our software and systems can integrate a wide variety of
networks, devices and operating systems.
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We give our customers a high degree of flexibility and choice, freeing
them from the need to integrate technologies from a variety of parties
to develop their systems. Our AIM software platform interacts with the
most widely used data network systems, known as CDPD and Mobitex as well
as with dial-up circuit connections. As a result, our customers' end
users can choose the devices they prefer, including Palm, Windows CE and
other personal organizers, notebook computers, pagers and mobile phones.
We support and develop applications for the Wireless Applications
Protocol, known as WAP, a series of specifications that allow mobile
phones to display Internet information. We also are planning to extend
our AIM software platform's capabilities to the Microsoft micro-browser
and the operating system known as EPOC for handheld devices developed by
Symbian Ltd. (a wireless software company jointly owned by Ericsson,
Matsushita Communication Industrial Co., Ltd., Motorola, Nokia and Psion
plc). Our AIM software platform can interact with the major operating
systems on which most corporate applications run, including Windows NT,
UNIX, Linux and most mainframe operating systems. As connections to new
systems have become needed, our engineers have adapted our AIM software
platform to meet the needs of those systems. We believe that as the
wireless data market evolves there will continue to be a multitude of
protocols for networks, devices and operating systems. We plan to update
our AIM software platform continually to address the ongoing need to
integrate these protocols. We believe we are the only firm that
currently provides this level of service to companies seeking to develop
wireless data systems.
Issue: Wireless data transmissions are slow and expensive.
Most of today's wireless data networks operate at less than half the
speed of telephone dial-up connections, limiting the delivery of useful
data to only small amounts of text and few graphics. Data feeds
typically include large amounts of unnecessary data, including message
headers and routing information. Because wireless carriers typically
charge by the kilobyte of data transmitted, extraneous data add
unnecessary cost.
Solution: Our systems optimize data transmissions for wireless networks.
Our AIM software platform optimizes data transmission by employing
compression and data-thinning techniques. As a result, users get
information faster when they send queries from their devices, and they
get more useful information for the price. Our AIM software platform
reduces the number of data packets required in a typical wireless
transmission by as much as 66%. We ensure reliable message delivery
through measures that confirm data have arrived properly and resend data
if no acknowledgement has been received.
Over the next several years, wireless carriers and equipment vendors are
planning to build so-called third generation, or 3G, networks, which
promise to transmit data at much higher speeds and offer more
compatibility among devices. No matter how fast networks become, the
need for low cost, secure and reliable data transmission will continue.
We have designed our AIM software platform to grow with the capabilities
of wireless networks. For example, we are currently working with U.S.
and European wireless network carriers to develop our financial trading
services to operate over networks using General Packet Radio Services,
known as GPRS, a new high-speed wireless network standard being deployed
in some U.S. markets and abroad.
Issue: Corporate managers require rigorous security standards when
entrusting their data to third parties.
Solution: We provide a secure network operations center.
Our network operations center has numerous duplicate-or
redundant-elements and serves as a high-security physical link between
data feeds from our business customers' and others' data systems and
wireless carrier networks. This relieves corporations from the burden of
constructing similar facilities. We believe our network operations
center is capable of meeting the security standards for services we
developed or are developing for Reuters, Discover Brokerage, the
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Chicago Board of Trade and Charles Schwab. We believe that our network
operations center is a vital component of our wireless data service
offerings and differentiates us from our competitors.
Issue: Corporate information technology managers are reluctant to
configure and maintain inventories of wireless devices and provide
ongoing customer support.
Solution: We provide product fulfillment and customer service.
We send end users fully functioning mobile devices configured for the
wireless data networks and applications they will use. We also have a
customer service center providing ongoing end user support. Companies do
not have to worry about configuring devices for use by their employees
and customers, fixing broken units, handling warranties or answering
questions from users.
THE AETHER STRATEGY
Our strategy is to be the dominant provider of wireless data services and
systems by using our engineering expertise, our AIM software platform, our
customer service and network operations center and our other resources to offer
businesses complete systems for wireless data communications and transactions.
We seek to maximize recurring revenue initially by extending online trading and
financial information services to wireless handheld devices. We also plan to
enter new markets by licensing our AIM software platform to other industries and
by developing broader mass-market applications and services through our OpenSky
joint venture with 3Com. Our strategy includes the following key elements:
Develop the market for existing and new products in the financial services
sector. Our initial strategy is to tap into major segments of the financial
services industry, whose participants we believe are among the earliest adopters
of wireless data services. We focus on two types of financial services
subscribers, individual investors and market professionals, who understand the
value of receiving real-time information and trading capabilities. We believe
the same factors that fuel interest in online trading-easy access to accounts
and real-time market information and do-it-yourself buying and selling-will lead
investors to want wireless access to the same capabilities. In addition, we plan
to enhance the services offered by Mobeo by integrating Mobeo's software with
our AIM software platform. This will provide Mobeo subscribers with two-way
capabilities and access to additional financial information.
Expand into new industries and international markets. We believe that we
can apply our wireless experience and resources to other industries. For
example, transportation and health care companies, government workers and mobile
sales and repair forces could realize cost benefits and productivity gains
through wireless access to in-house data, e-mail and the Internet. Initially, we
will target new industries by licensing our AIM software platform to software
developers that want to integrate it with their software products and to
companies with extensive data needs and mobile workforces. We are also in
discussions with potential partners to expand into international markets.
Pursue mass-market opportunities, including wireless Internet access,
e-mail and Internet and other electronic transactions. OpenSky, our joint
venture with 3Com, is developing wireless Internet access, e-mail and Internet
and other electronic transaction services that address opportunities in the
emerging consumer and business mass markets. We have a 26% equity interest in
OpenSky on a fully diluted basis. We have a letter agreement with OpenSky to
provide engineering services for the design and development of OpenSky's
proposed systems and services, and OpenSky has a royalty-free license to use our
AIM software platform. Additionally, we have a two-year right of first refusal
to design and develop custom systems and applications for all services relating
to investment banking and brokerage activities. We also have the right to bundle
OpenSky services for a period of five years, as an added feature to the other
services we offer.
Expand our customer base and strengthen the Aether brand through enhanced
sales and marketing efforts. We intend to increase our sales and marketing
expenditures significantly to both increase our direct sales force and promote
the Aether brand. To build on our early success in the financial services
industry, we intend to build our sales force focused on financial institutions,
and we will also target companies that want to provide wireless access to their
data applications. We are also starting up a sales
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effort to market our AIM software platform by targeting large corporations in
other industries that both invest heavily in technology and have significant
numbers of mobile customers or employees. In addition, we will continue to build
relationships with third party software developers who wish to use our AIM
software platform to provide their applications with wireless capabilities. Our
branding efforts will include advertising, public relations, speaking
engagements and sponsorship of major conferences.
Maintain and strengthen our strategic relationships with suppliers and
customers. A key to our ability to provide complete wireless data services to
our customers is our relationships with wireless network carriers and
manufacturers of wireless devices. These relationships take time to develop,
providing us with an advantage getting our services to market before our
competitors. We intend to maintain and strengthen these relationships by
negotiating more cost-effective rate plans with existing wireless network
carriers, testing our wireless services with providers of next-generation
high-speed wireless networks and working with manufacturers and industry forums
to guide development of new devices and applications.
Use the expertise we gain by providing engineering services to develop new
Aether products. The engineering services we provide our customers play an
important role in our product development strategy. While we no longer provide
engineering services strictly to generate revenue, we do take on engineering
assignments that might allow us to expand into new geographical markets or
industry sectors or to provide new services, in particular by introducing us to
new technologies. Examples of new services might include enhanced e-mail and
Web-browsing, wireless database search and retrieval, alerts based on the
occurrence of an event specified by the user, instant messaging and electronic
gaming.
Pursue selective acquisitions to expand our capabilities. We intend to
pursue acquisitions that we believe would allow us to increase quickly the scale
and scope of our resources, such as expanding our engineering force, to expand
into new geographical markets or industry sectors or to provide new services.
SERVICES
The services we currently offer or are developing include:
- delivering real-time wireless financial market information and trading
capabilities;
- licensing our AIM software platform to corporations seeking to add
wireless data capabilities; and
- providing engineering services for the design, development and support of
wireless data systems.
The following table sets forth summary information regarding our services.
<TABLE>
<S> <C> <C> <C> <C>
WIRELESS FINANCIAL INFORMATION AND TRADING
SERVICES
</TABLE>
<TABLE>
<CAPTION>
EXISTING SERVICES USERS OF SERVICE DATE INTRODUCED REVENUE TYPE SERVICE DESCRIPTION
- --------------------------- -------------------- ------------------- ----------------- ------------------------------
<S> <C> <C> <C> <C>
Reuters MarketClip Individual investors March 1998 Monthly recurring Market quotes, news and alerts
PitViper Chicago Board of July 1999 (Trial Monthly recurring Trade recording, commodities
Trade floor traders began) quotes, news and alerts
TradeRunner Discover Brokerage's August 1999 Monthly recurring Equities and options trading,
online investors market quotes, news and alerts
Mobeo FX Alert Financial market September 1999 Monthly recurring Foreign exchange, quotes, news
professionals and alerts
</TABLE>
<TABLE>
<CAPTION>
SERVICES UNDER DEVELOPMENT USERS OF SERVICE REVENUE TYPE SERVICE DESCRIPTION
- ------------------------------------------ ---------------- ----------------- --------------------------------
<S> <C> <C> <C> <C>
Trading and information for Charles Schwab Charles Schwab's Monthly recurring Equities and options trading,
customers online investors market quotes, news and alerts
Trading and information for Bear Stearns Brokers of firms Monthly recurring Customer account access and
clearing customers clearing through trading, market quotes, news and
Bear Stearns alerts
</TABLE>
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<TABLE>
<CAPTION>
AIM LICENSING
CUSTOMER DATE OF CONTRACT REVENUE TYPE CUSTOMER'S USE OF AIM
- ----------------------- ----------------- ---------------- ---------------------------------------------------
<S> <C> <C> <C>
Riverbed Technologies August 1999 Upfront and per Develop software for wireless update of handheld
user licensing devices to desktop computers
fees
ENGINEERING SERVICES
CUSTOMER'S TARGET
CUSTOMER MARKET DATE OF CONTRACT REVENUE TYPE SERVICE DESCRIPTION
- ----------------------- ----------------- ---------------- ----------------- --------------------------------
ORBCOMM Transportation September 1998 Engineering fees Develop location-tracking
industry capabilities for towing firms
Ericsson Industries July 1999 Marketing support Develop financial data services
needing real-time and engineering using two-way pagers
information fees
OpenSky Consumer and August 1999 Engineering fees Develop Internet access, e-mail
business mass and capabilities to conduct
market transactions on wireless
handheld devices
</TABLE>
Wireless Financial Information and Trading Services
Our wireless financial information and trading services and customers are
described below.
- Reuters MarketClip. In March 1998, we introduced the Reuters MarketClip
service, which delivers news stories, real-time financial market price
quotes, historical graphs and stock alerts from Reuters to Palm and
Windows CE devices. We charge individual subscribers a flat monthly fee
for unlimited usage of this service in addition to the fees charged by
the securities exchanges and markets for the right to view real-time
price quotes. Based on our records, each MarketClip customer sends an
average of 110 queries per day. The service operates using the wireless
network systems known as CDPD and Mobitex. These networks cover
geographic areas that enable us to provide service to more than 90% of
the U.S. population. We also continue to support AirBroker, a predecessor
to Reuters MarketClip that provides market information using mobile
phones.
- Chicago Board of Trade. In June 1999, we began a limited trial of a
wireless trade recording system, PitViper, for the Chicago Board of
Trade. This trial allows up to 15 users of Palm devices to track and
record trades executed on the floor. Once a trade is entered on PitViper,
the terms of the trade are transmitted to Chicago Board of Trade's trade
confirmation system. Traders can also access real-time price quotes for
commodities and futures as well as news stories. We expect that the
Chicago Board of Trade will make PitViper available to the approximately
3,500 Chicago Board of Trade floor traders if the trial succeeds. We
intend to charge individual subscribers a flat monthly fee for the
service.
- Discover Brokerage TradeRunner. In August 1999, we launched TradeRunner,
a new service that allows Discover Brokerage's online customers to trade
stocks, mutual funds and options using Palm devices. In addition,
subscribers receive news stories, real-time financial market price
quotes, historical graphs and stock alerts from Reuters. We charge
Discover Brokerage account holders who subscribe to this service a flat
monthly fee for unlimited usage, in addition to the fees charged by the
securities exchanges and markets for the right to view real-time price
quotes. Users pay Discover Brokerage's regular commission fees for any
trades. Discover Brokerage is marketing and advertising TradeRunner
through radio, print media and its Web site, and we are marketing the
service through our Web site as well. We support TradeRunner through our
customer service and network operations center. The service operates
using CDPD or Mobitex networks. We are currently developing a market
trial for a similar service with Charles Schwab. We are developing the
system with Schwab based on a binding preliminary agreement and are
negotiating a definitive agreement. Under the preliminary agreement, we
have agreed that we or our business partners will
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spend at least $500,000 (and match up to an additional $500,000 spent by
Schwab) on advertising and marketing this service, and we will provide
engineering support to implement Schwab's service for no charge for two
years. We cannot assure you that we will sign a definitive agreement. We
are also in discussions with other brokerage firms to develop similar
services.
- Bear Stearns. We are working with Bear Stearns to develop wireless
trading applications for the brokers and other market professionals of
firms that clear their trades through Bear Stearns. Using handheld
devices, subscribers will be able to access information and capabilities
similar to the Bear Stearns applications that reside on their desktop
computers. Firms who clear trades through Bear Stearns or their market
professionals will pay us a flat monthly per user fee for unlimited
usage. We began to develop the system for Bear Stearns after signing a
letter of intent with them in March 1999, but neither we nor Bear Stearns
has any obligation to the other until a definitive agreement is signed.
We cannot assure you that a definitive agreement will be signed.
- Mobeo services. As a result of the Mobeo acquisition, we offer and plan
to enhance Mobeo's financial information services. These services
supplement our own by providing additional data relating primarily to the
foreign exchange and selected commodities markets. Mobeo delivers time-
sensitive financial information from Bridge Information Systems America,
Inc. and its subsidiary Telerate, Inc. over wireless networks that reach
the largest 100 metropolitan markets in the United States. Mobeo
currently offers five services, each operating on pagers. Its flagship
service is F/X Alert, a real-time price quote, news and alert service
tracking more than 150 financial instruments including foreign exchange,
fixed income, futures/derivatives and commodities. Other services called
Scrappy, Energy and Pocket Futures track the scrap metals, energy and
futures markets, respectively. Early in 1999, Mobeo began marketing Mobeo
1.0, a two-way financial market price quotes and information service,
similar to MarketClip, that operates using the RIM 950 two-way pager.
Licensing the AIM Software Platform
Aether Intelligent Messaging, or AIM, is a package of wireless messaging
software and development tools-or software platform-that facilitates the
development of wireless data systems. We developed the AIM software platform in
1997 to improve the performance of data delivery over wireless networks and to
provide a development kit to speed the software development process. We use the
AIM software platform internally to develop and support wireless data services,
such as TradeRunner and PitViper. We recently launched a program to license the
AIM software platform to both software developers and large corporations.
Software developers can integrate the AIM software platform with their
applications to provide those applications with a wireless capability. When the
AIM-based application is sold, we can then earn one-time revenue from per-user
license fees or recurring revenue if the application is run from our network
operations center. Similarly, corporate customers who develop AIM-based
applications for their own use can pay us license fees per user or recurring
services fees if we host the application.
How the AIM Software Platform Works. The diagram below illustrates how the
AIM software platform works to integrate sources of data with wireless networks
and devices. Data and applications come from internal corporate systems, such as
those at Discover Brokerage, from public data sources via the Internet or from
proprietary systems such as Reuters Selectfeed Plus. The AIM software platform
then takes the data, replaces unnecessary or repetitive message-header
information with more streamlined tags, compresses and encrypts it so the data
can move quickly and securely outside the security system (or "firewall")
controlling access to and from the source's network and then sends it over the
airwaves using any of a number of wireless networks to the intended device. Not
all devices will work on all wireless
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carrier networks. Our AIM software platform can be configured to support other
networks as they are developed and as customer needs require.
[HOW AIM WORKS FLOW CHART]
The AIM software platform has the following features and benefits.
- The AIM software platform enhances the speed, efficiency and security of
data transmission over wireless networks. The AIM software platform
trims unnecessary electronic message tags and compresses data, with no
loss in the reliability of message delivery. As a result, users get data
quickly and at low cost. The AIM software platform uses a sophisticated
technology known as elliptic curve cryptography, or ECC, which was
developed by Certicom Corp., to encode the data so it cannot be read by a
third party that intercepts the data.
- The AIM software platform simplifies programming required to convert data
into a form that can be transmitted over wireless networks. The AIM
software platform uses industry-standard programming languages and
includes application program interfaces. The AIM software platform comes
with a software development kit that provides programmers step-by-step
guides and automatically generates code for major system components based
on the options selected. As a result, programmers can focus on the
business objectives the system is designed to meet, rather than becoming
immersed in unfamiliar and complex software and wireless network
protocols.
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- The AIM software platform facilitates the interaction of major operating
systems on which most corporate applications run with the most widely
used wireless data networks and devices. To date, the AIM software
platform is compatible with the following wireless network carrier
protocols, mobile device operating systems and corporate operating
systems:
- wireless network carrier protocols: CDPD, Mobitex and ReFlex, a
two-way paging technology developed by Motorola;
- mobile device operating systems: Palm computing platform, Windows CE,
two-way pagers, mobile phones and Windows 95/98/NT and their
corresponding modems; and
- corporate operating systems: Windows NT, UNIX, Linux and most
mainframe operating systems.
As a result, our business customers can offer a wide variety of
applications for wireless transmission, and end users can similarly
choose from a number of devices. Our engineers continually develop the
capabilities of the AIM software platform as new systems, protocols and
devices emerge.
Engineering Services
We began operations in 1996 by providing engineering services to businesses
seeking to develop wireless data systems. Our customers have included the U.S.
Postal Service and Reuters Group Overseas Holding(UK) Limited. In addition,
Transettlements and Reuters accounted for 61.4% of our engineering services
revenue in 1998. Our engineers have experience in developing wireless
applications for a variety of businesses.
Since 1998, we have focused our efforts more on developing wireless data
services-such as MarketClip and TradeRunner-that will result in recurring
subscription revenue to us. While we therefore no longer provide engineering
services strictly to generate revenue, we do take on assignments that might
allow us to expand into new geographical markets or industry sectors or to
provide new services, in particular by introducing us to new technologies. In
addition to our contract with OpenSky, our current engineering services clients
include a subsidiary of Ericsson and ORBCOMM. The work we will do for Ericsson
will help us to enhance two-way paging services for the financial services
industry. Through our work with ORBCOMM, we hope to develop new services for the
transportation industry. We generally charge our clients for engineering time on
an hourly basis or a per project flat fee.
OPERATIONS
Engineering and Project Implementation
Our most important operational resource is our engineering staff. This
staff includes wireless systems engineers, software engineers who specialize in
developing applications for handheld devices and engineers who specialize in
systems integration and testing. We have steadily built our engineering ranks,
more than doubling the number from ten in 1998 to 27 in September 1999. Our
engineers have, on average, more than ten years of experience in the wireless
data industry. Many come from engineering departments at established companies,
including IBM, Westinghouse Electric Corporation and UPS/Roadnet. Mobeo
currently has one engineer and outsourcing relationships with several
engineering firms.
Project implementation is critical to the effective delivery of services to
our customers. Projects generally consist of the following phases: project
definition, development, pilot testing, quality assurance and launch. Each
project has a project manager who works closely with the customer and
coordinates our engineers and our operations and marketing personnel through all
phases of the project. Our operations staff prepares documentation and training
manuals. During the product launch phase, we send operations teams to train
customer personnel on product use and support. Our marketing department works
closely with customers before commercial launch to coordinate advertising and
publicity.
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Technology and Network Operations
We operate a secure network operations center at our headquarters in Owings
Mills, Maryland. We believe that this center is a vital component of our
wireless data service offerings and differentiates us from our competitors. By
outsourcing to us, our customers are relieved of the technology and operations
burden of managing a highly complex wireless data system. From our network
operations center, we maintain high speed data transmission lines (known as T1
connections) both to our customers' data sources and to the wireless data
networks we use. The center is equipped with Cisco and Hewlett-Packard
networking equipment, Sun Sparc UNIX servers and high-end clustered NT servers.
In the event of a catastrophic power failure, there is a diesel-powered
generator that is serviced on a weekly basis. We believe our network operations
center is capable of meeting the security standards for services we developed or
are developing for Reuters, Discover Brokerage, the Chicago Board of Trade and
Charles Schwab. We are planning to establish a remote backup facility in early
2000 to provide additional redundancy. The center is staffed from 8:00 a.m. to
8:00 p.m. Eastern time on weekdays and is monitored 24 hours a day, seven days a
week.
Sales and Marketing
We currently market our products and services to the following customer
types: individual investors, financial market professionals and corporations.
For our financial market services, we seek to involve other parties, including
our corporate customers, in our marketing activities, as has been the case with
Reuters, AT&T Wireless Services and Discover Brokerage. As of September 30,
1999, we had eight sales and marketing professionals. We intend to grow this
number significantly in the next 12 months. Our business development personnel
and senior executives, particularly our chief executive officer and chief
operating officer, also spend a considerable amount of time developing potential
customer relationships and selling and promoting our services. With the proceeds
from this offering, we are planning to make a significant investment in building
the Aether brand. Our target customer segments, the services we sell to them and
how we reach them are described below.
- Individual investors. We believe individual investors are the primary
subscribers to our wireless financial information and trading services,
such as MarketClip and TradeRunner. As of August 31, 1999, we had 934
subscribers to MarketClip and an additional 50 subscribers to its
predecessor, AirBroker. Print advertising in finance-related publications
is our primary means of marketing these services. Our strategy is to
share marketing and advertising costs with our strategic partners and
corporate customers associated with particular services. For example,
AT&T Wireless Services, which benefits from increased usage of its
wireless data network, has shared with Aether the cost of advertising for
MarketClip. Ericsson has agreed to join the marketing campaign for
MarketClip beginning in the fall of 1999. Discover Brokerage, which
benefits from an enhanced service offering and increased customer trading
activity, pays for all of the advertising of TradeRunner. Our wireless
financial information and trading services are also marketed to
individual investors at financial services industry trade shows and on
the Web sites of Aether, Discover Brokerage and Reuters. Our customer
service center handles in-bound calls generated from these marketing
efforts and signs up new subscribers.
- Financial market professionals. We seek to develop relationships with
financial institutions, whose market professionals become the end users
of our services. We are currently developing wireless trade recording
applications for Chicago Board of Trade floor traders and wireless
trading applications for Bear Stearns's trade clearing clients. After we
complete the Mobeo acquisition, we will also provide Mobeo's wireless
foreign exchange information services, which are primarily used by
financial market professionals. As of August 1999, Mobeo had more than
3,110 subscribers for its services. Mobeo markets its products through
four direct sales executives in New York and Chicago and through
occasional advertising in financial trade publications.
- AIM software platform licensees. We are accelerating our efforts to
market the AIM software platform to new industries. To date, we have
licensed the AIM software platform to Riverbed
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Technologies, a leading developer of software tools for wireless handheld
devices. We have also established relationships with Microsoft, Oracle
Corporation, Sybase Inc. and Lotus Development Corporation to integrate
the AIM software platform with their software products and will work to
develop similar relationships with other software developers. We are
targeting our direct sales effort at large corporations with a
significant mobile workforce who wish to develop their own wireless
applications.
- Engineering services clients. As part of our business development
effort, we seek out engineering assignments that might allow us to expand
into new geographical markets or industry sectors or to provide new
services, in particular by introducing us to new technologies.
Product Fulfillment, Customer Service and Billing
We provide product fulfillment, customer service and billing at our
customer service center, located at our headquarters. We maintain a modest
inventory of mobile devices and wireless modems, which we buy in bulk from
manufacturers and resellers. Our customer service representatives first verify
that a potential subscriber will have wireless network coverage where they plan
to use the service. For qualified subscribers, we load and configure custom
software on mobile devices, activate wireless modems and perform quality
assurance checks. We then pack, ship and track the product until the subscriber
receives it. For end users who already own a device, we provide only the modem
and software application. We handle all repair and warranty issues for devices
we provide to our subscribers.
We employ nine permanent and three temporary customer service
representatives, most of whom are college educated. We train our customer
service representatives to handle inquiries about our services, device features
and wireless communications. Our customer service personnel are available from
8:30 a.m. until 8:00 p.m. Eastern time. We plan to expand our customer service
center during the fourth quarter of 1999.
We handle customer billing for all subscription fees, devices and modems,
securities exchange and market charges and other fees. We bill monthly for
subscriber services, which subscribers must pay by credit card. As a result, our
billing system can support increases in our subscriber base. We intend to
enhance our billing capabilities as our needs grow.
STRATEGIC RELATIONSHIPS
A key to our ability to provide complete wireless data services to our
customers is our relationships with wireless network carriers and manufacturers
of mobile devices. These relationships take time to develop, and we therefore
believe they provide us with an advantage getting our services to market before
our competitors. We maintain the strategic relationships described below.
Wireless Network Carriers
We believe our relationships with wireless network carriers are mutually
beneficial. We believe we are among the largest buyers of wireless data network
capacity for many of the carriers we use. As a result, we are able to negotiate
favorable rates. Typically, we have one-year contracts to buy data network
capacity either for an agreed amount of kilobytes at a flat fee or on a
cents-per-kilobyte basis. We have contracts with AT&T Wireless Services, Bell
Atlantic Mobile, BellSouth Wireless Data and Ameritech. As a result, we can give
our customers a wide variety of wireless carrier choices.
Mobile Device Manufacturers
Our services increase the usefulness of wireless handheld devices, and we
believe our services will increase sales of these devices. Mobile device
manufacturers have therefore assisted us in various projects we have undertaken.
We have worked closely with 3Com, an Aether investor, on the development of our
wireless applications for the Palm personal organizer. In late 1998, 3Com's
investment helped us fund construction of our customer service and network
operations center. In August 1999, a subsidiary of
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Ericsson, one of the largest manufacturers of wireless phones, agreed to assist
us in marketing MarketClip and in developing and marketing other financial
information services. Ericsson is also assisting us in developing services using
WAP phones and next-generation high-speed GPRS data networks. We participate in
industry development groups dedicated to bringing new applications to wireless
data, such as the Palm developers group, the WAP Forum and the Windows CE
developers forum.
Financial Content Providers
Financial content providers supply Aether with real-time financial
information, which we provide to our wireless data subscribers. Reuters which is
an Aether investor, is our primary provider of financial information and market
data for MarketClip and TradeRunner. We have a license to use information from
Reuters with an initial term extending through August 2001, and the term
automatically extends each year after that unless we or Reuters decide to end
the license. After we complete the Mobeo acquisition, we expect to continue
Mobeo's relationship with Bridge Information Systems America, Inc., another
financial content provider, and its subsidiary Telerate, Inc. We have agreements
with the New York Stock Exchange, the Nasdaq Stock Market, Inc., the Chicago
Board of Trade and the Options Price Reporting Authority that authorize us to
provide real-time price quotes.
OPENSKY
In August 1999, we entered into a joint venture called OpenSky with 3Com.
We formed OpenSky to pursue opportunities in the emerging consumer and business
mass markets for wireless Internet access, e-mail and Internet and other
electronic transaction applications. OpenSky's main business objectives and
strategies include those set forth below.
- OpenSky will seek to develop a package of applications and services that
includes a selection of Web sites that have been customized for access
via wireless handheld devices, general Web browsing, access to a user's
existing e-mail account and selected Internet and electronic transaction
services.
- OpenSky intends to co-market this package with wireless network carriers
and Internet content providers in order to benefit from their brand
recognition and marketing channels. OpenSky may also seek to bundle its
service package with devices that are distributed by major national
computer retailers.
- OpenSky will seek to develop services that can access all platforms and
devices, rather than committing to a single device or network protocol.
We have a 26% equity interest in OpenSky on a fully diluted basis in the
form of 7,000,000 shares of preferred stock. We also have a warrant to buy up to
an additional 3,000,000 shares of preferred stock for an aggregate exercise
price of $2.5 million, which would give us up to a 33% interest in OpenSky on a
fully diluted basis. We can exercise the warrant until 15 days after we complete
this offering unless the offering is not completed by January 31, 2000 or
OpenSky conducts a public offering or is bought by a third party before our
offering is completed. We have a letter agreement with OpenSky to provide
engineering services through June 2000 for the design and development of
OpenSky's proposed system and services, and OpenSky has a perpetual royalty-free
license to use our AIM software platform. Additionally, we have a two-year right
of first refusal to design and develop custom systems and applications for all
services relating to investment banking and brokerage activities. We also have
the right to bundle OpenSky services for a period of five years as an added
feature to the other services we offer. We describe the details of our interest
in OpenSky in "Transactions Between Aether and Its Officers, Directors and
Significant Shareholders-OpenSky" on page 60.
Our chairman, chief executive officer and president, David S. Oros, serves
as chairman of the OpenSky board of directors. Patrick McVeigh, former president
of the Palm Computing division of 3Com, serves as president and chief executive
officer of OpenSky and also serves on the OpenSky board of directors. OpenSky is
based in Palo Alto, California.
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MOBEO ACQUISITION
On September 28, 1999, we acquired all of the common stock of Mobeo, Inc.
for a purchase price of $11.7 million in cash, plus Aether options to acquire
18,442 units (equivalent to 46,105 shares) in exchange for existing Mobeo
options. The purchase price includes Mobeo's broker's fees and commissions, but
did not include our transaction costs of approximately $150,000. All options to
acquire shares of Mobeo's common stock were cancelled prior to closing. We
issued Aether options in lieu of cash to three of the four holders of Mobeo
options in consideration for those three holders cancelling their Mobeo options.
We paid the other holder of Mobeo options cash in consideration for cancelling
his Mobeo options.
As a result of the Mobeo acquisition, we have gained 20 additional
employees. All three of the selling stockholders have entered into non-compete
agreements as a condition to closing. Additionally, two of the selling
stockholders have entered into advisory services agreements under which they
received options for an aggregate of 125,000 units (equivalent to 312,500
shares), and one of the selling stockholders has entered into an employment
agreement under which he received an option for 26,000 units (equivalent to
65,000 shares). All three of the selling stockholders have agreed to indemnify
and hold Aether (including without limitation its officers, directors,
stockholders and affiliates) harmless for all liabilities, losses and claims
(including third party claims) resulting from a breach of the representations,
warranties and covenants contained in the definitive agreement. Additionally,
the three selling stockholders have agreed to waive any right of contribution or
indemnification against Mobeo. Finally, we granted options to acquire 26,000
units (equivalent to 65,000 shares) to existing Mobeo employees.
COMPETITION
The market for our services is becoming increasingly competitive. We
believe we offer the broadest range of services to businesses necessary to
enable the development, offering and ongoing support of wireless data
communication systems for their employees or customers. The widespread adoption
of industry standards may make it easier for new market entrants to offer some
or all of the services we offer and may make it easier for existing competitors
to introduce some or all of the services they do not now provide, or improve the
quality of their services. We expect that we will compete primarily on the basis
of the functionality, breadth, quality and price of our services. Our current
and potential competitors include:
- Wireless financial services providers, including W-Trade and EmailPager,
Inc.;
- Wireless data services providers, such as Wireless Knowledge, a joint
venture of Microsoft and Qualcomm Incorporated, Research In Motion, Go
America and Saraide.com;
- Wireless communications software companies, including Phone.com, Nettech
Systems Inc., Dynamic Mobile Data and 724 Solutions Inc.;
- Wireless systems integrators, such as IBM, ApiON Ltd., and GTE
Corporation; and
- Wireless network carriers, such as AT&T Wireless Services, Bell Atlantic
Mobile, Sprint PCS, Nextel Communications, Inc. and Metricom, Inc.
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we do.
Additionally, many of these companies have greater name recognition and more
established relationships with our target customers. Furthermore, these
competitors may be able to adopt more aggressive pricing policies and offer
customers more attractive terms than we can.
Notwithstanding the increasing competitiveness of our market, we believe
that our potential competitors face substantial barriers to market entry.
Development of wireless data systems comparable to those we have already
developed is time consuming and costly. Moreover, the engineering talent
necessary to develop such systems is scarce.
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INTELLECTUAL PROPERTY RIGHTS
We own applications for federal registration or common law rights in the
following trademarks: AirBroker(R), Aether Technologies(TM), Aether(TM) and our
logo. Reuters and Reuters MarketClip(TM) are the property of Reuters Group plc.
Discover Brokerage TradeRunner(TM) is the property of Discover Brokerage. This
prospectus also includes trade dress, trade names and trademarks of other
companies. All other brand names or trademarks appearing in this prospectus are
the property of their respective holders.
We rely on a combination of copyright, trademark, service mark, trade
secret laws and contractual restrictions to establish and protect certain
proprietary rights in our services. Mobeo has applied for two patents for its
technology. Specifically, one patent application covers the method and system
for providing formatted information via a two-way communication system. The
other patent application covers the method and system for providing localized
information.
We do not have any federal trademark registrations in the name "Aether" or
"AIM" and we may not be able to obtain such registrations due to conflicting
marks or otherwise. The steps taken by us to protect our intellectual property
may not prove sufficient to prevent misappropriation of our technology or to
deter independent third-party development of similar technologies. The laws of
certain foreign countries may not protect our services or intellectual property
rights to the same extent, as do the laws of the United States. We also rely on
certain technologies that we and Mobeo license from third parties including data
feeds and related software from Reuters Select Feed Plus and Bridge Information
Services, synchronization technology from Riverbed Technologies and encoding
technology from Certicom. These third-party technology licenses may not continue
to be available to us on commercially attractive terms. The loss of the ability
to use such technology could require us to obtain the rights to use substitute
technology, which could be more expensive or offer lower quality or performance,
and therefore have a material adverse effect on our business, financial
condition or results of operations.
To date, we have not been notified that our services infringe on the
proprietary rights of third parties, but third parties could claim infringement
by us with respect to current or future services. We expect that participants in
our markets will be increasingly subject to infringement claims as the number of
services and competitors in our industry segment grows. Any such claim, whether
meritorious or not, could be time-consuming, result in costly litigation, cause
service installation delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on terms
acceptable to us or at all. As a result, any such claim could have a material
adverse effect upon our business, financial condition or results of operations.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local government
regulation, other than regulations that apply to businesses generally. The
wireless network carriers we contract with to provide airtime are subject to
regulation by the Federal Communications Commission. Changes in FCC regulations
could affect the availability of wireless coverage these carriers are willing or
able to sell to us. We or OpenSky could also be adversely affected by
developments in regulations that govern or may in the future govern the
Internet, the allocation of radio frequencies or the placement of cellular
towers. Regulations of the SEC governing online trading could reduce the level
of online trading or the demand for wireless financial information. Also,
changes in these regulations could create uncertainty in the marketplace that
could reduce demand for our services or increase the cost of doing business as a
result of costs of litigation or increased service delivery cost or could in
some other manner have a material adverse effect on our business, financial
condition or results of operations.
We currently do not collect sales or other taxes with respect to the sale
of services or products in states and countries where we believe we are not
required to do so. We do collect sales and other taxes in the states we have
offices and are required by law to do so. One or more jurisdictions have sought
to impose sales or other tax obligations on companies that engage in online
commerce within their jurisdictions. A successful assertion by one or more
jurisdictions that we should collect sales or other taxes
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on our products and services, or remit payment of sales or other taxes for prior
periods, could have a material adverse effect on our business, financial
condition or results of operations.
Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to our
business, could have an adverse effect on our business.
FACILITIES
Our principal offices are located in Owings Mills, Maryland in a 15,436
square foot facility under a lease expiring in February 2004, with no renewal
option. We also lease space for our offices in Boca Raton, Florida and New York,
New York.
As a result of the Mobeo acquisition, we have an additional 6,000 square
feet of office space in Bethesda, Maryland, New York, New York and Chevy Chase,
Maryland. These leases expire at different times ranging from November 30, 1999
to December 31, 2004. We will also have month-to-month leases for executive
apartments in Chicago, Illinois and in Bethesda, Maryland.
EMPLOYEES
As of October 1, 1999, we had a total of 82 employees, 62 from Aether and
20 from Mobeo, 27 of these employees were engineers. None of our employees is
covered by a collective bargaining agreement. We believe that our relations with
our employees are good.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings. However, we
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
At the time the offering is completed, our executive officers, directors
and nominees for director, and key employees and their ages and position with us
will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
David S. Oros........................ 40 Chairman, Chief Executive Officer and President
George M. Davis...................... 43 Chief Operating Officer
David C. Reymann..................... 41 Chief Financial Officer
Brian W. Keane....................... 41 Senior Vice President, Strategic Development
Dale R. Shelton...................... 38 Senior Vice President, Engineering
J. Carter Beese, Jr. ................ 43 Director
Frank A. Bonsal, Jr. ................ 62 Director
Mark D. Ein.......................... 34 Director
Rahul C. Prakash..................... 38 Director
Janice M. Roberts.................... 43 Director
Dr. Rajendra Singh................... 43 Director
George P. Stamas..................... 48 Director
Devin N. Wenig....................... 32 Director
Thomas E. Wheeler.................... 53 Director
KEY EMPLOYEES:
David J. Bressler.................... 31 Vice President, AIM Sales and Marketing
Calvin A. Cassidy.................... 42 Vice President, Enterprise Systems and
Solutions
John Clarke.......................... 36 Vice President, Operations
Andrew S. Meister.................... 36 Vice President, Technical Sales
Gregory S. Milbank................... 40 Senior Vice President, Sales
Michael B. Mills..................... 38 Vice President, Business Development
</TABLE>
Messrs. Beese, Bonsal, Ein, Prakash, Wenig and Wheeler, Dr. Singh and Ms.
Roberts are currently managers of Aether Systems LLC, and they and Mr. Stamas
are expected to be elected directors of Aether Systems, Inc. immediately prior
to the offering.
David S. Oros founded Aether in 1996 and has been our chairman, chief
executive officer and president since Aether's inception. Mr. Oros also serves
as chairman of the board of directors of OpenSky. From 1994 until 1996, Mr. Oros
was president of NexGen Technologies, L.L.C., a wireless software development
company that contributed all of its assets to Aether. From 1992 until 1994, he
was president of the Wireless Data Group at Westinghouse Electric. Prior to
that, Mr. Oros spent from 1982 until 1992 at Westinghouse Electric directing
internal research and managing large programs in advanced airborne radar design
and development. Mr. Oros received a B.S. in mathematics and physics from the
University of Maryland and holds a U.S. patent for a multi-function radar
system.
George M. Davis has served as our chief operating officer since September
1997. He joined us in September 1996 as vice president, business development to
lead initiatives required to launch, maintain and develop business opportunities
for our services. From September 1994 until September 1996, Mr. Davis was
director, enterprise management systems at Northrop Grumman Corp. Prior to that
time, Mr. Davis spent more than 14 years at Westinghouse Electric where he
managed advanced military
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electronic development and production projects. He received a B.S. in business
and economics from Bethany College.
David C. Reymann has served as our chief financial officer since joining us
in June 1998. Mr. Reymann is also responsible for our treasury management
services and human resources. Before joining us, Mr. Reymann was director of
finance and accounting for The Sweetheart Cup Company from June 1996 until May
1998, where he managed the financial analysis department and the accounting
operations for 11 North American manufacturing plants. Prior to that, Mr.
Reymann spent 12 years with Procter & Gamble serving in several key finance,
accounting and operations positions. Prior to that, Mr. Reymann spent five years
at Ernst & Young where he most recently specialized in emerging growth
companies. Mr. Reymann received a B.S. in accounting from the University of
Baltimore and is a certified public accountant.
Brian W. Keane has served as senior vice president, strategic development
since joining us in August 1999. Mr. Keane is responsible for our mergers and
acquisitions activities as well as the development of strategic relationships
and partnerships. From February 1998 until August 1999, Mr. Keane was chief
financial officer for Management Information Consulting, Inc., a technology
consulting company. Prior to that, Mr. Keane spent ten years as an investment
banker with Smith Barney Inc. Mr. Keane received an A.B. in history and
mathematics from Cornell University and an M.B.A. from Harvard Business School.
Dale R. Shelton has served as our senior vice president, engineering since
he joined us in June 1996 to direct the development of AIM and our wireless data
services. From January 1994 until June 1996, Mr. Shelton served as the systems
development leader for flash-flood prediction systems at the National Weather
Service. From June 1992 until January 1994, Mr. Shelton was principal engineer
for ARINC, Inc., where he led the development of aviation tracking and
maintenance systems. He received a B.S. in computer science from the University
of Maryland.
J. Carter Beese, Jr., has been a manager of our limited liability company
since June 1997 and is expected to be elected a director of Aether prior to
closing the offering. Since July 1998, Mr. Beese has served as president of
Riggs Capital Partners, a division of Riggs National Corp., where he oversees a
$100 million venture capital fund. From September 1997 until July 1998, he
served as vice chairman of the Global Banking Group of BT Alex. Brown. Prior to
the merger of Bankers Trust and Alex. Brown, Mr. Beese was chairman of Alex.
Brown International from November 1994 until September 1997. From February 1992
until November 1994, Mr. Beese served as a commissioner of the U.S. Securities
and Exchange Commission. Mr. Beese serves as a senior advisor to the Center for
Strategic and International Studies, a non-partisan public policy think tank and
is involved in the World Economic Forum. He serves as a director on the boards
of China.com and Natural Solutions, Inc. Mr. Beese received a B.S. in economics
and political science from Rollins College.
Frank A. Bonsal, Jr., has been a manager of our limited liability company
since May 1999 and is expected to be elected a director of Aether prior to
closing the offering. Since 1978, Mr. Bonsal has been a founding partner of New
Enterprise Associates, one of the largest venture capital firms in the United
States. Mr. Bonsal has focused on the development of early stage companies. He
currently serves as a director on the boards of CARS, Inc., CORVIS Corp., Entevo
Corp., Explore, Inc., GeneScreen, Inc. and Healthy Pet Inc. In addition, he is a
special limited partner of Amadeus Capital Partners, Boulder Venture, Novak
Biddle, Trellis Ventures and Windward Ventures. Mr. Bonsal received a B.A. in
economics from Princeton University.
Mark D. Ein is a co-founder of Aether, has been a manager of our limited
liability company since October 1996 and is expected to be elected a director of
Aether prior to closing the offering. Mr. Ein is the founder and chief executive
officer of Rollingwood Capital Partners, a holding company that was established
in September 1999 to create, invest in and acquire technology and
telecommunications companies. From 1992 until September 1999, Mr. Ein was a
principal with The Carlyle Group, where he was responsible for many of its
telecommunications investment activities. Prior to joining Carlyle, Mr. Ein was
an associate with Brentwood Associates, where he worked on leveraged buyout and
venture capital
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<PAGE> 49
investments. Prior to joining Brentwood Associates, he was an analyst in the
real estate department of Goldman, Sachs and Company. Mr. Ein currently serves
as a director on the boards of LCC International, Inc. and several private
companies. Mr. Ein received a B.S. in economics from the University of
Pennsylvania and an M.B.A. from Harvard Business School.
Rahul C. Prakash has been a manager of our limited liability company since
February 1997 and is expected to be elected a director of Aether prior to
closing the offering. Since January 1997, Mr. Prakash has served as president of
Telcom Ventures, L.L.C., a wireless communications investment company. From
January 1994 until December 1996, Mr. Prakash served as vice president, business
development of Telcom Ventures. Prior to that time, he served as a director of
business development at LCC International, Inc. From 1993 until 1994, Mr.
Prakash was the director of business development for Telemate, a joint venture
he helped establish between LCC and France Telecom. Mr. Prakash is also a
director of several private telecommunications companies controlled by Telcom
Ventures. He received an M.B.A. in international finance from American
University and an M.B.A. from the University of New Delhi, Faculty of Management
Studies.
Janice M. Roberts has been a manager of our limited liability company since
June 1999 and is expected to be elected a director of Aether prior to closing
the offering. Since September 1992, Ms. Roberts has served as senior vice
president of global marketing and business development for 3Com. She is also
president of 3Com Ventures, a corporate investment fund, and a director of
OpenSky. From January 1992 until September 1992, Ms. Roberts served as vice
president and general manager for 3Com's enterprise networking division. From
1989 until January 1992, Ms. Roberts was with BICC Communications where she held
several positions, including most recently, president and managing director of
its worldwide data networking business. Previously, she held a number of senior
international marketing, sales and business development positions in
engineering, electronics and communications-based companies. She holds an Honors
degree in economics and business from the University of Birmingham in the United
Kingdom and is a member of the Chartered Institute of Marketing.
Dr. Rajendra Singh has been a manager of our limited liability company
since December 1997 and is expected to be elected a director of Aether prior to
closing the offering. Since December 1993, Dr. Singh has served as chairman of
the board of directors and chief executive officer of Telcom Ventures, L.L.C.
From 1983 until June 1996, Dr. Singh served as chairman of the board of
directors of LCC International, Inc., a worldwide provider of wireless
engineering and design services, which he co-founded with his wife in 1983. Dr.
Singh has played an instrumental role in the cellular industry by developing key
standards used today in wireless system design and methodology. Dr. Singh is a
member of the board of directors of Teligent, Inc. and XM Satellite Radio
Holdings, Inc. He received a Ph.D. in electrical engineering from Southern
Methodist University.
George P. Stamas is expected to be elected a director of Aether prior to
closing the offering. Since April 1996, Mr. Stamas has been a partner with the
law firm of Wilmer, Cutler & Pickering and since June 1996 he has been
co-chairman of that firm's corporate department. From 1983 until April 1996, Mr.
Stamas was a partner at Piper & Marbury L.L.P. Mr. Stamas is counsel to, and a
limited partner of, the Baltimore Orioles baseball team. Mr. Stamas also serves
on the board of directors of FTI Consulting, Inc., a provider of litigation
support services and Luminant Worldwide Corporation, a provider of Internet
consulting services. He received a B.S. in economics from the Wharton School of
the University of Pennsylvania and a J.D. from University of Maryland Law
School.
Devin N. Wenig has been a manager of our limited liability company since
August 1998 and is expected to be elected a director of Aether prior to closing
the offering. In April 1994, Mr. Wenig joined Reuters America, Inc. and was
promoted to executive vice president of marketing in August 1998, where he is
responsible for marketing and business development for Reuters's information
businesses in the Americas. Mr. Wenig serves as a director on the boards of Loan
Pricing Corp., Intralinks, Inc., FreeEdgar.com and Nastech Pharmaceutical
Company, Inc. He received a B.S. from Union College and a J.D. from Columbia
University.
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<PAGE> 50
Thomas E. Wheeler has been a manager of our limited liability company since
May 1999 and is expected to be elected a director of Aether prior to closing the
offering. Since 1992, Mr. Wheeler has served as president and chief executive
officer of the Cellular Telecommunications Industry Association. In 1994, Mr.
Wheeler was appointed by President Clinton to a six-year term as a member of the
board of trustees of the John F. Kennedy Center for the Performing Arts. Mr.
Wheeler is a director on the boards of the Public Broadcasting System and the
U.S. Capitol Historical Society. He received a B.S. in business administration
from Ohio State University.
David J. Bressler joined us in June 1999 as vice president, AIM sales and
marketing. From June 1995 until April 1999, Mr. Bressler worked at TIBCO
Software, Inc., where he was director of enterprise network solutions. From
April 1994 until May 1995, he was a network design engineer for the network
integration unit of Bell Atlantic Corporation. Mr. Bressler received a B.A. in
mathematics from the City University of New York and an M.B.A. in international
business and information technology from New York University.
Calvin A. Cassidy joined us in November 1998 as vice president, enterprise
systems and solutions to oversee project development and implementation. From
October 1997 until November 1998, Mr. Cassidy handled project development for
transportation management systems at Lockheed Martin Corp. From January 1995
until October 1997, Mr. Cassidy managed business development for transportation
systems at Tenera, Inc. From July 1980 until January 1995, Mr. Cassidy also
developed and delivered advanced defense and commercial systems at Westinghouse
Electric. Mr. Cassidy received a B.S. in computer science from Virginia Tech, an
M.S. from George Washington University and an M.B.A. from Loyola College in
Baltimore.
John Clarke joined us in January 1996 as vice president, operations and
oversees our customer service and network operations center. From June 1986
until January 1996, Mr. Clarke developed advanced microwave systems at
Westinghouse Corp. He received a B.S. in engineering from Clarkson University
and an M.B.A. from Loyola College in Baltimore.
Andrew S. Meister is a co-founder of Aether and serves as vice president,
technical sales. Prior to joining us, he was a vice president, engineering at
NexGen from August 1995 until January 1996. From August 1993 until August 1995,
Mr. Meister was the engineering manager at Mobile Solutions Inc. From January
1987 until August 1993, Mr. Meister was a senior software engineer at United
Parcel Service. Mr. Meister received a B.S. in computer science from
Northeastern University and an M.S. in computer science from Johns Hopkins
University.
Gregory S. Milbank joined us in June 1998 and serves as senior vice
president, sales. From 1997 until June 1998, Mr. Milbank was with Reuters
America, Inc. where he held a position in new business development. His duties
at Reuters included development of The Open Systems Group, created to support
trading room system and data feed sales and support, and he was also a member of
the management team that oversaw the acquisition of Quotron from Citibank. Mr.
Milbank began his career in financial information technology in 1983 with Market
Information, Inc., a subsidiary of U.S. Sprint, where he was western regional
manager.
Michael B. Mills joined us in April 1999 as vice president, business
development. His primary role is to lead initiatives required to launch,
maintain and develop business opportunities and to guide corporate strategy and
alliances. Prior to joining us, Mr. Mills worked for 10 years as a
telecommunications and technology writer. From April 1994 until April 1999, Mr.
Mills wrote for the Washington Post, and from 1987 until April 1994 he wrote for
Congressional Quarterly and other publications. Mr. Mills received a B.A. from
Michigan State University and an M.A. in public affairs journalism from American
University.
At the time of closing of this offering, our board will have ten directors.
The agreement governing our limited liability company requires the seats on the
board of managers of the limited liability company to be allocated to specific
members identified in the agreement. This agreement will end when we convert to
a corporation before completion of the offering. We expect that four of the
members who will become stockholders of the corporation will enter into a
stockholder agreement that will govern voting for our
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<PAGE> 51
directors. We expect that NexGen, Telcom-ATI Investors, L.L.C., Reuters and
3Com-who will together hold 66% of the shares of common stock outstanding after
the offering-will be parties to this agreement. We expect the agreement to
require each party to vote all its shares for two directors named by NexGen, two
directors named by Telcom-ATI Investors, two directors named jointly by NexGen
and Telcom-ATI Investors and one director named by each of Reuters and 3Com. We
expect that Messrs. Oros and Ein will be named by NexGen, Dr. Singh and Mr.
Prakash will be named by Telcom-ATI Investors, Mr. Wenig will be named by
Reuters and Ms. Roberts will be named by 3Com as directors under the stockholder
agreement. The right of NexGen and Telcom-ATI Investors to jointly name two
additional directors will not arise until our first annual meeting. The terms of
the limited liability company agreement and the expected terms of the
stockholder agreement are further described in "Transactions Between Aether and
its Officers, Directors and Significant Stockholders."
Directors will be elected for a term of one year.
Our executive officers will be appointed by, and serve at the discretion
of, our board of directors. We expect that each of our officers will devote
substantially full time to our affairs. We expect that our non-employee
directors will devote such time to our affairs as is necessary to discharge
their duties. There are no family relationships among any of our executive
officers, directors or key employees.
COMMITTEES OF THE BOARD OF DIRECTORS
Immediately after the offering, the compensation committee will consist of
Messrs. Beese, Prakash and Wheeler. The compensation committee:
- determines the compensation of senior executive officers (chief executive
officer and president, chief operating officer, and chief financial
officer), subject, if the board so directs, to the board's further
ratification of the compensation;
- determines the compensation for other officers or to delegate such
determinations to the chief executive officer;
- grants options, stock, or other equity interests under our stock option
or other equity-based incentive plans; and
- administers those plans and, where such plans specify, our other employee
benefit plans.
Immediately after the offering, the audit committee will consist of Messrs.
Beese and Bonsal. The audit committee:
- makes recommendations to the board concerning the engagement of
independent accountants;
- reviews with the independent accountants the plans and results of the
audit engagement;
- approves professional services provided by the independent accountants;
- considers the range of audit and non-audit fees;
- verifies that auditors, internal and external, are independent of
management and are objective in their findings;
- reviews annual CPA audit and recommendations of internal controls and
related management response;
- reviews the audit reports with management and the auditor;
- oversees the internal audit function; and
- monitors management's efforts to correct deficiencies described in any
audit examination.
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DIRECTOR COMPENSATION
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and discretionary grants of stock options,
directors will not be compensated for their services as directors. Directors who
are employees will be eligible to participate in our equity incentive plan.
We granted options to acquire units in our limited liability company to
managers of the limited liability company from time to time, and we intend to
convert these options into options for shares of common stock in connection with
our conversion to a corporation. The following table identifies options that we
have granted to non-employee director nominees since January 1, 1996 on the
basis of the number of shares of common stock into which we expect then to
convert.
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING EXERCISE
NON-EMPLOYEE DIRECTOR OPTIONS(#) PRICE($)
- ----------------------------- ----------------- --------
<S> <C> <C>
J. Carter Beese, Jr. ........ 75,000 $ .40
Frank A. Bonsal, Jr. ........ 37,500 1.77
Mark D. Ein.................. 100,000 .40
Thomas E. Wheeler............ 37,500 1.77
</TABLE>
Messrs. Beese and Ein have exercised all of their options shown above.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth compensation awarded
to, earned by or paid to our chief executive officer and the other executive
officers whose total cash compensation exceeded $100,000 during the year ended
December 31, 1998. We refer to these three officers as the "named executive
officers." Information regarding options shows the number of shares for which
the options will be exercisable upon conversion of our limited liability company
into a corporation.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- --------------------------
SHARES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) ($) (#) ($)
--------------------------- ---------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
David S. Oros...................... $200,000 $150,000 -- -- $ --
Chairman, Chief Executive Officer
and President
George M. Davis.................... 133,333 52,895 $ 2,420 75,000 --
Chief Operating Officer
Dale R. Shelton.................... 109,200 4,000 -- 50,000 --
Senior Vice President,
Engineering
</TABLE>
In addition to the named executive officers, Mr. Reymann, our chief
financial officer, joined us in June 1998 and Mr. Keane, our senior vice
president, strategic development, joined us in August 1999. Mr. Reymann's
employment contract, which is described under "Employment Agreements with
Executive Officers" below, provides for an annual salary of $127,500 and an
award, granted at the time Mr. Reymann joined us, of options to receive 62,500
shares with an exercise price of $1.49 per share. Mr. Keane receives an annual
salary of $150,000 and was awarded options to receive 125,000 shares with an
exercise price of $4.80 per share granted at the time he joined us.
Option Grants. The following table shows information regarding stock
options granted to the named executive officers during the year ended December
31, 1998. Each of the options was for units in the limited liability company and
the table shows the number of shares for which the options will be
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exercisable upon the conversion of our limited liability company into a
corporation before the offering. No stock appreciation rights were granted to
these individuals during the year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
NUMBER OF SHARES GRANTED EXERCISE OPTION TERM($)(2)
UNDERLYING OPTIONS TO PRICE PER EXPIRATION ----------------------
NAME GRANTED(#)(1) EMPLOYEES SHARE($) DATE 5% 10%
---- ------------------ ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
David S. Oros............................... -- -- -- -- -- --
George M. Davis............................. 75,000 12.4% $1.49 July 2008 $70,373 $178,340
Dale R. Shelton............................. 50,000 8.3% $1.49 July 2008 $46,916 $118,893
</TABLE>
- ---------------
(1) The options will become exercisable in their entirety on July 21, 2001 and
none of them will become exercisable prior to that date unless there is a
change of control of Aether, which includes a sale of all our assets or the
sale of at least 80% of the equity of our company. Stock options issued
before July 21, 1998 expire on the fifth anniversary of the date of grant,
regardless of whether the option holder's employment with us has been
terminated. Options to purchase shares issued on or after July 21, 1998
expire 90 days after the termination of employment of the option holder.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the SEC and are based on the assumption that the exercise
price was the fair market value of the shares on the date of grant. There is
no assurance provided to any executive officer or any other holder of our
securities that the actual price appreciation over the 10-year option term
will be at the assumed 5% and 10% levels or at any other defined level.
Aggregate Option Exercises and Holdings. No options were exercised by the
named executive officers during the year ended December 31, 1998. The following
table provides information concerning the shares represented by outstanding
options held by each of the named executive officers as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DEC. 31, 1998(#) DEC. 31, 1998($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David S. Oros............................................ -- -- $ -- $ --
George M. Davis.......................................... 121,250 78,750 $242,500 $ 75,600
Dale R. Shelton.......................................... 93,750 81,250 $187,500 $107,900
</TABLE>
- ---------------
(1) The amount set forth represents the difference between the fair market value
of the underlying units on December 31, 1998 ($2.40 per share) and the
exercise price of the option. The fair market value was determined by
Aether's board of directors based primarily on the stock price paid by 3Com
in October 1998. If the assumed offering price of $14.00 per share was used
to calculate the value of options, the value of exercisable and
unexercisable options would increase by $1.4 million and $913,500,
respectively, for Mr. Davis and by $1.1 million and $942,500, respectively
for Mr. Shelton.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
We have entered into employment contracts with Messrs. Oros and Reymann.
Mr. Oros' contract became effective June 22, 1999 and provides for a salary of
$200,000 per year, a performance bonus of up to $100,000 per year and additional
bonuses based on annual revenue targets and proceeds raised from private
placements of our equity securities in 1999. The contract has an initial term
expiring in June 2002 and automatically extends for additional one month
increments until terminated by Aether or Mr. Oros on 15 days notice. Pursuant to
the contract, we granted Mr. Oros a warrant to acquire 875,000 shares of our
common stock. The warrant currently has an exercise price of $1.60 per share of
common stock. We also gave Mr. Oros the right to allocate to key employees of
his choosing warrants to acquire 125,000 shares of common stock having the same
terms and conditions. Mr. Oros has awarded warrants for 50,000 shares of our
common stock to Mr. Davis, 37,500 shares of our common stock to Mr. Shelton and
18,750 shares of
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<PAGE> 54
our common stock to Mr. Reymann. Mr. Oros subsequently received our permission
to assign part of his warrant, leaving him with a warrant to acquire 775,000
shares. In September 1999, Mr. Oros received a warrant to acquire 175,000 shares
of our common stock at an exercise price of $4 per share. From this grant, Mr.
Oros subsequently assigned a warrant exercisable for 17,500 shares of our common
stock. If we terminate Mr. Oros without cause, he is entitled to receive from us
an amount equal to the salary he would have received during the balance of the
term of the employment contract, and his warrants will fully vest immediately.
Under the contract, "cause" means committing an act of gross negligence or other
willful act that materially adversely affects Aether, refusing to comply in any
respect with specific directions of the managers of our limited liability
company, or being convicted or pleading no contest to any felony or any
misdemeanor involving fraud, breach of trust or misappropriation. Each of these
warrants become exercisable upon completion of this offering if the offering
price is greater than $6 per share.
Mr. Reymann's contract was entered into June 1, 1999 and provides for a
minimum salary of $127,500 per year. The contract has an initial term expiring
on June 1, 2001. We and Mr. Reymann have agreed that if we terminate him without
cause, he is entitled to receive from us an amount equal to the salary he would
have received during the balance of the term of the employment contract.
1999 EQUITY INCENTIVE PLAN
We have adopted and our sole stockholder prior to the offering has approved
an equity incentive plan to promote our long-term growth and profitability,
improve stockholder value, and attract, retain and reward highly motivated and
qualified employees and directors. The compensation committee of our Board of
Directors will administer the equity incentive plan unless the Board of
Directors specifies another committee of the Board of Directors or chooses to
act itself as administrator.
Under the equity incentive plan, we can grant options for approximately 5.2
million shares of common stock, which number will adjust automatically to be 20%
of our outstanding common stock from time to time. We can grant options to
employees in the form of incentive stock options for up to 3,000,000 shares, but
may choose not to do so. Any options we grant that are not incentive stock
options will be nonqualified stock options.
All of our employees, directors and certain service providers are eligible
to receive options under the equity incentive plan. For tax reasons, the equity
incentive plan limits the number of shares covered by the options that an
individual can receive in a calendar year to 50% of the total initial pool. The
administrator will determine the prices, exercise schedules, expiration dates
and other material conditions under which optionees may exercise their options.
Except with respect to replacement options, which we grant to replace options
from Aether Systems LLC or companies we acquire, the exercise price of these
options after the initial public offering may not be less than the fair market
value of the common stock on the date of grant. We intend to replace the options
Aether Systems LLC granted with options under this plan when we convert to a
corporation before completion of the offering.
All options will become exercisable if we have a change of control, except
as option agreements provide otherwise or as necessary to allow pooling of
interest accounting. The plan's administrator may provide that an optionee must
cooperate with us in connection with the change of control to receive this
acceleration. In general, we will have a change of control if, after our initial
public offering:
- anyone acquires or holds at least 80% of our voting securities, excluding
holdings by our benefit plans and some other related parties;
- we complete a merger or consolidation, unless, in general, our pre-merger
shareholders own more than 20% of the voting securities of the merged
companies;
- our board changes in specified ways in connection with proxy contents or
as a result of adding new directors who are not approved by existing
directors; or
- if we complete a liquidation or dissolution or sell or otherwise dispose
of all or substantially all of our assets.
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<PAGE> 55
In addition, unless we provide otherwise, or as necessary to allow pooling of
interest accounting, the equity incentive plan and all options will terminate in
defined circumstances if:
- we are not the surviving company in a merger, consolidation or
reorganization;
- we complete a liquidation or dissolution or sell substantially all our
assets; or
- our board approves and we complete a transaction that results in a person
or entity's owning all of our stock, unless the person or entity is
related to us in specified ways.
However, before the equity incentive plan would terminate for one of those
reasons, we would either agree that our successor would assume the options
and/or the equity incentive plan, allow optionees to exercise the options if
these options were in-the-money, or cancel the options by paying the amount, if
any, by which the value determined with respect to that transaction exceeds the
exercise price of the options.
The equity incentive plan limits the time during which an optionee can
exercise an option to no more than ten years. In addition, an optionee who
leaves employment will generally have no more than 90 days to exercise an
option, reduced to no days after employment in terminations for cause, and
additional rules apply to death and disability. The compensation committee may,
however, override the plan's rules, other than the ten year limit. We cannot
grant additional options under the equity incentive plan after the tenth
anniversary of its adoption.
SENIOR BONUS PLAN
We have adopted a senior bonus plan. A special tax rule in Section 162(m)
of the Internal Revenue Code of 1986, as amended, limits the compensation that
we can deduct for payments to our chief executive officer and the four other
most highly compensated executive officers to $1 million per officer per year.
We intend the senior bonus plan to provide incentive compensation that does not
count against each executive's deduction limit. We may choose to use the senior
bonus plan, or we may pay bonuses under some other future plan to which the tax
deduction limits will apply, as long as we do not use the other payments to make
up bonuses a participant loses under the senior bonus plan.
Unless our Board of Directors selects another committee, the compensation
committee will administer the senior bonus plan and select participants from our
key employees and those of any subsidiaries, although we expect that most
participants will be executive officers. When we refer to the "compensation
committee" in discussing the senior bonus plan, we also mean any other committee
that administers this plan. Only "outside directors" under the tax rules can
determine the participants, set the performance goals, and certify that we or
the participants have met those goals. The compensation committee will either
consist solely of two or more outside directors or those members who do not
satisfy the definition of an outside director will either abstain from voting or
refrain from serving on a subcommittee that then administers this plan. The
compensation committee has broad administrative authority to, among other
things, designate participants, establish performance goals and performance
periods, determine the effect of participant termination of employment and
"change in control" transactions before paying an award, and generally interpret
and administer the senior bonus plan. Neither we nor the Board has designated
any participants or established any performance goals under the senior bonus
plan.
The compensation committee will select participants for any given time
period based primarily on its judgement as to which executive officers are
likely to be named in our proxy statement as the chief executive officer or one
of our other four most highly compensated executive officers as of the end of
the performance period and that the compensation committee reasonably expects to
have compensation in excess of $1 million. We do not expect any of our employees
to exceed that limit in 1999.
In setting performance goals, the compensation committee will specify the
applicable performance criteria and targets it will use for such performance
period, which may vary from participant to participant.
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<PAGE> 56
The performance criteria and targets will measure one or more of the following
company, subsidiary, operating unit, or division financial performance measures:
- pre-tax or after-tax net income or earnings;
- earnings before interest expense, taxes, depreciation and amortization;
- operating income or gross revenue;
- profit or operating margin;
- earnings per share;
- stock price;
- cash flows;
- total stockholder return;
- total stockholder return as compared to total return, on a comparable
basis, of a publicly available index such as the Standard & Poor's 500
Stock Index;
- return on equity, on capital or on investment;
- ratio of debt to stockholders' equity;
- subscriber growth;
- working capital; or
- strategic business criteria consisting of one or more objectives based
upon meeting specified revenue, market penetration, geographic business
expansion goals, cost targets and goals relating to acquisitions or
divestitures.
The compensation committee may set these goals (1) on an absolute
stand-alone basis, or on a relative basis in comparison to others, (2) based on
internal targets, (3) based on comparison with prior performance, (4) based on
comparison to capital, shareholders' equity, shares outstanding, assets or net
assets, and/or (5) based on comparison to the performance of other companies.
For example, the compensation committee could express an income-based
performance measure in a number of ways, such as net earnings per share, or
return on equity or with reference to meeting or exceeding a specific target, or
with reference to growth above a specified level, such as prior year's
performance or peer group performance. The compensation committee can also
ignore unusual or nonrecurring accounting effects. The senior bonus plan
provides that achieving these goals must be substantially uncertain at the time
the goals are established and are subject to the committee's right to reduce the
amount of any award payable as a result of the performance as discussed below.
The compensation committee may set a participant's target bonus, that is,
the amount the participant will receive if the targets are met, as a dollar
amount or in a formula, for example as a percentage share of a bonus pool,
provided that, if the committee uses a pool approach, the total bonus
opportunity for all participants who are part of the pool may not total more
than 100% of the pool. The committee has the sole discretion to reduce, but not
increase, the actual bonus awarded under the plan. The committee must determine
the extent to which the performance goals are met and the participant becomes
entitled to a bonus.
The maximum bonus payable under the senior bonus plan to any one individual
in any one calendar year is $3 million, although we have no plans or
expectations at this time to pay bonuses of that size.
Our board or the committee may at any time amend the senior bonus plan, and
our board may terminate the plan. However, without a participant's written
consent, no amendment or termination may materially adversely affect the annual
bonus rights, if any, of any already designated participant for a given
performance period after the participants and targets are set. Our board may
make any amendments necessary to comply with applicable regulatory requirements,
including the tax deduction limit for senior
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<PAGE> 57
executives. If necessary to preserve the intended tax treatment, the board may
submit future amendments of the senior bonus plan to our shareholders for
approval.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee is an officer or employee
of Aether. Other than Mr. Oros, who is an executive officer of Aether and
OpenSky and who serves on the boards of directors of Aether and OpenSky, none of
our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our board of directors or compensation committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation will limit the liability of directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary damages for
breach of an individual's fiduciary duties as a director except for liability:
- for any breach of a director's duty of loyalty to Aether or to its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- for any transaction from which a director derives an improper personal
benefit.
Our bylaws will provide that Aether will indemnify its directors and
executive officers and may indemnify its officers, employees and other agents to
the full extent permitted by law. We believe that indemnification under our
bylaws will cover at least negligence and gross negligence on the part of an
indemnified party. Our bylaws also will permit us to advance expenses incurred
by an indemnified party in connection with the defense of any action or
proceeding arising out of a party's status or service as a director, officer,
employee or other agent of Aether upon an undertaking by the party to repay the
advances if it is ultimately determined that he or she is not entitled to
indemnification.
We will enter into separate indemnification agreements with each of our
directors and officers. These agreements will require us to, among other things,
indemnify the director or officer against expenses (including attorney's fees),
judgments, fines and settlements paid by the individual in connection with any
action, suit or proceeding arising out of the individual's status or service as
a director or officer of Aether (other than liabilities arising from willful
misconduct or conduct that is knowingly fraudulent or deliberately dishonest)
and to advance expenses incurred by the individual in connection with any
proceeding against the individual with respect to which he or she may be
entitled to indemnification by us.
We believe that our proposed certificate of incorporation and bylaw
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers. Following completion of this
offering, we also will maintain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Aether where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling our company
pursuant to the foregoing provisions, we have been informed that, in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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<PAGE> 58
TRANSACTIONS BETWEEN AETHER AND ITS
OFFICERS, DIRECTORS OR SIGNIFICANT STOCKHOLDERS
Since our inception, we have engaged in the following transactions with
executive officers, directors and owners of 5% or more of our equity, or
entities related to them.
EQUITY INVESTMENTS
The following discussion describes the issuance of units of our limited
liability company in connection with its initial capitalization and subsequent
financings. Immediately before we complete this offering, our limited liability
company will be converted into a corporation and each unit in the limited
liability company will be converted into two and one-half shares of our common
stock and each option or warrant for one unit will be converted into an option
or warrant for two and one-half shares of our common stock.
Aeros L.L.C., our predecessor, was formed in January 1996 by NexGen
Technologies, L.L.C. and a predecessor to Transettlements, Inc. At the time
Aeros was formed, NexGen contributed assets in the wireless data field in
exchange for 3,000,000 units (equivalent to 7,500,000 shares) and
Transettlements contributed $1,000,000 in cash in exchange for 1,000,000 units
(equivalent to 2,500,000 shares). In May 1996, Transettlements contributed an
additional $500,000 in exchange for an additional 500,000 units (equivalent to
1,250,000 shares). In August 1996, we changed our name to Aether Technologies
International, L.L.C. Then, in September 1999, we changed our name to Aether
Systems LLC.
In February 1997, a subsidiary of Telcom Ventures, L.L.C. acquired 290,000
units (equivalent to 725,000 shares) from Transettlements and 43,000 units
(equivalent to 107,500 shares) from NexGen and contributed $1,000,000 to Aether
in exchange for 625,000 units (equivalent to 1,562,500 shares). Additionally,
Telcom Ventures was granted an option to purchase 710,000 units (equivalent to
1,775,000 shares) from Transettlements and two options to purchase a total of
907,000 units (equivalent to 2,267,500 shares) from NexGen. In December 1997,
Telcom Ventures and its subsidiary contributed an additional $690,369 to Aether
in exchange for an additional 230,123 units (equivalent to 575,308 shares). In
June 1999, Telcom Ventures exercised its option with Transettlements and one of
its options with NexGen to purchase 710,000 and 157,000 units, respectively
(equivalent to 1,775,000 and 392,500 shares, respectively). Aether did not
receive any proceeds from the exercise of these options.
In October 1997, we borrowed $100,000 from Reuters Group Overseas Holdings
(UK) Limited pursuant to a demand note that accrued interest at 7% per year. In
January 1998, we borrowed an additional $100,000 from Reuters at an accrued
interest rate of 7% per year pursuant to a second demand note. In March 1998, as
part of the consideration paid by Reuters for Aether's development of
MarketClip, Reuters cancelled both of these notes.
In January 1998, Pyramid Ventures, Inc., a subsidiary of Bankers Trust
Corporation, acquired 333,333 units (equivalent to 833,333 shares) at $3.00 per
unit and 401,961 units (equivalent to 1,004,903 shares) at $3.73 per unit for
total proceeds to Aether of approximately $2.5 million. At that time, Aether
redeemed 83,333 units (equivalent to 208,333 shares) held by NexGen for $249,999
and 250,000 units (equivalent to 625,000 shares) held by Transettlements for
$750,000. As part of the financing arrangement, Pyramid agreed to use reasonable
efforts (1) to cause BT Alex. Brown to purchase 100 subscriptions to MarketClip
for a 12-month period or (2) to refer affiliates of BT Alex. Brown or third
parties to Aether for the purpose of entering into development contracts with an
aggregate price of $300,000 over a two-year period.
In June 1998, Telcom Ventures and Pyramid each loaned us $250,000. The
notes accrued interest at 8% per year and were due on demand with a stated
maturity date of the earlier of December 31, 1998 or the closing of an
anticipated private placement of units. The notes were convertible into units at
the option of the holder at the rate of $250,000 divided by the per unit price
to be paid in the anticipated private placements. In connection with the
issuance of these notes, we also issued 5,656 warrants (equivalent to 14,140
shares) with an exercise price of $0.01 per unit to each of Telcom Ventures and
Pyramid. Pyramid converted its $250,000 loan plus accrued interest in August
1998 into 57,180 units (equivalent to 142,950
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<PAGE> 59
shares) at a per unit price of $4.42 and exercised its warrant and acquired
5,656 units (equivalent to 14,140 shares). In August 1998, we repaid the amount
owed Telcom Ventures, including $2,520 in interest. In August 1999, Telcom
Ventures exercised its warrant and acquired 5,656 units (equivalent to 14,140
shares) at a per unit price of $0.01.
In August 1998, Reuters received 1,131,222 units (equivalent to 2,828,055
shares) in exchange for $4,735,020 in cash and forgiveness of $530,980 we owed
Reuters for hardware and other inventory, offset by $266,000 Reuters owed us
under a license agreement we previously entered into with Reuters relating to
sales of MarketClip and related fees.
In October 1998, 3Com Corp. contributed $6,000,000, in exchange for
1,000,000 units (equivalent to 2,500,000 shares). At the same time we issued
3Com a conditional warrant to purchase 357,466 units (equivalent to 893,665
shares) exercisable at $0.01 per unit if the milestones described below are
achieved before October 29, 2001. 3Com achieved the first milestone entitling it
to exercise 57,466 units (equivalent to 143,665 shares) as a result of having
completed a joint sales and marketing plan. 3Com may exercise an additional
150,000 units (equivalent to 375,000 shares) when we receive $6 million in
engineering services revenue from business opportunities introduced by 3Com.
3Com may exercise an additional 150,000 units (equivalent to 375,000 shares) if
we attain 6,000 wireless service subscribers as a result of business
opportunities introduced to us by 3Com. 3Com has not attained either of these
last two milestones and has not exercised any of its warrants.
Effective June 1999, we issued to Mr. Oros a warrant to acquire 420,000
units (equivalent to 1,050,000 shares) at an exercise price of $.01 per unit. We
subsequently agreed with Mr. Oros to amend the exercise price to $4 per unit. We
also gave Mr. Oros the right to allocate to key employees of his choosing
warrants to acquire 50,000 units (equivalent to 125,000 shares) having the same
terms and conditions. Mr. Oros has awarded warrants to acquire 20,000 units
(equivalent to 50,000 shares) to Mr. Davis, 15,000 units (equivalent to 37,500
shares) to Mr. Shelton and 7,500 units (equivalent to 18,750 shares) to Mr.
Reymann. Mr. Oros subsequently received our permission to subdivide his warrant
to give Mark Ein a warrant to acquire 40,000 units (equivalent to 100,000
shares), leaving Mr. Oros with a warrant to acquire 310,000 units (equivalent to
775,000 shares). In September 1999, Mr. Oros received a warrant to acquire
70,000 units (equivalent to 175,000 shares) at an exercise price of $10 per
unit. From this grant, Mr. Oros subsequently assigned a warrant exercisable for
7,000 units (equivalent to 17,500 shares).
On June 30, 1999, Mr. Ein exercised an option for 40,000 units (equivalent
to 100,000 shares) at an exercise price of $1.00 per unit. On September 8, 1999,
Mr. Beese exercised an option for 30,000 units (equivalent to 75,000 shares) at
an exercise price of $1.00 per unit.
LIMITED LIABILITY COMPANY AGREEMENT, STOCKHOLDERS AGREEMENT AND REGISTRATION
RIGHTS AGREEMENT
NexGen, Transettlements, Telcom Ventures, Pyramid, Reuters, 3Com and
Messrs. Beese and Ein are members in our limited liability company and parties
to a limited liability company agreement. All members own units of the same
class. The members have the right to participate in any additional equity
financings in order to maintain their current percentage ownership interest. We
expect that these rights will be extinguished in connection with our conversion
into a corporation. The members authorized a group of nine managers to manage
and direct our business and affairs. Under the agreement, NexGen appoints four
managers, Telcom Ventures appoints two managers and each of the other members,
other than Transettlements, Mr. Beese and Mr. Ein, appoints one manager. The
agreement allows members to conduct business with us so long as the terms are
fair and reasonable to us and have been approved by the managers. Extraordinary
transactions such as the issuance of additional securities, a sale or merger,
the acquisition of substantial assets or the removal of Mr. Oros require the
vote of 60% of all units held by the members other than Mr. Ein. Each member
must approve any change to the agreement if the change would have a materially
adverse effect on the member's rights and obligations. The members have granted
each other rights of first refusal, rights to join with another member selling
its units to a third party and rights to require other members to sell their
units to a third party.
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<PAGE> 60
The limited liability company agreement gives members the right to have
sales of some of their interests registered under the Securities Act in
connection with this offering, but all members have agreed to waive this right.
The limited liability company agreement will terminate upon conversion of
the limited liability company into a corporation immediately prior to the
completion of this offering. We expect that NexGen, Telcom-ATI Investors,
Reuters and 3Com will enter into a stockholder agreement before completion of
the offering. Under the stockholder agreement, these parties will vote for two
directors named by each of NexGen and Telcom-ATI Investors and for one director
named by each of Reuters and 3Com. In addition, commencing on the date of the
first annual meeting of stockholders, if the board of directors consists of up
to nine members, these parties will vote to elect to the board of directors one
additional person named jointly by NexGen and Telcom-ATI Investors Ventures; and
if the board of directors consists of 10 or 11 members, the parties will vote to
elect two members named jointly by NexGen and Telcom-ATI Investors. We expect
the right to name directors will end when these stockholders reduce their share
ownership below levels set forth in the agreement.
We will enter into a registration rights agreement with NexGen, Telcom-ATI
Investors, Reuters, 3Com and Transettlements, which will entitle these parties
to an aggregate of three demand registrations at any time after the first
anniversary of this offering, and at the request of these parties, include in
any registration statement for our own account or the account of any other
stockholder, the shares of common stock held by those parties, subject to
limitations set forth in the agreement. We also expect the agreement will
require us to file a shelf registration statement covering the sale of all
shares held by parties to the stockholder agreement from time to time. We expect
the agreement will require us to file the shelf registration statement only when
we are eligible to use the short form registration statement on Form S-3, which
would be at least one year from the closing of this offering.
LOAN TO NEXGEN
In September 1998, we loaned NexGen $155,000 at an interest rate of 7.5%
per year pursuant to two notes. One note for $95,000 was due in December 1998
and one note for $60,000 was due in October 1998. In August 1999 both notes were
amended to be due upon 30 days notice. On December 24, 1998, NexGen made a
payment of $19,346 with respect to these notes.
