<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
RTS WIRELESS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 11-2905552
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
51 EAST BETHPAGE ROAD
PLAINVIEW, NEW YORK 11803
(516) 939-6655
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ALVIN L. RING
PRESIDENT AND CEO
RTS WIRELESS, INC.
51 EAST BETHPAGE ROAD
PLAINVIEW, NEW YORK 11803
(516) 939-6655
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
JAMES ALTERBAUM, ESQ. GERALD S. TANENBAUM, ESQ.
PARKER CHAPIN LLP CAHILL GORDON & REINDEL
THE CHRYSLER BUILDING 80 PINE STREET
405 LEXINGTON AVENUE NEW YORK, NEW YORK 10005
NEW YORK, NEW YORK 10174 TELEPHONE NO.: (212) 701-3000
TELEPHONE NO.: (212) 704-6000 FACSIMILE NO.: (212) 269-5420
FACSIMILE NO.: (212) 704-6288
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share...................... $86,250,000 $22,770
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, OR THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 30, 2000
P R O S P E C T U S
SHARES
[LOGO]
RTS WIRELESS, INC.
COMMON STOCK
$ PER SHARE
---------------
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 after the closing of this offering.
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 for quotation of the common stock on the Nasdaq National
Market under the symbol "RTSW."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------- ----------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to RTS Wireless (before expenses).................. $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
2000.
------------------------
SALOMON SMITH BARNEY
CHASE H&Q
, 2000
<PAGE>
[PHOTOS OF WIRELESS DEVICES ENABLED BY THE ADVANTAGE SYSTEM]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front page of
this prospectus.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Forward-Looking Statements.................................. 13
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Termination of S Corporation Status......................... 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 27
Management.................................................. 41
Principal Stockholders...................................... 46
Recent Investments in Our Equity............................ 47
Description of Capital Stock................................ 48
Shares Eligible for Future Sale............................. 51
Important United States Federal Tax Consequences of Our
Common Stock to Non-U.S. Holders.......................... 53
Underwriting................................................ 56
Legal Matters............................................... 58
Experts..................................................... 58
Where You Can Find More Information......................... 58
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
Until , 2000, all dealers that buy, sell or trade our 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.
We own or have rights to various trademarks and trade names used in our
business. These include the RTS Wireless, Inc. logo,
Advantage(-Registered Trademark-), Load Sentry(-Registered Trademark-),
Textalker(-Registered Trademark-), e-Talker and e-Sentinel. This prospectus also
includes trademarks, service marks and trade names owned by other companies.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
TO UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED NOTES. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS (1) ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THE OPTION GRANTED
BY US TO PURCHASE ADDITIONAL SHARES IN THIS OFFERING, (2) GIVES EFFECT TO
CERTAIN ACTIONS REGARDING OUR CONVERSION FROM AN S CORPORATION TO A C
CORPORATION AND (3) GIVES EFFECT TO A -FOR- SPLIT OF OUR COMMON STOCK,
WHICH WILL TAKE PLACE PRIOR TO THE CONSUMMATION OF THIS OFFERING.
RTS WIRELESS, INC.
OUR COMPANY
We are a leading developer of adaptable software systems that connect the
Internet to a wide array of evolving wireless devices, including virtually all
cell phones, pagers and hand-held computers. Our product, the
Advantage-Registered Trademark- system, can be specially configured to meet the
particular needs of each customer, including wireless network operators,
wireless infrastructure and device manufacturers, Internet service providers,
providers of information such as news, sports and weather, and corporate data
networks. Using our system, our customers can provide their wireless subscribers
and clientele with e-mail, news, shopping, stock, weather, travel and other
information content and services. Our Advantage system also permits companies to
provide their employees with services such as wireless access to e-mail,
personal calendars and contact lists through private corporate networks,
commonly referred to as intranets. As businesses and consumers become more
reliant on the content provided via the Internet and corporate intranets,
systems that enable wireless access to such information become increasingly
useful and demanded tools.
The Advantage system is a software engine for wireless data that runs our
portfolio of standard applications as well as custom applications that we design
to meet specific customer requirements. Our software also enables our customers
to design their own applications. Our Advantage system has several key benefits
for our customers and wireless users because it is:
- ADAPTABLE. Our Advantage system is easily connected to the Internet and a
wide variety of corporate intranets and wireless networks. We can
customize the Advantage system if we encounter a network that is not
compatible with our standard configuration.
- EFFICIENT. The Advantage system architecture is designed to handle a large
quantity of wireless data traffic quickly without any degradation in
capability or features.
- FLEXIBLE. The modular design of our system allows configuration by
customers to incorporate a wide variety of desired applications.
Additionally, consumers do not need specialized technology within their
wireless devices to obtain network services through our Advantage system.
- SCALABLE. The Advantage system design allows us to add additional capacity
without disrupting service as a customer's requirements grow.
- RELIABLE. The Advantage system virtually eliminates service interruptions
by routing information around hardware failures, application or capacity
upgrades or repairs. In addition, the Advantage system can be remotely
diagnosed and monitored by our service or maintenance personnel.
- PRICED BASED ON CAPACITY. Our pricing model is based on the data
processing capacity of the delivered Advantage system, rather than the
number of users or subscribers to our customers' networks. This pricing
model makes the cost of ownership of our systems more attractive to our
customers.
1
<PAGE>
We believe that the use of wireless devices in conjunction with the Internet
reflects a growing consumer demand for mobile and convenient access to data. The
Yankee Group, a technology consulting firm, estimates that there were
approximately 530 million wireless subscribers worldwide as of the end of 1999.
Additionally, The Yankee Group forecasts that the number of wireless telephone
users in the United States who obtain Internet-based and other network-based
services will grow at a compound annual rate of 47%, from 3.4 million at the end
of 1999 to 15.8 million in 2003. During the same period, the number of users of
dedicated wireless messaging devices, including pagers and wireless-enabled
personal digital assistants, or PDAs, is expected to grow from 61.7 million to
91.5 million. International Data Corporation, or IDC, another technology
consulting firm, estimates that the number of wireless telephones capable of
accessing the Internet will grow from 5.7 million in 1999 to over one billion in
2003. To meet this demand, new wireless technologies are constantly being
developed. One of these new technologies is the Wireless Application Protocol,
or WAP, which we expect will increase demand for wireless Internet access. We
believe that our Advantage system offers Internet access through the broadest
array of wireless devices, including WAP-enabled and other cellular telephones,
pagers, PDAs, notebook computers and on-board computers in automobiles.
As of December 31, 1999, over 50 companies had purchased our Advantage
system and had begun commercial service or market or laboratory trials. Our
customers include many of the world's largest wireless network operators, such
as Vodafone AirTouch, GTE Wireless, U S WEST Wireless, PageNet and Arch
Communications, as well as America Online, the world's largest Internet service
provider, or ISP. We also sell our Advantage system to manufacturers of wireless
infrastructure, who bundle our system with their equipment. For example,
Motorola typically includes a version of our Advantage system with each of the
cellular telephone networks it installs worldwide. Early adoption by these
recognized companies has helped to establish our Advantage system as one of the
leading technologies in the wireless data industry.
We have been a leader in the development and evolution of wireless industry
technology for over 11 years. Our goal is to remain at the forefront of wireless
Internet applications and services across the broadest possible array of
devices. We believe that our experience enables us to configure our Advantage
system to perform effectively with each customer's network and to incorporate
new technologies into our system as they become available.
We were incorporated in New York under the name Real Time Strategies, Inc.
on March 23, 1988 and have done business as RTS Wireless for the past two years.
We reincorporated in Delaware as RTS Wireless, Inc. on March 16, 2000. Our
principal executive offices are located at 51 East Bethpage Road, Plainview, New
York 11803, and our telephone number is (516) 939-6655. The address of our Web
site is WWW.RTSWIRELESS.COM. Information contained on our Web site is not a part
of this prospectus.
RECENT DEVELOPMENTS
On March 28, 2000, we issued to America Online, or AOL, 5,000 shares of our
series A convertible preferred stock for $5,000,000. The series A convertible
preferred stock does not accrue or pay any dividends. At the closing of this
offering, these shares of series A convertible preferred stock will convert into
425,775 shares of our common stock. In connection with this investment by AOL,
we and some of our principal stockholders granted to AOL the rights described in
"Recent Investments in Our Equity."
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock outstanding after the shares
offering...................................
Use of proceeds.............................. We will use the proceeds from this sale of
our common stock to fund the following:
- increased sales and marketing expenditures;
- increased research and development
expenditures;
- expansion of our facilities;
- potential future acquisitions; and
- working capital and other general corporate
purposes.
See "Use of Proceeds" for more detailed
information.
Nasdaq National Market Symbol................ "RTSW"
Dividend policy.............................. We do not intend to pay cash dividends on our
common stock in the foreseeable future. See
"Dividend Policy" for more information.
</TABLE>
The table above includes:
- 425,775 shares of common stock to be issued in connection with the
conversion of the AOL series A convertible preferred stock into common
stock at the consummation of this offering; and
- 189,392 shares of common stock issued upon conversion of a $5,000,000
investment made in January 2000 by Monsoon Ventures LLC, or Monsoon, in
our 8% convertible promissory notes, which notes were converted upon the
consummation of the AOL series A convertible preferred stock investment.
The AOL investment and the Monsoon investment are described in "Recent
Investments in Our Equity."
The table above excludes:
- up to shares that may be issued to the underwriters to cover
over-allotments. See "Underwriting";
- 732,385 shares of common stock subject to options outstanding as of
February 29, 2000 under our Incentive Stock Option Plan exercisable at a
weighted average price per share of $2.40;
- 37,500 shares of common stock issuable upon the exercise of an outstanding
warrant held by an affiliate of Chase Securities Inc. at an exercise price
of $0.30 per share; and
- an aggregate of 17,615 shares of common stock available for future
issuance under our Incentive Stock Option Plan as of February 29, 2000.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables contain our summary consolidated financial data which
you should read together with our audited consolidated financial statements and
related notes included elsewhere herein, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other information found in
this prospectus. Financial data for the years ended December 31, 1995 and 1996
have been derived from unaudited financial statements which, in the opinion of
our management, reflect all adjustments necessary to present fairly our
financial position and results of operations for the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
License fees................................... $1,565 $2,856 $4,141 $5,341 $ 7,553
Maintenance and support services............... 14 71 47 218 788
------ ------ ------ ------ -------
Total revenues............................... 1,579 2,927 4,188 5,559 8,341
Gross profit..................................... 1,284 2,519 3,500 4,893 7,328
Operating income (loss).......................... 8 854 678 (428) (3,455)
Net income (loss)................................ $ 12 $ 861 $ 681 $ (425) $(4,044)
====== ====== ====== ====== =======
Pro forma net income (loss)(1)................... $ 5 $ 514 $ 355 $ (258) $(3,964)
====== ====== ====== ====== =======
PER SHARE DATA:
Basic and diluted net income (loss) per share.... $ .00 $ .10 $ .08 $ (.05) $ (.47)
====== ====== ====== ====== =======
Pro forma basic and diluted net income (loss)
per share(1)................................... $ .00 $ .06 $ .04 $ (.03) $ (.46)
====== ====== ====== ====== =======
Weighted average shares used in computing basic
and diluted net income (loss) per share and pro
forma basic and diluted net income (loss) per
share.......................................... 8,500 8,500 8,500 8,500 8,638
====== ====== ====== ====== =======
</TABLE>
- ------------------------
(1) For all periods presented, we were treated as an S corporation and were not
subject to federal and state income taxes. Pro forma net income (loss)
reflects federal and state income taxes as if we had not elected S
corporation status for income tax purposes. In March 2000, our
S corporation status was terminated. See "Termination of S Corporation
Status."
4
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 345 $10,345 $
Working capital (deficit)................................ (217) 9,723
Total assets............................................. 2,951 12,951
Total liabilities........................................ 2,784 2,844
Total stockholders' equity............................... 167 10,107
</TABLE>
- ------------------------
(1) The pro forma amounts shown in the table give effect to the application of
net proceeds from the investments by Monsoon and AOL. The Monsoon investment
was converted into 189,392 shares of our common stock upon consummation of
the AOL investment. The pro forma amounts also include a charge to earnings
of $60,000, representing the tax liability owed by us on the termination of
our S corporation status.
(2) The pro forma as adjusted amounts shown in the table give effect to the
application of net proceeds of this offering, based upon an assumed initial
public offering price of $ per share, the midpoint of the range shown on
the cover of this prospectus, and the conversion to common stock of the AOL
investment as if this offering and the conversion had occurred at December
31, 1999. See "Capitalization" and "Use of Proceeds."
5
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE
DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. IF ANY OF THE
FOLLOWING RISKS DEVELOP INTO ACTUAL EVENTS, OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. IN THAT EVENT,
THE TRADING PRICE OF OUR SHARES COULD DECLINE.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ADAPT TO TECHNOLOGICAL CHANGES AND IF
WE FAIL TO ADAPT TO THOSE CHANGES OUR ADVANTAGE SYSTEM MAY BECOME OBSOLETE
We compete in an industry that is evolving rapidly. The wireless data
industry is characterized by the development of new technology, evolving
industry standards, the introduction of new products and services and changing
customer demands. These characteristics are intensified by the emerging nature
of the Internet and the large number of companies offering Internet-based
products and services. Our success depends on our ability to adapt our Advantage
system to rapidly changing technologies and industry standards, to continually
improve the performance of our system and to respond to the shifting demands of
the marketplace. In addition, we could incur substantial costs if we need to
modify our system to respond to the widespread adoption of new technologies or
changes in existing technologies. We may fail to adapt to technological changes
or the needs of the marketplace.
We face a number of related risks generally encountered by companies in the
developing wireless data industry, including:
- our need for wireless network operators, wireless infrastructure and
device manufacturers, ISPs, providers of information such as news, sports
and weather, which we refer to as information content providers, and
corporate data networks to launch, maintain and support commercial
services utilizing our system;
- the uncertainty of market acceptance of commercial services utilizing our
system;
- our substantial dependence on a system with only limited market
penetration to date;
- our need to expand our marketing, sales, distribution and support
organizations;
- our ability to anticipate and respond to market competition; and
- our need to manage expanding operations.
OUR SUCCESS DEPENDS ON INCREASED USE OF WIRELESS TECHNOLOGIES
Our future success depends upon a continued increase in the use of wireless
devices to access the Internet and upon the continued development of wireless
devices as a medium for the delivery of network-based information content and
services. In particular, our success will require that future users of wireless
telephones and other devices increasingly use those devices to obtain
Internet-based and other network-based services. We cannot predict whether such
use will increase or whether wireless device users will be willing to pay
profit-supporting prices for Internet-based and other network-based services.
WE MAY NOT ACHIEVE OR SUSTAIN OUR REVENUE OR PROFIT GOALS
Because we expect to continue to incur significant research and development,
sales and marketing, and administrative expenses, we will need to generate
significant revenue to achieve and sustain profitability on a quarterly or
annual basis. We may not achieve or sustain our revenue or profit goals
6
<PAGE>
and our ability to do so depends on a number of factors outside of our control,
including the extent to which:
- there is market acceptance of commercial services utilizing our system;
- our competitors market competing products and services or significantly
lower the prices of existing products and services; and
- our customers promote our system to their subscribers and customers.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview."
OPEN INDUSTRY STANDARDS MAY CREATE A MORE COMPETITIVE MARKET FOR OUR
ADVANTAGE SYSTEM
The wireless market, within which our Advantage system competes, is becoming
increasingly competitive. The widespread adoption of open industry standards may
make it easier for new market entrants and existing competitors to introduce
products and services that compete with our system. We expect that we will
compete primarily on the basis of time to market, functionality, quality,
breadth of new application offerings, industry position and experience. We may
not be able to compete effectively on these or other bases. Some of our
competitors have significantly greater financial, marketing and other resources,
generate greater revenues and have greater name recognition and international
experience than we do. See "Business--Competition."
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS
Our success depends significantly on our ability to protect our proprietary
rights to the technologies used in our Advantage system. If we are not
adequately protected, our competitors could use the intellectual property that
we have developed to enhance their products and services. We rely on a
combination of copyright and trademark laws, trade secrets, confidentiality
provisions and other contractual provisions to protect our proprietary rights,
but these legal means provide only limited protection. We have no patents or
patent applications pending. As the number of entrants into our market
increases, the possibilities of patent infringement claims against us grows. In
addition, because patent applications can take many years to issue, there may be
a patent application now pending of which we are unaware, which will cause us to
be infringing such patent when it is issued in the future. To address any patent
infringement claims, we may have to enter into royalty or licensing agreements
on disadvantageous commercial terms. In addition, any infringement claims, with
or without merit, or our failure to license the infringed or similar technology
would be time-consuming and expensive to litigate or settle and could divert
management attention from administering our core business. See
"Business--Intellectual Property Rights."
WE HAVE A LONG SALES CYCLE WHICH COULD MAKE OUR OPERATING RESULTS FLUCTUATE
ON A QUARTERLY BASIS AND MAKE THEM DIFFICULT TO PREDICT
Our sales cycle is lengthy, typically between four and 12 months, and
sometimes unpredictable, which may contribute to fluctuations in our quarterly
operating results. Because our Advantage system represents a significant capital
investment for our customers, we spend a substantial amount of time educating
customers regarding the use and benefits of our system and they in turn spend a
substantial amount of time performing internal reviews and obtaining capital
expenditure approvals before purchasing our system. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Quarterly Results
of Operations."
7
<PAGE>
WE HAVE RELIED ON A RELATIVELY SMALL NUMBER OF CUSTOMERS AND WE MAY FAIL TO
RETAIN THESE CUSTOMERS OR ADD NEW CUSTOMERS IN THE FUTURE
To date, our revenues have been derived from a small number of customers,
consisting primarily of wireless network operators, wireless infrastructure and
device manufacturers, ISPs, information content providers and corporate data
networks. The risks of dependence upon our customers is great because of the
relatively small number of each type of customer worldwide. Our future success
depends on our ability to increase revenues from sales of our Advantage system
to our current and prospective customers. We may not be able to achieve
widespread adoption by potential customers or expand sales to existing
customers. See "Business--Customers" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview."
CONSOLIDATION IS INCREASING AMONG OUR CUSTOMERS AND OUR BARGAINING POWER MAY
DECREASE
Recently, the wireless industry has been characterized by significant
consolidation activity. This consolidation could have the effect of reducing the
number of our current or potential customers which could increase their
bargaining power. This potential increase in bargaining power could allow
customers to request our exclusivity with them in a particular market.
Accordingly, we may not be able to serve some customers who wish to purchase our
systems and services.
OUR ADVANTAGE SYSTEM MAY CONTAIN DEFECTS OR ERRORS WHICH COULD RESULT IN
LOST REVENUES OR INCREASED SERVICE COSTS
The system we develop is complex and must meet the stringent technical
requirements of our customers. We must continue to develop our Advantage system
quickly to keep pace with the rapidly changing wireless and wireless data
industries. A system as complex as ours may contain undetected errors or
defects, especially when first introduced or when upgraded. Our system may not
be free from errors or defects after installation, which could result in lost
revenues, diverted development resources and increased service and warranty
costs. See "Business--Research and Development."
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. We may not meet
expectations of investors and analysts in a given quarter. At our current level
of operations, most of our expenses are relatively fixed. As a result, any
shortfall in revenues relative to our expectations could cause a significant
decline in our quarterly operating results. Fluctuations in our common stock
price may be exaggerated if the trading volume of our common stock is low. In
addition, due to the technology-intensive and emerging nature of our business,
the market price of our common stock may fall, or rise, in response to:
- announcements of technological or competitive developments;
- acquisitions or strategic alliances by us or our competitors;
- the gain or loss of a significant customer or order; and
- conditions in the wireless and wireless data industries and economic
conditions generally.
Due to these factors, quarterly revenues, expenses and results of operations
could vary significantly in the future. You should take these factors into
account when evaluating past periods and, because of the potential variability
due to these factors, you should not rely upon results of past periods as an
indication of our future performance. In addition, the long-term viability of
our business could be negatively impacted if there were a trend in these factors
unfavorable to us. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results of Operations."
8
<PAGE>
WE DEPEND ON RECRUITING AND RETAINING KEY MANAGEMENT AND TECHNICAL PERSONNEL
WITH EXPERIENCE IN THE WIRELESS AND WIRELESS DATA INDUSTRIES
Because of the technical nature of our Advantage system and the dynamic
market in which we compete, our continued performance depends on attracting and
retaining highly skilled engineering, managerial, consulting, marketing and
sales personnel. In particular, our future success depends in part on the
continued services of each of our current executive officers and other key
employees. In order to increase our revenues significantly, we need to hire a
substantial number of employees in the near future. Competition for qualified
personnel in the wireless and wireless data industries is intense. We believe
that there are only a limited number of persons with the requisite skills to
serve in many key positions and it is difficult to hire and retain these
persons. Our competitors and other parties have attempted to recruit our
employees in the past and may do so in the future.
WE MAY FAIL TO SUPPORT OUR ANTICIPATED GROWTH IN OPERATIONS
To succeed in the implementation of our business strategy, we must rapidly
execute our sales strategy and further develop and expand our system's
capabilities, while managing anticipated growth by implementing effective
planning and operating processes. We may fail to manage anticipated growth if we
fail to do any of the following:
- continue to implement and improve our operational, financial and
management information systems;
- hire, train and retain additional qualified personnel;
- continue to expand and upgrade our core technologies; and
- effectively manage multiple relationships with various wireless network
operators, wireless infrastructure and device manufacturers, ISPs,
information content providers, corporate data networks, e-commerce Web
site operators, applications developers and other third parties.
WE HAVE RECENTLY EXPANDED OUR OPERATIONS INTERNATIONALLY AND WE MAY FAIL TO
EFFECTIVELY MANAGE OUR INTERNATIONAL OPERATIONS
In the past two years, we have been engaged on projects in 18 foreign
countries. We currently have an office in London and we are in the process of
opening regional offices in Asia, Latin America and Europe. For the year ended
December 31, 1999, sales to international customers accounted for approximately
10% of our total revenues. We intend to expand our existing international
operations and may enter additional international markets, which will require
significant management attention and financial resources and could adversely
affect our operating margins and earnings.
Our international business operations are subject to a number of material
risks, including but not limited to:
- failure by us and/or third parties to develop localized content and
applications to be delivered by our systems;
- costs of localizing our systems for foreign markets;
- difficulties in staffing and managing foreign operations;
- longer time periods for collection of accounts receivable;
- political and economic instability;
- fluctuations in foreign currency exchange rates;
- reduced protection of intellectual property rights;
9
<PAGE>
- contractual provisions governed by foreign laws;
- United States encryption export laws and restrictions regarding other
technologies;
- potentially adverse tax and repatriation consequences; and
- the burden of complying with complex and changing regulatory requirements.
WE RELY ON THIRD PARTIES FOR THE SUCCESS OF OUR PROMOTION AND DISTRIBUTION
EFFORTS
Our success depends in part on our ability to increase sales of our
Advantage system. We rely on wireless network operators, wireless infrastructure
and device manufacturers, software providers and other third parties to promote
and distribute our system. We may not be able to increase our revenues or
achieve profitability if we are unable to do any of the following:
- maintain our existing strategic relationships, as well as develop and
maintain new strategic relationships;
- generate increasing revenues by distribution of our Advantage system
through our existing strategic relationships, as well as through new
strategic relationships;
- increase revenues derived from sales through our indirect distribution
channels; or
- increase the number of indirect distributors with whom we have
relationships.
AN INTERRUPTION IN THE SUPPLY OF PRODUCTS AND SERVICES THAT WE OBTAIN FROM
THIRD PARTIES COULD CAUSE A DECLINE IN SALES OF OUR SYSTEM
We rely on hardware manufacturers, software providers and other third
parties to deliver and support, on a timely and cost-effective basis, the
products and services that we require for our system and to respond to emerging
industry standards and other technological changes. These suppliers may
experience difficulty in supplying us products or services sufficient to meet
our needs or they may terminate or fail to renew contracts for supplying us
these products or services on terms we find acceptable. Any significant
interruption in the supply of any of these products or services could cause a
decline in sales of our Advantage system unless and until we are able to obtain
alternative products and services.
WE MAY ACQUIRE TECHNOLOGIES OR COMPANIES IN THE FUTURE AND THESE
ACQUISITIONS COULD RESULT IN THE DILUTION OF OUR STOCKHOLDERS AND DISRUPTION OF
OUR BUSINESS
We may acquire technologies or companies in the future. We may not be able
to identify, acquire, profitably manage or successfully integrate any acquired
technology or company without substantial expense, delay or other operational or
financial problems. Entering into an acquisition entails many risks, including:
- diversion of management's attention from other business concerns;
- failure to assimilate the acquired technology or company with our
pre-existing business;
- potential loss of key customers from either our pre-existing business or
the acquired company;
- potential loss of key employees from either our pre-existing business or
the acquired company;
- dilution of our existing stockholders as a result of issuing stock; and
- assumption of liabilities of the acquired company.
10
<PAGE>
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR VOTING
STOCK AND COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER
APPROVAL AFTER THIS OFFERING
Immediately after this offering, our executive officers and directors and
their respective affiliates will own approximately % of our outstanding common
stock. Accordingly, these persons may, as a practical matter, be able to exert
significant influence over matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combinations. This concentration could have the effect of delaying or
preventing a change in control.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS
The development of our business may require significant additional capital
in the future to fund our operations, to finance the substantial investments
needed for our planned growth, to enhance our system and to respond to
competitive pressures and perceived opportunities such as investment,
acquisition and international expansion activities. Currently, our cash flow
from operations is insufficient to cover our expenses and capital needs. There
can be no assurance that additional financing will be available on terms
favorable to us, or at all. If adequate funds are not available on acceptable
terms, we may be forced to curtail or discontinue our operations. If we raise
funds through the issuance of stock, the percentage ownership of our
then-current stockholders may be reduced and the holders of new stock may have
rights, preferences or privileges senior to those of the holders of our common
stock. If additional funds are raised through a bank credit facility or the
issuance of debt securities, the holders of that indebtedness may have rights
senior to the rights of the holders of our common stock and the terms of that
indebtedness could impose restrictions on our operations. A failure to obtain
additional financing could delay the delivery of our system and services. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
OUR AGREEMENT WITH AOL COULD LIMIT OUR ABILITY TO OBTAIN PRIVATE EQUITY
FINANCINGS AND DISCOURAGE A TAKEOVER
We granted AOL certain pre-emptive rights to maintain its equity interest in
our common stock in connection with issuances of common stock by us, except for
issuances pursuant to stock option plans, issuances pursuant to currently
outstanding securities and issuances in connection with acquisitions and
equipment financings. As a result, any equity financing we wish to pursue will
need to be coordinated with AOL and this complication could limit the number of
investors willing to participate in such a financing.
Our agreement grants AOL the right to designate one member of our board of
directors until AOL and its affiliates hold less than 2% of our fully diluted
common stock. The agreement also grants AOL the right to be informed by us if we
decide to seek to locate a third party with which to consummate an acquisition
of all or substantially all of our assets or stock or similar transactions and
the right to make a matching offer regarding such acquisition. The existence of
these rights could discourage third parties from pursuing a takeover.
NEW LAWS AND REGULATIONS THAT IMPACT OUR INDUSTRY COULD INCREASE OUR COSTS
OR REDUCE OUR OPPORTUNITIES TO EARN REVENUE
In the future we may become subject to regulation by the Federal
Communications Commission or another regulatory agency, which could increase our
costs or reduce our opportunities to earn revenue.
OUR CERTIFICATE OF INCORPORATION AND BY-LAWS CONTAIN PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER
Anti-takeover provisions of Delaware law and our certificate of
incorporation may make a change in corporate control more difficult, even if a
change in control would be beneficial to our stockholders.
11
<PAGE>
These provisions may allow our board of directors to prevent changes in our
management and corporate control. Under Delaware law, our board of directors may
adopt additional anti-takeover measures in the future.
One anti-takeover provision that we have is the ability of our board of
directors to determine the terms of preferred stock and issue preferred stock
without the approval of the holders of our common stock. Our certificate of
incorporation allows the issuance of 1,000,000 shares of preferred stock.
Because the rights and preferences of any series of preferred stock may be set
by our board of directors in its sole discretion without approval of the holders
of our common stock, the rights and preferences of preferred stock may be
superior to those of our common stock. Accordingly, the rights of the holders of
our common stock may be adversely affected.
OUR SECURITIES HAVE NO PRIOR MARKET AND OUR STOCK PRICE MIGHT DECLINE AFTER
THE OFFERING
Before this offering, there has not been a public market for our common
stock and the trading market price of our common stock may decline below the
initial public offering price. The initial public offering price has been
determined by negotiations between us and the representatives of the
underwriters. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. In addition, an active public
market for our common stock may not develop or be sustained after this offering.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION BY INVESTING IN OUR
COMMON STOCK
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of our common stock immediately
after the offering. Any common stock you purchase in this offering will have a
post-offering net tangible book value per share that is $ less than the initial
public offering price. If additional shares are sold by the underwriters
following exercise of their option to purchase additional shares in this
offering, or if outstanding options or warrants to purchase shares of common
stock are exercised, you will incur further dilution.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
Sales of a substantial number of shares of common stock in the public market
following this offering, or the perception that such sales may occur, could
cause the market price of our common stock to decline. After this offering, we
will have shares of common stock outstanding, which includes 615,167
shares issued upon conversion of the Monsoon and AOL investments. All the shares
sold in this offering will be freely tradable. Of the remaining shares of
common stock outstanding after this offering, shares will be eligible for
sale in the public market beginning 180 days after the date of this prospectus.
After this offering we also intend to register up to approximately
additional shares of our common stock for sale upon the exercise of outstanding
stock options issued pursuant to compensatory benefit plans or reserved for
future issuance pursuant to our Incentive Stock Option Plan. In addition, 37,500
shares will be issuable upon exercise of an outstanding warrant.
12
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events and expectations
which are characterized as forward-looking statements. Forward-looking
statements are based on our management's beliefs, assumptions and expectations
of our future economic performance, taking into account the information
currently available to them. The words "believe," "may," "will," "should,"
"anticipate," "estimate," "expect," "intends," "objective" or similar words or
the negative of these words are intended to identify forward-looking statements.
These statements are not statements of historical fact. Forward-looking
statements involve risks and uncertainties that may cause our actual results,
performance or financial condition to be materially different from the
expectations of future results, performance or financial condition we express or
imply in any forward-looking statements. Factors that could contribute to these
differences include those discussed in "Risk Factors" and in other sections of
this prospectus.
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
offered by us are estimated to be approximately $ million, approximately
$ million if the underwriters exercise in full the option granted by us to
purchase additional shares in this offering, at an assumed initial public
offering price of $ per share, the midpoint of the range shown on the cover
of this prospectus, after deducting the estimated underwriting discounts and
commissions and the estimated offering expenses.
We intend to use the net proceeds of this offering primarily for increased
sales and marketing expenditures, increased research and development
expenditures, expansion of our facilities, potential future acquisitions and
working capital and other general corporate purposes. We have not yet determined
our expected use of these proceeds, but we currently estimate that we will incur
at least $25,000,000 in sales and marketing and research and development
expenditures and $4,000,000 for expansion of our facilities during the next
12 months. The amounts and timing of these expenditures will vary depending on a
number of factors, including the amount of cash generated by our operations,
competitive and technological developments and the rate of growth, if any, of
our business. We may also use a portion of the net proceeds to acquire
additional businesses and technologies or to establish joint ventures that we
believe will complement our current or future business. However, we have no
specific plans, agreements or commitments to do so. The amounts that we actually
expend for working capital and other general corporate purposes will vary
significantly depending on a number of factors, including future revenue growth,
if any, and the amount of cash we generate from operations. As a result, we will
retain broad discretion in the allocation of the net proceeds of this offering.
Pending the uses described above, we will invest the net proceeds in short- or
medium-term, interest-bearing, investment-grade securities and commercial paper.
DIVIDEND POLICY
We do not expect to pay cash dividends on our common stock in the
foreseeable future. Future dividends on our common stock, if any, will be
determined by our board of directors. We may incur indebtedness in the future
which may prohibit or restrict the payment of dividends.
In the past, we made distributions to our stockholders pursuant to our tax
status as an S corporation, which changed to a C corporation upon consummation
of the AOL investment.
13
<PAGE>
CAPITALIZATION
The following table shows our cash and cash equivalents, short-term debt and
capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect (1) the Monsoon investment and the
conversion of the Monsoon investment into 189,392 shares of our common
stock; (2) the AOL investment; (3) a charge to earnings of approximately
$60,000, which represents the tax liability owed by us upon conversion
from S corporation status to C corporation status; and (4) the immediate
$5,000,000 increase in value associated with the beneficial conversion
feature of the AOL investment in our series A convertible preferred stock
as an increase to additional paid-in capital and as a preferred stock
dividend; and
- on a pro forma as adjusted basis to reflect the application of the net
proceeds of this offering, based upon an assumed initial public offering
price of $ per share, the midpoint of the range shown on the cover of
this prospectus, and the conversion of the AOL series A convertible
preferred stock investment into 425,775 shares of our common stock.
The table below excludes 1,350,000 shares of common stock reserved for
issuance under our Incentive Stock Option Plan, under which options exercisable
for 1,191,885 shares at a weighted average exercise price of $.47 per share were
outstanding, and 37,500 shares of common stock reserved for issuance pursuant to
an outstanding common stock warrant at an exercise price of $.30 share.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 345 $10,345 $
======= ======= =======
Notes payable to bank....................................... $ 1,100 $ 1,100 $
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized (actual, pro forma and pro forma as
adjusted):
Series A convertible preferred stock, no shares issued
and outstanding (actual); 5,000 shares issued and
outstanding (pro forma); no shares issued and
outstanding (pro forma as adjusted); at $1,000 per
share liquidation value............................... -- 5,000
Common stock, $.01 par value; 10,000,000 shares authorized
(actual); 250,000,000 shares authorized (pro forma and
pro forma as adjusted); 8,650,000 shares issued and
outstanding (actual); 8,839,392 shares issued and
outstanding (pro forma); shares issued and
outstanding (pro forma as adjusted)..................... 87 88
Additional paid-in capital................................ 7,154 17,153
Deferred stock compensation............................... (3,829) (3,829)
Accumulated deficit....................................... (3,245) (8,305)
------- ------- -------
Total stockholders' equity.............................. 167 10,107
------- ------- -------
Total capitalization.................................. $ 1,267 $11,207 $
======= ======= =======
</TABLE>
14
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of
December 31, 1999 was $
per share, after giving effect to the Monsoon investment and the conversion of
the Monsoon investment into 189,392 shares of our common stock, the AOL
investment and a charge of approximately $60,000, which represents the tax
liability owed by us upon conversion from S corporation status to C corporation
status. After giving effect to the sale by us of the shares of common
stock offered herein and the application of the net proceeds of $ , our as
adjusted net tangible book value at December 31, 1999 would have been $ ,
or $ per share, assuming an initial public offering price of $ per
share, the midpoint of the range shown on the cover of this prospectus. This
represents an immediate increase in the net tangible book value of $ per
share to existing holders of common stock and an immediate dilution of
$ per share to new investors.
Dilution is the amount by which the initial public offering price paid by
the purchasers of shares of common stock in this offering exceeds the net
tangible book value per share of common stock after this offering. The net
tangible book value per share of common stock is determined by subtracting our
total liabilities from the total book value of our tangible assets and dividing
the difference by the pro forma number of shares of common stock deemed to be
outstanding on the date as of which such book value is determined. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
December 31, 1999....................................... $
Increase in pro forma net tangible book value per share
attributable to this offering...........................
------
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
December 31, 1999, the number of shares of common stock purchased, the total
consideration paid and the average price per share paid by our existing
stockholders, by Monsoon and AOL and by new investors purchasing shares of
common stock in this offering, assuming an offering price of $ per share,
the midpoint of the range shown on the cover of this prospectus, and before
deducting the underwriting discounts and commissions and estimated offering
expenses of $ payable by us:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 8,650,000 % $ 45,200 % $ .01
Monsoon and AOL investments............... 615,167 10,000,000 16.26
New investors.............................
--------- --- ----------- --- ------
Total................................... 100% $ 100% $
</TABLE>
The tables above assume no exercise by the underwriters of the option
granted by us to purchase additional shares in this offering and assume no
exercise of outstanding stock options or warrants. To the extent that any shares
are issued at exercise prices below the net tangible book value per share in
connection with outstanding options, you will experience further dilution. See
"Management--Benefit Plans--Incentive Stock Option Plan" and "Description of
Capital Stock--Warrant."
15
<PAGE>
TERMINATION OF S CORPORATION STATUS
Since our incorporation in March 1988, we have been treated for federal
income tax purposes as an S corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended, and our earnings have been taxed for federal
and certain state income tax purposes directly to our stockholders rather than
to us. See Notes 2 and 10 to our consolidated financial statements. We
terminated our S corporation status upon consummation of the AOL investment. As
a result, we had a final subchapter S corporation short year ending on and
including the day preceding the consummation of the AOL investment. On and after
the day preceding the consummation of the AOL investment, we were no longer
treated as an S corporation and, accordingly, were fully subject to federal,
state and local income taxes. We do not expect that we will have any
undistributed earnings for the entire period that we were an S corporation.
Should there be any adjustments to our federal taxable income that result in
a shifting of income from tax periods in which we are a C corporation back to
tax periods in which we were an S corporation, we shall pay to the stockholders
of record immediately prior to this offering the amount of federal, state and
local income taxes, including penalties and interest, incurred by the
stockholders as a result of such adjustment to income, without regard to any tax
effect to the stockholders from a change in the basis of their common stock that
results from such adjustment. The amount payable to the stockholders will be
increased in an amount, if any, necessary to reimburse the stockholders for
taxes required to be paid by them as a result of the receipt of such amount, as
so increased. The cost to us of any such payment could exceed the amount of the
savings realized by us as a result of such adjustment to income.
Should there be any adjustments to our federal taxable income that result in
a shifting of income from tax periods in which we were an S corporation forward
to tax periods in which we are a C corporation, we will bear any additional
federal, state and local taxes as a result and such stockholders will not be
required to pay any amounts to us. We reported losses on our income tax return
in 1998 and expect to report losses in 1999; therefore, we believe that shifting
of significant amounts of income forward from S corporation periods to C
corporation periods is unlikely.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The tables that follow present portions of our consolidated financial
statements and are not complete. You should read the following selected
consolidated financial information in conjunction with our consolidated
financial statements and related notes and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. The consolidated statements of operations data for the years
ended December 31, 1997, 1998 and 1999 and the consolidated balance sheet data
as of December 31, 1998 and 1999 are derived from our consolidated financial
statements that have been audited by Ernst & Young LLP, independent auditors,
which are included elsewhere in this prospectus. Our balance sheet data as of
December 31, 1997 are derived from our audited financial statements that are not
included in this prospectus. The statements of operations data for the years
ended December 31, 1995 and 1996 and the balance sheet data as of December 31,
1995 and 1996 are derived from unaudited financial statements that are not
included in this prospectus, which in our opinion reflect all adjustments
necessary to present fairly our financial position and results of operations for
the periods presented. The historical results presented below are not
necessarily indicative of the results to be expected for any future year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
License fees..................................... $1,565 $2,856 $4,141 $5,341 $ 7,553
Maintenance and support services................. 14 71 47 218 788
------ ------ ------ ------ -------
Total revenues................................. 1,579 2,927 4,188 5,559 8,341
Cost of revenues:
License fees..................................... 290 383 659 595 728
Maintenance and support services................. 5 25 29 71 285
------ ------ ------ ------ -------
Total cost of revenues......................... 295 408 688 666 1,013
Gross profit................................. 1,284 2,519 3,500 4,893 7,328
Operating expenses:
Research and development......................... 623 858 1,315 2,157 3,604
Sales and marketing.............................. 297 325 534 1,601 3,367
General and administrative....................... 356 482 845 1,563 1,640
Stock compensation............................... -- -- 128 -- 2,172
------ ------ ------ ------ -------
Total operating expenses....................... 1,276 1,665 2,822 5,321 10,783
------ ------ ------ ------ -------
Operating income (loss)............................ 8 854 678 (428) (3,455)
Interest income (expense), net..................... 4 7 3 3 (589)
------ ------ ------ ------ -------
Net income (loss).................................. $ 12 $ 861 $ 681 $ (425) $(4,044)
====== ====== ====== ====== =======
Pro forma net income (loss)(1)..................... $ 5 $ 514 $ 355 $ (258) $(3,964)
====== ====== ====== ====== =======
PER SHARE DATA:
Basic and diluted net income (loss) per share...... $ .00 $ .10 $ .08 $ (.05) $ (.47)
====== ====== ====== ====== =======
Pro forma basic and diluted net income (loss) per
share(1)......................................... $ .00 $ .06 $ .04 $ (.03) $ (.46)
====== ====== ====== ====== =======
Weighted average shares used in computing basic and
diluted net income (loss) per share and pro forma
basic and diluted net income (loss) per share.... 8,500 8,500 8,500 8,500 8,638
====== ====== ====== ====== =======
</TABLE>
- ------------------------
(1) For all periods presented, we were treated as an S corporation and were not
subject to federal and state income taxes. Pro forma net income (loss)
reflects federal and state income taxes as if we had not elected
S corporation status for income tax purposes. In March 2000, our
S corporation status was terminated. See "Termination of S Corporation
Status."
17
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $ 5 $49 $ 117 $ 252 $ 345
Working capital (deficit)................................... 19 756 1,433 758 (217)
Total assets................................................ 27 837 1,713 1,993 2,951
Total liabilities........................................... 42 103 254 981 2,784
Total stockholders' equity (deficit)........................ (15) 734 1,459 1,012 167
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS WHEN YOU READ THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED IN THIS
PROSPECTUS. THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS
INCLUDING, BUT NOT LIMITED TO, THOSE UNDER "RISK FACTORS" AND "FORWARD-LOOKING
STATEMENTS."
OVERVIEW
We were incorporated in New York in March 1988 and reincorporated in
Delaware in March 2000, and from inception until September 1994, our operations
consisted primarily of engineering consulting to United States radio paging
carriers and manufacturers of paging infrastructure. During this period, we
developed our core technologies and recruited development personnel. Using our
background in developing customized Advantage systems, we deployed our first
standard Advantage system in 1995 and commenced sales and marketing efforts
aimed at the identification of additional opportunities for our system. Our
business today consists primarily of sales of our Advantage system along with
service and support contracts covering the ongoing operation of our systems.
Revenue from system license fees for the years ended December 31, 1997, 1998 and
1999 were $4,141,000, $5,341,000 and $7,553,000, respectively. Maintenance and
support revenues for the years ended December 31, 1997, 1998 and 1999 were
$47,000, $218,000 and $788,000, respectively. Net income for 1997 was $681,000
and in 1998 and 1999, as we began expanding our sales, marketing, research and
development, we incurred net losses of $425,000 and $4,044,000, respectively.
The loss of $4,044,000 in 1999 included an expense of $2,172,000 for stock
compensation, and $491,000 in interest expense relating to the grant of a common
stock warrant in connection with our bank line of credit, without which our net
loss would have been $1,381,000.
We generate revenues from the licensing of our systems as well as
maintenance and support services related to the operation of these systems. In
many cases, we deliver systems to our customers that include industry-standard
hardware, which we purchase from other vendors. Our systems are initially
delivered with the ability to process a specified maximum number of transactions
per second to a given customer's subscribers. As customers' requirements expand,
either due to increased numbers of subscribers or increased use of wireless
Internet services by existing subscribers, additional capacity can be added to
their networks without disrupting service.
Our future success depends on our ability to increase sales of our system,
to increase capacity licenses and to increase maintenance and support services
provided to existing and new customers. If the market for Internet-based
services on wireless devices develops more slowly than expected, our business
would be materially and adversely affected.
During 1999, America Online, which will own approximately 4% of our common
stock after this offering, and Vast Systems accounted for approximately 28% and
20%, respectively, of our total revenues. During 1998, PageNet, WebLink
Wireless, formerly PageMart, and Motorola accounted for approximately 22%, 13%
and 12%, respectively, of our total revenues. During 1997, Vodafone AirTouch,
formerly U S WEST NewVector, Motorola and WebLink Wireless accounted for
approximately 27%, 20% and 14% respectively, of our total revenues.
We sell our Advantage system to wireless network operators, wireless
infrastructure and device manufacturers, ISPs, information content providers and
corporate data networks through our direct sales force and indirectly through
manufacturers who distribute our systems. We recognize revenue from the sale of
our standard systems at time of shipment. In some cases, our customers purchase
engineering consulting services in conjunction with our standard system in order
to customize certain applications. We recognize revenue from the maintenance and
support services provided to our
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customers ratably over the term of the support agreement, which, in most cases,
runs for one year from the date of purchase of our system and is renewable on an
annual basis.
Effective January 1, 1998, we adopted the American Institute of Certified
Public Accountants' Statement of Position, or SOP, 97-2, SOFTWARE REVENUE
RECOGNITION, as amended. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair market value of the elements. The adoption of SOP 97-2 did
not have a significant impact on our accounting for revenues.
