<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 2000.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SIGNALSOFT CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7372 84-1268226
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1495 CANYON BOULEVARD
BOULDER, COLORADO 80302
(303) 381-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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ANDREW M. MURRAY
SENIOR VICE PRESIDENT OF FINANCE
SIGNALSOFT CORPORATION
1495 CANYON BOULEVARD
BOULDER, COLORADO 80302
(303) 381-3000
FAX: (303) 381-3001
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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FRANCIS R. WHEELER, ESQ. PHILIP J. BOECKMAN, ESQ.
J. GREGORY HOLLOWAY, ESQ. CRAVATH, SWAINE & MOORE
HOLME ROBERTS & OWEN LLP WORLDWIDE PLAZA
1700 LINCOLN, SUITE 4100 825 EIGHTH AVENUE
DENVER, COLORADO 80203 NEW YORK, NEW YORK 10019
(303) 861-7000 (212) 474-1000
FAX (303) 866-0200 FAX (212) 474-3700
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)
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Common Stock, $0.001 par value per share.................... $80,500,000 $21,252
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(1) Includes amounts that the Underwriters have the option to purchase to cover
over-allotments, if any. Estimated solely for the purpose of computing the
amount of the registration fee pursuant to Rule 457 under the Securities Act
of 1933, as amended.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the maximum
aggregate offering price.
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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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<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, DATED APRIL 13, 2000
PROSPECTUS
SHARES
[SIGNALSOFT LOGO]
COMMON STOCK
$ PER SHARE
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We are selling shares of our common stock. The underwriters named in
this prospectus may purchase up to additional shares of common stock
from us to cover over-allotments.
This is an initial public offering of our common stock. We currently expect
the initial public offering price to be between $ and $ per share. We
have applied to have our common stock included for quotation on the Nasdaq
National Market under the symbol "SGSF."
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INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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PER SHARE TOTAL
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Public Offering Price..................................... $ $
Underwriting Discount..................................... $ $
Proceeds to SignalSoft (before expenses).................. $ $
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The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.
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SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
, 2000
<PAGE> 3
DESCRIPTION OF ARTWORK FOR GATEFOLD.
The title of the graphic is Wireless Location Services: Key Enabler of
m-Commerce
There are four stylized concentric circles in the main body of the graphic. Each
circle has a label, specifically Wireless Network, Location Technologies,
Internet and m-Commerce. The Wireless Network circle is in the center, the
Location Technologies circle is next, the Internet circle is third, and the
largest circle is m-Commerce. Through the middle of the Wireless Network circle
is a cylinder with the label, Wireless Location Services(R). Below the four
concentric circles is another cylinder with icons and labels of each of
SignalSoft's products, specifically local.info(TM), Location Sensitive Billing,
Wireless 911/112, Tracking, Location Manager, and MAPS. Below the product icons
is the label, SignalSoft's Product Suite.
Around the edge of the m-Commerce circle are four pictures of people, each using
an m-Commerce service. Each picture has a line leading to a small circle, which
is overlaid on a picture of the New York City skyline. This small circle
represents the location of the service that each person is looking for. Each
picture also has a short description of a person using one of our services.
On the side of the graphic is a legend, which describes SignalSoft's relation to
each of four areas:
"WIRELESS NETWORK
Our customers and industry partners. They deliver mobile communications to
businesses and consumers, and provide the infrastructure for m-Commerce.
LOCATION TECHNOLOGIES
Our industry partners. They locate mobile phones and deliver the raw location
data to our products.
INTERNET
Our industry partners. They provide the content for m-Commerce, which we combine
with location.
m-COMMERCE
The end result. People receive personalized information that is relevant to
their location."
At the bottom of the graphic is a short description of SignalSoft and what we
do. It says,
"SignalSoft is the developer of Wireless Location Services(R), a product suite
which enables location-based services and m-Commerce. The operating platform and
several related applications allow wireless network operators worldwide to
unlock the value of a core element of mobile telephone networks - the location
of their users."
DESCRIPTION OF ARTWORK FOR INSIDE FRONT COVER
At the top of the page is SignalSoft's logo with the phrase, Wireless Location
Services(R), directly beneath. At the bottom of the page is a picture of
concentric circles formed in water with the overlaid phrase, "Now, it's not just
who you are, but where you are."
DESCRIPTION OF ARTWORK FOR INSIDE BACK COVER
In the middle of the page is a stylized star with the SignalSoft logo overlaid.
At each corner of the star are the logos of our various industry partners.
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
SIGNALSOFT CORPORATION HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION. SIGNALSOFT IS NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE
WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION
PROVIDED IN THIS PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE THAN THE DATE ON
THE FRONT OF THIS PROSPECTUS.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 30
Management.................................................. 45
Principal Stockholders...................................... 54
Certain Transactions........................................ 56
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 61
Material Tax Considerations for Non-United States Holders... 62
Underwriting................................................ 65
Legal Matters............................................... 66
Experts..................................................... 67
Available Information....................................... 67
Index to Financial Statements............................... F-1
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Until , 2000, all dealers that buy, sell or trade the common
stock, 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.
i
<PAGE> 5
PROSPECTUS SUMMARY
The following summarizes information in other sections of our prospectus,
including our consolidated financial statements and the notes to those
statements. This summary does not contain all of the information you should
consider before investing in our common stock. You should read the entire
prospectus carefully, especially the risks of investing in the shares discussed
under "Risk Factors."
SIGNALSOFT CORPORATION
SignalSoft provides a software platform and related applications to enable
the delivery of location-based voice and data services, or mobile location
services, to wireless network operators. Our operating platform and software
applications allow wireless network operators worldwide to unlock the value of a
core element of mobile telephone networks -- the location of their users. The
location of the wireless user will be fundamental to the delivery of many new
services by wireless operators. We believe that mobile location services will be
the key enabler of m-Commerce, which is the extension of e-Commerce to mobile
phones and other mobile devices.
We use the location data generated by various third-party location
determination technologies to offer information, billing, safety and tracking
applications based on the geographic location of the mobile user. With our
products as an integral part of the wireless network infrastructure, network
operators can transform wireless location data into a strategic means to offer
differentiated services, build customer loyalty and generate incremental
revenue.
Our operating platform enables wireless operators to extend their network
infrastructure to provide mobile location services. We also offer a suite of
software applications in four core categories of mobile location services:
information, billing, safety and tracking. With our local.info(TM) product, a
wireless user can personalize on-demand Internet content such as traffic
updates, weather reports and restaurant reviews, in each case tailored to the
user's current location. Our Location Sensitive Billing product allows wireless
operators to customize billing plans and to charge differentiated rates based on
the geographic location of the subscriber. Our Wireless 911 application ensures
that the call of a wireless caller in distress is routed to the appropriate
emergency services provider. Our BFound.com(TM)wireless tracking service uses an
Internet browser to track and manage roving assets in real-time using a standard
wireless device.
In order to reach wireless carriers worldwide, we market and sell our suite
of products, which we call Wireless Location Services(R), to network operators
both through our direct sales force and through a variety of license-based and
co-marketing relationships that we call industry partnerships. We have entered
into industry partnerships with leading wireless infrastructure providers and
resellers in the wireless industry, including: Compaq, Ericsson, GTE-TSI,
Lucent, Motorola, Nortel, SCC Communications, and Siemens. We have also entered
into industry partnerships with approximately 30 Internet content providers in
connection with our local.info(TM) application, as well as with a number of
location determination technology companies.
As of March 31, 2000, the network operators named below have commercially
deployed or licensed our products. Most of our deployments have been for our
Wireless 911 product.
- AAPT (Australia)
- Ameritech Cellular
- AT&T Wireless
- BellSouth
- Century Tel
- diAx (Switzerland)
- Houston Cellular
- Southwestern Bell Mobile
- Sprint PCS
- Triton
- U S WEST Wireless
1
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OUR STRATEGY
Our goal is to be the leading provider of software solutions that
facilitate the delivery of mobile location services. The key elements of our
strategy are to:
- innovate and enhance our products and services;
- create market demand for mobile location services and brand awareness for
our Wireless Location Services(R) products;
- establish a global presence;
- strengthen and expand our industry partnerships; and
- pursue selective acquisitions.
CORPORATE INFORMATION
Our corporate headquarters are located at 1495 Canyon Boulevard, Boulder,
Colorado 80302, and our telephone number is (303) 381-3000.
Wireless Location Services(R), local.info(TM) and BFound.com(TM) are our
trademarks. This prospectus also contains brand names, trademarks or service
marks of other companies, and these brand names, trademarks or service marks are
the property of these other holders.
2
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THE OFFERING
Common stock offered................ shares
Common stock to be outstanding
after this offering............... shares
Use of proceeds..................... We plan to use the net proceeds from
this offering primarily for general
corporate purposes, including
acquisitions, research and development,
sales and marketing, the strengthening
and expansion of industry partnerships,
capital expenditures and working
capital.
Proposed Nasdaq National Market
symbol.............................. SGSF
Unless otherwise indicated, all information in this prospectus, including
the outstanding share information above, is based on the number of shares
outstanding as of March 31, 2000, except for the financial information which is
based on the number of shares outstanding as of December 31, 1999, and:
- gives effect to the conversion of all outstanding shares of preferred
stock into 10,981,172 shares of common stock upon the completion of this
offering;
- excludes 1,442,081 shares of common stock issuable upon exercise of
outstanding options as of March 31, 2000 at a weighted average exercise
price of $1.34 per share;
- excludes 25,336 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $1.25 per
share;
- excludes 99,267 shares of common stock reserved for future grants under
our 1995 nonqualified stock option plan as of March 31, 2000;
- excludes 3,400,000 shares of common stock reserved for future grants
under our 2000 equity incentive plan;
- excludes 423,151 shares of common stock issued to acquire 76% of the
common stock of BFound.com Services, Inc.; and
- assumes there is no exercise of the underwriters' over-allotment option.
3
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
You should read this summary data together with the audited consolidated
financial statements, related notes and independent auditors' reports and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere in this prospectus. The following data for the
years ending December 31, 1997, 1998 and 1999 and as of December 31, 1999 have
been derived from the audited financial statements included elsewhere in this
prospectus.
The pro forma data give effect to our acquisition of BFound.com Services,
Inc.
The pro forma as adjusted data give effect to the acquisition of
BFound.com, the receipt of net proceeds of $12.1 million from our sale of shares
of Series C preferred stock in January 2000 and the automatic conversion of all
outstanding shares of preferred stock into common stock upon completion of this
offering.
The pro forma as further adjusted data give effect to the acquisition of
BFound.com, the sale of Series C preferred stock in January 2000, the conversion
of all outstanding shares of preferred stock upon completion of this offering,
and our receipt of the estimated net proceeds from the sale of the shares of
common stock in this offering at an assumed initial public offering price of
$ per share, after deducting the estimated underwriting discount and
estimated offering expenses payable by us.
The transactions reflected in the pro forma, pro forma as adjusted and pro
forma as further adjusted columns are assumed to have occurred as of January 1,
1999, with respect to operations data and as of December 31, 1999, with respect
to balance sheet data.
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YEAR ENDED DECEMBER 31,
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1999
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PRO FORMA
PRO FORMA AS FURTHER
1997 1998 ACTUAL PRO FORMA AS ADJUSTED ADJUSTED
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Total revenue.................. $ 1,352 $ 1,080 $ 1,956 $ 2,123 $ 2,123 $
Gross profit (loss)............ 963 (47) 179 313 313
Loss from operations........... (1,498) (4,788) (7,605) (8,851) (8,851)
Net loss....................... $(1,435) $(4,451) $(7,595) $(8,703) $(8,703) $
------- ------- ------- ------- ------- -------
Net loss attributable to common
stockholders................. $(1,601) $(5,272) $(8,616) $(9,724) $(8,703) $
======= ======= ======= ======= ======= =======
Basic and diluted loss per
share........................ $ (0.25) $ (0.83) $ (1.35) $ (1.43) $ (0.49) $
======= ======= ======= ======= ======= =======
Shares used to compute basic
and diluted loss per share... 6,334 6,385 6,387 6,810 17,792
======= ======= ======= ======= ======= =======
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DECEMBER 31, 1999
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PRO FORMA
PRO FORMA AS FURTHER
ACTUAL PRO FORMA AS ADJUSTED ADJUSTED
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 18,051 $ 17,026 $29,168 $
Working capital.................................. 16,286 15,042 27,184
Total assets..................................... 19,703 22,250 34,392
Mandatorily redeemable convertible preferred
stock.......................................... 32,205 32,205 --
Total stockholders' equity (deficit)............. (15,292) (13,037) 31,310
</TABLE>
4
<PAGE> 9
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully the following risks, as well as all of the other
information in this prospectus, before deciding to buy our common stock. If any
of the following risks occur, the market price of our stock could decline and
you could lose all or a part of your investment.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT MAY BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.
We commenced business operations in February 1995, and investors have only
a very limited operating history on which to evaluate our business prospects. We
may not continue to grow and may never achieve profitability. We are an early
stage company in a new and developing sector of the wireless telecommunications
industry, and it is uncertain whether we will be able to create, stimulate and
maintain demand for our products and services. We cannot assure you that our
current or future products will achieve or maintain commercial success. We
cannot predict if we will ever achieve profitability, and if we do, we may not
be able to sustain or increase profitability.
WE HAVE A HISTORY OF SIGNIFICANT LOSSES AND NEGATIVE CASH FLOWS AND EXPECT TO
INCUR SIGNIFICANT LOSSES AND HAVE CONTINUED NEGATIVE CASH FLOWS FOR THE NEXT
SEVERAL YEARS.
We have not been profitable since we began our business. We incurred losses
of $0.1 million for the year ended December 31, 1995, $0.7 million for the year
ended December 31, 1996, $1.4 million for the year ended December 31, 1997, $4.5
million for the year ended December 31, 1998 and $7.6 million for the year ended
December 31, 1999. As of December 31, 1999, we had an accumulated deficit of
$16.3 million. We expect to continue to incur losses, which may be substantial,
and generate negative cash flows from operations over the next several years. We
anticipate that our expenses will continue to increase substantially in the
foreseeable future as we expand our sales and marketing, research and
development and general and administrative operations. These efforts may prove
even more expensive than we currently anticipate. Our revenues must grow
substantially if we are to offset these higher expenses and become profitable.
Since our inception through December 31, 1999, we have generated only $5.2
million in revenue. We cannot predict if we will ever achieve profitability, and
if we do, we may not be able to sustain or increase profitability. Future net
losses could cause our stock price to decline.
THERE IS NO ESTABLISHED MARKET FOR MOBILE LOCATION PRODUCTS, AND THE PRODUCTS WE
EXPECT TO GENERATE SIGNIFICANT PORTIONS OF OUR REVENUE HAVE ACHIEVED LITTLE OR
NO MARKET ACCEPTANCE.
The market for mobile location products and services is new and its
potential is uncertain. In order to be successful, we need wireless network
operators to launch and maintain mobile location services utilizing our Wireless
Location Services(R) products, but we cannot be sure that wireless carriers will
accept our products or that a sufficient number of wireless users will purchase
mobile location services from their wireless carriers. To date, a number of
wireless carriers have implemented our Wireless 911 product, but their roll-outs
have been limited and we have recognized little subscriber revenue. We
anticipate that our local.info(TM) and Location Sensitive Billing products and
our planned Wireless Tracking products will account for the majority of our
revenue in the future. All of these products are currently at an early stage,
and their full potential is unknown. Currently, we have one commercial
deployment of local.info(TM) and no commercial deployments for Location
Sensitive Billing, and we are in the process of integrating our BFound.com(TM)
tracking service with our operating platform. We cannot be sure that the market
will accept local.info(TM), Location Sensitive Billing or Wireless Tracking or
that these products will generate the revenue we project. If sales of
local.info(TM), Location Sensitive Billing or Wireless Tracking fall short of
our expectations, our financial condition and results of operations may suffer.
5
<PAGE> 10
WE RELY TO A SUBSTANTIAL DEGREE ON A FEW KEY CUSTOMERS, AND OUR REVENUE MAY
DECLINE IF WE FAIL TO RETAIN THESE CUSTOMERS OR ADD NEW CUSTOMERS.
We have derived in the past, and believe that we will continue to derive in
the future, a significant portion of our revenue from a limited number of
customers. Our two largest customers in 1999 accounted for approximately 46% and
11% of our revenue, and our two largest customers in 1998 accounted for
approximately 45% and 19% of our revenue. For many of our products, a customer
purchases either a perpetual license for a single version of the product that
covers a specific number of subscribers, or an annual or monthly license for a
specific number of subscribers. We license our products directly to wireless
network operators and to some of our industry partners who then sublicense our
products. In 1999, one of our industry partners purchased a pre-paid license,
which accounted for 85% of our license fees. After a customer pays the license
fee, we do not receive any more revenue from that customer, except for any
consulting and maintenance fees, until and unless they purchase a new version of
the product, add more subscribers or, in the case of non-perpetual licenses,
renew the license for another period. We cannot assure you that our customers
will continue to purchase upgrades of our products, that they will have enough
subscribers to require additional licenses or, in the case of non-perpetual
licenses, that they will renew their licenses for any additional periods.
Because of these reasons, our sales volume to specific customers is likely to
vary from year to year. A major customer in one year or quarter may not continue
to purchase our products and services at the same levels in a subsequent year or
quarter. Also, because we are likely to be receiving payments from a small
number of customers, a failure by any single customer to pay us on time or at
all could materially adversely affect our revenue. We cannot be sure that we
will be able to obtain enough new customers to offset these variations in sales.
In addition, because there are relatively few network operators worldwide, any
substantial loss of business from an existing or potential customer to a
competitor could result in a shortfall in revenue that could not readily be
offset by other revenue sources.
OUR SALES CYCLE IS LONG AND OUR REVENUE IS UNPREDICTABLE, AND OUR STOCK PRICE
COULD DECLINE IF SALES ARE DELAYED OR CANCELED OR IF REVENUE FALLS SHORT OF
EXPECTATIONS.
Licensing our software is a long and complex process. In the past, our
sales cycle has generally ranged from three to 18 months. We spend a substantial
amount of time educating potential customers about the use and benefits of our
products and services. Because our software represents a substantial investment,
wireless carriers may take several months to evaluate our products, determine
the size of the subscriber base to be covered and obtain the necessary
expenditure authorizations and financings. The process of entering into a
licensing agreement with a wireless carrier typically involves lengthy
negotiations. This process may be extended if our industry partners are
marketing our products as part of a larger project or system. After a prospect
has signed a license agreement, we must then integrate our technology into the
licensee's products and services, and the licensee must accept the software.
Because our wireless carrier customers do not pay any fees until they have
accepted the product, there will be significant delay -- generally about 30
days -- between the time we license our software and our receipt of the license
fee under each license. Also, we may spend a significant amount of time and
money on a potential customer that ultimately does not purchase our software.
Any delay in sales of our products could cause our operating results to vary
significantly from projected results, which could cause our stock price to
decline. The up-front payment structure of many of our licenses also makes our
revenue irregular and could cause our operating results to vary significantly.
Once an operator has purchased a perpetual license, we are able to generate
license revenue from that customer only if the operator licenses additional
products, additional subscriber capacity or additional transactional capacity.
Also, we may not accurately predict the sales of our products by our industry
partners, since our industry partners do not always keep us informed about the
status of possible sales and other revenue opportunities to their customers.
Sales of our products by our industry partners also depend on the timing of the
roll-out of their own products and systems. We have no control over the timing
of our industry partners' roll-outs, and we may not be informed of when these
roll-outs will occur.
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<PAGE> 11
Because of these factors and our limited revenue history, it is especially
difficult to forecast our revenue and operating results. Our inability to
accurately predict the timing and magnitude of our sales could cause a number of
problems, including that:
- we may have difficulty meeting our customers' delivery requirements in
the event many large orders are received in a short period of time;
- we may expend significant management efforts and incur substantial sales
and marketing expenses in a particular period that do not translate into
orders during that period or at all; and
- we may have difficulty meeting our cash flow requirements and obtaining
credit because of delays in receiving orders or delays in receiving
payment for our products and services.
The problems resulting from our lengthy and variable sales cycle could
impede our growth, harm our stock price, and restrict our ability to take
advantage of new opportunities.
OUR QUARTERLY OPERATING RESULTS VARY SIGNIFICANTLY, AND OUR STOCK PRICE COULD
FALL IF WE FAIL TO MEET THE EXPECTATIONS OF INVESTORS AND ANALYSTS.
Our revenue and earnings may fluctuate from quarter to quarter based on
such factors as:
- the number, size and rate of customer deployments;
- the terms of licenses and other customer contracts, including the
up-front payment structure of many of our licenses;
- the length and complexity of our sales cycle;
- the timing of costs related to product launches;
- delays in or lack of market acceptance of our products;
- the adequacy of provisions for losses;
- the accuracy of estimates of resources required to complete customer
deployments;
- pricing and other competitive pressures; and
- general economic conditions.
Our industry also may experience some seasonality in sales. For example,
sales in Europe may be lower in the third quarter of the year due to summer
vacations. In the United States, sales may be higher in the fourth quarter, and
consequently lower in the first quarter, due to our customers' desire to spend
their full budget by year end. A high percentage of our operating expenses,
especially personnel and rent, are relatively fixed in amount. As a result,
unanticipated declines in revenue in a quarter will likely result in greater
losses for that quarter.
WE ARE DEPENDENT ON THIRD-PARTY LOCATION SERVICES COMPANIES TO MANUFACTURE AND
INSTALL FCC-COMPLIANT LOCATION DETERMINATION EQUIPMENT, AND WITHOUT
SIGNIFICANTLY HIGHER PENETRATION RATES FOR THIS EQUIPMENT, SUFFICIENT DEMAND FOR
OUR PRODUCTS MAY NEVER MATERIALIZE.
We rely on third-party providers to manufacture and deploy location devices
for wireless network service providers. Currently, we estimate that less than 1%
of the wireless network infrastructure in the United States and in Europe is
equipped with location determination devices that meet the improved technology
standards that the Federal Communications Commission, or FCC, currently requires
and the European Union is now considering. See "Business -- Mobile Location
Services: The FCC's 911 Mandate." The rest of the wireless network
infrastructure is equipped with cell sector technology, which can identify which
cell sector a wireless user is in, but cannot precisely locate the user within
that cell sector. Network operators and wireless users may never exhibit
sufficient demand for our mobile location services unless more precise location
determination technology is installed over much more of the wireless network
infrastructure. Technical
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failures, time delays or the significant costs associated with developing or
installing improved location determination technology devices could slow down or
stop the deployment of our mobile location products. If deployment of improved
location determination technology is delayed or stopped, market acceptance of
our products may be adversely affected, since our products would have less
functionality for carriers and users.
Phase I of the FCC's 911 mandate required operators to report the callback
number and originating cell sector site of a 911 call by April 1, 1998, but we
estimate that less than 5% of all wireless network operations in the United
States currently comply with Phase I. Phase II of the FCC's mandate requires
wireless service providers to pinpoint the locations of all 911 callers within
an accuracy of 125 meters in 67% of all cases by October 1, 2001. We do not
expect that most of the location determination technology that may be in use on
the deadline date will be accurate enough to meet the FCC's Phase II
requirement. Complying with Phase II will be substantially more difficult and
expensive for operators than Phase I, further diminishing the likelihood of
compliance by the October 1, 2001 deadline. Because we rely on third-party
location determination technology instead of developing the technology
ourselves, we have little or no influence over its improvement. If the
technology never becomes precise enough to satisfy wireless users' needs or the
FCC's requirements, we may not be able to increase or sustain demand for our
products and services.
IF WIRELESS DEVICES ARE NOT WIDELY ADOPTED FOR INTERNET-BASED SERVICES, OUR
BUSINESS COULD SUFFER.
Individuals currently use many competing products, such as portable
computers and personal data assistants, to remotely access the Internet and
email. Unlike wireless telephones, these products generally are designed for the
visual presentation and input of data. If mobile users do not accept wireless
telephones as a method of accessing Internet-based services, that lack of
acceptance could have a material adverse effect on our financial condition and
results of operations. There are many technological and market barriers that
must be overcome before the possibilities of m-Commerce become reality,
including:
- limited display capability and difficulty of data input in wireless
telephones;
- substantially slower connection speeds of wireless telephones compared to
competing products;
- lack of mobile applications and content customized for use on wireless
telephones;
- variety of competing wireless communication technologies, which may
prevent standardization and confuse wireless users;
- general unavailability of "smart" handsets that incorporate m-Commerce
capable technology; and
- challenge of developing handsets that reconcile wireless users' desires
for high speed and power, ease of use, long battery life, small size and
light weight.
Mass market acceptance of m-Commerce is unlikely unless and until
manufacturers and content providers successfully address these obstacles.
Because we do not manufacture equipment or create content ourselves, we rely on
third parties to make these advances and can do little to achieve the necessary
improvements on our own. We cannot assure you that these hurdles can be overcome
or, even if they are, that wireless users will embrace m-Commerce.
IF MOBILE EQUIPMENT MANUFACTURERS DO NOT OVERCOME CAPACITY AND INFRASTRUCTURE
LIMITATIONS, M-COMMERCE MAY NOT GROW AND WE MAY NOT BE ABLE TO SELL OUR
PRODUCTS.
The wireless technology currently in use by most wireless carriers has
limited bandwidth, which restricts network capacity to deliver
bandwidth-intensive applications like data services to a large number of users.
Because of capacity limitations, wireless users may not be able to connect to
their network when they wish to, and the connection is likely to be slow,
especially when receiving data transmissions. Data services also may be more
expensive than users are willing to accept due to difficulties in transmitting
data over wireless networks. The possibility of someday offering streaming video
features on a wireless handset is also unlikely if network capacity is not
increased. These problems will intensify to the extent that the number of
wireless users increases and m-Commerce becomes more common. To overcome these
obstacles, wireless equipment
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manufacturers will need to develop new technology, standards, equipment and
devices that are capable of providing higher bandwidth services at lower cost.
We cannot be sure that manufacturers will be able to develop technology and
equipment that reliably delivers large quantities of data at a reasonable price.
If more capacity is not added, a sufficient market for mobile location services
is not likely to develop or be sustained, which would adversely affect the sales
of our products.
CONCERNS ABOUT PERSONAL PRIVACY AND COMMERCIAL SOLICITATION MAY LIMIT THE GROWTH
OF MOBILE LOCATION SERVICES AND REDUCE DEMAND FOR OUR PRODUCTS.
In order for mobile location products and services to function properly,
wireless carriers must locate their subscribers and store information on each
subscriber's location. Although data regarding the location of the wireless user
resides only on the wireless carrier's systems, users may not feel comfortable
with the idea that the wireless carrier knows and can track their location.
Also, users may view location-based messages from retailers and others as "junk
mail," especially if they arrive in large numbers, and ignore the messages or
cancel the service. To address these concerns and target their messages
precisely, carriers will need to obtain subscribers' permission to use the
subscribers' personal information. If wireless carriers cannot obtain or use
information about their subscribers, they may not be able to provide customized
mobile location services which those subscribers might otherwise desire. If
subscribers view mobile location services as an annoyance or a threat to their
privacy, that could reduce demand for our products and cause our sales to
decline.
Internet content providers may also create profiles of wireless users,
which may include personal information about the user and his or her habits and
preferences. Wireless users may object to the existence of a detailed personal
profile or the use of this profile to deliver customized services, and may
decline to provide personal information to their wireless carrier or refuse
permission for content providers to use their information. For example, Internet
content providers have considered matching online users' anonymous Internet
activity with their personal information, such as name, address and credit card
number. Public outcry from individuals and consumer groups has thus far
prevented the adoption of this plan. Also, federal and state laws currently
limit access to and use of consumer information, and these laws may be expanded
or be interpreted to cover the wireless market.
WE DEPEND HEAVILY ON INFRASTRUCTURE PROVIDERS, RESELLERS AND OTHER VENDORS, AND
OUR REVENUE MAY DECLINE IF WE ARE UNABLE TO ESTABLISH OR MAINTAIN RELATIONSHIPS
WITH THEM.
We rely on infrastructure providers, resellers and other vendors of
wireless equipment to market our products as part of their own product and
service offerings to their customers. In 1999, one infrastructure provider
purchased a pre-paid license, which accounted for 85% of our license fees.
Although we have entered into contracts or relationships with some of these
companies, we cannot be sure that we will be able to develop or to maintain
satisfactory relationships on acceptable commercial terms with our current
industry partners or with any other company. Generally, our agreements allow our
industry partners to terminate the relationship on relatively short notice. In
addition, our industry partners are under no obligation to exert any particular
effort in, or spend any money in, marketing or sublicensing our products and
services. We currently compete against some of our industry partners, and may
have to compete against more of our industry partners in the future if they
decide to develop their own mobile location products. Any marketing partner or
vendor that becomes our competitor will likely terminate their relationship with
us, and our business may suffer if we cannot find a new partner or vendor to
replace that relationship. We cannot assure you that we will be able to find a
replacement on a timely basis or on acceptable terms. Even if a marketing
partner or vendor that competes with us chooses not to terminate our
relationship, that marketing partner or vendor will likely not promote our
products and services as vigorously as it promotes its own competing products
and services. Failure to create or sustain the relationships we need may delay
or stop the growth of our business.
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WE MUST CONTINUE TO FORM RELATIONSHIPS WITH CONTENT PROVIDERS AND ENCOURAGE THE
DEVELOPMENT OF ACCURATE, USEFUL CONTENT AND APPLICATIONS FOR WIRELESS DEVICES,
OR OUR LOCAL.INFO(TM) PRODUCT MAY NOT BE ATTRACTIVE TO WIRELESS OPERATORS AND
USERS.
In order to encourage subscriber demand for mobile location services and
m-Commerce, we need to form additional relationships with content providers and
promote the development of Internet-based applications and content for the
wireless telephone market. Although we have entered into contracts or
arrangements with some content providers, we cannot be sure that we will be able
to develop or to maintain satisfactory relationships with these parties on
acceptable commercial terms. We also will need to enter into relationships with
a significant number of additional content providers. If content providers do
not create enough desirable applications and content for Internet-based services
over wireless telephones, our business could suffer. If the content we deliver
through our relationships with providers is inaccurate or not useful to users,
or if sufficient user demand for the available content does not develop, that
also could delay or stop the growth of our business.
IF WE ARE UNABLE TO INTEGRATE OUR PRODUCTS WITH THIRD-PARTY TECHNOLOGY, OUR
BUSINESS MAY SUFFER.
Our products may not operate properly when integrated with the equipment
and systems of our customers, or when used to deliver services to a large number
of wireless subscribers. In particular, our products must be compatible with
mobile telephone switches, which direct calls to various parts of the network.
These switches can be manufactured according to many different standards and may
have different variations within each standard. Combining our products with each
type of switch requires a specialized interface and extensive testing. Because
we have not yet tested our products for compatibility with all types of
switches, we may encounter obstacles when we attempt to integrate our products
with a particular switch. If our software is not compatible with a third-party
provider's technology, we may not be able to sell our products and services to
that provider, or they may require us to make changes to our products. These
problems may also delay our sales or increase our expenses. We may not be able
to redesign our products to be compatible with our customers' systems at all, or
within the time period our customers are willing to accept. We have a limited
number of Location Manager, MAPS, Wireless 911 and BFound.com(TM) installations,
one deployment of local.info(TM)and no commercial installations of our Location
Sensitive Billing product. Based on the limited market acceptance of our
products to date, it is difficult to predict how many or what kinds of
compatibility problems we may have.
WE FACE STRONG COMPETITION, AND OUR REVENUE COULD DECLINE IF WE ARE NOT ABLE TO
COMPETE SUCCESSFULLY WITH OTHER MOBILE LOCATION SERVICES PROVIDERS.
The mobile location services market is evolving rapidly. We may not be
successful in competing against our current and future competitors. There are
competitors for each of our product offerings. In particular, several companies
have developed solutions to comply with the FCC mandate for emergency 911
specifications. See "Business -- Mobile Location Services: The FCC's 911
Mandate." We also compete against our current industry partners to the extent
they also offer mobile location services, and this may result in the termination
of our relationships with these industry partners. We expect competition in our
industry to be even more intense in the future as new competitors, such as
additional wireless infrastructure providers, enter the market. Many of our
current and potential competitors have longer operating histories, possess
greater industry and name recognition and have significantly greater financial,
technical and marketing resources than we have. Increased competition or our
failure to compete successfully is likely to result in price reductions, fewer
customer orders, reduced gross margins, increased marketing costs, loss of
market share, or any combination of these problems.
OUR MARKET IS STILL EVOLVING, AND WE MAY NOT BE ABLE TO ANTICIPATE OR RESPOND TO
MARKET CHANGES EFFECTIVELY.
The mobile location services industry is a new and emerging industry, and
its evolution will depend on user needs and demand. We cannot predict the rate
of adoption of mobile location services by wireless network operators or
wireless subscribers, or the price they will be willing to pay for these
services. A
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majority of wireless users rarely leave their home service area, which may limit
the market for some of our products and services. As a result, it is extremely
difficult to predict the pricing of these services and the future size and
growth of this market. Our future success will depend, in large part, on our
ability to charge accurately for our products and services, control expenses and
maintain customer contract quality. We may never achieve market acceptance of
our products and services.
WE MAY NEED TO EXPAND INTO NEW CLASSES OF PRODUCTS IN ORDER TO GROW OUR
BUSINESS.
To increase revenues, we will need to expand our operations over time by
improving our existing products and introducing new products. Many of the most
innovative and potentially appealing features of mobile location
services -- such as e-coupons, targeted advertising and comparison shopping
services -- are not yet available. Expansion may strain our management,
financial and operational resources. Gross margins attributable to new classes
of products may be lower than those for our initial products. The life cycle of
our current products is difficult to predict, and we may not have new products
or services commercially available on a timely basis. Our expansions into new
product categories may not be timely and may not generate enough revenue to
offset the related costs. In addition, any new product that is not favorably
received by consumers could damage our reputation.
WE ARE VULNERABLE TO THE RAPID EVOLUTION OF TECHNOLOGY, AND OBSOLESCENCE OR
DEFECTS IN THE TECHNOLOGY WE USE COULD HARM OUR BUSINESS PROSPECTS.
Our success will depend in part on our ability to develop solutions that
keep pace with continuing changes in location-based services technology,
evolving industry standards and regulations and changing customer objectives and
preferences. In particular, new technologies for switches, platforms and land
line and wireless telephones are constantly emerging, and it takes time for the
market to agree upon new standards from among the competing technologies. We
cannot be sure that we will adequately address these developments on a timely
basis or, even if we do address these developments, that we will be successful
in the marketplace. In addition, others may develop products or technologies
that render our current services non-competitive or obsolete.
OUR GROWTH MAY BE DIFFICULT TO MANAGE AND MAY BE SLOWED IF WE CANNOT OBTAIN THE
RESOURCES WE NEED.
Our growth has placed and is likely to continue to place significant
demands on our management, administrative and operational resources. Since we
commenced business operations in February 1995 through March 31, 2000,
SignalSoft's full-time employees increased from three to 100. A large part of
that increase, from 63 to 100, occurred since December 31, 1999. Managing growth
effectively will require us to continue developing and improving our
operational, financial and other internal systems, as well as our business
development capabilities, and to attract, train, retain, motivate and manage
employees. We expect that we will need to hire a significant number of new
employees.
WE RELY UPON KEY MANAGEMENT AND TECHNICAL PERSONNEL, AND OUR REVENUE MAY DECLINE
IF WE CANNOT ATTRACT OR RETAIN QUALIFIED EMPLOYEES.
Our success for the foreseeable future will depend largely on the continued
services of our senior management team and our ability to attract, train and
retain highly skilled employees, especially customer deployment and other senior
technical personnel. Currently, none of our employees, including the members of
our senior management, is a party to an employment agreement with us. We expect
to need to hire a significant number of additional employees. We encounter
significant competition for employees with the technical skills required to
perform the services we offer. Our ability to attract and retain qualified
personnel in the future will have a critical impact on our ability to:
- adequately manage and complete our existing customer contracts and to bid
for or obtain new customer contracts;
- deploy our products and integrate them with wireless networks;
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- conduct research and development;
- bring together sufficient local resources to expand our international
operations; and
- appropriately staff projects with a limited life span and reassign those
employees to other tasks when the project is finished.
To the extent we hire a significant number of new employees, our
compensation costs will also increase. Competition for new employees will
increase the compensation we must pay to these new employees, and thus our
per-employee compensation costs will increase as well.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE BFOUND.COM OR ANY FUTURE
ACQUISITIONS WE MAY MAKE, AND THE COSTS AND MANAGEMENT EFFORTS OF COMBINING
ACQUIRED COMPANIES AND TECHNOLOGY WITH OUR BUSINESS MAY BE GREATER THAN WE
EXPECT.
In April 2000, we acquired 76% of the common stock of BFound.com, a British
Columbia company that provides a mobile location service that allows its
customers to track the location of their roving assets over the Internet. We
have contracted to acquire the rest of the company. Because BFound.com invests
heavily in research and development, and because we expect to continue this
level of investment, the acquisition will increase our operating losses during
the next several years. We recorded a significant amount of goodwill in
connection with the acquisition of BFound.com, which we will amortize on a
straight-line basis over a five-year period beginning in April 2000, and which
will adversely affect our results during that period. We anticipate recording
additional goodwill after we acquire the remaining shares of BFound.com. We
cannot be sure that BFound.com's business will grow or remain stable. Combining
BFound.com's business with ours will require our management to divert their
attention from other business concerns. We plan to incorporate BFound.com's
technology into our products, and this process may take longer or cost more than
we currently estimate, or we may not be successful at all. We may not be able to
successfully integrate our business with that of BFound.com, especially if we
lose key employees of SignalSoft or BFound.com as a result of the acquisition.
Even if we are able to integrate BFound.com with our business, it could take
longer or cost more than we currently anticipate. We could also be exposed to
liabilities of BFound.com that have not been disclosed to, or discovered by, us.
Although BFound.com is our only acquisition to date, we may acquire other
companies or technology in the future to grow our business or expand the
products and services we offer. Entering into acquisitions involves many risks
which could materially harm our business, including the:
- diversion of management's attention from other business concerns;
- failure to effectively assimilate the acquired technology or company into
our business;
- loss of key employees from either SignalSoft or the acquired business;
- assumption of significant known and unknown liabilities of the acquired
company;
- amortization of goodwill of the acquired company and the incurrence of
other charges that adversely affect our operating results;
- incurrence of substantial debt to fund the acquisition;
- overpaying for the acquired company as a result of competition with other
potential buyers; and
- significant transaction costs, including fees paid to advisors to
negotiate the transaction.
Future acquisitions by us also may dilute your holdings in SignalSoft if we
issue equity securities in any acquisition transaction. For example, the
acquisition of the remaining 24% of BFound.com's common stock will dilute your
holdings in SignalSoft. In addition, we may not be able to complete desirable
acquisitions in a timely manner or on terms we find acceptable.
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INTERNATIONAL EXPANSION IS AN IMPORTANT PART OF OUR STRATEGY, AND FOREIGN
OPERATIONS INVOLVE ADDITIONAL BUSINESS, ECONOMIC AND POLITICAL RISKS.
We currently have offices in the United Kingdom and Victoria, British
Columbia. In the near future, we intend to expand our U.K. office and open an
office in the Asia-Pacific region. Expansion of our customer base
internationally is an important part of our growth strategy. A number of risks
may adversely affect our plans to expand internationally, including the
following risks:
- difficulties in localizing our products and services for foreign markets;
- challenges in recruiting and managing qualified employees who are located
near our foreign operations or are willing to move there;
- difficulties in establishing and maintaining relationships with foreign
industry partners;
- a variety of foreign laws and regulations, which may differ from U.S.
laws and regulations and from each other;
- legal uncertainties, delays and expenses associated with tariffs, export
licenses and other trade barriers;
- inadequate protection of intellectual property in foreign countries;
- political and economic instability;
- adverse tax consequences; and
- longer payment cycles.
We have little direct experience in dealing with these issues, as we have
had only one international deployment to date. If any of these risks related to
international expansion occur, that might delay or stop our foreign expansion
plans or reduce our international revenue.
FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY
EXCHANGE LOSSES.
As we expand our operations outside the United States, we will conduct more
of our business in currencies other than the U.S. dollar. Fluctuations in the
value of foreign currencies relative to the U.S. dollar could cause us to incur
currency exchange losses. This risk will increase to the extent our
international revenue increases. We cannot predict the effect of exchange rate
fluctuations on our future operating results. We have no experience in entering
currency hedging contracts, and if we use hedging to try to manage any future
foreign currency exposure, we may incur hedging-related losses.
WE MAY NEED ADDITIONAL CAPITAL, WHICH COULD DILUTE OUR STOCKHOLDERS OR IMPOSE
BURDENSOME FINANCIAL RESTRICTIONS ON OUR BUSINESS, AND WE MAY NOT BE ABLE TO
OBTAIN ANY FUNDS WE NEED.
We anticipate that our available cash resources combined with the net
proceeds from this offering will be sufficient to fund our operating losses for
approximately the next 12 months. After the offering, we will 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 need to seek capital sooner than
anticipated. We may seek to raise any funds we need through public or private
debt or equity offerings. If we raise funds 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 our common stock. If we obtain funds through a
bank credit facility or through issuance of debt securities or preferred stock,
this indebtedness or preferred stock would have rights senior to the rights of
our common stock, and their terms could impose significant restrictions on our
operations. If we need to raise additional funds, we may not be able to do so on
favorable terms, or at all. If we cannot obtain adequate funds on acceptable
terms, we may not be able to carry out our business strategy.
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WE HAVE LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND MAY BE
SUBJECT TO CLAIMS ALLEGING INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS.
We rely on a combination of trade secrets, non-disclosure and other
contractual arrangements, and patent, copyright and trademark laws to protect
our proprietary rights. Our future success is dependent, in part, upon our
proprietary methodologies, tools and other intellectual property rights.
Although we have several pending U.S. and international patent applications, we
cannot assure you that patents will issue, or that any issued patents will
provide a meaningful barrier to competition. We have rights under one issued
patent based on a joint submission with a major infrastructure provider. The
infrastructure provider holds actual title to the patent. The infrastructure
provider may assign rights under the patent to others without our consent or may
choose to use the patent and compete directly against us. The steps we take may
not always be adequate to deter misappropriation of our proprietary information,
and we may not always be able to detect unauthorized use of and take appropriate
steps to enforce our intellectual property rights. Our intellectual property may
not prevent others from developing or offering similar products and services. We
cannot be sure that a third party will not assert an infringement claim against
SignalSoft in the future, or if asserted, that we will be able to successfully
defend against any such claim.
OUR PRODUCTS MAY CONTAIN DEFECTS OR ERRORS THAT COULD DAMAGE OUR REPUTATION AND
RESULT IN INCREASED COSTS.
The products we develop are complex and must meet the stringent technical
requirements of our customers. We must develop our products quickly to keep pace
with the rapidly changing industry in which we operate. Products that are as
complex as ours may contain undetected errors or defects, especially when first
introduced or when new versions are released. While we test our products for
errors and work with customers through our customer support services to identify
and correct bugs, errors in our products may be found. Our products may not be
free from errors or defects even after they have been tested, which could result
in the rejection of our products and damage to our reputation, as well as lost
revenue, diverted development resources and increased support costs.
WE MAY FACE PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT COSTS TO
US.
We may be subject to claims for damages related to any errors in our
products. A major product liability claim could materially adversely affect our
business by diverting the time and attention of our employees away from our
business, by damaging our reputation and by requiring us to pay damages.
Defending against a product liability lawsuit is often very expensive and could
limit our ability to invest in sales, marketing and research and development.
Any diversion of funds away from our business and product development efforts
could harm our future prospects.
WE COULD LOSE THE ABILITY TO USE NET OPERATING LOSSES.
As of December 31, 1999, we had total net operating loss carryforwards, or
NOLs, of approximately $12.9 million for income tax purposes. These NOLs, if not
utilized to offset taxable income in future periods, will expire in various
amounts through 2019. Applicable U.S. federal income tax law imposes limitations
on the ability of corporations to use NOLs if the corporation experiences a more
than 50% change in ownership during any three-year period. We cannot assure you
that we will not take actions, such as the issuance of additional stock, that
would cause an ownership change to occur. In addition, the NOLs are subject to
examination by the Internal Revenue Service, or IRS, and are thus subject to
adjustment or disallowance resulting from any such IRS examination. Accordingly,
you should not assume the unrestricted availability of our currently existing or
future NOLs, if any, in making your investment decisions.
CHANGES IN GOVERNMENT REGULATION COULD INCREASE OUR EXPENSES OR DECREASE THE
DEMAND FOR OUR PRODUCTS.
We are not currently subject to direct regulation by the Federal
Communications Commission, or FCC, or any other governmental agency, except for
regulations applicable to businesses in general. However, in the
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future, we may become subject to regulation by the FCC or another regulatory
agency. For example, concerns about personal privacy could result in regulations
limiting the use of mobile location services. A European Union, or EU, directive
prohibits the transmission of personally identifiable data to third countries --
including the United States -- that are deemed to provide inadequate privacy
protection for that information. The United States and the EU recently signed a
data privacy agreement, which includes standards that U.S. companies will be
able to use to comply with the EU directive. Wireless network operators are
currently regulated by the FCC and any regulations that affect them could also
increase our costs, limit our access to their networks and subscribers or reduce
our ability to continue selling and supporting our products and services.
OUR MANAGEMENT HAS BROAD DISCRETION IN THE APPLICATION OF PROCEEDS, WHICH MAY
INCREASE THE RISK THAT THE PROCEEDS WILL NOT BE APPLIED EFFECTIVELY.
Our management will have broad discretion in determining how to use the
proceeds of the offering. Accordingly, we can spend the proceeds from the
offering in ways which turn out to be ineffective or with which our stockholders
may not agree.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the net
tangible book value per share of our common stock immediately after this
offering. You will incur additional dilution if holders of stock options and
warrants, whether currently outstanding or subsequently granted, exercise their
options or warrants. Accordingly, if you purchase common stock in this offering,
you will incur immediate and substantial dilution of approximately $ in the
net tangible book value per share of the common stock you purchase in this
offering. See "Dilution."
OUR SECURITIES HAVE NO PRIOR PUBLIC MARKET AND OUR SHARE PRICE MAY DECLINE AFTER
THE OFFERING.
Before this offering, there has been no public market for our common stock
and an active public market for our common stock may not develop or continue
after this offering. If an active public market for our common stock does not
develop, the liquidity of your investment may be limited, and our share price
may decline below its initial public offering price. The initial public offering
price will be determined by negotiations between us and the representative of
the underwriters and may bear no relationship to the price that will prevail in
the public market.
FUTURE SALES OF COMMON SHARES BY OUR EXISTING STOCKHOLDERS COULD CAUSE OUR SHARE
PRICE TO FALL.
If our stockholders sell substantial amounts of our common shares in the
public market, the market price of our common shares could fall. The perception
among investors that these sales will occur could also produce this effect.
After this offering, based upon the number of common shares outstanding as of
March 31, 2000, we will have common shares outstanding. All of the common
shares we will issue in this offering will generally be immediately available
for resale in the public markets, except for shares purchased by our affiliates.
In accordance with applicable securities laws and after giving effect to lock-up
agreements executed by our directors, executive officers and existing
stockholders, substantially all of the common shares outstanding after this
offering will be available for sale in the public market beginning 180 days
after the date of this prospectus. After this offering, the holders of
substantially all of our common stock prior to this offering will have the right
to require us to register the sale of their shares, subject to limitations and
to the lock-up agreements with the underwriters. These holders also have the
right to include their shares in any future public offerings of our equity
securities. Additional common shares issuable upon the exercise of stock options
will be available for sale once we file a registration statement covering shares
issued under our stock option plans. The sale of these additional shares into
the public market may further adversely affect the market price of our common
stock. See "Shares Eligible for Future Sale."
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THE OWNERSHIP OF OUR COMPANY IS CONCENTRATED AMONG A LIMITED NUMBER OF
STOCKHOLDERS, AND THIS COULD DEPRESS OUR STOCK PRICE OR PREVENT A CHANGE OF
CONTROL THAT COULD OTHERWISE BE BENEFICIAL TO OUR STOCKHOLDERS.
Immediately after this offering, our five largest stockholders, including
our founders and entities affiliated with one of our directors, will own more
than % of our outstanding common shares. These stockholders may, if they act
together, exercise significant influence over all matters requiring stockholder
approval after this offering, including the election of directors and the
determination of significant corporate actions. This concentration of ownership
could depress our stock price or delay or prevent a change in control that could
be otherwise beneficial to our stockholders.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A TAKEOVER.
Provisions of our restated certificate of incorporation and bylaws and
Delaware law may discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include the following:
- authorizing the board to issue preferred stock;
- prohibiting cumulative voting in the election of directors; and
- limiting the persons who may call special meetings of stockholders.
We also intend to amend our certificate of incorporation to establish a
classified board in which only a third of the total board members will be
elected at each annual stockholders' meeting.
16
<PAGE> 21
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus are forward-looking
statements. We generally identify forward-looking statements in this prospectus
using words like "believe," "intend," "expect," "estimate," "may," "should,"
"plan," "project," "contemplate," "anticipate," "predict" or similar
expressions. These statements involve known and unknown risks, uncertainties,
and other factors that may cause our or our industry's actual results, level of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by these forward-looking statements. These factors are described in
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other sections of this prospectus. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of any 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.
17
<PAGE> 22
USE OF PROCEEDS
We estimate that we will receive approximately $ million in net
proceeds from this offering, based upon the sale of shares of common stock
at an assumed initial public offering price of $ per share, the mid-point of
the offering range, and after deducting the underwriting discount and estimated
offering expenses payable by us. If the underwriters exercise their
over-allotment option in full, our net proceeds will be approximately $ . We
expect to use the net proceeds from this offering primarily for general
corporate purposes, including:
- acquisitions;
- research and development;
- sales and marketing;
- the strengthening and expansion of industry partnerships;
- capital expenditures; and
- working capital.
Other than estimated capital expenditures of approximately $1.8 million in
2000, we have not identified specific uses for the net proceeds from this
offering.
The actual amount of net proceeds we spend on a particular use will depend
on many factors, include our future revenue growth; additional financing
sources, if any; the amount of expenditures required for other uses; and the
amount of cash generated or used by our operations. Many of these factors are
beyond our control. Therefore, our management will have broad discretion in the
use of the net proceeds.
Until we use the net proceeds of this offering as described above, we
intend to invest the net proceeds in short-term investment-grade marketable
securities.
DIVIDEND POLICY
For the foreseeable future we plan to retain our earnings, if any, to
reinvest in our business. We have never declared or paid any dividends. Our
future decisions concerning the payment of dividends on the common stock will
depend upon our results of operations, financial condition and capital
expenditure plans, as well as such other factors as the board of directors, in
its sole discretion, may consider relevant.
18
<PAGE> 23
CAPITALIZATION
The following table sets forth our cash position and capitalization as of
December 31, 1999:
- on an actual basis;
- pro forma for our acquisition of 76% of the common stock of BFound.com in
April 2000; and
- pro forma as adjusted for the following, transactions:
- our issuance of 2,203,518 shares of preferred stock in January 2000 for
net proceeds of $12.1 million;
- the conversion of all of our outstanding preferred stock into 10,981,172
shares of common stock upon completion of this offering; and
- pro forma as further adjusted to give further effect to the sale in this
offering of shares of common stock, assuming an initial public
offering price of $ per share, after deducting the estimated
underwriting discount and estimated offering expenses payable by us.
Please read this table in conjunction with the financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------
PRO FORMA
PRO FORMA AS FURTHER
ACTUAL PRO FORMA AS ADJUSTED ADJUSTED
-------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 18,051 $ 17,026 $ 29,168 $
======== ======== ======== ========
Long-term capital lease obligations............. $ 26 $ 27 $ 27 $ 27
-------- -------- -------- --------
Mandatorily redeemable convertible preferred
stock......................................... 32,205 32,205 -- --
Stockholders' equity (deficit):
Common stock, par value $.001; 20,000,000
shares authorized; 6,393,636 shares issued
and outstanding actual (6,816,787 shares
pro forma, 17,797,959 shares pro forma as
adjusted and shares pro forma as
further adjusted).......................... 6 7 18
Additional paid in capital.................... 1,421 3,675 48,011
Deferred stock option compensation............ (467) (467) (467) (467)
Accumulated deficit........................... (16,252) (16,252) (16,252) (16,252)
-------- -------- -------- --------
Total stockholders' equity (deficit)....... (15,292) (13,037) 31,310
-------- -------- -------- --------
Total capitalization....................... $ 16,939 $ 19,195 $ 31,337 $
======== ======== ======== ========
</TABLE>
The number of common shares to be outstanding after this offering is based
on the number of shares outstanding as of December 31, 1999 and does not
include:
- 1,608,729 shares that could be issued upon the exercise of options
outstanding as of December 31, 1999 at a weighted average exercise price
of $0.48 per share.