REUTERS LICENSE AGREEMENT
In August 1998, we entered into an amended license, marketing and
distribution agreement with Reuters, which continues through August 11, 2001 and
renews automatically for successive one-year terms unless either party provides
180 days prior written notice. Reuters granted us a non-exclusive license to use
the information supplied by Reuters Selectfeed Plus for distribution to
subscribers of MarketClip, AirBroker and for development purposes. In August
1999, Reuters granted us permission to use Selectfeed Plus information for the
TradeRunner service developed for Discover Brokerage and the services we are
developing with Charles Schwab and Bear Stearns. Pursuant to the agreement,
Aether granted Reuters an exclusive license to use the systems developed by
Aether to transmit Reuters information to wireless handheld devices and a
license to use the MarketClip software for purposes of supplying subscribers
with MarketClip. The geographic scope of all of the licenses under the agreement
is limited to the United States. Under the agreement, Reuters has a right of
first refusal to purchase units of Aether if Aether or any unit holder sells
units and, as a result, a competitor of Reuters holds 50% or more of our units,
or if we sell all or substantially all of our assets to a competitor of Reuters.
Under the terms of the license, we pay Reuters a monthly fee for each subscriber
to our services that use information provided by Reuters. During 1998 we paid
Reuters $40,300 under this contract and the average monthly fee per subscriber
was $4.89; during the first six months of 1999 we paid Reuters $58,606 under
this contract and the average monthly fee per subscriber was $4.97.
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OPENSKY
On August 9, 1999, we formed a joint venture with 3Com in which we acquired
an interest in AirWeb Corporation, a new company doing business as OpenSky. We
contributed a perpetual, non-exclusive, non-assignable, royalty-free worldwide
license to our AIM software platform in exchange for 7,000,000 shares of Series
A Preferred Stock-which represents a 26% equity interest in OpenSky on a fully
diluted basis-and an option to buy up to an additional 3,000,000 shares of
Series A Preferred Stock for an aggregate exercise price of $2.5 million. If we
exercise our option, we will own up to approximately 33% of the equity of
OpenSky on a fully diluted basis. Our option to acquire these additional shares
expires at the earlier of January 31, 2000 or 15 days after we close our initial
public offering. We intend to exercise this option in full upon completion of
this offering. In connection with the formation of the joint venture, 3Com paid
$7.0 million in cash and agreed to contribute to OpenSky a perpetual,
non-exclusive, non-assignable license to 3Com's Web Clipping technology
(including rights to derivative works) and Palm OS software in exchange for
10,000,000 shares of Series A Preferred Stock, representing a 33% equity
interest in OpenSky on a fully diluted basis. The management team of OpenSky
will acquire in the aggregate 4.2 million shares of common stock and options to
acquire an additional 5.8 million shares, which together represent a 33% equity
interest in OpenSky on a fully diluted basis.
As part of our investment with 3Com in OpenSky, we each received
registration rights, including two demand registration rights that we can use
after the earlier of the completion of OpenSky's initial public offering and
August 9, 2004. We also entered into a right of first refusal and co-sale
agreement, which, among other things, requires the management team to first
offer any OpenSky securities to OpenSky and then to us and 3Com before selling
the securities to a third party. This agreement also allows us and 3Com to sell
a pro rata portion of our stock to a third party along with the management team
if the right of first refusal is not exercised. We and 3Com have also agreed
that before either of us sells any shares of Series A Preferred Stock to an
unrelated third party, we would first offer the other (or any other holders of
Series A Preferred Stock) those shares on a pro rata basis and then to OpenSky.
Aether, 3Com and OpenSky's management are each entitled to appoint one
director to OpenSky's board of directors. OpenSky's board of directors currently
consists of three members: David S. Oros, our chairman, chief executive officer
and president and the chairman of OpenSky; Janice M. Roberts, who is expected to
be one of our directors, is the senior vice president, marketing and business
development of 3Com; and Patrick McVeigh, OpenSky's president and chief
executive officer (and former president of the Palm Computing division of 3Com).
We have entered into a voting agreement with 3Com and OpenSky's management in
which each of the parties has agreed to vote in favor of each of the directors
named by Aether, 3Com and OpenSky's management until the earliest of (1)
OpenSky's completion of an initial public offering of at least $15 million, (2)
OpenSky's completion of a sale of substantially all of the assets of OpenSky or
the transfer of more than 50% of the voting power of OpenSky or (3) the parties'
termination of the agreement. OpenSky cannot take certain major corporate
actions, such as selling the company or issuing securities with rights and
preferences senior to the Series A Preferred Stock, without the approval of
holders of two-thirds of the Series A Preferred Stock.
On August 9, 1999, we entered into a letter agreement with OpenSky under
which we have agreed to provide OpenSky, for a period of ten months from the
date of the letter agreement, engineering services for the design and
development of its proposed systems and services. The letter agreement provides
that OpenSky will pay us $250,000 per month for these services, in addition to
$500,000 they paid us for work performed prior to the date of the letter
agreement. Additionally, for a period of five years from the date of the letter
agreement, OpenSky has agreed to provide us the right to resell OpenSky's basic
package of services. We also have a right of first refusal for development of
all investment banking and brokerage applications for OpenSky for a period of
two years from the date of the letter agreement, subject to approval of the
company for whom the service is developed.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of September 30, 1999, and as
adjusted to reflect the sale of 6,000,000 shares of common stock offered in this
offering, as to:
- each person (or group of affiliated persons) known by us to own
beneficially more than 5% of our outstanding common stock;
- each of our directors;
- each of the executive officers named in the summary compensation table;
and
- all our directors and executive officers as a group.
The table reflects the expected conversion of Aether from a limited
liability company to a corporation and the exchange of units in the limited
liability company into shares of common stock.
Except as indicated in the footnotes to this table and under applicable
community property laws, to our knowledge, the persons named in the table have
sole voting and investment power with respect to all shares of common stock.
Options exercisable on or before November 30, 1999, are included as shares
beneficially owned. For the purposes of calculating percent ownership as of
September 30, 1999, shares were issued and outstanding, and, for any
individual who beneficially owns shares represented by options exercisable on or
before November 30, 1999, these shares are treated as if outstanding for that
person, but not for any other person. Unless otherwise indicated, the address of
each of the individuals and entities named below is: c/o Aether Systems, Inc.,
11460 Cronridge Drive, Owings Mills, Maryland 21117.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
-------------------
NUMBER BEFORE AFTER
NAME AND ADDRESS OF SHARES OFFERING OFFERING
---------------- ---------- -------- --------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
David S. Oros (1)........................................... 7,724,168 37.1% 28.8%
George M. Davis (2)......................................... 173,750 * *
Dale R. Shelton (3)......................................... 150,000 * *
Frank A. Bonsal, Jr. (4).................................... 37,500 * *
1119 St. Paul Street
Baltimore, MD 21202
J. Carter Beese (5)......................................... 75,000 * *
Mark D. Ein (6)............................................. 217,500 1.1% *
Rahul C. Prakash (7)........................................ 0 *
c/o Telcom Ventures, L.L.C.
211 N. Union St., Suite 300
Alexandria, VA 22314
Janice M. Roberts (8)....................................... 0 * *
c/o 3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95952
Dr. Rajendra Singh (9)...................................... 5,151,948 25.7% 19.8%
c/o Telcom Ventures, L.L.C.
211 N. Union St., Suite 300
Alexandria, VA 22314
George P. Stamas (10)....................................... 11,250 * *
c/o Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Devin N. Wenig.............................................. 0 * *
c/o Reuters America, Inc.
1700 Broadway, 2nd Floor
New York, NY 10019
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
-------------------
NUMBER BEFORE AFTER
NAME AND ADDRESS OF SHARES OFFERING OFFERING
---------------- ---------- -------- --------
<S> <C> <C> <C>
Thomas E. Wheeler (11)...................................... 37,500 * *
All directors and executive officers as a group (14 persons) 13,659,864 63.2% 49.5%
(12)......................................................
5% STOCKHOLDERS:
3Com Corporation (13)....................................... 2,643,665 13.1% 10.1%
5400 Bayfront Plaza
Santa Clara, CA 95052
NexGen Technologies, L.L.C.................................. 6,791,668 33.8% 26.1%
Pyramid Ventures, Inc. (14)................................. 1,995,325 9.9% 7.7%
One Bankers Trust Plaza
130 Liberty Street
New York, NY 10006
Reuters MarketClip Holdings Sarl (15)....................... 2,828,055 14.1% 10.9%
c/o Reuters America, Inc.
1700 Broadway, 2nd Floor
New York, NY 10019
Telcom-ATI Investors, L.L.C................................. 5,151,948 25.7% 19.8%
211 N. Union St., Suite 300
Alexandria, VA 22314
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 6,791,668 shares owned by NexGen Technologies, L.L.C. over which
Mr. Oros exercises voting and investment control by virtue of his position
as Managing Member of NexGen. Also includes warrants to purchase 775,000
shares of common stock that will be immediately exercisable when this
offering closes, assuming that the offering price is $6 per share or
greater.
(2) Includes vested options to purchase 106,250 shares of common stock and
warrants to purchase 50,000 shares of common stock when this offering
closes, assuming that the offering price is $6 per share or greater.
(3) Includes vested options to purchase 122,918 shares of common stock and
warrants to purchase 37,500 shares of common stock when this offering
closes, assuming that the offering price is $6 per share or greater.
(4) The amount shown excludes approximately 18,170 shares in which Mr. Bonsal
has an indirect interest as a result of his interest in Telecom-ATI
Investors.
(5) Includes 75,000 shares owned by a legal entity for the benefit of the Beese
family, over which Mr. Beese exercises voting and investment control. The
amount shown excludes approximately 103,825 shares in which Mr. Beese has
an indirect interest as a result of his interest in Telecom-ATI Investors.
(6) Includes warrants to purchase 100,000 shares of common stock when this
offering closes, assuming that the offering price is $6 per share or
greater and warrants to purchase 17,500 shares of common stock at $4 per
share.
(7) Mr. Prakash, the president of Telcom-ATI Investors, (which is controlled by
Telcom Ventures, LLC), disclaims beneficial ownership of the 5,151,948
shares owned by Telcom-ATI Investors including approximately 52,000 shares
in which he has an indirect interest.
(8) Ms. Roberts is senior vice president global marketing and business
development of 3Com Corp. and president of 3Com Ventures. Ms. Roberts
disclaims beneficial ownership of shares held by 3Com Corp.
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(9) Includes 5,151,948 shares owned by Telcom-ATI Investors and entities it
controls, over which Dr. Singh exercises voting and investment control by
virtue of his position as chairman and chief executive officer of
Telcom-ATI Investors.
(10) Includes vested options to purchase 11,250 shares of common stock. The
amount shown excludes approximately 15,572 shares in which Mr. Stamas has
an indirect interest as a result of his interest in Telecom-ATI Investors.
(11) Includes vested options to purchase 37,500 shares of common stock.
(12) Includes all the shares and options identified above and options for 20,833
shares that will be immediately exercisable when this offering closes,
assuming that the offering price is $6 per share or greater, and 62,500
shares issuable upon exercise of options exercisable by November 30, 1999.
(13) Includes vested options to purchase 143,665 shares of common stock.
(14) Pyramid Ventures, Inc. is an indirect wholly-owned subsidiary of
DeutsheBank AG.
(15) Reuters MarketClip Holdings Sarl is an indirect wholly-owned subsidiary of
Reuters Group plc.
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DESCRIPTION OF CAPITAL STOCK
Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 50,000,000 shares of common stock, $.01
par value, and 1,000,000 shares of preferred stock, $.01 par value.
COMMON STOCK
As of September 30, 1999, there were 20,066,995 shares of common stock
outstanding that were held of record by approximately eight stockholders after
giving effect to the conversion of Aether from a limited liability company and
the exchange of each limited liability company unit into two and one-half shares
of common stock. There will be 26,066,995 shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option) after giving
effect to the sale of the shares of common stock offered by this prospectus.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably any dividends that may be declared from time to time
by the board of directors out of funds legally available therefor. In the event
of a liquidation, dissolution or winding up of Aether, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior rights of holders of preferred stock, if any, then
outstanding. The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
available to the common stock. All outstanding shares of common stock are fully
paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of this offering, Aether will be authorized to
issue 1,000,000 shares of undesignated preferred stock. The board of directors
will have the authority to issue the undesignated preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of a series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
Aether without further action by the stockholders and may adversely affect the
voting and other rights of the holders of common stock. Furthermore, this
preferred stock may have other rights, including economic rights senior to the
common stock, and, as a result, the issuance of preferred stock could have a
material adverse effect on the market value of the common stock. At present, we
have, no plans to issue any shares of preferred stock.
STOCKHOLDER'S AGREEMENT
We expect NexGen, Telcom-ATI Investors, Reuters and 3Com to enter into a
stockholders agreement, which will require these parties to vote to elect to the
board of directors two persons named by each of NexGen and Telcom-ATI Investors,
two persons named jointly by NexGen and Telcom-ATI Investors and one person
named by each of Reuters and 3Com. We describe the expected terms of this
agreement in further detail in "Transactions Between Aether and its Officers,
Directors or Significant Stockholders" at page 58.
REGISTRATION RIGHTS OF STOCKHOLDERS
Pursuant to the terms of the agreement governing our limited liability
company, the members of the limited liability company had registration rights
with respect to the units of the limited liability company or any common stock
received upon conversion of the limited liability company into a corporation,
but all members have agreed to waive this right. This agreement, and our
obligation to register shares, is terminating with conversion of the limited
liability company into a corporation. We and the members of the limited
liability company are entering into a registration rights agreement requiring us
to register their
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<PAGE> 66
shares on demand beginning one year after the date of the offering. We describe
the expected terms of this agreement in further detail in "Transactions Between
Aether and its Officers, Directors or Significant Stockholders" at page 58.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
Our certificate of incorporation and bylaws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the polices formulated by our board
of directors. In addition, provisions of Delaware law may hinder or delay an
attempted takeover of Aether other than through negotiation with our board of
directors. These provisions could have the effect of discouraging attempts to
acquire us or remove incumbent management even if some or a majority of our
stockholders believe this action to be in their best interest, including
attempts that might result in the stockholders' receiving a premium over the
market price for the shares of common stock held by stockholders.
Removal and replacement of directors. Under our certificate of
incorporation and bylaws, directors may only be removed with cause. In addition,
a majority of the directors then in office can fill board vacancies and
newly-created directorships resulting from any increase in the size of the board
of directors, even if those directors do not constitute a quorum or only one
director is left in office. These provisions could prevent stockholders,
including parties who want to take over or acquire us, from removing incumbent
directors without cause and filling the resulting vacancies with their own
nominees.
Advance notice provisions for stockholder proposals and stockholder
nominations of directors. The bylaws establish an advance notice procedure
regarding stockholder proposals and nominations for director. The advance notice
procedure will not apply to proposals by our board of directors or management.
Any stockholder that wishes to make a proposal or nominate a director for
election at an annual meeting must deliver us notice of the proposal or the
nomination not less than 45 days nor more than 90 days before the first
anniversary of the proxy statement for the preceding year's annual meeting. For
a special meeting, the notice must generally be delivered not less than 70 days
nor more than 90 days before a special meeting or ten days following the day on
which public announcement of the meeting is first made. This advance notice
proposal could prevent someone interested in acquiring us from proposing actions
that could facilitate the takeover.
Special meetings of stockholders and actions in lieu of a meeting. Our
certificate of incorporation and bylaws permit special meetings of the
stockholders to be called only by the board of directors, the chairman of the
board or the president or holders of at least 50% of our securities that are
outstanding and entitled to vote generally in an election of directors. The
stockholders may take action by written consent in lieu of a meeting only if
such consent is signed by all stockholders. These provisions may make it more
difficult for stockholders to take actions opposed by the board of directors.
Authorized but unissued shares. Without further stockholder approval, we
can issue shares of common stock and preferred stock up to the number of shares
authorized for issuance in our certificate of incorporation, except as limited
by Nasdaq rules. We could use these additional shares for a variety of corporate
purposes. These purposes include future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. Our ability to issue
these shares of common stock and preferred stock could make it more difficult,
or discourage an attempt, to obtain control of Aether by means of a proxy
contest, tender offer, merger or otherwise.
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<PAGE> 67
Amendment of bylaws. The Delaware General Corporation Law generally
provides that the affirmative vote of a majority of the shares entitled to vote
on any matter is required to amend a corporation's certificate of incorporation
or bylaws, unless the corporation's certificate of incorporation or bylaws, as
the case may be, requires a greater percentage. Our certificate of incorporation
and bylaws require the affirmative vote of the holders of at least 66- 2/3% of
our outstanding voting stock to amend or repeal our bylaws. Our bylaws may also
be amended or repealed by a simple majority vote of the board of directors.
Section 203 of Delaware Law. In addition to the foregoing provisions of
our certificate of incorporation and bylaws, we will be subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date that the person became an interested stockholder unless
(with exceptions) the business combination or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale or
other transaction resulting in a financial benefit to the stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's outstanding voting stock. This provision may have the effect of
delaying, deferring or preventing a change in control of Aether without further
action by the stockholders. Transactions with NexGen or Telcom-ATI Investors or
their affiliates are not covered by this provision.
Our stock option plan generally provides for assumption of our plan or
substitution of an equivalent option of a successor corporation or,
alternatively, at the discretion of the board of directors, exercise of some or
all of the options stock, including non-vested shares, or acceleration of
vesting of shares issued pursuant to stock grants, upon a change of control or
similar event. The ability to accelerate vesting may make a takeover more
expensive and thus discourage a takeover attempt.
WARRANTS
As of the date of this prospectus, warrants were outstanding for the
purchase of 2,068,665 shares of common stock. Of these warrants, warrants for
1,000,000 shares are exercisable at a price of $1.60 per share and 175,000
warrants are exercisable at a price of $4.00 per share. The remaining warrants
are exercisable at a price of $.01 per share. The warrants exercisable for $1.60
per share and the warrants exercisable for $4.00 per share become exercisable
upon completion of this offering assuming the offering price is at least $6.00
per share and remain exercisable until June 2002. The remaining warrants become
exercisable from time to time upon the satisfaction of conditions described at
page 58 of this prospectus. In addition to the warrants described above, Merrill
Lynch Capital Corporation has warrants, none of which are currently exercisable,
to acquire up to 2,419,690 shares of our common stock for no consideration. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 29 for a detailed discussion.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is BankBoston, N.A.
LISTING
We expect our shares of common stock to be quoted on the Nasdaq National
Market, subject to official notice of issuance, under the trading symbol "AETH."
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
A significant public market for the common stock may not develop or be sustained
after this offering. Future sales of substantial amounts of our common stock in
the public market, or the possibility of these sales occurring, could adversely
affect prevailing market prices for our common stock or our future ability to
raise capital through an offering of equity securities.
Upon completion of this offering, we will have outstanding 26,066,995
shares of common stock. Of these shares, the 6,000,000 shares to be sold in this
offering (6,900,000 shares if the underwriters' over-allotment option is
exercised in full) will be freely tradable in the public market without
restriction under the Securities Act, unless the shares are held by "affiliates"
of Aether, as that term is defined in Rule 144 under the Securities Act.
The remaining 20,066,995 shares outstanding upon completion of this
offering will be "restricted securities" as that term is defined under Rule 144.
We issued and sold these restricted securities in private transactions in
reliance on exemptions from registration under the Securities Act. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701 under
the Securities Act, as summarized below.
Pursuant to "lock-up" agreements, all the executive officers, directors and
stockholders of Aether, who hold all of these restricted securities, have agreed
with the underwriters not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any of these shares for a period of 180 days
from the date of this prospectus. We also have entered into an agreement with
the underwriters that we will not offer, sell or otherwise dispose of common
stock for a period of 180 days from the date of this prospectus. However,
Merrill Lynch & Co. may in its sole discretion, at any time without notice,
consent to the release all or any portion of the shares subject to lock-up
agreements.
Taking into account the lock-up agreements, and assuming Merrill Lynch &
Co. does not release stockholders from these agreements, the following shares
will be eligible for sale in the public market at the following times:
- on the date of this prospectus, the 6,000,000 shares sold in the offering
will be immediately available for sale in the public market;
- 180 days after the date of the prospectus, approximately 19,499,495
shares will be eligible for sale, 19,441,995 of which will be subject to
volume, manner of sale and other limitations under Rule 144; and
- the remaining 567,500 shares will be eligible for sale under Rule 144
from time to time upon the expiration of various one-year holding periods
after the expiration of the lock-up period applicable to those shares.
Following the expiration of the lock-up period, shares issued upon exercise
of options we granted prior to the date of this prospectus will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of these shares beginning 90 days after
the date of this prospectus by persons other than affiliates. In general, under
Rule 144, after the expiration of the lock-up period, a person who has
beneficially owned restricted securities for at least one year would be entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of:
- 1% of the then-outstanding shares of common stock; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about Aether.
Under Rule 144(k), a person who has not been our affiliate at any time during
the three months before a sale and who has beneficially owned the shares
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<PAGE> 69
proposed to be sold for at least two years can sell these shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Through September 30, 1999, we have granted options to purchase 2,549,855
shares of common stock to specified persons pursuant to the option plan of our
limited liability company. We intend to file, after the effective date of this
offering, a registration statement on Form S-8 to register approximately
5,200,000 shares of common stock reserved for issuance under the stock option
plan we intend to adopt before completion of the offering. See
"Management -- Executive Compensation" at page 50. The registration statement
will become effective automatically upon filing. Shares issued under the
foregoing plan, after the filing of a registration statement on Form S-8 may be
sold in the open market, subject, in the case of some holders, to the Rule 144
limitations applicable to affiliates, the lock-up agreements and vesting
restrictions imposed by us.
In addition, following this offering, the holders of 19,891,995 shares of
outstanding common stock will, under some circumstances, have rights to require
us to register their shares for future sale. See "Description of Capital
Stock-Registration Rights of Stockholders" at page 64.
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<PAGE> 70
UNDERWRITING
GENERAL
We intend to offer our common stock in the United States through a number
of underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancBoston
Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
U.S. Bancorp Piper Jaffray Inc. are acting as representatives of each of the
underwriters named below. Subject to the terms and conditions set forth in a
purchase agreement among our company and the underwriters, we have agreed to
sell to the underwriters, and each of the underwriters severally and not jointly
has agreed to purchase from our company, the number of shares of common stock
set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
BancBoston Robertson Stephens Inc..........................................
Donaldson, Lufkin & Jenrette Securities Corporation........................
U.S. Bancorp Piper Jaffray Inc.............................................
---------
Total....................................................... 6,000,000
=========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in the agreement, to purchase all of the
shares of common stock being sold under the terms of the purchase agreement if
any of the shares of common stock being sold under the terms of the purchase
agreement are purchased. In the event of a default by an underwriter, the
purchase agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreement may be terminated.
We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of common stock to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
change.
The following table shows the per share and the total public offering
price, the underwriting discount to be paid by us to the underwriters and the
proceeds before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public Offering Price..................................... $ $ $
Underwriting Discount..................................... $ $ $
Proceeds, before expenses, to Aether Systems.............. $ $ $
</TABLE>
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<PAGE> 71
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $1.3 million and are payable by us.
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 900,000
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of our common
stock proportionate to such underwriter's initial amount reflected in the
foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 390,000 of the shares offered by this prospectus to
be sold to some of our employees, officers, directors and their immediate family
members. The number of shares of our common stock available for sale to the
general public will be reduced to the extent that those persons purchase the
reserved shares. Any reserved shares which are not orally confirmed for purchase
within one day of the pricing of the offering will be offered by the
underwriters to the general public on the same terms as the other shares offered
by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and all of our existing
stockholders have agreed, with certain exceptions, without the prior written
consent of Merrill Lynch on behalf of the underwriters for a period of 180 days
after the date of this prospectus, not to directly or indirectly
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file a registration statement under
the Securities Act relating to any shares of our common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect our common stock to be approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"AETH."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the representatives. Among the factors to be considered in
determining the initial public offering price, in addition to prevailing market
conditions, are the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us, certain of our financial
information, the history of, and the prospects for, our company and the industry
in which we compete, and an assessment of our management, our past and present
operations, the prospects for, and timing of, future revenue of our company, the
present state of our development, and the above factors in relation to market
values and various valuation measures of other companies engaged in activities
similar to ours. There can be no assurance that an active trading market
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<PAGE> 72
will develop for our common stock or that our common stock will trade in the
public market subsequent to the offering at or above the initial public offering
price.
The underwriters have advised us that they do not expect sales of the
common stock to any accounts over which they exercise discretionary authority to
exceed 5% of the number of shares being offered in this offering.
NASD REGULATIONS
We are required, under the terms of our senior secured interim credit
facility with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch Capital Corporation to apply approximately $14.8
million from the net proceeds of the offering to repay all amounts outstanding
under this facility. Because more than ten percent of the net proceeds of the
offering may be paid to members or affiliates of members of the National
Association of Securities Dealers, Inc. participating in the offering, the
offering will be conducted in accordance with NASD Conduct Rule 2710(c)(8),
which requires that the public offering price of an equity security be no higher
than the price recommended by a qualified independent underwriter which has
participated in the preparation of the registration statement and performed its
usual standard of due diligence with respect to that registration statement.
BancBoston Robertson Stephens Inc. has agreed to act as qualified independent
underwriter with respect to the offering, and the price of the common stock will
be no higher than that recommended by BancBoston Robertson Stephens Inc.
The underwriters will not confirm sales of the common stock to any account
over which they exercise discretionary authority without the prior written
specific approval of the customer.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing our common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
our common stock in the open market to reduce the underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
our company nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
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<PAGE> 73
OTHER RELATIONSHIPS
On September 28, 1999, we entered into a senior secured interim credit
facility with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch Capital Corporation, under which we borrowed
$14.8 million to fund the purchase price for our acquisition of Mobeo and pay
fees and expenses related to the acquisition and credit facility and for general
corporate purposes. Under the terms of this senior secured interim credit
facility, we will use a portion of the net proceeds of the offering to repay all
amounts outstanding under this facility. In connection with the closing of the
credit facility, we also issued warrants to Merrill Lynch Capital Corporation.
If we repay the loan out of the proceeds of this offering, the warrants shall
become void and no shares will be issued. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 29. Merrill
Lynch received customary compensation for providing the credit facility. The
loan transaction was independent of, and not contingent upon, the completion of
the offering.
Some of the underwriters and their affiliates may engage in other
transactions with, and perform services for, our company in the ordinary course
of business and have engaged, and may in the future engage, in commercial
banking and investment banking transactions with our company, for which they may
receive customary compensation.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Aether by Wilmer, Cutler & Pickering, Washington, D.C. George P. Stamas, a
partner at Wilmer, Cutler & Pickering, is expected to be elected a director of
Aether. Mr. Stamas owns options to purchase 11,250 shares of common stock, and
he holds a non-voting interest in Telcom-ATI Investors. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Hogan
& Hartson L.L.P., Washington, D.C.
EXPERTS
The financial statements and schedule of Aether Technologies International,
L.L.C. as of December 31, 1997 and 1998, and for each of the years in three-year
period ended December 31, 1998 have been included herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Mobeo, Inc. as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998, included
in this prospectus, have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered by this prospectus. This
prospectus does not contain all of the information contained in the registration
statement, and the exhibits and schedules to the registration statement portions
of which are omitted as permitted by the rules and regulations of the SEC. For
further information with respect to us and our common stock, we refer you to the
registration statement, and the exhibits and schedules filed as part of the
registration statement. Statements in this prospectus concerning the contents of
any contract or any other document are not necessarily complete. If a contract
or document has been filed as an exhibit to the registration statement, we refer
you to that exhibit. Each statement in this prospectus relating to a contract or
document filed as an exhibit to the registration statement is qualified by the
filed exhibits.
In addition, after the offering, we will file reports, proxy statements and
other information with the SEC. You may read and copy any document we file,
including the registration statement, at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public on the SEC's website at
http://www.sec.gov.
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<PAGE> 74
INDEX TO FINANCIAL STATEMENTS
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).......................................... F-3
Statements of Operations and Other Comprehensive Loss for
the years ended December 31, 1996, 1997 and 1998, and for
the six months ended June 30, 1998 and 1999 (unaudited)... F-4
Statements of Members' Capital for the years ended December
31, 1996, 1997 and 1998, and for the six months ended June
30, 1999 (unaudited)...................................... F-5
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30,
1998 and 1999 (unaudited)................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
MOBEO, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-17
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).......................................... F-18
Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30,
1998 and June 30, 1999 (unaudited)........................ F-19
Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1996, 1997 and 1998 and for
the six months ended June 30, 1999 (unaudited)............ F-20
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30,
1998 and June 30, 1999 (unaudited)........................ F-21
Notes to Financial Statements............................... F-22
</TABLE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Unaudited Pro Forma Condensed Consolidated
Financial Information..................................... F-29
Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of June 30, 1999.......................................... F-30
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six months ended
June 30, 1999............................................. F-32
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended
December 31, 1998......................................... F-33
</TABLE>
- ---------------
* Aether Systems, Inc. was formed on September 17, 1999 and has not been
capitalized. Financial statements of Aether Systems, Inc. have not been
presented herein because Aether Systems, Inc. has no significant assets,
liabilities (actual or contingent), or operations and such financial
statements are, therefore, not material to this Registration Statement or
investors' understanding of the Offering.
F-1
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
The Members' Committee
Aether Technologies International, L.L.C.:
We have audited the accompanying balance sheets of Aether Technologies
International, L.L.C. as of December 31, 1997 and 1998, and the related
statements of operations and other comprehensive loss, members' capital and cash
flows for each of the years in the three-year period ended December 31, 1998.
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 audits.
We conducted our audits 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 audits provide 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 Aether Technologies
International, L.L.C. as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Washington, D.C.
February 25, 1999
F-2
<PAGE> 76
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $132,262 $1,755,350 $ 457,305
Short-term investments................................... 5,852 6,191,287 3,957,602
Trade accounts receivable, net of allowance for doubtful
accounts of $0, $157,061 and $72,006 at December 31,
1997 and 1998 and June 30, 1999 (unaudited),
respectively.......................................... 122,133 118,489 124,873
Inventory, net of allowance for obsolescence of $0,
$169,630 and $85,846 at December 31, 1997 and 1998 and
June 30, 1999 (unaudited), respectively............... -- 143,617 88,368
Prepaid expenses and other current assets................ 15,117 45,646 71,816
-------- ---------- ----------
Total current assets............................. 275,364 8,254,389 4,699,964
Furniture, computers, and equipment, net................... 546,848 510,437 1,166,849
-------- ---------- ----------
$822,212 $8,764,826 $5,866,813
======== ========== ==========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable......................................... $112,509 $ 195,930 $ 347,919
Accrued expenses......................................... 260,590 288,350 525,973
Accrued employee compensation and benefits............... 62,278 250,975 127,039
Deferred revenue......................................... 162,500 -- 25,000
-------- ---------- ----------
Total current liabilities........................ 597,877 735,255 1,025,931
Note payable to member..................................... 150,000 -- --
Members' capital........................................... 74,335 8,029,571 4,840,882
-------- ---------- ----------
Commitments and contingencies (notes 1, 7 and 9)
$822,212 $8,764,826 $5,866,813
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 77
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Subscriber revenue............ $ -- $ 161,400 $ 549,057 $ 124,576 $ 598,810
Engineering services
revenue..................... 1,355,011 1,624,733 963,165 436,090 188,274
----------- ----------- ----------- ----------- -----------
Total revenue....... 1,355,011 1,786,133 1,512,222 560,666 787,084
Cost of subscriber revenue.... -- 447,480 797,165 199,559 530,823
Cost of engineering services
revenue..................... 1,006,944 846,140 304,137 170,812 119,829
----------- ----------- ----------- ----------- -----------
Total cost of
revenue........... 1,006,944 1,293,620 1,101,302 370,371 650,652
----------- ----------- ----------- ----------- -----------
Gross profit........ 348,067 492,513 410,920 190,295 136,432
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development.... 160,597 733,630 1,267,320 589,148 1,002,107
General and
administrative........... 395,209 1,504,250 2,773,332 1,273,189 1,582,600
Selling and marketing....... -- 333,191 840,455 313,775 555,428
Depreciation and
amortization............. 45,245 189,160 264,685 123,820 193,523
Unit option and warrant
expense.................. -- 40,277 32,580 16,290 1,263,150
----------- ----------- ----------- ----------- -----------
601,051 2,800,508 5,178,372 2,316,222 4,596,808
----------- ----------- ----------- ----------- -----------
Operating loss...... (252,984) (2,307,995) (4,767,452) (2,125,927) (4,460,376)
Other income (expense):
Interest income (expense),
net...................... 8,491 7,788 74,180 7,035 140,753
Equity in losses of
investments.............. (172,487) (144,825) -- -- --
Realized loss on sale of
investment............... -- (302,145) -- -- --
----------- ----------- ----------- ----------- -----------
Net loss............ $ (416,980) $(2,747,177) $(4,693,272) $(2,118,892) $(4,319,623)
----------- ----------- ----------- ----------- -----------
Other comprehensive loss-
unrealized holding loss on
investments available for
sale........................ -- -- (58,030) -- (132,216)
----------- ----------- ----------- ----------- -----------
Comprehensive loss............ $ (416,980) $(2,747,177) $(4,751,302) $(2,118,892) $(4,451,839)
=========== =========== =========== =========== ===========
Pro forma statement of
operations data (unaudited):
Loss before income taxes, as
reported................. $ (416,980) $(2,747,177) $(4,693,272) $(2,118,892) $(4,319,623)
Pro forma income tax
provision (benefit)...... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Pro forma net loss.......... $ (416,980) $(2,747,177) $(4,693,272) $(2,118,892) $(4,319,623)
=========== =========== =========== =========== ===========
Pro forma net loss per
share-basic and
diluted.................. $ (0.04) $ (0.22) $ (0.29) $ (0.15) $ (0.22)
=========== =========== =========== =========== ===========
Pro forma weighted average
shares outstanding-basic
and diluted.............. 10,554,795 12,655,901 15,916,383 14,270,568 19,877,855
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 78
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
STATEMENTS OF MEMBERS' CAPITAL
<TABLE>
<CAPTION>
UNREALIZED
MEMBER MEMBERS' LOSS ON
UNITS CAPITAL INVESTMENTS TOTAL
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996.................... -- $ -- $ -- $ --
Issuance of member units in January 1996.... 3,000,000 17,846 -- 17,846
Issuance of member units in January 1996.... 1,000,000 1,000,000 -- 1,000,000
Issuance of member units in May 1996........ 500,000 500,000 -- 500,000
Net loss.................................... -- (416,980) -- (416,980)
--------- ----------- --------- -----------
Balance at December 31, 1996.................. 4,500,000 1,100,866 -- 1,100,866
Issuance of member units in February 1997... 625,000 1,000,000 -- 1,000,000
Issuance of member units in December 1997... 230,123 690,369 -- 690,369
Unit option and warrant expense............. -- 40,277 -- 40,277
Note receivable from member................. -- (10,000) -- (10,000)
Net loss.................................... -- (2,747,177) -- (2,747,177)
--------- ----------- --------- -----------
Balance at December 31, 1997.................. 5,355,123 74,335 -- 74,335
Issuance of member units in January 1998.... 401,961 1,499,314 -- 1,499,314
Issuance of warrants in June 1998........... -- 50,000 -- 50,000
Exercise of warrants in August 1998......... 5,656 56 -- 56
Conversion of note payable and issuance of
member units in August 1998.............. 57,180 252,467 -- 252,467
Issuance of member units in August 1998..... 1,131,222 5,000,000 -- 5,000,000
Issuance of member units in October 1998.... 1,000,000 6,000,000 -- 6,000,000
Unit option and warrant expense............. -- 32,580 -- 32,580
Unrealized loss on investment available for
sale..................................... -- -- (58,030) (58,030)
Note receivable from member................. -- (127,879) -- (127,879)
Net loss.................................... -- (4,693,272) -- (4,693,272)
--------- ----------- --------- -----------
Balance at December 31, 1998.................. 7,951,142 8,087,601 (58,030) 8,029,571
Unrealized loss on investment available for
sale (unaudited)......................... -- -- (132,216) (132,216)
Unit option and warrant expense
(unaudited).............................. -- 1,263,150 -- 1,263,150
Net loss (unaudited)........................ -- (4,319,623) -- (4,319,623)
--------- ----------- --------- -----------
Balance at June 30, 1999 (unaudited).......... 7,951,142 $ 5,031,128 $(190,246) $ 4,840,882
========= =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 79
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (416,980) $(2,747,177) $(4,693,272) $(2,118,892) $(4,319,623)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization................. 45,245 189,160 264,685 123,820 193,523
Provision (recovery) for doubtful accounts.... -- -- 157,061 25,394 (85,055)
Provision for inventory obsolescence.......... -- -- 169,630 -- --
Realized (gain) loss on sale of short-term
investments................................. -- -- (3,872) -- 11,882
Equity in losses of investments............... 172,487 144,825 -- -- --
Realized loss on sale of investment........... -- 302,145 -- -- --
Issuance of warrants.......................... -- -- 50,000 8,693 --
Unit option and warrant expense............... -- 40,277 32,580 16,290 1,263,150
Changes in assets and liabilities:
(Increase) decrease in trade accounts
receivable............................... (223,402) 74,812 (153,417) (48,953) 78,671
(Increase) decrease in inventory............ -- -- (313,247) -- 55,249
(Increase) decrease in prepaid expenses and
other current assets..................... (18,945) 3,828 (30,529) (8,694) (26,170)
Increase in accounts payable................ 45,149 67,360 83,421 160,854 151,989
Increase in accrued expenses and employee
compensation and benefits................ 50,246 272,622 216,457 137,349 113,687
Increase (decrease) in deferred revenue..... -- 162,500 (162,500) (162,500) 25,000
----------- ----------- ----------- ----------- -----------
Net cash used by operating activities.... (346,200) (1,489,648) (4,383,003) (1,866,639) (2,537,697)
----------- ----------- ----------- ----------- -----------
Cash flows (used) by investing activities:
Sales of short-term investments................. -- 49,977 1,295,525 (99) 7,028,317
Purchases of short-term investments............. (55,829) -- (7,535,118) -- (4,938,730)
Purchases of property and equipment............. (321,707) (441,700) (228,274) (63,444) (849,935)
Long-term investments........................... (775,000) (23,000) -- -- --
Proceeds from sale of investment in joint
venture....................................... -- 205,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash (used) provided in investing
activities............................. (1,152,536) (209,723) (6,467,867) (63,543) 1,239,652
----------- ----------- ----------- ----------- -----------
Cash flows provided by financing activities:
Issuance of member units........................ 1,500,000 1,690,369 12,501,781 1,499,315 --
Advances (repayments) from member............... 50,000 (50,000) -- -- --
Proceeds from note payable...................... -- 150,000 500,000 500,000 --
Due to related parties.......................... -- -- -- 224,371 --
Repayments on notes payable..................... -- -- (400,000) -- --
Issuance of notes receivable to member.......... -- (10,000) (127,879) -- --
Exercise of warrants............................ -- -- 56 -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities............................. 1,550,000 1,780,369 12,473,958 2,223,686 --
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 51,264 80,998 1,623,088 293,504 (1,298,045)
Cash and cash equivalents, at beginning of
period.......................................... -- 51,264 132,262 132,262 1,755,350
=========== =========== =========== =========== ===========
Cash and cash equivalents, at end of period....... $ 51,264 $ 132,262 $ 1,755,350 $ 425,766 $ 457,305
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.......... $ -- $ 3,894 $ 20,171 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
- ---------------
Supplemental disclosure of noncash investing and financing activities:
In 1996, a member contributed equipment with an historical cost basis of
$17,846 to the Company.
In 1996, the Company made a $48,000 investment in Navox, Inc. of which
$23,000 was not paid until January 1997.
In 1997, the Company made an additional $26,457 investment in Navox, Inc. by
forgiving a trade account receivable of an equal amount.
In 1998, a member converted a $250,000 promissory note payable into
membership units.
At December 31, 1998 and June 30, 1999 (unaudited), the Company incurred an
unrealized holding loss associated with its investment available for sale
totaling $58,030 and $132,216. These amounts have been reported as a
reduction in members' capital.
See accompanying notes to financial statements.
F-6
<PAGE> 80
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Aether Technologies International, L.L.C. (the Company), a Delaware limited
liability company, was originally formed as Aeros, L.L.C. pursuant to the terms
of the Limited Liability Company Agreement of Aeros, L.L.C. (the Agreement) in
January 1996. The Company changed its name to Aether Technologies International,
L.L.C. in August 1996.
Pursuant to the terms of the Agreement, no member shall be personally
liable for any debt, obligation, or liability of the Company, whether that
liability or obligation arises in contract, tort, or otherwise. Additionally,
the Agreement shall terminate on December 31, 2035 unless extended or sooner
terminated.
The Company designs, develops, sells and supports wireless data services
and systems enabling people to use wireless handheld devices for data
communications and transactions. The Company operates in a highly competitive
environment subject to rapid technological change and emergence of new
technology. Although management believes its services are transferable to
emerging technologies, rapid changes in technology could have an adverse
financial impact on the Company.
The Company expects to expand its operations through continued capital
investment in new systems and services. The Company is not currently generating
sufficient cash flows from operations to support its current operating and
capital requirements. The Company has and will continue to be dependent upon its
members and other financing sources to fund these requirements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Company derives subscriber revenue from the provision of real-time
access to information from selected financial markets integrated into existing
wireless communication platforms. Subscriber revenue consists of monthly fixed
charges for usage and equipment and is recognized as the service is provided on
a monthly basis and a one time non-refundable activation fee which is recognized
upon service activation. Direct activation costs are expensed as incurred. Also
included in subscriber revenue are market exchange fees for access to financial
information from the securities exchanges and markets, which are recognized as
the service is provided. Engineering services revenue is derived from the
provision of wireless integration consulting under time-and-materials and
fixed-fee contracts. Revenue on time-and-materials contracts is recognized as
services are performed. Revenue on fixed-fee contracts is recognized on the
percentage-of-completion method based on costs incurred in relation to total
estimated costs. Anticipated contract losses are recognized as soon as they
become known and estimable.
(b) Cost of Revenues
Cost of subscriber revenue consists primarily of airtime costs, financial
data costs, wireless handheld device costs, and securities and market exchange
fees. Cost of engineering services revenue consists of cash compensation and
related costs for engineering personnel and materials.
(c) Cash and Cash Equivalents
Cash equivalents include all highly liquid investments purchased with
original maturities of three months or less. Cash equivalents consist of
approximately $132,000, $193,000 and $299,000 in overnight repurchase agreements
and $0, $1,562,000 and $139,000 in money market accounts, at December 31, 1997
and 1998, and June 30, 1999 (unaudited) respectively.
F-7
<PAGE> 81
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(d) Short-term Investments
Short-term investments consist of highly liquid investments with original
maturities greater than three months and less than one year and those
longer-term investments that the Company expects to liquidate within twelve
months. The Company has classified its short-term investments as "available for
sale" and carries such investments at fair value. Unrealized gains (losses) are
excluded from earnings and are reported as a separate component of other
comprehensive income until realized. Realized gains and losses from the sale of
these investments are determined on a specific identification basis.
(e) Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate their fair values.
(f) Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of accounts receivable. The Company extends
credit to its customers on an unsecured basis in the normal course of business.
(g) Inventory
Inventory, net of allowance for obsolete and slow-moving inventory,
consists primarily of handheld and laptop computers, wireless modems, and
accessories and is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. The inventory of the Company is
subject to rapid technological changes which could have an adverse impact on its
realization in future periods. In addition, there are a limited number of
suppliers of the Company's inventory.
(h) Furniture, Computers and Equipment
Furniture, computers, and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets, which range from three to seven years. The costs of leasehold
improvements are capitalized and amortized using the straight-line method over
the lesser of the lease term or the estimated useful life of the asset.
(i) Investments
The Company uses the equity method of accounting for advances to and
earnings and losses of its investments.
(j) Recovery of Long-Lived Assets
The Company's policy is to review its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The Company recognizes an impairment loss when the sum
of the expected future cash flows is less than the carrying amount of the asset.
The measurement of the impairment losses to be recognized is based upon the
difference between the fair value and the carrying amount of the assets.
(k) Unit Options and Warrants
The Company accounts for equity-based compensation arrangements in
accordance with the provisions of Accounting Principle Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations, and
complies with the disclosure provisions of Statement of
F-8
<PAGE> 82
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based upon the
difference, if any, on the date of grant, between the fair value of the
Company's stock and the exercise price. All equity-based awards to non-employees
are accounted for at their fair value in accordance with SFAS No. 123.
(l) Pro Forma Statements of Operations Data and Net Loss Per Share (Unaudited)
Prior to the closing of the Company's proposed initial public offering,
each member of the Company will contribute its membership units in the Company
to Aether Systems, Inc. in exchange for 2.5 shares of common stock of Aether
Systems, Inc. Following such contribution, the Company will merge with and into
Aether Systems, Inc., as a result of which all assets and liabilities of the
Company will be transferred to Aether Systems, Inc. Aether Systems, Inc. will be
subject to Federal and state taxes at prevailing corporate rates. Accordingly,
pro forma statements of operations data is based on the assumption that the
Company's merger with and into Aether Systems, Inc., had occurred at the
beginning of each period. The Company has provided no income taxes on a pro
forma basis due to the losses incurred in all periods.
The Company computes net income (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB
98"). Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss)
per share is computed by the dividing the net income (loss) available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed
by dividing the net income (loss) for the period by the weighted average number
of common and dilutive common equivalent shares outstanding during the period.
Pro forma basic and diluted net loss per share has been calculated assuming that
the capital structure established at the date of the proposed initial public
offering was in effect during the periods presented. As the Company had a net
loss in each of the periods presented, pro forma basic and diluted net loss per
share are the same.
(m) Research and Development
Research and development costs are expensed as incurred.
(n) Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was
approximately $0, $248,000, and $504,000 for the years ended December 31, 1996,
1997 and 1998, respectively.
(o) Income Taxes
The Company has elected limited liability company status and, as such, is
not directly subject to federal and state income taxes. Instead, the members are
responsible for income taxes on their proportionate share of taxable income.
Members are also entitled to a proportionate share of tax deductions and
credits.
(p) 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 and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-9
<PAGE> 83
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(q) Other Comprehensive Loss
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which established standards for reporting and displaying
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes changes in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. Other comprehensive income refers to revenue, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive income, but excluded from net income.
During 1998 and for the six months ended June 30, 1999 (unaudited), other
comprehensive income (loss) consists of unrealized losses on investments
available for sale.
(r) Unaudited Interim Financial Information
The unaudited interim financial information as of June 30, 1999 and for the
six months ended June 30, 1998 and June 30, 1999, have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with instructions to Article 10 of Regulation S-X. In the
opinion of management, such information contains all adjustments, consisting of
only normal recurring adjustments, considered necessary for a fair presentation
of such periods. The operating results for any interim period are not
necessarily indicative of results for any future periods.
(s) Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities. The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. This
statement, as amended, is effective for all fiscal quarters beginning after June
15, 2000. The Company does not expect SFAS No. 133 to have a material affect on
its financial position or results of operations.
(3) SHORT-TERM INVESTMENTS
As of December 31, 1998, short-term available-for-sale investments
consisted of:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST HOLDING GAINS HOLDING LOSSES VALUE
---------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities......... $1,929,810 $ -- $(21,677) $1,908,133
Corporate debt securities........ 4,319,507 11,881 (48,234) 4,283,154
---------- ------- -------- ----------
$6,249,317 $11,881 $(69,911) $6,191,287
========== ======= ======== ==========
</TABLE>
Maturities of debt securities classified as available-for-sale were as
follows at December 31, 1998:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due within one year......................................... $2,124,838 $2,129,084
Due after one year through five years....................... 1,184,890 1,157,964
Due after five years through ten years...................... 1,435,695 1,412,043
Due after ten years......................................... 1,503,894 1,492,196
---------- ----------
$6,249,317 $6,191,287
========== ==========
</TABLE>
F-10
<PAGE> 84
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
As of June 30, 1999 (unaudited), short-term available-for-sale investments
consisted of:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST HOLDING GAINS HOLDING LOSSES VALUE
---------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities......... $1,770,135 $ -- $ (87,100) $1,683,035
Corporate debt securities........ 2,377,713 3,969 (107,115) 2,274,567
---------- ------ --------- ----------
$4,147,848 $3,969 $(194,215) $3,957,602
========== ====== ========= ==========
</TABLE>
Maturities of debt securities classified as available-for-sale were as
follows at June 30, 1999 (unaudited):
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due within one year......................................... $ 725,593 $ 700,563
Due after one year through five years....................... 1,904,049 1,816,065
Due after five years through ten years...................... 909,142 836,928
Due after ten years......................................... 609,064 604,046
---------- ----------
$4,147,848 $3,957,602
========== ==========
</TABLE>
(4) FURNITURE, COMPUTERS AND EQUIPMENT
Furniture, computers and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED --------------------- JUNE 30, 1999
USEFUL LIVES 1997 1998 (UNAUDITED)
------------ --------- --------- -------------
<S> <C> <C> <C> <C>
Furniture and fixtures.................. 7 Years $ 88,670 $ 102,345 $ 258,361
Computer and equipment.................. 3 Years 477,306 684,328 919,632
Software................................ 3 Years 175,000 175,000 175,000
Leasehold improvements.................. 5 Years 40,277 47,854 506,469
--------- --------- ----------
781,253 1,009,527 1,859,462
Less depreciation and amortization...... (234,405) (499,090) (692,613)
--------- --------- ----------
$ 546,848 $ 510,437 $1,166,849
========= ========= ==========
</TABLE>
(5) NOTES PAYABLE TO MEMBER
The Company had an unsecured note payable of $150,000 as of December 31,
1997 due to one of its members, Telcom Ventures LLC (Telcom Ventures). The note
carried interest at a rate of 7.5 percent and all principal and accrued interest
was due in January 1999, or earlier upon the occurrence of specified criteria.
The note payable, plus accrued interest, was repaid in 1998.
In June 1998, the Company borrowed $250,000 from one of its members,
Pyramid Ventures, Inc. (Pyramid) under a convertible promissory note. The note
was unsecured, bore interest at 8 percent per annum, and was convertible into
membership units at the option of the member. In August 1998, the member elected
to convert the note and accrued interest of $2,467 into 57,180 membership units
in accordance with its terms.
F-11
<PAGE> 85
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
In June 1998, the Company borrowed $250,000 from another one of its
members, Telcom Ventures, under a similar convertible promissory note. All
principal and accrued interest was paid by the Company in August 1998.
In connection with the convertible promissory notes, the Company granted
warrants to purchase 5,656 member units at an exercise price of $0.01 per unit
to Pyramid and Telcom Ventures (note 9). The estimated value of the warrants on
the grant date of $50,000 has been recognized in interest expense in 1998.
Pyramid exercised its warrants to purchase 5,656 member units in August 1998.
(6) MEMBERS' CAPITAL
Pursuant to the Agreement, the Company was formed with an initial
capitalization of 4,000,000 units. As of December 31, 1998, the Agreement was
modified to increase the capitalization of the Company to 10,000,000 units (note
12).
In January 1996, NexGen Technologies, L.L.C. (NexGen) contributed assets in
the wireless data field with a historical cost basis of $17,846 to the Company
in exchange for 3,000,000 units and Transettlements, Inc. (Transettlements)
contributed $1,000,000 in exchange for 1,000,000 units. In May 1996,
Transettlements contributed an additional $500,000 in exchange for an additional
500,000 units.
In February 1997, Telcom Ventures contributed $1,000,000 to the Company in
exchange for 625,000 units. In December 1997, Telcom Ventures contributed an
additional $690,369 to the Company in exchange for 230,123 units.
In January 1998, Pyramid acquired 401,961 units from the Company for total
proceeds to the Company of $1,499,314.
In August 1998, Reuters Market Clip Holdings SARL (Reuters) contributed
$5,000,000 to the Company in exchange for 1,131,222 units.
In November 1998, 3Com Corporation (3Com) contributed $6,000,000 in
exchange for 1,000,000 units.
There were, 5,355,123, 7,951,142 and 7,951,142 (unaudited) units issued and
outstanding as of December 31, 1997, 1998, and June 30, 1999 (unaudited),
respectively. An additional 685,000 units were reserved for issuance under the
Company's unit option plan as of December 31, 1998 (note 9).
(7) LEASES
The Company is obligated under three noncancelable operating leases for
office space, that expire at various dates through 2003. Future minimum lease
payments under noncancelable operating leases are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999........................................................ $163,000
2000........................................................ 154,000
2001........................................................ 164,000
2002........................................................ 163,000
2003........................................................ 167,000
--------
Total minimum lease payments................................ $811,000
========
</TABLE>
Rent expense under operating leases was approximately $49,000, $84,000, and
$91,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
F-12
<PAGE> 86
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(8) PENSION PLAN
The Company has a defined contribution plan under Section 401(k) of the
Internal Revenue Code that provides for voluntary employee contributions of 1 to
15 percent of compensation for substantially all employees. The Company does not
contribute to the plan.
(9) UNIT OPTIONS AND WARRANTS
(a) Unit Options
In 1996, the Company adopted a Unit Option Plan (the Plan). As of December
31, 1998, the Plan provides for the issuance of a maximum of 685,000 units by
the Company to its employees (note 12). Options under the Plan generally expire
after ten years and normally vest over a period of up to three years. Options
are generally granted at an exercise price equal to the fair value on the grant
date, as determined by the members.
The Company recorded unit option and warrant expense of $0, $40,277, and
$32,580 in 1996, 1997, and 1998, respectively, to reflect the difference between
the exercise price and the fair market value of the units at the date of grant
(note 12).
The Company applies APB 25 and related interpretations in accounting for
its unit option plan. Had compensation cost been recognized consistent with SFAS
123, the Company's net loss would have increased by $21,000, $24,000, and
$41,000 for 1996, 1997, and 1998, respectively.
The per share weighted-average value of unit options issued by the Company
during 1996, 1997, and 1998 was $0.17, $0.16, and $0.55, respectively, on the
date of grant using the Black-Scholes option-pricing model. These amounts were
calculated using an expected option life of 3 years and volatility of zero. In
addition, the calculations assumed a risk-free interest rate of 6.22 percent in
1996, 5.77 percent to 6.25 percent in 1997, and 4.55 percent to 5.51 percent in
1998.
A summary of the unit option activity is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
1996 1997 1998 (UNAUDITED)
--------------------- --------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF UNITS (PER UNIT) OF UNITS (PER UNIT) OF UNITS (PER UNIT) OF UNITS (PER UNIT)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.. -- -- 277,375 $1.00 400,000 $1.00 618,000 $2.12
Options granted...... 277,375 $1.00 122,625 $1.00 241,875 $3.86 158,500 $4.44
Options exercised.... -- -- -- -- -- --
----
Options canceled..... -- -- -- -- (23,875) $1.00 (4,000) $3.73
------- ----- ------- ----- ------- ----- ------- -----
Outstanding at end of
year............... 277,375 $1.00 400,000 $1.00 618,000 $2.12 772,500 $2.59
======= ===== ======= ===== ======= ===== ======= =====
Options exercisable
at year-end........ 105,000 $1.00 238,688 $1.00 396,437 $1.25 471,937 $2.34
======= ===== ======= ===== ======= ===== ======= =====
Units available for
future grant....... 67,000 12,500
======= =======
</TABLE>
At December 31, 1998, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.00-$4.42, and 7.2
years, respectively.
F-13
<PAGE> 87
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(b) Warrants
The Company granted warrants to purchase an aggregate 11,312 member units
at an exercise price of $0.01 per unit to Telcom Ventures and Pyramid, as
consideration for obtaining short-term loans. As of December 31, 1998, warrants
to purchase 5,656 member units had not been exercised (note 5).
In connection with the sale of membership units to 3Com, the Company
granted a conditional warrant to 3Com to purchase 357,466 member units at an
exercise price of $0.01 per unit. 3Com vests in 57,466 units upon completion of
a joint sales and marketing plan (note 12). 3Com vests in the remaining 300,000
warrants as follows: 150,000 warrants upon the occurrence of the Company
obtaining $6 million in engineering services revenue and 150,000 warrants upon
the Company obtaining 6,000 wireless service subscribers, all from opportunities
introduced by 3Com. If and when it becomes probable that 3Com will attain the
specified milestones necessary for the warrants to vest, the Company will begin
to record an expense reflecting the fair value of the warrant, which will be
determined in part based on the then market price of the common stock. The
Company would begin to recognize this expense based on the determination of
probability that the milestones would be achieved, continuing through the actual
vesting date. The Company would initially estimate the amount of the expense at
the time of the determination that achievement is probable, based in part on the
market price of the common stock at that time. At the time of the actual
vesting, the fair value of the warrant would be remeasured and, if different
from the value used in initially estimating the expense, the difference would be
reflected as an additional charge or credit at that time. As of December 31,
1998, the Company believes it is not yet probable that the member will attain
the specified milestones and, accordingly, no such expense has been recorded
(note 12).
(10) RELATED-PARTY TRANSACTIONS
(a) Notes Receivable from Member
As of December 31, 1997 and 1998, the Company had amounts due from a member
under short-term promissory notes of $10,000 and $137,879, respectively. The
Company classified the notes as a reduction of members' capital in the
accompanying statements of members' capital. The notes are callable by the
Company at any time and bear interest at a rate of 7.5 percent per annum.
(b) Consulting Agreements
The Company derived approximately 83 percent, 34 percent, and 39 percent of
its revenue for 1996, 1997, and 1998, respectively, from consulting arrangements
with one, one and two of its members, respectively. The Company had no trade
accounts receivable due from these members as of December 31, 1997 and 1998.
As of December 31, 1997, the Company had received an advance of $162,500
from two of its members under consulting arrangements. This amount was recorded
as deferred revenue in the accompanying 1997 balance sheet, and was subsequently
recognized as revenue in 1998, when the related consulting services were
performed.
(c) Purchases from Member
In 1998, the Company purchased approximately $560,000 of equipment and
inventory from a member.
F-14
<PAGE> 88
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(11) INVESTMENTS
In February 1996, the Company made an investment of $750,000 to acquire a
20 percent interest in Real World Solutions, Inc. (RWS), a California company,
which was in the business of developing wireless middleware. The Company
accounted for its investment in RWS under the equity method and recorded its
proportionate share of losses generated by RWS. In July 1997, the Company sold
its interest in RWS to Puma Technology, Inc. (Puma), a Delaware company for
$205,000. The Company's carrying value of the investment in RWS as of the date
of sale was approximately $507,000 resulting in a realized loss on the sale of
the investment of approximately $302,000.
Concurrently with the sale of the Company's investment in RWS to Puma, the
Company entered into an agreement with Puma for $175,000 to obtain perpetual
license rights for certain wireless middleware software. This amount has been
capitalized and is being amortized over a three-year period.
In December 1996, the Company made an investment of $48,000 in Navox, Inc.,
(Navox) a privately-held Delaware company which provides wireless communication,
location and security system development services. In June 1997, the Company
made an additional investment of $26,457 in Navox. The Company's investment
represents an approximate 5.5 percent interest in Navox, and includes
representation on Navox's board of directors. The Company accounts for its
investment in Navox under the equity method of accounting and records its
proportionate share of losses generated by Navox. The Company derived
approximately 8 percent, 50 percent and 2 percent of its revenue for 1996, 1997
and 1998, respectively, under consulting arrangements with Navox. The Company
had trade accounts receivables of approximately $82,000 and $0 due from Navox as
of December 31, 1997 and 1998, respectively. The Company does not anticipate
significant revenue from Navox in the future.
(12) SUBSEQUENT EVENTS (UNAUDITED)
(a) Unit Options and Capitalization
On May 27, 1999, the Board increased the number of units for issuance under
the Plan to 785,000 and the capitalization of the Company was increased to
11,000,000 units. On July 29, 1999, the Board further increased the number of
units for issuance under the Plan to 1,050,000. The Company recorded unit option
and warrant expense of approximately $401,000 for the six month period ended
June 30, 1999, to reflect the difference between the exercise price and the fair
market value of the units at the date of grant over the vesting period.
(b) Warrants
In June 1999, 3Com completed the joint sales and marketing plan and was
vested in 57,466 warrants (note 9). As a result, the Company recorded unit
option and warrant expense of approximately $862,000. The Company believes that
it is not yet probable that the member will attain the specified milestones
relating to the remaining 300,000 warrants and, accordingly, no expense relating
to these warrants has been recorded.
(c) Employment Agreement with Chief Executive Officer
In June 1999, the Company entered into an employment agreement with its
Chief Executive Officer ("Executive"). As part of this agreement, the Executive
was granted 350,000 unit options at an exercise price of $4.00 per unit and the
right to grant an additional 50,000 unit options at an exercise price of $4.00
per unit to other key executives. These options vest only upon completion of an
initial public offering of the Company or sale of the Company at a price greater
than $15.00 per membership unit and expire in June 2009. Upon vesting of the
options, the Company will record unit option and warrant expense equal to the
difference between the fair value of the unit and the exercise price measured at
the date of the initial public offering or sale of Company times the number of
unit options. The Company expects to record unit
F-15
<PAGE> 89
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
option and warrant expense of between $11.4 million and $13.4 million at the
date of the proposed initial public offering.
(d) OpenSky Venture
On August 9, 1999, the Company entered into a new venture with a member,
forming a new Company called OpenSky. OpenSky was formed to develop wireless
Internet access, e-mail and electronic commerce services that address
opportunities in the emerging consumer and business mass markets. The Company
contributed a perpetual, non-exclusive, non-assignable, worldwide license to
certain proprietary software in exchange for a 26% equity interest in OpenSky in
the form of 7,000,000 shares of Series A Preferred Stock and an option to
purchase an additional 3,000,000 shares of Series A Preferred Stock for an
additional $2.5 million. Upon exercising the option, the Company would increase
their ownership in OpenSky to 33%. The option to acquire these additional shares
expires at the earlier of January 31, 2000 or 15 days after the close of an
initial public offering by the Company. Additionally, the Chief Executive
Officer of Company serves as Chairman of the OpenSky board of directors. The
Company will provide engineering services to OpenSky.
(e) Acquisition of Mobeo, Inc.
On August 19, 1999, the Company entered into a purchase agreement to
acquire all the outstanding common stock of Mobeo, Inc. ("Mobeo") for an
aggregate purchase price consisting of cash of $11,857,000 which includes
estimated acquisition costs of $150,000, and 18,442 unit options with an
exercise price of $12.00 per unit valued at approximately $374,000. The
acquisition was closed on September 29, 1999. Mobeo provides employees and
customers at major banks and financial institutions with continuous pricing
information and news headlines for foreign exchange, government securities, and
commodity markets on wireless handheld devices. Additionally, the Company
entered into two-year advisory service agreements with two former owners of
Mobeo which provide for the grant of an aggregate 125,000 unit options with an
exercise price of $15.00 per unit in the Company. The Company expects to record
approximately $2,201,000 as unit option and warrant expense over the two-year
term of the agreements. The Company also issued 22,000 options at an exercise
price of $6.00 per unit and 30,000 options at an exercise price of $12.00 per
unit to employees of Mobeo. The Company expects to record approximately
$1,068,000 as unit option and warrant expense over the vesting period of the
options of two years.
(f) Interim Credit Facilities
In September 1999, the Company entered into a $17,000,000 senior secured
credit facility with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated. The credit facility is for a one year term, with the possibility
of extension for an additional one year term and accrues interest at a variable
rate. The credit facility is collateralized by substantially all of the assets
of the Company and contains certain financial covenants. In connection with the
credit facility, the Company granted warrants to Merrill Lynch Capital
Corporation to purchase up to 967,876 of the member units in the Company which
become exercisable for no consideration if the Company does not repay the credit
facility in a timely manner.
On September 28, 1999, the Company borrowed approximately $14,830,000 under
the credit facility. The Company used approximately $11,700,000 of the proceeds
to purchase Mobeo, approximately $830,000 to pay fees and expenses related to
the credit facility, and approximately $2,300,000 for general corporate
purposes.
(g) Incentive Plans
In September 1999, the Company adopted the 1999 Equity Incentive Plan and a
Senior Bonus Plan.
F-16
<PAGE> 90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Mobeo, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows, present
fairly, in all material respects, the financial position of Mobeo, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 audits. We conducted our
audits in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
McLean, Virginia
March 10, 1999
F-17
<PAGE> 91
MOBEO, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 125,446 $ 193,913 $ 558,732
Accounts receivable, net............................... 278,620 293,895 276,263
Prepaid expenses and other............................. 37,032 28,724 23,464
Income tax refund receivable........................... 20,756 20,756 --
Deferred income tax.................................... 142,365 186,549 465,417
---------- ---------- ----------
Total current assets........................... 604,219 723,837 1,323,876
Property and equipment, net.............................. 321,876 405,148 335,703
Patents, net............................................. -- 30,307 29,411
Deposits................................................. 24,475 23,609 27,609
Deferred income tax...................................... 71,476 14,542 17,938
---------- ---------- ----------
Total assets................................... $1,022,046 $1,197,443 $1,734,537
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 989,316 $1,130,184 $ 406,550
Accrued expenses....................................... 275,541 390,172 811,431
Income tax payable..................................... -- -- 54,154
Capital lease obligations.............................. 12,159 -- --
Deferred revenue....................................... 71,220 104,170 826,788
---------- ---------- ----------
Total current liabilities...................... 1,348,236 1,624,526 2,098,923
---------- ---------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock; no par value, 10,000 shares authorized,
1,171 shares issued and outstanding................. -- -- --
Additional paid-in capital............................. 172,625 172,625 172,625
Accumulated deficit.................................... (455,795) (556,688) (537,011)
Notes receivable-related parties....................... (43,020) (43,020) --
---------- ---------- ----------
Total stockholders' deficit.................... (326,190) (427,083) (364,386)
---------- ---------- ----------
Total liabilities and stockholders' deficit.... $1,022,046 $1,197,443 $1,734,537
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-18
<PAGE> 92
MOBEO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service revenue.................... $6,484,864 $7,088,993 $8,580,786 $4,462,584 $5,047,195
Cost of services................... 2,947,185 3,148,051 3,040,743 1,518,457 1,757,188
---------- ---------- ---------- ---------- ----------
Gross profit....................... 3,537,679 3,940,942 5,540,043 2,944,127 3,290,007
---------- ---------- ---------- ---------- ----------
Selling, general and administrative
expenses:
Sales and marketing.............. 1,641,502 1,812,696 2,302,360 1,037,897 1,250,230
General and administrative....... 1,149,218 1,937,829 2,706,544 1,208,391 1,451,285
Research and development......... 94,609 174,867 496,570 168,355 427,210
Depreciation and amortization.... 355,276 464,419 112,903 48,237 60,405
---------- ---------- ---------- ---------- ----------
3,240,605 4,389,811 5,618,377 2,462,880 3,189,130
---------- ---------- ---------- ---------- ----------
Other expense (income):
Interest expense (income)........ -- 2,628 (4,969) (2,489) (15,559)
Loss on disposal of assets....... -- 148,000 14,778 1,187 50,569
---------- ---------- ---------- ---------- ----------
Total other expenses
(income)............... -- 150,628 9,809 (1,302) 35,010
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes............................ 297,074 (599,497) (88,143) 482,549 65,867
Provision for (benefit from) income
taxes............................ 120,150 (211,841) 12,750 203,679 46,190
---------- ---------- ---------- ---------- ----------
Net income (loss).................. $ 176,924 $ (387,656) $ (100,893) $ 278,870 $ 19,677
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-19
<PAGE> 93
MOBEO, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE
PAID-IN ACCUMULATED RELATED
SHARES AMOUNT CAPITAL DEFICIT PARTIES TOTAL
------ ------ ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............... 1,171 $-- $172,625 $(245,063) $ -- $ (72,438)
Issuance of notes receivable-related
parties................................ -- -- -- -- (171,250) (171,250)
Net income............................... -- -- -- 176,924 -- 176,924
----- --- -------- --------- --------- ---------
Balance at December 31, 1996............... 1,171 $-- $172,625 $ (68,139) $(171,250) $ (66,764)
Issuance of notes receivable-related
parties................................ -- -- -- -- (65,603) (65,603)
Collections on notes receivable-related
parties................................ -- -- -- -- 71,250 71,250
Allowance for notes receivable-related
parties................................ -- -- -- -- 122,583 122,583
Net loss................................. -- -- -- (387,656) -- (387,656)
----- --- -------- --------- --------- ---------
Balance at December 31, 1997............... 1,171 -- 172,625 (455,795) (43,020) (326,190)
Net loss................................. -- -- -- (100,893) -- (100,893)
----- --- -------- --------- --------- ---------
Balance at December 31, 1998............... 1,171 $-- $172,625 $(556,688) $ (43,020) $(427,083)
----- --- -------- --------- --------- ---------
Allowance for notes receivable-related
parties................................ -- -- -- -- 43,020 43,020
Net income............................... -- -- -- 19,677 -- 19,677
----- --- -------- --------- --------- ---------
Balance at June 30, 1999 (unaudited)....... 1,171 $-- $172,625 $(537,011) $ -- $(364,386)
===== === ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-20
<PAGE> 94
MOBEO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ 176,924 $(387,656) $(100,893) $ 278,870 $ 19,677
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Bad debt expense..................... 23,976 62,956 51,620 -- 23,697
Deferred income taxes................ 62,200 (211,841) 12,750 -- (282,264)
Depreciation and amortization........ 355,276 464,419 112,903 48,237 60,405
Loss on disposal of assets........... 57,472 148,009 14,778 -- 50,569
Allowance for notes
receivable-related parties........ -- 122,583 -- -- 43,020
Changes in assets and liabilities:
Accounts receivable............... 74,989 (181,580) (66,895) (125,801) (6,065)
Income tax refund receivable...... 6,414 (16,259) -- (33,770) 20,756
Restricted cash................... 15,000 -- -- -- --
Deposits, prepaid expenses and
other........................... 24,353 (30,990) 9,174 (16,822) 1,260
Accounts payable and accrued
expenses........................ (66,407) 179,434 255,499 (346,545) (302,375)
Income tax payable................ (60,940) (49,560) -- -- 54,154
Deferred revenue.................. (127,115) 4,114 32,950 315,986 722,618
--------- --------- --------- --------- ---------
Net cash provided by operating
activities.................... 542,142 103,629 321,886 120,155 405,452
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment..... (347,526) (68,558) (210,804) (106,020) (40,633)
Payments to acquire patent............. -- -- (30,456) -- --
Advances of notes receivable-related
parties.............................. (171,250) (78,103) -- -- --
Collections on notes receivable-related
parties.............................. -- 83,750 -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities.................... (518,776) (62,911) (241,260) (106,020) (40,633)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Principal payments on capital leases... (42,268) (48,414) (12,159) (12,159) --
--------- --------- --------- --------- ---------
Net cash used in financing
activities.................... (42,268) (48,414) (12,159) (12,159) --
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents............................ (18,902) (7,696) 68,467 1,976 364,819
Cash and cash equivalents at beginning of
the year............................... 152,044 133,142 125,446 125,446 193,913
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of the
year................................... $ 133,142 $ 125,446 $ 193,913 $ 127,422 $ 558,732
========= ========= ========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid for interest................. $ 20,360 $ 13,428 $ 1,378 $ 1,378 $ 152
========= ========= ========= ========= =========
Cash paid for income taxes............. $ 112,476 $ 65,819 $ -- $ -- $ --
========= ========= ========= ========= =========
Supplemental disclosure of non-cash
investing and financing activities:
Allowance for notes
receivable-related parties........ $ -- $ 122,583 $ -- $ -- $ 43,020
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-21
<PAGE> 95
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED
1. ORGANIZATION
DocuPro, Inc. was incorporated in the District of Columbia and commenced
operations in January 1989. In June 1998, DocuPro reincorporated in the state of
Delaware and in September 1998 changed its name to Mobeo, Inc. (the Company).
The Company is an electronic publisher specializing in providing financial
information over wireless networks. The Company's F/X Alert(R) service provides
major banks and financial institutions with continuous pricing and news
headlines of foreign exchange, government securities, and commodity markets on a
palm sized data terminal. The Company's PocketFutures(R) product provides the
individual futures trader with continuous pricing and news headlines of future
markets. Subsequent to December 31, 1998, the Company launched the Mobeo1.0(R)
product, designed for the individual equities trader.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited interim financial statements
The unaudited balance sheet as of June 30, 1999, the unaudited statements
of operations and cash flows for the six months ended June 30, 1998 and 1999 and
the statement of changes in stockholders equity (deficit) for the six months
ended June 30, 1999, have been prepared in accordance with generally accepted
accounting principles for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles. In the opinion
of management, all adjustments (consisting of only normal remaining accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1999 are not necessarily indicative of
results that may be expected for the year ending December 31, 1999.
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents
All highly liquid instruments with original maturities of three months or
less are considered to be cash equivalents. The Company invests its cash
balances in repurchase accounts with a large financial institution.
Revenue recognition
The Company enters into one year service contracts for providing financial
information over wireless networks. For substantially all its customers, the
Company bills on a monthly cycle and recognizes revenue monthly. Certain of the
Company's customers are billed in advance annually with revenue deferred and
recognized on a monthly basis over the life of the agreement. Non-refundable
activation fees are billed and recognized at the time of initial subscription.
F-22
<PAGE> 96
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
Concentration of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains its cash and cash equivalents in
bank accounts which, at times, may exceed federally insured limits. The Company
has not experienced any losses in such bank accounts. The Company believes it is
not exposed to any significant credit risk on cash and cash equivalents. The
Company regularly monitors all outstanding accounts receivable balances to
assess collectibility. Accounts receivable as of December 31, 1997 and 1998 and
June 30, 1999, are net of an allowance for doubtful accounts of $30,000, $32,700
and $32,700 (unaudited), respectively. The accounts receivable, which are not
collateralized, are due mainly from banks and financial institutions.
Although the Company has sales on a national basis, 75% of their revenue
were derived in the New York City area. No individual accounts receivable were
greater than 10% of total accounts receivable as of December 31, 1997 and 1998,
and June 30, 1999 (unaudited).
Property and equipment
Property and equipment are recorded at cost. Property and equipment under
capital leases are recorded at the lower of their fair market value or the
present value of future minimum lease payments determined at the inception of
the lease.
Amortization of leasehold improvements is recorded on a straight-line basis
over the shorter of the estimated useful life of the improvement or the term of
the lease. Amortization of property and equipment under capital leases is
recorded on a straight-line basis over the lease term. Property and equipment
under capital leases for which title passes to the Company at the conclusion of
the lease term is amortized on a straight line basis over the estimated useful
life of the related asset. Depreciation of other property and equipment is
recorded on a straight-line basis over expected useful lives of 3 to 10 years.
When property and equipment is retired or otherwise disposed, the related
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income. Costs associated with repairs and
maintenance are expensed as incurred.
Patents
The cost of acquiring patents was approximately $30,000 as of December 31,
1998. Upon approval, the patents are to be amortized on a straight-line basis
over their estimated economic life, which is less than the statutory life of the
patents.
Income taxes
The Company accounts for income taxes in accordance with the liability
method. Deferred tax assets and liabilities are recognized for tax consequences
in future years for differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
provision for income taxes includes the current tax provision and the change
during the year in the net deferred tax liability or asset. A valuation
allowance is provided to reduce the deferred tax asset to a level which, more
likely than not, will be realized.
F-23
<PAGE> 97
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
Recent accounting pronouncements
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB No.
133 an amendment of FASB Statement No. 133, which defers the effective date of
SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company will adopt SFAS No. 133 for the year ending December 31, 2000.
SFAS No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. Currently, the Company does not utilize
derivative instruments, therefore the adoption of SFAS No. 133 is not expected
to have a significant effect on the Company's results of operations or its
financial position.
Reclassifications
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
System hardware and software....................... $ 278,202 $ 196,038 $ 205,195
Office furniture and equipment..................... 216,158 454,817 381,889
Leasehold improvements............................. 44,106 44,106 44,106
--------- --------- ---------
538,466 694,961 631,190
Less accumulated depreciation and amortization..... (216,590) (289,813) (295,487)
--------- --------- ---------
$ 321,876 $ 405,148 $ 335,703
========= ========= =========
</TABLE>
During 1997, the Company leased certain office equipment under capital
leases. As of December 31, 1997, the cost of the office equipment related to
these capital leases was $44,035, and the accumulated amortization was $27,684.
These leases were fully amortized in 1998. The Company did not enter into any
new capital leases in 1998 or as of June 30, 1999.
During 1997, the Company reassessed the useful life of their pagers, which
are provided to customers upon activation of services at no fee. Since the
Company's service agreements are for a one-year period and subject to
cancellation, non-payment and non-return risk, management changed the estimated
useful life from three years to immediate expense recognition when the pagers
are acquired. As a result, the remaining net book value of pagers acquired prior
to 1997 of $228,000 was charged to depreciation expense for the year ended
December 31, 1997, while pagers purchased for the years ended December 31, 1997
and 1998 totaled $138,000 and $281,000, respectively, and 114,000 (unaudited)
and $165,000 (unaudited) for the six months ended June 30, 1998 and 1999
respectively, were expensed as incurred.
During 1997 and 1998, the Company disposed of certain system hardware and
software equipment with an original cost of $435,000 and $54,310, respectively,
and accumulated amortization of $287,000 and
F-24
<PAGE> 98
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
$35,675, respectively. The resulting losses on disposals are included as a
separate component on the statement of operations.
4. INCOME TAXES
The components of the provision for (benefit from) income taxes consisted
of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------- -------------------
1997 1998 1998 1999
--------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current provision (benefit):
Federal..................................... $ -- $ -- $199,383 $263,090
State and local............................. -- -- 49,536 65,364
--------- ------- -------- --------
-- -- 248,919 328,454
--------- ------- -------- --------
Deferred provision (benefit):
Federal..................................... (169,073) 10,200 (39,388) (255,775)
State and local............................. (42,768) 2,550 (5,582) (26,489)
--------- ------- -------- --------
(211,841) 12,750 (45,240) (282,264)
--------- ------- -------- --------
Total provision for (benefit from) income
taxes..................................... $(211,841) $12,750 $203,679 $ 46,190
========= ======= ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of the
Company's net deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred tax assets
Allowance for doubtful accounts...................... $ 64,848 $ 65,995 $ 79,718
Deferred revenue..................................... 30,264 36,611 325,122
Other................................................ 10,714 3,163 4,564
Net operating loss carryback......................... 36,539 80,780 56,013
-------- -------- --------
Total current deferred tax assets.................... $142,365 $186,549 $465,417
-------- -------- --------
Noncurrent deferred tax assets
Accumulated depreciation............................. 71,476 14,542 17,938
-------- -------- --------
Total noncurrent deferred tax assets................. 71,476 14,542 17,938
-------- -------- --------
Total deferred tax assets............................ $213,841 $201,091 $483,355
======== ======== ========
</TABLE>
The change in the deferred tax assets in 1998 primarily represents the
effect of changes in the amounts of temporary differences. The Company's 1998
provision for income taxes differs from the provision that would have resulted
from applying the federal statutory rates to net loss before taxes due to
permanent differences primarily attributable to deductible business meals and
entertainment and other permanent differences of 48%. The Company believes it is
more likely than not to realize the net deferred
F-25
<PAGE> 99
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
tax asset and accordingly no valuation allowance has been provided as of
December 31, 1997 and 1998. This conclusion is based on, (i) the Company's
ability to carryback net operating losses to offset taxable income from previous
years and (ii) the Company's expected future profitability.
5. PROFIT SHARING AND 401(K) PLANS
The Company has a discretionary profit sharing plan and a self-directed
401(k) plan which cover all employees employed more than six months. Employees
become fully vested after three years of service. Employer contributions to the
profit sharing plan were $102,172 and $94,664 and contributions to the 401(k)
plan were $44,040 and $60,490 for the years ended December 31, 1997 and 1998,
respectively.