International sales of systems and services accounted for 12%, 14% and 10%
of our total revenues for the years ended December 31, 1997, 1998 and 1999,
respectively. We expect international sales, which we define as sales to
customers located outside the United States, to account for an increasingly
significant portion of our total revenue, although the percentages of our total
revenues derived from international sales may vary. Risks inherent in our
international business activities include:
- failure by us and/or third parties to develop localized content and
applications to be delivered by our systems;
- costs of localizing our systems for foreign markets;
- difficulties in staffing and managing foreign operations;
- longer time periods for collection of accounts receivable;
- political and economic instability;
- fluctuations in foreign currency exchange rates;
- reduced protection of intellectual property rights;
- contractual provisions governed by foreign laws;
- United States encryption export laws and restrictions regarding other
technologies;
- potentially adverse tax and repatriation consequences; and
- the burden of complying with complex and changing regulatory requirements.
Since mid-1998, we have invested substantially in research and development,
marketing, domestic sales, professional services and our general and
administrative infrastructure. These investments have significantly increased
our operating expenses, resulting in net losses in 1998 and 1999. Although our
revenue has grown significantly in recent years, our revenues may not increase
at a rate sufficient to achieve and maintain profitability. We anticipate that
our operating expenses will increase substantially for the foreseeable future as
we expand our sales and marketing, research and development, and professional
services and administrative staff.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999
ADVANTAGE SYSTEM REVENUES. License fees derived from sales of our Advantage
system increased from $5,341,000 in 1998 to $7,553,000 in 1999, an increase of
$2,212,000, or 41%. The increase in license fee revenues was primarily
attributable to our expansion into the wireless network operator market as well
as into the Internet business market, where we provided our system to ISPs and
information content providers. Revenues in 1999 for these ISPs and information
content providers were $4,011,000, as compared to $85,000 in 1998. This increase
was offset by a decline in sales to the paging market, which represented a
significant portion of our business until late 1998.
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MAINTENANCE AND SUPPORT SERVICES REVENUES. The maintenance and support
program, instituted in late 1998, provides our customers with 24-hour,
seven-days-a-week repair or replacement of any defective equipment we supply, as
well as free software upgrades, typically for a 12-month period. Maintenance and
support services revenues increased from $218,000 in 1998 to $788,000 in 1999,
an increase of $570,000, or 261%, and was related to the increase in systems
sales to ISPs and information content providers. We recognize revenues from
maintenance and support services ratably over the term of the support agreement,
which, in most cases, runs for one year from the date of purchase of our system
and is renewable on an annual basis. As of December 31, 1999, $702,000 in
maintenance and support agreements entered into in 1999 were deferred and will
be recognized as revenue in 2000.
COST OF ADVANTAGE SYSTEM REVENUES. Cost of license fees derived from sales
of our Advantage system consists primarily of the purchase of computer hardware
and software from third parties. Although we are primarily a provider of
software, we typically, at the customer's request, install our system on
industry standard computer equipment provided by vendors such as IBM, Dell or
Compaq. Cost of license fees derived from sales of our Advantage system
increased from $595,000 in 1998, or 11% of revenues, to $728,000 in 1999, or 9%
of revenues. The decrease in cost of revenues as a percent of revenues was
attributable to a relative decline in 1999, as a percent of total license fees,
in the sale of computer hardware, which carries a lower gross margin than sales
of our system.
COST OF MAINTENANCE AND SUPPORT SERVICES REVENUES. Cost of maintenance and
support services revenues consists primarily of compensation, travel and related
overhead costs for personnel involved in the operation of our maintenance and
support program. Cost of maintenance and support services were $71,000 and
$285,000 in 1998 and 1999, respectively.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of compensation and related overhead costs of research and
development personnel, as well as fees paid to outside consultants. Research and
development expenses increased from $2,157,000 in 1998 to $3,604,000 in 1999, an
increase of $1,447,000, or 67%. This increase was primarily due to the hiring of
research and development personnel and to an increase in the use of outside
consultants. Our intent is to strategically pursue new technologies and to
continue to provide enhancements to our current system. These activities will
result in increased research and development expenses over current levels.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of compensation and related costs, marketing programs, sales
commissions, promotional material and travel and entertainment. Sales and
marketing expenses increased from $1,601,000 in 1998 to $3,367,000 in 1999, an
increase of $1,766,000, or 110%. This increase resulted primarily from an
increase in compensation and related costs from the addition of sales and
marketing personnel. We anticipate continuing investments in the sales and
marketing area, primarily through the addition of new personnel and expanded
marketing and sales programs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and related costs, bad debt expense, and legal,
accounting and other general and administrative costs. General and
administrative expenses increased from $1,563,000 in 1998 to $1,640,000 in 1999,
an increase of $77,000, or 5%. The small increase is attributable primarily to
increases in compensation and related costs offset by declines, primarily in bad
debt expense.
DEFERRED STOCK COMPENSATION. We recorded deferred stock compensation
expense of approximately $6,001,000 in 1999, representing the difference between
the exercise prices of options granted to acquire shares of common stock during
1999 and the deemed fair market value for financial reporting purposes of our
common stock on the respective grant dates. We amortized deferred stock
compensation expense of $2,172,000 during 1999, as compared to $0 during 1998.
Total deferred stock compensation at December 31, 1999 of $3,829,000 is being
amortized over the vesting periods of the options using a graded vesting method.
The amortization of deferred compensation currently recorded
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is estimated to be $812,000 for each of the years ending December 31, 2000
through 2003 and $581,000 for the year ending December 31, 2004.
OTHER INCOME (EXPENSE). Other income (expense), consisting of interest
income and interest expense, declined from $3,000 in net interest income in 1998
to $589,000 of net interest expense in 1999. The increase in interest expense
was the result of an increase in our borrowings under our bank line of credit
from $500,000 at December 31, 1998 to $1,100,000 at December 31, 1999 and a
charge to earnings in 1999 of $491,000 for interest expense relating to the
grant of a common stock warrant in connection with our bank line of credit. As
of December 31, 1999, an additional $491,000 in interest was deferred and will
be amortized to earnings through June 30, 2000.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
ADVANTAGE SYSTEM REVENUES. License fees derived from sales of our Advantage
system increased from $4,141,000 in 1997 to $5,341,000 in 1998, an increase of
$1,200,000, or 29%. The increase in license fee revenues was primarily
attributable to our continuing expansion into the wireless network operator
market, which was our primary market before we began providing systems for ISPs
and information content providers in late 1998.
MAINTENANCE AND SUPPORT SERVICES REVENUES. The maintenance and support
program, instituted in late 1998, provides our customers with 24-hour,
seven-days-a-week repair or replacement of any defective equipment we supply, as
well as free software upgrades, typically for a 12 month period. Maintenance and
support services revenues increased from $47,000 in 1997 to $218,000 in 1998, an
increase of $171,000, or 364%, and was related to the expansion into the
wireless network operator market. We recognize revenues from maintenance and
support services ratably over the term of the support agreement, which, in most
cases, runs for one year from the date of purchase of our system and is
renewable on an annual basis. In 1997, our maintenance and support revenue
consisted primarily of software upgrades and replacement parts.
COST OF ADVANTAGE SYSTEM REVENUES. Cost of license fees derived from sales
of our Advantage system consists primarily of the purchase of computer hardware
and software from third parties. Cost of license fees derived from sales of our
Advantage system decreased from $659,000 in 1997, or 16% of revenues, to
$595,000 in 1998, or 11% of revenues. The decrease in cost of revenues as a
percent of revenues was attributable to a relative decline in 1998, as a percent
of total license fees, in the sale of computer hardware, which carries a lower
gross margin than sales of our system.
COST OF MAINTENANCE AND SUPPORT SERVICES REVENUES. Cost of maintenance and
support services revenues consists primarily of compensation, travel and related
overhead costs for personnel involved in the operation of our maintenance and
support program. Cost of maintenance and support services were $29,000 and
$71,000 in 1997 and 1998, respectively.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of compensation and related overhead costs of research and
development personnel, as well as fees paid to outside consultants. Research and
development expenses increased from $1,315,000 in 1997 to $2,157,000 in 1998, an
increase of $842,000, or 64%. This increase was primarily due to the hiring of
research and development personnel and an increase in the use of outside
consultants. Our intent is to strategically pursue new technologies and to
continue to provide enhancements to our current system. These activities will
result in increased research and development expenses over current levels.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of compensation and related costs, marketing programs, sales
commissions, promotional material and travel and entertainment. Sales and
marketing expenses increased from $534,000 in 1997 to $1,601,000 in 1998, an
increase of $1,067,000, or 200%. In 1998, we decided to accelerate the rate at
which we would expand
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our sales and marketing personnel and programs. As a result, this significant
increase resulted primarily from an increase in compensation and related costs
from the addition of sales and marketing personnel and programs. We anticipate
continuing investments in the sales and marketing area, primarily through the
addition of new personnel and expanded marketing and sales programs.
STOCK COMPENSATION. Stock compensation expense in 1997 relates to an award
of 1,275,000 shares of our common stock to our president and chief executive
officer by our existing stockholders and officers.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and related costs, bad debt expense and legal,
accounting and other general and administrative costs. General and
administrative expenses increased from $845,000 in 1997 to $1,563,000 in 1998,
an increase of $718,000, or 85%. The increase is attributable primarily to an
increase in bad debt expense of $353,000 and increases in salaries and related
costs.
OTHER INCOME (EXPENSE). Other income (expense), consisting of net interest
income and net interest expense, remained consistent at $3,000 in net interest
income in 1997 and 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
for the eight quarters ended December 31, 1999. You should read the following
table in conjunction with our consolidated financial statements and the related
notes included elsewhere in this prospectus. We have prepared this unaudited
information on the same basis as the consolidated financial statements appearing
elsewhere in this prospectus. This table includes all adjustments, consisting
only of normal recurring accruals that we consider necessary for a fair
presentation of our financial position and operating results for the quarters
presented. You should not draw any conclusion about our future results from the
results of operations for any quarter.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees........................ $1,496 $1,677 $ 573 $1,595 $ 723 $2,690 $ 641 $ 3,499
Maintenance and support services.... 44 44 56 74 65 143 239 341
------ ------ ------ ------ ------- ------ ------- -------
Total revenues.................... 1,540 1,721 629 1,669 788 2,833 880 3,840
------ ------ ------ ------ ------- ------ ------- -------
Cost of revenues:
Licenses fees....................... 190 143 126 136 67 317 189 155
Maintenance and support services.... 17 18 18 18 72 70 69 74
------ ------ ------ ------ ------- ------ ------- -------
Total cost of revenues............ 207 161 144 154 139 387 258 229
------ ------ ------ ------ ------- ------ ------- -------
Gross profit.................... 1,333 1,560 485 1,515 649 2,446 622 3,611
------ ------ ------ ------ ------- ------ ------- -------
Operating expenses:
Research and development............ 355 524 596 682 698 764 868 1,274
Sales and marketing................. 246 345 471 539 914 724 756 973
General and administrative.......... 318 380 359 506 336 393 341 570
Stock compensation.................. -- -- -- -- -- -- 26 2,146
------ ------ ------ ------ ------- ------ ------- -------
Total operating expenses.......... 919 1,249 1,426 1,727 1,948 1,881 1,991 4,963
------ ------ ------ ------ ------- ------ ------- -------
Operating income (loss)............... 414 311 (941) (212) (1,299) 565 (1,369) (1,352)
Other income (expense)................ 1 3 -- (1) (17) (25) (274) (273)
------ ------ ------ ------ ------- ------ ------- -------
Net income (loss)..................... $ 415 $ 314 $ (941) $ (213) $(1,316) $ 540 $(1,643) $(1,625)
====== ====== ====== ====== ======= ====== ======= =======
</TABLE>
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We believe that period-to-period comparisons of our operating results are
not necessarily meaningful and you should not rely on them to predict future
performance. The amount and timing of our revenues and operating expenses may
fluctuate significantly in the future as a result of a variety of factors. We
face a number of risks and uncertainties encountered by early stage companies,
particularly those in rapidly evolving markets such as the wireless and wireless
data industries. We may not be able to successfully address these risks and
difficulties. In addition, although we have experienced revenue growth recently,
our growth may not continue, and we may not achieve or maintain profitability in
the future.
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter due to a number of factors,
some of which are outside of our control. These factors include, but are not
limited to:
- delays in market acceptance or implementation by our customers of our
systems and services;
- changes in demand by our customers for additional systems and services;
- our lengthy sales cycle, our concentrated target markets and the
potentially substantial effect on total revenues that may result from the
gain or loss of business from each incremental wireless network customer;
- introduction of new system applications or services by us or introduction
of new products or services by our competitors;
- delays in developing and introducing new system applications and services;
- changes in our pricing policies or those of our competitors or customers;
- changes in our mix of domestic and international sales;
- risks inherent in international operations;
- changes in our mix of license, consulting and maintenance and support
services revenues; and
- changes in accounting standards, including standards relating to revenue
recognition, business combinations and stock-based compensation.
Our four- to twelve-month sales cycle contributes to fluctuations in our
quarterly operating results. Many factors outside our control add to the lengthy
education and customer approval process for our systems. For example, many of
our prospective customers have neither budgeted expenses for the provision of
Internet-based services to wireless subscribers nor specifically dedicated
personnel for the procurement and implementation of our systems and services.
Further, the emerging and evolving nature of the market for Internet-based
services via wireless devices may lead prospective customers to postpone their
purchasing decisions.
Most of our expenses, such as employee compensation and lease payments for
facilities and equipment, are relatively fixed. In addition, our expense levels
are based, in part, on our expectations regarding future revenues. As a result,
any shortfall in revenues relative to our expectations could cause significant
changes in our operating results from quarter to quarter. Due to the foregoing
factors, we believe period to period comparisons of our revenue levels and
operating results are not meaningful. You should not rely on our quarterly
revenues and operating results to predict our future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in 1988, we have financed our operations primarily
through cash generated from operations. We initially incurred bank debt in 1997
and as of December 31, 1997, our bank debt was $150,000. In 1998, while
continuing to expand research and development, we also expanded our sales and
marketing efforts. As a result, we recorded a net loss of $425,000 and bank debt
increased to
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$500,000 by December 31, 1998. In 1999, we continued our expansion in research
and development and sales and marketing, recording a net loss of $1,381,000,
excluding stock compensation expense of $2,172,000, and interest expense of
approximately $491,000 relating to the grant of a common stock warrant in
connection with our bank line of credit. Additionally, we increased bank debt by
$600,000 to $1,100,000 as of December 31, 1999.
We had a working capital deficit of $217,000 and stockholders' equity of
$167,000 at December 31, 1999. As discussed further below, we will address the
financing of our activities by raising additional funds through the issuance of
debt and equity securities.
Net cash used in operating activities in 1999 was $392,000. Net cash used in
operating activities for 1999 was primarily due to our net loss of $1,381,000,
excluding stock compensation and interest expense relating to the grant of a
warrant in connection with our bank line of credit, and an increase in accounts
receivable of $468,000, partially offset by increases in depreciation, bad debt
expense, accounts payable and deferred revenue.
Net cash used in investing activities of $230,000 in 1999 was essentially
unchanged as compared to 1998, and consisted primarily of the purchase of
property and equipment.
Net cash provided by financing activities increased from $328,000 in 1998 to
$715,000 in 1999. The increase in net cash provided by financing activities from
1999, as compared to 1998, was primarily the result of the net increase in
borrowings under our bank note payable in 1999, as compared to 1998.
In January 2000, we received $5,000,000 from Monsoon Ventures LLC and issued
one-year convertible promissory notes with interest payable at 8% per annum. On
March 28, 2000, we received $5,000,000 from AOL and issued 5,000 shares of our
series A convertible preferred stock. The preferred stock will convert into
425,775 shares of our common stock upon completion of this offering. Concurrent
with the AOL investment, the Monsoon promissory notes were converted into
189,392 shares of our common stock.
As of February 29, 2000, our principal commitments consisted of corporate
obligations under operating leases and commitments, none of which are material,
and for capital expenditures, principally computer equipment and office
furniture. The total of these capital commitments and expenditures was
approximately $450,000. We expect to increase capital expenditures and expand
our facilities consistent with our anticipated growth in operations and
personnel.
We have not yet determined our anticipated use of proceeds of this offering,
but we currently estimate that we will have approximately $25,000,000 in
research and development and sales and marketing expenses and approximately
$4,000,000 in capital expenditures, including expansion of our facilities during
the next 12 months. The amounts and timing of these expenditures will vary
depending on a number of factors, including the amount of cash generated by our
operations, competitive and technological developments and the rate of growth,
if any, of our business. We believe that the net proceeds from this offering,
together with our current cash, cash equivalents and short-term investments,
will be sufficient to meet our anticipated cash needs for working capital and
general corporate purposes for at least the next 12 to 18 months. However, in
the event we decide to acquire technology rather than develop technology
internally as has been our practice in the past, the proceeds of this offering
may be sufficient for a period shorter than previously stated.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
years beginning after June 15, 2000, which will affect us as of January 1, 2001.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging
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activities. SFAS No. 133 requires the recognition of all of these derivatives as
either assets or liabilities in the statement of financial position and the
measurement of those instruments at fair market value. We expect that the
adoption of SFAS No. 133 will not have a material impact on our consolidated
financial position or results of operations.
INFLATION
Management believes that inflation has not had, and is not likely to have, a
material adverse effect on our consolidated results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market rate risk for changes in interest rates relates
primarily to our investments in short- or medium-term, interest-bearing,
investment-grade securities and commercial paper.
At December 31, 1999, notes payable to the bank aggregated $1.1 million
which bear interest at the bank's prime rate plus 1% per annum, 9.5% at
December 31, 1999. Increases in the bank's prime rate would result in increases
to our interest payments.
IMPACT OF YEAR 2000
In 1999, we upgraded a significant portion of our software so that our
computer system would function properly with respect to dates in the year 2000
and afterwards. We experienced no significant disruptions in our computer
systems and we believe that our computer systems successfully responded to the
year 2000 date change. We are not aware of any material problems resulting from
year 2000 issues, either with our Advantage system or with the products and
services we purchased from third parties. We will continue to monitor our
computer systems as well as those of our suppliers and vendors throughout this
year to ensure that any latent year 2000 problems that may arise are addressed
promptly.
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BUSINESS
RTS WIRELESS, INC.
We are a leading developer of adaptable software systems that connect the
Internet to a wide array of evolving wireless devices, including virtually all
cell phones, pagers and hand-held computers. Our product, the
Advantage-Registered Trademark- system, can be specially configured to meet the
particular needs of each customer, including wireless network operators,
wireless infrastructure and device manufacturers, ISPs, information content
providers and corporate data networks. Using our system, our customers can
provide their wireless subscribers and clientele with e-mail, news, shopping,
stock, weather, travel and other information content and services. Our Advantage
system also permits companies to provide their employees with services such as
wireless access to e-mail, personal calendars and contact lists through private
corporate networks, commonly referred to as intranets. The Advantage system is a
software engine for wireless data that runs our portfolio of standard
applications as well as custom applications that we design to meet specific
customer requirements. Our software also enables our customers to design their
own applications. Consumers do not need specialized technology within their
wireless devices to obtain network services through our Advantage system.
We believe that the use of wireless devices in conjunction with the Internet
reflects a growing consumer demand for mobile and convenient access to data. As
of December 31, 1999, over 50 companies had purchased our Advantage system and
had begun commercial service or market or laboratory trials. Our customers
include many of the world's largest wireless network operators, such as Vodafone
AirTouch, GTE Wireless, U S WEST Wireless, PageNet and Arch Communications, as
well as AOL, the world's largest ISP. We also sell our Advantage system to
manufacturers of wireless infrastructure, who bundle our system with their
equipment. For example, Motorola typically includes a version of our Advantage
system with each of the cellular telephone networks it installs worldwide.
We have been a leader in the development and evolution of wireless industry
technology for over 11 years. Our goal is to remain at the forefront of wireless
Internet applications and services across the broadest possible array of
devices. We believe our experience enables us to provide more effective service
to our customers, to configure our Advantage system to perform effectively with
each customer's system and to incorporate new technologies into our system as
they become available.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND CORPORATE INTRANETS
The Internet has emerged as a global communications medium enabling millions
of people to share information and conduct business electronically. Through the
Internet, business and consumer users can exchange and post information,
purchase goods and services, sell and advertise products and retrieve
time-sensitive information, such as news and weather, at any time. The increased
use of the Internet has been aided by easier and faster access and an increase
in available information and services on-line. IDC estimates that there were
approximately 261 million Internet users worldwide at the end of 1999 and that
the number of users will grow to approximately 623 million by the end of 2003.
In addition, employees are increasingly able to access e-mail and other
information remotely through corporate intranets. Cahners In-Stat Group
estimates that by 2002 medium and large companies in the United States will
spend over $117 billion on wireless equipment and services, more than double the
approximately $54 billion spent by these companies in 1998. According to Cahners
In-Stat Group, the fastest growing purchasers of wireless equipment and services
are mid-sized companies, where spending is expected to increase from
approximately $28 billion in 1998 to over $67 billion in 2002.
GROWTH OF WIRELESS SERVICES
Worldwide use of wireless voice and data services has grown rapidly in
recent years. This growth has been stimulated by the increased availability,
quality and affordability of wireless devices such as
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cellular telephones, pagers, PDAs and on-board computers in automobiles. The
Yankee Group estimates that there were approximately 530 million wireless
telephone and paging subscribers worldwide as of the end of 1999, and that
number is expected to grow to over one billion by 2003.
THE CONVERGENCE OF THE INTERNET, CORPORATE INTRANETS AND WIRELESS
COMMUNICATIONS
As businesses and consumers become more reliant on e-mail, the Internet and
corporate intranet-based services, wireless devices that can access such
information are increasingly useful tools. The development of wireless
technology allows consumers to access the Internet anytime, anywhere, through
convenient, portable devices. The same technology allows employees to remotely
access information available on their corporate intranets using wireless devices
such as cellular telephones, pagers and PDAs.
THE MARKET OPPORTUNITY
Consumers and business users are increasingly attracted to the vast array of
content and applications becoming available on the Internet. The increasing
awareness of the potential to access this ever-expanding source of information
and services using portable, personal wireless devices will create an enormous
demand for software systems that facilitate connection to the Internet. We
believe our Advantage system can address the objectives of our customers and
their subscribers as demand for wireless information content and services grows.
THE RTS WIRELESS SOLUTION
Our Advantage system is a high-capacity software engine for wireless data
that enables communication between the Internet and/or intranets and virtually
all mass-market wireless devices. Because of its modular architecture, our
Advantage system may be configured to work with standard wireless devices
utilized worldwide, as well as new and emerging wireless devices, including
those with embedded microbrowsers such as WAP-enabled cellular telephones and
those with SIM Toolkit and Java execution capabilities. This flexible design
approach enables us to adapt and accommodate new wireless networks and devices,
reducing our customers' risk of obsolescence.
Our Advantage system has several key benefits for our customers and wireless
users because it is:
- ADAPTABLE. Our Advantage system is easily connected to the Internet and a
wide variety of corporate intranets and wireless networks. We can
customize the Advantage system if we encounter a network that is not
compatible with our standard configuration.
- EFFICIENT. The Advantage system architecture is designed to handle a large
quantity of wireless data traffic quickly without any degradation in
capability or features.
- FLEXIBLE. The modular design of our system allows configuration by
customers to incorporate a wide variety of desired applications.
Additionally, consumers do not need specialized technology within their
wireless devices to obtain network services through our Advantage system.
- SCALABLE. The Advantage system design allows us to add additional capacity
without disrupting service as a customer's requirements grow.
- RELIABLE. The Advantage system virtually eliminates service interruptions
by routing information around hardware failures, application or capacity
upgrades or repairs. In addition, the Advantage system can be remotely
diagnosed and monitored by our service or maintenance personnel.
- PRICED BASED ON CAPACITY. Our pricing model is based on the data
processing capacity of the delivered Advantage system, rather than the
number of users or subscribers to our customers' networks. This pricing
model makes the cost of ownership of our systems more attractive to our
customers.
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The Advantage system can be configured to run our standard applications as
well as applications we design to meet specific customer requirements. Our
software also enables our customers to design their own applications. Software
applications we offer as options with the Advantage system include:
- wireless e-mail access;
- wireless World Wide Web;
- personalized wireless information content and services, such as news,
stocks, weather, travel and sports;
- wireless data routing and reformatting;
- text-to-speech gateway; and
- anti-spam network protection filters, which block undesired content.
The Advantage system is also capable of performing various utility functions
for our customers, including tracking data within the system and maintaining
service and billing records and customized information specific to each
subscriber.
We deliver the Advantage system with a base wireless data handling capacity
determined by the customer's needs. As those needs expand, additional capacity
can be readily purchased from us by our customers. The Advantage system also can
be expanded to support the installation of additional applications as needed by
our customers.
Our Advantage system operates on hardware from a wide variety of major
manufacturers, including IBM, Compaq, Dell and Hewlett-Packard. A typical
configuration of our Advantage system is shown and described below:
[LOGO]
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<PAGE>
The Advantage system consists of the following components, which act
together as a gateway between the Internet and a wireless device:
- INTERNET OR INTRANET ADAPTER. A set of software programs that translates
data to and from the Internet or corporate intranets into our internal
format.
- ROUTER. A software process that coordinates data coming from a number of
sources, or going to a number of destinations.
- WIRELESS INTERNET DATA PROCESSING AND APPLICATIONS. Data processing
functions that can be applied to all or a portion of the traffic presented
to the Advantage system, depending upon the specific application. Examples
include e-mail filtering, data reformatting and text-to-speech conversion.
This stage of processing also queues data waiting to be sent and tracks
delivery attempts, successes and failures. The electronic format used by
all data processing applications in the Advantage system is independent of
the wireless network or device.
- WIRELESS NETWORK ADAPTER. A software program that translates data to and
from our internal format into the format required by the wireless network
or device.
- TRANSACTION DATABASE. Maintains, stores and queues data in transit.
- SYSTEM DATABASE. Maintains the specifics of all system configurations and
keeps activity logs for maintenance, performance analysis and billing.
- SUBSCRIBER DATABASE. Maintains information specific to each subscriber
with access to the system and its services.
The Advantage system connects to the Internet and wireless networks through
a hardware interface, which includes plugs, sockets, wires and computer cards.
THE RTS WIRELESS STRATEGY
Our goal is to remain at the forefront of wireless Internet applications and
services across the broadest possible universe of devices. Key elements of our
strategy are to continue to:
- PROVIDE QUALITY SYSTEMS AND SERVICES TO OUR CUSTOMERS. We will continue to
work closely with wireless network operators, wireless infrastructure and
device manufacturers, ISPs, information content providers and corporate
data networks to deliver quality systems for their technology needs as
well as to meet the service demands of their subscribers.
- ADDRESS NEW TECHNOLOGIES AND MARKET OPPORTUNITIES. We intend to maintain
our position as a leader in the development of wireless Internet
technology by expanding our wireless e-mail, World Wide Web and wireless
data applications. We will continue to develop and promote wireless data
technology, including integrating voice access through our text-to-speech
and speech recognition applications, and to expand on-demand personalized
information content and services for Advantage system users.
- EXPAND OUR CUSTOMER BASE. As Internet businesses and Internet-related
businesses continue to be created and to grow, the broad applicability of
our system and our design approach allow us to market to a widening base
of potential customers. Accordingly, in addition to wireless network
operators, we have specifically targeted ISPs, information content
providers, e-commerce Web site operators, corporate data networks and
telematics service providers. We also have an aggressive marketing and
sales plan that should enable us to achieve significant market share in
each of these segments.
- STRENGTHEN THE RTS WIRELESS BRAND. We have achieved significant success
among wireless network operators through informal brand promotion and
reference selling. We expect to increase our
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market share in this segment and drive growth in our other customer
segments by aggressively promoting our corporate brand.
- DEVELOP STRATEGIC RELATIONSHIPS. Our strategic relationships have created
various marketing and technology sharing programs that have promoted the
adoption of our technology by our customers. We are seeking additional
relationships among leaders in the telecommunications, wireless and
wireless data industries.
- EXPAND INTERNATIONALLY. We have increased our international presence
through strategic relationships in select markets and plan to open
regional offices around the world. Our London-based subsidiary provides
sales, marketing and technical support throughout Europe, the Middle East
and Africa. We are seeking new relationships to help promote our Advantage
system in Asia and Latin America and expect to establish additional
operating subsidiaries as we expand into new global markets.
- MAINTAIN BROAD APPLICABILITY OF OUR ADVANTAGE SYSTEM. We are actively
involved in organizations that determine standards for the wireless and
wireless data industries. We dedicate engineers to ensure that our
Advantage system remains adaptable to virtually all wireless or data
networks or wireless devices. In this period of intensive development and
change in the wireless and wireless data industries, we believe that the
steps we are taking to maintain applicability of our system will help our
customers avoid obsolescence in their wireless products and services.
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<PAGE>
THE ADVANTAGE SYSTEM
Our Advantage system enables the transmission of data between the Internet
or corporate intranets and wireless devices. Because our system is modular, we
can integrate a number of applications into a single system and can expand that
system to include more applications as our customers desire. Some typical
applications include:
<TABLE>
<CAPTION>
APPLICATION DESCRIPTION
- --------------------------------------------- ---------------------------------------------
<S> <C>
Wireless E-mail Access....................... Provides the ability to compose, read and
respond to Internet e-mail messages remotely
by using wireless devices.
Wireless World Wide Web...................... Provides a Web site on the Internet or
intranet facilitating short messaging and
two-way confirmed delivery messaging to
wireless devices.
Personalized Wireless Information Content.... Provides a secure connection point where
multiple Internet information content
providers can connect to a wireless network
in order to distribute on-demand,
individualized content to subscribers with
wireless devices.
Wireless Data Routing and Reformatting....... Provides a high-speed link among multiple
wireless networks, the Internet and corporate
intranets that automatically adapts to
different system specifications and formats.
Text-to-Speech Gateway ("e-Talker").......... Employs state-of-the-art computer-generated
speech technology to allow access through
wireless or wireline telephones to e-mail and
other information content and services,
including finance, news, sports and weather.
Anti-Spam Network Protection Filter
("e-Sentinel")............................. Performs a real-time statistical analysis of
data traffic on a wireless network in order
to identify deliberate or accidental
electronic junk mail, or "spam." Offending
data traffic is directed away from the
wireless network and is identified for later
investigation.
</TABLE>
Our Advantage system is scalable, which means that as customers'
requirements expand, either due to increased numbers of subscribers or increased
use of wireless Internet services by existing subscribers, additional capacity
can be added to their networks without disrupting service. This capacity can be
increased in two ways:
- licensing additional capacity in an existing Advantage system via remote
access; or
- adding additional Advantage systems to a customer's network.
The market often requires that standard Advantage systems be customized with
specially engineered modifications to suit the requirements of a particular
application or customer. We have demonstrated the ability to create such custom
developments rapidly, reliably and in a cost-effective, competitive manner. Our
Advantage system is already deployed at many of the world's largest participants
in the wireless and wireless data industries, including Vodafone AirTouch, GTE
Wireless,
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<PAGE>
U S WEST Wireless, PageNet, Arch Communications, AOL and Vast Systems. Our
system also is integrated into wireless infrastructure products by manufacturers
such as Motorola, Ericsson and Comverse.
Our Advantage system can connect the Internet with wireless devices that use
new programming technologies. For example, the majority of the approximately
265 million global system for mobility, or GSM, handsets estimated by The Yankee
Group to be currently in use can be easily programmed to allow the user to
access Internet and intranet-based information content and services by using a
chip called the subscriber identity module, or SIM. The programming capability
for this feature is known as SIM Toolkit, or STK. The Advantage system provides
a connection between the Internet and any STK-enabled GSM handset. In addition,
Java is the most widely used programming system in the consumer electronics and
information technology industries that can operate on any type of hardware. A
large number of portable, and soon-to-be wireless, devices are being developed
with the ability to run Java programs. The Advantage system can be used in
conjunction with any Java-enabled device to permit wireless Internet and
corporate intranet access.
Our system also has the flexibility to use different encryption technology
and vary the encryption strength to maintain compliance with United States
export laws. To date, such encryption export laws have not adversely impacted
our ability to compete effectively in international markets.
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<PAGE>
OUR INDUSTRY ACHIEVEMENTS
Since our inception in 1988, we have developed several elements of the
worldwide wireless Internet technology in use today, including our first
wireless Internet gateway in 1995. The following are some of our innovative
industry achievements:
<TABLE>
<CAPTION>
YEAR ACHIEVEMENT DESCRIPTION
- ---- ------------------------------------------ ------------------------------------------
<C> <S> <C>
1991 DEVELOPED WIRELESS SPEECH-TO-TEXT AND Permitted human speech to be translated
TEXT-TO-SPEECH SYSTEM. into digital signals, without
pre-conditioning the system for the
specific speaker's pronunciation or voice,
and the signals to be transmitted as
synthesized voice to wireless or wireline
telephones.
1994 DEVELOPED ROAMING CAPABILITY FOR PAGING. Permitted digital paging subscribers to
receive text messages outside the coverage
area of their home network.
1995 DEVELOPED WIRELESS INTERNET GATEWAY. Permitted regional and nationwide digital
paging networks to provide subscribers
with e-mail services.
1997 DEVELOPED INTERNET-BASED INTERNATIONAL Permitted a digital paging network in the
PAGER ROAMING. United States to extend its service
internationally through secure Internet
connections with wireless networks in
other countries.
1997 DEVELOPED WIRELESS INTERNET GATEWAY WITH Permitted wireless network subscribers to
PERSONALIZED E-MAIL FILTERS. block unwanted wireless e-mail.
1998 DEVELOPED WIRELESS INTERNET GATEWAY FOR Permitted Internet data, including e-mail
SATELLITE TELEPHONES AND PAGERS. and other information content, to be
directed to international satellite
telephone and pager networks.
1999 DEVELOPED MULTIPLE NETWORK SHORT MESSAGE Permitted the connection of a digital
SERVICE GATEWAY. cellular network system in a large United
States metropolitan area with two
principal transmission networks serving
different portions of the metropolitan
area. The transmission networks were
otherwise incompatible.
1999 DEVELOPED WIRELESS COMMUNICATIONS Permitted corporate intranet applications
TRANSPORT PROTOCOL. such as e-mail to be connected with
wireless messaging networks through an
open-standard software system.
1999 DEVELOPED LINUX-BASED WAP WAP wireless data server built on an
PROXY/APPLICATION SERVER. emerging operating systems platform.
</TABLE>
We are a member of the WAP Forum, an open-standards development organization
with over 200 full member firms and over 150 associate member firms. In 1998,
the WAP Forum published technical specifications for application and content
development and product interpretability based on Internet technology and
standards. Our Advantage system complies with WAP specifications, allowing
wireless
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<PAGE>
device manufacturers, wireless network operators, information content providers
and application developers to provide Internet-based products and services to
WAP-enabled wireless devices.
CUSTOMERS
Our customers include wireless network operators, wireless infrastructure
and device manufacturers, ISPs, information content providers and corporate data
networks.
WIRELESS NETWORK OPERATORS. We believe that our wireless network operator
customers compete intensively to attract and retain subscribers on the basis of
pricing of network services. Price-based competition can reduce average revenues
per subscriber and can increase subscriber "churn," meaning the number of
subscribers switching from one network operator to another. In this context, we
believe that our wireless network operator customers use the Advantage system to
deliver additional services to their wireless subscribers and to support these
services on a cost-effective basis.
WIRELESS INFRASTRUCTURE AND DEVICE MANUFACTURERS. Our wireless
infrastructure and device manufacturing customers strive to make their cellular
telephone networks fully functional upon delivery. As a result, these
manufacturers and, in turn, their customers place stringent requirements on the
reliability and scalability of our delivered system. In order to remain
competitive, these infrastructure manufacturers require that our Advantage
system be easily integrated with a wide variety of network infrastructure
equipment.
INTERNET SERVICE PROVIDERS. We believe that ISPs also compete intensively on
the basis of price and services offered. In order to reduce subscriber "churn"
driven by price-based competition, ISPs attempt to differentiate themselves by
providing services not offered by their competitors. One such service option is
a link between a subscriber's e-mail account and various wireless devices owned
by the subscriber. Our Advantage system allows ISPs to provide their subscribers
with access, through wireless devices, to other services offered by the ISP,
including personalized financial portfolio alerts, news, e-commerce, weather and
traffic updates and on-demand access to information databases. In addition to
differentiating ISPs from each other, these wireless services can provide the
ISP with added sources of revenue.
INFORMATION CONTENT PROVIDERS. These businesses typically provide
specialized or premium content to subscribers or the general public through the
Internet or private networks. The Advantage system permits information content
providers to extend delivery of data to an increasing number of wireless users.
Expansion into the wireless market can result in new subscribers for information
content providers, as well as increased exposure to existing subscribers.
CORPORATE DATA NETWORKS. By integrating one or more Advantage systems into
its corporate data network, a company can extend intranet and Internet
information content and services to its employees, regardless of what type of
wireless device the employees may be using, avoiding the need to purchase
additional specialized wireless devices.
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<PAGE>
During the past decade, we provided our Advantage system to leading
companies throughout the wireless and wireless data industries. The following
table of representative customers indicates the initial date each customer
purchased an Advantage system:
<TABLE>
<CAPTION>
CUSTOMER COUNTRY INITIAL PURCHASE
- -------- ------- ----------------
<S> <C> <C>
ALLTEL USA 1997
America Online USA 1999
Ameritech USA 1997
Arch Communications USA 1999
Bell Mobility USA 1998
CallMax The Netherlands 1997
Cellular One--San Francisco USA 1994
Cellular One--Phoenix USA 1996
Cellular One--Kansas City USA 1994
CFW Wireless USA 1997
Comverse Worldwide 1994
CUE Wireless USA 1996
Datalink.net USA 1997
Dobson Cellular USA 1999
EirPage Ireland 1999
Ericsson China 1998
GTE Wireless USA 1993
IRIDIUM Worldwide 1998
Metrocall USA 1993
Motorola Worldwide 1996
China 1991
PageNet USA 1994
Paging Partners USA 1996
PCL Israel 1998
Singapore Telecom Singapore 1994
TelMex Mexico 1997
TSR Wireless USA 1994
U S WEST Wireless USA 1998
Vast Systems USA 1999
Vodafone AirTouch USA 1990
VoiceStream USA 1999
WebLink Wireless USA 1995
</TABLE>
For the year ended December 31, 1997, Vodafone AirTouch, formerly U S WEST
NewVector, Motorola and WebLink Wireless, formerly PageMart, accounted for
approximately 27%, 20% and 14%, respectively, of our total revenues. For the
year ended December 31, 1998, PageNet, WebLink Wireless and Motorola accounted
for 22%, 13% and 12%, respectively, of our total revenues. For the year ended
December 31, 1999, America Online and Vast Systems accounted for 28% and 20%,
respectively, of our total revenues.
In addition to the types of customers mentioned above, we are marketing to
the following potential customers:
E-COMMERCE WEB SITE OPERATORS. Our Advantage system can provide a way for
e-commerce Web site programmers to add services and features which connect to
their subscribers' personal wireless devices. Typically, these enhancements are
designed to increase subscriber loyalty, or "stickiness."
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<PAGE>
Wireless features also can increase revenue for e-commerce Web site operators,
for example, by increasing the bid rate in online auctions.
TELEMATICS AND TELEMETRY. The automotive and vending machine industries, in
particular, are beginning to use wireless technology for remote tracking,
monitoring and security of their products. Our Advantage system can permit the
linkage of a wide array of devices, through a broad range of wireless networks,
with Internet or intranet applications. Examples of services that can be created
include safety and maintenance monitoring in vehicles; real-time traffic data;
and inventory and security monitoring for vending machines, particularly where a
wired connection may be unreliable or costly.
STRATEGIC RELATIONSHIPS
We have established strategic relationships with leading companies to
integrate our technology with their hardware, software and Internet
applications. We have used our strategic relationships to promote and distribute
our Advantage system to existing and emerging customer bases. The following are
our strategic relationships:
- MOTOROLA. Motorola distributes the Advantage system as part of the digital
cellular networks they sell and service throughout the world. Our research
and development staff works closely with Motorola engineering personnel to
develop and integrate new features and protocols into their cellular
network designs.
- LUCENT TECHNOLOGIES. We have a strategic relationship with the Lucent
Technologies Speech Solutions group to integrate Lucent's Text-to-Speech
and Automatic Speech Recognition software into our Advantage system.
- LERNOUT & HAUSPIE. We have integrated the Lernout & Hauspie RealSpeak
text-to-speech engine into our Advantage system.
- IBM. As a member of the IBM Business Partner Program, we participate in a
number of joint marketing and technology sharing programs that help
promote the Advantage system and IBM products in the wireless
telecommunications market.
- AOL. In connection with the sale of our Advantage system to AOL, we
entered into a Contract of Sale and License Agreement with AOL dated
October 19, 1999. On March 27, 2000, we entered into a consulting
agreement with AOL pursuant to which, among other things, we will perform
software development tasks for AOL. In addition, on March 28, 2000, we
granted AOL an option to purchase a license for one of our Advantage
applications not previously purchased by AOL. The terms of the option have
been negotiated, and AOL has a 31-day no-charge, non-production use
license to evaluate the software. It is anticipated that if that software
meets AOL's requirements, AOL may purchase a license for the software at
the end of the 31-day period, although AOL is under no obligation to do
so.
RESEARCH AND DEVELOPMENT
Our success depends on a number of factors, including our ability to
identify and respond to the changing needs of our customers and the emerging
technological trends in the wireless and wireless data industries. We also must
develop and maintain the competitiveness of our system and bring new
applications for our system to market in a timely, cost-effective manner. As a
result, we have made and continue to make substantial investments in research
and development. For the years ended December 31, 1997, 1998 and 1999, our
research and development expenses were approximately $1.3 million, $2.2 million
and $3.6 million, respectively. As of February 29, 2000, we had 43 engineers and
technicians, or 54% of our total employees, engaged in research and development
activities.
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<PAGE>
Through our research and development team, we continue to enhance the
features and performance of our Advantage system and to introduce new
applications.
System Enhancements:
- WIRELESS E-MAIL AND MESSAGING. Emerging technology in wireless messaging
includes the development of two-way wireless e-mail, personalized content
delivery and advanced messaging through paging networks. We are continuing
to develop technology that will allow a wireless user not only to receive
messages but also to communicate remotely for business and personal
purposes.
- WIRELESS WORLD WIDE WEB. Wireless network operators and ISPs are
continuing to look for new ways to personalize the delivery of e-mail and
news or other information to a specific wireless user. Our wireless Web
adapters will allow our customers to offer personalized, on-demand
information services to their subscribers.
- WAP PROXY GATEWAY. Major wireless telephone handset manufacturers are
working to integrate WAP-compliant microbrowser software into their
product lines. The Advantage WAP Proxy Gateway adapter provides the core
functions needed to connect conventional wired Internet software
technology and content to any WAP-enabled wireless device.
- WAP APPLICATION SERVER. The Advantage WAP Application Server is a package
of applications that run in conjunction with the Advantage WAP Proxy
Gateway and which provides wireless device users with e-mail alerting and
access, information content access, wireless instant messaging and
subscriber personalization.
New Application Developments:
- AUTOMATIC SPEECH RECOGNITION. As a complement to the interactive voice
response and text-to-speech functions currently available within the
Advantage architecture, automatic speech recognition allows users to issue
commands in a natural voice, providing a hands-free link between a
wireless device and the Advantage system.
- WAP APPLICATION FRAMEWORK FOR E-COMMERCE. To accelerate the launch of a
wireless e-commerce site, the Advantage WAP Application Framework for
e-Commerce implements the necessary mechanisms for offering and completing
retail sales on digital wireless phones, interactive, or two-way, pagers
and PDAs.
- SECURITY AND ENCRYPTION FEATURES. The growth of the wireless and wireless
data industries has resulted in a demand for security, particularly in
two-way communications. Our secure adapters will provide a private
connection between two or more Advantage servers across the Internet for
e-mail or transmission of information content. We recognize that
confirmation of secure transactions is critical to wireless users,
particularly in e-commerce applications, and are incorporating
authentication of transactions into our security software applications.
- TELEMETRY APPLICATIONS. A rapidly growing segment of the wireless data
market is for remote-sensing tasks that previously might have been
assigned to wireline communications systems. For example, our technology
could be used for remote electric meter reading, vending machine
monitoring, security monitoring or even signaling the presence of mail or
packages to be picked up from a sidewalk drop-box.
- TELEMATICS APPLICATIONS. One-way and two-way communication with trucks,
buses, railcars and passenger vehicles offer advantages in safety,
convenience and security. Examples include automated location in the event
of an accident or theft, remote activation of door locks and turn-by-turn
directional assistance. We expect that the widespread adoption of
telematics by the automotive industry will provide us with a large
potential market for our system, since
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<PAGE>
applications in this market will require an Internet gateway such as the
Advantage system in order to function.
SALES AND MARKETING
We target sales of our Advantage system to existing customers such as
wireless network operators, wireless Internet infrastructure and device
manufacturers, ISPs, information content providers and corporate data networks
and prospective customers such as e-commerce Web site operators and telematics
service operators and suppliers. As of February 29, 2000, we employed a total
direct sales and sales support force of 24 full-time people in the field, at our
corporate headquarters in Plainview, New York and at our European headquarters
in London, England. These salespeople pursue sales opportunities in the United
States, Europe, the Middle East, Africa, and Latin America and Asia. We expect
to more than double our sales force in the United States by the end of 2000. We
also work with wireless infrastructure manufacturers, such as Motorola, who help
us achieve wide international distribution of our system. We currently use
trading agents to sell and market in Asia. In addition, our London-based
subsidiary, RTS Wireless International, provides sales, marketing, development
and technical support resources throughout Europe, the Middle East and Africa.