- 25,336 shares that may be issued upon the exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price
of $1.25 per share.
- 135,172 shares of our common stock that we plan to issue to acquire the
remaining 24% of common stock of BFound.com.
19
<PAGE> 24
DILUTION
Our pro forma net tangible book value as of December 31, 1999, assuming
conversion of all outstanding preferred stock into common stock, was $16.9
million or $0.97 per share. Pro forma net tangible book value per share is the
amount of pro forma total tangible assets minus total liabilities, divided by
our pro forma common shares outstanding, after giving effect on a pro forma
basis to:
- our issuance of preferred stock in January 2000;
- our acquisition of 76% of the common stock of BFound.com in April 2000;
and
- the conversion of all outstanding shares of preferred stock into
10,981,172 shares of common stock upon the completion of this offering.
After giving effect to our sale of shares of common stock in this
offering, at an estimated initial public offering price of $ per share, the
mid-point of the offering range and after deducting the estimated underwriting
discounts and commissions and offering expenses, our pro forma net tangible book
value as of December 31, 1999, would have been $ million or $ per share.
This represents an immediate dilution in net tangible book value of $ per
share to new stockholders purchasing our common stock in this offering, and an
immediate increase in net tangible book value of $ per share to existing
common stockholders and preferred stockholders who automatically convert to
common stockholders concurrently with the sale of common stock to new
stockholders. Dilution per share represents the difference between the price per
share paid by new stockholders for the shares issued in this offering and the
pro forma net tangible book value per share immediately after the completion of
the offering. The following table illustrates this net tangible book value per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
--------
Pro forma net tangible book value per share before the $0.97
offering...............................................
-----
Increase in net tangible book value per share attributable
to the offering........................................
-----
Pro forma net tangible book value per share of common stock
after this offering and after giving effect to the
conversion of all outstanding shares of preferred stock...
--------
Dilution per share of common stock to new investors......... $
========
</TABLE>
The following table summarizes the difference between the existing
stockholders and new investors with respect to the total number of shares of
common stock purchased and the total cash and non-cash consideration paid. Share
information for existing stockholders assumes the conversion of all outstanding
shares of preferred stock into an equal number of shares of common stock.
<TABLE>
<CAPTION>
PURCHASED SHARES TOTAL CONSIDERATION
-------------------- ----------------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ------------ -------
<S> <C> <C> <C> <C>
Existing stockholders............................. % $ %
New investors.....................................
---------- ----- ------------ -----
Total................................... 100.0% $ 100.0%
</TABLE>
These tables assume that none of the stock options outstanding upon the
closing of this offering will be exercised and that there is no exercise of the
underwriters' over-allotment option. As of , 2000, shares
of common stock were issuable upon exercise of outstanding stock options at a
weighted average exercise price of $ per share. If these outstanding options
were exercised, the shares issued would represent approximately % of the
common stock outstanding, including the option shares. If all of the outstanding
stock options are exercised, you will experience additional dilution.
20
<PAGE> 25
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes to such statements and "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, 1997, 1998 and 1999, and the balance sheet data at
December 31, 1998 and 1999 are derived from our financial statements which have
been audited by KPMG LLP, independent auditors, and are included elsewhere in
this prospectus. The balance sheet data at December 31, 1997 is derived from our
audited financial statements, which are not included in this prospectus.
Statement of operations data for the years ended December 31, 1995 and 1996 and
the balance sheet data at December 31, 1995 and 1996 are derived from our
unaudited financial statements, which are not included in this prospectus.
Historical results are not necessarily indicative of the results to be expected
in the future.
Pro forma basic and diluted loss per share is computed using the weighted
average number of common shares outstanding, including the pro forma effects of
the automatic conversion of all outstanding shares of preferred stock into
common stock upon completion of this offering, as if the conversion occurred on
January 1, 1999, or at the date the preferred stock was actually issued, if
later. Pro forma basic and diluted loss per share does not give effect to the
issuance of Series C preferred stock in January 2000.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fees.............................................. $ 143 $ 591 $ 680 $ 353 $ 883
Maintenance fees.......................................... -- -- 84 586 287
Professional services and other........................... -- 42 588 141 786
------ ------- ------- ------- --------
Total revenue........................................... 143 633 1,352 1,080 1,956
Cost of revenue........................................... 41 127 389 1,127 1,777
------ ------- ------- ------- --------
Gross profit (loss)..................................... 102 506 963 (47) 179
Operating expenses:
Selling, general and administrative....................... 132 492 1,196 2,020 3,935
Research and development.................................. 70 644 1,153 2,486 3,399
Depreciation and amortization............................. -- 3 16 134 192
Stock option compensation expense......................... -- 46 96 101 258
------ ------- ------- ------- --------
Total operating expenses................................ 202 1,185 2,461 4,741 7,784
Loss from operations.................................... (100) (679) (1,498) (4,788) (7,605)
Other income (expense):.....................................
Interest income........................................... 1 17 100 344 205
Interest expense.......................................... -- (1) (39) (77) (199)
Other, net................................................ (1) -- 2 70 4
------ ------- ------- ------- --------
Total other income (expense)............................ -- 16 63 337 10
------ ------- ------- ------- --------
Net loss................................................ (100) (663) (1,435) (4,451) (7,595)
Preferred stock dividend requirement and accretion of
mandatorily redeemable convertible preferred stock to
redemption value.......................................... -- (69) (166) (821) (1,021)
------ ------- ------- ------- --------
Net loss attributable to common stockholders.............. $ (100) $ (732) $(1,601) $(5,272) $ (8,616)
Basic and diluted loss per share............................ $(0.02) $ (0.12) $ (0.25) $ (0.83) $ (1.35)
====== ======= ======= ======= ========
Shares used to compute basic and diluted loss per share..... 6,020 6,287 6,334 6,385 6,387
====== ======= ======= ======= ========
Pro forma basic and diluted loss per share.................. $ (0.50)
========
Shares used in computing pro forma basic and diluted loss
per share................................................. 15,165
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4 $ 1,818 $ 428 $ 5,120 $ 18,051
Working capital (deficit)................................... (98) 1,504 192 4,967 16,286
Total assets................................................ 20 1,842 1,023 6,936 19,703
Mandatorily redeemable convertible preferred stock.......... -- 2,028 2,197 12,590 32,205
Total stockholders' equity (deficit)........................ (98) (515) (1,908) (7,061) (15,292)
</TABLE>
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the other financial data included elsewhere in this
prospectus.
OVERVIEW
Since 1995, we have been developing and marketing mobile location services
products to the wireless industry. We have focused our efforts on designing a
software platform and building related applications that help carriers generate
new revenue from one of their key assets -- the location of their subscribers.
Our software products enable the delivery of location-based voice and data
services to wireless operators and help operators to capitalize on the growing
trend toward mobile use of the Internet.
We were incorporated in Colorado in 1994 and reincorporated in Delaware in
1998. We have a limited operating history. From our inception until 1997, our
efforts were primarily devoted to research and development, raising capital,
recruiting personnel and establishing key industry partnerships. We generated
total revenue of approximately $1.4 million in 1997, $1.1 million in 1998 and
$2.0 million in 1999. We incurred net losses of approximately $1.4 million in
1997, $4.5 million in 1998 and $7.6 million in 1999. As of December 31, 1999, we
had an accumulated deficit of $16.3 million.
In 1996, the Federal Communications Commission mandated that all wireless
carriers offer a 911 service with features equivalent in many respects to those
of wireline 911 service. We used this mandate as an opportunity to develop a
mobile location services product called Wireless 911 that met the requirements
of the telecommunications industry. Although we realized that the revenue
potential for Wireless 911 was somewhat limited, we believed that our
development and rollout of Wireless 911 was an opportunity to capture market
share in mobile location services and to develop valuable partnerships in the
wireless industry.
We introduced Wireless 911 in 1997. Four of the five largest wireless
operators in the United States, based on the number of subscribers, have
licensed our Wireless 911 product. Although actual deployment of the product has
been slow, which we believe is due primarily to contractual and liability issues
among carriers, local safety agencies and local exchange carriers, Wireless 911
accounted for all of our revenue in 1997, approximately 86% of our revenue in
1998 and approximately 14% of our revenue in 1999. Following our launch of
Wireless 911, we focused on our core strategy of developing mobile location
services products that help wireless carriers differentiate their service
offerings, build subscriber loyalty and generate additional revenue. We launched
two products in 1998 -- local.info(TM) and Location Sensitive Billing. In
addition, we opened our first international office in the United Kingdom, and
began actively marketing our services to network operators in Europe. In 1999,
we continued our strategy of establishing partnerships throughout the industry,
expanding our selling and marketing efforts in Europe and the United States, and
adding features to our products to support the demand for wireless data. We also
gained our first customer for a product other than Wireless 911, by licensing
local.info(TM) to diAx, a Swiss wireless operator. As of March 31, 2000, eleven
network operators had deployed or licensed our products. Although most of our
deployments have been for Wireless 911, two wireless operators have deployed or
licensed our other products.
Our very limited operating history makes it difficult to forecast future
operating results. Since our inception, we have continued to invest
substantially in research and development, marketing, domestic and international
sales channels, professional services and our operational and administrative
infrastructure, resulting in losses and negative cash flow since our inception.
These activities have significantly increased our operating expenses,
contributing to net losses in each year since our inception. We expect to incur
substantial losses for the next several years. Although our revenue has grown in
recent quarters, our revenue may not increase at a rate sufficient to achieve
and maintain profitability, if at all. Also, if our customers continue to
purchase our products with perpetual licenses, then our revenue will continue to
vary significantly from quarter to quarter. We anticipate that our operating
expenses will increase substantially for the foreseeable future as we expand our
product development, sales and marketing, professional services and operational
and administrative staff.
22
<PAGE> 27
REVENUE
We earn revenue primarily from license fees, maintenance fees and
professional services. Our revenue is recognized in accordance with the American
Institute of Certified Public Accountants SOP 97-2 (Statement of Position No.
97-2), Software Revenue Recognition, as amended.
Our license fees are based on either subscribers or transactions. For
subscriber-based licenses, network operators can purchase a perpetual license
for a specific number of users, or pay recurring annual, quarterly or monthly
fees per subscriber. For perpetual licenses, additional license fees are due
when the total number of subscribers using our products increases beyond the
specified number for which a license was purchased. With our local.info(TM)
product, we also offer capacity-based pricing. For capacity-based pricing,
customers pre-pay for a maximum number of subscriber transactions per month. If
more capacity is needed, more licenses must be purchased. Some distributors also
offer our local.info(TM) product on a per-transaction basis, whereby each
transaction costs a fixed amount. We expect that, going forward, license fees
will represent the bulk of our revenue.
The revenue generated from the purchase of perpetual license fees is
recognized as individual products are delivered and accepted by the customer.
Annual, quarterly and monthly license revenue is ratably recognized over the
applicable period. Per-transaction license revenue is recognized as the
transactional usage is reported by the applicable distributor. License fees
represented approximately 33% of our total revenue in 1998 and 45% in 1999.
Maintenance fees arise from customer support, scheduled product upgrades
and other software support services. Maintenance fees vary depending on the
category of customer support provided by us. We charge our highest amounts when
we take the call directly from the wireless carrier, which we call first level
support. We offer discounts when our reseller partners provide first level
support to a wireless carrier. We may realize additional revenue if our
customers request unscheduled product enhancements. Maintenance agreements have
one-year terms and are renewable at the customer's option. Pricing varies,
depending upon whether the contract is sold by us or by our reseller partners.
Maintenance fee revenue is recognized as services are performed.
Maintenance fee revenue represented approximately 54% of total revenue in 1998
and 15% in 1999.
Professional services revenue results from consulting services primarily
focused in four areas. The first area of service is providing marketing support,
including designing specific business cases and performing market focus
activities. The second area is providing pre-product launch service design,
including the selection of content, the creation of the service offering and an
assessment of how our products would be integrated into the customer's
environment. The next area is the service launch process, including software and
product installation and content and application testing. The last area is
ongoing service in which we offer support as requested by the customer.
Professional services revenue is recognized as services are provided.
Other revenue consists primarily of resale of third-party software.
Depending on the customer's need, our MAPS product may include a restricted
license for Oracle(R) software, software for map information and some minor
additional software depending on configuration. Professional services revenue
and other revenue represented approximately 13% of total revenue in 1998 and 40%
in 1999.
We market and sell our mobile location products, which we call Wireless
Location Services(R), to network operators both through our direct sales force
and through a variety of license-based and co-marketing relationships that we
call industry partnerships. We believe that most of our future sales will be
made through distributors who are our industry partners.
Some of our distributor relationships with network infrastructure providers
require that we integrate our products with their own proprietary telephony
platforms, which consist of special hardware and software. We have typically
entered into porting and reseller agreements that require the distributor to
pre-purchase, on a non-refundable basis, a pre-determined number of licenses. In
exchange for these pre-paid licenses, we adapt, or port, our software to the
distributor's hardware/software platform and jointly develop a marketing plan
for
23
<PAGE> 28
the distributor's introduction of our Wireless Location Services(R). Since the
license fees are non-refundable, license revenue related to porting and reseller
agreements is recognized on acceptance of the licensed product by our
distributor. After we receive the initial up-front license fees, we receive no
additional license fee revenue from the distributor until additional licenses
are purchased. We anticipate that these pre-paid licenses will be a declining
percentage of our revenue in the future.
Deferred revenue results from the following situations:
- a customer purchases up-front licenses and pays for those licenses prior
to deployment;
- a distributor purchases licenses related to a porting and reselling
activity, as described above, and pays for all or a portion of those
licenses prior to delivery and acceptance of the software;
- professional services exceeding the amount of services delivered are
billed in advance; and
- maintenance is paid in advance of a service delivery time period.
COST OF REVENUE
Cost of revenue consists of cost of operations, which includes compensation
and pro-rated overhead costs per employee for operations personnel; cost of
third-party software; and direct costs incurred when providing service.
Operations employees are personnel engaged in providing installation, training,
maintenance, support and consulting services for our Wireless Location
Services(R) software.
RESEARCH AND DEVELOPMENT
Research and development expenses include compensation and pro-rated
overhead costs per employee for personnel associated with the research, design,
experimentation, development, testing and quality control of our products.
Research and development activities are expensed as incurred until technological
feasibility of software is attained. Since technological feasibility has
generally coincided with commercialization of our products, no research and
development expenses have been capitalized.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses consist of compensation and
pro-rated overhead costs per employee for personnel in sales, marketing, and
administrative functions; sales commissions for sales employees; royalties to
our industry partners; and expenses associated with promotional activities,
travel, telecommunications and training. Our plans for continued expansion are
expected to significantly increase our costs in this category.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization consists of depreciation and amortization
expenses related to goodwill, hardware, desktop software and upgrades, patents
and other intellectual property, and property, plant and equipment.
In March 2000 we contracted to acquire BFound.com Services, Inc., a British
Columbia corporation. On April 5, 2000 we purchased 76% of the common stock of
BFound.com shares for 423,151 shares of SignalSoft common stock and $1.1 million
in cash. We have contracted to acquire the remaining 24% of BFound.com's common
stock for 135,172 shares of SignalSoft common stock and $0.4 million in cash by
October 2000, but we anticipate closing will be within the next month. We
recorded approximately $3.6 million of goodwill related to this transaction and
will amortize it on a straight-line basis over the next five years beginning in
April 2000. We anticipate recording additional goodwill upon the acquisition of
the remaining common stock of BFound.com. This transaction will be accounted for
using the purchase method of accounting.
24
<PAGE> 29
STOCK OPTION COMPENSATION EXPENSE
Since 1995, we have used stock option grants to help compensate directors,
officers, employees and some consultants in connection with our equity growth.
When the exercise prices under these option grants are less than the fair value
of the underlying shares on the date of grant, we incur stock option
compensation expense. We amortize the difference between the fair value of the
underlying shares and the exercise price for the shares over the option vesting
period.
1999 COMPARED TO 1998
REVENUE
Total revenue increased $0.9 million, or 81%, from $1.1 million in 1998 to
$2.0 million during 1999. The increase in revenue during 1999 resulted primarily
from an increase in revenue from license fees and professional services
associated with our local.info(TM) and Location Sensitive Billing products.
License fees. License fee revenue increased $0.5 million, from $0.4 million
in 1998 to $0.9 million in 1999. During both 1998 and 1999, the deployment by
our customers of our Wireless 911 product was slow. In 1998, we expanded our
product base in the mobile location services market with the introduction of
Location Sensitive Billing and local.info(TM). In late 1998 one of our industry
partners purchased licenses under a porting and reseller agreement. The revenue
from this purchase was deferred in 1998 and recognized in 1999 upon our
distributor's acceptance. This contract represented 85% of the license fees
recognized as revenue in 1999.
Maintenance fees. Maintenance fee revenue decreased $0.3 million, from $0.6
million in 1998 to $0.3 million in 1999. The decrease in maintenance fee revenue
was due primarily to the slowness of deployments by customers of our products
and to the change by one of our industry partners from a fixed quarterly
maintenance fee based on estimated customers to a fee based on actual customers.
Professional services and other. Professional services revenue and other
revenue increased $0.7 million, from $0.1 million in 1998 to $0.8 million in
1999. The increase resulted from installation, training and consultation
services provided in connection with introductory trials, demonstrations and
deployment of our new Wireless Location Services(R) products in 1999.
COST OF REVENUE
Cost of revenue increased $0.7 million, or 58%, from $1.1 million in 1998
to $1.8 million in 1999. As a percentage of total revenue, cost of revenue
decreased to 91% in 1999 from 104% in 1998. The dollar increase in cost of
revenue in 1999 was due primarily to an increase in operations personnel from
nine in 1998 to 14 in 1999, including personnel in Europe.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs increased $1.9 million, from $2.0
million in 1998 to $3.9 million in 1999. The increase was due primarily to an
increase of personnel from 18 in 1998 to 22 in 1999, facility expansion both in
the United States and in Europe and accelerated sales and marketing activities.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $0.9 million, from $2.5 million
in 1998 to $3.4 million in 1999. The increase in research and development costs
was due primarily to an increase in research and development personnel from 22
in 1998 to 27 in 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased by $0.1 million, from $0.1
million in 1998 to $0.2 million in 1999.
25
<PAGE> 30
STOCK OPTION COMPENSATION EXPENSE
Stock option compensation expense increased $0.2 million, from $0.1 million
in 1998 to $0.3 million in 1999. These expenses relate to options granted in
1997, 1998 and 1999 under our nonqualified stock option plan with exercise
prices at less than fair value of common stock at the date of grant.
Unrecognized compensation costs as of December 31, 1999 totaled $0.5 million.
INTEREST INCOME
In 1999 interest income decreased $0.1 million, from $0.3 million in 1998
to $0.2 million in 1999. Interest income realized in 1998 and 1999 resulted
primarily from the investment of the proceeds of our Series B and Series C
preferred stock financings in 1998 and 1999.
INTEREST EXPENSE
Interest expense increased $0.1 million, from $0.1 million in 1998 to $0.2
million in 1999. The increase resulted primarily from interest incurred under
90-day bridge loans issued to us in September 1999, as well as the fair value of
the cost of stock warrants issued in connection with the bridge loans.
1998 COMPARED TO 1997
REVENUE
Total revenue decreased $0.3 million, or 20%, from $1.4 million in 1997 to
$1.1 million in 1998. This decrease was a result of the decision by wireless
carriers to delay the purchase of emergency 911 services and instead contract
for service deployment through service bureaus. Professional services revenue
also decreased relative to the reduced license activity.
License fees. License fee revenue decreased $0.3 million, from $0.7 million
in 1997 to $0.4 million in 1998. License fees for 1997 were higher because of a
customer purchase in 1997 of a nationwide Wireless 911 license and the decision
in 1998 by carriers to deploy our Wireless 911 product through service bureaus,
rather than through up-front purchases of our Wireless 911 product.
Maintenance fees. Maintenance fee revenue increased $0.5 million, from $0.1
million in 1997 to $0.6 million in 1998. This increase was primarily the result
of the addition of a new distributor who contracted for maintenance.
Professional services and other. Professional services and other revenue
decreased $0.5 million, from $0.6 million in 1997 to $0.1 million in 1998. As
with license fees, the decrease resulted from a decrease in 1998 in the
deployment of our Wireless 911 product and the usage of service bureau licensing
instead.
COST OF REVENUE
Cost of revenue increased $0.7 million, or 190%, from $0.4 million in 1997
to $1.1 million in 1998. As a percentage of total revenue, cost of revenue
increased to 104% in 1998 from 29% in 1997, due primarily to the decrease in
revenue from 1997 to 1998. The dollar increase in cost of revenue in 1998 was
due primarily to an increase in operational personnel, from five in 1997 to nine
in 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $0.8 million, from
$1.2 million in 1997 to $2.0 million in 1998. The increase was due primarily to
an expansion in sales and marketing efforts, including the growth in
infrastructure and an increase in personnel from seven in 1997 to 18 in 1998.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $1.3 million, from $1.2 in 1997
to $2.5 million in 1998. This increase was due primarily to the increased
efforts in research and development associated with product
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launches and enhancements, and related to work on adapting our products to
additional equipment platforms. Expenses were also related to the increase in
product development and testing personnel, from 13 in 1997 to 22 in 1998.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased $118,264, from $16,056 in
1997 to $134,320 in 1998. This increase was related to the increase in our asset
base.
INTEREST INCOME
In 1998 interest income increased $0.2 million, from $0.1 million in 1997
to $0.3 million in 1998. Interest income realized in 1998 resulted primarily
from the investment of the proceeds of our Series B preferred stock financing.
INTEREST EXPENSE
Interest expense increased $38,194, from $38,593 in 1997 to $76,787 in
1998.
QUARTERLY RESULTS OF OPERATIONS FOR 1999
The following table presents our operating results for the quarters ended
March 31, 1999, June 30, 1999, September 30, 1999 and December 31, 1999. The
information for each of these quarters is unaudited and has been prepared on the
same basis as the audited financial statements appearing elsewhere in this
prospectus. In the opinion of management, all necessary adjustments consisting
only of normal recurring adjustments have been included to present fairly the
unaudited quarterly results when read in conjunction with our audited financial
statements and the related notes appearing elsewhere in the prospectus. These
operating results are not necessarily indicative of any trend in performance or
of the results of any future period.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED (UNAUDITED)
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
License fees.................................. $ 51 $ 1 $ 753 $ 78
Maintenance fees.............................. 138 72 38 39
Professional services and other............... 34 107 93 552
------- ------- ------- -------
Total revenue.............................. 223 180 884 669
Cost of revenue................................. 399 407 407 564
------- ------- ------- -------
Gross profit (loss)........................ (176) (227) 477 105
Operating expenses:
Selling, general and administrative........... 945 949 929 1,112
Research and development...................... 807 791 838 963
Depreciation and amortization................. 46 47 48 51
Stock option compensation expense............. 56 66 67 69
------- ------- ------- -------
Total operating expenses................... 1,854 1,852 1,882 2,195
Loss from operations....................... (2,030) (2,080) (1,405) (2,090)
Other income (expense):
Interest income............................... 60 40 26 79
Interest expense.............................. (10) (6) (22) (161)
Other, net.................................... 1 1 1 1
------- ------- ------- -------
Total other income (expense)............... 51 35 5 (81)
------- ------- ------- -------
Net loss................................... $(1,979) $(2,045) $(1,400) $(2,171)
======= ======= ======= =======
</TABLE>
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Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are outside our control and
many of which may cause our stock price to fluctuate. Among the factors that may
affect our quarterly results include our ability to develop, introduce and sell
products and product enhancements that meet customer requirements in a timely
manner, the timing of recognizing revenue and deferred revenue, the size of the
subscriber base of our customers and the extent of use by their subscribers of
our services.
We plan to significantly increase our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative capabilities to address
the increased reporting and other administrative demands which will result from
increasing the size of our business. Our operating expenses are largely based on
anticipated growth in revenue. A high percentage of our expenses are, and will
continue to be, fixed. As a result, a delay in generating or recognizing revenue
for the reasons set forth above, or for any other reason, could cause a
significant variation in our operating results from quarter to quarter and
likely will result in substantial operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. You should not rely on our results for any one quarter as
indication of our future performance. It is likely that in some future quarters,
our operating results will be below the expectations of public market analysts
and investors. In this event, the trading price for our shares will probably
decline.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private offering of mandatorily redeemable convertible preferred stock. The
aggregate proceeds of such offerings through April 1, 2000, were approximately
$42.5 million, net of issuance costs. In addition, we have financed our
operations through an equipment loan, capitalized leases and an aggregate of
$3.0 million of short-term bridge loans. As of December 31, 1999, the principal
amounts outstanding under these obligations totaled $0.1 million.
During 1999, cash and cash equivalents increased $12.9 million, from $5.1
million as of December 31, 1998 to $18.1 million as of December 31, 1999. This
increase resulted from cash provided by financing activities of $18.2 million
offset by cash used by operating activities of $5.1 million and cash used by
investing activities of $0.2 million. Cash provided by financing activities
resulted primarily from net proceeds of $16.2 million received from the issuance
of convertible preferred stock in December 1999 and proceeds of $3.0 million
received from the issuance of bridge loans in September 1999, offset by a
reduction in our debt obligations of $1.0 million. Cash used in operating
activities resulted primarily from a continuing investment in our growth,
including expansion of domestic and international leased office space and an
increase in sales and marketing efforts. Cash used by investing activities was
for purchases of general office equipment and upgrades to office computer
equipment.
As of December 31, 1999, our principal commitments consisted of obligations
outstanding under operating leases, an equipment loan and capitalized lease
obligations. In addition, we have a revolving line of credit agreement providing
for borrowings up to $0.4 million through April 2000. No borrowings were
outstanding under this line of credit as of December 31, 1999. We currently have
a $0.4 million commitment for a capital expenditure of computer equipment. We
anticipate an increase in capital expenditures and lease commitments consistent
with our future growth and expansion.
We anticipate that the net proceeds of this offering will be $ , based
on an assumed offering price of $ per share and after deducting the
underwriting discount and estimated offering expenses payable by us. We plan to
use approximately $ of the net proceeds for capital expenditures in 2000. We
expect to use the remainder of the net proceeds for general corporate purposes,
including acquisitions, research and development, sales and marketing, the
strengthening and expansion of industry partnerships and working capital.
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We believe that the net proceeds from this offering combined with our
current cash resources and cash provided by operations will be sufficient to
meet our anticipated cash needs for at least the next twelve months. If we are
unable to obtain additional financing, we may be required to reduce the scope of
our planned expansion, product development and marketing efforts. This failure
could have an adverse impact on our business, financial condition and operating
results.
Due to our very limited operating experience, we do not yet know if we
should expect seasonality in our sales. It is possible that our sales in Europe
may be lower in the third quarter of the year than other quarters due to summer
vacations and that sales in the United States may be higher in the fourth
quarter of the year than other quarters due to our customers' desires to spend
their full budget by year end.
We do not expect that inflation will have a material effect on our results
of operations.
MARKET RISK
We expect that as a result of our partner sales channel strategy that we
will be paid in United States dollars for the majority of our international
sales. Some of our customers, including our current largest customer, may pay us
in currency other than United States dollars. We do not, however, believe this
payment method exposes us to material foreign currency risk. We do not engage in
commodity futures trading activities and do not enter into derivative financial
instrument transactions for trading or other speculative purposes. We do not
believe that we are exposed to any material interest rate risk.
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BUSINESS
OVERVIEW
SignalSoft provides a software platform and related applications to enable
the delivery of location-based voice and data services to wireless network
operators. Our operating platform and software applications allow wireless
network operators worldwide to unlock the value of a core element of mobile
telephone networks -- the location of their users. The location of the wireless
user will be fundamental to the delivery of many new services by wireless
operators. We believe that mobile location services will be the key enabler of
m-Commerce, which is the extension of e-Commerce to mobile phones.
We use the location data generated by various third-party location
determination technologies to offer information, billing, safety and tracking
applications based on the geographic location of the mobile user. With our
products as an integral part of the wireless network infrastructure, network
operators can transform wireless location data into a strategic means to offer
differentiated services, build customer loyalty and generate incremental
revenue.
We are an innovator in the emerging mobile location services industry. We
have created an operating platform for wireless carriers to offer a broad range
of location-based services. We have designed applications in four core
categories of mobile location services to help drive demand. We continue to
educate the market through trade shows and white papers on the critical role
that we believe mobile location services plays in wireless networks and wireless
services in general, and we help define mobile location services standards
through our active participation in a number of key industry standards
organizations. We believe that we are now poised to benefit from the anticipated
worldwide demand for mobile location services.
Our operating platform enables wireless operators to extend their network
infrastructure to provide mobile location services. We also offer a suite of
software applications in four core categories of mobile location services:
information, billing, safety and tracking. With local.info(TM), a wireless user
can personalize on-demand Internet content such as traffic updates, weather
reports and restaurant reviews, in each case tailored to the user's current
location. Location Sensitive Billing allows wireless operators to customize
billing plans and to charge differentiated rates based on the geographic
location of the subscriber. Our Wireless 911 product ensures that the call of a
wireless caller in distress is routed to the appropriate emergency services
provider. The BFound.com(TM) wireless tracking service utilizes an Internet
browser to track and manage roving assets in real-time using a standard wireless
device.
In order to reach wireless carriers worldwide, we market and sell our suite
of products, which we call Wireless Location Services(R), to network operators
both through our direct sales force and through a variety of license-based and
co-marketing relationships that we call industry partnerships. We have entered
into industry partnerships with leading wireless infrastructure providers and
resellers in the wireless industry, including Compaq, Ericsson, GTE-TSI, Lucent,
Motorola, Nortel, SCC Communications, and Siemens. We have also entered into
industry partnerships with approximately 30 Internet content providers such as
Airflash, i3 Mobile, InfoSpace.com, MapQuest, Strategy.com and Vicinity, as well
as with location determination technology companies such as Cambridge
Positioning Systems, Cell-Loc, SigmaOne, SnapTrack, TruePosition and US
Wireless.
As of March 31, 2000, the following network operators have commercially
deployed or licensed our products: AAPT (Australia), Ameritech Cellular, AT&T
Wireless, BellSouth, Century Tel, diAx (Switzerland), GTE Wireless, Houston
Cellular, Southwestern Bell Mobile, Sprint PCS, Triton and U S WEST Wireless.
Most of our deployments have been for our Wireless 911 product.
Some of our investors include American Express, America Online, Comverse
Network Systems, Hikari Tsushin, Intel Capital, Lazard Technology Partners,
MediaTel Capital, Olympic Venture Partners, Siemens Mustang Ventures and
Tredegar Investments.
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INDUSTRY OVERVIEW
GROWTH OF WIRELESS COMMUNICATIONS
The use of wireless communications services has grown rapidly due to many
factors, including declining prices of wireless handsets and services, expanding
network coverage, the availability of extended service features such as voice
and text messaging and the proliferation of wireless devices with enhanced
capabilities. International Data Corporation, or IDC, predicts that the number
of global wireless subscribers is expected to increase from approximately 303
million subscribers in 1998 to 1.1 billion subscribers in 2003. Worldwide
wireless revenue is expected to increase from approximately $165 billion in 1999
to $450 billion in 2002. Ovum predicts that in 2002 global revenue to network
operators from wireless usage will overtake revenue from wireline usage.
GROWTH OF THE INTERNET AND E-COMMERCE
The Internet has emerged as a global communications medium enabling
millions of people to share information and conduct business electronically.
Data Monitor estimates that there were approximately 95 million Internet users
worldwide at the end of 1999 and predicts that the number of users will grow to
545 million by the end of 2003. With the emergence of the Internet as a globally
accessible, interactive medium, many individuals and companies that have
traditionally conducted business in person, through the mail or over the
telephone now increasingly conduct business over the Internet through what is
known as e-Commerce. Forrester predicts that by the end of 2003, business and
consumer revenue from e-Commerce will range from $1.8 trillion to $3.2 trillion
worldwide.
M-COMMERCE: CONVERGENCE OF WIRELESS COMMUNICATIONS, THE INTERNET AND
E-COMMERCE
m-Commerce is broadly defined as the use of mobile hand-held devices to
communicate, inform, transact and entertain using voice, text and other data
over wireless networks. The convergence of the rapid growth of the Internet, the
expansion and continuing refinement of mobile communications and the improvement
of digital technologies is creating market opportunities for m-Commerce. Due to
increased worldwide penetration of wireless handsets and the introduction of
wireless Internet protocols, we believe that the wireless industry is poised to
monetize the rich content of the Internet through m-Commerce. According to IDC,
approximately one-half of all devices accessing the Internet worldwide in 2002
will be mobile devices.
We believe that the following five attributes characterize m-Commerce:
- the accessibility of information beyond the confines of the home or
office;
- the localization of services and content tailored to the geographic
position of the user;
- the combination of wireless communications and Internet access to make
business and consumer transactions more convenient;
- the personalization of information based on the user's profile; and
- the timeliness of information and access to transactions.
The Yankee Group estimates that mobile data application and information
service revenue to wireless operators will grow from approximately $2 billion in
1998 to $39 billion in 2003. Ovum predicts that end-user spending on m-Commerce
goods and services will be $3.5 billion in 2000 and could rise to more than $200
billion in 2005.
m-Commerce is in use today. For example, if a traveler is delayed at an
airport overnight, he could use traditional methods of directory assistance or a
telephone book to locate nearby hotels and then he could call each hotel to
determine availability and eventually book a room. Alternatively, in some
markets today he could utilize the m-Commerce features available through his
mobile phone to canvass, over the Internet, all hotels in his geographic area
and find the hotel with room availability that matches his price range and his
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personal preferences, book the room using his mobile number as a credit
reference and then receive a confirmed booking, all with one mobile phone call.
COMPETITIVE ENVIRONMENT OF WIRELESS NETWORK OPERATORS
Due to intense competition, we believe that wireless network operators are
searching for ways to increase their revenue and profit margins and reduce
customer turnover. Among the pressures created by the competitive environment
and faced by operators today are:
- need to provide differentiated service offerings;
- need to retain existing customers;
- continued downward pricing pressures; and
- pressure for higher margins.
For these reasons, we believe that wireless operators are interested in
unlocking the revenue and margin potential that may exist in the emerging
m-Commerce arena through mobile location services.
MOBILE LOCATION SERVICES: KEY ENABLER OF M-COMMERCE
The location of the wireless user will be fundamental to the delivery of
many new services, but especially those relating to m-Commerce. Location of a
customer is a valuable asset to wireless network operators because it will
enable them to provide targeted and personalized value-added services.
Information about a subscriber's geographic position facilitates the offering of
services such as location-based advertising, shopping, reservations and
information services. For example:
- a businessman needing to send an important package late in the evening
could use his mobile phone to search for the closest FedEx(R) drop box;
- a commercial real estate agent could use her wireless device to help
locate available office space within a specified geographic area, price
range and build-out suitability;
- a building contractor could search for a vendor with the appropriate
material and best price within a given radius around a job site; and
- shoppers may someday be able to find out which of their friends in their
user group are also shopping at the mall.
The dynamic geographic location of the mobile user presents opportunities
for merchants and content providers to direct highly targeted information to the
user. For example, one such service could allow an English-speaking traveler,
upon arrival at an airport in a foreign country, to be greeted in English with a
list of local restaurants and cultural attractions when she turns on her phone.
We believe other services will be available in the near future. A business could
use mobile location services to identify customers who are likely, based on
their individual profiles and their proximity to the business, to be interested
in its products or services. Movie theaters could offer local users the
opportunity to buy half-price tickets for movies that are unlikely to be at
capacity, or simply advertise the release of the newest films. Mall vendors
could alert mall patrons of sales or special releases. The offering of these
services will likely create new demand by wireless users for extended or related
services from their carriers.
We believe that m-Commerce, driven by mobile location services, will become
the preferred means to connect Internet-based information and services with
physical store locations near the user. For example, a wireless user searching
for a particular book could locate the nearest available bookstore with the book
in stock, and obtain directions to the store.
A limited number of mobile location services applications are currently in
use in the United States, in Europe and in parts of the Asia-Pacific region for
information, billing, safety and tracking. We expect that the types and scope of
mobile location products that are available to businesses and consumers will
evolve as the
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location determination technologies on which these applications are based
continue to improve. Capacity increases, improved wireless devices and other
technology advances also will be critical to the continued development of the
mobile location services industry. As these services gather momentum, third
party developers will be encouraged to create new applications to meet the
demand.
MOBILE LOCATION SERVICES: PART OF THE NETWORK INFRASTRUCTURE
Because the location of the mobile device is a valuable asset for wireless
network operators, the operators have developed standards that place mobile
location services in an integral part of the network infrastructure. We believe
that a mobile location services operating platform will be as important to a
wireless network as other, existing intelligent network elements. Examples of
these existing network elements include the mobile switching center, which
directs calls to and from different parts of the network, the service control
point, which is a central database platform for providing enhanced services such
as authentication, and the home location register, which is a key software
component that contains a broad range of information for subscriber validation
and other critical network functions.
Essential to the smooth deployment and operation of enhanced services for
wireless networks is the use of the Signaling System 7, or SS7, network and the
Internet Protocol, or IP, network. SS7 and IP are common protocols adapted
worldwide by wireless operators in order to efficiently provide basic call
set-up and more advanced services for both voice and data calls. The mobile
location services operating platform interfaces with each of the network
components discussed above, as well as with other SS7 and IP network components.
This interface enables the delivery of mobile location services over both voice
and data networks. The critical nature of these processes requires
fault-tolerant and often fail-safe systems that have a 99.999%
reliability -- known in the United States telecommunications industry as NEBS
compliant -- and the capability to handle instructions in as little as 200
milliseconds.
From a technical standpoint, the successful delivery of mobile location
services requires the coordination of the following four critical network
components: location determination technologies, a location gateway,
applications and location provisioning.
[Chart shows mobile location services components, including location
determination technologies, location gateway, applications and location
provisioning.]
LOCATION DETERMINATION TECHNOLOGIES
There are currently a variety of location determination technologies
available in the worldwide market that compute the latitude and longitude
coordinates of a mobile device with varying degrees of precision. These
technologies provide location information through methods including angle of
arrival calculations (AOA), cellular tower and sector proximity (Cell ID),
global positioning systems (GPS), time difference of arrival (TDOA) and
combinations of these approaches. Location technologies may be embedded in
wireless networks, be contained in the mobile handsets themselves or use a
combination of both methods. We do not expect any single method to emerge and
win universal acceptance in the foreseeable future. Today, Cell ID is
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by far the most widely available and used location determination technology.
With Cell ID, the identified position is generally within 50 to 5,000 meters of
the caller's actual location, depending on the size of the cell sector. We do
not provide any location determination technologies, but we have successfully
tested our applications against each of the current technologies and have
entered into industry partnerships with several of the providers.
LOCATION GATEWAY
There are a number of different location determination technologies, each
with its own complexities. The use of these technologies varies widely among
different wireless carriers and even among and within geographic markets served
by the same carrier. Due to these factors, the mobile communications standards
organizations have defined the concept of a location gateway. A location gateway
assimilates, interprets and stores for retrieval the location information
generated by the disparate location technologies. The gateway then provides an
interface with a multitude of applications from one or more vendors that use the
location information. If the location gateway is to work in numerous countries
across multiple standards, the gateway must be compatible with the wireless
standards, networks and equipment of a wide variety of wireless operators.
APPLICATIONS
Mobile location applications take basic location data, primarily latitude
and longitude, from the location gateway and use the location either to provide
basic network functions like call routing or billing, or to access information
from outside the wireless network. Like the location gateway, the applications
should be compatible with the wireless standards, networks and equipment of a
wide variety of network operators. Some applications are integrated with many
parts of the network, interfacing to the switches, billing systems, customer
care and other network elements such as those used for authentication, call
set-up and roaming. Other applications, such as an asset tracking application,
use location provided directly from the location gateway over the Internet.
Overall, the applications should be independent of one another to allow network
operators the option to use one or more, but not necessarily all, of the
applications.
LOCATION PROVISIONING
All wireless network elements require data to operate. The location-based
elements need map data such as streets, postal code boundaries and signal
strength information, as well as subscriber data such as office addresses, work
group numbers and content preferences. The telecommunications industry uses the
term provisioning to describe the process of importing this data from a variety
of sources and configuring the data to run on the location-based elements of the
network. An important characteristic of provisioning is the ability to load new
data, edit existing data or delete data without affecting the on-going
processing of calls. This feature is often called on-line transaction
processing.
MOBILE LOCATION SERVICES: THE FCC'S 911 MANDATE
An early application of mobile location services has been wireless 911
services. In 1996, the Federal Communications Commission, or FCC, mandated that
all wireless service providers must report the callback number and originating
cell sector site of a 911 call by April 1, 1998, referred to as Phase I
compliance. Providers are required to pinpoint the location of all 911 callers
within 125 meters in 67% of all cases by October 1, 2001, referred to as Phase
II compliance. The European Union is currently investigating similar directives
for a European emergency 112 system. Although less than five percent of all
wireless network operations in the United States are currently in compliance
with the FCC Phase I mandate, this government-mandated mobile location services
application has served as the impetus and testing ground for location
determination technologies and commercial applications of mobile location
services by wireless network operators.
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MARKET OPPORTUNITY
Wireless network operators are searching for ways to differentiate their
product offerings, increase customer loyalty and consequently increase their
revenues and profit margins. Mobile location services can help to unlock the
revenue and margin potential that may exist in the emerging m-Commerce arena.
Carriers will require that the four network components -- location determination
technology, location gateway, applications and location
provisioning -- interface to their existing equipment infrastructure, even if
their equipment is from multiple vendors. We believe that a carrier or network
infrastructure provider would have difficulty designing mobile location products
that work across such standards and equipment systems, since carriers and
providers are unlikely to have experience with all of the standards or access to
the systems of rival companies. Carriers will further demand that these
components meet telecommunication requirements for reliability and scalability,
i.e., the ability to handle millions of subscribers. Finally, global carriers
with investments around the world will require that mobile location services
providers be able to serve the different wireless network standards for each
portion of the carriers' networks. We believe that a significant market
opportunity exists for a company with a mobile location services operating
platform and multiple software applications that address the needs of wireless
network operators.
SIGNALSOFT'S SOLUTION
We provide an operating platform and a suite of related software
applications that allow wireless network operators to seamlessly package
location-based, value-added voice and data services to their users. The key
features of our solution are as follows:
COMPATIBILITY
We have designed our software to integrate with the wireless network
infrastructure and to be compatible with the existing systems of wireless
operators, wireless location determination technology companies and Internet
content providers. We already have commercial deployments of our operating
platform and software applications in markets that use standards including
Advanced Mobile Phone Service, or AMPS; Code Division Multiple Access, or CDMA;
Global System for Mobile Communication, or GSM; and Time Division Multiple
Access, or TDMA. These deployments use equipment from Compaq, Ericsson, Lucent,
Nokia, Nortel and Sun Microsystems. Our location gateway, which we call the
Location Manager, is able to interface with each existing location determination
technology and combine with our location provisioning component, which we call
MAPS, to produce the geographic location of the user. Our platform and
applications are designed to integrate into the network operators' systems and
provide services to wireless subscribers in what we believe are the core mobile
location services applications categories: information, billing, safety and
tracking. Our platform and applications are designed to work in wireless systems
that use equipment from a variety of vendors. We are not dependent on any one
standard, equipment provider or location determination technology.
MODULARITY, FLEXIBILITY AND COST-EFFECTIVENESS
Our software may be adopted as a suite or as a single application,
depending on the needs of the network operator. Our operating platform may be
used independently of our applications and may be combined with applications of
other third party-providers, and our applications can be used with other
location gateways. We can provide our customer base with the ability to
customize our software. For example, our Location Sensitive Billing product can
be configured for service deployment such that two different carriers would
provide very different service offerings to their wireless customer base.
Similar customization through configuration is achievable with our
local.info(TM) application. This flexibility reduces both initial and
incremental capital requirements of network operators, and allows operators to
more rapidly and cost-effectively build initial capacity and introduce
additional services. Our software has the capability to accommodate either or
both voice and data transmissions, and as bandwidth in mobile telephony
increases, video streaming as well.
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SCALABILITY
Our platform and applications are scalable, designed to grow from systems
receiving thousands of calls and serving thousands of users to systems receiving
millions of calls and serving millions of users. Our scalability is represented
both in our software architecture and in our licensing structure. For example,
customers may deploy our software in a lab environment for service creation and
testing, in a low-end configuration for small deployments, or in a
geographically diverse, redundant, highly reliable configuration for very large
systems. When purchasing our products, network operators may license a
relatively small number of subscribers or transactions to allow them to start
with little capital risk. Only as the number of subscribers in the network
grows, or as penetration and usage of our services increase, are they required
to invest more capital into expanded licenses. We believe that our platform and
applications are capable of providing mobile location services to operators both
in the current environment and in an environment in which such services are
required on a much expanded basis.
EXCLUSIVE FOCUS ON MOBILE LOCATION SERVICES
Our exclusive focus is on providing a mobile location services operating
platform and applications for enhanced voice and data services. Our founders
started developing mobile location services software products in February 1995,
prior to the adoption of the FCC's 1996 emergency 911 mandate. In September
1996, we announced our first commercial product, Wireless 911. We launched a
location-sensitive billing system in June 1998 and a location-based information
application in September 1998. With our recent acquisition of BFound.com, and
the addition of its wireless tracking technology, we now offer a suite of
applications covering each of four core categories of mobile location
services -- information, billing, safety and tracking. We have consistently
demonstrated our experience and knowledge in the market by presenting at
industry conferences, sponsoring workshops and contributing to standards
organizations.
SIGNALSOFT'S PRODUCTS AND SERVICES
Of the four critical network components required for mobile location
services, we provide every component other than the location determination
technologies. Instead, we have partnered with wireless location determination
technology vendors, and we provide an open platform for their technologies to
coexist in a customer's network. SignalSoft's product suite of Wireless Location
Services(R) consists of software that typically is integrated into the wireless
network infrastructure on a service control point or on an Internet server. Our
location gateway is called the Location Manager, and we also offer a location
provisioning component, which we call MAPS. Together, the Location Manager and
MAPS form a core operating platform which supports applications, including our
own local.info(TM), Location Sensitive Billing, Wireless 911 and wireless
tracking applications.
[Chart shows how our Wireless Location Services(R) provide three of the four
mobile location services components.]
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OPERATING PLATFORM
Location Manager
The Location Manager is a versatile software hub that allows multiple
wireless location determination technologies to interface with both our suite of
Wireless Location Services(R) applications and other third party applications as
well. The Location Manager is located on the wireless operator's network,
receives data from the location determination technologies residing on or
connected with that network and converts that data for use by multiple
applications. The Location Manager helps wireless service providers to separate
location determination technology decisions, which are based primarily on
technical requirements and cost, from location services decisions, which are
based primarily on market demand.
MAPS
Maps Application Provisioning Server, or MAPS, is an advanced multi-tiered
client-server Geographic Information System, or GIS, which provides an
integrated provisioning system for our Wireless Location Services(R) products
and other mobile location services software. With MAPS, network operators can
update databases, add new services and execute numerous other real-time
provisioning tasks without affecting the performance of other applications. This
ability helps to ensure that the network operator will be able to continue
critical applications, such as billing, while simultaneously updating its
network. MAPS also includes a user-friendly interface for statistical and
reporting functions to support system administration.
SOFTWARE APPLICATIONS
SignalSoft's suite of Wireless Location Services(R) applications is focused
within four core functional categories: information, billing, safety and
tracking. Each of these products can be used individually or integrated with our
other products.
local.info(TM)
To enable m-Commerce, our local.info(TM) application delivers geographical
information and Internet content to wireless subscribers based on their
location. We have deployed or tested our local.info(TM) application with several
operators in over a dozen cities worldwide with most major equipment vendors.
In 1999, diAx, a Swiss wireless network operator, began using
local.info(TM) at several ski resorts to provide local users with information on
restaurants, ski conditions, lift availability and entertainment. diAx offers
local businesses the opportunity to be featured on its information-based network
services. This m-Commerce application enabled diAx not only to enter into a new
geographic market and generate incremental revenue from increased network usage,
but also to have the potential for advertising revenue.
In order to help carriers provide content for their m-Commerce services, we
established and launched the local.info(TM) Content Alliance in January 1999. We
have entered into approximately 30 industry partnerships with content providers
through the local.info(TM) Content Alliance. We intend to partner with multiple
companies providing the same types of content in order to source local content
for different geographic regions.
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<PAGE> 42
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
LOCAL.INFO(TM) CONTENT ALLIANCE
- ------------------------------------------------------------------------------------------------------
CATEGORY PROVIDERS CATEGORY PROVIDERS
- ------------------------------------------------------------------------------------------------------
Advertising/Coupons SUMmedia, City Guide ahhaa, 10Best.com,
TicketingSolutions, EzyFind, Go2 Systems,
Vicinity Sonata.com, Wcities.com,
Wireless Media
- ------------------------------------------------------------------------------------------------------
Directory Assistance AirFlash, EzyFind, Entertainment Airflash, Buzz Wireless,
InfoNow, InfoSpace.com, CitiKey, Enspot.com,
Kapitol, Mapquest, e-street.com, EzyFind,
Targus, Vicinity, Go2 Systems, i3 Mobile,
WorldPages InfoNow, Squeezenet.com,
Syncromedia.com
- ------------------------------------------------------------------------------------------------------
Map CitiKey, InfoNow, Restaurants CitiKey, E-street.com,
Mapquest, Mediaplex EzyFind, Go2 Systems,
InfoNow, Menus.com,
Squeezenet.com
- ------------------------------------------------------------------------------------------------------
Roadside/Other Services ahhaa, ATX, Cross Shopping AirFlash, EzyFind, Go2
Country Systems, i3 Mobile,
indiqu.com, InfoNow,
Kapitol, RealMalls,
Ticketing Solutions,
WorldPages
- ------------------------------------------------------------------------------------------------------
Travel & Traffic AirFlash, e-street.com, Weather e-street.com, Go2
Go2 Systems, i3 Mobile, Systems, i3 Mobile,
indiqu.com, InfoNow, InfoNow, Weather Window
Mapquest, Mediaplex,
Strategy.com, Portugal
Hotels, SmartRoute,
Squeezenet.com
- ------------------------------------------------------------------------------------------------------
</TABLE>
Location Sensitive Billing
Location Sensitive Billing enables wireless network operators to define
multiple geographic zones for each subscriber. With the use of a graphic user
interface, the network operator can point-and-click on maps to define and modify
up to ten calling zones for an individual subscriber. Establishing these calling
zones allows a wireless carrier to charge different rates for various zones. For
example, wireless network operators could offer their subscribers the same rate
as land line phones when making calls from the home or office, but still charge
higher rates when subscribers are not in "pre-specified" zones. As a result,
Location Sensitive Billing can make it more economical for subscribers to freely
substitute their wireless phone for their land line phones, while network
operators are still able to charge higher prices for mobile minutes. Currently,
one operator has licensed Location Sensitive Billing and several others are
testing it.
Wireless 911
Wireless 911 is designed to automatically locate wireless callers in
distress, record their calling information and route their calls to the
appropriate public safety answering point. Wireless 911 meets both Phase I and
Phase II requirements of the FCC mandate. Additionally, Wireless 911 supports
major wireless switch/interface standards, is compatible with many combinations
of wireless infrastructure and handset-based location determination
technologies, and is capable of interfacing with land line Emergency 911
systems.
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<PAGE> 43
Four of the five largest network operators in the United States, based on number
of subscribers, use our Wireless 911 application.