6. STOCK-BASED COMPENSATION
On April 30, 1998, the Company adopted the Omnibus Stock Option Plan (the
Plan), under which incentive stock options, non-qualified stock options, stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards or any combination thereof may be granted to the Company's
employees and certain other persons in accordance with the Plan. The Board of
Directors, which administers the Plan, determines the number of options granted,
the vesting period and the exercise price. The Board of Directors may terminate
the Plan at any time. Options granted under the Plan generally vest over a four
year period and expire ten years after the date of grant. Prior to the common
stock becoming publicly traded, the Company retains the right of first offer to
buy the employees' shares at the offer price. At December 31, 1998, 48 shares
were reserved for issuance under the Plan.
As of December 31, 1998 and June 30, 1999, a total of 35 and 45 incentive
stock options respectively, had been granted to employees, at an exercise price
of $3,250 per share. The exercise price was established by the Board of
Directors.
<TABLE>
<CAPTION>
WEIGHTED
INCENTIVE AVERAGE
STOCK EXERCISE
OPTIONS PRICE PRICE
--------- ------ --------
<S> <C> <C> <C>
Options outstanding at December 31, 1997.................. -- -- --
Options granted........................................... 35 $3,250 $3,250
Options exercised......................................... -- --
Options canceled.......................................... -- -- --
--- ------ ------
Options outstanding at December 31, 1998.................. 35 $3,250 $3,250
--- ------ ------
Options granted........................................... 10 $3,250 $3,250
Options exercised......................................... -- --
Options canceled.......................................... -- -- --
--- ------ ------
Options outstanding at June 30, 1999 (unaudited).......... 45 $3,250 $3,250
=== ====== ======
</TABLE>
At December 31, 1998 and June 30, 1999, no options were exercisable. The
weighted-average fair value of options granted during the year ended December
31, 1998 and the six months ended June 30, 1999 was $1,125 and $1,262
(unaudited) per share respectively, based on the Black-Scholes option pricing
model.
The Company measures compensation expense for its employee stock-based
compensation using the intrinsic value method and provides pro forma disclosures
of net loss as if the fair value method had been applied in measuring
compensation expense. Under the intrinsic value method of accounting for stock-
based compensation, when the exercise price of options granted to employees is
less than the fair value of
F-26
<PAGE> 100
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
the underlying stock on the date of grant, compensation expense is to be
recognized over the applicable vesting period. No options granted through
December 31, 1998 and June 30, 1999, respectively, were less than fair value of
the underlying stock. Had the fair value method been applied, the Company's net
loss at December 31, 1998 would have been increased and the Company's net income
at June 30, 1999 would have been decreased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1998
---------------------------
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net loss as reported........................................ $(100,893) $ 19,677
Pro forma net loss.......................................... $(103,313) $ 18,275
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the year ended December 31, 1998 and the six
months ended June 30, 1999: dividend yield of 0%, expected volatility of 0%,
risk-free interest rate of 5.07% and 5.53%, respectively, and expected term of 9
years.
As of December 31, 1998 and June 30, 1999, the weighted average remaining
contractual life of the options is 9.7 years and 9.9 years, respectively.
7. COMMITMENTS AND CONTINGENCIES
Data services and royalty arrangement
In January 1995, the Company entered into a multi-year distribution
agreement with a provider of financial information for transmission to the
Company's customers. During 1998, the Company entered into two additional
multi-year agreements with new suppliers. Under these agreements, the Company
pays a monthly royalty to the data suppliers based on the number of wireless
units receiving data. Included in accounts payable at December 31, 1997 and 1998
and June 30, 1999, is $566,685, $200,000 and $68,923 (unaudited), respectively,
related to purchases of financial information for transmission to customers.
Paging services
In April 1994, the Company entered into a multi-year nonexclusive national
reseller agreement with a wireless messaging service provider. During 1998, the
Company entered into two additional multi-year nonexclusive national reseller
agreements with new suppliers. Under the terms of these agreements, the Company
is purchasing paging services from these providers for the purpose of marketing
and reselling such services to end users.
Vulnerabilities due to certain concentrations
The Company obtains all of its data from three sources and resells
primarily through one wireless messaging provider. Although there are a limited
number of data sources and messaging service providers, management believes that
they could obtain such services on terms comparable to the Company's existing
agreements. A change in suppliers, however, could cause delays in service, which
would adversely affect the Company's financial position, results of operations
and cash flows.
F-27
<PAGE> 101
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED-CONTINUED
Leases
The Company leases office space in Bethesda, Maryland for its corporate
headquarters under an agreement which expires in December 1999. In addition, the
Company maintains facilities in New York, N.Y., under an agreement which expires
in 1999. The lease agreement for its corporate headquarters contains provisions
allowing free rent periods and periodic rate increases during the lease terms.
The Company recognizes rent expense under operating leases ratably over the
lease terms. As of December 31, 1997 and 1998 and June 30, 1999, the Company had
$13,000 and $7,000 and $3,000 (unaudited), respectively, recorded as deferred
rent included in accrued expenses. Total rent expense was $238,783 and $239,936
for the years ended December 31, 1997 and 1998, respectively and $112,312
(unaudited) and $142,894 (unaudited) for the six months ended June 30, 1998 and
1999, respectively.
In addition to office space, the Company leases an automobile under a 36
month operating lease, which expires in 1999.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
1999.............................................. $201,695
</TABLE>
8. RELATED PARTY TRANSACTIONS
In 1996, the Company advanced $171,250 to certain employees and
shareholders under notes receivable arrangements. During 1997, the Company
advanced an additional $78,103 under these arrangements, and received $83,750 in
collections on the notes receivables. There is no planned settlement of the
notes receivable balance in the foreseeable future, therefore the Company has
classified the amounts as a component of stockholders' equity (deficit). Under
these arrangements, the Company provided an allowance for doubtful accounts of
$122,583 to reflect the net realizable value of the notes at December 31, 1997
and 1998, respectively.
9. SUBSEQUENT EVENTS (UNAUDITED)
On July 14, 1999, the Company executed a Promissory Note with one of its
employees for $20,000. The Promissory Note bears interest at 7%. Principal and
interest payments are due beginning on September 1, 2002 with the final payment
due on August 1, 2006.
On June 30, 1999, the Company accrued $154,000 for a pending legal claim
filed against the Company. This accrual relates to a dispute between the Company
and its former data transmitter vendor. The vendor maintains that the Company is
liable for late fee charges, exchange fees and lost pager fees that the Company
previously deducted from a royalty payment made to the vendor. The Company is
investigating the charges and believes the charges are without merit. No
assurance can be given, however, that this matter will be resolved in the
Company's favor.
F-28
<PAGE> 102
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial information has
been prepared by Aether's management and gives effect to the Mobeo acquisition.
The pro forma condensed consolidated statements of operations for the year ended
December 31, 1998 and for the six months ended June 30, 1999 have been prepared
to give effect to the Mobeo acquisition as if it had occurred on January 1,
1998. The pro forma net loss per share information gives effect to our
conversion from a limited liability company to a corporation. The pro forma
condensed consolidated balance sheet as of June 30, 1999 gives effect to the
Mobeo acquisition as if it had occurred on June 30, 1999. The pro forma
consolidated as adjusted balance sheet information gives effect to the Mobeo
acquisition and the conversion to a corporation plus the offering of shares
covered by this prospectus and the application of the net proceeds.
The pro forma adjustments, which are based upon available information and
certain assumptions that Aether believes are reasonable in the circumstances,
are applied to the historical financial statements of Aether and Mobeo. The
Mobeo acquisition is accounted for under the purchase method of accounting.
Aether's allocation of the purchase price is based upon the estimated fair value
of assets acquired and liabilities assumed in accordance with Accounting
Principles Board Opinion No. 16. The purchase price allocations reflected in the
accompanying unaudited pro forma condensed consolidated financial statements may
be different from the final allocation of the purchase price and any such
differences may be material.
The accompanying unaudited pro forma condensed consolidated financial
information should be read in conjunction with the historical financial
statements and the notes thereto for both Aether and Mobeo, which are included
elsewhere in this prospectus. The unaudited pro forma condensed consolidated
financial statements are provided for informational purposes only and do not
purport to represent what Aether's financial position or results of operations
would actually have been had the Mobeo acquisition occurred on such dates or to
project Aether's results of operations or financial position for any future
period.
F-29
<PAGE> 103
AETHER SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------------------------------------------------------------------
PRO FORMA
ACQUISITION PRO FORMA PRO FORMA
HISTORICAL HISTORICAL AND FINANCING PRO FORMA OFFERING CONSOLIDATED
AETHER MOBEO ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AS ADJUSTED
---------- ---------- ------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 457,305 $ 558,732 $ 2,143,000(A) $ 3,159,037 $ 61,990,000(B) $65,149,037
Short-term investments........ 3,957,602 -- 3,957,602 3,957,602
Accounts receivable, net...... 124,873 276,263 401,136 401,136
Inventory, net................ 88,368 -- 88,368 88,368
Prepaid and other current
assets...................... 71,816 23,464 95,280 95,280
Deferred income tax........... -- 465,417 (465,417)(A) -- --
---------- ---------- ----------- ----------- ------------ -----------
Total current assets........ 4,699,964 1,323,876 1,677,583 7,701,423 61,990,000 69,691,423
Property and equipment, net of
accumulated depreciation...... 1,166,849 335,703 1,502,552 1,502,552
Other assets.................... -- 27,609 27,609 27,609
Deferred income taxes........... -- 17,938 (17,938)(A) --
Deferred financing fees......... -- -- 830,000(A) 830,000 (830,000)(B) --
Other intangibles............... -- -- 6,600,000(A) 6,600,000 6,600,000
Goodwill........................ -- 29,411 9,064,587(A) 9,093,998 9,093,998
---------- ---------- ----------- ----------- ------------ -----------
Total assets................ $5,866,813 $1,734,537 $18,154,232 $25,755,582 $ 61,160,000 $86,915,582
========== ========== =========== =========== ============ ===========
LIABILITIES, MEMBERS' CAPITAL AND STOCKHOLDERS' EQUITY
Current liabilities :
Accounts payable.............. $ 347,919 $ 406,550 $ 754,469 $ $ 754,469
Accrued expenses.............. 653,012 811,431 1,464,443 1,464,443
Income tax payable............ -- 54,154 (54,154)(A) -- --
Deferred revenue.............. 25,000 826,788 851,788 851,788
Note payable.................. -- -- 14,830,000(A) 14,830,000 (14,830,000)(B) --
---------- ---------- ----------- ----------- ------------ -----------
Total current liabilities... 1,025,931 2,098,923 14,775,846(A) 17,900,700 (14,830,000) 3,070,700
Deferred tax liability.......... -- -- 2,640,000(A) 2,640,000 2,640,000
Members' capital................ 4,840,882 -- 374,000(A) 5,214,882 (5,214,882)(B) --
Stockholders' equity (deficit):
Preferred stock, $0.01 par
value; 1,000,000 shares
authorized; 0 shares issued
and outstanding (pro forma
consolidated, as
adjusted)................... -- -- -- --
Common stock, $0.01 par value;
50,000,000 shares
authorized, 26,066,995
shares issued and
outstanding (pro forma
consolidated, as
adjusted)................... -- -- -- 260,670(B) 260,670
Additional paid-in-capital.... -- 172,625 (172,625)(A) -- 81,774,212(B) 81,774,212
Accumulated deficit........... -- (537,011) 537,011(A) -- (830,000)(B) (830,000)
---------- ---------- ----------- ----------- ------------ -----------
Total stockholders' equity
(deficit)................. -- (364,386) 364,386 -- 81,204,882 81,204,882
---------- ---------- ----------- ----------- ------------ -----------
Total liabilities, members'
capital and stockholders'
equity.................... $5,866,813 $1,734,537 $18,154,232 $25,755,582 $ 61,160,000 $86,915,582
========== ========== =========== =========== ============ ===========
</TABLE>
- ---------------
(A) The Mobeo acquisition is to be accounted for as a purchase pursuant to
Accounting Principles Board Opinion No. 16. Under such purchase accounting
principles, Mobeo's assets acquired and liabilities assumed are required to
be adjusted to their estimated fair values at the date of acquisition. The
difference between the purchase cost and the fair value of Mobeo's net
tangible and identifiable intangible assets is goodwill.
The purchase price for Mobeo is as follows:
<TABLE>
<S> <C>
Cash consideration................................ $11,707,000
Units options..................................... 374,000*
Estimated costs and expenses...................... 150,000
-----------
Total purchase price.......................... $12,231,000
===========
</TABLE>
- ---------------
* Represents the value of 18,442 fully vested unit options at an exercise price
of $12.00 per unit granted to three employees of Mobeo in exchange for their
fully vested options in Mobeo. The value of the unit options was calculated
using the Black-Scholes option pricing model with the following assumptions:
fair market value of $30.00 per unit, expected dividend yield 0 percent,
risk-free interest rate of 4.0 percent, expected life of two years and
volatility of 70 percent.
F-30
<PAGE> 104
The Company financed the acquisition of Mobeo with a short-term note
payable. The Company expects to repay this short-term note payable with the
proceeds from its initial public offering.
The allocation of the purchase price to the fair value of the assets
acquired and liabilities assumed is preliminary and will be finalized following
completion of a full valuation of acquired assets and liabilities of Mobeo. The
preliminary allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Current assets.................................... $ 858,459
Fixed assets, net................................. 335,703
Other assets...................................... 27,609
Current liabilities............................... (2,044,769)
Deferred tax liability............................ (2,640,000)***
In-place workforce................................ 200,000**
Acquired subscribers.............................. 6,400,000**
Goodwill.......................................... 9,093,998
-----------
Total purchase cost........................... $12,231,000
===========
</TABLE>
** The Company plans to amortize identifiable intangible assets and goodwill as
follows:
In-place workforce 3
years
Acquired subscribers 5
years
Goodwill 7 years
*** The Company has recorded a deferred tax liability of $2,640,000 due to the
fact that the identifiable intangible assets, in-place workforce and
acquired subscribers have no basis for tax reporting purposes. The deferred
tax liability was determined using a tax rate of 40 percent.
Also reflects the borrowing of $14,830,000 under a short-term not payable
for: related payment of deferred financing fees of $830,000, payment of
acquisition costs of $11,857,000, and cash of $2,143,000 for general
corporate purposes.
(B) Reflects the sale of 6,000,000 shares of Common Stock in the Offering at an
assumed initial public offering price of $14.00 per share, after deducting
underwriting discounts and commissions and offering expenses, the repayment
of the short-term note payable, and the merger of the Company with and into
Aether Systems, Inc. at an assumed conversion of one unit to 2.5 shares of
Common Stock. Also includes recording of expense for deferred financing fees
of $830,000 associated with repayment of short-term note payable.
F-31
<PAGE> 105
AETHER SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------
PRO FORMA
HISTORICAL HISTORICAL ACQUISITION PRO FORMA
AETHER MOBEO ADJUSTMENTS CONSOLIDATED
----------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Subscriber revenue........................................ $ 598,810 $5,047,195 $ 5,646,005
Engineering service revenue............................... 188,274 -- 188,274
----------- ---------- -----------
Total revenue........................................... 787,084 5,047,195 5,834,279
----------- ---------- -----------
Cost of subscriber revenue.................................. 530,823 1,757,188 2,288,011
Cost of engineering service revenue......................... 119,829 -- 119,829
----------- ---------- -----------
Total cost of revenue................................... 650,652 1,757,188 2,407,840
----------- ---------- -----------
Gross profit....................................... 136,432 3,290,007 3,426,439
----------- ----------
Operating expenses:
Research and development.................................. 1,002,107 427,210 1,429,317
General and administrative................................ 1,582,600 1,451,285 $ (516,289)(B) 2,517,596
Selling and marketing..................................... 555,428 1,250,230 (446,405)(B) 1,359,253
Depreciation and amortization............................. 193,523 60,405 1,322,905(A) 1,576,833
Unit option and warrant expense........................... 1,263,150 -- 817,250(C) 2,080,400
----------- ---------- ----------- -----------
Total operating expenses................................ 4,596,808 3,189,130 1,177,461 8,963,399
----------- ---------- ----------- -----------
Operating (loss) income..................................... (4,460,376) 100,877 (1,177,461) (5,536,960)
Interest income, net(E)..................................... 140,753 15,559 156,312
Other income (loss)......................................... -- (50,569) (50,569)
----------- ---------- ----------- -----------
(Loss) income before income tax provision................... (4,319,623) 65,867 (1,177,461) (5,431,217)
46,190 (46,190)(D)
Income tax provision........................................ -- -- (269,933)(D) (269,933)
----------- ---------- ----------- -----------
Net (loss) income........................................... $(4,319,623) $ 19,677 $ (861,338) $(5,161,284)
=========== ========== =========== ===========
Pro forma net (loss) income per share-basic and
diluted(F)................................................ $ (0.20)
===========
Pro forma weighted average shares used in per share
computations: basic and diluted(F)........................ 25,877,855
===========
</TABLE>
- ---------------
(A) Reflects the amortization of intangible assets, including goodwill over
three to seven year periods. The estimated period of amortization of
identifiable intangible assets and goodwill is based on preliminary
allocations of values to identifiable intangible assets of Mobeo. The
Company does not believe that the final allocation of values to intangible
assets and goodwill of Mobeo will result in amortization expense materially
different from the adjustment above.
(B) Reflects the elimination of compensation expense associated with certain
management employees of Mobeo who will cease employment following the
acquisition and will not be replaced.
(C) Reflects the amortization of the estimated fair value of 125,000 unit
options with an exercise price of $15.00 per unit granted to two former
owners of Mobeo for consulting services over the two year lives of the
consulting agreements. The value of the unit options was calculated using
the Black-Scholes option pricing model with the following assumptions: fair
market value of $30.00 per unit, expected dividend yield of 0 percent,
risk-free interest rates of 4.0 percent, expected life of eighteen months
and volatility of 70 percent. Also reflects amortization of the fair value
of 30,000 unit options at an exercise price of $12.00 per unit and 22,000
unit options at an exercise price of $6.00 per unit granted to employees of
Mobeo. The value of the unit options was calculated using the difference
between the exercise price and the fair market value of $30.00 per unit.
(D) Reflects the elimination of the current income tax provision due to the
Company's net operating losses and the recording of a deferred tax benefit
related to the amortization of identifiable intangibles.
(E) The pro forma condensed consolidated statement of operations does not
reflect any interest expense associated with the short-term debt expected to
be used to finance the acquisition of Mobeo as the Company expects to repay
such short-term debt with the proceeds from its initial public offering.
(F) The pro forma loss per share information gives effect to the merger of the
Company with and into Aether Systems, Inc. in which each unit will be
exchanged for 2.5 shares of common stock in Aether Systems, Inc., and the
issuance of 6,000,000 shares of common stock at a price of $14.00 per share.
F-32
<PAGE> 106
AETHER SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
PRO FORMA
HISTORICAL HISTORICAL ACQUISITION PRO FORMA
AETHER MOBEO ADJUSTMENTS CONSOLIDATED
----------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Subscriber revenue..................................... $ 549,057 $8,580,786 $ 9,129,843
Engineering service revenue............................ 963,165 -- 963,165
----------- ---------- -----------
Total revenue........................................ 1,512,222 8,580,786 10,093,008
----------- ---------- -----------
Cost of subscriber revenue............................... 797,165 3,040,743 3,837,908
Cost of engineering service revenue...................... 304,137 -- 304,137
----------- ---------- -----------
Total cost of revenue................................ 1,101,302 3,040,743 4,142,045
----------- ---------- -----------
Gross profit.................................... 410,920 5,540,043 5,950,963
----------- ---------- -----------
Operating expenses:
Research and development............................... 1,267,320 496,570 1,763,890
General and administrative............................. 2,773,332 2,706,544 $ (889,761)(B) 4,590,115
Selling and marketing.................................. 840,455 2,302,360 (789,524)(B) 2,353,291
Depreciation and amortization.......................... 264,685 112,903 2,645,810(A) 3,023,398
Unit option and warrant expense........................ 32,580 -- 1,634,500(C) 1,667,080
----------- ---------- ----------- -----------
Total operating expenses............................. 5,178,372 5,618,377 2,601,025 13,397,774
----------- ---------- ----------- -----------
Operating loss........................................... (4,767,452) (78,334) (2,601,025) (7,446,811)
Interest income, net(E).................................. 74,180 4,969 79,149
Loss on disposal of assets............................... -- (14,778) (14,778)
----------- ---------- ----------- -----------
Loss before income tax provision......................... (4,693,272) (88,143) (2,601,025) (7,382,440)
Income tax provision..................................... -- 12,750 (12,750)(D) --
(539,866)(D) (539,866)(D)
----------- ---------- ----------- -----------
Net loss................................................. $(4,693,272) $ (100,893) $(2,048,409) $(6,842,574)
=========== ========== =========== ===========
Pro forma net loss per share basic and diluted (F)....... $ (0.31)
===========
Pro forma weighted average shares used in per share
computations: basic and diluted(F)..................... 21,916,383
===========
</TABLE>
- ---------------
(A) Reflects the amortization of intangible assets, including goodwill over
three to seven year periods. The estimated period of amortization of
identifiable intangible assets and goodwill is based on preliminary
allocations of values to identifiable intangible assets of Mobeo. The
Company does not believe that the final allocation of values to intangibles
and goodwill of Mobeo will result in amortization expense materially
different from the adjustment above.
(B) Reflects the elimination of compensation expense associated with certain
management employees of Mobeo who will cease employment following the
acquisition and will not be replaced.
(C) Reflects the amortization of the estimated fair value of 125,000 unit
options at an exercise price of $15.00 per unit granted to former owners of
Mobeo for consulting services over the two year lives of the consulting
agreements. The value of the unit options was calculated using the
Black-Scholes option pricing model with the following assumptions: fair
market value of $30.00 per unit, expected dividend yield of 0 percent,
risk-free interest rate of 4.0, expected life of eighteen months and
volatility of 70 percent. Also reflects amortization of the fair value of
30,000 unit options at an exercise price of $12.00 per unit and 22,000 unit
options at an exercise price of $6.00 per unit granted to employees of
Mobeo. The value of the unit options was calculated using the difference
between the exercise price and the fair market value of $30.00 per unit.
(D) Reflects the elimination of the current income tax provision due to the
Company's net operating losses and the recording of deferred tax benefit
related to the amortization of identifiable intangibles.
(E) The pro forma condensed consolidated statement of operations does not
reflect any interest expense associated with the short-term debt expected to
be used to finance the acquisition of Mobeo as the Company expects to repay
such short-term debt with the proceeds from its initial public offering.
(F) The pro forma loss per share information gives effect to the merger of the
Company with and into Aether Systems, Inc. in which each unit will be
exchanged for 2.5 shares of common stock in Aether Systems, Inc., and the
issuance of 6,000,000 shares of common stock at a price of $14.00 per share.
F-33
<PAGE> 107
[DESCRIPTION OF INSIDE BACK COVER:]
The inside back cover includes the Aether logo and the words "Bringing
wireless data to the enterprise."
<PAGE> 108
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
6,000,000 SHARES
[AETHER LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 109
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by Aether Systems, Inc. ("Aether" or "Aether
Systems") in connection with the distribution of the securities being
registered, other than underwriting discounts and commission, are as follows:
<TABLE>
<CAPTION>
AMOUNT(1)
----------
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 31,171
NASD Filing Fee............................................. 8,000
Nasdaq National Market Listing Fee.......................... 10,000
Accounting Fees and Expenses................................ 400,000
Blue Sky Fees and Expenses.................................. 10,000
Legal Fees and Expenses..................................... 500,000
Transfer Agent and Registrar Fees and Expenses.............. 25,000
Printing and Engraving Expenses............................. 250,000
Director and Officer Liability Insurance (2)................ 56,000
Miscellaneous Fees and Expenses............................. 9,829
----------
Total............................................. $1,300,000
==========
</TABLE>
- ---------------
(1) All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
(2) Represents premiums paid by Aether on policies that insure Aether' directors
and officers against certain liabilities they may incur in connection with
the registration, offering and sale of the securities described herein.
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate law of the State of Delaware,
Aether Systems has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Aether Systems'
bylaws (Exhibit 3.2 hereto) also provide for mandatory indemnification of its
directors and executive officers, and permissive indemnification of its
employees and agents, to the fullest extent permissible under Delaware law.
Aether's certificate of incorporation (Exhibit 3.1 hereto) provides that
the liability of its directors for monetary damages shall be eliminated to the
fullest extent permissible under Delaware law. Pursuant to Delaware law, this
includes elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to Aether and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to Aether, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Prior to the effective date of the Registration Statement, Aether will have
entered into agreements with its directors and certain of its executive officers
that require Aether to indemnify such persons against
II-1
<PAGE> 110
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of Aether or any of its affiliated enterprises, provided such person
acted in good father and in a manner such person reasonably believed to be in or
not opposed to the best interests of Aether and, with respect to any criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The indemnification agreements also set forth certain procedures that will apply
in the event of a claim for indemnification thereunder.
Aether intends to obtain in conjunction with the effectiveness of the
Registration Statement a policy of directors' and officers' liability insurance
that insures Aether's directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of Aether and its
officers and directors for certain liabilities arising under the Securities Act
or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception, the registrant's predecessor, Aether Technologies
International, L.L.C. ("Aether LLC") has issued and sold unregistered securities
in the transactions described below.
1) In January 1996, NexGen Technologies, L.L.C. contributed assets in the
wireless data field to Aether LLC in exchange for 3,000,000 units and
Transettlements, Inc. contributed $1,000,000 in cash in exchange for 1,000,000
units. On May 21, 1996, Transettlements contributed an additional $500,000 in
exchange for an additional 500,000 units.
2) In February 1997, a subsidiary of Telcom Ventures, L.L.C. acquired
290,000 units from Transettlements and contributed $1,000,000 to Aether LLC in
exchange for 625,000 units. In December 1997, Telcom Ventures and its subsidiary
contributed an additional $690,369 to Aether LLC in exchange for an additional
230,123 units.
3) In January 1998, Pyramid Ventures, Inc., a subsidiary of Bankers Trust
Corporation, acquired 333,333 units at $3.00 per unit and 401,961 units at $3.73
per unit for total proceeds to Aether LLC of approximately $2.5 million.
In June 1998, Telcom Ventures and Pyramid each loaned us $250,000. The
notes accrued interest at 8% per year and were due on demand with a stated
maturity date of the earlier of December 31, 1998 or the closing of an
anticipated private placement of units. The notes were convertible into units at
the option of the holder at the rate of $250,000 divided by the per unit price
to be paid in the anticipated private placements. In connection with the
issuance of these notes, we also issued 5,656 warrants with an exercise price of
$0.01 per unit to each of Telcom Ventures and Pyramid. Pyramid converted its
$250,000 loan plus accrued interest in August 1998 into 57,180 units at a per
unit price of $4.42 and exercised its warrant and acquired 5,656 units. In
August 1998, we repaid the amount owed Telcom Ventures, including $2,520 in
interest. Telcom Ventures exercised its warrant and received 5,656 units in
August 1999.
4) In August 1998, Reuters MarketClip Holdings Sarl received 1,131,222
units in exchange for $4,735,020 in cash and forgiveness of $530,980 Aether LLC
owed Reuters for hardware and other inventory, offset by $266,000 Reuters owed
us under a license agreement we previously entered into with Reuters relating to
sales of MarketClip, and related fees.
5) In October 1998, 3Com Corporation contributed $6,000,000, in exchange
for 1,000,000 units. At the same time Aether LLC issued 3Com a conditional
warrant to purchase 357,466 units exercisable at $0.01 per unit if the
milestones described below are achieved before October 29, 2001. 3Com achieved
the first milestone entitling it to exercise 57,466 units as a result of having
completed a joint sales and marketing plan. 3Com may exercise an additional
150,000 units when Aether LLC receives revenue of $6 million in engineering
services revenue from business opportunities introduced by 3Com. 3Com may
II-2
<PAGE> 111
exercise an additional 150,000 units if Aether LLC attains 6,000 wireless
service subscribers as a result of business opportunities introduced to us by
3Com. 3Com has not attained either of these last two milestones and has not
exercised any of its warrants.
6) Aether LLC from time to time has granted options or warrants to acquire
units to employees and members of the managing board. The following table sets
forth certain information regarding such grants:
<TABLE>
<CAPTION>
RANGE OF
NO. OF UNITS EXERCISE PRICES
------------ ---------------
<S> <C>
1996 277,375 $1.00
1997 122,625 $1.00
1998 241,875 $3.73-$4.42
1999 945,942 $4.42-$20.00
</TABLE>
8) Prior to the closing of this offering, each member of Aether LLC will
contribute its membership units in Aether LLC to Aether Systems, Inc. in
exchange for two and one-half shares of common stock of Aether Systems, Inc.
Following such contribution of membership units, Aether LLC will merge with and
into Aether Systems, Inc., as a result of which all of the assets and
liabilities of Aether LLC will be transferred to Aether Systems, Inc. In
connection with this merger, each option and warrant to acquire a membership
unit in Aether LLC will be exchanged for an option or warrant, as the case may
be, to purchase 2.5 shares of common stock of Aether Systems, Inc.
7) On June 30, 1999, Mr. Ein exercised an option for 40,000 units
(equivalent to 100,000 shares) at an exercise price of $.40 per unit. On
September 8, 1999, Mr. Beese exercised an option for 30,000 units (equivalent to
75,000 shares) at an exercise price of $.40 per unit.
The sale and issuance of securities in the transactions described above
were exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act or Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering, where the purchasers
were sophisticated investors who represented their intention to acquire
securities for investment only and not with a view to distribution and received
or had access to adequate information about the Aether LLC.
No underwriters were employed in any of the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits
The exhibit index is incorporated by reference.
Financial Statement Schedules
None.
Schedules other than those listed above have been omitted since they are
not required or are not applicable or the required information is shown in the
financial statements or related notes. Columns omitted from schedules filed have
been omitted since the information is not applicable.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, 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 Act and is, therefore, unenforceable.
II-3
<PAGE> 112
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 of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such 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 Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Owings Mills, State of Maryland on the 1st day of
October, 1999.
Aether Systems, Inc.
By: /s/ DAVID S. OROS
----------------------------------
David S. Oros
President and Chief Executive
Officer and Chairman
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID S. OROS President, Chief Executive Officer October 1, 1999
- ----------------------------------------------------- and Chairman
David S. Oros
/s/ DAVID C. REYMANN Chief Financial Officer (Principal October 1, 1999
- ----------------------------------------------------- Financial and Accounting Officer)
David C. Reymann
*By: /s/ DAVID S. OROS
- -----------------------------------------------------
David S. Oros
Attorney-in-fact
</TABLE>
II-5
<PAGE> 114
SCHEDULE II
VALUATION OF QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS OF YEAR
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Provision for doubtful accounts and sales
returns........................................ $ -- $ -- $ -- $ --
Provision for inventory obsolescence............. -- -- -- --
1997
Provision for doubtful accounts and sales
returns........................................ -- -- -- --
Provision for inventory obsolescence............. -- -- -- --
1998
Provision for doubtful accounts and sales
returns........................................ -- 157,061 -- 157,061
Provision for inventory obsolescence............. -- 169,630 -- 169,630
</TABLE>
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*2.1 -- Agreement of Merger, dated , 1999, between
Aether Systems LLC, and Aether Systems, Inc.
2.2 -- Stock Purchase Agreement by and among Aether Technologies
International, L.L.C., Mobeo, Inc. and Perter Kibler,
Winston Barrett and Edward Spear dated as of August 19,
1999.
*3.1 -- certificate of incorporation
*3.2 -- bylaws
*4.1 -- Specimen Certificate for Aether Systems Common Stock
*5.1 -- Opinion of Wilmer, Cutler & Pickering as to the legality
of the shares of common Stock being registered
**10.1 -- Amended and Restated License, Marketing and Distribution
Agreement between Reuters America, Inc. and Aether
Technologies International, L.L.C. dated August 11, 1998.
**10.2 -- Contract Between Discover Brokerage Direct, Inc. and
Aether Technologies International, L.L.C. dated August 5,
1999.
**10.3 -- Options Price Reporting Authority Vendor Agreement
between Aether Technologies and the American Stock
Exchange, Inc. dated June 3, 1997.
**10.4 -- Agreement between Aether Technologies International,
L.L.C. and New York Stock Exchange dated July 19, 1999.
**10.5 -- Vendor Agreement by and between Aether Technologies
International, L.L.C. and the Nasdaq Stock Market, Inc.
dated October 4, 1996.
**10.6 -- Dow Jones Indexes Enterprise Distribution Agreement dated
April 23, 1999.
**10.7 -- Employment Agreement between Aether Technologies
International, L.L.C. and David Oros dated July 7, 1999.
**10.8 -- Employment Agreement between Aether Technologies
International, L.L.C. and David Reymann dated May 18,
1999.
**10.9 -- Series A Preferred Stock Purchase Agreement dated as of
August 9, 1999.
**10.10 -- Investors' Rights Agreement by and among AirWeb
Corporation and each of the holder of the Series A
Preferred Stock listed in Schedule A and Patrick McVeigh,
Barak Berkowitz, Michael Bolbec and Andrew Simms dated
August 9, 1999.
**10.11 -- Right of First Refusal and Co-Sale Agreement by and among
AirWeb Corporation, Inc., and those holders of the Common
Stock identified in Schedule A and B dated August 9,
1999.
**10.12 -- Voting Agreement by and among the holders of Common Stock
set forth in Schedule A and Purchase of the Series A
Preferred Stock dated August 9, 1999.
**10.13 -- Aether-OpenSky Side Letter regarding development and
resale services dated August 9, 1999.
**10.14 -- Software License Agreement by and between Aether
Technologies International, L.L.C. and AirWeb Corporation
dated August 9, 1999.
**10.15 -- AirWeb Corporation Warrant to Purchase 3,000,000 Shares
of Series A Preferred Stock dated August 9, 1999.
10.16 -- Strategic License Agreement between Aether Technologies
International, L.L.C. and Riverbed Technologies, Inc.
dated as of June 15, 1999.
10.17 -- Consulting Agreement between Aether Technologies, L.L.C.
and Orbcomm Global, L.P. dated as of October 26, 1998.
10.18 -- Credit Agreement dated as of September 28, 1999 among
Merrill Lynch & Co. and the leaders named therein.
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.19 -- Aether Systems, Inc. 1999 Equity Incentive Plan effective
as of October 1, 1999
10.20 -- Aether Systems, Inc. Senior Bonus Plan effective as of
September 29, 1999
*10.21 -- Form of Registration Rights Agreement
*11.1 -- Statement regarding computation of per share earnings.
21.1 -- Subsidiaries of Aether Systems
23.1 -- Consent of KPMG LLP
23.2 -- Consent of PricewaterhouseCoopers LLP
*23.3 -- Consent of Wilmer, Cutler & Pickering, included in
Exhibit 5.1
**23.4 -- Consent of J. Carter Beese, Jr.
**23.5 -- Consent of Frank A. Bonsal, Jr.
**23.6 -- Consent of Mark D. Ein
**23.7 -- Consent of Rahul C. Prakash
**23.8 -- Consent of Janice M. Roberts
**23.9 -- Consent of Dr. Rajendra Singh
**23.10 -- Consent of Devin N. Wenig
**23.11 -- Consent of Thomas E. Wheeler
**23.12 -- Consent of George P. Stamas
23.13 -- Consent of the Yankee Group
**24.1 -- Power of Attorney, included on the signature page hereof
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 2.2
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
MOBEO, INC.
AND
PETER KIBLER,
WINSTON BARRETT AND
EDWARD SPEAR
DATED AS OF AUGUST 19, 1999
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TABLE OF CONTENTS
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1. STOCK PURCHASE AND RELATED MATTERS................................................... 1
1.1 Transfer of Stock............................................................. 1
1.2 Purchase Price................................................................ 1
l.3 Accounting Terms.............................................................. 3
1.4 Effective Date................................................................ 3
2. CLOSING.............................................................................. 3
2.1 Location and Date............................................................. 3
2.2 Deliveries.................................................................... 3
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
AND THE COMPANY............................................................... 4
3.1 Due Organization.............................................................. 4
3.2 Authorization; Validity....................................................... 4
3.3 No Conflicts.................................................................. 4
3.4 Capital Stock of the Company.................................................. 5
3.5 Transactions in Capital Stock................................................. 5
3.6 Absence of Claims Against Company............................................. 6
3.7 Subsidiaries and Stock........................................................ 6
3.8 Complete Copies of Materials.................................................. 6
3.9 Company Financial Condition................................................... 6
3.10 Financial Statements.......................................................... 6
3.11 Liabilities and Obligations................................................... 6
3.12 Books and Records............................................................. 7
3.13 Bank Accounts; Powers of Attorney............................................. 7
3.14 Accounts and Notes Receivable................................................. 7
3.15 Permits....................................................................... 8
3.16 Real Property................................................................. 8
3.17 Personal Property............................................................. 9
3.18 Intellectual Property........................................................ 10
3.19 Material Contracts and Commitments........................................... 11
3.20 Government Contracts......................................................... 12
3.21 Insurance.................................................................... 12
3.22 Environmental Matters........................................................ 13
3.23 Year 2000 Compliance......................................................... 14
3.24 Benefit Plans and Employee Matters........................................... 14
3.25 Taxes........................................................................ 18
3.26 Conformity with Law; Litigation.............................................. 20
3.27 Relations with Governments................................................... 21
3.28 Absence of Changes........................................................... 21
3.29 Disclosure................................................................... 23
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3.30 Broker....................................................................... 23
4. REPRESENTATIONS OF PURCHASER........................................................ 23
4.1 Due Organization............................................................. 23
4.2 Authorization; Validity of Obligations....................................... 23
4.3 No Conflicts................................................................. 23
4.4 Broker....................................................................... 24
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.................................... 24
5.1 Representations and Warranties; Performance of Obligations................... 24
5.2 No Litigation................................................................ 24
5.3 Opinion of Counsel........................................................... 25
5.4 Consents and Approvals....................................................... 25
5.5 Charter Documents............................................................ 25
5.6 Employment Agreement......................................................... 25
5.7 Advisory Services Agreements; Confidentiality Agreements..................... 25
5.8 Closing Deliveries........................................................... 25
5.9 Reserved..................................................................... 25
5.10 Financing.................................................................... 25
5.11 Repayment of all Indebtedness................................................ 26
5.12 Reserved..................................................................... 26
5.13 Options...................................................................... 26
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.............................................................. 26
6.1 Representations and Warranties; Performance of Obligations................... 26
6.2 No Litigation................................................................ 26
6.3 Consents and Approvals....................................................... 27
7. CERTAIN COVENANTS................................................................... 27
7.1 Notification of Certain Matters.............................................. 27
7.2 Unpaid Taxes................................................................. 27
7.3 Tax Returns.................................................................. 27
7.4 Cooperation on Tax Matters................................................... 27
7.5 Certain Taxes................................................................ 28
7.6 Payment of Indebtedness...................................................... 28
7.7 No Negotiation............................................................... 28
7.8 Operation of the Company..................................................... 28
7.9 Access to Information........................................................ 29
7.10 FIRPTA Certification......................................................... 29
7.11 Employment Agreement and Advisory Agreements................................. 29
7.12 Broker's Fees................................................................ 30
7.13 Other Documents.............................................................. 30
7.14 Settlement................................................................... 30
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8. INDEMNIFICATION..................................................................... 30
8.1 General Indemnification by the Stockholders.................................. 30
8.2 Limitation and Expiration.................................................... 31
8.3 Indemnification Procedures................................................... 32
8.4 Survival of Representations Warranties and Covenants......................... 34
8.5 Remedies Cumulative. ........................................................ 34
8.6 Tax Contests................................................................. 34
9. NONCOMPETITION AND CONFIDENTIALITY.................................................. 35
9.1 Employment Agreement; Advisory Agreements.................................... 35
10. GENERAL............................................................................. 35
10.1 Successors and Assigns....................................................... 35
10.2 Entire Agreement............................................................. 35
10.3 Counterparts................................................................. 36
10.4 Termination.................................................................. 36
10.5 Expenses..................................................................... 37
10.6 Specific Performance; Remedies............................................... 37
10.7 Notices...................................................................... 37
10.8 Governing Law................................................................ 38
10.9 Severability................................................................. 38
10.10 Absence of Third Party Beneficiary Rights.................................... 38
10.11 Amendment; Waiver............................................................ 39
10.12 Operation of the Company..................................................... 39
10.13 Arbitration.................................................................. 39
10.14 Mutual Drafting.............................................................. 40
10.15 Further Representations...................................................... 40
10.16 Further Assurances........................................................... 40
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Schedules:
1.2(a)(ii) Reasons for Refunding $200,000
3.1(a) Jurisdictions in which Authorized or Qualified to do Business
3.1(b) List of Directors and Officers
3.4 Ownership Percentages
3.5 Options
3.10 Financial Statements
3.11 Liabilities and Obligations
3.13 Bank Accounts; Powers of Attorney
3.16(b) Real Property Description
3.16(c) Real Property Disclosure
3.17(a) Personal Property
3.18(a) Registered and Unregistered Marks
3.18(b) Patents and Copyrights
3.18(c) Other Rights
3.18(d) Intellectual Property Obligations
3.19(a) Significant Customers and Significant Suppliers
3.19(b) Material Contracts
3.19(c) Canceled Contracts
3.19(d) Third Party Consents
3.21 Insurance
3.24(b) Company Plans and Company Benefit Arrangements
3.24(c)(vi) Acceleration
3.24(d) Workers' Compensation Claims
3.24(e) Key Employees
3.24(f) At Will Employees
3.25(c) Assets
3.26(b) Litigation
3.28 Absence of Changes
3.30 Broker's Fees
Exhibits:
Exhibit 5.3 Form of Legal Opinion
Exhibits 5.6 Form of Employment Agreement
Exhibits 5.7 Form of Advisory Services Agreement
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INDEX OF DEFINED TERMS
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AAA.........................................................................................37
Accounts Receivable..........................................................................6
Advisory Services Agreement.................................................................25
Advisory Services Agreements ...............................................................25
Aether Indemnified Parties..................................................................30
Aether Indemnified Party....................................................................30
Agreement....................................................................................1
Arbitrator..................................................................................38
Audited Financials...........................................................................5
Balance Sheet Date...........................................................................5
Benefit Arrangement.........................................................................13
Benefit Liabilities.........................................................................16
Benefit Plan................................................................................14
Charter Documents............................................................................3
Claim.......................................................................................32
Claim Notice................................................................................32
Closing......................................................................................2
Closing Date.................................................................................2
Closing Payment..............................................................................2
COBRA.......................................................................................16
Company......................................................................................1
Company Benefit Arrangement.................................................................14
Company Financial Statements.................................................................5
Company Hazardous Materials Activities......................................................13
Company Intellectual Property...............................................................10
Company Plan................................................................................14
Company's knowledge..........................................................................3
Copyright...................................................................................10
Damages.....................................................................................30
Decision....................................................................................38
Disputes....................................................................................37
Effective Date ..............................................................................2
Employee Options............................................................................29
Employment Agreement........................................................................25
Employment Agreements.......................................................................25
Environmental Permits.......................................................................13
ERISA.......................................................................................14
ERISA Affiliate.............................................................................14
GAAP.........................................................................................2
Hazardous Material..........................................................................12
HSR Act.....................................................................................24
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Indemnification Threshold...................................................................31
Indemnifying Party..........................................................................32
Intellectual Property.......................................................................10
Interim Balance Sheet........................................................................5
Interim Financials...........................................................................5
IPO.........................................................................................29
IRS.........................................................................................15
Laws.........................................................................................4
Leases.......................................................................................8
Lien.........................................................................................1
Mark.........................................................................................9
Material Contracts..........................................................................11
Multiemployer Plan..........................................................................14
Notice Period...............................................................................33
Options.....................................................................................29
Other Rights................................................................................10
Owned Real Property..........................................................................7
Patent......................................................................................10
Pending Claims..............................................................................32
Pension Plan................................................................................14
Permits......................................................................................7
PTO..........................................................................................9
Purchase Price...............................................................................1
Purchaser....................................................................................1
Purchaser's Advisors........................................................................29
Qualified Plan..............................................................................14
Real Property................................................................................7
Related Party Agreements....................................................................11
Rules.......................................................................................37
Sellers' Releases............................................................................2
Shares.......................................................................................1
Significant Customers.......................................................................11
Significant Suppliers.......................................................................11
Stockholders.................................................................................1
Tangible Assets..............................................................................7
Tax.........................................................................................18
Tax Return..................................................................................18
Taxes.......................................................................................18
Third Party Consents........................................................................12
Third Party Intellectual Property...........................................................10
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 19th day of August, 1999, by and among Aether Technologies International,
L.L.C., a Delaware limited liability company (the "Purchaser"), Mobeo, Inc. a
Delaware corporation (the "Company"), and Peter Kibler, Winston Barrett and
Edward Spear (each a "Stockholder" and collectively, the "Stockholders"). The
Company and the Stockholders are referred to collectively as the "Sellers."
RECITALS
A. The Stockholders are the owners of all of the issued and outstanding
shares (the "Shares") of the capital stock of the Company.
B. The Stockholders desire to sell to Purchaser, and Purchaser desires
to purchase from the Stockholders, the Shares pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. STOCK PURCHASE AND RELATED MATTERS
1.1 TRANSFER OF STOCK. Upon the terms and subject to the conditions
hereof, at the Closing (as defined in Section 2.1), Purchaser will purchase from
the Stockholders, and the Stockholders will sell, transfer and deliver to
Purchaser, all of the Shares free and clear of all Liens (defined below) in
consideration of payment of the Purchase Price specified in Section 1.2. For the
purposes of this Agreement, "Lien" means any security interest, pledge,
encumbrance, lien (statutory or otherwise), charge, security agreement, option,
right of first refusal, preemptive right, restriction on transfer (other than
restrictions on transfer imposed by applicable securities laws) or preferential
arrangement of any kind or nature whatsoever.
1.2 PURCHASE PRICE.
(a) Closing Payment. For purposes of this Agreement, the
"Purchase Price" shall be Twelve Million One Hundred Eighty Thousand Dollars
($12,180,000), less the Adjustment Amount, if any, as calculated in Section
1.2(b), payable as set forth below:
(i) Fifty Thousand Dollars ($50,000) payable to the
Stockholders and previously paid to the Company on July 13, 1999, which will be
non-refundable and will be credited toward the Purchase Price;
(ii) If the Closing fails to occur by the forty-fifth (45)
day after the Effective Date and such failure to close is caused by, and within
the control of Purchaser, Purchaser will pay Two Hundred Thousand Dollars
($200,000) to the Sellers, which will be non-refundable and will be credited
toward the Purchase Price, provided, however, that Purchaser will not be
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obligated to make such payment if this Agreement has been terminated by
Purchaser for any of the reasons set forth in Schedule 1.2(a)(ii); and
(iii) A payment (the "Closing Payment") equal to the
difference between (A) the Purchase Price and (B) the sum of (x) all amounts
previously paid by Purchasers to Sellers under this Section 1.2, plus (y) the
broker's fees and commissions required under the agreement described in Schedule
3.30. The Closing Payment shall be paid on the Closing Date by wire transfer of
immediately available funds to an account designated by Sellers.
(b) Purchase Price Adjustment. The "Adjustment Amount" (which
will be expressed as a positive amount) will be equal to the amount, if any, by
which the total stockholders' deficit set forth in the Company's audited
financial statements for the year ended December 31, 1998 (the "Target Amount")
increases as of the Closing Date, determined in accordance with GAAP (as defined
in Section 1.3) as set forth on Section 1.2(c) below (the "Closing Amount");
provided, however, that any amounts paid pursuant to the agreement between the
Company and Metrocall, Inc., dated April 30, 1999, shall not be included in
determining the Closing Amount. The Adjustment Amount shall be zero if the
deficit between the Target Amount and the Closing Amount remains the same or
decreases (including without limitation if the stockholders' deficit becomes
positive stockholders' equity).
(c) Adjustment Procedures.
(i) Purchaser will prepare consolidated financial
statements ("Closing Financial Statements") of the Company as of the Closing
Date and for the period from the date of the Balance Sheet through the Closing
Date, including a computation of consolidated stockholders' equity (or deficit,
as applicable) as of the Closing Date. Purchaser will deliver the Closing
Financial Statements to Sellers within ninety (90) days after the Closing Date.
If within thirty (30) days following delivery of the Closing Financial
Statements, Sellers have not given Purchaser notice of its objection to the
Closing Financial Statements (such notice must contain a statement of the basis
of Sellers' objection), then the consolidated stockholders' equity (or deficit,
as applicable) reflected in the Closing Financial Statements will be used in
computing the Adjustment Amount. If Sellers give such notice of objection, then
the issues in dispute will be submitted to the Washington D.C. office of Arthur
Andersen LLP, certified public accountants (the "Accountants"), for resolution.
If issues in dispute are submitted to the Accountants for resolution, (i) each
party will furnish to the Accountants such workpapers and other documents and
information relating to the disputed issues as the Accountants may request and
are available to that party (or its independent public accountants), and will be
afforded the opportunity to present to the Accountants any material relating to
the determination and to discuss the determination with the Accountants; (ii)
the determination by the Accountants, as set forth in a notice delivered to both
parties by the Accountants, will be binding and conclusive on the parties; and
(iii) Purchaser and Sellers will each bear 50% of the fees of the Accountants
for such determination.
(d) On the tenth (10th) business day following the final determination
of the Adjustment Amount (the "Adjustment Payment Date"), Sellers shall pay the
Adjustment Amount, if any, by wire
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transfer to an account designated by Purchaser. Payments must be made in
immediately available funds in U.S. dollars.
l.3 ACCOUNTING TERMS. Except as otherwise expressly provided herein
or in the Schedules hereto, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles ("GAAP"), consistently
applied.
1.4 EFFECTIVE DATE. This Agreement shall be effective as of the date
of its execution (the "Effective Date"). The representations and warranties of
the parties set forth in Sections 3 and 4 hereof shall be effective as of the
Effective Date and as of the Closing Date.
2. CLOSING
2.1 LOCATION AND DATE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at 10:00 a.m.,
local time, at the offices of Wilmer, Cutler & Pickering, 2445 M Street, N.W.,
Washington, D.C. 20037, on a date selected by the Purchaser within forty-five
(45) days from the Effective Date; provided that all conditions to Closing shall
have been satisfied or waived, or at such other time and date as Purchaser, the
Company and the Stockholders may mutually agree, which date shall be referred to
as the "Closing Date."
2.2 DELIVERIES. The Stockholders shall deliver to Purchaser the
following at the Closing: (a) stock certificates representing the Shares,
accompanied by stock powers duly executed in blank or duly executed instruments
of transfer and any other documents that are necessary to transfer to Purchaser
good and marketable title to the Shares free and clear of all Liens; (b)
resignations of directors of the Company as Purchaser may request; (c) a
certification satisfying the requirements of sections 1.897-2(h) and
1.1445-2(c)(3) of the Treasury Regulations that the Shares are not United States
real property interests, together with a properly executed notice suitable for
filing with the Internal Revenue Service as described in section 1.897-2(h)(2)
of the Treasury Regulations; (d) release(s) executed by Sellers (collectively
"Sellers' Releases"); and (e) all other documents, certificates, instruments or
writings required to be delivered by the Stockholders or the Company at or prior
to the Closing pursuant to this Agreement or otherwise required in connection
herewith. Against delivery of the Shares, Purchaser shall deliver to the
Stockholders at the Closing in immediately available funds, the Closing Payment,
and all other documents, certificates, instruments or writings required to be
delivered by Purchaser at or prior to the Closing pursuant to this Agreement or
otherwise required in connection herewith.
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3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
AND THE COMPANY
To induce Purchaser to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Stockholders and the Company,
jointly and severally, represent and warrant to Purchaser as follows (for
purposes of this Agreement, the phrases "knowledge of the Company" or the
"Company's knowledge," or words of similar import, mean the knowledge of the
Stockholders and the other directors and officers of the Company, including
facts of which the directors and officers, in the reasonably prudent exercise of
their duties, should be aware):
3.1 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and the Company is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to own, operate and lease its properties and to carry on its
business in the places and in the manner as now conducted. Schedule 3.l(a)
hereto contains a list of all jurisdictions in which the Company is authorized
or qualified to do business. The Company is in good standing as a foreign
corporation in each jurisdiction in which it does business. The Company has
delivered to Purchaser true, complete and correct copies of the Certificate of
Incorporation and Bylaws of the Company. Such Certificate of Incorporation and
Bylaws are collectively referred to as the "Charter Documents." The Company is
not in violation of any Charter Documents. The minute books of the Company have
been made available to Purchaser (and have been delivered, along with the
Company's original stock ledger and corporate seal, to Purchaser) and are
correct and complete in all material respects. Schedule 3.1(b) contains a
complete and accurate list of the directors and officers of the Company.
3.2 AUTHORIZATION; VALIDITY. The Company has all requisite corporate
power and authority to enter into and perform its obligations pursuant to the
terms of this Agreement. The Company has the full legal right, corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The Stockholders have the full legal right and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
performance by the Company of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors of the Company, and this
Agreement has been duly and validly authorized by all necessary corporate action
on behalf of the Company. This Agreement is a legal, valid and binding
obligation of each of the Stockholders and the Company, enforceable against each
of them in accordance with its terms.
3.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of
the Charter Documents, or any resolution adopted by the board of directors or
the shareholders of the Company;
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(b) conflict with, or result in a default (or would constitute
a default but for any requirement of notice or any of lapse of time or both)
under, any document, agreement or other instrument to which the Company or any
of the Stockholders is a party or by which the Company or any of the
Stockholders is bound or result in the creation or imposition of any Lien on any
of the Company's assets pursuant to: (i) any federal, state, local, municipal,
or foreign law, statute, ordinance, treaty, rule or regulation, or other
administrative order constituting regulation (collectively "Laws") to which the
Company or the Stockholders or any of their respective assets are subject; or
(ii) any judgment, order, writ, injunction, or decree of any court or government
authority to which the Company or any of the Stockholders is bound or any of
their respective assets is subject; or (iii) any act of a third party;
(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(d) violate any Laws to which the Company or any of the
Stockholders is subject or by which the Company or any of the Stockholders is
bound.
3.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists solely of 10,000 shares of common stock, no par value, of which
1,171 shares are issued and outstanding. The Company has not issued and there
are no other outstanding equity securities of the Company (including without
limitation any preferred stock) or, except for the options set forth in Schedule
3.5, securities convertible into equity securities of the Company. All of the
Shares have been duly authorized and validly issued, are fully paid and
nonassessable and are owned of record and beneficially by the Stockholders free
and clear of all Liens, except for the Liens described in Schedule 3.4, which
will be released on or before the Closing Date. All of the Shares were offered,
issued, sold and delivered by the Company in compliance with all applicable
state and federal laws concerning the issuance and sale of securities. Further,
none of the Shares was issued in violation of any preemptive rights. No legend
or other reference to any other Lien appears upon any certificate representing
capital stock of the Company. There are no voting agreements or voting trusts
with respect to any of the Shares. The number of Shares owned of record and
beneficially by each Stockholder and the percentage interest in the Company
represented by such Shares is set forth in Schedule 3.4.
3.5 TRANSACTIONS IN CAPITAL STOCK. Except for the options set forth
in Schedule 3.5, no option, warrant, call, subscription right, conversion right
or other contract or commitment of any kind exists of any character, written or
oral, that may obligate the Company to issue or sell any shares of capital stock
or by which any shares of capital stock may otherwise become outstanding. The
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof. As a result of the
transactions contemplated by this Agreement, Purchaser will be the record and
beneficial owner of all outstanding capital stock of the Company and all rights
to acquire capital stock of the Company.
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3.6 ABSENCE OF CLAIMS AGAINST COMPANY. None of the Stockholders has
any claims of any kind against the Company nor has any Stockholder assigned any
such claims to any third party.
3.7 SUBSIDIARIES AND STOCK. The Company has no subsidiaries. The
Company does not presently own, of record or beneficially, or control, directly
or indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in any corporation, association or business entity,
nor is the Company, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity.
3.8 COMPLETE COPIES OF MATERIALS. The Company has delivered to
Purchaser true, complete and correct copies of each agreement, contract,
commitment or other document (or summaries thereof) that is referred to in the
Schedules or that has been requested by Purchaser.
3.9 COMPANY FINANCIAL CONDITION. The Company's earnings before taxes
for the six month period ended June 30, 1999 were in excess of $108,000.
3.10 FINANCIAL STATEMENTS. Schedule 3.10 includes (a) true, complete
and correct copies of the Company's audited balance sheets as of December 31,
1997 and December 31, 1998 (the end of its most recent completed fiscal years),
and statements of operations for the years ended December 31, 1996, 1997 and
1998 and statements of changes in Stockholders' equity (deficit), and statements
of cash flows (collectively, the "Audited Financials") and (b) true, complete
and correct copies of the Company's unaudited balance sheet (the "Interim
Balance Sheet") as of June 30, 1999 (the "Balance Sheet Date") and unaudited
statement of operations, statement of changes in Stockholders equity (deficit),
and statement of cash flow, for the six month period then ended (collectively,
the "Interim Financials," and together with the Audited Financials, the "Company
Financial Statements"). The Company Financial Statements have been prepared from
the books and records of the Company in accordance with GAAP consistently
applied and present fairly the financial condition and results of operation,
changes in shareholders' equity and cash flow of the Company for the periods
referred to the Financial Statements. Since the dates of the Company Financial
Statements and except as set forth in Schedule 3.28, there have been no material
changes in the Company's accounting policies.
3.11 LIABILITIES AND OBLIGATIONS.
(a) Except as set forth in Schedule 3.11, the Company is not
liable for or subject to any liabilities except for:
(i) those liabilities reflected on the Interim Balance
Sheet and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of
its business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
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(iii) those liabilities incurred since the Balance Sheet
Date in the ordinary course of business consistent with past practice, which
liabilities are not, individually or in the aggregate, material.
(b) The Company is not a guarantor or otherwise liable for any
liability or obligation of any other person, entity or organization.
(c) For purposes of this Section 3.11, the term "liabilities"
shall include, without limitation, any direct or indirect liability,
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility that is accrued, absolute, contingent,
mature, unmature or otherwise and whether known or unknown, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured.
3.12 BOOKS AND RECORDS. The Company has made and kept books and
records and accounts that, in reasonable detail, accurately and fairly reflect
its activities. The Company has not engaged in any material transaction,
maintained any bank account or used any corporate funds except for transactions,
bank accounts and funds that have been and are reflected in its normally
maintained books and records.
3.13 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.13 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the
Company has any account or safe deposit box;
(b) the names in which such accounts or boxes are held;
(c) the types of such accounts;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.14 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
Purchaser a complete and accurate list, as of the Balance Sheet Date, of the
accounts and notes receivable of the Company (including, without limitation,
receivables from and advances to employees and the Stockholders), which includes
an aging of all accounts and notes receivable showing amounts due in 30-day
aging categories (collectively, the "Accounts Receivable"). All Accounts
Receivable represent valid obligations arising from sales actually made or
services actually performed in the ordinary course of business. The Accounts
Receivable are current and collectible net of any respective reserves shown on
the Company's books and records (which reserves are adequate and calculated
consistent with past practice). There is no contest, claim or right of set-off
under any
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contract with any obligor of an Account Receivable relating to the amount or
validity of such Account Receivable.
3.15 PERMITS. The Company owns or holds all licenses, franchises,
permits and other governmental authorizations, including, without limitation,
permits, titles, licenses and franchises necessary for the continued operation
of its business as it is currently being conducted (the "Permits"). The Permits
are valid, and the Company has not received any notice that any governmental
authority intends to modify, cancel, terminate or fail to renew any Permit. No
present or former stockholder, officer, manager, member or employee of the
Company or any affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing. The
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company by any Permit.
3.16 REAL PROPERTY.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property other than Owned Real Property including, without
limitation, fee estates, leaseholds and subleaseholds, purchase options,
easements, licenses, rights to access and rights of way and all buildings and
other improvements thereon owned, leased, enjoyed or used by the Company,
together with any additions thereto or replacements thereof. "Owned Real
Property" means all Real Property owned by the Stockholders or any other person,
persons or business entities owned or controlled by the Stockholders which is
used in the conduct of the business and operations of the Company.
(b) The Company does not own and never has owned any Real
Property and there is no Owned Real Property. Schedule 3.16(b) contains a
complete and accurate description of all leased Real Property (including street
address). The Real Property listed in Schedule 3.16(b) includes all interests in
real property necessary to conduct the business and operations of the Company.
(c) Except as set forth in Schedule 3.16(c):
(i) The Real Property and all present uses and
operations of the Real Property comply with all applicable Laws (including,
without limitation, applicable statutes, rules, regulations, orders and
restrictions relating to zoning, land use, safety, health, employment and
employment practices and access by the handicapped), covenants, conditions,
restrictions, easements, disposition agreements and similar matters affecting
the Real Property. The Company has obtained all approvals of governmental
authorities (including certificates of use and occupancy, licenses and permits)
required in connection with the use, occupation and operation of the Real
Property.
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(ii) There are no parties other than the Company in
possession of any of the Real Property or any portion thereof, and there are no
leases, subleases, licenses, concessions or other agreements, written or oral,
granting to any party or parties the right of use or occupancy of any portion of
the Real Property or any portion thereof.
(iii) All real property Taxes and assessments that are
due and payable with respect to the Real Property have been paid or will be paid
at or prior to the Closing Date.
(iv) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which the
Company leases from any other party any Real Property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided Purchaser with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases has declared a default thereunder or provided notice of the exercise of
any operation granted to such party under such Lease. The Leases and the
Company's interests thereunder are free of all Liens.
(v) None of the Leases requires the consent or approval
of any party thereto in connection with the consummation of the transactions
contemplated hereby.
3.17 PERSONAL PROPERTY.
(a) Schedule 3.17(a) sets forth a complete and accurate list
of all personal property included on the Interim Balance Sheet and all other
personal property owned or leased by the Company with a current book value in
excess of $5,000 both (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date, including in each case true, complete and correct copies
of leases for material equipment and an indication as to which assets are
currently owned, or were formerly owned, by the Stockholders or the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the material, machinery and equipment of the
Company, including that listed in Schedule 3.17(a), are in good working order
and condition, ordinary wear and tear excepted. All leases set forth in Schedule
3.17(a) are in full force and effect and constitute valid and binding agreements
of the Company, and the Company is not in breach of any of their terms. All
fixed assets used by the Company that are material to the operation of its
business are either owned by the Company or leased under an agreement listed in
Schedule 3.17(a).
3.18 INTELLECTUAL PROPERTY.
(a) Except as set forth in Schedule 3.18(a), the Company is
the true and lawful owner of, or is licensed or otherwise possesses legally
enforceable rights to use, the registered and
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unregistered Marks (defined below) listed in Schedule 3.18(a). Such Schedule
lists (i) all of the Marks registered in the United States Patent and Trademark
Office ("PTO") or the equivalent thereof in any state of the United States or in
any foreign country, and (ii) all of the unregistered Marks that the Company now
owns or uses in connection with its business. For purposes of this Section 3.18,
the term "Mark" shall mean all right, title and interest in and to any United
States or foreign trademarks, service marks and trade names now held by the
Company, including any registration or application for registration of any
trademarks and service marks in the PTO or the equivalent thereof in any state
of the United States or in any foreign country, as well as any unregistered
marks used by the Company and any trade dress (including logos, designs, company
names, business names, fictitious names and other business identifiers) used by
the Company in the United States or any foreign country.
(b) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the Patents (defined below) listed in Schedule 3.18(b) and in the Copyrights
(defined below) listed in Schedule 3.18(b). Such Patents and Copyrights
constitute all of the Patents and Copyrights that the Company now owns or is
licensed to use. The Company owns or is licensed to practice under all patents
and copyright registrations that the Company now owns or uses in connection with
its business. For purposes of this Section 3.18, the term "Patent" shall mean
any United States or foreign patent to which the Company has title as of the
date of this Agreement, as well as any application for a United States or
foreign patent made by the Company; the term "Copyright" shall mean any United
States or foreign copyright owned by the Company as of the date of this
Agreement registered in the United States Copyright Office or the equivalent
thereof in any foreign county, as well as any application for a United States or
foreign copyright registration made by the Company.
(c) Except as set forth in Schedule 3.18(c), the Company owns
or is licensed to operate under and use all trade secrets, trade names,
franchises, technology, proprietary rights, know-how or similar rights
(collectively, "Other Rights"), including those set forth in Schedule 3.18(c),
that it owns, uses or practices under.
(d) The Marks, Patents, Copyrights and Other Rights listed in
Schedules 3.18(a), 3.18(b) and 3.18(c) are referred to collectively herein as
the "Intellectual Property." The Intellectual Property owned by the Company is
referred to herein collectively as the "Company Intellectual Property." All
other Intellectual Property is referred to herein collectively as the "Third
Party Intellectual Property." Except as indicated in Schedule 3.18(d), the
Company has no obligations to compensate any person for the use of any
Intellectual Property nor has the Company granted to any person any license,
option or other rights to use in any manner any Intellectual Property, whether
or not requiring the payment of royalties.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party Intellectual Property license,
sublicense or agreement described in Schedule 3.18(a) and Schedule 3.18(b) or
Schedule 3.18(c). No claims with respect to the Company Intellectual Property or
Third Party Intellectual Property are currently pending or, to the knowledge of
the Company, are threatened by any person, nor, to the Company's knowledge, do
any grounds for any claims exist:
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<PAGE> 18
(i) to the effect that the services provided by the Company or the sale,
licensing or use of any product as now used, sold or licensed or proposed for
use, sale or license by the Company infringes on any copyright, patent,
trademark, service mark or trade secret; (ii) against the use by the Company of
any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the Company's
business as currently conducted by the Company; (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property or other
trade secret material to the Company; or (iv) challenging the Company's license
for, or legally enforceable right to use, the Third Party Intellectual Property.
To the Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
Except as set forth in Schedule 3.26(b), the Company has (x) not been sued or
charged in writing as a defendant in any claim, suit, action or proceeding which
involves a claim or infringement of trade secrets, any patents, trademarks,
service marks or copyrights and which has not been finally terminated or been
informed or notified by any third party that the Company may be engaged in such
infringement or (y) no knowledge of any infringement liability with respect to,
or infringement by, the Company of any trade secret, patent, trademark, service
mark or copyright of another.
3.19 MATERIAL CONTRACTS AND COMMITMENTS.
(a) Schedule 3.19(a) sets forth a complete and accurate list
of all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the twenty (20) customers that have
effected the most purchases, in dollar terms, from the Company during twelve
months ending on the Balance Sheet Date, and "Significant Suppliers" are the
twenty (20) suppliers who supplied the largest amount by dollar volume of
products or services to the Company during the twelve (12) months ending on the
Balance Sheet Date.
(b) Schedule 3.19(b) contains a complete and accurate list of
all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which the Company is a party or by which it or its
properties are bound (including, without limitation, contracts with customers,
joint venture or partnership agreements, contracts with any labor organizations,
employment agreements, consulting agreements, loan agreements, indemnity or
guaranty agreements, bonds, mortgages, options to purchase land or Liens) (i) to
which the Company and the Stockholders or any affiliate of the Company, the
Stockholders or any officer or director of the Company are parties ("Related
Party Agreements"); (ii) that may give rise to obligations or liabilities
exceeding, during the current term thereof, $10,000, or (iii) that may generate
revenues or income exceeding, during the current term thereof, $10,000
(collectively with the Related Party Agreements, the "Material Contracts"). The
Company has delivered to Purchaser true, complete and correct copies of the
Material Contracts.
(c) Except to the extent set forth in Schedule 3.19(c), (i)
none of the Company's Significant Customers has canceled or reduced or, to the
knowledge of the Company, is currently attempting or threatening to cancel or
reduce, any purchases from the Company, (ii) none of the Company's Significant
Suppliers has canceled or reduced or, to the knowledge of the Company, is
currently attempting to cancel or reduce, the supply of products or services to
the Company, (iii) the Company has complied with all of its commitments and
obligations and is not in default under
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any of the Material Contracts, and no notice of default has been received with
respect to any thereof, and (iv) there are no Material Contracts that were not
negotiated at arm's length. The Company has not received any material customer
complaints concerning its products and/or services.
(d) Each Material Contract is valid and binding on the Company
and is in full force and effect and is not subject to any default thereunder by
any party obligated to the Company pursuant thereto. The Company has obtained
all necessary consents, waivers and approvals of parties to any Material
Contracts which are required in connection with any of the transactions
contemplated hereby, or are required by any governmental agency or other third
party or are advisable in order that any such Material Contract remain in effect
without modification after the Closing and without giving rise to any right to
termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed in Schedule
3.19(d).
3.20 GOVERNMENT CONTRACTS.
(a) The Company is not a party to any government contracts.
(b) The Company has not been suspended or debarred from
bidding on contracts or subcontracts for any agency or instrumentality of the
United States Government or any state or local government, nor, to the knowledge
of the Company, has any suspension or debarment action been threatened or
commenced.
3.21 INSURANCE. Schedule 3.21 sets forth a complete and accurate list,
as of the Balance Sheet Date, of all insurance policies carried by the Company
and all insurance loss runs or workers' compensation claims received for the
past two (2) policy years. The Company has made available to Purchaser true,
complete and correct copies of all current insurance policies, all of which are
in full force and effect. All premiums payable under all such policies have been
paid and the Company is otherwise in full compliance with the terms of such
policies. Such policies of insurance are of the type and in amounts customarily
carried by persons conducting businesses similar to that of the Company. To the
knowledge of the Company, there have been no threatened terminations of, or
material premium increases with respect to, any of such policies.
3.22 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. No underground or aboveground storage
tanks and no amount of any substance that has been designated by any
governmental entity or by applicable federal, state, local or other applicable
law to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies
properly and safely maintained (a "Hazardous Material"), are present in, on or
under any property, including the land and the improvements, ground water and
surface water
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<PAGE> 20
thereof, that the Company or any of its predecessors in interest has at any time
owned, operated, occupied or leased. There are no underground and aboveground
storage tanks, and the capacity, age, and contents of such tanks, located on
Real Property leased by the Company.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Company disposed of, transported, sold
or manufactured any product containing a Hazardous Material (collectively,
"Company Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any governmental entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Permits and Compliance. The Company currently holds no
environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") and no such Environmental Permits is necessary for the
conduct of the Company's business as it is currently being conducted or as it is
proposed to be conducted. The Company is in compliance in all material respects
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the laws of all
governmental entities relating to pollution or protection of health and the
environment or contained in any regulation, code, plan order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder.
(d) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of the Company, threatened concerning any
Environmental Permit, Hazardous Material or any Company Hazardous Materials
Activity. There are no past or present actions, activities, circumstances,
conditions, events or incidents that could involve the Company (or any person or
entity whose liability the Company has retained or assumed, either by contract
or operation of law) in any environmental litigation, give rise to any
environmental claim against the Company or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
3.23 YEAR 2000 COMPLIANCE. The Company and its information systems and
software will continue to function without material impairment arising from any
reliability or difficulty in processing date information accurately before, on
or after January 1, 2000 (including leap years).
3.24 BENEFIT PLANS AND EMPLOYEE MATTERS.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit
arrangement, obligation, or practice, whether or not legally enforceable, to
provide benefits (other than merely as salary or under a Benefit Plan), as
compensation for services rendered, to present or former directors, employees,
agents, or independent contractors, including, but not limited to, employment or
consulting agreements, severance agreements or policies, stay or retention
bonuses or compensation,
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executive or incentive compensation programs or arrangements, sick leave,
vacation pay, plant closing benefits, salary continuation for disability,
workers' compensation, retirement, deferred compensation, bonus, stock option or
purchase plans or programs, tuition reimbursement or scholarship programs,
employee discount programs, meals, travel, or vehicle allowances, any plans
subject to Code Section 125, and any plans providing benefits or payments in the
event of a change of control, change in ownership or effective control or sale
of a substantial portion (including all or substantially all) of the assets of
any business or portion thereof, in each case with respect to any present or
former employees, directors, or agents.
(ii) "Benefit Plan" has the meaning given in ERISA
Section 3(3), together with plans or arrangements that would be so defined if
they were not (i) otherwise exempt from ERISA by that or another section, (ii)
maintained under non-U.S. law, or (iii) individually negotiated or applicable
only to one person.
(iii) "Company Benefit Arrangement" means any Benefit
Arrangement the Company sponsors or maintains or with respect to which the
Company has or may have any current or future liability (whether actual,
contingent, with respect to any of its assets or otherwise), in each case with
respect to any present or former directors, officers, or employees of or service
providers to the Company.
(iv) "Company Plan" means any Benefit Plan that the
Company maintains or has previously maintained or to which the Company is
obligated to make payments or has or may have any liability, in each case with
respect to any present or former employees of the Company.
(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person or entity that,
together with the entity referenced, would be or was at any time treated as a
single employer under Code Section 414 or ERISA Section 4001 and any general
partnership of which the entity is or has been a general partner.
(vii) "Multiemployer Plan" means any Benefit Plan
described in ERISA Section 3(37).
(viii) "Pension Plan" means any Benefit Plan subject to
Code Section 412 or ERISA Section 302 or Title IV (including any Multiemployer
Plan) or any comparable plan not covered by ERISA.
(ix) "Qualified Plan" means any Benefit Plan intended to
meet the requirements of Code Section 401(a), including any already terminated
plan.
(b) Schedule 3.24(b) contains a complete and accurate list of
all Company Plans and Company Benefit Arrangements.
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<PAGE> 22
(c) With respect, as applicable, to Benefit Plans and Benefit
Arrangements:
(i) The Company has delivered true, correct, and
complete copies of the following documents with respect to each Company Plan and
Company Benefit Arrangement, to the extent applicable, to the Purchaser: (A) all
plan or arrangement documents, including but not limited to, trust agreements,
insurance policies, service agreements and formal and informal amendments to
each; (B) the most recent Forms 5500 or 5500C/R and any attached financial
statements and those for the prior three years and any related actuarial
reports; (C) the last Internal Revenue Service ("IRS") determination or opinion
letter, and the last IRS determination or opinion letter that covered the
qualification of the entire plan (if different); (D) summary plan descriptions,
summaries of material modifications, any prospectuses that describe the Company
Plans or Company Benefit Arrangements, and Statement of Financial Accounting
Standards Nos. 87, 106, and 112 reports; (E) the most recent written
descriptions of all non-written agreements relating to any such plan or
arrangement; (F) all notices the IRS, Department of Labor, or any other
governmental agency or entity issued to the Company within the four years
preceding the date of this Agreement; (G) employee manuals or handbooks
containing personnel or employee relations policies; and (H) any other documents
Purchaser has reasonably requested in writing;
(ii) The only Qualified Plans currently in operation are
the Mobeo profit-sharing 401(k) plan and trust. The Company has not maintained
or contributed to another Qualified Plan. The Qualified Plans qualify under
Code Section 401(a), and nothing has occurred with respect to the operation of
any Qualified Plans that could cause the loss of such qualification or
exemption or the imposition of any liability, Lien, penalty or tax under ERISA
or the Code on the Company; each Company Plan and each Company Benefit
Arrangement has been maintained substantially in accordance with its
constituent documents and with all applicable provisions of domestic and
foreign laws, including federal and state securities laws and any reporting and
disclosure requirements; with respect to each Company Plan, no transactions
prohibited by Code Section 4975 or ERISA Section 406 and no breaches of
fiduciary duty described in ERISA Section 404 have occurred; and no Company
Plan contains any security issued by the Company.
(iii) The Company has never sponsored or maintained or had
any liability (whether actual or contingent) with respect to any Pension Plan;
the Company has no liability (whether actual or contingent) with respect to any
Pension Plan maintained by any predecessor entity (or any of their ERISA
Affiliates); the Company neither has nor has ever had any ERISA Affiliates; the
Company has no liability (whether actual or contingent) with respect to any
Benefit Plan or Benefit Arrangement other than the Company Plans and Company
Benefit Arrangement or with respect to any Benefit Plan maintained, now or in
the past (or that should have been maintained), by any predecessor;
(iv) There are no pending claims (other than routine
benefit claims) or lawsuits that have been asserted or instituted by, against,
or relating to, any Company Plans or Company Benefit Arrangements, nor to the
Company's Knowledge is there any basis for any such claim or lawsuit. No Company
Plans or Company Benefit Arrangements are or have been under audit or
examination (nor has notice been received of a potential audit or examination)
by any domestic or foreign governmental agency or entity (including the IRS and
Department of Labor);
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<PAGE> 23
and no matters are pending under the IRS's Employee Plans Compliance Resolutions
System or any successor or predecessor program;
(v) Except as set forth in Schedule 3.24(c)(vi), no
Company Plan or Company Benefit Arrangement contains any provision that would
accelerate or vest any benefit or require severance, termination or other
payments or trigger any liabilities as a result of the transactions this
Agreement contemplates; the Company has not declared or paid any bonus or
incentive compensation related to the transactions this Agreement contemplates;
and no payments under any Company Plan or Company Benefit Arrangement would,
individually or collectively, be nondeductible under Code Section 280G;
(vi) The Company has paid all amounts it is required to
pay as contributions to the Company Plans as of the Balance Sheet Date to the
extent due as of such Date; all benefits accrued under any unfunded Company Plan
or Company Benefit Arrangement will have been paid, accrued, or otherwise
adequately reserved in accordance with GAAP as of the Balance Sheet Date; all
monies withheld from employee paychecks for Company Plans have been transferred
to the relevant plan within the time applicable regulations specify;
(vii) The Company does not provide benefits through a
voluntary employee beneficiary association as defined in Code Section 501(c)(9);
(viii) All group health plans of the Company materially
comply with the requirements of Part 6 of Title I of ERISA ("COBRA"), Code
Section 5000, and the Health Insurance Portability and Accountability Act; the
Company has no material liability under or with respect to COBRA for its own
actions or omissions or those of any predecessor; no employee or former employee
(or beneficiary of either) of the Company is entitled to receive any benefits
for the Company, including, without limitation, death or medical benefits
(whether or not insured) beyond retirement or other termination of employment,
other than as applicable law requires.
(d) Schedule 3.24(d) contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last three fiscal years.
(e) Schedule 3.24(e) sets forth an accurate list, as of the
date hereof, of all employees of the Company who earned more than $50,000 in
1998 or who may earn more than $50,000 in 1999, all officers and all directors,
and all employment agreements with such employees, officers, and directors and
the rate of compensation (and the portions thereof attributable to salary,
bonus, and other compensation respectively) of each such person as of (i) the
Balance Sheet Date and (ii) the date of this Agreement. The schedule also shows
totals accrued for vacation, sick leave, and incentive bonuses for all
employees.