We are in the process of opening regional sales offices in Asia, Latin America
and Europe. International sales of our Advantage system accounted for 12%, 14%
and 10%, respectively, of our total revenues in the years ended December 31,
1997, 1998 and 1999.
We believe that customer service and ongoing technical support is an
essential part of the sales process in the wireless and wireless data
industries. Our support staff provides maintenance and technical support
services for our installed base of systems 24 hours a day, seven days a week. We
also provide remote monitoring and diagnostic services using proprietary
technology built into our system.
We include a one-year limited warranty with our new Advantage systems. In
addition, we maintain a customer service network known as RTS Customer Care. Our
support plan provides customers with repair or replacement of any defective
equipment we supply. Customers receive software upgrades at no charge during the
term of the support plan, which, in most cases, runs for one year from the date
of purchase of our system and is renewable on an annual basis.
We have developed a marketing plan that includes testimonial advertising,
direct mail, trade shows and the Internet to spotlight our Advantage system and
customer service. Our Web site, WWW.RTSWIRELESS.COM, also provides general
information about us. Information contained on our Web site is not a part of
this prospectus.
COMPETITION
Several companies, large and small, public and private, compete in the
wireless and wireless data industries. The widespread adoption of open industry
standards created by the WAP Forum may make it easier for new market entrants
and existing competitors to introduce products and services that compete with
our Advantage system. We expect that we will compete primarily on the basis of
time to market, functionality, quality, breadth of new application offerings,
industry position and experience. Our current and potential competitors include
the following:
- Phone.com, Aether Systems, 724 Solutions and other providers of WAP-based
wireless applications and services that are developing and marketing
competitive application software products with ready access to
Internet-based content for wireless telephones and other devices equipped
with microbrowsers.
- Isocor and other industry leaders in high volume e-mail services for
industrial use, as well as Sendit AB, a Sweden-based company recently
acquired by Microsoft which sells an Internet e-mail gateway and has a
core customer base of short messaging service providers in Western Europe.
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<PAGE>
- Glenayre and other paging system infrastructure suppliers that manufacture
some application server products for the paging industry that directly
compete with us.
- System integrators that are developing and marketing server software that
is compliant with the specifications promulgated by the WAP Forum.
Most of our existing competitors currently have substantially greater
financial, marketing and other resources than we do. Several of these companies
also have greater name recognition and more well-established relationships with
some of our target customers. Furthermore, these competitors may be able to
adopt more aggressive pricing policies and offer more attractive terms to
customers than we can. We may face increasing price pressure from our customers.
In addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to compete more
effectively. Finally, existing and potential competitors may develop
enhancements to, or future generations of, competitive products and services
that will have better performance features than our system.
INTELLECTUAL PROPERTY RIGHTS
Our performance depends significantly on our ability to protect our
proprietary rights to the technologies used in our Advantage system. If we are
not adequately protected, our competitors could use the intellectual property
that we have developed to enhance their products and services, which could harm
our business. We rely on a combination of copyright and trademark laws, trade
secrets, confidentiality provisions and other contractual provisions to protect
our proprietary rights, but these legal means afford only limited protection. We
have no patents or patent applications pending. We believe that patent
protection is less significant than factors such as the skill and experience of
our employees, our adaptability to changes in wireless technology and the
quality of our customer service. Despite any measures taken to protect our
intellectual property, unauthorized parties may attempt to copy aspects of our
system or to obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries may not protect our proprietary
rights as fully as do the laws of the United States. Thus, the measures we are
taking to protect our proprietary rights in the United States and abroad may not
be adequate. Finally, our competitors may independently develop technology
similar to ours.
EMPLOYEES
As of February 29, 2000, we had 79 employees. None of our employees is
covered by any collective bargaining agreements. We believe that our relations
with our employees are good.
FACILITIES
Our principal offices are located in Plainview, New York in an
8,000-square-foot facility under a lease for 6,000 square feet expiring in
March 2002, with a renewal option for an additional five-year term, and a
sublease for approximately 2,000 square feet expiring in June 2000. Our London
subsidiary currently operates in an approximately 2,000 square foot facility
under a month-to-month lease, which includes administrative services.
We are in the process of negotiating a long-term lease for approximately
50,000 square feet, which we intend to use as our new corporate headquarters.
LEGAL PROCEEDINGS
We are currently not subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the ordinary
course of our business.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains information concerning each of our directors
and executive officers as of February 29, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ -------- ------------------------------------------------------------
<S> <C> <C>
Alvin L. Ring........... 66 President, Chief Executive Officer and Director
Spencer Kravitz......... 43 Executive Vice President, Chief Operating Officer,
Secretary, Treasurer and Director
Jay Moskowitz........... 51 Chief Technical Officer and Chairman of our Board of
Directors
Bruce Laskin............ 44 Senior Vice President--Technology and Development
Michael Druckman........ 49 Vice President--Finance and Chief Financial Officer
Alan Kuritsky........... 49 Vice President--Sales and Marketing
</TABLE>
ALVIN L. RING joined us in September 1996 and was appointed President and
Chief Executive Officer in June 1997. Mr. Ring has been a director since
June 1997. Prior to joining RTS Wireless, Mr. Ring was a principal of the
consulting firm Perkins Lewis Company, Inc., from 1986 to June 1997. From 1977
to 1986, Mr. Ring was President and Chief Executive Officer of Phoenix Data
Systems Inc. He was Vice President of Electric Regulator Corporation from 1961
to 1976. Mr. Ring has a BS degree in Business Administration from New York
University.
SPENCER KRAVITZ is our co-founder, Executive Vice President and Chief
Operating Officer. Mr. Kravitz has been a director since March 1988. Prior to
co-founding RTS Wireless, Mr. Kravitz served as Vice President, Software
Development at Spectrum Communications and Electronics, now known as Ericsson
Messaging Systems, where he was the principal software and hardware architect of
the firm's paging, voice mail, hospital staff management and automated telephone
answering services products from 1983 to 1988. From 1980 to 1983, Mr. Kravitz
was a Senior Consultant at the General Electric Professional Services Company.
From 1978 to 1980, Mr. Kravitz was a management consultant at Eastman Kodak
Company. Mr. Kravitz holds a BA degree from Queens College and an MBA degree
from Baruch College, The City University of New York.
JAY MOSKOWITZ is our co-founder, Chief Technical Officer and Chairman of our
board of directors. Mr. Moskowitz has been a director since March 1988. From
March 1988 to June 1997, he was our President. From 1983 to 1988, Mr. Moskowitz
served as Senior Vice President of Engineering for Spectrum Communications and
Electronics, now known as Ericsson Messaging Systems. From 1966 to 1983,
Mr. Moskowitz was a consultant, designer and developer of software-based
telecommunication systems for ITT Domestic Transmission Systems, Xerox-XTEN,
Western Union International, MCI, Citibank, Graphic Scanning Corporation and
Graphnet Systems. Mr. Moskowitz serves on a number of wireless communication
industry standards committees, several of which he chairs. Mr. Moskowitz has a
BS degree in Physics from The Cooper Union and is a senior member of the
Institute of Electrical and Electronic Engineers.
BRUCE LASKIN is our Senior Vice President--Technology and Development and
has worked for us since September 1997. From 1993 to 1997, Mr. Laskin was Vice
President, Product Development and General Manager of consulting at
AirMedia, Inc., formerly Ex Machina, Inc., a developer of wireless communication
software. From 1989 to 1993, he was Executive Vice President and COO of Intec
Systems, a manufacturer of high-speed vision systems for the process control
industry. From 1983 to 1988, Mr. Laskin served as Vice President and CTO of
Matrix Corporation, then a publicly owned multinational manufacturer of
electronic imaging equipment; and from 1977 to 1983, he was founder and COO of
Computer Graphics Lab Inc., a manufacturer of computer generated graphic systems
for broadcast television. Mr. Laskin holds BSEE and MSEE degrees from Cornell
University.
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<PAGE>
MICHAEL DRUCKMAN has been our Vice President--Finance and Chief Financial
Officer since December 1999. From 1998 to 1999, Mr. Druckman worked as an
independent consultant in the supplemental staffing industry. From 1993 to 1996,
Mr. Druckman was Senior Vice President and Chief Financial Officer of Career
Horizons, Inc., a provider of supplemental staffing. In 1996, Career
Horizons, Inc. was acquired by Accustaff, Incorporated, now Modis Professional
Services, Inc., and Mr. Druckman served as Vice President through 1998, and was
involved in mergers and acquisitions. From 1989 to 1992, Mr. Druckman was Vice
President and Chief Financial Officer of Wallace & Tiernan Group, Inc., a
manufacturer and marketer of water purification equipment. From 1985 to 1989,
Mr. Druckman served as Vice President and Chief Financial Officer of Matrix
Corporation, then a publicly owned multinational manufacturer of electronic
imaging equipment. Mr. Druckman holds a BS degree in Business Administration
from Boston University.
ALAN KURITSKY joined us in February 2000 as Vice President--Sales and
Marketing. Before joining us, Mr. Kuritsky was Vice President--Customer and
Product Support--U.S. and President--Canada, for France Telecom, from 1998 to
February 2000. From 1976 to 1998, Mr. Kuritsky was employed by AT&T in a variety
of sales and marketing assignments, including Sales Director--Business Clients.
Mr. Kuritsky holds an MBA degree in Finance and Marketing from New York
University, and an MS degree in Communications Research and a BS degree in
Behavioral Science from Boston University.
In connection with the AOL investment, we granted AOL the right to designate
one member of our board of directors. In addition, we intend to nominate
additional independent directors for election to our board of directors shortly
after this offering.
COMPENSATION OF DIRECTORS
Directors who are also our employees do not receive any fees for serving as
directors. Effective upon the consummation of this offering, our non-employee
directors will be paid an annual retainer of $ and a fee of $ for each
meeting of our board of directors or a committee of the board attended. All
directors are and will be reimbursed for out-of-pocket expenses related to their
service as directors.
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<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table specifies the components of the
compensation packages of our chief executive officer and our four other highest
compensated executive officers, who we refer to as our named executive officers,
for the years ended December 31, 1997, 1998 and 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- --------------------------- -------- -------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Alvin L. Ring......................... 1999 $225,000 $90,000 -- $5,070(1)
Chief Executive Officer and 1998 225,000 35,000 -- 4,800(2)
President 1997 225,000 25,000 -- --
Spencer Kravitz....................... 1999 $225,000 $50,000 -- $5,070(1)
Executive Vice President, Chief 1998 225,000 25,000 -- 4,800(2)
Operating Officer, Secretary and 1997 225,000 25,000 -- --
Treasurer
Jay Moskowitz......................... 1999 $225,000 $25,000 -- $5,070(1)
Chief Technical Officer and Chairman 1998 225,000 7,500 -- 4,800(2)
of our Board of Directors 1997 225,000 25,000 -- --
Bruce Laskin.......................... 1999 $225,000 $78,000 150,000 $5,070(1)
Senior Vice President--Technology 1998 225,000 10,000 500,000 4,800(2)
and Development 1997 42,000 10,000 -- --
Michael Druckman...................... 1999 $ 2,917 -- 75,000 --
Vice President--Finance and Chief
Financial Officer(3)
</TABLE>
- ------------------------
(1) Consists of $4,800 contribution to our 401(k) plan and $270 in life
insurance premiums.
(2) Consists of $4,800 contribution to our 401(k) plan.
(3) Mr. Druckman became our Vice President--Finance and Chief Financial Officer
on December 23, 1999.
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<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information concerning stock options granted to
each of our named executive officers during the year ended December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION FOR
SECURITIES GRANTED TO OPTION TERM(2)
UNDERLYING EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------------
OPTIONS(1) FISCAL YEAR (PER SHARE) DATE 5% 10%
---------- ------------ -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Bruce Laskin.................. 150,000(3) 32% $.30(4) 1/4/2009 $ $
Michael Druckman.............. 75,000(5) 16% $.50(6) 12/22/2009
</TABLE>
- ------------------------
(1) All options were immediately exercisable upon grant.
(2) The potential realizable value is calculated based on the term of the
option, which is 10 years, and is calculated by assuming that the initial
public offering price of $ per share, the midpoint of the range shown on
the cover of this prospectus, appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated price.
The 5% and 10% assumed rates of appreciation are derived from the rules of
the Securities and Exchange Commission. The actual value realized may be
greater than or less than the potential realizable values shown in this
table.
(3) All options were exercised on January 31, 1999.
(4) Fair market value of our common stock price on date of grant was determined
by our board of directors.
(5) All options were exercised on January 3, 2000.
(6) The exercise price on the date of grant was set below the estimated fair
market value of $2.12 per share.
AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the number and value of
stock options held by the named executive officers at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
NAME ON EXERCISE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- ----------- -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Bruce Laskin................. 150,000 --(2) 500,000(3) / -- $
Michael Druckman............. -- -- 75,000(3) / -- $
</TABLE>
- ------------------------
(1) The unexercised in-the-money options value is calculated by using the
initial public offering price of $ per share, the midpoint of the range
shown on the cover of this prospectus.
(2) The fair market value of the underlying shares of common stock on the date
of exercise equaled the option exercise price, resulting in no realized
value.
(3) All options were exercised on January 3, 2000.
EMPLOYMENT LETTER AGREEMENT
We have an employment letter agreement with Michael Druckman, our Vice
President--Finance and Chief Financial Officer, which provides for an annual
salary of $150,000. Under the terms of the letter agreement, Mr. Druckman's
annual salary will increase to $200,000 at the completion of this offering. The
letter agreement also provides for a severance payment of six months' salary in
the event of termination of employment, other than for cause. Mr. Druckman is
entitled under the terms of the letter agreement to fringe benefits generally
available to our senior officers, and was granted an option to purchase up to
75,000 shares of our common stock. In January 2000, Mr. Druckman was granted an
additional option to purchase up to 25,000 shares of our common stock.
44
<PAGE>
BENEFIT PLANS
INCENTIVE STOCK OPTION PLAN
Our Incentive Stock Option Plan, or the Plan, provides for the grant of
incentive stock options to employees and nonstatutory stock options to
employees, directors and consultants. The purposes of the Plan are to attract
and retain the best available personnel and to promote the success of our
business. The Plan was originally adopted by our board of directors on
December 30, 1997 and approved by the stockholders on December 30, 1997. Unless
terminated earlier by our board of directors, the Plan will terminate on
December 29, 2007. A total of 1,500,000 shares of common stock have been
reserved for issuance under the Plan. As of February 29, 2000, options to
purchase 732,385 shares of common stock were outstanding at a weighted average
exercise price of $2.40, 750,000 shares had been issued upon exercise of
outstanding options and 17,615 shares remained available for future grant.
Our board of directors is the administrator of the Plan. The administrator
determines the terms of options granted under the Plan, including the number of
shares subject to the option, exercise price, term and exercisability. Incentive
stock options granted under the Plan must have an exercise price of at least
100% of the fair market value of the common stock on the date of grant and at
least 110% of the fair market value in the case of an optionee who holds more
than 10% of the total voting power of all classes of our stock. Payment of the
exercise price may be made in cash or, if our board of directors permits,
previously owned shares of common stock.
The administrator determines the term of options, which may not exceed
10 years in the case of an incentive stock option, or five years in the case of
such option granted to a holder of more than 10% of the total voting power of
all classes of our stock. No option may be transferred by the optionee other
than by will or the laws of descent or distribution. Each option may be
exercised during the lifetime of the optionee only by the optionee. The
administrator determines when options become exercisable. Options granted under
the Plan generally must be exercised within 30 days after the termination of the
optionee's status as our employee, director or consultant, within six months if
termination is due to death, or within 12 months if termination is due to
disability of the optionee, but in no event later than the expiration of the
option's term.
Our board of directors has the authority to amend or terminate the Plan
provided that no action that impairs the rights of any holder of an outstanding
option may be taken without the holder's consent. In addition, stockholder
approval will be obtained for any amendment which would (1) increase the maximum
number of shares of common stock for which options may be granted under the
Plan, (2) materially increase the benefits to participants under the Plan or
(3) change the eligibility requirements to receive options under the Plan.
401(K) PLAN
We have adopted a 401(k) plan in which all eligible employees are entitled
to make pre-tax contributions. Our 401(k) plan is intended to qualify under
Section 401 of the Internal Revenue Code of 1986, as amended, so that
contributions by employees or by us to the 401(k) plan, and income earned on
401(k) plan contributions, are not taxable to employees until withdrawn from the
401(k) plan, and so that contributions by us, if any, will be deductible by us
when made. All full-time employees become eligible for participation in the
401(k) plan on the date of their employment. Eligible participants can elect to
make contributions to the plan and such contribution amounts are subject to
certain limitations under the Internal Revenue Code of 1986. As of February 29,
2000, we have been making contributions to the plan in an amount equal to 100%
of the amount of the participating employee's contribution, up to a maximum of
three percent of such employee's salary. At the direction of each employee
participating in our 401(k) plan, we invest the assets of the 401(k) plan in any
of 14 investment options. Our contributions under the plan were approximately
$77,000 and $130,000 in 1998 and 1999, respectively.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of our common stock as of February 29, 2000, by (1) each person who beneficially
owns more than 5% of our common stock; (2) each of our directors and named
executive officers; and (3) all named executive officers and directors as a
group. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The applicable percent ownership for each
stockholder before the offering is based on 9,250,000 shares of common stock
outstanding as of February 29, 2000. The applicable percent ownership for each
stockholder after this offering is based on shares of common stock. In
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options or warrants
held by that person that are currently exercisable or that are or may become
exercisable within 60 days of February 29, 2000 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purposes of computing the
percentage ownership of any other person. Except as indicated in the footnotes
to this table and pursuant to applicable community property laws, each
stockholder named in the table has sole voting and investment power with respect
to the shares set forth opposite such stockholder's name. Unless otherwise
stated, the address for each person below is 51 East Bethpage Road, Plainview,
New York 11803.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Alvin J. Ring..................................... 1,655,150 17.9% %
Spencer Kravitz................................... 3,390,000 36.6
Jay Moskowitz..................................... 3,395,000 36.7
Bruce Laskin...................................... 645,000 7.0
Michael Druckman.................................. 100,000 1.1
All directors and officers as a group
(5 persons)..................................... 9,185,150 99.3
</TABLE>
46
<PAGE>
RECENT INVESTMENTS IN OUR EQUITY
AMERICA ONLINE. On March 28, 2000, AOL invested $5,000,000 in 5,000 shares
of our series A convertible preferred stock. The series A convertible preferred
stock does not accrue or pay any dividends. At the closing of this offering,
these shares of series A convertible preferred stock will convert into 425,775
shares of our common stock. In connection with this investment, we and certain
of our principal stockholders granted AOL:
- the right to demand, at our expense, registration of AOL's shares of our
common stock commencing on the 180(th) day after the closing of this
offering;
- the right to purchase equity securities, or securities convertible into
equity securities, proposed to be issued by us in a number sufficient to
permit AOL to maintain its percentage ownership of our stock;
- the right to be informed by us if we decide to seek to locate a third
party with which to consummate any of the following transactions: (1) any
consolidation or merger of us with or into any other corporation or other
entity, other than any merger or consolidation resulting in the holders of
our capital stock immediately prior to such transaction entitled to vote
for the election of directors holding two-thirds or more of the capital
stock of the surviving or resulting corporation or other entity entitled
to vote for the election of directors, (2) any sale or other disposition
by us of all or substantially all of our assets or capital stock or
(3) any other transaction that results in any person, including any
affiliates of that person, other than AOL or one of our current
stockholders as of the date of the AOL investment becoming a holder of a
majority of our capital stock entitled to vote for the election of
directors. In the event we give AOL such a notice, AOL will then have the
right to make a proposal for such a transaction during the ten-day period
after our notice, and the right to negotiate with us if we determine that
AOL's proposal is acceptable; and
- the right to elect a director to our board of directors until AOL and its
affiliates hold less than 2% of our fully diluted common stock.
In connection with the AOL investment, we and some of our principal
stockholders granted AOL additional rights that expire upon the closing of this
offering, including:
- the right to purchase 50% of any securities proposed to be issued by us
prior to this offering;
- the right of first refusal on any transaction involving the sale of all or
substantially all of our assets, or any transaction involving a transfer
of more than one-half of our voting capital stock;
- the right to participate on a pro rata basis in certain sales of our
common stock by some of our principal stockholders; and
- the right to veto some transactions we may propose to enter into.
AOL is one of our customers and accounted for 28% of our revenue in 1999.
MONSOON. In January 2000, Monsoon Ventures LLC invested $5,000,000 in our
8% convertible promissory notes. The notes were converted into 189,392 shares of
our common stock upon the closing of the AOL investment discussed above.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our certificate of incorporation authorizes the issuance of up to
250,000,000 shares of common stock and 1,000,000 shares of preferred stock, the
rights and preference of which may be established from time to time by our board
of directors. As of February 29, 2000, 9,250,000 shares of common stock were
outstanding. As of February 29, 2000, we had 25 stockholders.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Thus, holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of common stock are entitled to receive ratably any dividends
that may be declared by our board of directors out of funds legally available,
subject to any preferential dividend rights of outstanding preferred stock. Upon
our liquidation, dissolution or winding up, the holders of common stock are
entitled to receive ratably the net assets available after the payment of all
debts and other liabilities, subject to the prior rights of any outstanding
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. All of the issued and outstanding shares of
common stock will be fully paid and non-assessable. The rights, preferences and
privileges of the holders of 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 certificate of incorporation provides that we may issue up to 1,000,000
shares of preferred stock in one or more series as may be determined by our
board of directors. Our board of directors may establish the number of shares to
be included in each such series, fix the designation, powers, preferences and
relative rights of the shares of each such series and any qualifications,
limitations, or restrictions thereof, and increase or decrease the number of
shares of any such series without any vote or action by the stockholders. Our
board of directors may authorize, without stockholder approval, the issuance of
preferred stock with voting and conversion rights that could adversely affect
the voting power and other rights of holders of common stock. Preferred stock
would be issued quickly with terms designated to delay or prevent a change in
our control or to make the removal of management more difficult. This could have
the effect of decreasing the market price of the common stock. On March 28,
2000, America Online invested $5,000,000 in shares of our series A convertible
preferred stock. See "Recent Investments in our Equity." These shares of
series A convertible preferred stock automatically converted into 425,775 shares
of our common stock at the closing of this offering.
We believe that the ability of our board of directors to issue one or more
series of preferred stock will provide us with flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs that might arise. The authorized shares of preferred stock, as well as
shares of common stock, will be available for issuance without action by our
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which our securities may be
listed or traded.
Although our board of directors has no intention at the present time of
doing so, it could issue an additional series of preferred stock that could,
depending on the terms of such series, impede the completion of a merger, tender
offer or other takeover attempt. Our board of directors will make any
determination to issue such shares based on its judgment as to our best
interests and the best interests of our stockholders. Our board of directors
could issue preferred stock having terms that could discourage an acquisition
attempt through which an acquirer may be able to change the composition of our
board of directors, including a tender offer or other transaction that some, or
a majority, of our
48
<PAGE>
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for such stock over the then current market
price.
CERTAIN ANTI-TAKEOVER EFFECTS. Some provisions of Delaware General
Corporation Law, summarized in the following paragraphs, may be considered to
have an anti-takeover effect and may delay, deter or prevent a tender offer,
proxy contest or other takeover attempt that a stockholder might consider to be
in such stockholder's best interest, including such an attempt that might result
in payment of a premium over the market price for shares held by stockholders.
Section 203 of the Delaware General Corporation Law provides that, subject
to certain exceptions specified in that section, an "interested stockholder" of
a Delaware corporation shall not engage in any business combinations, including
mergers or consolidations or acquisitions of additional shares of the
corporation, with the corporation for a three-year period following the date
that such stockholder becomes an interested stockholder unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding certain shares; or
- on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and authorized at an annual or
special meeting of stockholders by the affirmative vote of at least 66.67%
of the outstanding voting stock that is not owned by the interested
stockholder.
Except as otherwise specified in Section 203 of the Delaware General
Corporation Law, an interested stockholder is defined to include (x) any person
that owns (or, within the prior three years, did own) 15% or more of the
outstanding voting stock of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the date of determination and (y) the affiliates and
associates of any such person.
Under certain circumstances, Section 203 of the Delaware General Corporation
Law makes it more difficult for a person who would be an interested stockholder
to effect various business combinations with a corporation for a three-year
period. We have not elected to be exempt from the restrictions imposed under
Section 203 of the Delaware General Corporation Law. The provisions of
Section 203 of the Delaware General Corporation Law may encourage persons
interested in acquiring us to negotiate in advance with our board of directors,
since the stockholder approval requirement would be avoided if a majority of the
directors then in office approves either the business combination or the
transaction which results in any such person becoming an interested stockholder.
Such provisions also may have the effect of preventing changes in our
management. It is possible that such provisions could make it more difficult to
accomplish transactions that our stockholders may otherwise deem to be in their
best interests.
SERIES A PREFERRED STOCK. In connection with the AOL transaction, we
designated and issued to AOL 5,000 shares of our series A preferred stock. The
shares of series A preferred stock are not entitled to accrue or receive any
dividends, and upon the closing of this offering will convert into 425,775
shares of our common stock. Upon conversion of the 5,000 outstanding shares of
series A preferred stock, those shares will thereafter be undesignated shares of
our preferred stock and will be available for designation in accordance with our
certificate of incorporation and applicable law.
49
<PAGE>
WARRANT
We have issued to The Chase Manhattan Bank a warrant to purchase up to an
aggregate of 37,500 shares of our common stock at a price of $.30 per share. The
exercise price per share and the number of shares of our common stock issuable
upon exercise of this warrant will be proportionately adjusted in the case of
dividends, subdivisions, combinations, reclassifications or recapitalizations
with respect to our common stock. The Chase Manhattan Bank has agreed that it
will not sell or offer to sell any of the shares underlying the warrant for six
months after the consummation of this offering.
REGISTRATION RIGHTS
We have entered into an investors rights agreement with AOL. After the
completion of this offering, AOL will be entitled to demand that we register its
registrable securities under the Securities Act. We are not required to effect
more than one registration pursuant to this demand registration right. AOL also
is entitled to require us to include its registrable securities in future
registration statements that we may file. These registration rights are subject
to various conditions and limitations, including the right of the underwriters
of an offering to limit the number of registrable securities that may be
included in the offering. In addition, AOL will be restricted from exercising
its demand right until 180 days after the date of this prospectus. We are
generally required to bear all of the expenses of these registrations, except
underwriting discounts and selling commissions. Registration of any of the
registrable securities held by AOL pursuant to its registration rights will
result in shares becoming freely tradable without restriction under the
Securities Act immediately upon effectiveness of such registration.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Our certificate of incorporation contains a provision that is designed to
limit directors' liability to the extent permitted by the Delaware General
Corporation Law. Specifically, directors will not be held liable to us or our
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability arising as a result of:
- any breach of the duty of loyalty to us or our stockholders;
- actions or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- payment of an improper dividend on our stock or improper repurchase of our
stock under Section 174 of the Delaware General Corporation Law; or
- actions or omissions pursuant to which the director received an improper
personal benefit.
The principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of ours unless the stockholder can demonstrate one of the specified
bases for liability. The provision, however, does not eliminate or limit
director liability arising in connection with causes of action brought under the
federal securities laws. Our certificate of incorporation does not eliminate a
director's duty of care. The inclusion of this provision in our certificate of
incorporation may discourage or deter stockholders or management from bringing a
lawsuit against directors for a breach of their fiduciary duties, even though
such an action, if successful, might otherwise have benefited us and our
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care.
Our by-laws also provide that we will indemnify our directors and officers,
and may indemnify any of our employees and agents, to the fullest extent
permitted by Delaware law. We are generally required to indemnify our directors
and officers for all judgments, fines, penalties, settlements, legal
50
<PAGE>
fees and other expenses incurred in connection with pending, threatened or
completed legal proceedings because of the director's or officer's position with
us or another entity that the director or officer serves at our request, subject
to certain conditions, and to advance funds to our directors and officers to
enable them to defend against such proceedings.
At present, there is no pending or threatened litigation or proceeding
involving any director, officer, employee or agent of ours where such
indemnification will be required or permitted.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company, New York, New York.
LISTING
We have applied to have the shares of common stock listed on the Nasdaq
National Market under the symbol "RTSW."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering we will have shares of common stock
outstanding, or shares if the underwriters exercise in full the option
granted by us to purchase additional shares in this offering, assuming no
exercise of outstanding options under our Incentive Stock Option Plan. The
shares of common stock, or shares if the underwriters exercise in
full the option granted by us to purchase additional shares in this offering,
sold in the offering will be freely transferable without restriction or further
registration under the Securities Act, unless held by "affiliates" of ours as
that term is defined in Rule 144 promulgated under the Securities Act, which
shares will be subject to the resale limitations of Rule 144. The remaining
shares of common stock have not been registered under the Securities Act
and may not be sold unless they are registered or unless an exemption from
registration, such as the exemption provided by Rule 144 or Rule 701 under the
Securities Act, is available.
In general, under Rule 144 as currently in effect, a stockholder, or
stockholders whose shares are aggregated, who has beneficially owned shares
constituting "restricted securities" generally defined as securities acquired
from the issuer or any of its affiliates in a non-public transaction, for at
least one year, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the outstanding common
stock or the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed pursuant
to Rule 144. Sales under Rule 144 also are subject to certain provisions
regarding the manner of sale, notice requirements and the availability of
current public information about us. A stockholder, or stockholders whose shares
are aggregated, who is not an affiliate of ours for at least 90 days prior to a
proposed transaction and who has beneficially owned "restricted securities" for
at least two years is entitled to sell such shares under Rule 144 without regard
to the limitations described above. Rule 701 provides that, beginning 90 days
after the date of this prospectus, shares of common stock acquired on the
exercise of options outstanding prior to the date of this prospectus may be
resold by persons other than affiliates of ours without regard to the current
public information, holding period, volume limitations and notice provision of
Rule 144, and by affiliates subject to all the provisions of Rule 144 except its
one-year minimum holding period. Accordingly, we believe that, under prevailing
interpretation of Rules 144 and 701, shares of common stock that
constitute "restricted securities" will be eligible for sale, subject to the
contractual lock-up provisions described below, 180 days after the date of this
prospectus, and shares of common stock would be eligible for sale
beginning one year from the date of this prospectus, subject to certain volume
and other limitations under Rule 144. We intend to file one or more registration
statements under the Securities
51
<PAGE>
Act to register the shares of common stock issued and reserved for issuance in
compensatory arrangements and under our Incentive Stock Option Plan.
Registration would permit the resale of such shares by non-affiliates and
affiliates, subject to the lock-up described below, in the public markets
without restriction under the Securities Act.
In addition, after the offering, the holders of shares of common stock
will be entitled to certain rights with respect to registration of such shares
under the Securities Act. Registration of such shares under the Securities Act
would result in such shares becoming freely tradable without restriction under
the Securities Act, except for shares purchased by affiliates of ours,
immediately upon the effectiveness of such registration. See "Description of
Capital Stock--Registration Rights."
Prior to the offering, there has been no public trading market for the
shares of common stock, and there can be no assurance that a regular trading
market will develop after the offering, or that if it is developed, it will be
sustained. In addition, no prediction can be made as to the effect, if any, that
market sales of shares of common stock or the availability of such shares for
sale will have on the market prices prevailing from time to time. Nevertheless,
the possibility that substantial numbers of shares of common stock may be sold
in the public market may adversely affect prevailing market prices for the
shares of common stock and could impair our ability to raise capital through the
sale of our equity securities.
LOCK-UP AGREEMENTS
We, our members of senior management and directors, and substantially all of
our current stockholders have agreed, pursuant to the lock-up agreements that,
during the period beginning from the date of this prospectus and continuing and
including the date 180 days after the date of this prospectus, we and they 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 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 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.
Following the lock-up period, approximately shares of common stock,
including shares issuable pursuant to stock options immediately exercisable or
exercisable prior to the termination of the lock-up period, will first become
eligible for sale, subject to compliance with Rule 144 of the Securities Act as
described above.
52
<PAGE>
IMPORTANT UNITED STATES FEDERAL TAX CONSEQUENCES
OF OUR COMMON STOCK TO NON-U.S. HOLDERS
This is a general discussion of some United States federal income and estate
tax consequences of the ownership and disposition of our common stock by a
holder that, for United States federal income tax purposes, is not a U.S. person
as we define that term below. A holder of our common stock who is not a U.S.
person is a non-U.S. holder. We assume in the discussion that you will hold our
common stock issued pursuant to the offering as a capital asset, which generally
is property held for investment. We do not discuss all aspects of United States
federal taxation that may be important to you in light of your individual
investment circumstances, and do not address consequences to you if you are
subject to special United States tax rules including, without limitation, a
non-U.S. holder who is a dealer in securities, financial institution, bank,
insurance company, tax-exempt organization, a person that holds our common stock
as part of a straddle, hedge or conversion transaction or that owns our common
stock through a partnership or other pass-through entity, or an owner of more
than 5% of our common stock. Our discussion is based on current provisions of
the Internal Revenue Code of 1986, Treasury regulations, judicial opinions,
published positions of the United States Internal Revenue Service, or the IRS,
and other applicable authorities, all as in effect on the date of this
prospectus and all of which are subject to differing interpretations or change,
possibly with retroactive effect. We have not sought, and shall not seek, any
ruling from the IRS with respect to the tax consequences discussed in this
prospectus, and there can be no assurance that the IRS will not take a position
contrary to the tax consequences discussed below or that any position taken by
the IRS would not be sustained. We urge you to consult your tax advisor about
the United States federal tax consequences of acquiring, holding and disposing
of our common stock, as well as any tax consequences that may arise under the
laws of any foreign, state, local or other taxing jurisdiction.
For purposes of this discussion, a U.S. person means any one of the
following:
- a citizen or resident of the United States;
- a corporation or other entity taxable as a corporation created or
organized in the United States or under the laws of the United States or
of any political subdivision of the United States;
- an estate, the income of which is includable in gross income for United
States federal income tax purposes regardless of its source; or
- a trust, the administration of which is subject to the primary supervision
of a United States court and that has one or more U.S. persons who have
the authority to control all substantial decisions of the trust.
DIVIDENDS
Dividends paid to a non-U.S. holder will generally be subject to withholding
of United States federal income tax at the rate of 30%. If, however, the
dividend is effectively connected with the conduct of a trade or business in the
United States by the non-U.S. holder, the dividend will be subject to United
States federal income tax imposed on net income on the same basis that applies
to U.S. persons generally, and, for corporate holders under certain
circumstances, the branch profits tax. Non-U.S. holders should consult any
applicable income tax treaties that may provide for a reduction of, or exemption
from, withholding taxes or branch profits taxes. For purposes of determining
whether tax is to be withheld at a reduced rate as specified by a treaty, we
generally will presume that dividends we pay on or before December 31, 2000, to
an address in a foreign country are paid to a resident of that country.
Under recently finalized Treasury regulations, which in general apply to
dividends that we pay after December 31, 2000, to obtain a reduced rate of
withholding under a treaty, a non-U.S. holder generally will be required to
provide certification as to that non-U.S. holder's entitlement to treaty
benefits.
53
<PAGE>
These regulations also provide special rules to determine whether, for purposes
of applying a treaty, dividends that we pay to a non-U.S. holder that is an
entity should be treated as paid to holders of interests in that entity.
GAIN ON DISPOSITION
A non-U.S. holder will generally not be subject to United States federal
income tax, including by way of withholding, on gain recognized on a sale or
other disposition of our common stock unless any one of the following is true:
- the gain is effectively connected with the conduct of a trade or business
in the United States by the non-U.S. holder and a specific treaty
exemption does not apply;
- the non-U.S. holder is a nonresident alien individual present in the
United States for 183 or more days in the taxable year of the disposition
and other requirements are met;
- the non-U.S. holder is subject to tax pursuant to provisions of the United
States federal income tax law applicable to certain United States
expatriates; or
- we are or have been during certain periods a "United States real property
holding corporation" for United States federal income tax purposes.
If we are or have been a United States real property holding corporation, a
non-U.S. holder will generally not be subject to United States federal income
tax on gain recognized on a sale or other disposition or our common stock
provided that:
- the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding common
stock; and
- our common stock is and continues to be traded on an established
securities market for United States federal income tax purposes.
We believe that our common stock will be traded on an established securities
market for this purpose in any quarter during which it is included for quotation
on the Nasdaq National Market.
If we are or have been during certain periods a United States real property
holding corporation and the above exception does not apply, a non-U.S. holder
will be subject to United States federal income tax with respect to gain
realized on any sale or other disposition of our common stock as well as to a
withholding tax, generally at a rate of 10% of the gross proceeds. Any amount
withheld pursuant to a withholding tax generally will be creditable against a
non-U.S. holder's federal income tax liability.
Gain that is effectively connected with the conduct of a trade or business
in the United States by the non-U.S. holder will be subject to the United States
federal income tax imposed on net income on the same basis that applies to
United States persons generally, and, for corporate holders under certain
circumstances, the branch profits tax, but generally will not be subject to
United States withholding tax. Non-U.S. holders should consult any applicable
income tax treaties that may provide for different tax rules.
UNITED STATES FEDERAL ESTATE TAXES
Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the United States, as specially defined for United
States federal estate tax purposes, on the date of that person's death will be
included in his or her estate for United States federal estate tax purposes and
may be subject to United States federal estate tax, unless an applicable estate
tax treaty provides otherwise.
54
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends. 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, backup withholding tax
generally will not apply to dividends that we pay on or before December 31, 2000
on our common stock to a non-U.S. holder at an address outside the United
States, unless we have knowledge that the payee is a U.S. person. Dividends paid
after December 31, 2000 to a non-U.S. holder will be subject to backup
withholding unless applicable certification requirements are met. Payments of
the proceeds of a sale or other taxable disposition of our common stock by a
United States office of a broker are subject to both backup withholding at a
rate of 31% and information reporting, unless the holder certifies as to its
non-U.S. status or otherwise establishes an exemption. Information reporting,
but not backup withholding tax, will also apply to payments of the proceeds of a
sale or other taxable disposition of our common stock by foreign offices of
United States brokers or foreign brokers with certain types of relationships to
the United States, 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. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's United States federal income tax liability if certain required
information is furnished to the IRS.
The United States Treasury Department has promulgated final regulations
regarding the withholding and information reporting rules discussed above. In
general, those regulations unify current certification procedures and forms and
clarify reliance standards for withholding agents. The final regulations
generally are effective for dividends and other payments made after
December 31, 2000.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated , 2000, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to the 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....................................
Chase Securities 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 various 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. and Chase
Securities 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 selected dealers at the
public offering price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, 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 this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter will be obligated, subject to specified
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment.
We, our officers and directors, and substantially all of our 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., offer, sell, contract to sell, pledge, assign or otherwise dispose
of or hedge any shares of our common stock or any securities convertible into or
exchangeable for 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.
At our request, Salomon Smith Barney Inc. reserved up to approximately
percent of the shares being offered as directed shares for sale at the initial
public offering price to persons who are directors, officers or our employees,
or who are otherwise associated with us and our affiliates or employees and who
have advised us of their desire to purchase these shares. The number of shares
of common stock available for sale to the general public will be reduced to the
extent of sales of directed shares to any of the persons for whom they have been
reserved. Any shares not so purchased will be offered by the underwriters on the
same basis as all other shares of common stock offered hereby. We have agreed to
indemnify the underwriters against specified liabilities and expenses, including
liabilities under the Securities Act, in connection with the sales of the
directed shares.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations among us and the
56
<PAGE>
representatives. 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 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 "RTSW."
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 RTS WIRELESS
---------------------------
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 creates 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 certain 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, excluding underwriting
discounts and commissions, will be $ .
The representatives and their affiliates may, from time to time, engage in
transactions with and perform services for us in the ordinary course of their
business. We have granted to the lender under our bank line of credit, an
affiliate of Chase Securities Inc., a warrant dated as of June 30, 1999
exercisable for 37,500 shares of our common stock.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
57
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of common
stock offered hereby will be passed upon for us by Parker Chapin LLP, New York,
New York and for the underwriters by Cahill Gordon & Reindel, New York, New
York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1998 and 1999, and for each of
the three years in the period ended December 31, 1999, as set forth in their
reports thereon appearing in this prospectus and elsewhere in the registration
statement. We have included our consolidated financial statements and schedule
in this prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's reports, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information shown in the registration
statement, some items of which are contained in exhibits to the registration
statement as permitted by the rules and regulations of the Commission.
Statements made in this prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. For further
information regarding us, and the common stock being sold in this offering,
reference is made to the registration statement and its exhibits. Statements
made in this prospectus concerning the contents of any document are not
necessarily complete. With respect to each document filed with the Commission as
an exhibit to the registration statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. The registration
statement, including its exhibits, as well as reports and other information
filed with the Commission, may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, NY 10048, and the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Information about the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. Copies of all or any part thereof may
be obtained from the Commission upon payment of fees prescribed by the
Commission. These reports and other information may also be inspected without
charge at a Web site maintained by the Commission. The address of the Web site
is WWW.SEC.GOV.
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 file
periodic reports, proxy statements and other information with the Commission.
Such periodic reports, proxy statements and other information will be available
for inspection and copying at the regional offices, public reference facilities
and Web site of the Commission referred to above. Upon approval of the common
stock for quotation on the Nasdaq National Market, these reports, proxy
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, DC 20006.
We intend to provide our stockholders with annual reports containing audited
consolidated financial statements and quarterly reports containing reviewed
interim financial information for the first three quarters of each fiscal year.
58
<PAGE>
RTS WIRELESS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
RTS Wireless, Inc.
We have audited the accompanying consolidated balance sheets of RTS
Wireless, Inc. (the "Company") as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
RTS Wireless, Inc. at December 31, 1998 and 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Melville, New York
March 28, 2000
F-2
<PAGE>
RTS WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 252 $ 345
Accounts receivable, net of allowance for doubtful
accounts of $454 in 1998 and $298 in 1999............... 1,487 1,694
Deferred financing costs, less accumulated amortization of
$491 in 1999............................................ -- 491
Prepaid expenses and other current assets................. -- 37
------ ------
Total current assets.................................... 1,739 2,567
Property and equipment at cost, net......................... 242 368
Other assets................................................ 12 16
------ ------
Total assets............................................ $1,993 $2,951
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank...................................... $ 500 $1,100
Due to stockholders....................................... 34 104
Accounts payable.......................................... 14 219
Accrued liabilities....................................... 304 659
Deferred revenue.......................................... 129 702
------ ------
Total current liabilities............................... 981 2,784
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value: 1,000,000 shares
authorized; no shares issued and outstanding in 1998 and
1999.................................................... -- --
Common stock, $.01 par value: 250,000,000 shares
authorized; shares issued and outstanding--8,500,000 in
1998 and 8,650,000 in 1999.............................. 85 87
Additional paid-in capital................................ 128 7,154
Deferred stock compensation............................... -- (3,829)
Accumulated earnings (deficit)............................ 799 (3,245)
------ ------
Total stockholders' equity.............................. 1,012 167
------ ------
Total liabilities and stockholders' equity.............. $1,993 $2,951
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
RTS WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
License fees.............................................. $4,141 $5,341 $ 7,553
Maintenance and support services.......................... 47 218 788
------ ------ -------
Total revenues.......................................... 4,188 5,559 8,341
Cost of revenues:
License fees.............................................. 659 595 728
Maintenance and support services.......................... 29 71 285
------ ------ -------
Total cost of revenues.................................. 688 666 1,013
Gross profit............................................ 3,500 4,893 7,328
Operating expenses:
Research and development.................................. 1,315 2,157 3,604
Sales and marketing....................................... 534 1,601 3,367
General and administrative................................ 845 1,563 1,640
Stock compensation........................................ 128 -- 2,172
------ ------ -------
Total operating expenses................................ 2,822 5,321 10,783
------ ------ -------
Operating income (loss)..................................... 678 (428) (3,455)
Other income (expense):
Interest income........................................... 4 18 6
Interest expense (includes amortization of deferred
financing costs of $491 in connection with a common
stock warrant granted in 1999).......................... (1) (15) (595)
------ ------ -------
Total other income (expense)............................ 3 3 (589)
------ ------ -------
Net income (loss)........................................... $ 681 $ (425) $(4,044)
====== ====== =======
Basic and diluted net income (loss) per share............... $ .08 $ (.05) $ (.47)
====== ====== =======
Pro forma (unaudited--Note 10):
Income (loss) before income taxes......................... $ 681 $ (425) $(4,044)
Provision (benefit) for income taxes...................... 326 (167) (80)
------ ------ -------
Pro forma net income (loss)................................. $ 355 $ (258) $(3,964)
====== ====== =======
Pro forma basic and diluted net income (loss) per share..... $ .04 $ (.03) $ (.46)
====== ====== =======
Weighted average shares used in computing basic and diluted
net income (loss) per share and pro forma basic and
diluted net income (loss) per share....................... 8,500 8,500 8,638
====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
RTS WIRELESS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED ACCUMULATED TOTAL
-------------------- PAID-IN STOCK EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) EQUITY
--------- -------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 8,500,000 $85 $ -- $ -- $ 649 $ 734
Distribution to stockholders..... -- -- -- -- (84) (84)
Common stock awarded to
officer........................ -- -- 128 -- -- 128
Net income....................... -- -- -- -- 681 681
--------- --- ------- ------- ------- -------
Balance at December 31, 1997....... 8,500,000 85 128 -- 1,246 1,459
Distribution to stockholders..... -- -- -- -- (22) (22)
Net loss......................... -- -- -- -- (425) (425)
--------- --- ------- ------- ------- -------
Balance at December 31, 1998....... 8,500,000 85 128 -- 799 1,012
Employee stock options granted... -- -- 6,001 (6,001) -- --
Amortization of deferred stock
compensation................... -- -- -- 2,172 -- 2,172
Grant of common stock warrant.... -- -- 982 -- -- 982
Exercise of employee stock
options........................ 150,000 2 43 -- -- 45
Net loss......................... -- -- -- -- (4,044) (4,044)
--------- --- ------- ------- ------- -------
Balance at December 31, 1999....... 8,650,000 $87 $ 7,154 $(3,829) $(3,245) $ 167
========= === ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
RTS WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 681 $(425) $(4,044)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation............................................ 6 40 100
Amortization of deferred financing costs................ -- -- 491
Provision for bad debts................................. 40 393 261
Stock compensation expense.............................. 128 -- 2,172
Changes in operating assets and liabilities:
Accounts receivable................................... (753) (406) (468)
Prepaid expenses and other current assets............. (48) 63 (37)
Accounts payable and accrued liabilities.............. (24) 281 560
Deferred revenue...................................... 26 96 573
----- ----- -------
Net cash provided by (used in) operating
activities........................................ 56 42 (392)
----- ----- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.......................... (43) (234) (226)
Other assets................................................ (11) (1) (4)
----- ----- -------
Net cash used in investing activities............... (54) (235) (230)
----- ----- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable to bank.......................... 150 900 1,350
Payments on note payable to bank............................ -- (550) (750)
Proceeds from stockholders loan............................. -- -- 70
Distributions to stockholders............................... (84) (22) --
Proceeds from exercise of employee stock options............ -- -- 45
----- ----- -------
Net cash provided by financing activities........... 66 328 715
----- ----- -------
Net increase in cash........................................ 68 135 93
Cash at beginning of year................................... 49 117 252
----- ----- -------
Cash at end of year......................................... $ 117 $ 252 $ 345
===== ===== =======
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 1 $ 15 $ 104
===== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
ORGANIZATION AND DESCRIPTION OF BUSINESS
RTS Wireless, Inc., or RTS, a New York State Subchapter S corporation, was
incorporated in 1988 as Real Time Strategies, Inc. RTS is a leading developer of
adaptable software systems that connect the Internet to a wide array of evolving
wireless devices, including virtually all cell phones, pagers and hand-held
computers. RTS's software products are used by wireless network operators,
Internet service providers, e-commerce and website operators, and corporate data
centers to provide wireless network subscribers with services such as e-mail,
news, stock, shopping, weather and travel information, and access to other
Internet based information. RTS markets its products through a combination of a
direct sales force and distribution partners.