Tracking
Our current BFound.com(TM) service utilizes a third-party Internet browser
and a GPS unit to track and manage mobile assets in real-time. We use an
application service provider, or ASP, model whereby we host this application on
one of our servers. We are currently testing in a carrier's network the
combination of the BFound.com(TM) service with our Location Manager. This
combination would allow us to offer the wireless industry a way to track
vehicles or other assets without the separate GPS unit. As part of our ongoing
enhancements, we plan to take BFound.com's technology and combine it with our
software architecture to offer Wireless Tracking as a software application that
we may license to wireless carriers or our industry partners. We believe that
Wireless Tracking's chief advantage over other commercially available tracking
systems will be that it will not require the user to install special equipment
in trucks or other assets being tracked.
PROFESSIONAL SERVICES AND MAINTENANCE
Many carriers contract with us for our professional services because of our
experience in implementing mobile location services in wireless networks. We
currently offer consulting in four primary areas: strategy, implementation,
launch and maintenance. Our professional services help network operators get
started quickly and learn the basic operation of our operating platforms and
software applications. We can load content into the carrier infrastructure,
establish the relevant interfaces to the network equipment and perform testing
to help ensure that the launch of the carrier's mobile location services
offering is successful.
We provide maintenance services to our customers for software support,
scheduled product upgrades and other support services. For example, through our
in-house customer service capabilities and through our partnerships with
infrastructure providers, we offer comprehensive customer support services 24
hours a day, seven days a week.
SIGNALSOFT'S STRATEGY
Our goal is to be the leading provider of software solutions that enable
the delivery of mobile location services. The key elements of our strategy
include the following:
INNOVATE AND ENHANCE OUR PRODUCTS AND SERVICES
We believe that the market for mobile location services will continue to
evolve rapidly. We intend to stay at the leading edge of this evolution by
creating new products and services. We plan to introduce a tool-box, which we
call our Software Development Kit, which will allow third parties to design,
develop and deploy their own mobile location services software applications. We
believe that these third-party applications will create additional demand for
our operating platform and for our own applications as well. In addition, we
have joined the Wireless Multimedia Forum, a new industry organization, to
promote the integration of location information with multimedia and video
services over wireless networks.
Technology standards are constantly evolving. We intend to modify our
products or develop new products as needed to comply with next-generation
technology standards, such as Global Packet Radio System (GPRS) and Enhanced
Data GSM Environment (EDGE), and third-generation or 3G standards such as
cdma2000, Universal Mobile Telecommunications System (UMTS) and Wideband CDMA.
We intend to continually refine and enhance our current product and
services, especially through extensive testing of our software on our industry
partners' systems. For example, in the future we intend to offer map displays on
Wireless Application Protocol, or WAP, enabled devices. WAP is a micro-browser
protocol that is capable of filtering and displaying Internet information on a
mobile telephone screen. We are also an active member of the WAP Forum, an
international industry organization. We also plan to add additional content
partners to the local.info(TM) Content Alliance.
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<PAGE> 44
CREATE MARKET DEMAND
To create additional market demand for mobile location services and to
establish our Wireless Location Services(R) as the de facto industry standard,
we have focused on increasing visibility among wireless network operators and
equipment suppliers around the world. Such initiatives include:
- maximizing promotional activities through industry conference
co-sponsorships, one-on-one meetings with customers and potential
customers, trade shows, media relations, and speaking engagements,
- demonstrating our products with multiple industry partners at trade shows
and promoting awareness of the integration of our software in our
industry partners' service offerings, and
- promoting our interests with industry standard-setting organizations.
We also expect to increase Wireless Location Services(R) adoption by
continuing to maintain it as an open, flexible and interoperable platform that
is compatible with all major networks and standards.
ESTABLISH A GLOBAL PRESENCE
SignalSoft expects to capitalize on the rapid growth and increasing
penetration of wireless services in North America, Europe, Asia-Pacific and
South America to drive demand for Wireless Location Services(R) applications.
Our efforts are currently focused on North America and Europe, where we have
established multiple reference accounts and have introduced our suite of
products and services. We plan to expand aggressively in these regions through
our industry partnerships and direct marketing efforts. We expect to expand our
reach into Asia-Pacific and South America.
STRENGTHEN AND EXPAND KEY INDUSTRY PARTNERSHIPS
We believe that our industry partnerships with infrastructure providers,
resellers, location determination technology vendors and content providers are
important to our business, and we plan to continue to strengthen these
partnerships and seek key new industry partnerships.
Our relationships with infrastructure providers have given us several
advantages, including:
- the opportunity to bundle our products with equipment manufacturers;
- an additional distribution channel for improved access to major wireless
network operators;
- the opportunity to assess and test products before deployment; and
- a valuable understanding of our customers' technology and operations,
which helps us in product design, marketing and in identifying new sales
opportunities.
Our exclusive focus on mobile location services allows our industry
partners to focus on their core competencies. In addition, a content provider
can establish a relationship with one of our network operators and have its
content integrated into the operator's network. The network operator benefits by
having more content to deliver to its subscribers, thus enabling the operator to
further differentiate its product offerings, build customer loyalty and gain
additional revenues. Our operating platform and software applications act as the
focal point for this activity.
PURSUE SELECTIVE ACQUISITIONS
We intend to pursue acquisitions of companies and technologies that we
believe will allow us to provide new services, enhance our technology, add new
key personnel and extend our operations into new geographic markets. For
example, our recent acquisition of BFound.com Services, Inc. provided us with a
mobile location services tracking application that we believe complements our
existing applications. BFound.com also gives us additional qualified development
personnel that will help expand our industry reach.
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<PAGE> 45
CUSTOMERS
As of March 31, 2000, the following wireless network operators had deployed
or licensed our software:
- AAPT (Australia)
- Ameritech Cellular
- AT&T Wireless
- BellSouth
- Century Tel
- diAx (Switzerland)
- Houston Cellular
- Southwestern Bell Mobile
- Sprint PCS
- Triton
- U S WEST Wireless
In addition, several additional operators are testing our products for use
within their networks. Most of our deployments have been for Wireless 911.
Based on 1999 revenue, Lucent accounted for approximately 46% of our
revenues and Compaq accounted for approximately 11% of our revenues.
SALES AND MARKETING
We market and sell our operating platform and applications to wireless
network operators primarily through industry partnerships we have developed with
infrastructure providers, resellers, location determination technology vendors
and content providers. We also use our own direct sales force.
We have entered into industry partnerships with the content providers named
in the chart on page 38 above, as well as with companies in the following
categories:
Infrastructure Providers: These companies provide the core equipment for
wireless networks. As of March 31, 2000, our infrastructure partners were
Ericsson, Lucent, Motorola, Nortel and Siemens. At present, all five of our
infrastructure partners are assessing or are in the process of bundling our
operating platform and applications with their products to market and sell to
network operators worldwide.
Resellers: We have also sought industry partnerships with companies who
provide intelligent network platforms or wireless data platforms. Our reseller
partners bundle our products in these platforms and resell a package of products
and services to network operators. As of March 31, 2000, SignalSoft's reseller
partners were Compaq, GTE-TSI, Lucent, Motorola and SCC Communications.
Location Determination Technology Vendors: Since location determination
technology vendors develop, promote and deploy more accurate positioning
technologies, we have established both technical and marketing relationships
with these companies. The location determination technology vendors promote our
compatibility with their location finding systems, and we promote the location
determination technology vendors as companies with positioning technology. We
regularly test with these vendors both in lab environments and in live field
tests to help ensure product success and compatibility. As of March 31, 2000,
SignalSoft's location determination technology partners were Allen Telecom,
Cambridge Positioning Systems, Cell-Loc, Ericsson, Lucent, SigmaOne, SnapTrack
(a division of Qualcomm), TruePosition (a division of Liberty Media) and US
Wireless.
To help drive demand for mobile location services in general and our
Wireless Location Services(R) in particular, we also use direct sales channels,
which promote our Wireless Location Services(R) products and consulting services
directly to network operators and assist our industry partners in selling our
products and services. We maintain direct regular contact with customers through
one-on-one meetings, industry conferences, and SignalSoft-sponsored educational
workshops. We also market our products via trade shows, media and analyst
relations, and speaking engagements. As of March 31, 2000, we had 23 sales and
marketing personnel located in the United States, Canada, the United Kingdom,
the Netherlands, France and Australia. In the near future, we expect to increase
our sales and marketing efforts by expanding our office in the United Kingdom
and by opening an office in the Asia-Pacific region.
TECHNOLOGY
We believe that one of our principal strengths is our proprietary,
internally developed technology. Our operating platform and software
applications have been designed to provide a network- and device-
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<PAGE> 46
independent platform for the creation and delivery of mobile location services.
Our software components can be deployed on a variety of computer hardware and
operating systems to satisfy the requirements of our network operator customers
and partnerships. Each component of our product suite has been designed to
achieve these goals while satisfying the requirements of the telecommunications
industry. Our software architecture consists of a set of C++ and Java class
libraries that allow us to achieve the following benefits:
- Independence from any specific location determination technology is
achieved by building individual interfaces to differing location
technologies in much the same way as printer drivers permit many
different vendors' hardware to function with a single software operating
system.
- Provisioning and management of geographic data is made possible through
the use of our proprietary MAPS client and server algorithms, which
utilize GIS functions optimized for the demanding requirements of
telecommunications networks.
- Deployment of our software in different switch vendor networks is
achieved by proprietary middleware that receives a message from the
switch in its original proprietary format, extracts the data required by
our applications from the message and subsequently responds to the switch
with the appropriate information required to complete the transaction.
- Deployment of our software on multiple partner vendor platforms is
achieved by additional proprietary middleware libraries that individually
deal with each partner's operating system, hardware and network
management requirements.
RESEARCH AND DEVELOPMENT
Our research and development group is a technical workforce experienced in
object-oriented software development. Our testing team consists of software
engineers with experience in both software subsystem and system-level testing.
The members of our engineering team have an average of approximately eight
years' experience in the management of software development and approximately
ten years' experience in software development. Approximately 80% of our
engineers have BS, BA or equivalent engineering degrees. As of March 31, 2000,
we had 52 employees engaged in research and product development activities,
including product support. We continue to recruit additional skilled research
and product development personnel and intend to increase the size of this group.
Competition for employees with the skills and experience we need is intense.
Our research and development expenditures were approximately $3.4 million
for 1999 and approximately $2.5 million for 1998.
INTELLECTUAL PROPERTY
We rely on a combination of trade secrets, non-disclosure and other
contractual arrangements, as well as patent, copyright and trademark laws to
protect our proprietary rights. As part of our intellectual property strategy,
we have in the past submitted, and continue to submit, patent applications for
our Wireless Location Services(R) products in the United States and
internationally. We currently have rights under one issued United States patent
based on a joint submission between SignalSoft and a major infrastructure
provider. The infrastructure provider holds actual title to the patent. The
infrastructure provider may assign rights under this patent to others without
our consent or may choose to use the patent and compete directly against us. In
addition, we have filed seven U.S. and two international patent applications. We
have obtained or are in the process of obtaining common law trademark rights and
trademark registrations on our product names from the United States Patent and
Trademark Office. As part of our normal business practices, we provide copyright
notices on our confidential technical, sales and marketing documents.
COMPETITION
There are competitors for each of our product offerings. We expect to
encounter competition from wireless location determination technology vendors,
service bureaus, application service providers and infrastructure providers. In
particular, several companies have developed solutions to comply with the FCC
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<PAGE> 47
mandate for Emergency 911 specifications. Because we are part of an emerging
market, we cannot identify or predict which new competitors may enter the mobile
location services industry in the future. We may compete against our current
industry partners to the extent they also offer mobile location services, which
may result in the termination of our relationships with these industry partners.
We expect competition in our industry to be even more intense in the future as
new competitors, such as additional wireless infrastructure providers, enter the
market. Many of our current and potential competitors have longer operating
histories, greater industry and name recognition and greater financial,
technical and marketing resources than we do. Increased competition may result
in lower prices for our products, which may have a material adverse effect on
our revenues and operating results.
We compete based on the following factors:
- product features;
- integration of products with wireless operators' networks;
- available content;
- timing of new product introductions;
- price; and
- customer support and services.
REGULATION
We are not currently subject to direct regulation by the Federal
Communications Commission, or FCC, or any other governmental agency, except for
regulations applicable to businesses in general. However, in the future, we may
become subject to regulation by the FCC or another regulatory agency. Concerns
about personal privacy could result in regulations limiting the use of mobile
location services. For example, a European Union, or EU, directive prohibits the
transmission of personally identifiable data to third countries -- including
the United States -- that are deemed to provide inadequate privacy protection
for that information. The United States and the EU recently signed a data
privacy agreement, which includes standards that U.S. companies will be able to
use to comply with the EU directive. The FCC may adopt additional regulations
related to this directive, including increased protections for personal data.
Also, existing laws governing access to and use of consumer information could be
interpreted or expanded to cover the wireless market.
Wireless network operators are currently regulated by the FCC and any
regulations that affect them could also increase our costs, limit our access to
their networks and subscribers or reduce our ability to continue selling and
supporting our products and services. Currently, wireless carriers are subject
to the FCC's 911 mandate. Our Wireless 911 product complies with the
requirements of both phases of this mandate. However, we cannot anticipate what
regulations the FCC may adopt in the future and what impact those regulations
may have on our business, our industry partners or our customers.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings, nor are we currently
aware of any threatened material legal proceedings. From time to time, we may
become involved in litigation relating to claims arising out of our operations
in the normal course of our business.
PROPERTY AND FACILITIES
Our corporate headquarters are located at 1495 Canyon Boulevard, Boulder,
Colorado 80302. We currently lease approximately 18,000 square feet of office
space and most of our equipment, including computers, under non-cancelable
capital and operating lease agreements which expire on various dates through
2003. We also lease office space in the United Kingdom and in Victoria, British
Columbia.
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EMPLOYEES
As of March 31, 2000, we had 100 employees. None of our employees are
covered by collective bargaining agreements. We believe that our relations with
our employees are good.
INCORPORATION
We were incorporated in 1994 in Colorado. We reincorporated in Delaware in
1998.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of SignalSoft, along with
their backgrounds, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David A. Hose......................... 36 Chief Executive Officer, President and
Chairman of the Board of Directors
Mark H. Flolid........................ 48 Executive Vice President of Corporate
Development and Director
Donald J. Winters, Jr. ............... 48 Senior Vice President and Chief
Operating Officer
Roy Kligfield......................... 49 Senior Vice President of Engineering
Andrew M. Murray...................... 41 Senior Vice President of Finance,
Chief Financial Officer and
Secretary-Treasurer
Charles P. Waite, Jr.................. 44 Director
B. Holt Thrasher...................... 38 Director
Eric L. Doggett....................... 40 Director
Perry M. LaForge...................... 41 Director
</TABLE>
David A. Hose is a founding member of SignalSoft and has been our Chief
Executive Officer, President and Chairman of the Board of Directors since
February 1995. In this capacity, Mr. Hose is responsible for overseeing
SignalSoft's growth and strategic direction. Prior to joining SignalSoft, from
1993 to January 1995, Mr. Hose served as the Vice President of Engineering at
SCC Communications Corp., where he designed location-based applications for
public-safety command and control systems. Between 1981 and 1993, Mr. Hose was
employed in various management roles at SCC, GeoBased Systems, Criterion, Inc.
and J&D Software.
Mark H. Flolid is a founding member of SignalSoft and served as our
Executive Vice President of Sales and Marketing from February 1995 until August
1999. In August 1999, Mr. Flolid assumed the role of Executive Vice President of
Corporate Development and is responsible for SignalSoft's new product
development and strategic partnerships. Prior to joining SignalSoft, from 1992
to January 1995, Mr. Flolid was Senior Vice President of Sales and Marketing at
SCC Communications Corp. Between 1981 and 1992, he held senior management
positions in sales, marketing and operations at Thomas Bros. Maps, GeoBased
Systems and Criterion, Inc. Mr. Flolid graduated from the University of Texas
where he earned both a BA in Political Science and an MA in Economics.
Donald J. Winters, Jr. became our Senior Vice President and Chief Operating
Officer in December 1999. He joined SignalSoft in February 1997 as Vice
President of Operations and also served as Vice President of Sales from August
1999 to December 1999. Mr. Winters manages SignalSoft's sales, marketing and
customer operations. Prior to joining SignalSoft, from February 1996 to February
1997, he was Vice President of Business Development for Coral Systems, where he
was responsible for new product development and strategic partnerships. Between
1978 and February 1996, Mr. Winters held a number of management positions at
AirTouch Communications and Pacific Telesis in engineering, operations,
technology development, and strategy.
Roy Kligfield has been SignalSoft's Senior Vice President of Engineering
since March 2000. From January 1996 to March 2000, he served as our Vice
President of Development. At SignalSoft, he is responsible for the design,
development and testing of SignalSoft's products, platforms and interfaces to
all external technologies. Prior to joining SignalSoft, from 1992 to December
1995, Mr. Kligfield was General Manager of Geological Development Center at
CogniSeis Development, where he developed geological software, including
multidimensional mapping applications for the oil and gas industry. Between 1981
and 1992, Mr. Kligfield was an Associate Professor of Structural Geology at the
University of Colorado where he taught structural geology, mapping and GIS
concepts. Mr. Kligfield has an extensive background in mapping
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<PAGE> 50
and software development management and has authored over 130 publications on
these subjects. Mr. Kligfield graduated from Columbia University where he earned
a Ph.D., a M.Phil., and a BA in Geology.
Andrew M. Murray joined SignalSoft as Vice President of Finance and
Administration and Chief Financial Officer in August 1998. He became
Secretary-Treasurer in October 1998 and Senior Vice President of Finance in
March 2000. At SignalSoft, Mr. Murray oversees all financial functions, legal
relationships, human resources, information systems and office administration.
Prior to joining SignalSoft, from January 1989 to August 1998, he served as
Chief Financial Officer and Vice President of Finance and Administration for
Dynamic Information Systems Corp., a Boulder, Colorado-based software company.
His prior experiences also include finance-related management positions at
Murray Equipment Company, AT&T Communications and Mountain Bell. Mr. Murray also
serves on the board of directors of Bellco First Federal Credit Union and is a
Certified Management Accountant. Mr. Murray earned an MBA from the University of
Denver and a BS in Business Administration from the University of Northern
Colorado.
Charles P. Waite, Jr. joined our board of directors in May 1997. He has
served as a General Partner with Seattle-based Olympic Venture Partners, a
technology-focused venture capital firm with a specific emphasis on firms in the
software, life sciences, Internet, communications and health care sectors, since
1987. Prior to joining Olympic, Mr. Waite was a General Partner at Hambrecht &
Quist, a venture capital operation based in San Francisco, for four years. From
1977 to 1981, he was a Cardiovascular Products Specialist for Denver-based Cobe
Laboratories, Inc. He currently serves on the boards of directors of Loudeye
Technologies, Rosetta Inpharmatics, Verity and WatchGuard. Mr. Waite earned an
MBA from Harvard University and a BA from Kenyon College.
B. Holt Thrasher joined our board of directors in May 1997. He has served
as a Managing Director of Broadview International LLC since August 1995. Prior
to joining Broadview, from March 1995 to August 1995, Mr. Thrasher was a
full-time consultant with Omnipoint, a PCS service provider and developer of
wireless communications equipment. From March 1992 to March 1995, he served as
Vice President of Corporate Development at Tip Hook PLC. From August 1985 to
September 1990, Mr. Thrasher served as Vice President of Mergers and
Acquisitions with Smith Barney Harris & Upham and Company Inc. From June 1983 to
August 1985, he was an associate with Brown Brothers Harriman. Mr. Thrasher also
serves on the boards of directors of T-NETIX, Inc., a provider of call
processing services, and The Kairos Foundation, a non-profit organization. Mr.
Thrasher earned an MBA from the International Institute of Management
Development in Lausanne, Switzerland and a BA from Colby College.
Eric L. Doggett joined our board in December 1997. He has served as the
President and Chief Executive Officer of Charlotte, North Carolina-based
Glenayre Technologies Inc., a developer of personal telecommunications equipment
and software, since June 1999. Prior to joining Glenayre, from July 1998 to June
1999, he served as a strategic, operational and financial consultant for
telecommunications ventures as a Venture Partner with Rein Capital, LLC. From
September 1996 to June 1998, Mr. Doggett was a Senior Vice President and General
Manager of the Communications Products Group at Compaq's Tandem Computers. His
prior experiences include over 12 years at Nortel Networks' Public Carriers in
executive positions including Vice President of Technology, Vice President of
Marketing, Vice President/General Manager of International and Assistant Vice
President/General Manager of the DMS-10 switching division. Mr. Doggett holds an
MBA from Duke University and a BS in physics from North Carolina State
University.
Perry M. LaForge has served as a director since December 1998. He is a Vice
President and Partner with the international management-consulting firm of
Pittiglio Rabin Todd and McGrath (PRTM). Prior to joining PRTM in 1984, Mr.
LaForge worked for Corning Technical Products and Sperry Univac, where he was
responsible for business development and new product releases. Mr. LaForge is
the founder, Executive Director and Chairman of the CDMA Development Group
(CDG), a trade association comprised of over 100 wireless operators and
manufacturers. He is also the founder, Chairman and President of Incode Telecom
Group, a telecommunications consulting company. Mr. LaForge earned his MBA from
the Amos Tuck School of Business at Dartmouth College and his BS from the
University of Santa Clara.
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COMPOSITION OF THE BOARD OF DIRECTORS
We intend to amend our certificate of incorporation to provide for a board
of directors consisting of six members, who will be divided into three classes
of two directors each serving staggered three-year terms:
- the term of our Class I directors will expire at our 2001 annual meeting;
- the term of our Class II directors will expire at our 2002 annual
meeting; and
- the term of our Class III directors will expire at our 2003 annual
meeting.
Our Class I directors will be Messrs. Flolid and LaForge. Our Class II directors
will be Messrs. Doggett and Thrasher. Our Class III directors will be Messrs.
Hose and Waite. Because we have a classified board, only two of our six board
members will be elected at each annual stockholders' meeting, with the other
directors continuing for the remainder of their class terms.
COMPENSATION OF DIRECTORS
Our directors who are not also our employees are reimbursed for the
expenses they incur in attending meetings of our board or our board committees.
All directors who are not also our employees are eligible to participate in our
nonqualified stock option plan. In 1999, we granted Mr. LaForge an option to
purchase 20,000 shares of our common stock under this plan. In 1997, we granted
Mr. Doggett an option to purchase 20,000 shares of our common stock, Mr.
Thrasher an option to purchase 20,000 shares of our common stock, and Mr. Waite
an option to purchase 40,000 shares of our common stock under this plan. These
options vest over 50 months, with 24% vesting on the one-year anniversary of the
date of grant and 2% vesting each month thereafter. Mr. Waite's options have an
exercise price of $0.05 per share. Each of Messrs. Doggett, LaForge and
Thrasher's options have an exercise price of $0.65 per share.
COMMITTEES OF THE BOARD OF DIRECTORS
We have both an Audit Committee and a Compensation Committee.
Audit Committee. The Audit Committee consists of three directors. Currently
the members of our Audit Committee are Messrs. LaForge, Thrasher and Waite. The
Audit Committee is responsible for recommending annually to the board of
directors the independent auditors to be retained, reviewing with our
independent auditors the scope and results of the audit engagement, reviewing
our system of internal accounting controls and directing investigations into
matters within the scope of its functions.
Compensation Committee. The Compensation Committee consists of three
directors. Currently the members of our Compensation Committee are Messrs.
Doggett, Thrasher and Waite. The Compensation Committee is responsible for
determining executive compensation policies and guidelines. It also administers
our stock option plans and establishes the terms and conditions of all stock
option grants.
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<PAGE> 52
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned by our Chief Executive Officer and by each of our four most highly
compensated executive officers for the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
- --------------------------- --------- --------
<S> <C> <C>
David A. Hose............................................... $150,000 $45,000
Chief Executive Officer, President and Chairman of the
Board of Directors
Mark H. Flolid.............................................. 125,000 13,000
Executive Vice President of Corporate Development
Donald J. Winters, Jr. ..................................... 134,379 22,000
Senior Vice President and Chief Operating Officer
Roy Kligfield............................................... 130,000 22,000
Senior Vice President of Engineering
Andrew M. Murray............................................ 120,840 22,000
Senior Vice President of Finance, Chief Financial Officer
and Secretary-Treasurer
</TABLE>
STOCK OPTION INFORMATION
We did not grant any stock options during 1999 to our executive officers
that are named in the Summary Compensation Table. See "-- Stock Option Plans."
The following table provides, for our executive officers listed in the
Summary Compensation Table, information on the number of shares represented by
unexercised options owned by them at December 31, 1999 and the value of those
options as of the same date. None of the named executive officers exercised any
options in 1999.
AGGREGATE FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS (1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David A. Hose............................... -- -- $ $
Mark H. Flolid.............................. -- --
Donald J. Winters, Jr. ..................... 114,000 61,000
Roy Kligfield............................... 228,000 36,200
Andrew M. Murray............................ 24,000 51,000
</TABLE>
- ---------------
(1) The value of the unexercised in-the-money options represents the difference
between the price of the common stock in this offering and the exercise
price of the options, multiplied by the number of shares underlying the
options.
STOCK OPTION PLANS
1995 NONQUALIFIED STOCK OPTION PLAN
The SignalSoft Corporation Nonqualified Stock Option Plan effective
November 17, 1995, as currently amended, permits the grant of nonqualified stock
options to our key employees, key consultants, key advisors and non-employee
directors, including those of our affiliated companies. We have reserved for
issuance 2,000,000 shares of common stock which may be subject to awards under
the plan. The number of shares is subject to adjustment on account of stock
splits, stock dividends and other dilutive changes in the number of
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<PAGE> 53
outstanding shares of our common stock. We can re-grant shares of common stock
covered by unexercised nonqualified stock options that expire, terminate or are
canceled, together with shares of common stock that are forfeited for any reason
or that are used to pay withholding taxes or the option exercise price. As of
March 31, 2000, there were outstanding stock options to purchase an aggregate of
1,442,081 shares of common stock.
The plan may be administered either by our board of directors or by a
committee. The administrator has the sole discretion to determine the employees,
consultants and non-employee directors to whom awards will be granted and the
terms and conditions of such awards. There is no maximum aggregate fair market
value of stock that may become exercisable by any one employee under incentive
stock options during any calendar year. The administrator determines the
exercise price for each option.
Upon the occurrence of a reorganization, merger or consolidation or our
dissolution or liquidation, the administer determines whether all outstanding
options will remain outstanding, become fully vested and immediately
exercisable, or be assumed by the surviving entity in the transaction. If the
options accelerate, all outstanding options that are not exercised before the
effective date of the transaction will automatically terminate.
2000 EQUITY INCENTIVE PLAN
We intend to adopt the SignalSoft Corporation Equity Incentive Plan. The
purposes of the equity incentive plan are to provide those who are selected for
participation with added incentives to continue in the long-term service of
SignalSoft and to create in such persons a more direct interest in the future
success of our operations by relating incentive compensation to increases in
shareholder value, so that the income of those participating in the equity
incentive plan is more closely aligned with the income of our stockholders. The
equity incentive plan is also designed to provide a financial incentive that
will help us attract, retain and motivate the most qualified employees,
consultants and directors.
The equity incentive plan will provide for the grant of non-qualified stock
options, incentive stock options, stock appreciation rights, restricted stock,
stock units and other stock grants to our employees, consultants and
non-employee directors. The maximum number of shares of common stock that may be
subject to awards under the equity incentive plan is 3,400,000. The number of
shares as to which options or other awards may be granted in any calendar year
will be limited to 1,000,000. Such numbers will increase by up to 800,000 shares
in each calendar year thereafter. The maximum number of shares that may be
subject to incentive stock options is the 3,400,000. The number of shares
subject to such limitations is subject to adjustment on account of stock splits,
stock dividends and other dilutive changes in the common stock. Shares of common
stock covered by unexercised non-qualified or incentive stock options that
expire or terminate, together with shares of common stock that are forfeited
pursuant to a restricted stock grant or any other award (other than an option)
under the equity incentive plan or that are used to pay withholding taxes or the
option exercise price, will again be available for grants under the equity
incentive plan.
Participation. The equity incentive plan provides that awards may be made
to employees, consultants and non-employee directors who are responsible for our
growth and profitability. It is expected that most, if not all, of our employees
will be eligible to receive grants under the equity incentive plan.
Administration. The equity incentive plan is administered by our
Compensation Committee. The Committee must be structured at all times so that it
satisfies the "non-employee director" requirement of Rule 16b-3 under the
Securities Exchange Act of 1934 and the similar requirement of Section 162(m) of
the Internal Revenue Code with respect to grants to employees whose compensation
is subject to Section 162(m). The Committee has discretion to determine the
employees, consultants and directors to whom awards may be granted under the
equity incentive plan and the manner in which such awards will vest. Options,
stock appreciation rights, restricted stock and stock units may be granted by
the Committee to employees, consultants and directors in such numbers and at
such times during the term of the equity incentive plan as the Committee shall
determine, except that (i) the maximum number of shares subject to one or more
options or stock appreciation rights that can be granted during any calendar
year to any employee, consultant or director is 200,000 shares of common stock,
(ii) the maximum number of shares as to which options or other
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<PAGE> 54
awards may be granted in any calendar year will be limited to 1,000,000, and
(iii) incentive options may be granted only to employees and directors. In
granting options, stock appreciation rights, restricted stock and stock units,
the Committee will take into account such factors as it may deem relevant in
order to accomplish the equity incentive plan's purposes, including one or more
of the following: the extent to which performance goals have been met, the
duties of the respective employees and consultants, and their present and
potential contributions to our success.
The Committee may delegate to specified officers of SignalSoft the power
and authority to grant awards to specified groups of employees and consultants,
subject to any restrictions or conditions that the Committee imposes. However,
the Committee may not delegate the authority to grant awards with respect to any
employee or consultant who is subject to Section 16(b) of the Securities
Exchange Act. To the extent that the Committee has delegated authority to grant
awards to specified officers, the references to the Committee's exercise of
discretion or decision-making in the remainder of this description include the
specified officers.
Exercise of Options. The Committee determines the exercise price for each
option; however, incentive stock options must have an exercise price that is at
least equal to the fair market value of the common stock on the date the
incentive stock option is granted (at least equal to 110% of fair market value
in the case of an incentive stock option granted to an employee who owns common
stock having more than 10% of the voting power). An option holder may exercise
an option by written notice and payment of the exercise price in (i) cash or
certified funds, or by wire transfer, (ii) by the surrender of a number of
shares of common stock already owned by the option holder for at least six
months with a fair market value equal to the exercise price, or (iii) through a
broker's transaction by directing the broker to sell all or a portion of the
common stock to pay the exercise price or make a loan to the option holder to
permit the option holder to pay the exercise price. Option holders who are
subject to the withholding of federal and state income tax as a result of
exercising an option may, with the approval of the Committee, satisfy the income
tax withholding obligation through the withholding of a portion of the common
stock to be received upon exercise of the option. Options, stock appreciation
rights, stock units and restricted stock awards granted under the equity
incentive plan generally are not transferable other than by will or by the laws
of descent and distribution; however, the Committee may provide at the time of
the grant of a non-qualified option or thereafter that the holder may transfer
the non-qualified option to an immediate family member or to a trust or
partnership of which the only beneficiaries or partners are immediate family
members or trusts for the benefit of immediate family members.
Option Term. The Committee determines the term of each option, which may be
no longer than ten years (five years in the case of an incentive stock option
granted to an employee who owns common stock having more than 10% of the voting
power) and the period during which the option may be exercised following
termination of employment. If the Committee does not specify a period following
employment termination during which the option can be exercised, the following
provisions will apply. If the option holder's services are terminated for cause,
as determined by us, the option terminates immediately. For this purpose, cause
includes willful misconduct, willful failure to perform the option holder's
duties, insubordination, theft, dishonesty, conviction of a felony or any other
willful conduct that is materially detrimental to us or such other cause as the
Board determines in good faith reasonably determines to be cause for the option
holder's discharge. If the option holder becomes disabled, the option may be
exercised for one year after the option holder terminates employment on account
of disability. If the option holder dies during employment or in the one-year
period referred to in the preceding sentence, the option may be exercised for
one year after the option holder's death. If the option holder terminates
employment for any reason other than cause, disability, or death, the option may
be exercised for three months after termination of employment. In all cases, the
option can be exercised only to the extent it is vested at the time of
termination of employment and only to the extent it has not otherwise expired.
Restricted Stock. The Committee may grant a participant a number of shares
of restricted stock as determined by the Committee in its sole discretion.
Grants of restricted stock may be subject to such restrictions, including for
example, continuous employment with us for a stated period of time or the
attainment of performance goals and objectives, determined in the discretion of
the Committee. The restrictions may vary among awards and participants. If a
participant dies or becomes disabled or retires
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<PAGE> 55
pursuant to our retirement policy, the restricted stock will become fully vested
as to a pro rata portion of each award based on the ratio of the number of
months of employment completed at termination of employment from the date of the
award to the total number of months of employment required for each award to
become fully vested. The remaining portion of the restricted stock will be
forfeited. If a participant terminates employment for any other reason, all
unvested shares of restricted stock will be forfeited.
Stock Units. The Committee may grant stock units to participants. The
Committee determines the number of stock units to be granted, the goals and
objectives to be satisfied, the time and manner of payment, and any other terms
and conditions applicable to the stock units.
Stock Appreciation Rights. The Committee may grant stock appreciation
rights to participants, either separately or in tandem with the grant of
options. The Committee determines the period during which a stock appreciation
right may be exercised and the other terms and conditions applicable to the
stock appreciation rights. Upon exercise of a stock appreciation right, a
participant is entitled to a payment equal to the number of shares of common
stock as to which the stock appreciation right is exercised times the excess of
the fair market value of one share of common stock on the date the stock
appreciation right is exercised over the fair market value of one share of
common stock on the date the stock appreciation right was granted. The amount
may be paid in shares of common stock, in cash, or in a combination of cash and
common stock as determined in the discretion of the Committee. The value of a
fractional share shall be paid in cash. Upon termination of employment, stock
appreciation rights are exercisable in the same manner as options. See
"-- Option Term," above. If a stock appreciation right is granted in tandem with
an option, exercise of the stock appreciation right or the option will result in
an equal reduction in the number of shares subject to the corresponding option
or stock appreciation right.
Other Stock Grants. The Committee may award stock bonuses to such
participants, subject to such conditions and restrictions, as it determines in
its sole discretion. Stock bonuses may be outright grants or may be conditioned
on continued employment or attainment of performance goals as determined in the
discretion of the Committee. Our board may, in its sole discretion, establish
other incentive compensation arrangements pursuant to which participants may
acquire common stock or provide that other incentive compensation will be paid
in common stock under the equity incentive plan.
Change in Control. All awards granted under the equity incentive plan shall
immediately vest upon any "change in control" of SignalSoft unless otherwise
provided by the Committee at the time of grant. A "change in control" occurs if
(i) 50% or more of our voting stock or outstanding stock is acquired by a
person, entity or group (as defined in the Exchange Act), other than a trustee
or other fiduciary that holds securities under a SignalSoft employee benefit
plan or (ii) during any period of three years individuals who were members of
our board at the beginning of such period (including new directors whose
election or nomination was approved by a vote of at least two-thirds of the
directors then in office who were directors at the beginning of the period or
whose election of nomination was previously so approved) cease for any reason to
be a majority of our board.
Merger and Reorganization. Upon the occurrence of (i) the reorganization
(other than a bankruptcy reorganization), merger or consolidation of SignalSoft
(other than a reorganization, merger or consolidation in which we are the
continuing company and that does not result in any change in the outstanding
shares of common stock), (ii) the sale of all or substantially all of our assets
of (other than a sale in which we continue as a holding company of an entity
that conducts the business formerly conducted by us), or (iii) the dissolution
or liquidation of SignalSoft, all outstanding options will terminate
automatically when the event occurs if we give the option holders 30 days prior
written notice of the event. Notice is also given to holders of other awards.
Notice is not required for a merger or consolidation or for a sale if we, the
successor, or the purchaser makes adequate provision for the assumption of the
outstanding options or the substitution of new options or awards on terms
comparable to the outstanding options or awards. When the notice is given, all
outstanding options fully vest and can be exercised prior to the event and other
awards become exercisable and payable.
Amendment and Termination. Our board may amend the equity incentive plan in
any respect at any time provided shareholder approval is obtained when necessary
or desirable, but no amendment can impair any
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<PAGE> 56
option, stock appreciation right, award or unit previously granted or deprive an
option holder, without his or her consent, of any common stock previously
acquired. The equity incentive plan will terminate on , 2010 unless
sooner terminated by our board.
Federal Income Tax Consequences of Exercise of Options Under the Equity
Incentive Plan. When a non-qualified stock option is granted, there are no
income tax consequences for the option holder or us. When a non-qualified stock
option is exercised, in general, the option holder recognizes compensation equal
to the excess of the fair market value of the common stock on the date of
exercise over the exercise price. If, however, the option holder exercises the
non-qualified option within six months after it was granted and if the sale of
the common stock at a profit would subject the option holder to liability under
Section 16(b) of the Securities Exchange Act, the option holder will recognize
compensation income equal to the excess of (i) the fair market value of the
common stock on the earlier of the date that is six months after the date of
exercise or the date the option holder can sell the common stock without Section
16(b) liability over (ii) the exercise price. The option holder can make an
election under section 83(b) of the Internal Revenue Code to measure the
compensation as of the date the non-qualified option is exercised. The
compensation recognized by an employee is subject to income tax withholding. We
are entitled to a deduction equal to the compensation recognized by the option
holder for our taxable year that ends with or within the taxable year in which
the option holder recognized the compensation, assuming the compensation amounts
satisfy the ordinary and necessary and reasonable compensation requirements for
deductibility.
When an incentive stock option is granted, there are no income tax
consequences for the option holder or us. When an incentive option is exercised,
the option holder does not recognize income and we do not receive a deduction.
The option holder, however, must treat the excess of the fair market value of
the common stock on the date of exercise over the exercise price as an item of
adjustment for purposes of the alternative minimum tax. If the option holder
makes a "disqualifying disposition" of the common stock (described below) in the
same taxable year the incentive stock option was exercised, there are no
alternative minimum tax consequences.
If the option holder disposes of the common stock after the option holder
has held the common stock for at least two years after the incentive stock
option was granted and one year after the incentive stock option was exercised,
the amount the option holder receives upon the disposition over the exercise
price is treated as capital gain for the option holder. We are not entitled to a
deduction. If the option holder makes a "disqualifying disposition" of the
common stock by disposing of the common stock before it has been held for at
least two years after the date the incentive option was granted and one year
after the date the incentive option was exercised, the option holder recognizes
compensation income equal to the excess of (i) the fair market value of the
common stock on the date the incentive option was exercised or, if less, the
amount received on the disposition over (ii) the exercise price. At present, we
are not required to withhold income or other taxes. We are entitled to a
deduction equal to the compensation recognized by the option holder for our
taxable year that ends with or within the taxable year in which the option
holder recognized the compensation, assuming the compensation amounts satisfy
the ordinary and necessary and reasonable compensation requirements for
deductibility.
The equity incentive plan provides that option holders are responsible for
making appropriate arrangements with us to provide for any additional
withholding amounts. Furthermore, we have no obligation to deliver shares of
common stock upon the exercise of any options, stock appreciation rights, awards
or units under the equity incentive plan until all applicable federal, state and
local income and other tax withholding requirements have been satisfied.
Under Section 162(m), we may be limited as to federal income tax deductions
to the extent the total annual compensation in excess of $1,000,000 is paid to
our chief executive officer or any one of the other four highest paid executive
officers who are employed by us on the last day of the taxable year. However,
certain "performance-based compensation", the material terms of which are
disclosed to and approved by our stockholders, is not subject to this limitation
on deductibility. We have structured the stock option and stock appreciation
rights portions of the equity incentive plan with the intention that
compensation resulting therefrom would be qualified performance-based
compensation and would be deductible without regard to the
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<PAGE> 57
limitations otherwise imposed by Section 162(m). The equity incentive plan
allows the Committee discretion to award restricted stock and other stock-based
awards that are intended to be qualified performance-based compensation. Bonuses
and other compensation payable in common stock under the equity incentive plan
are not intended to qualify as performance-based compensation.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
We have not entered into employment or severance agreements with any of the
members of our senior management group.
All of our employees and consultants, including the members of our senior
management group, have signed confidentiality and non-disclosure agreements and
proprietary information and invention agreements. These agreements obligate our
employees and consultants not to disclose confidential information concerning
SignalSoft and to assign to us all rights in any work they create during their
employment with us.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 31, 2000, assuming that our
outstanding preferred stock had been converted to common stock as of that date,
by:
- each person known to us to own beneficially more than 5% of our
outstanding common stock;
- our chief executive officer, other executive officers and directors; and
- all directors and executive officers as a group.
The amounts and percentage of common stock beneficially owned are reported
on the basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the SEC's rules, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be deemed
a beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which such person has no economic interest.
The information set forth in the following table excludes any shares purchased
in the offering by the respective beneficial owner:
<TABLE>
<CAPTION>
PERCENTAGE OWNED
NUMBER ----------------------------------
BENEFICIAL OWNER(1) OF SHARES PRIOR TO OFFERING AFTER OFFERING
- ------------------- --------- ----------------- --------------
<S> <C> <C> <C>
Olympic Venture Partners (2).......................... 3,246,900 18.1% %
American Express Financial Corporation (3)............ 2,533,783 14.2
James A. Fitch........................................ 1,940,000 10.9
Lazard Freres & Co. LLC (4)........................... 1,291,630 7.2
TGI Fund II, LC (5)................................... 971,485 5.4
David A. Hose......................................... 1,940,000 10.9
Mark H. Flolid (6).................................... 1,940,000 10.9
Donald J. Winters, Jr. (7)............................ 181,500 1.0 *
Roy Kligfield (8)..................................... 376,433 2.1
Andrew M. Murray (9).................................. 39,072 * *
Charles P. Waite, Jr. (10)............................ 3,246,900 18.1
B. Holt Thrasher (11)................................. 127,993 * *
Eric L. Doggett (12).................................. 21,600 * *
Perry M. LaForge (13)................................. 48,630 * *
All directors and executive officers as a group (9
persons)............................................ 7,922,128 43.5
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each person named in the table
is SignalSoft Corporation, 1495 Canyon Boulevard, Boulder, Colorado 80302.
(2) Represents shares of common stock owned by investment funds affiliated with
Olympic Venture Partners, including:
- 1,932,770 shares of common stock owned by Olympic Venture Partners III,
L.P. and 2,111 shares of common stock issuable under a warrant held by
Olympic Venture Partners III, L.P.
- 98,456 shares of common stock owned by OVP III Entrepreneurs Fund, L.P.
- 1,122,157 shares of common stock owned by Olympic Venture Partners IV,
L.P. and 11,777 shares of common stock issuable under a warrant held by
Olympic Venture Partners IV, L.P.
- 56,108 shares of common stock owned by OVP IV Entrepreneurs Fund, L.P.
and 321 shares of common stock issuable under a warrant held by OVP IV
Entrepreneurs Fund, L.P.
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<PAGE> 59
Includes 23,200 shares beneficially owned by Charles P. Waite, Jr., as to
which Olympic Venture Partners disclaims beneficial ownership. The address
for Olympic Venture Partners and its affiliates is 2420 Carillon Point,
Kirkland, Washington 98033.
(3) Represents shares of common stock owned by companies affiliated with
American Express Financial Corporation, including:
- 1,689,189 shares of common stock owned by Wrap One & Co.
- 844,594 shares of common stock owned by Saka & Co.
The address for American Express Financial Corporation and its affiliates is
733 Marquette Avenue, Minneapolis, Minnesota 55402.
(4) The address for Lazard Freres & Co. LLC is 5335 Wisconsin Avenue NW, Suite
410, Washington, DC 20015.
(5) Includes 8,411 shares of common stock issuable under a warrant. The address
for TGI Fund II, LC is 701 Fifth Avenue, Suite 6501, Seattle, Washington
98104.
(6) Excludes 6,700 shares owned by Mr. Flolid's sister-in-law, as to which Mr.
Flolid disclaims beneficial ownership.
(7) Includes 10,500 shares of common stock issuable under options granted
pursuant to the terms of our Nonqualified Stock Option Plan, which are
exercisable on or before May 31, 2000.
(8) Includes 243,100 shares of common stock issuable under options granted
pursuant to the terms of our Nonqualified Stock Option Plan, which are
exercisable on or before May 31, 2000.
(9) Includes 4,500 shares of common stock issuable under options granted
pursuant to the terms of our Nonqualified Stock Option Plan, which are
exercisable on or before May 31, 2000.
(10) Includes 23,200 shares of common stock issuable under options granted
pursuant to the terms of our Nonqualified Stock Option Plan, which are
exercisable on or before May 31, 2000. Includes 3,209,491 shares owned by
Olympic Venture Partners and its affiliates and 14,209 shares of common
stock issuable under warrants held by Olympic Venture Partners and its
affiliates, as to which Mr. Waite disclaims beneficial ownership.
(11) Includes 11,600 shares of common stock issuable under options granted
pursuant to the terms of our Nonqualified Stock Option Plan, which are
exercisable on or before May 31, 2000. Includes 127,993 shares of common
stock beneficially owned by Peter J. Mooney as nominee for Broadview
Partners Group and 326 shares of common stock issuable under a warrant held
by Broadview Partners Group. Mr. Thrasher disclaims beneficial ownership of
112,634 shares of this common stock and 289 shares of common stock issuable
under this warrant.
(12) Includes 11,600 shares of common stock issuable under options granted
pursuant to the terms of our Nonqualified Stock Option Plan, which are
exercisable on or before May 31, 2000.
(13) Includes 6,400 shares of common stock issuable under options granted
pursuant to the terms of our Nonqualified Stock Option Plan, which are
exercisable on or before May 31, 2000.
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CERTAIN TRANSACTIONS
We have granted nonqualified stock options to some of our directors and
executive officers, as described in "Management -- Compensation of Directors"
and "-- Executive Compensation."
Since our inception, we have issued shares of preferred stock in the
following private placement transactions:
- an aggregate of 1,571,700 shares of Series A preferred stock at $1.27 per
share in August 1996;
- an aggregate of 3,835,148 shares of Series B preferred stock at $2.52 per
share in January and February 1998; and
- an aggregate of 5,574,324 shares of Series C preferred stock at $5.92 per
share in December 1999 and January 2000.
The share and per share data set forth herein assume the automatic conversion of
our outstanding preferred stock to common stock on the completion of this
offering. The following table summarizes the shares of preferred stock purchased
in these private placement transactions, to the extent occurring on or after
January 1, 1999, by our named executive officers, directors and 5% stockholders
and persons and entities associated with them. Shares held by affiliated persons
and entities have been aggregated. See "Principal Stockholders."
<TABLE>
<CAPTION>
SHARES OF SERIES C
INVESTOR PREFERRED STOCK
- -------- ------------------
<S> <C>
Olympic Venture Partners.................................... 177,255
American Express Financial Corporation...................... 2,533,783
TGI Fund II, LC............................................. 168,225
Perry M. LaForge............................................ 42,230
</TABLE>
In 1997, we entered into a consulting agreement with Eddy Hose, the father
of David Hose, our President, Chief Executive Officer and Chairman of the Board
of Directors. Eddy Hose currently provides engineering consulting services
related to location determination technologies under the direction of Roy
Kligfield, our Senior Vice President of Engineering. Eddy Hose received a
master's degree in engineering from the University of California at Los Angeles
and has 45 years of industry experience. Eddy Hose receives a monthly retainer
of $8,000. David Hose has no direct interest in this transaction.
In December 1999, we issued warrants exercisable for 25,336 shares of our
common stock to seven of our stockholders, in connection with a $3.0 million
bridge loan to us from these stockholders. Some of our named executive officers,
directors and 5% stockholders and persons and entities associated with them
received warrants in this transaction, as set forth below:
- we issued warrants exercisable for 14,209 shares of common stock to
affiliates of Olympic Venture Partners;
- we issued warrants for 8,411 shares of common stock to TGI Fund II, LC;
and
- we issued warrants for 326 shares of common stock to Broadview Partners
Group.
We repaid the loan amounts in shares of Series C preferred stock in December
1999. The weighted average exercise price of the warrants is $1.25 per share. If
not exercised, the warrants will terminate when we complete this offering.
In March 2000, we entered into a loan agreement with Donald J. Winters,
Jr., our Chief Operating Officer. The principal amount of the loan is
$195,944.56, which Mr. Winters used for the purpose of exercising stock options
and paying associated taxes. The loan is secured by the shares of our common
stock that Mr. Winters received on exercise of his options. The loan bears
interest at a rate of 8.75% and matures in June 2000.
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We have entered into an agreement with Broadview International LLC, of
which one of our directors, B. Holt Thrasher, is a Managing Director. Under this
agreement, Broadview will represent us if a third party approaches us with an
offer to acquire SignalSoft.
We have entered into indemnification agreements with our officers and
directors. These agreements contain provisions requiring us to, among other
things, indemnify our officers and directors against liabilities that may arise
by reason of their status or service as officers or directors, except for
liabilities arising from willful misconduct. We have also agreed to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.
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DESCRIPTION OF CAPITAL STOCK
This section summarizes the material terms and provisions of our capital
stock as stated in our certificate of incorporation and bylaws.
GENERAL
Our authorized capital stock consists of 31 million shares, including 20
million shares of common stock, par value $0.001 per share, and 11 million
shares of preferred stock, par value $0.001 per share.
After this offering and the conversion of our preferred stock into common
stock, we will have outstanding:
- shares of common stock if the underwriters do not exercise their
over-allotment option, or shares of common stock if the underwriters
exercise their over-allotment option in full; and
- no shares of preferred stock.
COMMON STOCK
Each stockholder of record of common stock will be entitled to one vote for
each outstanding share of our common stock owned by that stockholder on every
matter properly submitted to the stockholders for their vote. After satisfaction
of the dividend rights of holders of preferred stock, holders of common stock
are entitled to any dividend declared by the board of directors out of funds
legally available for this purpose. After the payment of liquidation preferences
to holders of any outstanding preferred stock, holders of our common stock are
entitled to receive, on a pro rata basis, all our remaining assets available for
distribution to the stockholders in the event of our liquidation, dissolution,
or winding up. Holders of our common stock do not have any preemptive right to
become subscribers or purchasers of additional shares of any class of our
capital stock. The rights, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that we may designate and
issue in the future.
PREFERRED STOCK
Our restated certificate of incorporation allows the board of directors to
issue, without stockholder approval, one or more series of preferred stock
having such rights, including rights, dividend rights, dividend rates,
redemption rights, conversion rights and such preferences, including liquidation
preferences, as the board of directors may determine.
Currently, we have designated Series A, Series B and Series C preferred
stock. All of the outstanding shares of these series of preferred stock will
automatically convert into an equal number of shares of our common stock when we
complete this offering. We plan to amend our certificate of incorporation to
delete the existing series of preferred stock effective on the closing of this
offering.
The issuance of preferred stock by the board of directors may have the
effect of delaying or preventing a change in control. Our issuance of preferred
stock could decrease the amount of earnings and assets available for
distribution to the holders of our common stock or could adversely affect the
rights and powers, including voting rights, of the holders of our common stock.
The issuance of preferred stock could have the effect of decreasing the market
price of our common stock.
REGISTRATION RIGHTS
We have entered into an investors' rights agreement with all of our
stockholders. Under this agreement, as amended, holders of substantially all of
our common stock can require us to register the sale of their shares, or include
their shares in other registrations, subject to customary conditions under the
Securities Act. Subject to limitations and the lock-up agreements with the
underwriters, we must register the sale of these shares if at any time after
this offering, the holders of 30% or more of these shares request registration.
Subject to limitations, these holders may require us to file an unlimited number
of registration statements on Form S-3 when we are eligible to use Form S-3,
generally one year after this offering. If we decide to make a public offering
of our shares, these holders have the right to include their shares in the
offering, subject to
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limitations, except that offerings in connection with stock option plans,
convertible debt or mergers do not trigger this right. These registration rights
terminate two years after we complete this offering. The investors' rights
agreement also requires us to provide financial statements and other information
to our current stockholders.
LIMITATION OF LIABILITY; INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors will not be personally liable to us or
our stockholders for monetary damages for breach of fiduciary duty as a
director, except in instances where Delaware law prohibits exemption from
liability. As a result of this provision, we and our stockholders may be unable
to obtain monetary damages from a director for breach of his or her duty of
care.