(f) With respect to employees of and services providers to the
Company:
(i) The Company complies and has complied in all
material respects with all applicable domestic and foreign laws respecting
employment and employment practices, terms
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and conditions of employment and wages and hours, including without limitation
any such laws respecting employment discrimination, workers' compensation,
family and medical leave, the Immigration Reform and Control Act, and
occupational safety and health requirements, and no claims or investigations are
pending or, to the Company's Knowledge, threatened with respect to such laws,
either by private individuals or by governmental agencies; and all employees are
at-will except as set forth in Schedule 3.24(f);
(ii) The Company is not nor has it been engaged in any
unfair labor practice, and there is not now, nor within the past three years has
there been, any unfair labor practice complaint against the Company pending or,
to the Company's Knowledge, threatened, before the National Labor Relations
Board or any other comparable foreign or domestic authority or any workers'
council;
(iii) No labor union represents or has ever represented
the Company's employees and no collective bargaining agreement is or has been
binding against the Company. No grievance or arbitration proceeding arising out
of or under collective bargaining agreements or employment relationships is
pending, and no claims therefor exist or have, to the Company's Knowledge, been
threatened; no labor strike, lock-out, slowdown, or work stoppage is or has ever
been pending or threatened against or directly affecting the Company; and
(iv) All persons who are or were performing services for
the Company and are or were classified as independent contractors do or did
satisfy and have satisfied the requirements of law to be so classified, and the
Company has fully and accurately reported their compensation on IRS Forms 1099
when required to do so.
3.25 TAXES.
(a) For purposes of this Agreement:
(i) "Tax" (including with correlative meaning the terms
"Taxes") means (A) all foreign, federal, state, local and other income, gross
receipts, sales, use, ad valorem, value-added, intangible, unitary, transfer,
franchise, license, payroll, employment, estimated, excise, environmental,
stamp, occupation, premium, property, prohibited transactions, windfall or
excess profits, customs, duties or other taxes, levies, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law and (C) any
liability for payment of amounts described in clause (A) or (B) as a result of
any tax sharing, tax indemnity or tax allocation agreement or any other express
or implied agreement to indemnify any other person for Taxes; and
(ii) The term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate or declaration of estimated tax relating to or required to be filed
with any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
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<PAGE> 25
(b) (i) All Tax Returns required to be filed by or on
behalf of the Company have been filed (or an extension of the time to file has
been obtained that has not yet expired), and such Tax Returns as have been filed
are true, correct, and complete in all material respects.
(ii) The Company has paid in full on a timely basis all
Taxes owed by it, whether or not shown on any Tax Return, other than Taxes that
are not yet due and Taxes which the Company is presently contesting in good
faith in appropriate proceedings that are described in item 4 of Schedule
3.26(b).
(iii) The amount of the Company's liability for unpaid
Taxes as of the dates of the Company Financial Statements did not exceed the
amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) shown on such Company Financial Statements, and the amount of
the Company's liability for unpaid Taxes for all periods or portions thereof
ending on or before the Closing Date will not exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Closing Financial Statements.
(iv) There is no action, suit, proceeding,
investigation, audit or claim now proposed or pending against or with respect to
the Company in respect of any Tax. No notice has been issued to the Company
regarding any action, suit, proceeding, investigation, audit or claim with
respect to any Tax.
(v) The Company has a taxable year ending on
December 31, in each year commencing 1989.
(vi) The Company has not agreed to, and is not and will
not be required to, make any adjustments under Code Section 481(a) as a result
of a change in accounting methods.
(vii) The Company has withheld and paid over to the
proper governmental authorities all Taxes required to have been withheld and
paid over and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid or owing to any employee, independent contractor,
creditor or other third party.
(viii) The Company has not requested an extension of time
within which to file any Tax Return or pay any Tax or been granted any extension
or waiver of the statute of limitations period applicable to any Tax Return or
Tax, and all Tax Returns of the Company for the preceding three years have been
made available to and delivered to Purchaser.
(ix) There are (and as of immediately following the
Closing there will be) no Liens on the assets of the Company relating or
attributable to Taxes, other than Liens for Taxes not yet due and payable.
(x) To the Knowledge of the Company, there is no basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any
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<PAGE> 26
Lien on the assets of the Company or otherwise have an adverse effect on the
Company or its business.
(xi) None of the Company's assets is treated as "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount (or
portion thereof) that would not be deductible pursuant to Section 280G, 404 or
162 of the Code.
(xiii) Neither the Company nor any direct or indirect
shareholder of the Company has filed a consent under Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the
Company.
(xiv) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xv) The Company is not, nor has it ever been, a party
to a tax sharing, tax indemnity or tax allocation agreement, and the Company has
not assumed the tax liability of any other person or entity under contract.
(xvi) The Company is not, nor has it ever been, a member
of an affiliated group filing a consolidated federal income Tax Return. The
Company does not, and will not have up to and including the Closing Date, any
interest in any other corporation with respect to which the Company owns a
majority of the common stock or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
(xvii) The Company does not have any liability for the
Taxes of any individual or entity other than the Company under Section 1.1502-6
of the Treasury Regulations (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract or otherwise.
(xviii)The Company is not a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income tax purposes.
(c) Schedule 3.25(c) contains accurate and complete
descriptions of (i) the Company's basis in its assets; (ii) the amount of any
net operating loss, net capital loss, unused investment or other credit, unused
foreign tax or excess charitable contribution allocable to the Company; and
(iii) tax elections affecting the Company. The Company has no net operating
losses or other tax attributes presently subject to limitation under Section
382, 383 or 384 of the Code or the federal consolidated return regulations.
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<PAGE> 27
3.26 CONFORMITY WITH LAW; LITIGATION.
(a) The Company has not violated any Laws or any order of any
court or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it.
(b) Except as set forth in Schedule 3.26(b), there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the
Company, threatened against or affecting the Company at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it, and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. There are no judgments, orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency or by arbitration) against the Company or against any of its properties
or business.
3.27 RELATIONS WITH GOVERNMENTS. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
3.28 ABSENCE OF CHANGES. Since December 31, 1998, the Company has
conducted its business in the ordinary course, and there has not been:
(a) any change, by itself or together with other changes, that
has affected adversely, or is likely to affect adversely, the business,
operations, affairs, prospects, properties, assets, profits or condition
(financial or otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) except as set forth in Schedule 3.28(c), any change in the
authorized capital of the Company or in its outstanding securities or any change
in their ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution
in respect of the capital stock, or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(e) except as set forth in Schedule 3.28(e), any increase in
the compensation, bonus, sales commissions or fee arrangements payable or to
become payable by the Company to any of its officers, directors, employees,
consultants or agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice, nor has the Company
entered into, amended or terminated any Company Benefit Arrangement, Company
Plan, employment, severance or other agreement relating to compensation or
fringe benefits;
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<PAGE> 28
(f) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the Company to any person,
including, without limitation, the Stockholders or their affiliates;
(h) except as set forth in Schedule 3.28(h), any cancellation,
forgiveness or release or agreement to cancel, forgive or release any
indebtedness or other obligation owing to the Company, including, without
limitation, any indebtedness or obligation of the Stockholders and their
affiliates;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the
Company;
(l) except as set forth in Schedule 3.28(l), any breach,
amendment or termination of any Material Contract, agreement, license, Permit or
other right to which the Company is a party;
(m) any transaction by the Company outside the ordinary course
of business;
(n) except as set forth in Schedule 3.28(n), any capital
commitment by the Company, either individually or in the aggregate, exceeding
$10,000;
(o) except as set forth in Schedule 3.28(o), any change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company or the revaluation by the Company
of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or Lien or other encumbrance on any asset (other than
Liens arising under existing lease financing arrangements which are not material
and Liens for Taxes not yet due and payable);
(q) except as set forth in Schedule 3.28(q), any entry into,
amendment of, relinquishment, termination or non- renewal by the Company of any
contract, lease transaction, commitment or other right or obligation requiring
aggregate payments by the Company in excess of $10,000;
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<PAGE> 29
(r) any loan by the Company to any person or entity, incurring
by the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Purchaser and its representatives
regarding the transactions contemplated by this Agreement).
3.29 DISCLOSURE. All written agreements, lists, schedules,
instruments, exhibits, documents, certificates, reports, statements and other
writings (including without limitation, the Discussion Memorandum prepared by
Ferris, Baker Watts, Incorporated) furnished to Purchaser pursuant hereto or in
connection with this Agreement or the transactions contemplated hereby, are and
will be complete and accurate in all material respects. No representation or
warranty by the Stockholders or the Company contained in this Agreement, in the
Schedules attached hereto or in any certificate furnished or to be furnished by
the Stockholders or the Company to Purchaser in connection herewith or pursuant
hereto contains or will contain any untrue statement of a material fact or omits
or will omit to state any material fact necessary in order to make any statement
contained herein or therein not misleading. There is no fact known to the
Stockholders or the Company that has specific application to the Company (other
than general economic or industry conditions) and that materially adversely
affects or may threaten the assets, business, prospects, financial condition or
results of operations of the Company that has not been set forth in this
Agreement or any Schedule hereto.
3.30 BROKER. Sellers and their agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other payment in connection with this Agreement other than the
obligations incurred by the Stockholders (and not the Company) to Ferris, Baker
Watts, Incorporated, as set forth in Schedule 3.30.
4. REPRESENTATIONS OF PURCHASER
To induce the Stockholders and the Company to enter into this Agreement
and consummate the transactions contemplated hereby, Purchaser represents and
warrants to the Stockholders and the Company as follows:
4.1 DUE ORGANIZATION. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its respective businesses in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a material adverse effect on the business, operations, affairs, prospects,
properties, assets, profits or condition (financial or otherwise) of Purchaser.
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<PAGE> 30
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. The representatives of
Purchaser executing this Agreement have all requisite corporate power and
authority to enter into and bind Purchaser to the terms of this Agreement.
Purchaser has the full legal right, power and corporate authority to enter into
this Agreement and to consummate the transactions contemplated hereby. This
Agreement is a legal, valid and binding obligation of Purchaser enforceable in
accordance with its terms.
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, the
Limited Liability Company Agreement or Certificate of Limited Liability Company
of Purchaser;
(b) conflict with, or result in a default (or would constitute
a default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which Purchaser is a party or result
in the creation or imposition of any Lien on any of Purchaser's properties
pursuant to (i) any law or regulation to which Purchaser or any of its property
is subject or (ii) any judgment, order or decree to which Purchaser is bound or
any of its property is subject; or
(c) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Purchaser is subject or by which Purchaser is bound.
4.4 BROKER. Purchaser and its members and agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to effect the transactions contemplated by
this Agreement is subject to the satisfaction or waiver, on or before the
Closing Date, of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
of the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true, correct and complete on and as of the
Closing Date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by the Company and the
Stockholders on or before the Closing Date shall have been duly complied with,
performed or satisfied; and certificates to the foregoing effects dated the
Closing Date and signed on behalf of the Stockholders and the Company shall have
been delivered to Purchaser.
5.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Purchaser's proposed acquisition of the Company, or limiting or restricting
Purchaser's conduct or operation of the business of the Company (or its own
business) following the Closing shall be in effect, nor shall any proceeding
brought by an administrative agency or
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<PAGE> 31
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending. There shall be no action,
suit, claim or proceeding of any nature pending or threatened against Purchaser,
the Company or their respective properties or any of their officers or
directors, which could materially and adversely affect the business, assets,
liabilities, financial condition, results of operations or prospects of the
Company.
5.3 OPINION OF COUNSEL. Purchaser shall have received an opinion from
counsel to the Stockholders and the Company, dated the Closing Date,
substantially in the form attached hereto as Exhibit 5.3.
5.4 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency or third party relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby shall have been obtained and made, including without
limitation under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") and all Third Party Consents, if applicable. Purchaser
shall have obtained all necessary consents and approvals pursuant to Purchaser's
Limited Liability Company Agreement for consummating the transactions
contemplated by this Agreement.
5.5 CHARTER DOCUMENTS. The Stockholders shall have delivered to
Purchaser (a) true, complete and correct copies of the Certificate of
Incorporation of the Company as currently in effect certified by an appropriate
authority in the state of its incorporation and (b) copies of the Bylaws of the
Company certified by the Secretary of the Company, and such documents shall be
in form and substance reasonably acceptable to Purchaser and its counsel.
5.6 EMPLOYMENT AGREEMENT. Edward Spear shall have executed and
delivered an employment agreement and non-competition agreement (the"Employment
Agreement"), substantially in the form attached hereto as Exhibit 5.6.
5.7 ADVISORY SERVICES AGREEMENTS; CONFIDENTIALITY AGREEMENTS. Peter
Kibler and Winston Barrett shall each have executed and delivered an advisory
and non-competition agreement (each an "Advisory Services Agreement" and
collectively the "Advisory Services Agreements"), substantially in the form
attached hereto as Exhibit 5.7.
5.8 CLOSING DELIVERIES. The Stockholders and the Company shall have
made such deliveries as are called for by this Agreement.
5.9 RESERVED.
5.10 FINANCING. Purchaser shall have obtained financing having terms
reasonably satisfactory to Purchaser and in an amount at least equal to the
Purchase Price and the expenses of the Purchaser incurred in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
consummation of the transactions contemplated herein. Purchaser shall use
commercially reasonable efforts to obtain such financing and has no reason to
believe that it will not be able to obtain such financing.
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<PAGE> 32
5.11 REPAYMENT OF ALL INDEBTEDNESS.
(a) Pursuant to Section 7.6 of this Agreement, Sellers shall
have repaid in full, or caused to be repaid in full, as applicable, all
indebtedness owed to the Company by any Stockholder, or relative of affiliate of
any Stockholder.
(b) Sellers shall have repaid in full, or caused to be repaid
in full, as applicable, all indebtedness owed to any person or entity by any
Stockholder, or relative of affiliate of any Stockholder, which has been secured
by a pledge of any Stockholder's Shares.
5.12 RESERVED.
5.13 OPTIONS. The Sellers shall cause each person with securities
convertible into capital stock of the Company (including without limitation
options and warrants) have delivered all such convertible securities to
Purchaser and all of those convertible securities shall have been marked
"canceled."
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY
The obligations of the Stockholders and the Company to effect the
transactions contemplated hereby are subject to the satisfaction or waiver, on
or before the Closing Date, of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
of the representations and warranties of Purchaser contained in this Agreement
shall be true, correct and complete on and as of the Closing Date; all of the
terms, covenants, agreements and conditions of this Agreement to be complied
with, performed or satisfied by Purchaser on or before the Closing Date shall
have been duly complied with, performed or satisfied; and a certificate to the
foregoing effects dated the Closing Date and signed by the President or any Vice
President of Purchaser shall have been delivered to the Stockholders.
6.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Purchaser's proposed acquisition of the Company, or limiting or restricting
Purchaser's conduct or operation of the business of the Company (or its own
business) following the Closing shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or threatened against Purchaser or the Company, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of Purchaser and its subsidiaries taken as a whole.
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<PAGE> 33
6.3 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency or third party relating to the consummation
by Purchaser of the transactions contemplated herein shall have been obtained
and made.
7. CERTAIN COVENANTS
7.1 NOTIFICATION OF CERTAIN MATTERS. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (b)
any material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such party hereunder.
The delivery of any notice pursuant to this Section 7.1 shall not, without the
express written consent of the other parties, be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
(ii) modify the conditions set forth in Articles 5 and 6 or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.2 UNPAID TAXES. The Stockholders jointly and severally covenant and
agree to reimburse promptly Purchaser for any amount by which the Company's
liability for unpaid Taxes for all periods or portions thereof ending on or
before the Closing Date exceeds the amount of the current liability accruals for
Taxes (excluding reserves for deferred Taxes) set forth on the Closing Financial
Statements.
7.3 TAX RETURNS. The Company shall prepare and timely file (or obtain
valid extensions with respect to the filing of) all Tax Returns required to be
filed by or on behalf of the Company between the Effective Date and the Closing
Date. Purchaser shall have a reasonable opportunity to review and consent to the
filing of such Tax Returns, which consent shall not be unreasonably withheld or
delayed. The Company shall timely pay all Taxes shown as due on the Tax Returns
described in this Section 7.3.
7.4 COOPERATION ON TAX MATTERS.
(a) Purchaser, the Company and the Stockholders shall
cooperate fully, as and to the extent reasonably requested by the other parties,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other parties' request) the provision
of records and information that are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and the Stockholders agree (i) to
retain all books and records in their possession with respect to Tax matters
pertinent to the Company relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Purchaser or the Stockholders, any extensions thereof) of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (ii) to give the other parties
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other parties so request, the
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<PAGE> 34
Company or the Stockholders, as the case may be, shall allow the other parties
to take possession of such books and records.
(b) Purchaser and the Stockholders further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, without
limitation, with respect to the transactions contemplated hereby).
7.5 CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid one-half by
the Stockholders and one-half by Purchaser. The parties will, at their own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees.
7.6 PAYMENT OF INDEBTEDNESS. Sellers shall cause all indebtedness
owed to the Company by any Stockholder, or relative or affiliate of any
Stockholder, to be paid in full prior to the Closing.
7.7 NO NEGOTIATION. Until such time, if any, as this Agreement is
terminated pursuant to Section 10.4, Sellers will not, and will cause each of
their representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Purchaser) relating to any
transaction involving the sale of the business or assets (other than the
ordinary course of business), or any of the capital stock of the Company, or any
merger, consolidation, business combination, or similar transaction.
7.8 OPERATION OF THE COMPANY. Between the Effective Date and the
Closing Date, Sellers:
(a) shall conduct the business of the Company only in the
ordinary course of business;
(b) shall use their best efforts to preserve intact the
current business organization of the Company, keep available the services of the
current officers, employees, and agents of the Company, and maintain the
relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with the Company;
(c) shall confer with Purchaser concerning operational matters
of a material nature;
(d) shall otherwise report periodically to Purchaser
concerning the status of the business, operations and finances of the Company;
(e) shall not make any Tax election other than in the ordinary
course of business and consistent with past practice, change any Tax election,
adopt any Tax accounting method other than in the ordinary course of business
and consistent with past practice, change any Tax accounting
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<PAGE> 35
method, enter into any closing agreement, settle any Tax claim or assessment, or
consent to any Tax claim or assessment; and
(f) except as otherwise expressly permitted by this Agreement,
shall not without prior consent of Purchaser, take any affirmative action, or
fail to take any reasonable action within their or its control, as a result of
which any of the changes or events listed in Section 3.28 is likely to occur.
7.9 ACCESS TO INFORMATION. Subject to the terms of the
Confidentiality Agreements described in Section 10.2, between the date of this
Agreement and the Closing Date, Sellers will, and will cause each of their
respective representatives to, (a) afford Purchaser and its representatives and
prospective lenders and their representatives (collectively "Purchaser's
Advisors") full and free access to the Company's personnel, properties,
contracts, books and records, and other documents and data, (b) furnish
Purchaser and Purchaser's Advisors with copies of all such contracts, books and
records, and other existing documents and data as Purchaser may reasonably
request, and (c) furnish Purchaser and Purchaser's Advisors with such additional
financial, operating, and other data and information as Purchaser may reasonably
request.
7.10 FIRPTA CERTIFICATION. The Stockholders shall cause the Company to
furnish to Purchaser at or before the Closing a certification satisfying the
requirements of sections 1.897-2(h) and 1.1445-2(c)(3) of the Treasury
Regulations that the Shares are not United States real property interests,
together with a properly executed notice suitable for filing with the Internal
Revenue Service as described in section 1.897-2(h)(2) of the Treasury
Regulations.
7.11 EMPLOYMENT AGREEMENT AND ADVISORY AGREEMENTS.
(a) As consideration for the execution and delivery of
acceptable Advisory Services Agreements, Purchaser will issue to Peter Kibler
One Hundred Thousand (100,000) options to purchase units in the Purchaser and to
Winston Barrett Twenty Five Thousand (25,000) options to purchase units in the
Purchaser. Collectively, the One Hundred Twenty Five Thousand (125,000) options
to purchase units in the Purchaser to be issued to Kibler and Barrett are
referred to as the "Options." The Options shall be subject to the following
terms and conditions:
(i) the exercise price shall be Fifteen Dollars ($15)
per unit;
(ii) the Options shall vest in full at closing; and
(iii) the Options shall be exercisable at any time within
five (5) years of the Closing, provided however, that if the Purchaser issues
securities to the public in an initial public offering (an "IPO"), then the
options will expire on the earlier to occur of eighteen months after the date of
the IPO or on the fifth anniversary following the Closing.
7.12 BROKER'S FEES. Stockholders jointly and severally will
indemnify and hold Purchaser harmless from any payment alleged to be due for any
brokerage or finder's fee or agents'
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<PAGE> 36
commission or other payment in connection with this Agreement to be due by or
through Sellers as a result of the action of Sellers or its officers or agents.
7.13 OTHER DOCUMENTS. Sellers shall deliver such other documents as
Purchaser may reasonably request for the purpose of evidencing the accuracy of
Sellers' representations and warranties, evidencing the performance by any
Seller of, or the compliance by any Seller with, any covenant or obligation
required to be performed or complied with by such Seller facilitating the
consummation or performance of the transactions contemplated under this
Agreement.
7.14 SETTLEMENT. Following the Closing, the Purchaser will cause the
Company to use commercially reasonable efforts to settle the claim by Reuters
described in Schedule 3.26(b) on terms that are as favorable to the Company as
can be achieved by the Company.
8. INDEMNIFICATION
8.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
jointly and severally covenant and agree to indemnify, defend, protect and hold
harmless Purchaser and its respective officers, directors, employees,
stockholders, assigns, successors and affiliates, including without limitation,
the Company (individually, an "Aether Indemnified Party" and collectively, the
"Aether Indemnified Parties") from, against and in respect of:
(a) all liabilities, losses, claims, (including, without
limitation, third party claims) damages, punitive damages, causes of action,
lawsuits, administrative proceedings (including informal proceedings),
investigations, audits, demands, assessments, adjustments, judgments, settlement
payments, deficiencies, penalties, fines, interest (including interest from the
date of such damages) and costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements of every kind, nature and
description) (collectively, "Damages") suffered, sustained, incurred or paid by
the Aether Indemnified Parties in connection with, resulting from or arising out
of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any schedule or
certificate, delivered by or on behalf of any of the Stockholders or the Company
in connection herewith;
(ii) any nonfulfillment of any covenant or agreement on
the part of the Stockholders or, prior to the Closing Date, the Company, in this
Agreement;
(iii) the business, operations or assets of the Company
prior to the Closing Date or the actions or omissions of the Company's
directors, officers, shareholders, employees or agents prior to the Closing
Date, except as otherwise disclosed in the Company Financial Statements;
(iv) reserved;
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<PAGE> 37
(v) failure of the Company to collect at least 95% of
its accounts receivable reflected on the Closing Financial Statements in the
ordinary course of business; or
(vi) any litigation or other claims of any kind brought
against the Company or Purchaser arising out of acts or omissions of the Company
or the Stockholders prior to Closing, including, without limitation, those
matters set forth in Schedule 3.26(b).
(b) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 8.1.
Provided the Closing occurs, each Stockholder waives any right of
contribution, indemnification or other similar right against (a) the Company
arising out of the Seller's representations, warranties, covenants and
agreements contained herein; and (b) Purchaser or the Company arising out of the
Charter Documents or any other contractual obligation of the Company or any
Company Benefit Arrangement or Company Plan. The Stockholders agree that any (i)
fraud claim of Purchaser arising out of or relating to the transactions
contemplated by this Agreement or (ii) any claim of Purchaser for contribution
arising out of or relating to a third party claim for which the Stockholders may
be individually liable under a theory of "piercing the corporate veil" or
otherwise or as fiduciaries under any Company Benefit Arrangement or Company
Plan may be asserted directly and fully against the Stockholders without the
need for any claim against or joinder of the Company, provided that Purchaser
must prove the elements of such claim.
8.2 LIMITATION AND EXPIRATION. Notwithstanding anything in this
Agreement to the contrary:
(a) there shall be no liability for indemnification under Section
8.1 unless, and solely to the extent that, the aggregate amount of Damages
exceeds $50,000 (the "Indemnification Threshold"); provided, however, that no
Indemnification Threshold shall apply with respect to recovery of (i) Damages
arising out of any breaches of the covenants of the Stockholders set forth in
this Agreement or representations made in Section 3.4 (capital stock of the
Company), 3.5 (transactions in capital stock), 3.19 (significant customers;
material contracts and commitments), 3.24 (benefit plans and employment
matters), 3.25 (taxes) or 3.26 (conformity with law; litigation) or (ii) Damages
described in items 1, 4 and 5 of Schedule 3.26(b), although the entire amount of
such Damages shall be applied to the calculation of the Indemnification
Threshold with respect to those Damages not exempt from the Indemnification
Threshold by this proviso; and provided further that if the aggregate amount of
Damages exceeds the Indemnification Threshold, then the Stockholders shall
reimburse the Aether Indemnified Parties for the entirety of all Damages and the
Indemnification Threshold shall be disregarded.
(b) the aggregate amount of the Stockholders' liability under
this Section 8 shall not exceed the Purchase Price; provided, however, that the
Stockholders' liability for Damages arising out of any breaches of the covenants
of the Stockholders set forth in this Agreement or the representations made in
Section 3.4 (capital stock of the Company), 3.5 (transactions in capital stock),
3.24 (benefit plans and employment matters) or 3.25 (taxes) or Damages described
in Section 8.1(a)(iii) or (vi) shall not be subject to such limitation;
- 30 -
<PAGE> 38
(c) the indemnification obligations under this Article 8 or in
any certificate or writing furnished in connection herewith shall terminate on
the latest to occur of the events described in the following clauses (i), (ii)
and (iii) of this Section 8.2(c):
(i) (1) except as to representations, warranties and
covenants specified in clause (i)(2) of this Section 8.2(c), the second
anniversary of the Closing Date, or
(2) with respect to representations, warranties
and covenants contained in Sections 3.24 (benefit plans and employment matters),
3.25 (taxes), 7.2, 7.3, 7.4 and 7.5 (certain tax matters) and the
indemnifications set forth in Section 8.1(a)(iii) or (vi), on the date that is
six (6) months after the expiration of the longest applicable federal or state
statute of limitation (including extensions thereof);
(ii) the final resolution of claims or demands (a
"Claim") pending as of the relevant dates described in clause (i) of this
Section 8.2(c) (such claims referred to as "Pending Claims"), except that the
indemnification obligation with regard to the New York state tax claim and the
Reuters claim referred to in Schedule 3.26(b) shall only survive for two years
following the Closing Date; and
(iii) with respect to representations and warranties
contained in Section 3.4 (capital stock of the Company), there shall be no
limitation.
8.3 INDEMNIFICATION PROCEDURES. All Claims for indemnification under
this Section 8 shall be asserted and resolved as follows:
(a) In the event that any Aether Indemnified Party has a Claim
against any party obligated to provide indemnification pursuant to Section 8.1
hereof (the "Indemnifying Party") which does not involve a Claim being asserted
against or sought to be collected by a third party, the Aether Indemnified Party
shall with reasonable promptness send a Claim Notice (defined below) with
respect to such Claim to the Indemnifying Party. If the Indemnifying Party does
not notify the Aether Indemnified Party within the Notice Period (defined below)
that the Indemnifying Party disputes such Claim, the amount of such Claim shall
be conclusively deemed a liability of the Indemnifying Party hereunder. In case
an objection is made in writing in accordance with this Section 8.3(a), the
Aether Indemnified Party shall have thirty (30) days to respond in a written
statement to the objection. If after such thirty (30) day period there remains a
dispute as to any Claims, the parties shall attempt in good faith for thirty
(30) days to agree upon the rights of the respective parties with respect to
each of such Claims. If the parties should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties.
(b) In the event that any Claim for which the Indemnifying
Party would be liable to an Aether Indemnified Party hereunder is asserted
against an Aether Indemnified Party by a third party, the Aether Indemnified
Party shall with reasonable promptness notify the Indemnifying Party of such
Claim, specifying the nature of such claim and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such Claim) (the "Claim Notice"). The
Indemnifying Party shall have 30 days from the receipt of the Claim
- 31 -
<PAGE> 39
Notice (the "Notice Period") to notify the Aether Indemnified Party (i) whether
or not such party disputes the liability to the Aether Indemnified Party
hereunder with respect to such Claim and (ii) if such party does not dispute
such liability, whether or not the Indemnifying Party desires, at the sole cost
and expense of the Indemnifying Party, to defend against such Claim; provided
that such party is hereby authorized (but not obligated) prior to and during the
Notice Period to file any motion, answer or other pleading and to take any other
action that the Indemnifying Party shall deem necessary or appropriate to
protect the Indemnifying Party's interests. In the event that the Indemnifying
Party notifies the Aether Indemnified Party within the Notice Period that the
Indemnifying Party does not dispute the Indemnifying Party's obligation to
indemnify hereunder and desires to defend the Aether Indemnified Party against
such Claim and except as hereinafter provided, such party shall have the right
to defend by appropriate proceedings, which proceedings shall be promptly
settled or prosecuted by such party to a final conclusion; provided that, unless
the Aether Indemnified Party otherwise agrees in writing, such party may not
settle any matter (in whole or in part) unless such settlement includes a
complete and unconditional release of the Aether Indemnified Party. If the
Aether Indemnified Party desires to participate in, but not control, any such
defense or settlement, the Aether Indemnified Party may do so at its sole cost
and expense. If the Indemnifying Party elects not to defend the Aether
Indemnified Party against such Claim, whether by failure of such party to give
the Aether Indemnified Party timely notice as provided above or otherwise, then
the Aether Indemnified Party, without waiving any rights against such party, may
settle or defend against any such Claim in the Aether Indemnified Party's sole
discretion, and the Aether Indemnified Party shall be entitled to recover from
the Indemnifying Party the amount of any settlement or judgment and, on an
ongoing basis, all indemnifiable costs and expenses of the Aether Indemnified
Party with respect thereto, including interest from the date such costs and
expenses were incurred.
(c) If at any time, in the reasonable opinion of the Aether
Indemnified Party, notice of which shall be given in writing to the Indemnifying
Party, any such Claim seeks material prospective or other relief which could
have a materially adverse effect on the assets, liabilities, Taxes, financial
condition, results of operations or business prospects of any Aether Indemnified
Party or any subsidiary, the Aether Indemnified Party shall have the right to
control or assume (as the case may be) the defense of any such Claim, and the
amount of any judgment or settlement and the reasonable costs and expenses of
defense shall be included as part of the indemnification obligations of the
Indemnifying Party hereunder. If the Aether Indemnified Party should elect to
exercise such right, the Indemnifying Party shall have the right to participate
in, but not control, the defense of such claim or demand at the sole cost and
expense of the Indemnifying Party.
(d) Nothing herein shall be deemed to prevent the Aether
Indemnified Party from making a claim, and an Aether Indemnified Party may make
a claim hereunder, for potential or contingent claims or demands; provided that
the Claim Notice sets forth the specific basis for any such potential or
contingent claim or demand to the extent then feasible and the Aether
Indemnified Party has reasonable grounds to believe that such a claim or demand
may be made.
(e) The Aether Indemnified Party's failure to give reasonably
prompt notice as required by this Section 8.3 of any actual, threatened or
possible claim or demand which may give rise to a right of indemnification
hereunder shall not relieve the Indemnifying Party of any liability
- 32 -
<PAGE> 40
that the Indemnifying Party may have to the Aether Indemnified Party unless the
failure to give such notice materially adversely prejudiced the Indemnifying
Party.
(f) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under Section 8; provided that no Indemnifying Party
shall be obligated to seek any payment pursuant to the terms of any insurance
policy.
8.4 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the Company, the Stockholders,
Purchaser in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein). The representations of the Company and the
Stockholders will survive the Closing and will remain in effect until, and will
expire upon, the termination of the relevant indemnification obligation as
provided in Section 8.2. The representations of Purchaser will survive the
Closing and will remain in effect until, and will expire upon, the second
anniversary of the Closing Date. The covenants of the parties will survive the
Closing and expire in accordance with their terms.
8.5 REMEDIES CUMULATIVE. The remedies set forth in this Article 8 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Aether Indemnified Parties under any other
agreement or pursuant to statutory or common law.
8.6 TAX CONTESTS.
(a) If any Aether Indemnified Party receives written notice
from any Tax authority of any audit, examination, claim or other administrative
or judicial proceeding relating to Taxes or Tax Returns (a "Tax Claim") with
respect to which the Indemnifying Party is required to provide indemnification
under this Agreement, the Aether Indemnified Party shall give prompt written
notice of such Tax Claim to the Indemnifying Party; provided, however, that the
failure to give such notice shall not affect the indemnification provided
hereunder except to the extent that the failure to give such notice materially
prejudices the Indemnifying Party.
(b) The Indemnifying Party shall have the right, at its own
expense, to control all proceedings and may make all decisions with respect to
any Tax Claim for any Taxable period ending on or before the Closing Date;
provided that the Aether Indemnified Party, and counsel of its own choosing,
shall have the right, at its own expense, to participate fully in all aspects of
the prosecution or defense of such Tax Claim; and provided further that the
Indemnifying Party shall not take any action to settle or otherwise conclude any
such Tax Claim without the prior written consent of the Aether Indemnified
Party. The Indemnifying Party must notify the Aether Indemnified Party in
writing within thirty (30) days after receiving notice of a Tax Claim pursuant
to Section 8.6(a) that the Indemnifying Party intends to exercise its right to
control the conduct of a Tax Claim described in this Section 8.6(b).
(c) If the Indemnifying Party does not exercise its right to
assume control of the proceedings and make decisions with respect to a Tax
Claim, the Aether Indemnified Party may,
- 33 -
<PAGE> 41
without waiving its rights to indemnification hereunder, take any action to
defend, settle or otherwise conclude the Tax Claim in such manner as it may deem
appropriate in its sole and absolute discretion. Purchaser shall have the right
to control and make all decisions with respect to any Tax Claim not described in
Section 8.6(b).
(d) In the event that the provisions of this Section 8.6
hereof and the provisions of Section 8.3(b) and (c) conflict or otherwise each
apply by their terms, this Section 8.6 shall govern all matters concerning Tax
Claims.
9. NONCOMPETITION AND CONFIDENTIALITY
9.1 EMPLOYMENT AGREEMENT; ADVISORY AGREEMENTS. The noncompetition and
confidentiality provisions of the Employment Agreement and Advisory Agreements
constitute a material part of the purchase and sale transaction contemplated by
this Agreement and are supported by adequate consideration.
10. GENERAL
10.1 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Purchaser or the Company and the heirs, personnel representatives
and successors of the Stockholders.
10.2 ENTIRE AGREEMENT. This Agreement (which includes the Schedules
and Exhibits hereto) sets forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby. It shall not be amended or
modified except by a written instrument duly executed by each of the parties
hereto. Any and all previous agreements and understandings between or among the
parties regarding the subject matter hereof, whether written or oral, are
superseded by this Agreement. Each of the Schedules to this Agreement is
incorporated herein by reference and expressly made a part hereof. The Company
and the Purchaser are also parties to the Non-Disclosure Agreement (two way)
between the Company and the Purchaser dated July 30, 1999, and the
Confidentiality Agreement dated July 30, 1999 among the Company, the Purchaser
and certain other parties, which Agreements shall survive execution and
delivery of this Agreement.
10.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered (which deliveries may be
by telefax) by the parties.
10.4 TERMINATION.
(a) Mutual Consent. This Agreement may be terminated at any
time prior to the Closing Date by mutual written agreement of Purchaser and the
Sellers.
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<PAGE> 42
(b) Termination by Sellers. This Agreement may be terminated
and the stock purchase hereunder may be abandoned at any time prior to the
Closing by Sellers if there has been one or more breaches by Purchaser of any
representations, warranties, covenants, or agreements contained in this
Agreement; provided, however, that Sellers may not terminate this Agreement
pursuant to this Section 10.4(b) unless, within five (5) days of becoming aware
of such breach, Sellers have given written notice of such breach to Purchaser
and have provided Purchaser with fifteen (15) days to cure such breach.
(c) Termination by Purchaser. This Agreement may be terminated
and the stock purchase hereunder may be abandoned at any time prior to the
Closing Date by Purchaser if: (i) there has been one or more breaches by any of
the Sellers of any representations, warranties, covenants, or agreements
contained in this Agreement; provided, however, that Purchaser may not terminate
this Agreement pursuant to this Section 10.4(c)(i) unless, within five (5) days
of becoming aware of such breach, Purchaser has given written notice of such
breach to Seller and has provided Seller with fifteen (15) days to cure such
breach; or (ii) Purchaser fails to obtain satisfactory financing, as provided in
Section 5.10.
(d) Effect of Termination. In the event of the termination of
this Agreement pursuant to this Section 10.4, this Agreement shall forthwith
become void, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or stockholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Section 10.4 shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
10.4(c)(i), if due to(A) a material breach of a representation or warranty that
any Seller knows was incorrect when made or, with the exercise of reasonable
care, any Seller should have known was incorrect when made, or (B) an
intentional breach of any representation, warranty, covenant or agreement in
this Agreement by any Seller, then notwithstanding the provisions of Section
10.5 below, Sellers shall be liable to Purchaser to the extent of the expenses
incurred by Purchaser in connection with this Agreement and the transactions
contemplated hereby, as well as any damages in accordance with applicable Laws.
10.5 EXPENSES. The Stockholders (and not the Company) have and will
pay the fees, expenses and disbursements of the Stockholders, the Company, and
each of their agents, representatives, financial advisers, accountants and
counsel incurred in connection with the subject matter of this Agreement.
Purchaser has and will pay the fees, expenses and disbursements of Purchaser and
each of its agents, representatives, financial advisers, accountants and counsel
incurred in connection with the subject matter of this Agreement.
10.6 SPECIFIC PERFORMANCE; REMEDIES. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement, including without limitation, the
noncompetition provisions reference in Section 9.1. It is accordingly agreed
that, in addition to any other remedies that may be available upon the breach of
any such covenants or agreements, each party hereto shall have the right to
obtain injunctive relief to restrain a breach
- 35 -
<PAGE> 43
or threatened breach of, or otherwise to obtain specific performance of, the
covenants and agreements contained in this Agreement.
10.7 NOTICES. Any notice, request, claim, demand, waiver, consent,
approval or other communication that is required or permitted hereunder shall be
in writing and shall be deemed given if delivered personally or sent by telefax
(with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Purchaser to:
Aether Technologies International, L.L.C.
11460 Cronridge Drive
Owings Mills, MD 21117
Tel: 410-654-6400
Fax: 410-654-6554
Attention: Mr. David Oros
with a required copy to:
Wilmer, Cutler & Pickering
2445 M Street N.W.
Washington, D.C. 20037
Tel: 202-663-6000
Fax: 202-663-6363
Attention: Mark Dewire, Esq.
If to the Stockholders or the Company to:
Mobeo, inc.
7700 Wisconsin Avenue
Suite 420
Bethesda, MD 20814
Tel: 301-951-1733
Fax: 301-951-1731
Attention: Mr. Richard Gutowski
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<PAGE> 44
with a required copy to:
Piper & Marbury, L.L.P.
1850 Centennial Park Drive
Suite 610
Reston, VA 20191
Tel: 703-390-5240
Fax: 703-390-5299
Attention: Nancy A. Spangler, Esq.
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Maryland,
without regard to principles of conflicts of laws thereof.
10.9 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable.
10.10 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. Except as set forth in
Section 8, no provision of this Agreement is intended, nor will be interpreted,
to provide or to create any third party beneficiary rights or any other rights
of any kind in any client, customer, affiliate, shareholder, employee, partner
of any party hereto or any other person or entity.
10.11 AMENDMENT; WAIVER. This Agreement may be amended by the parties
hereto at any time prior to the Closing by execution of an instrument in writing
signed on behalf of each of the parties hereto. Any extension or waiver by any
party of any provision hereto shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
10.12 OPERATION OF THE COMPANY. The Stockholders recognize that
Purchaser, as the owner of the Company, shall have the authority to exercise its
own good faith business judgment with regard to the operations of Purchaser and
its subsidiaries including, following the Closing, the Company. The Stockholders
acknowledge that such authority and control shall include, without limitation, a
determination of appropriate charges to the Company of charges incurred by the
Company, personnel decisions, expansion decisions, the use and nature of the
assets of the Company and the nature and amount of capital of the Company.
10.13 ARBITRATION.
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<PAGE> 45
(a) Any disputes, controversies or claims between or among any of the
parties hereto arising out of, related to or in connection with this Agreement
("Disputes") shall be resolved by binding arbitration, which shall be
administered by the American Arbitration Association ("AAA") and shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"), as such Rules may be amended from time to
time, with the hearing locale to be the State of Maryland, unless some other
location and/or arbitrator are chosen by mutual consent of the parties.
(b) A single neutral arbitrator (the "Arbitrator") shall preside over
the arbitration and decide the Dispute (the "Decision"). The AAA shall use its
normal procedures pursuant to the Rules for selection of the Arbitrator.
(c) The Decision shall be binding, and the prevailing party may
enforce such decision in any court of competent jurisdiction.
(d) The parties shall cooperate with each other in causing the
arbitration to be held in as efficient and expeditious a manner as practicable
and, in this connection, to furnish such documents and make available such
persons as the Arbitrator may request.
(e) The parties have selected arbitration in order to expedite the
resolution of Disputes and to reduce the costs and burdens associated with
litigation. The parties agree that the Arbitrator should take these concerns
into account when determining whether to authorize discovery and, if so, the
scope of permissible discovery and other hearing and pre-hearing procedures.
(f) Without limiting any other remedies that may be available under
applicable law, the Arbitrator shall have no authority to award punitive
damages.
(g) The Arbitrator shall render a Decision within ninety (90) days
after accepting an appointment to serve as Arbitrator unless the parties
otherwise agree or the Arbitrator makes a finding that a party has carried the
burden of showing good cause for a longer period.
(h) Notwithstanding anything herein to the contrary, any of the
parties may seek a temporary restraining order or a preliminary injunction from
any court of competent jurisdiction in order to prevent immediate and
irreparable injury, loss or damage pending the selection of an arbitrator to
render a Decision on the ultimate merits of any Dispute.
(i) All proceedings and decisions of the Arbitrator shall be
maintained in confidence, to the extent legally permissible, and shall not be
made public by any party or any Arbitrator without the prior written consent of
all parties to the arbitration, except as may be required by law.
(j) Each party shall bear its own costs and attorneys' fees, and the
parties shall equally bear the fees, costs and expenses of the Arbitrator and
the arbitration proceedings; provided, however, that the Arbitrator may exercise
discretion to award costs and attorneys' fees to the prevailing party.
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<PAGE> 46
10.14 MUTUAL DRAFTING. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto.
10.15 FURTHER REPRESENTATIONS. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel.
10.16 FURTHER ASSURANCES. Each of the Sellers and Purchaser will upon
request of the other, from time to time after the Closing, execute and deliver
and use their commercially reasonable best efforts to cause other persons to
execute and deliver, all such further documents and instruments and will do or
use its commercially reasonable best efforts to cause or be done such other acts
as a party may reasonably request more completely to consummate and make
effective the transactions contemplated by this Agreement.
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
AETHER TECHNOLOGIES
INTERNATIONAL, L.L.C.
By: /s/ David S. Oros
-----------------------------------
Name:
Title: President/CEO
MOBEO, INC.
By: /s/ Peter Kibler
-----------------------------------
Name:
Title: President
STOCKHOLDERS:
/s/ Peter Kibler
-----------------------------
Peter Kibler
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<PAGE> 47
/s/ Winston Barrett
-----------------------------
Winston Barrett
/s/ Edward Spear
-----------------------------
Edward Spear
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<PAGE> 48
SCHEDULE 1.2(a)(ii) -- REASONS FOR REFUNDING $200,000
Failure of any of the conditions set forth in Sections 5.1 through 5.8, 5.11 or
5.13.
<PAGE> 49
EXHIBIT 5.6
AGREED FORM: 8/18/99
[ ] Employee's Copy
[ ] Company's Copy
MOBEO, INC.
EMPLOYMENT AGREEMENT
To EDWARD SPEAR:
This Agreement establishes the terms of your employment with mobeo,
inc., a Delaware corporation (the "Company"). Your employment under this
Agreement is contingent on the closing (the "Closing") of Aether Technologies
International, L.L.C.'s ("Aether's") acquisition of mobeo, inc. as set forth in
the stock purchase agreement dated as of __________________. If the Closing does
not become occur, this Agreement will not bind either you or the Company, unless
both you and the Company agree otherwise in writing.
<TABLE>
<S> <C>
EMPLOYMENT AND DUTIES You and the Company agree to your employment as ____________
on the terms contained herein. In such position, you will report
directly to the [President][other title] (your "Direct Report"). (The
Company's President may change your Direct Report from time to
time in its or his discretion.) You agree to perform whatever duties
your Direct Report may assign you from time to time. During your
employment, you agree to devote your full business time, attention,
and energies to performing those duties (except as your Direct
Report otherwise agrees from time to time). You agree to comply
with the noncompetition, secrecy, and other provisions of Exhibit A
to this Agreement.
TERM OF EMPLOYMENT Your employment under this Agreement begins as of the
_____________ (the "Effective Date"). Unless sooner terminated
under this Agreement, your employment ends at 6:00 p.m. Eastern
Time on the SECOND anniversary of the Effective Date.
The period running from the Effective Date to the applicable date in
the preceding sentence is the "Term."
Termination or expiration of this Agreement ends your employment
but does not end your obligation to comply with Exhibit A.
</TABLE>
<PAGE> 50
<TABLE>
<S> <C>
COMPENSATION
Salary The Company will pay you an annual salary (the "Salary") from
the Effective Date at the rate of not less than $200,000 in
accordance with its generally applicable payroll practices. Your
Direct Report will review your Salary annually and consider you
for increases.
Options The Company will grant an option to you under Aether's Equity
Incentive Plan to acquire 26,000 units: 14,000 at the exercise
price of $12.00 per unit and 12,000 at the exrecise price of $6.00
per unit of limited liability company interests in Aether as of the
Effective Date. Such option will be exercisable as
follows:______________
Employee Benefits While the Company employs you under this Agreement, the
Company will provide you with the same benefits as it makes
generally available from time to time to the Company's
employees, as those benefits are amended or terminated from time
to time. Your participation in the Company's benefit plans will be
subject to the terms of the applicable plan documents and the
Company's generally applied policies, and the Company in its sole
discretion may from time to time adopt, modify, interpret, or
discontinue such plans or policies.
PLACE OF EMPLOYMENT Your principal place of employment will be at such offices as the
Company may establish from time to time and to which it assigns
you in its sole discretion. You understand and agree that you
must travel from time to time for business reasons.
EXPENSES The Company will reimburse you for reasonable and necessary
travel and other business-related expenses you incur for the
Company in performing your duties under this Agreement. You
must itemize and substantiate all requests for reimbursements.
You must submit requests for reimbursement in accordance with
the policies and practices of the Company.
</TABLE>
WCP3: 91114/1
Employment Agreement with Edward Spear
Page 2 of 19
<PAGE> 51
<TABLE>
<S> <C>
NO OTHER EMPLOYMENT While the Company employs you, you agree that you will not,
directly or indirectly, provide services to any person or
organization for which you receive compensation or otherwise
engage in activities that would conflict or interfere significantly
with your faithful performance of your duties as an employee
without the Company's Board of Director's (the "Board") prior
written consent. (This prohibition excludes any work performed
at the Company's direction.) You may manage your personal
investments, as long as the management takes only minimal
amounts of time and is consistent with the provisions of the NO
COMPETITION Section in Exhibit A and is otherwise consistent with
the policies and practices of the Company.
You represent to the Company that you are not subject to any
agreement, commitment, or policy of any third party that would
prevent you from entering into or performing your duties under
this Agreement, and you agree that you will not enter into any
agreement or commitment or agree to any policy that would
prevent or hinder your performance of duties and obligations
under this Agreement, including Exhibit A.
NO CONFLICTS OF INTEREST You confirm that you have fully disclosed to the Company, to the
best of your knowledge, all circumstances under which you, your
spouse, and your immediate relatives (and others who reside in
your household) have or may have a conflict of interest with the
Company. You further agree to fully disclose to the Company
any such circumstances that might arise during your employment.
You agree to fully comply with the Company's policy and
practices relating to conflicts of interest.
NO IMPROPER You will neither pay nor permit payment of any remuneration to
PAYMENTS or on behalf of any governmental official other than payments
required or permitted by applicable law. You will comply fully
with the Foreign Corrupt Practices Act of 1977, as amended.
You will not, directly or indirectly,
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make or permit any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to
any person or entity, private or public, regardless of what
form, whether in money, property, or services
to obtain favorable treatment for business secured,
to pay for favorable treatment for business secured,
to obtain special concessions or for special
concessions already obtained, or
in violation of any legal requirement, or
establish or maintain any fund or asset related to the
Company that is not recorded in the Company's books and
records, or
take any action that would violate (or would be part of a
series of actions that would violate) any U.S. law,
including those laws relating to trading with the enemy,
export control, and boycotts of Israel or Israeli products
(as is sought by certain Arab countries).
TERMINATION Subject to the provisions of this section, you and the Company agree that
it may terminate your employment, or you may resign, except that, if you
voluntarily resign, you must provide the Company with 90 days' prior
written notice (unless your Direct Report has previously waived such
notice in writing or authorized a shorter notice period).
For Cause The Company may terminate your employment for "Cause" if
you:
(i) commit a material breach of your obligations or
agreements under this Agreement, including Exhibit A;
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(ii) commit an act of gross negligence or otherwise act
with willful disregard for the Company's best interests;
(iii) fail or refuse to perform any duties delegated to you
that are consistent with the duties of similarly-situated
employees or are otherwise required under this Agreement;
(iv) seize a corporate opportunity for yourself instead of
offering such opportunity to the Company; or
(v) are convicted of or plead guilty or no contest to a
misdemeanor (other than a traffic violation) or felony, or
violate any federal or state securities or tax laws, or, with
respect to your employment, commit either a material
dishonest act or common law fraud.
Your termination for Cause will be effective immediately upon the
Company's mailing or transmission of notice of such termination.
Before terminating your employment for Cause under clauses
(i) - (iv) above, the Company will specify in writing to you the
nature of the act, omission, refusal, or failure that it deems to
constitute Cause and, if your Direct Report reasonably considers
the situation to be correctable, give you 30 days after you receive
such notice to correct the situation (and thus avoid termination for
Cause), unless the Company agrees to extend the time for
correction. You agree that your Direct Report will have the
discretion to determine whether your correction is sufficient.
Without Cause Subject to the provisions below under Payments on Termination,
the Company may terminate your employment under this
Agreement before the end of the Term without Cause.
Disability If you become "disabled" (as defined below), the Company may
terminate your employment. You are "disabled" if you are unable,
despite whatever reasonable accommodations the law requires, to
render services to the Company for more than 90 consecutive days
because of physical or mental disability, incapacity, or illness.
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You are also disabled if you are found to be disabled within the
meaning of the Company's long-term disability insurance
coverage as then in effect (or would be so found if you applied for
the coverage).
Death If you die during the Term, the Term will end as of the date of
your death.
Payments on If you resign or the Company terminates your employment
Termination without cause or because of disability or death, the Company will
pay you any unpaid portion of your Salary pro-rated through the
date of actual termination and any annual bonuses already
determined by such date but not yet paid, reimburse any
substantiated but unreimbursed business expenses, pay any
accrued and unused vacation time (to the extent consistent with the
Company's policies), and provide such other benefits as applicable
laws or the terms of the benefits require. Except to the extent the
law requires otherwise or as provided in the Severance paragraph,
neither you nor your beneficiary or estate will have any rights or
claims under this Agreement or otherwise to receive severance or
any other compensation, or to participate in any other plan,
arrangement, or benefit, after such termination or resignation. If
your employment is terminated or never begins because the
Company does not complete its acquisition, you acknowledge that
you have no rights to the Severance set forth below or to any
other payments under or with respect to this Agreement.
Severance In addition to the foregoing payments, if before the end of the
Term, the Company terminates your employment without Cause,
the Company will
pay you severance equal to your Salary, as then in
effect, for up to 6 months depending upon position
at Company on the same schedule as though you had
remained employed during such period, even though
you are not employed;
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if, however and in lieu of preceding sentence, you
are terminated without cause after a Change of
Control (as defined in Aether's 1998 Equity
Incentive Plan) and before the second anniversary
of the Effective Date, you will receive severence
equal to Salary that is the greater of 12 months or
the remaining number of months before the second
anniversary of the Effective Date; and
pay the premium cost for you to receive any group
health coverage the Company must offer you under
Section 4980B of the Internal Revenue Code of
1986 ("COBRA Coverage") for the first six months'
coverage (unless the coverage is then provided
under a self-insured plan).
You are not required to mitigate amounts payable under
the Severance paragraph by seeking other employment or
otherwise; however, you agree to return any payments
under this Severance paragraph if you fail to comply with
Exhibit A. Expiration of this Agreement, whether because
of notice of non-renewal or otherwise, does not constitute
termination without Cause and does not entitle you to
Severance.
ASSIGNMENT The Company may assign or otherwise transfer this Agreement
and any and all of its rights, duties, obligations, or interests under
it to
any of the affiliates or subsidiaries of the Company or
to any business entity that at any time by merger,
consolidation, or otherwise acquires all or substantially all
of the Company's stock or assets or to which the Company
transfers all or substantially all of its assets.
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Upon such assignment or transfer, any such business entity will be
deemed to be substituted for the Company for all purposes. You
agree that assignment or transfer does not entitle you to
Severance. This Agreement binds and benefits the Company, its
successors or assigns, and your heirs and the personal
representatives of your estate. Without your Direct Report's prior
written consent, you may not assign or delegate this Agreement or
any or all rights, duties, obligations, or interests under it.
SEVERABILITY If the final determination of an arbitrator or a court of competent
jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be
perfected, that any term or provision of this Agreement, including
any provision of Exhibit A, is invalid or unenforceable, the
remaining terms and provisions will be unimpaired, and the
invalid or unenforceable term or provision will be deemed
replaced by a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or
unenforceable term or provision.
AMENDMENT; WAIVER Neither you nor the Company may modify, amend, or waive the
terms of this Agreement other than by a written instrument signed
by you and an executive officer of the Company duly authorized
by the Board. Either party's waiver of the other party's
compliance with any provision of this Agreement is not a waiver
of any other provision of this Agreement or of any subsequent
breach by such party of a provision of this Agreement.
WITHHOLDING The Company will reduce its compensatory payments to you for
withholding and FICA taxes and any other withholdings and
contributions required by law.
GOVERNING LAW The laws of the State of Maryland (other than its conflict of laws
provisions) govern this Agreement.
NOTICES Notices must be given in writing by personal delivery, by certified
mail, return receipt requested, by telecopy, or by overnight
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delivery. You should send or deliver your notices to the
Company's corporate headquarters. The Company will send or
deliver any notice given to you at your address as reflected on the
Company's personnel records. You and the Company may change
the address for notice by like notice to the others. You and the
Company agree that notice is received on the date it is personally
delivered, the date it is received by certified mail, the date of
guaranteed delivery by the overnight service, or the date the fax
machine confirms effective transmission.
SUPERSEDING EFFECT This Agreement supersedes any prior oral or written employment,
severance, option, or fringe benefit agreements between you and
the Company, other than with respect to your eligibility for
generally applicable employee benefit plans. This Agreement
supersedes all prior or contemporaneous negotiations,
commitments, agreements, and writings with respect to the subject
matter of this Agreement (other than _________, dated as of
____________, 19__). All such other negotiations, commitments,
agreements, and writings will have no further force or effect; and
the parties to any such other negotiation, commitment, agreement,
or writing will have no further rights or obligations thereunder.
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If you accept the terms of this Agreement, please sign in the space indicated
below. We encourage you to consult with any advisors you choose.
MOBEO, INC.
By: __________________________________
Name: ______________________
Title: ______________________
I accept and agree to the terms of employment set
forth in this Agreement:
___________________________
Edward Spear
Dated:_____________________
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Exhibit A
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NO COMPETITION In consideration of your employment by the Company and salary
and benefits under this Agreement, while the Company (or its
successor or transferee) employs you and to the end of the
Restricted Period (as defined below), you agree as follows:
The Company has been formed to provide wireless data services
and systems. You will not, directly or indirectly, be employed
by, lend money to, or engage in any Competing Business within
the Market Area (each as defined below). That prohibition
includes, but is not limited to, acting, either singly or jointly or as
agent for, or as an employee of or consultant to, any one or more
persons, firms, entities, or corporations directly or indirectly (as a
director, independent contractor, representative, consultant,
member, or otherwise) that constitutes such a Competing
Business. You also will not invest or hold equity or options in
any Competing Business, provided that you may own up to 3% of
the outstanding capital stock of any corporation that is publicly
traded without violating this No Competition covenant, so long as
you have no involvement beyond passive investing in such
business and you comply with the second sentence of this
paragraph.
You acknowledge that, during the Restricted Period, you may
engage in any business activity or gainful employment of any type
and in any place except as described above. You acknowledge
that you will be reasonably able to earn a livelihood without
violating the terms of this agreement.
Definitions
Competing Competing Business means any service or product of any person
Business or organization other than the Company or the Company Group,
in existence or then under development, that competes or could
potentially compete, directly or indirectly, with any service or
product of the Company Group upon which or with which you
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have worked for the Company or the Company Group or about
which you acquire knowledge while working for the Company or
the Company Group. Competing Business includes any enterprise
engaged in the design, development, sale and/or support of
products and/or services that provide and/or support wireless data
services and/or systems that enable people to use wireless devices
for data communications and transactions.
Market Area The Market Area consists of North America and the countries of
the European Union. You agree that the Company provides
services both at its facilities and at the locations of its customers
or clients and that, by the nature of its business, it operates
globally.
Restricted For purposes of this Agreement, the Restricted Period
Period ends at the later of the second anniversary of the date your
employment with the Company Group ends for any reason or the
fourth anniversary of the Effective Date.
NO INTERFERENCE; During the Restricted Period, you agree that you will not, directly
NO SOLICITATION or indirectly, whether for yourself or for any other individual or
entity (other than the Company or its affiliates or subsidiaries),
intentionally
solicit any person or entity who is, or was, within the
Restricted Period, a customer, prospect, or client of the
Company Group;
hire away or endeavor to entice away from the Company
Group any employee or any other person or entity whom
the Company Group engages to perform services or supply
products and including, but not limited to, any independent
contractors, consultants, engineers, or sales representatives
or any contractor, subcontractor, supplier, or vendor; or
hire any person whom the Company Group employs or
employed within the prior 12 months.
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SECRECY
Preserving Your employment with the Company under and, if applicable,
Company before this Agreement, has given and will give you Confidential
Confidences Information (as defined below). You acknowledge and agree that
using, disclosing, or publishing any Confidential Information in an
unauthorized or improper manner could cause the Company or
Company Group substantial loss and damages that could not be
readily calculated and for which no remedy at law would be
adequate. Accordingly, you agree with the Company that you will
not at any time, except in performing your employment duties to
the Company or the Company Group under this Agreement (or
with the Board's or your Direct Report's prior written consent),
directly or indirectly, use, disclose, or publish, or permit others
not so authorized to use, disclose, or publish any Confidential
Information that you may learn or become aware of, or may have
learned or become aware of, because of your prior or continuing
employment, ownership, or association with the Company or the
Company Group or any of their predecessors, or use any such
information in a manner detrimental to the interests of the
Company or the Company Group.
Preserving You agree not to use in working for the Company Group and not
Others' to disclose to the Company Group any trade secrets or other
Confidences information you do not have the right to use or disclose and that
the Company Group is not free to use without liability of any
kind. You agree to promptly inform the Company in writing of
any patents, copyrights, trademarks, or other proprietary rights
known to you that the Company or the Company Group might
violate because of information you provide.
Confidential "Confidential Information" includes, without limitation,
Information information that the Company or the Company Group has not
previously disclosed to the public or to the trade with respect to
the Company's or the Company Group's present or future
business, including its operations, services, products, research,
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inventions, discoveries, drawings, designs, plans, processes,
models, technical information, facilities, methods, trade secrets,
copyrights, software, source code, systems, patents, procedures,
manuals, specifications, any other intellectual property,
confidential reports, price lists, pricing formulas, customer lists,
financial information (including the revenues, costs, or profits
associated with any of the Company's or the Company Group's
products or services), business plans, lease structure, projections,
prospects, opportunities or strategies, acquisitions or mergers,
advertising or promotions, personnel matters, legal matters, any
other confidential and proprietary information, and any other
information not generally known outside the Company or the
Company Group that may be of value to the Company or the
Company Group but excludes any information already properly in
the public domain. "Confidential Information" also includes
confidential and proprietary information and trade secrets that
third parties entrust to the Company or the Company Group in
confidence.
You understand and agree that the rights and obligations set forth
in this SECRECY Section will continue indefinitely and will survive
termination of this Agreement and your employment with the
Company or the Company Group.
EXCLUSIVE PROPERTY You confirm that all Confidential Information is and must remain
the exclusive property of the Company or the relevant member of
the Company Group. Any office equipment (including computers)
you receive from the Company Group in the course of your
employment and all business records, business papers, and business
documents you keep or make, whether on digital media or
otherwise, in the course of your employment by the Company
relating to the Company or any member of the Company Group
must be and remain the property of the Company or the relevant
member of the Company Group. Upon the termination of this
Agreement with the Company or upon the Company's request at
any time, you must promptly deliver to the Company or to the
relevant member of the Company Group any such office
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equipment (including computers) and any Confidential Information
or other materials (written or otherwise) not available to the public
or made available to the public in a manner you know or
reasonably should recognize the Company did not authorize, and
any copies, excerpts, summaries, compilations, records, or
documents you made or that came into your possession during
your employment. You agree that you will not, without the
Company's consent, retain copies, excerpts, summaries, or
compilations of the foregoing information and materials. You
understand and agree that the rights and obligations set forth in
this EXCLUSIVE PROPERTY Section will continue indefinitely and will
survive termination of this Agreement and your employment with
the Company Group.
COPYRIGHTS, You agree that all records, in whatever media (including written
DISCOVERIES, works), documents, papers, notebooks, drawings, designs,
INVENTIONS, AND technical information, source code, object code, processes,
PATENTS methods or other copyrightable or otherwise protected works you
conceive, create, make, invent, or discover or that otherwise
relate to or result from any work you perform or performed for
the Company or the Company Group or that arise from the use or
assistance of the Company Group's facilities, materials,
personnel, or Confidential Information in the course of your
employment (whether or not during usual working hours),
whether conceived, created, discovered, made, or invented
individually or jointly with others, will be and remain the absolute
property of the Company (or another appropriate member of the
Company Group, as specified by the Company), as will all the
worldwide patent, copyright, trade secret, or other intellectual
property rights in all such works. (All references in this section
to the Company include the members of the Company Group,
unless the Company determines otherwise.) You irrevocably and
unconditionally waive all rights, wherever in the world
enforceable, that vest in you (whether before, on, or after the date
of this Agreement) in connection with your authorship of any such
copyrightable works in the course of your employment with the
Company Group or any predecessor. Without limitation, you
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waive the right to be identified as the author of any such works
and the right not to have any such works subjected to derogatory
treatment. You recognize any such works are "works for hire" of
which the Company is the author.
You will promptly disclose, grant, and assign ownership to the
Company for its sole use and benefit any and all ideas, processes,
inventions, discoveries, improvements, technical information, and
copyrightable works (whether patentable or not) that you develop,
acquire, conceive or reduce to practice (whether or not during
usual working hours) while the Company or the Company Group
employs you. You will promptly disclose and hereby grant and
assign ownership to the Company of all patent applications, letters
patent, utility and design patents, copyrights, and reissues thereof
or any foreign equivalents thereof, that may at any time be filed or
granted for or upon any such invention, improvement, or
information. In connection therewith:
You will, without charge but at the Company's expense,
promptly execute and deliver such applications,
assignments, descriptions, and other instruments as the
Company may consider reasonably necessary or proper to
vest title to any such inventions, discoveries,
improvements, technical information, patent applications,
patents, copyrightable works, or reissues thereof in the
Company and to enable it to obtain and maintain the entire
worldwide right and title thereto; and
You will provide to the Company at its expense all such
assistance as the Company may reasonably require in the
prosecution of applications for such patents, copyrights, or
reissues thereof, in the prosecution or defense of
interferences that may be declared involving any such
applications, patents, or copyrights and in any litigation in
which the Company may be involved relating to any such
patents, inventions, discoveries, improvements, technical
information, or copyrightable works or reissues thereof.
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The Company will reimburse you for reasonable
out-of-pocket expenses you incur and pay you reasonable
compensation for your time if the Company Group no
longer employs you.
[You and the Company agree that Exhibit B lists and briefly
describes works, inventions, discoveries, proprietary information,
and copyrighted or copyrightable works (including contemplated
works) that the Company will not contest are owned (or will be
owned) by you or any entity to which you have assigned them.
You agree that you have no ownership interest in any other such
works or related patents or copyrights that relate in any way to the
business of the Company or the Company Group.]
To the extent, if any, that you own rights to works, inventions,
discoveries, proprietary information, and copyrighted or
copyrightable works, or other forms of intellectual property that
are incorporated in the work product you create for the Company
Group, you agree that the Company will have an unrestricted,
non-exclusive, royalty-free, perpetual, transferable license to
make, use, sell, offer for sale, and sublicense such works and
property in whatever form, and you hereby grant such license to
the Company (and the Company Group).
This COPYRIGHTS, DISCOVERIES, INVENTIONS AND PATENTS section
does not apply to an invention or discovery for which no
equipment, supplies, facility or trade secret information of the
Company Group (including its predecessors) was used and that
was developed entirely on your own time, unless (a) the invention
relates (i) directly to the business of the Company Group, or (ii)
the Company Group's actual or then reasonably anticipated
research or development, or (b) the invention results from any
work you performed for the Company Group or any predecessor.
MAXIMUM LIMITS If any of the provisions of Exhibit A are ever deemed to exceed
the time, geographic area, or activity limitations the law permits,
you and the Company agree to reduce the limitations to the
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maximum permissible limitation, and you and the Company
authorize a court or arbitrator having jurisdiction to reform the
provisions to the maximum time, geographic area, and activity
limitations the law permits; provided, however, that such
reductions apply only with respect to the operation of such
provision in the particular jurisdiction with respect to which such
adjudication is made.
INJUNCTIVE RELIEF Without limiting the remedies available to the Company, you
acknowledge
that a breach of any of the covenants in this Exhibit A may
result in material irreparable injury to the Company and
Company Group for which there is no adequate remedy at
law, and
that it will not be possible to measure damages for such
injuries precisely.
You agree that, if there is a breach or threatened breach, the
Company or any member of the Company Group will be entitled
to obtain a temporary restraining order and/or a preliminary or
permanent injunction restraining you from engaging in activities
prohibited by any provisions of this Exhibit A or such other relief
as may be required to specifically enforce any of the covenants in
this Exhibit A. The Company or any member of the Company
Group will, in addition to the remedies provided in this
Agreement, be entitled to avail itself of all such other remedies as
may now or hereafter exist at law or in equity for compensation
and for the specific enforcement of the covenants contained in this
Agreement. Resort to any remedy provided for in this Section or
provided for by law will not prevent the concurrent or subsequent
employment of any other appropriate remedy or remedies, or
preclude the Company's or the Company Group's recovery of
monetary damages and compensation. You also agree that the
Restricted Period or such longer period during which the
covenants hereunder by their terms survive will extend for any
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and all periods for which a court with personal jurisdiction over
you finds that you violated the covenants contained in this
Exhibit A.
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EXHIBIT 5.7
AGREED FORM: 8/18/99
[ ] Contractor's Copy
[ ] Company's Copy
August ____, 1999
Mr. Peter Kibler
Re: Advisory Services Agreement
Dear Mr. Kibler:
This letter establishes the terms and conditions of your engagement to
provide advisory services to Aether Technologies International, L.L.C. (the
"Company") and its subsidiary, mobeo, inc. ("mobeo"). We are entering into this
agreement so that you can provide services to the Company and so that you will
agree to refrain from competition with the Company and certain related
companies.
<TABLE>
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DUTIES As the Company's consultant, you will provide such advice and assistance
as the Company's President or his delegate request, consistent with your
experience, with respect to the integration of mobeo with the Company and
operation of mobeo and the development of its products and services.
You agree to devote such portion of your professional time, attention, and
efforts as you need to perform the services provided under this agreement,
with a maximum hourly commitment of 15 hours per month, except as you
and the Company otherwise agree.
TERM Except as the next sentence provides, you and the Company agree that this
letter agreement will have no force or effect until the date (the "Effective
Date") that the Company closes its acquisition of mobeo. This agreement
will run through the second anniversary of the Effective Date (which period
will be the "Term"), unless sooner terminated. Neither party expects or has
a right to renew or extend this agreement absent the other's consent.
RELATIONSHIP You are engaged in an independent business. You will be and act as an
independent contractor. You will not be treated as an employee of the
Company for any purpose whatsoever. You agree that you are an
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Mr. Kibler
August __, 1999
Page 2 of __
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independent contractor for purposes of the Internal Revenue Code and for
all other purposes.
You understand and agree that your status as an independent contractor
means that you are not eligible to participate in any of the Company's,
mobeo's, or their affiliates' employee benefit plans, programs, or
arrangements during the Term of this agreement (except as provided below
under BENEFITS), and you agree to waive any such participation for that
period even if your status is later reclassified.
In performing the services described under DUTIES, you will report to such
employees as the Company designates. You will have no authority to enter
into any contract or make any commitment for the Company, and you agree
not to do so. You are not an agent or representative of the Company Group
and do not have the right to employ any person on the Company's or the
Company Group's behalf. (For purposes of this Agreement, Company,
mobeo, or any other entities that are majority owned, directly or indirectly,
by the Company and their successors and assigns are referred to as the
"Company Group.")
You understand that the Company is interested only in the results of your
services. You will have exclusive control and supervision over the
methods used to perform your services. You may concurrently provide
services to or be employed by any entity, so long as you comply with the
NO COMPETITION section and other restrictions in this agreement. The
Company Group will have no responsibility for direction and supervision
of your activities for any other entity.
RETAINER As compensation for your performance of services hereunder and other
covenants you agree to, the Company will grant you an option for One
Hundred Thousand (100,000) units in common interests in the Company, at
a price per unit of $15.00, with a Date of Grant equal to the Effective Date.
The option will be exercisable at any time following the Date of Grant and
before the expiration of the option. The option will expire no later than the
fifth anniversary of the Date of Grant, provided, however, that if the
Company issues its securities to the public in an initial public offering
("IPO"), then the option will expire on the earlier to occur of (i) 18 months
after completion of the IPO or (ii) the fifth anniversary of the
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Date of Grant. You agree that the agreement evidencing the option will contain
language providing for suspension or forfeiture of the option as appropriate
to provide partial relief for the Company Group if you violate the NO
COMPETITION, SECRECY, NO INTERFERENCE / SOLICITATION, EXCLUSIVE PROPERTY, or
COPYRIGHTS, DISCOVERIES, INVENTIONS AND PATENTS sections of this Agreement.
BENEFITS You understand and agree that neither you nor any of your employees or
subcontractors will receive any other wage, bonus, severance, or other
payments, benefits (including employee benefits), unemployment insurance
coverage, or workers' compensation coverage from the Company Group
(other than those set forth above under RETAINER). Notwithstanding the
preceding sentence, the Company will provide you continuation health
coverage to the extent required by applicable law and will pay the
premiums for such coverage for the first 12 months (or such lesser period
during which you qualify for such coverage).
TERMINATION The Company may terminate this agreement and your consulting
arrangement with 30 days' notice at any time and for any reason. You may
terminate this agreement and your consulting arrangement with 30 days'
notice. You agree that your sole compensation for such termination would
be to retain the option.
NO COMPETITION In consideration of this agreement and the Company's agreement to
purchase mobeo from you and your fellow shareholders, beginning with the
Effective Date and running to the second anniversary of the Effective Date
(the "Restricted Period"), you agree to the following restrictive covenants,
including those in the NO COMPETITION, SECRECY, NO INTERFERENCE /
SOLICITATION, EXCLUSIVE PROPERTY, and COPYRIGHTS, DISCOVERIES,
INVENTIONS AND PATENTS sections, the first of which provides as follows:
The Company has been formed to provide wireless data services
and systems. You will not, directly or indirectly, be employed by,
lend money to, or engage in any Competing Business within the
Market Area (each as defined below). That prohibition includes,
but is not limited to, acting, either singly or jointly or as agent for,
or as an employee of or consultant to, any one or more persons,
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firms, entities, or corporations directly or indirectly (as a director,
independent contractor, representative, consultant, member, or
otherwise) that constitutes such a Competing Business. You also
will not invest or hold equity or options in any Competing Business,
provided that you may own up to 3% of the outstanding capital
stock of any corporation that is publicly traded without violating
this NO COMPETITION covenant, so long as you have no involvement
beyond passive investing in such business and you comply with the
second sentence of this paragraph.
You acknowledge that, during the Restricted Period, you may
engage in any business activity or gainful employment of any type
and in any place except as described above. You acknowledge that
you will be reasonably able to earn a livelihood without violating
the terms of this agreement.
Definitions
Competing Competing Business means any service or product of any person
Business or organization other than the Company or the Company Group, in
existence or then under development, that competes or could
potentially compete, directly or indirectly, with any service or
product of the Company Group upon which or with which you have
worked for the Company or the Company Group or about which
you acquire knowledge while working for the Company or the
Company Group. Competing Business includes any enterprise
engaged in the design, development, sale and/or support of products
and/or services that provide and/or support wireless data services
and/or systems that enable people to use wireless devices for data
communications and transactions.
Market Area The Market Area consists of North America and the countries of the
European Union. You agree that the Company provides services
both at its facilities and at the locations of its customers or clients
and that, by the nature of its business, it operates globally.
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NO INTERFERENCE; During the Restricted Period, you agree that you will not,
NO SOLICITATION directly or indirectly, whether for yourself or for any other
individual or entity (other than the Company Group), intentionally
solicit any person or entity who is, or was, within the
Restricted Period, a customer, prospect, or client of the
Company Group;
hire away or endeavor to entice away from the Company
Group any employee or any other person or entity whom the
Company Group engages to perform services or supply
products and including, but not limited to, any independent
contractors, consultants, engineers, or sales representatives
or any contractor, subcontractor, supplier, or vendor; or
hire any person whom the Company Group employs or
employed within the prior 12 months.
SECRECY
Preserving Your relationship with the Company or mobeo both before and under this
Secrecy agreement has given and will give you Confidential Information (as
defined below). You acknowledge and agree that using, disclosing, or
publishing any Confidential Information, in an unauthorized or improper
manner could cause the Company or Company Group substantial loss and
damages that could not be readily calculated and for which no remedy at
law would be adequate. Accordingly, you agree with the Company that
you will not at any time, except in performing your services to the
Company or the Company Group under this agreement (or with the
Company's prior written consent), directly or indirectly, use, disclose, or
publish, or permit others not so authorized to use, disclose, or publish any
Confidential Information that you may learn or become aware of, or may
have learned or become aware of, because of your prior or continuing
service providing relationship or association with the Company or the
Company Group or any of their predecessors, or use any such information
in a manner detrimental to the interests of the Company or the Company
Group.
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Preserving You agree not to use in providing services to the Company Group and not
Others' to disclose to the Company Group any trade secrets or other information
Confidences you do not have the right to use or disclose and that the Company Group is
not free to use without liability of any kind. You agree to promptly inform
the Company in writing of any patents, copyrights, trademarks, or other
proprietary rights known to you that the Company or the Company Group
might violate because of information you provide.
Confidential "Confidential Information" includes, without limitation, information the
Information Company or the Company Group has not, as of the time at which the
provisions in Secrecy apply, previously disclosed to the public or to the
trade with respect to the Company's or the Company Group's present or
future business, operations, services, products, research, inventions,
discoveries, drawings, designs, plans, processes, models, technical
information, facilities, methods, trade secrets, copyrights, software, source
code, systems, patents, procedures, manuals, specifications, any other
intellectual property, confidential reports, price lists, pricing formulas,
customer lists, financial information (including the revenues, costs, or
profits associated with any of the Company's or the Company Group's
products or services), business plans, lease structure, projections, prospects,
opportunities or strategies, acquisitions or mergers, advertising or
promotions, personnel matters, legal matters, any other confidential and
proprietary information, and any other information not generally known
outside the Company or the Company Group that may be of value to the
Company or the Company Group but excludes any information already
properly in the public domain. "Confidential Information" also includes
confidential and proprietary information and trade secrets that third parties
entrust to the Company or the Company Group in confidence.
You understand and agree that the rights and obligations set forth in this
SECRECY Section will continue indefinitely and will survive termination of
this agreement and your ceasing to provide services to the Company and
the Company Group.
EXCLUSIVE You confirm that all Confidential Information is and must remain the
PROPERTY exclusive property of the Company or the relevant member of the Company
Group. Any office equipment (including computers) you receive from the
Company Group in the course of providing services to the
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Company and all business records, business papers, and business documents you
keep or make, whether on digital media or otherwise, in the course of your
providing services to the Company Group relating to the Company or any member
of the Company Group must be and remain the property of the Company or the
relevant member of the Company Group. Upon the termination of this Agreement
with the Company or upon the Company's request at any time, you must promptly
deliver to the Company or to the relevant member of the Company Group any such
office equipment (including computers) and any Confidential Information or
other materials (written or otherwise) not available to the public or made
available to the public in a manner you know or reasonably should recognize
the Company did not authorize, and any copies, excerpts, summaries,
compilations, records, or documents you made or that came into your possession
during your employment. You agree that you will not, without the Company's
consent, retain copies, excerpts, summaries, or compilations of the foregoing
information and materials. The Company agrees to allow you to retain copies of
documents required for the lawful operation of your independent business,
including records required to substantiate expenses. You understand and agree
that the rights and obligations set forth in this EXCLUSIVE PROPERTY Section
will continue indefinitely and will survive termination of this agreement and
your ceasing to provide service to the Company and the Company Group.
COPYRIGHTS, You agree that all records, in whatever media (including written
DISCOVERIES, works), documents, papers, notebooks, drawings, designs,
INVENTIONS, AND technical information, source code, object code, processes,
PATENTS methods or other copyrightable or otherwise protected works you conceive,
create, make, invent, or discover that relate to or result from any work you
perform or performed for the Company or the Company Group or that arise from
the use or assistance of the Company Group's facilities, materials, personnel,
or Confidential Information in the course of services provided to the Company
Group as described herein (whether or not during usual working hours), whether
conceived, created, discovered, made, or invented individually or jointly with
others, will be and remain the absolute property of the Company (or another
appropriate member of the Company Group, as specified by the Company), as will
all the worldwide patent, copyright, trade secret, or other intellectual
property rights in all such works. (All references in this section to the
Company
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include the members of the Company Group, unless the Company determines
otherwise.) You irrevocably and unconditionally waive all rights, wherever in
the world enforceable, that vest in you (whether before, on, or after the date
of this Agreement) in connection with your authorship of any such
copyrightable works in the course of your relationship with the Company Group
or any predecessor. Without limitation, you waive the right to be identified
as the author of any such works and the right not to have any such works
subjected to derogatory treatment. You recognize any such works are "works for
hire" of which the Company is the author.
You will promptly disclose, grant, and assign ownership to the Company
for its sole use and benefit any and all ideas, processes, inventions,
discoveries, improvements, technical information, and copyrightable works
(whether patentable or not) that you develop, acquire, conceive or reduce to
practice (whether or not during usual working hours) in connection with the
services you provide to the Company or the Company Group. You will
promptly disclose and hereby grant and assign ownership to the Company
of all patent applications, letters patent, utility and design patents,
copyrights, and reissues thereof or any foreign equivalents thereof, that
may at any time be filed or granted for or upon any such invention,
improvement, or information. In connection therewith:
You will, without charge but at the Company's expense, promptly
execute and deliver such applications, assignments, descriptions,
and other instruments as the Company may consider reasonably
necessary or proper to vest title to any such inventions, discoveries,
improvements, technical information, patent applications, patents,
copyrightable works, or reissues thereof in the Company and to
enable it to obtain and maintain the entire worldwide right and title
thereto; and
You will provide to the Company at its expense all such assistance
as the Company may reasonably require in the prosecution of
applications for such patents, copyrights, or reissues thereof, in the
prosecution or defense of interferences that may be declared
involving any such applications, patents, or copyrights and in any
litigation in which the Company may be involved relating to any
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such patents, inventions, discoveries, improvements, technical
information, or copyrightable works or reissues thereof. The
Company will reimburse you for reasonable out-of-pocket expenses
you incur and pay you reasonable compensation for your time if the
Company Group no longer uses your services.