On March 16, 2000, RTS reincorporated in the state of Delaware as RTS
Wireless, Inc., and increased the authorization of its $.01 par value common
stock to 250 million shares. In addition, RTS authorized the issuance of
1 million shares of preferred stock and designated 5,000 shares as Series A
Convertible Preferred Stock out of its authorized preferred stock.
On March 28, 2000, RTS terminated its S Corporation status upon consummation
of a strategic equity investment in its Series A Convertible Preferred Stock.
RTS is no longer treated as an S Corporation and accordingly, is subject to
federal and certain state income taxes. RTS does not expect that it will have
any undistributed earnings for the periods that it operated as an
S Corporation.
RTS has a working capital deficit of approximately $217,000 and
stockholders' equity of approximately $167,000 at December 31, 1999. In
addition, RTS used approximately $392,000 of cash for operating activities and
approximately $230,000 of cash for investing activities during the year ended
December 31, 1999. RTS has addressed and will further address the financing of
its activities by raising additional funds through the issuance of debt or
equity securities (see Note 11). Such financing may not be available on terms
satisfactory to RTS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of RTS and its
wholly owned subsidiary, RTS Wireless International Limited. All significant
intercompany balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
RTS generates revenue primarily from the license of its Advantage software
system which, depending on customer requirement, may include industry-standard
hardware, as well as maintenance, support and consulting services related to the
operation of the Advantage software system. Arrangements that include such
maintenance and support services are evaluated to determine whether those
services are essential to the functionality of the other elements of the
arrangement. Since RTS's maintenance and support services are not considered
essential to the functionality of the Advantage software system applications,
the revenue allocable to the maintenance and support services is recognized as
the services are performed.
RTS recognizes license revenues from the sale of its Advantage software
systems upon shipment or upon completion of installation. RTS recognizes
revenues from consulting services as the services are
F-7
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provided. Revenues from annual maintenance and support service agreements are
deferred and recognized ratably over the term of the maintenance and support
agreements, generally one year. The maintenance and support agreements provide
24-hours-a-day, 7-days-a-week technical support, free software upgrades, remote
diagnostic services and repairs or replacement of defective equipment during the
term of the agreement. Allowances for estimated bad debts and warranty costs are
provided for when revenue is recognized.
RTS recognizes revenue in accordance with the provisions of the American
Institute of Certified Public Accountants' Statement of Position No. 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-9,
Modification of Statement of Position 97-2 with Respect to Certain Transactions,
which provides guidance on revenue recognition for software and post-contract
customer support transactions, and requires revenues earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair value of each element.
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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
RTS currently sells its Advantage software system and services to customers
consisting mainly of wireless network operators, Internet service providers and
e-commerce Web site operators. RTS performs ongoing credit evaluations of its
customers and generally does not require collateral. Allowances for doubtful
accounts relating to accounts receivable are provided for in the financial
statements.
During the year ended December 31, 1997, RTS had revenues from three major
customers aggregating approximately $2,564,000 (61% of total revenues). During
the year ended December 31, 1998, RTS had revenues from three major customers
aggregating approximately $2,625,000 (47% of total revenues), and during 1999
RTS had revenues from two major customers aggregating approximately $4,011,000
(48% of total revenues).
CASH EQUIVALENTS
RTS considers all highly liquid investments with a maturity of three months
or less to be cash equivalents.
DEPRECIATION AND AMORTIZATION
Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets ranging from three to seven years.
Amortization of leasehold improvements is calculated using the straight-line
method over the shorter of the lease term, including renewal options expected to
be exercised, or estimated useful lives of the improvements.
F-8
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
When impairment indicators are present, RTS evaluates the carrying amounts
of its assets in determining the ultimate recoverability of their unamortized
values using future undiscounted cash flow analysis expected to be generated by
the asset. If such assets are considered impaired, the impairment recognized is
measured by the amount by which the carrying amount of the assets exceeds the
future discounted cash flows. Assets to be disposed of are reported at the lower
of the carrying amount or fair value, less costs to sell.
RTS evaluates the periods of amortization continually in determining whether
later events and circumstances warrant revised estimates of useful lives. If
estimates are changed, the unamortized costs will be allocated to the increased
or reduced number of remaining periods in the revised useful life.
INCOME TAXES
For the years ended December 31, 1997, 1998 and 1999 and through March 28,
2000, RTS elected to operate under Subchapter S of the Internal Revenue Code
and, consequently, was not subject to federal and certain state income taxes.
Accordingly, the stockholders of RTS include RTS's income (loss) in their own
income (loss) for federal and certain state income tax purposes during such
periods.
In connection with the consummation of the AOL investment, RTS will no
longer qualify as a Subchapter S corporation and will become subject to
corporate income taxes (see Note 10).
ADVERTISING COSTS
In accordance with the American Institute of Certified Public Accountants
Statement of Position 93-7, Reporting of Advertising Costs, RTS expenses all
advertising and promotional costs at the time the advertisement is first shown
or when promotional material is delivered to RTS. For the years ended
December 31, 1997, 1998 and 1999, RTS had advertising and promotional expenses
of approximately $1,000, $15,000 and $44,000, respectively.
INTERNAL USE SOFTWARE
RTS follows the provisions of the American Institute of Certified Public
Accountants Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. Statement of Position 98-1
requires that entities capitalize certain costs related to internal use software
once certain criteria have been met. RTS has not incurred any costs related to
the development of internal use software through December 31, 1999.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred. Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed, requires the capitalization
of certain software development costs subsequent to the establishment of
technological feasibility. Based on RTS's software product development process,
technological feasibility is established upon the completion of a working
software model. Costs incurred by RTS between the completion of a working
software model and the point at which the software is available for general
release have been insignificant. Accordingly, RTS has expensed all software
development costs in the period incurred through December 31, 1999.
F-9
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
RTS accounts for its stock option grants in accordance with the Provisions
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and complies with the disclosure provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation.
SEGMENT DISCLOSURES
Effective January 1, 1998, RTS adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information. Statement 131 superseded Statement of Financial Accounting
Standards No. 14, Financial Reporting for Segments of a Business Enterprise.
Statement 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. Statement 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. RTS operates in one business segment, the development and marketing
of the Advantage software system. RTS's international operations consists of
sales, marketing and support activities through its U.K. subsidiary. All
international sales (approximately $522,000 in 1997, $751,000 in 1998 and
$826,000 in 1999) to date have been denominated in U.S. dollars and are derived
from sales to customers primarily in Europe, Mexico and the Far East. Operating
activities and their corresponding identifiable assets were not considered
material for any period presented. The adoption of Statement 131 did not affect
RTS's presentation of its consolidated results of operation, financial position,
or disclosure requirements.
For the years ended December 31, 1997, 1998 and 1999, license revenues
related to the sale of the Advantage software system represented approximately
99%, 96% and 91% of total revenues, respectively.
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, RTS adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income (loss) and its
components. However, the adoption of this statement had no impact on RTS's net
income (loss) or stockholders' equity as presented for all periods in the
consolidated financial statements. For the years ended December 31, 1997, 1998
and 1999, comprehensive income (loss) equals RTS's net income (loss) for such
years.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
RTS computes net income (loss) per share in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, Earnings per Share, and
the Securities and Exchange Commission Staff Accounting Bulletin No. 98. Basic
and diluted net income (loss) per share is computed by dividing the net income
(loss) for the period by the weighted average number of common shares
outstanding for the period. The calculation of diluted net income per share,
includes the effect of dilutive stock options and warrants.
F-10
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During the year ended December 31, 1997, options to purchase 265,000 shares
of common stock were excluded from the diluted income per share computation as
the exercise price ($.20 per share) was considered to be equivalent to the
average fair value of the RTS common stock during 1997. During the year ended
December 31, 1998, options to purchase 131,083 shares of common stock (using the
treasury stock method) were excluded from the diluted loss per share computation
as their effect would be antidilutive. During the year ended December 31, 1999,
options and warrants to purchase 468,951 shares of common stock (using the
treasury stock method) were excluded from the dilutive loss per share
computation as their effect would also be antidilutive.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. RTS is required to adopt Statement 133 for the year
ending December 31, 2002. Statement 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because RTS currently holds no
derivative financial instruments and does not currently engage in hedging
activities, adoption of Statement 133 is not expected to have a material impact
on RTS's consolidated financial condition or results of operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -------------------
USEFUL LIFE 1998 1999
----------- -------- --------
<S> <C> <C> <C>
Equipment................................................... 5 years $115 $ 313
Furniture, fixtures, office equipment and other............. 3-7 years 175 200
Leasehold improvements...................................... 5 years 13 16
---- -----
303 529
Less accumulated depreciation and amortization.............. 61 161
---- -----
$242 $ 368
==== =====
</TABLE>
4. REVOLVING LINE OF CREDIT
At December 31, 1998, RTS had a $1,000,000 revolving line of credit with a
bank which is payable on demand, bearing interest at prime plus 1% per annum
(8.5% at December 31, 1998). The revolving line of credit is collateralized by
substantially all the assets of RTS and expired on December 31, 1998. During
1999, RTS extended the terms of the revolving credit agreement to June 30, 2000,
and increased the amount available to $2,000,000, bearing interest at prime plus
1% per annum (9.5% at December 31, 1999). The balances outstanding under the
revolving line of credit at December 31, 1998 and 1999 was approximately
$500,000 and $1,100,000, respectively. The amounts outstanding under the
revolving line of credit are classified as current liabilities for all years
presented.
In connection with the extension and the increase of the amount available
under the revolving line of credit agreement, RTS granted to the bank a warrant
dated as of June 30, 1999 to purchase 37,500
F-11
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. REVOLVING LINE OF CREDIT (CONTINUED)
shares of its common stock with an exercise price of $.30 per share, which
expires on June 30, 2004. Accordingly, for accounting purposes, RTS used the
warrants estimated fair value of $26.18 to record deferred financing costs of
approximately $982,000, of which approximately $491,000 was amortized to
interest expense for the year ended December 31, 1999. The unamortized deferred
financing costs of approximately $491,000 are included in current assets as of
December 31, 1999, and will be amortized over the remaining term of the line of
credit agreement (June 30, 2000).
5. DUE TO STOCKHOLDERS
Due to Stockholders consist of non-interest bearing advances from the
founding stockholders and officers of RTS. Such stockholder advances were repaid
during January 2000.
6. COMMON STOCK
During 1997, the officers and stockholders of RTS awarded 1,275,000 shares
of RTS's common stock to its president and chief executive officer. Accordingly,
for accounting purposes, RTS recorded stock compensation expense of
approximately $128,000 for the year ended December 31, 1997.
On December 24, 1998, the board of directors and stockholders of RTS
approved and effectuated an amendment to the certificate of incorporation that
provided for a 42,500-for-1 split of the outstanding shares of RTS's common
stock. Retroactive effect has been given to the stock split for all years
presented.
7. STOCK OPTION PLAN
During 1997, RTS's board of directors adopted and the stockholders approved
RTS's Incentive Stock Option Plan. The Incentive Stock Option Plan authorizes
the granting of incentive stock options and nonqualified stock options to key
employees, officers, directors and consultants, which entitles them to purchase
shares of RTS's common stock.
RTS's Incentive Stock Option Plan authorized the grant of up to 1,500,000
options to acquire shares of RTS's $.01 par value common stock. The exercise
price of an option shall be determined by RTS's board of directors or
compensation committee of the board at the time of grant, provided that in the
case of an incentive stock option the exercise price may not be less than 100%
of the fair market value of such stock at the time of the grant, or less than
110% of the fair market value in the case of options granted to a 10% owner of
RTS's common stock. The vesting and expiration periods of options issued under
the stock option plan are determined by RTS's board of directors or compensation
committee as set forth in the Incentive Stock Option Plan agreement, provided
that the expiration date shall not be later than ten years from the date of
grant.
During December 1997, RTS granted 265,000 incentive stock options to
employees with an exercise price of $.20 per option, which equaled the fair
value of the RTS common stock at time of grant and vests on an annual basis over
five years from the date of grant. During 1998, RTS granted 756,675 incentive
stock options to employees of RTS with exercise prices per share ranging from
$0.20 to $0.30, which equaled the fair market value of the RTS common stock at
the time of grant. Of the 756,675 options granted during 1998, 250,000 vested
immediately, 250,000 vest over 20 consecutive quarters beginning March 2, 1998
and 256,675 vest on an annual basis over five years from the date of grant.
During 1999, RTS granted 398,760 incentive stock options and 75,000 nonqualified
stock options to
F-12
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. STOCK OPTION PLAN (CONTINUED)
employees of RTS with exercise prices per share ranging from $.30 to $2.12,
whereas the 398,760 incentive stock options were considered to be the fair
market value of the RTS common stock at the time of grant. Of the 473,760
options granted during 1999, 225,000 vest immediately and 248,760 vest on an
annual basis over five years from the date of grant. In January 2000, the
Company issued a convertible promissory note which converted into RTS' common
stock at $26.40 per share on March 28, 2000 (see Note 11). Accordingly, for
accounting purposes, RTS used an estimated fair value of $26.40 per share to
record a deferred compensation charge of approximately $6,001,000 relating to
the options granted during the third and fourth quarters of 1999, of which
approximately $2,172,000 was amortized during the year ended December 31, 1999.
The following table summarizes RTS's stock option activity:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
------------------- ------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
-------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........... -- -- 265,000 $ .20 966,675 $ .22
Options granted............................ 265,000 $.20 756,675 $ .22 473,760 $ .89
Options exercised.......................... -- -- -- -- (150,000) $ .30
Options canceled........................... -- -- (55,000) $ .20 (98,550) $ .29
------- ---- ------- ----- --------- ------
Outstanding at end of year................. 265,000 $.20 966,675 $ .22 1,191,885 $ .47
======= ======= =========
Exercisable at end of year................. -- $.20 300,000 $ .20 575,000 $ .24
======= ==== ======= ===== ========= ======
Weighted average fair value of options
granted during the year.................. $.06 $ .07 $16.53
==== ===== ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
RANGE OF OPTIONS OPTIONS AVERAGE REMAINING
EXERCISE PRICE OUTSTANDING EXERCISABLE EXERCISE PRICE CONTRACTUAL LIFE
- --------------------- ----------- ----------- -------------- ----------------
<S> <C> <C> <C> <C>
$.20-$.30 971,385 500,000 $.20 7.8 years
$.50 75,000 75,000 $.50 9.9 years
$2.12 145,500 -- -- 9.5 years
--------- ------- ----
1,191,885 575,000 $.24
========= ======= ====
</TABLE>
At December 31, 1999, RTS has reserved approximately 1,387,500 shares of
common stock for issuance in connection with outstanding common stock options
and warrants.
FAIR VALUE DISCLOSURES
Pro forma information regarding net income (loss) is required by Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which also requires that the
F-13
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. STOCK OPTION PLAN (CONTINUED)
information be determined as if RTS had accounted for its stock options under
the fair value method of that statement. The fair market value of such options
was estimated at the date of grant using the minimum value option pricing model
with the following assumptions for the years ended December 31, 1997, 1998 and
1999: risk free interest rate of 5.5%; no dividend yield; and a weighted average
expected life of the options of 7 years at the date of grant.
Because the determination of fair value of all options granted after such
time as RTS becomes a public entity will include an expected volatility factor
in addition to the factors described above, the results presented below may not
be indicative of future years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. RTS's pro
forma information follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income (loss):
As reported........................................ $ 681 $(425) $(4,044)
Pro forma.......................................... 681 (445) (4,084)
Basic and diluted net income (loss) per share:
As reported........................................ $ .08 $(.05) $ (.47)
Pro forma.......................................... $ .08 (.05) (.47)
</TABLE>
8. COMMITMENTS
OPERATING LEASES
RTS leases office space, equipment and automobiles under various operating
lease agreements, which expire in various years through 2003. RTS has an option
to extend its office lease for an additional five years. As leases expire, it
can be expected that in the normal course of business they will be renewed or
replaced.
As of December 31, 1999, future minimum payments under non-cancelable
operating lease agreements with initial terms of one year or more, consist of
the following (in thousands):
<TABLE>
<S> <C>
2000................................................. $127
2001................................................. 85
2002................................................. 29
2003................................................. 7
----
$248
====
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $81,000, $102,000 and $109,000, respectively.
F-14
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. COMMITMENTS (CONTINUED)
EMPLOYMENT AGREEMENT
RTS has an employment agreement with an officer which provides for an annual
salary of $150,000 ($200,000 at the completion of an initial public offering).
The agreement provides for a severance payment of six months salary in the event
of termination of employment, other than for cause.
LICENSE AGREEMENTS
RTS has two license agreements for the use of technology and software which
is included in certain of its products. RTS pays a license fee based on usage of
the technology and software. License fees were not considered material to RTS's
consolidated results of operations for the years ended December 31, 1997, 1998
and 1999.
9. PENSION PLAN
RTS maintains a 401(k) plan which covers substantially all employees. All
full-time employees of RTS who have attained the age of 21 are eligible to
participate immediately upon employment. Participants may elect to make
voluntary contributions up to 15% of their pre-tax compensation, not to exceed
amounts set by federal guidelines. Participant contributions up to the first 3%
of pre-tax compensation are matched by RTS. On an annual basis, RTS may make
additional discretionary contributions to the 401(k) plan as determined by the
board of directors. RTS did not make any contributions to the 401(k) plan during
the year ended December 31, 1997. During the year ended December 31, 1998 and
1999, RTS made matching contributions of approximately $77,000 and $130,000,
respectively. There were no discretionary contributions made by RTS during the
years ended December 31, 1997, 1998 and 1999.
10. PRO FORMA INCOME TAXES
As described in Note 2, RTS elected to operate under Subchapter S of the
Internal Revenue Code. In connection with the consummation of the AOL
investment, RTS will no longer qualify as a S corporation and will become
subject to corporate income taxes.
RTS estimates that it will establish a tax liability of approximately
$60,000 with a corresponding charge to operations upon the termination of its
Subchapter S status. The difference between pro forma taxes at the federal
statutory rate and the pro forma tax provision (benefit) as presented is the
impact of state income taxes, net of federal benefit, and, in 1999, stock
compensation expense not deductible for income tax purposes and a full valuation
allowance on its net deferred tax assets (primarily relating to net operating
loss carryforwards).
11. SUBSEQUENT EVENTS
In January 2000, RTS and Monsoon Ventures, LLC, a venture capital firm,
entered into an agreement whereby RTS borrowed $5,000,000 in exchange for a
convertible promissory note payable to Monsoon Ventures. The note bears interest
at 8% per annum, compounded annually, and is payable in full on January 24,
2001. In March 2000, the promissory note was automatically converted into
189,392 shares of RTS' $.01 par value common stock (representing a conversion
price of $26.40 per share) upon an equity investment by America Online, Inc.
F-15
<PAGE>
RTS WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
11. SUBSEQUENT EVENTS (CONTINUED)
In March 2000, RTS issued 5,000 shares of Series A Convertible Preferred
Stock, $.01 par value, to America Online, Inc. ("AOL") for $5,000,000. The
Series A Convertible Preferred Stock has a liquidation value of $1,000 per share
and participates in dividends when and if declared on the common stock. The
Series A Convertible Preferred Stock is convertible into 425,775 shares of
common stock at the option of AOL prior to an initial public offering ("IPO") of
RTS's common stock and must be converted upon the closing of an IPO provided the
value of RTS's common stock exceeds $350,000,000 after the IPO. If RTS does not
close an IPO prior to January 1, 2001 and RTS does not meet a minimum revenue
level for the year ending December 31, 2000, the number of shares of common
stock into which the preferred stock would be convertible is increased to
510,930 shares. In connection with this investment, AOL was granted certain
rights, some of which expire at the consummation of RTS's initial public
offering, with respect to participation in future equity transactions, proposed
business combinations or a sale or disposition of RTS. In addition, AOL has the
right to elect a director to RTS's Board of Directors until AOL holds less than
2% of RTS's fully diluted common stock.
The conversion rights of the Series A Convertible Preferred Stock represents
a beneficial conversion feature computed by taking the difference between the
Monsoon conversion price of $26.40 per share referenced above and the conversion
price multiplied by the number of common shares into which the preferred stock
is convertible or $5,000,000. Accordingly, the Company will record in the first
quarter of 2000 a preferred stock dividend and additional paid-in capital of
$5,000,000 relating to this beneficial conversion feature.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
RTS WIRELESS, INC.
COMMON STOCK
[LOGO]
------
P R O S P E C T U S
, 2000
---------
SALOMON SMITH BARNEY
CHASE H&Q
- --------------------------------------------------
- --------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses, other than underwriting
discounts and commissions, in connection with the issuance and distribution of
the securities being registered hereby. All such expenses will be borne by the
registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 22,770
NASD filing fee............................................. 9,125
Nasdaq listing fees.........................................
Legal fees and expenses(1)..................................
Accounting fees and expenses(1).............................
Transfer agent fees(1)......................................
Printing and engraving expenses(1)..........................
Miscellaneous(1)............................................
--------
Total....................................................... $
========
</TABLE>
- ------------------------
(1) Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
Section 145 of the Delaware General Corporation Law provides that directors,
officers, employees or agents of Delaware corporations are entitled, under
certain circumstances, to be indemnified against expenses (including attorneys'
fees) and other liabilities actually and reasonably incurred by them in
connection with any suit brought against them in their capacity as a director,
officer, employee or agent, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful. Section 145 also
provides that directors, officers, employees and agents may also be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
them in connection with a derivative suit brought against them in their capacity
as a director, officer, employee or agent, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification may be made without court
approval if such person was adjudged liable to the corporation.
Article 7 of the registrant's certificate of incorporation provides that the
registrant shall indemnify any and all persons whom it shall have power to
indemnify to the fullest extent permitted by the Delaware General Corporation
Law. Article VIII of the registrant's by-laws provides that the registrant shall
indemnify authorized representatives of the registrant to the fullest extent
permitted by the Delaware General Corporation Law. The registrant's by-laws also
permit the registrant to purchase insurance on behalf of any such person against
any liability asserted against such person and incurred by such person in any
capacity, or out of such person's status as such, whether or not the registrant
would have the power to indemnify such person against such liability under the
foregoing provision of the by-laws.
The underwriting agreement (Exhibit 1.1) provides for indemnification by the
underwriters of directors, officers and controlling persons of the registrant
for certain liabilities, including certain liabilities under the Securities Act,
under certain circumstances.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The registrant has sold and issued the securities described below in the
past three years. For purposes of this Item 15, the "registrant" includes both
RTS Wireless, Inc., a Delaware corporation, and its predecessor Real Time
Strategies, Inc., a New York corporation.
COMMON STOCK
1. On December 30, 1997, the registrant issued an aggregate of 8,500,000
shares (the "Stock Split Shares") of its common stock, par value $.01 per share
("Common Stock"), to Jay Moskowitz, Spencer Kravitz and Alvin L. Ring, its three
shareholders as of that date. The Stock Split shares were issued pursuant to a
42,500-for-one stock split whereby each of the 200 shares of common stock, no
par value, outstanding immediately prior to the stock split was canceled and
replaced by 42,500 shares of Common Stock, par value $.01 per share.
2. On January 31, 1999, the registrant sold 150,000 shares of its Common
Stock to Bruce Laskin, the registrant's Senior Vice President - Technology and
Development, pursuant to the exercise of a stock option previously granted to
Mr. Laskin. This stock option is included within the stock options referred to
in item 10 below.
3. On January 3, 2000, the registrant sold 500,000 shares of its Common
Stock to Bruce Laskin, the registrant's Senior Vice President - Technology and
Development, pursuant to the exercise of a stock option previously granted to
Mr. Laskin. This stock option is included within the stock options referred to
in item 10 below.
4. On January 3, 2000, the registrant sold 75,000 shares of its Common
Stock to Michael Druckman, the registrant's Chief Financial Officer, pursuant to
the exercise of a stock option previously granted to Mr. Druckman. This stock
option is included within the stock options referred to in item 10 below.
5. On January 6, 2000, the registrant sold 25,000 shares of its Common
Stock to Michael Druckman, the registrant's Chief Financial Officer, pursuant to
the exercise of a stock option previously granted to Mr. Druckman. This stock
option is included within the stock options referred to in item 10 below.
6. On March 1, 2000, the registrant sold 15,000 shares of its Common Stock
to Alan Kuritsky, the registrant's Vice President - Sales and Marketing,
pursuant to the exercise of a stock option previously granted to Mr. Kuritsky.
This stock option is included within the stock options referred to in item 10
below.
COMMON STOCK PURCHASE WARRANT
7. As of June 30, 1999, the registrant issued to its senior lender a
warrant to purchase 37,500 shares of the registrant's Common Stock for a
purchase price of $0.30 per share.
CONVERTIBLE PREFERRED STOCK
8. On March 28, 2000, the registrant sold 5,000 shares of its series A
preferred stock, par value $.01 per share (the "Series A Preferred Stock"), to
America Online, Inc. ("AOL") for a purchase price of $5,000,000. The Series A
Preferred Stock is not entitled to receive any dividends. At the closing of this
offering, these 5,000 shares of Series A Preferred Stock will convert into
425,775 shares of Common Stock.
II-2
<PAGE>
CONVERTIBLE PROMISSORY NOTES
9. On January 24, 2000 and January 31, 2000, the registrant sold to Monsoon
Ventures LLC convertible promissory notes in the principal amounts of $3,500,000
and $1,500,000, respectively, bearing interest at 8% per annum and convertible
upon the occurrence of certain specified events into a number of shares of
Common Stock determined based on which of those specified events occurs first.
Upon the closing of the sale of Series A Preferred Stock to AOL referred to in
item 8 above, these convertible promissory notes converted into an aggregate of
189,392 shares of Common Stock.
OPTIONS
10. The registrant from time to time has granted options to purchase shares
of its Common Stock to employees and consultants of the registrant in reliance
upon exemption from registration pursuant to either (i) Section 4(2) of the
Securities Act of 1933, as amended, or (ii) Rule 701 promulgated under the
Securities Act of 1933, as amended. The following table sets forth information
regarding such grants:
<TABLE>
<CAPTION>
EXERCISE PRICE
DATE OF GRANT EXERCISABLE FOR PER SHARE
- ------------- ---------------- --------------
<S> <C> <C>
December 1997 - June 1998 786,500 shares $ .20
July 1998 - August 1999 334,885 shares $ .30
December 1999 75,000 shares $ .50
October 1999 - February 2000 178,500 shares $ 2.12
January - February 2000 108,500 shares $12.50
Total 1,483,385 shares
</TABLE>
The issuance of securities as set forth in this section is believed by the
registrant to be exempt from registration in reliance upon section 4(2) of the
Securities Act, as a transaction not involving any public offering. No
underwriters were involved in connection with the sales of securities referred
to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
1.1 Form of underwriting agreement (subject to negotiation).*
3.1 Certificate of incorporation of the registrant.
3.2 By-laws of the registrant.
4.1 Specimen Common Stock Certificate.*
4.2 Certificate of designation of Series A Preferred Stock of
the registrant.
5.1 Opinion of Parker Chapin LLP as to the legality of
securities being registered.*
10.1 Form of employment agreement between the registrant and each
executive officer.*
10.2 Employment letter agreement dated December 23, 1999 between
the registrant and Michael Druckman.
10.3 Contract of sales and license agreement dated October 19,
1999 between the registrant and America Online, Inc.
10.4 Securities purchase agreement dated March 28, 2000 between
the registrant and America Online, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ------------------------------------------------------------
<C> <S>
10.5 Investors rights agreement dated March 28, 2000 between the
registrant and America Online, Inc.
10.6 Note purchase agreement dated January 21, 2000 between the
registrant and Monsoon Ventures LLC.
10.7 Noteholders and stockholders agreement dated January 24,
2000 between the registrant and Monsoon Ventures LLC.
10.8 $3,500,000 non-negotiable convertible promissory note dated
January 24, 2000 issued by the registrant to Monsoon
Ventures LLC.
10.9 $1,500,000 non-negotiable convertible promissory note dated
January 31, 2000 issued by the registrant to Monsoon
Ventures LLC.
10.10 $2,000,000 master grid note dated July 1, 1999 issued by the
registrant to The Chase Manhattan Bank.
10.11 Letter agreement dated July 12, 1999 between the registrant
and The Chase Manhattan Bank.
10.12 Warrant dated as of June 30, 1999 issued by the registrant
to The Chase Manhattan Bank.*
10.13 Incentive Stock Option Plan.
10.14 Form of Incentive Stock Option Plan Contract.
10.15 Lease dated February 1997 between the registrant and 51 East
Bethpage Holding Corporation.
10.16 S corporation status termination agreement dated March 28,
2000 between the registrant and the stockholders of the
registrant.*
21.1 Subsidiary of the registrant.
23.1 Consent of Parker Chapin LLP (included in their opinion
filed as Exhibit 5.1).*
23.2 Consent of Ernst & Young LLP, independent auditors.
24.1 Power of attorney (included on signature page).
27.1 Financial Data Schedule for the year ended December 31,
1999.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial statement schedule.
The following financial statement schedule of the registrant are filed
herein:
SCHEDULE PAGE
Schedule II--Valuation and Qualifying Accounts for the years ended December 31,
1997, 1998 and 1999.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements and notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as requested by the underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
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.
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 foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the 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 Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 29th day of March, 2000.
<TABLE>
<S> <C> <C>
RTS WIRELESS, INC.
By: /s/ ALVIN L. RING
-----------------------------------------
Alvin L. Ring
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
The undersigned directors and officers of RTS Wireless, Inc. hereby
constitute and appoint Alvin L. Ring and Spencer Kravitz, and each of them, with
full power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to execute
in our name and behalf in the capacities indicated below any and all amendments
(including post-effective amendments and amendments thereto) to this
registration statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, as amended) and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Commission and hereby ratify
and confirm each and every act and thing that such attorneys-in-fact, or any of
them, or their substitutes, shall lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ALVIN L. RING
------------------------------------------- President, Chief Executive March 29, 2000
Alvin L. Ring Officer and Director
Executive Vice President,
/s/ SPENCER KRAVITZ Chief Operating Officer,
------------------------------------------- Secretary, Treasurer and March 29, 2000
Spencer Kravitz Director
/s/ JAY MOSKOWITZ
------------------------------------------- Chief Technical Officer and March 29, 2000
Jay Moskowitz Chairman
/s/ BRUCE LASKIN Senior Vice President--
------------------------------------------- Technology and March 29, 2000
Bruce Laskin Development
Vice President--Finance and
/s/ MICHAEL DRUCKMAN Chief Financial Officer
------------------------------------------- (principal financial and March 29, 2000
Michael Druckman accounting officer)
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of RTS Wireless, Inc.
(the Company") as of December 31, 1998 and 1999 and for each of the three years
in the period ended December 31, 1999, and have issued our report thereon dated
March 28, 2000 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Melville, New York
March 28, 2000
S-1
<PAGE>
RTS WIRELESS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION YEAR EXPENSES DESCRIBE DESCRIBE END OF YEAR
- ----------- ------------ ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Reserves and allowances
deducted from asset
accounts:
Reserves for estimated
doubtful accounts-accounts
receivable................ $454,000 $261,000 $417,000(b) $298,000
======== ======== ======= ======== ========
Year ended December 31, 1998:
Reserves and allowances
deducted from asset
accounts:
Reserves for estimated
doubtful accounts-accounts
receivable................ $ 40,000 $393,000 $21,000(a) $454,000
======== ======== ======= ======== ========
Year ended December 31, 1997:
Reserve and allowances
deducted from asset
accounts:
Reserve for estimated
doubtful accounts-accounts
receivable................ $ $ 40,000 $ 40,000
======== ======== ======= ======== ========
</TABLE>
- ------------------------
(a) Charged against sales.
(b) Deduction due to the write-off of accounts receivable balances.
S-2
<PAGE>
CERTIFICATE OF INCORPORATION
OF
RTS WIRELESS, INC.
The undersigned, a natural person, for the purposes of forming a
corporation under the provisions of the Delaware General Corporation Law, hereby
certifies that:
ARTICLE 1
The name of the corporation (hereinafter called the "Corporation") is:
RTS Wireless, Inc.
ARTICLE 2
(a) The address, including street, number, city and county, of the
registered office of the Corporation in the state of Delaware is c/o Bridge
Service Corp., 30 Old Rudnick Lane, City of Dover, Kent County, Delaware 19901;
and the name of the registered agent of the Corporation in the state of Delaware
at such address is Bridge Service Corp.
(b) The name and mailing address of the incorporator are: Timothy I.
Kahler, c/o Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New
York, New York 10174.
ARTICLE 3
The nature of the business and the purposes to be conducted and promoted
by the Corporation shall be to conduct any lawful business, to promote any
lawful purpose and to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law.
<PAGE>
ARTICLE 4
The Corporation shall have perpetual existence.
ARTICLE 5
(a) The total number of shares of all classes of capital stock that the
Company has authority to issue is 251,000,000 shares, consisting of (i)
1,000,000 shares of preferred stock, par value $.01 per share (the "Preferred
Stock"), and (ii) 250,000,000 shares of common stock, par value $.01 per share
(the "Common Stock").
(b) Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the Board of Directors,
each of said series to be distinctly designated. The designations, number,
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations or restrictions thereof, if
any, of each such series may differ from those of any and all other series of
Preferred Stock at any time outstanding, and the Board of Directors is hereby
expressly granted authority to fix or alter, by resolution or resolutions, and
to file a certificate with respect thereto pursuant to the applicable law of the
state of Delaware, the designation, number, voting powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, of each such series
including, but without limiting the generality of the foregoing, the following:
(i) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number (except
where otherwise provided by the Board of Directors in the resolution
establishing such series) may be increased or decreased (but not below the
number of shares of such series then outstanding) from time to time by
like action of the Board of Directors;
(ii) The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or on any
other series of the same or other class or classes of capital stock of the
Company and whether such dividends shall be cumulative or noncumulative;
(iii) The right, if any, of the holders of such series of Preferred
Stock to convert the same into, or exchange the same for, shares of any
other class or classes or of any other series of the same or any other
class or classes of capital
-2-
<PAGE>
stock of the Company, and the terms and conditions of such conversion or
exchange;
(iv) Whether or not shares of such series of Preferred Stock shall be
subject to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions on which, shares of such
series of Preferred Stock may be redeemed;
(v) The rights, if any, of the holders of such series of Preferred Stock
upon the voluntary or involuntary liquidation, dissolution or winding-up
of the Company or in the event of any merger or consolidation of or sale
of assets by the Company;
(vi) The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter, which
may be less than, equal to or greater than one vote per share; and
(vii) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, as the Board of Directors shall determine.
ARTICLE 6
(a) The number of directors that shall constitute the entire Board of
Directors shall be as specified in the By-laws of the Corporation. Any vacancies
on the Board of Directors resulting from death, resignation, disqualification,
removal or other causes shall be filled by either (i) the affirmative vote of
the holders of a majority of the voting power of the then-outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors (the "Voting Stock"), voting together as a single class; or (ii) by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors. Newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such newly
created directorship shall be filled by the stockholders, be filled only by the
affirmative vote of the directors then in office, even though less than a quorum
of the Board of Directors.
(b) Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of the then-outstanding shares Voting
Stock, voting together as a single class; or (ii) without cause by the
affirmative vote of the holders of at least two-thirds of
-3-
<PAGE>
the voting power of the then-outstanding shares of the Voting Stock, voting
together as a single class.
(c) There shall be no right with respect to any shares of capital stock
(Voting Stock or otherwise) of the Corporation to cumulate votes in the election
of directors.
ARTICLE 7
(a) The Corporation shall, to the fullest extent permitted by the Delaware
General Corporation Law (including but not limited to section 145 thereof), as
the same may be amended and supplemented from time to time, indemnify each
director of the Corporation from and against any and all of the expenses,
liabilities and other matters referred to in or covered by that section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity while
having the position of director of the Corporation, and shall continue as to a
person who has ceased to be a director and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(b) Any repeal or modification of the foregoing provision of this article
7 shall not adversely affect any right or protection of a director of the
Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE 8
(a) The personal liability of the directors, officers and other agents of
the Corporation is hereby eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law (including but not limited to paragraph
7 of subsection (b) of section 102 thereof), as the same may be amended or
supplemented from time to time.
(b) Any repeal or modification of the foregoing provision of this article
8 shall not adversely affect any right or protection of a director, officer or
other agent existing at the time of, or increase the liability of any such
director, officer or other agent of the Corporation with respect to any acts or
omissions of such person occurring prior to, such repeal or modification.
-4-
<PAGE>
ARTICLE 9
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal the By-laws of the Corporation.
ARTICLE 10
From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the state of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
certificate of incorporation are granted subject to the provisions of this
article 10.
Dated March 3, 2000.
/s/ Timothy I. Kahler
----------------------------------
Timothy I. Kahler
Sole Incorporator
-5-
<PAGE>
BY-LAWS OF
RTS WIRELESS, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
Section 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by
the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either the Chairman, if there be one, or
the President, and shall be called by the President or the Secretary at the
request in writing of a majority of the Board of Directors or at the request in
writing of stockholders owning a majority of the capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Written notice of a
Special Meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
Section 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to
<PAGE>
vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted that might have
been transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting.
Section 5. VOTING. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Section 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation, or the
transfer agent of the Corporation, as the case may be, shall prepare and make,
at least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list also shall be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 8. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
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ARTICLE III
DIRECTORS
Section 1. NUMBER AND ELECTION OF DIRECTORS. The number of directors
shall be fixed from time to time by the Board of Directors. Except as provided
in Section 2 of this Article, directors shall be elected by a plurality of the
votes cast at Annual Meetings of Stockholders, and each director so elected
shall hold office until the next Annual Meeting, unless otherwise provided by
the Certificate of Incorporation and until his successor is duly elected and
qualified, or until his earlier resignation or removal. Any director may resign
at any time upon notice to the Corporation. Directors need not be stockholders.
Section 2. VACANCIES. Vacancies and newly created directorships shall be
filled as provided by the Certificate of Incorporation.
Section 3. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
Section 4. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or any two directors. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the meeting,
by facsimile, telephone or telegram not less than twenty-four (24) hours before
the meeting, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.
Section 5. QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-Laws, at all meetings of the
Board of Directors a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
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Section 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided by the Certificate of Incorporation or the By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section shall constitute
presence in person at such meeting.
Section 8. CREATION AND AUTHORITY OF COMMITTEES.
(a) CREATION. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, appoint standing or
temporary committees, each committee to consist of one or more members of the
Board of Directors, and may designate one or more members of the Board of
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board establishing such committee or as otherwise provided in these By-Laws,
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that require it; but no such
committee shall have the power or authority in reference to (a) amending the
Certificate of Incorporation, (b) adopting an agreement of merger or
consolidation under Sections 251 or 252 of the DGCL, (c) recommending to the
stockholders the sale, lease or exchange or other disposition of all or
substantially all of the property and assets of the corporation, (d)
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, (e) amending these By-Laws; (f) declaring a
dividend, or (g) authorizing the issuance of stock.
(b) AUDIT COMMITTEE. In addition to any committees created
pursuant to this section 8, no later than such time as this corporation may have
any class of its securities registered with the U.S. Securities and Exchange
Commission, there shall be an Audit Committee, appointed annually by the Board
of Directors, consisting of at least three Directors who are "independent," as
defined by the listing standards of the New York Stock Exchange, the American
Stock Exchange or Nasdaq, as applicable. It shall be the responsibility of the
Audit Committee, when appointed, to review the scope and results of the annual
independent audit of books and records of the corporation, to review compliance
with all corporate policies which have been approved by the Board of Directors
and to discharge such other responsibilities as may from time to time be
assigned to it by the Board of Directors. The Audit Committee shall meet at such
times and places as the members deem advisable, and shall make such
recommendations to the Board of Directors as they consider appropriate.
(c) COMPENSATION COMMITTEE. The Board of Directors may, in
its discretion, designate a Compensation Committee consisting of one or more
members of the Board of Directors as it may from time to time determine. The
duties of the Compensation Committee shall consist of the following: (a) to
establish and review periodically, but not less than annually,
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the compensation of the officers of the corporation and to make recommendations
concerning such compensation to the Board of Directors; (b) to consider
incentive compensation plans for the employees of the corporation; (c) to carry
out the duties assigned to the Compensation Committee under any stock option
plan or other plan approved by the corporation; (d) to consult with the Chief
Executive Officer or the President concerning any compensation matters deemed
appropriate by the Chief Executive Officer or the President or the Compensation
Committee; and (e) to perform such other duties as shall be assigned to the
Compensation Committee by the Board of Directors.
(d) NOMINATING AND ORGANIZATION COMMITTEE. The Board of
Directors may, in its discretion, designate a Nominating and Organization
Committee consisting of one or more members of the Board of Directors as it may
from time to time determine. The duties of the Nominating and Organization
Committee shall consist of the following: (a) to report and make recommendations
to the Board of Directors on the size and composition of the Board of Directors
and nominees for members of the Board of Directors; (b) to evaluate the
performance of the officers of the corporation and together with management,
select and recommend to the Board of Directors appropriate individuals for
election, appointment and promotion as officers of the corporation and ensure
the continuity of capable management; (c) to report and make recommendations to
the Board of Directors on the organization of the corporation; and (d) to
perform such other duties as shall be assigned to the Nominating and
Organization Committee by the Board of Directors.
(e) MINUTES OF MEETINGS. All committees so appointed shall
keep regular minutes of their meetings and shall cause them to be recorded in
books kept for that purpose.
(f) QUORUM AND MANNER OF ACTING. A majority of the number
of members of any committee of the Board of Directors, as established and fixed
by resolution of the Board of Directors, shall constitute a quorum for the
transaction of business at any meeting of such committee but, if less than a
majority are present at a meeting, a majority of such members present may
adjourn the meeting from time to time without further notice. The act of a
majority of the members of a committee present at a meeting at which a quorum is
present shall be the act of such committee.
(g) RESIGNATION. Any member of any committee may resign at
any time by delivering written notice to the Chairman of the Board, the Chief
Executive Officer, the President, the Secretary, the Board or the Chairman of
such committee. Any such resignation shall take effect at the time specified
therein or, if the time is not specified, upon delivery thereof and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
(h) REMOVAL. The Board of Directors may remove from office
any member of any committee elected or appointed by it, but only by the
affirmative vote of not less than a majority of the entire Board of Directors.