Our certificate of incorporation and bylaws provide for the indemnification
of our directors and officers to the fullest extent authorized by the Delaware
General Corporation Law, except that we will indemnify a director or officer in
connection with an action initiated by that person only if our board of
directors authorized bringing the action.
The indemnification provided under our certificate of incorporation and
bylaws include the right to be paid expenses in advance of any proceeding for
which indemnification may be had. However, payment of these expenses incurred by
a director or officer in advance of the final disposition of a proceeding may be
made only upon delivery to us of an undertaking by or on behalf of the director
or officer to repay all amounts so paid in advance if it is ultimately
determined that the director or officer is not entitled to be indemnified.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to, among other things,
indemnify the director or officer against expenses, including attorneys' 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 SignalSoft, other than liabilities arising from willful
misconduct or conduct that is knowingly fraudulent or deliberately dishonest. We
have also agreed 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 certificate of
incorporation and bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers.
POSSIBLE ANTI-TAKEOVER EFFECTS
Our certificate of incorporation and bylaws and certain provisions of
Delaware law contain provisions that may have the effect of hindering or
delaying an attempted takeover of our company 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 our common stock held by the
stockholders.
Classified Board of Directors. We plan to amend our certificate of
incorporation to establish a classified board of directors. Our board will
consist of six members, who will be divided into three classes of two directors
each serving staggered three-year terms. Once the classified board is in place,
only two of our six board members will be elected at each annual stockholders'
meeting, with the other directors continuing for the remainder of their class
terms. This provision could delay or prevent an acquisition of control of
SignalSoft by a holder of a substantial block of our stock, or the removal of
our incumbent board of directors or management.
Preferred Stock Issuances. Our certificate of incorporation allows our
board to issue, without stockholder approval, preferred stock with terms set by
the board. The preferred stock could be issued quickly with terms that delay or
prevent the change in control or make removal of our management more difficult.
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Also, the issuance of preferred stock may cause the market price of our common
stock to decrease. See "Description of Capital Stock" for more information.
Special Stockholders' Meetings. Our bylaws provide that special meetings of
stockholders, unless otherwise prescribed by statute, may be called only by the
chairman of the board, the president or a majority of the board of directors.
The bylaws require the president to call a special meeting of stockholders
owning at least 5% of our common stock request the meeting in writing.
Section 203 of Delaware Law. In addition to these provisions of our bylaws,
we are subject to the provisions of Section 203 of the Delaware General
Corporation Law which generally prohibits publicly held Delaware corporations
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
- prior to the date that the person became an interested stockholder, the
transaction or business combination that resulted in the person becoming
an interested stockholder is approved by the board of directors;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of our outstanding voting stock; or
- on or after that date, the business combination is approved by our board
of directors and by the affirmative vote of at least 66 2/3% of our
outstanding voting stock that is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other similar
transactions resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with affiliates
and associates, owns, or within the last three years did own, 15% or more of a
corporation's voting stock.
These provisions and the provisions of our certificate of incorporation and
bylaws described above could have the effect of delaying, deferring or
preventing a proxy contest or an acquisition of control of our company by a
holder of a substantial block of our stock, or the removal of the incumbent
board of directors. Such provisions could also have the effect of discouraging
an outsider from making a tender offer or otherwise attempting to obtain control
of SignalSoft, even though such an attempt might be beneficial to SignalSoft and
our stockholders. The existence of these provisions may reduce the price that
certain investors might be willing to pay in the future for shares of our common
stock.
WARRANTS
As of March 31, 2000, there were outstanding warrants to purchase an
aggregate of 25,336 shares of common stock, which are all presently exercisable.
The warrants have a weighted-average exercise price of $1.25 per share. If not
exercised, these warrants will terminate on the closing of this offering.
LISTING
We have applied to have our common stock included for quotation on the
Nasdaq National Market under the symbol "SGSF."
TRANSFER AGENT AND REGISTRAR
serves as the transfer agent and registrar for our common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common stock
issued and outstanding, or shares if the underwriters exercise their
over-allotment option in full. We will have 1,442,081 shares of common stock
issuable on exercise of outstanding options. All of the shares we sell in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, except that any shares purchased by our "affiliates,"
as that term is defined in Rule 144, may generally only be sold in compliance
with the limitations of Rule 144 described below.
Of the remaining shares of common stock outstanding after this offering,
shares also will be freely tradeable without restriction in the public
market, and shares may be sold publicly only if registered under the
Securities Act or sold in accordance with an exemption from the Securities Act,
such as Rule 144.
Prior to this offering, there has been no public market for our common
stock. We are unable to estimate the number of shares that may be sold in the
future by our existing stockholders or the effect, if any, that sales of shares
by such stockholders, or the availability of the shares for sale, will have on
the market price of the common stock prevailing from time to time. Sales of
substantial amounts of our common stock in the public market could adversely
affect prevailing market prices.
For purposes of Rule 144, an "affiliate" of an issuer is a person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such issuer. In general, under
Rule 144, a stockholder including an "affiliate," who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period,
a number of "restricted" shares that does not exceed the greater of:
- one percent of the then outstanding shares of common stock, or
approximately shares expected to be outstanding immediately after
this offering; or
- the average weekly trading volume during the four calendar weeks
preceding the sale.
Sales under Rule 144 are subject to manner of sale limitations, notice
requirements and the availability of current public information about the
issuer. Rule 144(k) provides that a person who is not deemed an "affiliate" and
who has beneficially owned shares for at least two years is entitled to sell
such shares at any time under Rule 144 without regard to the limitations
described above. We estimate that outstanding shares fall in this
category.
Any employee, officer, director, advisor or consultant who purchased his or
her shares pursuant to a written compensatory plan or contract is entitled to
rely on the resale provisions of Rule 701, which permits non-affiliates to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after we
become subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934. However, our officers, directors and current
stockholders are subject to 180-day lock-up agreements.
As of March 31, 2000, there were outstanding stock options to purchase an
aggregate of 1,442,081 shares of common stock, of which 606,762 are presently
exercisable or exercisable within 60 days. These outstanding stock options are
held by our executive officers or employees. Following the offering, we intend
to file a registration statement on Form S-8 covering the 2,000,000 shares of
common stock issuable under our 1995 nonqualified stock option plan and
3,400,000 shares of common stock issuable under our 2000 equity incentive plan,
including shares subject to outstanding options, thus permitting the resale of
such shares in the public market without restriction under the Securities Act,
other than restrictions applicable to affiliates.
As of March 31, 2000, there were also outstanding warrants to purchase an
aggregate of 25,336 shares of common stock, which are all presently exercisable.
The warrants have a weighted-average exercise price of $1.25 per share. If not
exercised, these warrants will terminate on the closing of this offering.
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We have granted registration rights to many of our stockholders. As of the
date of this prospectus, an aggregate of 10,981,172 shares of our common stock
are entitled to these rights. See "Description of Our Capital
Stock -- Registration Rights."
We and our executive officers, directors and all of our other stockholders
have agreed, pursuant to lock-up agreements relating to the transfer of shares
of our capital stock, that for a period of 180 days after the date of this
prospectus we will not directly or indirectly, offer, pledge, sell, or otherwise
dispose of any shares of capital stock, including but not limited to the filing,
or participation in the filing, of a registration statement with the Securities
and Exchange Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the meaning
of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Securities and Exchange Commission promulgated thereunder
with respect to, any shares of capital stock or any securities convertible into,
or exercisable or exchangeable for such capital stock, or publicly announce an
intention to effect any such a transaction, without the prior written consent of
Salomon Smith Barney Inc. Salomon Smith Barney Inc. has informed us that it has
no current intentions of releasing any shares subject to the lock-up agreements.
Any determination by Salomon Smith Barney Inc. to release any shares subject to
the lock-up agreements would be based on a number of factors at the time of
determination, including the market price and trading volumes of the common
stock, the liquidity of the trading market for the common stock, general market
conditions, the number of shares proposed to be sold, and the timing, purpose
and terms of the proposed sale. There are no exceptions to the lock-up except
that individuals subject to the lock-up may dispose of shares as bona fide gifts
to persons who also enter into lock-up agreements that terminate 180 days after
the date of the prospectus.
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MATERIAL TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following summary sets forth the U.S. federal tax consequences that are
anticipated to be material in the acquisition, ownership, and disposition of our
common stock by a holder that, for U.S. federal income tax purposes, is not a
"United States person" (as defined below) (a "Non-U.S. Holder"). This summary
does not address every aspect of U.S. federal income taxation that may be
relevant to a particular Non-U.S. Holder under special circumstances or who is
subject to special treatment under applicable law (e.g., certain financial
institutions, insurance companies, broker-dealers, and tax-exempt
organizations), and does not address any tax consequences arising under the laws
of any state, local, or foreign jurisdiction. This summary is based upon the
U.S. federal tax law now in effect, which is subject to change, perhaps with
retroactive effect. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS
REGARDING THEIR PARTICULAR TAX CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING
OF OUR COMMON STOCK.
For purposes of this summary, a "United States person" means:
- a citizen or resident of the United States;
- a corporation, partnership, or other entity created or organized under
the laws of the United States or any State or political subdivision
thereof;
- an estate the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust (A) the administration of which is subject to the primary
supervision of a United States court and which has one or more United
States persons who have the authority to control all substantial
decisions of the trust, or (B) that was in existence on August 20, 1996,
was treated as a United States person on that date, and elected to
continue to be so treated.
DIVIDENDS
Distributions made by us with respect to our common stock generally will be
taxable to you as ordinary income to the extent of our current or accumulated
earnings and profits (as determined for United States federal income tax
purposes). Currently, we have no earnings and profits. Distributions in excess
of our current or accumulated earnings and profits will be treated first as a
non-taxable return of capital reducing your tax basis in the common stock. Any
such distribution in excess of your tax basis in the common stock will be
treated as capital gain and will be either long-term or short-term capital gain
depending upon whether you have held the common stock for more than one year.
Dividends received by a Non-U.S. Holder with respect to our common stock will
generally be subject to withholding of U.S. federal income tax at the rate of
30%. If the distribution received by a Non-U.S. Holder with respect to our
common stock is effectively connected with the conduct of a trade or business in
the United States by the Non-U.S. Holder, the dividend will not be subject to
withholding but instead will be subject to U.S. federal income tax imposed on
net income on the same basis that applies to U.S. persons generally. In
addition, a corporate Non-U.S. Holder receiving effectively connected dividends
may be subject to a branch profits tax of 30% on the corporation's effectively
connected earnings and profits, subject to certain adjustments.
Non-U.S. Holders should consult any applicable income tax treaties that may
provide for a reduction of or exemption from U.S. withholding tax or, in the
case of a corporate Non-U.S. Holder, the branch profits tax. A Non-U.S. Holder
may be required to satisfy certain certification requirements in order to claim
such treaty benefits.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to U.S. federal income or
withholding tax on gain recognized on a sale or other disposition of our common
stock, unless the gain is:
- effectively connected with the conduct of a trade or business in the
United States by the Non-U.S. Holder, or
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- in the case of Non-U.S. Holder who is a nonresident alien individual and
holds our common stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year of the
disposition, and certain other requirements are met.
Gain that is effectively connected with the conduct of trade or business in
the United States by the Non-U.S. Holder will be subject to U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally and, with respect to corporate holders and under certain
circumstances, the branch profits tax. Non-U.S. Holders should consult any
applicable income tax treaties that may provide for different rules.
UNITED STATES FEDERAL ESTATE TAX
An individual who is not a citizen or resident of the United States (as
specially defined for U.S. federal estate tax purposes) and is treated as the
owner of, or has made certain lifetime transfers of, an interest in our common
stock at the time of death will be required to include the value thereof in his
gross estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty applies.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the United States Internal Revenue
Service and to each Non-U.S. Holder the amount of dividends paid to such holder,
and the tax withheld on such dividends, regardless of whether any tax has been
actually withheld. This information may also be made available to the tax
authorities of a country in which the Non-U.S. Holder resides. Under current
United States Treasury regulations, United States information reporting
requirements and backup withholding tax will generally not apply to dividends
paid on our common stock to a Non-U.S. Holder at an address outside the United
States. Payments by a United States office of a broker of the proceeds of a sale
of our common stock are subject to both backup withholding at a rate of 31% and
information reporting unless the holder certifies as to its Non-U.S. Holder
status under penalties of perjury or otherwise establishes an exemption.
Payments of the proceeds from the disposition of our common stock by foreign
offices of United States brokers, or foreign brokers with certain types of
relationships to the United States, will not be subject to backup withholding,
but will be subject to information reporting, unless the broker has documentary
evidence in its records that the holder is a Non-U.S. Holder and certain other
conditions are met, or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of tax, a refund may
be obtained, provided that certain required information is furnished to the
Internal Revenue Service. The United States Treasury Department has promulgated
final regulations regarding the withholding and information reporting rules
discussed above. In general, such regulations do not significantly alter the
substantive withholding and information reporting requirements but unify current
certification procedures and forms and clarify reliance standards. The final
regulations are anticipated to become effective for payments made after December
31, 2000, subject to certain transition rules.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the number of shares
set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Salomon Smith Barney Inc. ..................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Lehman Brothers Inc. .......................................
--------
Total..................................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of particular legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the shares, other than those covered
by the over-allotment option described below, if they purchase any of the
shares.
The underwriters, for whom Salomon Smith Barney Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Lehman Brothers Inc. are acting as
representatives, propose to offer some of the shares directly to the public at
the public offering price set forth on the cover page of this prospectus and
some of the shares to dealers at the public offering price less a concession not
in excess of $ per share. The underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share on sales to other
dealers. If all of the shares are not sold at the initial offering price, the
representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.
We have granted to the underwriters an option exercisable for 30 days from
the date of this prospectus to purchase up to additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, in connection with this offering. To the extent such option
is exercised, each underwriter will be obligated, subject to certain conditions,
to purchase a number of additional shares approximately proportionate to such
underwriter's initial purchase commitment.
At our request, the underwriters will reserve up to of the shares
to be offered, as directed shares for sale at the initial public offering price
to our directors, officers and employees, as well as to individuals associated
with us, who have advised us of their desire to purchase such shares. This
directed share program will be administered by Salomon Smith Barney Inc. The
number of shares of our common stock available for sale to the general public
will be reduced to the extent these individuals purchase directed shares. Any
directed shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered by this
prospectus. We have agreed to indemnify the underwriters against certain
liabilities and expenses, including liabilities under the Securities Act of
1933, in connection with sales of directed shares.
We, our officers and directors and all of our other stockholders have
agreed that, for a period of 180 days from the date of this prospectus, we and
they will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of our common stock or any securities convertible
into or exchangeable for our common stock. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to these lock-up agreements
at any time without notice.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations among the representatives and us. Among the factors
considered in determining the initial public offering price were our record of
operations, our current financial condition, our future prospects, our markets,
the economic conditions in and future prospects for the industry in which we
compete, our management, and currently prevailing general conditions in the
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equity securities markets, including current market valuations of publicly
traded companies considered comparable to us. There can be no assurance,
however, that the prices at which the shares will sell in the public market
after this offering will not be lower than the price at which they are sold by
the underwriters or that an active trading market in the common stock will
develop and continue after this offering.
We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "SGSF."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY SIGNALSOFT
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total.................................................. $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which created a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of bids or purchases
of common stock made for the purpose of preventing or retarding a decline in the
market price of the common stock while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
We estimate that the total expenses of this offering will be $ .
The representatives have performed certain investment banking and advisory
services for us from time to time for which they have received customary fees
and expenses. Salomon Smith Barney Inc. acted as placement agent in our most
recent private placement of Series C preferred stock in January 2000. Salomon
Smith Barney Inc. received customary compensation for acting as placement agent
and purchased 84,459 shares of Series C preferred stock in the private
placement. The representatives may, from time to time, engage in transactions
with and perform services for us in the ordinary course of their business.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
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LEGAL MATTERS
Holme Roberts & Owen LLP, Denver, Colorado, will pass upon the validity of
the shares of common stock on our behalf. Cravath, Swaine & Moore, New York, New
York, will pass upon legal matters for the underwriters.
EXPERTS
The financial statements of SignalSoft Corporation as of December 31, 1998
and 1999 and for each of the years in the three-year period ended December 31,
1999 have been included in this prospectus and in the registration statement in
reliance upon the report 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 BFound.com Services, Inc. as of October 31,
1999 and for the year then ended, have been included in this prospectus and in
the registration statement in reliance upon the report of KPMG LLP, chartered
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all the information set forth in
the registration statement, certain portions of which are omitted as permitted
by the rules and regulations of the SEC.
For further information about us and the shares offered by this prospectus,
you should refer to the registration statement, including the exhibits and
schedules filed with the registration statement. You may obtain copies of the
registration statement, of which this prospectus is a part, together with such
exhibits and schedules, upon payment of the fee prescribed by the SEC, or you
may examine these documents without charge at the offices of the SEC.
After the offering is completed, we will be subject to the informational
requirements of the Securities Exchange Act of 1934 and will be required to file
annual and quarterly reports, proxy statements and other information with the
SEC. You can inspect and copy reports and other information filed by us with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may also obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0300. The SEC also maintains an
Internet site at http://www.sec.gov that contains reports, proxy and information
statements regarding issuers, including us, that file electronically with the
SEC.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will be
required to file periodic reports, proxy statements and other information with
the Securities and Exchange Commission. We will send an annual report to
stockholders and any additional reports or statements required by the Securities
and Exchange Commission. The annual report to shareholders will contain
financial information that has been examined and reported on, with an opinion
expressed by an independent public accountant.
67
<PAGE> 72
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SIGNALSOFT CORPORATION AND SUBSIDIARIES
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statements of Stockholders' Deficit for the years ended
December 31, 1997, 1998 and 1999.......................... F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Notes to Financial Statements............................... F-7
BFOUND.COM SERVICES, INC.
Independent Auditors' Report................................ F-14
Balance Sheets as of October 31, 1999....................... F-15
Statements of Operations for the year ended October 31, 1999
and for the three month periods ended January 31, 1999 and
2000 (unaudited).......................................... F-16
Statements of Shareholders' Equity for the year ended
October 31, 1999 and for the three month period ended
January 31, 2000 (unaudited).............................. F-17
Statements of Cash Flows for the year ended October 31, 1999
and for the three month periods ended January 31, 1999 and
2000 (unaudited).......................................... F-18
Notes to Financial Statements............................... F-19
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements................................................ F-26
Unaudited Pro Forma Condensed Combined Balance Sheets....... F-27
Unaudited Pro Forma Condensed Combined Statement of
Operations................................................ F-28
</TABLE>
F-1
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SignalSoft Corporation:
We have audited the accompanying balance sheets of SignalSoft Corporation
as of December 31, 1998 and 1999, and the related statements of operations,
stockholders' deficit and cash flows for each of the years in the three-year
period ended December 31, 1999. 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 SignalSoft Corporation as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Boulder, Colorado
February 17, 2000
F-2
<PAGE> 74
SIGNALSOFT CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,119,918 $ 18,051,349
Trade accounts receivable................................. 669,767 690,993
Prepaid expenses and other................................ 511,885 307,966
----------- ------------
Total current assets.............................. 6,301,570 19,050,308
Equipment and leasehold improvements, net................... 634,861 652,730
----------- ------------
Total assets...................................... $ 6,936,431 $ 19,703,038
=========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable.............................................. $ 91,667 $ 41,667
Current portion of capital lease obligations.............. 84,865 56,232
Trade accounts payable.................................... 143,042 1,752,903
Accrued compensation payable.............................. 131,684 542,067
Other accrued expenses.................................... 17,884 55,353
Advances under research and development arrangement....... 231,442 --
Deferred revenue.......................................... 634,164 315,833
----------- ------------
Total current liabilities......................... 1,334,748 2,764,055
Capital lease obligations, less current portion............. 72,860 25,971
----------- ------------
Total liabilities................................. 1,407,608 2,790,026
----------- ------------
Mandatorily redeemable, convertible preferred stock:
Series A, par value $.001, 1,571,700 shares authorized,
issued and outstanding; aggregate liquidation
preference of $2,000,000 and redemption value of
$2,546,667............................................. 2,359,519 2,525,442
Series B, par value $.001, 3,835,148 shares authorized,
issued and outstanding; aggregate liquidation
preference of $9,650,000 and redemption value of
$11,065,334............................................ 10,230,277 11,015,837
Series C, par value $.001, 5,574,324 shares authorized;
3,370,806 shares issued and outstanding; aggregate
liquidation preference of $19,955,172 and redemption
value of $20,017,254................................... -- 18,663,841
----------- ------------
12,589,796 32,205,120
----------- ------------
Stockholders' deficit:
Common stock, par value $.01 in 1998, $.001 in 1999,
20,000,000 shares authorized; 6,386,666 and 6,393,636
shares issued and outstanding at December 31, 1998 and
1999, respectively..................................... 63,867 6,394
Additional paid-in capital................................ 689,483 1,420,846
Deferred stock option compensation........................ (178,462) (467,210)
Accumulated deficit....................................... (7,635,861) (16,252,138)
----------- ------------
Total stockholders' deficit....................... (7,060,973) (15,292,108)
----------- ------------
Commitments and contingencies (notes 5, 6, 7 and 8)
Total liabilities and stockholders' deficit....... $ 6,936,431 $ 19,703,038
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 75
SIGNALSOFT CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
License fees......................................... $ 680,000 $ 353,102 $ 882,557
Maintenance fees..................................... 83,333 586,503 287,301
Professional services and other...................... 588,178 140,903 785,915
----------- ----------- -----------
Total revenue................................ 1,351,511 1,080,508 1,955,773
Cost of revenue........................................ 389,055 1,127,200 1,777,142
----------- ----------- -----------
Gross profit (loss).......................... 962,456 (46,692) 178,631
Operating Expenses:
Selling, general and administrative.................. 1,196,478 2,019,808 3,934,617
Research and development............................. 1,152,669 2,486,002 3,399,410
Depreciation and amortization........................ 16,056 134,320 191,679
Stock option compensation expense.................... 95,796 101,004 257,985
----------- ----------- -----------
Total operating expenses..................... 2,460,999 4,741,134 7,783,691
----------- ----------- -----------
Loss from operations......................... (1,498,543) (4,787,826) (7,605,060)
----------- ----------- -----------
Other income (expense):
Interest income...................................... 100,035 343,504 204,895
Interest expense..................................... (38,593) (76,787) (199,436)
Other, net........................................... 2,000 70,132 4,500
----------- ----------- -----------
Total other income (expense)................. 63,442 336,849 9,959
----------- ----------- -----------
Net loss..................................... (1,435,101) (4,450,977) (7,595,101)
Preferred stock dividend requirement and accretion of
mandatorily redeemable convertible preferred stock to
redemption value..................................... (165,923) (820,745) (1,021,176)
----------- ----------- -----------
Net loss attributable to common
stockholders............................... $(1,601,024) $(5,271,722) $(8,616,277)
=========== =========== ===========
Loss per share -- basic and diluted.................... $ (.25) $ (.83) $ (1.35)
=========== =========== ===========
Weighted average number of common shares
outstanding -- basic and diluted..................... 6,333,981 6,385,269 6,387,220
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 76
SIGNALSOFT CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED TOTAL
-------------------- PAID-IN STOCK OPTION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT DEFICIT
--------- -------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1997....................... 6,286,666 $ 62,867 $ 329,583 $(144,362) $ (763,115) $ (515,027)
Issuance of common stock for
cash....................... 90,000 900 111,600 -- -- 112,500
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value........... -- -- -- -- (165,923) (165,923)
Issuance of common stock
options at less than fair
value...................... -- -- 209,200 (209,200) -- --
Amortization of deferred
stock option
compensation............... -- -- -- 95,796 -- 95,796
Net loss..................... -- -- -- -- (1,435,101) (1,435,101)
--------- -------- ---------- --------- ------------ ------------
Balances at December 31,
1997....................... 6,376,666 63,767 650,383 (257,766) (2,364,139) (1,907,755)
Issuance of common stock for
cash....................... 10,000 100 17,400 -- -- 17,500
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value........... -- -- -- -- (820,745) (820,745)
Issuance of common stock
options at less than fair
value...................... -- -- 21,700 (21,700) -- --
Amortization of deferred
stock option
compensation............... -- -- -- 101,004 -- 101,004
Net loss..................... -- -- -- -- (4,450,977) (4,450,977)
--------- -------- ---------- --------- ------------ ------------
Balances at December 31,
1998....................... 6,386,666 63,867 689,483 (178,462) (7,635,861) (7,060,973)
Change to $.001 per share par
value for common stock..... -- (57,480) 57,480 -- -- --
Exercise of common stock
options.................... 6,970 7 4,524 -- -- 4,531
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value........... -- -- -- -- (1,021,176) (1,021,176)
Issuance of common stock
options at less than fair
value...................... -- -- 546,733 (546,733) -- --
Amortization of deferred
stock option
compensation............... -- -- -- 257,985 -- 257,985
Common stock warrants issued
in connection with debt.... -- -- 122,626 -- -- 122,626
Net loss..................... -- -- -- -- (7,595,101) (7,595,101)
--------- -------- ---------- --------- ------------ ------------
Balances at December 31,
1999....................... 6,393,636 $ 6,394 $1,420,846 $(467,210) $(16,252,138) $(15,292,108)
========= ======== ========== ========= ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 77
SIGNALSOFT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(1,435,101) $(4,450,977) $(7,595,101)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization.................... 17,551 149,054 214,318
Amortization of discount on advances under
research and development arrangements.......... 35,649 22,072 13,212
Compensation and interest expense related to
issuance of common stock options and
warrants....................................... 95,796 101,004 380,611
Other, net....................................... (14,283) 24,221 --
Changes in operating assets and liabilities:
Trade accounts receivable...................... (500,000) (169,767) (21,226)
Prepaid expenses and other..................... 12,652 (509,431) 203,842
Trade accounts payable......................... (1,170) 134,975 1,609,861
Accrued expenses............................... 138,872 5,696 447,852
Deferred revenue............................... 41,667 592,497 (318,331)
----------- ----------- -----------
Net cash used by operating activities....... (1,608,367) (4,100,656) (5,064,962)
----------- ----------- -----------
Cash flows from investing activities -- additions to
equipment and leasehold improvements................ (86,415) (470,331) (222,320)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 112,500 17,500 4,531
Proceeds from issuance of mandatorily redeemable
convertible preferred stock...................... -- 9,575,455 16,227,243
Proceeds from issuance of debt...................... -- 100,000 3,000,000
Principal payments on debt and capital lease
obligations...................................... (32,500) (96,972) (768,407)
Advances received under research and development
arrangement...................................... 225,025 -- --
Payments on advances under research and development
arrangement...................................... -- (333,892) (244,654)
----------- ----------- -----------
Net cash provided by financing activities... 305,025 9,262,091 18,218,713
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (1,389,757) 4,691,104 12,931,431
Cash and cash equivalents at beginning of year........ 1,818,571 428,814 5,119,918
----------- ----------- -----------
Cash and cash equivalents at end of year.............. $ 428,814 $ 5,119,918 $18,051,349
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest.............................. $ 2,338 $ 34,385 $ 73,125
=========== =========== ===========
Assets acquired under capital leases................ $ -- $ 246,364 $ 9,790
=========== =========== ===========
Conversion of debt to mandatorily redeemable
convertible preferred stock...................... $ -- $ -- $ 2,366,905
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 78
SIGNALSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Business and Basis of Presentation
SignalSoft Corporation (the Company) is a Boulder, Colorado based developer
of location-based software services for wireless intelligent networks. The
Company operates in one business segment.
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 significantly from those estimates.
(b) Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less at the date of purchase.
(c) Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Costs of
maintenance and repairs are charged to operations as incurred. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets, which range from 3 to 7 years. Amortization of leasehold improvements is
calculated over the lesser of the lease term or the estimated useful lives of
the improvements which is estimated at 10 years.
(d) Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement
No. 109). Under the asset and liability method of Statement No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in operations in the period that includes
the enactment date. A valuation allowance is recognized to the extent any
deferred tax assets may not be realizable.
(e) Revenue Recognition
In accordance with the provisions of SOP 97-2, Software Revenue Recognition
(SOP 97-2), the Company recognizes software license revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable and collectibility is probable. In addition, SOP 97-2 requires that
revenue recognized from software arrangements be allocated to each element of a
multiple element arrangement based on the vendor specific objective evidence of
each element. The Company records revenue from licensing fees as individual
products are delivered and accepted by the customer. Revenue relating to
separate maintenance and service contracts is recognized ratably over the
service period. Professional services consulting fees are recognized as services
are provided. Effective January 1, 1999, the Company adopted the provisions of
Statement of Position 98-9, Modification of SOP 97-2, Software Revenue
Recognition with Respect to Certain Transactions (SOP 98-9). SOP 98-9 clarifies
certain provisions of SOP 97-2, and effectively defers the required adoption of
those provisions until the fiscal year beginning January 1, 2000.
F-7
<PAGE> 79
SIGNALSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The adoption of SOP 98-9 had no impact on the Company's results of operations,
financial position or cash flows.
(f) Cost of Revenue
Included in cost of revenue is salaries for employees and related overhead
who directly provide services to customers.
(g) Impairment of Long-Lived Assets and Assets to be Disposed Of
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
reviews long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
generally measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is equal to the
amount by which the carrying amounts of the assets exceeds the fair values of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less costs to sell. No impairment was recognized in 1997,
1998 or 1999.
(h) Stock-Based Compensation
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, which requires
compensation cost to be recognized for the excess of the fair value of options
on the date of grant over the option exercise price. Under SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), entities are permitted
to recognize as expense the fair value of all stock-based awards on the date of
grant over the vesting period. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income or loss and earnings or loss per share disclosures as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosures required by SFAS No. 123. Options granted to
non-employees for services are accounted for in accordance with SFAS No. 123.
(i) Software Development Costs and Research and Development Costs
The Company may capitalize costs related to the development of certain
software products. In accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed, capitalization of costs begins when technological
feasibility has been established and ceases when the product is available for
general release to customers, at which time amortization begins on a product by
product basis. Capitalized costs will be amortized over the estimated useful
life of the product. No software development costs were capitalized during 1997,
1998 or 1999.
Research and development costs are charged to operations as incurred.
(j) Loss Per Share
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128).
Under SFAS No. 128, basic earnings (loss) per share (EPS) excludes dilution for
potential common stock issuances and is computed by dividing earnings or loss
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue
F-8
<PAGE> 80
SIGNALSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
common stock were exercised or converted into common stock. Basic and diluted
EPS are the same in 1997, 1998 and 1999, as all potential common stock
instruments, consisting of common stock options and warrants and convertible
preferred stock, are anti-dilutive.
(k) Reclassifications
Certain 1997 and 1998 amounts have been reclassified to conform with the
1999 financial statement presentation.
(2) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at December
31:
<TABLE>
<CAPTION>
1998 1999
--------- ----------
<S> <C> <C>
Office and computer equipment and software.................. $ 526,500 $ 739,779
Leasehold improvements...................................... 253,410 253,410
Furniture and fixtures...................................... 20,578 39,409
--------- ----------
800,488 1,032,598
Less accumulated depreciation and amortization.............. (165,627) (379,868)
--------- ----------
$ 634,861 $ 652,730
========= ==========
</TABLE>
(3) DEBT AND ADVANCES UNDER RESEARCH AND DEVELOPMENT ARRANGEMENT
During 1998, the Company issued a note payable due in annual installments
through October 20, 2000 to a bank with interest at 8.75%, which is secured by
computer equipment. At December 31, 1999, the outstanding balance was $41,667.
The Company has entered into a revolving line-of-credit agreement which
provides for borrowings of up to $400,000 through April 20, 2000. Interest on
the line-of-credit accrues at the bank's prime rate (8.5% on December 31, 1999)
and is payable monthly. If borrowings are made, $1,000,000 is required to be
maintained on account with the bank as a compensating balance. The Company had
no borrowings under the line at December 31, 1999.
During 1995, the Company entered into a research and development
arrangement with a customer whereby the Company received periodic advances to
fund research and development activities related to the development of a
specific product for this customer. A portion of the advances was recognized as
revenue when the product was delivered in late 1997. The remainder of the
advances was recorded as a liability. At December 31, 1998, the balance was
$231,442, net of unamortized discount of $35,284, which was based on an imputed
interest rate of 8%. The remaining balance was repaid in 1999.
(4) INCOME TAXES
Income tax benefit for the years ended December 31 differs from the amounts
that would result from applying the federal statutory rate of 34% as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Expected tax benefit............................ $(487,934) $(1,513,332) $(2,582,334)
Change in valuation allowance for deferred tax
assets........................................ 542,543 1,356,870 2,497,876
Other, net...................................... (54,609) 156,462 84,458
--------- ----------- -----------
Actual income tax benefit............. $ -- $ -- $ --
========= =========== ===========
</TABLE>
F-9
<PAGE> 81
SIGNALSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences that give rise to significant components of deferred
tax assets as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Net operating loss carryforwards........................... $ 2,045,235 $ 4,336,616
Other, net................................................. (3,681) 202,814
----------- -----------
Gross deferred tax asset......................... 2,041,554 4,539,430
Valuation allowance........................................ (2,041,554) (4,539,430)
----------- -----------
Net deferred tax assets.......................... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1999, the Company has a cumulative net operating loss
carryforward for income tax purposes of approximately $12,900,000 which will
expire in various amounts through the year 2019, if not utilized.
Due to the uncertainty regarding the utilization of net operating loss or
research and experimentation credit carryforwards, no tax benefit for losses has
been recorded by the Company in 1997, 1998 and 1999, and a valuation allowance
has been recorded for the entire amount of the deferred tax asset.
(5) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has three classes of mandatorily redeemable convertible
preferred stock (Series A, Series B and Series C) outstanding. All mandatorily
redeemable convertible preferred shares are convertible at any time at the
option of the holder into common stock, initially on a one for one basis subject
to adjustment for anti-dilution provisions included in the respective preferred
stock agreements. All preferred stock has voting rights on an as converted basis
and has liquidation preferences equal to the face amount of the preferred shares
sold, plus all declared but unpaid dividends.
Each share of preferred stock is automatically converted to common stock at
the time of an initial public offering provided certain offering parameters are
met. Each holder of preferred stock is entitled to cash dividends, when and if
declared by the Board of Directors. In the event dividends are paid on any
shares of common stock, an additional dividend shall be paid with respect to all
outstanding shares of preferred stock in an equal amount per share (on an
as-converted basis) to the amount paid or set aside for each share of common
stock.
The Company is required to redeem all outstanding shares of preferred stock
at the option of the holder subsequent to August 1, 2003 for Series A and B, and
December 1, 2006 for Series C, at an amount equal to the liquidation value of
the preferred shares, plus an amount which together with any dividends paid to
date, would equal an annual non-compounded return of 8%.
The Company issued additional Series C Preferred shares in January 2000 for
total proceeds of approximately $13,000,000.
(6) STOCK OPTIONS AND WARRANTS
(a) Stock Options and Grants
The Company has adopted a non-qualified stock option plan, pursuant to
which the Company's Board of Directors may issue common shares and grant
incentive stock options and non-statutory stock options to employees, directors
and consultants. The plan authorizes common stock issuances and grants of
options to purchase up to 2,000,000 shares of common stock. The options
generally vest over 50 months and expire upon the earlier of three months after
termination of employment or ten years from the date of grant. At December 31,
1999, there were 384,301 shares available for grant under the plan.
F-10
<PAGE> 82
SIGNALSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average fair value of options on the date of grant in 1997,
1998 and 1999 was $.29, $1.80 and $1.68, respectively, using the Black-Scholes
option-pricing model with the following assumptions: no expected dividends or
volatility, risk-free interest rate of approximately 6% and an expected term of
5 years. The remaining weighted average contractual life of options outstanding
at December 31, 1999 was 7.65 years, with exercise prices ranging from $.05 to
$1.25.
As discussed in note 1, the Company utilizes APB Opinion No. 25 to account
for its employee stock options. The Company has granted options with exercise
prices less than the fair value of common stock on the date of grant based on
recent stock transactions, and the related compensation expense is being
recognized over the vesting period of the options. Unrecognized compensation
expense at December 31, 1999 totaled approximately $467,000. If the Company
determined compensation cost based on the fair value of the options at the grant
date under SFAS No. 123, the Company's net loss in 1997, 1998 and 1999 would
have been approximately $1,450,000, $4,557,000 and $7,676,000, respectively.
Option activity during 1997, 1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE OPTIONS
OPTIONS PRICE EXERCISABLE
--------- -------- -----------
<S> <C> <C> <C>
Balance at January 1, 1997............................ 458,000 $.24
Granted............................................... 712,000 .46
---------
Balance at December 31, 1997.......................... 1,170,000 .37 264,400
Granted............................................... 217,000 .65
Forfeited............................................. (33,000) .42
---------
Balance at December 31, 1998.......................... 1,354,000 .42 576,560
Granted............................................... 292,667 .82
Exercised............................................. (6,970) .65
Forfeited............................................. (30,968) .80
---------
Balance at December 31, 1999.......................... 1,608,729 .48 885,920
========= =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
REMAINING AVERAGE EXERCISABLE AS OF AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE 1999 PRICE
- -------------- ----------- ----------- -------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$ .05-.35.................... 823,000 6.83 $ .27 657,940 $.26
.65........................ 712,229 8.39 .65 227,980 .65
1.25........................ 73,500 9.72 1.25 -- --
--------- --------
1,608,729 7.65 .48 885,920 .36
========= ========
</TABLE>
(b) Common Stock Purchase Warrants
In September 1999, the Company issued warrants to purchase 25,336 shares of
common stock in connection with obtaining a $3,000,000 loan. The warrants are
exercisable at $1.25 per share and expire on the earlier of an initial public
offering or on various dates in September 2004. The fair value of the warrants
was determined using the Black-Scholes option-pricing model with the following
assumptions; no dividends or volatility, risk-free interest rate of 6% and an
expected term of 5 years, which resulted in debt issuance costs of $122,626.
Such issuance costs were amortized to interest expense, using the effective
interest method
F-11
<PAGE> 83
SIGNALSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
until the conversion of the debt into Series C Preferred Stock in December 1999,
at which time the remaining unamortized costs were charged to interest expense.
(7) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space and equipment under noncancellable capital
and operating lease agreements which expire through 2004. Approximately $260,000
is included in equipment and leasehold improvements at December 31, 1999,
relating to equipment held under capital leases. Future minimum lease payments
as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
2000........................................................ $ 61,900 $ 765,000
2001........................................................ 24,052 706,000
2002........................................................ 3,371 435,000
2003........................................................ -- 216,000
-------- ----------
Total future minimum lease payments............... 89,323 $2,122,000
==========
Less amount representing interest........................... (7,120)
--------
Present value of future minimum lease payments.... 82,203
Less current portion........................................ (56,232)
--------
Long-term portion................................. $ 25,971
========
</TABLE>
Rent expense for operating leases for the years ended December 31, 1997,
1998 and 1999 was $162,000, $312,000 and $622,000, respectively. Included in
prepaid expense and other assets in 1998 is $427,000 due from a lessor relating
to operating leases under which the Company had purchased the related assets,
but had yet to receive funding under the master lease agreement.
(8) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan which covers substantially all employees and
allows employee contributions of up to 20% of compensation, up to the maximum
allowed by the Internal Revenue Code. The Company has not made a discretionary
matching contribution to the plan since inception.
(9) SIGNIFICANT CUSTOMERS AND CONCENTRATION OR CREDIT RISK
Revenue earned from significant customers in 1997, 1998 and 1999 is as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. -- -- 46%
Customer B.................................................. 50% 19% 4%
Customer C.................................................. 39% 45% 11%
Customer D.................................................. 11% -- --
</TABLE>
At December 31, 1998 and 1999, receivables from these customers represented
14.9% and 18.5%, respectively, of trade accounts receivable.
As of December 31, 1999, the Company has proceeds, primarily related to the
issuance of Series C mandatorily redeemable, convertible preferred stock,
approximating $18,000,000 on deposit with a single financial institution.
F-12
<PAGE> 84
SIGNALSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) RELATED PARTY TRANSACTIONS
Certain marketing and administrative services were provided to the Company
by relatives of officers of the Company and members of the Board of Directors.
Payments related to these services approximated $74,000, $83,000 and $103,000 in
1997, 1998 and 1999, respectively.
(11) SUBSEQUENT EVENT
In February 2000, the Company agreed to acquire all of the capital stock of
BFound.com Services, Inc., a Canadian corporation, in exchange for 558,323
shares of the Company's common stock and $1,500,000 in cash. The business
combination is expected to close in April 2000 and will be accounted for using
the purchase method of accounting.
F-13
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
BFound.com Services, Inc.
We have audited the accompanying balance sheet of BFound.com Services, Inc.
as at October 31, 1999 and the related statements of operations and
comprehensive loss, shareholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BFound.com Services, Inc. as
at October 31, 1999, and the results of its operations and its cash flows in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
Victoria, Canada
April 4, 2000
F-14
<PAGE> 86
BFOUND.COM SERVICES, INC.
BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
JANUARY 31, 2000 AND OCTOBER 31, 1999
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 149,552 $ 112,019
Short-term investments.................................... 208,826 --
Accounts receivable....................................... 45,033 4,854
Prepaid expenses.......................................... 13,011 10,704
GST receivable............................................ 12,031 19,216
--------- ---------
Total current assets.............................. 428,453 146,793
Deferred income tax asset................................... 5,153 5,153
Fixed assets, net of accumulated depreciation (note 2)...... 70,407 72,414
--------- ---------
Total assets...................................... $ 504,013 $ 224,360
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 52,735 $ 20,901
Accrued payroll expenses.................................. 19,645 38,228
Current portion of obligations under capital lease (note
3)..................................................... 6,763 7,195
Due to shareholder (note 4)............................... 3,385 3,380
--------- ---------
Total current liabilities................................. 82,528 69,704
Obligations under capital lease, less current portion (note
3)........................................................ 2,388 324
--------- ---------
Total liabilities................................. 84,916 70,028
Shareholders' equity:
Share capital (notes 6 and 7):
Authorized:
1,000,000 first preferred voting shares with a par
value of $0.07 per share, none issued and
outstanding......................................... -- --
1,000,000 second preferred voting shares with a par
value of $0.07 per share, none issued and
outstanding......................................... -- --
100,000,000 class A common voting shares with no par
value, 6,685,958 shares issued and outstanding...... 673,229 673,229
Accumulated deficit....................................... (246,740) (502,090)
Accumulated other comprehensive loss...................... (7,392) (16,807)
--------- ---------
Total shareholders' equity........................ 419,097 154,332
Subsequent event (note 10)..................................
Commitment and contingency (notes 11 and 12)................
--------- ---------
Total liabilities and shareholders' equity........ $ 504,013 $ 224,360
========= =========
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE> 87
BFOUND.COM SERVICES, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED -------------------------
OCTOBER 31, JANUARY 31, JANUARY 31,
1999 1999 2000
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Hardware sales........................................... $ 23,972 $ 2,758 $ 17,075
Software development and consulting fees................. 142,997 25,141 10,834
--------- -------- ---------
166,969 27,899 27,909
Cost of goods and services sold............................ 18,964 -- 14,045
--------- -------- ---------
148,005 27,899 13,864
Expenses:
Administration........................................... 141,520 15,619 120,382
Marketing................................................ 80,159 3,858 52,207
Research and development................................. 240,665 24,428 96,625
--------- -------- ---------
462,344 43,905 269,214
--------- -------- ---------
Loss before income taxes................................... (314,339) (16,006) (255,350)
Deferred income tax benefit.............................. 5,005 -- --
--------- -------- ---------
Net loss................................................... (309,334) (16,006) (255,350)
--------- -------- ---------
Other comprehensive loss --
Foreign currency translation adjustment.................. (5,343) (486) (9,415)
--------- -------- ---------
Comprehensive loss......................................... $(314,677) $(16,492) $(245,935)
========= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 88
BFOUND.COM SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(EXPRESSED IN US DOLLARS)
THREE MONTHS ENDED JANUARY 31, 2000 AND THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
SHARE ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
CAPITAL DEFICIT INCOME EQUITY
-------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balances, November 1, 1998................... $ 1,570 $ 62,594 $ (2,049) $ 62,115
Issuance of common shares for cash........... 671,659 -- -- 671,659
Comprehensive income:
Net loss................................... -- (309,334) -- (309,334)
Foreign currency translation adjustment.... -- -- (5,343) (5,343)
-------- --------- -------- ---------
Balances, October 31, 1999................... 673,229 (246,740) (7,392) 419,097
Comprehensive income:
Net loss................................... -- (255,350) -- (255,350)
Foreign currency translation adjustment.... -- -- (9,415) (9,415)
-------- --------- -------- ---------
Balances, January 31, 2000 (unaudited)....... $673,229 $(502,090) $(16,807) $ 154,332
======== ========= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 89
BFOUND.COM SERVICES, INC.
STATEMENTS OF CASH FLOWS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED -------------------------
OCTOBER 31, JANUARY 31, JANUARY 31,
1999 1999 2000
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Net loss................................................. $(309,334) $(16,006) $(255,350)
Items not involving cash:
Depreciation.......................................... 28,887 2,315 --
Write-off of investment tax credit.................... -- 1,829 --
Foreign exchange...................................... (5,343) (486) (9,415)
Changes in non-cash operating working capital:
Accounts receivable................................... (15,808) 6,418 40,179
Income taxes receivable............................... 16,092 1,829 --
Prepaid expenses...................................... (12,457) 554 2,307
GST receivable........................................ (12,773) -- (7,185)
Accounts payable...................................... 48,970 2,104 (31,834)
Accrued payroll expenses.............................. 13,992 (2,521) 18,583
--------- -------- ---------
Net cash used in operating activities............ (247,774) (3,964) (237,327)
Investing activities:
Purchase of short-term investments....................... (485,927) -- --
Proceeds on sale of short-term investments............... 277,101 -- 208,826
Purchase of fixed assets................................. (67,501) (144) (7,400)
--------- -------- ---------
Net cash provided by (used in) investing
activities..................................... (276,327) (144) 201,426
Financing activities:
Increase in due to shareholder........................... 3,885 -- --
Decrease in due to shareholder........................... (2,638) (5,333) --
Decrease in obligations under capital lease.............. (6,207) (1,606) (1,632)
Issue of share capital................................... 671,659 -- --
--------- -------- ---------
Net cash provided by (used in) financing
activities..................................... 666,699 (6,939) (1,632)
--------- -------- ---------
Increase (decrease) in cash................................ 142,598 (11,047) (37,533)
Cash, beginning of period.................................. 6,954 6,954 149,552
--------- -------- ---------
Cash, end of period........................................ $ 149,552 $ (4,093) $ 112,019
========= ======== =========
Supplementary information:
Interest paid............................................ 3,465 656 244
Assets acquired under capital leases..................... 2,214 2,214 --
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 90
BFOUND.COM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
YEAR ENDED OCTOBER 31, 1999 AND THREE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED)
The Company is incorporated under the Company Act (British Columbia) and
its principal business activity includes the development of Internet-based
location tracking software and sales of tracking applications.
1. SIGNIFICANT ACCOUNTING POLICIES:
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles in the United States. The
following is a summary of the significant accounting policies used in the
preparation of the financial statements.
(a) Short-term investments:
The Company's investment portfolio of short term investments includes
government securities, commercial paper, bankers' acceptances and term deposit
certificates. Short-term investments are recorded at the lower of cost or market
value. The Company considers short-term investments to be held-to-maturity
securities. At January 31, 2000, amortized cost approximates market value.
(b) Fixed assets:
Fixed assets are stated at cost. Depreciation is provided using the
following annual rates:
<TABLE>
<CAPTION>
ASSET BASIS RATE
- ----- ----- ----
<S> <C> <C>
Computer hardware........................................... Declining balance 30%
Computer software........................................... Declining balance 50%
Equipment................................................... Declining balance 20%
</TABLE>
(c) Income taxes:
The Company has adopted Statement of Financial Accounting Standards No.
109 -- "Accounting for Income Taxes" (SFAS 109). This standard requires the use
of the asset and liability approach for accounting and reporting on income
taxes. Deferred tax assets and liabilities are recognized for the future
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Investment tax credits (ITCs) are accounted for as a reduction in the cost
of the expense when there is reasonable assurance that such credits will be
realized. These ITCs are used to reduce current and future federal taxes
payable. The Company expects that under current tax laws, it will continue to
generate additional tax credits directly related to the Company's ongoing
research and development activities.
(d) Revenue recognition:
The Company follows the practice of recording software revenue in
accordance with the recommendations of the American Institute of Certified
Public Accountants Statement of Position 97-2. Revenue from product sales is
recognized at the time of shipment. Revenue from customized software is
recognized at the time of completion and acceptance of project milestones.
Service revenue is recognized as the services are rendered.
F-19
<PAGE> 91
BFOUND.COM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(e) Research and development costs:
Product development costs are expensed as incurred.
(f) Software development costs:
The Company may capitalize costs related to the development of certain
software products. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed, capitalization of costs begins when
technological feasibility has been established and ceases when the product is
available for general release to customers, at which time amortization begins on
a product by product basis. Capitalized costs are to be amortized over the
estimated useful life of the product. No software development costs have been
capitalized.
(g) Foreign currency transactions:
The functional currency of the operations of the Company is the Canadian
dollar. Assets and liabilities measured in Canadian dollars are translated into
United States dollars using exchange rates in effect at the balance sheet date
with revenue and expense transactions translated using average exchange rates
prevailing during the period. Exchange gains and losses arising on this
translation are excluded from the determination of income and are reported as
foreign currency translation adjustment (which is included in the comprehensive
income (loss)) in shareholders' equity.
(h) 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 assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
determination of net recoverable value of other assets, useful lives for
amortization purposes, provisions for doubtful accounts, obsolete inventory and
liability amounts. Actual results may ultimately differ significantly from these
estimates.
(i) Stock-based compensation:
The Company accounts for stock-based employee and director compensation
arrangements in accordance with provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations and complies with the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Under APB No. 25, compensation expense
is based on the excess, if any, on the measurement date of the fair value of the
Company's stock and the exercise price of options to purchase that stock.
Stock-based compensation arrangements for others are recorded at their fair
value and charged against earnings over their vesting period.
(j) Impairment of long-lived assets and long-lived assets to be disposed of:
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
F-20
<PAGE> 92
BFOUND.COM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amount or fair value less costs to sell. At January 31, 2000 the only long-lived
assets reported on the Company's balance sheets are fixed assets.
(k) Comprehensive income (loss):
Effective October 31, 1999, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
comprehensive income (loss) and its components in financial statements. Other
comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources.
(l) Unaudited interim financial information:
The financial information as of January 31, 2000 and for the three month
periods ended January 31, 2000 and 1999 is unaudited; however, in the opinion of
management, such information reflects all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the results
for the periods presented.
2. FIXED ASSETS:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
OCTOBER 31, 1999 COST DEPRECIATION VALUE
- ---------------- -------- ------------ --------
<S> <C> <C> <C>
Computer equipment................................... $ 74,656 $33,729 $40,927
Computer software.................................... 14,691 8,254 6,437
Furniture and equipment.............................. 30,395 7,352 23,043
-------- ------- -------
$119,742 $49,335 $70,407
======== ======= =======
</TABLE>
Included in fixed assets are leased computer equipment with a net book
value of $9,421 at October 31, 1999.
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
JANUARY 31, 2000 COST DEPRECIATION VALUE
- ---------------- -------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment................................... $ 79,266 $36,927 $42,339
Computer software.................................... 15,599 9,122 6,477
Furniture and equipment.............................. 32,272 8,674 23,598
-------- ------- -------
$127,137 $54,723 $72,414
======== ======= =======
</TABLE>
Included in fixed assets are leased computer equipment with a net book
value of $9,051 at January 31, 2000.
3. OBLIGATIONS UNDER CAPITAL LEASE:
The Company leases computer equipment under leases which are classified as
capital leases. The future minimum annual lease payments as of October 31, 1999
are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 8,005
2001........................................................ 2,594
-------
10,599
Less amount representing interest........................... (1,448)
-------
Present value of capital lease obligations.................. 9,151
Less current portion........................................ (6,763)
-------
$ 2,388
=======
</TABLE>
F-21
<PAGE> 93
BFOUND.COM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest incurred during the three months ended January 31, 2000 with
respect to the above included in administration expenses amounted to $145 (year
ended October 31, 1999 -- $2,668).