To the extent, if any, that you own rights to works, inventions,
discoveries, proprietary information, and copyrighted or
copyrightable works, or other forms of intellectual property that are
incorporated in the work product you create for the Company
Group, you agree that the Company will have an unrestricted, non-
exclusive, royalty-free, perpetual, transferable license to make, use,
sell, offer for sale, and sublicense such works and property in
whatever form, and you hereby grant such license to the Company
(and the Company Group).
This COPYRIGHTS, DISCOVERIES, INVENTIONS AND PATENTS section
does not apply to an invention or discovery for which no equipment,
supplies, facility or trade secret information of the Company Group
(including its predecessors) was used and that was developed on
your own time, unless (a) the invention relates directly to the
Company Group's actual or then reasonably anticipated research or
development, or (b) the invention results from any work you
performed for the Company Group or any predecessor.
MAXIMUM If any of the provisions of this agreement are ever found to exceed the
LIMITS time, geographic area, or activity limitations the law permits, you and the
Company agree to reduce the limitations to the maximum permissible
limitation, and you and the Company authorize a court or arbitrator having
jurisdiction to reform the provisions to the maximum time, geographic area,
and activity limitations the law permits, provided, however, that such
reductions apply only with respect to the operation of the provision in the
particular jurisdiction in which or with respect to which such adjudication
is made. You and the Company further agree that if any other provisions of
this agreement are found to be invalid or unenforceable, the remaining
provisions will be treated as replaced by a provision that is valid and
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enforceable and comes closest to expressing the intention of the invalid or
unenforceable provision.
INJUNCTIVE Without limiting the remedies available to the Company, you
RELIEF acknowledge
that a breach of any of the NO COMPETITION, SECRECY, NO
INTERFERENCE / SOLICITATION, EXCLUSIVE PROPERTY, and COPYRIGHTS,
DISCOVERIES, INVENTIONS AND PATENTS covenants may result in
material irreparable injury to the Company and Company Group
for which there is no adequate remedy at law, and
that it will not be possible to measure damages for such injuries
precisely.
You agree that, if there is a breach or threatened breach, the Company or
any member of the Company Group will be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction restraining
you from engaging in activities prohibited by any provisions listed above or
such other relief as may be required to specifically enforce any of the
covenants listed above. You agree that all remedies expressly provided for
in this Agreement are cumulative of any and all other remedies now
existing at law or in equity. You agree that the Company will, in addition
to the remedies provided in this agreement, be entitled to avail itself of all
such other remedies as may now or hereafter exist at law or in equity for
compensation, and for the specific enforcement of the provisions of this
agreement and that the Company's choice of one remedy does not preclude
it from seeking other remedies at the same or another time, nor does
seeking an injunction preclude recovery of monetary damages and
compensation. You also agree that the Restricted Period or such longer
period during which the covenants hereunder by their terms survive will
extend for all periods for which a court with personal jurisdiction over you
finds that you violated the NO COMPETITION, SECRECY, NO
INTERFERENCE/SOLICITATION, or EXCLUSIVE PROPERTY sections of this
agreement.
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ENTIRE This letter agreement constitutes the entire agreement between the parties
AGREEMENT and may not be changed except by written agreement signed by both you
and the President of the Company. Either party's waiver of the other party's
compliance with any provision of this agreement is not a waiver of any
other provision of this agreement or of any subsequent breach by such party
of a provision of this agreement. This agreement supersedes any prior oral
or written agreements between the Company and you, and all prior or
contemporaneous negotiations, commitments, agreements, and writings
with respect to the subject matter of this agreement, other than the
agreement by which the Company is purchasing mobeo. Any such other
negotiations, commitments, agreements, and writings will have no further
force or effect, and the parties to any such other negotiation, commitment,
agreement, or writing will have no further rights or obligations thereunder.
ASSIGNMENT The Company may assign or otherwise transfer this agreement and any and
all of its rights or obligations under it to any other member of the Company
Group or other affiliates or to any business entity that at any time by
merger, consolidation, purchase, transfer, or otherwise acquires all or
substantially all of the Company's stock or assets. You specifically agree at
this time that the Company may transfer or assign this Agreement and the
option to any successor created for purposes of making a public offering of
the Company. Upon any assignment or other transfer, you agree that any
such business entity will be treated as substituted for the Company for all
purposes. Without the Company's prior written consent, you agree not to
assign or delegate this agreement or any or all rights or obligations under it
(other than to your estate or other beneficiaries after your death).
BINDING This agreement binds and benefits the Company, any successors to or
EFFECT assigns of the Company, and your heirs and the personal representatives of
your estate.
THIRD PARTY You agree that the other members of the Company Group are third party
BENEFICIARIES beneficiaries of this agreement, which means that they can take action on
their own to enforce this Agreement even though not specifically a party to it.
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NOTICES Notices must be given in writing by personal delivery, by certified mail,
return receipt requested, by telecopy, or by overnight delivery. You should
send or deliver your notices to the Company's headquarters. The Company
will send or deliver any notice given to you at your address as reflected on
the Company's payment records. You and the Company may change the
address for notice by like notice to the others. You and the Company agree
that notice is received on the date it is personally delivered, the date it is
received by certified mail, the date of guaranteed delivery by the overnight
service, or the date the fax machine confirms receipt.
GOVERNING The laws of the State of Maryland (other than its conflict of laws
LAW provisions) govern this agreement.
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If you agree to this letter agreement, please sign the enclosed copy of
this letter in the space provided below and return it to me. We encourage you to
consult with advisers of your own choosing.
Very truly yours,
David Oros
President
AETHER TECHNOLOGIES INTERNATIONAL, L.L.C.
I agree:
_________________________________________
[Name of Contractor]
Dated:___________________, 1999
<PAGE> 1
EXHIBIT 10.16
ORBCOMM GLOBAL, L.P.
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into as of
the 26th day of October, 1998, by and between ORBCOMM GLOBAL, L.P., a Delaware
limited partnership ("ORBCOMM Global"), with its principal place of business
located at 2455 Horse Pen Road, Suite 100, Herndon, Virginia 20171, and AETHER
TECHNOLOGIES, L.L.C., (the "Consultant"), whose principal place of business is
located at 11460 Cronridge Drive, Suite 106, Owings Mills, Maryland 21117.
WITNESSETH
WHEREAS, the Consultant has expertise in particular areas revelant to
ORBCOMM Global's business;
WHEREAS, the Consultant desires to provide advice and other services to
ORBCOMM Global that draw upon such expertise; and
WHEREAS, ORBCOMM Global desires to engage the Consultant to render advice
and other services to ORBCOMM Global that draw upon the Consultant's expertise.
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I - SCOPE
(a) The Consultant shall furnish to ORBCOMM Global the advice and
services described in Exhibit A hereto, as such Exhibit may be modified from
time to time by mutual agreement of the parties (the "Services"). The Services
shall be performed at such times as are mutually agreeable to the parties. The
Services shall be performed with the authorization of and under the direction
of an authorized representative of ORBCOMM Global. All the Services shall be
furnished at the offices of ORBCOMM Global or at such other places as may be
directed by ORBCOMM Global.
(b) The Consultant is an independent contractor and nothing in this
Agreement shall be construed as creating the relationship of employer and
employee between the parties. The Consultant is not subject to or entitled to
any benefits under the provisions of ORBCOMM Global's employee relations
policies.
<PAGE> 2
ARTICLE II - TERM
The term of this Agreement shall commence on October 16, 1998 and shall
continue until December 28, 1998 unless earlier terminated by one of the
parties in accordance with Article VI.
ARTICLE III - CONSIDERATION
(a) Subject to the terms and conditions of this Agreement, as
compensation for the Services, ORBCOMM Global shall pay the Consultant at an
hourly rate of ONE HUNDRED EIGHT UNITED STATES DOLLARS (US$108.00), up to a
maximum of 320 hours of effort. ORBCOMM's maximum liability for services,
expenses, and fees under this Agreement is US$37,500.
(b) ORBCOMM Global shall reimburse the Consultant for reasonable
expenses incurred by the Consultant for pre-authorized travel outside a fifty
(50) mile radius of the Consultant's office. Expenses shall include reasonable
coach class transportation and room and board expenses associated with such
travel. An accounting of such travel and expenses, including all receipts,
shall be submitted along with the invoices presented in accordance with Article
IV.
(c) The Consultant shall have no authority to purchase goods or services
for or on behalf of ORBCOMM Global under the terms of this Agreement.
ARTICLE IV - INVOICING
(a) Upon execution of this Agreement, Consultant shall submit an
invoice for eighty (80) hours at the rate stated in Article III, which shall be
credited by Consultant against the first eighty (80) hours of service
performed. Such invoice shall be due and payable within seven (7) days.
(b) For all subsequent services, the Consultant shall present an
invoice not more frequently than monthly for professional services detailing
the time spent and the Services rendered under this Agreement.
(c) Payments by ORBCOMM Global for the Services rendered shall be
due upon presentation and shall be made within 30 days of receipt of an invoice
submitted by the Consultant, provided that payments shall not be made more
frequently than once per month.
(d) All invoices shall be delivered to the authorized
representative set forth in Article XIV.
2
<PAGE> 3
ARTICLE V - DRAWINGS, RECORDS AND OTHER DATA
All drawings, designs, specifications, analyses, notes, software, source
code, data and other memoranda or records of value prepared by, or otherwise
under the control of the Consultant in connection with the Services, whether in
interim, draft, or final form, shall be and shall remain the property of
ORBCOMM Global.
ARTICLE VI - TERMINATION
ORBCOMM Global or the Consultant may, at any time, by giving the other
party ten (10) days' notice in writing, terminate this Agreement. This
Agreement may also be terminated immediately upon any breach of its terms by
either party. In the event of termination, ORBCOMM Global shall be subject to
no liability, except to pay the Consultant for the Services performed up to and
including the date of termination in accordance with Article III. The
provisions contained in Articles V, VII, VIII, IX and X shall survive
termination of this Agreement.
ARTICLE VII - PATENTS AND COPYRIGHTS; PROPRIETARY RIGHTS
The Consultant hereby irrevocably assigns to ORBCOMM Global all right,
title and interest in and to all inventions and discoveries, whether or not
patentable and whether or not reduced to practice, and all other work product
of any nature, whether or not copyrightable, made, conceived or authored by the
Consultant in the course of performing the Services or any other work under
this Agreement and all tangible embodiments of the foregoing ("Work Product")
and all patents, copyrights, trademarks, trade secrets and all other
intellectual property rights therein and any extensions and renewals thereof.
The Consultant shall promptly furnish ORBCOMM Global with complete information
with respect to all Work Product whenever made, conceived or authored by the
Consultant. All copyrightable Work Product created by the Consultant in the
course of performing the Services or any other work under this Agreement shall
be deemed to be a "work made for hire" in accordance with 17 U.S.C. Section 101
belonging exclusively to ORBCOMM Global. ORBCOMM Global shall have the
exclusive right to obtain and hold solely in its own name all patents,
copyrights, registrations, trademark registrations, trade secrets and other
such protection for the Work Product as may be appropriate to the subject
matter, and any extensions or renewals thereof. The Consultant shall provide
ORBCOMM Global, and any person designated by ORBCOMM Global, all reasonably
necessary cooperation in connection with ORBCOMM Global's perfection of its
patent, trademark, copyright, trade secret and other rights in the Work Product
and ORBCOMM Global's ownership thereof, including without limitation signing
all documents reasonably requested by ORBCOMM Global both before and after the
termination of this Agreement.
3
<PAGE> 4
ARTICLE VIII- RESERVED
ARTICLE IX - PROTECTION OF PROPRIETARY INFORMATION
Information disclosed by one party to the other shall be subject to the
terms and conditions of the Mutual Non-Disclosure Agreement dated May 7, 1998
between the parties, and the parties agree to abide by the terms and conditions
set forth therein.
ARTICLE X - GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia, without giving effect to the conflict or
choice of law provisions thereof. The Consultant agrees to comply with all
international traffic in arms regulations and with the Prohibited Foreign Trade
Practices Act, the current forms of which are attached as Exhibits B and C.
ARTICLE XI - ASSIGNMENT
This Agreement and the rights and obligations of the Consultant hereunder
may not be assigned by the Consultant without the prior written consent of
ORBCOMM Global.
ARTICLE XII - SEVERABILITY
If any provision of this Agreement, or the application thereof, shall, for
any reason and to any extent, be invalid or unenforceable, the remainder of this
Agreement and the application of such provisions to other persons or
circumstances shall not be affected thereby, but rather shall be enforced to the
maximum extent permissible under applicable law.
ARTICLE XIII - NOTICES
All notices and other communications hereunder shall be in writing and
shall be deemed given upon receipt if delivered personally or by facsimile
(answerback received), one (1) business day after being sent by express or
overnight mail, or three (3) business days after being sent by registered or
certified mail, return receipt required, postage prepaid, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice, provided that such notice shall be effective only upon receipt
thereof):
4
<PAGE> 5
a. If to ORBCOMM Global:
ORBCOMM Global, L.P.
2455 Horse Pen Road
Suite 100
Herndon, Virginia 20171
Attention: Legal Department
Telephone: (703) 406-5521
Facsimile: (703) 406-5933
b. If to Consultant:
Aether Technologies
11460 Cronridge Drive, Suite 106
Owings Mills, Maryland 21117
Attention: David Oros, CEO
Telephone: (410) 654-6400
Facsimile: (410) 654-6554
ARTICLE XIV - DESIGNATION OF ORBCOMM GLOBAL AUTHORIZED
REPRESENTATIVES
The person(s) authorized to direct the Consultant on behalf of ORBCOMM
Global (as referred to in Article I) is/are Robert Kelly, Dan Dickerson, and
Emmanuel Navarro.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ORBCOMM GLOBAL, L.P. AETHER TECHNOLOGIES, L.L.C.
By: /s/ EMMANUEL NAVARRO 10/26/98 By:
--------------------------------- ----------------------------
Name: Emmanuel Navarro Name: David Oros
Title: Vice President, Finance Title: CEO
Telephone: (703)406-5681 Telephone: (410)654-6400
Facsimile: (703)406-5929 Facsimile: (410)654-6554
5
<PAGE> 6
EXHIBIT A
Consulting Services To Be Performed by Aether Technologies, L.L.C.
("Consultant")
1.0 OVERVIEW
The Response Services unit of ORBCOMM Global, L.P. ("ORBCOMM"), in response
to having been selected for award of a contract for the AAA Mayday project and
in anticipation of other activities, is developing a 24X7 response center. The
AAA Mayday project is an extensive vehicle-based, automated, roadside assistance
and emergency response program for the United States and Canada. The mission of
the Response Center will be to process and route all incoming contacts from AAA
Mayday customers and initiate the appropriate action based on the type of
customer requirement. The purpose of this statement of work is to perform the
requirements analysis and functional design specification of a response center
capable of handling a large volume of incoming and outgoing voice and data
"calls". The Consultant is a well-established software engineering firm with
extensive call center experience. The Consultant provides extensive monitoring
center and customer service software development experience through its
development of emergency notification and convenience services software. As a
result, Consultant is best suited to perform this analysis and generate the
functional specification for the Response Center.
The Response Center functional specification shall be written with enough detail
to completely define all technical requirements in a form suitable to request
third party forms to submit proposals for the actual development of the call
center.
2.0 WORK TO BE PERFORMED
The following activities will be performed under this Statement of Work:
2.1 The Consultant shall research options and derive requirements to implement
a 24-hour, 7 day a week response center for incoming traffic over both the
ORBCOMM satellite network as well as over AMPS cellular telephone.
2.2 The Consultant shall research and derive requirements to physically
interface the Response Center with ORBCOMM's Network Control Center, PSDN,
PSTN and public Internet options.
2.3 The Consultant will evaluate the feasibility of using any and all of the
components of the Dolphin "Pool" software to meet response Center
requirements.
2.4 The Consultant will, in consultation with the Response Services unit,
define the overall Response Center requirements including both monitoring
center and customer service software.
<PAGE> 7
2.5 The Consultant shall develop a Functional Requirements Specification (FDS)
detailing, at a minimum:
- System interconnectivity diagrams
- Internal data flow diagrams
- Protocol management requirements
- Data handling requirements
- Data storage requirements
- Messaging requirements
- System performance criteria
- Baseline system functionality
2.6 The Consultant shall deliver an outline, a draft, and a final version of
the FRS to ORBCOMM Response Services unit for comments.
2.7 The Consultant will provide pricing to develop all related software as
defined by the FDS.
2.8 The Consultant will, additionally, provide general IT and systems
engineering support for tasks outside the Statement of Work as may be
required by the ORBCOMM Response Service unit.
All activities of the Consultant shall be in accordance with these requirements
and in accordance with the terms and limitations set forth in the Agreement.
3.0 DELIVERABLES
- Outline of the Functional Requirements Specification
- Draft Functional Requirements Specification
- Final Functional Requirements Specification, Due No Later Than
December 28, 1998
<PAGE> 8
EXHIBIT B
Compliance with International Traffic in Arms Regulations
Although this Agreement is not intended to be a technical assistance agreement
as defined in Part 120.20 of the International Traffic in Arms Regulations, to
the extent any part of this Agreement is deemed to be a technical assistance
agreement, the following provisions of Part 124.8, as amended from time to time,
shall apply with respect to that part of this Agreement:
A. The applicable part of this Agreement shall not enter into force, and
shall not be amended or extended, without the prior written approval of the
Department of State of the U.S. Government.
B. The applicable part of this Agreement and any information furnished
hereunder is subject to all United States laws and regulations relating to
exports and to all administrative acts of the U.S. Government pursuant to
such laws and regulations.
C. The parties to this Agreement agree that the obligations contained in
this Agreement shall not affect the performance of any obligations created
by prior contracts or subcontracts that the parties may have individually
or collectively with the U.S. Government.
D. No liability will be incurred by or attributed to the U.S. Government in
connection with any possible infringement of privately owned patent or
proprietary rights, either domestic or foreign, by reason of the U.S.
Government's approval of this Agreement.
E. Any technical data or service exported from the United States in
furtherance of this Agreement and any article that may be produced or
manufactured from such technical data or service may not be transferred to
a person in a third country or to a national of a third country unless the
prior written approval of the Department of State has been obtained.
F. All provisions in this Agreement that refer to the U.S. Government and the
Department of State will remain binding on the parties after the
termination of this Agreement.
<PAGE> 9
EXHIBIT C
Compliance With the Foreign Corrupt Practices Act
A. The Consultant agrees that, in connection with this Agreement, it will
not, directly or indirectly, give, offer or promise, or authorize or
tolerate to be given, offered or promised, anything of value to an official
or employee of a government or of any subdivision thereof with the intent
to (i) influence any official act or decision of such official or employee,
or (ii) induce such official or employee to use his or her influence to
affect or influence any act or decision of a government or of any
subdivision thereof, to assist ORBCOMM Global in obtaining or retaining
business, or in directing business to any person.
B. The Consultant agrees that, in connection with this Agreement, it will not,
directly or indirectly, give, offer or promise, or authorize or tolerate to
be given, offered or promised, anything of value to any person, knowing or
having reason to know that such thing of value is to be given, offered or
promised to an official or employee of a government or of any subdivision
thereof with the intent to (i) influence any official act or decision of
such official act or decision of such official or employee, or (ii) induce
such official or employee to use his or her influence to affect or
influence any act or decision of a government or of any subdivision
thereof, to assist ORBCOMM Global in obtaining or retaining business, or in
directing business to any person.
C. The Consultant agrees that, in rendering the Services and in carrying out
its other duties and responsibilities under this Agreement, Consultant will
neither undertake, nor cause nor permit to be undertaken, any activity that
either (i) is illegal under any laws, decrees, rules or regulations in
effect in any country in the Territory, or (ii) would have the effect of
causing ORBCOMM Global to be in violation of any laws, decrees, rules or
regulations in effect in the United States or in any country whose laws are
applicable to the performance of this Agreement (the "Territory").
D. The Consultant hereby covenants that neither the Consultant, nor any
employee, representative or agent of the Consultant, is an official or
employee of the government of any country of the Territory or any
subdivision thereof. The Consultant further agrees to notify ORBCOMM Global
immediately in the event that this covenant ceases to be true.
<PAGE> 10
EXHIBIT C
Compliance With the Foreign Corrupt Practices Act
(CONTINUED)
E. The Consultant agrees to notify ORBCOMM Global immediately of any extorsive
solicitation, demand or other request for anything of value, by or on behalf
of any official or employee of the government of any country of the
Territory or of any subdivision thereof, relating to the subject matter of
this Agreement.
F. If the Consultant breaches any of the covenants set forth in A, B, C or E
above, (i) this Agreement shall become void, (ii) ORBCOMM Global shall have
a cause of action against the Consultant for, among other things, the amount
of any monetary payment or thing of value given by the Consultant in breach
of any of the above-mentioned covenants and (iii) all obligation by ORBCOMM
Global to compensate the Consultant pursuant to Article III of this Agreement
shall cease and terminate immediately.
<PAGE> 1
EXHIBIT 10.17
AETHER TECHNOLOGIES - RIVERBED TECHNOLOGIES
STRATEGIC LICENSE AGREEMENT
This Strategic License Agreement (the "Agreement"), effective as of the 15th
day of June, 1999, is by and between Riverbed Technologies Inc., a Delaware
Corporation, having its principal offices at 2070 Chain Bridge Rd., Suite 475,
Vienna, VA 22182 (hereinafter, "Riverbed"), and Aether Technologies
International, LLC, a Maryland Limited Liability Company having offices at
11460 Cronridge Drive, Owings Mills, MD 21117 ("Aether").
RECITALS
WHEREAS, Aether has developed a product known as Aether Intelligent Messaging
("AIM") which is optimized for delivering transport information over cellular
wireless communication systems;
WHEREAS, Riverbed has developed an data synchronization product known as the
ScoutSync;
WHEREAS, Riverbed desires to integrate Aether's AIM for Mobitex Software with
their ScoutSync technology to provide extended wireless capability and better
serve their customers;
THEREFORE, for good and valuable consideration given pursuant to the terms,
conditions and covenants contained herein, Riverbed and Aether hereby agree as
follows:
Section 1: PURPOSE
1.1 Under this Agreement, Aether will license to Riverbed the Aether
Intelligent Messaging (AIM) optimized wireless transport system for the Bell
South Mobitex wireless network and Palm Platform and Windows CE-type mobile
devices for incorporation into a subsequent release of Riverbed's ScoutSync
synchronization product. AIM for ScoutSync will include a standalone proxy
server that converts AIM-formatted messages from the Bell South Data Network
and tunnels them to a ScoutSync server.
1.2 Riverbed will provide Aether the ScoutSync technology at a discount
consistent with that granted other Riverbed Preferred OEM agreements. Business
and pricing terms of this shall be finalized with 45 days of this agreement.
1.3 Following delivery of AIM for ScoutSync, Aether shall provide its
expertise for any subsequent integration or customization of AIM on a Time and
Materials (T&M) basis. Aether and Riverbed shall mutually define the
responsibility of each party during the integration and roll-out of the Scout
product.
1.4 Aether Technologies will provide Network Operation Center host-support for
the ScoutSync product in Aether's Network Operations Center. Riverbed shall
supply ScoutSync for inclusion in the Aether Network Center. Business and
pricing terms of this shall be finalized within 45 days of this agreement.
1.5 Riverbed and Aether will work jointly to position and promote the
AIM-enabled ScoutSync product. Marketing activities will begin within 60 days
of delivery of the AIM technology.
Section 2: MAINTENANCE AND SUPPORT
2.1 Following the Warranty Period specified in Section 6.1, Aether will
provide Network Operation Center host-support (maintenance) for the ScoutSync
product in Aether's Network Operations Center.
2.2 At all times during the Warranty Period and for as long as Riverbed is
receiving maintenance from Aether, Aether will provide to Riverbed any error
corrections, modifications, enhancements, improvements, new versions or other
updates (collectively, "Updates") to the AIM Software, at no additional charge,
no later than such Updates are made generally available to Aether's other AIM
licensees.
2.3 Annual maintenance and runtime fees for the AIM technology will be 15% of
the license fee specified in Section 9. Maintenance fees shall be payable
monthly, in advance of the month in which the maintenance services will be
provided.
<PAGE> 2
2.4 With respect to Riverbed's customers, Riverbed will provide level 1
support for the product and Aether will provide level 2 and 3 support for the
AIM product.
2.5 In addition, as requested by Riverbed, Aether will provide technical
assistance to Riverbed on issues concerning the integration of the AIM
optimized transport with the Scout products. This service will be provided on a
Time and Material (T&M) basis at $150 per hour. Any custom software developed
pursuant to this Section 2.5 will be owned solely by Riverbed.
Section 3: LICENSE GRANTED
3.1 Aether hereby grants, and Riverbed hereby accepts, a nontransferable, and
non-exclusive license to use the AIM Software and all related documentation
during the term of this Agreement under the price and terms specified in this
Agreement. Any rights not expressly granted herein shall be reserved for
Aether. Suitable computer programs will be provided for Riverbed's use in
machine-readable object code form. The AIM Software shall be used only in
conjunction with Riverbed's ScoutSync Software product, and shall be limited to
use in support of the ScoutSync Software. Riverbed may distribute the AIM
Software to its distributors and licensees solely as integrated into the
ScoutSync Software and as necessary for them to distribute and use the
ScoutSync Software, respectively. Riverbed shall not permit any other third
parties to use the AIM Software or allow access to the AIM Software from sites
outside of Riverbed's business premises except as specifically authorized in
writing by Aether.
3.2 Aether agrees not to deliver an implementation of the AIM technology to
Puma, Avantgo, or ASL for a period of four (4) months after execution of this
agreement. If Aether breaches the preceding, in addition to all other remedies
available to Riverbed, Riverbed may terminate this Agreement, return the AIM
Software and receive a full refund of all amounts paid under this Agreement.
3.3 Source code or other information pertaining to the logic design of the AIM
Software is specifically excluded from the license granted hereunder.
3.4 Riverbed will supply to Aether Technologies a Scout server for Aether
Technologies Network Operation Center for use by Aether solely in support of
the AIM Software licensed to Riverbed.
3.5 Riverbed will provide to Aether four (4) handheld computing devices for
pre-delivery testing of the AIM product. These devices shall be returned upon
delivery of AIM.
Section 4: SOFTWARE OWNERSHIP
4.1 Aether has, and shall retain, all rights and title to the AIM technology.
4.2 Riverbed has, and shall retain, all rights and title to the ScoutSync
technology.
4.3 Riverbed shall own all rights and title to any technology developed under
the terms this Agreement as specified in Section 2.5.
Section 5: ACCEPTANCE
5.1 Riverbed shall have thirty (30) days after delivery of the AIM Software in
which to accept the AIM Software. If Riverbed does not accept the AIM Software,
Riverbed may return the AIM Software, terminate this Agreement without penalty,
and shall be required to pay no fees or royalties to Aether.
Section 6: WARRANTIES
6.1 Aether warrants that, during the 60 days after acceptance of the AIM
Software (the "Warranty Period") the AIM Software will perform in accordance
with the specifications set forth in Exhibit A and its associated
documentation. Aether further warrants that the AIM Software will accurately
process date/time data (including but not limited to calculating, comparing and
sequencing) from, into, during and between the twentieth and twenty-first
centuries, and the years 1999 and 2000, and leap year calculations, provided
that all information technology products used in combination with the AIM
Software properly exchange date/time data with it.
<PAGE> 3
6.2 Aether warrants that the AIM Software does not infringe any copyright,
patent, trade secret or other intellectual property right. In the event a third
party brings a claim alleging a breach of the foregoing warranty, Aether will
defend, indemnify and hold harmless Riverbed, its officers, directors,
employees, agents, distributors and licensees from such claim. If the AIM
Software becomes, or is likely to become, subject to an injunction preventing
its use as contemplated by this Agreement, Aether will either (1) procure for
Riverbed the right to continue using the AIM Software, or (2) replace or modify
the AIM Software so that it becomes non-infringing.
Section 7: LIMITATIONS OF LIABILITY
7.1 EXCEPT AS STATED HEREIN, NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, INDIRECT AND/OR, CONSEQUENTIAL DAMAGES OF ANY KIND, RESULTING FROM
EITHER PARTY'S PERFORMANCE OR FAILURE TO PERFORM PURSUANT TO THE TERMS OF THIS
AGREEMENT OR ANY OF THE ATTACHMENTS OR EXHIBITS HERETO, OR RESULTING FROM THE
FURNISHING, PERFORMANCE OR USE OR LOSS OF ANY LICENSED PRODUCTS OR OTHER
MATERIALS DELIVERED TO RIVERBED THEREUNDER, INCLUDING WITHOUT LIMITATION ANY
INTERRUPTION OF BUSINESS, WHETHER RESULTING FROM BREACH OF CONTRACT OR BREACH OF
WARRANTY, EVEN IF THE PARTIES HERETO HAVE BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
Section 8: NON-DISCLOSURE
8.1 Trade secrets and proprietary information of either party (hereinafter
collectively referred to as "Information") shall mean information of or in the
possession of a party (the "Disclosing Party") that is disclosed to the other
party (the "Receiving Party") by the Disclosing Party in connection with this
Agreement which is identified to the Receiving Party as being proprietary to
the Disclosing Party. Examples of Information may include, but are not limited
to, customer lists, pricing policies, market analyses, business plans or
programs, software, specifications, manuals, print-outs, notes and annotations,
performance data, drawings, photographs, and engineering, manufacturing or
technical information related to either party's products and services, as well
as duplicates or copies thereof. Information shall not mean any information
previously known to the Receiving Party without obligation of confidence, or
which becomes publicly disclosed, which is rightfully received by Receiving
Party from a third party without obligation of confidence, or which is
independently developed by the Receiving Party without reference to the
Information of the Disclosing Party.
8.2 Information furnished to Receiving Party shall remain Disclosing Party's
proprietary property, shall be duplicated only as authorized in writing by
Disclosing Party, and shall be returned to Disclosing Party upon request or when
no longer required for the performance of this Agreement. Receiving Party shall
not disclose Information to any third party, and shall take all reasonable
precautions to prevent the disclosure of Information to third parties, including
any foreign national, firm, or country, and foreign nationals employed by or
associated with Receiving Party's company except as specifically authorized by
the Disclosing Party.
8.3 Data and information provided by Disclosing Party shall be considered
proprietary only when marked as proprietary.
8.4 Riverbed recognizes that the AIM Software and all related information,
including but not limited to any and all Updates and information related to
installation of the AIM Software at the offices of Riverbed, are proprietary,
and that all rights thereto, including copyright, are owned by Aether
Technologies. Riverbed further acknowledges being advised that the AIM
Software, including updates, improvements, modifications, enhancements, and
information related to installation, constitutes a TRADE SECRET of Aether, is
protected by civil and criminal law, and by the law of copyright, is valuable
and confidential to Aether, and that its use and disclosure must be carefully
and continuously controlled. Riverbed agrees that the specific prices and terms
of this Agreement shall not be disclosed by Riverbed without Aether's prior
written consent.
<PAGE> 4
8.5 Aether recognizes that the ScoutSync Software and all related information,
including but not limited to any and all Updates and information related to
installation of the ScoutSync Software at the offices of Aether, are
proprietary, and that all rights thereto, including copyright, are owned by
Riverbed. Aether further acknowledges being advised that the ScoutSync Software,
including updates, improvements, modifications, enhancements, and information
related to installation, constitutes a TRADE SECRET of Riverbed, is protected by
civil and criminal law, and by the law of copyright, is valuable and
confidential to Riverbed, and that its use and disclosure must be carefully and
continuously controlled.
8.6 The Disclosing Party shall at all times retain title to all of its
proprietary Software and all related information, including all Updates,
furnished to the Receiving Party hereunder.
8.7 The Receiving Party shall keep each and every item of the Disclosing
Party's proprietary Software and all related information, including any and all
Updates, free and clear of any and all claims, liens, and encumbrances
attributable to the use or possession of such Software by the Receiving Party.
Any act of the Receiving Party, whether voluntary or involuntary, purporting to
create a claim or encumbrance on any such item shall be void.
8.8 The Receiving Party agrees to notify the Disclosing Party forthwith if it
obtains information as to any unauthorized possession, use or disclosure of any
item of the Disclosing Party's proprietary Software by any person or entity, and
further agrees to cooperate with the Disclosing Party, at the Disclosing Party's
expense, in protecting the Disclosing Party's proprietary rights.
8.9 In addition to other remedies available to the Disclosing Party, the
Receiving Party agrees that the Disclosing Party shall be entitled to seek
injunctive relief in the event the Receiving Party breaches this Section 8.
Section 9: FEES AND PAYMENTS.
9.1 Riverbed shall pay to Aether a Software License Fee of $200,000 for use of
the AIM Software for use by up to 10,000 Scout users of the AIM Software. For
each additional 10,000 users of the AIM Software, an additional License fee
shall be the lesser of Aether's Premier OEM price or terms of this agreement.
Riverbed will pay Aether $100,000 upon delivery of the AIM Software pursuant to
Section 5, and $25,000 at the beginning of each subsequent quarter. Unless
otherwise provided herein, all other fees and obligations due to Aether shall be
due and payable in full within thirty (30) days of the receipt of an invoice
therefore by Riverbed.
Section 10: TERMINATION
10.1 This Agreement shall take effect upon execution of both parties, continue
for one year, and shall automatically renew thereafter for an additional one
year term, subject to payment of the annual license fee specified in section 9
Maintenance and Support, unless terminated by either party on one hundred and
eighty (180) days' prior written notice. Without limiting any of the foregoing,
in the event of termination of this Agreement as provided above, Riverbed shall
continue to be obligated for all payments due for Services performed relating to
this Agreement.
10.2 This Agreement may be terminated by either party in the event the other
party materially breaches a provision of this Agreement and the breaching party
fails to cure such breach within thirty (30) days of the receipt of notice of
such breach from the non-breaching party.
10.3 Notwithstanding anything to the contrary in this Agreement, the termination
of this Agreement, for any reason, shall not effect the right of Riverbed's
licensees to continue to use the AIM Software as incorporated in Riverbed's
ScoutSync Software.
Section 11: SOURCE CODE ESCROW
11.1 At Riverbed's expense, Aether agrees to deposit an accurate, current and
complete copy of the source code form of the AIM Software, as well as all other
materials necessary to maintain the source code, with a nationally recognized
escrow agent to be agreed by the parties within fifteen (15) days of the
<PAGE> 5
delivery of the AIM Software. The escrowed source code must be kept current as
Updates are made to the AIM Software as licensed to Riverbed. Aether shall be
responsible for maintaining the escrow account with the escrow agent for the
duration of the license granted under this Agreement.
11.2 In the event that Aether (i) materially breaches its obligations under
this Agreement leading to a for cause termination by Riverbed pursuant to
Section 10.2, (ii) materially breaches its technical support obligations under
this Agreement, (iii) ceases active conduct of its business or (iii) is
declared bankrupt or insolvent by a court of competent jurisdiction, has a
receiver appointed, is placed in involuntary bankruptcy or makes any general
assignment of assets for the benefit of creditors, Riverbed shall be entitled
to access the source code form of the AIM Software maintained in escrow
pursuant to Section 11.1, and Aether agrees to take all necessary actions to
facilitate such access.
Section 12: MISCELLANEOUS
12.1 If any provision of this Agreement is declared or found to be invalid,
illegal, unenforceable or void, then both parties shall be relieved of all
obligations arising under such provision, but only to the extent that such
provision is invalid, illegal, unenforceable or void, it being the intent and
agreement of the parties that this Agreement shall be deemed amended by
modifying such provision to the extent necessary to make it valid, legal and
enforceable while preserving its intent or, if that is not possible, by
substituting therefor another provision that is valid, legal and enforceable
and achieves the same objective. Each party agrees that it will perform its
obligations hereunder in accordance with all applicable laws, rules and
regulations now or hereafter in effect.
12.2 Headings are for reference purposes only.
12.3 Any notices required or permitted to be sent hereunder shall be served
personally or by registered or certified mail, return receipt requested,
reputable overnight delivery services such as Federal Express, Airborne Express
or DHL, or by facsimile with confirmation of receipt, to the addresses listed
above, and shall be deemed effective upon receipt.
12.4 This Agreement shall be interpreted and construed in accordance with the
Copyright laws of the United States and the internal law of State of Maryland,
without regard to the conflicts of law principles thereof. Each party hereby
consents to service of process by any means authorized by Maryland law (other
than by publication).
12.5 This Agreement may not be modified or altered except by a written
instrument executed by both parties. The failure of either party to exercise in
any respect any right provided for herein shall not be deemed a waiver of any
rights. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes and merges all prior
proposals, understandings and all other agreements, oral and written between
the parties relating to such subject matter.
12.6 Except for an assignment by Riverbed to a successor, which may be made
without Aether's consent,neither this Agreement nor any payments hereunder are
assignable or transferable without the other Party's written approval, which
approval will not be unreasonably withheld. Any purported assignment in
violation of the preceding sentence will be void and of no effect. This
Agreement will be binding on the parties' respective successors and permitted
assigns.
<PAGE> 6
IN WITNESS WHEREOF, the parties, by their duly authorized representatives,
hereto have executed this Agreement as of the day and year noted below.
RIVERBED TECHNOLOGIES INC. AETHER TECHNOLOGIES
Signature: /s/ WAYNE JACKSON Signature: /s/ DAVID OROS
----------------------- --------------------
Wayne Jackson David Oros
President and CEO President and CEO
Riverbed Technology Aether Technologies
Date: 7-19-1999 Date: 7/19/99
------------ -----------
<PAGE> 1
EXHIBIT 10.18
================================================================================
AETHER SYSTEMS LLC
as Borrower,
and
THE GUARANTORS PARTY HERETO
----------------------
$17,000,000
CREDIT AGREEMENT
Dated as of September 28, 1999
----------------------
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
as Lead Arranger, Syndication Agent and Administrative Agent,
and
THE LENDERS PARTY HERETO
================================================================================
<PAGE> 2
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
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Section 1. Definitions, Accounting Matters and Rules of Construction..............................................1
1.01. Certain Defined Terms..................................................................................1
1.02. Accounting Terms and Determinations...................................................................25
1.03. Types of Term Loans...................................................................................26
1.04. Rules of Construction.................................................................................26
Section 2. Term Loan Commitments, Conversions and Continuations, Fees, Register,
Prepayments and Replacement of Lenders................................................................27
2.01. Term Loans............................................................................................27
2.02. Borrowings............................................................................................27
2.03. Limit on LIBOR Loans..................................................................................27
2.04. Terminations and Reductions of Term Loan Commitments..................................................27
2.05. Fees..................................................................................................28
2.06. Lending Offices.......................................................................................28
2.07. Several Obligations of Lenders........................................................................28
2.08. Term Notes; Register..................................................................................28
2.09. Optional Prepayments and Conversions or Continuations of Term Loans...................................29
2.10. Mandatory Prepayments.................................................................................29
2.11. Replacement of Lenders................................................................................30
Section 3. Payments of Principal and Interest....................................................................31
3.01. Repayment of Term Loans; Extension of Final Maturity Date.............................................31
3.02. Interest..............................................................................................32
Section 4. Payments; Pro Rata Treatment; Computations; Etc.......................................................32
4.01. Payments..............................................................................................32
4.02. Pro Rata Treatment....................................................................................33
4.03. Computations..........................................................................................33
4.04. Minimum Amounts.......................................................................................34
4.05. Certain Notices.......................................................................................34
4.06. Non-Receipt of Funds by Administrative Agent..........................................................35
4.07. Right of Setoff; Sharing of Payments; Etc.............................................................36
Section 5. Yield Protection, Etc.................................................................................37
5.01. Additional Costs......................................................................................37
5.02. Inability to Determine Interest Rate..................................................................38
5.03. Illegality............................................................................................38
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5.04. Treatment of Affected Term Loans......................................................................38
5.05. Compensation..........................................................................................39
5.06. Net Payments..........................................................................................39
Section 6. Guarantee.............................................................................................42
6.01. The Guarantee.........................................................................................42
6.02. Obligations Unconditional.............................................................................42
6.03. Reinstatement.........................................................................................43
6.04. Subrogation; Subordination............................................................................44
6.05. Remedies..............................................................................................44
6.06. Instrument for the Payment of Money...................................................................44
6.07. Continuing Guarantee..................................................................................44
6.08. General Limitation on Guarantee Obligations...........................................................44
Section 7. Conditions Precedent..................................................................................45
7.02. Conditions to Initial Term Loans......................................................................49
7.03. Conditions to Initial and Subsequent Term Loans.......................................................50
7.04. Determinations Under Section 7........................................................................50
Section 8. Representations and Warranties........................................................................50
8.01. Corporate Existence; Compliance with Law..............................................................50
8.02. Financial Condition; Etc..............................................................................50
8.03. Litigation............................................................................................51
8.04. No Breach; No Default.................................................................................51
8.05. Action................................................................................................51
8.06. Approvals.............................................................................................52
8.07. ERISA.................................................................................................52
8.08. Taxes.................................................................................................52
8.09. Investment Company Act; Other Restrictions............................................................53
8.10. Environmental Matters.................................................................................53
8.11. Environmental Investigations..........................................................................53
8.12. Use of Proceeds.......................................................................................54
8.13. Subsidiaries, Etc.....................................................................................54
8.14. Ownership of Property; Liens..........................................................................54
8.15. Security Interest; Absence of Financing Statements; Etc...............................................54
8.16. Licenses and Permits..................................................................................54
8.17. True and Complete Disclosure; Exchange Act Filings....................................................55
8.18. Solvency..............................................................................................55
8.19. Contracts.............................................................................................55
8.20. Labor Matters.........................................................................................55
8.21. Subordinated Debt.....................................................................................55
8.22. Year 2000.............................................................................................56
8.23. Intellectual Property.................................................................................56
8.24. Existing Indebtedness.................................................................................56
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Section 9. Covenants.............................................................................................56
9.01. Financial Statements, Etc.............................................................................57
9.02. Litigation, Etc.......................................................................................60
9.03. Existence; Compliance with Law; Payment of Taxes; Inspection Rights;
Performance of Obligations; Etc....................................................................60
9.04. Insurance.............................................................................................61
9.05. Limitation on Lines of Business; Limitation on Activities of Borrower.................................61
9.06. Limitation on Fundamental Changes, Acquisitions or Dispositions.......................................61
9.07. Limitation on Liens...................................................................................63
9.08. Prohibition on Disqualified Capital Stock; Limitation on Indebtedness and
Contingent Obligations; Limitation on Designated Senior Debt.......................................64
9.09. Limitation on Investments; Limitation on Creation of Subsidiaries.....................................65
9.10. Limitation on Dividend Payments.......................................................................66
9.11. Financial Covenants...................................................................................66
9.12. Pledge or Mortgage of Additional Collateral...........................................................67
9.13. Security Interests; Further Issuances.................................................................67
9.14. Compliance with Environmental Laws....................................................................67
9.15. Limitation on Transactions with Affiliates............................................................68
9.16. Limitation on Accounting Changes; Limitation on Investment Company Status.............................68
9.17. Limitation on Activities of Aether Systems, Inc.......................................................68
9.18. Limitation on Certain Restrictions Affecting Subsidiaries.............................................68
9.19. Limitation on Payments or Prepayments of Indebtedness or Modification of
Debt Documents.....................................................................................68
9.20. Year 2000 Compliance..................................................................................69
9.21. Tax Sharing Arrangements..............................................................................69
9.22. Refinancing...........................................................................................69
9.23. Additional Obligors...................................................................................70
9.24. Limitation on Issuance or Dispositions of Equity Interests of Subsidiaries............................70
Section 10. Events of Default.....................................................................................71
Section 11. Agents................................................................................................74
11.01. General Provisions....................................................................................74
11.02. Indemnification.......................................................................................76
11.03. Consents Under Other Credit Documents.................................................................76
Section 12. Miscellaneous.........................................................................................76
12.01. Waiver................................................................................................76
12.02. Notices...............................................................................................76
12.03. Expenses, Indemnification, Etc........................................................................77
12.04. Amendments, Etc.......................................................................................78
12.05. Successors and Assigns................................................................................80
12.06. Assignments and Participations........................................................................80
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
12.07. Survival..............................................................................................82
12.08. Captions..............................................................................................83
12.09. Counterparts; Interpretation; Effectiveness...........................................................83
12.10. Governing Law; Submission to Jurisdiction; Waivers; Etc...............................................83
12.11. Confidentiality.......................................................................................83
12.12. Independence of Representations, Warranties and Covenants.............................................84
12.13. Severability..........................................................................................84
Signatures.........................................................................................................S-1
</TABLE>
-iv-
<PAGE> 6
ANNEX A - Term Loan Commitments
SCHEDULE 1.01(a) - Guarantors
SCHEDULE 8.02(B) - Certain Contingent Obligations of Companies
SCHEDULE 8.03 - Litigation
SCHEDULE 8.08 - Tax Matters
SCHEDULE 8.10 - Environmental Matters
SCHEDULE 8.13 - Subsidiaries, Etc.
SCHEDULE 8.20 - Labor Matters
SCHEDULE 8.23 - Intellectual Property Matters
SCHEDULE 8.24 - Certain Indebtedness To Remain Outstanding
SCHEDULE 9.07 - Certain Existing Liens
SCHEDULE 9.09 - Investments
SCHEDULE 9.15 - Existing Affiliate Agreements
SCHEDULE 9.19 - Certain Restrictions Applicable to Subsidiaries
EXHIBIT A - Form of Term Note
EXHIBIT B - Form of Intercompany Note
EXHIBIT C - Form of Solvency Certificate
EXHIBIT D - Form of Counsel Opinion
EXHIBIT E - Form of Notice of Assignment
EXHIBIT F - Form of Notice of Borrowing
EXHIBIT G - Form of Notice of Conversion/Continuation
EXHIBIT H - Form of Foreign Lender Certificate
EXHIBIT I - Form of Assignment Agreement
EXHIBIT J - Form of Security Agreement
EXHIBIT K - Form of Extension Notice
EXHIBIT L - Form of Joinder Agreement
EXHIBIT M - Administrative Agent wiring instructions
-v-
<PAGE> 7
CREDIT AGREEMENT dated as of September 28, 1999, among AETHER SYSTEMS
LLC, as Borrower; the Guarantors party hereto; each of the lenders that is a
signatory hereto identified under the caption "LENDERS" on the signature pages
hereto or that shall become a "Lender" hereunder pursuant to Section 12.06(b)
(individually, a "Lender" and, collectively, the "Lenders"); MERRILL LYNCH &
CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as lead arranger (in
such capacity, together with its successors in such capacity, "Lead Arranger"),
as administrative agent (in such capacity, together with its successors in such
capacity, "Administrative Agent"), and as syndication agent (in such capacity,
together with its successors in such capacity, "Syndication Agent").
The parties hereto agree as follows:
Section 1. Definitions, Accounting Matters and Rules of Construction.
1.01. Certain Defined Terms. As used herein, the following terms shall
have the following meanings:
"ABR Loans" shall mean Term Loans that bear interest at rates based upon
the Alternate Base Rate.
"Acquisition" shall mean, with respect to any Person, any transaction or
series of related transactions for the direct or indirect (a) acquisition of all
or substantially all of the Property of any other Person, or of any business or
division of any other Person, (b) acquisition of in excess of 50% of the Equity
Interests of any other Person, or otherwise causing any other Person to become a
Subsidiary of such Person, or (c) merger or consolidation or any other
combination with any other Person.
"Acquisition Agreement" shall mean the Stock Purchase Agreement dated as
of August 19, 1999 by and among Borrower, Mobeo and the selling stockholders
identified therein.
"Acquisition Consideration" shall mean the purchase consideration for any
Acquisition and all other payments made and liabilities incurred by any Company
in exchange for, or as part of the purchase price for, any Acquisition, whether
paid in cash or by exchange of Equity Interests or of Property or otherwise and
whether payable at or prior to the consummation of such Acquisition or deferred
for payment at any future time, whether or not any such future payment is
subject to the occurrence of any contingency, and includes any and all payments
and liabilities representing the purchase price and any assumptions of
liabilities, "earn-outs" and other Profit Payment Agreements and non-competition
agreements.
"Adjusted Net Income" shall mean, for any period, the consolidated net
income (loss) for such period, of the Consolidated Companies calculated in
accordance with GAAP, adjusted by excluding (to the extent taken into account in
the calculation of such consolidated net income (loss)) the effect of (a) gains
or losses for such period from Excluded Dispositions and Dispositions not in the
ordinary course of business, and the tax consequences thereof, (b) any
non-recurring or extraordinary items of income (other than the proceeds of
business interruption insurance) or expense for such
<PAGE> 8
-2-
period and the tax consequences thereof, (c) the portion of net income (loss) of
any Person (other than a Subsidiary) in which Borrower or any Subsidiary has an
ownership interest, except to the extent of the amount of cash dividends or
other cash distributions actually paid to Borrower or (subject to clause (e)
below) any Subsidiary during such period to the extent not in excess of such
Person's net income for such period, (d) the net income (loss) of any Person
combined with Borrower or any Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination, (e) the net income
of any Subsidiary to the extent that the declaration or payment of dividends or
similar distribution by such Subsidiary was not for the relevant period
permitted, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Subsidiary or its stockholders, and (f) any net gain from the
collection of proceeds of life insurance or "key man" insurance policies.
"Administrative Agent" see the introduction hereto.
"Administrative Agent's Fee Letter" shall mean any agreement entered into
by Borrower pursuant to which it shall agree to pay fees to a Lender for acting
as Administrative Agent under this Agreement.
"Advance Date" see Section 4.06.
"Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, direct or indirect, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Affiliate Transaction" see Section 9.15.
"Agent" shall mean any of Administrative Agent, Lead Arranger or
Syndication Agent.
"Agreement" shall mean this Credit Agreement, as amended from time to
time.
"Alternate Base Rate" shall mean for any day, the higher of (i) the
corporate base rate of interest announced by Administrative Agent from time to
time, as published for all loans of Lender, changing when said corporate base
rate changes, and (ii) the Federal Funds Rate plus 0.50% per annum. The
corporate base rate is not necessarily the lowest rate charged by Administrative
Agent to its customers.
"Applicable Lending Office" shall mean, for each Lender and for each Type
of Term Loan, the "Lending Office" of such Lender (or of an Affiliate of such
Lender) designated for such type of Term Loan on the signature pages hereof or
such other office of such Lender (or of an Affiliate of such Lender) as such
Lender may from time to time specify to Administrative Agent and Borrower in
writing as the office by which its Term Loans of such Type are to be made and
maintained.
<PAGE> 9
-3-
"Applicable Margin" shall be
(A) for LIBOR Loans, at any date, the percentage per annum set forth
opposite the period set forth below in which such date occurs:
Period Spread
------ ------
Closing - 10/31/99 500 bps
11/1/99-11/30/99 600 bps
thereafter 1000 bps
and (2) for ABR Loans, at any date, the percentage per
annum set forth opposite the period set forth below in which such date
occurs:
Period Spread
------ ------
Closing - 10/31/99 400 bps
11/1/99-11/30/99 500 bps
thereafter 900 bps
"Approved Fund" shall mean, with respect to any Lender that is a fund or
commingled investment vehicle that invests in loans, any other fund that invests
in loans and is managed or advised by the same investment advisor as such Lender
or by an Affiliate of such investment advisor.
"Assignment Agreement" shall mean an assignment agreement substantially
in the form of Exhibit I.
"Bankruptcy Code" shall mean the United States Federal Bankruptcy Code of
1978, as amended or supplemented.
"Borrower" shall mean Aether Systems LLC, a Delaware limited liability
company.
"Business Day" shall mean any day (a) on which commercial banks are not
authorized or required to close in New York City and (b) if such day relates to
a borrowing of, a payment or prepayment of principal of or interest on, a
Continuation or Conversion of or into, or an Interest Period for, a LIBOR Loan
or a notice by Borrower with respect to any such borrowing, payment, prepayment,
Continuation, Conversion or Interest Period, that is also a day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Capital Expenditures" shall mean, for any period, any direct or indirect
(by way of acquisition of securities of a Person or the expenditure of cash or
the incurrences of Indebtedness) expenditures in respect of the purchase or
other acquisition of fixed or capital assets, excluding (i) normal replacement
and maintenance programs properly charged to current operations, and (ii) the
purchase price of equipment to the extent that the consideration therefor
consists of used or surplus
<PAGE> 10
-4-
equipment being traded in at such time or the proceeds of a concurrent sale of
such used or surplus equipment.
"Capital Lease" shall mean, for any Person, any lease of any Property by
that Person as lessee which, in conformity with GAAP, is required to be
classified and accounted for as a capital lease on the balance sheet of that
Person.
"Capital Lease Obligations" shall mean, for any Person, all obligations
of such Person to pay rent or other amounts under a Capital Lease, and, for
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"Cash Equivalents" shall mean, for any Person: (a) direct obligations of
the United States of America, or of any agency thereof, or obligations
guaranteed as to principal and interest by the United States of America, or by
any agency thereof, in either case maturing not more than one year from the date
of acquisition thereof by such Person; (b) time deposits, certificates of
deposit or bankers' acceptances (including eurodollar deposits) issued by any
bank or trust company organized under the laws of the United States of America
or any state thereof and having capital, surplus and undivided profits of at
least $500.0 million and a deposit rating of investment grade; (c) commercial
paper rated A-1 or better by S&P or P-1 or better by Moody's, respectively,
maturing not more than 180 days from the date of acquisition thereof by such
Person; (d) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) above entered into
with a bank meeting the qualifications described in clause (b) above; (e)
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least A by S&P or A by Moody's; or (f) money market mutual funds
that invest primarily in the foregoing items.
"Casualty Event" shall mean, with respect to any Property of any Person,
any loss of title with respect to Real Property, or any loss of or damage to or
destruction of, or any condemnation or other taking (including by any
Governmental Authority) of, such Property for which such Person or any of its
Subsidiaries receives insurance proceeds or proceeds of a condemnation award or
other compensation; provided, however, no such event shall constitute a Casualty
Event if (x) such proceeds or other compensation in respect thereof is less than
$100,000 and (y) all such proceeds and other compensation in respect of all such
events since the Closing Date is less than $250,000. "Casualty Event" shall
include but not be limited to any taking of any Real Property of any Company or
any part thereof, in or by condemnation or other eminent domain proceedings
pursuant to any law, general or special, or by reason of the temporary
requisition of the use or occupancy of any Real Property of any Company or any
part thereof, by any Governmental Authority, civil or military.
"CERCLA" see Section 8.10.
"Change of Control" shall mean any transaction or event occurring on or
after the date hereof as a direct or indirect result of which (a) any Person or
any group (other than any Permitted Holder) shall (A) beneficially own (directly
or indirectly) in the aggregate Equity Interests of Bor-
<PAGE> 11
-5-
rower having 33 1/3% or more of the aggregate voting power of all Equity
Interests of Borrower at the time outstanding or (B) have the right or power to
appoint a majority of the board of directors of Borrower; (b) during any period
of two consecutive years, individuals who at the beginning of such period
constituted the board of directors of Borrower (together with any new directors
whose election by such board of directors or whose nomination for election by
the shareholders of Borrower was approved by a vote of a majority of the
directors of Borrower then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute at least a majority
of the board of directors of Borrower then in office; or (c) any event or
circumstance constituting a "change of control" under any documentation
evidencing or governing any Indebtedness of any Company in a principal amount in
excess of $10.0 million (other than under the Credit Documents) shall occur
which results in an obligation of any Company to prepay (by acceleration or
otherwise), purchase, offer to purchase, redeem or defease all or a portion of
such Indebtedness. For purposes of this definition, the terms "beneficially own"
and "group" shall have the respective meanings ascribed to them pursuant to
Section 13(d) of the Exchange Act, except that a Person or group shall be deemed
to "beneficially own" all securities that such Person or group has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
"Closing Date" see Section 7.01.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended or supplemented.
"Collateral" shall mean the Pledged Collateral as defined in the Security
Agreement.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Commitment Termination Date" shall mean April 15, 2000.
"Companies" shall mean Borrower and the Subsidiaries; and "Company" shall
mean any of them.
"Consolidated Companies" shall mean Borrower and its Consolidated
Subsidiaries.
"Consolidated Subsidiary" shall mean, for any Person, each Subsidiary of
such Person (whether now existing or hereafter created or acquired) the
financial statements of which are required to be consolidated with the financial
statements of such Person in accordance with GAAP.
"Contingent Obligation" shall mean, as to any Person, any direct or
indirect liability of such Person, whether or not contingent, with or without
recourse, (a) with respect to any Indebtedness, lease, dividend, letter of
credit or other obligation (the "primary obligations") of another Person (the
"primary obligor"), including any obligation of such Person (i) to purchase,
repurchase or otherwise acquire such primary obligations or any security
therefor, (ii) to advance or provide funds for the payment or discharge of any
such primary obligation, or to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item,
<PAGE> 12
-6-
level of income or financial condition of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (iv) otherwise to assure or hold harmless
the holder of any such primary obligation against loss in respect thereof (each
of (i)-(iv), a "Guaranty Obligation"); (b) with respect to any Surety Instrument
issued for the account of such Person or as to which such Person is otherwise
liable for reimbursement of drawings or payments; (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another Person if
the relevant contract or other related document or obligation requires that
payment for such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever performed or
tendered; or (d) in respect of any Swap Contract; provided, however, that the
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection or standard contractual indemnities entered into, in each
case in the ordinary course of business. The amount of any Contingent Obligation
shall (x) in the case of a Guaranty Obligation, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such Guaranty
Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof, and (y) in the case of
other Contingent Obligations, be equal to the maximum reasonably anticipated
liability in respect thereof.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.09 of a LIBOR Loan from one Interest Period
to the next Interest Period.
"Contractual Obligation" shall mean as to any Person, any provision of
any security issued by such Person or of any mortgage, security agreement,
pledge agreement, indenture, credit agreement, securities purchase agreement,
debt instrument, contract, agreement, instrument or other undertaking to which
such Person is a party or by which it or any of its Property is bound or
subject.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.09 of one Type of Term Loan into another Type of Term
Loan, which may be accompanied by the transfer by a Lender (at its sole
discretion) of a Term Loan from one Applicable Lending Office to another.
"Covered Taxes" see Section 5.06(a).
"Credit Documents" shall mean this Agreement, the Security Agreement and
the Term Notes.
"Creditor" shall mean each of (i) each Agent, (ii) each Lender, and (iii)
each party to a Swap Contract relating to the Term Loans if at the date of
entering into such Swap Contract such Person was a Lender or an Affiliate of a
Lender.
"Debt Issuance" shall mean the incurrence by any Company of any
Indebtedness after the Closing Date (other than as permitted by Section 9.08).
<PAGE> 13
-7-
"Default" shall mean any event or condition that constitutes an Event of
Default or that would become, with notice or lapse of time or both, an Event of
Default.
"Disposition" shall mean (i) any conveyance, sale, lease, assignment,
transfer or other disposition (including by way of merger or consolidation and
including any Sale and Leaseback Transaction) of any Property (including Equity
Interests of any Person owned by any Company) (whether owned on the Closing Date
or thereafter acquired) by any Company to any Person (other than (A) with
respect to any Obligor, to another Obligor and (B) with respect to any other
Company, to any Company), (ii) any issuance or sale by any Subsidiary of its
Equity Interests to any Person (other than any Company), and (iii) any
liquidating dividend or distribution received by any Company in respect of any
Minority Interest, excluding, however, in each case any Excluded Disposition
(except for purposes of defining the term "Excluded Disposition").
"Disposition Event" shall mean the receipt by any Company of cash
proceeds or cash distributions of any kind consideration for a Disposition.
"Disqualified Capital Stock" shall mean, with respect to any Person, any
Equity Interest of such Person 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, matures (excluding any maturity as the result of an
optional redemption by the issuer thereof) or is mandatorily redeemable (other
than solely for Qualified Capital Stock), pursuant to a sinking fund obligation
or otherwise, or is redeemable at the sole option of the holder thereof (other
than solely for Qualified Capital Stock) or exchangeable or convertible into
debt securities of the issuer thereof at the sole option of the holder thereof,
in whole or in part, on or prior to the date which is 90 days after the Final
Maturity Date (assuming the extension thereof to the latest date permitted
hereunder).
"Dividend Payment" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any Equity Interests
or Equity Rights of any Company, but excluding dividends paid through the
issuance of additional shares of Qualified Capital Stock and any redemption or
exchange of any Qualified Capital Stock of such Obligor through the issuance of
Qualified Capital Stock of such Obligor.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Eligible Person" shall mean (i) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100.0 million; (ii) a commercial bank organized under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus in a dollar equivalent amount
of at least $100.0 million; provided, however, that such bank is acting through
a branch or agency located in the country in which it is organized or another
country that is also a member of the OECD; (iii) an insurance company, mutual
fund or other entity which is regularly engaged in making, purchasing or
investing in loans or securities; or any other financial institution organized
under the laws of the United
<PAGE> 14
-8-
States, any state thereof, any other country that is a member of the OECD or a
political subdivision of any such country with assets, or assets under
management, in a dollar equivalent amount of at least $100.0 million; (iv) any
Affiliate of a Lender; (v) any other entity (other than a natural person) which
is an "accredited investor" (as defined in Regulation D under the Securities
Act) which extends credit or buys loans as one of its businesses, including, but
not limited to, insurance companies, mutual funds and investment funds; and (vi)
any other entity consented to by Lead Arranger, Administrative Agent and
Borrower. With respect to any Lender that is a fund or commingled investment
vehicle that invests in loans, any other fund or commingled investment vehicle
that invests in loans and is managed or advised by the same investment advisor
of such Lender or by an Affiliate of such investment advisor shall be treated as
a single Eligible Person.
"Employee Benefit Plan" shall mean an employee benefit plan (as defined
in Section 3(3) of ERISA) that is maintained or contributed to by any ERISA
Entity or with respect to which Borrower or a Subsidiary could incur liability.
"Environmental Claim" shall mean, with respect to any Person, any notice,
claim, demand or other communication (collectively, a "claim") by any other
Person alleging such Person's liability for any costs, cleanup costs, response
or corrective action costs, damages to natural resources or other Property,
personal injuries, fines or penalties arising out of or resulting from (i) the
presence, Release or threatened Release into the environment, of any Hazardous
Material at any location, whether or not owned by such Person, or (ii) any
violation of any Environmental Law. The term "Environmental Claim" shall include
any claim by any Person seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence of
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Laws" shall mean any and all present and future applicable
laws, rules or regulations of any Governmental Authority, any orders, decrees,
judgments or injunctions and the common law in each case as now or hereafter in
effect, relating to pollution or protection of human health, safety or the
environment, including without limitation, ambient air, indoor air, soil, or
surface water, ground water, land or subsurface strata, and natural resources
such as wetlands, flora or fauna, including, without limitation, those relating
to Releases or threatened Releases of Hazardous Materials into the environment,
or otherwise relating to the manufacture, processing, generation, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials.
"Equity Interests" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents, including membership
interests (however designated, whether voting or non-voting), of capital of such
Person, including, if such Person is a partnership, partnership interests
(whether general or limited) and 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, such partnership, whether outstanding on the date
hereof or issued after the Closing Date.
"Equity Issuance" shall mean any of (a) any issuance or sale after the
Closing Date by Borrower of any Equity Interests (including any Equity Interests
issued upon exercise of any Equity Rights) or any Equity Rights, or (b) the
receipt by Borrower after the Closing Date of any capital
<PAGE> 15
-9-
contribution (whether or not evidenced by any Equity Interest issued by the
recipient of such contribution), excluding in each case any Excluded Equity
Issuance. Solely for purposes of Section 2.10, the issuance of any debt security
convertible into, or exercisable for, Equity Interests shall be deemed to be a
Debt Issuance and not an Equity Issuance.
"Equity Rights" shall mean, with respect to any Person, any outstanding
subscriptions, options, warrants, Term Loan Commitments, preemptive rights or
agreements of any kind (including any stockholders' or voting trust agreements)
for the issuance, sale, registration or voting of, or outstanding securities
convertible into, any additional shares of Equity Interests of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the United States Employee Retirement Income Security
Act of 1974, as amended.
"ERISA Entity" shall mean any member of an ERISA Group.
"ERISA Event" shall mean (a) any "reportable event," as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Pension Plan (other than an event for which the 30-day notice period is waived);
(b) the existence with respect to any Pension Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived, the failure to make by its due date a required
installment under Section 412(m) of the Code with respect to any Pension Plan or
the failure to make any required contribution to a Multiemployer Plan; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Pension Plan; (d) the incurrence by any ERISA Entity of any liability under
Title IV of ERISA with respect to the termination of any Pension Plan; (e) the
receipt by any ERISA Entity from the PBGC or a plan administrator of any notice
relating to an intention to terminate any Pension Plan or to appoint a trustee
to administer any Pension Plan, or the occurrence of any event or condition
which could reasonably be expected to constitute grounds under ERISA for the
termination of or the appointment of a trustee to administer, any Pension Plan;
(f) the incurrence by any ERISA Entity of any liability with respect to the
withdrawal or partial withdrawal from any Pension Plan or Multiemployer Plan;
(g) the receipt by an ERISA Entity of any notice, or the receipt by any
Multiemployer Plan from any ERISA Entity of any notice, concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (h) the making of any amendment to any Pension Plan which
could result in the imposition of a lien or the posting of a bond or other
security; or (i) the occurrence of a nonexempt prohibited transaction (within
the meaning of Section 4975 of the Code or Section 406 of ERISA) which could
result in liability to any Company.
"ERISA Group" shall mean Borrower and its Subsidiaries and all members of
a controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with such Company, are
treated as a single employer under Section 414 of the Code.
<PAGE> 16
-10-
"Event of Default" see Section 10.
"Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended, and all rules and regulations of the Commission promulgated
thereunder.
"Excluded Dispositions" shall mean (i) Dispositions for fair market value
resulting in no more than $100,000 in aggregate proceeds per Disposition (or
series of related Dispositions) and no more than $250,000 in aggregate proceeds
in any fiscal year; (ii) an exchange of equipment or inventory for other
equipment or inventory, provided that the Company effecting such exchange
receives at least substantially equivalent value in such exchange for the
Property disposed of; (iii) any transaction permitted by Section 9.06 (other
than clauses (g) and (k) thereof), any Lien permitted by Section 9.07 and any
Investment permitted by Section 9.09; (iv) any issuance of Equity Interests by
any Subsidiary to directors or nominees if resulting in de minimis proceeds; and
(v) the sale of inventory in the ordinary course of business.
"Excluded Equity Issuance" shall mean (i) any issuance of common Equity
Interests of Borrower to the seller or sellers in consideration for a Permitted
Acquisition, (ii) any issuance or sale by Borrower of Equity Interests of
Borrower to employees, directors, officers or consultants pursuant to a benefit
or compensation plan, and (iii) any issuance of Equity Interests by any
Subsidiary to directors or nominees if resulting in de minimis proceeds.
"Excluded Taxes" see Section 5.06(a).
"Existing Affiliate Agreements" see Section 9.15.
"Extension Date" see Section 3.01(b).
"Extension Fee" see Section 3.01(b).
"Extension Notice" means a notice substantially in the form of Exhibit K.
"fair market value" shall mean, with respect to any Property, a price
(after taking into account any liabilities relating to such Property), as
determined by Borrower in good faith, that is within a reasonable range of
prices which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of which is
under any compulsion to complete the transaction.
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided, however, that (a) if the day for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the
<PAGE> 17
-11-
average rate quoted to Administrative Agent on such Business Day on such
transactions by three federal funds brokers of recognized standing, as
determined by Administrative Agent.
"Fee Letter" shall mean the Interim Loan Fee Letter dated as of September
28, 1999 between Merrill Lynch Capital Corporation and Borrower.
"Final Maturity Date" shall mean September 28, 2000, subject to extension
as provided in Section 3.01(b) (and if so extended pursuant to Section 3.01(b),
references herein to Final Maturity Date from and after the date of such
extension refer to such new Final Maturity Date).
"Financial Maintenance Covenants" shall mean the covenants set forth in
Sections 9.11(a), (b) and (c).
"Foreign Lender Certificate" see Section 5.06(b).
"Foreign Plan" shall mean any employee benefit plan, program policy,
arrangement, or agreement maintained or contributed to by, or entered into with,
any Company with respect to employees employed outside the United States.
"Funding Date" shall mean the date of the making of any extension of
credit hereunder (including the Closing Date).
"GAAP" shall mean generally accepted accounting principles set forth as
of the relevant date 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
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of the
date of determination.
"Governmental Authority" shall mean any government or political
subdivision of the United States or any other country or any agency, authority,
board, bureau, central bank, commission, department or instrumentality thereof
or therein, including, without limitation, any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to such government or political subdivision.
"Guarantee" shall mean the guarantee of each Guarantor pursuant to
Section 6.
"Guaranteed Obligations" see Section 6.01.
"Guarantors" shall mean each Subsidiary listed on Schedule 1.01(a) and
each Subsidiary that, after the Closing Date, executes and delivers a Joinder
Agreement and such other documents and instruments (including customary legal
opinions) as Lead Arranger and Administrative Agent may require to establish and
confirm the guarantee of the Obligations by such Subsidiary on terms
substantially identical to that of the Guarantors on the Closing Date.
<PAGE> 18
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"Guaranty Obligation" see the definition of Contingent Obligation.
"Hazardous Material" shall mean any pollutant, contaminant, toxic,
hazardous or extremely hazardous substance, constituent or waste, or any other
constituent, waste, material, compound or substance subject to regulation under
any Environmental Law including, without limitation, petroleum or any petroleum
product, including crude oil or any fraction thereof, polychlorinated biphenyls,
urea-formaldehyde insulation and asbestos.
"in the ordinary course of business" shall mean in the ordinary course of
business of the Companies.
"incur" shall mean, with respect to any Indebtedness or other obligation
of any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "incurrence", "incurred" and "incurring" shall have meanings
correlative to the foregoing).
"Indebtedness" shall mean, for any Person, without duplication, (a) all
indebtedness for borrowed money of such Person; (b) all obligations issued,
undertaken or assumed by such Person as the deferred purchase price of Property
or services (other than trade payables and accrued expenses); (c) all unpaid
reimbursement obligations in respect of letters of credit and all non-contingent
reimbursement or payment obligations of such Person with respect to Surety
Instruments that are not reimbursed within three Business Days (such as, for
example, unpaid reimbursement obligations in respect of a drawing under a letter
of credit); (d) all obligations of such Person evidenced by notes, bonds (other
than bid or performance bonds), debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of Property
or businesses; (e) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement, or incurred as financing,
in either case with respect to Property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such Property (other than
operating leases)); (f) all Capital Lease Obligations of such Person; (g) all
indebtedness of other Persons referred to in clauses (a) through (f) above
secured by (or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in Property
(including accounts and contracts rights) owned by such Person, whether or not
such Person has assumed or become liable for the payment of such indebtedness
(provided that the amount of indebtedness shall be deemed to be limited to the
fair market value of such Property if such Person has not assumed or become
liable for the payment of such indebtedness); and (h) all Guaranty Obligations
of such Person in respect of indebtedness or obligations of any other Person of
the kinds referred to in clauses (a) through (g) above. Indebtedness shall not
include accounts extended by suppliers in the ordinary course of business in
connection with the purchase of goods and services. The Indebtedness of any
Person shall include any Indebtedness of any partnership in which such Person is
the general partner.
"Indemnitee" see Section 12.03(b).
<PAGE> 19
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"Insolvency Proceeding" shall mean, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or by or
before any other Governmental Authority relating to bankruptcy, insolvency,
reorganization, liquidation, receivership, dissolution, sequestration,
conservatorship, winding-up or relief of debtors (or the convening of a meeting
or the passing of a resolution for or with a view to any of the foregoing), or
(b) any assignment for the benefit of creditors, composition, marshalling of
assets for creditors, or other similar arrangement in respect of such Person's
creditors generally or any substantial portion of its creditors.
"Intellectual Property" see Section 8.23.
"Intercompany Note" shall mean a promissory note substantially in the
form of Exhibit B.
"Interest Period" shall mean, with respect to any LIBOR Loan, each period
commencing on the date such LIBOR Loan is made or Converted from an ABR Loan or
the last day of the next preceding Interest Period for such LIBOR Loan and
(subject to the requirements of Sections 2.01(a), 2.01(b), 2.01(c), 2.01(d),
2.01(e) and 2.09) ending on the numerically corresponding day in the first,
second, third, sixth or (if available from all Lenders) twelfth calendar month
thereafter, as Borrower may select as provided in Section 4.05, except that each
Interest Period that commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (i) each
Interest Period that would otherwise end on a day that is not a Business Day
shall end on the next succeeding Business Day (or, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); and (ii) notwithstanding clause (i), no Interest Period shall
have a duration of less than one month and, if the Interest Period for any LIBOR
Loan would otherwise be a shorter period, such Term Loan shall not be available
hereunder as a LIBOR Loan for such period.
"Interest Rate Protection Agreement" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
"Investment" shall mean, for any Person: (a) the acquisition (whether for
cash, Property, services or securities or otherwise) of Equity Interests, bonds,
notes, debentures or other securities of any other Person; (b) the making of any
deposit with, or advance, loan or other extension of credit to, any other Person
(including the purchase of Property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such Property to
such Person); (c) any capital contribution to (by means of any transfer of cash
or other Property to others or any payment for Property or services for the
account or use of others) any other Person; and (d) the entering into, or direct
or indirect incurrence, of any Guaranty Obligation with respect to Indebtedness
or other liability of any other Person.
<PAGE> 20
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"Joinder Agreement" shall mean a joinder agreement substantially in the
form of Exhibit L.
"Joint Venture" shall mean a corporation, partnership, limited liability
company, joint venture or other similar legal arrangement (whether created by
contract or conducted through a separate legal entity) now or hereafter formed
by any Company with another Person or Persons in order to conduct a common
venture or enterprise with such Person or Persons and that is not a Subsidiary
(whether owned, directly or indirectly, 50% or less by any Company).
"Laws" shall mean, collectively, all common law and all international,
foreign, federal, state and local statutes, treaties, rules, guidelines,
regulations, ordinances, codes and administrative or judicial precedents,
including without limitation the interpretation thereof by any Governmental
Authority charged with the enforcement thereof.
"Lead Arranger" see the introduction hereto.
"Lease" shall mean any lease, sublease, franchise agreement, license,
occupancy or concession agreement.
"Lender" and "Lenders" see the introduction hereto.
"LIBOR Rate" shall mean, for any LIBOR Loan for any Interest Period
therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) determined by Administrative Agent to be equal to the LIBOR Base Rate for
such LIBOR Loan for such Interest Period divided by 1 minus the Reserve
Requirement (if any) for such LIBOR Loan for such Interest Period.
"LIBOR Base Rate" shall mean, with respect to any LIBOR Loan for any
Interest Period therefor, the rate per annum determined by Administrative Agent
to be the arithmetic mean (rounded to the nearest 1/100th of 1%) of the offered
rates for deposits in Dollars with a term comparable to such Interest Period
that appears on the Telerate British Bankers Assoc. Interest Settlement Rates
Page (as defined below) at approximately 11:00 a.m., London, England time, on
the second full Business Day preceding the first day of such Interest Period (as
adjusted for maximum statutory reserves (if applicable)); provided, however,
that (i) if no comparable term for an Interest Period is available, the LIBOR
Base Rate shall be determined using the weighted average of the offered rates
for the two terms most nearly corresponding to such Interest Period and (ii) if
there shall at any time no longer exist a Telerate British Bankers Assoc.
Interest Settlement Rates Page, "LIBOR Base Rate" shall mean, with respect to
each day during each Interest Period pertaining to LIBOR Loans comprising part
of the same borrowing, the rate per annum equal to the rate at which
Administrative Agent is offered deposits in Dollars at approximately 11:00 a.m.,
London, England time, two Business Days prior to the first day of such Interest
Period in the London interbank market for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to its portion of the amount of such LIBOR Loan to be outstanding
during such Interest Period. "Telerate British Bankers Assoc. Interest
Settlement Rates Page" shall mean the display designated as Page 3750 on the
Telerate System Incorporated Service (or such other page as may replace
<PAGE> 21
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such page on such service for the purpose of displaying the rates at which
Dollar deposits are offered by leading banks in the London interbank deposit
markets).
"LIBOR Loans" shall mean Term Loans that bear interest at rates based on
rates referred to in the definition of "LIBOR Rate" in this Section 1.01.
"Lien" shall mean, with respect to any Property, any mortgage, lien,
pledge, claim, charge, security interest or encumbrance of any kind, any other
type of preferential arrangement in respect of such Property having the effect
of a security interest or any filing consented to by any Company of any
financing statement under the UCC or any other similar notice of Lien under any
similar notice or recording statute of any Governmental Authority consented to
by any Company, including any easement, right-of-way or other encumbrance on
title to Real Property, and any agreement to give any of the foregoing. For
purposes of the Credit Documents, a Person shall be deemed to own subject to a
Lien any Property that it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement (other than an operating lease) relating to such
Property.
"Losses" of any Person shall mean the losses, liabilities, claims
(including those based upon negligence, strict or absolute liability and
liability in tort), damages, reasonable expenses, obligations, penalties,
actions, judgments, encumbrances, liens, penalties, fines, suits, reasonable and
documented costs or disbursements of any kind or nature whatsoever (including
reasonable fees and expenses of counsel in connection with any Proceeding
commenced or threatened in writing, whether or not such Person shall be
designated a party thereto) at any time (including following the payment of the
Obligations) incurred by, imposed on or asserted against such Person.
"Majority Lenders" shall mean (i) at any time prior to the Closing Date,
Lenders holding at least a majority of the aggregate amount of the Term Loan
Commitments, and (ii) at any time after the Closing Date, Lenders holding at
least a majority of the sum of (without duplication) (a) the aggregate principal
amount of outstanding Term Loans, plus (b) the aggregate Unutilized Commitments
then in effect.
"Margin Stock" shall mean margin stock within the meaning of Regulations
T, U and X.
"Material Adverse Change" shall have the meaning set forth in Section
7.01 (ii).
"Material Adverse Effect" shall mean any of (a) a material adverse
effect, or any condition or event that has resulted or could reasonably be
expected to result in a material adverse effect, on the business, assets,
operations, properties, liabilities, prospects or condition (financial or
otherwise) of Borrower, together with the Subsidiaries taken as a whole, (b) a
material adverse effect on the ability of the Obligors to perform any of their
material obligations under any Credit Document or (c) a material adverse effect
on the legality, binding effect or enforceability of any Credit Document or any
of the material rights and remedies of any Creditor thereunder.
<PAGE> 22
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"Minority Interest" shall mean an Investment in any Person that is not a
Subsidiary (including any Joint Venture).
"Mobeo" shall mean Mobeo, Inc., a Delaware corporation.
"Mobeo Acquisition" shall mean the acquisition of Mobeo pursuant to the
Acquisition Agreement.