(i) COMPENSATION. By resolution of the Board of Directors,
members of the Board of Directors and committee members may be paid their
expenses, if any, of
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attendance at each meeting of the Board of Directors or committee, a fixed sum
for attendance at each such meeting, or a stated salary as a member of the Board
of Directors and any such committee, or a combination of the foregoing. No such
payment shall preclude any member of the Board of Directors or committee from
serving the corporation in any other capacity and receiving compensation
therefor.
Section 9. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof or the stockholders. Interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a Chief Executive Officer, a President, a
Secretary and a Treasurer. The Board of Directors, in its discretion, may also
choose a Chairman of the Board of Directors (who must be a director) and one or
more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers. Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these By-Laws. The
officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, need such officers
be directors of the Corporation.
Section 2. ELECTION. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders (or at such other times as it shall
deem appropriate) shall elect the officers of the Corporation who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors; and
all officers of the Corporation shall hold office until their successors are
chosen and qualified, or until their earlier resignation or removal. Any officer
elected by the Board of Directors may be removed at any time by the affirmative
vote of a majority of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors. The
salaries of all officers of the Corporation shall be fixed by the Board of
Directors.
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Section 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman shall give
counsel and advice to the Board of Directors and the officers of the Corporation
on all subjects concerning the welfare of the Corporation and the conduct of its
business and shall perform such other duties as the Board of Directors may from
time to time determine. Unless otherwise determined by the Board of Directors,
he shall preside at meetings of the Board of Directors and of the stockholders
at which he is present.
Section 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
the chief executive officer of the corporation, shall preside over meetings of
the Board of Directors and stockholders in the absence of a Chairman of the
Board and, subject to the control of the Board of Directors, shall supervise and
control all of the assets, business and affairs of the corporation. The Chief
Executive Officer may sign certificates for shares of the corporation, deeds,
mortgages, bonds, contracts or other instruments, except when the signing and
execution thereof have been expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the corporation or are required
by law to be otherwise signed or executed by some other officer or in some other
manner. In general, the Chief Executive Officer shall perform all duties
incident to the office of Chief Executive Officer and such other duties as are
prescribed by the Board of Directors from time to time.
Section 6. PRESIDENT. In the event of the death of the Chief Executive
Officer or his inability to act, the President shall perform the duties of the
Chief Executive Officer, except as may be limited by resolution of the Board of
Directors, with all the powers of and subject to all the restrictions upon the
Chief Executive Officer. The President may sign with the Secretary or any
Assistant Secretary certificates for shares of the corporation. The President
shall have, to the extent authorized by the Chief Executive Officer or the Board
of Directors, the same powers as the Chief Executive Officer to sign deeds,
mortgages, bonds, contracts or other instruments. The President shall perform
such other duties as from time to time may be assigned to him or her by the
Chief Executive Officer or the Board of Directors.
Section 7. VICE PRESIDENT. In the event of the death of the President or
his inability to act, the Vice President (or if there is more than one Vice
President, the Vice President who was designated by the Board of Directors as
the successor to the President, or if no Vice President is so designated, the
Vice President first elected to such office) shall perform the duties of the
President, except as may be limited by resolution of the Board, with all the
powers of and subject to all the restrictions upon the President. Any Vice
President may sign with the Secretary or any Assistant Secretary certificates
for shares of the corporation. Vice Presidents shall have, to the
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extent authorized by the President or the Board of Directors, the same powers as
the President to sign deeds, mortgages, bonds, contracts or other instruments.
Vice Presidents shall perform such other duties as from time to time may be
assigned to them by the President or the Board of Directors.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary also shall perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 9. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 10. ASSISTANT SECRETARIES. Except as may be otherwise provided in
these By-Laws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
Secretary.
Section 11. ASSISTANT TREASURES. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of
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Directors, the President, any Vice President, if there be one, or the Treasurer,
and in the absence of the Treasurer or in the event of his disability or refusal
to act shall perform the duties of the Treasurer, and when so acting shall have
all the powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. OTHER OFFICERS. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
Section 13. CONTRACT. The Board of Directors may authorize any officer or
officers, or agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation. Such authority
may be general or confined to specific instances.
Section 14. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, or agent or
agents, of the corporation and in such manner as is from time to time determined
by resolution of the Board of Directors.
ARTICLE V
STOCK
Section 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. SIGNATURES. Any or all of the signatures on a certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new
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certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By-Laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
Section 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
Section 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice also may be given personally
or by e-mail, facsimile, telegram, telex or cable.
Section 2. WAIVERS OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these By-Laws to be given to any director,
member of a
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committee or stockholder, a waiver thereof in writing signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special meeting
and may be paid in cash, in property or in shares of the capital stock. Before
payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
Section 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act
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in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN
THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Such determination shall be
made (i) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
Section 4. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a director
or officer in defending or investigating a threatened or pending action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VIII.
Section 5. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of
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stockholders or disinterested directors or pursuant to the direction (howsoever
embodied) of any court of competent jurisdiction or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Section 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
Section 6. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against such
liability under the provisions of this Article VIII.
Section 7. LIMITATION ON INDEMNIFICATION. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended or repealed, in whole or in part, or
new By-Laws may be adopted by the stockholders or by the Board of Directors;
provided, however, that notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such meeting of stockholders or
Board of Directors, as the case may be. All such amendments must be approved by
either the holders of a majority of the outstanding capital stock entitled to
vote thereon or by a majority of the entire Board of Directors then in office.
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---------------------------------------------
CERTIFICATE OF DESIGNATION
OF
RTS WIRELESS, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
---------------------------------------------
SERIES A PREFERRED STOCK
RTS Wireless, Inc., a Delaware corporation (the "Company"), hereby
certifies that the following resolution has been duly adopted by the Board of
Directors of the Company:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the board of directors of the Company (the "Board") by the provisions
of the certificate of incorporation of the Company (as amended, the "Certificate
of Incorporation"), there hereby is created, out of the 1,000,000 shares of
preferred stock, par value $.01 per share, of the Company authorized by Article
5 of the Certificate of Incorporation (the "Preferred Stock"), a series of the
Preferred Stock consisting of 5,000 shares, which series shall have the
following powers, designations, preferences and relative, participating,
optional and other special rights, and the following qualifications, limitations
and restrictions:
1. DESIGNATION AND AMOUNT. The shares of such series shall have a
par value of $0.01 per share and shall be designated as "Series A Preferred
Stock" (the "Series A Preferred Stock") and the number of shares constituting
the Series A Preferred Stock shall be 5,000.
2. RANK. The Series A Preferred Stock shall, with respect to
redemption rights and rights on liquidation, winding up, corporate
reorganization and dissolution, rank senior to (i) the common stock, par value
$0.01 per share, of the Company (the "Common Stock"), and (ii) each other class
and series of stock of the Company now authorized, issued or outstanding and
(iii) each other class and series of
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equity securities that may be authorized, issued or outstanding in the future
and that by its terms does not rank senior to the Series A Preferred Stock
(together with the Common Stock, the "Junior Securities").
3. DIVIDENDS. Except as set forth in the following sentence, no
dividends shall be payable on the Series A Preferred Stock. In the event the
Company pays, on shares of the Company's Common Stock, any dividend with
respect to which no adjustment in the Conversion Price is made pursuant to
the provisions of section 5(h) or 5(i)(i), other than a dividend solely to
reimburse common stockholders of the Company of record as of the Closing Date
(as defined in section 5(g)(i) below) for tax liability incurred by virtue
of the Company's status as an "S corporation" for federal, state or local
income tax purposes (a "Triggering Dividend"), the Company shall also pay,
concurrently with the Triggering Dividend, a dividend on each outstanding
share of Series A Preferred Stock in the same currency in which the
Triggering Dividend is paid in an amount equal to the amount that would have
been payable pursuant to the Triggering Dividend in respect of the number of
shares of Common Stock then issuable upon conversion of such shares of Series
A Preferred Stock.
4. LIQUIDATION.
(a) In the event of any liquidation, dissolution or
winding up of the Company, including any such event deemed to occur pursuant
to section 4(c) as a result of an Exit Acquisition (as defined in section
4(c) below), either voluntary or involuntary, holders of the Series A
Preferred Stock shall first be entitled to receive, prior and in preference
to any distribution of any of the assets of the Company to the holders of
Junior Securities, out of the assets of the Company, for each share of Series
A Preferred Stock, cash in the amount of $1,000.00 (the "Liquidation
Value") plus any accrued but unpaid dividends thereon, but after payment
of all outstanding indebtedness and all amounts due on liquidation,
dissolution or winding-up in respect of all preferred stock of the
Company which by its terms is senior to the Series A Preferred Stock.
If the assets of the Company available for distribution to the
holders of the Series A Preferred Stock as provided above are not sufficient
to allow the foregoing distribution, the said assets, if any, shall be
distributed solely to the holders of Series A Preferred Stock, pro rata in
proportion to their respective holdings of Series A Preferred Stock.
(b) After distribution of the Liquidation Value per share
with respect to each share of Series A Preferred Stock outstanding plus any
accrued but unpaid dividends thereon in accordance with section 4(a), holders
of Series A Preferred Stock shall not participate in the distribution of any
additional assets or other consideration paid and shall have no rights to
convert their shares of Series A Preferred Stock into shares of Common Stock
or any other securities of the Company, and such shares of Series A Preferred
Stock shall be deemed cancelled regardless of whether such shares have been
tendered by the holder thereof to the Company for cancellation.
(c) For purposes of this section 4, an Exit Acquisition (as
hereinafter defined) shall be included within the meaning of, and shall be
deemed to be, a
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dissolution, liquidation or winding up of the Company, unless the holders of
at least a majority of the Series A Preferred Stock outstanding on the record
date, or if none, the effective date for such Exit Acquisition, agree in
writing that such event shall not be deemed to be a dissolution, liquidation
or winding up of the Company (a "Non-Liquidation Election"). For purposes
hereof, the term "Exit Acquisition" shall mean (i) subject to the proviso
below, a consolidation or merger of the Company with or into any other
corporation; (ii) a sale of all or a significant portion of the properties
and assets of the Company as an entirety to any other person; or (iii) the
acquisition of "beneficial ownership" by any "person" or "group" of voting
stock of the Company representing more than 50% of the voting power of all
outstanding shares of such voting stock, whether by way of merger or
consolidation or otherwise, PROVIDED, HOWEVER, that the term "Exit
Acquisition" shall not include any reorganization, merger or consolidation
involving:
(x) only a change in the state of incorporation of the Company;
(y) a merger of the Company with or into a wholly owned subsidiary
of the Company that is incorporated in the United States of America; or
(z) an acquisition whether by merger, reorganization, consolidation
or other form of business combination, of which the Company is substantively
the surviving corporation and does not involve (in a single transaction or
series of interrelated transactions) a transfer of more than 50% of the
voting power of the Company.
Anything to the contrary herein notwithstanding, each holder of Series A
Preferred Stock shall have the right to convert his shares of Series A
Preferred Stock prior to any Exit Acquisition.
(d) The Company shall give each holder of Series A Preferred
Stock written notice of any dissolution, liquidation or winding up not later
than ten days prior to any meeting of stockholders to approve such dissolution,
liquidation or winding up or, if no meeting is to be held, not later than 15
days prior to the date of such dissolution, liquidation or winding up.
5. CONVERSION.
(a) OPTIONAL AND MANDATORY CONVERSION. Prior to the closing
of a Qualified Initial Public Offering (as hereinafter defined), each share of
Series A Preferred Stock outstanding shall be convertible, at the option of the
holder thereof and without the payment of additional consideration by the holder
thereof, at any time, into the number of shares of Common Stock determined by
dividing the Liquidation Value by the Conversion Price (as hereinafter defined)
in effect on the Optional Conversion Date (as hereinafter defined). Promptly
after any such conversion, the Company shall pay the holders of the shares of
Series A Preferred Stock so converted all accrued but unpaid dividends as of
the Optional Conversion Date. Until the initial Conversion Price is adjusted
in accordance with the terms of section 5(g) below, the number of shares of
Common Stock issuable upon conversion of the 5,000 shares of Series A
Preferred Stock is 425,775 shares.
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(b) MANDATORY CONVERSION. Upon the closing of a Qualified
Initial Public Offering or on such date on which a Qualified Initial Public
Offering shall be deemed to have occurred in accordance with the definition
thereof (the date of such closing or such deemed occurrence, the "Mandatory
Conversion Date"), each share of Series A Preferred Stock outstanding shall
be automatically converted, without any action on the part of any person or
entity, and without the payment of additional consideration by the holder
thereof, into the number of shares of Common Stock determined by dividing the
Liquidation Value by the Conversion Price in effect on the date of such
closing or deemed occurence. Promptly after any such conversion, the Company
shall pay the holders of the shares of Series A Preferred Stock so converted
all accrued but unpaid dividends as of the Mandatory Conversion Date. Until
the initial Conversion Price is adjusted in accordance with the terms of
section 5(g) below, the number of shares of Common Stock issuable upon
conversion of the 5,000 shares of Series A Preferred Stock is 425,775 shares.
(c) MECHANICS OF OPTIONAL CONVERSION. Holders of Series A
Preferred Stock may exercise their optional conversion right in accordance
with section 6(a) by telecopying an executed and completed notice of
conversion in the form annexed hereto as EXHIBIT A (the "Notice of
Conversion") to the Company and delivering the original Notice of Conversion
and the certificate representing the Series A Preferred Stock by express
courier. Each business day on which a Notice of Conversion is telecopied to
and received by the Company along with a copy of the originally executed
Series A Preferred Stock certificates in accordance with the provisions
hereof shall be deemed an "Optional Conversion Date". The Company will
transmit, or instruct its transfer agent to transmit, the certificates
representing shares of Common Stock issuable upon conversion of any shares of
Series A Preferred Stock outstanding (together with the certificates
representing the Series A Preferred Stock not so converted) to the holder
thereof via express courier, by electronic transfer or otherwise, within
three (3) business days after the Optional Conversion Date PROVIDED the
Company has received the original Notice of Conversion and Series A Preferred
Stock certificate being so converted on the Conversion Date. In addition to
any other remedies which may be available to the holders of shares of Series
A Preferred Stock, in the event that the Company fails to deliver, or has
failed to contact its transfer agent within two (2) business days to deliver,
such shares of Common Stock within such three (3) business day period, then,
at any time prior to the delivery of such shares of Common Stock by or on
behalf of the Company the holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion. The Notice of Conversion and Series A Preferred Stock
certificates representing the portion of the Series A Preferred Stock
converted shall be delivered as follows:
To the Company: RTS Wireless, Inc.
51 East Bethpage Road
Plainview, New York 11803
Attn: Mr. Alvin L. Ring, Chief Executive Officer
Facsimile: 516-939-6189
(d) NO FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip shall be issued upon conversion of Series A Preferred Stock. In lieu of
any fractional share to which the holder would be entitled but for the
provisions of this section 5(d), based on the full number of Series A Preferred
Stock held by such holder,
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the Company shall pay cash in an amount equal to the same fraction of the
Conversion Price of one share of Common Stock.
(e) RESERVATION OF STOCK. The Company shall, at all times when any
Series A Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all shares of
Series A Preferred Stock outstanding.
(f) RIGHTS. All shares of Series A Preferred Stock outstanding to
be converted pursuant to the Notice of Conversion or pursuant to a mandatory
conversion shall, on the Optional Conversion Date or the Mandatory Conversion
Date, as applicable, be converted into Common Stock for all purposes,
notwithstanding the failure of the holder thereof to surrender any certificate
representing such shares on or prior to such date. On and after the Optional
Conversion Date or Mandatory Conversion Date, as applicable, (i) no such shares
of Series A Preferred Stock shall be deemed to be outstanding or be transferable
on the books of the Company or the stock transfer agent, if any, for the Series
A Preferred Stock, and (ii) the holder of such shares, as such, shall not be
entitled to receive notices or to vote such shares or to exercise or to enjoy
any other powers, preferences or rights thereof, other than the right, upon
surrender of the certificate or certificates representing such shares, to
receive a certificate or certificates for the number of shares of Common Stock
into which such shares have been converted. On the Optional Conversion Date or
the Mandatory Conversion Date, as applicable, all such shares shall be retired
and canceled and shall not be reissued.
(g) CONVERSION PRICE; ADJUSTMENTS. The Conversion Price shall be
$12.46, provided that (subject to section 5(g)(ii) below) such amount shall be
subject to adjustment in the manner hereinafter set forth in section 5(g)(i).
(i) SALE OF SECURITIES BELOW CONVERSION PRICE. If at any
time after March ___, 2000 (the "Closing Date") the Company shall issue any
shares of Common Stock, Convertible Securities (as hereinafter defined), Rights
(as hereinafter defined) or Related Rights (as hereinafter defined) (for
purposes hereof, collectively, "Securities") without consideration or for a
consideration per share or unit less than the Conversion Price in effect
immediately prior to the issuance of such Securities, then the Conversion Price
in effect immediately prior to each such issuance shall (subject to
section 5(g)(ii) below) forthwith be reduced to the quotient obtained by
dividing:
(A) an amount equal to the sum of (1) the number of
fully diluted outstanding shares of Common Stock (as defined hereinafter)
immediately prior to such issuance of Securities (without giving effect to such
issuance) multiplied by the Conversion Price in effect immediately prior to such
issuance, and (2) the amount of consideration, if any, received by the Company
upon such issuance, by
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(B) the total number of fully diluted outstanding
shares of Common Stock immediately after such issuance of Securities, including
the number of shares of Common Stock (1) into or for which any such newly issued
Convertible Securities are then convertible or exchangeable and (2) issuable
upon the exercise of any such Rights or Convertible Securities underlying the
Related Rights.
Upon issuance of shares of Common Stock upon conversion of Series A Preferred
Stock, no further adjustments shall be made.
(ii) CERTAIN TRANSACTIONS FOR WHICH NO ADJUSTMENT WILL BE
MADE TO CONVERSION PRICE. Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment with respect to the
Conversion Price or otherwise relating to the number of shares of Common Stock
into which shares of Series A Preferred Stock are convertible as a result of (a)
the issuance of shares of Common Stock upon the exercise of options to
employees, officers, directors and consultants pursuant to any stock options
outstanding on March 8, 2000 (the "Existing Options") or upon the grant or
exercise any additional stock options granted to employees, officers, directors
and consultants of the Company after March 8, 2000 granting such optionees
rights to purchase additional shares of Common Stock (the "Additional Options")
in amounts, together with the Exisiting Options, not exceeding 1,500,000 shares
of Common Stock; or (b) the issuance of shares of Common Stock in connection
with bona fide equipment lease financings, licensing agreements, research and
development transactions, acquisitions of businesses or technology, or similar
transactions.
(iii) CERTAIN DEFINITIONS AND PROCEDURES. For the purpose of
this section 6, the following definitions and procedures shall be applicable:
(A) RIGHTS. In the case of the issuance of options,
warrants or other rights to purchase or otherwise acquire Common Stock, whether
or not at the time exercisable (for purposes hereof, collectively, "Rights"),
the total number of shares of Common Stock issuable upon exercise of such Rights
shall be deemed to have been issued at the time such Rights are issued, for a
consideration equal to the sum of the consideration, if any, received by the
Company upon the issuance of such Rights and the minimum purchase or exercise
price payable upon the exercise of such Rights for the Common Stock to be issued
upon the exercise thereof, which minimum purchase or exercise price shall be the
price payable as of the date of the adjustment pursuant to this section 6.
(B) CONVERTIBLE SECURITIES AND RELATED RIGHTS. In the
case of the issuance of any class or series of stock or any bonds, debentures,
notes or other securities or obligations convertible into or exchangeable for
Common Stock,
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whether or not then convertible or exchangeable (for purposes hereof,
collectively, "Convertible Securities"), or options, warrants or other rights to
purchase or otherwise acquire Convertible Securities (for purposes hereof,
collectively, "Related Rights"), the total number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities or of
Convertible Securities underlying such Related Rights shall be deemed to have
been issued at the time such Convertible Securities or Related Rights are
issued, for a consideration equal to the sum of (I) the consideration, if any,
received by the Company upon issuance of such Convertible Securities or Related
Rights (excluding any cash received on account of accrued interest or dividends)
and (II) (1) in the case of Convertible Securities, the minimum additional
consideration, if any, to be received by the Company upon the conversion or
exchange of such Convertible Securities or (2) in the case of Related Rights,
the sum of (x) the minimum purchase or exercise price payable upon the exercise
of such Related Rights for Convertible Securities and (y) the minimum additional
consideration, if any, to be received by the Company upon the conversion or
exchange of the Convertible Securities issuable upon the exercise of such
Related Rights.
(C) CHANGES. On any change in the number of shares of
Common Stock issuable upon the exercise of Rights or Convertible Securities
underlying the Related Rights or upon the conversion or exchange of Convertible
Securities or on any change in the minimum purchase or exercise price of Rights,
Related Rights or Convertible Securities, including, but not limited to, a
change resulting from the anti-dilution provisions of such Rights, Related
Rights or Convertible Securities, the Conversion Price to the extent in any way
affected by such Rights, Related Rights or Convertible Securities shall
forthwith be readjusted to be thereafter the Conversion Price that would have
been obtained had the adjustment, if any, which was made upon the issuance of
such Rights, Related Rights or Convertible Securities been made after giving
effect to such change. No further adjustment shall be made in respect of such
change upon the actual issuance of Common Stock or any payment of consideration
upon the exercise of any such Rights or Convertible Securities underlying the
Related Rights or the conversion or exchange of such Convertible Securities.
(D) EXPIRATION OR CANCELLATION. On the expiration or
cancellation of any such Rights, Related Rights or Convertible Securities, if
the Conversion Price shall have been adjusted upon the issuance thereof, the
Conversion Price shall forthwith be readjusted to such Conversion Price as would
have been obtained had the adjustment made upon the issuance of such Rights,
Related Rights or Convertible Securities been made upon the basis of the
issuance of only the number of shares of Common Stock actually issued upon the
exercise of such Rights or Related Rights or the conversion or exchange of such
Convertible Securities.
(E) CASH. In the case of the issuance of such
Securities for cash, the amount of consideration received by the Company shall
be
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deemed to be the amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses paid or incurred by the Company for any
underwriting or otherwise in connection with the issuance and sale thereof.
(F) QUALIFIED INITIAL PUBLIC OFFERING. "Qualified
Initial Public Offering" means a public offering of Common Stock pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, that (a) has (X) a public offering price that, (Y) when mulitplied
by the sum of the number of shares of Common Stock outstanding after such
offering and the number of shares of Common Stock issuable pursuant to all
outstanding options, warrants or other securities then outstanding (including
shares issuable pursuant to any underwriter's over-allotment option and any
options outstanding under any stock option plan or program of the Company);
(Z) results in a product of not less than $350,000,000 and (b) is
underwritten by one or more nationally recognized investment banking firms or
a syndicate managed or co-managed by one or more nationally recognized
investment banking firms that results in (i) the Company receiving at least
$25 million in gross proceeds and (ii) the Common Stock being traded on the
New York Stock Exchange or the Nasdaq National Market; PROVIDED, HOWEVER,
that, if the Company's initial public offering does not qualify as a
Qualified Initial Public Offering then a Qualified Initial Public Offering
shall be deemed to have occurred on the last day of the first period of 20
consecutive trading days on which the Common Stock is traded on the New York
Stock Exchange or the Nasdaq National Market that occurs after the Company's
initial public offering on which the last trade in the Common Stock occurred
at (I) a price that, (II) when multiplied by the sum of the number of shares
of Common Stock outstanding on such day and the number of shares of Common
Stock issuable pursuant to all outstanding options, warrants or other
securities then outstanding (including shares issuable pursuant to any
underwriter's over-allotment option and any options outstanding under any stock
option plan or program of the Company), (III) results in a product of not less
than $450,000,000.
(G) FULLY DILUTED. The "fully diluted outstanding
shares of Common Stock" shall mean, at any time, the sum of the number of shares
of Common Stock then outstanding and the number of shares of Common Stock
issuable pursuant to any outstanding options, warrants or other securities but
only to the extent such options, warrants or other securities are then, or will
by their terms within 180 days become, exercisable, convertible or exchangeable
for shares of Common Stock.
(h) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER,
SALE, ETC. In case the Company shall effect a capital reorganization or
reclassification of its capital stock or any consolidation or merger of the
Company with another corporation, or the sale of all or substantially all of its
assets to another corporation in such a way (including, without limitation, by
way of consolidation or merger) that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for Common
Stock (collectively for purposes of this section 5(h), a "Covered Event"), then
as a condition of such Covered Event, lawful and adequate provision shall be
made whereby each share of Series A Preferred Stock outstanding shall, after
such Covered Event (but subject to the applicable provisions of section 4
hereof), be convertible into the kind and number of shares of stock or other
securities or property of the Company or of the corporation resulting from such
Covered Event, or to which assets shall have been sold in such Covered Event, to
which the holders of Series A Preferred Stock would have been entitled if they
had held the Common Stock issuable upon the conversion of such Series A
Preferred Stock on the record date, or, if none, immediately prior to such
Covered Event, at the Conversion Price in effect on such date. The provisions of
this section 5(h) shall similarly apply to successive Covered Events.
(i) STOCK DIVIDENDS, SPLITS, COMBINATIONS AND
RECLASSIFICATIONS. If the Company shall (i) declare a dividend or other
distribution
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payable in securities, (ii) split its outstanding shares of Common Stock into a
larger number, (iii) combine its outstanding shares of Common Stock into a
smaller number, or (iv) increase or decrease the number of shares of its capital
stock in a reclassification of the Common Stock (including any such
reclassification in connection with a merger, consolidation or other business
combination in which the Company is the continuing entity), then the Conversion
Price in effect immediately prior to such dividend or other distribution, split,
combination or reclassification, as the case may be, shall forthwith be
proportionally adjusted so that each holder of Series A Preferred Stock shall be
entitled to receive the number of shares of Common Stock which such holder would
have owned or been entitled to receive had such Series A Preferred Stock been
converted immediately prior to the record date for such dividend or other
distribution, split, combination or reclassification. Successive adjustments to
the Conversion Price shall be made upon each such dividend or other
distribution, split, combination or reclassification. Appropriate adjustment of
each other per share number stated herein shall aslo be made in the case of any
such dividend or other distribution, split, combination or reclassification.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to section
5(g), the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause its principal
financial officer to verify such computation and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and setting forth in reasonable detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written request
at any time of any holder of Series A Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Conversion Price in effect at such time for the
shares of Series A Preferred Stock outstanding; and (iii) the number of shares
of Common Stock and the amount, if any, of other property that at such time
would be received upon the conversion of the shares of Series A Preferred Stock
outstanding.
(k) NOTICES OF RECORD DATE. In the event (i) any record date
is fixed for the purpose of determining the holders of any class or series of
stock or other securities who are entitled to receive any distribution or (ii)
of any recapitalization or reorganization of the capital stock of the Company,
any merger or consolidation of the Company, or any sale, exchange or other
disposition of all or substantially all the assets of the Company or any
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the Company shall mail to each holder of Series A Preferred Stock at least
thirty (30) days prior to the record date set forth therein a notice setting
forth: (i) such record date and a description of such distribution; (ii) the
date on which any such recapitalization, reorganization, merger, consolidation,
disposition, dissolution, liquidation or winding up is expected to become
effective; and (iii) the time, if any is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or
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other property deliverable upon such recapitalization, reorganization, merger,
consolidation, disposition, dissolution, liquidation or winding up.
(l) ISSUE TAXES. The Company shall pay any and all issue and
other non-income taxes that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of any shares of Series A Preferred
Stock.
(m) MINIMUM ADJUSTMENT; NO INCREASE. No adjustment of the
Conversion Price shall be made in an amount less than one cent, provided that
any adjustment which is not made by reason of this section 5(m) shall be carried
forward and shall be taken into account in any subsequent adjustment. Except to
the limited extent provided for in sections 5(g)(ii)(C), 5(g)(ii)(D), 5(h) or
5(i), no adjustments of the Conversion Price in accordance with section 5 shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(n) CERTAIN ADJUSTMENTS. Notwithstanding the foregoing, if
the shares of Series A Preferred Stock have not been converted in accordance
with sections 5(a) or 5(b) prior to January 1, 2001 and the Company does not
earn revenues of at least $20 million in the calendar year 2000, then the
Conversion Price shall be adjusted to $9.79.
6. VOTING; PROTECTIVE PROVISIONS.
(a) Except as otherwise provided herein or as required by
applicable law, the holders of Series A Preferred Stock shall be entitled to
vote on all matters on which the holders of Common Stock shall be entitled to
vote, in the same manner and with the same effect as the holders of Common
Stock, voting together with the holders of Common Stock as a single class. For
this purpose, the holders of Series A Preferred Stock shall be given notice of
any meeting of stockholders as to which the holders of Common Stock are given
notice in accordance with the bylaws of the Company. As to any matter on which
the holders of Series A Preferred Stock shall be entitled to vote, each holder
of Series A Preferred Stock shall have a number of votes per share of Series A
Preferred Stock held of record by such holder on the record date for the meeting
of stockholders, if such matter is subject to a vote at a meeting of
stockholders, or on the effective date of any written consent, if such matter is
subject to a written consent of the stockholders without a meeting of
stockholders, equal to the number of shares of Common Stock into which such
share of Series A Preferred Stock is convertible on such record date or
effective date, as the case may be, in accordance with section 5.
(b) The consent of the holders of at least a majority (or
such greater number as may then be required by law) of all the shares of
Series A Preferred Stock at the time outstanding, given in person or by proxy,
by a vote at a meeting called
-10-
<PAGE>
for the purpose at which the holders of shares of Series A Preferred Stock shall
vote together as a separate class, or by written consent in lieu thereof, shall
be necessary for authorizing, effecting or validating:
(i) any action that alters in any manner the
designations, powers, rights, preferences or privileges of, or the
qualifications, limitations or restrictions of, the Series A Preferred Stock;
(ii) any amendment to or waiver of any provisions of
the Certificate of Incorporation or By-laws of the Company relating to, or that
would adversely affect the Series A Preferred Stock;
(iii) the authorization or issuance of any class or
series of stock ranking senior to or on a parity with the Series A Preferred
Stock;
(iv) any transaction between the Company and any
person (the "Subject Person") that controls, is controlled by or is under
common control with the Subject Person (and for this purpose, "control" means
the power to control the management and policies of the Controlled person
whether by ownership of voting securities, contract or otherwise), other than
(I) any transaction disclosed in writing to the initial holder of the Series
A Preferred Stock in the Company Disclosure Schedule to the Securities
Purchase Agreement pursuant to which such initial investor purchased its
shares of Series A Preferred Stock, (II) any transaction between the Company
and its stockholders generally, (III) transactions relating to the employment
of executives of the Company (including employment and indemnification
agreements for executives reflecting terms and conditions customary for
executives of similarly situated companies), (IV) indemnification agreements
for directors and (V) compensation of independent directors and reimbursement
of expenses of directors incurred in attending board meetings and (VI) any
transaction with or involving the initial holder of Series A Preferred Stock
or any of its affiliates;
(v) the payment of dividends or other distributions
on, or redemptions of, any equity securities of the Company;
(vi) any transaction that will result in the
holders of the securities of the Company entitled to vote in the election of
directors immediately prior to such transaction having the right to elect
fewer than one-half of the directors of the Company or other resulting entity
immediately after the transaction; or
(vii) any material change in the nature of the
Company's business.
7. CANCELLATION OF DESIGNATED SHARES. Upon payment of the
liquidation preference with respect to any oustanding share of Series A
Preferred Stock pursuant to section 4 or upon conversion of any outstanding
share of Series A Preferred Stock pursuant to section 5, as applicable, such
share shall be automatically cancelled and shall no longer be designated as a
share of Series A Preferred Stock and shall thereafter be available for
issuance as an undesignated share of the Company's Preferred Stock until
designated in accordance with the Certificate of Incorporation and applicable
law.
IN WITNESS WHEREOF, the Company has caused this certificate of
designation to be signed by its President this 29 day of March 2000.
RTS WIRELESS, INC.
By: /s/ Alvin L. Ring
-------------------------------
Name: Alvin L. Ring
Title: President
-11-
<PAGE>
EXHIBIT A
[To Certificate of Designation]
NOTICE OF CONVERSION
(To Be Executed By The Registered Holder
In Order To Convert Shares Of Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
the Series A Preferred Stock (the "Series A Preferred Stock") of RTS Wireless,
Inc., a Delaware corporation (the "Company"), into shares of the common stock of
the Company in accordance with the terms and conditions set forth in the
Certificate of Designation relating to the Series A Preferred Stock.
----------------------------------
Signature
----------------------------------
----------------------------------
Address
Date:_____________ __, _______.
<PAGE>
Exhibit 10.2
Employment agreement between RTS Wireless (the "Company") and Michael T.
Druckman (the "Employee") dated as of December 23, 1999:
Effective date: December 23, 1999
Title: Vice President, Finance and Chief Financial Officer
Term: 3 years
Salary: $150,000 to start, increasing to $200,000 upon effectiveness of
Company's proposed Initial Public Offering. Thereafter annual salary increases
and bonuses at the discretion of the Board of Directors.
Benefits: Medical, disability and other benefits generally available to other
senior officers of the Company. Automobile reimbursement - $750 per month
towards payment of car lease, $2,000 per year insurance and repairs and
maintenance.
Severance: 6 months unless terminated for cause, in which case severance to be
zero.
Vacation: 4 weeks with carryforward of any unused time. In the event of
termination, all unused vacation time to be paid in cash.
Stock options: 75,000 at option price of $.50 per share with all options
immediately exercisable (such number of options to be adjusted for all
subsequent stock splits and similar changes to capitalization). In the event of
IRS audit of Employee resulting in taxable income to Employee and corresponding
tax deduction for the Company, Company will remit such benefit derived from tax
deduction to Employee necessary to compensate Employee for any incremental taxes
owed.
T&E: Reimbursement of all properly documented reasonable and customary T&E,
including cell phone and other expenses incurred at home necessary for carrying
out Employee's duties.
Agreed to by:
/s/ Michael T. Druckman /s/ Alvin L. Ring
- ----------------------------------- ----------------------------------------
Michael T. Druckman Alvin L. Ring
Employee President & CEO
RTS Wireless
<PAGE>
Exhibit 10.3
Contract of Sale and License Agreement
This Contract of Sale and License Agreement ("Agreement") is made 10/19/99,
between Real Time Strategies, Inc. d/b/a RTS Wireless, a New York Corporation
with offices at 51 East Bethpage Road, Plainview, New York 11803 ("RTS") and
America Online, Inc. ("AOL"), a Delaware corporation, with offices at 22000 AOL
Way, Dulles, Virginia 20166.
1. Definitions. Capitalized terms used in this Agreement shall be defined as set
forth in this Section 1 or as expressly set forth elsewhere in this Agreement.
a. "Acceptance" shall mean the earlier of (i) when AOL determines to its
reasonable satisfaction that the Goods are installed and materially
conform to the product standards specified in Section 2, and (ii) when AOL
makes commercial use of the Goods; provided, however, that use of the
Goods for internal and beta testing purposes shall not be considered
"commercial use."
b. "Affiliates" shall mean an agent, distributor, or franchisee of AOL, or
an entity in which AOL owns, directly or indirectly, at least a nineteen
percent (19%) equity interest.
c. "Annual Support Plan" shall mean the RTS Wireless Customer Care Program
Support Plan Agreement between the parties executed herewith.
d. "Goods" shall mean the Hardware and Software.
e. "Hardware" shall mean the server equipment as set forth in Appendices A
and B.
f. [DELETION]
g. "Software" shall mean the RTS Software and the Third Party Software.
h. "Third Party Software" shall mean the third party software sublicensed
by RTS to AOL as set forth in Appendices A and B..
2. Deliverables. RTS shall provide AOL with the Goods and training relating
thereto, as follows:
a. Hardware. From time to time, AOL and its Affiliates may, in their sole
discretion, place one or more written orders for Hardware to RTS. RTS
agrees to sell such Hardware to AOL and its Affiliates in accordance with
the terms and conditions of this Agreement.
b. [DELETION]
c. Training. During the term of this Agreement, and provided that an
Annual Support Plan is in effect, RTS shall provide AOL (and/or its
designated contractors or Affiliates) with three (3) days of training per
year, at a time and location to be reasonably determined by AOL, about the
configuration, installation, maintenance and use of the Goods provided
under this Agreement. Such training shall be reasonably sufficient to
- ------------
Certain information included in this document has been deleted pursuant to a
request filed with the Securities and Exchange Commission to treat such
information as confidential under Rule 406 promulgated under the Securities
Act of 1933, as amended.
<PAGE>
permit AOL to properly configure, install, maintain and use the Software
with the Hardware and equivalent equipment. AOL shall reimburse RTS for
actual travel and living expenses reasonably incurred in connection with
such training, subject to AOL's prior written approval.
3. Installation. The initial installation of Goods shall consist of the
configuration and installation of Software for two Alerting Servers, two Voice
Servers and one Database Server Cluster, as set forth in Appendix B
(collectively, the "Initial Software"). For amounts payable under Section 5(c),
RTS shall configure and install the Initial Software on the Hardware or
equivalent equipment independently obtained by AOL, such that the installed
system conforms with the specifications and performance standards in RTS's
proposal and quotation set forth in Appendix B, and such other specifications
and testing standards as are mutually agreed upon by the parties. AOL shall
reimburse RTS for actual travel and living expenses reasonably incurred in
connection with installation services, subject to AOL's prior written approval.
Upon AOL's written request, RTS shall perform configuration and installation of
subsequent deliveries of Goods, in accordance with a fee schedule to be mutually
agreed upon by the parties.
4. Title/Risk of Loss. Goods shall be delivered F.O.B. Plainview, NY. All costs
associated with shipping which include but are not limited to freight, handling,
insurance, taxes and duties, will be prepaid by RTS and added to the invoice
amount. Unless specified on each order, shipments will be wherever possible via
FedEx economy service.
5. Payment. All payments hereunder shall be made to RTS Wireless, 51 East
Bethpage Road, Plainview, New York 11803.
a. Hardware and Third Party Software. Payment for Hardware and Third Party
Software shall be made in accordance with the prices listed in Appendix A
as follows:
(i) [DELETION] within thirty (30) days after contract execution by
both parties (for the initial order of Goods), and thirty (30) days
after placement of a written order by AOL (for subsequent orders of
Goods);
(ii) [DELETION] within thirty (30) days after (A) installation and
Acceptance of the Goods, if RTS is performing installation services;
provided, however, that in the event installation is delayed more
than ten (10) days after delivery of the Goods to AOL for reasons
entirely within AOL's reasonable control, then this payment shall be
made within forty (40) days after delivery; and (B) delivery of the
Goods, if RTS is not performing installation services.
b. RTS Software. Payment for RTS Software shall be as follows:
(i) [DELETION], payable within thirty (30) days after execution of
this Agreement by both parties;
(ii) [DELETION], payable within thirty (30) days after installation
by RTS and Acceptance by AOL of the Initial Software;
(iii) [DELETION], payable within thirty (30) days after [DELETION];
Page 2 of 9
<PAGE>
(iv) [DELETION], payable within thirty (30) days after [DELETION].
c. Installation. AOL shall pay [DELETION] within thirty (30) days after
installation by RTS of the Initial Cluster, as set forth in Section 2.
d. Support. AOL shall pay the first year of support fees under the Annual
Support Plan contemporaneously with payments due under Section 5(b)(ii).
If AOL should fail to make any payments in accordance with this Section 5, RTS
shall provide written notification to AOL of such late payment. If AOL does not
make payment to RTS within thirty (30) days following such notice, RTS at its
option may treat AOL's failure to pay as a material breach of this Agreement,
and may terminate this Agreement and/or seek legal remedies. Termination shall
not have any effect on AOL's existing rights to Hardware already purchased and
Software already licensed hereunder, which shall survive termination.
6. Delivery. Timeframe for delivery of Goods shall be as reasonably specified by
AOL after consultation with RTS. RTS shall use commercially reasonable efforts
to deliver the Software to AOL by electronic means, such as through an ftp site.
RTS is responsible for proper packaging so the Goods will arrive at the
destination without damage.
7. Payment of Taxes. AOL agrees to pay all taxes of every description, federal,
state, and municipal, that arise as a result of this sale, excluding income
taxes.
8. Warranties.
a. Performance. RTS warrants that all Goods shall be free of defects in
material and workmanship and shall conform to the details set forth in the
proposal and quotation which is attached to this agreement as Appendix B.
RTS will repair or replace any non-conforming Goods in accordance with the
Annual Support Plan. The limited warranty does not apply if the
non-conformity is due to alteration, neglect, misuse, or abuse by
customer; if repairs have been attempted by anyone other than RTS or a
party authorized by RTS; or if the non-conformity is caused by accident,
acts of God, or other causes beyond the reasonable control of RTS and its
licensors.
b. Year 2000. RTS warrants that without any requirement for any human
intervention whatsoever (i) the overall operation, functions and
performance of the Goods will be unaffected in any way by any date data,
date setting, date value, date input or other date related data and any
combination thereof (collectively with records using such data, the "Date
Data"), whether falling on, after or before September 9, 1999, December
31, 1999 or January 1, 2000 (collectively, the "Millennium Dates"); (ii)
the Goods will correctly and accurately store, define, merge, archive,
display, recognize, return, manage, extract, support, calculate, compare,
manipulate, sort, accept, sequence, present and conduct any other
operation or process on, any Date Data, will not abnormally end as a
result of Date Data, and will move backwards and forwards across Date Data
without error relating to or occasioned by Date Data; and (iii) the Goods
shall correctly accommodate same century and multi-century formulas in
data calculations, shall process two digit century Date Data in a manner
that correctly resolves any ambiguities as to
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<PAGE>
intended century date and shall correctly reflect each century in Date
Data values and Date Data interface values.
c. Authority and Rights. RTS represents and warrants that it has the
authority and all rights necessary to grant the rights and licenses and to
fulfill the obligations set forth in this Agreement. In the event of any
breach or threatened breach of the foregoing representation and warranty
with respect to the Goods, AOL's sole remedy shall be to require RTS to
either: i) procure, at RTS' expense, the right to use the Goods in
accordance with this Agreement, or ii) replace the Goods or any part
thereof that is in breach, such replacement to be with Goods of comparable
functionality that does not cause any breach. AOL represents and warrants
that it has the authority and power necessary to carry out its obligations
under this Agreement.
d. Disclaimer. RTS makes no warranties, expressed or implied, except as
specifically stated above. SUCH WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
e. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
ANY LOST PROFITS, OR ANY INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES OF
ANY NATURE, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
f. Indemnity. RTS agrees to defend, indemnify, hold harmless, and protect
AOL, its affiliates, successors, assignees, customers, and users from any
and all claims, demands, suits at law or equity, and all expenses
including attorney's fees, involving infringement or alleged infringement
of any patent, trademark, or copyright resulting from the purchase, use,
or sale of the Goods.
9. [DELETION]
10. Force Majeure. If performance of this Agreement or any obligation under this
Agreement is prevented, restricted, or interfered with by causes beyond either
party's reasonable control ("Force Majeure"), and if the party unable to carry
out its obligations gives the other party prompt written notice of such event,
then the obligations of the party invoking this provision shall be suspended to
the extent necessary by such event. The term Force Majeure shall include,
without limitation, acts of God, fire, explosion, vandalism, storm or other
similar occurrence, orders or acts of military or civil authority, or by
national emergencies, insurrections, riots, wars, supplier failures, shortages,
breach, or delays.
The excused party shall use reasonable efforts under the circumstances to avoid
or remove such causes of non-performance and shall proceed to perform with
reasonable dispatch whenever such causes are removed or ceased. An act or
omission shall be deemed within the reasonable control of a party if committed,
omitted, or caused by such party, or its employees, officers, agents, or
affiliates.
Page 4 of 9
<PAGE>
11. Dispute Resolution. In the event of any dispute or controversy arising out
of or relating to this Agreement, the parties agree to exercise their best
efforts to resolve the dispute as soon as possible. The parties shall, without
delay, continue to perform their respective obligations under this Agreement
which are not affected by the dispute. To invoke the dispute resolution process
set forth in this Section 11, the invoking party shall give to the other party
written notice of its decision to do so, including a description of the issues
subject to the dispute and a proposed resolution thereof. Designated
representatives of both parties shall attempt to resolve the dispute within five
(5) working days after such notice. If those designated representative cannot
resolve the dispute, the parties shall meet at a mutually agreeable location and
describe the dispute and their respective proposals for resolution to a senior
executive of AOL and the President of RTS, who shall act in good faith to
resolve the dispute.
12. Confidentiality. Both parties acknowledge that during the course of this
Agreement, each may obtain confidential information regarding the other party's
business. Such information shall be marked or otherwise identified to be
confidential at the time of the disclosure. Both parties agree to treat all such
information and the terms of this Agreement as confidential and to take all
reasonable precautions against disclosure of such information to unauthorized
third parties during and after the term of this Agreement. Upon request by a
disclosing party, all documents relating to the confidential information will be
returned to such disclosing party. The confidentiality obligations set forth in
this Agreement do not apply with respect to information that (i) was in the
receiving party's possession before receipt from the disclosing party; (ii) is
or becomes a matter of public knowledge through no fault of the receiving party;
(iii) is rightfully received by the receiving party from a third party without a
duty of confidentiality; (ii) is disclosed by the disclosing party to a third
party without a duty of confidentiality on the third party; (v) is independently
developed by the receiving party; (vi) is disclosed under compulsion of law,
except that the receiving party will disclose only such information as is
legally required and will use reasonable efforts to obtain confidential
treatment for any confidential information that is so disclosed; or (vii) is
disclosed by the receiving party with the disclosing party's prior written
approval.