4. DUE TO SHAREHOLDER:
The amounts due to shareholder are unsecured, non-interest bearing and are
due on demand.
5. RELATED PARTY TRANSACTIONS:
During the year ended October 31, 1999, BFound.com Services, Inc. engaged
Discovery Capital Corporation, a related party, to prepare a business plan and
summary. The value of this contract was $12,114, of which $6,057 was paid during
the year ended October 31, 1999. The balance was paid as of January 31, 2000.
During the year ended October 31, 1999, the Company engaged M G Management
Solutions, a related party, to provide consulting services at a rate of $673 per
day. At October 31, 1999 a total of 20 days of consulting services was provided
and a balance of $13,857 is recorded as accounts payable. At January 31, 2000 a
total of 50.5 days of consulting services was provided. The entire balance was
paid as of January 31, 2000.
Both Discovery Capital Corporation and M G Management Solutions are
represented on the Company's board of directors.
These transactions are in the normal course of operations and are recorded
at value agreed to between the Company and the related party.
6. SHARE CAPITAL:
On May 31, 1999, the Board of Directors of the Company approved the
division of its common shares on an eighty-for-one basis (stock split). The
stock split was transacted by means of the cancellation of previously issued
share certificates and the issuance of new certificates. All references to
common shares and per share amounts in the financial statements have been
restated to reflect the stock split on a retroactive basis.
During the year ended October 31, 1999, the Company raised net proceeds of
$671,659 by the issuance from treasury of 2,885,958 common shares through
private placements. The placements were at prices ranging from $0.101 to $0.367.
No further issuances took place through January 31, 2000.
7. COMMON STOCK OPTIONS
On June 8, 1999, the Company adopted the 1999 Key Employee and Consultant
Stock Option Plan (the "Plan"). The Plan provides for the grant of up to 715,000
incentive or non-qualified stock options or shares of restricted stock to key
employees and consultants (an "Optionee") of the Company. Options granted under
the Plan generally vest ratably over a period of three years and expire ten
years from the date of grant. If an Optionee ceases employment with or service
to the Company (a "Termination"), the Optionee may exercise any vested option at
the time of Termination within such period of time specified in the option
agreement. Unvested options revert to the Plan at the date of the Termination.
If, after Termination, the Optionee does not exercise the options within the
time specified, the Option shall terminate and the shares revert to the Plan.
During the year ended October 31, 1999, the Company granted 310,000
non-qualified stock options. A total of 220,000 options was granted with a
one-year vesting period and an exercise price of $0.367, an amount that
approximates or exceeds the fair value of the Company stock at the date of the
grant. A total of 90,000 options was granted with a two-year vesting period and
an exercise price of $0.370, an amount that approximates or exceeds the fair
value of the Company stock at the date of the grant.
F-22
<PAGE> 94
BFOUND.COM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, in 1999 the Company recorded no non-cash compensation expense
relating to the issuance of stock options to purchase common shares to employees
of the Company as the exercise prices were equal to or greater than fair value.
Following is a summary of stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
SHARES PRICE
----------- --------
<S> <C> <C>
Outstanding as of October 31, 1998.......................... -- $ --
Granted..................................................... 310,000 0.368
Exercised................................................... -- --
Canceled.................................................... -- --
------- ------
Outstanding as of October 31, 1999.......................... 310,000 0.368
Granted..................................................... 370,000 0.370
Exercised................................................... -- --
Canceled.................................................... -- --
------- ------
Outstanding as of January 31, 2000 (unaudited).............. 680,00 $0.369
======= ======
</TABLE>
The following table summarizes information about stock options outstanding
at January 31, 2000:
<TABLE>
<CAPTION>
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE VESTED PRICE
- -------- ----------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.367........................... 220,000 9 $0.367 75,000 $0.367
$0.370........................... 460,000 9 0.370 75,000 0.370
------- -- ------ ------- ------
680,000 9 $0.368 150,000 $0.367
======= == ====== ======= ======
</TABLE>
The Company has adopted the disclosure only requirements of SFAS No. 123,
Accounting for Stock Based Compensation, to account for grants to employees
under the Company's existing stock-based compensation plan. Had compensation
cost for the Company's stock option plan been determined based on the fair value
at the grant date for awards under those plans consistent with the measurement
provisions of SFAS No. 123, the Company's net loss would have been adjusted as
follows:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
2000 1999
----------- ------------
<S> <C> <C>
Loss for the period......................................... $(255,350) $(309,334)
Loss for the period -- pro-forma............................ (263,634) (324,356)
</TABLE>
The fair value of each option grant has been estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
JANUARY 31, OCTOBER 31,
2000 1999
------------------- -----------
<S> <C> <C>
Expected dividend yield................................. 0.00% 0.00%
Expected stock price volatility......................... 75.00% 75.00%
Risk-free interest rate................................. 6.25% 6.25%
Expected life of options................................ 5 years 5 years
</TABLE>
F-23
<PAGE> 95
BFOUND.COM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility. The
actual benefit of the options issued will only be determined over their life
based on the timing and extent of future market price changes, and such implied
benefit may differ from the amount calculated by the Black-Scholes model.
8. FINANCIAL INSTRUMENTS:
(a) Fair value:
For certain of the Company's financial instruments, including cash,
short-term investments, accounts receivable, and accounts payable and accrued
liabilities, the carrying amounts approximate fair value due to their immediate
or short-term maturity. The fair value of obligations under long-term debt,
calculated at the present value of future payments of principal interest,
discounted at the current market rates of interest available to the Company for
debt instruments with similar terms and maturity, approximate their carrying
values.
(b) Credit risk:
The Company's major contracts are denominated in U.S. dollars and, as such,
the Company is exposed to exchange rate fluctuations in this currency.
9. INCOME TAXES:
Current income taxes are computed at statutory rates on pre-tax income.
Deferred taxes would be recorded based on differences in the carrying values of
assets and liabilities for financial statement and income tax purposes. At
January 31, 2000, the Company has elected to carry forward net operating losses
for federal income tax purposes of approximately $520,000 that are available to
reduce future taxable income to 2007. As utilization of such operating losses
for tax purposes is not assured, the deferred tax asset has been partially
reserved through the recording of a valuation allowance. These operating losses
may be limited to the extent an "ownership change" occurs.
The components of the deferred tax asset are as follows:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforward........................... $ 234,153 $ 123,153
Less valuation allowance.................................. (229,000) (118,000)
--------- ---------
Net deferred tax asset...................................... $ 5,153 $ 5,153
========= =========
</TABLE>
10. SUBSEQUENT EVENT:
Pursuant to a share purchase agreement dated April 4, 2000, all common
stock options issued to that date were exercised for cash and subsequently 76%
of the issued and outstanding share capital was purchased by SignalSoft Corp., a
company incorporated in the United States.
11. COMMITMENT:
During May 1998, the Company entered into a contract with BC Tel Mobility
Cellular Inc. (BC Tel). The Company received $69,286 from BC Tel to fund
research and development of its Internet based vehicle location services. In
exchange, the Company agreed to pay a royalty to BC Tel equal to 5% of the
invoiced price of or fees for commercial products sold, leased or licensed by
the Company or any of its selling agents
F-24
<PAGE> 96
BFOUND.COM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
or representatives, not including any sales, excise or other taxes, customs
duties or charges. The maximum royalty payable over the life of the contract is
$207,857.
During the period ended January 31, 2000, BFound.com Services, Inc.
invoiced hardware and services totaling $3,128 (year ended October 31,
1999 -- $7,968). As of January 31, 2000 a royalty payable to BC Tel of $555
(October 31, 1999 -- $410) has been recorded as an accounts payable.
12. CONTINGENCY:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the Company, including
those related to customers, suppliers, or other third parties, have been fully
resolved.
F-25
<PAGE> 97
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On April 4, 2000 we acquired 76% of the outstanding shares of common stock
of BFound.com Services, Inc. in exchange for $1.1 million in cash and 423,151
shares of SignalSoft common stock. We have the contractual right to acquire the
remainder of the common stock of BFound.com Services, Inc.
The unaudited pro forma condensed combined balance sheet assumes that the
BFound.com acquisition occurred on December 31, 1999 and includes the December
31, 1999 historical balance sheet of SignalSoft and the January 31, 2000 balance
sheet of BFound.com adjusted for the pro forma effects of the acquisition. The
unaudited pro forma condensed combined statement of operations, assumes that the
acquisition occurred on January 1, 1999, and includes the historical statements
of operations of SignalSoft and BFound.com for the years ended December 31, 1999
and January 31, 2000, respectively, adjusted for the pro forma effects of the
acquisition.
The unaudited pro forma condensed combined statement of operations is not
necessarily indicative of the results of operations that would actually have
occurred if the transaction had been consummated as of January 1, 1999, and is
not intended to indicate the expected results for any future period. These
statements should be read in conjunction with the historical financial
statements and related notes thereto of SignalSoft and BFound.com, included
elsewhere herein.
The BFound.com acquisition will be accounted for using the purchase method
of accounting. The pro forma financial information has been prepared on the
basis of assumptions described in the following notes and includes assumptions
relating to the allocation of the consideration paid for the common stock of
BFound.com based on preliminary estimates of the fair values of 76% of the
assets and liabilities of BFound.com. The actual allocation of such
considerations may differ from that reflected in the pro forma financial
statements. We do not expect that the final allocation of the purchase price
will differ materially from the preliminary allocations.
The pro forma financial information gives effect to the following pro forma
adjustments:
(1) To reflect total consideration of $3,577,233, consisting of cash
of $1,136,838 and 423,151 shares of SignalSoft common stock valued at $5.33
per share, and acquisition costs of $185,000 and to recognize minority
interest for the 24% of BFound.com common stock not acquired.
(2) To record goodwill of $3,460,250, based on total consideration of
$3,577,233, less fair value of the 76% of net tangible assets acquired of
$116,983.
(3) To eliminate BFound.com shareholders' equity acquired.
(4) To record additional amortization expense related to goodwill
using an amortization period of five years on a straight-line basis.
F-26
<PAGE> 98
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JANUARY 31, 2000 PRO FORMA PRO FORMA
SIGNALSOFT BFOUND.COM ADJUSTMENTS COMBINED
----------------- ---------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $18,051 $112 $(1,137)(1) $17,026
Trade accounts receivable............ 691 24 715
Prepaid expenses and other........... 308 11 319
------- ---- ------- -------
Total current assets......... 19,050 147 (1,137) 18,060
Equipment and leasehold improvements,
net............................... 653 72 725
Other assets......................... -- 5 5
Goodwill............................. -- -- 3,460(2) 3,460
------- ---- ------- -------
Total assets................. $19,703 $224 $ 2,323 $22,250
======= ==== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable........................ $ 42 $ 3 $ 45
Current portion of capital lease
obligation........................ 56 7 63
Accounts payable and accrued
liabilities....................... 1,808 21 185(1) 2,014
Accrued compensation................. 542 38 580
Deferred revenue..................... 316 -- 316
------- ---- ------- -------
Total current liabilities.... 2,764 69 185 3,018
Long-term capital lease obligations
less current portion................. 26 1 27
Minority interest...................... -- -- 37(3) 37
Mandatorily redeemable convertible
preferred stock...................... 32,205 -- 32,205
Stockholders' equity (deficit)......... (15,292) 154 2,218(1) (13,037)
(117)(3)
------- ---- ------- -------
Total liabilities and
stockholders' equity
(deficit).................. $19,703 $224 $ 2,323 $22,250
======= ==== ======= =======
</TABLE>
F-27
<PAGE> 99
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED 12 MONTHS ENDED
DECEMBER 31, 1999 JANUARY 31, 2000 PRO FORMA PRO FORMA
SIGNALSOFT BFOUND.COM ADJUSTMENTS COMBINED
----------------- ---------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
License fees.................... $ 883 $ -- $ $ 883
Maintenance fees................ 287 -- 287
Professional services and
other........................ 786 167 953
------- ----- -------
Total revenue........... 1,956 167 2,123
Cost of revenue................... 1,777 33 1,810
------- ----- -------
Gross profit............ 179 134 313
Operating expenses:
Selling, general and
administrative............... 3,935 343 4,278
Research and development........ 3,399 313 3,712
Depreciation and amortization... 192 32 692(4) 916
Stock option compensation
expense...................... 258 -- 258
------- ----- ----- -------
Total operating
expenses.............. 7,784 688 692 9,164
------- ----- ----- -------
Loss from operations.... (7,605) (554) (692) (8,851)
Other income (expense):
Interest income................. 205 -- 205
Interest expense................ (200) -- (200)
Other, net...................... 5 -- 5
------- ----- -------
Total other income
(expense)............. 10 -- 10
------- ----- ----- -------
Loss before income taxes.......... (7,595) (554) (692) (8,841)
Provision for income
taxes................. -- 5 5
------- ----- ----- -------
Loss before minority interest..... (7,595) (549) (692) (8,836)
Minority interest....... -- -- 133(3) 133
------- ----- ----- -------
Net loss................ $(7,595) $(549) $(559) $(8,703)
Preferred stock dividend
requirement and accretion of
mandatorily redeemable
convertible preferred stock to
liquidation value............... $(1,021) $ -- $(559) $(1,021)
------- ----- ----- -------
Net loss attributable to
common stockholders... $(8,616) $(549) $(767) $(9,724)
======= ===== ===== =======
Basic and diluted loss per
share........................... $ (1.35) $ (1.43)
======= =======
Shares used to compute basic and
diluted net loss per share...... 6,387 6,810
</TABLE>
F-28
<PAGE> 100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
SIGNALSOFT CORPORATION
COMMON STOCK
[SIGNALSOFT LOGO]
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 101
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
offered hereby, other than underwriting discounts and commissions. All of the
amounts shown are estimated except the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 21,252
National Association of Securities Dealers, Inc. filing
fee....................................................... 8,550
--------
Nasdaq National Market listing fee.......................... 95,000
--------
Transfer agent's and registrar's fees....................... *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky filing fees and expenses........................... *
Miscellaneous expenses...................................... *
--------
Total............................................. *
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. The
Registrant's Bylaws include provisions to require the Registrant to indemnify
its directors and officers to the fullest extent permitted by Section 145,
including circumstances in which indemnification is otherwise discretionary.
Section 145 also empowers the Registrant to purchase and maintain insurance that
protects its officers, directors, employees and agents against any liabilities
incurred in connection with their service in such positions.
The Registrant has entered into separate indemnification agreements with
each of its directors and officers. These agreements require the Registrant to,
among other things, indemnify the director or officer against expenses,
including attorneys' 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 the Registrant, other
than liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest. The Registrant has also agreed 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 the Registrant.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriters of the
Registrant and its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to securities issued or sold by the
Registrant within the last three years. During that time, the Registrant has
issued unregistered securities in the transactions described below. Securities
issued in such transaction were offered and sold in reliance upon the exemption
from registration under Section 4(2) of the Securities Act, relating to sales by
an issuer not involving any public offering, or under Rule 701 under the
Securities Act. The sales of securities were made without the use of an
underwriter
II-1
<PAGE> 102
and the certificates evidencing the shares bear a restrictive legend permitting
the transfer thereof only upon registration of the shares or an exemption under
the Act.
(1) From January 1, 1997 to March 31, 2000, we have granted options to
purchase an aggregate of 1,442,733 shares of common stock at exercise prices
ranging from $0.05 to $5.33 per share to employees, directors and consultants
pursuant to the SignalSoft Corporation Nonqualified Stock Option Plan dated
November 17, 1995, as amended.
(2) On January 22, 1998, the Registrant entered into a Preferred Stock
Purchase Agreement for the sale of an aggregate 3,835,148 shares of Series B
Convertible Preferred Stock to 10 sophisticated investors at $2.52 per share for
an aggregate purchase price of $9,650,000.
(3) On December 15, 1999, the Registrant entered into a Preferred Stock
Purchase Agreement for the sale of an aggregate 5,574,324 shares of Series C
Convertible Preferred Stock to 22 sophisticated investors at $5.92 per share for
an aggregate purchase price of $33,000,000.
(4) On December 22, 1999, the Registrant issued warrants exercisable for
25,336 shares of common stock to seven sophisticated investors at a weighted
average exercise price of $1.25 per share. These warrants were issued in
connection with a $3.0 million bridge loan to the Registrant from these
investors, which was repaid in December 1999.
(5) On April 4, 2000, the Registrant issued 423,151 shares of common stock
to 6 sophisticated investors at $5.92 per share in connection with the
acquisition of 76% of the common stock of BFound.com Services, Inc.
The issuances described in paragraphs (2) through (5) above were deemed to
be exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act as transactions by an issuer not involving a public
offering. The sales of securities described in paragraph (1) above were deemed
to be exempt from the registration requirements of the Securities Act in
reliance on Rule 701 promulgated under Section 3(b) of the Securities Act as
transactions by an issuer pursuant to compensatory benefit plans and contracts
relating to compensation as provided under Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation of
SignalSoft Corporation
3.2* -- Bylaws of SignalSoft Corporation
4.1* -- Specimen stock certificate for shares of common stock of
SignalSoft Corporation
5.1* -- Opinion of Holme Roberts & Owen LLP, regarding legality
of securities being registered
10.1 -- Series C Preferred Stock Purchase Agreement dated as of
December 15, 1999 by and among SignalSoft Corporation and
the Investors listed on Exhibit A thereto
10.2 -- Purchase Agreement dated as of March 22, 2000 by and
among SignalSoft Corporation, SignalSoft NS Co. and the
shareholders of BFound.com Services, Inc.
10.3 -- Investors' Rights Agreement dated as of August 1, 1996 by
and among SignalSoft Corporation, the Investors listed on
Exhibit A thereto, David Hose, Mark Flolid and Jim Fitch
10.4 -- Amendment One to 8/1/96 Investors' Rights Agreement of
SignalSoft Corporation
10.5 -- Amendment Two to 8/1/96 Investors' Rights Agreement of
SignalSoft Corporation
</TABLE>
II-2
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.6* -- Lease Agreement dated as of March 1998 by and between
Walnut Canyon Partners and SignalSoft Corporation
10.7* -- SignalSoft Corporation Nonqualified Stock Option Plan
effective November 17, 1995, as amended
10.8* -- Form of Stock Option Agreement
10.9* -- SignalSoft Corporation Equity Incentive Plan
10.10* -- Form of Indemnification Agreement
21.1 -- Subsidiaries of SignalSoft Corporation
23.1 -- Consent of KPMG LLP (SignalSoft Corporation)
23.2 -- Consent of KPMG LLP (BFound.com Services, Inc.)
23.3* -- Consent of Holme Roberts & Owen LLP (included as part of
Exhibit 5.1)
24.1 -- Powers of Attorney
27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules:
Schedules have been omitted because the information required to be shown in
the schedules is not applicable or is included elsewhere in our financial
statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement 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
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its Charter or Bylaws or the Delaware
General Corporation Law or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person 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 Securities 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, 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, 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.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-3
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boulder,
Colorado, on the 13th day of April, 2000.
SIGNALSOFT CORPORATION
By: /s/ DAVID A. HOSE
----------------------------------
David A. Hose
Chief Executive Officer, President
and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ DAVID A. HOSE Chief Executive Officer, April 13, 2000
- ----------------------------------------------------- President and Chairman of the
David A. Hose Board of Directors (Principal
Executive Officer)
/s/ ANDREW M. MURRAY Senior Vice President of April 13, 2000
- ----------------------------------------------------- Finance, Chief Financial
Andrew M. Murray Officer and
Secretary-Treasurer
(Principal Financial Officer
and Principal Accounting
Officer)
* Executive Vice President of April 13, 2000
- ----------------------------------------------------- Corporate Development and
Mark H. Flolid Director
* Director April 13, 2000
- -----------------------------------------------------
Charles P. Waite, Jr.
* Director April 13, 2000
- -----------------------------------------------------
B. Holt Thrasher
* Director April 13, 2000
- -----------------------------------------------------
Eric L. Doggett
* Director April 13, 2000
- -----------------------------------------------------
Perry M. LaForge
</TABLE>
*By: /s/ ANDREW M. MURRAY
-------------------------------
Andrew M. Murray
attorney-in-fact
II-4
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation of
SignalSoft Corporation
3.2* -- Bylaws of SignalSoft Corporation
4.1* -- Specimen stock certificate for shares of common stock of
SignalSoft Corporation
5.1* -- Opinion of Holme Roberts & Owen LLP, regarding legality
of securities being registered
10.1 -- Series C Preferred Stock Purchase Agreement dated as of
December 15, 1999 by and among SignalSoft Corporation and
the Investors listed on Exhibit A thereto
10.2 -- Purchase Agreement dated as of March 22, 2000 by and
among SignalSoft Corporation, SignalSoft NS Co. and the
shareholders of BFound.com Services, Inc.
10.3 -- Investors' Rights Agreement dated as of August 1, 1996 by
and among SignalSoft Corporation, the Investors listed on
Exhibit A thereto, David Hose, Mark Flolid and Jim Fitch
10.4 -- Amendment One to 8/1/96 Investors' Rights Agreement of
SignalSoft Corporation
10.5 -- Amendment Two to 8/1/96 Investors' Rights Agreement of
SignalSoft Corporation
10.6* -- Lease Agreement dated as of March 1998 by and between
Walnut Canyon Partners and SignalSoft Corporation
10.7* -- SignalSoft Corporation Nonqualified Stock Option Plan
effective November 17, 1995, as amended
10.8* -- Form of Stock Option Agreement
10.9* -- SignalSoft Corporation Equity Incentive Plan
10.10* -- Form of Indemnification Agreement
21.1 -- Subsidiaries of SignalSoft Corporation
23.1 -- Consent of KPMG LLP (SignalSoft Corporation)
23.2 -- Consent of KPMG LLP (BFound.com Services, Inc.)
23.3* -- Consent of Holme Roberts & Owen LLP (included as part of
Exhibit 5.1)
24.1 -- Powers of Attorney
27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10.1
SIGNALSOFT CORPORATION
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF
DECEMBER 15, 1999
<PAGE> 2
SIGNALSOFT CORPORATION
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "Series
C Purchase Agreement" or the "Agreement") is made as of December 15, 1999 by and
among SignalSoft Corporation, a Delaware corporation (the "Company") and the
purchasers/investors listed on Exhibit A attached hereto (each a "Purchaser" or
"Investor" and together the "Purchasers", "Investors" or
"Purchasers/Investors").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES C PREFERRED STOCK.
(a) The Company shall adopt and file with the
Secretary of State of the State of Delaware on or before the Closing (as defined
below) the Amended and Restated Certificate of Incorporation in the form
attached hereto as Exhibit B (the "Restated Certificate").
(b) Subject to the terms and conditions of this
Agreement, each Purchaser agrees, severally and not jointly, to purchase at the
Closing and the Company agrees to sell and issue to each Purchaser at the
Closing that number of shares of Series C Preferred Stock set forth opposite
each such Purchaser's name on Exhibit A attached hereto at a purchase price of
$5.92 per share. The shares of Series C Preferred Stock issued to the separate
Purchaser(s) pursuant to this Agreement as amended from time to time shall be
hereinafter referred to as the "Stock."
1.2 CLOSING; DELIVERY; ADDITIONS TO EXHIBIT A.
(a) The initial purchase and sale of the Stock
shall take place at the offices of the Company, 1495 Canyon, Boulder, CO 80302
at 11:00 a.m. on December 17, 1999, or at such other time and place as the
Company and the Purchasers/Investors mutually agree upon, orally or in writing
(a "Closing"). This Agreement may be amended prior to February 28, 2000 to add
additional Purchasers/Investors and increase the shares of Stock being sold;
provided that the total number of shares of Stock sold hereunder shall not
exceed 5,574,324 and the purchase price per share shall be $5.92 per share. Such
additional purchases and sales shall be consummated at such other times and
places as the Company and the additional Purchasers/Investors mutually agree
upon (all of which time(s) and place(s) is referred to a "Closing"); provided
that no such purchase and sale shall close after February 28, 2000 without the
consent of the holders of a majority of the then issued and outstanding Series C
Preferred Stock.
(b) At the Closing, the Company shall deliver to
each Purchaser a certificate representing the Stock being purchased thereby
against payment of the purchase price therefor by check or by wire transfer to
the Company's bank account and following such Purchaser's compliance with the
terms and conditions of subparagraph 1.2(c) below.
<PAGE> 3
(c) At the Closing (which can occur, as stated in
subparagraph 1.2(a) above, in stages such that separate Investors may purchase
Stock on different dates, including but not limited to the anticipated December
17, 1999 closing date for the initial Purchasers, including those Purchasers
which are holders of the Series A and B Preferred Stock), each Investor who has
not previously executed this Series C Purchase Agreement and/or Amendment Two to
8/1/96 Investors' Rights Agreement and Amendment Three to 8/1/96 Principal
Stockholders Agreement must execute all three of these agreements (defined in
Section 2.4 below) by signing the appropriate Signature Page for each, as a
precondition to the Company's delivery of the certificate referenced in
subparagraph 1.2(b) above to such Investor.
2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
The Company hereby represents, warrants and covenants to each Purchaser that,
except as set forth on a Schedule of Exceptions attached hereto as Exhibit C:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted and to execute, deliver and perform its obligations under the
Agreements. The Company is duly qualified to transact business as a foreign
corporation and is in good standing in the State of Colorado, the only
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 CAPITALIZATION. The authorized capital of the Company
consists, or will consist, immediately prior to the initial Closing, of:
(a) 11,000,000 shares of preferred stock, of which
1,571,700 shares have been designated Series A Preferred Stock, and 3,835,148
shares have been designated Series B Preferred Stock, all of which are issued
and outstanding, and 5,574,324 shares have been designated Series C Preferred
Stock, none of which will be issued and outstanding immediately prior to the
initial Closing. The rights, privileges and preferences of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
(collectively the "Preferred Stock") are as stated in the Restated Certificate.
(b) 20,000,000 shares of common stock, 6,393,636 shares
of which are, and will be, issued and outstanding immediately prior to the
initial Closing. All of the issued and outstanding shares of common stock (the
"Common Stock") have been duly authorized, fully paid and are nonassessable and
issued in compliance with all applicable federal and state securities laws. The
Company has reserved 11,000,000 shares of common stock for issuance upon
conversion of the Preferred Stock.
(c) The Company has reserved 2,000,000 shares of common
stock for issuance to officers, directors, employees and consultants of the
Company pursuant to its Nonqualified Stock Option Plan dated November 17, 1995
duly adopted by the Board of Directors
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and approved by the Company stockholders, and amended by the Board of Directors
effective August 1, 1996 (the "Stock Plan"). Of such reserved shares of common
stock, options to purchase 1,634,729 shares of common stock have been granted,
10,530 of which options have been terminated and returned to the pool, options
to purchase 30,000 shares are reserved to be granted to a current employee and
345,801 shares of such reserved stock remain available for issuance of options
to officers, directors, employees and consultants pursuant to the Stock Plan. As
of the date of the initial Closing, the rights to purchase 860,590 shares of
Common Stock have vested and are unexercised; only such vested amount will be
used in calculating the purchase price of all Stock sold hereunder, regardless
of timing of subsequent Closings.
(d) Except for outstanding options issued pursuant to
the Stock Plan, and various provisions contained in the Restated Certificate and
the Agreements (defined below), the only outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, orally or in writing, for the purchase or
acquisition from the Company of any shares of its capital stock are the warrants
agreed to be issued to providers of the bridge loans of September 21, 1999 (the
"Bridge Loans"), which will cover not to exceed in aggregate 40,000 shares of
Common Stock.
2.3 SUBSIDIARIES. The Company does not currently own or
control, directly or indirectly, any capital stock or voting interest in any
other corporation, association, or other business entity.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, and its directors and stockholders necessary for the authorization,
execution and delivery of (a) this Series C Purchase Agreement, (b) Amendment
Two to the 8/1/96 Investors' Rights Agreement dated as of December 15, 1999
(both the 8/1/96 Investors' Rights Agreement, as previously amended and
Amendment Two thereto hereinafter collectively referred to as the "Amended
Investors' Rights Agreement") in the forms attached hereto as Exhibit D and the
Amended Investors' Rights Agreement, (c) Amendment Three to the 8/1/96 Principal
Stockholders Agreement dated as of December 15, 1999 (both the 8/1/96 Principal
Stockholders Agreement, as previously amended and Amendment Three thereto
hereinafter collectively referred to as the "Amended Principal Stockholders
Agreement") in the forms attached hereto as Exhibit E and the Amended Principal
Stockholders Agreement -- which Amended Investors' Rights Agreement and Amended
Principal Stockholders Agreement, together with this Series C Purchase
Agreement, are herein collectively referred to as the "Agreements") -- the
performance of all obligations of the Company hereunder and thereunder and the
authorization, issuance and delivery of the Stock and the common stock issuable
upon conversion of the Stock has been taken or will be taken prior to the
Closing, and the Agreements, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws of general application affecting enforcement of
creditors' rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief, or
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<PAGE> 5
other equitable remedies, or (ii) to the extent the indemnification provisions
contained in the Amended Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being
issued to the Purchasers/Investors hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under the Agreements and
applicable state and federal securities laws. Based in part upon the
representations of the Purchasers in this Agreement and subject to the
provisions of Section 2.6 below, the Stock will be issued in compliance with all
applicable federal and state securities laws. The common stock issuable upon
conversion of the Stock has been duly and validly reserved for issuance, and
upon issuance in accordance with the terms of the Restated Certificate, shall be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under the Agreements and
applicable federal and state securities laws and will be issued in compliance
with all applicable federal and state securities laws.
2.6 GOVERNMENTAL CONSENTS. Subject to and based in part upon
the truth and accuracy of the representations and warranties of the Purchasers
in Section 3 hereof, no consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except for the filing of the Restated Certificate on or before
Closing and timely filings to be made pursuant to Section 11-51-308(1)(p) of
Colorado Revised Statutes, 1973, as amended, and Regulation D of the Securities
Act of 1933, as amended (the "Securities Act").
2.7 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the knowledge of the Company, currently threatened
against the Company, that questions the validity of the Agreements or the right
of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the assets, condition or
affairs of the Company, financially or otherwise, or any change in the current
equity ownership of the Company. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company, currently pending or which the Company intends to
initiate.
2.8 PATENTS AND TRADEMARKS. The Company believes it owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
tradenames, copyrights, trade secrets, licenses, information and proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted without any conflict with, or infringement of, the rights of
others. The Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, tradenames, copyrights, trade
secrets or other proprietary rights or processes of any other person or entity.
The Company is not aware that any of its employees is obligated under any
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contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interest of the Company or that would conflict with the
Company's business as proposed to be conducted. To the best of the Company's
knowledge, neither the execution or delivery of this Agreement, nor the carrying
on of the Company's business by the employees of the Company, nor the conduct of
the Company's business as proposed, will conflict with or result in a breach of
the terms, conditions, or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such employee is now obligated.
The Company does not believe it is or will be necessary to use any inventions of
any of its employees (or persons it currently intends to hire) made prior to
their employment by the Company.
2.9 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of its Restated Certificate or Bylaws or
of any instrument, judgment, order, writ, decree or contract to which it is a
party or by which it is bound or, of any provision of federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of the Agreements and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company.
2.10 AGREEMENTS; ACTION.
(a) Except as disclosed in paragraph 1 of Exhibit C
hereto, there are no agreements or proposed transactions between the Company and
any of its officers, directors, affiliates or any affiliate thereof.
(b) Except for agreements explicitly contemplated by
the Agreements and those agreements referenced in Exhibit C hereto, there are no
agreements, understandings, instruments, contracts or proposed transactions to
which the Company is a party or by which it is bound that involve (i)
obligations (contingent or otherwise) of, or annual payments to, the Company in
excess of $500,000, or (ii) the grant of rights to manufacture, produce,
assemble, license, market, or sell its products to any other person or affect
the Company's exclusive right to develop, manufacture, assemble, distribute,
market or sell its products.
(c) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities which are outstanding individually in
excess of $500,000 or in excess of $1,000,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
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(d) The Company has provided copies of all its material
contracts and agreements to the Purchasers who have requested same; provided
that it is not obligated to provide any contracts which are covered by
confidentiality agreements prohibiting such action; and provided further that it
is not obligated to provide proprietary contracts to any Purchaser which the
Company determines to be potentially capable of competing with the Company.
(e) The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation,
partnership, association or other business entity or any individual regarding
the merger of the Company with or into any such corporation or entity, (ii) with
any representative of any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company or a transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company would be disposed of, or (iii) regarding any other
form of liquidation, dissolution or winding up of the Company.
2.11 DISCLOSURE. The Company has provided prospective
purchasers with the Confidential Private Placement Memorandum dated September
15, 1999 (the "Placement Memorandum"), and the Company has provided the
Purchasers with all additional information which the Purchasers have requested
for deciding whether to acquire the Stock. The Placement Memorandum and such
information did not as of its date, and the representations and warranties
herein (including the Exhibits hereto) do not, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein or herein not misleading in light of the circumstances under
which they were made. The Placement Memorandum and the financial and other
projections contained in the Placement Memorandum were prepared based upon
assumptions which Company management considered reasonable; however, such
statements are forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from those anticipated in
such projections as a result of various factors, including the risks discussed
in "Risk Factors" and elsewhere in the Placement Memorandum.
2.12 NO CONFLICT OF INTEREST. The Company is not indebted,
directly or indirectly, to any of its officers or directors or to their
respective spouses or children, in any amount whatsoever other than in
connection with expenses or advances of expenses incurred in the ordinary course
of business or relocation expenses of employees. None of the Company's officers
or directors, or any members of their immediate families, are, directly or
indirectly, indebted to the Company (other than in connection with purchases of
the Company's stock) or have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company except that officers, directors and/or stockholders of the
Company may own stock in publicly traded companies which may compete with the
Company. None of the Company's officers or directors or any members of their
immediate families are, directly or indirectly, interested in any material
contract with the Company.
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2.13 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as
contemplated in the Amended Investors' Rights Agreement, the Company has not
granted or agreed to grant any registration rights, including piggyback rights,
to any person or entity. To the best of the Company's knowledge, except as
contemplated in the Principal Stockholders Agreement, no stockholders of the
Company have entered into any agreements with respect to the voting of capital
shares of the Company.
2.14 PRIVATE PLACEMENT. Subject in part to the truth and
accuracy of the Purchasers' representations set forth in this Agreement, the
offer, sale and issuance of the Stock as contemplated by this Agreement is
exempt from the registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.15 TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and holds a valid leasehold
interest free of any liens, claims or encumbrances created by the Company.
2.16 FINANCIAL STATEMENTS. The Company has made available to
each Purchaser its audited financial statements (including balance sheet and
statement of operations for the twelve month periods ending December 31, 1997
and 1998 (the "Audited Financial Statements") and has included selected
unaudited income statement data for the interim six month periods ended June 30,
1998 and 1999 (the "Unaudited Financial Data"). The Audited Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein. The income statements from which
the Unaudited Financial Data was selected have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated, and fairly present the operating results of
the Company as of the dates, and for the periods, indicated therein; provided
that such income statements do not include the effect of normal year-end or
audit adjustments. Except as set forth in the Audited Financial Statements, the
Company has no material liabilities, contingent or otherwise other than (i) as
contemplated by the Placement Memorandum, and (ii) liabilities and obligations
under contracts and commitments incurred in the ordinary course of business
subsequent to December 31, 1998. The Company is not a guarantor or indemnitor of
any indebtedness of any other person, firm or corporation. The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
2.17 CHANGES. Since December 31, 1998, except as
contemplated in the Placement Memorandum, there has not been:
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(a) any material adverse change in the assets,
liabilities, financial condition or operating results of the Company from that
reflected in the Financial Statements, except the Bridge Loans and except for
changes consistent with results for disclosed periods;
(b) any damage, destruction or casualty loss, whether
or not covered by insurance, materially and adversely affecting the business,
properties, prospects, or financial condition of the Company (as such business
is presently conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company of a
valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim,
or encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and that is not material to the business,
properties, prospects or financial condition of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change to a material contract or
agreement by which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement
or agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any
officer or key employee of the Company; and the Company, to the best of its
knowledge, does not know of any impending resignation or termination of
employment of any such officer or key employee;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, with respect to any of its
material properties or assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or
for the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
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<PAGE> 10
(l) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(m) any other event or condition of any character that
might materially and adversely affect the business, properties, prospects or
financial condition of the Company (as such business is presently conducted and
as it is proposed to be conducted); or
(n) any arrangement or commitment by the Company to do
any of the things described in this Section 2.17.
2.18 EMPLOYEE BENEFIT PLANS. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.19 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due.
2.20 INSURANCE. The Company has in full force and effect
fire and casualty insurance policies, with extended coverage, sufficient in
amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed.
2.21 LABOR AGREEMENTS AND ACTIONS. The Company is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the knowledge of the Company threatened, which could have
a material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
The Company has complied in all respects with all applicable state and federal
equal employment opportunity laws and with other laws related to employment, the
failure to comply with which would have a material adverse effect on the
Company.
2.22 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each
employee, consultant and officer of the Company has executed an agreement with
the Company regarding confidentiality and proprietary information. The Company,
after reasonable investigation, is not aware that any of its employees or
consultants is in violation thereof, and the Company will use its best efforts
to prevent any such violation. To the extent that intellectual property is
developed by employees of the Company on behalf of the Company in the scope of
their employment by the Company, such property is owned by the Company. All
consultants to or vendors of the Company
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with access to confidential information of the Company are parties to a written
agreement under which, among other things, each such consultant or vendor is
obligated to maintain the confidentiality of confidential information of the
Company. The Company, after reasonable investigation, is not aware that any of
its consultants or vendors are in violation thereof, and the Company will use
its best efforts to prevent any such violation.
2.23 PERMITS. The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company and believes that it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be conducted.
The Company is not in default in any material respect under any of such
franchises, permits, licenses or other similar authority.
2.24 CORPORATE DOCUMENTS. The Restated Certificate and
Bylaws of the Company are in the form provided to the Purchasers. The copy of
the minute books of the Company contains minutes of all meetings of directors
and stockholders since the date of incorporation and reflects all actions by the
directors (and any committee of directors) and stockholders with respect to all
transactions referred to in such minutes accurately in all material respects.
2.25 REAL PROPERTY HOLDING CORPORATION. The Company is not a
United States real property holding corporation within the meaning of Internal
Revenue Code Section 897(c)(2) and any regulations promulgated thereunder.
2.26 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to the best of its knowledge,
no material expenditures are or will be required in order to comply with any
such existing statute, law or regulation. No hazardous or toxic materials are
used, or have been used, stored, or disposed of by the Company, or to its
knowledge, by any other person or entity on any property owned, used, or leased
by the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each
Purchaser hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. The Agreements, when executed and
delivered by the Purchaser, will constitute valid and legally binding
obligations of the Purchaser, enforceable in accordance with their terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and any other laws of general application affecting
enforcement of creditors' rights generally, and as limited by laws relating to
the availability of a specific performance, injunctive relief, or other
equitable remedies, or (b) to the extent the indemnification provisions
contained in the Amended Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
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3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is
made with the Purchaser in reliance upon the Purchaser's representation to the
Company, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Stock (or common stock issuable upon conversion
thereof) to be acquired by the Purchaser will be acquired for investment for the
Purchaser's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that the Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, the Purchaser further
represents that the Purchaser does not presently have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Stock (or the common stock issuable upon conversion thereof). The Purchaser
represents that it has full power and authority to enter into this Agreement.
The Purchaser has not been formed for the specific purpose of acquiring the
Stock (or the common stock issuable upon conversion thereof).
3.3 DISCLOSURE OF INFORMATION. The Purchaser has received
and reviewed the Placement Memorandum and has had an opportunity to discuss the
Company's business, management, financial affairs and the terms and conditions
of the offering of the Stock with the Company's management and has had an
opportunity to review the Company's facilities and has generally such knowledge
and experience in business and financial matters and with respect to investments
in securities of privately held companies as to enable such Purchaser to
understand and evaluate the risks of such investment and form an investment
decision with respect thereto. The Purchaser understands that such discussions,
as well as the Placement Memorandum and other written information provided on
behalf of the Company, were intended to describe the aspects of the Company's
business which it believes to be material. The foregoing, however, does not
limit or modify the representations and warranties of the Company in Section 2
hereof or the right of the Investors to rely thereon.
3.4 RESTRICTED SECURITIES. The Purchaser understands that
the Stock (and the common stock issuable upon conversion thereof) has not been,
and will not be, registered under the Securities Act, by reason of their
issuance in a transaction exempt from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Stock (and the common stock
issuable upon conversion thereof) are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such Stock (and the common stock issuable upon
conversion thereof) may be resold without registration under the Securities Act
only in certain limited circumstances. The Purchaser acknowledges that the Stock
(and the common stock issuable upon conversion thereof) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. The Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
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about the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" (as
provided by Rule 144(f)) and the number of shares being sold during any
three-month period not exceeding specified limitations.
3.5 NO PUBLIC MARKET. The Purchaser understands that no
public market now exists for any of the securities issued by the Company, that
the Company has made no assurances that a public market will ever exist for the
Stock or the underlying common stock. The Purchaser has no present need for
liquidity in its investment in the Company, and is able to bear the economic
risk of such investment for an indefinite period and to afford a complete loss
thereof.
3.6 LEGENDS. The Purchaser understands that the Stock (and
the common stock issuable upon conversion thereof), and any securities issued in
respect thereof or exchange therefor, may bear one or all of the following
legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE,
INCLUDING ANY INTEREST THEREIN, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS; THEY HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED, SOLD, OFFERED FOR SALE OR OTHERWISE DISPOSED OF IN ANY MANNER,
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR OTHER QUALIFICATION
RELATING TO SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS THE CORPORATION RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION OR
OTHER QUALIFICATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
TRANSFER, SALE, OFFER OR DISPOSITION."
(b) Any legend required by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
3.7 ACCREDITED INVESTOR. The Purchaser is an accredited
investor as defined in Rule 501(a) of Regulation D (the provisions of which are
known to the Purchaser) promulgated under the Securities Act.
3.8 FOREIGN INVESTORS. If the Purchaser is not a United
States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of
1986, as amended), such Purchaser hereby represents that it has satisfied itself
as to the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii)
any governmental or other consents that may need to
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<PAGE> 14
be obtained, and (iv) the income tax and other tax consequences, if any, that
may be relevant to the purchase, holding, redemption, sale, or transfer of the
Stock. Such Purchaser's subscription and payment for and continued beneficial
ownership of the Stock, will not violate any applicable securities or other laws
of the Purchaser's jurisdiction.
4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the related Closing, of each of the following
conditions, unless otherwise waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct on
and as of the related Closing with the same effect as though such
representations and warranties had been made on and as of the date of each
Closing.
4.2 PERFORMANCE. The Company shall have performed and
complied with all covenants, agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the related Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company
shall deliver to the Purchasers at the related Closing a certificate certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Stock pursuant to this Agreement shall be obtained and effective
as of the related Closing.
4.5 OPINIONS OF COMPANY COUNSEL. The Purchasers shall have
received from Sherman & Howard L.L.C., special counsel for the Company, an
opinion, dated as of the Closing in substantially the form of Exhibit F.
4.6 BOARD OF DIRECTORS. As of the Closing, the Board shall
be comprised of six directors: David Hose, Mark Flolid, Chad Waite, Holt
Thrasher, Eric Doggett, and Perry la Forge and there shall be no vacancies.
4.7 AMENDED INVESTORS' RIGHTS AGREEMENT. Subject to the
recognition that the Closing may proceed in stages, and the other terms and
conditions set forth in subparagraph 1.2(c) above, the Company, each Purchaser
and David Hose, Mark Flolid and Jim Fitch shall have executed and delivered
Amendment Two to the 8/1/96 Investors' Rights Agreement in substantially the
form attached in Exhibit D.
4.8 AMENDED PRINCIPAL STOCKHOLDERS AGREEMENT. Subject to the
recognition that the Closing may proceed in stages, and the other terms and
conditions set forth in
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<PAGE> 15
subparagraph 1.2(c) above, the Company, each Purchaser, and David Hose, Mark
Flolid and Jim Fitch shall have executed and delivered Amendment Three to the
8/1/96 Principal Stockholders Agreement in substantially the form attached in
Exhibit E.
4.9 RESTATED CERTIFICATE. The Company shall have filed the
Restated Certificate with the Secretary of State of Delaware on or prior to the
Closing Date, which shall continue to be in full force and effect as of the
Closing Date.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 3 shall be true and correct on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Stock pursuant to this Agreement shall be obtained and effective
as of the Closing.
5.4 AMENDED INVESTORS' RIGHTS AGREEMENT. Subject to the
recognition that the Closing may proceed in stages, and the other terms and
conditions set forth in subparagraph 1.2(c) above, the Company, each Purchaser
and David Hose, Mark Flolid and Jim Fitch shall have executed and delivered
Amendment Two to the 8/1/96 Investors' Rights Agreement in substantially the
form attached in Exhibit D.
5.5 AMENDED PRINCIPAL STOCKHOLDERS AGREEMENT. Subject to the
recognition that the Closing may proceed in stages, and the other terms and
conditions set forth in subparagraph 1.2(c) above, the Company, each Purchaser,
and David Hose, Mark Flolid and Jim Fitch shall have executed and delivered
Amendment Three to the 8/1/96 Principal Stockholders Agreement in substantially
the form attached in Exhibit E.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in
this Agreement, the warranties, representations and covenants of the Company and
the Purchasers
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<PAGE> 16
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing.
6.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
6.3 GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Colorado without giving effect to principles of conflicts of
law.
6.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, addressed to the party to be notified at
such party's address as set forth below or on Exhibit A hereto, or as
subsequently modified by written notice, and if to the Company, with a copy to
Robert P. Mitchell at Sherman & Howard, L.L.C., 633 17th Street, Suite 3000,
Denver, Colorado 80202.
6.7 FINDER'S FEE. Each Purchaser represents that it neither
is nor will be obligated for any finder's fee or commission in connection with
this transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company will be responsible for payment
of a placement agent fee to Salomon Smith Barney, Inc. The Company agrees to
indemnify and hold harmless each Purchaser from any liability for any commission
or compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
-15-
<PAGE> 17
6.8 ATTORNEY'S FEES. If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of any of
the Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may
be amended by the written instrument executed by the Company and each Purchaser
which has previously executed and delivered this Agreement. Any amendment or
waiver effected in accordance with this Section 6.9 shall be binding upon all of
the Purchasers and each transferee of the Stock (or the common stock issuable
upon conversion thereof), each future holder of all such securities, and the
Company.
6.10 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties agree
to renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (a) such provision shall be excluded from this Agreement, (b)
the balance of the Agreement shall be interpreted as if such provision were so
excluded and (c) the balance of the Agreement shall be enforceable in accordance
with its terms.
6.11 DELAYS OR OMISSIONS. No delay or omission to exercise
any right, power or remedy accruing to any holder of any of the Stock, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
6.12 ENTIRE AGREEMENT. This Agreement, and the documents
referred to herein constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements existing between the parties hereto are expressly canceled.
6.13 CONFIDENTIALITY. For the purposes of this Section 6.13,
"Confidential Information" means information delivered to any Purchaser by or on
behalf of the Company in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
the Purchaser as being confidential information of the Company; provided that
such term does not include information that (a) was publicly known or otherwise
known to such Purchaser prior to the time of such disclosure, (b) subsequently
becomes publicly known through no act or
-16-
<PAGE> 18
omission by such Purchaser or any person acting on its behalf, (c) otherwise
becomes known to such Purchaser other than through disclosure by the Company or
(d) constitutes financial statements delivered to such Purchaser that are
otherwise publicly available. Each Purchaser will maintain the confidentiality
of such Confidential Information in accordance in accordance with procedures
adopted by the Purchaser in good faith to preserve as confidential information
of third parties delivered to the Purchaser; provided that Purchaser may deliver
or disclose Confidential Information to (i) its directors, officers employees,
agents, attorneys and affiliates (to the extent such disclosure relates to
administration of the investment in the Series C Preferred Stock), (ii)
Purchaser's financial advisors and to other professional advisors who agree to
hold confidential the Confidential Information substantially in accordance with
the terms of this Section 6.13, (iii) any other Purchaser, (iv) any
institutional investor to which you sell or offer the Series C Preferred Stock
or any portion thereof or any participation therein (if such person has agreed
in writing with the Company prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 6.13), (v) any person
from which you offer to purchase any Series C Preferred Stock of the Company (if
such person has agreed in writing with the Company prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 6.13),
(vi) any federal or state regulatory authority or any governmental authority,
including foreign governmental authority having jurisdiction over a Purchaser,
(vii) any nationally recognized rating agency that requires information about a
Purchaser's investment portfolio or (viii) any other person to which such
delivery or disclosure may be necessary (w) to effect compliance with any law,
rule, regulation or order applicable to a Purchaser, (x) in response to any
subpoena or other legal process or (y) in connection with any litigation to
which Purchaser is a party. Each holder of Series C Preferred Stock by its
acceptance of such Stock, will be deemed to have agreed to be bound by and be
entitled to the benefits of this Section 6.13 as though it were a party to this
Agreement.
6.14 EXCULPATION AMONG PURCHASERS. Each Purchaser
acknowledges that it is not relying upon any person, firm or corporation, other
than the Company and its officers and directors, in making its investment or
decision to invest in the Company. Each Purchaser agrees that no Purchaser nor
the respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Stock and the common stock issuable upon conversion of the Stock.
[Signature Pages Follow]
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<PAGE> 19
The parties have executed this Series C Preferred Stock
Purchase Agreement as of the date first written above.
COMPANY:
SIGNALSOFT CORPORATION
By: /s/ DAVID HOSE
----------------------------
Name: David Hose
Title: President
Address: 1495 Canyon Blvd.
Boulder, CO 80302
PURCHASERS/INVESTORS:
IDS LIFE SERIES FUND, INC.-- AXP VARIABLE PORTFOLIO--
EQUITY PORTFOLIO STRATEGY AGGRESSIVE FUND
By: /s/ FREDERICK C. QUIESFELD By: /s/ FREDERICK C. QUIESFELD
------------------------------------ -----------------------------
Name: Frederick C. Quiesfeld Name: Frederick C. Quiesfeld
----------------------------------- ---------------------------
(print) (print)
Title: Vice President Title: Vice President
-------------------------------- --------------------------
Address: 733 Marquette Ave. Address: 733 Marquette Ave.
Minneapolis, MN 55402 Minneapolis, MN 55402
AXP STRATEGY AGGRESSIVE FUND Address: 733 Marquette Ave.
Minneapolis, MN 55402
By: /s/ FREDERICK C. QUIESFELD
-------------------------------------
Name: Frederick C. Quiesfeld
-----------------------------------
(print)
Title: Vice President
----------------------------------
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<PAGE> 20
MEDIATEL MANAGEMENT S.A., a public limited liability company organised under the
laws of the Grand Duchy of Luxembourg acting for itself and on behalf of the
unitholders of MediaTel Capital organised as a non-incorporated
co-proprietorship of assets being a mutual investment fund (FCP - Fonds Commun
de Placement) under the laws of the Grand Duchy of Luxembourg
By: /s/ ANTOINE GARRIGUES
------------------------------------
Name: Antoine Garrigues
----------------------------------
(print)
Title: Senior Advisor
---------------------------------
Address: 2 Plac Metco L 4920 Luxembourg
OLYMPIC VENTURE PARTNERS III, L.P. OVP IV ENTREPRENEURS
By: OVMC III LP ITS GP FUND, L.P.
By: OVMC IV LLC ITS GP
By: /s/ CHARLES P. WAITE, JR. By: /s/ CHARLES P. WAITE, JR.
---------------------------------- ------------------------------
Name: Charles P. Waite, Jr. Name: Charles P. Waite, Jr.