"Monthly Dates" shall mean the last Business Day of each month,
commencing with the last Business Day of the first full month after the Closing
Date.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a multiemployer plan within the meaning
of Section 4001(a)(3) of ERISA (i) to which any ERISA Entity is then making or
accruing an obligation to make contributions, (ii) to which any ERISA Entity has
within the preceding five plan years made contributions, including any Person
which ceased to be an ERISA Entity during such five year period, or (iii) with
respect to which any Company could incur liability.
"NAIC" shall mean the National Association of Insurance Commissioners or
any successor thereto.
"Net Available Proceeds" shall mean:
(i) in the case of any Disposition Event, the amount of Net Cash
Payments received by any Company in connection with such Disposition Event;
(ii) in the case of any Casualty Event, the aggregate amount of cash
proceeds of insurance, condemnation awards and other compensation received
by any Company in respect of such Casualty Event net of (A) fees and
expenses incurred by such Company in connection with recovery thereof, (B)
repayments of Indebtedness (other than Term Loans) to the extent secured by
a Lien on such Property permitted by the Credit Documents, and (C) any Taxes
paid or payable by any Company in respect of the amount so recovered (after
application of all credits and other offsets); and
(iii) in the case of any Equity Issuance or any Debt Issuance, the
aggregate amount of all cash received by any Obligor in respect thereof net
of all investment banking fees, discounts and commissions, legal fees,
consulting fees, accountants' fees, underwriting discounts and commissions
and other fees and expenses, actually incurred in connection therewith.
"Net Cash Payments" shall mean, with respect to any Disposition Event,
the aggregate amount of all cash payments (including any cash payments received
by way of deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise, but only as and
when received) received by any Company directly or indirectly in connection with
such Disposition Event; provided, however, that Net Cash Payments shall be net
(without
<PAGE> 23
-17-
duplication) of (i) the amount of all fees and expenses paid by any Company in
connection with such Disposition Event (the "Relevant Disposition"); (ii) any
Taxes paid or estimated to be payable by any Company as a result of the Relevant
Disposition (after application of all credits and other offsets); (iii) any
repayments by any Company of Indebtedness other than the Obligations to the
extent that (a) such Indebtedness is secured by a Lien on the Property that is
the subject of the Relevant Disposition that is permitted by the Credit
Documents and (b) the transferee of (or holder of a Lien on) such Property
requires that such Indebtedness be repaid as a condition to the purchase or sale
of such Property; (iv) amounts required to be paid to any Person (other than any
Company) owning a beneficial interest in the Property subject to such Relevant
Disposition; and (v) appropriate amounts to be provided by any Company, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Relevant Disposition and retained by any Company after such Relevant
Disposition, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Relevant
Disposition, all as reflected in an Officers' Certificate delivered to
Administrative Agent.
"Non-Qualified Subsidiary" shall mean any Subsidiary other than a
Qualified Subsidiary.
"Non-U.S. Lender" see Section 5.06(b).
"Notice of Assignment" shall mean a notice of assignment pursuant to
Section 12.06 substantially in the form of Exhibit E.
"Notice of Borrowing" shall mean a notice of borrowing substantially in
the form of Exhibit F.
"Notice of Continuation/Conversion" see Section 2.09.
"Obligations" shall mean all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to any
Creditor or any of its Related Parties or their respective successors,
transferees or assignees pursuant to the terms of any Credit Document or any
Swap Contract or secured by the Security Agreement, whether or not the right of
such Person to payment in respect of such obligations and liabilities is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured and whether or not
such claim is discharged, stayed or otherwise affected by any bankruptcy case or
insolvency or liquidation proceeding.
"Obligors" shall mean Borrower and the Guarantors.
"Officers' Certificate" shall mean, as applied to any corporation, a
certificate executed on behalf of such corporation by the Chairman of its board
of directors (if an officer) or its Chief Executive Officer or its President or
one of its Vice Presidents (or an equivalent officer) and by its Chief Financial
Officer, Vice President-Finance or its Treasurer (or an equivalent officer) or
any Assistant Treasurer in their official (and not individual) capacities;
provided, however, that every Officers' Certificate with respect to the
compliance with a condition precedent to the making of any
<PAGE> 24
-18-
Term Loan or the taking of any other action hereunder shall include (i) a
statement that the officers making or giving such Officers' Certificate have
read such condition and any definitions or other provisions contained in this
Agreement relating thereto, and (ii) a statement as to whether, in the opinion
of the signers, such condition has been complied with.
"OpenSky Warrant" shall mean the warrants to purchase 3,000,000 shares of
Series A Preferred Stock of AirWeb Corporation (d/b/a/ OpenSky) issued to Aether
OpenSky Investments LLC.
"Operating Cash Flow" shall mean, for any period, the sum (without
duplication) of the amounts for such period of Adjusted Net Income, plus, in
each case to the extent deducted in calculating such Adjusted Net Income, (1)
income tax expense and withholding tax expense incurred in connection with cross
border transactions, (2) consolidated interest expense, (3) depreciation and
amortization expense and (4) other non-cash items of expense, other than to the
extent requiring an accrual or reserve for future cash expenses.
"Organic Document" shall mean, relative to any Person, its certificate of
incorporation, its by-laws, its partnership agreement, its memorandum and
articles of association, share designations or similar organization documents
and all shareholder agreements, voting trusts and similar arrangements
applicable to any of its authorized Equity Interests.
"Original Lenders" shall mean the Lenders named on the signature pages
hereof who were Lenders at the Closing Date.
"Other Taxes" see Section 5.06(c).
"Participant" see Section 12.06(c).
"Payment Date" shall mean the Final Maturity Date and each date on which
interest is due and payable on any Term Loan.
"Payor" see Section 4.06.
"PBGC" shall mean the United States Pension Benefit Guaranty Corporation
or any successor thereto.
"Pension Plan" shall mean an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code or Section 302 of ERISA
and is maintained or contributed to by any ERISA Entity or with respect to which
any Company could incur liability.
"Percentage" shall mean, with respect to any Lender, the ratio of (a) the
amount of the Unutilized Commitment of such Lender to (b) the aggregate amount
of the Unutilized Commitments of all of the Lenders.
<PAGE> 25
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"Permits" see Section 8.16.
"Permitted Acquisition" shall mean any Acquisition effected in compliance
with Section 9.06(h).
"Permitted Investments" shall mean: (a) operating deposit accounts and
certificates of deposit with banks in the ordinary course of business; (b)
without duplication, Investments that constitute Indebtedness or Contingent
Obligations permitted under Section 9.08; (c) extensions of credit in the nature
of accounts receivable or notes receivable arising from the sale or lease of
goods or services in the ordinary course of business and prepayments and other
credits to suppliers made in the ordinary course of business; (d) pledges or
deposits in connection with workers' compensation, unemployment insurance and
other social security or similar legislation; (e) pledges or deposits in
connection with (i) the non-delinquent performance of bids, trade contracts
(other than for borrowed money), leases or statutory obligations, (ii)
contingent obligations on surety or appeal bonds, and (iii) other non-delinquent
obligations of a like nature, in each case incurred in the ordinary course of
business; (f) investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers and
suppliers arising in the ordinary course of business; (g) Capital Expenditures
(other than Acquisitions) and Liens not prohibited by this Agreement; and (h)
Cash and Cash Equivalents.
"Permitted Customary Liens" shall mean (a) Liens imposed by any
Governmental Authority for taxes, assessments or charges (other than any de
minimis taxes, assessments or charges) not yet due or which are being contested
in good faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Companies, in accordance with GAAP;
(b) Liens imposed by law which were incurred in the ordinary course of business,
such as carriers', warehousemen's, landlords' and mechanics' Liens and other
similar Liens arising in the ordinary course of business, in each case for sums
the payment of which is not required by Section 9.03; (c) pledges or deposits
under workers' compensation, unemployment insurance and other social security
legislation (including the Federal Employer's Liability Act) or the deposits
securing the liability to insurance carriers, in each case arising in the
ordinary course of business; (d) pledges or deposits to secure the performance
of bids, trade contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business under insurance or
self insurance agreements; (e) easements, rights-of-way, restrictions or minor
defects or irregularities in title incurred in the ordinary course of business
and encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Real Property or minor imperfections in title thereto
which, in the aggregate, are not material in amount, and which do not in any
case materially detract from the value of the Real Property subject thereto or
interfere with the ordinary conduct of the business of any Company; (f) Liens
consisting of judgment or judicial attachment Liens (including pre-judgment
attachment) in existence less than 60 days after the entry thereof or the
enforcement of which is effectively stayed or payment of which is covered in
full (subject to a customary deductible) by insurance or which do not otherwise
result in an Event of Default under Section 10(h) or (n); (g) any obligations or
duties affecting any of the Property of any Company to any municipality or
public authority with respect to any franchise, grant, license
<PAGE> 26
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or permit which do not materially impair the use of such Property for the
purposes for which it is held; (h) leases or subleases granted to third Persons
not interfering in any material respect with the business of any Company; (i)
Liens arising from UCC financing statements regarding leases permitted by this
Agreement; (j) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods so long as such Liens attach only to the imported goods;
(k) Liens that are contractual rights of set-off; (l) Liens arising out of
consignment or similar arrangements for the sale of goods entered into by any
Company in the ordinary course of business; and (m) Liens on Intellectual
Property to the extent such Liens arise from the granting of licenses to use
such Intellectual Property in the ordinary course of business of any Company.
"Permitted Holder" shall mean each of the underwriters in the Borrower's
initial public offering of common equity of Borrower and each existing member of
the Borrower.
"Permitted Liens" see Section 9.07.
"Permitted Obligations" shall mean: (a) Contingent Obligations in respect
of operating leases; (b) Indebtedness and Contingent Obligations arising from
honoring a check, draft or similar instrument against insufficient funds;
provided, however, that such Indebtedness is extinguished within two Business
Days of its incurrence; (c) Swap Contracts entered into in the ordinary course
of business and designed to protect any Company against fluctuations in interest
rates, currency exchange rates, or similar risks; (d) Contingent Obligations in
connection with Dispositions permitted under Section 9.06 arising in connection
with indemnification and other agreements in respect of any contract relating to
such Disposition, not to exceed the consideration received by the Companies
(which consideration shall be deemed to exclude any obligation of any third
Person incurred in connection with the acquisition of the Property which is the
subject of such Disposition) in connection with such sale; (e) Indebtedness or
Contingent Obligations of any Company to (including obligations in respect of
letters of credit for the benefit of) any Person providing worker's
compensation, health, disability or other employee benefits or property,
casualty or liability insurance to any Company; and (f) Indebtedness or
Contingent Obligations of any Company in respect of performance bonds, bid
bonds, appeal bonds, surety bonds and similar obligations and trade letters of
credit, in each case provided in the ordinary course of business, including
those incurred to secure health, safety and environmental obligations in the
ordinary course of business, and any extension, renewal or refinancing thereof
to the extent the amount of refinancing Indebtedness or Contingent Obligations
is not greater than the amount of Indebtedness or Contingent Obligations being
refinanced.
"Permitted Refinancing" shall mean, with respect to any Indebtedness or
Contingent Obligation, any refinancing thereof, provided, however, that (w) no
Default shall have occurred and be continuing or would arise therefrom, (x) any
such refinancing Indebtedness shall (I) not be on financial and other terms that
are materially more onerous (as determined by Borrower and Agents) in the
aggregate to any Company or Creditor than the Indebtedness or Contingent
Obligation being refinanced and shall not have defaults, rights or remedies more
burdensome to any Company or Creditor than the Indebtedness being refinanced,
(II) not have a stated maturity or weighted average life that is shorter than
that of the Indebtedness or Contingent Obligation being refinanced (provided
that the
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stated maturity or weighted average life may be shorter if the stated maturity
of any principal payment (including any amortization payments) is not earlier
than the earliest of (i) the stated maturity in effect prior to such refinancing
or (ii) 90 days after the Final Maturity Date), (III) if the Indebtedness or
Contingent Obligation being refinanced is subordinated by its terms or by the
terms of any agreement or instrument relating to such Indebtedness or Contingent
Obligation, be at least as subordinate to the Obligations as the Indebtedness or
Contingent Obligation being refinanced (and unsecured if the refinanced
Indebtedness is unsecured), and (IV) be in a principal amount that does not
exceed the principal amount so refinanced, plus accrued interest, plus the
lesser of (1) the stated amount of any premium or other payment required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness or Contingent Obligation being refinanced and (2) the amount of
premium or other payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of fees and reasonable expenses
of any Obligor or any Subsidiary incurred in connection with such refinancing,
and (y) the sole obligor on such refinancing Indebtedness or Contingent
Obligation shall be Borrower or the original obligor on such Indebtedness or
Contingent Obligation being refinanced; provided, however, that (I) any
guarantor of the Indebtedness or Contingent Obligation being refinanced shall be
permitted to guarantee the refinancing Indebtedness and (II) any Obligor shall
be permitted to guarantee any such refinancing of any other Obligor.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"Principal Office" shall mean the principal office of Administrative
Agent, located on the Closing Date at World Financial Center, 250 Vesey Street,
New York, New York 10281, or such other office as may be designated by
Administrative Agent.
"Prior Liens" shall mean Liens which, pursuant to the provisions of the
Security Agreement, are or may be superior to the Lien of the Security
Agreement.
"Proceeding" shall mean any claim, counterclaim, action, judgment, suit,
hearing, governmental investigation, arbitration or proceeding, including by or
before any Governmental Authority and whether judicial or administrative.
"Profit Payment Agreement" shall mean any agreement to make any payment
the amount of which is, or the terms of payment of which are, in any respect
subject to or contingent upon the revenues, income, cash flow or profits (or the
like) of any Person or business.
"Property" shall mean any right, title or interest in or to property or
assets of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible and including Equity Interests or other ownership
interests of any Person.
"Qualified Capital Stock" shall mean with respect to any Person any
Equity Interests of such Person that is not Disqualified Capital Stock.
"Qualified Company" shall mean Borrower and each Qualified Subsidiary.
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"Qualified Subsidiary" shall mean any Wholly Owned Subsidiary of Borrower
that is a Guarantor and in respect of which 100% of the Equity Interests thereof
are pledged pursuant to the Security Agreement.
"Real Property" shall mean all right, title and interest of any Company
(including, without limitation, any leasehold estate) in and to a parcel of real
property owned or operated by any Company, whether by lease, license or other
use agreement, together with, in each case, all improvements and appurtenant
fixtures, equipment, personal property, easements and other property and rights
incidental to the ownership, lease or operation thereof or thereon.
"redeem" shall mean redeem, repurchase, repay, defease or otherwise
acquire or retire for value; and "redemption" and "redeemed" have correlative
meanings.
"refinance" shall mean refinance, renew, extend, replace, defease or
refund, in whole or in part, including successively; and "refinancing" and
"refinanced" have correlative meanings.
"Register" see Section 2.08(c).
"Regulation D" shall mean Regulation D (12 C.F.R. Part 204) of the Board
of Governors of the United States Federal Reserve System.
"Regulations T, U and X" shall mean, respectively, Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) and Regulation X (12 C.F.R.
Part 224) of the Board of Governors of the United States Federal Reserve System
(or any successor), as the same may be modified and supplemented and in effect
from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
after the Closing Date in United States Federal, state or foreign law or
regulations (including Regulation D) or the adoption or making after such date
of any interpretation, directive or request applying to a class of banks or
other financial institutions including such Lender of or under any Federal,
state or foreign law or regulations (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) by any court or
governmental or monetary authority or any other regulatory agency with proper
authority, including non-governmental agencies or bodies, charged with the
interpretation or administration thereof or by the NAIC.
"Related Parties" see Section 11.01.
"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment.
"Replaced Lender" see Section 2.11.
"Replacement Lender" see Section 2.11.
"Required Balance" see Section 9.18.
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"Required Payment" see Section 4.06.
"Requirement of Law" shall mean as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any Law or determination of an arbitrator or any Governmental
Authority, in each case applicable to or binding upon such Person or any of its
Property or to which such Person or any of its Property is subject.
"Reserve Requirement" shall mean, for any Interest Period for any LIBOR
Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the United States Federal
Reserve System in New York City with deposits exceeding one billion Dollars
against "Eurocurrency liabilities" (as such term is used in Regulation D).
"Responsible Officer" shall mean each of the chief executive officer of
Borrower and the president of Borrower (if not the chief executive officer) and,
with respect to financial matters, the chief financial officer of Borrower.
"Revenue" means, for any period, the consolidated total revenue for such
period, of the Consolidated Companies calculated in accordance with GAAP.
"Sale and Leaseback Transaction" shall mean any arrangement, direct or
indirect, with any Person whereby it shall sell or transfer any Property used or
useful in its business, whether now owned or hereafter acquired, and thereafter
rent or lease such Property or other Property which it intends to use for
substantially the same purpose or purposes as the Property being sold or
transferred.
"S&P" shall mean Standard & Poor's Corporation.
"Securities Act" shall mean the United States Securities Act of 1933, as
amended, and all rules and regulations of the Commission promulgated thereunder.
"Solvent" and "Solvency" shall mean, for any Person on a particular date,
that on such date (a) the fair value of the Property of such Person is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts and liabilities beyond such Person's ability to pay as such debts
and liabilities mature, (d) such Person is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which such Person's Property would constitute an unreasonably small capital and
(e) such Person is able to pay its debts as they become due and payable.
"Subordinated Debt" shall mean Indebtedness of any Company that is
subordinated to any other Indebtedness of such Company.
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"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether at the time securities or other ownership interests of any other class
or classes of such corporation, partnership or other entity shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person. Unless the context clearly requires otherwise, all references to
any Subsidiary shall mean a Subsidiary of Borrower.
"Supermajority Lenders" shall mean (i) at any time prior to the Closing
Date, Lenders holding at least two-thirds of the aggregate amount of the Term
Loan Commitments, and (ii) at any time after the Closing Date, Lenders holdings
at least two-thirds of the sum of (without duplication) (a) the aggregate amount
of the outstanding Term Loans plus (b) the aggregate Unutilized Commitments then
in effect.
"Surety Instruments" shall mean all letters of credit (including standby
and commercial), bankers' acceptances, bank guarantees, surety bonds and similar
instruments.
"Swap Contract" shall mean any agreement entered into in the ordinary
course of business or in accordance with Borrower's business plan (as a bona
fide hedge and not for speculative purposes) (including any master agreement and
any agreement, whether or not in writing, relating to any single transaction)
that is an interest rate swap agreement, basis swap, forward rate agreement,
commodity swap, commodity option, equity or equity index swap or option, bond
option, interest rate option, foreign exchange agreement, rate cap, collar or
floor agreement, currency swap agreement, cross-currency rate swap agreement,
swaption, currency option or any other similar agreement (including any option
to enter into any of the foregoing) and is designed to protect the Obligors
against fluctuations in interest rates, currency exchange rates, or similar
risks.
"Syndication Agent" see the introduction hereto.
"Syndication Letter" shall mean the Syndication Letter dated as of
September 28, 1999 between Merrill Lynch Capital Corporation and Borrower.
"Tax Returns" see Section 8.08.
"Taxes" shall mean any and all taxes, imposts, duties, charges, fees,
levies or other charges or assessments of whatever nature, including income,
gross receipts, excise, real or personal property, sales, withholding, social
security, retirement, unemployment, occupation, use, service, license, net
worth, payroll, franchise, and transfer and recording, imposed by the Internal
Revenue Service or any taxing authority (whether domestic or foreign, including
any federal, state, U.S. possession, county, local or foreign government or any
subdivision or taxing agency thereof), whether computed on a separate,
consolidated, unitary, combined or any other basis, including interest, fines,
<PAGE> 31
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penalties or additions to tax attributable to or imposed on or with respect to
any such taxes, charges, fees, levies or other assessments.
"Term Facility" shall mean the credit facility comprising the Term Loan
Commitments and the Term Loans.
"Term Loan Commitment" shall mean, for each Lender, the obligation of
such Lender to make a Term Loan in an amount up to but not exceeding the amount
set opposite the name of such Lender on Annex A under the caption "Term Loan
Commitment" (as the same may be changed pursuant to Section 12.06(b)). The
initial aggregate principal amount of the sum of the Term Loan Commitments of
all Lenders is $17.0 million.
"Term Loans" see Section 2.01.
"Term Note" shall mean a promissory note substantially in the form of
Exhibit A.
"Test Date" shall mean, for any Financial Maintenance Covenant, the last
day of each fiscal quarter of Borrower included within any period set forth in
the table for such Financial Maintenance Covenant.
"Type" see Section 1.03.
"UCC" shall mean the Uniform Commercial Code as in effect in the
applicable state or other jurisdiction.
"Unutilized Commitment" shall mean, for any Lender, at any time, the
excess of such Lender's Term Loan Commitment at such time over the aggregate
outstanding principal amount of Term Loans made by such Lender.
"Wholly Owned Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which all of the Equity Interests
(other than, in the case of a corporation, directors' qualifying shares or
nominee shares required under applicable law) are directly or indirectly owned
or controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person. Unless the context clearly requires otherwise, all references to any
Wholly Owned Subsidiary shall mean a Wholly Owned Subsidiary of Borrower.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part 1 of Subtitle E of Title IV of ERISA.
1.02. Accounting Terms and Determinations. Except as otherwise provided
in this Agreement, all computations and determinations as to accounting or
financial matters (including financial covenants) shall be made in accordance
with GAAP consistently applied for all applicable periods, and all accounting or
financial terms shall have the meanings ascribed to such terms by
<PAGE> 32
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GAAP; provided, however, that, if Borrower notifies Lead Arranger and
Administrative Agent that Borrower wishes to amend any covenant in Section 9 to
eliminate the effect of any change in GAAP on the operation of such calculation
or covenant (or if Lead Arranger and Administrative Agent notify Borrower that
the Majority Lenders wish to amend any such calculation or covenant for such
purpose), then such calculation or Borrower's compliance with such covenant, as
the case may be, shall be determined on the basis of GAAP in effect immediately
before the relevant change in GAAP became effective, until either such notice is
withdrawn or such calculation or covenant is amended in a manner satisfactory to
Borrower and the Majority Lenders. All financial statements to be delivered
pursuant to this Agreement shall be prepared in accordance with GAAP.
1.03. Types of Term Loans. Term Loans hereunder are distinguished by
"Type". The "Type" of a Term Loan refers to whether such Term Loan is an ABR
Loan or a LIBOR Loan, each of which constitutes a Type.
1.04. Rules of Construction. (a) In each Credit Document, unless the
context clearly requires otherwise (or such other Credit Document clearly
provides otherwise), references to (i) the plural include the singular, the
singular include the plural and the part include the whole; (ii) Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; (iii) agreements (including this Agreement), promissory notes and other
contractual instruments include subsequent amendments, assignments, and other
modifications thereto, but only to the extent such amendments, assignments or
other modifications thereto are not prohibited by their terms or the terms of
any Credit Document; (iv) statutes and related regulations include any
amendments of the same and any successor statutes and regulations; and (v) time
shall be a reference to New York City time. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
(b) In each Credit Document, unless the context clearly requires
otherwise (or such other Credit Document clearly provides otherwise), (i)
"amend" shall mean "amend, restate, amend and restate, supplement or modify";
and "amended", "amending," and "amendment" shall have meanings correlative to
the foregoing; (ii) in the computation of periods of time from a specified date
to a later specified date, "from" shall mean "from and including"; "to" and
"until" shall mean "to but excluding"; and "through" shall mean "to and
including"; (iii) "hereof", "herein" and "hereunder" (and similar terms) in any
Credit Document refer to such Credit Document as a whole and not to any
particular provision of such Credit Document; (iv) "including" (and similar
terms) shall mean "including without limitation" (and similarly for similar
terms); (v) "or" has the inclusive meaning represented by the phrase "and/or";
(vi) "satisfactory to" any Creditor shall mean in form, scope and substance and
on terms and conditions satisfactory to such Creditor; (vii) references to "the
date hereof" shall mean the date first set forth above; and (viii) "asset" and
"Property" shall have the same meaning and effect and refer to all tangible and
intangible assets and property, whether real, personal or mixed and of every
type and description.
(c) In this Agreement unless the context clearly requires otherwise, any
reference to (i) an Annex, Exhibit or Schedule is to an Annex, Exhibit or
Schedule, as the case may be, attached to
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this Agreement and constituting a part hereof, and (ii) a Section or other
subdivision is to a Section or such other subdivision of this Agreement.
Section 2. Term Loan Commitments, Conversions and Continuations, Fees,
Register, Prepayments and Replacement of Lenders
2.01. Term Loans. Each Lender severally agrees, on the terms and
conditions of this Agreement, to make term loans ("Term Loans") to Borrower in
Dollars from time to time from and including the Closing Date until the
Commitment Termination Date in an aggregate principal amount equal to the then
available Unutilized Commitment of such Lender. Term Loans that are repaid or
prepaid may not be reborrowed.
2.02. Borrowings. Borrower shall give Administrative Agent notice of each
borrowing hereunder as provided in Section 4.05. The form of such notice of
borrowing shall be substantially in the form of Exhibit F. Not later than 12:00
noon New York City time on the date specified for each borrowing hereunder, each
Lender shall make available the amount of the Term Loan or Term Loans to be made
by it on such date to Administrative Agent, at an account specified by
Administrative Agent maintained at the Principal Office, in immediately
available funds, for the account of Borrower. Each borrowing of Term Loans shall
be made by each Lender pro rata based on its Percentage. The amounts so received
by Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available to Borrower by depositing the same, in immediately
available funds, in an account designated by Borrower.
2.03. Limit on LIBOR Loans. No more than seven separate Interest Periods
in respect of LIBOR Loans may be outstanding at any one time.
2.04. Terminations and Reductions of Term Loan Commitments. (a)(i) The
Term Loan Commitments shall be automatically and permanently terminated on April
15, 2000 if the Closing Date does not occur on or prior to such date.
(ii) The aggregate amount of the Unutilized Commitments shall be
automatically and permanently reduced (A) on each Funding Date by the amount of
the Term Loans made on such date immediately after the making of the Term Loans
on such date and (B) on the Commitment Termination Date to zero.
(b) Borrower shall have the right at any time or from time to time
(without premium or penalty except breakage costs (if any)) (i) to terminate the
Term Loan Commitments in their entirety, and (ii) to reduce the aggregate amount
of the Unutilized Commitments (which shall be pro rata among the Lenders);
provided, however, that (x) Borrower shall give notice of each such termination
or reduction as provided in Section 4.05, and (y) each partial reduction shall
be in an aggregate amount at least equal to $100,000 (or a larger multiple of
$100,000) or, if less, the remaining Unutilized Commitments.
(c) The Term Loan Commitments once terminated or reduced may not be
reinstated.
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2.05. Fees. (a) Borrower shall pay to Administrative Agent for the
account of each Lender a commitment fee on the aggregate amount of such Lender's
Unutilized Commitment for the period from and including the Closing Date to but
not including the Commitment Termination Date, at a rate per annum equal to
0.50%. Any accrued commitment fee under this Section 2.05(a) shall be payable in
arrears on the earlier of the date the Term Loan Commitments are terminated or
expire and the Commitment Termination Date.
(b) Borrower shall pay to Administrative Agent for its own account the
annual administrative fee pursuant to the Administrative Agent's Fee Letter.
(c) Borrower shall pay to Administrative Agent for the account of each
Lender the Extension Fee as and when required by Section 3.01(b). The Extension
Fee, once paid, shall be nonrefundable.
2.06. Lending Offices. The Term Loans of each Type made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for Term
Loans of such Type.
2.07. Several Obligations of Lenders. The failure of any Lender to make
any Term Loan to be made by it on the date specified therefor shall not relieve
any other Lender of its obligation to make its Term Loan on such date, but
neither any Lender nor Administrative Agent shall be responsible for the failure
of any other Lender to make a Term Loan to be made by such other Lender, and no
Lender shall have any obligation to Administrative Agent or any other Lender for
the failure by such Lender to make any Term Loan required to be made by such
Lender.
2.08. Term Notes; Register. (a) At the request of any Lender, its Term
Loans shall be evidenced by a promissory note, dated the date of borrowing,
payable to such Lender and otherwise duly completed, substantially in the form
of Exhibit A.
(b) The date, amount, Type, interest rate and duration of the Interest
Period (if applicable) of each Term Loan made by each Lender to Borrower and
each payment made on account of the principal thereof, shall be recorded by such
Lender on its books and, prior to any transfer of any Term Note evidencing the
Term Loans held by it, endorsed by such Lender on the schedule attached to such
Term Note or any continuation thereof; provided, however, that the failure of
such Lender to make any such recordation or endorsement shall not affect the
obligations of Borrower to make a payment when due of any amount owing hereunder
or under such Term Note.
(c) Borrower hereby designates Administrative Agent to serve as its
agent, solely for purposes of this Section 2.08, to maintain a register (the
"Register") on which it will record the name and address of each Lender, the
Commitment from time to time of each of the Lenders, the principal amount of the
Term Loans made by each of the Lenders and each repayment in respect of the
principal amount of the Term Loans of each Lender. Failure to make any such
recordation or any error in such recordation shall not affect Borrower's
obligations in respect of such Term Loans. The entries in the Register shall be
conclusive, in the absence of manifest error, and the parties hereto shall treat
each Person whose name is recorded in the Register as the owner of a Term Loan
or other obligation hereunder as the owner thereof for all purposes of the
Credit Documents, notwithstanding any notice
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to the contrary. The Register shall be available for inspection by Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
2.09. Optional Prepayments and Conversions or Continuations of Term
Loans. Subject to Section 4.04, Borrower shall have the right to prepay Term
Loans, or to Convert Term Loans of one Type into Term Loans of another Type or
to Continue Term Loans of one Type as Term Loans of the same Type, at any time
or from time to time. Borrower shall give Administrative Agent notice of each
such prepayment, Conversion or Continuation as provided in Section 4.05 (and,
upon the date specified in any such notice of prepayment, the amount to be
prepaid shall become due and payable hereunder). Each notice of Conversion or
Continuation shall be substantially in the form of Exhibit G (a "Notice of
Conversion/Continuation"). If LIBOR Loans are prepaid or Converted other than on
the last day of an Interest Period therefor, Borrower shall at such time pay all
expenses and costs required by Section 5.05. Notwithstanding the foregoing, and
without limiting the rights and remedies of the Lenders under Section 10, in the
event that any Event of Default shall have occurred and be continuing,
Administrative Agent may (and at the request of the Majority Lenders shall)
suspend the right of Borrower to Convert any Term Loan into a LIBOR Loan, or to
Continue any Term Loan as a LIBOR Loan, in which event all Term Loans shall be
Converted (on the last day(s) of the respective Interest Periods therefor) or
Continued, as the case may be, as ABR Loans.
2.10. Mandatory Prepayments. (a) Borrower shall prepay the Term Loans as
follows (each such prepayment to be effected in each case in the manner, order
and to the extent specified in subsection (b) below of this Section 2.10):
(i) Casualty Events. Within one Business Day after any Company
receives any Net Available Proceeds from any Casualty Event occurring after
the Closing Date, in an aggregate principal amount equal to 100% of such Net
Available Proceeds; provided, however, that
(x) if no Event of Default then exists or would arise
therefrom, the Net Available Proceeds thereof shall not be required to be
so applied on such date to the extent that Borrower has delivered an
Officers' Certificate to Administrative Agent on or prior to such date
stating that such proceeds shall be used to fund the substitution of
Property used or usable in the business of the Companies or repair,
replace or restore the Property in respect of which such Casualty Event
has occurred, in each case within 90 days following the date of the
receipt of such Net Available Proceeds, and
(y) if all or any portion of such Net Available Proceeds not
required to be applied to the prepayment of Term Loans pursuant to the
preceding proviso (x) is not so used within 90 days after the date of the
receipt of such Net Available Proceeds, such remaining portion shall be
applied on the last day of such period as specified in Section 2.10(b).
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(ii) Equity Issuance. Upon any Equity Issuance on or after the Closing
Date, in an aggregate principal amount equal to 100% of the Net Available
Proceeds of such Equity Issuance.
(iii) Debt Issuance. Upon any Debt Issuance by any Obligor on or after
the Closing Date, in an aggregate principal amount equal to 100% of the Net
Available Proceeds of such Debt Issuance.
(iv) Disposition Events. Within one Business Day after receipt by any
Company of any Net Available Proceeds from any Disposition Event occurring
after the Closing Date, in an aggregate principal amount equal to 100% of
the Net Available Proceeds from such Disposition Event.
(v) Other Required Prepayments. If the terms of any agreement,
instrument or indenture pursuant to which any Indebtedness pari passu with
or junior in right of payment to the Term Loans is outstanding (or pursuant
to which such Indebtedness is guaranteed) require prepayment of such
Indebtedness out of the proceeds of any Disposition or otherwise unless such
proceeds are used to prepay other Indebtedness, then, to the extent not
otherwise required by this Section 2.10(a), the Term Loans shall be repaid
in an amount not less than the minimum amount that would be required to be
prepaid not later than the latest time as and upon such terms so that such
other Indebtedness will not be required to be prepaid pursuant to the terms
of the agreement, indenture or instrument or guarantee governing such other
Indebtedness.
(b) Application. If the amount of any prepayment of Term Loans required
under this Section 2.10 shall be in excess of the amount of the ABR Loans at the
time outstanding, only the portion of the amount of such prepayment as is equal
to the amount of such outstanding ABR Loans shall be immediately prepaid and, at
the election of Borrower, the balance of such required prepayment shall be
either (i) deposited in a collateral account with Administrative Agent pursuant
to documentation and on terms and conditions satisfactory to Administrative
Agent in its sole discretion and applied to the prepayment of LIBOR Loans on the
last day of the then next-expiring Interest Period for LIBOR Loans (with all
interest accruing thereon (net of fees and expenses of Administrative Agent for
such collateral account) for the account of Borrower) or (ii) prepaid
immediately, together with any amounts owing to the Lenders under Section 5.05.
Notwithstanding any such deposit in such collateral account, interest shall
continue to accrue on such Term Loans until prepayment.
2.11. Replacement of Lenders. Borrower shall have the right, if no
Default then exists, to replace any Lender (the "Replaced Lender") with one or
more other Eligible Persons reasonably acceptable to Lead Arranger
(collectively, the "Replacement Lender") if (x) such Lender is charging Borrower
increased costs pursuant to Section 5.01 or 5.06 in excess of those being
charged generally by the other Lenders or such Lender becomes incapable of
making LIBOR Loans as provided in Section 5.03 and/or (y) as provided in Section
12.04(ii), such Lender refuses to consent to certain proposed amendments,
waivers or modifications with respect to this Agreement; provided, however, that
(i) at the time of any replacement pursuant to this Section 2.11, the
Replacement
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Lender shall enter into one or more assignment agreements (and with all fees
payable pursuant to Section 12.06 to be paid by the Replacement Lender) pursuant
to which the Replacement Lender shall acquire all of the Term Loan Commitments
and outstanding Term Loans of the Replaced Lender and, in connection therewith,
shall pay to the Replaced Lender, an amount equal to the sum of (A) the
principal of, and all accrued interest on, all outstanding Term Loans of the
Replaced Lender, and (B) all accrued, but theretofore unpaid, fees owing to the
Replaced Lender pursuant to Section 2.05, and (ii) all obligations of Borrower
owing to the Replaced Lender (other than those specifically described in clause
(i) above in respect of which the assignment purchase price has been, or is
concurrently being, paid, but including any amounts which would be paid to a
Lender pursuant to Section 5.05 if Borrower were prepaying a LIBOR Loan) shall
be paid in full to such Replaced Lender concurrently with such replacement. Upon
the execution of the respective assignment agreement, the payment of amounts
referred to in clauses (i) and (ii) above and, if so requested by the
Replacement Lender, delivery to the Replacement Lender of Term Notes executed by
Borrower, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder and be released of
all its obligations as a Lender, except with respect to indemnification
provisions applicable to the Replaced Lender under this Agreement, which shall
survive as to such Replaced Lender.
Section 3. Payments of Principal and Interest
3.01. Repayment of Term Loans; Extension of Final Maturity Date. (a)
Borrower hereby promises to pay to Administrative Agent on the Final Maturity
Date for the account of the Lenders the aggregate principal amount of the Term
Loans outstanding.
(b) Borrower may on one occasion extend the Final Maturity Date to any
date which is after the original Final Maturity Date but not later than the date
twelve months after the original Final Maturity Date if each of the following
conditions is satisfied not earlier than 60 nor later than 15 days prior to the
Original Maturity Date (the date on which all such conditions are satisfied, the
"Extension Date"):
(i) Borrower shall have provided a duly completed Extension Notice to the
Administrative Agent (who will then distribute the Extension Notice to the
Lenders at Borrower's expense) and the Lead Arranger of its election to extend
the Final Maturity Date to the date specified therein;
(ii) Borrower shall have complied with all provisions of the Fee Letter
and shall have performed all obligations required thereunder;
(iii) Borrower shall have remitted a non-refundable extension fee in cash
(the "Extension Fee") equal to 3.00% of the aggregate principal amount of
Loans then outstanding to the Administrative Agent for the pro rata benefit
of the Lenders; and
(iv) at the Extension Date, no Default or Event of Default shall then be
in existence or would arise from the transactions to occur on the Extension
Date and all representations and warranties in Section 8 shall be true and
correct on and as of the Extension Date as if
<PAGE> 38
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made on and as of such date and Borrower shall have delivered to the
Administrative Agent an Officers' Certificate certifying as to the same
(except that any representation or warranty which is expressly made as of a
specific date need only be accurate as of such specific date).
3.02. Interest. (a) Borrower hereby promises to pay to Administrative
Agent for the account of each Lender interest on the unpaid principal amount of
each Term Loan made by such Lender to Borrower for the period from and including
the date of such Term Loan to but excluding the date such Term Loan shall be
paid in full at the following rates per annum:
(i) during such periods as such Term Loan is an ABR Loan, the
Alternate Base Rate (as in effect from time to time), plus the Applicable
Margin, and
(ii) during such periods as such Term Loan is a LIBOR Loan, for each
Interest Period relating thereto, the LIBOR Rate for such Term Loan for such
Interest Period, plus the Applicable Margin.
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Term Loan and other overdue amounts owed by any
Obligor under the Credit Documents (including such interest accruing before and
after judgment) shall bear interest at a rate per annum equal to (x) in the case
of principal of any Term Loans, the rate which is 2% in excess of the rate then
borne by such Term Loans and (y) in the case of interest or such other amounts,
the rate which is 2% in excess of the rate otherwise applicable to ABR Loans
from time to time. Interest which accrues under this paragraph shall be payable
on demand.
(c) Accrued interest on each Term Loan shall be payable (i) in the case
of an ABR Loan, monthly on the Monthly Dates, (ii) in the case of a LIBOR Loan,
on the last day of each Interest Period therefor and, if such Interest Period is
longer than one month, at one-month intervals following the first day of such
Interest Period and (iii) in the case of any LIBOR Loan, upon the payment or
prepayment thereof or the Conversion of such Term Loan to a Term Loan of another
Type (but only on the principal amount so paid, prepaid or Converted), except
that interest payable at the rate set forth in Section 3.02(b) shall be payable
from time to time on demand. Promptly after the determination of any interest
rate provided for herein or any change therein, Administrative Agent shall give
notice thereof to the Lenders to which such interest is payable and to Borrower.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.01. Payments. (a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by Borrower under
this Agreement and the Term Notes, and, except to the extent otherwise provided
therein, all payments to be made by the Obligors under any other Credit
Document, shall be made in Dollars, in immediately available funds, without
deduction, set-off or counterclaim, to Administrative Agent at its account at
the Principal Office (as set forth in Exhibit M or such other account as
Borrower may be instructed in writing), not later than 11:00 a.m. New York City
time on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day).
<PAGE> 39
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(b) Borrower shall, at the time of making each payment under this
Agreement or any Term Note for the account of any Lender, specify (in accordance
with Section 2.09 and 2.10, if applicable) to Administrative Agent (which shall
so notify the intended recipient(s) thereof) the Type of Term Loans or other
amounts payable by Borrower hereunder to which such payment is to be applied
(and in the event that Borrower fails to so specify, or if an Event of Default
has occurred and is continuing, Administrative Agent may distribute such payment
to the Lenders for application to the Obligations under the Credit Documents in
such manner as it or the Majority Lenders, subject to Section 4.02, may
determine to be appropriate).
(c) Each payment received by Administrative Agent under this Agreement or
any Term Note for the account of any Lender shall be paid by Administrative
Agent to such Lender, in immediately available funds, (x) if the payment was
actually received by Administrative Agent prior to 11:00 a.m. (New York City
time) on any day, on such day and (y) if the payment was actually received by
Administrative Agent after 11:00 a.m. (New York City time) on any day, by 1:00
p.m. (New York City time) on the following Business Day (it being understood
that to the extent that any such payment is not made in full by Administrative
Agent, Administrative Agent shall pay to such Lender, upon demand, interest at
the Federal Funds Rate from the date such amount was required to be paid to such
Lender pursuant to the foregoing clauses until the date Administrative Agent
pays such Lender the full amount).
(d) If the due date of any payment under this Agreement or any Term Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension at the rate then
borne by such principal.
4.02. Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) each borrowing of Term Loans from the Lenders under Section 2.01 shall be
made from the Lenders, each payment of commitment fee under Section 2.05 in
respect of Term Loan Commitments shall be made for account of the Lenders, and
each termination or reduction of the amount of the Term Loan Commitments under
Section 2.04 shall be applied to the Term Loan Commitments of the Lenders, pro
rata according to their respective Percentages; (b) except as otherwise provided
in Section 5.04, LIBOR Loans having the same Interest Period shall be allocated
pro rata among the Lenders according to the amounts of their respective
Percentages (in the case of the making of Term Loans) or their respective Term
Loans (in the case of Conversions and Continuations of Term Loans); (c) each
payment or prepayment of principal of Term Loans shall be made for the account
of the relevant Lenders pro rata in accordance with the respective unpaid
outstanding principal amounts of the Term Loans held by them; and (d) each
payment of interest on Term Loans shall be made for account of the relevant
Lenders pro rata in accordance with the amounts of interest on such Term Loans
then due and payable to the respective Lenders.
4.03. Computations. Interest on LIBOR Loans and commitment fees shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which such
amounts are payable and interest on ABR Loans shall be computed on the basis of
a year of 365 or 366 days, as the case may be, and actual days
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elapsed (including the first day but excluding the last day) occurring in the
period for which such amounts are payable. Notwithstanding the foregoing, for
each day that the Alternate Base Rate is calculated by reference to the Federal
Funds Rate, interest on ABR Loans shall be computed on the basis of a year of
360 days and actual days elapsed (including the first day but excluding the last
day).
4.04. Minimum Amounts. Except for mandatory prepayments made pursuant to
Section 2.10 and Conversions or prepayments made pursuant to Section 5.04, each
borrowing, Conversion and prepayment of principal of Term Loans shall be in an
amount at least equal to $100,000 and in multiples of $100,000 in excess thereof
(borrowings, Conversions or prepayments of or into Loans of different Types or,
in the case of LIBOR Loans, having different Interest Periods at the same time
hereunder to be deemed separate borrowings, Conversions and prepayments for
purposes of the foregoing, one for each Type or Interest Period); provided that
(i) if the Unutilized Commitments are less than $100,000, Borrower may borrow
such lesser amount and (ii) if the outstanding amount of Term Loans is less than
$100,000, the Conversion or prepayment may be in such lesser amount. Anything in
this Agreement to the contrary notwithstanding, the aggregate principal amount
of LIBOR Loans having the same Interest Period shall be in an amount at least
equal to $500,000 and in multiples of $100,000 in excess thereof and, if any
LIBOR Loans or portions thereof would otherwise be in a lesser principal amount
for any period, such Term Loans or portions, as the case may be, shall be ABR
Loans during such period.
4.05. Certain Notices. Notices by Borrower to Administrative Agent of
terminations or reductions of the Term Loan Commitments, of borrowings,
Conversions, Continuations and optional prepayments of Term Loans, of Types of
Term Loans and of the duration of Interest Periods shall be irrevocable and
shall be effective only if received by Administrative Agent by telephone not
later than 11:00 a.m. New York City time (promptly followed by written notice
via telecopier) on the number of Business Days prior to the date of the relevant
termination, reduction, borrowing, Conversion, Continuation or prepayment or the
first day of such Interest Period specified in the table below.
NOTICE PERIODS
<TABLE>
<CAPTION>
Notice Number of Business Days Prior
------ -----------------------------
<S> <C>
Termination or reduction of Term Loan
Commitments 2
Borrowing or optional prepayment of, or
Conversions into, ABR Loans 1
Borrowing or optional prepayment of,
Conversions into, Continuations as, or
duration of Interest Periods for, LIBOR
Loans 3
</TABLE>
Each such notice of termination or reduction shall specify the amount of
the Term Loan Commitments to be terminated or reduced. Each such notice of
borrowing, Conversion, Continuation or prepayment shall specify the amount
(subject to Section 4.04) and Type of each Term
<PAGE> 41
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Loan to be borrowed, Converted, Continued or prepaid and the date of borrowing,
Conversion, Continuation or prepayment (which shall be a Business Day). Each
such notice of the duration of an Interest Period shall specify the Term Loans
to which such Interest Period is to relate. Administrative Agent shall promptly
notify the Lenders of the contents of each such notice. In the event that
Borrower fails to select the Type of Term Loan, or the duration of any Interest
Period for any LIBOR Loan, within the time period and otherwise as provided in
this Section 4.05, such Term Loan (if outstanding as a LIBOR Loan) will be
automatically Converted into an ABR Loan on the last day of the then current
Interest Period for such Term Loan or (if outstanding as an ABR Loan) will
remain as, or (if not then outstanding) will be made as, an ABR Loan.
4.06. Non-Receipt of Funds by Administrative Agent. Unless Administrative
Agent shall have received written notice from a Lender or Borrower (the "Payor")
prior to the date on which the Payor is to make payment to Administrative Agent
of (in the case of a Lender) the proceeds of a Term Loan to be made by such
Lender hereunder or a payment to Administrative Agent for the account of one or
more of the Lenders hereunder (such payment being herein called the "Required
Payment"), which notice shall be effective upon receipt, that the Payor does not
intend to make the Required Payment to Administrative Agent, Administrative
Agent may assume that the Required Payment has been made and may, in reliance
upon such assumption (but shall not be required to), make the amount thereof
available to the intended recipient(s) on such date; and, if the Payor has not
in fact made the Required Payment to Administrative Agent, the recipient(s) of
such payment shall, on demand, repay to Administrative Agent the amount so made
available together with interest thereon in respect of each day during the
period commencing on the date (the "Advance Date") such amount was so made
available by Administrative Agent until the date Administrative Agent recovers
such amount at a rate per annum equal to the Federal Funds Rate for such day
and, if such recipient(s) shall fail promptly to make such payment,
Administrative Agent shall be entitled to recover such amount, on demand, from
the Payor, together with interest as aforesaid; provided, however, that if
neither the recipient(s) nor the Payor shall return the Required Payment to
Administrative Agent within three Business Days of the date such demand was
made, then, retroactively to the Advance Date, the Payor and the recipient(s)
shall each be obligated to pay interest on the Required Payment as follows
(without double recovery):
(i) if the Required Payment shall represent a payment to be made by to
the Lenders, Borrower and the recipient(s) shall each be obligated
retroactively to the Advance Date to pay interest in respect of the Required
Payment at the rate set forth in Section 3.02(b) (without duplication of the
obligation of Borrower under Section 3.02 to pay interest on the Required
Payment at the rate set forth in Section 3.02(b)), it being understood that
the return by the recipient(s) of the Required Payment to Administrative
Agent shall not limit such obligation of Borrower under Section 3.02 to pay
interest at the rate set forth in Section 3.02(b) in respect of the Required
Payment; and
(ii) if the Required Payment shall represent proceeds of a Term Loan to
be made by the Lenders to Borrower, the Payor or Borrower shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment pursuant to Section 3.02, it being understood that the
return by Borrower of the Required Payment to Administrative
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Agent shall not limit any claim Borrower may have against the Payor in
respect of such Required Payment.
4.07. Right of Setoff; Sharing of Payments; Etc. (a) If any Event of
Default shall have occurred and be continuing, each Obligor agrees that, in
addition to (and without limitation of) any right of setoff, banker's lien or
counterclaim a Lender may otherwise have, each Lender shall be entitled, at its
option (to the fullest extent permitted by law), to set off and apply any
deposit (general or special, time or demand, provisional or final), or other
indebtedness, held by it for the credit or account of such Obligor at any of its
offices, in Dollars or in any other currency, against any principal of or
interest on any of such Lender's Term Loans or any other amount payable to such
Lender hereunder that is not paid when due (regardless of whether such deposit
or other indebtedness is then due to such Obligor), in which case it shall
promptly notify such Obligor and Administrative Agent thereof; provided,
however, that such Lender's failure to give such notice shall not affect the
validity thereof.
(b) Each of the Lenders agrees that, if it should receive (other than
pursuant to Section 5 or the Administrative Agent's Fee Letter) any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Term Loans or fees, the sum of which with respect to the related sum or
sums received by other Lenders is in a greater proportion than the total of such
amounts then owed and due to such Lender bears to the total of such amounts then
owed and due to all of the Lenders immediately prior to such receipt, then such
Lender receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the respective
Obligor to such Lenders in such amount as shall result in a proportional
participation by all of the Lenders in such amount; provided, however, that if
all or any portion of such excess amount is thereafter recovered from such
Lender, such purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest. Borrower consents to the
foregoing arrangements.
(c) Borrower agrees that any Lender so purchasing such a participation
may exercise all rights of setoff, banker's lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Loans or other amounts (as the case may be) owing to such Lender in
the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other Indebtedness or
obligation of any Obligor. If, under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in lieu of a setoff to
which this Section 4.07 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Lenders entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
<PAGE> 43
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Section 5. Yield Protection, Etc.
5.01. Additional Costs. (a) If the adoption of, or any change in, in each
case after the date hereof, any Requirement of Law or in the interpretation or
application thereof or compliance by any Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority or the NAIC made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Term Note or any Term Loan made by it or
change the basis of taxation of payments to such Lender in respect thereof
by any Governmental Authority (except for Taxes covered by or expressly
excluded from coverage by Section 5.06 and changes in the rate of tax on the
overall net income of such Lender or its Applicable Lending Office, or any
affiliate thereof or franchise tax by any Governmental Authority);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the LIBOR Rate hereunder; or
(iii) shall impose on such Lender any other condition (excluding Taxes);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender reasonably deems to be material, of making,
converting into, continuing or maintaining LIBOR Loans or to reduce any amount
receivable hereunder in respect thereof then, in any such case, Borrower shall
pay such Lender, upon its written demand, within 30 days any additional amounts
necessary to compensate such Lender for such increased cost or reduced amount
receivable. If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify Borrower, through
Administrative Agent, of the event by reason of which it has become so entitled.
A certificate as to any additional amounts setting forth the calculation of such
additional amounts pursuant to this Section 5.01 submitted by such Lender,
through Administrative Agent, to Borrower shall be conclusive in the absence of
clearly demonstrable error. Without limiting the survival of any other covenant
hereunder, this Section 5.01 shall survive the termination of this Agreement and
the payment of the Term Notes and all other amounts payable hereunder.
(b) In the event that any Lender shall have reasonably determined that
the adoption after the date hereof of any law, rule, regulation or guideline
regarding capital adequacy (or any change after the date hereof therein or in
the interpretation or application thereof) or compliance by any Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any central bank
or Governmental Authority or the NAIC, in each case, made subsequent to the date
hereof including, without limitation, the issuance after the date hereof of any
final rule, regulation or guideline, does or shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved
<PAGE> 44
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but for such adoption, change or compliance (taking into consideration such
Lender's or such corporation's policies with respect to capital adequacy) by an
amount reasonably deemed by such Lender to be material, then from time to time,
after submission by such Lender to Borrower (with a copy to Administrative
Agent) of a written request therefor, Borrower shall pay to such Lender within
30 days such additional amount or amounts as will compensate such Lender for
such reduction.
5.02. Inability to Determine Interest Rate. If prior to the first day of
any Interest Period: (a) Administrative Agent shall have reasonably determined
(which determination shall be conclusive and binding upon Borrower) that, by
reason of circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the LIBOR Base Rate for such Interest
Period, or (b) Administrative Agent shall have received notice from the Majority
Lenders that the LIBOR Base Rate determined or to be determined for such
Interest Period will not adequately and fairly reflect the cost to such Lenders
(or any affiliate of any such Lender from which such Lender customarily obtains
funds) (as conclusively certified by such Lenders) of making or maintaining
their affected Term Loans during such Interest Period, Administrative Agent
shall give telecopy or telephonic notice thereof to Borrower and the Lenders as
soon as practicable thereafter. If such notice is given, (x) any LIBOR Loans
requested to be made on the first day of such Interest Period shall be made as
ABR Loans, (y) any Term Loans that were to have been Converted on the first day
of such Interest Period to LIBOR Loans shall be Converted to or Continued as ABR
Loans and (z) any outstanding LIBOR Loans shall be Converted, on the first day
of such Interest Period, to ABR Loans. Until such notice has been withdrawn by
Administrative Agent, no further LIBOR Loans shall be made or Continued as, nor
shall Borrower have the right to Convert ABR Loans to, LIBOR Loans. The
Administrative Agent shall give telecopy or telephonic notice to Borrower and
the Lenders as soon as practicable after it determines the conditions giving
rise to notice no longer apply.
5.03. Illegality. Notwithstanding any other provision of this Agreement,
in the event that any change after the date hereof in any Requirement of Law or
in the interpretation or application thereof shall make it unlawful for any
Lender or its Applicable Lending Office to honor its obligation to make or
maintain LIBOR Loans hereunder (and, in the sole opinion of such Lender, the
designation of a different Applicable Lending Office would either not avoid such
unlawfulness or would be disadvantageous to such Lender), then such Lender shall
promptly notify Borrower thereof (with a copy to Administrative Agent) and such
Lender's obligation to make or Continue, or to Convert Term Loans of any other
Type into, LIBOR Loans shall be suspended until such time as such Lender may
again make and maintain LIBOR Loans (in which case the provisions of Section
5.04 shall be applicable).
5.04. Treatment of Affected Term Loans. If the obligation of any Lender
to make LIBOR Loans or to Continue, or to Convert ABR Loans into, LIBOR Loans
shall be suspended pursuant to Section 5.03, such Lender's LIBOR Loans shall be
automatically Converted into ABR Loans on the last day(s) of the then current
Interest Period(s) for such LIBOR Loans (or on such earlier date as such Lender
may specify to Borrower with a copy to Administrative Agent as is required by
law) and, unless and until such Lender gives notice as provided below that the
circumstances specified in Section 5.03 which gave rise to such Conversion no
longer exist:
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(i) to the extent that such Lender's LIBOR Loans have been so
Converted, all payments and prepayments of principal which would otherwise
be applied to such Lender's LIBOR Loans shall be applied instead to its ABR
Loans; and
(ii) all Term Loans which would otherwise be made or Continued by such
Lender as LIBOR Loans shall be made or Continued instead as ABR Loans and
all ABR Loans of such Lender which would otherwise be Converted into LIBOR
Loans shall remain as ABR Loans.
If such Lender gives notice to Borrower with a copy to Administrative Agent that
the circumstances specified in Section 5.03 which gave rise to the Conversion of
such Lender's LIBOR Loans pursuant to this Section 5.04 no longer exist (which
such Lender agrees to do promptly upon such circumstances, ceasing to exist) at
a time when LIBOR Loans are outstanding, such Lender's ABR Loans shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding LIBOR Loans, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding LIBOR Loans
and by such Lender are held pro rata (as to principal amounts, Types and
Interest Periods) in accordance with their respective Term Loan Commitments.
5.05. Compensation. (a) Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (1) default by Borrower in payment when due of the
principal amount of or interest on any LIBOR Loan, (2) default by Borrower in
making a borrowing of, Conversion into or Continuation of LIBOR Loans after
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (3) default by Borrower or in making any
prepayment after Borrower has given a notice thereof in accordance with the
provisions of this Agreement, or (4) the making of a payment or a prepayment of
LIBOR Loans on a day which is not the last day of an Interest Period with
respect thereto, including in each case, any such loss (including loss of
margin) or expense arising from the reemployment of funds obtained by it or from
fees payable to terminate the deposits from which such funds were obtained.
(b) For the purpose of calculation of all amounts payable to a Lender
under this Section 5.05 each Lender shall be deemed to have actually funded its
relevant LIBOR Loan through the purchase of a deposit bearing interest at the
LIBOR Rate in an amount equal to the amount of the LIBOR Loan and having a
maturity comparable to the relevant Interest Period; provided, however, that
each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection. Any Lender requesting compensation pursuant to
this Section 5.05 will furnish to Administrative Agent, Borrower a certificate
setting forth the basis and amount of such request and such certificate, absent
manifest error, shall be conclusive. Without limiting the survival of any other
covenant hereunder, this covenant shall survive the termination of this
Agreement and the payment of the Term Notes and all other amounts payable
hereunder.
5.06. Net Payments. (a) All payments made by any Obligor hereunder or
under any Term Note or any Guarantee will be made without setoff, counterclaim
or other defense. Except as
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provided in Section 5.06(b), all such payments will be made free and clear of,
and without deduction or withholding for, any present or future Taxes now or
hereafter imposed by any Governmental Authority or by any political subdivision
or taxing authority thereof or therein with respect to such payments (but
excluding any Excluded Tax) and all interest, penalties or similar liabilities
with respect thereto (all such Taxes (other than Excluded Taxes) being referred
to collectively as "Covered Taxes"). If any Covered Taxes are so levied or
imposed, each Obligor agrees on a joint and several basis to pay the full amount
of such Covered Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due under this Agreement, the Guarantees or under
any Term Note, after withholding or deduction for or on account of any Covered
Taxes, will not be less than the amount provided for herein or in such Term
Note. If any amounts are payable in respect of Covered Taxes pursuant to the
preceding sentence, each Obligor agrees, notwithstanding the definition of
Excluded Taxes, to reimburse on a joint and several basis each Lender, upon the
written request of such Lender, (i) for Taxes imposed on or measured by the net
income or net profits of such Lender pursuant to the laws of the jurisdiction in
which such Lender is organized or in which the principal office or Applicable
Lending Office of such Lender is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction by reason of the making
of payments in respect of Covered Taxes pursuant to this Section (including
pursuant to this sentence) and (ii) for any withholding of Taxes as such Lender
shall determine are payable by, or withheld from, such Lender in respect of
amounts paid in respect of Covered Taxes to or on behalf of such Lender pursuant
to the preceding sentence and in respect of any amounts paid to or on behalf of
such Lender pursuant to this sentence. Each Obligor will furnish to
Administrative Agent within 45 days after the date the payment of any Covered
Taxes is due pursuant to applicable law certified copies of tax receipts or
other documentation reasonably satisfactory to such Lender evidencing such
payment by such Obligor. The Obligors agree to jointly and severally indemnify
and hold harmless each Lender, and reimburse such Lender upon its written
request, for the amount of any Covered Taxes so levied or imposed and paid by
such Lender and any liability (including penalties, additions to tax, interest
and expenses) arising therefrom or with respect thereto.
"Excluded Taxes" shall mean other than as provided in the fourth sentence
of the first paragraph of this Section 5.06(a), any Tax (other than any Other
Taxes) (i) imposed on or measured by the net income or net profits of a Lender
pursuant to the laws of the jurisdiction in which it is organized or the
jurisdiction in which the principal office or Applicable Lending Office of such
Lender is located or any jurisdiction in which such Lender conducts business or
any subdivision thereof or therein and (ii) imposed on any Lender in the nature
of franchise taxes or other similar taxes imposed as a result of such Lender
doing business in a particular jurisdiction.
(b) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) (a "Non-U.S. Lender") agrees to
deliver to Borrower and Administrative Agent on or prior to the Closing Date or,
in the case of a Lender that is an assignee or transferee of an interest under
this Agreement pursuant to Section 12.06 (unless the respective Lender was
already a Lender hereunder immediately prior to such assignment or transfer), on
the date of such assignment or transfer to such Lender, (i) two accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001
(or successor forms) certifying to such Lender's entitlement to a complete
exemption from United States withholding tax with respect to payments to be made
under
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this Agreement and under any Term Note (or, with respect to any assignee Lender,
at least as extensive as the assigning Lender), or (ii) if the Lender is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver
either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above,
(x) a certificate substantially in the form of Exhibit H (any such certificate,
a "Foreign Lender Certificate") and (y) two accurate and complete original
signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Lender's entitlement to a complete exemption from United
States withholding tax with respect to payments to be made under this Agreement
and under any Term Note (or, with respect to any assignee Lender, at least as
extensive as the assigning Lender). In addition, each Lender agrees that from
time to time after the Closing Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, it will deliver to Borrower and Administrative Agent two new
accurate and complete original signed copies of Internal Revenue Service Form
4224 or 1001, or Form W-8 and a Foreign Lender Certificate, as the case may be,
and such other forms as may be required in order to confirm or establish the
entitlement of such Lender to a continued exemption from or reduction in United
States withholding tax with respect to payments under this Agreement and any
Term Note, or it shall immediately notify Borrower and Administrative Agent of
its inability to deliver any such Form or Certificate, in which case such Lender
shall not be required to deliver any such form or certificate pursuant to this
Section 5.06(b) for so long as such payments may be made from United States
withholding tax. Notwithstanding the foregoing, no Lender shall be required to
deliver any such form or certificate if a change in treaty, law or regulation
has occurred prior to the date on which such delivery would otherwise be
required that renders any such form or certificate inapplicable or would prevent
the Lender from duly completing and delivering any such form or certificate with
respect to it and such Lender so advises Borrower. No Obligor shall be required
to indemnify any Non-U.S. Lender, or to pay any additional amounts to any
Non-U.S. Lender, in respect of any Covered Taxes to the extent that the
obligation to pay such Covered Taxes would not have arisen but for a failure by
such Non-U.S. Lender to comply with the provisions of this Section 5.06(b).
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 5.06 and except as set forth in Section 12.06(b),
Borrower agrees to pay additional amounts and to indemnify each Lender in the
manner set forth in Section 5.06(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any amounts
deducted or withheld by it as described in the immediately preceding sentence as
a result of any changes after the Closing Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of income or similar Covered
Taxes.
(c) In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from the execution, delivery or registration of this
Agreement or the Term Notes (hereinafter referred to as "Other Taxes").
(d) Any Lender claiming any additional amounts payable pursuant to this
Section 5.06 agrees to use (at the Obligors' expense) reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
change the jurisdiction of its Applicable Lending Office if the making of such
change would avoid the need for, or reduce the amount of, any such additional
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amounts that may thereafter accrue and would not, in the sole judgment of such
Lender, be otherwise disadvantageous to such Lender.
5.07 Notices. Each Lender will furnish to Borrower at the time of request
for compensation under paragraph (a) or (b) of Section 5.01 or Section 5.06 a
certificate setting forth the basis, amount and reasonable detail of computation
of each request by such Lender for compensation under Section 5.01 or Section
5.06, which certificate shall, except for demonstrable error, be final,
conclusive and binding for all purposes.
Section 6. Guarantee.
6.01. The Guarantee. The Guarantors hereby jointly and severally
guarantee as a primary obligor and not as a surety to each Creditor and their
respective successors and assigns the prompt payment in full when due (whether
at stated maturity, by acceleration or otherwise) of the principal of and
interest (including any interest, fees, costs or charges that would accrue but
for the provisions of the Bankruptcy Code after any bankruptcy or insolvency
petition under the Bankruptcy Code) on the Term Loans made by the Lenders to,
and the Term Notes held by each Lender of, Borrower, and all other Obligations
from time to time owing to the Creditors by any Obligor under any Credit
Document, in each case strictly in accordance with the terms thereof (such
obligations being herein collectively called the "Guaranteed Obligations"). The
Guarantors hereby jointly and severally agree that if Borrower shall fail to pay
in full when due (whether at stated maturity, by acceleration or otherwise) any
of the Guaranteed Obligations, the Guarantors will promptly pay the same,
without any demand or notice whatsoever, and that in the case of any extension
of time of payment or renewal of any of the Guaranteed Obligations, the same
will be promptly paid in full when due (whether at extended maturity, by
acceleration or otherwise) in accordance with the terms of such extension or
renewal. Subject to Section 6.03, the obligations of the Guarantors under this
Section 6.01 shall terminate when all Obligations have been paid in full.
6.02. Obligations Unconditional. The obligations of the Guarantors under
Section 6.01 are absolute, irrevocable and unconditional, joint and several,
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of Borrower under this Agreement, the Term Notes or any other
agreement or instrument referred to herein or therein, or any substitution,
release or exchange of any other guarantee of or security for any of the
Guaranteed Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or Guarantor
(except for payment in full). Without limiting the generality of the foregoing,
the occurrence of any one or more of the following shall not alter or impair the
liability of the Guarantors hereunder, which shall remain absolute, irrevocable
and unconditional under any and all circumstances as described above:
(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
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(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Term Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be amended in any
respect, or any right under this Agreement, the Term Notes or any other
Credit Document or any other agreement or instrument referred to herein or
therein shall be amended or waived in any respect or any other guarantee of
any of the Guaranteed Obligations or any security therefor shall be released
or exchanged in whole or in part or otherwise dealt with;
(iv) any lien or security interest granted to, or in favor of, any
Creditor as security for any of the Guaranteed Obligations shall fail to be
perfected; or
(v) any other Guarantor shall be released.
The Guarantors hereby expressly waive diligence, presentment, demand of
payment, protest and all notices whatsoever, and any requirement that any
Creditor thereof exhaust any right, power or remedy or proceed against Borrower
under this Agreement or the Term Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations. The Guarantors
waive any and all notice of the creation, renewal, extension, waiver,
termination or accrual of any of the Guaranteed Obligations and notice of or
proof of reliance by any Creditor upon this guarantee or acceptance of this
guarantee, and the Guaranteed Obligations, and any of them, shall conclusively
be deemed to have been created, contracted or incurred in reliance upon this
guarantee, and all dealings between Borrower and the Creditor, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
guarantee. This guarantee shall be construed as a continuing, absolute,
irrevocable and unconditional guarantee of payment without regard to any right
of offset with respect to the Guaranteed Obligations at any time or from time to
time held by the Creditor, and the obligations and liabilities of the Guarantors
hereunder shall not be conditioned or contingent upon the pursuit by the
Creditor or any other Person at any time of any right or remedy against Borrower
or against any other Person which may be or become liable in respect of all or
any part of the Guaranteed Obligations or against any collateral security or
guarantee therefor or right of offset with respect thereto. This guarantee shall
remain in full force and effect and be binding in accordance with and to the
extent of its terms upon the Guarantors and the successors and assigns thereof,
and shall inure to the benefit of the Lenders, and their respective successors
and assigns, notwithstanding that from time to time during the term of this
Agreement there may be no Guaranteed Obligations outstanding.
6.03. Reinstatement. The obligations of the Guarantors under this Section
6 shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of Borrower in respect of the Guaranteed Obligations is
rescinded or must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise. The Guarantors jointly and severally agree that
they will indemnify each Creditor on demand for all reasonable costs and
expenses (including reasonable fees of counsel) in-
<PAGE> 50
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curred by such Creditor in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law, other than any
costs or expenses resulting from the gross negligence or bad faith of such
Creditor.
6.04. Subrogation; Subordination. Each Guarantor hereby agrees that until
the indefeasible payment and satisfaction in full in cash of all Guaranteed
Obligations and the expiration and termination of the Term Loan Commitments of
the Lenders under this Agreement it shall not exercise any right or remedy
arising by reason of any performance by it of its guarantee in Section 6.01,
whether by subrogation or otherwise, against Borrower or any other Guarantor of
any of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations. The payment of any amounts due with respect to any indebtedness of
Borrower or any other Guarantor now or hereafter owing to any Guarantor by
reason of any payment by such Guarantor under the Guarantee in this Section 6 is
hereby subordinated to the prior indefeasible payment in full in cash of the
Guaranteed Obligations. Each Guarantor agrees that it will not demand, sue for
or otherwise attempt to collect any such indebtedness of Borrower to such
Guarantor until the Obligations shall have been indefeasibly paid in full in
cash. If, notwithstanding the foregoing sentence, any Guarantor shall prior to
the indefeasible payment in full in cash of the Guaranteed Obligations collect,
enforce or receive any amounts in respect of such indebtedness, such amounts
shall be collected, enforced and received by such Guarantor as trustee for the
Creditors and be paid over to Administrative Agent on account of the Guaranteed
Obligations without affecting in any manner the liability of such Guarantor
under the other provisions of the guaranty contained herein.
6.05. Remedies. The Guarantors jointly and severally agree that, as
between the Guarantors and the Creditors, the obligations of Borrower under this
Agreement and the Term Notes may be declared to be forthwith due and payable as
provided in Section 10 (and shall be deemed to have become automatically due and
payable in the circumstances provided in said Section 10) for purposes of
Section 6.01, notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against Borrower and that, in the event of such declaration (or
such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by Borrower) shall forthwith
become due and payable by the Guarantors for purposes of Section 6.01.
6.06. Instrument for the Payment of Money. Each Guarantor hereby
acknowledges that the guarantee in this Section 6 constitutes an instrument for
the payment of money, and consents and agrees that any Lender or Agent, at its
sole option, in the event of a dispute by such Guarantor in the payment of any
moneys due hereunder, shall have the right to bring a motion-action under New
York CPLR Section 3213.
6.07. Continuing Guarantee. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.08. General Limitation on Guarantee Obligations. In any action or
proceeding involving any state corporate law, or any state, federal or foreign
bankruptcy, insolvency, reorganiza-
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tion or other law affecting the rights of creditors generally, if the
obligations of any Guarantor under Section 6.01 would otherwise be held or
determined to be void, voidable, invalid or unenforceable, or subordinated to
the claims of any other creditors on account of the amount of its liability
under Section 6.01, then, notwithstanding any other provision to the contrary,
the amount of such liability shall, without any further action by such
Guarantor, any Creditor or any other Person, be automatically limited and
reduced to the highest amount that is valid and enforceable and not subordinated
to the claims of other creditors as determined in such action or proceeding.
Section 7. Conditions Precedent
7.01. Conditions to Initial Term Loans. The effectiveness of this
Agreement and the obligation of the Lenders to make any initial extension of
credit hereunder is subject to the satisfaction of the conditions precedent that
the Closing Date shall have occurred (or shall occur simultaneously therewith)
and to the satisfaction of the additional conditions precedent that (the date of
the satisfaction (or waiver) of all of the conditions to the initial extension
of credit in this Section 7.01, the "Closing Date"):
(i) Documentation and Evidence of Certain Matters. Lead Arranger shall
have received the following documents, each duly executed where appropriate
(with sufficient conformed copies for each Lender), each of which shall be
satisfactory in form and substance to Lead Arranger or the Lenders, as
applicable and set forth below:
(1) Corporate Documents. Certified true and complete copies of
the charter and by-laws and all amendments thereto (or equivalent
documents) of each Obligor and of all corporate authority for each
Obligor (including board of directors resolutions and evidence of the
incumbency, including specimen signatures, of officers) with respect to
the execution, delivery and performance of such of the Credit Documents
to which such Obligor is intended to be a party and each other document
to be delivered by such Obligor from time to time in connection herewith
and the extensions of credit hereunder, certified as of the Closing Date
as complete and correct copies thereof by the Secretary or an Assistant
Secretary of such Obligor.
(2) Officers' Certificate. An Officers' Certificate of Borrower,
dated the Closing Date, (x) to the effect set forth in clauses (a) and
(b) of Section 7.02(i), (y) to the effect that all conditions precedent
to the making of such initial extension of credit have been satisfied and
(z) stating that (a) all requisite Governmental Authorities and third
parties have approved or consented to the transactions contemplated
hereby to the extent required (without the imposition of any burdensome
or materially adverse conditions or requirements), (b) all such approvals
are in full force and effect and (c) there is no Proceeding, actual or
threatened, that has or could have a reasonable likelihood of
restraining, preventing or imposing materially burdensome conditions on
any of the transactions contemplated hereby. Lead Arranger shall have
received copies (certified by Borrower as true and correct) of any such
approvals or consents so obtained.
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(3) Opinion of Counsel. Opinion of Wilmer, Cutler & Pickering,
counsel to the Obligors, substantially in the form of Exhibit D.
(4) Credit Agreement. This Agreement, (i) executed and delivered
by a duly authorized officer of each Obligor, and (ii) executed and
delivered by a duly authorized officer of each Lender and Agent.
(5) Term Notes. The Term Notes, duly completed and executed for
each Lender that has requested Term Notes prior to the Closing Date.
(6) Solvency Certificate. A certificate in the form of Exhibit C
from the chief financial officer of Borrower in form and substance
reasonably satisfactory to Lead Arranger and the Lenders with respect to
the Solvency (on a consolidated basis) of each Obligor immediately after
the consummation of the transactions to occur on the Closing Date.
(7) Security Agreement. The Security Agreement (which shall be
in full force and effect), duly authorized, executed and delivered by the
Obligors and Administrative Agent, and the certificates identified under
the name of such Obligors in Schedule I-A and Schedule I-B to the
Security Agreement, accompanied by undated stock powers, instruments of
assignment or issuer acknowledgements executed in blank if applicable,
and the Intercompany Notes identified under the name of such Obligors in
Schedule II to the Security Agreement, accompanied by undated notations
or instruments of assignment executed in blank.
(ii) No Material Adverse Change. There shall not have occurred or
become known any material adverse change, or any condition or event that
could reasonably be expected to result in a material adverse change, in the
business, assets, operations, properties, liabilities, prospects or
condition (financial or otherwise) of Borrower and the Subsidiaries taken as
a whole or of Mobeo since December 31, 1998.
(iii) Terms of Acquisition. The Acquisition Agreement shall be in full
force and effect. The terms, conditions and structure of the Mobeo
Acquisition and the Acquisition Agreement, including any amendments thereto
(and the documentation therefor ) shall be in form and substance reasonably
satisfactory to the Lead Arranger. Lead Arranger shall have received copies
of all filings made with any governmental authority in connection with the
Mobeo Acquisition. The Mobeo Acquisition shall have been or shall
simultaneously be consummated in all material respects in accordance with
the terms hereof and the terms of the Acquisition Agreement and the other
documentation therefor (without the waiver or amendment of any of the terms
thereof unless consented to by Lead Arranger and the Lenders) that are in
form and substance reasonably satisfactory to Agents (with any condition
therein requiring the satisfaction or consent of Borrower being deemed to
require the satisfaction of Lead Arranger).
<PAGE> 53
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(iv) Indebtedness. After giving effect to the Mobeo Acquisition and the
other transactions contemplated hereby, each Company shall have outstanding
no indebtedness or preferred stock (or direct or indirect guarantee or other
credit support in respect thereof) outstanding other than the Term Loans and
the Indebtedness set forth on Schedule 8.24.
(v) Financial Statements. The Lenders shall have received (i) audited
financial statements of Borrower for the three fiscal years ended December
31, 1998, (ii) unaudited financial statements of Borrower for the fiscal
periods most recently ended (including without limitation monthly financial
statements for any such period of less than three months, if available),
(iii) a pro forma opening balance sheet of Borrower as of the date of such
most recent financial statement, reflecting the proposed legal and capital
structure and (iv) projected financial statements (including balance sheets
and statements of operations and cash flows) of Borrower and its
subsidiaries for the ten-year period after the Closing Date, all of the
foregoing in form and substance reasonably satisfactory to the Lead
Arranger.
(vi) Contingent Liabilities. The Lead Arranger and the Lenders shall be
satisfied as to the amount and nature of all tax, ERISA, employee retirement
benefit, and other contingent liabilities to which any Company may be
subject, and the plans of each Company with respect thereto.
(vii) Capitalization. The Lead Arranger and the Lenders shall be
satisfied (in their reasonable judgment) with the proposed and actual
capitalization and corporate and organizational structure of Borrower and
its subsidiaries (after giving effect to the Transactions), including as to
direct and indirect ownership and as to the terms of the indebtedness and
capital stock of Borrower and its subsidiaries.
(viii) Budget. The Lenders shall have received a reasonably satisfactory
business plan or budget for Borrower and its subsidiaries after giving
effect to the Transactions for the remainder of the 1999 fiscal year and the
fiscal year 2000.
(ix) Proceedings. There shall not exist any threatened or pending
action, proceeding or counterclaim by or before any court or governmental,
administrative or regulatory agency or authority, domestic or foreign, (i)
challenging the consummation of any of the Transactions or that could in the
sole judgment of the Lead Arranger and the Required Lenders restrain,
prevent or impose burdensome or adverse conditions on the Transactions,
individually or in the aggregate, or any other transaction contemplated
hereunder, (ii) seeking to prohibit the ownership or operation by Borrower
or any of its subsidiaries of all or a material portion of any of their
businesses or assets or the Target or (iii) seeking to obtain, or having
resulted in the entry of, any judgment, order or injunction that (a) would
restrain, prohibit or impose adverse conditions on the ability of the
Lenders to make the Interim Loan, (b) in the sole judgment of the Lead
Arranger and Required Lenders could be expected to result in a Material
Adverse Change with respect to Borrower and its subsidiaries taken as a
whole (and before and after giving effect to the Transactions), (c) could
purport to affect the legality, validity or enforceability of any Interim
Loan Document or any documents relating thereto or
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could have a material adverse effect on the ability of any Credit Party to
fully and timely perform their obligations under the Interim Loan Documents
or the rights and remedies of the Lenders, (d) would be materially
inconsistent with the stated assumptions underlying the projections provided
to the Lead Arranger and the Lenders, or (e) seeks any material damages as a
result thereof.
(x) Target Financial Statements. The Lenders shall have received
unaudited interim financial statements relating to Mobeo for each fiscal
month and quarterly period ended subsequent to June 30, 1999 as to which
such financial statements are available, and such financial statements shall
not, in the sole judgment of the Lenders, reflect any Material Adverse
Change with respect to Mobeo as compared with the financial statements or
projections previously furnished to the Lenders.
(xi) Approvals. All requisite material Governmental Authorities and
material third parties (including all state and federal utility company
regulators and Governmental Authorities) have approved or consented to the
transactions contemplated hereby to the extent required (without the
imposition of any burdensome or materially adverse conditions or
requirements), all such approvals are in full force and effect, and there
shall be no Proceeding, actual or threatened, that has or could have a
reasonable likelihood of restraining, preventing or imposing burdensome
conditions on any of the transactions contemplated hereby. Lead Arranger
shall have received copies (certified by Borrower as true and correct) of
any such approvals or consents so obtained.
(xii) Payment of Fees and Expenses. All accrued and unpaid fees and
expenses (including the fees and expenses of Cahill Gordon & Reindel and of
local counsel to Lead Arranger) of the Lenders and Lead Arranger in
connection with the Credit Documents and the transactions contemplated
thereby shall have been paid.
(xiii) No Legal Bar. No Law shall be applicable in the judgment of Lead
Arranger that restrains, prevents or imposes material adverse conditions
upon any component of the transactions contemplated by the Credit Documents
or the financing thereof, including the Term Facility.
(xiv) Consents. Any consents or waivers necessary under any existing
agreement of any Company that would delay, prevent or impair the prompt
refinancing of the Term Facility (including the applications contemplated
herein to the Term Facility of the Net Available Proceeds of Dispositions,
Equity Issuances and Debt Issuances) shall be in full force and effect
pursuant to documentation and on terms and conditions satisfactory to Lead
Arranger.