13. Publicity. RTS shall not make any public statement or press announcement
concerning this Agreement or AOL without AOL's prior written consent.
14. Assignment. Neither party shall assign or subcontract its rights and duties
under this Agreement without the prior written consent of the other party, given
that consent will not be unreasonably withheld.
15. Entire Agreement. This Agreement, including Appendices A and B and the
Annual Support Plan, contains the entire agreement of the parties with respect
to the subject matter contained herein, and there are no other promises or
conditions in any other agreement whether oral or written. This Agreement
supersedes any prior written or oral agreements between the parties.
16. Amendment. This Agreement may be modified or amended if the amendment is
made in writing and is signed by both parties.
Page 5 of 9
<PAGE>
17. Severability. If any provision of this Agreement shall be held to be invalid
or unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Agreement is
invalid or unenforceable, then such provision shall be replaced with a valid
provision that most closely approximates the economic effect and intent of the
invalid provision, and the Agreement shall be deemed to be written, construed,
and enforced as so limited.
18. Waiver of Contractual Right. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or limitation of
that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
19. Applicable Law. This Agreement shall be governed by the laws of the State of
New York, without reference to its conflicts of laws provisions.
Real Time Strategies, Inc. d/b/a RTS Wireless
By: /s/ Spencer Kravita
---------------------------------------------------
Title: Executive Vice President and Chief Financial Officer
America Online, Inc.
By: /s/ David Colbwin
---------------------------------------------------
Title: President, Business Affairs
Page 6 of 9
<PAGE>
Appendix A
----------
[DELETION]
<PAGE>
Appendix B
----------
[DELETION]
<PAGE>
Exhibit 10.4
Confidential
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement") entered into as of
March 28, 2000, by and between RTS Wireless, Inc., a Delaware corporation
(the "Company"), and America Online, Inc., a Delaware corporation (the
"Purchaser"). Certain capitalized terms used in this Agreement are defined
in Exhibit A attached hereto.
Recitals
The Company is a developer, manufacturer and provider of software that
enables Internet- and corporate intranet-based information content and services
to be delivered to wireless devices (the "Business").
The Company desires to raise capital to finance its business operations
and in furtherance thereof desires to issue and sell to the Purchaser the
securities specified herein, and the Purchaser is willing to acquire such
securities, all on the terms and subject to the conditions set forth in this
Agreement.
Agreement
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. Authorization and Sale of the Preferred Shares.
1.1 Authorization. The Company has authorized the issuance and sale
pursuant to the terms and conditions hereof of 5,000 shares (the "Preferred
Shares") of its Series A Preferred Stock, par value $.01 per share (the "Series
A Preferred Stock"), having the rights, restrictions, privileges and preferences
set forth in the Certificate of Designation attached hereto as Exhibit B (the
"Certificate of Designation").
1.2 Issuance and Sale. On the terms and subject to the conditions
hereof, at the Closing, the Company will issue and sell to the Purchaser, and
the
<PAGE>
Purchaser will purchase from the Company, the Preferred Shares, at a purchase
price of $1,000.00 per share, or an aggregate purchase price of $5,000,000 (the
"Purchase Price").
1.3 Stockholder Rights. The Purchaser shall have the rights
specified in the Investors Rights Agreement attached as Exhibit C hereto.
2. Closing.
2.1 Closing. The closing (the "Closing") of the sale and purchase of
the Preferred Shares under this Agreement shall take place at the offices of
Arnold & Porter, 555 Twelfth Street, N.W., Washington DC at 10:00 a.m. on
March 28, 2000 or at such other time, date and place as are mutually agreeable
to the Company and the Purchaser. The date of the Closing is hereinafter
referred to as the "Closing Date."
2.2 Deliveries. At the Closing, the Company will deliver to the
Purchaser certificates registered in the Purchaser's name representing the
aggregate number of Preferred Shares issued and sold by the Company to the
Purchaser, as determined pursuant to Section 1.2 above, and the Purchaser will
deliver to the Company the Purchase Price by wire transfer thereof to the
Company Account. The parties shall also deliver all documents required to be
delivered at the Closing pursuant to Section 2.3 hereof.
2.3 Conditions to Closing.
(a) Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to purchase Preferred Shares at the Closing are
subject to the fulfillment on or prior to the Closing Date of the following
conditions, any of which may be waived by the Purchaser:
(i) Representations and Warranties Correct; Performance
of Obligations. The representations and warranties made by the Company in
Section 3 hereof shall have been true and correct in all material respects when
made, and shall be true and correct in all material respects on the Closing Date
with the same force and effect as if they had been made on and as of such date,
and the Company shall have performed all obligations, covenants and agreements
herein required to be performed by it on or prior to the Closing.
(ii) Consents and Waivers. The Company shall have
obtained any and all consents (including all governmental or regulatory
consents, approvals or authorizations required in connection with the valid
execution, delivery and performance of this Agreement and the Related
Agreements), permits and waivers necessary or appropriate for consummation of
the transactions contemplated by this Agreement or any Related Agreement.
(iii) Related Agreements. Each of the Related Agreements
shall have been executed and delivered by the Company.
2
<PAGE>
(iv) Certificate of Designation. The Certificate of
Designation shall have been filed with the Delaware Secretary of State and a
certified copy thereof shall have been delivered to the Purchaser.
(v) Compliance Certificate. The Company shall have
delivered to the Purchaser a certificate, executed by the President and Chief
Financial Officer of the Company, dated as of the Closing Date, certifying the
fulfillment of the conditions specified in subsections (a)(i) and (ii) of this
Section 2.3.
(vi) Secretary's Certificate. The Company shall have
delivered to the Purchaser a certificate, executed by the Secretary of the
Company, dated as of the Closing Date, certifying the authenticity of attached
copies of the Certificate of Designation, the Company's Certificate of
Incorporation, the Company's Bylaws and resolutions of the Board of Directors of
the Company approving the transactions contemplated hereby.
(vii) Opinions of Company's Counsel. The Purchaser shall
have received from Parker Chapin LLP an opinion, dated the date of the Closing,
substantially in the form attached hereto as Exhibit D.
(viii) Other Documents. The Purchaser shall have
received such other certificates and documents as it shall have reasonably
requested.
(b) Conditions to Obligations of the Company. The Company's
obligation to issue and sell the Preferred Shares at the Closing is subject to
the fulfillment on or prior to the Closing Date of the following conditions, any
of which may be waived by the Company:
(i) Representations and Warranties. The representations
and warranties made by the Purchaser in Section 4 hereof shall have been true
and correct when made, and shall be true and correct on such Closing Date with
the same force and effect as if they had been made on and as of such date.
(ii) Related Agreements. Each of the Related Agreements
shall have been executed and delivered by the Purchaser.
3. Representations and Warranties Relating to the Company and its
Subsidiaries. Except as otherwise set forth in the Disclosure Schedule attached
hereto as Exhibit E (the "Company Disclosure Schedule"), the Company represents
and warrants to the Purchaser as set forth below. For purposes of this Section
3, "Company" shall mean the Company and all of its subsidiary and affiliated
corporations or business entities.
3.1 Organization and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company has full corporate power and authority to carry
on its business
3
<PAGE>
as now conducted and as it is proposed to be conducted, and is duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
nature of its business or properties makes such qualification or licensing
necessary, except where the failure to so qualify or be licensed would not have
a Material Adverse Effect. The Company is the successor by merger to Real Time
Strategies, Inc., a New York corporation (the "Predecessor"); the merger of the
Predecessor with and into the Company was effective on March 16, 2000.
References in any representation contained in this Section 3 to the Company and
its business and assets include, where appropriate, references to the
Predecessor and its business and assets as well as references to the business
and assets of the subsidiary referred to in Section 3.6 of the Company
Disclosure Schedule.
3.2 Capital Structure. As of the date hereof, the authorized capital
stock of the Company consists of the following shares, and all of the issued and
outstanding shares as hereinafter set forth have been duly authorized and
validly issued, are fully paid and nonassessable and have been offered, issued,
sold and delivered by the Company in compliance with all applicable federal and
state securities laws:
(a) Preferred Stock. There are a total of 1,000,000 authorized
shares of the Company's Preferred Stock, $.01 par value (the "Preferred Stock"),
of which 5,000 shares have been designated as Series A Preferred Stock. There
are no shares of Preferred Stock issued and outstanding prior to the
consummation of the transactions contemplated hereby.
(b) Common Stock. There are a total of 250,000,000 authorized
shares of the Company's common stock, par value $.01 per share ("Common Stock").
The issued and outstanding shares of Common Stock are as set forth on Section
3.2(b) of the Company Disclosure Schedule.
(c) Options, Warrants, Reserved Shares, Treasury Stock.
Section 3.2(c) of the Company Disclosure Schedule sets forth a list of options,
warrants, rights (including conversion or preemptive rights) and agreements for
the purchase or acquisition from the Company of any shares of the Company's
capital stock or any securities convertible into or ultimately exchangeable or
exercisable for any shares of the Company's capital stock, including any
obligation on the part of the Company in any manner to issue any shares of its
capital stock or other securities. Except as expressly set forth in Section
3.2(c) of the Company Disclosure Schedule, none of the Company's outstanding
capital stock, or stock issuable upon exercise or exchange of any outstanding
options, warrants or rights, is subject to any preemptive rights, rights of
first refusal or other rights to purchase such stock (whether in favor of the
Company or any other person), pursuant to any agreement or commitment of the
Company. The Company holds no shares of its capital stock in its treasury.
(d) Security Holders. Section 3.2(d) of the Company Disclosure
Schedule contains a complete and accurate list of the names of all current
stockholders of the Company and all current holders of outstanding warrants,
options, or other rights ultimately exchangeable, exercisable or convertible for
or into capital stock,
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segregated by the type of security held by each such holder and setting forth
the amount of such security held by such holder and, in the case of securities,
exchangeable, exercisable or convertible into Common Stock, the amount of Common
Stock into which such securities are exchangeable, exercisable or convertible.
3.3 Power, Authorization and Validity. The Company has the corporate
power, legal capacity and corporate authority to enter into and perform its
obligations under this Agreement and each of the Related Agreements. The
execution, delivery and performance by the Company of this Agreement and each of
the Related Agreements have been duly and validly approved and authorized by all
necessary corporate action on its part. No authorization, consent, or approval,
governmental or otherwise, is necessary to enable the Company to enter into this
Agreement or any of the Related Agreements and to perform its obligations
hereunder or thereunder. This Agreement is, and each of the Related Agreements
when executed and delivered by the Company will be, the valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
3.4 No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement or any Related Agreement nor the consummation of the
transactions or performance of the Company's obligations contemplated hereby or
thereby will conflict with, result in a material breach or violation of, or
cause a default under, any provision of the Company's Certificate of
Incorporation or Bylaws, each as is currently in effect, any instrument,
contract or agreement that is material to the business of the Company or any
judgment, writ, decree, order, law, statute, ordinance, rule or regulation
applicable to the Company.
3.5 Representations Regarding Preferred Shares and Conversion
Shares. All corporate action has been taken on the part of the Company, its
officers, directors and shareholders necessary for the authorization and
creation, issuance and delivery of the Preferred Shares and the Conversion
Shares. The Preferred Shares and the Conversion Shares when issued in compliance
with the provisions of this Agreement and the Certificate of Designation, will
be validly issued, fully paid and nonassessable and, assuming the accuracy of
each of the Purchaser's representations in Section 4 of this Agreement, issued
in compliance with all applicable federal and state securities laws. None of the
Preferred Shares issued pursuant to this Agreement, and none of the Conversion
Shares, are subject to any preemptive rights, rights of first refusal, or other
rights to purchase such stock (whether in favor of the Company or any other
person), pursuant to any agreement or commitment of the Company.
3.6 Subsidiary. Except as set forth in Section 3.6 of the Company
Disclosure Schedule, the Company does not own of record or beneficially any
capital stock or equity interest or investment in any corporation, association,
partnership, limited partnership, limited liability company, trust or other
entity.
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3.7 Financial Statements.
(a) The Company's unaudited consolidated balance sheets as of
the end of December 31, 1998 and 1999 and unaudited consolidated statements of
operations, unaudited consolidated statements of equity (deficit) and unaudited
consolidated statements of cash flows for the years ended December 31, 1997,
1998 and 1999, including the notes thereto (collectively the "Company Financial
Statements"), all of which are attached to the Company Disclosure Schedule, have
been prepared in all material respects in accordance with GAAP. The Company
Financial Statements have been prepared in accordance with the books and records
of the Company and present fairly in all material respects the financial
position, results of operations, equity transactions and cash flows of the
Company as of and for the periods ending on their dates in accordance with GAAP.
Except and to the extent reflected or reserved against in the Company Financial
Statements, the Company does not have, as of the dates of the Company Financial
Statements, any material liabilities or obligations (absolute or contingent) of
a nature required to be or customarily reflected in a balance sheet (or the
notes thereto) prepared in accordance with GAAP. The reserves, if any, reflected
on the Company Financial Statements are adequate in all material respects in
light of the contingencies with respect to which they are made.
(b) Except as may be disclosed in Section 3.8 of the Company
Disclosure Schedule, the Company has no material debts, liabilities or
obligations of any nature, whether accrued, absolute, contingent, or otherwise,
and whether due or to become due, that are not reflected or reserved against in
the Company Financial Statements.
3.8 Absence of Certain Changes and Events. Except as set forth in
Schedule 3.8 of the Company Disclosure Schedule, since December 31, 1999, the
Company has not:
(a) suffered any Material Adverse Change;
(b) suffered any damage, destruction or loss, whether or not
covered by insurance, in an amount in excess of $25,000;
(c) granted or agreed to make any increase in the compensation
payable or to become payable by the Company to any of its officers or employees,
except for normal raises for nonexecutive personnel made in the ordinary course
of business that are usual and normal in amount;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of capital stock of the Company or
declared or agreed to any direct or indirect redemption, retirement, purchase or
other acquisition by the Company of such shares;
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(e) issued any shares of capital stock of the Company or any
warrants, rights, options or entered into any commitment relating to the shares
of capital stock of the Company;
(f) made any material change in the accounting methods or
practices it follows, whether for general financial or tax purposes, or any
change in depreciation or amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property other than in
the ordinary course of its business;
(h) sold, assigned, transferred, licensed or otherwise
disposed of any patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark or copyright), invention, work of
authorship, process, know-how, formula or trade secret or interest thereunder or
other intangible asset except in the ordinary course of its business;
(i) been involved in any dispute involving any employee that
would reasonably be expected to result in a Material Adverse Change;
(j) entered into any commitment or transaction (including
without limitation any borrowing or capital expenditure) that requires the
Company to pay an aggregate amount in excess of $250,000;
(k) incurred any material liabilities, either contingent or
otherwise, matured or unmatured (whether or not required to be reflected in
financial statements in accordance with GAAP, and whether due or to become due),
except for accounts payable or accrued salaries that have been incurred by the
Company since the end of the last fiscal year, in the ordinary course of its
business and consistent with the Company's past practices;
(1) permitted or allowed any of its material property or
assets to be subjected to any mortgage, deed of trust, pledge, lien, security
interest or other encumbrance of any kind, except those permitted under Section
3.9 hereof, other than any purchase money security interests incurred in the
ordinary course of its business;
(m) made any capital expenditure or commitment for additions
to property, plant or equipment individually in excess of $50,000, or in the
aggregate in excess of $250,000;
(n) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets to, or entered into any agreement
or arrangement with any of its affiliates within the meaning of the rules and
regulations promulgated under the Securities Act of 1933 ("Affiliates"),
officers, directors or
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shareholders or, to the Company's knowledge, any Affiliate or associate of any
of the foregoing;
(o) made any amendment to or terminated any agreement that, if
not so amended or terminated, would be material to the business, assets,
liabilities, operations or financial performance of the Company;
(p) entered into any agreement in contemplation of the
transactions specified herein other than this Agreement and the Related
Agreements; or
(q) agreed to take any action described in this Section 3.8 or
outside of the ordinary course of its business or which would constitute a
breach of any of the representations or warranties contained in this Agreement.
3.9 Title to Property and Assets. Except as set forth in Section 3.9
of the Company Disclosure Schedule, the Company owns and possesses its
properties and assets that are material to its business free and clear of all
mortgages, deeds of trust, liens, encumbrances, security interests and claims
except as reflected in the Company Financial Statements and except for statutory
liens for the payment of current taxes that are not yet delinquent and liens,
encumbrances and security interests that arise in the ordinary course of its
business and do not affect material properties and assets of the Company. With
respect to the property and assets it leases that are material to its business,
the Company is in compliance with such leases in all material respects. The
Company holds valid leasehold interests to its material leased properties and
assets free of any liens, encumbrances or security interests of any party other
than the lessors of such property and assets. The Company's properties and
assets are in all material respects in good operating condition and repair.
3.10 Proprietary Assets.
(a) Section 3.10(a)(i) of the Company Disclosure Schedule sets
forth, with respect to each Proprietary Asset of the Company registered with or
issued by any Governmental Body or for which an application has been filed with
any Governmental Body, (i) a brief description of such Proprietary Asset, and
(ii) the names of the jurisdictions covered by the applicable registration or
application or in which the Proprietary Asset has been issued. Section
3.10(a)(ii) of the Company Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to the Company by any Person
(other than software licenses that are relating to unmodified commercial
computer software that is generally available in the ordinary course of
business), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Company. The Company has good and marketable
title to all material Proprietary Assets used in or necessary for its business
as currently conducted and as proposed to be conducted, free and clear of all
material liens and other encumbrances, except for third party rights licensed to
it, as to which the Company has a valid right to use such Proprietary Assets
(all of the foregoing are referred to herein as the "Company Proprietary
Rights"). The Company is not obligated to make any material
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payment to any Person for the use of any Proprietary Asset. The Company has not
developed jointly with any other Person any Proprietary Asset with respect to
which such other Person has any rights or the Company has any obligations.
(b) The Company has taken all reasonable measures and
precautions necessary to protect and maintain the confidentiality and secrecy of
all its Proprietary Assets (except trademarks, issued patents and other
Proprietary Assets similarly known to the public and Proprietary Assets whose
value would be materially unimpaired by public disclosure) and otherwise to
maintain and protect the value of all its Proprietary Assets.
(c) Except where such infringement, misappropriation or
unlawful use, would not and could not reasonably be expected to be material in
impact or amount, either individually or in the aggregate, the Company is not
infringing, misappropriating or making any unlawful use of, and the Company has
not at any time, infringed, misappropriated or made any unlawful use of, any
Proprietary Asset owned or used by any other Person. No claims or notices (in
writing or otherwise) with respect to Proprietary Assets have been communicated
to the Company: (i) to the effect that the manufacture, sale, license or use of
any Proprietary Asset or product, practice of any process or provision of any
service as now made, sold, practiced, used or provided or currently offered or
proposed by the Company infringes or potentially infringes, or constitutes a
misappropriation or unlawful use of any copyright, patent, trade secret or other
intellectual property right of a third party, or (ii) challenging the ownership
or validity of any of the Company's rights to or interest in such Proprietary
Assets. The Company has received no notice to the effect that any patents or
registered trademarks, service marks or registered copyrights held by the
Company are invalid or not subsisting except for failures to be valid and
subsisting that would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. To the Company's knowledge,
no other Person is infringing, misappropriating or making any unlawful use of,
and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Proprietary Asset used in or pertaining to the business of
the Company.
(d) The Company owns or has the right to use by license all
Proprietary Assets necessary, in the Company's reasonable judgment, to enable
the Company to conduct its business in the manner in which such business has
been and is being conducted. The Company has not licensed any of its Proprietary
Assets to any Person on an exclusive basis and the Company has not entered into
any covenant not to compete or contract limiting its ability to exploit fully
any of its Proprietary Assets or to transact business in any market or
geographical area or with any Person.
3.11 Contracts.
(a) Section 3.11(a) of the Company Disclosure Schedule
identifies each material license agreement, development agreement, manufacturing
agreement, distribution agreement or other agreement to which the Company is a
party.
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(b) Except as set forth in Section 3.11(b) of the Company
Disclosures Schedule:
(i) The Company has no agreements, contracts or
commitments that call for prospective fixed and/or contingent payments or
expenditures by or to the Company of more than $50,000 other than those entered
into in the ordinary course of its business concerning the sale of the Company's
products;
(ii) The Company has no purchase agreement, contract or
commitment that calls for fixed and/or contingent payments by the Company that
are in excess of the normal, ordinary and usual requirements of the Company's
business;
(iii) There is no outstanding sales contract, commitment
or proposal (including, without limitation, development projects) of the Company
that is reasonably likely to result, either individually or in the aggregate, in
any Material Adverse Change to the Company upon completion or performance
thereof;
(iv) The Company has no outstanding agreements,
contracts or commitments with officers, employees, agents, consultants,
advisors, salesmen, sales representatives, distributors or dealers that are not
cancelable by it on notice of not longer than thirty days and without liability,
penalty or premium exceeding $50,000 in any single instance or $75,000 in the
aggregate;
(v) The Company has not entered into any employment,
independent contractor or similar agreement, contract or commitment that is not
terminable on not more than thirty days' notice without penalty or liability of
any type, including without limitation severance or termination pay;
(vi) The Company has no collective bargaining or union
agreements, contracts or commitments;
(vii) The Company is not restricted by agreement from
competing with any person, from carrying on its business anywhere in the world
or otherwise operating its business in any manner it deems appropriate;
(viii) The Company has not guaranteed any obligations of
other Persons or made any agreements to acquire or guarantee any obligations of
other Persons; and
(ix) The Company has no outstanding loan or advance to
any Person; nor is it party to any line of credit, standby financing, revolving
credit or other similar financing arrangement of any sort that would permit the
borrowing by the Company of any sum not reflected in the Company Financial
Statements.
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(c) The Company has delivered to the Purchaser accurate and
complete copies of all written contracts identified in Section 3.11(a) and (b)
of the Company Disclosure Schedule, including all amendments thereto. Sections
3.11(a) and (b) of the Company Disclosure Schedule contain a complete list of
all the material contracts to which the Company is a party. The Company has not
entered into any material oral contracts. Each contract identified in Sections
3.11(a) and (b) of the Company Disclosure Schedule (a "Company Material
Contract") is valid and in full force and effect, is enforceable by the Company
in accordance with its terms, subject to (i) laws of general application
relating to insolvency and the relief of debtors and (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies, and will
continue to be so immediately following the Closing Date. No such contract,
agreement or instrument contains any liquidated damages, penalty or similar
provision. To the Company's knowledge, no party to any such contract, agreement
or instrument intends to cancel, withdraw, modify or amend such contract,
agreement or instrument.
(d) (i) The Company has not violated or breached, or committed
any default under, any Company Material Contract in any material respect, and,
to the Company's knowledge, no other Person has violated or breached, or
committed any default under, any Company Material Contract in any material
respect; and
(ii) to the Company's knowledge, no event has occurred,
and no circumstance or condition exists, that (with or without notice or lapse
of time) will, or could reasonably be expected to, (A) result in a material
violation or breach of any of the provisions of any Company Material Contract,
(B) give any Person the right to declare a default or exercise any remedy under
any Company Material Contract, (C) give any Person the right to accelerate the
maturity or performance of any Company Material Contract or (D) give any Person
the right to cancel, terminate or modify any Company Material Contract.
(e) None of the Company Material Contracts contains any
provision which would require the consent of third parties to the sale and
issuance of the Preferred Shares or any of the other transactions as
contemplated hereunder or under any of the Related Agreements or which would be
altered as a result of such transaction.
3.12 Registration Rights. Except as provided in the Investors Rights
Agreement, the Company has not granted or agreed to grant to any person or
entity any rights (including piggyback registration rights) to have any
securities of the Company registered with the U.S. Securities and Exchange
Commission or any other governmental authority.
3.13 Taxes.
(a) The Company has fully and timely, properly and accurately filed
all tax returns and reports required to be filed by it, including all federal,
foreign, state and local tax returns and estimates for all years and periods
(and portions thereof)
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for which any such returns, reports or estimates were due. All such returns,
reports and estimates were prepared in the manner required by applicable law in
all material respects. All income, sales, use, occupation, property or other
taxes or assessments due from the Company prior to the Closing Date have been
paid or will be paid on or before the Closing Date. There are no pending
assessments, asserted deficiencies or claims for additional taxes that have not
been paid. The reserves for taxes, if any, reflected on the Company Financial
Statements are adequate in all material respects, and there are no material tax
liens on any property or assets of the Company (other than liens for taxes not
yet due and payable). There have been no audits or examinations of any tax
returns or reports of the Company by any Governmental Body. No state of facts
exists or has existed which would constitute grounds for the assessment of any
penalty or any further tax liability in a material amount, either individually
or in the aggregate, beyond that shown on the respective tax reports, returns or
estimates. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any federal, foreign, state or
local tax return or report for any period.
(b) All material taxes that the Company has been required to
collect or withhold have been duly withheld or collected and, to the extent
required, have been paid to the proper taxing authority.
(c) The Company is not a party to any tax-sharing agreement or
similar arrangement with any other Person.
(d) At no time has the Company been included in the federal
consolidated income tax return of any affiliated group of corporations.
(e) The Company is not currently under any contractual
obligation to pay to any Governmental Body any tax obligations of, or with
respect to any transaction relating to, any other Person or to indemnify any
other Person with respect to any tax, other than pursuant to this Agreement.
3.14 Employees. The Company is not a party to any collective
bargaining agreements and, to its knowledge, there are no attempts to organize
the employees of the Company. Section 3.14 of the Company Disclosure Schedule
lists all material employee benefit plans and programs of the Company. Copies of
any of the foregoing plans, programs, contracts, arrangements or understandings
have been made available to the Purchaser or its counsel. To the knowledge of
the Company, no employee of the Company is subject to any judgment, decree or
order of any court or administrative agency, or any other restriction that would
materially interfere with the use of his or her best efforts to carry out his or
her duties for the Company or that would conflict with the Company's business as
currently conducted. The Company has received no written notice from any former
employer that an employee of the Company has prior obligations to a former
employer that would interfere or conflict with such employee's ability to
perform his or her intended services for the Company. To the Company's
knowledge, no employee or advisor of the Company is or is now expected to be in
violation of any term of any employment contract, disclosure agreement,
proprietary
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information and inventions agreement or any other contract or agreement or any
restrictive covenant or any other common law obligation to a former employer
relating to the right of any such employee to be employed by the Company because
of the nature of the business conducted or to be conducted by the Company or to
the use of trade secrets or proprietary information of others, and the
employment of the Company's employees does not subject the Company or the
Company's shareholders to any liability. There is neither pending nor, to the
Company's knowledge, threatened any actions, suits, proceedings or claims, or,
to its knowledge, any basis therefor or threat thereof with respect to any
contract, agreement, covenant or obligation referred to in the preceding
sentence.
3.15 Insurance. The Company maintains and keeps in force with good
and responsible insurance companies fire, public liability, property damage and
other insurance in such amounts and with such coverage or risks as are customary
for similar businesses and adequate to the needs of the Company. The Company
Disclosure Schedule sets forth a list of such insurance, stating the name and
address of the insurance provider and the amount of insurance. The Company has
not done anything, either by way of action or inaction, that would reasonably be
expected to invalidate any of its insurance policies as a whole or in part.
3.16 Compliance with Environmental Requirements. The Company has
obtained all material permits, licenses and other authorizations which are
required under federal, foreign, state and local laws applicable to the Company
and relating to pollution or protection of the environment, including laws or
provisions relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or wastes
into air, surface water, groundwater, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes. The Company is in material compliance with all
terms and conditions of the required permits, licenses and authorizations. The
Company is not aware of, nor has the Company received written notice of, any
conditions, circumstances, activities, practices, incidents, or actions which
might reasonably form the basis of a claim, action, suit, proceeding, hearing,
or investigation of, by, against or relating to the Company, based on or related
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic substance, material or waste.
3.17 Compliance With Corporate Instruments and Laws. The Company is
not in violation of any provisions of its Certificate of Incorporation or Bylaws
as currently in effect. The Company is in compliance in all material respects
with all applicable laws, statutes, rules, and regulations of all governmental
and regulatory authorities which are applicable and the compliance with which is
material to the Company or its assets or business. The Company has complied in
all material respects at all times with any and all applicable federal, state
and foreign laws, rules, regulations, proclamations and orders relating to the
importation or exportation of its products. All
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licenses, franchises, permits and other governmental authorizations held by the
Company and which are material to its business are valid and sufficient in all
respects for the business presently carried on by the Company.
3.18 Litigation. There is no suit, action, proceeding, claim or
investigation pending or, to the Company's knowledge, threatened against the
Company before any court or administrative agency which could have a Material
Adverse Effect or which questions or challenges the validity of this Agreement
or any Related Agreement. There is no judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency, instrumentality
or arbitrator outstanding against the Company.
3.19 Corporate Documents. The Company has furnished to the Purchaser
or its counsel for their examination true and complete copies of the following
documents: (i) copies of its Certificate of Incorporation and Bylaws, each as
currently in effect, (ii) minute books containing required records setting forth
proceedings, consents, actions, and meetings of its shareholders, board of
directors and any committees thereof, and (iii) all material permits, orders,
and consents issued by any regulatory agency with respect to the Company, or any
securities of the Company, and all applications for such permits, orders, and
consents. The corporate minute books, stock certificate books, stock registers
and other corporate records of the Company are complete and accurate in all
material respects, and the signatures appearing on all documents contained
therein are the true signatures of the persons purporting to have signed the
same. All actions reflected in such books and records were duly and validly
taken in compliance in all material respects with the laws of the applicable
jurisdiction.
3.20 No Brokers. Neither the Company nor, to the Company's
knowledge, any Company shareholder is obligated for the payment of fees or
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or any Related Agreement or in connection with any
transaction contemplated hereby or thereby.
3.21 Related Party Transactions.
(a) None of the Company's Affiliates, officers, directors,
shareholders or employees, or any Affiliate of any of such Person, has any
material interest in any property, real or personal, tangible or intangible,
including Proprietary Assets used in or pertaining to the business of the
Company, except for the normal rights of a stockholder, or, to the knowledge of
the Company, any supplier, distributor or customer of the Company.
(b) Except for this Agreement and the Related Agreements,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, employees, Affiliates, or, to the
Company's knowledge, any Affiliate thereof.
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(c) To the best of the Company's knowledge, no employee,
officer or director of the Company has 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 that
competes with the Company, except that employees, officers or directors of the
Company may own stock in publicly traded companies that may compete with the
Company. To the Company's knowledge, no member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
material contract with the Company.
3.22 Disclosure. The statements by the Company contained in this
Agreement, the exhibits hereto, and the certificates and documents required to
be delivered by the Company to the Purchaser under this Agreement, taken as a
whole, do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements contained herein and
therein not misleading in light of the circumstances under which such statements
were made.
3.23 Securities Act. Subject to the accuracy of the Purchaser's
representations in Section 4 hereof, the offer, sale and issuance of the
Preferred Shares in conformity with the terms of this Agreement and the issuance
of Conversion Shares upon conversion of the Preferred Shares constitute or will
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act of 1933, as amended, and the qualification or registration
requirements of any applicable state securities laws as such laws exist on the
date hereof.
4. Representations and Warranties of Purchaser and Restrictions on
Transfer Imposed by the Securities Act of 1933 and Applicable State Securities
Laws.
4.1 Representations and Warranties by The Purchaser. The Purchaser
represents and warrants to the Company as follows:
(a) The Preferred Shares and the Conversion Shares
(collectively, the "Securities") are being or will be acquired for the
Purchaser's own account, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"), or applicable
state securities laws.
(b) The Purchaser understands that (i) the Securities have not
been registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof and have not been qualified
under any state securities laws on the grounds that the offering and sale of
securities contemplated by this Agreement are exempt from registration
thereunder, and (ii) the Company's reliance on such exemptions is predicated on
the Purchaser's representations set forth herein. The Purchaser understands that
the resale of the Securities may be restricted indefinitely, unless a subsequent
disposition thereof is registered under the Securities Act and registered under
any state securities law or is exempt from such registration.
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(c) The Purchaser is an "Accredited Investor" as that term is
defined in Rule 501 of Regulation D promulgated under the Securities Act. The
Purchaser is able to bear the economic risk of the purchase of the Securities
pursuant to the terms of this Agreement, including a complete loss of the
Purchaser's investment in the Securities.
(d) The Purchaser has the full right, power and authority to
enter into and perform the Purchaser's obligations under this Agreement and each
Related Agreement, and this Agreement and each of the Related Agreements
constitute valid and binding obligations of the Purchaser enforceable in
accordance with their terms. The execution, delivery and performance by the
Purchaser of this Agreement and each of the Related Agreements have been duly
and validly approved and authorized by all necessary corporate action on its
part.
(e) No consent, approval or authorization of or designation,
declaration or filing with any Governmental Body on the part of the Purchaser is
required in connection with the valid execution and delivery of this Agreement
or any Related Agreement.
4.2 Legend. Each certificate representing the Securities may be
endorsed with the following legends:
(a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT.
THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED
EXCEPT (I) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT, OR (II) IN COMPLIANCE WITH RULE 144 OR (III) OTHERWISE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE ACT.
(b) Any other legends required by applicable securities laws.
The Company may instruct its transfer agent not to register the transfer of the
Securities, unless the conditions specified in the foregoing legends are
satisfied.
4.3 Removal of Legend and Transfer Restrictions.
Any legend endorsed on a certificate pursuant to Section
4.2(a) and the stop transfer instructions with respect to such Securities shall
be removed and the Company shall issue a certificate without such legend to the
holder thereof (a) if such Securities are registered under the Securities Act
and a prospectus meeting the requirements of Section 10 of the Securities Act is
available, (b) if such legend may be properly removed under the terms of Rule
144 promulgated under the Securities Act, or
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(c) if such holder provides the Company with an opinion of counsel for such
holder, reasonably satisfactory to legal counsel for the Company to the effect
that a sale, transfer or assignment of such Securities may be made without
registration.
5. Indemnity.
5.1. Indemnity.
(a) The Company hereby agrees to indemnify and defend and hold
harmless the Purchaser, its Affiliates, successors and assigns and each of their
respective officers, directors, employees and agents (the "Indemnified Parties")
from and against, and agrees to pay or cause to be paid to the Indemnified
Parties all amounts equal to the sum of, any and all claims, demands, costs,
expenses, losses and other liabilities of any kind (including without limitation
all reasonable legal fees and expenses) that the Indemnified Parties may incur
or suffer (collectively, "Damages") which arise or result from any breach of or
failure by the Company to perform any of its representations, warranties,
covenants or agreements in this Agreement or any Related Agreement. The rights
of the Purchaser hereunder shall be in addition to, and not in lieu of, any
other rights and remedies which may be available to it by law.
(b) Anything to the contrary notwithstanding, the Company
shall not be required to indemnify (whether such indemnification is pursuant to
this Section 5 or otherwise) any Indemnified Party for breaches of any
representation or warranty made in this agreement except to the extent that the
Damages suffered by the Indemnified Party as a result of such breach exceed
$50,000.
5.2 Procedures.
(a) If a third party shall notify an Indemnified Party with
respect to any matter that may give rise to a claim for indemnification under
the indemnity set forth above in Section 5.1, the procedure set forth below
shall be followed.
(i) Notice. The Indemnified Party shall give to the
party providing indemnification (the "Indemnifying Party") written notice of any
claim, suit, judgment or matter for which indemnity may be sought under Section
5.1 promptly but in any event within thirty days after the Indemnified Party
receives notice thereof; provided, however, that failure by the Indemnified
Party to give such notice shall not relieve the Indemnifying Party from any
liability it shall otherwise have pursuant to this Agreement except to the
extent that the Indemnifying Party is actually prejudiced by such failure. Such
notice shall set forth in reasonable detail (i) the basis for such potential
claim and (ii) the dollar amount of such claim. The Indemnifying Party shall
have a period of fifteen days within which to respond thereto. If the
Indemnifying Party does not respond within such fifteen-day period, the
Indemnifying Party shall be deemed to have accepted responsibility for such
indemnity.
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(ii) Defense of Claim. With respect to a claim by a
third party against an Indemnified Party for which indemnification may be sought
under this Agreement, the Indemnifying Party shall have the right, at its
option, to be represented by counsel of its choice and to assume the defense or
otherwise control the handling of any claim, suit, judgment or matter for which
indemnity is sought, which is set forth in the notice sent by the Indemnified
Party, by notifying the Indemnified Party in writing to such effect within
fifteen days of receipt of such notice; provided, however, that the Indemnified
Party shall have the right to employ counsel to represent it if, in the
Indemnified Party's reasonable judgment based upon the advice of counsel, it is
advisable in light of the separate interests of the Indemnified Party, to be
represented by separate counsel, and in that event the reasonable fees and
expenses of such separate counsel shall be paid by the Indemnifying Party. If
the Indemnifying Party does not give timely notice in accordance with the
preceding sentence, the Indemnifying Party shall be deemed to have given notice
that it does not wish to control the handling of such claim, suit or judgment.
In the event the Indemnifying Party elects (by notice in writing within such
fifteen-day period) to assume the defense of or otherwise control the handling
of any such claim, suit, judgment or matter for which indemnity is sought, the
Indemnifying Party shall indemnify and hold harmless the Indemnified Party from
and against any and all reasonable professional fees (including attorneys' fees,
accountants, consultants and engineering fees) and investigation expenses
incurred by the Indemnifying Party prior to such election, notwithstanding the
fact that the Indemnifying Party may not have been so liable to the Indemnified
Party had the Indemnifying Party not elected to assume the defense of or to
otherwise control the handling of such claim, suit, judgment or other matter. In
the event that the Indemnifying Party does not assume the defense or otherwise
control the handling of such matter, the Indemnified Party may retain counsel,
as an indemnification expense, to defend such claim, suit, judgment or matter.
(iii) Final Authority. The parties shall cooperate in
the defense of any such claim or litigation and each shall make available all
books and records which are relevant in connection with such claim or
litigation. In connection with any claim, suit or other proceeding with respect
to which the Indemnifying Party has assumed the defense or control, the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to any matter which does not include a provision
whereby the plaintiff or claimant in the matter releases the Indemnified Party
from all liability with respect thereto, without the written consent of the
Indemnified Party. In connection with any claim, suit or other proceeding with
respect to which the Indemnifying Party has not assumed the defense or control,
the Indemnified Party may not compromise or settle such claim without the
consent of the Indemnifying Party, which shall not be unreasonably withheld and
shall be deemed to have been given if the Indemnified Party provides the
Indemnifying Party with a written notice setting forth the material terms of
such compromise or settlement and the Indemnifying Party does not object thereto
in writing within ten days of its receipt of such notice.
(b) Claims Between the Indemnifying Party and the Indemnified Party.
Any claim for indemnification under this Agreement which does not result from
the assertion of a claim by a third party shall be asserted by written notice
given by the
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Indemnified Party to the Indemnifying Party. The Indemnifying Party shall have a
period of thirty days within which to respond thereto. If the Indemnifying Party
does respond within such thirty-day period and rejects such claim in whole or in
part or does not respond, the Indemnified Party shall submit the dispute to
arbitration in accordance with Section 7.2 hereof.
6. Use of Proceeds. The Company hereby covenants and agrees that all of
the net proceeds received by it from the issuance and sale of the Preferred
Shares shall be used for the purpose of developing and conducting the Business,
and no part of such net proceeds shall be used to (i) repay any Person any funds
expended by it or advanced by it to the Company prior to the Closing, unless
agreed to in writing by the Purchaser; provided, however, that the Company shall
be permitted, without any written agreement by the Purchaser, to pay any and all
of its debts and obligations (including but not limited to accounts payable,
accrued expenses and indebtedness) as such items become due pursuant to their
terms, and may prepay the principal amount outstanding (which principal amount
is currently approximately $1,300,000) under the promissory note (plus interest
thereon) issued to The Chase Manhattan Bank pursuant to the General Loan and
Collateral Agreement dated October 6, 1997 and the promissory note issued in
connection therewith; and (ii) pay any broker's fees or commissions or similar
payments of any kind.
7. Miscellaneous.
7.1 Waivers and Amendments. With the written consent of the
Purchaser, the obligations of the Company and the rights of the Purchaser under
this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
or indefinitely), and with the same consent the Company may enter into a
supplementary agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement. Neither
this Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
7.2 Arbitration. Any controversy or claim arising out of or relating
to this Agreement or any of the Related Agreements, or the breach hereof or
thereof, shall be settled by arbitration administered by the American
Arbitration Association under its Commercial Arbitration Rules, and judgment on
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Such arbitration shall be conducted by a panel of three
arbitrators, each party having the right to select one arbitrator with the third
arbitrator to be selected in accordance with the rules of the American
Arbitration Association.
7.3 Governing Law. This Agreement shall be governed in all respects
by the laws of the Commonwealth of Virginia without regards to the principles of
conflicts of laws thereof.
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7.4 Survival. The representations, warranties, covenants and
agreements made herein shall survive the execution of this Agreement and the
Closing of the transactions contemplated hereby.
7.5 Successors and Assigns. Except as otherwise expressly provided
herein and subject to the Related Agreements and applicable law, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.
7.6 Entire Agreement. This Agreement, the Related Agreements and
other exhibits to this Agreement and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof.
7.7 Notices, etc. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been duly given at the
time of receipt if delivered by hand or by facsimile transmission or three days
after being mailed, registered or certified mail, return receipt requested, with
postage prepaid, to the address or facsimile number (as the case may be) listed
for each such party below such party's signature page hereto or, if any party
shall have designated a different address or facsimile number by notice to the
other parties given as provided above, then to the last address or facsimile
number so designated.
7.8 Separability. In case any provision of this Agreement shall be
declared invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.9 Expenses. Each of the parties shall bear its respective expenses
and legal fees incurred with respect to this Agreement, each of the Related
Agreements and the transactions contemplated hereby and thereby.
7.10 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7.11 Counterparts. This Agreement may be executed simultaneously in
any number of counterparts and may be executed by facsimile. Each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement.
7.12 Publicity. Neither of the parties to this Agreement, nor any of
their affiliates, shall issue any press release or otherwise make any public
announcement or disclosure with respect to this Agreement, any of the Related
Agreements or any of the transactions contemplated hereby or thereby without the
prior written consent of each of the other party, unless such disclosure is
required by applicable law.
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7.13 "Knowledge". When used in this Agreement, any representation
made "to the knowledge of the Company," "to the best of the Company's knowledge"
or with similar "knowledge" qualifications mean that such representation
includes the knowledge of the Company's Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the day
and year first above written.
RTS WIRELESS, INC.
By: /s/ Spencer Kravitz
-------------------
Name: /s/ Spencer Kravitz
-------------------
Title: Executive Vice President & COO
------------------------------
Address: RTS Wireless, Inc.
51 East Bethpage Road
Plainview, New York 11803
Attention: Mr. Alvin L. Ring,
Chief Executive Officer
Telecopier: 516-939-6189
copy to: Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: James Alterbaum, Esq.
Telecopier: 212-704-6288
AMERICA ONLINE, INC.
By: /s/ Lynda Clerizio
------------------
Name: /s/ Lynda Clerizio
-------------------
Title: Vice President
-------------------
Address: America Online, Inc.
2200 AOL Way
Dulles, Virginia 20166
Attention: General Counsel
Telecopier: 703-265-2208
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Confidential
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement to which this Exhibit A is attached, the
following terms have the following meanings:
"Business Day" means any day other than a Saturday, Sunday or other day on
which the national or state banks located in the State of New York or the
Commonwealth of Virginia are authorized to be closed.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Company Account" means an account of the Company designated in a written
notice delivered to the Purchaser at least two Business Days prior to the date
of any required payment by the Purchaser to the Company under the Agreement.
"Company Products" means all versions and implementations of any product
which has been, is being or is intended to be marketed by the Company.
"Conversion Shares" means shares of Common Stock issuable upon conversion
of the Preferred Shares.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Governmental Body" means any: (a) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government; or (c)
governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or entity and any court or other tribunal).
"Material Adverse Change" means a change which would have a Material
Adverse Effect.
"Material Adverse Effect." An event, violation or other matter will be
deemed to have a "Material Adverse Effect" on the Company if such event,
violation or other matter would be material in impact or amount to the Company's
business, intellectual property rights or condition, or, taken as a whole, its
assets, liabilities, operations, or financial performance.
"Person" means any individual, entity or Governmental Body.
"Proprietary Asset" means: (a) any patent, patent application, trademark
(whether registered or unregistered), trademark application, trade name,
fictitious business name,
<PAGE>
service mark (whether registered or unregistered), service mark application,
copyright (whether registered or unregistered), copyright application, maskwork,
maskwork application, trade secret, know-how, customer list, franchise, system,
computer software, computer program, invention, design, blueprint, engineering
drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; and (b) any right to use or
exploit any of the foregoing.
"Related Agreements" means (a) the Investors Rights Agreement
substantially in the form attached as Exhibit C to the Agreement; and (b) any
other agreement or document entered into by any of the parties in connection
with the Agreement or any of the transactions contemplated thereby.