--------------------------------- -----------------------------
(print) (print)
Title: General Partner Title: Managing Member
------------------------------- ---------------------------
Address: 2420 Carillon Point Address: 2420 Carillon Point
Kirkland WA 98033 Kirkland WA 98033
OLYMPIC VENTURE PARTNERS IV, L.P. TGI FUND II, LC
By: OVMC IV LLC ITS GP By Tredegar Investments Inc., its
Manager
By: /s/ CHARLES P. WAITE, JR. By: /s/ STEVEN M. JOHNSON
---------------------------------- ------------------------------
Name: Charles P. Waite, Jr. Name: Steven M. Johnson
--------------------------------- -----------------------------
(print) (print)
Title: Managing Member Title: President
------------------------------- ---------------------------
Address: 2420 Carillon Point Address: 6501 Columbia Center
Kirkland WA 98033 Seattle, WA 98104
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<PAGE> 21
BROADVIEW PARTNERS GROUP
/s/ PETER J. MOONEY
- -------------------------------------
Peter J. Mooney as nominee
for the Broadview Partners Group
Address: One Bridge Plaza
Fort Lee NJ 07024
WA&H INVESTMENT, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
By: /s/ MARY ZIMM
-----------------------------------
Print Name: Mary Zimm
---------------------------
Print Title: Director of Finance and Administration, Dain Rauscher Wessels,
--------------------------------------------------------------
a division of Dain
--------------------------------------------------------------
Rauscher Incorporated
Address: Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, MN 55402
/s/ MICHAEL BERMAN
- -------------------------------------
Michael Berman
Address: 14 Caroline Terrace
London, UK SW1N825
/s/ ROBERT P. MITCHELL
- -------------------------------------
Robert P. Mitchell
825 15th Street
Boulder CO 80302
AMERICA ONLINE INC.
By: /s/ KENNETH NOVAK Address: 22000 AOL Way
----------------------------------- Dulles, VA 20166-9323
Name: Kenneth Novak
---------------------------------
(print)
Title: Vice Chairman
--------------------------------
-20-
<PAGE> 22
COMVERSE TECHNOLOGY, INC.
By: /s/ WILLIAM F. SORIN Address: 17 E. 89th Street
------------------------------------ New York, NY 10128
Name: William F. Sorin
----------------------------------
(print)
Title: Secretary and General Counsel
---------------------------------
CTI CAPITAL CORP.
By: /s/ WILLIAM F. SORIN Address: 17 E. 89th Street
------------------------------------ New York, NY 10128
Name: William F. Sorin
----------------------------------
(print)
Title: Secretary and General Counsel
---------------------------------
SIEMENS INFORMATION AND COMMUNICATION
NETWORKS, INC.
By: /s/ DIETER DIEHN Address: 900 Broken Sound Parkway
------------------------------------ Boca Raton, FL 33487
Name: Dieter Diehn ATTN: Executive Vice
---------------------------------- President & CFO
(print) COPIES TO: SIEMENS
Title: Exec. V.P. & CFO CORPORATION
--------------------------------- 1301 Avenue of the Americas
New York, NY 10019
Attn: General Counsel
SALOMON SMITH BARNEY INC.
By: /s/ KEVIN TICE Address: 388 Greenwich Street
------------------------------------- New York, NY 10013
Name: Kevin Tice ATTN: Kevin S. Tice,
----------------------------------- Managing Director
(print)
Title: Managing Director
----------------------------------
-21-
<PAGE> 23
/s/ PERRY M. LAFORGE
- ----------------------------------------
Perry M. LaForge
Address: 650 Town Center Drive
Suite 820
Costa Mesa, CA 92626
/s/ ANDREW M. MURRAY
- ----------------------------------------
Andrew M. Murray
Address: 7478 Taft Street
Arvada, CO 80005
INTEL CORPORATION
By: /s/ ARVIND SODHANI Address: 2200 Mission College Blvd.
------------------------------- Santa Clara, CA 95052
Name: Arvind Sodhani Attn: M&A Portfolio Manager-
------------------------------ M/S RN6-46
(print) Fax # 408-765-6038
Title: Vice President and Treasurer
-----------------------------
NEW GROUND CAPITAL LIMITED
By: /s/ GORDON J. D. MCDONALD Address: P.O. Box 20, 20 New Street.
------------------------------- Orbis House
Name: Gordon J. D. McDonald St. Peter Port
------------------------------ GY14AN
(print) Channel Islands
Title: Director
----------------------------
-22-
<PAGE> 24
HIKARI TSUSHIN INC.
By: /s/ MASAHIDE SAITO Address: 2-1-1 Ohtemachi
-------------------------------- 23F Ohtemachi Nomura Blg.
Name: Masahide Saito Chiyoda-ku, Tokyo
------------------------------ 100-0004
(print) Japan
Title: Executive Managing Director
----------------------------
-23-
<PAGE> 1
EXHIBIT 10.2
PURCHASE AGREEMENT
AMONG
SIGNALSOFT CORPORATION,
SIGNALSOFT NS CO.,
AND THE
SHAREHOLDERS
OF
BFOUND.COM SERVICES, INC.
AS OF MARCH 22, 2000
<PAGE> 2
This Purchase Agreement is entered into as of March 22, 2000
among SignalSoft Corporation, a Delaware corporation ("SignalSoft"), SignalSoft
NS Co., an unlimited company formed under the laws of Nova Scotia (the
"Acquiror"), and Anthony L. Melli, Tideline Investments SRL, Exceptional
Technologies Fund 4 (VCC), Inc., Exceptional Technologies Fund 5 (VCC), Inc.
Kevin Buckham, Mark Insley, Mark Lyle, Andrew Kyle, Sharisse Kyle, E. Michael
Ingram, Mats Gerschman, Daryl Ehrmantraut, Cameron Fieber, Terry Bell, Larry
Burke, Dan Nevin, Doug Bakewell, Cayce Marsten, Art Wynans and Joe Klovance
(individually, a "Shareholder" and collectively, the "Shareholders").
Recitals
A. The Shareholders own, or hold options to acquire, all of the issued and
outstanding shares in the capital of Bfound.com Services, Inc., a British
Columbia corporation (the "Company").
B. The Acquiror is a newly-formed, wholly-owned indirect subsidiary of
SignalSoft. The Acquiror desires to acquire all of the outstanding shares in the
capital of the Company, and the Shareholders desire to sell such shares, as
provided in this Agreement.
C. SignalSoft, the Acquiror and the Shareholders desire to make certain
representations, warranties and agreements in connection with such transaction
and also desire to set forth various conditions precedent thereto.
Agreement
NOW, THEREFORE, in consideration of the premises, the mutual representations,
warranties and covenants set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
parties agree as follows:
1. Definitions. The terms defined in Exhibit 1.1(a) shall have the
meanings designated therein.
2. Purchase and Sale.
2.1. Basic Transaction. Subject to the terms and conditions
set forth in this Agreement, the Acquiror agrees to purchase from the
Shareholders, and the Shareholders agree to sell to the Acquiror, all of the
Company Shares free and clear of all Encumbrances for the consideration
specified in Section 2.2. The Acquiror will have no obligation under this
Agreement to purchase less than all of the Company Shares.
2.2. Purchase Price; Payment.
(a) The consideration payable by the Acquiror to the
Shareholders for the Company Shares will be as follows:
<PAGE> 3
(i) cash in an amount equal to US$1,500,000,
reduced by the amount (if any) of the Cash Shortfall and further reduced by the
amount (if any) of the Post-Closing Adjustment (the "Cash Consideration") will
be payable to the Shareholders (in proportion to the percentages set forth in
Exhibit 2.2(a)) in exchange for that number of Company Shares that is equal to
the total number of Company Shares multiplied by the percentage obtained by
dividing the Cash Consideration by the Adjusted Company Value; and
(ii) 558,323 NS Shares (as adjusted for cash
paid in lieu of fractional shares as described below) (the "Share
Consideration") will be payable to the Shareholders (in proportion to the
percentages set forth in Exhibit 2.2(a)) in exchange for that number of Company
Shares that is equal to the total number of Company shares less the number of
Company Shares determined under Section 2.2(a)(i) above.
On the Closing Date the Acquiror will (i) pay to the Shareholders in
cash by wire transfer to an account or accounts designated by the Shareholders
at least two Business Days prior to the Closing Date (in accordance with the
percentages set forth on Exhibit 2.2(a)), an amount equal to (A) US$1,500,000,
minus the sum of the Cash Shortfall and US$225,000; (ii) issue certificates
representing 558,323 NS Shares (adjusted for cash paid in lieu of fractional
shares as described below) to the Shareholders in the proportions set forth on
Exhibit 2.2(a), of which the Acquiror will deliver 474,575 (adjusted for cash
paid in lieu of fractional shares as described below) to the Shareholders at
Closing; (iii) deposit US$225,000 in cash and certificates representing the
remaining 83,748 NS Shares issued to the Shareholders pursuant to clause (ii)
(adjusted for fractional shares as described below) (collectively, the "Escrow
Deposit") into an Escrow Account (as defined in the Escrow Agreement) with the
Escrow Agent; and (iv) pay, or make provision for payment of, the Closing Date
Liabilities (including the Pre-Closing Income Tax Amount) set forth on the
Estimated Closing Date Balance Sheet. The Escrow Deposit will be held, invested,
administered and disbursed according to this Agreement and the Escrow Agreement.
To the extent any options to acquire Company Shares from the Company or
from other Shareholders as described in Exhibit 2.2(a) or in Exhibit 3.1(b)(i)
are not exercised at or prior to the Closing Date, the percentages set forth on
Exhibit 2.2(a) shall be adjusted to reflect, for each Shareholder, the
proportion of the total number of Company Shares owned on the Closing Date by
such Shareholder to the total number of Company Shares issued and outstanding on
the Closing Date.
In lieu of issuing fractional shares, the Acquiror will pay to each
Shareholder at Closing an amount of cash equal to the Per Share Amount
multiplied by the Applicable Fraction for such Shareholder. The Per Share Amount
shall be determined by (A) subtracting the Cash Shortfall from CDN$8,091,642,
(B) converting the resulting amount to its U.S. dollar equivalent by applying
the Agreed Conversion Rate, (C) subtracting US$1,500,000 from such U.S. dollar
equivalent, and (D) dividing the result by 558,323. The Applicable Fraction
shall be the fraction representing any fractional NS Share that otherwise would
be issued to such Shareholder at Closing.
2
<PAGE> 4
The Acquiror and the Shareholders agree that the number of NS Shares of
each Shareholder deposited into the Escrow Account in accordance with Section
2.2(a) shall, for each Shareholder, be rounded to the nearest whole share.
Each Shareholder shall have the right to elect, by notice delivered to
SignalSoft not later than five days prior to the Closing Date, to receive at
Closing that number of shares of SignalSoft Stock into which the NS Shares
otherwise deliverable to such Shareholder at Closing would be convertible,
except to the extent that such NS Shares are not convertible pursuant to any
restrictions contained in the Stockholders' Agreement or the articles of
association of the Acquiror.
(b) Estimated Closing Date Balance Sheet. No earlier
than ten Business Days, nor later than three Business Days, prior to the Closing
Date, the Shareholders will cause the Company to deliver a balance sheet for the
Company prepared as of the Closing Date (the "Estimated Closing Date Balance
Sheet"). The Estimated Closing Date Balance Sheet will be prepared in accordance
with GAAP on a basis consistent with the historical accounting practices of the
Company used in connection with the preparation of the Company's audited balance
sheet for the period ended October 31, 1999. The Estimated Closing Date Balance
Sheet will set forth, in addition to other items required by GAAP, the amount of
(i) cash held by the Company and (ii) the Closing Date Liabilities and each item
thereof.
(c) Closing Date Balance Sheet. Within 60 days after
the Closing Date an audited balance sheet for the Company will be prepared as of
the Closing Date (the "Closing Date Balance Sheet") and delivered to SignalSoft
and the Shareholders. The Closing Date Balance Sheet will be prepared by KPMG
Victoria in accordance with GAAP on a basis consistent with the historical
accounting practices of the Company used in connection with the preparation of
the Company's audited balance sheet for the year ended October 31, 1999.
SignalSoft will pay the fees and expenses of KPMG Victoria incurred in
connection with the preparation of the Closing Date Balance Sheet. The Closing
Date Balance Sheet will set forth, in addition to other items required by GAAP,
the amount of (i) cash on hand of the Company and (ii) the Closing Date
Liabilities (including the Pre-Closing Income Tax Amount) and each item thereof.
(d) Post-Closing Adjustment to the Purchase Price.
Following delivery of the Closing Date Balance Sheet in accordance with Section
2.2(c), the cash portion of the Purchase Price will be adjusted as follows:
(i) Within 20 days after receipt of the
Closing Date Balance Sheet, SignalSoft or the Shareholders, as the case may be,
will, by a written notice to the other, either accept the Closing Date Balance
Sheet or object to it by describing in reasonably specific detail any proposed
adjustments to the Closing Date Balance Sheet and the estimated amounts of and
reasons for such proposed adjustments. The failure by SignalSoft or the
Shareholders to object to the Closing Date Balance Sheet within such 20-day
period will be deemed to be an acceptance by such Person of the Closing Date
Balance Sheet.
3
<PAGE> 5
(ii) If any adjustments to the Closing Date
Balance Sheet are proposed, SignalSoft and the Shareholders will negotiate in
good faith to resolve any dispute, provided that if the dispute is not resolved
within 10 days following the receipt of the proposed adjustments described in
Section 2.2(d)(i), then SignalSoft and the Shareholders will retain the
accounting firm of Grant Thornton LLP to resolve such dispute, which resolution
will be final and binding. The fees and expenses of Grant Thornton LLP will be
shared equally by SignalSoft, on the one hand, and the Shareholders, on the
other hand, and Grant Thornton LLP will be retained under a retention letter
executed by the parties that specifies that the determination by said firm of
any such disputes concerning the Closing Date Balance Sheet will be resolved in
accordance with GAAP on a basis consistent with the historical accounting
practices of the Company used in connection with the preparation of the
Company's audited balance sheet for the year ended October 31, 1999, by choosing
the position of KPMG Victoria or the objecting party under Section 2.2(d)(i)
without change, within 30 days of the expiration of the 10-day period described
in this Section 2.2(d)(ii).
(iii) Within 10 Business Days after the
later of the acceptance of the Closing Date Balance Sheet by SignalSoft and the
Shareholders or the resolution of any disputes under Section 2.2(d)(ii), as the
case may be, the cash portion of the Purchase Price will be adjusted, if
necessary, as provided in this Section 2.2(d)(iii). If the Cash Shortfall
determined based on the Closing Date Balance Sheet exceeds the Cash Shortfall
determined based on the Estimated Closing Date Balance Sheet, the cash portion
of the Purchase Price will be reduced by the amount of such excess (the
"Post-Closing Adjustment") and the difference will be refunded in cash by the
Shareholders to SignalSoft within the time period set forth in the first
sentence of this Section 2.2(d)(iii).
(iv) All amounts payable by the Shareholders
to any accounting firm or, subject to the limitations described in Section 7.1,
to SignalSoft under Section 2.2(d) will be paid as follows: each Shareholder
will pay its pro rata share of such amount determined by multiplying the total
amount payable by a fraction, the numerator of which is the number of Company
Shares owned by such Shareholder immediately prior to the Closing, and the
denominator of which is the number of Company Shares outstanding immediately
prior to Closing; provided that, notwithstanding the foregoing, the Principal
Shareholders will be jointly and severally liable for any amounts payable to
SignalSoft under this Section 2.2(d) in excess of amounts actually paid by the
Other Shareholders to SignalSoft in respect of their obligations under this
Section 2.2(d)(iv), subject to the limitations described in Section 7.1. Any
Post-Closing Adjustment made under this Section 2.2(d) will be allocated as an
adjustment to the Cash Consideration.
2.3. Registration Rights. SignalSoft will grant to the
Shareholders, pursuant to the terms of the Registration Rights Agreement,
piggyback registration rights with respect to the SignalSoft Shares.
2.4. Value of Company Shares and NS Shares. The parties agree
that (a) the value of the Company Shares as of the Closing Date will be
CDN$8,091,642 (which, as of the date of this Agreement, equals US$5,519,538),
reduced by the Cash Shortfall (if any) and the Post-Closing
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<PAGE> 6
Adjustment (if any), and (b) the value of the Share Consideration as of the
Closing Date will be CDN$8,091,642, minus the Cash Consideration (applying, as
necessary, the Agreed Conversion Rate). The Cash Consideration and any cash paid
in lieu of fractional shares will be payable in U.S. currency, with the U.S.
dollar equivalent of the Cash Shortfall (if any) and the Post-Closing Adjustment
(if any) determined by applying the Agreed Conversion Rate.
2.5. Sales Taxes, Etc. Each Shareholder will pay all sales,
use, transfer, licensing, recording, stamp and other Taxes, fees and charges
payable by such Shareholder in respect of or as a result of the sale and
transfer of the Company Shares to the Acquiror pursuant to this Agreement.
SignalSoft and the Acquiror will pay all sales, use, transfer, licensing,
recording, stamp and other Taxes, fees and charges, including securities filing
fees, payable by SignalSoft or the Acquiror, respectively, in respect of or as a
result of the sale and transfer of the SignalSoft Shares and the NS Shares,
respectively, to the Shareholders pursuant to this Agreement.
2.6. The Closing. The parties will use their best efforts to
cause the closing of the transactions contemplated by this Agreement (the
"Closing") to occur as soon as possible following the date of this Agreement but
no later than April 4, 2000. The Closing shall take place at the offices of
Jones Emery Hargreaves Swan at 9:00 a.m. Victoria, British Columbia time on the
day of the Closing. All transactions contemplated by this Agreement will be
effective at 12:01 a.m. local time in Victoria, British Columbia on the day of
the Closing (such effective time being the "Closing Date").
2.7. Deliveries at the Closing. At the Closing, (a) the
Shareholders will deliver to SignalSoft the certificates, instruments and
documents, and take such actions, referred to in Section 6.1 and (b) SignalSoft
will deliver to the Shareholders the certificates, instruments and documents,
and take such actions, referred to in Section 6.2.
3. Representations and Warranties.
3.1. Representations and Warranties of the Shareholders.
Subject to the limitations described in Section 7.1, the Principal Shareholders
jointly and severally, and the Other Shareholders severally and separately,
represent and warrant to SignalSoft that the statements contained in this
Section 3.1 are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were then substituted for the date of this Agreement
throughout this Section 3.1).
(a) Organization, Good Standing, Etc. The Company is
a corporation duly organized, validly existing and in good standing with the
Registrar of Companies in the Province of British Columbia with respect to the
filing of annual reports. To the best knowledge of the Shareholders, the nature
of the business conducted by the Company and the properties owned, leased or
operated by the Company do not require the Company to be, and the Company is
not, registered, qualified or authorized to do business as an extraprovincial
corporation in any jurisdiction. The Company has all requisite corporate power
and authority and capacity to own, lease and operate its
5
<PAGE> 7
properties and to carry on its business as now being conducted. The copies of
the memorandum and articles of the Company, both as amended to date, which have
been delivered to SignalSoft by the Shareholders and are attached as Exhibits
3.1(a)(i) and 3.1(a)(ii), respectively, are complete and correct, and the
Company is not in default under or in violation of any provision of its
memorandum or articles. The minute books provided to SignalSoft by the
Shareholders contain complete and accurate copies of the memorandum and articles
of the Company and the minutes of all meetings of the directors and shareholders
of the Company. The register of shareholders, register of transfers and register
of directors of the Company are complete and accurate in all material respects.
(b) Ownership and Capitalization. The authorized
share capital of the Company consists of 102,000,000 shares of Company Stock.
The Company Shares reflected on Exhibit 2.2(a) constitute all of the issued and
outstanding shares in the capital of the Company and unissued shares in the
capital of the Company that are subject to options held by the Shareholders. All
of the issued and outstanding shares in the capital of the Company have been
duly authorized and validly issued, and are fully paid and nonassessable. Except
as set forth on Exhibit 2.2(a) or 3.1(b)(i), there are no authorized or
outstanding shares or other securities convertible into or exchangeable for, nor
any authorized or outstanding option, warrant or other Right to subscribe for or
to purchase, or convert any obligation into, any unissued shares in the capital
of the Company or any treasury stock, and the Company has not agreed to issue
any security so convertible or exchangeable or any such option, warrant or other
Right. There are no authorized or outstanding stock appreciation, phantom stock,
profit participation or similar Rights with respect to the Company. Except as
are set forth on Exhibit 2.2(a) or Exhibit 3.1(b)(i), there are no voting
trusts, voting agreements, proxies or other agreements or understandings with
respect to any shares in the capital of the Company, and the Shareholders shall
cause all such agreements and understandings identified in Exhibit 2.2(a) or
Exhibit 3.1(b)(i) to be terminated (or, with respect to options to acquire
unissued shares in the capital of the Company, exercise or permit to expire in
accordance with Section 4.10) prior to the Closing. Except as set forth on
Exhibit 2.2(a) or Exhibit 3.1(b)(i), there are no existing Rights of first
refusal, buy-sell arrangements, options, warrants, Rights, calls, or other
commitments or restrictions of any character relating to any of the Company
Shares except those restrictions on transfer imposed by the articles of the
Company, and the Shareholders hereby irrevocably waive such restrictions and
such other commitments or restrictions contained in any document identified on
Exhibit 2.2(a) or Exhibit 3.1(b)(i) as of the Closing Date.
(c) No Subsidiaries. The Company has no Subsidiaries
and no shares, securities convertible into shares, or any other equity interest
in any other corporation, partnership, limited partnership, limited liability
company, association, joint venture or other Person.
(d) Financial Statements; Absence of Liabilities. (i)
To the best knowledge of the Shareholders, the unaudited balance sheet of the
Company as of October 31, 1998, the audited balance sheet of the Company as of
October 31, 1999, the audited statements of income, shareholders' equity and
cash flows for the fiscal year ended October 31, 1999, the unaudited statements
of income, shareholders' equity and cash flows for the fiscal year ended October
31, 1998, the unaudited balance sheet of the Company as of January 31, 2000 (the
latter being referred to as
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<PAGE> 8
the "Latest Balance Sheet"), and the related statements of income, shareholders'
equity and cash flows for the three-month period then ended are true and correct
in all material respects, have been prepared in accordance with GAAP on a
consistent basis (except that the Latest Balance Sheet and the related
statements of income, shareholders' equity and cash flows for the three-month
period ended January 31, 2000 may be subject to customary year-end adjustments,
which adjustments will not, individually or in the aggregate, be material in
amount), are in accordance with the books and records of the Company (which
books and records are complete and correct in all material respects), and fairly
present the financial position and results of operations of the Company in all
material respects as of such dates and for each of the periods indicated. To the
best knowledge of the Shareholders, as of the date of each of such balance
sheet, the Company had no Liabilities other than those set forth on each such
balance sheet. Copies of the financial statements described in the first
sentence of this Section 3.1(d) are attached as Exhibit 3.1(d)(i)(A). The
expenses itemized on Exhibit 3.1(d)(i)(B) and reflected in the Company's
financial performance for the 12-month period ended October 31, 1999 will not be
realized on an on-going basis after the Closing Date. The revenues of the
Company for the fiscal year ended October 31, 1999 (with revenues from sales in
the United States separately shown) are set forth in Exhibit 3.1(d)(i)(C).
(ii) Since the date of the Latest Balance
Sheet, the Company has not incurred or become subject to any Liability other
than Liabilities incurred in the ordinary course of business. To the best
knowledge of the Shareholders, as of the Closing, the Company will have no
Liability (and there is no basis for the assertion of any Liability), except for
the Closing Date Liabilities and Retained Liabilities and a Liability in the
approximate amount of CDN $160,000 (estimated as of April 4, 2000), representing
unearned revenues of the Company attributable to the provision of goods and
services to SignalSoft.
(e) Absence of Certain Agreements, Changes or Events.
The Company is not, except as set forth on Exhibit 3.1(e)(i), a party to or
otherwise bound by any material contract or agreement (i) pursuant to which the
Company is obligated to furnish any service, product or equipment and (ii) that
has been prepaid with respect to any period after the Closing Date. Since
January 31, 2000, the Company has not (i) incurred any debt, indebtedness or
other Liability, except current Liabilities incurred in the ordinary course of
business; (ii) delayed or postponed the payment of accounts payable or other
Liabilities beyond stated, normal terms; (iii) sold or otherwise transferred any
of its assets or properties; (iv) canceled, compromised, settled, released,
waived, written-off or expensed any account or note receivable, right, debt or
claim involving more than CDN$5,000 in the aggregate or accelerated the
collection of any account or note receivable; (v) changed in any significant
manner the way in which it conducts its business; (vi) made or granted any
individual wage or salary increase in excess of the greater of 10% or CDN$1.00
per hour, any general wage or salary increase, or any additional benefits of any
kind or nature; (vii) except as otherwise expressly permitted by this Section
3.1(e), (A) entered into any contracts or agreements, or made any commitments,
involving more than CDN$10,000 individually or in the aggregate or (B)
accelerated, terminated, delayed, modified or canceled any agreement, contract,
lease or license (or series of related agreements, contracts, leases and
licenses) involving more than CDN$10,000 individually or in the aggregate;
(viii) suffered any material adverse fact or change, including,
<PAGE> 9
without limitation, to or in its business, assets or financial condition or
customer or service provider relationships; mortgaged, pledged, subjected to
lien, granted a security interest in or otherwise encumbered any of its assets
or property, whether tangible or intangible; (ix) made any payment or transfer
to or for the benefit of any shareholder, officer or director or any Relative or
Affiliate thereof or permitted any Person, including, without limitation, any
shareholder, officer, director or employee or any Relative or Affiliate thereof,
to withdraw assets from the Company or pay dividends to shareholders (other than
payment to the Shareholders of the proportionate monthly amount of (A) their
respective normal annualized salaries due and payable during such period or (B)
rent due under pre-existing real property leases between the Company and a
Shareholder which are disclosed on Exhibit 3.1(g)(i)); or (x) agreed to incur,
take, enter into, make or permit any of the matters described in clauses (i)
through (ix).
(f) Tax Matters.
(i) The Company has duly and timely filed
all Tax Returns that it was required to file. To the best knowledge of the
Shareholders, all such Tax Returns were correct and complete in all material
respects. To the best knowledge of the Shareholders, all Taxes owed by the
Company (whether or not shown on any Tax Return) have been paid. The Company is
not currently the beneficiary of any extension of time within which to file any
Tax Return. The Company has not received from any Governmental Authority any
assessment, reassessment, or notice of underpayment of any Taxes. No claim has
ever been made by an authority in a jurisdiction where the Company does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. There
are no Encumbrances on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) To the best knowledge of the
Shareholders, the Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party.
(iii) To the best knowledge of the
Shareholders, there is no basis for any authority to assess any additional Taxes
for any period for which Tax Returns have been filed. There is no pending or
threatened dispute or claim concerning any Tax Liability of the Company. Exhibit
3.1(f)(iii) lists all income Tax Returns filed with respect to the Company for
taxable periods ended on or after December 31, 1994, indicates those Tax Returns
that have been audited and indicates those Tax Returns that currently are the
subject of audit. The Company has delivered to SignalSoft correct and complete
copies of all federal income Tax Returns, examination reports, and statements of
deficiencies filed or assessed against or agreed to by the Company since
December 31, 1994.
(iv) The Company has not waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
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<PAGE> 10
(v) Exhibit 3.1(f)(v) sets forth the
following information with respect to the Company as of the most recent
practicable date (as well as on an estimated pro forma basis as of the Closing
giving effect to the consummation of the transactions contemplated hereby): (A)
the basis of the Company in its assets; and (B) the amount of any net operating
loss, net capital loss, unused investment or other credit, unused foreign tax
credit or excess charitable contribution allocable to the Company.
(vi) To the best knowledge of the
Shareholders, there is no misrepresentation that is attributable to neglect,
carelessness, willful default or fraud in Tax Returns of the Company previously
filed.
(vii) No consent extending or waiving the
time limited for reassessment of any Taxes or any statutes of limitations
related thereto have been filed with respect to the Company for any fiscal year.
(viii) To the best knowledge of the
Shareholders, the Company has withheld from each payment made to any of its
officers, directors, former directors, employees and former employees the amount
of all Taxes and other deductions (including without limitation, unemployment,
disability, and other required taxes and contributions) required to be withheld
and has paid the same together with the employer's share of same, to the proper
Tax or other receiving officers within the prescribed times and has filed, in
complete and accurate form all information and other Tax Returns required
pursuant to any applicable legislation within the prescribed times.
(ix) To the best knowledge of the
Shareholders, the provisions made for current and deferred Taxes included in the
Latest Balance Sheet are sufficient for the payment of all accrued and unpaid
Taxes of and payable by the Company, whether or not disputed, for the period
ended the date thereof and for all periods prior thereto.
(x) Except for those Shareholders listed on
Exhibit 3.1(f)(x), no Shareholder is a non-resident of Canada for the purposes
of the Tax Act. Each Shareholder listed on Exhibit 3.1(f)(x) is not, for
purposes of Section 116 of the Tax Act, a resident of Canada.
(xi) The Company does not hold any U.S. real
property interests (as defined in Section 897 of the Code).
(g) Assets and Properties.
(i) Exhibit 3.1(g)(i) sets forth a
description of the Premises, which is the only asset or property subject to an
agreement for the lease of real property to which the Company is a party. The
Company has good and marketable title to, or a valid leasehold interest or
interest as a licensee in, the properties and assets used or held for use by it,
located on its Premises, or shown on the Latest Balance Sheet or acquired after
the date thereof. The lease of the Premises is legally valid and binding on the
parties thereto and is in full force and effect, and, to the best
9
<PAGE> 11
knowledge of the Shareholders, there exists no default thereunder on the part of
the Company or, to the knowledge of the Shareholders, the lessor. As of the
Closing, all of the Acquired Assets will be owned by the Company, free and clear
of all Encumbrances. The Company has not entered into any contract or made any
commitment to sell all or any part of its assets outside of the ordinary course
of its business. The Acquired Assets constitute all of the real and personal
property, both tangible and intangible, including, to the best knowledge of the
Shareholders, Intellectual Property, which are being used or held for use by the
Company in the conduct of, and which are necessary for the conduct of, the
business and operations of the Company, as presently conducted and as presently
proposed to be conducted. The Company does not own or lease any assets or
properties that are located outside of Canada, including any assets or
properties located in the United States. The Company owns or leases all
equipment and other tangible assets necessary for the conduct of its business.
To the best knowledge of the Shareholders, each such tangible asset that is
material to the Company's operations has been maintained in accordance with
normal industry practice and is in good operating condition and repair (subject
to normal wear and tear). None of the Shareholders, nor any Relative or
Affiliate thereof, own any asset, tangible or intangible, which is used in, or
leased to the Company for use in, the business of the Company.
(ii) The Premises constitute all of the real
property, buildings and improvements used by the Company in its business. To the
best knowledge of the Shareholders, the Premises have been occupied, operated
and maintained in accordance with applicable Legal Requirements. The Company has
not received notice of violation of any Legal Requirement or Permit relating to
its operations or its owned or leased properties.
(iii) No party to any lease with respect to
any Premises has repudiated any provision thereof, and there are no disputes,
oral agreements or forbearance programs in effect as to any such lease.
(h) Lists of Contracts and Other Matters. Attached as
Exhibit 3.1(h) is a correct and complete list setting forth the following items:
(i) the following contracts and other
agreements in effect as of the Closing Date to which the Company is a party:
(A) any agreement (or group of
related agreements) for the lease of personal property to or from any Person
providing for lease payments in excess of CDN$5,000 per year;
(B) any agreement pursuant to which
the Company, or any of the Shareholders on behalf of the Company, has made a
deposit in an amount greater than CDN$5,000;
(C) any agreement (or group of
related agreements) for the purchase or sale of supplies, products or other
personal property, or for the furnishing or receipt of
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<PAGE> 12
services, the performance of which will extend over a period of more than one
year, result in a material loss to the Company or involve consideration in
excess of CDN$10,000;
(D) any agreement concerning a
partnership or joint venture;
(E) any agreement (or group of
related agreements) under which the Company has created, incurred, assumed or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, in excess of CDN$10,000 or under which it has granted any
Encumbrances on any of its assets, tangible or intangible;
(F) any agreement concerning
confidentiality or noncompetition;
(G) any agreement with any of its
Shareholders or any Relative or Affiliate thereof (other than the Company);
(H) any profit sharing, stock
option, stock purchase, phantom stock, stock appreciation, profit participation,
deferred compensation, severance or other plan or arrangement;
(I) any collective bargaining
agreement;
(J) any agreement for the employment
of any individual on a full-time, part-time, consulting or other basis or any
agreement providing severance benefits in excess of any applicable statutory
minimums;
(K) any agreement under which the
Company has advanced or loaned any amount to any of its directors, officers and
employees;
(L) any agreement obligating the
Company to meet another party's unspecified requirements for goods or services
or obligating it to purchase an unspecified amount of goods or services based on
another party's ability to supply them;
(M) any agreement under which the
consequences of a default or termination could have a material adverse effect on
the business, financial condition, operations, results of operations or future
prospects of the Company; or
(N) any other agreement (or group of
related agreements) the performance of which involves consideration in excess of
CDN$10,000.
(ii) All material claims, deposits, causes
of action, choses in action, rights of recovery, rights of setoff and rights of
recoupment of the Company.
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<PAGE> 13
(iii) All material franchises, approvals,
Permits, licenses, Orders, registrations, certificates, variances and similar
rights of the Company (all of which are in full force and effect).
(iv) Each material item of Intellectual
Property owned by the Company or which is used by the Company in its business
and, in each case where the Company is not the owner, the owner of the
Intellectual Property.
(v) The name of each bank or other financial
institution or entity in which the Company has an account or safe deposit box
(with the identifying account number or symbol) and the names of all persons
authorized to draw thereon or to have access thereto.
The Shareholders have delivered to SignalSoft a correct and complete copy of
each written agreement and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3.1(h)(i). With respect
to each such agreement: (A) to the best knowledge of the Shareholders, the
agreement is legal, valid, binding, enforceable and in full force and effect;
(B) the agreement will continue to be legal, valid, binding, enforceable and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) neither the Company nor, to the best
knowledge of the Shareholders, any other party is in breach or default, and, to
the best knowledge of the Shareholders, no event has occurred which, with notice
or lapse of time, would constitute a breach or default, or permit termination,
modification or acceleration, under the agreement; and (D) to the best knowledge
of the Shareholders, no party has repudiated any provision of the agreement.
(i) Litigation; Compliance with Applicable Laws and
Rights.
(i) Except as set forth in Exhibit 3.1(i),
to the best knowledge of the Shareholders, there is no outstanding Order
against, nor is there any litigation, proceeding, claim, suit, action,
arbitration, investigation or hearing before an administrative tribunal or by
any Governmental Authority or other Person in progress, pending or threatened
against, the Company, its assets or its business or relating to the transactions
contemplated by this Agreement, nor, to the best knowledge of the Shareholders,
is there any basis for any such action.
(ii) To the best knowledge of the
Shareholders, neither the Company nor the Company's assets are in violation of
any applicable Legal Requirement or Right. To the best knowledge of the
Shareholders, the Company has not received notice from any Governmental
Authority or other Person of any violation or alleged violation of any Legal
Requirement or Right, and to the best knowledge of the Shareholders no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand or
notice has been filed or commenced or is pending or threatened against the
Company alleging any such violation.
(j) Notes and Accounts Receivable. To the best
knowledge of the Shareholders, the notes and accounts receivable of the Company
reflected on its Latest Balance
12
<PAGE> 14
Sheet, and all notes and accounts receivable arising on or prior to the Closing
Date, arose and will arise from bona fide transactions by the Company in the
ordinary course of business, are valid receivables with trade customers subject
to no setoffs or counterclaims, and are good and collectible in full at the
aggregate recorded amounts thereof.
(k) Product Quality, Warranty and Liability. To the
best knowledge of the Shareholders, all services and products sold, leased,
provided or delivered by the Company to customers on or prior to the Closing
Date conform to applicable contractual commitments, express and implied
warranties, product and service specifications and quality standards, and there
is no basis for any Liability for replacement or repair thereof or other damages
in connection therewith. To the best knowledge of the Shareholders, no service
or product sold, leased, provided or delivered by the Company to customers on or
prior to the Closing is subject to any guaranty, warranty or other indemnity
beyond the applicable standard terms and conditions of sale or lease. To the
best knowledge of the Shareholders, the Company has no Liability and there is no
basis for any Liability arising out of any injury to a Person or property as a
result of the ownership, possession, provision or use of any service or product
sold, leased, provided or delivered by the Company on or prior to the Closing
Date. All product or service liability claims that have been asserted against
the Company since December 31, 1996 whether covered by insurance or not and
whether litigation has resulted or not, are listed and summarized on Exhibit
3.1(k).
(l) Insurance. The Company has policies of insurance
(i) covering risk of loss on the Acquired Assets, (ii) covering liability for
fire, property damage, personal injury and workers' compensation coverage and
(iii) for business interruption, all, to the best knowledge of the Shareholders,
with responsible and financially sound insurance carriers in adequate amounts
and in compliance with governmental requirements and in accordance with good
industry practice. All such insurance policies are valid, in full force and
effect and enforceable in accordance with their respective terms and no party
has repudiated any provision thereof. All such policies will remain in full
force and effect until the Closing Date. The Company is not in breach or default
(including with respect to the payment of premiums or the giving of notices) in
the performance of any of its obligations thereunder, and, to the best knowledge
of the Shareholders, no event exists which, with the giving of notice or the
lapse of time or both, would constitute a breach, default or event of default,
or permit termination, modification or acceleration under any such policy. There
are no claims, actions, proceedings or suits arising out of or based upon any of
such policies nor, to the best knowledge of the Shareholders, does any basis for
any such claim, action, suit or proceeding exist. All premiums due and payable
as of or prior to the date of this Agreement have been paid on such policies,
and all premiums which become due prior to the Closing Date will be paid on such
policies through the Closing Date. The Company has been covered during the three
years prior to the date of this Agreement by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. All claims made during such three-year period with
respect to any insurance coverage of the Company, other than those described on
Exhibit 3.1(k), are set forth on Exhibit 3.1(l).
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<PAGE> 15
(m) Pension and Employee Benefit Matters. Except as
disclosed in Exhibit 3.1(m), the Company has not established or maintained any
pension plans or benefit plans for its employees. All such plans set forth in
Exhibit 3.1(m) are duly registered where required by, and are in good standing
under, all applicable legislation, all required employer contributions
thereunder to the date hereof have been made, the respective pension funds and
benefit plans are funded in accordance with the rules thereof and no past
service funding Liabilities exist thereunder. The Company is not subject to any
Liability arising under any applicable law or employee benefit plan, any
Liability resulting from a prohibited transaction, any Liability for failure to
meet minimum funding requirements, any Liability related to the termination of a
multi-employer pension plan or any Liability caused by the non-qualification of
any plan under the Tax Act. The Company has no obligation to provide material
post-retirement benefits of any nature to its employees, former employees or
their survivors, dependents or beneficiaries, nor will any such obligation to
provide such post-retirement benefits be incurred solely as a result of the
consummation of the transactions described herein.
(n) Employees/Independent Contractors. Listed in
Exhibit 3.1(n) are the names and titles of all personnel employed or engaged by
the Company including the rates of remuneration, positions held and date of
commencement of employment. The employment records of the Company are true,
complete and correct. No employee of the Company is on leave of absence from the
Company. Also set forth in Exhibit 3.1(n)(i) is a complete list of all
independent contractors, sub-contractors and agents which are presently engaged
by the Company on a basis which involves a commitment which cannot be canceled
by the Company on 30 days' notice or less and which requires the expenditure by
the Company of more than CDN$5,000 per year. The Company has no employee who is
located in, or who performs the duties of his or her employment with the Company
on a full-time basis, in the United States. Except as set out in Exhibit
3.1(n)(ii), the Company does not have any written employment contracts, union or
collective labor, pension, deferred profit sharing, retirement, employee
benefit, stock option or other similar agreements or plans nor has it had any
such plan or agreement in the past, nor does it have any written contracts of
employment with any employees or any oral contracts of employment which are not
terminable on the giving of reasonable notice in accordance with applicable law.
The Company has not, in the last five years, experienced any labor disputes
which were of a material nature, work stoppages or strikes (legal or otherwise).
To the best knowledge of the Shareholders, there is not now any circumstance or
conduct which could result in the filing of an unfair labor practice complaint
or unjust dismissal claim against the Company; any such complaints and claims
previously raised and currently ongoing and the current status thereof are
particularized in Exhibit 3.1(n)(iii). As of the date of this Agreement, there
are no grievances filed against the Company or grievance adjudications presently
ongoing or outstanding. To the knowledge of the Shareholders, no attempts have
(within the last 60 days) been made by any trade union or employee association
to organize or represent any employees of the Company. The Company has paid all
wages, income and any other sums due and owing to its employees as at the end of
the most recent completed pay period and the Company has complied at all times
with minimum wage, overtime, statutory holiday and vacation obligations under
applicable provincial and federal laws.
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<PAGE> 16
(o) Customer and Service Provider Relationships.
Exhibit 3.1(o)(i) lists each customer that individually or with its Affiliates
was, based on the Company's revenues during the fiscal year ended October 31,
1999, one of the Company's ten largest customers during such fiscal year or
accounted for 2% or more of the Company's revenues during such fiscal year (the
"Principal Customers"). Exhibit 3.1(o)(ii) lists each Person who is a material
provider of services to the Company as of the date of this Agreement (the
"Principal Providers"). Since October 31, 1999, no Principal Customer or
Principal Provider has canceled or otherwise terminated its relationship with
the Company, materially decreased its purchases from or services supplied to the
Company, or threatened to take any such action. The Shareholders have no basis
to anticipate any problems with the Company's customer or service provider
relationships. To the best knowledge of the Shareholders, no Principal Customer
or Principal Provider has any plans to terminate its relationship with the
Company.
(p) Compliance with Environmental Laws. To the best
knowledge of the Shareholders, except as disclosed in Exhibit 3.1(p), the
Company, the business of the Company, the Premises and any other real property
presently or previously owned or leased by the Company are in compliance with
and have always been in compliance with all, and do not violate and have not
violated any, Environmental Laws. The Company has not received any written
notice, nor do the Shareholders have any knowledge, of any facts which could
give rise to any notice that the Company is a "responsible person" for a waste
disposal site pursuant to the Waste Management Act (British Columbia) or any
other Environmental Laws. The Company and the Shareholders have fully disclosed
to the Acquiror all environmental reports, investigations, assessments, audits,
studies, Permits and records in the possession or control of the Shareholders or
the Company with respect to the Premises or other real property presently or
previously owned or leased by the Company and relating to Environmental Laws and
none of the Shareholders or the Company has obtained or performed any
environmental investigations, assessments, audits, reports or other studies with
respect thereto.
(q) Intellectual Property. The Company owns and, to
the best knowledge of the Shareholders, has the legal right to use each item of
Intellectual Property required to be identified on Exhibit 3.1(h). To the best
knowledge of the Shareholders, the continued operation of the business of the
Company as currently conducted will not interfere with, infringe upon,
misappropriate or conflict with any Intellectual Property rights of another
Person. To the best knowledge of the Shareholders, no other Person has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of the Company or any Intellectual
Property included in the Acquired Assets. Except as disclosed in Exhibit 3.1(q),
the Company has not granted any license, sublicense or permission with respect
to any Intellectual Property owned or used in the Company's business. Except as
disclosed in Exhibit 3.1(i), no claims are pending or, to the knowledge of the
Shareholders, threatened, that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property. To
the best knowledge of the Shareholders, all of the Intellectual Property that is
owned by the Company is owned free and clear of all Encumbrances and was not
misappropriated from any Person, and all portions of the Intellectual Property
as to which the Company is licensor or licensee are licensed
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<PAGE> 17
pursuant to valid and existing license agreements. The consummation of the
transactions contemplated by this Agreement will not result in the loss or
material diminution of any Intellectual Property or rights in Intellectual
Property.
(r) Year 2000 Warranty. To the best knowledge of the
Shareholders, the computer software owned by the Company and all other
Intellectual Property used or held for use by the Company in its business
accurately processes date/time data (including calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
and the years 1999 and 2000 and leap year calculations when either (i) used as a
standalone application, or (ii) integrated into or otherwise used in conjunction
with the third party hardware, software, firmware and data over which the
Shareholders and the Company have no control ("Third Party Products") with which
such Company software or other Intellectual Property was designated or intended
to operate at the time such Company software was (i) developed or (ii) first
provided to the Company's customers, or tested by the Company for such
customers, whichever is later. Notwithstanding the foregoing, the Company shall
not be considered to be in breach of the representation and warranty in the
immediately preceding sentence if the failure of such Company software to comply
with such representation and warranty is attributable solely to (x) a failure by
any Third Party Product to accurately process date/time data (including but not
limited to, calculating, comparing, and sequencing) from, into, and between the
twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations; or (y) any modification of the Company software by any party other
than the Company (unless such modification was made at the direction of the
Company).
(s) Brokers' Fees. The Company does not have, and
will not have as a result of the consummation of this Agreement, any Liability
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement.
(t) Guarantees. The Company is not a guarantor or
otherwise liable for any Liability (including indebtedness for borrowed money)
of any other Person, nor has the Company agreed to enter into such arrangement.
Except as set forth on Exhibit 3.1(t), no Person is a guarantor or otherwise
liable for any Liability (including indebtedness for borrowed money) of the
Company.
(u) Disclosure. None of the documents or information
provided to SignalSoft by the Company, any Shareholder or any agent or employee
thereof in the course of SignalSoft's due diligence investigation and the
negotiation of this Agreement and pursuant to Sections 3.1 and 3.2 of this
Agreement and the disclosure Exhibits referred to therein, including the
financial statements referred to above in Section 3.1, contains any untrue
statement of any material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
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<PAGE> 18
(v) Export Countries. Each country to which the
Company has, at any time during the five years ending on the date of this
Agreement, exported goods or services is set forth on Exhibit 3.1(v).
(w) No Reporting Issuer. The Company is not a
"reporting issuer" (as that term is defined in the Securities Act, R.S.B.C., as
amended).
3.2. Representations, Warranties and Covenants of Each
Shareholder. Each Shareholder, severally and separately, but not jointly,
represents and warrants to SignalSoft that the statements contained in this
Section 3.2 are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3.2).
(a) Investment. Each Shareholder acknowledges and
agrees that:
(i) Neither SignalSoft nor the Acquiror is a
reporting issuer in any jurisdiction in North America, and the NS Shares and
SignalSoft Shares (collectively, the "Securities") issued to such Shareholder,
other than pursuant to a prospectus, may be subject to indefinite resale
restrictions imposed under the laws of the jurisdiction in which such
Shareholder is resident.
(ii) Such Shareholder has been advised to
consult his or her own legal advisors with respect to the merits and risks of an
investment in the Securities and with respect to applicable resale restrictions,
and he or she is solely responsible for compliance with applicable resale
restrictions.
(iii) To the knowledge of such Shareholder,
the sale of the Securities was not accompanied by any advertisement in printed
media of general and regular paid circulation, radio or television.
(iv) Such Shareholder has not received nor
been provided with, nor has he or she requested, nor does he or she have any
need to receive, any offering memorandum or any other document describing the
business and affairs of SignalSoft or the Acquiror.
(v) No prospectus has been filed or will be
filed by SignalSoft or the Acquiror with respect to the offering of the
Securities under any applicable securities legislation, and accordingly:
(A) such Shareholder is restricted
from using certain civil remedies available under such legislation;
(B) such Shareholder may not receive
information that might otherwise be required to be provided to it under such
legislation; and
17
<PAGE> 19
(C) SignalSoft and the Acquiror are
relieved from certain obligations that would otherwise apply under such
legislation.
(vi) No Person has made to such Shareholder
any written or oral representations:
(A) that any Person will resell or
repurchase the Securities;
(B) that any Person will refund the
purchase price for the Securities;
(C) as to the future price or valued
of the Securities; or
(D) that the NS Shares or the
SignalSoft Shares will be listed and posted for trading or any stock exchange or
that application has been made to list the common shares of SignalSoft or the
Acquiror on any stock exchange.
(vii) Except for the Shareholders listed on
Exhibit 3.2(a)(vii):
(A) such Shareholder is not a U.S.
Person; and
(B) such Shareholder is not
acquiring the Securities for the account of a U.S. Person;
(viii) Such Shareholder will not sell any
SignalSoft Shares except in accordance with the provisions of Regulation S
promulgated under the Securities Act, pursuant to registration under the
Securities Act or an available exemption therefrom and will not engage in any
hedging transactions with regard to such Securities unless in compliance with
the Securities Act.
(ix) Such Shareholder will comply with the
applicable securities legislation concerning the purchase and holding of the
Securities and any resale of the Securities.
(x) (A) Such Shareholder is acquiring (and
upon the acquisition of SignalSoft Shares, will acquire) the Securities for such
Shareholder's own account and not on behalf of any other Person; such
Shareholder is aware and acknowledges that the Securities have not been
registered under the Securities Act, or applicable state securities laws, and
may not be offered, sold, assigned, exchanged, transferred, pledged or otherwise
disposed of in the United States unless so registered under the Securities Act
and applicable state securities laws or an exemption from the registration
requirements thereof is available;
(B) such Shareholder has been
furnished all information that such Shareholder deems necessary to enable such
Shareholder to evaluate the merits and risks of an investment in SignalSoft or
the Acquiror; such Shareholder has had a reasonable opportunity
18
<PAGE> 20
to ask questions of and receive answers from SignalSoft and the Acquiror
concerning SignalSoft, the Acquiror, the Securities and any and all matters
relating to the transactions described herein, and all such questions, if any,
have been answered to the full satisfaction of such Shareholder;
(C) no Person other than such
Shareholder has
(1) any rights in and to
the Securities, which rights were obtained through or from such Shareholder; or
(2) any rights to acquire
the Securities, which rights were obtained through or from such Shareholder;
(D) such Shareholder is aware that
the acquisition of the Securities is an investment involving a risk of loss and
that there is no guarantee that such Shareholder will realize any gain from this
investment, and that such Shareholder could lose the total amount of its
investment;
(E) such Shareholder understands
that no United States federal or state agency nor Canadian provincial securities
commission has made any finding or determination regarding the fairness of the
offering of the Securities for investment, or any recommendation or endorsement
of the offering of the Securities;
(F) such Shareholder is acquiring
(or, upon the acquisition of SignalSoft Shares, will acquire) the Securities for
investment, with no present intention of dividing or allowing others to
participate in such investment or of reselling, or otherwise participating,
directly or indirectly, in a distribution of the Securities, and shall not make
any sale, transfer or pledge thereof without registration under the Securities
Act and any applicable securities laws of any state or province of Canada,
unless an exemption from registration is available, as established to the
reasonable satisfaction of SignalSoft, by opinion of counsel or otherwise;
(G) except as set forth herein, no
representations or warranties have been made to such Shareholder by SignalSoft,
the Acquiror or any agent, employee or Affiliate of either of them, and in
entering into this transaction such Shareholder is not relying upon any
information, other than from the results of independent investigation by such
Shareholder; and
(H) such Shareholder understands
that the Securities are being offered to such Shareholder in reliance on
specific exemptions from the registration requirements of United States federal
and state, and Canadian provincial, securities laws and that SignalSoft and the
Acquiror are relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such Shareholder
set forth herein in order to determine the applicability of such exemptions and
the suitability of such Shareholder to acquire the Securities;
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<PAGE> 21
(xi) as to each Shareholder listed on
Exhibit 3.2(a)(xi), such Shareholder (A) is an "accredited investor" as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act, (B) has
such knowledge and expertise in financial and business matters (including
knowledge and expertise in the business and proposed business of SignalSoft and
the Acquiror) that such Shareholder is capable of evaluating the merits and
risks involved in an investment in the Securities; and such Shareholder is
financially able to bear the economic risk of the investment in the Securities,
including a total loss of such investment, and (C) such Shareholder represents
that it has adequate means of providing for its current needs and has no need
for liquidity in its investment in the Securities; such Shareholder has no
reason to anticipate any material change in its financial condition for the
foreseeable future.
Each Shareholder, upon the conversion of NS Shares into SignalSoft Shares, will
deliver to SignalSoft a certificate executed by such Shareholder (and, if such
Shareholder is not an "accredited investor," such Shareholder's Purchaser
Representative) containing the representations, warranties and covenants
contained in (A) Section 3.2(a)(x) and (B) as to any Shareholder listed on
Exhibit 3.2(a)(vii), the representations and warranties contained in Section
3.2(a)(xi), or (B) as to any Shareholder not listed on Exhibit 3.2(a)(vii), the
representations and warranties contained in Section 3.2(a)(vii) hereof,
effective as of the date of such conversion.