(xv) Year 2000 Information. Lead Arranger shall have received any
information in addition to that publicly disclosed by Borrower that it may
reasonably request addressing the business and financial risks facing the
Companies as a result of what is commonly referred to as the "Year 2000
problem", including risks resulting from the failure of key vendors and
customers of the Companies to successfully address the Year 2000 problem,
and such addi-
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tional information shall not be adverse in any material respects from that
which was publicly disclosed.
(xvi) Filings and Lien Searches. The Obligors shall have authorized,
executed and delivered each of the following:
(1) UCC Financing Statements (Form UCC-1) in appropriate form
for filing under the UCC and any other applicable law, rule or regulation
in each jurisdiction as may be necessary or appropriate to perfect the
Liens created, or purported to be created, by the Security Agreement;
(2) certified copies of Requests for Information (Form UCC-11),
tax lien, judgment lien and pending lawsuit searches or equivalent
reports or lien search reports, each of a recent date listing all
effective financing statements, lien notices or comparable documents that
name any Obligor as debtor and that are filed in those state, county and
other jurisdictions in which any of the Collateral of such Obligor is
located, the state, county and other jurisdictions in which each such
Person's principal place of business is located and the state in which
such Person is organized, none of which encumber the Collateral covered
or intended to be covered by the Security Agreement other than those
encumbrances which constitute Prior Liens and other Liens expressly
permitted by the terms of the Security Agreement; and
(3) evidence of arrangements for (A) the completion of all
recordings and filings of, or with respect to, the Security Agreement,
and (B) the taking of all actions as may be necessary or, in the opinion
of Lead Arranger, desirable, to perfect the Liens created, or purported
to be created, by the Security Agreement.
7.02. Conditions to Initial and Subsequent Term Loans. The obligation of
the Lenders to make any Term Loan to Borrower upon the occasion of each
borrowing hereunder (including the initial borrowing) is subject to the further
conditions precedent that:
(i) No Default or Event of Default; Representations and Warranties
True. Both immediately prior to the making of such Term Loan and also after
giving pro forma effect thereto and to the intended use thereof:
(a) no Default or Event of Default shall have occurred and be
continuing; and
(b) the representations and warranties made by the Obligors in
Section 8, and by each Obligor in each of the other Credit Documents to
which it is a party, shall continue to be accurate in all respects on and
as of the date of the making of such Term Loan with the same force and
effect as if made on and as of such date (except that any representation
or warranty which is expressly made as of a specific date need only be
accurate on the date of the making of such Term Loan as of such specific
date).
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(ii) No Legal Bar. The Term Loans and the use of proceeds thereof shall
not contravene, violate or conflict with, nor involve any Lender in a
violation of, any law, rule, injunction, or regulation or determination of
any court of law or other Governmental Authority.
(iii) Notice of Borrowing. Administrative Agent shall have received a
Notice of Borrowing duly completed and complying with Section 4.05.
Each Notice of Borrowing delivered by Borrower hereunder shall constitute
a certification by Borrower to the effect set forth in clauses (i)-(ii) above as
of the date of such borrowing or issuance. Each notice submitted by Borrower
hereunder for an extension of credit hereunder shall constitute a representation
and warranty by Borrower, as of the date of such notice and as of the relevant
borrowing date, as applicable, that the applicable conditions in Sections 7.02
and 7.03 have been satisfied or waived in accordance with the terms hereof.
7.03. Determinations Under Section 7. For purposes of determining
compliance with the conditions specified in Sections 7.01 and 7.02, each Lender
shall be deemed to have consented to, approved or accepted or to be satisfied
with each document or other matter required thereunder to be consented to or
approved by or acceptable or satisfactory to the Lenders unless an officer of
Administrative Agent responsible for the transactions contemplated by this
Agreement shall have received notice from such Lender prior to the date that
Borrower, by notice to the Lenders, designates as the proposed date of the
extension of credit, specifying its objection thereto.
Section 8. Representations and Warranties. Each Obligor represents and
warrants to the Creditors that at and as of the Closing Date and at and as of
each Funding Date (in each case immediately before and immediately after giving
effect to the transactions to occur on such date):
8.01. Corporate Existence; Compliance with Law. Each Company: (a) is a
corporation, partnership, limited liability company or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or other power
and authority, and has all governmental licenses, authorizations, consents and
approvals necessary to own its Property and carry on its business as now being
conducted; (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary; and (d) is in compliance with all Requirements of Law
and, in the case of clauses (a), (b), (c) and (d) where the failure thereof
individually or in the aggregate could have a Material Adverse Effect.
8.02. Financial Condition; Etc. (A) Borrower has delivered to the Lenders
(1) the audited consolidated balance sheets of Borrower as of December 31, 1996,
December 31, 1997 and December 31, 1998, and the related statements of earnings,
changes in stockholders' equity and cash flows for the fiscal years ended on
those dates, together with reports thereon by KPMG LLP, certified public
accountants and (2) unaudited consolidated balance sheet of Borrower as of June
30, 1998 and June 30, 1999 and the related statements of earnings, changes in
stockholders' equity and cash flows for the fiscal quarters ended on such dates.
All of said financial statements, including in each case the related schedules
and notes, are true, complete and correct and have been prepared in accordance
with
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GAAP consistently applied and present fairly the financial position of Borrower
as of the respective dates of said balance sheets and the results of their
operations for the respective periods covered thereby, subject (in the case of
interim statements) to period-end audit adjustments.
(B) Except as set forth in Schedule 8.02(B) or in the financial
statements or other information referred to in Section 8.02(A), as of the
Closing Date there are no material liabilities of any Company of any kind
required to be set forth on a balance sheet or in the notes thereto prepared in
accordance with GAAP, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or set
of circumstances which is reasonably likely to result in such a liability.
(C) Since December 31, 1998 there has been no Material Adverse Change.
8.03. Litigation. Except in Schedule 8.03, there is no Proceeding pending
against, or to the knowledge of any Obligor threatened in writing against or
affecting, any Company or any of its respective Properties before any
Governmental Authority that has a reasonable likelihood of being adversely
determined and that, if determined or resolved adversely to such Company in
accordance with the plaintiff's demands, could have a Material Adverse Effect.
8.04. No Breach; No Default. (A) None of the execution, delivery and
performance by any Obligor of any Credit Document to which it is a party nor the
consummation of the transactions herein and therein contemplated will (i)
conflict with or result in a breach of, or require any consent (which has not
been obtained and is in full force and effect) under, any Organic Document of
any Company or any Requirement of Law or any order, writ, injunction or decree
of any Governmental Authority binding on any Company, or any term or provision
of any Contractual Obligation of any Company or (ii) constitute (with due notice
or lapse of time or both) a default under any such Contractual Obligation, or
(iii) result in the creation or imposition of any Lien (except for the Liens
created pursuant to the Security Agreement) upon any Property of any Company
pursuant to the terms of any such Contractual Obligation, except with respect to
each of the foregoing which would not have a Material Adverse Effect and which
would not subject any Creditor to any material risk of damages or liability to
third parties.
(B) No Company is in default under or with respect to any Contractual
Obligation or any order, award or decree of any Governmental Authority or
arbitrator binding upon it or any of its Property in any respect which could
have a Material Adverse Effect.
(C) No Default or Event of Default has occurred and is continuing.
8.05. Action. Each Obligor has all necessary corporate power, authority
and legal right to execute, deliver and perform its obligations under each
Credit Document to which it is a party and to consummate the transactions herein
and therein contemplated; the execution, delivery and performance by each
Obligor of each Credit Document to which it is a party and the consummation of
the transactions herein and therein contemplated have been duly authorized by
all necessary corporate action on its part; and this Agreement has been duly and
validly executed and delivered by each Obligor and constitutes, and each of the
other Credit Documents to which it is a party when executed and
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delivered by such Obligor (in the case of the Term Notes, for value) will
constitute, its legal, valid and binding obligation, enforceable against each
Obligor in accordance with its terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws of general applicability from time to time in effect
affecting the enforcement of creditors' rights and remedies and (b) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
8.06. Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority or any securities
exchange are necessary for the execution, delivery or performance by any Obligor
of the Credit Documents to which it is a party or for the legality, validity or
enforceability hereof or thereof or for the consummation of the transactions
herein and therein contemplated, except for filings and recordings in respect of
the Liens created pursuant to the Security Agreement and except for consents,
authorizations and filings that have been obtained or made and are in full force
and effect or the failure of which to obtain would not have a Material Adverse
Effect.
8.07. ERISA. No ERISA Event has occurred or is reasonably expected to
occur. The present value of all accumulated benefit obligations of all
underfunded Pension Plans (based on the assumptions used for purposes of
Statement of Financial Accounting Standards No. 87) did not, as of the date of
the most recent financial statements reflecting such amounts, exceed by more
than $1.0 million the fair market value of the assets of all such underfunded
Pension Plans. Each ERISA Entity is in compliance in all material respects with
the presently applicable provisions of ERISA and the Code with respect to each
Employee Benefit Plan. Using actuarial assumptions and computation methods
consistent with subpart 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of each ERISA Entity to all Multiemployer Plans in the event of a
complete withdrawal therefrom, as of the close of the most recent fiscal year of
each such Multiemployer Plan, would not result in a Material Adverse Effect. No
Company maintains or contributes to any Foreign Plan.
8.08. Taxes. Except as would not have a Material Adverse Effect, (i) all
tax returns, statements, reports and forms (including estimated Tax or
information returns) (collectively, the "Tax Returns") required to be filed with
any taxing authority by, or with respect to, each Company have been filed in
accordance with all applicable laws; (ii) each Company has timely paid or made
provision for payment of all Taxes shown as due and payable on Tax Returns that
have been so filed, and, as of the time of filing, each Tax Return correctly
reflected the facts regarding income, business, assets, operations, activities
and the status of each Company (other than Taxes which are being contested in
good faith and for which adequate reserves are reflected on the financial
statements delivered hereunder) and (iii) each Company has made provision for
all Taxes payable by such Company for which no Tax Return has yet been filed.
Except as set forth on Schedule 8.08, (i) no extension of a statute of
limitations relating to material Taxes is in effect with respect to any Company;
(ii) no Company has ever been a member of an affiliated group of corporations
within the meaning of Section 1504 of the Code other than an affiliated group of
corporations of which Borrower was the common parent; and (iii) there are
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no material tax sharing agreements or similar arrangements (including tax
indemnity arrangements) with respect to or involving any Company.
8.09. Investment Company Act; Other Restrictions. No Company is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the United States Investment Company Act of 1940, as
amended. Borrower and each Subsidiary is exempt from all provisions of the
Public Utility Holding Company Act of 1935 and rules and regulations thereunder,
except for Sections 9(a)(2) and 33 of such Act and the rules and regulations
thereunder, and the execution, delivery and performance by the Obligors of this
Agreement and the other Credit Documents and their respective obligations
hereunder and thereunder do not violate any provision of such Act or any rule or
regulation thereunder. No Obligor is subject to regulation under any law or
regulation which limits its ability to incur Indebtedness, other than Regulation
X.
8.10. Environmental Matters. Except as disclosed in Schedule 8.10 and
except as would not, individually or in the aggregate, result in a Material
Adverse Effect: (i) each Company is in compliance with, and is not subject to
liability under, any applicable Environmental Laws and there are no
Environmental Laws which could result in material expenditures by any Company,
and no such Environmental Laws would interfere in any material way with current
or projected operations of any Company; (ii) no Company, or to the knowledge of
the Obligors, any of its predecessors in interest, has disposed of, arranged for
the disposal or treatment of, or otherwise released Hazardous Materials at any
site at which any Person is conducting or plans to conduct any action under
Environmental Law; (iii) no Real Property now or formerly owned, leased or
operated by any Company or, to the knowledge of the Obligors, any of their
respective predecessors in interest is (x) listed or proposed for listing on the
National Priorities List under the United States Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA") or (y)
listed on the Comprehensive Environmental Response, Compensation and Liability
Information System List promulgated pursuant to CERCLA or (z) included on any
similar lists maintained by any Governmental Authority; (iv) there are no past
or present events, conditions, activities, practices or actions, or any
agreements, judgments, decrees or orders by which any Company is bound, which
would prevent any Company's compliance with any Environmental Law, or which
would give rise to any liability of any Company under any Environmental Law; (v)
no Lien has been asserted or recorded, or to the knowledge of the Obligors,
threatened, under any Environmental Law with respect to Property of any Company;
and (vi) no Company is subject to any Proceeding alleging the violation of, or
liability under, any Environmental Law or has received any Environmental Claim
and, to the knowledge of the Obligors, no such Proceeding or Environmental Claim
is threatened.
8.11. Environmental Investigations. As of the Closing Date, all material
environmental investigations, studies, audits or assessments in the possession,
custody or control of any Company relating (i) to the current or prior business
or operations of any Company or any of their respective predecessors in interest
or (ii) to any Property now or previously owned, operated, leased or used by any
Company or any of their respective predecessors in interest have been made
available to Agents and the Lenders.
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8.12. Use of Proceeds. No Company is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying Margin Stock
and no part of the proceeds of any extension of credit hereunder will be used
directly or indirectly and whether immediately, incidentally or ultimately to
purchase or carry any Margin Stock or to extend credit to others for such
purpose or to refund Indebtedness originally incurred for such purpose.
Following application of the proceeds of each extension of credit hereunder, not
more than 25 percent of the value of the assets (either of Borrower individually
or of Consolidated Companies) will be Margin Stock. If requested by any
Creditor, Borrower will furnish to Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
U-1 referred to in Regulation U. Borrower will use the proceeds of all Term
Loans solely to effect the Mobeo Acquisition, fees and expenses relating to the
Mobeo Acquisition and the Credit Documents, to exercise the OpenSky Warrant and
for working capital purposes.
8.13. Subsidiaries, Etc. As of the Closing Date, Borrower has no
Subsidiaries or interests (whether direct or indirect) in partnerships, Minority
Interests or business trusts other than the entities set forth on Schedule 8.13.
Borrower owns, as of the Closing Date, the percentage of the issued and
outstanding Equity Interests or other evidences of the ownership of each of its
Subsidiaries, partnerships or Minority Interests listed on Schedule 8.13 as set
forth on such Schedule.
8.14. Ownership of Property; Liens. Each Company has good record and
marketable title in fee simple to, or a valid leasehold interest in, all its
Real Property, and good title to, or a valid leasehold interest in, all its
other Property, and none of such Property interest is subject to any Lien,
except for Liens permitted by Section 9.07.
8.15. Security Interest; Absence of Financing Statements; Etc. The
Security Agreement, once executed and delivered, will create, in favor of
Administrative Agent for the benefit of the Creditors, as security for the
obligations purported to be secured thereby, a valid and enforceable and
perfected first priority security interest in and Lien upon all of the
Collateral (and the proceeds thereof), superior to and prior to the rights of
all third persons other than the holders of Prior Liens and subject to no other
Liens except as expressly permitted by the Security Agreement. There is no
currently effective financing statement, security agreement or other document
filed or recorded with any filing records, registry, or other public office,
that purports to cover, affect or give notice of any Lien on, or security
interest in, any Collateral.
8.16. Licenses and Permits. Each Company holds all governmental permits,
licenses, authorizations, consents and approvals necessary for it to own, lease,
and operate its Properties and to operate its businesses as now being conducted
(collectively, the "Permits"), except for Permits the failure of which to obtain
would not have a Material Adverse Effect. None of the Permits has been modified
in any way that is reasonably likely to have a Material Adverse Effect. All
Permits are in full force and effect except where the failure to be in full
force and effect would not have a Material Adverse Effect.
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8.17. True and Complete Disclosure; Exchange Act Filings. The
information, reports, financial statements, exhibits and schedules furnished in
writing by or on behalf of any Obligor to any Creditor in connection with the
negotiation, preparation or delivery of the Credit Documents or included herein
or therein or delivered pursuant hereto or thereto, but in each case excluding
all projections, whether prior to or after the date of this Agreement, when
taken as a whole, do not, as of the date such information was furnished, contain
any untrue statement of material fact or omit to state a material fact necessary
in order to make the statements herein or therein, in light of the circumstances
under which they were made, not materially misleading. The projections and pro
forma financial information furnished at any time by any Obligor to any Creditor
pursuant to this Agreement have been prepared in good faith based on assumptions
believed by Borrower to be reasonable at the time made, it being recognized by
the Lenders that such financial information as it relates to future events is
not to be viewed as fact and that actual results during the period or periods
covered by such financial information may differ from the projected results set
forth therein by a material amount and no Obligor, however, makes any
representation as to the ability of any Company to achieve the results set forth
in any such projections. Each Obligor understands that all such statements,
representations and warranties shall be deemed to have been relied upon by the
Lenders as a material inducement to make each extension of credit hereunder.
8.18. Solvency. As of each Funding Date immediately prior to and
immediately following the extensions of credit to occur on such date each
Obligor is and will be Solvent (after giving effect to Section 6.08).
8.19. Contracts. No Company is in default under any material contract or
agreement to which it is a party or by which it is bound, nor, to Borrower's
knowledge, does any condition exist that, with notice or lapse of time or both,
would constitute such default, excluding in any case such defaults that would
not have a Material Adverse Effect.
8.20. Labor Matters. Except as set forth in Schedule 8.20, there is (i)
no unfair labor practice complaint pending against any Company or, to the
knowledge of Borrower, threatened against any Company, before the National Labor
Relations Board or any other Governmental Authority, and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against any Company or, to the knowledge of Borrower,
threatened against any Company, (ii) no strike, labor dispute, slowdown or
stoppage pending against any Company or, to the knowledge of Borrower,
threatened against any Company and (iii) to the knowledge of Borrower, no union
representation question existing with respect to the employees of any Company
and, to the knowledge of Borrower, no union organizing activities are taking
place, except such as would not, with respect to any matter specified in clause
(i), (ii) or (iii) above, individually or in the aggregate, have a Material
Adverse Effect.
8.21. Subordinated Debt. The Obligations are senior debt with respect to
all Subordinated Debt of each Obligor and entitled to the full benefits of all
subordination provisions therein and such subordination provisions are in full
force and effect.
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8.22. Year 2000. Each Company has reviewed their operations with a view
to assessing whether their business or operations will, in the receipt,
transmissions, processing, manipulation, storage, retrieval, retransmission or
other utilization of data, be vulnerable to any significant risk that computer
hardware, software or any equipment containing embedded microchips used in their
business or operations will not in the case of dates or time periods occurring
after December 31, 1999 function at least as effectively as in the case of dates
or time periods occurring prior to January 1, 2000. In addition each Company has
undertaken to obtain assurances from their respective third party billing
providers and their respective principal sources of equipment that they are
addressing the potential problems of the Year 2000. No Company has reason to
believe that the risks associated with the Year 2000 issue would have a Material
Adverse Effect.
8.23. Intellectual Property. To the knowledge of Borrower, each Company
owns or possesses adequate licenses or otherwise has the right to use all of the
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, trade secrets, know-how and
processes (collectively, "Intellectual Property") that are necessary for the
operation of its business as presently conducted, except where the failure to so
own or possess such Intellectual Property would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on Schedule 8.23,
to the knowledge of Borrower, no claim is pending that any Company infringes
upon the asserted rights of any other Person under any Intellectual Property,
except for any such claim that would not, individually or in the aggregate, have
a Material Adverse Effect. Except as set forth on Schedule 8.23, to the
knowledge of Borrower, no claim is pending that any such Intellectual Property
owned or licensed by any Company or which any Company otherwise has the right to
use is invalid or unenforceable, except for any such claim which would not,
individually or in the aggregate, have a Material Adverse Effect.
Except as set forth in Schedule 8.23, each Company owns or has the right
to use all Intellectual Property and the consummation of the transactions
contemplated hereby will not, alter or impair any such rights in a way that
would, individually or in the aggregate, have a Material Adverse Effect. Subject
to the rights of third parties set forth in Schedule 8.24, all Intellectual
Property owned by any Company is free and clear of all Liens except such as
would not, individually or in the aggregate, have a Material Adverse Effect with
respects to Hazardous Materials or Environmental Laws.
8.24. Existing Indebtedness. Schedule 8.24 sets forth a true and complete
list of all Indebtedness of the Companies as of the Closing Date that is to
remain outstanding after the Closing Date (excluding the Obligations hereunder),
in each case showing the aggregate principal amount thereof and the name of each
respective borrower and any other entity that directly or indirectly guaranteed
such Indebtedness.
Section 9. Covenants. Each Obligor, for itself and on behalf of its
Subsidiaries, covenants and agrees with the Creditors that, so long as any Term
Loan Commitment or Term Loan is outstanding and until payment in full of all
amounts payable by Borrower hereunder (and each Obligor covenants and agrees
that it will cause its Subsidiaries to observe and perform the covenants herein
set forth applicable to any such Subsidiary):
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9.01. Financial Statements, Etc. The Companies shall deliver to
Administrative Agent and each of the Lenders:
(a) Quarterly Financials. As soon as available and in any event within 45
days after the end of each of the first three quarterly fiscal periods of
each fiscal year beginning with the fiscal quarter ending March 31, 2000,
consolidated statements of operations, cash flows and stockholders' equity
of Consolidated Companies for such period and for the period from the
beginning of the respective fiscal year to the end of such period, and the
related consolidated balance sheet of Consolidated Companies as at the end
of such period, setting forth in each case in comparative form (i) the
corresponding consolidated statements of operations, cash flows and
stockholders' equity for the corresponding period in the preceding fiscal
year to the extent such financial statements are available and (ii) the
corresponding budget or plan for such period, accompanied by a certificate
of a Responsible Officer of Borrower, which certificate shall state that
said consolidated financial statements fairly present the consolidated
financial condition, results of operations and cash flows of Consolidated
Companies in accordance with GAAP, consistently applied, as at the end of,
and for, such period (subject to normal year-end audit adjustments);
(b) Annual Financials. As soon as available and in any event within 90
days after the end of each fiscal year beginning with the fiscal year ending
December 31, 1999, consolidated and consolidating statements of operations,
cash flows and stockholders' equity of Consolidated Companies for such year
and the related consolidated and consolidating balance sheet of Consolidated
Companies as at the end of such year, setting forth in each case in
comparative form (i) the corresponding consolidated and consolidating
information as of the end of and for the preceding fiscal year to the extent
such financial statements are available and (ii) the corresponding budget or
plan for such period, and accompanied by an opinion, without a going concern
or similar qualification or exception as to scope, thereon of KPMG LLP or
other independent certified public accountants of recognized national
standing reasonably acceptable to Lead Arranger and the Majority Lenders,
which opinion shall state that said consolidated and consolidating financial
statements fairly present the consolidated and consolidating financial
condition, results of operations and cash flows of Consolidated Companies as
at the end of, and for, such fiscal year in accordance with GAAP,
consistently applied; Borrower shall supply such additional information and
detail as to any item or items contained on any such statement that Lenders
may reasonably require; all such information will be prepared in accordance
with GAAP consistently applied;
(c) Auditor's Certificate; Compliance Certificate.
(i) concurrently with the delivery of the financial statements
referred to in Section 9.01(b), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Event of Default relating to the Financial
Maintenance Covenants, except as specified in such certificate; and
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(ii) at the time it furnishes each set of financial statements
pursuant to paragraph (a) or (b) above, (1) a certificate of a senior
financial officer of Borrower (I) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and describing the
action that the Companies have taken and proposes to take with respect
thereto) and (II) setting forth in reasonable detail the computations
necessary to determine whether each Company is in compliance with the
Financial Maintenance Covenants applicable to it as of the end of the
respective quarterly fiscal period or fiscal year, and (2) any final
accountants' management letters delivered by the independent certified
public accountants reporting on such financial statements to any
Company;
(d) Other Financial Information. Promptly upon delivery thereof to the
holders of any debt securities or the stockholders of any Company generally,
copies of all financial statements and reports and proxy statements so
delivered, and at the time the same are filed, copies of all financial
statements and reports which Borrower may make to or file with the
Commission or any successor or analogous Governmental Authority;
(e) Notice of Default. Promptly after any Company knows or has reason to
believe that any Default has occurred or that any Company is in default of
any material term or provision of any agreement or instrument relating to or
evidencing material Indebtedness, a notice of such Default describing the
same in reasonable detail and, together with such notice or as soon
thereafter as possible, a description of the action that the Companies have
taken and propose to take with respect thereto;
(f) Environmental Matters. Written notice of any Environmental Claim
materially affecting any Company or the operations of any Company and any
notice from any Person of (i) the occurrence of any release, spill or
discharge of any Hazardous Material that is reportable under any
Environmental Law, (ii) the commencement of any clean-up pursuant to or in
accordance with any Environmental Law of any Hazardous Material at, on,
under or within any Real Property or any part thereof owned or leased by any
Company, (iii) any matters relating to Hazardous Materials or Environmental
Laws that may impair, or threaten to impair, any Obligor's ability to
perform any of its obligations under this Agreement when such performance is
due or (iv) any other condition, circumstance, occurrence or event which
could have a Material Adverse Effect with respect to Environmental Law or
Hazardous Materials;
(g) Auditors' Reports. Promptly upon receipt thereof, copies of all
annual, interim or special reports submitted to any Company by independent
certified public accountants in connection with each annual, interim or
special audit of such Company's books made by such accountants, including,
without limitation, any management letter commenting on any Company's
internal controls submitted by such accountants to management in connection
with their annual audit;
(h) Annual Budgets. As soon as practicable and in any event within 60
days after the beginning of each fiscal year of Borrower beginning with the
fiscal year ending December 31,
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1999, a consolidated plan and financial forecast for such fiscal year,
including a forecasted consolidated balance sheet and forecasted
consolidated statements of income and cash flows of the Companies for such
fiscal year and for each quarter of such fiscal year, together with an
Officers' Certificate demonstrating pro forma compliance for such fiscal
year with Section 9.11 and an explanation of the assumptions on which such
forecasts are based and stating that such plan and projections have been
prepared using assumptions believed in good faith by management of Borrower
to be reasonable at the time made;
(i) Notice of Material Adverse Effect. Written notice of the occurrence
of any Material Adverse Effect;
(j) Governmental Filings and Notices. Promptly upon request by
Administrative Agent, copies of any other material reports or documents that
were filed by any Company with any Governmental Authority relating to the
acquisition or maintenance of a material license and copies of any and all
material notices and other material communications from any federal, state
or local Governmental Authority with respect to any Company;
(k) ERISA Information. Promptly upon the occurrence of any ERISA Event
that, alone or together with any other ERISA Events that have occurred,
could result in liability to any Company in an aggregate amount exceeding
$100,000, a written notice specifying the nature thereof, what action each
ERISA Entity has taken, is taking or proposes to take with respect thereto,
and, when known, any action taken or threatened by the Internal Revenue
Service, Department of Labor, PBGC or Multiemployer Plan sponsor with
respect thereto;
(l) ERISA Filings, Etc. Upon request by Administrative Agent, copies of:
(i) each Schedule B (Actuarial Information) to the annual report (Form 5500
Series) filed by any Company or ERISA Entity with the Internal Revenue
Service with respect to each Pension Plan; (ii) the most recent actuarial
valuation report for each Plan; (iii) all notices received by any ERISA
Entity from a Multiemployer Plan sponsor or any governmental agency
concerning an ERISA Event; and (iv) such other documents or governmental
reports or filings relating to any Employee Benefit Plan as Administrative
Agent shall reasonably request;
(m) Lien Matters; Matters Adverse to Collateral. Prompt written notice of
the incurrence of any Lien not expressly permitted by the Security Agreement
on, or claim asserted against any of the Collateral;
(n) Name and Location Changes. Promptly, written notice of any change (i)
in any Obligors' corporate name or in any trade name used to identify it in
the conduct of its business or in the ownership of its properties, (ii) in
the location of such Obligor's chief executive office, its principal place
of business or any office in which it maintains books or records relating to
Collateral, (iii) in such Company's identity or corporate structure or (iv)
in such Obligor's Federal Taxpayer Identification Number (to the extent
applicable). No Obligor will effect or permit any change referred to in the
preceding sentence unless all filings have been made under the UCC or
otherwise that are required in order for Administrative Agent to con-
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tinue at all times following such change to have a valid, legal and
perfected security interests in all the Collateral; and
(o) Miscellaneous. Promptly, such financial and other information with
respect to Borrower or any Subsidiary as any Creditor may from time to time
reasonably request.
9.02. Litigation, Etc. Borrower shall promptly give to Administrative
Agent and each Lender notice of all Proceedings, and (except to the extent that
any such notice would, in the reasonable opinion of outside counsel to Borrower,
waive attorney client privilege) any material development thereof, affecting any
Company, except Proceedings which are not reasonably likely to have a Material
Adverse Effect.
9.03. Existence; Compliance with Law; Payment of Taxes; Inspection
Rights; Performance of Obligations; Etc. Each Company shall (i) preserve and
maintain its legal existence and all of its material rights, privileges and
franchises; provided, however, that nothing in this Section 9.03 shall prohibit
any transaction expressly permitted under Section 9.06; (ii) except as is not
reasonably likely to have a Material Adverse Effect, comply with the
requirements of all applicable laws, rules, regulations and orders of
Governmental Authorities; (iii) except as is not reasonably likely to have a
Material Adverse Effect, timely file true, accurate and complete tax returns
required by all Governmental Authorities and pay and discharge all Taxes,
assessments and governmental charges or levies imposed on it or on its income or
profits or on any of its Property prior to the date on which any material
penalties attach thereto (except for any such Tax, assessment, charge or levy
the payment of which is being contested in good faith and by proper proceedings
and against which adequate reserves are being maintained in accordance with
GAAP); (iv) maintain all of its Properties used or useful in its business in
good working order and condition, ordinary wear and tear excepted, except to the
extent that the failure to do so with respect to any such Property is not
reasonably likely to have a Material Adverse Effect; (v) permit representatives
of any Creditor during normal business hours and, except during the existence of
any Default, upon reasonable prior notice, to examine its books and records, to
inspect its Properties, and to discuss its business and affairs with its
officers and employees, all to the extent reasonably requested by such Creditor
with the understanding and agreement that all information obtained thereby shall
be subject to the confidentiality provisions of Section 12.11; (vi) upon
reasonable notice, allow, with the presence of Borrower if Borrower so elects to
participate, and subject to reasonable requirements of confidentiality,
including requirements imposed by law or by contract, Lead Arranger or any
representative chosen by the Majority Lenders to consult with Borrower's
independent public accountants and auditors with respect to the financial
affairs of the Companies and authorize such accountants to disclose to Lead
Arranger or any representative chosen by the Majority Lenders and the Lenders
(and Lead Arranger to the Creditors) any and all financial statements and other
supporting financial documents and schedules including copies of any management
letter with respect to the business, financial condition and other affairs of
the Companies with the understanding and agreement that all information obtained
thereby shall be subject to the confidentiality provisions of Section 12.11; at
the request of Lead Arranger or any representative chosen by the Majority
Lenders, Borrower shall deliver a letter addressed to such accountants
instructing them to comply with the provisions of this Section 9.03(vi); (vii)
perform in all material respects all of its Contractual Obligations, except
where such failure to so perform, singly or in the aggregate
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with all other such failures, would not have a Material Adverse Effect; and
(viii) keep proper books of record and accounts, in which full and correct
entries shall be made of all financial transactions and the Property and
business of each Company in accordance with GAAP in effect from time to time or
as otherwise required by applicable rules and regulations of any Governmental
Authority having jurisdiction over such Company.
9.04. Insurance. Each Company shall maintain, with financially sound and
reputable insurers, insurance of the kinds and in the amounts customarily
insured against by companies engaged in the same or similar business and
similarly situated (including business interruption insurance). Each Company
shall pay all insurance premiums payable by it as and when due.
9.05. Limitation on Lines of Business; Limitation on Activities of
Borrower. No Company shall directly or indirectly, engage to any material extent
in any line or lines of business activity other than the business of the type
conducted by the Companies as of the Closing Date and after giving effect to the
Mobeo Acquisition, or any wireless communications business or any business
similar, ancillary or related to any of the foregoing.
9.06. Limitation on Fundamental Changes, Acquisitions or Dispositions. No
Company shall, directly or indirectly, in a single transaction or series of
transactions, (1) merge, consolidate or amalgamate with or into any Person, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), (2) effect any Acquisition, or (3) effect any Disposition (or
agree to do any of the foregoing). Notwithstanding the foregoing provisions of
this Section 9.06, each of the following shall be permitted:
(a) purchases and sales of Property in the ordinary course of business;
(b) the granting of Permitted Liens;
(c) the merger of Aether Systems, Inc. with Borrower and the merger,
consolidation, dissolution or liquidation of (1) any Subsidiary with or into
(i) Borrower if Borrower shall be the continuing or surviving corporation or
(ii) any Qualified Subsidiary if a Qualified Subsidiary shall be the
continuing or surviving corporation, and (2) any Non-Qualified Subsidiary
with or into any other Non-Qualified Subsidiary;
(d) Dispositions by any Company to any Qualified Company or by any
Non-Qualified Subsidiary to any other Non-Qualified Subsidiary;
(e) Dispositions of used, worn out, obsolete or surplus Property by any
Company in the ordinary course of business and the abandonment or other
Disposition of Intellectual Property that is, in the reasonable judgment of
Borrower, no longer economically practicable to maintain or useful in the
conduct of the business of the Companies taken as a whole; provided,
however, that in each case the proceeds thereof shall be reinvested in the
business of a Company within 90 days of such Disposition or such Property
shall be replaced with that of greater or equal value;
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(f) the sale or discount without recourse of accounts receivable or notes
receivable arising in the ordinary course of business, or the conversion or
exchange of accounts receivable into or for notes receivable, in connection
with the compromise or collection thereof;
(g) any Company may effect any Disposition for fair market value
resulting in gross proceeds not to exceed $250,000 since the Closing Date
for the Companies in the aggregate; provided, however, that the Net
Available Proceeds therefrom shall be applied as specified in Section
2.10(a)(iv);
(h) Acquisitions by any Qualified Company; provided, however, that each
Acquisition under this Section 9.06(h) shall satisfy each of the following
conditions:
(i) no Default then exists or would result therefrom;
(ii) after giving pro forma effect in accordance with GAAP to
such Acquisition, (A) Borrower shall be in compliance with Section 9.11
as of the Test Date immediately prior to the consummation thereof
(assuming, for purposes of Section 9.11, that such Acquisition, and all
other Permitted Acquisitions consummated since the first day of the
relevant measurement period for each financial covenant set forth in
Section 9.11 ending on or prior to the date of such Acquisition, had
occurred on the first day of such relevant measurement period), and (B)
the Subsidiaries shall be in compliance with the covenants in the
agreements covering Indebtedness to which they are subject;
(iii) the board of directors of the acquired Person shall not
have indicated its opposition to the consummation of such Acquisition;
(iv) such Acquisition shall be effected through a Qualified
Company and the Person or business acquired shall at the time of
consummation of such Acquisition be merged or combined or consolidated
with or into a Qualified Company (so long as, with respect to Borrower,
Borrower is the surviving Company) or shall be or become at the time of
consummation thereof a Qualified Company ;
(v) Borrower shall have provided the Lenders not fewer than 15
days prior to the proposed closing thereof, with (1) written notice
thereof and a brief description of the material terms thereof and a brief
description of the business or Person to be acquired, (2) historical
financial statements for the last three fiscal years (or, if less, for
the period of such Person's existence) of the Person or business to be
acquired (audited if available without undue cost or delay) and unaudited
financial statements thereof for the most recent interim period which are
available, (3) copies of all available material documentation pertaining
to such Acquisition, (4) reasonably detailed projections pertaining to
the Person or business to be acquired through the Final Maturity Date
(assuming the extension thereof to the latest date permitted hereunder),
and (5) all such other available information and data relating to such
Ac-
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quisition or the Person or business to be acquired as may be reasonably
requested by Lead Arranger or the Majority Lenders;
(vi) Borrower shall have delivered to Lead Arranger and the
Lenders (x) an Officers' Certificate at least 10 days prior to the date
of consummation of such Acquisition (but in any event not earlier than a
date which would result in the Test Date occurring on or immediately
prior to the consummation of such Acquisition being more than 135 days
prior to the date of consummation of such Acquisition) certifying that
(1) such Acquisition complies with this Section 9.06(h) (which shall have
attached thereto reasonably detailed backup data and calculations showing
such compliance), and (2) such Acquisition is not reasonably likely to
have a Material Adverse Effect and (y) financial statements referred to
in clause (v) of this Section 9.06(h) for the most recently ended fiscal
period if the latest financial statements previously delivered pursuant
to clause (v) cover a period ending more than 135 days before the date of
consummation of such Acquisition; and
(vii) the Acquisition Consideration for such Acquisition shall
consist solely of Equity Interests of Borrower;
(i) the making of Investments permitted by Section 9.09 and the
liquidation in the ordinary course of business of (A) Cash Equivalents and
(B) Investments made pursuant to clause (a) of the definition of Permitted
Investments.
No Company shall effect the Disposition of any Equity Interests of any
Subsidiary unless all Equity Interests owned by the Companies are sold in
accordance with the Credit Documents.
Subject to Section 12.04, to the extent the Majority Lenders waive the
provisions of this Section 9.06 with respect to the sale or other disposition of
any Collateral, or any Collateral is sold or otherwise disposed of as permitted
by this Section 9.06 (other than to any Company), such Collateral in each case
shall be sold or otherwise disposed of free and clear of the Liens created by
the Security Agreement and Administrative Agent shall take such actions as are
appropriate in connection therewith.
9.07. Limitation on Liens. No Company shall, directly or indirectly,
create, incur, assume or suffer to exist any Lien upon or with respect to any of
their respective Property, whether now owned or hereafter acquired, except, with
respect to Collateral, for Liens expressly permitted by the Security Agreement
and, with respect to all other Property, except for the following, which are
herein collectively referred to as "Permitted Liens":
(a) Liens (including any Prior Liens) in existence on the Closing Date
and identified in Schedule 9.07;
(b) Permitted Customary Liens;
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(c) Liens upon Property acquired after the Closing Date by any Company,
which Liens either (A) existed on such Property before the time of its
acquisition and was not created in anticipation thereof, or (B) was created
solely for the purpose of securing Indebtedness representing, or incurred to
finance or refinance, the cost of such Property or improvements thereon;
provided, however, that (1) no such Lien shall extend to or cover any
Property of any Company other than the Property so acquired and improvements
thereon and proceeds thereof, and (2) the principal amount of Indebtedness
secured by any such Lien shall at no time exceed 100% of the fair market
value of such Property at the time it was acquired or constructed;
(d) Liens securing obligations in respect of Capital Leases solely on
Property (including improvements thereto and the proceeds thereof) subject
to such Capital Leases;
(e) any extension, renewal or replacement of the foregoing; provided,
however, that the Liens permitted by this Section 9.07(e) shall not cover
any additional principal amount of Indebtedness or Property (other than like
Property substituted for Property covered by such Lien); and
(f) Liens created under this Agreement.
9.08. Prohibition on Disqualified Capital Stock; Limitation on
Indebtedness and Contingent Obligations; Limitation on Designated Senior Debt.
(A) No Company shall directly or indirectly issue or permit to be outstanding
any Disqualified Capital Stock. No Company shall, directly or indirectly, incur
or suffer to exist any Indebtedness or any Contingent Obligation, except for the
following:
(a) the Term Loans and the other Obligations (including the Guarantees)
under the Credit Documents;
(b) Indebtedness and Contingent Obligations outstanding on the Closing
Date and listed in Schedule 8.24 and specified on Schedule 8.24 as to remain
outstanding after the Closing Date (less the aggregate amount of any
permanent prepayments or repayments thereof) and Permitted Refinancings
thereof;
(c) Indebtedness and Contingent Obligations of (A) any Company owing to
any Qualified Company; provided, however, that such Indebtedness and
Contingent Obligations shall not be held by any Person other than a
Qualified Company and shall not be subordinate to any other Indebtedness or
Contingent Obligations or other obligation of the obligor unless also
subordinated to the Obligations on terms no less favorable to the Lenders
than that of any other creditor and (B) any Non-Qualified Subsidiary owing
to any Company so long as such Indebtedness and Contingent Obligations are
not held by any Person other than a Company;
(d) Contingent Obligations of any Qualified Company in respect of
Indebtedness or other liabilities of any Qualified Company to the extent
that the existence of such Indebtedness or other liabilities is not
prohibited under this Agreement; and
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(e) Indebtedness and Contingent Obligations of the Companies (including
Permitted Refinancings thereof) secured by Liens permitted under Section
9.07(c) or (d) (and extensions, renewals or replacements thereof pursuant to
Section 9.07(e)) not exceeding (together with any Permitted Refinancing
thereof) $1.0 million in the aggregate at any time outstanding for the
Companies collectively.
All intercompany debt shall be unsecured and subordinate in right of
payment (to the same extent as the subordination provisions set forth in Exhibit
B hereto) to the Obligations. Each Obligor, by its execution and delivery of
this Agreement, hereby agrees to subordinate its right of payment under any
intercompany debt owed to it by any Company to the full and complete payment and
performance of the Obligations. No Obligor shall incur any Subordinated Debt
unless otherwise permitted by the foregoing exceptions listed as clauses (a)
through (f) above and unless such Subordinated Debt shall be subordinated to the
Obligations at least to the same extent and for so long as such Subordinated
Debt is subordinated to such other Indebtedness.
(B) No Company shall designate, or permit or suffer to exist the
designation of, any Indebtedness or other obligation, other than Indebtedness
under the Credit Documents, as "Designated Senior Indebtedness," as such term
may be defined in any Subordinated Debt, or effect or permit or suffer to exist
any comparable designation that confers upon the holders of such Indebtedness or
other obligation (or any Person acting on their behalf) the right to initiate
payment blockage periods under any Subordinated Debt.
9.09. Limitation on Investments; Limitation on Creation of Subsidiaries.
(A) No Company shall, directly or indirectly, make or permit to remain
outstanding any Investments, except for the following:
(a) Permitted Investments and Investments that were Permitted Investments
when made;
(b) Investments by any Company in any Qualified Company and Investments
by any Non-Qualified Subsidiary in any Company; (c) Investments outstanding
on the Closing Date and identified in Schedule 9.09 and any renewals,
amendments and replacements thereof that do not increase the amount thereof;
(d) additional Investments in any Non-Qualified Subsidiary to the extent
that such Investments reflect an increase in the stockholders' equity of
such Subsidiary resulting from retained earnings of such Subsidiary;
(e) any Company may hold the Equity Interests of any Subsidiary existing
on the Closing Date or created or acquired thereafter in accordance with the
provisions hereof and any additional Equity Interests issued in exchange
therefor or as a dividend thereon;
(f) Investments consisting of or made in order to consummate (A)
Permitted Acquisitions and (B) the Mobeo Acquisition.
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(g) Investments consisting of the securities received upon exercise of
the OpenSky Warrants.
(B) No Company shall, directly or indirectly, create or acquire any
Subsidiary without the prior written consent of the Majority Lenders; provided,
however, that the provisions of this Section 9.09(B) shall not require the
Majority Lenders' consent for the creation or acquisition of direct or indirect
Wholly Owned Subsidiaries.
9.10. Limitation on Dividend Payments. No Company shall, directly or
indirectly, declare or make any Dividend Payment at any time, except any
Subsidiary may declare and make Dividend Payments to Borrower or any Subsidiary
and to minority interest holders in such Subsidiary if made on a pro rata basis
to all holders of Equity Interests in such Subsidiary at the same time except
that no Qualified Subsidiary may make any Dividend Payment to any Non-Qualified
Subsidiary.
9.11. Financial Covenants. (a) Minimum Revenue. Revenue shall not, as of
any Test Date during any period set forth in the table below, be less than the
amount set forth opposite such period in the table below:
Period Revenue
------ -------
10/1/99-12/31/99 $1.737 million
1/1/00-3/31/00 $2.788 million
4/1/00-6/30/00 $4.444 million
7/1/00-9/30/00 $7.302 million
(b) Minimum Operating Cash Flow. Operating Cash Flow shall not, as any Test
Date during any period set forth in the table below, be less than the amount set
forth opposite such period in the table below:
Period Operating Cash Flow
------ -------------------
10/1/99-12/31/99 $(5.965) million
1/1/00-3/31/00 $(7.812) million
4/1/00-6/30/00 $(9.060) million
7/1/00-9/30/00 $(9.307) million
(c) Minimum Liquidity. The sum of cash and Cash Equivalents and Unutilized
Commitments shall not, as of any date, be less than the total amount of interest
payments required hereunder from such date through the Final Maturity Date,
based on the total Loans outstanding as of such date and assuming an interest
rate based on the highest Applicable Margin. Not later than the fifth Business
Day after the end of each month, Borrower shall deliver to the Administrative
Agent an Officer's Certificate detailing the amount of cash and Cash Equivalents
on hand as of the end of such month, together with calculations setting forth
compliance with this Section 9.11 (c).
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9.12. Pledge or Mortgage of Additional Collateral. Promptly, and in any
event within 30 days, after the acquisition of any Property of the type that
would have constituted Collateral at the Closing Date (including the Equity
Interests of any Subsidiary hereafter created or acquired) (the "Additional
Collateral") and after the creation or acquisition of any Subsidiary, each
Company shall take all action reasonably necessary or desirable (to the extent
permitted by applicable Contractual Obligations existing on the Closing Date),
if any, including the execution and delivery of all such agreements,
assignments, documents, registers and instruments (including amendments to the
Credit Documents) and the filing of appropriate financing statements or other
documents under the provisions of the UCC or applicable requirements of any
Governmental Authority in each of the offices where such filing is necessary or
appropriate, to grant (in the reasonable judgment of Administrative Agent or the
Majority Lenders) to Administrative Agent, for the benefit of the Creditors, a
duly perfected first priority Lien on such Property pursuant to appropriate
Security Documents.
9.13. Security Interests; Further Assurances. Each Company shall,
promptly, upon the reasonable request of Administrative Agent or any Lender, at
Borrower's expense, execute, acknowledge and deliver, or cause the execution,
acknowledgment and delivery of, and thereafter register, file or record, or
cause to be registered, filed or recorded, in an appropriate governmental
office, any document or instrument supplemental to or confirmatory of the
Security Agreement or otherwise deemed by Administrative Agent reasonably
necessary or desirable for the continued validity, perfection and priority of
the Liens on the Collateral covered thereby superior to and prior to the rights
of all third Persons other than the holders of Prior Liens and subject to no
other Liens except as permitted by the Security Agreement. Each Company shall
deliver or cause to be delivered to Administrative Agent from time to time such
other documentation, consents, authorizations, approvals and orders in form and
substance reasonably satisfactory to Administrative Agent as Administrative
Agent shall reasonably deem necessary to perfect or maintain the Liens on the
Collateral pursuant to the Security Agreement. Upon the exercise by
Administrative Agent or the Lenders of any power, right, privilege or remedy
pursuant to any Credit Document which requires any consent, approval,
registration, qualification or authorization of any Governmental Authority, each
Company shall execute and deliver all applications, certifications, instruments
and other documents and papers that Administrative Agent or the Lenders may be
so required to obtain.
9.14. Compliance with Environmental Laws. Each Company shall (a) comply
with all Environmental Laws, and will keep or cause all Real Property to be kept
free of any Liens under Environmental Laws, unless failure to do so would not
have a Material Adverse Effect; (b) in the event of any Hazardous Material at,
on, under or emanating from any Real Property which could result in liability
under or a violation of any Environmental Law, in each case which could have a
Material Adverse Effect, undertake, and/or cause any of their respective tenants
or occupants to undertake, at their sole expense, any action required pursuant
to Environmental Laws to mitigate and eliminate such condition; provided,
however, that no Company shall be required to comply with any order or directive
which is being contested in good faith and by proper proceedings so long as it
has maintained adequate reserves with respect to such compliance to the extent
required in accordance with GAAP; and (c) promptly notify Administrative Agent
of any event specified in clause (b) of this Section 9.14 and periodically
thereafter keep Administrative Agent informed of any material actions taken in
response to such event and the results thereof.
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9.15. Limitation on Transactions with Affiliates. No Company shall,
directly or indirectly: enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
Property, the rendering of any service, or a merger, Acquisition or other
consolidation), with or for the benefit of any Affiliate (an "Affiliate
Transaction") unless such Affiliate Transaction is (i) otherwise not prohibited
under this Agreement and (ii) on fair and reasonable terms that are not less
favorable to such Company than those that are reasonably obtainable at the time
in an arm's-length transaction with a Person that is not such an Affiliate;
provided, however, that the following shall be permitted: (a) fees and
compensation paid to, and customary indemnity and reimbursement provided on
behalf of, officers, directors and employees of any Company in the ordinary
course of business; (b) the transactions and agreements in existence on the
Closing Date and listed in Schedule 9.15 (as such agreements are in effect on
the Closing Date, the "Existing Affiliate Agreements") and any amendment thereto
that is not disadvantageous to the Lenders in any material respect; and (c) any
employment agreements entered into by any Company in the ordinary course of
business.
9.16. Limitation on Accounting Changes; Limitation on Investment Company
Status. Borrower shall not make or permit any change in (i) accounting policies
or reporting practices, except immaterial changes and except as required by
generally accepted accounting principles or (ii) its fiscal year end (December
31 of each year); provided that the Company consolidate its financial statements
with all Subsidiaries which are Guarantors. No Company shall be or become an
investment company subject to the registration requirements under the United
States Investment Company Act of 1940, as amended.
9.17. Limitation on Activities of Aether Systems, Inc. Prior to the
merger with and into Borrower, Aether Systems, Inc. shall not engage in any
activities other than incident to maintaining its corporate existence and
compliance with Laws applicable to it.
9.18. Limitation on Certain Restrictions Affecting Subsidiaries. No
Company shall, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any direct or indirect encumbrance or restriction on
the ability of any Subsidiary to (a) pay dividends or make any other
distributions on such Subsidiary's Equity Interests or any other interest or
participation in its profits owned by any Company, or pay any Indebtedness or
any other obligation owed to any Company, (b) make Investments in or to any
Company, or (c) transfer any of its Property to any Company, except (i) any such
encumbrances or restrictions existing under or by reason of (x) applicable Law,
(y) the Credit Documents or (z) Indebtedness set forth on Schedule 8.24 and any
Permitted Refinancing of any thereof so long as such restriction in such
Permitted Refinancing is not more disadvantageous to the Creditors or Borrower
than the Indebtedness being refinanced, (ii) restrictions on the transfer of
Property subject to a Lien permitted under Section 9.07, (iii) customary
restrictions on subletting or assignment of any lease governing a leasehold
interest of any Company, (iv) restrictions on the transfer of any Property
subject to a Disposition permitted under this Agreement, and (v) existing on the
Closing Date and described on Schedule 9.19.
9.19. Limitation on Payments or Prepayments of Indebtedness or
Modification of Debt Documents. No Company shall, directly or indirectly:
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(a) make any payment or prepayment (optional or otherwise) on or
redemption of or any payments in redemption, defeasance or repurchase
(whether in cash, securities or other Property) of any Indebtedness, except
(1) regularly scheduled mandatory payments of interest, (2) pursuant to any
provision of any agreement governing any Indebtedness set forth on Schedule
8.24 that requires the making of any such payment, prepayment, redemption,
defeasance or repurchase or pursuant to the terms of any agreement governing
any Permitted Refinancing of any thereof so long as not more disadvantageous
to any Company or any Creditor than such Indebtedness being refinanced, and
(3) the conversion or exchange of any Indebtedness into shares of common
Equity Interests of Borrower; or
(b) amend, supplement, waive or otherwise modify any of the provisions of
any agreement or instrument governing any Indebtedness set forth on Schedule
8.24 (or any Permitted Refinancing of any thereof):
(i) which shortens the fixed maturity, or increases the rate or
shortens the time of payment of interest or dividends on, or increases
the amount or shortens the time of payment of any principal, or premium
payable whether at maturity, at a date fixed for prepayment or by
acceleration or otherwise of such Indebtedness, or increases the amount
of, or accelerates the time of payment of, any fees payable in connection
therewith;
(ii) which relates to the affirmative or negative covenants,
events of default, redemption or repurchase provisions, or remedies under
the documents or instruments evidencing such Indebtedness and the effect
of which is to subject any Company to any materially more onerous or more
restrictive provisions; or
(iii) if such Indebtedness is Subordinated Debt, which effects
and changes to the subordination provisions (or related definitions)
therein or otherwise materially adversely affects the interests of the
Creditors as senior creditors or the interests of the Creditors under
this Agreement or any other Credit Document in any respect.
9.20. Year 2000 Compliance. Each Company will use commercially reasonable
efforts to eliminate any significant risks that computer hardware, software or
any equipment containing embedded microchips used in their business or
operations will not in the case of dates or time periods occurring after
December 31, 1999 function, in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of data,
at least as effectively as in the case of dates or time periods occurring prior
to January 1, 2000, in any respect that would cause a Material Adverse Effect.
9.21. Tax Sharing Arrangements. No Company shall enter into or permit to
exist any tax sharing agreement or similar arrangement unless the same shall
have been reviewed by, and consented to, by Lead Arranger.
9.22. Refinancing. Borrower shall use commercially reasonably efforts to
refinance the Term Loans as soon as practicable after the Closing Date (the
"Refinancing") and cooperate with
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MLPF&S in the marketing of any offering of securities in accordance with a
mutually satisfactory marketing and roadshow schedule. The Company shall (i)
cooperate with MLPF&S and provide MLPF&S with information required by MLPF&S in
connection with the Refinancing or other means of refinancing the Term Loans,
(ii) assist MLPF&S in connection with the marketing of the Refinancing
(including promptly providing to MLPF&S any information reasonably requested to
effect the Refinancing and making available senior management of Borrower for
investor meetings), and (iii) cooperate with MLPF&S in the timely preparation of
marketing materials to be used in connection with the syndication of the Loan
and any registration statement or private placement memoranda relating to the
Refinancing.
9.23. Additional Obligors. Upon any Company creating or acquiring any
Subsidiary after the Closing Date (each such Subsidiary referred to herein as an
"Additional Obligor" and collectively as the "Additional Obligors"), Borrower
shall (i) cause each such Subsidiary that is a Wholly Owned Subsidiary to
execute and deliver all such agreements, guarantees, documents and certificates
(including any amendments to the Credit Documents and a Joinder Agreement) as
Administrative Agent or the Majority Lenders may reasonably request and do such
other acts and things as Administrative Agent or the Majority Lenders may
reasonably request in order to have such Subsidiary guarantee the Obligations in
accordance with the terms of the Credit Documents, (ii) promptly, to the extent
permitted by Contractual Obligations existing on the Closing Date, (I) execute
and deliver to Administrative Agent such amendments to the Security Documents as
Administrative Agent deems necessary or advisable in order to grant to
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in the Equity Interests and debt securities of such new
Subsidiary which are owned by Borrower or any Subsidiary and required to be
pledged pursuant to the Security Agreement, (II) deliver to Administrative Agent
the certificates representing such Equity Interests and debt securities,
together with (A) in the case of such Equity Interests, undated stock powers
endorsed in blank, and (B) in the case of such debt securities, endorsed in
blank, in each case executed and delivered by a Responsible Officer of Borrower
or such Subsidiary, as the case may be, (III) to the extent permitted by
Contractual Obligations existing on the Closing Date, cause such new Subsidiary
to take such actions necessary or advisable to grant to Administrative Agent for
the benefit of the Creditors a perfected first priority security interest in the
collateral described in the Security Agreement with respect to such new
Subsidiary, including, without limitation, the filing of Uniform Commercial Code
financing statements in such jurisdictions as may be required by the Security
Agreement or by law or as may be reasonably requested by Administrative Agent,
and (IV) if reasonably requested by Administrative Agent, deliver to
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to Administrative Agent.
9.24. Limitation on Issuance or Dispositions of Equity Interests of
Subsidiaries. Neither Borrower nor any Subsidiary shall effect the Disposition
of any Equity Interests of any Subsidiary unless all Equity Interests owned by
Borrower and the Subsidiaries are sold pursuant thereto in accordance with the
Credit Documents, upon which sale the Guarantee by such Subsidiary shall be
automatically deemed to be released.
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Section 10. Events of Default. If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
(a) (i) Borrower shall default in the payment when due (whether at stated
maturity upon prepayment or repayment or acceleration or otherwise) of any
principal of any Term Loan, or (ii) Borrower shall default in the payment
when due of interest on any Term Loan or any fee or any other amount payable
by it hereunder or under any other Credit Document when due and such default
under this clause (ii) shall have continued unremedied for five or more
Business Days; or
(b) (i) Any Company shall default in the payment when due of any
principal of or interest on any of its Indebtedness (other than the Terms
Loans) aggregating $2.0 million or more, beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created, after giving effect to any consents or waivers relating thereto
obtained before the expiration of any such period of grace; or (ii) any
Company fails to perform or observe any other term, condition or covenant,
or any other event shall occur or condition exist under any note, agreement,
indenture or other document evidencing or relating to any Indebtedness
aggregating $2.0 million or more if the effect of such event (after giving
effect to any consents or waivers relating thereto obtained before the
expiration of any such period of grace) is to cause, or to permit the holder
or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause (with or without notice or passage of time or
both), such Indebtedness to become due, or to be prepaid in full (whether by
redemption, purchase, offer to purchase or otherwise), prior to its stated
maturity; or
(c) Any representation or warranty made or deemed made in any Credit
Document (or in any modification or supplement thereto) by any Company or in
any certificate furnished to any Creditor pursuant to the provisions
thereof, shall prove to have been incorrect, false or misleading as of the
time made, deemed made or furnished in any material respect; or
(d) Any Obligor shall default in the performance of any of its
obligations under any of Sections 9.01(f), 9.06 through 9.11, 9.14, 9.15 or
9.17 through 9.24; or Borrower shall default in the performance of its
obligations under Section 9.01(e) or (k) and such default shall continue
unremedied for at least seven Business Days; or any Obligor shall default in
the performance of any of its other obligations in this Agreement or the
Security Agreement and such default shall continue unremedied for a period
of at least thirty days after written notice thereof to such Obligor and
Borrower by Administrative Agent or the Majority Lenders; or
(e) Any Company shall fail generally to pay its debts as such debts
become due; or
(f) Any Company shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its Property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence or consents to
any Insolvency Proceeding, (iv) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or
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readjustment of debts, (v) fail to controvert within 30 days or in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary Insolvency Proceeding, or (vi) take any
corporate action for the purpose of effecting any of the foregoing; or
(g) (i) Any Insolvency Proceeding is commenced or filed against any
Company, or any writ, judgment, warrant of attachment, execution or similar
process is issued or levied against any Company, and either (1) such
proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded, within 30 days after commencement, filing or levy
or (2) such proceeding shall not be actively contested by such Company; (ii)
any Company admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under
non-U.S. law) is ordered in any Insolvency Proceeding; (iii) any Company
acquiesces in the appointment of a receiver, receiver and manager, trustee,
custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar person for itself or a substantial portion of
its Property or business; or (iv) an order of relief against any Company
shall be entered in any Insolvency Proceeding; or
(h) A final judgment or judgments for the payment of money in excess of
$2.0 million in the aggregate (exclusive of judgment amounts to the extent
covered by insurance) shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against any
Company and the same shall not be discharged (or provision shall not be made
for such discharge), vacated or bonded pending appeal, or a stay of
execution thereof shall not be procured, within 30 days from the date of
entry thereof and such Company shall not, within said period of 30 days, or
such longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed during
such appeal; or
(i) An ERISA Event or noncompliance with respect to Foreign Plans shall
have occurred that, in the opinion of the Majority Lenders when taken
together with all other ERISA Events and noncompliance with respect to
Foreign Plans that have occurred, is reasonably likely to result in
liability of any Company in an aggregate amount exceeding $1.0 million; or
(j) Any Change of Control shall occur; or
(k) Any Guarantee ceases to be in full force and effect (other than in
connection with any merger, consolidation, disposition or liquidation of a
Guarantor permitted under this Agreement) or any of the Guarantors
repudiates, or attempts to repudiate, any of its obligation under any of the
Guarantees; or
(l) Any Credit Document or any material provision thereof shall at any
time and for any reason be declared by a court of competent jurisdiction to
be null and void, or a Proceeding shall be commenced by any Company or any
other Person, or by any Governmental Authority, seeking to establish the
invalidity or unenforceability thereof (exclusive of ques-
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tions of interpretation of any provision thereof), or any Company shall
repudiate or deny in writing that it has any liability or obligation for the
payment of principal or interest or other obligations purported to be
created under any Credit Document; or
(m) Any non-monetary judgment, order or decree is entered against any
Company which does or would reasonably be likely to have a Material Adverse
Effect, and there shall be any period of 45 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect; or
(n) The Security Agreement after delivery thereof by any Obligor at any
time shall cease to be in full force and effect, or ceases to give
Administrative Agent the Liens, rights, powers and privileges purported to
be created thereby, in favor of Administrative Agent on behalf of the
Creditors, superior to and prior to the rights of all third Persons other
than the holders of Prior Liens and subject to no other Liens except as
expressly permitted thereby, or any judgment creditor having a Lien against
any Collateral commences legal action to foreclose such Lien or otherwise
exercise its remedies against any Collateral or any Company fails to comply
with or to perform any material obligation or agreement under the Security
Agreement within ten days after being requested by Administrative Agent or
any Lender; or
(o) The subordinated provisions relating to any Subordinated Debt (the
"Subordination Provisions") shall fail in any material respect to be
enforceable by the Lenders (which have not effectively waived the benefits
thereof) in accordance with the terms thereof, or any Obligation shall fail
to constitute Senior Indebtedness (as defined in any Subordinated Debt), or
any Obligor shall, directly or indirectly, disavow or contest in any manner
any of the Subordination Provisions;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (e), (f) or (g) of this Section 10, Administrative Agent may, and upon
written direction of the Majority Lenders shall, by notice to Borrower,
terminate the Term Loan Commitments and/or declare the principal amount then
outstanding of, and the accrued interest on, the Term Loans and all other
amounts payable by Borrower hereunder and under the Term Notes (including any
amounts payable under Section 5.05 or 5.06) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by Borrower, reduce any claim to judgment, take any other
action permitted by law and/or take any action permitted to be taken by the
Security Agreement during the existence of an Event of Default; and (2) in the
case of the occurrence of an Event of Default referred to in clause (e), (f) or
(g) of this Section 10, the Term Loan Commitments shall automatically be
terminated and the principal amount then outstanding of, and the accrued
interest on, the Term Loans and all other amounts payable by Borrower hereunder
and under the Term Notes (including any amounts payable under Section 5.05 or
5.06) shall automatically become immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by Borrower.
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Section 11. Agents
11.01. General Provisions. Each of the Lenders and Agents hereby
irrevocably appoints Administrative Agent as its agent and authorizes
Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to Administrative Agent by the terms hereof and of the
Security Agreement, together with such actions and powers as are reasonably
incidental thereto. Administrative Agent agrees to give promptly to each Lender
a copy of each notice or other document received by it pursuant to any Credit
Document (other than any that are required to be delivered to the Lenders by any
Obligor).
The Lender or other financial institution serving as any Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not such Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with any Company or other Affiliate thereof as if it
were not such Agent hereunder.
No Agent shall have any duties or obligations except those expressly set
forth herein. Without limiting the generality of the foregoing, (a) no Agent
shall be subject to any fiduciary or other implied duties, regardless of whether
a Default has occurred and is continuing, (b) no Agent shall have any duty to
take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that such Agent is
required to exercise in writing by the Majority Lenders (or such other number or
percentage of the Lenders as shall be required by Section 12.04), and (c) except
as expressly set forth herein, no Agent shall have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to any
Company that is communicated to or obtained by the financial institution serving
as such Agent or any of its Affiliates in any capacity. No Agent shall be liable
for any action taken or not taken by it with the consent or at the request of
the Majority Lenders (or such other number or percentage of the Lenders as shall
be required by Section 12.04) or in the absence of its own gross negligence or
willful misconduct. No Agent shall be deemed to have knowledge of any Default
unless and until written notice thereof is given to Administrative Agent and
such Agent by Borrower or a Lender, and no Agent shall be responsible for or
have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with any Credit Document, (ii) the
contents of any certificate, report or other document delivered under any Credit
Document or in connection therewith, (iii) the performance or observance of any
of the covenants, agreements or other terms or conditions set forth in any
Credit Document, (iv) the validity, enforceability, effectiveness or genuineness
of any Credit Document or any other agreement, instrument or document, (v) the
satisfaction of any condition set forth in Section 7 or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to such
Agent or (vi) making a determination that any condition precedent set forth in
Section 7 that is to be to such Agent's satisfaction is satisfied.
Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. Each Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper
<PAGE> 81
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Person, and shall not incur any liability for relying thereon. Each Agent may
consult with legal counsel (who may be counsel for Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts. Each Agent may deem and treat the payee of any
Term Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with such
Agent. Each Agent shall be fully justified in failing or refusing to take any
action under any Credit Document unless it shall first receive such advice or
concurrence of the Majority Lenders (or, if so specified by this Agreement, all
Lenders or such other number or percentage of the Lenders as shall be required
by Section 12.04) as it deems appropriate or it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action
(it being understood that this provision shall not release Administrative Agent
from performing any action with respect to Borrower expressly required to be
performed by it pursuant to the terms hereof) under this Agreement. Each Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under the Credit Documents in accordance with a request of the Majority Lenders
(or, if so specified by this Agreement, all Lenders), and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Term Loans.
Each Agent may perform any and all of its duties and exercise its rights
and powers by or through any one or more sub-agents appointed by such Agent and
reasonably acceptable to Borrower. Each Agent and any such sub-agent may perform
any and all of its duties and exercise its rights and powers through their
respective Affiliates, directors, officers, employees, agents and advisors
("Related Parties"). The exculpatory provisions of the preceding paragraphs
shall apply to any such sub-agent and to the Related Parties of each Agent and
any such sub-agent, and shall apply to their respective activities in connection
with the syndication of the credit facilities provided for herein as well as
activities of such Agent.
Subject to the appointment and acceptance of a successor Agent as
provided in this paragraph, any Agent may resign at any time by notifying the
Lenders (with respect to Administrative Agent only) and Borrower. Upon any such
resignation, the Majority Lenders shall have the right to appoint a successor
which, so long as no Event of Default is continuing, shall be reasonably
acceptable to Borrower. If no successor shall have been so appointed by the
Majority Lenders and shall have accepted such appointment within 30 days after
the retiring Agent gives notice of its resignation, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent which shall be a bank with
an office in New York, New York, or an Affiliate of any such bank which, so long
as no Event of Default is continuing, shall be reasonably acceptable to
Borrower. Upon the acceptance of its appointment as Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by Borrower to a successor Agent shall be the same as those payable to
its predecessor unless otherwise agreed between Borrower and such successor.
After Agent's resignation hereunder, the provisions of this Section 11 shall
continue in effect for the benefit of such retiring Agent, its sub-agents and
their respective Related Parties in respect of any actions taken or omitted to
be taken by any of them while it was acting as such Agent.
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Each Lender acknowledges that it has, independently and without reliance
upon any Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon any Agent or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any related agreement or any document furnished hereunder
or thereunder. No Agent shall be deemed a trustee or other fiduciary on behalf
of any party.
11.02. Indemnification. Each Lender agrees to indemnify and hold harmless
each Agent (to the extent not reimbursed under Section 12.03, but without
limiting the obligations of any Obligor under Section 12.03), ratably in
accordance with the aggregate principal amount of the respective Term Loan
Commitments and Term Loans, for any and all liabilities (including pursuant to
any Environmental Law), obligations, losses, damages, penalties, actions,
judgments, deficiencies, suits, costs, expenses (including reasonable attorney's
fees) or disbursements of any kind and nature whatsoever that may be imposed on,
incurred by or asserted against such Agent (including by any Lender) arising out
of or by reason of any investigation in or in any way relating to or arising out
of any Credit Document or any other documents contemplated by or referred to
therein for any action taken or omitted to be taken by such Agent under or in
respect of any Credit Document or other such documents or the transactions
contemplated thereby (including the costs and expenses that the Obligors are
obligated to pay under Section 12.03 or the enforcement of any of the terms
hereof or thereof or of any such other documents; provided, however, that no
Lender shall be liable for any of the foregoing to the extent they are
determined by a court of competent jurisdiction in a final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of the
party to be indemnified. The agreements set forth in this Section 11.02 shall
survive the payment of all Loans and other obligations hereunder and shall be in
addition to and not in lieu of any other indemnification agreements contained in
any other Credit Document.
11.03. Consents Under Other Credit Documents. Except as otherwise
provided in this Agreement and the other Credit Documents, Administrative Agent
may, with the prior consent of the Majority Lenders (but not otherwise), consent
to any modification, supplement or waiver under any of the other Credit
Documents.
Section 12. Miscellaneous
12.01. Waiver. No failure on the part of any Creditor to exercise and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under any Credit Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under any
Credit Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
12.02. Notices. All notices, requests and other communications provided
for herein and under the Security Agreement (including any modifications of, or
waivers, requests or consents
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under, this Agreement) shall be given or made in writing (including by
facsimile) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof (or any Guarantor, as so
specified for Borrower) or, as to any party, at such other address as shall be
designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by facsimile or personally delivered or, in the case
of a mailed notice, upon receipt, in each case given or addressed as aforesaid.
Any Notice of Borrowing or Notice of Continuation/Conversion shall be deemed to
have been received when actually received.
12.03. Expenses, Indemnification, Etc. (a) The Obligors, jointly and
severally, agree to pay or reimburse:
(i) Each Agent for all of their respective reasonable out-of-pocket
costs and expenses (including the reasonable fees and expenses of Cahill
Gordon & Reindel or other counsel to Agents selected by Agents (and all
local counsel reasonably deemed necessary by Agents)) in connection with (1)
the negotiation, preparation, execution and delivery of the Credit Documents
and the extension of credit hereunder, (2) the negotiation or preparation of
any modification, supplement or waiver of any of the terms of any Credit
Document (whether or not consummated or effective) and (3) the syndication
of the Term Loans and Term Loan Commitments; and
(ii) each of the Lenders and each Agent for all their respective
reasonable out-of-pocket costs and expenses (including the reasonable fees
and expenses of legal counsel) in connection with (1) any enforcement or
collection proceedings resulting from any Default, including all manner of
participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y)
judicial or regulatory proceedings and (z) workout, restructuring or other
negotiations or proceedings (whether or not the workout, restructuring or
transaction contemplated thereby is consummated), (2) the enforcement of
this Section 12.03 and (3) any documentary taxes.
(b) The Obligors, jointly and severally, hereby agree to indemnify each
Creditor and their respective Affiliates, directors, trustees, officers,
employees and agents (each, an "Indemnitee") from, and hold each of them
harmless against, and that no Indemnitee will have any liability for, any and
all Losses incurred by any of them (including any and all Losses incurred by any
Agent to any Lender, whether or not any Creditor is a party thereto) directly or
indirectly arising out of or by reason of or relating to the negotiation,
execution, delivery, performance, administration or enforcement of any Credit
Document, any of the transactions contemplated by the Credit Documents
(including the Transactions), any breach by any Company of any representation,
warranty, covenant or other agreement contained in any Credit Document in
connection with any of the Transactions, the use or proposed use of any of the
Term Loans, but excluding any such Losses to the extent finally determined by a
court of competent jurisdiction in a final and nonappealable judgment to have
arisen solely from the gross negligence or bad faith of the Indemnitee.
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Without limiting the generality of the foregoing, the Obligors, jointly
and severally, will indemnify each Creditor and each other Indemnitee from, and
hold each Creditor and each other Indemnitee harmless against, any Losses
described in the preceding sentence arising under any Environmental Law as a
result of (A) the past, present or future operations of any Company (or any
predecessor in interest to any Company), (B) the past, present or future
condition of any site or facility owned, operated, leased or used at any time by
any Company (or any such predecessor in interest), or (C) any Release or
threatened Release of any Hazardous Materials at, on, under or from any such
site or facility; provided, however, that the indemnity hereunder shall be
subject to the exclusions from indemnification set forth in the preceding
sentence.
To the extent that the undertaking to indemnify and hold harmless set
forth in this Section 12.03 or any other provision of any Credit Document
providing for indemnification is unenforceable because it is violative of any
law or public policy or otherwise, the Obligors, jointly and severally, shall
contribute the maximum portion that each of them is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all indemnified
liabilities incurred by any of the Persons indemnified hereunder.
The Obligors also agree that no Indemnitee shall have any liability
(whether direct or indirect, in contract or tort or otherwise) for any Losses to
any Obligor or any Obligor's security holders or creditors resulting from,
arising out of, in any way related to or by reason of any matter referred to in
any indemnification or expense reimbursement provisions set forth in any Credit
Document, except to the extent that any Loss is determined by a court of
competent jurisdiction in a final nonappealable judgment to have resulted from
the gross negligence or bad faith of such Indemnitee.
The Obligors agree that, without the prior written consent of
Administrative Agent, Syndication Agent and the Majority Lenders which consent
shall not be unreasonably withheld, no Obligor will settle, compromise or
consent to the entry of any judgment in any pending or threatened Proceeding in
respect of which indemnification is reasonably likely to be sought under the
indemnification provisions of this Section 12.03 (whether or not any Indemnitee
is an actual or potential party to such Proceeding), unless such settlement,
compromise or consent includes an unconditional written release of each
Indemnitee from all liability arising out of such Proceeding and does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of any Indemnitee and does not involve any payment of money or
other value by any Indemnitee or any injunctive relief or factual findings or
stipulations binding on any Indemnitee.
12.04. Amendments, Etc. (i) No provision of any Credit Document may be
amended, modified or supplemented except by an instrument in writing signed by
the Obligors party thereto and the Majority Lenders, or by the Obligors party
thereto and Administrative Agent acting with the written consent of the Majority
Lenders, and no provision of any Credit Document may be waived except by an
instrument in writing signed by the Obligors party thereto and the Majority
Lenders, or by the Obligors party thereto and Administrative Agent acting with
the written consent of the Majority Lenders; provided, however, that:
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(a) no amendment, modification, supplement or waiver shall, unless by an
instrument signed by each Lender or by Administrative Agent acting with the
written consent of each Lender (with the consent of Lenders having
Obligations directly affected thereby in the case of clauses (I), (II) or
(IV) (it being understood that the consent of no other Lender or Agent is
needed in each such case)): (I) extend the scheduled final maturity of any
Term Loan or Term Note (other than pursuant to Section 3.01(b)), or reduce
the rate of interest (other than any waiver of any increase in the interest
rate applicable to any of the Term Loans pursuant to clause (b) of Section
3.02) or fees thereon, or extend the time of payment of interest or fees
thereon, or reduce the principal amount thereof, or make any change to the
definition of Applicable Margin or any defined term used therein in the
context of being used therein in each case if the effect thereof would be to
reduce the rate of interest on any Term Loan (it being understood that
increases in the rate of interest to be paid to any Lender shall require
only the consent of the Majority Lenders), (II) extend the final maturity of
any of the Term Loan Commitments (or reinstate any Commitment terminated
pursuant to Section 10) or amend Section 2.04(a), (III) change the currency
in which any Obligation is payable, (IV) amend the terms of this Section
12.04 or clause (iv) of Section 12.06(b), Section 4.07, 5 or 11.03, (V)
reduce the percentages specified in the definition of the term "Majority
Lenders" or "Supermajority Lenders" or amend any provision of any Credit
Document requiring the consent of all the Lenders or reduce any other
percentage of the Lenders required to make any determinations or waive any
rights hereunder or to modify any provision hereof, (VI) release any
Guarantor from its obligations under Section 6 (unless permitted by this
Agreement), (VII) consent to the assignment or transfer by any Obligor of
any of its rights and obligations under any Credit Document except in a
transaction permitted by Section 9.06, (VIII) release all or substantially
all the Collateral or terminate the Lien under any Credit Document in
respect of all or substantially all the Collateral (except as permitted by
the Credit Documents) or agree to additional obligations (other than the
Obligations and any other extensions of credit under this Agreement
consented to by the Majority Lenders) being secured by the Collateral, or
(IX) amend Section 12.03 or any other indemnification and expense
reimbursement provision set forth in any Credit Document (it being
understood that, notwithstanding the foregoing or any other provision hereof
to the contrary, any prepayment required by Section 2.10(a) may be waived or
amended by the Majority Lenders);
(b) no such amendment or waiver shall increase the Term Loan Commitments
of any Lender over the amount thereof then in effect without the consent of
such Lender (it being understood that amendments or waivers of conditions
precedent, covenants or Defaults shall not constitute an increase of the
Commitment of any Lender);
(c) any modification or supplement of or waiver with respect to Section
11 which affects any Agent in its capacity as such shall require the consent
of such Agent;
(d) the consent of the Supermajority Lenders shall be required to effect
any amendment of the provisions of Section 3.01(b) or of any defined term
used therein in the context of being used therein and the consent(it being
understood that no consent of any Lender need be
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obtained to effect the extension of the Final Maturity Date in accordance
with the term of 3.01(b)); and
(e) no consent of any Lender need be obtained to effect any amendment of
any Credit Document necessary to comply with Section 9.12 or Section 9.20.
(ii) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by
Section 12.04(i)(a) (other than clause (I) of such section), the consent of the
Majority Lenders is obtained but the consent of one or more of such other
Lenders whose consent is required is not obtained, then Borrower shall have the
right to replace one or more of such non-consenting Lender or Lenders (so long
as all non-consenting Lenders are so replaced) with one or more Replacement
Lenders pursuant to Section 2.11 so long as at the time of such replacement each
such Replacement Lender consents to the proposed change, waiver, discharge or
termination; provided, however, that Borrower shall not have the right to
replace a Lender solely as a result of the exercise of such Lender's rights (and
the withholding of any required consent by such Lender) pursuant to clause (I)
of Section 12.04(i)(a).
(iii) Notwithstanding anything herein to the contrary, with the consent
of the Majority Lenders, other additional extensions of credit pursuant to this
Agreement may be included in the determination of the Majority Lenders without
notice to or consent of any other Lender or Agent on substantially the same
basis as the Term Loan Commitments (and related extensions of credit) are
included on the Closing Date.
12.05. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
12.06. Assignments and Participations. (a) No Obligor may assign its
respective rights or obligations hereunder or under the Term Notes or any other
Credit Document without the prior written consent of all of the Lenders.