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Exhibit 10.5
INVESTORS RIGHTS AGREEMENT
This INVESTORS RIGHTS AGREEMENT (this "Agreement") is dated as of March
28, 2000 by and between RTS Wireless, Inc. a Delaware corporation (the
"Company"), (ii) the founders of the Company who are listed on Schedule A hereto
(each, a "Founder" and collectively, the "Founders"), and (iii) America Online,
Inc., a Delaware corporation (the "Investor"). The Founders and the Investor are
collectively referred to herein as the "Stockholders" and individually as a
"Stockholder". Certain terms used in this Agreement are defined in Exhibit A
hereto.
R E C I T A L S
A. The Investor has made an investment in the Company by acquiring 5,000
shares (the "Preferred Shares") of the Company's Series A Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock").
B. In connection with such purchase of the Preferred Shares, and to induce
the Investor to consummate such purchase of the Preferred Shares, the Founders
and the Company have agreed to enter into this Agreement and to grant to the
Investor the rights set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the Stockholders and the Company
(collectively, the "Parties") agree as follows:
1. REGISTRATION RIGHTS
1.1. Definitions. For purposes of this Statement:
"Commencement Date" means the 180th day after the date on which the
Company consummates its initial public offering of securities under the
Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
"Holder" means (i) the Investor and (ii) any person or entity to
whom the Investor sells, transfers or assigns any of its Registrable Securities,
other than in a sale pursuant to Rule 144 under the Securities Act or a
registration effected pursuant to this Agreement.
<PAGE>
"Register," "registered," and "registration" refer to an
underwritten registration effected by preparing and filing with the Securities
and Exchange Commission (the "Commission") a registration statement or similar
document in compliance with the Securities Act, and the declaration or ordering
by the Commission of effectiveness of such registration statement or document.
"Registration Expenses" means all expenses in connection with the
Company's performance of or compliance with its obligations under this Section
1, including, without limitation, all (i) registration, qualification and filing
fees; (ii) fees, costs and expenses of compliance with securities or blue sky
laws (including reasonable fees, expenses and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Securities under the laws of such jurisdictions as the managing underwriter or
underwriters in a registration may designate, subject to the limitation as set
forth in subsection (h) of Section 1.5 hereof); (iii) printing expenses; (iv)
messenger, telephone and delivery expenses; (v) fees, expenses and disbursements
of counsel for the Company and of all independent certified public accountants
retained by the Company (including the expenses of any special audit and "cold
comfort" letters required by or incident to such performance); (vi) Securities
Act liability insurance if the Company so desires; (vii) fees, expenses and
disbursements of any other individuals or entities retained by the Company in
connection with the registration of the Registrable Securities; (viii) fees,
costs and expenses incurred in connection with the listing of the Registrable
Securities on each national securities exchange or automated quotation system on
which the Company has made application for the listing of its Common Stock; and
(ix) internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties and expenses of any annual audit). Registration Expenses shall
not include selling commissions, discounts or other compensation paid to
underwriters or other agents or brokers to effect the sale of Registrable
Securities, or counsel fees and any other expenses incurred by Holders in
connection with any registration that are not specified in the immediately
preceding sentence.
"Registrable Securities" means any shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), issued or issuable upon
conversion of the Preferred Shares, but only to the extent such shares
constitute "restricted securities" under Rule 144 under the Securities Act.
"Requestor" means the Holder or Holders requesting the registration
in question. Actions taken by the Requestor shall be taken by those Holders
making such request who hold a majority of the Registrable Securities held by
such Holders.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor statute.
1.2. Demand Registrations.
(a) Request for Registration. If at any time after the Commencement
Date one or more Holders of the Registrable Securities submits a written request
(a
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"Demand Notice") to the Company that the Company register Registrable Securities
under and in accordance with the Securities Act (a "Demand Registration"), then
the Company shall:
(i) within five (5) days after receipt of such Demand Notice,
give written notice of the proposed registration to all other Holders; and
(ii) as soon as practicable, use diligent efforts to effect
such registration as may be so requested and as would permit or facilitate the
sale and distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any Holders joining in such request as are specified
in written requests received by the Company within twenty (20) days after the
date the Company mails the written notice referred to in clause (i) above.
Notwithstanding the foregoing, 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 or its stockholders for a registration
statement to be filed on or before the date of filing would be required in
connection with any Demand Registration and it is therefore essential to defer
the filing of such registration statement, the Company shall have the right to
defer such filing or delay its effectiveness for a reasonable period not to
exceed 60 days provided that such right shall not be exercised more than once
with respect to a request for registration hereunder during any period of twelve
consecutive months. The Company will pay all Registration Expenses in connection
with such withdrawn request for registration.
Notwithstanding the foregoing, the Company shall not be required to
effect more than one (1) registration pursuant to this Section 1.
(b) Underwriting. In connection with any registration under
this Section 1.2, if so requested by the Requestor, the Company shall use all
commercially reasonable efforts to enter into an underwriting agreement with one
or more underwriters having terms and conditions customary for such agreements.
The lead underwriter or underwriters for such offering shall be selected by the
Company and shall be reasonably acceptable to the Requestor, provided that the
parties hereby agree in advance that Salomon Smith Barney is acceptable for this
purpose.
1.3. Company Registration.
(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its Capital Stock, whether or not for
its own account, other than the Company's initial public offering and other than
a registration relating to employee benefit plans or a registration effected on
Form S-4, the Company shall:
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<PAGE>
(i) provide to each Holder written notice thereof at least ten
(10) days prior to the filing of the registration statement by the Company in
connection with such registration; and
(ii) include in such registration, and in any underwriting
involved therein, all those Registrable Securities specified in a written
request by each Holder received by the Company within five (5) days after the
Company mails the written notice referred to above, subject to the provisions of
Section 1.3(b) below.
(b) Underwriting. The right of any Holder to registration pursuant
to this Section 1.3 shall be conditioned upon the participation by such Holder
in the underwriting arrangements specified by the Company in connection with
such registration and the inclusion of the Registrable Securities of such Holder
in such underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the Company
and take all other actions, and deliver such opinions and certifications, as may
be reasonably requested by such managing underwriter. Notwithstanding any other
provision of this Section 1.3, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of Registrable
Securities to be included in such registration. The Company shall so advise all
Holders distributing Registrable Securities through such underwriting, and there
shall be excluded from such registration and underwriting, to the extent
necessary to satisfy such limitation, first shares held by any stockholder of
the Company other than the Holders, second shares held by the Holders and,
thereafter, to the extent necessary, shares which the Company wishes to register
for its own account. As among the Holders as a group, the number of Registrable
Securities that may be included in the registration and underwriting shall be
allocated in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities required to be included (determined without regard to any
requirement of a request to be included in such registration) in such
registration held by all Holders at the time of filing the registration
statement. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to any Holder
to the nearest 100 shares.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include Registrable Securities in such registration.
1.4. Expense of Registration. All Registration Expenses incurred in
connection with the registration and other obligations of the Company pursuant
to Sections 1.2, 1.3 and 1.5 shall be borne by the Company.
1.5. Registration Procedures. If and whenever the Company is required by
the provisions of this Section 1 to effect the registration of Registrable
Securities, the Company shall:
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<PAGE>
(a) promptly prepare and file with the Commission a registration
statement with respect to such Registrable Securities on any form that may be
utilized by the Company and that shall permit the disposition of the Registrable
Securities in accordance with the intended method or methods of disposition
thereof, and use its reasonable diligent efforts to cause such registration
statement to become effective as promptly as practicable and remain effective
thereafter as provided herein, provided that prior to filing a registration
statement or prospectus or any amendments or supplements thereto, including
documents incorporated by reference after the initial filing of any registration
statement, the Company will furnish to each of the Investors whose Registrable
Securities are covered by such registration statement, their counsel and the
underwriters copies of all such documents proposed to be filed sufficiently in
advance of filing to provide them with a reasonable opportunity to review such
documents and comment thereon;
(b) prepare and file with the Commission such amendments (including
post-effective amendments) and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and current and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of all
Registrable Securities covered by such registration statement, including such
amendments (including post-effective amendments) and supplements as may be
necessary to reflect the intended method of disposition by the prospective
seller or sellers of such Registrable Securities, provided that such
registration statement need not be kept effective and current for longer than
120 days subsequent to the effective date of such registration statement;
(c) provide customary indemnity and contribution arrangements to any
qualified independent underwriter or qualified independent pricer as defined in
Schedule E of the Bylaws of the National Association of Securities Dealers, Inc.
(a "Qualified Independent Underwriter/Pricer"), if requested by such Qualified
Independent Underwriter/Pricer, on such reasonable terms as such Qualified
Independent Underwriter/Pricer customarily requires;
(d) subject to receiving reasonable assurances of confidentiality,
for a reasonable period after the filing of such registration statement, and
throughout each period during which the Company is required to keep a
registration effective, make available for inspection by the selling holders of
Registrable Securities being offered, and any underwriters, and their respective
counsel, such financial and other information and books and records of the
Company, and cause the officers, directors, employees, counsel and independent
certified public accountants of the Company to respond to such inquiries as
shall be reasonably necessary, in the judgment of such counsel, to conduct a
reasonable investigation within the meaning of Section 11 of the Securities Act;
(e) promptly notify the selling holders of Registrable Securities
and any underwriters and confirm such advice in writing, (i) when such
registration statement or the prospectus included therein or any prospectus
amendment or supplement or post-effective amendment has been filed, and, with
respect to such registration statement or any post-effective amendment, when the
same has become effective, (ii) of any
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comments by the Commission, by the National Association of Securities Dealers
Inc. ("NASD"), and by the blue sky or securities commissioner or regulator of
any state with respect thereto or any request by any such entity for amendments
or supplements to such registration statement or prospectus or for additional
information, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceedings for that purpose, (iv) if at any time the
representations and warranties of the Company cease to be true and correct in
all material respects, (v) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, or (vi) at any time when a prospectus is required
to be delivered under the Securities Act, that such registration statement,
prospectus, prospectus amendment or supplement or post-effective amendment, or
any document incorporated by reference in any of the foregoing, contains an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading;
(f) furnish to each selling holder of Registrable Securities being
offered, and any underwriters, prospectuses or amendments or supplements
thereto, in such quantities as they may reasonably request and as soon as
practicable, that update previous prospectuses or amendments or supplements
thereto;
(g) permit selling holders of Registrable Securities to rely on any
representations and warranties made to any underwriter of the Company or any
opinion of counsel or "cold comfort" letter delivered to any such underwriter,
and indemnify each such holder to the same extent that it indemnifies any such
underwriter;
(h) use reasonable diligent efforts to (i) register or qualify the
Registrable Securities to be included in a registration statement hereunder
under such other securities laws or blue sky laws of such jurisdictions within
the United States of America as any selling holder of such Registrable
Securities or any underwriter of the securities being sold shall reasonably
request, (ii) keep such registrations or qualifications in effect for so long as
the registration statement remains in effect and (iii) take any and all such
actions as may be reasonably necessary or advisable to enable such holder or
underwriter to consummate the disposition in such jurisdictions of such
Registrable Securities owned by such holder; provided, however, that the Company
shall not be required for any such purpose to (x) qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not
otherwise be required to qualify but for the requirements of this Section
1.5(h), (y) subject itself to taxation in any such jurisdiction or (z) consent
to general service of process in any such jurisdiction;
(i) cause all such Registrable Securities to be listed or accepted
for quotation on each securities exchange or automated quotation system on which
the Company's Common Stock then trades; and
(j) otherwise use reasonable diligent efforts to comply with all
applicable provisions of the Securities Act, and rules and regulations of the
Commission,
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and make available to its security holders, as soon as reasonably practicable,
an earnings statement covering a period of at least twelve months which shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
1.6. Indemnification. In the event any of the Registrable Securities are
included in a registration statement under this Section 1:
(a) the Company will indemnify each Holder who participates in such
registration, each of its officers and directors and partners and such Holder's
separate legal counsel and independent accountants, and each person controlling
such Holder within the meaning of Section 15 of the Securities Act, and each
underwriter, if any, and each person who controls any underwriter within the
meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any 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 in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers and
directors and partners and such Holder's separate legal counsel and independent
accountants and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder or underwriter and stated to be
specially for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and its legal counsel and independent accountants, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of its
officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, and will reimburse the
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Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section 1.6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought provided
that failure to give such prompt notice shall not relieve the Indemnifying Party
of its obligations hereunder unless it is materially prejudiced thereby, and
shall permit the Indemnifying Party to assume the defense of any such claim or
any litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). Such Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be paid by such Indemnified Party unless
(i) the Indemnifying Party has agreed to pay such fees and expenses or (ii) the
Indemnifying Party shall have failed to assume the defense of such action or
proceeding and employ counsel reasonably satisfactory to such Indemnified Party
in any such action or proceeding or (iii) the named parties to any such action
or proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party and such Indemnified Party shall have been
advised by counsel that there may be one or more legal defenses available to
such Indemnified Party which are different from or additional to those available
to the Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing of an election to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party, it being understood, however, that the Indemnifying Party
then shall have the right to employ separate counsel at its own expense and to
participate in the defense thereof, and shall not, in connection with any one
such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for all Indemnified
Parties, which firm shall be designated in writing by a majority of the
Indemnified Parties who are eligible to select such counsel). No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. No Indemnified Party may
consent to entry of any judgment or enter into any settlement without the prior
written consent of the Indemnifying Party.
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(d) If the indemnification provided for in this Section 1.6 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
herein, then the Indemnifying Party, in lieu of indemnifying the Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
with respect to such loss, liability, claim, damage or expenses in the
proportion that is appropriate to reflect the relative fault of the Indemnifying
Party and the Indemnified Party 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. The relative fault of the Indemnifying
Party and the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of 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.
1.7. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock, the Company shall use
reasonably diligent efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, beginning ninety
(90) days after the Company registers a class of securities under Section 12 of
the Exchange Act or completes a registered offering under the Securities Act; or
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements);
(c) Furnish to any Holder promptly upon request a written statement
as to its compliance with the reporting requirements of Rule 144 (at any time
after ninety (90) days after the Company completes a registered offering under
the Securities Act), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may reasonably request for the
purpose of availing itself of any rule or regulation of the Commission allowing
a Holder to sell Registrable Securities without registration.
1.8. Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Section 1 after the earlier of (a) ten
years following the Commencement Date and (b) the date all Registrable
Securities held by such Holder may be sold in a single three-month period under
Rule 144 under the Securities Act.
1.9. Information To Be Provided by the Holders. Each Holder whose
Registrable Securities are included in any registration pursuant to this
Agreement shall
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furnish the Company such information regarding such Holder and the distribution
proposed by such Holder as may be reasonably requested in writing by the Company
and as shall be required in connection with such registration or the
registration or qualification of such securities under any applicable state
securities law.
1.10. "Stand-Off" Agreement. Each Holder, if requested by the managing
underwriter of the initial registered public offering of securities by the
Company, shall agree not to sell or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company then held by such
Holder for a specified period of time that is customary under the
circumstances (not to exceed one hundred eighty (180) days) following the
effective date of the registration statement for such offering, provided that
(a) no such agreement shall be required unless the officers, directors and
other principal stockholders of the Company enter into, and not be released
from, a similar agreement covering the same period of time and (b) such
agreement shall contain terms customary for such agreements. The Company may
impose stop transfer instructions to enforce any required agreement of the
Holders under this Section 1.10.
2. PURCHASE RIGHTS REGARDING FUTURE SALES OF CAPITAL SECURITIES BY THE
COMPANY
2.1 Participation Right. Subject to the terms and conditions specified in
this Section 2.1, the Company hereby grants to the Investor a purchase right
with respect to future sales by the Company of its Capital Securities (as
hereinafter defined) occurring prior to a Qualified Initial Public Offering. The
Investor shall be entitled to apportion the purchase right hereby granted it
among itself and its affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any Capital Securities, the Company
shall first make an offering of 50% of such Capital Securities to the Investor
in accordance with the following provisions:
(a) The Company shall give the Investor written notice (a "Company
Sales Notice") stating (i) the Company's bona fide intention to offer such
Capital Securities, (ii) the number of such Capital Securities to be offered,
and (iii) the price and terms, if any, upon which it proposes to offer such
Capital Securities.
(b) Within ten (10) Business Days after receipt of a Company Sales
Notice, the Investor shall give the Company a written notice (an "Investor
Purchase Notice") setting forth the number of such Capital Securities the
Investor is willing to purchase. The Capital Securities purchased by the
Investor under this subsection (b) shall be purchased at the price and on the
terms specified in the Company Sales Notice at a closing to be held within forty
(40) Business Days after the delivery of the Company Sales Notice. Such date
shall be specified by the Company in a written notice delivered to the Investor
at least ten (10) Business Days prior thereto. The price and other terms upon
which the Capital Securities shall be purchased shall include the purchase of
any other debt or equity securities proposed to be sold by the Company in the
same transaction. Without prejudice to the Investor's rights to purchase 50% of
such Capital Securities pursuant to this provision, the Company may consummate
the sale of the Capital Securities proposed to be sold to the third party on the
terms set forth in the
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Company Sales Notice at any time after delievering the Company Sales Notice to
the Investor.
(c) If the Investor does not elect, in accordance with Section
2.1(b), to obtain all the Capital Securities that the Investor is entitled to
obtain pursuant to this Section 2.1, the Company may, during the one hundred
twenty (120) day period following the expiration of the period provided in
Section 2.1(b) hereof, offer the remaining unsubscribed portion of such Capital
Securities to any Person or Persons at a price not less than, and upon terms no
more favorable to the offeree than, those specified in the Company Sales Notice
with respect thereto. If the Company does not enter into an agreement for the
sale of such Capital Securities within such period, or if such agreement is not
consummated within thirty (30) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Capital Securities shall not be
offered unless first reoffered to the Investor in accordance herewith.
(d) "Capital Securities" shall mean shares of, or any securities
convertible into or exercisable or exchangeable for any shares of, any class of
the capital stock of the Company other than (i) securities sold by the Company
in its initial public offering; (ii) securities (or options therefor) issued to
consultants, officers, directors and employees for the primary purpose of
soliciting or retaining their employment or services in a transaction or
pursuant to a plan approved by the Company's Board of Directors, (iii)
securities issued or sold as part of the Company's initial public offering,
whether or not such offering qualifies as a Qualified Initial Public Offering;
(iv) securities issued or sold as part of or after a Qualified Initial Public
Offering, (v) securities issued pursuant to the conversion or exercise of
outstanding convertible securities or warrants, options or other rights
representing the right to acquire capital stock of the Company, or (vi)
securities issued in connection with a bona fide business acquisition by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise.
2.2 Maintenance Right.
(a) Except for Excluded Issuances (as defined below), if after a
Qualified Public Offering the Company proposes to sell or issue to any person or
entity (the "Offeree") any Capital Securities (the "Offered Securities"), the
Company shall also offer (a "Preemptive Offer") the Investor the right to
purchase, at the same price and upon the other terms as the Offered Securities
are proposed to be sold or issued to the Offeree, subject to the proviso at the
end of this paragraph (a), either (at the Company's option): (x) up to such
number of the Offered Securities as shall be equal to the total number of
Offered Securities mulitplied by the Applicable Percentage (as defined below);
or (y) up to such number of the same class of securities as the Offered
Securities as would enable the Investor to maintain its Applicable Percentage.
The Investor shall be entitled to apportion the purchase right hereby granted it
among itself and its affiliates in such proportions as it deems appropriate.
Without prejudice to the Investor's rights to purchase the Applicable Percentage
of the Offered Securities pursuant to this provision, the Company may consummate
the sale of the the Offered Securities proposed to be sold to the third party on
the terms set forth in the Company Sales Notice at any time after
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delivering the Company Sales Notice to the Investor. "Excluded Issuances" shall
mean (a) the issuance of shares of Common Stock upon the exercise of options to
employees, officers, directors and consultants pursuant to any stock options or
the grant of any stock options to employees, officers, directors and consultants
of the Company pursuant to stock option plans approved by the board of directors
of the Company; (b) the issuance of shares of Common Stock pursuant to other
options, warrants and convertible securities outstanding on the date hereof; and
(c) the issuance of shares of Common Stock in connection with bona fide
equipment lease financings, licensing agreements, research and development
transactions, acquisitions of businesses or technology, or similar transactions.
(b) As used herein, (i) the "Applicable Percentage" shall mean the
percentage of the fully diluted outstanding shares of Common Stock (as defined
below) deemed to be owned by the Investor immediately prior to the date on which
the Offered Securities are proposed to be issued (the "Applicable Percentage");
and (ii) the "fully diluted outstanding shares of Common Stock" shall mean, at
any time, the sum of the number of shares of Common Stock then outstanding and
the number of shares of Common Stock issuable pursuant to any outstanding
options, warrants or other securities but only to the extent such options,
warrants or other securities are then, or will by their terms within 180 days
become, exercisable, convertible or exchangeable for shares of Common Stock.
(c) The Company shall give the Investor written notice of the
Pre-emptive Offer (a "Company Pre-emptive Rights Notice") stating (i) its bona
fide intention to offer such Capital Securities, (ii) the number of such Capital
Securities to be offered, and (iii) the price and terms, if any, upon which it
proposes to offer such Capital Securities.
(d) To exercise its right to purchase any Capital Securities in the
Pre-emptive Offer, within ten (10) Business Days after receipt of a Company
Pre-emptive Rights Notice, the Investor shall give the Company written notice (a
"Pre-emptive Rights Exercise Notice") setting forth the number of such Capital
Securities such Investor wishes to purchase. The Capital Securities purchased by
the Investor under this subsection (b) shall be purchased at the price and on
the terms specified in the Company Pre-emptive Rights Notice at a closing to be
held within forty (40) Business Days after the delivery of the Pre-emptive
Rights Exercise Notice. Such date shall be specified by the Company in a written
notice given to each Investor participating in such sale at least ten (10)
Business Days prior thereto. The price and other terms upon which the Capital
Securities shall be purchased shall include the purchase of any other debt or
equity securities proposed to be sold by the Company in the same transaction.
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3. INFORMATION AND INSPECTION RIGHTS
3.1 Information. The Company shall deliver to the Investor for so long as
such Investor (together with any Persons whose securities are aggregated with
those of such Investor pursuant to Section 9.9 hereof for purposes of the
Agreement) holds shares of Series A Preferred Stock:
(a) as soon as practicable, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, an income
statement of the Company for such fiscal year, a cash flow statement of the
Company for such fiscal year, and a balance sheet of the Company as of the end
of such fiscal year, with each such financial statement to be in reasonable
detail, prepared in accordance with GAAP, and audited and certified by a firm of
independent public accountants of nationally recognized standing selected by the
Company;
(b) as soon as practicable, but in any event within sixty (60) days
after the end of each of the first three quarters of each fiscal year of the
Company, unaudited statements of income and cash flows of the Company for such
fiscal quarter and an unaudited balance sheet of the Company as of the end of
such fiscal quarter;
(c) within thirty days of the end of each calendar month, unaudited
statements of income and cash flows and balance sheet of the Company for and as
of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event at least thirty days
prior to the end of each fiscal year, a budget and business plan of the Company
for the next fiscal year, prepared on a monthly basis, including balance sheets
and statements of cash flows 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 3.1, an instrument executed by the Chief
Financial Officer or President of the Company certifying that such financial
statements 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, cash flows and changes in shareholders' equity for the
period specified, subject to year-end audit adjustments and the absence of
footnotes that may be required by GAAP; and
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as such Investor may
from time to time reasonably request.
3.2. Inspection. During any period in which the Investor is entitled to
receive the materials specified in Section 3.1 hereof, the Company shall permit
the Investor, at the 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
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accounts with its officers, all at such reasonable times during business hours
and upon reasonable notice as may be requested by the Investor.
4. RIGHT OF FIRST REFUSAL AND RIGHT OF FIRST OFFER ON CHANGE IN CONTROL
4.1. Right of First Refusal. The Investor is hereby granted the right of
first refusal described in sections 4.1(a) through (c) below exercisable in
connection with any proposed Corporate Transaction (as defined below) prior to
the Company's initial public offering (regardless of whether such initial public
offering constitutes a "Qualified Initial Public Offering"). As used herein, the
term "Corporate Transaction" shall mean (a) any consolidation or merger of the
Company with or into any other corporation or other entity, other than any
merger or consolidation resulting in the holders of the capital stock of the
Company immediately prior to such transaction entitled to vote for the election
of directors holding two-thirds (2/3) or more of the capital stock of the
surviving or resulting corporation or other entity entitled to vote for the
election of directors, (b) any sale or other disposition by the Company of all
or substantially all of its assets or capital stock or (c) any other transaction
that results in any Person (including any affiliates thereof) other than the
Investor or a current stockholder of the Company as of the date hereof becoming
a holder of a majority of the capital stock of the Company entitled to vote for
the election of directors.
(a) Prior to the consummation of any Corporate Transaction with any
person other than the Investor, the Company shall give written notice (the
"Corporate Transaction Notice") of such transaction to the Investor. The
Corporate Transaction Notice shall include the name of the proposed transferee,
the proposed consideration per share, the terms of payment of such consideration
and all other material terms of such Corporate Transaction and shall be
accompanied by a copy of a letter of intent, if any, executed by the proposed
party to such Corporate Transaction to consummate such transaction. The
Corporate Transaction Notice shall constitute a binding offer by the Company to
enter into the transaction described in the Corporate Transaction Notice with
the Investor, subject to the negotiation of definitive documentation referred to
below in this Section 4.1(a). If the Invesor wishes to accept the offer referred
to in the Corporate Transaction Notice, it shall, not later than ten (10)
business days after the giving of the Corporate Transaction Notice (the
"Acceptance Period"), give written notice (an "Investor Acceptance Notice") to
the Company stating that it has accepted the offer stated in the Corporate
Transaction Notice.
(b) If the Investor accepts the offer of the Company within the
Acceptance Period, the Company and the Investor shall use diligent efforts to
negotiate a binding definitive agreement for the Corporate Transaction, on the
terms offered by the proposed transferee in the Corporate Transaction Notice
(provided, however, that the Investor may make payment in cash in lieu of any
non-monetary terms of the proposed transfer, including, without limitation,
delivery of other securities in exchange for the property proposed to be sold),
within thirty (30) days after the giving of the Investor Acceptance Notice;
provided, however, that if the Company and the proposed transferee have reached
a definitive agreement (the "Third Party Agreement") with respect to the
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Corporate Transaction, then a definitive agreement in the same form and with
substantially the same terms and conditions as the Third Party Agreement shall
be used as the definitive agreement for the Corporate Transaction with the
Investor.
(c) If the offer stated in the Corporate Transaction Notice has not
been accepted by the Investor within the Acceptance Period, or if the Company
and the Investor are unable to negotiate a binding agreement for a Corporate
Transaction within thirty (30) days after delivery of the Investor Acceptance
Notice, then the Company shall be free to consummate a Corporate Transaction
with another party at a price and on other terms not less favorable as to price,
and not materially less favorable as to other terms, to the Company than the
price and other terms described in the Corporate Transaction Notice; provided,
however, that such transaction must be consummated within one hundred eighty
(180) days after expiration of the latest applicable period specified in Section
4.2(b) above. If such transaction is not consummated within such one hundred
eighty (180) day period then the Company shall be required to comply with the
terms of this Section 4.1 again, prior to consummating any Corporate
Transaction.
4.2 Right of First Offer. The Investor is hereby granted the right of
first offer as described in Section 4.2(a) and (b) below exercisable in
connection with any proposed Corporate Transaction.
(a) If at any time the board of directors of the Company shall
determine to seek to locate a third party with which to consummate any Corporate
Transaction, then prior to initiating any negotiation with respect to any such
Corporate Transaction, the Company shall give written notice (the "Negotiation
Notice") of such determination to the Investor. If the Investor wishes to
propose a Corporate Transaction with the Company, then the Investor shall, not
later than ten (10) days after delivery of the Negotiation Notice (the "Decision
Period"), give written notice thereof (the "Acceptance Notice") to the Company
stating whether the Investor wishes to propose a Corporate Transaction. The
Acceptance Notice shall include the proposed consideration per share, the terms
of payment of such consideration and all other substantive economic terms of the
proposed Corporate Transaction.
(b) If the Company wishes to pursue the Corporate Transaction
proposed by the Investor, it shall so notify the Investor, and the Company and
the Investor shall then use diligent efforts to negotiate a Corporate
Transaction as proposed by the Investor within thirty (30) days after such
notice by the Company. If the Company does not wish to pursue the Corporate
Transaction proposed by the Investor, it shall so notify the Investor.
(c) If the Company and the Investor are unable to negotiate,
utilizing diligent efforts, a binding agreement for a Corporate Transaction
within the thirty (30) day period referred to in the first sentence of Section
4.2(b), or if the Company notifies the Investor (as contemplated in the second
sentence of Section 4.2(b) that it does not with to pursue the Corporate
Transaction proposed by the Investor, then the Company shall have the right to
pursue any Corporate Transaction, subject to Section 4.1 (with
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respect to Corporate Transactions proposed to be pursued prior to the Company's
initial public offering).
(d) The provisions of this Section 4.2 shall not apply to any
discussions or transaction commenced at the initiative of a third party.
5. CO-SALE RIGHTS
5.1. Notice. In the event, at any time prior to a Qualified Initial Public
Offering, a Founder (a "Selling Founder") desires to accept a bona fide offer
from a financially capable acquiror for the sale, transfer or other disposition
of any or all of the shares of capital stock of the Company owned of record or
beneficially by such Selling Founder or any securities ultimately convertible
into or exercisable for any such shares of capital stock (collectively, the
"Sale Shares"), such Selling Founder shall promptly give the Company and the
Investor, written notice of such intended disposition (a "Sale Notice") setting
forth the terms and conditions thereof, including the number and type of
securities to be disposed of, any conditions to such disposition, the proposed
timing of such disposition, the consideration to be paid for such securities and
the identity of the proposed acquirer. Except as otherwise provided herein, a
Selling Founder may not sell, transfer or otherwise dispose of any shares of
capital stock of the Company or any securities ultimately convertible into or
exercisable for such shares of capital stock unless it delivers to the Company
and the Investor a Sales Notice and complies with the provisions of this Section
5 or unless the proposed sale, transfer or disposition is exempt under Section
5.6 hereof from the co-sale rights granted herein.
5.2. Grant of Co-Sale Rights. The Investor shall have the right,
exercisable upon written notice to the Selling Founder within thirty (30) days
after receipt of the Selling Founder's Sale Notice, to participate in such sale
of the Sale Shares on the same terms and conditions as those set forth in the
Sale Notice. The right of participation of the Investor shall be subject to the
terms and conditions set forth in this Section 5.2.
(a) The Investor and the Selling Founder shall each be deemed to own
the number of shares of Common Stock that it actually owns plus the number of
shares of Common Stock that are issuable upon conversion of any convertible
securities of the Company or upon the exercise of any warrants, options or
similar rights then owned by it at an exercise price less than the purchase
price specified in the Sale Notice.
(b) The Investor may sell all or any part of a number of Sale Shares
equal to the product obtained by multiplying (i) the aggregate number of Sale
Shares by (ii) a fraction, the numerator of which is the number of shares of
Common Stock of the Company deemed to be owned by the Investor and the
denominator of which is the sum of (X) the total number of outstanding shares of
Common Stock of the Company deemed to be owned by the Selling Founder and (Y)
the total number of outstanding shares of Common Stock of the Company deemed to
be owned by the Investor.
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(c) The Investor may effect its participation in the sale by
delivering to the Selling Founder for transfer to the acquirer one or more
certificates, properly endorsed for transfer, which represent:
(i) the number of shares that it elects to sell pursuant to
this Section 5.2;
(ii) that number of shares of convertible securities of the
Company that is at such time convertible into the number of shares of Common
Stock that it has elected to sell pursuant to this Section 5.2; provided,
however, that if the acquirer objects to the delivery of convertible securities
of the Company in lieu of Common Stock, the Investor may, to the extent
permitted by the terms of such security, convert and deliver Common Stock as
provided in subparagraph (i) above; or
(iii) a combination of the foregoing that in the aggregate
represents the number of shares of Common Stock to be sold by the Investor.
5.3. Payment of Proceeds. The stock certificates that the Investor
delivers to the Selling Founder pursuant to Section 5.2 shall be transferred by
the Selling Founder to the acquirer in consummation of the sale of the Sale
Shares pursuant to the terms and conditions specified in the Sale Notice, and
the Selling Founder shall promptly thereafter remit to the Investor that portion
of the sale proceeds to which the Investor is entitled by reason of its
participation in such sale.
5.4. Non-Exercise. The exercise or non-exercise of the rights of the
Investor hereunder to participate in one or more sales of Sale Shares made by
the Selling Founder shall not adversely affect its right to participate in
subsequent sales by the Selling Founder. In the event the Investor elects not to
exercise its co-sale rights hereunder with respect to a disposition, the Selling
Founder that sent the Sale Notice regarding such disposition may consummate such
disposition in accordance with the terms specified in the Sale Notice but only
within 90 days after the expiration of the Investor's co-sale rights.
5.5. Prohibited Transfers. In the event a Founder should sell any Sale
Shares of the Company in contravention of the co-sale rights of the Investor
under this Agreement (a "Prohibited Transfer"), the Investor shall have the put
option provided in this Section 5.5. In the event of a Prohibited Transfer, the
Investor shall have the option to sell to the Selling Founder a number of shares
of Common Stock of the Company (either directly or through delivery of
convertible securities) equal to the number of shares that the Investor would
have been entitled to sell had such Prohibited Transfer been effected in
accordance with Section 5.2 hereof, on the following terms and conditions:
(a) The price per share at which the shares are to be sold to the
Selling Founder shall be equal to the price per share paid to the Selling
Founder by the third-party acquiror or acquirer of the Selling Founder's Sale
Shares in the disposition referenced in the Sale Notice.
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(b) The Investor shall deliver to the Founder, within 30 days after
it has received notice from the Selling Founder or otherwise become aware of the
Prohibited Transfer, the certificate or certificates representing shares to be
sold, each certificate to be properly endorsed for transfer.
(c) The Selling Founder shall, upon receipt of the certificates for
the repurchased shares, pay the aggregate purchase price therefor, by certified
check or bank draft made payable to the order of the Investor, and shall
reimburse the Investor for any additional expenses reasonably incurred,
including reasonable legal fees and expenses, incurred in effecting such
purchase and resale.
5.6. Exempt Transfers. The provisions of this Section 5 shall not apply to
(i) transfers by the Founders of an aggregate of 20% of the capital stock held
by the Founders as of the date hereof, or (ii) any transfer by a Selling Founder
to the ancestors, descendants, siblings or spouse of the Selling Founder or to
trusts for the benefit of such persons or the Founder; provided that in each of
the foregoing cases the transferee shall furnish the Stockholders and the
Company with a written agreement to be bound by and comply with all provisions
of this Agreement. Such transferred stock shall remain subject to the provisions
of this Agreement, and such transferee shall be treated as a "Stockholder" (and
a transferee of a Founder shall be treated as a "Founder") for the purposes of
this Agreement.
6. LEGEND REQUIREMENTS
6.1. Legend. Each certificate representing the shares of capital stock (or
securities convertible into or exercisable for shares of capital stock) of the
Company owned by the Stockholders shall be endorsed with the following legend:
"THE SALE OR TRANSFER, THE VOTING AND CERTAIN OTHER RIGHTS RELATING TO THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND AMONG THE COMPANY
AND CERTAIN STOCKHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
6.2. Removal. The legend set forth in Section 6.1 hereof shall be removed
upon termination of this Agreement in accordance with the provisions of Section
9.1.
6.3. Securities Act Legend. For as long as appropriate under applicable
law, each certificate representing the shares of capital stock (or securities
convertible into or exercisable for shares of capital stock) of the Company
owned by the Investor shall be endorsed with the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT
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AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE ACT OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT."
7. DIRECTORS
7.1. Election. Until such time as the number of Common Share Equivalents
held by the Investor and its affiliates equals less than 2% of the fully diluted
outstanding shares of Common Stock, the Investor shall have the right to
designate one director of the Company (the "Series A Director") or, at its
option, one Board observer (the "Board Observer"); provided that the person so
designated shall be consented to by a majority of the Board (not including such
designee), which consent shall not be unreasonably withheld. Each of the
Founders shall vote his shares of Common Stock in favor of such designee.
7.2. Removal; Confidentiality Agreement. Any Series A Director may be
removed during his or her term of office, either with or without cause, by, and
only by, the affirmative vote or written consent of the holders of a majority of
the then-outstanding Series A Preferred Stock, voting or consenting as a
separate class. Any vacancy of a Series A Director position shall be filled only
by the affirmative vote or written consent of the Holders, voting as a separate
class. Each Series A Director shall execute and deliver a confidentiality
agreement relating to information obtained by such director in his or her
capacity as a director of the Company in the form of Exhibit B.
7.3. Board Observer. The Board Observer, if any, shall be entitled to
attend and participate in all meetings of the Board and to receive upon issuance
to the members of the Board any materials, including financial statements,
prepared for the members of the Board. The Board Observer shall have no duties,
responsibilities or liability by virtue of the Board Observer's attendance at
any Board meetings or committee meetings or the failure to attend such meetings.
Each Board Observer shall also execute and deliver a confidentiality agreement
relating to information obtained by such observer in his or her capacity as a
board observer in the form of Exhibit B.
8. CONFIDENTIALITY OF AGREEMENTS
(a) Neither party shall make any press release about or other public
statement or announcement concerning, or disclose to any third party the
existence or dislcose any of the terms and conditions of, this Agreement, the
Related Agreements or any commercial arrangement between the parties without the
prior written consent of the other party.
(b) The foregoing notwithstanding, however, (i) a party may make any
disclosure to its Affiliates and to its directors, officers, employees,
attorneys and accountants, and to the underwriters engaged by the Company in
connection with any offering of its securities, whose duties reasonably require
familiarity with such matters,
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provided that such persons (including any such underwriters) are bound to
maintain the confidentiality of such matters, and (ii) a party may make such
disclosure as may be required by applicable law or regulation, in which case the
disclosing party shall give the other party prompt advance notice of such
disclosure so that the other party has the opportunity if it so desires to seek
a protective order or other appropriate remedy; provided that, in connection
with any offering of securities of the Company, the Company shall provide in
advance to the Investor for review the form and content of any disclosure of any
of such matters that may be required by law or regulation and, to the extent
consistent with its disclosure obligations under applicable law, the Company
shall include such modifications to such disclosure as may be reasonably
requested by the Investor (except that the Company may file any of the
Agreements as an exhibit to its registration statement if any of the Agreements
would constitute a "material agreement" under applicable law or regulation and
the Company shall use its best efforts to obtain confidential treatment of the
portions of any such Agreements that meet the Securities and Exchange Commission
qualifications for confidential treatment if so requested by Investor).
9. MISCELLANEOUS PROVISIONS
9.1. Termination. Except as otherwise provided herein, the rights and
obligations of the Company and the Stockholders under this Agreement shall
terminate as to any specific Stockholder at such time as such Stockholder shall
no longer own shares of Common Stock or securities of the Company convertible or
exercisable for shares of Common Stock.
9.2. Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given at the time of
receipt if delivered by hand or by facsimile transmission or three days after
being mailed, registered or certified mail, return receipt requested, with
postage prepaid, to the address or facsimile number (as the case may be) listed
below the signature of each Party on such Party's signature page hereto if any
Party shall have designated a different address or facsimile number by notice to
the other Parties given as provided above, then to the last address or facsimile
number so designated.
9.3. Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed and interpreted in such manner as to be effective and valid
under applicable law.
9.4. Waiver or Modification. Any amendment or modification of this
Agreement shall be effective only if evidenced by a written instrument executed
by the Company and by Investors that hold a majority of the total Common Share
Equivalents held by all of the Investors.
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9.5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia without regard to the
principles of conflicts of laws thereof.
9.6. Attorneys' Fees. In the event of any dispute involving the terms
hereof, the prevailing parties shall be entitled to collect legal fees and
expenses from the other party to the dispute.
9.7. Further Assurances. Each Party agrees to act in accordance herewith
and not to take any action that is designed to avoid the intention hereof.
9.8. Successors and Assigns. This Agreement and the rights and obligations
of the Parties hereunder shall inure to the benefit of, and be binding upon,
their respective successors, assigns and legal representatives. Each Stockholder
may assign its rights hereunder to (i) any transferee of Shares held by such
Stockholder or (ii) the ancestors, descendants, siblings or spouse of such
Stockholder or to trusts for the benefit of such persons or such Stockholder;
provided that in each of the foregoing cases, the transferee shall furnish the
other Stockholders and the Company with a written agreement to be bound by and
comply with all provisions of this Agreement. Such transferee shall be treated
as a "Stockholder" (and a transferee of a Founder shall be treated as a
"Founder") for the purposes of this Agreement.
9.9. Aggregation of Stock. For purposes of determining the availability of
any rights under this Agreement, the number of shares of Common Stock or other
securities of the Company deemed to be owned by a Stockholder or other Person
shall include all such shares or other securities owned by such Stockholder or
other Person, such Stockholder's (or other Person's) Affiliates and their
respective partners, members, or shareholders, and any other person or entity
that acquires any such shares or other securities from any of the foregoing by
gift, will or intestate succession.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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[Company Signature page]
IN WITNESS WHEREOF, the undersigned Stockholder has executed this
Agreement as of the day and year first above written.
RTS WIRELESS, INC.
By: /s/ Spencer Kravitz
-------------------------------------
Name: Spencer Kravitz
Title: Executive VP and COO
Address for Notice:
RTS Wireless, Inc.
51 East Bethpage Road
Plainview, New York 11803
Facsimile No.: 516-939-6189
Attn: Mr. Alvin L. Ring,
Chief Executive Officer
With a copy to:
Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Facsimile No.: 212-704-6288
Attn: James Alterbaum, Esq.
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[Investor Signature page]
IN WITNESS WHEREOF, the undersigned Investor has executed this Agreement
as of the day and year first above written.
AMERICA ONLINE, INC.
By: /s/ Lynda Clerizio
-------------------------------------
Name: Lynda Clerizio
Title: Vice President
Address for Notice:
2200 AOL Way
Dulles, Virginia 20166
Facsimile No.: 703-265-2208
Attn: General Counsel
With a copy to:
Arnold & Porter
555 12th Street N.W.
Washington, D.C. 20004
Facsimile No.: 202-942-5999
Attn: Robert B. Ott
23
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[Stockholder Signature page]
IN WITNESS WHEREOF, the undersigned Stockholder has executed this
Agreement as of the day and year first above written.
/s/ Alvin L. Ring
----------------------------------------
Alvin L. Ring
Address for Notice:
c/o RTS Wireless, Inc.
51 East Bethpage Road
Plainview, New York 11803
Facsimile No.: 516-939-6189
24
<PAGE>
[Stockholder Signature page]
IN WITNESS WHEREOF, the undersigned Stockholder has executed this
Agreement as of the day and year first above written.
/s/ Spencer Kravitz
----------------------------------------
Spencer Kravitz
Address for Notice:
c/o RTS Wireless, Inc.
51 East Bethpage Road
Plainview, New York 11803
Facsimile No.: 516-939-6189
25
<PAGE>
[Stockholder Signature page]
IN WITNESS WHEREOF, the undersigned Stockholder has executed this
Agreement as of the day and year first above written.
/s/ Jay Moskowitz
----------------------------------------
Jay Moskowitz
Address for Notice:
c/o RTS Wireless, Inc.
51 East Bethpage Road
Plainview, New York 11803
Facsimile No.: 516-939-6189
26
<PAGE>
[Stockholder Signature page]
IN WITNESS WHEREOF, the undersigned Stockholder has executed this
Agreement as of the day and year first above written.
/s/ Bruce Laskin
----------------------------------------
Bruce Laskin
Address for Notice:
c/o RTS Wireless, Inc.
51 East Bethpage Road
Plainview, New York 11803
Facsimile No.: 516-939-6189
27
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement to which this Exhibit A is attached, the
following terms have the following meanings:
"Affiliate" of any Person (the "Subject Person") means any Person that
Controls, is Controlled by or is under common Control with the Subject Person.
"Business Day" means any day other than a Saturday, Sunday or other day on
which the national or state banks located in the State of New York or the
Commonwealth of Virginia are authorized to be closed.
"Common Share Equivalents" means all shares of Common Stock that are
issued and outstanding or are issuable upon the exchange, exercise or conversion
of any other security of the Company. The number of Common Share Equivalents
owned by a Person shall equal the sum of the number of shares of Common Stock
owned by such Person plus the number of shares of Common Stock issuable upon the
exchange, exercise or conversion of any other security of the Company owned by
such Person.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Control" and derivatives thereof mean the power to control the management
and policies of the Controlled Person whether by ownership of voting securities,
contract or otherwise.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Person" means any individual, entity or governmental body.