All certificates representing the NS Shares shall bear a legend indicating that
the NS Shares are subject to transfer restrictions set forth in the Acquiror's
articles of association and the Stockholders' Agreement.
All certificates representing SignalSoft Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY STATE SECURITIES LAWS AND CAN
NOT BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED IN THE UNITED STATES OR FOR
THE ACCOUNT OF A U.S. PERSON UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS DECLARED EFFECTIVE UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS, (II) THE COMPANY (A) RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY, WHICH OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, OR (B) IS
OTHERWISE SATISFIED, THAT SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS, OR (III) SUCH TRANSFER, SALE, ASSIGNMENT OR HYPOTHECATION IS IN COMPLIANCE
WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE ACT. HEDGING
TRANSACTIONS INVOLVING THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT. AS USED HEREIN, "UNITED STATES" AND
"U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER
THE ACT.
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<PAGE> 22
All certificates representing NS Shares or SignalSoft Shares also shall bear any
legend provided for under the securities laws of any applicable jurisdiction.
(b) Ownership of Company Shares. Each Shareholder
owns, legally, beneficially, and free and clear of any Encumbrance, or owns
options to acquire, the number of Company Shares set forth opposite such
Shareholder's name on Exhibit 2.2(a). Such Shareholder does not own, and has no
right to acquire, any Company Shares other than the Company Shares or options to
acquire Company Shares set forth opposite such Shareholder's name in Section
2.2(a) and the Company Shares or options to acquire Company Shares set forth
opposite such Shareholder's name on Exhibit 3.1(b)(i). Such Shareholder has not
contributed tangible property to the Company as consideration for any Company
Shares, or options to acquire Company Shares, owned by such Shareholder.
(c) Authority; No Violation. Each Shareholder, each
Relative of any Shareholder, and each Affiliate of the Company or of a
Shareholder who is a party to any Other Seller Agreement has full and absolute
right, power, authority and legal capacity to execute, deliver and perform this
Agreement and all Other Seller Agreements to which such Shareholder, Relative or
Affiliate is a party, and this Agreement constitutes, and the Other Seller
Agreements will when executed and delivered constitute, the legal, valid and
binding obligations of, and shall be enforceable in accordance with their
respective terms against, each such Shareholder, Relative or Affiliate who is a
party thereto. The execution, delivery and performance of this Agreement and the
Other Seller Agreements and the consummation of the transactions contemplated
hereby and thereby will not (i) violate any Legal Requirement to which the
Company, any Shareholder, or any Relative or Affiliate of the Company or of any
Shareholder who is a party to any Other Seller Agreement is subject or any
provision of the memorandum or articles of the Company or of any such Affiliate,
or (ii) violate, with or without the giving of notice or the lapse of time or
both, or conflict with or result in the breach or termination of any provision
of, or constitute a default under, or give any Person the right to accelerate
any obligation under, or result in the creation of any Encumbrance upon any
properties, assets or business of the Company, of any Shareholder, or of any
such Relative or Affiliate pursuant to, any indenture, mortgage, deed of trust,
lien, lease, license, Permit, agreement, instrument or other arrangement to
which the Company, any Shareholder or any such Relative or Affiliate is a party
or by which the Company, any Shareholder, or any such Relative or Affiliate or
any of their respective assets and properties is bound or subject. Except for
notices that will be given and consents that will be obtained by the
Shareholders prior to the Closing (each of which is set forth in Exhibit
3.2(c)), neither the Company, any Shareholder, nor any such Relative or
Affiliate need give any notice to, make any filing with or obtain any
authorization, consent or approval of any Governmental Authority or other Person
in order for the parties to consummate the transactions contemplated by this
Agreement and the Other Seller Agreements. All share transfer restrictions
affecting the transfer of the Company Shares to the Acquiror shall have been
complied with or effectively waived and on the transfer thereof at Closing the
Acquiror will acquire valid title to such Company Shares free and clear of all
Encumbrances whatsoever.
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<PAGE> 23
(d) Citizenship and Residency. Such Shareholder
legally resides at the address, and is a citizen only of the jurisdiction, set
forth opposite such Shareholder's name on Exhibit 3.2(d).
(e) Withholding. Each Shareholder listed on Exhibit
3.1(f)(x) covenants and agrees with the Acquiror as follows:
(i) such Shareholder shall deliver to the
Acquiror at least three Business Days prior to the Closing Date a certificate
issued by the Minister of National Revenue (the "Minister") under subsection
116(2) of the Tax Act;
(ii) if a certificate is so delivered to the
Acquiror, the Acquiror shall be entitled to withhold from the Purchase Price
payable to such Shareholder at the time of Closing 33 1/3 percent of the amount,
if any, by which the Purchase Price payable by the Acquiror to such Shareholder
for the Company Shares so acquired from such Shareholder exceeds the certificate
limit as defined in subsection 116(2) of the Tax Act and fixed by the Minister
in such certificate (or, if the provisions of Section 3.2(e)(vi) are applicable,
the amount of the Purchase Price specified in Section 3.2(e)(vi));
(iii) if a certificate is not so delivered,
the Acquiror shall be entitled to withhold from the Purchase Price payable to
such Shareholder at the time of Closing an amount equal to 33 1/3 percent of the
Purchase Price payable to such Shareholder (or, if the provisions of Section
3.2(e)(vi) are applicable, the amount of the Purchase Price specified in Section
3.2(e)(vi));
(iv) where the Acquiror has withheld any
amount under the provisions of Section 3.2(e)(iii) above or Section 3.2(e)(vi)
below and such Shareholder delivers to the Acquiror, after the Closing Date and
within 30 days after the end of the month in which the Acquiror acquired the
Company Shares (the "Remittance Deadline"), a certificate issued by the Minister
under subsection 116(2) of the Tax Act, the Acquiror:
(A) shall pay forthwith to the
Receiver General 33 1/3 percent of the amount, if any, by which the Purchase
Price payable to such Shareholder exceeds the certificate limit fixed in such
certificate, and the amount so paid shall be credited to the Acquiror as a
payment on account of the Purchase Price; and
(B) shall pay forthwith to such
Shareholder any amount that the Acquiror has withheld and is not required to pay
to the Receiver General in accordance with the provisions of Section
3.2(e)(iv)(A) above;
(v) where the Acquiror has withheld any
amount under the provisions of Section 3.2(e)(ii) or (iii) above or Section
3.2(e)(vi) below and no certificate has been delivered to the Acquiror by such
Shareholder in accordance with the provisions of Section 3.2(e)(iv) above, such
amount shall be paid by the Acquiror to the Receiver General, on or prior (not
earlier
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<PAGE> 24
than three Business Days prior) to the Remittance Deadline, on account
of the Acquiror's liability for tax pursuant to subsection 116(5) of the Tax
Act, and the amount so paid shall be credited to the Acquiror as a payment to
such Shareholder on account of the Purchase Price payable to such Shareholder;
and
(vi) to the extent possible, any amounts
withheld by the Acquiror pursuant to the provisions of this Section 3.2(e) shall
be withheld from the portion of the total Cash Consideration payable to such
Shareholder (reduced by the portion of such Cash Consideration to be deposited
into the Escrow Account with respect to such Shareholder in accordance with the
provisions of Section 2.2(a)) (the "Available Cash"). If the amount to be
withheld by the Acquiror with respect to a Shareholder pursuant to the
provisions of this Section 3.2(e) exceeds such Shareholder's Available Cash, the
Acquiror shall withhold with respect to such Shareholder, in addition to all of
such Shareholder's Available Cash, that number of NS Shares (or, if such
Shareholder has elected to receive SignalSoft Shares in lieu of NS Shares,
SignalSoft Shares) which, when multiplied by the Per Share Amount, equals the
excess of the withholding obligation applicable to such Shareholder over such
Shareholder's Available Cash ("Excess Withholding"), divided by .667. To the
extent that the Acquiror's obligation with respect to a Shareholder to remit
withholding to the Receiver General under the provisions of subsections
3.2(e)(i) through (v) above exceeds such Shareholder's Available Cash,
SignalSoft, upon three Business Days' prior notice to such Shareholder, shall
purchase, at the Per Share Amount, NS Shares or SignalSoft Shares so withheld
from the Shareholder by remitting the appropriate amount to the Receiver General
on behalf of the Acquiror or SignalSoft, including any amount required to be
withheld by SignalSoft with respect to the purchase of NS Shares under this
Section 3.2(e), unless the Shareholder discharges the appropriate amount of the
Liability to the Receiver General and provides the Acquiror, not later than
three Business Days' prior to the Remittance Deadline, with proof thereof that
is satisfactory to the Acquiror. Such Shareholder agrees to execute and deliver
such further documents as reasonably may be required to effect such purchase of
NS Shares or SignalSoft Shares. Any NS Shares or SignalSoft Shares withheld but
not so purchased will be delivered to the Shareholder in accordance with
subsections 3.2(e)(i) through (v) above.
(f) Capital Property. Such Shareholder holds the
Company Shares, or options to acquire Company Shares, set forth opposite such
Shareholder's name on Exhibit 2.2(a) or 3.1(b)(i), respectively, as capital
property (as defined in the Tax Act).
3.3. Representations and Warranties of SignalSoft and the
Acquiror. SignalSoft and the Acquiror jointly and severally represent and
warrant to the Shareholders that the statements contained in this Section 3.3
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3.3).
(a) Organization, Good Standing, Power, Etc.
SignalSoft is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and
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<PAGE> 25
is qualified to do business as a foreign corporation and is in good standing in
all jurisdictions in which the nature of the business conducted by it or the
properties owned, leased or operated by it to make such qualification necessary.
The Acquiror is an unlimited company duly organized, validly existing and in
good standing under the laws of the province of Nova Scotia and is qualified to
do business as an extraprovincial unlimited company in all jurisdictions in
which the nature of the business conducted by it or the properties owned, leased
or operated by it make such qualification necessary. This Agreement and the
Other SignalSoft Agreements and the transactions contemplated hereby and thereby
have been duly approved by all requisite corporate action. Each of SignalSoft
and the Acquiror have full corporate power and authority to execute, deliver and
perform this Agreement and the Other SignalSoft Agreements to which it is a
party, and this Agreement constitutes, and the Other SignalSoft Agreements will
when executed and delivered constitute, the legal, valid and binding obligations
of SignalSoft or the Acquiror, as the case may be, and shall be enforceable in
accordance with their respective terms against SignalSoft or the Acquiror, as
the case may be.
(b) Capitalization.
(i) The authorized, issued and outstanding
shares of the capital stock of SignalSoft are as set forth on Exhibit 3.3(b)(i).
(ii) The authorized, issued and outstanding
shares of the capital stock of the Acquiror as of the date of this Agreement are
as set forth on Exhibit 3.3(b)(ii). At the time of issuance thereof and delivery
to the Shareholders, the NS Shares to be delivered to the Shareholders pursuant
to this Agreement will be duly authorized and validly issued shares of NS Stock,
and will be fully paid and nonassessable. Such NS Shares shall at the time of
such issuance and delivery be free and clear of any Encumbrances of any kind or
character, other than those arising under applicable federal and provincial
securities laws, under this Agreement or under any Other Seller Agreement to
which such Shareholder is a party and shall have the rights, restrictions and
privileges set forth on Exhibit 3.3(b)(ii).
(iii) All of the issued and outstanding
capital stock of the Acquiror is owned, directly or indirectly, by SignalSoft.
(iv) Subject to any restrictions on
conversion that are set forth in the Stockholders' Agreement or the articles of
association of the Acquiror, the NS Shares shall, upon issuance pursuant to this
Agreement, be convertible into fully-paid and non-assessable SignalSoft Stock.
(c) No Violation of Agreements, Etc. The execution,
delivery and performance of this Agreement and the Other SignalSoft Agreements,
and the consummation of the transactions contemplated hereby and thereby will
not (i) violate any Legal Requirement to which SignalSoft or the Acquiror is
subject or any provision of the certificate of incorporation or bylaws of
SignalSoft or the constituent documents of the Acquiror or (ii) violate, with or
without the giving
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<PAGE> 26
of notice or the lapse of time or both, or conflict with or result in the breach
or termination of any provision of, or constitute a default under, or give any
Person the right to accelerate any obligation under, or result in the creation
of any Encumbrance upon any properties, assets or business of SignalSoft or of
the Acquiror pursuant to, any indenture, mortgage, deed of trust, lien, lease,
license, agreement, instrument or other arrangement to which SignalSoft or the
Acquiror is a party or by which SignalSoft or the Acquiror or any of their
respective assets and properties is bound or subject. Except for notices and
consents that will be given or obtained by SignalSoft prior to the Closing,
neither SignalSoft nor the Acquiror need to give any notice to, make any filing
with or obtain any authorization, consent or approval of any Governmental
Authority or other Person in order for the parties to consummate the
transactions contemplated by this Agreement.
(d) Financial Statements; Absence of Liabilities.
(i) To the best knowledge of SignalSoft, the
audited financial statements of SignalSoft for the years ended December 31, 1998
and December 31, 1999 (the "Financial Statements"), which are attached as
Exhibit 3.3(d) are true and correct in all material respects, are in accordance
with U.S. GAAP on a consistent basis, have been prepared in accordance with the
books and records of SignalSoft (which books and records are complete and
correct in all material respects), and fairly present the financial position and
results of operations of SignalSoft in all material respects as of such dates
and for each of the periods indicated. To the best knowledge of SignalSoft, as
of the date of each Financial Statement, Signal Soft had no Liabilities other
than those set forth on each such Financial Statement.
(ii) Since the date of the most recent
Financial Statement, SignalSoft has not incurred or become subject to any
Liability other than (A) Liabilities incurred in the ordinary course of
business, (B) Liabilities to holders of preferred stock of SignalSoft pursuant
to the terms of such preferred stock, and (C) any Liabilities created hereunder
or pursuant to applicable law.
(iii) As of the date of this Agreement, the
Acquiror has not commenced business operations. As of the date of this Agreement
the Acquiror has, and as of the Closing Date the Acquiror shall have, no
Liabilities save and except for (A) organizational expenses incurred in the
incorporation of Acquiror or (B) any Liabilities created hereunder or pursuant
to applicable law.
(e) Tax Matters.
(i) SignalSoft has duly and timely filed all
Tax Returns that it was required to file. To the best knowledge of SignalSoft,
all such Tax Returns were correct and complete in all material respects. To the
best knowledge of SignalSoft, all Taxes owed by SignalSoft (whether or not shown
on any Tax Return) have been paid.
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(ii) To the best knowledge of SignalSoft,
there is no basis for any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no pending or threatened
dispute or claim concerning any Tax Liability of SignalSoft.
(iii) To the best knowledge of SignalSoft,
there is no misrepresentation that is attributable to neglect, carelessness,
willful default or fraud in Tax Returns of SignalSoft previously filed.
(iv) To the best knowledge of SignalSoft,
the provisions made for current and deferred Taxes included in the most recent
Financial Statement are sufficient for the payment of all accrued and unpaid
Taxes of and payable by SignalSoft, whether or not disputed, for the period
ended the date thereof and for all periods prior thereto.
(f) Litigation; Compliance with Applicable Laws and
Rights.
(i) To the best knowledge of SignalSoft,
there is no outstanding Order against, nor is there any litigation, proceeding,
claim, suit, action, arbitration, investigation or hearing before an
administrative tribunal or by any Governmental Authority or other Person in
progress, pending or threatened against SignalSoft, its assets or its business
or relating to the transactions contemplated by this Agreement, nor to the best
knowledge of SignalSoft, is there any basis for any such action.
(ii) To the best knowledge of SignalSoft,
neither SignalSoft nor SignalSoft's assets are in violation of any applicable
Legal Requirement or Right. To the best knowledge of SignalSoft, the Company has
not received notice from any Governmental Authority or other Person of any
violation or alleged violation of any Legal Requirement or Right, and, to the
best knowledge of SignalSoft, no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been filed or
commenced or is pending or is threatened against SignalSoft alleging any such
violation.
(g) Intellectual Property. SignalSoft owns or, to the
best knowledge of SignalSoft, has the legal right to use all material items of
its Intellectual Property. To the best knowledge of SignalSoft, the continued
operation of the business of SignalSoft as currently conducted will not
interfere with, infringe upon, misappropriate or conflict with any Intellectual
Property rights of another Person. To the best knowledge of SignalSoft, no other
Person has interfered with, infringed upon, misappropriated or otherwise come
into conflict with any Intellectual Property rights of SignalSoft. SignalSoft
has not granted any license, sublicense or permission with respect to any
Intellectual Property owned or used in the Company's business. No claims are
pending or, to the best knowledge of SignalSoft, threatened that SignalSoft is
infringing or otherwise adversely affecting the rights of any Person with regard
to any Intellectual Property. To the best knowledge of SignalSoft, all of the
Intellectual Property that is owned by SignalSoft is owned free and clear of all
Encumbrances and was not misappropriated from any Person, and all portions of
the Intellectual Property as to which SignalSoft is licensor or licensee are
licensed pursuant to valid and
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existing license agreements. The consummation of the transactions contemplated
by this Agreement will not result in the loss or material diminution of any
Intellectual Property or rights in Intellectual Property.
(h) Year 2000 Warranty. To the best knowledge of SignalSoft, the
computer software owned by SignalSoft and all other Intellectual Property used
or held for use by SignalSoft in its business accurately processes date/time
data (including calculating, comparing, and sequencing) from, into, and between
the twentieth and twenty-first centuries, and the years 1999 and 2000 and leap
year calculations when either (i) used as a standalone application, or (ii)
integrated into or otherwise used in conjunction with the third party hardware,
software, firmware and data over which SignalSoft has no control ("Third Party
Products") with which such SignalSoft software or other Intellectual Property
was designated or intended to operate at the time such SignalSoft software was
(i) developed or (ii) first provided to the SignalSoft's customers, or tested by
SignalSoft for such customers, whichever is later. Notwithstanding the
foregoing, SignalSoft shall not be considered to be in breach of the
representation and warranty in the immediately preceding sentence if the failure
of such SignalSoft software to comply with such representation and warranty is
attributable solely to (x) a failure by any Third Party Product to accurately
process date/time data (including but not limited to, calculating, comparing,
and sequencing) from, into, and between the twentieth and twenty-first
centuries, and the years 1999 and 2000 and leap year calculations; or (y) any
modification of SignalSoft software by any party other than SignalSoft (unless
such modification was made at the direction of SignalSoft).
(i) Brokers' Fees. SignalSoft does not have, and will
not have as a result of the consummation of this Agreement, any Liability to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
(j) Disclosure. None of the documents or information
provided to the Shareholders or to the Company by SignalSoft or any agent or
employee thereof in the course of the Shareholder's due diligence investigation
and the negotiation of this Agreement, including the Financial Statements
referred to above in Section 3.3(d), contains any untrue statement of any
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading.
(k) No Reporting Issuer. Neither SignalSoft nor the
Acquiror is a "reporting issuer" (as that term is defined in the Securities Act,
R.S.B.C., as amended), or has offered consideration to any one Shareholder
outside or collateral to the terms of the Purchase Agreement and the Other
Seller Agreements.
3.4 Survival of Representations. The representations and
warranties contained in Sections 3.1, 3.2 and 3.3 and the Liabilities of the
parties with respect thereto shall survive any investigation thereof by the
parties and shall survive the Closing for four years, except that (a) the
Liabilities of the Shareholders with respect to the representations and
warranties set forth in Sections 3.1(a), 3.1(b), and 3.1(c) and 3.2 and the
Liabilities of SignalSoft with respect to the
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representations and warranties set forth in Sections 3.3(a) and 3.3(b) shall
survive without termination, (b) the Liabilities of the Shareholders with
respect to the representations and warranties set forth in Section 3.1(f) and
the Liabilities of SignalSoft with respect to the representations and warranties
set forth in Section 3.3(e) shall survive for thirty days following the
expiration of any period of limitation on the assessment and collection of Taxes
of the Company or SignalSoft, as applicable, with respect to any period ending
prior to the Closing Date, and (c) the Liabilities of the Shareholders with
respect to the representations and warranties set forth in Sections 3.1(d), (e),
and (g) through (t) and the Liabilities of SignalSoft with respect to the
representations and warranties set forth in Sections 3.3(c), 3.3(d) and 3.3(f)
through (i) shall survive the Closing for two years.
3.5. Representations as to Knowledge. The representations and
warranties contained in Article 3 hereof will in each and every case where an
exercise of discretion or a statement to the "best knowledge," "best of
knowledge" or "knowledge" is required on behalf of any party to this Agreement
be deemed to require that such exercise of discretion or statement be in good
faith after reasonable investigation (including, in the case of the
Shareholders, inquiry of the applicable directors, officers and employees of the
Company), with due diligence, to the best efforts of such party and be exercised
always in a reasonable manner and within reasonable times.
4. Pre-Closing Covenants. The parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
4.1. General. Each of the parties will use its reasonable best
efforts to take all actions necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including the satisfaction, but not the waiver, of the closing conditions set
forth in Section 6) and the other agreements contemplated hereby. Without
limiting the foregoing, the Shareholders will, and will cause the Company to,
give any notices, make any filings and obtain any consents, authorizations or
approvals needed to consummate the transactions contemplated by this Agreement.
4.2. Operation and Preservation of Business. The Shareholders
will not cause or permit the Company to engage in any practice, take any action
or enter into any transaction outside the ordinary course of its business;
provided, however, that in no event will any action be taken or fail to be taken
or any transaction be entered into which would result in a breach of any
representation, warranty or covenant of any Shareholder. The Shareholders will
cause the Company to keep its business and properties, including its current
operations, physical facilities, working conditions and relationships with
customers, service providers, lessors, licensors and employees, intact and will
cause the Company to conduct its business in the ordinary and normal course
thereof.
4.3. Full Access. The Shareholders will cause the Company to
permit SignalSoft and its agents to have full access at all reasonable times,
and in a manner so as not to interfere with the normal business operations of
the Company, to all premises, properties, personnel, books, records (including
Tax records), contracts and documents of or pertaining to the Company. Prior to
Closing, SignalSoft will permit the Shareholders and their agents to have full
access at all
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reasonable times, and in a manner so as not to interfere with the normal
business operations of SignalSoft, to all premises, properties, personnel,
books, records (including Tax records), contracts and documents of or pertaining
to SignalSoft.
4.4. Notice of Developments. Each of SignalSoft and the
Shareholders will give prompt written notice to the other of any substantial
development which occurs after the date of this Agreement and before the Closing
that has a material adverse effect on the business, assets, Liabilities,
financial condition, operations, results of operations, future prospects,
representations, warranties, covenants or disclosure Exhibits of SignalSoft (as
to the notice require of SignalSoft) or the Company (as to the notice required
of the Shareholders). No such written notice, however, will be deemed to amend
or supplement any disclosure Exhibit or to prevent or cure any
misrepresentation, breach of warranty or breach of covenant.
4.5. Exclusivity. No Shareholder will, and the Shareholders
will not cause or permit the Company or any director, officer, employee or agent
of the Company to, (a) solicit, initiate or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any portion of the assets of, the Company
(including any acquisition structured as a merger, consolidation or share
exchange) or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing. No Shareholder will vote shares of the Company's stock or sign a
written consent in favor of any such transaction. Each Shareholder will notify
SignalSoft immediately if any Person makes any proposal or offer to, inquiry of
or contact with such Shareholder with respect to any of the foregoing.
4.6. Announcements; Securities Law Restrictions. Except for
limited disclosure made by the Company and by SignalSoft prior to the date of
this Agreement, neither any Shareholder nor the Company nor SignalSoft shall
disclose to any Person the existence, terms or subject matter of this Agreement
without the prior written approval of SignalSoft and the Shareholders' Agent,
except (and only to the extent) previously publicly announced by SignalSoft and
the Shareholders' Agent, and any press release or public announcement relating
to the subject matter of this Agreement shall be made only as SignalSoft and the
Shareholder Agent shall agree, subject to any requirements imposed upon any of
the parties under the stock exchange rules or securities disclosure laws of any
applicable jurisdiction. Further, neither any Shareholder nor the Company shall
violate any United States or Canadian securities laws which restrict each
Shareholder and the Company, as Persons with material non-public information
concerning SignalSoft obtained directly or indirectly from SignalSoft, from
purchasing or selling securities of SignalSoft or from communicating such
information to any other Person under any circumstances in which it is
reasonably foreseeable that such Person is likely to purchase or sell such
securities.
4.7. Closing Date Liabilities. Prior to the Closing Date, the
Shareholders shall pay, or shall cause the Company to pay prior to the Closing
Date, in full all Closing Date Liabilities in excess of the amounts set forth on
the Estimated Closing Date Balance Sheet. Effective as of the
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time immediately prior to the Closing Date, without further action by the
Shareholders, the Company or any other Person, the Principal Shareholders hereby
jointly and severally assume, and the Other Shareholders severally assume
(subject, in both cases, to the limitations set forth in Section 7.1) all
Closing Date Liabilities (other than Liabilities relating to Unknown
Infringement Claims) in excess of the amount by which the cash set forth on the
Estimated Closing Date Balance Sheet exceeds the Closing Date Liabilities and
the Retained Liabilities; provided that the exclusion of Liabilities relating to
Unknown Infringement Claims in this sentence and in Section 7.1(a) shall not
relieve any Shareholder from Liability for any Adverse Consequences suffered by
SignalSoft or the Company as the result of a breach by such Shareholder of any
representation, warranty or covenant by such Shareholder to the extent otherwise
provided in this Agreement.
4.8 Investment Canada Act Filing. Promptly following the
execution of this Agreement, the Shareholders will, and will cause the Company
to, cooperate with SignalSoft in making, and furnish such information as may be
required to make, any and all necessary filings under the Investment Canada Act
as soon as practicable following the date of this Agreement.
4.9 Adjusted Cost Base Election. At the election of the
Shareholders, the Shareholders and the Acquiror will cooperate to prepare,
within 60 days following the Closing Date, such forms as may be required to
cause each Shareholder and the Acquiror, with respect to the NS Shares
transferred to the Shareholders pursuant to this Agreement, to elect jointly,
pursuant to subsection 85(1) of the Tax Act, in prescribed form and within the
time referred to in subsection 85(6) of the Tax Act, so that for income tax
purposes, the elected amount of the proceeds of disposition to such Shareholder
and the cost of the NS Shares transferred to such Shareholder will be the
"adjusted cost basis" (as defined in the Tax Act) of the Shareholder's NS Shares
or such higher amount as may be elected pursuant to the Tax Act, as determined
by such Shareholder.
4.10 Exercise of Options. Each Shareholder listed on Exhibit
2.2(a) having options set forth opposite such Shareholder's name on Exhibit
2.2(a), to the extent he or she has not previously exercised such options, shall
provide to SignalSoft, not later than two Business Days prior to the Closing
Date, notice of such Shareholder's intent to exercise, or to permit to expire in
accordance with the following sentence, such options. If or to the extent that
such Shareholder fails to provide such notice in a timely manner as provided in
the preceding sentence, such Shareholder agrees that such options will expire
automatically at the end of the second Business Day preceding the Closing Date
without further action on the part of the Company or such Shareholder.
4.11 Non-Solicitation of Employees. Prior to Closing, or if
this Agreement is terminated pursuant to Section 8.1, for a period of one year
from the date of termination of this Agreement, each of SignalSoft and the
Company will refrain from soliciting, inducing, offering or contacting any
employee of the other for the purpose of offering employment.
5. Post-Closing Covenants. The parties agree as follows with respect to
the period following the Closing.
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5.1. Further Assurances. In case at any time after the Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor under
Section 7).
5.2. Transition. No Shareholder will take any action at any
time that is designed or intended to have the effect of discouraging any
customer, supplier, lessor, licensor or other business associate of the Company
from establishing or continuing a business relationship with SignalSoft or the
Acquiror after the Closing.
5.3. Cooperation. In the event and for so long as any party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in connection with
(a) any transaction contemplated by this Agreement or (b) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing Date
involving any of the Acquired Assets or the Company's business, each of the
other parties will cooperate with such party and its counsel in the contest or
defense, make available their personnel, and provide such testimony as shall be
reasonably necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending party (unless the contesting or
defending party is entitled to indemnification therefor under Section 7).
5.4. Confidentiality. The Shareholders will treat and hold as
confidential all Confidential Information concerning SignalSoft, the Company's
business or the Acquired Assets, refrain from using any such Confidential
Information and deliver promptly to SignalSoft or destroy, at the request and
option of SignalSoft, all of such Confidential Information in its or their
possession.
5.5. Post-Closing Announcements. Following the Closing, any
press release or public announcement relating to the subject matter of this
Agreement shall be made only as SignalSoft and the Shareholders' Agent shall
agree, subject to any requirements imposed upon any of the parties under the
stock exchange rules or securities disclosure laws of any applicable
jurisdiction.
5.6. Financial Statements. After the Closing, the Shareholders
will, upon request of SignalSoft, cooperate with SignalSoft and render such
reasonable assistance to SignalSoft and its accountants as may be required to
produce such historical and on-going financial statements and audits as
SignalSoft may request, all at the sole cost and expense of SignalSoft, but
without additional consideration to the Shareholders. The Shareholders
acknowledge that SignalSoft may be required by applicable law to include audited
financial statements with respect to the business of the Company in reports
filed with governmental agencies and that the inability to audit the financial
statements as of the Closing Date promptly after the Closing could have a
material adverse effect on SignalSoft.
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5.7. Satisfaction of Liabilities.
(a) Promptly following the Closing, each Shareholder
will pay any Tax for which such Shareholder is responsible and which is
attributable to the transactions contemplated by this Agreement.
(b) The Shareholders, at their expense, promptly will
take or cause to be taken any action necessary to remedy any failure of the
Premises or the Acquired Assets to comply at the Closing Date with any Legal
Requirement, upon receipt of notice from SignalSoft at any time.
(c) SignalSoft will pay and perform (or cause the
Company to pay and perform), as and when due (except to the extent the validity
thereof or the liability therefor is being contested by SignalSoft), the Closing
Date Liabilities and Retained Liabilities.
5.8. Termination of Obligations. Effective as of the Closing
Date, neither the Company nor SignalSoft shall have any Liability to any
Shareholder or any Relative or Affiliate thereof or of the Company, except as
otherwise provided in this Agreement, in any Other Seller Agreement or by reason
of the employment of such Person by SignalSoft or the Company. Effective as of
the Closing Date, the Shareholders shall not have any Liability to the Company
or SignalSoft, except as otherwise provided in this Agreement, in any Other
Seller Agreement or by reason of the employment of such Person by SignalSoft or
the Company.
5.9. Transfer Restrictions; Call Provisions. The NS Shares
will be subject to the transfer restrictions and the call provisions set forth
in this Agreement, the Stockholders' Agreement and the Acquiror's articles of
association. Certificates for the NS Shares delivered to the Shareholders
pursuant to this Agreement and for the SignalSoft Shares into which NS Shares
are converted will bear the applicable legend substantially in the form set
forth in the Stockholders' Agreement as long as such Stockholders' Agreement
applies to such NS Shares or SignalSoft Shares, as the case may be.
The restrictions set forth in this Section 5.9 and the Stockholders'
Agreement shall be in addition to any restrictions on transfer imposed by U.S.
federal and applicable state securities and Canadian federal laws and applicable
provincial securities laws. Each Shareholder also agrees to comply with such
restrictions.
5.10 Intent to Maintain Facility. SignalSoft and the Acquiror
acknowledge that it is their present intention to maintain and expand the
current Company development facility located in Victoria, British Columbia
provided that there are no significant changes in the business conditions
relating to the operation of such a development facility.
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6. Conditions to Closing.
6.1. Conditions to Obligation of SignalSoft. The obligation of
SignalSoft to consummate the transactions contemplated by this Agreement is
subject to satisfaction of the following conditions:
(a) each Shareholder's representations and warranties
shall be correct and complete at and as of the Closing Date and any written
notices delivered to SignalSoft pursuant to Section 4.5 and the subject matter
thereof shall be satisfactory to SignalSoft;
(b) the Shareholders shall have performed and
complied with all of their covenants hereunder through the Closing;
(c) the Shareholders shall have given, or shall have
caused the Company to give, all notices and procured, or shall have caused the
Company to procure, all of the third-party consents, authorizations and
approvals required to consummate the transactions contemplated by this
Agreement, all in form and substance reasonably satisfactory to SignalSoft;
(d) no action, suit or proceeding shall be pending or
threatened before any Governmental Authority or any other Person wherein an
unfavorable Order would (i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation or (iii) affect
adversely the right of the Acquiror to own the Company or the Acquired Assets or
to conduct the Company's business, and no such Order shall be in effect;
(e) there shall have been no material adverse change
in the Company, the Acquired Assets or the Company's business between the date
of execution of this Agreement and the Closing;
(f) the Shareholders shall have delivered to
SignalSoft (i) a certificate to the effect that each of the conditions specified
above in Sections 6.1(a) through (e) and, as to the Company and the
Shareholders, the condition specified below in Section 6.1(o), is satisfied in
all respects, (ii) a good standing certificate, dated within 10 days of the
Closing, from the Registrar of Companies of British Columbia and each other
province in which the Company is registered, qualified or authorized to do
business as an extraprovincial corporation and (iii) a certificate setting forth
the amount of Closing Date Liabilities and the Retained Liabilities, which
amount shall not exceed CDN$250,000;
(g) the Other Seller Agreements shall have been
executed and delivered by the Shareholders, as applicable;
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(h) SignalSoft shall have received from counsel to
the Company and the Shareholders an opinion in form and substance as set forth
in Exhibit 6.1(h) addressed to SignalSoft and NS Co. dated as of the Closing;
(i) SignalSoft shall have received from counsel to
each Shareholder who is not a citizen and resident of either the United States
or Canada an opinion from counsel to such Shareholder (which counsel and which
opinion are satisfactory to SignalSoft) that the transactions described in this
Agreement are in compliance with the securities laws of such jurisdiction;
(j) SignalSoft shall have received from the
Shareholders evidence of the termination of all Encumbrances against the
Acquired Assets;
(k) SignalSoft shall have received the resignations,
effective as of the Closing, of each director and officer of the Company;
(l) a new share certificate representing the Company
Shares shall have been delivered by the Shareholders to SignalSoft and all
existing share certificates representing the Company Shares shall have been
canceled;
(m) the Shareholders shall have delivered to
SignalSoft possession and control of the Company and the Acquired Assets,
including, without limitation, all stock certificate books, minute books,
corporate seals, and all other corporate and financial records of the Company;
(n) the Shareholders shall have delivered, or caused
the Company to deliver, to SignalSoft such other instruments, certificates and
documents as are reasonably requested by SignalSoft in order to consummate the
transactions contemplated by this Agreement, all in form and substance
reasonably satisfactory to SignalSoft, including copies of the memorandum and
articles of the Company, both as amended through the Closing Date, as certified
by the Registrar of Companies of British Columbia; and
(o) on or before the Closing Date, none of
SignalSoft, the Acquiror, the Company or any Shareholder shall have received a
notice pursuant to paragraph 13(1)(b)(ii) of the Investment Canada Act in
respect of any of the transactions contemplated by this Agreement.
SignalSoft may waive any condition specified in this Section 6.1 at or
prior to the Closing by notice in writing to the Shareholders' Agent.
6.2. Conditions to Obligation of the Shareholders. The
obligation of the Shareholders to consummate the transactions contemplated by
this Agreement is subject to satisfaction of the following conditions:
(a) SignalSoft's representations and warranties shall
be correct and complete at and as of the Closing Date;
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(b) SignalSoft shall have performed and complied with
all of its covenants hereunder through the Closing;
(c) SignalSoft shall have given all notices and
procured all of the third-party consents, authorizations and approvals required
to consummate the transactions contemplated by this Agreement, all in form and
substance reasonably satisfactory to the Shareholders' Agent;
(d) no action, suit or proceeding shall be pending or
threatened before any Governmental Authority or any other Person wherein an
unfavorable Order would (i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation or (iii) affect
adversely the right of the Shareholders to own the NS Shares, and no such Order
shall be in effect;
(e) there shall have been no material adverse change
in SignalSoft or SignalSoft's business between the date of execution of this
Agreement and the Closing;
(f) SignalSoft shall have delivered to the
Shareholders a certificate to the effect that each of the conditions specified
above in Sections 6.2(a) and (b) is satisfied in all respects;
(g) the Other SignalSoft Agreements shall have been
executed and delivered by SignalSoft;
(h) the Shareholders shall have received from Sherman
& Howard L.L.C. an opinion in form and substance as set forth in Exhibit 6.2(h),
addressed to the Shareholders and dated as of the Closing;
(i) the Shareholders shall have received from Cox
Hanson O'Reilly Matheson an opinion in form and substance as set forth in
Exhibit 6.2(i), addressed to the Shareholders and dated as of the Closing;
(j) SignalSoft shall have paid and deposited the
Purchase Price pursuant to Section 2.2(a);
(k) SignalSoft shall have delivered to the
Shareholders such other instruments, certificates and documents as are
reasonably requested by the Shareholders in order to consummate the transactions
contemplated by this Agreement, all in form and substance reasonably
satisfactory to the Shareholders' Agent; and
(l) the articles of the Acquiror shall have been
amended to include the provisions set forth in Exhibit 3.3(b)(ii).
The Shareholders' Agent may waive any condition specified in this
Section 6.2 at or prior to the Closing by notice in writing to SignalSoft.
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7. Remedies for Breaches of This Agreement.
7.1. Indemnification Provisions for Benefit of SignalSoft and
the Company.
(a) If any Shareholder breaches (or if any Person
other than SignalSoft alleges facts that, if true, would mean any Shareholder
has breached) any of the representations or warranties of any Shareholder
contained herein and SignalSoft gives notice thereof to the Shareholders' Agent
within the Survival Period, or if any Shareholder breaches (or if any Person
other than SignalSoft alleges facts that, if true, would mean any Shareholder
has breached) any of the covenants of any Shareholder contained herein or any
representations, warranties or covenants of any Shareholder contained in any
Other Seller Agreement and SignalSoft gives notice thereof to the Shareholders'
Agent, then the Principal Shareholders agree jointly and severally (except that
each Principal Shareholder's Liability with respect to Section 3.2 only shall be
several and not joint), and the Other Shareholders agree severally, to indemnify
and hold harmless SignalSoft, the Acquiror and the Company from and against any
Adverse Consequences SignalSoft, the Acquiror or the Company may suffer
resulting from, arising out of, relating to or caused by any of the foregoing
regardless of whether the Adverse Consequences are suffered during or after the
Survival Period. In determining whether there has been a breach of any
representation or warranty contained in Section 3.1 or 3.2 and in determining
for purposes of the preceding sentence the amount of Adverse Consequences
suffered by SignalSoft, the Acquiror or the Company, such representations and
warranties shall not be qualified (other than by (A) the reference to
"knowledge" set forth in the last sentence of Section 3.1(o) and (B) the
references to "material" set forth in Section 3.1(u)) by "material,"
"materiality," "in all material respects," "best knowledge," "best of knowledge"
or "knowledge" or words of similar import, or by any phrase using any such terms
or words. The Principal Shareholders also jointly and severally, and the Other
Shareholders also severally, indemnify and hold harmless SignalSoft, the
Acquiror and the Company against any Adverse Consequences SignalSoft, the
Acquiror or the Company may suffer which result from, arise out of, relate to or
are caused by (i) any Liability of the Company or any Shareholder not included
in the Closing Date Liabilities or Retained Liabilities shown on the Estimated
Closing Date Balance Sheet (other than Liabilities relating to Unknown
Infringement Claims) or (ii) any condition, circumstance or activity existing
prior to the Closing Date which relates to any Legal Requirement or any act or
omission of the Company or any Shareholder or any predecessor with respect to,
or any event or circumstance related to, the Company's, any Shareholder's or any
predecessor's ownership, use or operation of any of the Acquired Assets, the
Premises or any other assets or properties or the conduct of its or their
business, regardless, in the case of (i) or (ii), of (A) whether or not such
Liability, act, omission, event, circumstance or matter was known or disclosed
to SignalSoft, was disclosed on any Exhibit hereto or is a matter with respect
to which any Shareholder did or did not have knowledge, (B) when such Liability,
act, omission, event, circumstance or matter occurred, existed, occurs or exists
and (C) whether a claim with respect thereto was asserted before or is asserted
after the Closing Date. If any dispute arises concerning whether any
indemnification is owing which cannot be resolved by negotiation among the
parties within 30 days of notice of claim for indemnification from the party
claiming indemnification to the party against whom such claim is asserted, the
dispute will be resolved by arbitration pursuant to this Agreement.
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The Liability of each Other Shareholder under the provisions
of this Section 7.1(a) will be limited to such Shareholder's proportionate share
of Liability for such Adverse Consequences based upon the percentages set forth
on Exhibit 2.2(a), and the maximum aggregate Liability of each Other Shareholder
under this Section 7.1(a) will not exceed the value of the Cash Consideration
plus the Share Consideration (determined as of the Closing Date pursuant to
Section 2.4) payable to such Other Shareholder in respect of the transactions
contemplated in this Agreement. The Liability of each Principal Shareholder
under the provisions of this Section 7.1(a) will be limited to the total
Liability for such Adverse Consequences reduced by the amount of any recovery
SignalSoft, the Acquiror or the Company actually receives from any Other
Shareholder in satisfaction of such Shareholder's Liability for such Adverse
Consequences, and the maximum aggregate Liability of each Principal Shareholder
under this Section 7.1(a) will not exceed the value of the Cash Consideration
plus the Share Consideration payable to all Shareholders in respect of the
transactions contemplated in this Agreement, determined pursuant to Section 2.4.
The cumulative Liability of the Shareholders under the
provisions of this Section 7.1(a) shall be subject to a minimum threshold equal
to the Minimum Claims Amount, such that no demand or recovery shall be made
hereunder until all such claims, on a cumulative basis, exceed the Minimum
Claims Amount. The Minimum Claims Amount shall equal the sum of (i) US$25,000,
plus (ii) the lesser of (A) US$75,000, or (B) the U.S. dollar equivalent
(determined by applying the Agreed Conversion Rate) of the amount (if any) by
which the cash set forth on the Closing Date Balance Sheet exceeds the sum of
the Closing Date Liabilities and the Retained Liabilities set forth on the
Closing Date Balance Sheet.
(b) Amounts needed to cover any indemnification
claims resolved in favor of SignalSoft or the Acquiror against any Shareholder
during the Escrow Period will be paid to SignalSoft first out of the funds
escrowed pursuant to the Escrow Agreement, along with interest from the date of
the Closing at the rate applicable to the escrowed funds. If indemnification
claims resolved in favor of SignalSoft or the Acquiror against any Shareholder
during the Escrow Period, plus interest, exceed the escrowed funds (an "Excess
Claim Recovery"), such Excess Claim Recovery will be paid by releasing to
SignalSoft NS Shares held in escrow ("Escrowed Shares") equal in value to the
amount of such Excess Claim Recovery. If, at the relevant determination date,
SignalSoft Stock is publicly traded, the value of each Escrowed Share will be
equal to the last reported sales price of a share of SignalSoft Stock on the
Business Day preceding the release of such Escrowed Shares from escrow, as
reported by the principal U.S. securities exchange on which SignalSoft Stock is
traded. If SignalSoft Stock is not publicly traded at the relevant determination
date, then the value of the Escrowed Shares will be determined by agreement
between SignalSoft and the Shareholders' Agent, provided that, if they are
unable to agree on the value of the Escrowed Shares within two weeks following
the resolution of indemnification claims in favor of SignalSoft or the Acquiror
or the expiration of the Escrow Period (whichever is applicable) (the
"Applicable Date"), the value of the Escrowed Shares will be determined by a
qualified independent appraiser selected jointly by SignalSoft and the
Shareholders' Agent. If they are unable to agree on the selection of a qualified
independent appraiser within three weeks following the Applicable Date, then
each of SignalSoft and the Shareholders' Agent will select a qualified
independent appraiser. If the
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<PAGE> 39
value of the Escrowed Shares as determined by the appraisal indicating the lower
value is at least 90% of the value of the Escrowed Shares as determined by the
appraisal indicating the higher value, the value of the Escrowed Shares will be
deemed to be the average of the two values. If the value of the Escrowed Shares
as determined by the appraisal indicating the lower value is less than 90% of
the value of the Escrowed Shares as determined by the appraisal indicating the
higher value, the two appraisers performing such valuations will appoint a third
appraiser, whose determination of value will control. Each of SignalSoft and the
Shareholders (as a group) will bear the cost of any appraiser appointed by such
party, and each of SignalSoft and the Shareholders (as a group) will bear
one-half of the cost of any appraiser appointed jointly by SignalSoft and the
Shareholders' Agent or the third appraiser. For purposes of this Section 7.1(b),
SignalSoft Stock will be considered to be publicly traded if it is traded on a
U.S. national securities exchange or recognized over-the-counter market. The
Shareholders will have joint and several Liability for any additional amounts
needed to cover such claims, which amounts will be paid directly to SignalSoft.
At the end of the Escrow Period funds and Escrowed Shares that may be needed to
cover pending indemnification claims made by SignalSoft and the Acquiror (such
amounts to be determined by SignalSoft based upon the reasonable exercise of its
business judgment) will be retained in the Escrow Account until such claims are
resolved, and any excess funds and Escrowed Shares on deposit therein, including
any accrued interest, will be paid and released to the Shareholders. Nothing in
this Section 7.1(b) will be construed to limit SignalSoft's or the Acquiror's
right to indemnification to amounts on deposit in the Escrow Account. SignalSoft
and the Shareholders' Agent will jointly give instructions to the Escrow Agent
to carry out the intent of this Section 7.1(b). Any disputes concerning the
escrowed funds will be settled by arbitration as provided in this Agreement.
SignalSoft, on the one hand, and the Shareholders jointly and severally, on the
other hand, will each be responsible for one-half of the fees, charges and
expenses payable to the Escrow Agent pursuant to the Escrow Agreement.
7.2. Indemnification Provisions for Benefit of the
Shareholders. If SignalSoft breaches (or if any Person other than a Shareholder
alleges facts that, if true, would mean SignalSoft has breached) any of its
representations or warranties contained herein and the Shareholders' Agent gives
notice of a claim for indemnification against SignalSoft within the Survival
Period, or if SignalSoft breaches (or if any Person other than a Shareholder
alleges facts that, if true, would mean SignalSoft has breached) any of its
covenants contained herein or any of its representations, warranties or
covenants contained in any Other SignalSoft Agreement and the Shareholders'
Agent gives notice thereof to SignalSoft, then SignalSoft agrees to indemnify
and hold harmless the Shareholders from and against any Adverse Consequences the
Shareholders may suffer which result from, arise out of, relate to, or are
caused by the breach or alleged breach, regardless of whether the Adverse
Consequences are suffered during or after the Survival Period. In determining
whether there has been a breach of any representation or warranty contained in
Section 3.3 and in determining the amount of Adverse Consequences suffered by
the Shareholders for purposes of this Section 7.2, such representations and
warranties will not be qualified by "material," "materiality," "in all material
respects," "best knowledge," "best of knowledge" or "knowledge" or words of
similar import, or by any phrase using any such terms or words. If any dispute
arises concerning whether any indemnification is owing which cannot be resolved
by negotiation among the parties within 30 days
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of notice of claim for indemnification from the party claiming indemnification
to the party against whom such claim is asserted, the dispute will be resolved
by arbitration pursuant to this Agreement.
The cumulative Liability of SignalSoft under the provisions of
this Section 7.2 shall be limited to the Adjusted Company Value (determined as
of the Closing Date) and shall be subject to a minimum threshold equal to
US$25,000, such that no demand or recovery shall be made hereunder until all
such claims, on a cumulative basis, exceed US$25,000.
7.3. Matters Involving Third Parties.
(a) If any Person not a party to this Agreement
(including, without limitation, any Governmental Authority) notifies any party
(the "Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other party (the
"Indemnifying Party"), then the Indemnified Party will notify each Indemnifying
Party thereof in writing within 15 days after receiving such notice. No delay on
the part of the Indemnified Party in notifying any Indemnifying Party will
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right, at
its sole cost and expense, to defend the Indemnified Party against the Third
Party Claim with counsel of its choice satisfactory to the Indemnified Party so
long as (i) the Indemnifying Party notifies the Indemnified Party in writing
within 10 days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to or caused by the Third Party
Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party will
have the financial resources to defend against the Third Party Claim and fulfill
its indemnification obligations hereunder, (iii) the Third Party Claim involves
only money damages and does not seek an injunction or other equitable relief,
(iv) settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the continuing
business interests of the Indemnified Party, and (v) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently. If the
Indemnifying Party does not assume control of the defense or settlement of any
Third Party Claim in the manner described above, it will be bound by the results
obtained by the Indemnified Party with respect to the Third Party Claim.
(c) So long as the Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with Section 7.3(b) above,
(i) the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably), and (iii)
the Indemnifying Party will not
39
<PAGE> 41
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section
7.3(b) above is or becomes unsatisfied, however, (i) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it reasonably
may deem appropriate (and the Indemnified Party need not consult with, or obtain
any consent from, any Indemnifying Party in connection therewith), (ii) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable legal and accounting fees and expenses), and (iii) the Indemnifying
Parties will remain responsible for any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating to or caused by the
Third Party Claim to the fullest extent provided in this Section 7.
7.4. Right of Offset. SignalSoft will have the right to offset
any Adverse Consequences it or the Acquiror may suffer against any amounts
payable pursuant to this Agreement, any Other Seller Agreement or otherwise to
any Shareholder or any Relative or Affiliate of any Shareholder at or after the
Closing. Each Shareholder will have the right to offset any Adverse Consequences
it may suffer against any amounts payable pursuant to this Agreement, any Other
Seller Agreement or otherwise to SignalSoft or the Acquiror at or after the
Closing.
7.5. Other Remedies. The foregoing indemnification provisions
are in addition to, and not in derogation of, any statutory, equitable or common
law remedy any party may have.
8. Termination.
8.1. Termination of Agreement. The parties may terminate this
Agreement as provided below:
(a) SignalSoft and the Shareholders' Agent may
terminate this Agreement by mutual written consent at any time prior to the
Closing;
(b) SignalSoft may terminate this Agreement by giving
written notice to the Shareholders' Agent at any time prior to the Closing (i)
in the event any Shareholder has breached any representation, warranty or
covenant contained in this Agreement in any material way, SignalSoft has
notified the Shareholders' Agent of the breach, and the breach has not been
cured within 10 days after the notice of breach or (ii) if the Closing has not
occurred on or before April 26, 2000, because of the failure of any condition
precedent to SignalSoft's obligations to consummate the Closing (unless the
failure results primarily from SignalSoft breaching any representation, warranty
or covenant contained in this Agreement in any material way); and
(c) the Shareholders' Agent may terminate this
Agreement by giving written notice to SignalSoft at any time prior to the
Closing (i) if SignalSoft has breached any
40
<PAGE> 42
representation, warranty or covenant contained in this Agreement in any material
way, the Shareholders' Agent has notified SignalSoft of the breach, and the
breach has not been cured within 10 days after the notice of breach or (ii) if
the Closing has not occurred on or before April 26, 2000, because of the failure
of any condition precedent to the Shareholders' obligations to consummate the
Closing (unless the failure results primarily from any Shareholder breaching any
representation, warranty or covenant contained in this Agreement in any material
way).
8.2. Effect of Termination. The termination of this Agreement
by a party pursuant to Section 8.1 will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement, and the terminating party will be
entitled to seek all relief to which it is entitled under applicable law.
8.3. Confidentiality. If this Agreement is terminated, each
party will treat and hold as confidential all Confidential Information
concerning the other parties which it acquired from such other parties in
connection with this Agreement and the transactions contemplated hereby. The
Shareholders will cause the Company to comply with the provisions of this
Section 8.3 as fully as if it were a party to this Agreement.
9. Miscellaneous.
9.1. No Third-Party Beneficiaries. This Agreement will not
confer any rights or remedies upon any Person other than the parties and their
respective successors and permitted assigns.
9.2. Entire Agreement. This Agreement (including the Exhibits,
the Other Seller Agreements and the Other SignalSoft Agreements) constitutes the
entire agreement among the parties and supersedes any prior understandings,
agreements or representations by or among the parties, written or oral, to the
extent they relate in any way to the subject matter hereof.