(b) Subject to the terms of the Syndication Letter, each Lender may
assign to any Eligible Person any of its Term Loans its Term Note, and its Term
Loan Commitments (but only with the consent (which shall not be unreasonably
withheld, delayed or conditioned) of Lead Arranger); provided, however, that (i)
no consent of Lead Arranger shall be required in the case of any assignment to
another Lender or any Lender's Affiliate or an Approved Fund of any Lender (in
which case, the assignee and assignor Lenders shall give notice of the
assignment to Lead Arranger); (ii) no consent of Lead Arranger need be obtained
if any Event of Default shall have occurred and be continuing or if Lead
Arranger, in consultation with Borrower, determine that such assignment is
necessary to achieve a successful syndication; (iii) each assignment, other than
to a Lender or any Lender's Affiliate or an Approved Fund of any Lender and
other than any assignment effected by any Agent or any of their respective
Affiliates in connection with the syndication of the Term Loan Commitments
and/or Term Loans or otherwise, shall be in an aggregate amount of at least
$500,000 (unless the assignor's Term Loans and Term Loan Commitments are reduced
to $0 or unless Borrower and Lead Arranger otherwise consent) and (iv) in no
event may any such assignment be made to any Obligor or
<PAGE> 87
-81-
any of its Affiliates without consent of all Lenders. Any assignment of a Term
Loan shall be effective only upon appropriate entries with respect thereto being
made in the Register (and each Term Note shall expressly so provide). Any
assignment or transfer of a Term Loan shall be registered on the Register only
upon surrender for registration of assignment or transfer of the Term Note
evidencing such Term Loan (if a Term Note was issued in respect thereof),
accompanied by an instrument in writing substantially in the form of Exhibit E,
and upon consent thereto by Lead Arranger to the extent required above (none of
which consents to be unreasonably withheld or delayed), one or more new Term
Notes (if requested by the New Lender) in the same aggregate principal amount
shall be issued to the designated assignee and the old Term Notes shall be
returned by Administrative Agent to Borrower marked "cancelled". Upon execution
and delivery by the assignee to Lead Arranger of an instrument in writing
substantially in the form of Exhibit E, and upon consent thereto by Lead
Arranger to the extent required above (none of which consents to be unreasonably
withheld or delayed), upon appropriate entries being made in the Register the
assignee shall have, to the extent of such assignment (unless otherwise provided
in such assignment with the consent of Administrative Agent), the obligations,
rights and benefits of a Lender hereunder holding the Term Loan Commitments,
Term Loans (or portions thereof) assigned to it (in addition to the Term Loan
Commitments, and Term Loans, if any, theretofore held by such assignee) and the
assigning Lender shall, to the extent of such assignment, be released from the
Term Loan Commitments (or portion thereof) so assigned. Upon any such assignment
(other than to a Lender or any Affiliate of a Lender or any Approved Fund and
other than any assignment by Lead Arranger or any of its Affiliates) the
assignee Lender shall pay a fee of $2,000 to Administrative Agent. Upon any such
assignment, certain rights and obligations of the assigning Lender shall survive
as set forth in Section 12.07. Each assignment shall be made pursuant to an
agreement substantially in the form of Exhibit J.
(c) A Lender may sell or agree to sell to one or more other Persons a
participation in all or any part of any Term Loans held by it, or in its Term
Loan Commitments, in which event each purchaser of a participation (a
"Participant") shall be entitled to the rights and benefits of the provisions of
Section 5 (provided, however, that no Participant shall be entitled to receive
any greater amount pursuant to Section 5 than the transferor Lender would have
been entitled to receive in respect of the participation effected by such
transferor Lender had no participation occurred) with respect to its
participation in such Term Loans and Term Loan Commitments as if such
Participant were a "Lender" for purposes of said Section, but, except as
otherwise provided in Section 4.07(c), shall not have any other rights or
benefits under any Credit Document (the Participant's rights against such Lender
in respect of such participation to be those set forth in the agreements
executed by such Lender in favor of the Participant). All amounts payable by
Borrower to any Lender under Section 5 in respect of Term Loans and its Term
Loan Commitments shall be no greater than the amount that would have applied if
such Lender had not sold or agreed to sell any participation in such Term Loans
and Term Loan Commitments, and as if such Lender were funding each of such Term
Loan and Term Loan Commitments in the same way that it is funding the portion of
such Term Loan and Term Loan Commitments in which no participations have been
sold. In no event shall a Lender that sells a participation agree with the
Participant to take or refrain from taking any action hereunder or under any
other Credit Document, except that such Lender may agree with the Participant
that it will not, without the consent of the Participant, agree to any
modification or amendment set forth in subclauses (I),
<PAGE> 88
-82-
(II), (III) or (VIII) of clause (a) of the proviso to Section 12.04 to the
extent such Lender's consent is required therefor.
(d) In addition to the assignments and participations permitted under the
foregoing provisions of this Section 12.06, any Lender may assign and pledge all
or any portion of its Term Loans and its Term Notes to any United States Federal
Reserve Bank as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank and, in the case of a Lender that is an investment
fund, any such Lender may assign or pledge all or any portion of its Term Loans
and its Term Notes to its trustee in support of its obligations to its trustee,
without notice to or consent of Borrower or any Agent. No such assignment shall
release the assigning Lender from its obligations hereunder.
(e) A Lender may furnish any information concerning any Company in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants) subject, however, to and so
long as the recipient agrees to be bound by the provisions of Section 12.11. In
addition, each Agent may furnish any information concerning any Obligor or any
of its Affiliates in such Agent's possession to any Affiliate of such Agent,
subject, however, to the provisions of Section 12.11. The Obligors shall assist
any Lender in effectuating any assignment or participation pursuant to this
Section 12.06 (including during syndication) in whatever manner such Lender
reasonably deems necessary, including participation in meetings with prospective
transferees.
(f) Borrower agrees to, promptly, upon the request of Lead Arranger, (a)
provide, and cause its affiliates and advisors to provide, to Lead Arranger all
information reasonably deemed necessary by Lead Arranger to complete
successfully the syndication, including information and projections (including
updated projections) contemplated hereby, (b) assist, and cause its affiliates
and advisors to assist, Lead Arranger in the preparation of a Confidential
Information Memorandum and other marketing materials to be used in connection
therewith, and (c) make available at reasonable times representatives of
Borrower. Borrower also agrees to use its reasonable best efforts to ensure that
Lead Arranger's syndication efforts benefit materially from its (and its
affiliates') existing lending relationships. Borrower agrees not to issue or
syndicate or announce the issuance or syndication of any credit facility or debt
security by Borrower or any of its subsidiaries during the syndication of the
Term Facility. The provisions of this paragraph shall survive through completion
of syndication of the Term Facility (as determined by Lead Arranger in its sole
discretion), except that the provisions of the preceding sentence shall be in
effect only until the 90th day after the Closing Date.
12.07. Survival. The obligations of the Obligors under Sections 5.01,
5.05, 5.06 and 12.03, the obligations of each Guarantor under Section 6.03, and
the obligations of the Lenders under Sections 5.06 and 11.02, shall survive the
repayment of the Term Loans and the termination of the Term Loan Commitments
and, in the case of any Lender that may assign any interest in its Term Loan
Commitments or Term Loans hereunder, shall (to the extent relating to such time
as it was a Lender) survive the making of such assignment, notwithstanding that
such assigning Lender may cease to be a "Lender" hereunder. In addition, each
representation and warranty made, or deemed to be made by a notice of any
extension of credit, herein or pursuant hereto shall be considered to have
<PAGE> 89
-83-
been relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the Term Notes and the making of any extension of
credit hereunder, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that Administrative Agent or any Lender may
have had notice or knowledge of any Default or incorrect representation or
warranty.
12.08. Captions. The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
12.09. Counterparts; Interpretation; Effectiveness. This Agreement may be
executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement, the Fee
Letter, the Syndication Letter and the Engagement Letter constitute the entire
contract among the parties relating to the subject matter hereof and supersede
any and all previous agreements and understandings, oral or written, relating to
the subject matter hereof, other than the Fee Letter and the Engagement Letter,
which are not superseded and survive. This Agreement shall become effective when
the Closing Date shall have occurred and this Agreement shall have been executed
and delivered by the Obligors and each Agent and when Administrative Agent shall
have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
12.10. Governing Law; Submission to Jurisdiction; Waivers; Etc. Each
Credit Document shall be governed by, and construed in accordance with, the law
of the State of New York, without regard to the principles of conflicts of laws
thereof (except in the case of the other Credit Documents, to the extent
otherwise expressly stated therein). Each Obligor hereby irrevocably and
unconditionally: (I) submits for itself and its Property in any Proceeding
relating to any Credit Document to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Supreme Court of the State of New York sitting in New York
County, the courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof; (II) consents that any such
Proceeding may be brought in any such court and waives trial by jury and any
objection that it may now or hereafter have to the venue of any such Proceeding
in any such court or that such Proceeding was brought in an inconvenient court
and agrees not to plead or claim the same; (III) agrees that service of process
in any such Proceeding may be effected by mailing a copy thereof by registered
or certified mail (or any substantially similar form of mail), postage prepaid,
to Borrower at its address set forth on the signature page hereto or at such
other address of which Administrative Agent shall have been notified pursuant
thereto; and (IV) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction.
12.11. Confidentiality. Each Lender agrees to keep confidential
information obtained by it pursuant to the Credit Documents confidential in
accordance with such Lender's custom-
<PAGE> 90
-84-
ary practices and agrees that it will only use such information in connection
with the transactions contemplated hereby and not disclose any of such
information other than (a) to such Lender's employees, representatives,
directors, attorneys, auditors, agents, professional advisors, trustees or
affiliates who are advised of the confidential nature thereof or to any direct
or indirect contractual counterparty in swap agreements or such contractual
counterparty's professional advisor (so long as such contractual counterparty or
professional advisor to such contractual counterparty agrees to be bound by the
provision of this Section 12.11, such Lender being liable for any breach of
confidentiality by any Person described in this clause (a)), (b) to the extent
such information presently is or hereafter becomes available to such Lender on a
non-confidential basis from any source that is in the public domain at the time
of disclosure, (c) to the extent disclosure is required by any Law, subpoena or
judicial order or process (provided that notice of such requirement or order
shall be promptly furnished to Borrower unless such notice is legally
prohibited) or requested or required by bank, securities, insurance or
investment company regulations or auditors or any administrative body or
commission (including the Securities Valuation Office of the NAIC) to whose
jurisdiction such Lender may be subject, (d) to any rating agency to the extent
required in connection with any rating to be assigned to such Lender, (e) to
assignees or participants or prospective assignees or participants who agree to
be bound by the provisions of this Section 12.11, (f) to the extent required in
connection with any litigation between any Obligor and any Creditor with respect
to the Term Loans or any Credit Document or (g) with Borrower's prior written
consent.
12.12. Independence of Representations, Warranties and Covenants. The
representations, warranties and covenants contained herein shall be independent
of each other and no exception to any representation, warranty or covenant shall
be deemed to be an exception to any other representation, warranty or covenant
contained herein unless expressly provided, nor shall any such exception be
deemed to permit any action or omission that would be in contravention of
applicable law. the representation and warranties contained herein will be
terminated upon the repayment in full of all Obligations and termination of all
Commitments hereunder.
12.13. Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement.
[Signature Pages Follow]
<PAGE> 91
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
AETHER SYSTEMS LLC
By: /s/ DAVID C. REYMANN
---------------------------
Name: David C. Reymann
Title: Chief Financial Officer
Address for Notices:
11460 Cronridge Drive
Owings Mills, MD 21117
Contact Person: David C. Reymann
Facsimile No.: (410) 654-6554
Telephone No.: (410) 654-6400
With a copy to:
Mark A. Dewire
Wilmer Cutler & Pickering
2445 M Street, NW
Washington, DC 20037-1420
Facsimile No.: (202) 663-6363
Telephone No.: (202) 663-6000
<PAGE> 92
S-2
GUARANTORS:
Aether Systems, Inc.
Aether OpenSky Investments LLC*
Mobeo, Inc.,
Each as a Guarantor
By: /s/ DAVID C. REYMANN
---------------------------
Name: David C. Reymann
Title: Chief Financial Officer
*By: Aether Systems LLC
<PAGE> 93
S-3
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED,
as Lead Arranger, Syndication Agent and
Administrative Agent
By: /s/ JACK LUCENT
--------------------------
Name: Jack Lucent
Title: Director
Address for Notices:
World Financial Center
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
South Tower
225 Liberty Street
New York, New York 10080-6114
Attention: Jack Lucid
Facsimile No.: (212) 449-8230
Telephone No.: (212) 449-8221
<PAGE> 94
S-4
LENDERS
MERRILL LYNCH CAPITAL CORPORATION,
as a Lender
By: /s/ JACK LUCENT
----------------------------
Name: Jack Lucent
Title: Vice President
Lending Office for all Loans:
World Financial Center
c/o Merrill Lynch & Co.
North Tower - 7th Floor
250 Vesey Street
New York, New York 10281-1307
Address for Notices:
World Financial Center
c/o Merrill Lynch & Co.
North Tower
250 Vesey Street
New York, New York 10281-1316
Attention: Jack Lucid
Facsimile No.: (212) 449-8230
Telephone No.: (212) 449-8221
<PAGE> 95
ANNEX A
TERM LOAN COMMITMENTS
Allocation
-------------------------------------- -----------------------------
Institution Term Loan Commitments
-------------------------------------- -----------------------------
Merrill Lynch Capital Corporation $17,000,000
-----------------------------
Total $17,000,000
=============================
<PAGE> 1
EXHIBIT 10.19
AETHER SYSTEMS, INC.
1999 EQUITY INCENTIVE PLAN
PURPOSE Aether Systems, Inc., a Delaware corporation (the
"Company"), wishes to recruit, reward, and retain
employees, outside directors, and other service
providers. To further these objectives, the Company
hereby sets forth the Aether Systems, Inc. 1999
Equity Incentive Plan (the "Plan"), effective as of
October 1, 1999 (the "Effective Date"), to provide
options ("Options") to employees, outside directors,
and other service providers of the Company and its
subsidiaries to purchase shares of the Company's
common stock (the "Common Stock").
PARTICIPANTS All Employees of the Company and any Eligible
Subsidiaries are eligible for Options under this
Plan. Eligible employees become "optionees" when the
Administrator grants them an option under this Plan.
The Administrator may also grant options to
consultants and certain other service providers. The
term optionee also includes, where appropriate, a
person authorized to exercise an Option in place of
the original recipient.
Employee means any person employed as a common law
employee of the Company or an Eligible Subsidiary.
ADMINISTRATOR The Administrator will be the Compensation Committee
of the Board of Directors, unless the Board specifies
another committee of the Board, but the Board may
still act under the Plan as though it were the
Compensation Committee.
The Administrator is responsible for the general
operation and administration of the Plan and for
carrying out its provisions and has full discretion
in interpreting and administering the provisions of
the Plan. Subject to the express provisions of the
Plan, the Administrator may exercise such powers and
authority of the Board as the Administrator may find
necessary or appropriate to carry out its functions.
The Administrator may delegate its functions (other
than those described in the GRANTING OF OPTIONS
section) to officers or other employees of the
Company.
The Administrator's powers will include, but not be
limited to, the power to amend, waive, or extend any
provision or limitation of any Option. The
Administrator may act through meetings of a majority
of its members or by unanimous consent.
- --------------------------------------------------------------------------------
Aether Systems, Inc.
1999 Equity Incentive Plan
Page 1 of 17
<PAGE> 2
GRANTING OF Subject to the terms of the Plan, the Administrator
OPTIONS will, in its sole discretion, determine
the persons who receive Options,
the terms of such Options,
the schedule for exercisability (including
any requirements that the optionee or the
Company satisfy performance criteria),
the time and conditions for expiration of the
Option, and
the form of payment due upon exercise.
The Administrator's determinations under the Plan
need not be uniform and need not consider whether
possible recipients are similarly situated.
Options granted to employees may be "incentive stock
options" ("ISOs") within the meaning of Section 422
of the Internal Revenue Code of 1986 (the "Code"), or
the corresponding provision of any subsequently
enacted tax statute, or nonqualified stock options
("NQSOs"), and the Administrator will specify which
form of option it is granting. (If the
Administrator fails to specify the form, it will be
an ISO.) Any options granted to outside directors
must be nonqualified stock options.
Substitutions The Administrator will grant Options in
replacement for any outstanding options with
respect to Aether Technologies International,
L.L.C. held by persons eligible to receive
Options under this Plan. The Administrator
may also grant Options in substitution for
options or other equity interests held by
individuals who become Employees of the
Company or of an Eligible Subsidiary as a
result of the Company's or Subsidiary's
acquiring or merging with the individual's
employer or acquiring its assets. In
addition, the Administrator may provide for
the Plan's assumption of options granted
outside the Plan to persons who would have
been eligible under the terms of the Plan to
receive a grant, including both persons who
provided services to any acquired company or
business and persons who provided services to
the Company or any Subsidiary. If necessary
to conform the Options to the interests for
which they are substitutes, the Administrator
may grant substitute Options under terms and
conditions that vary from those the Plan
otherwise requires.
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Aether Systems, Inc.
1999 Equity Incentive Plan
Page 2 of 17
<PAGE> 3
DATE OF GRANT The Date of Grant will be the date as of which the
Administrator grants an Option to a participant, as
specified in the Administrator's minutes.
EXERCISE PRICE The Exercise Price is the value of the consideration
that an optionee must provide in exchange for one
share of Common Stock. The Administrator will
determine the Exercise Price under each Option and
may set the Exercise Price without regard to the
Exercise Price of any other Options granted at the
same or any other time. The Company may use the
consideration it receives from the optionee for
general corporate purposes.
The Exercise Price per share for NQSOs may not be
less than 100% of the Fair Market Value of a share on
the Date of Grant for grants made after the IPO
Effective Date. For ISOs, the Exercise Price per
share must be at least 100% of the Fair Market Value
(on the Date of Grant) of a share of Common Stock
covered by the Option; provided, however, that if the
Administrator decides to grant an ISO to someone
covered by Code Sections 422(b)(6) and 424(d) (as a
more-than-10%-stock-owner), the Exercise Price must
be at least 110% of the Fair Market Value.
FAIR MARKET Fair Market Value of a share of Common Stock
VALUE for purposes of the Plan will be determined
as follows:
if the Company has no publicly-traded
stock, the Administrator will
determine the Fair Market Value for
purposes of the Plan using any
measure of value it determines in
good faith to be appropriate;
if the Common Stock trades on a
national securities exchange, the
closing sale price on that date;
if the Common Stock does not trade on
any such exchange, the closing sale
price as reported by the National
Association of Securities Dealers,
Inc. Automated Quotation System
("Nasdaq") for such date;
if no such closing sale price
information is available, the
average of the closing bid and asked
prices that Nasdaq reports for such
date; or
if there are no such closing bid and
asked prices, the average of the
closing bid and asked prices as
reported by any other commercial
service for such date.
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Aether Systems, Inc.
1999 Equity Incentive Plan
Page 3 of 17
<PAGE> 4
For any date that is not a trading day, the
Fair Market Value of a share of Common Stock
for such date will be determined by using the
closing sale price or the average of the
closing bid and asked prices, as appropriate,
for the immediately preceding trading day.
The Administrator can substitute a particular
time of day or other measure of "closing sale
price" if appropriate because of changes in
exchange or market procedures.
The Fair Market Value will be treated as
equal to the price established in an IPO for
any Options granted as of the IPO if they are
granted on or before the date on which the
IPO's underwriters price the IPO or granted
on the following day before trading opens in
the Common Stock.
The Administrator has sole discretion to
determine the Fair Market Value for purposes
of this Plan, and all Options are conditioned
on the optionees' agreement that the
Administrator's determination is conclusive
and binding even though others might make a
different and also reasonable determination.
EXERCISABILITY The Administrator will determine the times and
conditions for exercise of each Option.
Options will become exercisable at such times and in
such manner as the Administrator determines and the
Option Agreement indicates; provided, however, that
the Administrator may, on such terms and conditions
as it determines appropriate, accelerate the time at
which the optionee may exercise any portion of an
Option.
If the Administrator does not specify otherwise,
Options will become exercisable as to 25% per year on
each anniversary of the Date of Grant.
No portion of an Option that is unexercisable at an
optionee's termination of employment will thereafter
become exercisable, unless the Option Agreement
provides otherwise, either initially or by amendment.
CHANGE OF Upon a Change of Control (as defined below), all
CONTROL Options will become fully exercisable, unless the
optionee's Option Agreement provides otherwise. A
Change of Control for this purpose means the
occurrence of any one or more of the following events
after the Company's IPO:
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Aether Systems, Inc.
1999 Equity Incentive Plan
Page 4 of 17
<PAGE> 5
(i) sale of all or substantially all of
the assets of the Company to one or
more individuals, entities, or groups
(other than an "Excluded Owner" as
defined below);
(ii) complete or substantially complete
dissolution or liquidation of the
Company;
(iii) a person, entity, or group (other
than an Excluded Owner) acquires or
attains ownership of at least 80% of
the undiluted total voting power of the
Company's then-outstanding securities
eligible to vote to elect members of
the Board ("Company Voting
Securities");
(iv) completion of a merger or
consolidation of the Company with or
into any other entity (other than an
Excluded Owner) unless the holders of
the Company Voting Securities
outstanding immediately before such
completion, together with any trustee
or other fiduciary holding securities
under a Company benefit plan, retain
control because they hold securities
that represent immediately after such
merger or consolidation more than 20%
of the combined voting power of the
then outstanding voting securities of
either the Company or the other
surviving entity or its ultimate parent
(v) the individuals who constitute the
Board immediately before a proxy
contest cease to constitute at least a
majority of the Board (excluding any
Board seat that is vacant or otherwise
unoccupied) immediately following the
proxy contest; or
(vi) during any two year period, the
individuals who constitute the Board at
the beginning of the period (the
"Incumbent Directors") cease for any
reason to constitute at least a
majority of the Board (excluding any
Board seat that is vacant or otherwise
unoccupied), provided that any
individuals that a majority of
Incumbent Directors approve for service
on the Board are treated as Incumbent
Directors.
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Aether Systems, Inc.
1999 Equity Incentive Plan
Page 5 of 17
<PAGE> 6
An "Excluded Owner" consists of the Company,
any Company Subsidiary, any Company benefit
plan, or any underwriter temporarily holding
securities for an offering of such
securities.
Even if other tests are met, a Change of
Control has not occurred under any
circumstance in which the Company files for
bankruptcy protection or is reorganized
following a bankruptcy filing. The
Administrator may determine that a particular
optionee's Options will not become fully
exercisable as a result of what the
Administrator, in its sole discretion,
determines is the optionee's insufficient
cooperation with the Company with respect to
a Change of Control. In addition, the
acceleration will not occur if it would
prevent use of "pooling of interest"
accounting for a reorganization, merger, or
consolidation of the Company that the Board
approves.
The Administrator may allow conditional
exercises in advance of the completion of a
Change of Control that are then rescinded if
no Change of Control occurs.
SUBSTANTIAL Upon a Change of Control that is also a
CORPORATE Substantial Corporate Change, the Options
CHANGE will become exercisable (unless the Change of
Control section provides otherwise) and the
Plan and any unexercised Options will
TERMINATE (after the occurrence of one of the
alternatives set forth in the next full
paragraph) unless either (i) such termination
would prevent use of "pooling of interest"
accounting for a reorganization, merger, or
consolidation of the Company that the Board
approves or (ii) provision is made in writing
in connection with such transaction for
the assumption or continuation of
outstanding Options, or
the substitution for such options or
grants of any options or grants
covering the stock or securities of a
successor employer entity, or a parent
or subsidiary of such successor, with
appropriate adjustments as to the
number and kind of shares of stock and
prices, in which event the Options will
continue in the manner and under the
terms so provided.
If an Option would otherwise terminate under
the preceding sentence and the Fair Market
Value of the Common Stock
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Aether Systems, Inc.
1999 Equity Incentive Plan
Page 6 of 17
<PAGE> 7
as a result of the Substantial Corporate
Change exceeds or is likely to exceed the
Exercise Price, the Administrator will either
provide that
optionees will have the right, at such
time before the completion of the
transaction causing such termination as
the Board or the Administrator
reasonably designates, to exercise any
unexercised portions of the Option,
including those portions that the
Change of Control will make exercisable
or
cause the Company, or agree to allow
the successor, to cancel each Option
after payment to the optionee of an
amount in cash, cash equivalents, or
successor equity interests
substantially equal to the Fair Market
Value under the transaction minus the
Exercise Price for the shares covered
by the Option (and, where the Board or
Administrator determines it is
appropriate, any required tax
withholdings).
The Administrator may allow conditional
exercises in advance of the completion of a
Substantial Corporate Change that are then
rescinded if no Substantial Corporate Change
occurs.
The Board or other Administrator may take any
actions described in the Substantial
Corporate Changes section, without any
requirement to seek optionee consent.
A Substantial Corporate Change means any of
the following events:
a sale as described in clause (i) under
Change of Control,
a dissolution or liquidation as
described in clause (ii),
an ownership change as described in
clause (iii), but with the percentage
ownership increased to 100%
merger, consolidation, or
reorganization of the Company with one
or more corporations or other entities
in which the Company is not the
surviving entity, or
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Aether Systems, Inc.
1999 Equity Incentive Plan
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<PAGE> 8
any other transaction (including a
merger or reorganization in which the
Company survives) approved by the Board
that results in any person or entity
(other than an Excluded Owner) owning
100% of Company Voting Securities.
LIMITATION ON An Option granted to an employee will be an ISO only
ISOs to the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the stock with
respect to which ISOs are exercisable for the first
time by the optionee during any calendar year (under
the Plan and all other plans of the Company and its
subsidiary corporations, within the meaning of Code
Section 422(d)), does not exceed $100,000. This
limitation applies to Options in the order in which
such Options were granted. If, by design or
operation, the Option exceeds this limit, the excess
will be treated as an NQSO.
METHOD OF To exercise any exercisable portion of an Option, the
EXERCISE optionee must:
Deliver notice of exercise to the Secretary
of the Company (or to whomever the
Administrator designates), in a form
complying with any rules the Administrator
may issue, signed or otherwise authenticated
by the optionee, and specifying the number of
shares of Common Stock underlying the portion
of the Option the optionee is exercising;
Pay the full Exercise Price by cash or a
cashier's or certified check for the shares
of Common Stock with respect to which the
Option is being exercised, unless the
Administrator consents to another form of
payment (which could include loans from the
Company or the use of Common Stock); and
Deliver to the Administrator such
representations and documents as the
Administrator, in its sole discretion, may
consider necessary or advisable.
After an IPO, payment in full of the Exercise Price
need not accompany the written notice of exercise if
the exercise complies with a previously-approved
cashless exercise method, including, for example,
that the notice directs that the stock certificates
(or other indicia of ownership) for the shares issued
upon the exercise be delivered to a licensed broker
acceptable to the Company as the agent for the
individual exercising the option and at the time the
stock certificates (or other indicia) are delivered
to the broker, the
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1999 Equity Incentive Plan
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<PAGE> 9
broker will tender to the Company cash or cash
equivalents acceptable to the Company and equal to
the Exercise Price and any required withholding
taxes.
If the Administrator agrees to allow an optionee to
pay through tendering shares of Common Stock to the
Company, the individual can only tender stock he has
held for at least six months at the time of
surrender. Shares of stock offered as payment will
be valued, for purposes of determining the extent to
which the optionee has paid the Exercise Price, at
their Fair Market Value on the date of exercise. The
Administrator may also, in its discretion, accept
attestation of ownership of Common Stock and issue a
net number of shares upon Option exercise, or, after
an IPO, by having a broker tender to the Company cash
equal to the exercise price and any withholding
taxes.
OPTION No one may exercise an Option more than ten years
EXPIRATION after its Date of Grant (or five years for ISOs
granted to 10% owners covered by Code Sections
422(b)(6) and 424(d)). Unless the Option Agreement
provides otherwise, either initially or by amendment,
no one may exercise an Option after the first to
occur of:
EMPLOYMENT The 90th day after the date of termination of
TERMINATION employment (other than for death or
Disability), where termination of employment
means the time when the employer-employee or
other service-providing relationship between
the employee and the Company ends for any
reason. The Administrator may provide that
Options terminate immediately upon
termination of employment for "cause" under
an employee's employment or consultant's
services agreement or under another
definition specified in the Option Agreement.
Unless the Option Agreement provides
otherwise, termination of employment does not
include instances in which the Company
immediately rehires a common law employee as
an independent contractor. The
Administrator, in its sole discretion, will
determine all questions of whether particular
terminations or leaves of absence are
terminations of employment.
GROSS MISCONDUCT For the Company's termination of the
optionee's employment as a result of the
optionee's Gross Misconduct, the time of such
termination. For purposes of this Plan,
"Gross Misconduct" means the optionee has
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1999 Equity Incentive Plan
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<PAGE> 10
committed fraud, misappropriation,
embezzlement, or willful misconduct
that has resulted or is likely to
result in material harm to the Company;
committed or been indicted for or
convicted of, or pled guilty or no
contest to, any misdemeanor (other than
for minor infractions or traffic
violations) involving fraud, breach of
trust, misappropriation, or other
similar activity, or any felony; or
committed an act of gross negligence or
otherwise acted with willful disregard
for the Company's best interests in a
manner that has resulted or is likely
to result in material harm to the
Company.
If the optionee has a written employment
agreement in effect at the time of his
termination that specifies "cause" for
termination, "Gross Misconduct" for purposes
of his termination will refer to "cause"
under the employment agreement, rather than
to the foregoing definition.
DISABILITY For disability, the earlier of (i) the first
anniversary of the optionee's termination of
employment for disability and (ii) 60 days
after the optionee no longer has a
disability, where "disability" means the
inability to engage in any substantial
gainful activity because of any medically
determinable physical or mental impairment
that can be expected to result in death or
that has lasted or can be expected to last
for a continuous period of not less than 12
months; or
DEATH The date 12 months after the optionee's
death.
If exercise is permitted after termination of
employment, the Option will nevertheless expire as of
the date that the former service provider violates
any covenant not to compete or other post-employment
covenant in effect between the Company and the former
service provider. In addition, an optionee who
exercises an Option more than 90 days after
termination of employment with the Company and/or
Eligible Subsidiaries will only receive ISO treatment
to the extent the law permits, and becoming or
remaining an employee of another related company
(that is not an Eligible Subsidiary) or an
independent contractor will not prevent loss of ISO
status because of the formal termination of
employment.
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1999 Equity Incentive Plan
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<PAGE> 11
Nothing in this Plan extends the term of an Option
beyond the tenth anniversary of its Date of Grant,
nor does anything in this OPTION EXPIRATION section
make an Option exercisable that has not otherwise
become exercisable, unless the Administrator
specifies otherwise.
OPTION Option Agreements (which could be certificates) will
AGREEMENT set forth the terms of each Option and will include
such terms and conditions, consistent with the Plan,
as the Administrator may determine are necessary or
advisable. To the extent the agreement is
inconsistent with the Plan, the Plan will govern.
The Option Agreements may contain special rules.
PUT AND CALL The Administrator may provide in Option Agreements
RIGHTS that the Company has the right (or obligation) to
purchase outstanding Options, or the shares received
from exercising an Option, under certain
circumstances, including termination of employment
for any reason or death and may provide for rights of
first refusal. The Administrator may distinguish
between unexercisable and exercisable Options.
STOCK SUBJECT Except as adjusted below under CORPORATE CHANGES,
TO PLAN
the aggregate number of shares of Common
Stock that may be subject to outstanding
Options may not exceed 20% of the shares of
Common Stock issued and outstanding as of the
date on which the Administrator seeks to make
an additional grant (provided that a decrease
in shares outstanding will not invalidate any
previously issued Option),
the maximum number of shares that may be
granted under Options for a single individual
in a calendar year may not exceed 10% of the
shares of Common Stock outstanding at the
closing of the IPO, and
the aggregate number of shares of Common
Stock that may be issued under ISOs may not
exceed 3,000,000.
The Common Stock will come from either authorized but
unissued shares or from previously issued shares that
the Company reacquires, including shares it purchases
on the open market or holds as treasury shares. If
any Option expires, is canceled, or terminates for
any other reason, the shares of Common Stock
available under that Option will again be available
for the granting
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1999 Equity Incentive Plan
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<PAGE> 12
of new Options (but will be counted against that
calendar year's limit for a given individual).
No adjustment will be made for a dividend or other
right for which the record date precedes the date of
exercise.
The optionee will have no rights of a stockholder
with respect to the shares of stock subject to an
Option except to the extent that the Company has
issued certificates for, or otherwise confirmed
ownership of, such shares upon the exercise of the
Option.
The Company will not issue fractional shares pursuant
to the exercise of an Option, unless the
Administrator determines otherwise, but the
Administrator may, in its discretion, direct the
Company to make a cash payment in lieu of fractional
shares.
PERSON WHO During the optionee's lifetime and except as provided
MAY EXERCISE under TRANSFERS, ASSIGNMENTS, AND PLEDGES, only the
optionee or his duly appointed guardian or personal
representative may exercise the Options. After his
death, his personal representative or any other
person authorized under a will or under the laws of
descent and distribution may exercise any then
exercisable portion of an Option. If someone other
than the original recipient seeks to exercise any
portion of an Option, the Administrator may request
such proof as it may consider necessary or
appropriate of the person's right to exercise the
Option.
ADJUSTMENTS Subject to any required action by the Company (which
UPON CHANGES it agrees to promptly take) or its stockholders, and
IN CAPITAL subject to the provisions of applicable corporate
STOCK law, if, after the Date of Grant of an Option,
the outstanding shares of Common Stock
increase or decrease or change into or are
exchanged for a different number or kind of
security because of any recapitalization,
reclassification, stock split, reverse stock
split, combination of shares, exchange of
shares, stock dividend, or other distribution
payable in capital stock, or
some other increase or decrease in such
Common Stock occurs without the Company's
receiving consideration (excluding, unless
the Administrator determines otherwise, stock
repurchases),
the Administrator must make a proportionate and
appropriate adjustment in the number of shares of
Common Stock underlying each Option, so that the
proportionate interest of the optionee
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1999 Equity Incentive Plan
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<PAGE> 13
immediately following such event will, to the extent
practicable, be the same as immediately before such
event. (This adjustment does not apply to Common
Stock that the optionee has already purchased.)
Unless the Administrator determines another method
would be appropriate, any such adjustment to an
Option will not change the total price with respect
to shares of Common Stock underlying the unexercised
portion of the Option but will include a
corresponding proportionate adjustment in the
Option's Exercise Price. The Board or other
Administrator may take any actions described in the
ADJUSTMENTS UPON CHANGES IN CAPITAL STOCK section
without any requirement to seek optionee consent.
The Administrator will make a commensurate change to
the maximum number and kind of shares provided in the
STOCK SUBJECT TO PLAN section.
All references to numbers of shares of Common Stock
in the Plan and in any Option grants made on or
before the IPO Effective Date assume the IPO is or
will be completed and thus relate to post-IPO numbers
of shares.
Any issue by the Company of any class of preferred
stock, or securities convertible into shares of
common or preferred stock of any class, will not
affect, and no adjustment by reason thereof will be
made with respect to, the number of shares of Common
Stock subject to any Option or the Exercise Price
except as this ADJUSTMENTS section specifically
provides. The grant of an Option under the Plan will
not affect in any way the right or power of the
Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure, or to merge or to consolidate, or to
dissolve, liquidate, sell, or transfer all or any
part of its business or assets.
SUBSIDIARY Employees of Company Subsidiaries will be entitled to
EMPLOYEES participate in the Plan, except as otherwise
designated by the Board of Directors or the
Administrator.
Eligible Subsidiary means each of the Company's
Subsidiaries, except as the Administrator otherwise
specifies. For ISO grants, Subsidiary means any
corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if,
at the time an Option is granted to a Participant
under the Plan, each corporation (other than the last
corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting
power of all classes of stock in another corporation
in such chain. For ISOs, Subsidiary also includes a
single-member limited
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1999 Equity Incentive Plan
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<PAGE> 14
liability company included within the chain described
in the preceding sentence. The Board or the
Administrator may use a different definition of
Subsidiary for NQSOs.
LEGAL The Company will not issue any shares of Common Stock
COMPLIANCE under an Option until all applicable requirements
imposed by Federal and state securities and other
laws, rules, and regulations, and by any applicable
regulatory agencies or stock exchanges, have been
fully met. To that end, the Company may require the
optionee to take any reasonable action to comply with
such requirements before issuing such shares. No
provision in the Plan or action taken under it
authorizes any action that Federal or state laws
otherwise prohibit.
The Plan is intended to conform to the extent
necessary with all provisions of the Securities Act
of 1933 ("Securities Act") and the Securities
Exchange Act of 1934 and all regulations and rules
the Securities and Exchange Commission issues under
those laws. Notwithstanding anything in the Plan to
the contrary, the Administrator must administer the
Plan, and Options may be granted and exercised, only
in a way that conforms to such laws, rules, and
regulations. To the extent permitted by applicable
law, the Plan and any Options will be treated as
amended to the extent necessary to conform to such
laws, rules, and regulations.
PURCHASE FOR Unless a registration statement under the Securities
INVESTMENT Act covers the share of Common Stock an optionee
AND OTHER receives upon exercising his Option, the
RESTRICTIONS Administrator may require, at the time of such
exercise, that the optionee agree in writing to
acquire such shares for investment and not for public
resale or distribution, unless and until the shares
subject to the Option are registered under the
Securities Act. Unless the shares are registered
under the Securities Act, the optionee must
acknowledge:
that the shares purchased on exercise of the
Option are not so registered,
that the optionee may not sell or otherwise
transfer the shares unless
such sale or transfer complies with all
applicable laws, rules, and
regulations, including all applicable
Federal and state securities laws,
rules, and regulations, and either
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1999 Equity Incentive Plan
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<PAGE> 15
the shares have been registered under
the Securities Act in connection with
the sale or transfer thereof, or
counsel satisfactory to the Company has
issued an opinion satisfactory to the
Company that the sale or other transfer
of such shares is exempt from
registration under the Securities Act.
Additionally, the Common Stock, when issued upon the
exercise of an Option, will be subject to any other
transfer restrictions, rights of first refusal, and
rights of repurchase set forth in or incorporated by
reference into other applicable documents, including
the Option Agreements, or the Company's articles or
certificate of incorporation, by-laws, or generally
applicable stockholders' agreements.
The Administrator may, in its sole discretion, take
whatever additional actions it deems appropriate to
comply with such restrictions and applicable laws,
including placing legends on certificates and issuing
stop- transfer orders to transfer agents and
registrars.
TAX WITHHOLDING The optionee must satisfy all applicable Federal,
state, and local income and employment tax
withholding requirements before the Company will
deliver stock certificates or otherwise recognize
ownership upon the exercise of an Option. The
Company may decide to satisfy the withholding
obligations through additional withholding on salary
or wages. If the Company does not or cannot withhold
from other compensation, the optionee must pay the
Company, with a cashier's check or certified check,
the full amounts, if any, required for withholding.
Payment of withholding obligations is due at the same
time as is payment of the Exercise Price. If the
Administrator so determines, the optionee may instead
satisfy the withholding obligations by directing the
Company to retain shares from the Option exercise, by
tendering previously owned shares, or by attesting to
his ownership of shares (with the distribution of net
shares), or, after an IPO, by having a broker tender
to the Company cash equal to the withholding taxes.
TRANSFERS, Unless the Administrator otherwise approves in
ASSIGNMENTS, advance in writing for estate planning or other
AND PLEDGES purposes, an Option may not be assigned, pledged or
otherwise transferred in any way, whether by
operation of law or otherwise or through any legal or
equitable proceedings (including bankruptcy), by the
optionee to any person, except by will or by
operation of applicable laws of descent and
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1999 Equity Incentive Plan
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<PAGE> 16
distribution. If necessary to comply with Rule
16b-3, the optionee may not transfer or pledge shares
of Common Stock acquired upon exercise of an Option
until at least six months have elapsed from (but
excluding) the Date of Grant, unless the
Administrator approves otherwise in advance in
writing. The Administrator may, in its discretion,
expressly provide that an optionee may transfer his
Option, without receiving consideration, to (i)
members of his immediate family (children,
grandchildren, or spouse), (ii) trusts for the
benefit of such family members, or (iii) partnerships
whose only partners are such family members.
AMENDMENT OR The Board may amend, suspend, or terminate the Plan
TERMINATION at any time, without the consent of the optionees or
OF PLAN AND their beneficiaries; provided, however, that such
OPTIONS actions are consistent with this section. Except as
required by law or by the SUBSTANTIAL CORPORATE
CHANGES section, the Administrator may not, without
the optionee's or beneficiary's consent, modify the
terms and conditions of an Option so as to materially
adversely affect the optionee. No amendment,
suspension, or termination of the Plan will, without
the optionee's or beneficiary's consent, terminate or
materially adversely affect any right or obligations
under any outstanding Options, except as provided in
the SUBSTANTIAL CORPORATE CHANGES Section.
PRIVILEGES OF No optionee and no beneficiary or other person
STOCK claiming under or through such optionee will have any
OWNERSHIP right, title, or interest in or to any shares of
Common Stock allocated or reserved under the Plan or
subject to any Option except as to such shares of
Common Stock, if any, already issued to such
optionee.
EFFECT ON Whether exercising an Option causes the optionee to
OTHER PLANS accrue or receive additional benefits under any
pension or other plan is governed solely by the terms
of such other plan.
LIMITATIONS ON Notwithstanding any other provisions of the Plan, no
LIABILITY individual acting as a director, officer, other
employee, or agent of the Company will be liable to
any optionee, former optionee, spouse, beneficiary,
or any other person for any claim, loss, liability,
or expense incurred in connection with the Plan, nor
will such individual be personally liable because of
any contract or other instrument he executes in such
other capacity. The Company will indemnify and hold
harmless each director, officer, other employee, or
agent of the Company to whom any duty or power
relating to the administration or interpretation of
the Plan has been or will be delegated, against any
cost or expense (including attorneys' fees) or
liability (including any sum paid in settlement of
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1999 Equity Incentive Plan
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<PAGE> 17
a claim with the Board's approval) arising out of any
act or omission to act concerning this Plan unless
arising out of such person's own fraud or bad faith.
NO EMPLOYMENT Nothing contained in this Plan constitutes an
CONTRACT employment contract between the Company and the
optionees. The Plan does not give any optionee any
right to be retained in the Company's employ, nor
does it enlarge or diminish the Company's right to
end the optionee's employment or other relationship
with the Company.
APPLICABLE LAW The laws of the State of Delaware (other than its
choice of law provisions) govern this Plan and its
interpretation.
DURATION OF Unless the Board extends the Plan's term, the
PLAN Administrator may not grant Options after
_____________, 2009. The Plan will then terminate
but will continue to govern unexercised and unexpired
Options.
APPROVAL OF The Plan must be submitted to Company stockholders
THE PLAN for their approval within 12 months before or after
the Board adopts the Plan to qualify any Options
designated as ISOs for treatment as such. If the
stockholders do not so approve the Plan, the Plan and
any outstanding ISOs will be treated as void and of
no effect.
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1999 Equity Incentive Plan
Page 17 of 17
<PAGE> 1
EXHIBIT 10.20
AETHER SYSTEMS, INC.
SENIOR BONUS PLAN
PURPOSE Aether Systems, Inc., a Delaware corporation (the
"Company"), wishes to motivate, reward, and retain
key senior executives of the Company and its
subsidiaries. To further these objectives, the
Company hereby sets forth this Aether Systems, Inc.
Senior Bonus Plan (the "Plan"), effective as of
September 29, 1999, to provide participants with
incentives ("Individual Award Opportunities") to
earn performance-based bonus awards ("Awards"), in
accordance with Section 162(m) ("Section 162(m)") of
the Internal Revenue Code of 1986 (the "Code"). (All
references to "Section 162(m)" or any other Code
provision include successor provisions, related
regulations, and amendments.)
PARTICIPANTS During each Performance Period, the Committee may
designate some or all of the Executive Officers of
the Company (including those of any subsidiary,
operating unit, or division) as eligible for
Individual Award Opportunities under this Plan.
"Participants" are persons the Committee designates
who have not been paid all amounts, if any, due them
under the Plan. Eligible Executive Officers are
Participants only with respect to Performance
Periods for which the Committee designates them for
participation under the Plan.
"Executive Officer" has the meaning set forth in
Rule 3b-7 issued under the Securities Exchange Act
of 1934, each as amended from time to time, and
anyone else the Committee determines to treat as an
Executive Officer for purposes of this Plan.
ADMINISTRATOR The Plan's Administrator will be a committee (the
"Committee") of the Company's Board of Directors
(the "Board") designated by the Board to be
responsible for administering and interpreting the
Plan. The Committee will include two or more
directors, each of whom qualifies as an "outside
director" within the meaning of Section 162(m), and
those outside directors will have exclusive
authority under this Plan to make Awards and
establish and determine satisfaction of Performance
Goals. The Committee may satisfy this requirement
through (i) providing that persons who are not
"outside directors" cannot vote on an issue, (ii)
allowing those persons to abstain from voting, or
(iii) creating a subcommittee of qualifying outside
directors to take action with respect to this Plan.
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Aether Systems, Inc.
Senior Bonus Plan
Page 1 of 11
<PAGE> 2
If a Committee member intended to qualify as an
outside director does not in fact so qualify, the
mere fact of such nonqualification will not
invalidate the payment of any Award or other action
by the Committee under the Plan that was otherwise
valid under the Plan.
The Committee is responsible for the general
operation and administration of the Plan and for
carrying out its provisions and has full discretion
in interpreting and administering the provisions of
the Plan. Subject to the express provisions of the
Plan, the Committee may exercise such powers and
authority of the Board as the Committee may find
necessary or appropriate to carry out its functions.
The Committee will exercise its powers under the
Plan in a manner that preserves the Company's
Federal income tax deduction for payments made under
the Plan, in accordance with the requirements of
Section 162(m), to the maximum practical extent.
GENERAL Subject to the terms of the Plan and after taking
RESPONSIBILITIES into account the recommendations of the Company's
OF THE COMMITTEE Chief Executive Officer, for each Performance Period
the Committee will:
determine any bonus pool award opportunities
available,
designate the Executive Officers who will be
Participants in the Plan,
establish each Participant's Individual
Award Opportunity,
define Performance Goals and other Award
terms and conditions for each Participant,
determine and certify the Award amounts
earned, based on actual performance as
compared to the Performance Goals,
determine and make permitted Negative
Discretion Adjustments to Awards otherwise
earned, and
decide whether, under what circumstances,
and subject to what terms, Awards will be
paid on a deferred basis (including
automatic deferrals at the Committee's
election or elective deferrals at the
election of Participants).
Unless the Plan otherwise expressly provides, all
designations, determinations, interpretations, and
other decisions made under or with respect to the
Plan and all Awards made under the Plan are within
the sole and absolute discretion of the Committee
and will
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Senior Bonus Plan
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<PAGE> 3
be final, conclusive and binding on all persons,
including the Company, Participants, and
Beneficiaries or other persons having or claiming
any rights under the Plan.
PARTICIPANT The Committee will designate the Participants in the
DESIGNATIONS Plan for each Performance Period within the
Applicable Period, and with reference to the fiscal
year for which the Company would be entitled to a
Federal tax deduction for payment of Awards in
respect of the Performance Period (the "Deduction
Year"). The Committee will make its designations
primarily by taking into account which Executive
Officers:
are likely to be Executive Officers of the
Company as of the last day of the Deduction
Year,
are reasonably expected to have individual
compensation for the Deduction Year that may
be in excess of $1 million, not including
compensation that is excluded under Section
162(m) as payable under a "performance
based" plan other than this Plan, and
are reasonably expected to be "covered
employees" for the Deduction Year for
purposes of Section 162(m).
The Committee may also take into consideration other
factors that it deems appropriate and may include
persons who do not fit within the foregoing
description.
INDIVIDUAL AWARD Individual Award Opportunity means a Participant's
OPPORTUNITIES opportunity to earn an Award for a given Performance
Period, based on the achievement of the
Participant's Performance Goals. The Committee will
establish each Participant's Individual Award
Opportunity, within the Applicable Period, for each
Performance Period.
An Individual Award Opportunity may be expressed in
dollars or may be based on a formula that is
consistent with the provisions of the Plan. If
Individual Award Opportunities are expressed in
terms of shares of any bonus pool, the shares of
such bonus pool designated for Individual Award
Opportunities may not exceed 100% of the pool for
any Performance Period.
PERFORMANCE The Committee will, within the Applicable Period,
GOALS set one or more Performance Goals for a Performance
Period for each Participant, and/or each group of
Participants, and/or each bonus pool (if any).
Performance Goals will be based exclusively on one
or more of the
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Aether Systems, Inc.
Senior Bonus Plan
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<PAGE> 4
following corporate-wide or parent, subsidiary,
division, or operating unit financial measures:
pretax or after tax net income or earnings,
earnings before interest expense, taxes,
depreciation, and amortization,
operating income,
gross revenue,
profit or operating margin,
earnings per share,
stock price,
cash flow(s),
total stockholder return,
total stockholder return as compared to
total return, on a comparable basis, of a
publicly available index such as the
Standard & Poor's 500 Stock Index,
return on equity, on capital, or on
investment,
ratio of debt to stockholders' equity,
subscriber growth,
working capital,
strategic business criteria, consisting of
one or more objectives based on meeting
specified revenue, market penetration,
geographic business expansion goals, cost
targets, and goals relating to acquisitions
or divestitures,
or any combination of these measures (in
each case before or after such objective
income and expense allocations or
adjustments as the Committee may specify
within the Applicable Period).
Each Performance Goal may be expressed in absolute
and/or relative terms, may be based on or use
comparisons with current
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Senior Bonus Plan
Page 4 of 11
<PAGE> 5
internal targets, the past performance of the
Company (including the performance of one or more
subsidiaries, divisions and/or operating units)
and/or the past or current performance of other
companies. In the case of earnings-based measures,
Performance Goals may use comparisons relating to
capital (including, but limited to, the cost of
capital), shareholders' equity and/or shares
outstanding, or to assets or net assets.
In all cases, Performance Goals are to be set in a
manner that will satisfy any applicable requirements
under Treas. Reg. Sec. 1.162-27(e)(2) (as amended
from time to time). Such requirements include
requirements that achieving Performance Goals be
"substantially uncertain" at the time that they are
established, that Performance Goals be defined in
such a way that a third party with knowledge of the
relevant facts could determine whether and to what
extent the Goals have been met, and such a third
party could determine the maximum amount of the
resulting Award payable (subject to the Committee's
right to make Negative Discretion Adjustments).
The measures used in setting Performance Goals under
the Plan for any given Performance Period will be
determined in accordance with generally accepted
accounting principles ("GAAP") and in a manner
consistent with the methods used in the Company's
audited financial statements, without regard to (i)
extraordinary items as determined by the Company's
independent public accountants in accordance with
GAAP, (ii) changes in accounting, unless, in each
case, the Committee decides otherwise within the
Applicable Period, or (iii) nonrecurring acquisition
expenses and restructuring charges.
PAYMENT OF AWARDS Subject to the limitations set forth in this
section, Awards determined under the Plan for a
Performance Period will be paid to Participants in
cash or, if the Company's equity plans permit, in
shares of Company stock or other equity based
awards. Awards will be paid as soon as practicable
following the end of the Performance Period to which
the Awards apply.
CERTIFICATION No Award will be paid unless and until the
Committee, based on the Company's audited financial
results for such Performance Period (as prepared and
reviewed by the Company's independent public
accountants), has certified in the manner prescribed
under applicable regulations the extent to which the
Performance Goals for the Performance Period have
been satisfied and has made its decisions regarding
the extent of any Negative Discretion Adjustment of
Awards.
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<PAGE> 6
DEFERRAL The Committee may specify that a portion of the
Award for any given Performance Period will be paid
on a deferred basis, in accordance with any Award
payment rules the Committee may establish and
announce for the Performance Period.
CONTINUED The Committee may require that Participants for a
EMPLOYMENT Performance Period must still be employed as of end
of the Performance Period and/or as of the later
date that the Awards for the Performance Period are
announced to be eligible for an Award for the
Performance Period. Any such requirement must be
established and announced within the Applicable
Period, and may be subject to such exceptions as the
Committee may specify within the Applicable Period.
PERFORMANCE PERIOD A Performance Period is a period for which
Performance Goals are set and during which
performance is to be measured to determine whether a
Participant is entitled to payment of an Award under
the Plan. A Performance Period may coincide with one
or more complete or partial fiscal years of the
Company.
APPLICABLE PERIOD The Applicable Period with respect to any
Performance Period means a period beginning on or
before the first day of the Performance Period and
ending no later than the earlier of (i) the 90th day
of the Performance Period or (ii) the date on which
25% of the Performance Period has been completed.
Any action required under the Plan to be taken
within the Applicable Period may be taken at a later
date only if the provisions of Section 162(m) or the
regulations thereunder are modified, or are
interpreted by the Internal Revenue Service, to
permit such later date. In such event, the
definition of the Applicable Period under this Plan
will be deemed to be amended accordingly.
FORFEITURE OR Within the Applicable Period and subject to the
PRORATION Committee certification required for payment of
Awards, the Committee may adopt such forfeiture,
proration, or other rules as it deems appropriate,
in its sole and absolute discretion, regarding the
impact on Awards of (i) a Participant's death,
Disability, voluntary termination of employment,
termination of employment by the Company and its
subsidiaries other than for Cause, or termination of
employment by the Company and its subsidiaries for
Cause, or (ii) a Change of Control.
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Senior Bonus Plan
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<PAGE> 7
EMPLOYMENT "Termination of employment" means the time when the
TERMINATION employer-employee or other service-providing
relationship between the Participant and the Company
and its subsidiaries ends for any reason. The
Committee, in its sole discretion, will determine
all questions of whether particular terminations or
leaves of absence are terminations of employment.
DISABILITY "Disability" means 'disability' as defined in any
employment agreement then in effect between the
Participant and the Company or, if not defined in
that agreement or if there is no such agreement, as
defined in the Company's long-term disability plan
as in effect from time to time, or if there is no
plan or if not defined therein, the Participant's
physical or mental incapacity and consequent
inability for a period of 120 days in any twelve
consecutive month period to perform his duties to
the Company.
CAUSE "Cause" means "cause" as defined in any employment
agreement then in effect between the Participant and
the Company or if not defined in such an agreement
or, if there is no such agreement, where the
Participant:
commits any act of fraud, willful
misconduct, or dishonesty in connection with
his employment or that injures the Company
or its direct or indirect subsidiaries;
breaches any other material provision of any
agreement between the Participant and the
Company or a subsidiary of the Company
relating to the Participant's employment or
breaches any fiduciary duty to the Company
or its direct or indirect subsidiaries;
fails, refuses, or neglects to timely
perform any material duty or obligation
relating to his position;
commits a material violation of any law,
rule, regulation, or bylaw of any
governmental authority (state, Federal, or
foreign), any securities exchange or
association or other regulatory or self
regulatory body or agency applicable to the
Company or its direct or indirect
subsidiaries;
commits a material violation of any general
policy or directive of the Company or its
direct or indirect subsidiaries communicated
in writing to the Participant; or
is charged with a crime involving
dishonesty, fraud, or unethical business
conduct, or a felony.
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<PAGE> 8
CHANGE OF "Change of Control" has the same meaning as set
CONTROL forth in the Company's 1999 Equity Incentive Plan,
as amended from time to time.
LIMITATION ON Notwithstanding any other provision of this Plan, the
AWARDS maximum Award payable under the Plan to any
individual Participant in any single calendar year
will be $3 million.
NEGATIVE DISCRETION The Committee's powers include the power to make
ADJUSTMENTS Negative Discretion Adjustments, which are
adjustments that eliminate or reduce (but not
increase) an Award otherwise payable to a
Participant for a Performance Period. No Negative
Discretion Adjustment may cause an Award to fail to
qualify as "performance based compensation" under
Section 162(m).
OTHER PLANS A Participant in this Plan may not also participate
in the Company's general bonus plans during any
Performance Period for which such participation
would cause an Award under this Plan to fail to
qualify as "performance based" under Section 162(m).
Awards will not be treated as compensation for
purposes of any other compensation or benefit plan,
program, or arrangement of the Company or any
subsidiary unless and except to the extent that the
Board or the Committee determines in writing.
Neither the adoption of this Plan nor the submission
of the Plan to the Company's shareholders for
approval will be construed as limiting the power of
the Board or the Committee to adopt such other
incentive arrangements as either may otherwise deem
appropriate.
LEGAL COMPLIANCE The Company will not make payments of Awards until
all applicable requirements imposed by Federal and
state laws, rules, and regulations, and by any
applicable regulatory agencies, have been fully met.
No provision in the Plan or action taken under it
authorizes any action that Federal or state laws
otherwise prohibit.
The Plan is intended to conform with all provisions
of Section 162(m) and Treas. Reg. Section 1.162-27
to the extent necessary to allow the Company a
Federal income tax deduction for Awards as
"qualified performance based compensation."
Notwithstanding anything in the Plan to the
contrary, the Committee must administer the Plan,
and Awards may be granted and paid, only in a manner
that conforms to such laws, rules, and
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Senior Bonus Plan
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<PAGE> 9
regulations. To the extent permitted by applicable
law, the Plan will be treated as amended to the
extent necessary to conform to such laws, rules, and
regulations.
TAX WITHHOLDING The Company may make all appropriate provisions for
the withholding of Federal, state, and local taxes
imposed with respect to Awards, which provisions may
vary with the time and manner of payment.
NONTRANSFER Except as and to the extent the law requires, or as
OF RIGHTS the Plan expressly provides, a Participant's rights
under the Plan may not be assigned, pledged, or
otherwise transferred in any way, whether by
operation of law or otherwise or through any legal
or equitable proceedings (including bankruptcy), by
the Participant to any person.
BENEFICIARY Each Participant may designate in a written form
DESIGNATIONS filed with the Committee (or another designated
recipient) the person or persons (the "Beneficiary"
or "Beneficiaries") to receive the amounts (if any)
payable under the Plan if the Participant dies
before the Award payment date for a Performance
Period. A Beneficiary designation filed under this
section will not be considered a prohibited transfer
of rights.
A Participant may change a Beneficiary designation
at any time without the Beneficiary's consent
(unless otherwise required by law) by filing a new
written Beneficiary designation with the Committee.
A Beneficiary designation will be effective only if
the Company is in receipt of the designation before
the Participant's death.
If no effective Beneficiary designation is made, the
beneficiary of any amounts due will be the
Participant's estate.
AMENDMENT OR Subject to the limitations set forth in this section,
TERMINATION OF PLAN the Board may amend, suspend, or terminate the Plan
at any time, without the consent of the Participants
or their Beneficiaries.
Without the Participant's written consent, no
amendment or termination may materially adversely
affect the Award rights (if any) of any already
designated Participant for a given Performance
Period once the Committee has announced the
Participant designations and Performance Goals for
such Performance Period.
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<PAGE> 10
The Board or the Committee may make any amendments
necessary to comply with applicable regulatory
requirements, including Section 162(m) and
regulations thereunder.
The Board must submit any Plan amendment to the
Company's shareholders for their approval if and to
the extent such approval is required under Section
162(m).
LIMITATIONS ON No member of the Committee and no other individual
LIABILITY acting as a director, officer, other employee or
agent of the Company will be liable to any
Participant, former Participant, spouse,
Beneficiary, or any other person for any claim,
loss, liability, or expense incurred in connection
with the Plan. No member of the Committee will be
liable for any action or determination (including,
but limited to, any decision not to act) made in
good faith with respect to the Plan or any Award
under the Plan. If a Committee member intended to
qualify as an 'outside director' under Section
162(m) does not in fact so qualify, the mere fact of
such nonqualification will not invalidate any award
or other action made by the Committee under the Plan
that otherwise was validly made under the Plan.
The Company will indemnify and hold harmless each
member of the Committee, director, officer, other
employee, or agent of the Company to whom it or
another has delegated or does delegate any duty or
power relating to the administration or
interpretation of the Plan, against any cost or
expense (including attorneys' fees) or liability
(including any sum paid in settlement of a claim
with the Board's approval) arising out of any act or
omission to act concerning this Plan unless arising
out of such person's own fraud or bad faith.
NO EMPLOYMENT Nothing contained in this Plan constitutes an
CONTRACT employment contract between the Company and the
Participants. The Plan does not give any Participant
any right to be retained in the Company's employ,
nor does it enlarge or diminish the Company's right
to end the Participant's employment or other
relationship with the Company.
APPLICABLE LAW The laws of the State of Delaware (other than its
choice of law provisions) govern this Plan and its
interpretation.
DURATION OF THE PLAN The Plan will remain effective until terminated by
the Board, provided, however, that the continued
effectiveness of the Plan will be subject to the
approval of the Company's shareholders at such times
and in such manner as Section 162(m) may require.
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<PAGE> 11
DISCLOSURE AND The Plan must be submitted to Company shareholders
APPROVAL OF THE PLAN for their approval. The specific terms of the Plan,
including the class of employees eligible to be
Participants, the Performance Goals, and the terms
of payment of Awards, must be disclosed to the
shareholders to the extent Section 162(m) requires.
The shareholders must approve the Plan by a separate
vote after such disclosure. If the shareholders do
not approve the Plan, the Plan will be treated as
void and of no effect.
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<PAGE> 1
EXHIBIT 10.20
AETHER SYSTEMS, INC.
SENIOR BONUS PLAN
PURPOSE Aether Systems, Inc., a Delaware corporation (the
"Company"), wishes to motivate, reward, and retain
key senior executives of the Company and its
subsidiaries. To further these objectives, the
Company hereby sets forth this Aether Systems, Inc.
Senior Bonus Plan (the "Plan"), effective as of
September 29, 1999, to provide participants with
incentives ("Individual Award Opportunities") to
earn performance-based bonus awards ("Awards"), in
accordance with Section 162(m) ("Section 162(m)") of
the Internal Revenue Code of 1986 (the "Code"). (All
references to "Section 162(m)" or any other Code
provision include successor provisions, related
regulations, and amendments.)
PARTICIPANTS During each Performance Period, the Committee may
designate some or all of the Executive Officers of
the Company (including those of any subsidiary,
operating unit, or division) as eligible for
Individual Award Opportunities under this Plan.
"Participants" are persons the Committee designates
who have not been paid all amounts, if any, due them
under the Plan. Eligible Executive Officers are
Participants only with respect to Performance
Periods for which the Committee designates them for
participation under the Plan.
"Executive Officer" has the meaning set forth in
Rule 3b-7 issued under the Securities Exchange Act
of 1934, each as amended from time to time, and
anyone else the Committee determines to treat as an
Executive Officer for purposes of this Plan.
ADMINISTRATOR The Plan's Administrator will be a committee (the
"Committee") of the Company's Board of Directors
(the "Board") designated by the Board to be
responsible for administering and interpreting the
Plan. The Committee will include two or more
directors, each of whom qualifies as an "outside
director" within the meaning of Section 162(m), and
those outside directors will have exclusive
authority under this Plan to make Awards and
establish and determine satisfaction of Performance
Goals. The Committee may satisfy this requirement
through (i) providing that persons who are not
"outside directors" cannot vote on an issue, (ii)
allowing those persons to abstain from voting, or
(iii) creating a subcommittee of qualifying outside
directors to take action with respect to this Plan.
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<PAGE> 2
If a Committee member intended to qualify as an
outside director does not in fact so qualify, the
mere fact of such nonqualification will not
invalidate the payment of any Award or other action
by the Committee under the Plan that was otherwise
valid under the Plan.
The Committee is responsible for the general
operation and administration of the Plan and for
carrying out its provisions and has full discretion
in interpreting and administering the provisions of
the Plan. Subject to the express provisions of the
Plan, the Committee may exercise such powers and
authority of the Board as the Committee may find
necessary or appropriate to carry out its functions.
The Committee will exercise its powers under the
Plan in a manner that preserves the Company's
Federal income tax deduction for payments made under
the Plan, in accordance with the requirements of
Section 162(m), to the maximum practical extent.
GENERAL Subject to the terms of the Plan and after taking
RESPONSIBILITIES into account the recommendations of the Company's
OF THE COMMITTEE Chief Executive Officer, for each Performance Period
the Committee will:
determine any bonus pool award opportunities
available,
designate the Executive Officers who will be
Participants in the Plan,
establish each Participant's Individual
Award Opportunity,
define Performance Goals and other Award
terms and conditions for each Participant,
determine and certify the Award amounts
earned, based on actual performance as
compared to the Performance Goals,
determine and make permitted Negative
Discretion Adjustments to Awards otherwise
earned, and
decide whether, under what circumstances,
and subject to what terms, Awards will be
paid on a deferred basis (including
automatic deferrals at the Committee's
election or elective deferrals at the
election of Participants).
Unless the Plan otherwise expressly provides, all
designations, determinations, interpretations, and
other decisions made under or with respect to the
Plan and all Awards made under the Plan are within
the sole and absolute discretion of the Committee
and will
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Senior Bonus Plan
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<PAGE> 3
be final, conclusive and binding on all persons,
including the Company, Participants, and
Beneficiaries or other persons having or claiming
any rights under the Plan.
PARTICIPANT The Committee will designate the Participants in the
DESIGNATIONS Plan for each Performance Period within the
Applicable Period, and with reference to the fiscal
year for which the Company would be entitled to a
Federal tax deduction for payment of Awards in
respect of the Performance Period (the "Deduction
Year"). The Committee will make its designations
primarily by taking into account which Executive
Officers:
are likely to be Executive Officers of the
Company as of the last day of the Deduction
Year,
are reasonably expected to have individual
compensation for the Deduction Year that may
be in excess of $1 million, not including
compensation that is excluded under Section
162(m) as payable under a "performance
based" plan other than this Plan, and
are reasonably expected to be "covered
employees" for the Deduction Year for
purposes of Section 162(m).
The Committee may also take into consideration other
factors that it deems appropriate and may include
persons who do not fit within the foregoing
description.
INDIVIDUAL AWARD Individual Award Opportunity means a Participant's
OPPORTUNITIES opportunity to earn an Award for a given Performance
Period, based on the achievement of the
Participant's Performance Goals. The Committee will
establish each Participant's Individual Award
Opportunity, within the Applicable Period, for each
Performance Period.
An Individual Award Opportunity may be expressed in
dollars or may be based on a formula that is
consistent with the provisions of the Plan. If
Individual Award Opportunities are expressed in
terms of shares of any bonus pool, the shares of
such bonus pool designated for Individual Award
Opportunities may not exceed 100% of the pool for
any Performance Period.
PERFORMANCE The Committee will, within the Applicable Period,
GOALS set one or more Performance Goals for a Performance
Period for each Participant, and/or each group of
Participants, and/or each bonus pool (if any).
Performance Goals will be based exclusively on one
or more of the
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<PAGE> 4
following corporate-wide or parent, subsidiary,
division, or operating unit financial measures:
pretax or after tax net income or earnings,
earnings before interest expense, taxes,
depreciation, and amortization,
operating income,
gross revenue,
profit or operating margin,
earnings per share,
stock price,
cash flow(s),
total stockholder return,
total stockholder return as compared to
total return, on a comparable basis, of a
publicly available index such as the
Standard & Poor's 500 Stock Index,
return on equity, on capital, or on
investment,
ratio of debt to stockholders' equity,
subscriber growth,
working capital,
strategic business criteria, consisting of
one or more objectives based on meeting
specified revenue, market penetration,
geographic business expansion goals, cost
targets, and goals relating to acquisitions
or divestitures,
or any combination of these measures (in
each case before or after such objective
income and expense allocations or
adjustments as the Committee may specify
within the Applicable Period).
Each Performance Goal may be expressed in absolute
and/or relative terms, may be based on or use
comparisons with current
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Senior Bonus Plan
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<PAGE> 5
internal targets, the past performance of the
Company (including the performance of one or more
subsidiaries, divisions and/or operating units)
and/or the past or current performance of other
companies. In the case of earnings-based measures,
Performance Goals may use comparisons relating to
capital (including, but limited to, the cost of
capital), shareholders' equity and/or shares
outstanding, or to assets or net assets.
In all cases, Performance Goals are to be set in a
manner that will satisfy any applicable requirements
under Treas. Reg. Sec. 1.162-27(e)(2) (as amended
from time to time). Such requirements include
requirements that achieving Performance Goals be
"substantially uncertain" at the time that they are
established, that Performance Goals be defined in
such a way that a third party with knowledge of the
relevant facts could determine whether and to what
extent the Goals have been met, and such a third
party could determine the maximum amount of the
resulting Award payable (subject to the Committee's
right to make Negative Discretion Adjustments).
The measures used in setting Performance Goals under
the Plan for any given Performance Period will be
determined in accordance with generally accepted
accounting principles ("GAAP") and in a manner
consistent with the methods used in the Company's
audited financial statements, without regard to (i)
extraordinary items as determined by the Company's
independent public accountants in accordance with
GAAP, (ii) changes in accounting, unless, in each
case, the Committee decides otherwise within the
Applicable Period, or (iii) nonrecurring acquisition
expenses and restructuring charges.
PAYMENT OF AWARDS Subject to the limitations set forth in this
section, Awards determined under the Plan for a
Performance Period will be paid to Participants in
cash or, if the Company's equity plans permit, in
shares of Company stock or other equity based
awards. Awards will be paid as soon as practicable
following the end of the Performance Period to which
the Awards apply.
CERTIFICATION No Award will be paid unless and until the
Committee, based on the Company's audited financial
results for such Performance Period (as prepared and
reviewed by the Company's independent public
accountants), has certified in the manner prescribed
under applicable regulations the extent to which the
Performance Goals for the Performance Period have
been satisfied and has made its decisions regarding
the extent of any Negative Discretion Adjustment of
Awards.
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<PAGE> 6
DEFERRAL The Committee may specify that a portion of the
Award for any given Performance Period will be paid
on a deferred basis, in accordance with any Award
payment rules the Committee may establish and
announce for the Performance Period.
CONTINUED The Committee may require that Participants for a
EMPLOYMENT Performance Period must still be employed as of end
of the Performance Period and/or as of the later
date that the Awards for the Performance Period are
announced to be eligible for an Award for the
Performance Period. Any such requirement must be
established and announced within the Applicable
Period, and may be subject to such exceptions as the
Committee may specify within the Applicable Period.
PERFORMANCE PERIOD A Performance Period is a period for which
Performance Goals are set and during which
performance is to be measured to determine whether a
Participant is entitled to payment of an Award under
the Plan. A Performance Period may coincide with one
or more complete or partial fiscal years of the
Company.
APPLICABLE PERIOD The Applicable Period with respect to any
Performance Period means a period beginning on or
before the first day of the Performance Period and
ending no later than the earlier of (i) the 90th day
of the Performance Period or (ii) the date on which
25% of the Performance Period has been completed.
Any action required under the Plan to be taken
within the Applicable Period may be taken at a later
date only if the provisions of Section 162(m) or the
regulations thereunder are modified, or are
interpreted by the Internal Revenue Service, to
permit such later date. In such event, the
definition of the Applicable Period under this Plan
will be deemed to be amended accordingly.
FORFEITURE OR Within the Applicable Period and subject to the
PRORATION Committee certification required for payment of
Awards, the Committee may adopt such forfeiture,
proration, or other rules as it deems appropriate,
in its sole and absolute discretion, regarding the
impact on Awards of (i) a Participant's death,
Disability, voluntary termination of employment,
termination of employment by the Company and its
subsidiaries other than for Cause, or termination of
employment by the Company and its subsidiaries for
Cause, or (ii) a Change of Control.
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Senior Bonus Plan
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<PAGE> 7
EMPLOYMENT "Termination of employment" means the time when the
TERMINATION employer-employee or other service-providing
relationship between the Participant and the Company
and its subsidiaries ends for any reason. The
Committee, in its sole discretion, will determine
all questions of whether particular terminations or
leaves of absence are terminations of employment.
DISABILITY "Disability" means 'disability' as defined in any
employment agreement then in effect between the
Participant and the Company or, if not defined in
that agreement or if there is no such agreement, as
defined in the Company's long-term disability plan
as in effect from time to time, or if there is no
plan or if not defined therein, the Participant's
physical or mental incapacity and consequent
inability for a period of 120 days in any twelve
consecutive month period to perform his duties to
the Company.
CAUSE "Cause" means "cause" as defined in any employment
agreement then in effect between the Participant and
the Company or if not defined in such an agreement
or, if there is no such agreement, where the
Participant:
commits any act of fraud, willful
misconduct, or dishonesty in connection with
his employment or that injures the Company
or its direct or indirect subsidiaries;
breaches any other material provision of any
agreement between the Participant and the
Company or a subsidiary of the Company
relating to the Participant's employment or
breaches any fiduciary duty to the Company
or its direct or indirect subsidiaries;
fails, refuses, or neglects to timely
perform any material duty or obligation
relating to his position;
commits a material violation of any law,
rule, regulation, or bylaw of any
governmental authority (state, Federal, or
foreign), any securities exchange or
association or other regulatory or self
regulatory body or agency applicable to the
Company or its direct or indirect
subsidiaries;
commits a material violation of any general
policy or directive of the Company or its
direct or indirect subsidiaries communicated
in writing to the Participant; or
is charged with a crime involving
dishonesty, fraud, or unethical business
conduct, or a felony.
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<PAGE> 8
CHANGE OF "Change of Control" has the same meaning as set
CONTROL forth in the Company's 1999 Equity Incentive Plan,
as amended from time to time.
LIMITATION ON Notwithstanding any other provision of this Plan, the
AWARDS maximum Award payable under the Plan to any
individual Participant in any single calendar year
will be $3 million.
NEGATIVE DISCRETION The Committee's powers include the power to make
ADJUSTMENTS Negative Discretion Adjustments, which are
adjustments that eliminate or reduce (but not
increase) an Award otherwise payable to a
Participant for a Performance Period. No Negative
Discretion Adjustment may cause an Award to fail to
qualify as "performance based compensation" under
Section 162(m).
OTHER PLANS A Participant in this Plan may not also participate
in the Company's general bonus plans during any
Performance Period for which such participation
would cause an Award under this Plan to fail to
qualify as "performance based" under Section 162(m).
Awards will not be treated as compensation for
purposes of any other compensation or benefit plan,
program, or arrangement of the Company or any
subsidiary unless and except to the extent that the
Board or the Committee determines in writing.
Neither the adoption of this Plan nor the submission
of the Plan to the Company's shareholders for
approval will be construed as limiting the power of
the Board or the Committee to adopt such other
incentive arrangements as either may otherwise deem
appropriate.
LEGAL COMPLIANCE The Company will not make payments of Awards until
all applicable requirements imposed by Federal and
state laws, rules, and regulations, and by any
applicable regulatory agencies, have been fully met.
No provision in the Plan or action taken under it
authorizes any action that Federal or state laws
otherwise prohibit.
The Plan is intended to conform with all provisions
of Section 162(m) and Treas. Reg. Section 1.162-27
to the extent necessary to allow the Company a
Federal income tax deduction for Awards as
"qualified performance based compensation."
Notwithstanding anything in the Plan to the
contrary, the Committee must administer the Plan,
and Awards may be granted and paid, only in a manner
that conforms to such laws, rules, and
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<PAGE> 9
regulations. To the extent permitted by applicable
law, the Plan will be treated as amended to the
extent necessary to conform to such laws, rules, and
regulations.
TAX WITHHOLDING The Company may make all appropriate provisions for
the withholding of Federal, state, and local taxes
imposed with respect to Awards, which provisions may
vary with the time and manner of payment.
NONTRANSFER Except as and to the extent the law requires, or as
OF RIGHTS the Plan expressly provides, a Participant's rights
under the Plan may not be assigned, pledged, or
otherwise transferred in any way, whether by
operation of law or otherwise or through any legal
or equitable proceedings (including bankruptcy), by
the Participant to any person.
BENEFICIARY Each Participant may designate in a written form
DESIGNATIONS filed with the Committee (or another designated
recipient) the person or persons (the "Beneficiary"
or "Beneficiaries") to receive the amounts (if any)
payable under the Plan if the Participant dies
before the Award payment date for a Performance
Period. A Beneficiary designation filed under this
section will not be considered a prohibited transfer
of rights.
A Participant may change a Beneficiary designation
at any time without the Beneficiary's consent
(unless otherwise required by law) by filing a new
written Beneficiary designation with the Committee.
A Beneficiary designation will be effective only if
the Company is in receipt of the designation before
the Participant's death.
If no effective Beneficiary designation is made, the
beneficiary of any amounts due will be the
Participant's estate.
AMENDMENT OR Subject to the limitations set forth in this section,
TERMINATION OF PLAN the Board may amend, suspend, or terminate the Plan
at any time, without the consent of the Participants
or their Beneficiaries.
Without the Participant's written consent, no
amendment or termination may materially adversely
affect the Award rights (if any) of any already
designated Participant for a given Performance
Period once the Committee has announced the
Participant designations and Performance Goals for
such Performance Period.
- --------------------------------------------------------------------------------
Aether Systems, Inc.
Senior Bonus Plan
Page 9 of 11
<PAGE> 10
The Board or the Committee may make any amendments
necessary to comply with applicable regulatory
requirements, including Section 162(m) and
regulations thereunder.
The Board must submit any Plan amendment to the
Company's shareholders for their approval if and to
the extent such approval is required under Section
162(m).
LIMITATIONS ON No member of the Committee and no other individual
LIABILITY acting as a director, officer, other employee or
agent of the Company will be liable to any
Participant, former Participant, spouse,
Beneficiary, or any other person for any claim,
loss, liability, or expense incurred in connection
with the Plan. No member of the Committee will be
liable for any action or determination (including,
but limited to, any decision not to act) made in
good faith with respect to the Plan or any Award
under the Plan. If a Committee member intended to
qualify as an 'outside director' under Section
162(m) does not in fact so qualify, the mere fact of
such nonqualification will not invalidate any award
or other action made by the Committee under the Plan
that otherwise was validly made under the Plan.
The Company will indemnify and hold harmless each
member of the Committee, director, officer, other
employee, or agent of the Company to whom it or
another has delegated or does delegate any duty or
power relating to the administration or
interpretation of the Plan, against any cost or
expense (including attorneys' fees) or liability
(including any sum paid in settlement of a claim
with the Board's approval) arising out of any act or
omission to act concerning this Plan unless arising
out of such person's own fraud or bad faith.
NO EMPLOYMENT Nothing contained in this Plan constitutes an
CONTRACT employment contract between the Company and the
Participants. The Plan does not give any Participant
any right to be retained in the Company's employ,
nor does it enlarge or diminish the Company's right
to end the Participant's employment or other
relationship with the Company.
APPLICABLE LAW The laws of the State of Delaware (other than its
choice of law provisions) govern this Plan and its
interpretation.
DURATION OF THE PLAN The Plan will remain effective until terminated by
the Board, provided, however, that the continued
effectiveness of the Plan will be subject to the
approval of the Company's shareholders at such times
and in such manner as Section 162(m) may require.
- --------------------------------------------------------------------------------
Aether Systems, Inc.
Senior Bonus Plan
Page 10 of 11
<PAGE> 11
DISCLOSURE AND The Plan must be submitted to Company shareholders
APPROVAL OF THE PLAN for their approval. The specific terms of the Plan,
including the class of employees eligible to be
Participants, the Performance Goals, and the terms
of payment of Awards, must be disclosed to the
shareholders to the extent Section 162(m) requires.
The shareholders must approve the Plan by a separate
vote after such disclosure. If the shareholders do
not approve the Plan, the Plan will be treated as
void and of no effect.
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Aether Systems, Inc.
Senior Bonus Plan
Page 11 of 11
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Aether OpenSky Investments LLC
Mobeo, Inc.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Aether Technologies International LLC
The audits referred to in our report dated February 25, 1999, included the
related financial statement schedule as of December 31, 1998, and for each of
the years in the three-year period ended December 31, 1998, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to the use of our report included herein and to the references to our
Firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
/s/ KPMG LLP
Washington, D.C.
October 1, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated March 10, 1999 relating to the financial statements of Mobeo,
Inc., which appear in such Registration Statement. We also consent to the
references to us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
October 1, 1999
<PAGE> 1
EXHIBIT 23.13
[THE YANKEE GROUP LETTERHEAD]
October 1, 1999
Mike Mills
Aether Systems, Inc.
11460 Cronridge Drive
Owings Mills, Maryland 21117
Dear Mike:
Per our conversation, Yankee is granting permission for Aether Systems, Inc. to
attribute the estimates used in Aether Systems' SEC filings to Yankee.
Sincerely,
/s/ CHRISTINE WILSON
Christine Wilson
Chief Financial Officer
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