9.3. Succession and Assignment. This Agreement will be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns. No Shareholder may assign this Agreement or any of his or her
rights, interests or obligations hereunder without the prior written approval of
SignalSoft. SignalSoft may not assign this Agreement or any of its rights,
interests or obligations hereunder without the prior written approval of the
Shareholders' Agent.
9.4. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original and all of
which together shall be deemed to be one and the same instrument. The execution
of a counterpart of the signature page to this Agreement will be deemed the
execution of a counterpart of this Agreement. This Agreement may be delivered by
facsimile and facsimile signatures will be treated as original signatures for
all purposes.
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<PAGE> 43
9.5. Headings. The section headings contained in this
Agreement are inserted for convenience only and will not affect in any way the
meaning or interpretation of this Agreement.
9.6. Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if it is sent
by registered or certified mail, return receipt requested, postage prepaid, or
by courier, telecopy or facsimile, and addressed to the intended recipient as
set forth below:
If to any
Shareholder:
Addressed to the
Shareholders' Agent at:
Jones Emery Hargreaves Swan
Suite 1212
1175 Douglas Street
Victoria, British Columbia, Canada V8W 2E1
Attn: Patrick Trelawny
Telecopy: (250) 382-5436
If to SignalSoft or the Acquiror: Copy to:
SignalSoft Corporation Sherman & Howard L.L.C.
1495 Canyon Blvd. 633 Seventeenth Street, Suite 3000
Boulder, Colorado 80302 Denver, Colorado 80202
Attn: Chief Executive Officer Attn: Robert P. Mitchell
Telecopy: (303) 381-3001 Telecopy: (303) 298-0940
Notices will be deemed given three days after mailing if sent by
certified mail, when delivered if sent by courier, and upon receipt of
confirmation by person or electronic device if sent by telecopy or facsimile
transmission. Any party may change the address to which notices, requests,
demands, claims and other communications hereunder are to be delivered by giving
the other parties notice in the manner herein set forth.
9.7. Governing Law. This Agreement will be governed by and
construed in accordance with the domestic laws of the State of Colorado without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
9.8. Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same is in writing and signed by
SignalSoft and the
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<PAGE> 44
Shareholders' Agent. No waiver by any party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, will be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence, and no waiver will be
effective unless set forth in writing and signed by the party against whom such
waiver is asserted.
9.9. Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
9.10. Expenses. Except as otherwise provided in Section 8.2,
(a) SignalSoft shall bear its own costs and expenses (including, without
limitation, legal fees and expenses) incurred either before or after the date of
this Agreement in connection with this Agreement and the transactions
contemplated hereby and (b) the Shareholders will bear all costs and expenses
(including, without limitation, all legal, accounting and tax related fees and
expenses, all fees, commissions, expenses and other amounts payable to any
broker, finder or agent) incurred by or for the benefit of the Company prior to
the Closing or by any Shareholder either before or after the Closing in
connection with this Agreement and the transactions contemplated hereby
(collectively, "Seller Transaction Expenses"); provided, however, that prior to
the Closing Date the Company may use any cash to pay Seller Transaction
Expenses.
9.11. Arbitration. Any disputes arising under or in connection
with this Agreement, including, without limitation, those involving claims for
specific performance or other equitable relief, will be submitted to binding
arbitration in Seattle, Washington before an arbitral body selected by
SignalSoft and the Shareholders' Agent (or, if they cannot agree on an arbitral
body, the American Arbitration Association) under the Commercial Arbitration
Rules of the American Arbitration Association under the authority of federal and
state arbitration statutes, and shall not be the subject of litigation in any
forum. EACH PARTY, BY SIGNING THIS AGREEMENT, VOLUNTARILY, KNOWINGLY AND
INTELLIGENTLY IRREVOCABLY WAIVES ANY RIGHTS SUCH PARTY MAY OTHERWISE HAVE TO
SEEK REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO JURY TRIAL. The
arbitrator shall have full authority to order specific performance and other
equitable relief and award damages and other relief available under this
Agreement or applicable law, but shall have no authority to add to, detract
from, change or amend the terms of this Agreement or existing law. All
arbitration proceedings, including settlements and awards, shall be
confidential. The decision of the arbitrators will be written, final and
binding, and judgment on the award by the arbitrators may be entered in any
court of competent jurisdiction. THIS SUBMISSION AND AGREEMENT TO ARBITRATE WILL
BE SPECIFICALLY ENFORCEABLE IN ANY COURT OF COMPETENT JURISDICTION. The
prevailing party or parties in any such arbitration or in any action to enforce
this Agreement will be entitled to recover, in addition to any other relief
awarded by the arbitrator, all reasonable costs and expenses, including fees and
expenses of the arbitrators and attorneys, incurred in connection
43
<PAGE> 45
therewith. If each party prevails on specific issues in the arbitration, the
arbitrator may allocate the costs incurred by all parties on a basis the
arbitrator deems appropriate.
9.12. Construction. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement will be construed as
if drafted jointly by the parties and no presumption or burden of proof will
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. The word "including" will mean including
without limitation. The parties intend that each representation, warranty and
covenant contained herein will have independent significance. If any party
breaches any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) which the party has not breached will not detract from or mitigate
the fact that the party is in breach of the first representation, warranty or
covenant.
9.13. Incorporation of Exhibits. The Exhibits identified in
this Agreement are incorporated herein by reference and made a part hereof.
9.14. Shareholders' Agent. Each Shareholder hereby authorizes
and appoints the Shareholders' Agent as its, his or her exclusive agent and
attorney-in-fact to act on behalf of each of them with respect to all matters
which are the subject of this Agreement, including, without limitation, (a)
receiving or giving all notices, instructions, other communications, consents or
agreements that may be necessary, required or given hereunder and (b) asserting,
settling, compromising, or defending, or determining not to assert, settle,
compromise or defend, (i) any claims which any Shareholder may assert, or have
the right to assert, against SignalSoft or the Acquiror, or (ii) any claims
which SignalSoft may assert, or have the right to assert, against any
Shareholder. The Shareholders' Agent hereby accepts such authorization and
appointment. Upon the receipt of written evidence satisfactory to SignalSoft to
the effect that the Shareholders' Agent has been substituted as agent of the
Shareholders by reason of his death, disability or resignation, SignalSoft shall
be entitled to rely on such substituted agent to the same extent as they were
theretofore entitled to rely upon the Shareholders' Agent with respect to the
matters covered by this Section 9.14. No Shareholder shall act with respect to
any of the matters which are the subject of this Agreement except through the
Shareholders' Agent. The Shareholders acknowledge and agree that SignalSoft may
deal exclusively with the Shareholders' Agent in respect of such matters, that
the enforceability of this Section 9.14 is material to SignalSoft, and that
SignalSoft has relied upon the enforceability of this Section 9.14 in entering
into this Agreement.
[Signature Pages Follow]
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<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SIGNALSOFT:
SIGNALSOFT CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
ACQUIROR:
SIGNALSOFT NS CO.
By: /s/ David Hose
--------------------------------
Name: David Hose
------------------------------
Title: President
-----------------------------
SHAREHOLDERS:
/s/ Anthony L. Melli
-----------------------------------
Anthony L. Melli
TIDELINE INVESTMENTS SRL
By: /s/ Ronald Oake
-------------------------------
Name: Ronald Oake
--------------------
Title: Director
-------------------
45
<PAGE> 47
EXCEPTIONAL TECHNOLOGIES FUND 4 (VCC), INC.
By: /s/ John McEwen
-------------------------------
Name: John McEwen
-------------------
Title: Director
-------------------
EXCEPTIONAL TECHNOLOGIES FUND 5 (VCC), INC.
By: /s/ John McEwen
------------------------------
Name: John McEwen
------------------
Title: Director
------------------
/s/ Mark Lyle
/s/ Kevin Buckham
/s/ Mark Insley
/s/ E. Michael Ingram
/s/ Andrew Kyle
/s/ Sharisse Kyle
/s/ Mats Gerschman
/s/ Daryl Ehrmantraut
46
<PAGE> 48
/s/ Cameron Fieber
/s/ Terry Bell
/s/ Larry Burke
/s/ Dan Nevin
/s/ Doug Bakewell
/s/ Cayce Marsten
/s/ Art Wynans
/s/ Joe Klovance
ACCEPTANCE BY SHAREHOLDERS' AGENT
I hereby accept the appointment as Shareholders' Agent
pursuant to Section 9.14 and agree to carry out the duties set forth in Section
9.14 with all due fidelity.
/s/ Jones Emery Hargreaves Swan
Shareholders' Agent
For: Pat Trelawny
47
<PAGE> 49
Exhibit 1.1(a)
DEFINED TERMS
Acquiror has the meaning given it in the preamble to this Agreement.
Acquired Assets means all right, title and interest in and to all of the
tangible and intangible assets of the Company.
Adjusted Company Value means CDN$8,091,642, reduced by the sum of the Cash
Shortfall and the Post-Closing Adjustment.
Adverse Consequences means all actions, suits, proceedings, investigations,
complaints, claims, demands, Orders, Liabilities, liens, losses, damages,
penalties, fines, settlements, costs, remediation costs, expenses and fees
(including court costs and reasonable fees and expenses of counsel and other
experts), plus interest at a rate equal to two percentage points above the prime
rate quoted by SignalSoft's principal lender from time to time accrued from the
date of such Adverse Consequence.
Affiliate means "affiliate" as defined in the Company Act (B.C.) as amended
from time to time.
Agreed Conversion Rate means the U.S./Canada currency conversion rate
offered by the Royal Bank of Canada for its commercial customers ("noon rate")
as in effect on the second Business Day preceding the Closing Date.
Business Day means any day on which commercial banks are open for business
in Denver, Colorado.
Cash Consideration has the meaning given in Section 2.2(a)(i).
Cash Covered Accrued Commission Liability means accrued sales commissions
payable by the Company resulting from any sale by the Company prior to the
Closing Date, if and only to the extent that the Company has not received
payment prior to the Closing Date from the service provider of the amount in
respect of which such accrued sales commission was earned.
Cash Shortfall means the amount (if any) by which the sum of the Closing
Date Liabilities and the Retained Liabilities exceeds the Company's cash set
forth on the applicable balance sheet of the Company.
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<PAGE> 50
Closing Accounts Receivable means all accounts (including late fees and
interest charges thereon) and notes receivable of the Company which are in
existence as of the Closing Date.
Closing and Closing Date have the meanings given in Section 2.4.
Closing Date Balance Sheet has the meaning given it in Section 2.2(c).
Closing Date Liabilities means all Liabilities of the Company, but
excluding Retained Liabilities and any unearned revenues of the Company
attributable to the provision of goods and services to the SignalSoft.
Code means the Internal Revenue Code of 1986, as amended.
Company has the meaning given it in Recital A, except that for purposes of
Sections 3.1 and 3.2, the term the "Company" shall mean the Company and all of
its Subsidiaries.
Company Shares means shares of Company Stock.
Company Stock means common shares, without nominal par value, of the
Company.
Confidential Information means any information concerning the subject
Person or the subject Person's business, products, financial condition,
prospects and affairs that is not already generally available to the public.
Encumbrance means any mortgage, pledge, conditional sale agreement, charge,
claim, interest of another Person, lien, security interest, title defect or
other encumbrance.
Environmental Laws means all applicable federal, provincial, regional,
municipal or local laws, ordinances, bylaws, codes, rules, regulations, orders,
approvals, licenses, Permits, governmental decrees or any and all other
legislation or regulatory instruments with respect to the environmental or
health matters including, without limitation, the regulation or the imposition
of liability or standards of conduct with respect to any hazardous or toxic
materials, pollutants, effluents, contaminants, radioactive materials, flammable
explosives, hazardous or toxic emissions, wastes and all other chemicals,
materials and substances the handling, storage, release, transportation, or
disposal of which is prohibited, limited or regulated by any federal, provincial
or municipal authority.
Escrow Account means the account established pursuant to the Escrow
Agreement.
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<PAGE> 51
Escrow Agreement means the Escrow Agreement among SignalSoft, the Acquiror,
the Shareholders' Agent, the Shareholders and Bank One Colorado, N.A.(the
"Escrow Agent") substantially in the form of Exhibit 1.1(b) with respect to the
period commencing on the Closing and ending on the first anniversary of the
Closing (or, if any indemnification claims are pending at the first anniversary
of the Closing, the date all such claims are finally resolved in accordance with
the provisions of this Agreement) (the "Escrow Period").
Escrow Deposit has the meaning given it in Section 2.2(a).
Estimated Closing Date Balance Sheet has the meaning given it in Section
2.2(b).
GAAP means generally accepted accounting principles as in effect from time
to time in Canada.
Governmental Authority means any federal, provincial, municipal or regional
government and governmental authority, domestic or foreign, and includes any
department, commission, bureau, board, administrative agency, or regulatory
board of any of the foregoing, including the United States of America, any
state, commonwealth, territory or possession of the United States of America,
any political subdivision thereof (including counties, municipalities, home-rule
cities and the like), and any agency, authority or instrumentality of any of the
foregoing, including, without limitation, any court, tribunal, department,
bureau, commission or board.
Intellectual Property means all trade, corporate, business and product
names, trademarks, trademark rights, service marks, copyrights, patents, patent
rights, trade secrets, business, customer and technical information, and
computer software, all registrations, licenses and applications pertaining
thereto, and all related documentation and goodwill.
Latest Balance Sheet has the meaning given it in Section 3.1(d).
Legal Requirement means any constitution, statute, ordinance, code, or
other law (including common law), rule, regulation, Order, notice, standard,
procedure or other requirement enacted, adopted, applied or issued by any
Governmental Authority, including, without limitation, judicial decisions
applying or interpreting any such Legal Requirement.
Liability means any liability or obligation (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due).
NS Stock means Class B common shares, without nominal par value, of the
Acquiror.
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<PAGE> 52
NS Shares means shares of NS Stock.
Orders means all judgments, injunctions, orders, rulings, decrees,
directives, notices of violation or other requirements of any Governmental
Authority or arbitrator having jurisdiction in the matter, including a
bankruptcy court or trustee.
Other Shareholders means all Shareholders other than the Principal
Shareholders.
Other SignalSoft Agreements means the Escrow Agreement, the Registration
Rights Agreement, the Stockholders' Agreement and the other documents and
instruments to be executed and delivered by SignalSoft or the Acquiror pursuant
to this Agreement.
Other Seller Agreements means the Escrow Agreement, the Registration Rights
Agreement, the Stockholders' Agreement and other documents and instruments to be
executed and delivered by any Shareholder or any Relative or Affiliate of the
Company or of any Shareholder pursuant to this Agreement.
Permits means all permits, licenses, consents, franchises, authorizations,
approvals, privileges, waivers, exemptions, variances, exclusionary or
inclusionary Orders and other concessions, whether governmental or private,
including, without limitation, those relating to environmental, public health,
welfare or safety matters.
Per Share Amount has the meaning given in Section 2.2(a).
Person means an individual, partnership, corporation, association, joint
stock company, trust, joint venture, limited liability company, unincorporated
organization or Governmental Authority.
Post-Closing Adjustment has the meaning given in Section 2.2(d)(iii).
Premises means the real property, buildings and improvements thereon
constituting the business premises of the Company located at 970 Meares Street,
Victoria, British Columbia.
Pre-Closing Income Tax Amount means an amount equal to the U.S. federal and
state income Taxes of the Company and the Canadian federal and provincial income
taxes of the Company relating to all periods from the end of the last tax year
for which the Company's U.S. federal and state income Tax Returns and Canadian
federal and provincial income tax returns have been filed to the Closing Date
(the "Pre-Closing Income Tax Amount"), to the extent that such amount exceeds
the aggregate estimated Tax payments made by the Company on or before the
Closing Date that would be applicable to the Taxes included in the Pre-Closing
Income Tax Amount.
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<PAGE> 53
Principal Shareholders means Anthony L. Melli, Kevin Buckham and Mark
Insley.
Purchase Price means the sum of the Cash Consideration plus the value of
the Share Consideration.
Registration Rights Agreement means the Registration Rights Agreement
between SignalSoft and the Shareholders in the form of Exhibit 1.1(c).
Relative means "related person" as defined in Section 251(2) of the Tax
Act.
Retained Liabilities means (a) trade payables incurred in the ordinary
course of business which are not past due based upon their normal, stated terms,
(b) accrued liabilities incurred in the ordinary course of business which are
not past due based upon their normal, stated terms (e.g., payroll), but
excluding accrued bonus, accrued profit sharing, accrued rent and accrued
Liabilities for Taxes and (c) Cash Covered Accrued Commission Liabilities.
Retained Liabilities will not include any other Liability.
Right means any right, property interest, concession, patent, trademark,
trade name, copyright, know-how or other proprietary right of any Person.
Securities has the meaning given in Section 3.2(a)(i).
Securities Act means the Securities Act of 1933, as amended.
Share Consideration has the meaning given in Section 2.2(a)(ii).
Shareholders has the meaning given it in the preamble to this Agreement.
Shareholders' Agent means Jones Emery Hargreaves Swan (or the substituted
agent described in Section 9.14) acting as agent for the Shareholders pursuant
to Section 9.14.
SignalSoft Shares means shares of SignalSoft Stock into which NS Shares are
converted.
SignalSoft Stock means the common stock, US$0.001 par value, of SignalSoft.
Stockholders' Agreement means the Stockholders' Agreement among SignalSoft
and the Shareholders in the form of Exhibit 1.1(d).
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<PAGE> 54
Subsidiary means, with respect to a Person, any Person controlled (meaning
possession of the direct or indirect power to direct or cause the direction of
the management and policies, whether through the ownership of voting securities,
by contract or otherwise) by such first Person directly or through one or more
intermediaries.
Survival Period means, with respect to a representation or warranty, the
applicable period after the Closing Date during which such representation or
warranty survives pursuant to Section 3.4.
Tax means any Canadian, U.S. or foreign federal, provincial, state or local
income, goods and services, social services, capital, sales or use, payroll,
withholding, property or other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not.
Tax Act means the Income Tax Act (Canada), as amended.
Tax Return means any return, declaration, report, claim for refund or
information return or statement relating to any Tax, including any schedule or
attachment thereto, and including any amendment thereof.
Unknown Infringement Claim means a claim asserted against the Company by a
third party for patent or trademark infringement, the basis for which no
Shareholder has knowledge as of or prior to the Closing Date, or a claim the
basis for which is disclosed on Exhibit 3.1(i).
U.S. GAAP means generally accepted accounting principles as in effect from
time to time in the Untied States.
U.S. Person means "U.S. Person" as defined in Regulation S promulgated
under the Securities Act.
6
<PAGE> 1
EXHIBIT 10.3
SIGNALSOFT CORP.
INVESTORS' RIGHTS AGREEMENT
AUGUST 1, 1996
<PAGE> 2
SIGNALSOFT CORP.
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (the "Agreement") is made as of the
1st day of August, 1996 by and among SignalSoft Corp., a Colorado corporation
(the "Company"), the investors listed on Exhibit A hereto, each of which is
herein referred to as an "Investor," and David Hose, Mark Flolid and Jim Fitch,
each of whom is herein referred to as a "Founder".
RECITALS
The Company and the Investors have entered into a Series A Preferred
Stock Purchase Agreement (the "Purchase Agreement") of even date herewith
pursuant to which the Company desires to sell to the Investors and the Investors
desire to purchase from the Company shares of the Company's Series A Preferred
Stock. A condition to the Investors' obligations under the Purchase Agreement is
that the Company, the Founders and the Investors enter into this Agreement in
order to provide the Investors with (i) certain rights to register shares of the
Company's Common Stock issuable upon conversion of the Series A Preferred Stock
held by the Investors, (ii) certain rights to receive or inspect information
pertaining to the Company, and (iii) a right of first offer with respect to
certain issuances by the Company of its securities. The Company, the Investors
and the Founders each desire to induce the Investors to purchase shares of
Series A Preferred Stock pursuant to the Purchase Agreement by agreeing to the
terms and conditions set forth herein.
AGREEMENT
1. REGISTRATION RIGHTS. The Company and the Investors covenant
and agree as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The terms "register", "registered", and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the
shares of Common Stock issuable or issued upon conversion of the Series A
Preferred Stock (such shares of Common Stock are collectively referred to
hereinafter as the "Stock"), (ii) any other shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the Stock, and (iii)
the shares of Common Stock issued prior to August 1, 1996 to the Founders
(including any other shares of Common Stock of the Company issued as a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Common Stock)(the "Founders' Stock"), provided, however, that for the
purposes of Section 1.10, the Founders' Stock shall not be deemed Registrable
Securities and the Founders shall not be deemed Holders and provided, further,
that the foregoing definition shall exclude in all cases any
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<PAGE> 3
Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned in accordance with the provisions
of this Agreement. Notwithstanding the foregoing, Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale;
(c) The number of shares of "Registrable Securities
then outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.11 hereof;
(e) The term "Form S-3" means such form under the Act
as in effect on the date hereof or any successor form under the Act; and
(f) The term "SEC" means the Securities and Exchange
Commission.
1.2 COMPANY REGISTRATION. If (but without any obligation
to do so) the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Holders)
any of its stock under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Act, a registration in which the only stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered, or any registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within thirty (30)
days after mailing of such notice by the Company in accordance with Section 3.5,
the Company shall, subject to the provisions of Section 1.6, use its best
efforts to cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered. Each Investor
shall be bound by the Company's choice of managing underwriter.
1.3 OBLIGATIONS OF THE COMPANY. Whenever required under
this Section 1 to use its best efforts to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
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(a) Prepare and file with the SEC a registration
statement that includes such Registrable Securities and use its best efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for up to one hundred twenty (120)
days or until all of such Registrable Securities have been disposed of (if
earlier).
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement for up to one hundred eighty (180) days or until
all of such Registrable Securities have been disposed of (if earlier).
(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such states or jurisdictions as shall be reasonably requested
by the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred eighty (180) days.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange or market on which
similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities (which may be the same entity and may be the Company if
the Company is registrar and
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<PAGE> 5
transfer agent for all its outstanding securities) registered pursuant hereunder
and a CUSIP number for all such Registrable Securities, in each case not later
than the effective date of such registration.
(i) Use its best efforts to furnish, at the request
of any Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.4 FURNISH INFORMATION. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.10 of this Agreement if, as a
result of the application of the preceding sentence, the number of shares or the
anticipated aggregate offering price of the Registrable Securities to be
included in the registration does not equal or exceed the number of shares or
the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.10(b)(2).
1.5 EXPENSES OF COMPANY REGISTRATION. The Company shall
bear and pay all expenses incurred in connection with any registration, filing
or qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.2 for each Holder (which right may be assigned as provided
in Section 1.11), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of one counsel for the selling
Holders selected by them with the approval of the Company, which approval shall
not be unreasonably withheld, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.6 UNDERWRITING REQUIREMENTS. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.2 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by the Company
(or by other persons entitled to select the underwriters), and then only in
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such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders, including
the Founders, according to the total amount of securities entitled to be
included therein owned by each selling stockholder, including the Founders, or
in such other proportions as shall mutually be agreed to by such selling
stockholders, including the Founders) but in no event shall the amount of
securities of the selling Holders included in the offering be reduced below
thirty percent (30%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities in which case the selling stockholders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included. For purposes of the preceding parenthetical concerning
apportionment, for any selling stockholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and stockholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling stockholder", and
any pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder", as defined in
this sentence.
1.7 DELAY OF REGISTRATION. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.8 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation or alleged violation by the Company of the
Act, or the Exchange Act, or any rule
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or regulation promulgated under the Act or the Exchange Act or any state
securities law or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
such registration or qualification under such state securities law, and
the Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 1.8(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.8(b) exceed the net proceeds from the offering received by such Holder, except
in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 1.8 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.8,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by
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<PAGE> 8
the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.8.
(d) If the indemnification provided for in this
Section 1.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations; provided, that, in no event shall any contribution by a Holder
under this Subsection 1.8(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.9 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public so
long as the Company remains subject to the periodic reporting requirements under
Sections 13 or 15(d) of the Exchange Act;
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(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the Exchange Act (at
any time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
under the Exchange Act by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.10 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders of not less than thirty percent (30%) of the
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.10: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which
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event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.10; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has, within the nine (9) month period preceding the
date of such request, already effected one registration on Form S-3 for the
Holders pursuant to this Section 1.10; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company shall file
a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All expenses incurred in connection with
a registration requested pursuant to Section 1.10, including (without
limitation) all registration, filing, qualification, printers' and accounting
fees and the reasonable fees and disbursements of counsel for the selling Holder
or Holders and counsel for the Company, shall be borne pro rata by the Holder or
Holders participating in the Form S-3 Registration.
1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of at least 100,000 shares of such securities, provided
the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act and such person as a
condition to the effectiveness of such assignment executes a counterpart to this
agreement agreeing to be treated as a Holder. For the purposes of determining
the number of shares of Registrable Securities held by a transferee or assignee,
the holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1.
1.12 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby
agrees that, during the period of duration (up to, but not exceeding, 180 days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the date of the final prospectus distributed in
connection with a registration statement of the Company filed under the Act, it
shall not, to the extent requested by the Company and such underwriter, directly
or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that:
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<PAGE> 11
(a) such agreement shall be applicable only to the
first such registration statement of the Company which covers Common Stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering; and
(b) all officers and directors of the Company, all
one-percent security holders, and all other persons with registration rights
(whether or not pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.12.
Notwithstanding the foregoing, the obligations described in this
Section 1.12 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
1.13 TERMINATION OF REGISTRATION RIGHTS. No Holder shall
be entitled to exercise any right provided for in this Section 1 after the later
of (i) two (2) years following the consummation of the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the initial firm commitment underwritten offering of its
securities to the general public, or (ii) such time as Rule 144 or another
similar exemption under the Act is available for the sale of all of such
Holder's shares during a three (3)-month period without registration.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall
deliver to each Investor holding, and to transferees of, at least 100,000 shares
of Registrable Securities:
(a) as soon as practicable, but in any event within
sixty (60) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within
thirty (30) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, an unaudited
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<PAGE> 12
profit or loss statement, a statement of cash flows for such fiscal quarter and
an unaudited balance sheet as of the end of such fiscal quarter;
(c) within thirty (30) days of the end of each month,
an unaudited income statement and a statement of cash flows and balance sheet
for and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty
(30) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called
for in subsections (b) and (c) of this Section 2.1, an instrument executed by
the Chief Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so;
and
(f) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time reasonably
request, provided, however, that the Company shall not be obligated under this
subsection (f) or any other subsection of Section 2.1 to provide information
which it deems in good faith to be a trade secret or similar confidential
information.
2.2 INSPECTION. The Company shall permit each Investor,
at such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Investor; provided, however, that the Company shall not be
obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS.
The covenants set forth in Sections 2.1 and 2.2 shall terminate as to Investors
and be of no further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
firm commitment underwritten offering of its securities to the general public is
consummated or when the Company first becomes subject to the periodic reporting
requirements of Sections 13 or 15(d) of the Exchange Act, whichever event shall
first occur.
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<PAGE> 13
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any of the Series A Preferred Stock or any Common
Stock issued upon conversion thereof). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto shall be governed, construed and interpreted in
accordance with the laws of the State of Colorado without giving effect to
principles of conflicts of laws.
3.3 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier or
sent by telegram or fax, or forty-eight (48) hours after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address as set forth below or on
Exhibit A hereto or as subsequently modified by written notice.
3.6 EXPENSES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding, not including the
Founders' Stock; provided that if such amendment has the effect of affecting the
Founders' Stock (i) in a manner different than securities issued to the
Investors and (ii) in a manner adverse to the interests of the holders of the
Founders' Stock, then such amendment shall require the consent of the holder or
holders of a majority of the Founders' Stock. Any amendment or waiver effected
in
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<PAGE> 14
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
3.8 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties agree
to renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (x) such provision shall be excluded from this Agreement, (y)
the balance of the Agreement shall be interpreted as if such provision were so
excluded and (z) the balance of the Agreement shall be enforceable in accordance
with its terms.
3.9 AGGREGATION OF STOCK. All shares of the Preferred
Stock held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
[Signature Page Follows]
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<PAGE> 15
The parties have executed this Investors' Rights Agreement as of the
date first above written.
COMPANY:
SIGNALSOFT CORP.
By: /s/ David Hose
--------------------------------------------
President
INVESTORS:
OLYMPIC VENTURE PARTNERS III, L.P.
By: OVMC III LP ITS GP
By: /s/ Charles P. Waite, Jr.,
--------------------------------------------
Title: General Partner
OVP ENTREPRENEURS FUND, L.P.
By: OVMC III LP ITS GP
By: /s/ Charles P. Waite, Jr.,
--------------------------------------------
Title: General Partner
FOUNDERS:
/s/ David Hose
/s/ Mark Flolid
/s/ Jim Fitch
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<PAGE> 1
EXHIBIT 10.4
AMENDMENT ONE TO 8/1/96 INVESTORS' RIGHTS AGREEMENT
OF
SIGNALSOFT CORP.
THIS AMENDMENT, is entered into as of this 22nd day of January, 1998,
by and among SignalSoft Corp., a Colorado corporation (the"Company"), the
undersigned investors who comprise all of the holders of the Company's Series A
Preferred Stock (the "Series A Investors"), the Company's three founders --
David Hose, Mark Flolid, and Jim Fitch (individually a "Founder" and
collectively the "Founders") -- and the investors listed on Exhibit A hereto as
that Exhibit A now exists and may hereafter be added to in accordance with the
provisions of paragraph 1.2(c) of that certain SignalSoft Corp. Series B
Preferred Stock Purchase Agreement of even date herewith (the "Series B Purchase
Agreement") by and among the Company and the investors listed on Exhibit A
hereto and thereto (the "Series B Investors").
RECITALS
WHEREAS, The Company, the Series A Investors, and the Founders
are signatories to that certain SignalSoft Corp. Investors' Rights Agreement
entered into as of the 1st day of August, 1996 (the "8/1/96 Investors' Rights
Agreement"); and,
WHEREAS, paragraph 3.7 of the 8/1/96 Investors' Rights
Agreement provides that such agreement may be amended only with the written
consent of the Company and the holders of a majority of the Registrable
Securities then outstanding, not including the Founders' Stock, as those terms
are defined therein (provided that the consent of the holder or holders of a
majority of the Founders' Stock is also required in certain circumstances), and
that any amendment so effected shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company; and,
WHEREAS, the Series A Investors are - and have been
continuously since August 7, 1996 through and including the date hereof first
above written - the holders of a majority of the currently outstanding
Registrable Securities, not including the Founders' Stock as defined in the
8/20/86 Registration Rights Agreement; and both the Series A Investors and the
Company, as well as each of the Founders, desire to amend the 8/1/96 Investors'
Rights Agreement in the manner set forth in this Amendment in order to induce
the Series B Investors to purchase shares of the Company's Series B Preferred
Stock pursuant to the Series B Purchase Agreement by agreeing to the terms and
conditions in this Amendment; and,
WHEREAS, it is the intent of the parties hereto by this
Amendment to extend to all the holders of the Company's Series B Preferred Stock
the identical rights, privileges and obligations granted to, and assumed by, the
Series A Investors under the terms and conditions of the 8/1/96 Investors'
Rights Agreement.
<PAGE> 2
NOW THEREFORE, in consideration of the above recitals and the mutual
promises contained below, the parties hereby agree as follows:
1. Paragraph 1.1 of the 8/1/96 Investors' Rights Agreement is amended
by deleting the words "Section 1" in the heading and replacing them with the
word "Agreement", so that the heading of paragraph 1.1 as amended will
henceforth read in its entirety as follows:
"1.1 Definitions. For purposes of this Agreement:"
2. Paragraph 1.1(b) of the 8/1/96 Investors' Rights Agreement is
amended by inserting the words "and Series B" between the words "Series A" and
"Preferred Stock" in subparagraph 1.1(b)(i), so that subparagraph 1.1(b)(i) as
amended will henceforth read in its entirety as follows:
"(b) The term "Registrable Securities" means (i) the shares of Common
Stock issuable or issued upon conversion of the Series A and Series B
Preferred Stock (such shares of Common Stock are collectively referred
to hereinafter as the "Stock"),"
3. A new paragraph 1.1(g) is hereby added to the 8/1/96 Investors'
Rights Agreement by this Amendment, to read in its entirety as follows:
"(g) The term "Investor" means and shall include each holder of Series
A Preferred Stock and/or Series B Preferred Stock of the Company."
4. A new paragraph 1.1(h) is hereby added to the 8/1/96 Investors'
Rights Agreement by this Amendment), to read in its entirety as follows:
"(h) The term "Preferred Stock" means and shall include both the
Company's Series A Preferred Stock and Series B Preferred Stock
aggregated together."
5. A new paragraph 1.1(i) is hereby added to the 8/1/96 Investors'
Rights Agreement by this Amendment, to read in its entirety as follows:
"(i) The term "Amended Investors' Rights Agreement" shall mean, and be
used to describe, this Agreement taken together with all amendments
hereto effected subsequent to 8/1/96 in conformity with the provisions
of paragraph 3.7 hereof."
6. The first sentence of paragraph 3.1 of the 8/1/96 Investors' Rights
Agreement is amended by inserting the words "and/or Series B" between the words
"Series A" and "Preferred Stock" within the parenthetical, so that the first
sentence of paragraph 3.1 as amended will henceforth read in its entirety as
follows:
"3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors
2
<PAGE> 3
and assigns of the parties (including transferees of any of the Series
A and/or Series B Preferred Stock or any Common Stock issued upon
conversion thereof)."
7. Paragraph 3 of the 8/1/96 Investors' Rights Agreement is amended by
the addition of a new paragraph 3.10 to read in its entirety as follows:
"3.10 Legend on Stock Certificates. Each certificate
representing shares of capital stock that are subject to this Agreement
shall bear a legend substantially in the following form:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
INVESTORS' RIGHTS AGREEMENT DATED AUGUST 1, 1996, AS AMENDED
ON JANUARY 22, 1998, BY AND AMONG SIGNALSOFT CORP. AND CERTAIN
HOLDERS OF ITS OUTSTANDING CAPITAL STOCK. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY
OF SIGNALSOFT CORP."
8. This Amendment shall be deemed effective as of January 22, 1998, the
date of the SignalSoft Corp. Series B Purchase Agreement, and specifically
hereby is intended to ratify, confirm and embody certain terms of the offer made
to the Series B Investors in the Term Sheet prior to their becoming a signatory
to the Series B Purchase Agreement and this Amendment, such that the Series B
Investors will become beneficiaries of the Amended Investors' Rights Agreement
as defined above as soon as they purchase shares of the Company's Series B
Preferred Stock pursuant to the Series B Purchase Agreement.
[Signature Pages Follow]
3
<PAGE> 4
The parties have executed this Amendment One to 8/1/96 Investors'
Rights Agreement as of the date first written above.
COMPANY:
SIGNALSOFT CORP.
By: /s/ David Hose
-------------------------------
Name: David Hose
-----------------------------
(print)
Title: President
----------------------------
Address: 2045 Broadway
--------------------------
Boulder, CO 80302
--------------------------
SERIES A INVESTORS:
OLYMPIC VENTURE PARTNERS III, L.P.
By: Olympic Venture Partners III, L.P. Its G.P.
By: /s/ Charles P. Waite, Jr.
-------------------------------
Name: Charles P. Waite, Jr.
-----------------------------
(print)
Title: General Partner
----------------------------
Address:
--------------------------
--------------------------
4
<PAGE> 5
OVP III ENTREPRENEURS FUND, L.P.
By: OVMC III, L.P., Its G.P.
By: /s/ Charles P. Waite, Jr.
-------------------------------
Name: Charles P. Waite, Jr.
-----------------------------
(print)
Title: General Partner
----------------------------
Address:
--------------------------
--------------------------
FOUNDERS:
/s/ David Hose
/s/ Mark Flolid
/s/ Jim Fitch
SERIES B INVESTORS:
OLYMPIC VENTURE PARTNERS III, L.P.
By: OVMC III, L.P., Its G.P.
By: /s/ Charles P. Waite, Jr.
-------------------------------
Name: Charles P. Waite, Jr.
-----------------------------
(print)
Title: General Partner
----------------------------
5
<PAGE> 6
OVP III ENTREPRENEURS FUND, L.P.
By: OVMC III, L.P., Its G.P.
By: /s/ Charles P. Waite, Jr.
-------------------------------
Name: Charles P. Waite, Jr.
-----------------------------
(print)
Title: General Partner
----------------------------
OLYMPIC VENTURE PARTNERS IV, L.P.
By: OVMC IV, L.L.C., Its G.P.
By: /s/ Charles P. Waite, Jr.
-------------------------------
Name: Charles P. Waite, Jr.
-----------------------------
(print)
Title: Managing Member
----------------------------
OVP IV ENTREPRENEURS FUND, L.P.
By: OVMC IV, L.L.C., Its G.P.
By: /s/ Charles P. Waite, Jr.
-------------------------------
Name: Charles P. Waite, Jr.
-----------------------------
(print)
Title: Managing Member
----------------------------
/s/ Peter J. Mooney
- ----------------------------------
Peter J. Mooney as nominee
for the Broadview Partners Group
/s/ Michael Berman
6
<PAGE> 7
WESSELS, ARNOLD & HENDERSON, L.L.C.
By: /s/ Thomas J. Brigl
-------------------------------
Print Name: Thomas J. Brigl
-----------------------
Print Title: CFO/Managing Director
----------------------
/s/ Robert P. Mitchell
- ----------------------------------
Lazard Freres & Co. LLC
/s/ Russell P. Planitzer
TGI Fund II, LC
By Tredegar Investments Inc., its Manager
By: /s/ L. U. A. Blanchard
7
<PAGE> 1
EXHIBIT 10.5
AMENDMENT TWO TO 8/1/96 INVESTORS' RIGHTS AGREEMENT
OF
SIGNALSOFT CORPORATION
THIS AMENDMENT, is entered into as of this December 15, 1999, by and among
SignalSoft Corporation, a Delaware corporation (the "Company"), the undersigned
investors who comprise all of the holders of the Company's Series A Preferred
Stock (the "Series A Investors"), all of the holders of the Company's Series B
Preferred Stock (the "Series B Investors"), the Company's three founders --
David Hose, Mark Flolid, and Jim Fitch (individually a "Founder" and
collectively the "Founders") -- and the investors listed on Exhibit A hereto as
that Exhibit A now exists and may hereafter be added to in accordance with the
provisions of paragraph 1.2(c) of that certain SignalSoft Corporation Series C
Preferred Stock Purchase Agreement of even date herewith (the "Series C Purchase
Agreement") by and among the Company and the investors listed on Exhibit A
hereto and thereto (the "Series C Investors").
RECITALS
WHEREAS, the Company, the Series A Investors, the Series B Investors and
the Founders are signatories to that certain SignalSoft Corporation Investors'
Rights Agreement entered into as of the 1st day of August, 1996, as amended by
Amendment One thereto dated January 22, 1998 (the "8/1/96 Investors' Rights
Agreement"); and,
WHEREAS, paragraph 3.7 of the 8/1/96 Investors' Rights Agreement provides
that such agreement may be amended only with the written consent of the Company
and the holders of a majority of the Registrable Securities then outstanding,
not including the Founders' Stock, as those terms are defined therein (provided
that the consent of the holder or holders of a majority of the Founders' Stock
is also required in certain circumstances), and that any amendment so effected
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company; and,
WHEREAS, the Series A Investors and the Series B Investors are the holders
of a majority of the currently outstanding Registrable Securities, not including
the Founders' Stock as defined in the 8/20/86 Registration Rights Agreement; and
the Series A Investors, the Series B Investors and the Company, as well as each
of the Founders, desire to amend the 8/1/96 Investors' Rights Agreement in the
manner set forth in this Amendment in order to induce the Series C Investors to
purchase shares of the Company's Series C Preferred Stock pursuant to the Series
C Purchase Agreement by agreeing to the terms and conditions in this Amendment;
and,
WHEREAS, it is the intent of the parties hereto by this Amendment to extend
to all the holders of the Company's Series C Preferred Stock the identical
rights, privileges and obligations granted to, and assumed by, the Series A
Investors and the Series B Investors under the terms and conditions of the
8/1/96 Investors' Rights Agreement (such 8/1/96 Investors' Rights Agreement, as
<PAGE> 2
amended by this Amendment, the "Amended Investors' Rights Agreement") in a
manner which makes all of the Preferred Stock rights and privileges granted
under the Amended Investors' Rights Agreement applicable to the Series A and
Series B and Series C Preferred Stock taken together as the "Preferred Stock".
NOW THEREFORE, in consideration of the above recitals and the mutual
promises contained below, the parties hereby agree as follows:
1. Clause (i) of paragraph 1.1(b) is hereby amended to read in its entirety
as follows:
"(b) The term "Registrable Securities" means (i) the shares of Common Stock
issuable or issued upon conversion of the Series A and Series B and Series
C Preferred Stock (such shares of Common Stock are collectively referred to
hereinafter as the "Stock"),"
2. Paragraph 1.1(g) is hereby amended to read in its entirety as follows:
"(g) The term "Investor" means and shall include each holder of Series A
Preferred Stock and/or Series B Preferred Stock and/or Series C Preferred
Stock of the Company."
3. Paragraph 1.1(h) is hereby amended to read in its entirety as follows:
"(h) The term "Preferred Stock" means and shall include the Company's
Series A Preferred Stock and Series B Preferred Stock and Series C
Preferred Stock aggregated together."
4. The first sentence of paragraph 3.1 of the 8/1/96 Investors' Rights
Agreement is hereby amended to read in its entirety as follows:
"3.1 Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties
(including transferees of any of the Series A and/or Series B and/or Series
C Preferred Stock or any Common Stock issued upon conversion thereof)."
5. Paragraph 3.10 of the 8/1/96 Investors' Rights Agreement is hereby
amended to read in its entirety as follows:
"3.10 Legend on Stock Certificates. Each certificate representing
shares of capital stock that are subject to this Agreement shall bear a
legend substantially in the following form:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
INVESTORS' RIGHTS AGREEMENT DATED AUGUST 1, 1996, AS AMENDED FROM TIME
TO TIME, BY AND AMONG SIGNALSOFT
2
<PAGE> 3
CORPORATION AND CERTAIN HOLDERS OF ITS OUTSTANDING CAPITAL STOCK.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
SIGNALSOFT CORPORATION."
8. This Amendment shall be deemed effective as of December 15, 1999, the
date of the SignalSoft Corporation Series C Purchase Agreement, and specifically
hereby is intended to make Series C Investors beneficiaries of the Amended
Investors' Rights Agreement as defined above as soon as they purchase shares of
the Company's Series C Preferred Stock pursuant to the Series C Purchase
Agreement.
9. The Company acknowledges and confirms that it has assumed all
obligations of its predecessor Colorado corporation, SignalSoft Corp. under the
8/1/96 Investors' Rights Agreement, and upon its execution and delivery hereof,
will be obligated under and bound by all the amended terms of the Amended
Investors' Rights Agreement.
10. Except as expressly amended hereby, each of the terms of the 8/1/96
Investors' Rights Agreement is hereby ratified and confirmed and continues in
full force and effect.
[Signature Pages Follow]
3
<PAGE> 4
The parties have executed this Amendment Two to 8/1/96 Investors' Rights
Agreement as of the date first written above.
COMPANY:
SIGNALSOFT CORPORATION
By: /s/ David Hose
-------------------------
Name: David Hose
-----------------------
(print)
Title: President
Address: 1495 Canyon Blvd.
Boulder Colorado 80302
SERIES A INVESTORS:
OLYMPIC VENTURE PARTNERS III, L.P. OVP III ENTREPRENEURS
By OVMC III LLC its GP FUND, L.P.By OVMC III LLC its GP
By: /s/ Charles P. Waite, Jr. By: /s/ Charles P. Waite, Jr.
------------------------------- ---------------------------------
Name: Charles P. Waite, Jr. Name: Charles P. Waite, Jr.
----------------------------- -------------------------------
(print) (print)
Title: Managing Member Title: Managing Member
Address: 2420 Carillon Point Address: 2420 Carillon Point
Kirkland WA 98033 Kirkland WA 98033
FOUNDERS:
/s/ David Hose
/s/ Mark Flolid
/s/Jim Fitch
4
<PAGE> 5
NEW SERIES B INVESTORS:
OLYMPIC VENTURE PARTNERS IV, L.P. OVP IV ENTREPRENEURS FUND, L.P.
By OVMC IV LLC its GP By OVMC IV LLC its GP
By: /s/ Charles P. Waite, Jr. By: /s/ Charles P. Waite, Jr.
---------------------------- -------------------------------
Name: Charles P. Waite, Jr. Name: Charles P. Waite, Jr.
-------------------------- ----------------------------
(print) (print)
Title: Managing Member Title: Managing Member
Address: 2420 Carillon Point Address: 2420 Carillon Point
Kirkland WA 98033 Kirkland WA 98033
LAZARD FRERES & CO. LLC TGI FUND II, LC
By Tredegar Investments Inc., its
Manager
By: /s/ Russell Planitzer By: /s/ Steven Johnson
---------------------------- -------------------------------
Name: Russell Planitzer Name: Steven Johnson
-------------------------- -----------------------------
(print) (print)
Title: Managing Director Title: President
Address: 30 Rockefeller Plaza
New York, NY Address: 6501 Columbia Center
Seattle, WA 98104
/s/ Peter J. Mooney
- -----------------------------------
Peter J. Mooney as nominee
for the Broadview Partners Group
5
<PAGE> 6
/s/ Michael Berman
- -----------------------------------
Michael Berman
/s/ Robert P. Mitchell
- -----------------------------------
Robert P. Mitchell
WA&H INVESTMENT, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
By: /s/ Mary Zimm
-------------------------------
Print Name: Mary Zimm
-----------------------
Print Title: Director of Finance and
Administration, Dain
Rauscher Wessels, a
division of Dain
Rauscher Incorporated
NEW SERIES C PURCHASERS/INVESTORS:
I IDS LIFE SERIES FUND, INC.-- AXP VARIABLE PORTFOLIO--
EQUITY PORTFOLIO STRATEGY AGGRESSIVE FUND
By: /s/ Frederick C. Quiesfeld By: /s/ Frederick C. Quiesfeld
-------------------------------- -------------------------------
Name: Frederick C. Quiesfeld Name: Frederick C. Quiesfeld
------------------------------ -----------------------------
(print) (print)
Title: Vice President Title: Vice President
----------------------------- ----------------------------
Address: 733 Marquette Ave. Address: 733 Marquette Ave.
Minneapolis, MN 55402 Minneapolis, MN 55402
AXP STRATEGY AGGRESSIVE FUND Address: 733 Marquette Ave.
Minneapolis, MN 55402
By: /s/ Frederick C. Quiesfeld
--------------------------------
Name: Frederick C. Quiesfeld
------------------------------
(print)
Title: Vice President
6
<PAGE> 7
MEDIATEL MANAGEMENT S.A., a public limited liability company organised under the
laws of the Grand Duchy of Luxembourg acting for itself and on behalf of the
unitholders of MediaTel Capital organised as a non-incorporated
co-proprietorship of assets being a mutual investment fund (FCP - Fonds Commun
de Placement) under the laws of the Grand Duchy of Luxembourg
By: /s/ Antoine Garrigues
-------------------------------
Name: Antoine Garrigues
-----------------------------
(print)
Title: Senior Advisor
-----------------------------
Address: 2 Plac Metco L 4920 Luxembourg
AMERICA ONLINE INC.
By: /s/ Kenneth Novak Address: 22000 AOL Way
----------------------------- Dulles, VA 20166-9323
Name: Kenneth Novak
-----------------------------
(print)
Title: Vice Chairman
COMVERSE TECHNOLOGY, INC.
By: /s/ William F. Sorin Address: 17 E. 89th Street
--------------------------------- New York, NY 10128
Name: William F. Sorin
--------------------------------
(print)
Title: Secretary and General Counsel
-------------------------------
CTI CAPITAL CORP.
By: /s/ William F. Sorin Address: 17 E. 89th Street
--------------------------------- New York, NY 10128
Name: William F. Sorin
--------------------------------
(print)
Title: Secretary and General Counsel
-------------------------------
7
<PAGE> 8
SIEMENS INFORMATION AND COMMUNICATION NETWORKS, INC.
By: /s/ Dieter Diehn Address: 900 Broken Sound Parkway
-------------------------------- Boca Raton, FL 33487
Name: Dieter Diehn ATTN: Executive Vice President & CFO
----------------------------- COPIES TO: SIEMENS CORPORATION
(print) 1301 Avenue of the Americas
Title: Exec. V.P. & CFO New York, NY 10019
----------------------------- Attn: General Counsel
SALOMON SMITH BARNEY INC.
By: /s/ Kevin Tice Address: 388 Greenwich Street
------------------------------- New York, NY 10013
Name: Kevin Tice ATTN: Kevin S. Tice, Managing Director
-----------------------------
(print)
Title: Managing Director
-----------------------------
/s/ Perry M. LaForge
- --------------------------------
Perry M. LaForge
Address: 650 Town Center Drive
Suite 820
Costa Mesa, CA 92626
/s/ Andrew M. Murray
- --------------------------------
Andrew M. Murray
Address: 7478 Taft Street
Arvada, CO 80005
8
<PAGE> 9
INTEL CORPORATION
By: /s/ Arvind Sodhani Address: 2200 Mission College Blvd.
------------------------------- Santa Clara, CA 95052
Name: Arvind Sodhani Attn: M&A Portfolio Manager-M/S RN6-46
----------------------------- Fax # 408-765-6038
(print)
Title: Vice President and Treasurer
-----------------------------
NEW GROUND CAPITAL LIMITED
By: /s/ Gordon J. D. McDonald Address: P.O. Box 20, 20 New Street.
----------------------------- Orbis House
Name: Gordon J. D. McDonald St. Peter Port
----------------------------- GY14AN
(print) Channel Islands
Title: Director
-----------------------------
HIKARI TSUSHIN INC.
By: /s/ Masahide Saito Address: 2-1-1 Ohtemachi
----------------------------- 23F Ohtemachi Nomura Blg.
Name: Masahide Saito Chiyoda-ku, Tokyo
---------------------------- 100-0004
(print) Japan
Title: Executive Managing Director
-----------------------------
9
<PAGE> 1
EXHIBIT 21.1
SIGNALSOFT SUBSIDIARIES
BFound.com Services, Inc., a British Columbia corporation
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
SignalSoft Corporation:
We consent to the use of our report included herein, and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Boulder, CO
April 12, 2000
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
BFound.com Services, Inc.:
We consent to the use of our report included herein, and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Victoria, Canada
April 12, 2000
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David A. Hose and Andrew M. Murray, and each of
them, his attorneys-in-fact, with full power of substitution, for him in any and
all capacities, to sign a registration statement to be filed with the Securities
and Exchange Commission (the "Commission") on Form S-1 in connection with the
offering by SignalSoft Corporation, a Delaware corporation (the "Company"), of
securities ("Securities"), and all amendments (including post-effective
amendments) thereto and any abbreviated registration statement in connection
with this Registration Statement pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Commission; and to sign all
documents in connection with the qualification and sale of the Securities with
Blue Sky authorities and with the National Association of Securities Dealers,
Inc.; granting unto said attorneys-in-fact full power and authority to perform
any other act on behalf of the undersigned required to be done in the premises,
hereby ratifying and confirming all that said attorneys-in-fact may lawfully do
or cause to be done by virtue hereof.
Date: April 12, 2000 /s/ David A. Hose
----------------------------- --------------------------
David A. Hose
Date: April 12, 2000 /s/ Andrew M. Murray
----------------------------- --------------------------
Andrew M. Murray
Date: April 12, 2000 /s/ Mark H. Flolid
----------------------------- --------------------------
Mark H. Flolid
Date: April 12, 2000 /s/ Charles P. Waite, Jr.
----------------------------- --------------------------
Charles P. Waite, Jr.
Date: April 12, 2000 /s/ B. Holt Thrasher
----------------------------- --------------------------
B. Holt Thrasher
Date: April 12, 2000 /s/ Eric L. Doggett
----------------------------- --------------------------
Eric L. Doggett
Date: April 11, 2000 /s/ Perry M. laForge
----------------------------- --------------------------
Perry M. laForge
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<FISCAL-YEAR-END> DEC-31-1999
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