"Qualified Initial Public Offering" means a public offering of Common
Stock pursuant to an effective registration statement under the Securities Act
of 1933, as amended, that (a) has (x) a public offering price that, (y) when
mulitplied by the sum of the number of shares of Common Stock outstanding after
such offering and the number of shares of Common Stock issuable pursuant to all
outstanding options, warrants or other securities then outstanding (including
shares issuable pursuant to any underwriter's over-allotment option and any
options outstanding under any stock option plan or program of the Company), (z)
results in a product of not less than $350,000,000 and (b) is underwritten by
one or more nationally recognized investment banking firms or a syndicate
managed or co-managed by one or more nationally recognized investment banking
firms that results in (i) the Company receiving at least $25 million in gross
proceeds and (ii) the Common Stock being traded on the New York Stock Exchange
or
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the Nasdaq National Market; provided, however, that, if the Company's initial
public offering does not qualify as a Qualified Initial Public Offering then a
Qualified Initial Public Offering shall be deemed to have occurred on the last
day of the first period of 20 consecutive trading days on which the Common Stock
is traded on the New York Stock Exchange or the Nasdaq National Market that
occurs after the Company's initial public offering on which the last trade in
the Common Stock occurred at (I) a price that, (II) when multiplied by the sum
of the number of shares of Common Stock outstanding on such day and the number
of shares of Common Stock issuable pursuant to all outstanding options, warrants
or other securities then outstanding (including shares issuable pursuant to any
underwriter's over-allotment option and any options outstanding under any stock
option plan or program of the Company), (III) results in a product of not less
than $450,000,000.
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Exhibit 10.6
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of the 21st day of January, 2000 by and between Real Time Strategies, Inc. d/b/a
RTS Wireless, a New York corporation (the "Company"), and Monsoon Ventures LLC,
a New York limited liability company (the "Purchaser").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. The Note.
1.1 The Purchaser hereby agrees to lend to the Company $3,500,000, on the
terms and conditions hereof (the "Loan"). The Loan shall be evidenced by a
convertible promissory note in substantially the form attached hereto as Exhibit
A (the "Note"), and shall be subject to, and convertible into equity securities
of the Company upon, the terms and conditions contained therein. The Note shall
bear interest at a rate equal to eight percent per annum, compounded annually.
All shares issuable or issued upon any conversion of the Note (or upon any
conversion of any additional convertible promissory notes of the Company
purchased by the Purchaser) shall be referred to herein as "Shares".
2. Closing Dates; Delivery.
2.1 Closing Date. The consummation of the Loan and the initial issuance of
the Note pursuant to this Agreement, shall take place at the offices of Zevnik
Horton Guibord McGovern Palmer & Fognani LLP, 1330 Avenue of the Americas, 11th
Floor, New York, New York at 1:00 p.m., Eastern Standard Time, on January 21,
2000, or on such other date as may be mutually agreed to by the Company and the
Purchaser, such time and date being referred to herein as the "Closing". At the
Closing, the Purchaser shall lend, and the Company shall accept, $3,500,000 on
the terms set forth herein and in the Note.
2.2 Delivery. At the Closing (a) the Company will execute and deliver to
the Purchaser the Note, which shall be issued in the Purchaser's name and dated
the Closing Date and (b) the Purchaser shall deliver to the Company the Loan
amount in the form of cash, certified check or wire transfer, as may be required
by the Company.
3. Additional Loans, Additional Investment and Equity Call. Without limiting
their respective rights and obligations set forth in and/or with respect to the
Note, the parties hereby agree that they shall have the respective rights and
obligations set forth below:
3.1 Calls in Exchange for Additional Convertible Notes. From time to time
after the date hereof but prior to the earlier of January 24, 2001 or the
effective date of any Public Offering (as defined in the Note), the Company, at
its option, may require the Purchaser to loan additional sums to the Company up
to an aggregate amount of $1,500,000. Within twenty (20) business days after its
receipt of a written request for such an additional loan by the Company, the
Purchaser shall advance such loan to the Company upon the Company's execution
and delivery to the Purchaser of an additional convertible promissory note
representing such loan.
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Each such additional convertible promissory note shall be substantially similar
in form to the Note, but will show the amount of the applicable additional loan
and the date thereof. The Purchaser may, at its option exercised by written
notice to the Company, designate an alternate entity or person(s) to advance one
or more of such loan(s) (or a portion thereof) to the Company in accordance with
the terms of this Section 3.1 (including the time limitation set forth herein);
provided, however, that no such designation shall be effective until the Company
receives from its counsel, within ten (10) days after request therefor, an
opinion or other advice to the effect that such designation and the additional
loans comply with all applicable federal and state securities laws and
regulations, which opinion or other advice shall be reasonably acceptable in
form and substance to the Company.
4. Shareholders Agreement.
4.1 Upon execution and delivery of the Note, the Purchaser agrees to (i)
execute a Shareholders Agreement in the form attached hereto as Exhibit B (the
"Shareholders Agreement") and deliver the same to the Company, and (ii)
hereafter, as a condition to the issuance of any Shares, cause each member of
the Purchaser to whom the Purchaser may transfer the Note (or any portion
thereof) or any Shares, as permitted in the Shareholders Agreement, to execute a
counterpart of the Shareholders Agreement and deliver the same to the Company.
5. Representations, Warranties and Covenants of the Company. The Company hereby
represents, warrants and covenants to and with the Purchaser as follows:
5.1 Corporate Power and Authority. The Company has all requisite corporate
power to enter into this Agreement, to carry out the terms hereof, and to issue
to the Purchaser the Note and the Shares upon any conversion of the Note. All
corporate action on the part of the Company, its officers, directors and
shareholders necessary for the performance of the obligations of the Company
under this Agreement and the Note, and for the authorization, issuance and
delivery of the Note, has been taken prior to the Closing. This Agreement and
the Note have been duly executed and delivered by the Company and upon execution
and delivery by the Company this Agreement and the Note will be valid and
legally enforceable in accordance with their terms.
5.2 Authorization of Shares. After the Closing, the Company shall take all
necessary steps to ensure that sufficient shares of its common stock are
available for issuance as Shares in accordance with this Agreement and the Note.
5.3 Financial Statement. The Company has delivered to the Purchaser its
business plan. The financial statements set forth therein fairly present the
consolidated financial condition of the Company as of the date of each balance
sheet and the statement of operations contained therein accurately represents in
all material respects the operating results of the Company during the period
indicated therein.
6. Representation, Warranties and Covenants of the Purchaser. The Purchaser
hereby represents and warrants to, and covenants with, the Company as follows:
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6.1 Corporate Power and Authority. The Purchaser has all requisite power
to enter into this Agreement, to carry out the terms hereof, to accept the Note,
to accept the Shares upon any conversion of the Note and to make the Loan. All
action on the part the Purchaser and its members necessary to authorize the
performance of the obligations of the Purchaser and its members under this
Agreement and the Note has been taken prior to the Closing. This Agreement has
been duly executed and delivered by the Purchaser and upon execution and
delivery by the Purchaser this Agreement will be valid and legally enforceable
in accordance with its terms.
6.2 Investment Representations. The Purchaser understands that the Note
and the Shares have not been registered under the Securities Act of 1933, as
amended (the "Act"), and that they are being offered and sold pursuant to an
exemption from registration contained in the Act based in part upon the
representations of the Purchaser contained herein. The Purchaser hereby
represent, warrants to, and agrees with the Company that the Purchaser is
acquiring the Note and the Shares for its own account for investment and not
with a view to, or for sale in connection with, any distribution thereof in
violation of the Act. By executing this Agreement, the Purchaser further
represents and warrants that the Purchaser has no contract, undertaking,
agreement or arrangement with any person to sell, transfer, or grant
participation to such person or to any third person, with respect to the Note or
Shares.
6.3 Experience. The Purchaser is experienced in evaluating private
companies such as the Company, and has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of the Purchaser's investment in the Note (and any additional convertible
promissory notes of the Company purchased by the Purchaser) and the Shares, and
has the ability to bear the economic risks of its investment for an indefinite
period of time, and, at the present time, is able to afford a complete loss of
such investment.
6.4 Rule 144. The Purchaser acknowledges that the Note and the Shares must
be held indefinitely unless subsequently registered under the Act or an
exemption from such registration is available. The Purchaser is aware of the
provisions of Rule 144 promulgated under the Act which permit limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions. The Purchaser covenants that, in the absence an effective
registration statement covering the Note and the stock in question, except as
permitted in the Note, the Purchaser will sell, transfer, or otherwise dispose
of the Note and Shares only in a manner consistent with the Purchaser's
representations and covenants set forth in this Section 6.4.
6.5 No Public Market. The Purchaser understands that no public market now
exists for any of the securities issued by the Company, nor is any public market
for the Note and the Shares contemplated at present, and it is unlikely that a
public market will ever exist for the Note or the Shares.
6.6 Access to Data. The Purchaser has received and reviewed information
about the Company and has had an opportunity to discuss the Company's business,
management and financial affairs with its management and to review the Company's
facilities. The Purchaser understands that such discussions, as well as any
written information issued by the Company,
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<PAGE>
were intended to describe the aspects of the Company's business and prospects
which the Company believes to be material, but were not necessarily an
exhaustive description.
6.7 Accredited Investors. The Purchaser, and each member of the Purchaser,
is an "accredited investor" as defined in Regulation D under the Act. The
Purchaser agrees that, in addition to the foregoing representation and warranty
relating to the "accredited investor" status of each of the Purchaser and its
members, the Company may rely on the representations and warranties of each
member of the Purchaser set forth in Article XI of the Monsoon Ventures, LLC
Operating Agreement, a copy of which has been provided to the Company. The
Purchaser represents that such furnished copy is complete and accurate in all
respects relevant to each such member's status as an "accredited investor".
6.8 Preservation of Subchapter S Status. Each member of the Purchaser to
whom the Purchaser transfers any Shares is and shall at all times be an
individual (i.e., natural person) resident in the United States, or shall comply
with such other applicable requirements, such that upon such transfer and at all
times thereafter the Company shall not suffer the loss of its status as a
Subchapter S corporation under the Internal Revenue Code. As a condition to the
transfer of any such Shares, the Purchaser shall furnish such evidence as the
Company may reasonably require to show that such transfer will not cause the
loss of such Subchapter S status.
7. Lock-Up and Regulatory Compliance Requirements.
(a) Underwriters Lock-Up. The Purchaser agrees that, if so requested by
the Company and any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Act, the Purchaser shall not publicly sell
or otherwise publicly transfer any Shares during the 180-day period (or such
other lesser period as may be requested in writing by the Managing Underwriter)
(the "Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Act. Such restriction shall apply only
to the first registration statement of the Company to become effective under the
Act that includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Act. The Company may impose
stop-transfer instructions with respect to Shares subject to the foregoing
restrictions until the end of such Market Standoff Period. Notwithstanding the
foregoing, in the event the Managing Underwriter requires or agrees that the
Purchaser shall be released from any such restriction on sale or transfer, such
release shall be implemented in accordance with such requirement or agreement
and the Company shall remove any related stop-transfer instructions.
(b) Regulatory Requirements. The Purchaser agrees to (a) comply with any
lock-up and/or other requirements or restrictions of any kind imposed or
requested by the Securities and Exchange Commission (the "SEC") and/or NASDAQ or
any other market or exchange on which the Securities are to be listed or traded
(each, an "Exchange") in connection with any registration of the public offering
of any securities of the Company under the Act ("Regulatory Requirements"), and
(b) execute and deliver to the Company, and to the SEC and any relevant Exchange
(as the case may be), all agreements, documents and instruments necessary to
evidence such agreement to so comply ("Regulatory Compliance Documents"). The
Purchaser hereby authorizes the Company, and does hereby make, constitute and
appoint the Company and
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any officer, employee or agent of the Company with full power of substitution,
as the Purchaser's true and lawful attorney-in-fact with power, in its own name
or in the name of the Purchaser, to execute and deliver any such Regulatory
Compliance Documents as fully and effectually as the Purchaser might or could
do, and the Purchaser hereby ratifies all that such attorney-in-fact shall
lawfully do or cause to be done by virtue hereof. This power of attorney is
coupled with an interest and shall be irrevocable for as long as any Shares
shall be registered in the name of the Purchaser or any member or transferee of
the Purchaser. The Company may impose such stop-transfer instructions with
respect to Shares and other securities as may be necessary or advisable in order
to ensure compliance with Regulatory Requirements.
8. Registration Rights. The Company agrees to grant to the Purchaser with
respect to the Shares substantially the same registration rights as it may grant
with respect to any "Securities" (as defined in the Note) of the Company that
are purchased by any person or entity in a "Financing" (as such term is defined
in the Note) in which the outstanding principal amount of the Note (and the
outstanding principal amount(s) of any additional convertible promissory note(s)
of the Company purchased by the Purchaser) are converted into Securities.
9. Legends. The Note and certificates representing any Shares will each be
stamped or otherwise imprinted with legends as set forth in the form of Note
attached hereto as Exhibit A. Such legends shall be removed by the Company from
the Note, or any certificates representing the Shares, upon delivery to it of an
opinion of counsel that a registration statement under the Act is, at the time,
in effect with respect to the legended security or that such security can be
freely transferred without such registration statement being in effect and that
such transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Note was issued.
10. Modification and Waiver. No modification or waiver of any provision of this
Agreement or consent to departure therefrom shall be effective unless in writing
and signed by the Company and the Purchaser.
11. Notices. Any notice or report herein required or permitted to be given shall
be given by depositing the same in the United States mail, postage prepaid,
return receipt requested and addressed to the parties as follows:
(a) To the Company:
Real Time Strategies, Inc. d/b/a RTS Wireless
51 East Bethpage Road
Plainview, New York, New York 11803
Attention: President
(b) To the Purchaser:
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c/o Scott A Ziegler
Zevnik Horton Guibord McGovern Palmer & Fognani
1330 Avenue of the Americas
New York, New York 10019
copy to:
Scott A. Ziegler
425 East 58th Street
New York, New York 10022
or to such other place or places as either of the parties shall designate by
written notice to the other.
12. Assignment; Successors and Assigns. Neither Party may assign this Agreement,
in whole or in part, without the other party's prior written consent. Any
assignment in violation of this paragraph shall be void. Subject to the
forgoing, all covenants and agreements of the parties contained in this
Agreement shall be binding and inure to the benefit of their respective
successors and assigns.
13. Governing Law. This Agreement shall in all respects be governed by the laws
of State of New York, without reference to the conflicts or choice of law
principles thereof.
14. Section Headings. The section and paragraph headings contained herein are
for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
15. Execution in 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 constitute a single instrument.
16. Expenses of Agreement. The parties to this Agreement shall each bear their
own expenses incurred in connection with the preparation, execution and delivery
of this Agreement, the Note and any other instruments and documents related
thereto, and shall be solely responsible for payments to their respective
counsel and accountants for all matters related to this transaction.
17. Survival. The representations, warranties, covenants and agreements made
herein shall survive the closing of the transactions contemplated herein.
18. Entire Agreement. This Agreement and Exhibits A and B hereto constitute the
full and entire understanding and agreement between the parties with regard to
the subject matter hereof and thereof.
19. Severability. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall
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continue in full force and effect without such provision; provided that no such
severability shall be effective if it materially changes the economic benefit of
this Agreement to any party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective representatives thereunto duly authorized the day and year
first above written.
REAL TIME STRATEGIES, INC. d/b/a RTS Wireless,
a New York corporation
By: /s/ Spencer Kravitz
-------------------------
Name: Spencer Kravitz
-------------------------
Title: Executive VP and COO
-------------------------
MONSOON VENTURES LLC,
a New York limited liability company
By: /s/ Scott A. Ziegler
-------------------------
Name: Scott A. Ziegler
-------------------------
Title: Managing Member
-------------------------
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Exhibit 10.7
NOTEHOLDERS AND STOCKHOLDERS AGREEMENT
THE PARTIES TO THIS AGREEMENT, which is dated as of January 24th,
2000, are Real Time Strategies, Inc. d/b/a RTS Wireless, a New York corporation
(the "Company"), Monsoon Ventures LLC, a New York limited liability company
("Monsoon"), and each other individual or entity that is required to become a
party to this agreement pursuant to Section 11 hereof (Monsoon and such other
entities and individuals, each, a "Stockholder", and collectively, the
"Stockholders").
Each Stockholder owns one or more of the following securities of the
Company: (a) Non-Negotiable Convertible Promissory Note of the Company dated
January 24, 2000 in favor of Monsoon in the original principal amount of
$3,500,000 (the "Promissory Note"), (b) such additional non-negotiable
convertible promissory notes (each, an "Additional Note") as the Company may
issue pursuant to applicable terms of the Note Purchase Agreement dated January
21, 2000 between the Company and Monsoon (the "Note Purchase Agreement"), (c)
such common stock of the Company ("Common Stock") as the Company may issue
pursuant to any conversion of the Note or any Additional Note and (d) such other
securities as the Company may issue pursuant to any Note or any Additional Note
(such owned securities, collectively, the "Securities"). The Company and each
Stockholder desire to promote their mutual interests by imposing certain
limitations on the transfer of the Securities owned or being acquired by the
Stockholder and Securities that may be acquired by the Stockholder from time to
time after the date of this agreement, whether by purchase directly from the
Company, by purchase from a third party or otherwise (all of the foregoing,
together with any security that is exercisable or exchangeable for, convertible
into or otherwise provides the holder with the right to acquire, directly or
indirectly, Securities, shall be included in the "Securities"), all upon the
terms and conditions set forth below.
It is therefore agreed as follows:
1. Certain Rights and Restrictions of each Stockholder.
(a) Until the termination of this agreement in accordance with
Section 8 below, no Stockholder shall sell, assign, transfer, pledge,
hypothecate, mortgage, encumber, deliver, dispose of by gift or bequest or
otherwise transfer or dispose of (collectively, "Transfer") any right, title or
interest in any or all of its or his Securities, except as follows:
(i) Monsoon may Transfer Securities as permitted or required
in the Note; and
(ii) each Stockholder may Transfer Securities in accordance
with Sections 2, 3 or 4 below.
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(b) Any purported Transfer in violation of this agreement shall be
null and void, and of no force or effect whatsoever.
(c) As used in this agreement, a "person" shall mean any individual,
group, partnership, corporation, business trust, joint stock company, trust,
unincorporated association, joint venture or other entity of whatever nature.
2. Involuntary Transfers of Securities. In the event of any
Involuntary Transfer (as hereinafter defined below) by a Stockholder of any
Securities, the following procedures shall apply:
(a) If the Stockholder (the "Transferor") is deprived or divested of
Securities by an Involuntary Transfer, he shall promptly give written notice of
such Transfer in reasonable detail to the Company. The person or persons (the
"Transferee") who take or propose to take any interest in the Securities subject
or proposed to be subject to such Involuntary Transfer (the "Subject
Securities") shall hold such interest subject to the rights of the Company as
set forth below.
(b) Upon receipt of the notice referred to in section 2(a) above or
upon discovery of such Involuntary Transfer, the Company (and its designees)
shall have the irrevocable option, exercisable by written notice (specifying the
number of Subject Securities to be purchased) to the Transferor within 60 days
following the receipt of such notice, but not the obligation, to purchase the
Subject Securities, subject to the terms set forth herein. The Company and/or
any of its designees may exercise the option for all or any part of the Subject
Securities. The closing of any such sale of Subject Securities to the Company or
any of its designees, as the case may be, shall be at the offices of the Company
not later than 30 days after the date of the notice pursuant to which the
Company or any of such designees, as the case may be, exercised the option
pursuant to Section 2(b). The purchase price per share of any Subject Securities
purchased pursuant to this Section 2 shall be an amount equal to the fair market
value as of the Valuation Date (as defined below) of the Subject Securities, as
such fair market value is determined in good faith by the Board of Directors of
the Company. The purchase price shall be paid in 36 equal monthly installments,
without interest, the first such installment to be paid 30 days after the
closing of the sale. The "Valuation Date" shall be the last day of the calendar
quarter immediately preceding the Involuntary Transfer.
(c) In the event that the Company and designees do not purchase all
of the Subject Securities involved in an Involuntary Transfer pursuant to this
section 2, the Transferee shall take and hold all rights and interests in any
Subject Securities not so purchased and shall execute a copy of this agreement
and deliver the same to the Company, and be bound by the provisions hereof with
the same rights and obligations as the Stockholder.
(d) For purposes of this agreement, the term "Involuntary Transfer"
shall mean any involuntary Transfer by or in which the Stockholder shall be
deprived or divested of any right, title or interest in or to any Securities,
including, without limitation, any levy of execution,
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<PAGE>
transfer in connection with bankruptcy, reorganization, insolvency or similar
proceedings or any Transfer to a public officer or agency pursuant to any
abandoned property or escheat law.
3. Certain Rights to Cause Sale of Securities of Stockholder.
(a) Subject to the last sentence of this Section 3(a), if at any
time the holders of at least a majority of the issued and outstanding Common
Stock (the "Controlling Stockholders") determine to Transfer not less than a
majority of their Securities in a bona fide arms-length transaction to any third
person or persons, whether such Transfer involves a sale, merger, consolidation,
reorganization or other Transfer transaction (excluding any reincorporation of
the Company in Delaware) (a "Sale Transaction"), such Controlling Stockholders
shall have the right (exercisable by the giving of notice to the Company of the
exercise of such right), but not the obligation, to require each Stockholder to
also transfer in the Sale Transaction (and deliver certificates therefor with
duly executed stock transfer powers) the same proportion of his or its
Securities as the Controlling Stockholders are selling in the Sale Transaction,
free and clear of all claims, liens and encumbrances; provided, that each
Stockholder shall make appropriate and customary representations, warranties,
covenants and indemnifications in such Sale Transaction as are requested by the
Controlling Stockholders (but not more onerous than the representations,
warranties, covenants and indemnifications of such Controlling Stockholders).
Notwithstanding the foregoing or any other subsection of this Section 3, (i) no
Stockholder shall have any obligation under this Section 3 to effectuate any
such Transfer of his or its Securities (or any portion thereof) with respect to
any Sale Transaction unless the Stockholders (collectively) receive in
connection with such Sale Transaction aggregate cash consideration (or
reasonably liquid securities having a market value) in an amount sufficient to
constitute a return of at least one hundred fifty (150%) percent (on an
annualized basis) on the aggregate principal amount of the Note and any
Additional Notes that were converted into Securities and (ii) to the extent that
a Sale Transaction does not require or cause the conversion of the Promissory
Note or any Additional Note (or the conversion of such portion thereof as would
be required to be transferred pursuant to this Section 3(a)) into Common Stock
or other securities of the Company, the Company may at its option pay the holder
of such Promissory Note or Additional Note the outstanding principal balance
thereof (or the outstanding principal balance relating to such portion thereof)
in cash, together with applicable accrued and unpaid interest, upon the Closing
of such Sale Transaction or within ten (10) days thereafter.
(b) If the Controlling Stockholders exercise their right pursuant to
section 3(a) by giving the Company written notice of such exercise, the Company
shall cause to be delivered to each Stockholder written notice of such exercise
not later than 15 days before the proposed date of closing of the Sale
Transaction.
(c) By execution of this agreement, each Stockholder hereby
irrevocably appoints each of the Company's Chairman, Chief Executive Officer,
President and Secretary and any Assistant Secretary, acting singly, as his or
its attorney-in-fact, with full power of substitution, to execute and deliver
all documents necessary to effect the Transfer of his or her Securities in
accordance with this Section 3.
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<PAGE>
(d) In the event of a proposed Sale Transaction as described in
Section 3(a), each Stockholder shall in all events be required to deliver the
required proportion of his or its Securities to the buyer at the closing of the
sale regardless of whether there is any dispute between the Company and any
Stockholder or between any Stockholder and any of the other stockholders of the
Company. Any such dispute shall be resolved after the closing and shall in no
event delay the closing.
(e) In addition to the agreements contained in Section 12, the
parties hereto agree to cooperate fully with each of the other parties hereto
and to take such actions as shall be reasonably requested by any other party
hereto in order fully to effectuate the terms of this agreement.
(f) The Controlling Stockholders shall be intended third party
beneficiaries of the obligations of the Stockholders and the Company under this
Section 3 and shall be entitled to enforce the provisions of this Section 3
directly against the Stockholders and the Company.
4. Procedures on Sale of Securities to Third Parties. Except as
otherwise provided herein, each Stockholder and each transferee of a Stockholder
required to become a party to this agreement agrees that during the term of this
agreement, it or he shall not Transfer any Securities except in accordance with
the following procedures:
(a) The Stockholder desiring to Transfer (the "Selling Stockholder")
must have first received a written bona fide offer from a third party with
respect to the purchase of all of the Securities owned by such Selling
Stockholder, and such Selling Stockholder shall deliver to the Company and to
each of the other stockholders of the Company (the "Other Stockholders") a
written notice (the "Offer Notice"), which shall include a copy of the third
party offer and the following materials and information, certified by such
Selling Stockholder to be true and correct: (i) the name and address of the
proposed purchaser, (ii) the number of Securities desired to be sold, (iii) the
total purchase price agreed to be paid by the proposed purchaser for the
Securities and the terms of payment, (iv) the proposed closing date for such
sale, (v) a statement that the proposed sale is bona fide and has been entered
into good faith and not with the intention of inducing the Company or the Other
Stockholders to purchase all or any of the Securities and (vi) a statement by
the Selling Stockholder that there are no proposed arrangements or
understandings with the prospective purchaser which have not been disclosed to
the Company and the Other Stockholders which might have the effect of increasing
or decreasing the purchase price offered by the prospective purchaser for the
Securities. The Offer Notice shall constitute an irrevocable offer by the
Selling Stockholder to sell to the Company or to the Other Stockholders the
Securities proposed to be sold by the Selling Stockholder at the purchase price
and on the other terms specified in the such third party offer.
The Company shall have the right and option, for a period of ten
(10) days after its receipt of the Offer Notice, to give the Selling Stockholder
a notice of acceptance of all of the Securities so offered at the purchase price
and on the terms stated in the Offer Notice.
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<PAGE>
In the event the Company does not exercise its right to purchase all
of such Securities, the Other Stockholders shall have the right and option, for
a period of twelve (12) days after the end of the Company's option period, to
give the Selling Stockholder a notice of acceptance of all of the Securities so
offered at the purchase price and on the terms stated in the Offer Notice.
Initially, each Other Stockholder shall have the right to purchase its or his
Pro-Rata Share (as defined below) of the offered Securities. The Other
Stockholders shall also have successive over-allotment rights as to any shares
not purchased by any Other Stockholder, so that if any Other Stockholder fails
to accept all of the Securities that it or he is entitled to purchase within six
(6) days after the beginning of the fifteen-day period referred to in the first
sentence of this paragraph, the remaining Other Stockholders who agree to
purchase its or his Pro-Rata Share may purchase such portion by giving notice
thereof to the Company and the non-purchasing Other Shareholder within five (5)
days after the non-purchasing Other Stockholder fails to exercise its or his
rights hereunder to purchase all of the Securities that it or he may purchase.
The right of the Other Stockholders to purchase the Securities hereunder shall
not be effective unless the Other Stockholders shall have agreed to purchase all
and not less than all of the Securities offered by the Selling Stockholder. "Pro
Rata Share" shall mean, as to each Other Stockholder, the percentage which
expresses the ratio of (x) the number of shares of outstanding common stock of
the Company owned by such Other Stockholder divided by (y) the aggregate number
of shares of such common stock owned by all of the Other Stockholders.
(b) The closings of sales of Securities under Section 4(a) above
shall take place at the offices of the Company on a mutually satisfactory
Business Day within eight (8) days after notice of acceptance is given by the
Company or the Other Stockholders (as the case may be) pursuant to Section 4(a).
Delivery of certificates or other instruments evidencing such Securities duly
endorsed for transfer to the Company or the Other Stockholder(s) (as the case
may be) shall be made on such date against payment of the purchase price
therefor.
(c) If effective acceptance is not received pursuant to Section 4(a)
above with respect to all Securities offered for sale by the Selling
Stockholder, then the Selling Stockholder may Transfer all of the Securities
offered for sale at a price not less than the price, and on terms not more
favorable to the purchaser thereof than the terms, stated in the original third
party offer at any time within forty-five (45) days after the expiration of the
option period of the Other Stockholders as required by Section 4(a) above. In
the event all of the Securities are not sold by the Selling Stockholder during
such forty-five day period, the right of the Selling Stockholder to Transfer
such Securities shall expire and the obligations of this Section 4 shall be
reinstated with respect to all of such Securities.
(d) Anything contained herein to the contrary notwithstanding, any
purchaser of Stock pursuant to this Section 4 shall, as a condition precedent to
such purchase, agree in writing to be bound by all of the provisions of this
agreement to the same extent as such purchaser's transferor, and such purchaser
shall be deemed a Stockholder for all purposes of this agreement.
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<PAGE>
5. Reclassification. In the event that any Securities should, as a
result of a stock split or stock dividend or combination of shares or any other
change or exchange for other securities by reclassification, reorganization,
redesignation, merger, consolidation, recapitalization, split-up, spinoff,
partial or complete liquidation, sale of assets, distribution to stockholders,
combination of shares or otherwise, be increased or decreased or changed into or
exchanged for a different number or kind of shares of capital stock or other
securities of the Company or of another corporation, the terms and provisions of
this agreement shall apply to all of the capital stock of any class of the
Company now owned or that may be issued hereafter to any Stockholder in
consequence of any such event.
6. Purchase for Investment; Legend on Certificate. All of the
Securities held, being acquired or to be held or acquired by each Stockholder
have been, are being, and will be acquired for investment and not with a view to
the distribution thereof and no Transfer of the Securities may be made except in
compliance with this agreement and applicable federal and state securities laws.
All the stock certificates for such Securities now or hereafter owned by the
Stockholder shall have indorsed in writing, stamped or printed, upon the back
thereof, the following legend (or a legend of similar effect):
"THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT
TO AND TRANSFERABLE ONLY IN ACCORDANCE WITH THE PROVISION OF A
STOCKHOLDERS AGREEMENT, DATED JANUARY 24, 2000. A COPY OF THAT
AGREEMENT, AS IT MAY BE AMENDED FROM TIME TO TIME, IS MAINTAINED
WITH THE CORPORATE RECORDS OF THE COMPANY AND IS AVAILABLE FOR
INSPECTION AT THE EXECUTIVE OFFICES OF THE COMPANY."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE
SECURITIES OR BLUE SKY LAWS AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH
ACT OR UNDER SUCH STATE SECURITIES OR BLUE SKY LAWS."
7. Voting of Securities.
(a) Number and Choice of Directors. Throughout the term of this
agreement, each Stockholder shall vote all of his or its Securities (or execute
a consent with respect thereto) and take all other necessary or desirable
actions (in his or its capacity as a shareholder of the Company) as are
necessary to cause the Company's Board of Directors to consist of a number of
members as designated by the Controlling Stockholders, with the identity of all
such members as designated by the Controlling Stockholders. Directors may be
removed only by the direction of the Controlling Stockholders and any vacancies
shall be likewise filled by the designees of the Controlling Stockholders.
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(b) Voting of Securities. Each Stockholder shall vote (or execute a
consent with respect to) any and all Securities over which it or he may exercise
voting power in favor of (i) the election as a director of each individual who
is from time to time designated in accordance with subparagraph (a) above, (ii)
in favor of such other actions which may require the approval of the
Stockholders in accordance with the directions of the Controlling Stockholders
and (iii) such other actions as shall give effect to the provisions of this
Section 7 (or prevent circumvention of such provisions).
(c) Proxy. To effect the above provisions, each Stockholder hereby
irrevocably appoints the Controlling Stockholders, in each specific instance in
which the direction of the Controlling Stockholders is required, with respect to
all of his or its Securities, with full powers of substitution, as attorney and
proxy to (i) attend any and all meetings of shareholders of the Company, (ii) to
exercise any and all voting rights with respect to the elections of directors
pertaining to its or his Securities; (iii) to grant or withhold any and all
written consents with respect to his or its Securities on the matter of election
of directors, (iv) to exercise any and all voting rights with respect to any
matter requiring shareholder approval or action, (v) to grant or withhold any
and all written consents with respect to any matter requiring shareholder
approval and (vi) to represent and otherwise act for the Stockholder in the
matters specified in (i) - (v) above, in the same manner and with the same
effect as if such Stockholder was personally present. The proxy shall be deemed
to be coupled with an interest, and is irrevocable throughout the term of this
agreement and shall not be terminated by operation of law or upon the occurrence
of any event.
(d) Voting Procedures. Any time the direction of the Controlling
Stockholders is necessary or permitted under law pursuant to this Section 7,
then written notice shall be sent by the Company to each Stockholder six (6)
Business Days (as defined below) prior to the date such direction is required or
permitted under law, such notice setting forth the matter to which the
Controlling Stockholders' direction will pertain. The Controlling Stockholders
shall then issue a direction in writing pertaining to such matter and file such
direction with the Secretary of the Company, and a copy of this notice shall be
forwarded to each Stockholder. If no direction of the Controlling Stockholders
is issued with respect to any matter for which a vote of Stockholders or written
consent is required or permitted under law at least three (3) Business Days
prior to the date by which a vote is to be taken or the grant or withholding of
consent may be made, then each Stockholder will be entitled to vote, or grant or
withhold consent, in accordance with the percentage of Securities entitled to
vote or grant or withhold consent on such matter, which it or he holds at such
time. "Business Day" shall mean a calendar day, except Saturdays, Sundays and
legal holidays in the State of New York.
8. Termination of Agreement. Notwithstanding anything to the
contrary contained herein, this agreement shall automatically and without
further action terminate, to the extent provided below:
(a) at such time as the Company shall consummate an underwritten
public offering of the Company's equity securities pursuant to a registration
statement that has been filed under
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the Securities Act of 1933 and declared effective by the Securities and Exchange
Commission but not to include, for this purpose, any offering under Rule 144A or
any similar rule or regulation, this entire agreement shall terminate, or
(b) each of Sections 1, 2, 3 and 4, respectively, of this agreement
shall terminate if and to the extent that the investors in any Financing (as
defined in the Note) do not enter into agreements with the Company containing
provisions substantially similar to such Sections 1, 2, 3 and 4 of this
agreement; provided, however, that notwithstanding any such termination the
remainder of this agreement (including any of such Sections 1, 2, 3 and 4 for
which a substantially similar provision is included in such agreements with such
investors) shall survive in its entirety and continue to be fully enforceable by
the Company in accordance with its terms.
Any such termination shall be without prejudice, however, to any liabilities for
breach of this agreement that may have accrued prior to such termination.
9. Certain Prohibited Transfers. Each Stockholder represents,
warrants and covenants that each transferee to whom Monsoon transfers or assigns
any Securities as permitted or required in the Note is and shall at all times be
an individual (i.e., natural person) resident in the United States, or shall at
all times meet such other applicable requirements, such that upon such transfer
or assignment and thereafter the Company shall not suffer the loss of its status
as a Subchapter S corporation under the Internal Revenue Code, unless the
Company shall give its consent in writing otherwise.
10. Specific Performance. Inasmuch as the Securities cannot be
readily purchased or sold in the open market and the parties hereto desire to
impose certain restrictions on transfers of the Securities, irreparable damage
will result in the event that this agreement is not specifically enforced and
the parties hereto agree that any damages available at law for a breach of this
agreement would not be an adequate remedy. Therefore, the provisions hereof and
the obligations of the parties hereunder shall be enforceable in a court of
equity, or other tribunal having jurisdiction, by a decree of specific
performance, and appropriate injunctive relief may be applied for and granted in
connection therewith. Such remedies and all other remedies provided for in this
agreement shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under this agreement or
otherwise.
11. Additional Stockholders. Subject to the restrictions on
transfers of Securities contained herein, any person or entity required to
become a party to this agreement in connection with the acquisition of
Securities from a Stockholder or a successor thereto, shall, on or before the
transfer or issuance to it of Securities, sign the signature page hereto and
shall thereby become a party to this agreement. As a party to this agreement,
each holder of Securities shall be bound by this agreement and shall hold such
Securities with all rights conferred, and subject to all of obligations and
restrictions imposed, hereunder.
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12. Action Necessary to Effectuate the Agreement. The parties hereto
agree to take or cause to be taken all such corporate and other action as may be
necessary to effect the intent and purposes of this agreement.
13. Miscellaneous.
(a) Notices. All notices, instructions and other communications in
connection with this agreement shall be in writing and may be given by (i) fax
(with evidence of receipt) followed by letter or other delivery, (ii) personal
delivery or (iii) by a nationally recognized overnight courier in each case to
the parties at the address of the Company as follows, and at the address of the
Stockholder as set forth below (or at such other address as the Company or the
Stockholder may specify in a notice to the Company):
If to the Company:
Real Time Strategies, Inc. d/b/a RTS Wireless
51 East Bethpage Road
Plainview, New York, New York 11803
Attention: President
Fax: (516) 939-6189
If to Monsoon:
c/o Scott A Ziegler
Zevnik Horton Guibord McGovern Palmer & Fognani
1330 Avenue of the Americas
New York, New York 10019
Fax: (212) 407-0606
with a copy to:
Scott A. Ziegler
425 East 58th Street
New York, New York 10022
Fax: (212) 319-7605
If to another Stockholder:
To the address and fax number set forth on the signature page to
this agreement executed and delivered to the Company by such
Stockholder
(b) No Waiver. No course of dealing and no delay on the part of any
party hereto in exercising any right, power or remedy conferred by this
agreement shall operate as a waiver thereof or otherwise prejudice such party's
rights, powers and remedies conferred by this
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agreement or shall preclude any other or further exercise thereof or the
exercise of any other right, power and remedy.
(c) Binding Effect; Assignability. This agreement shall be binding
upon and, except as otherwise provided herein, shall inure to the benefit of the
respective parties and their permitted successors and assigns. This agreement
shall not be assignable except as otherwise provided herein.
(d) Severability. Any provision of this agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereby waive any provision of law which renders
any provisions hereof prohibited or unenforceable in any respect.
(e) Modification. No term or provision of this agreement may be
amended, altered, modified, rescinded or terminated except upon the express
written consent of the party against whom the same is sought to be enforced.
(f) Law Governing. This agreement shall be governed by and construed
in accordance with the laws of the state of New York, without reference to the
conflicts or choice of laws principles thereof.
(g) Counterparts. This agreement may be executed in one or more
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same instrument, and all signatures need not appear
on any one counterpart.
(h) Headings. All headings and captions in this agreement are for
purposes of reference only and shall not be construed to limit or affect the
substance of this agreement.
[The rest of this page is left intentionally blank]
10
<PAGE>
(i) Entire Agreement. This agreement contains, and is intended as, a
complete statement of all the terms of the arrangements between the parties with
respect to the matters provided for, supersedes any previous agreements and
understandings between the parties with respect to those matters and cannot be
changed or terminated orally.
REAL TIME STRATEGIES, INC. d/b/a RTS Wireless,
a New York corporation
By: /s/ Spencer Kravitz
-----------------------------------
Name: Spencer Kravitz
Title: Executive VP and COO
MONSOON VENTURES LLC,
a New York limited liability company
By: /s/ Scott A. Ziegler
------------------------------------
Name: Scott A. Ziegler
Title: Managing Member
11
<PAGE>
Exhibit 10.8
THE SECURITY REPRESENTED BY THIS INSTRUMENT HAS BEEN, AND THE SECURITIES
ISSUABLE UPON CONVERSION, IF ANY, OF THIS INSTRUMENT IN ACCORDANCE WITH ITS
TERMS SHALL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
REAL TIME STRATEGIES, INC. d/b/a RTS WIRELESS
NON-NEGOTIABLE CONVERTIBLE PROMISSORY NOTE
January 24, 2000 $3,500,000
Plainview, New York
For value received, Real Time Strategies, Inc. d/b/a RTS Wireless, a New
York corporation (the "Company"), hereby promises to pay to Monsoon Ventures
LLC, a New York limited liability company ("Holder"), $3,500,000 at the times
and in the manner hereinafter provided.
This Note shall bear interest at a per annum rate equal to eight percent
(8%) compounded annually, and, subject to the conversion provisions set forth
below, shall be payable in full on January 24, 2001.
Upon any closing by the Company of an equity financing transaction (as
defined below) with a publicly traded strategic investor (such investor, the
"Strategic Investor" and such financing, the "Strategic Financing") in any
amount, after the date hereof but before the earlier of any Financing in which
this Note is converted into Securities (as such terms are defined below), Sale
Transaction (as defined below), Public Offering (as defined below) or January
24, 2001, the then outstanding principal amount hereof shall be automatically
and simultaneously converted into that number of shares of common stock of the
Company (the "Common Stock") determined by dividing such outstanding principal
amount by (a) if Common Stock is issued in the Strategic Financing, the price
per share at which such Common Stock is sold in such financing or (b) if
preferred stock or debentures that are convertible into Common Stock are issued
in such financing (a "Convertible Security"), the effective price per share of
Common Stock into which such Convertible Security is convertible; provided,
however, that notwithstanding the foregoing, such price per share of Common
Stock shall in no event be less than the price per share that is derived by
dividing $250,000,000 by the number of shares of Common Stock determined on a
fully diluted basis (as defined below) immediately before such Strategic
Financing. If reasonably practicable, the Company shall give Holder written
notice of the closing of any Strategic Financing at least three (3) days before
the occurrence thereof and, in all events, no later than the date of such
closing. Subject to the foregoing, if the Strategic Financing is effected
through multiple closings, Holder will be issued Common Stock at the average
price for all closings, to the extent the closings have different prices. Any
accrued and unpaid interest as of the date of any such conversion shall be paid
in cash. As used in this Note, (a) "fully diluted"
<PAGE>
means all of the issued and outstanding shares of Common Stock, together with
the number of shares of Common Stock subject to options and warrants issued
under any stock option plan of the Company or otherwise to the extent such
options are either vested at the time of such determination or will with the
passage of time become vested within six months thereafter and (b) "equity
financing transaction" means any transaction in which the Company issues Common
Stock, a Convertible Security or another equity security.
Subject to the paragraph immediately following this paragraph, upon any
closing by the Company of a non-public equity financing transaction of at least
$6,000,000 with a party other than a Strategic Investor after the date hereof
but before the earlier of any Strategic Financing, Sale Transaction, Public
Offering or January 24, 2001 (a "Financing"), the then outstanding principal
amount hereof shall be automatically and simultaneously converted into that
number of shares of stock of the class and series issued in the Financing, or
such other equity securities convertible into shares of stock as may be issued
in the Financing (in either case, the "Securities") determined by dividing (a)
such outstanding principal amount by (b) the price per security at which such
Securities are sold in the Financing; provided, however, that notwithstanding
the foregoing, if the actual valuation of the Company upon which such Financing
is based is $400,000,000 or more (immediately prior to such financing, and based
on the number of shares of Common Stock determined on a fully diluted basis
immediately before such Financing), then conversion of this Note shall not be
automatic but shall be at the option of Holder. If reasonably practicable, the
Company shall give Holder written notice of the closing of any Financing at
least five (5) days before the occurrence thereof and, in all events, no later
than the date of such closing. Any optional conversion of this Note in
connection with a valuation of more than $400,000,000 in accordance with this
paragraph shall be subject to and conditional upon delivery by Holder to the
Company on or before the date of such closing or within thirty (30) days
thereafter of Holder's written election to convert this Note. Subject to the
foregoing, if the Financing is effected through multiple closings, Holder will
be issued Securities at the average price for all closings, to the extent the
closings have different prices. Any accrued and unpaid interest as of the date
of any such conversion shall be paid in cash.
Recalculation Right. Notwithstanding the foregoing, in the event (x) a
Financing occurs before any Strategic Financing and, in connection with such
Financing, the outstanding principal amount hereof is converted into Securities
and (y) within sixty (60) days after the closing of such Financing a Strategic
Financing is closed that is based on a valuation of the Company that is lower
(the "Lower Valuation") than the valuation upon which such Financing was based,
then the number of Securities into which such principal amount is convertible
shall be re-calculated utilizing the greater of $250,000,000 or the Lower
Valuation. Within thirty (30) days after the closing of any such Strategic
Financing at a Lower Valuation, the Company shall (a) give notice thereof to
Holder, together with a statement in reasonable detail showing the Lower
Valuation and such re-calculation (based on $250,000,000 or such Lower
Valuation, as the case may be) and (b) issue to Holder such additional
Securities as are indicated by such re-calculation.
In the event that, prior to the earlier of any Strategic Financing,
Financing in which this Note is converted into Securities, Public Offering or
January 24, 2001, the Company closes a Sale Transaction (as defined below), the
then outstanding principal amount hereof shall be automatically and
simultaneously converted into that number of shares of Common Stock
-2-
<PAGE>
determined by dividing (a) such principal amount by (b) the price per share for
the Common Stock that is derived by dividing $500,000,000 by the number of
shares of Common Stock determined on a fully diluted basis immediately before
such closing. Any accrued and unpaid interest as of the date of such closing
shall be paid in cash. If reasonably practicable, the Company shall give Holder
written notice of the closing of any Sale Transaction at least thirty (30) days
before the occurrence thereof. As used in this Note, "Sale Transaction" means
any transaction or a series of related transactions that results, directly or
indirectly, in (i) any merger, consolidation, reorganization, recapitalization
or other business combination pursuant to which the business of the Company is
combined with that of another company and the Company is not the surviving
entity, or (ii) a sale or transfer of all or substantially all of the Company's
assets (including without limitation a lease of all or substantially all of the
assets of the Company with or without a purchase option) or (iii) the
acquisition of the Company by way of public or private offer, open market
purchase, negotiated purchase or otherwise; provided, however, that such term
shall not include any reincorporation of the Company in Delaware.
Subject to the paragraph immediately following this paragraph, in the
event that, prior to the earlier of any Strategic Financing, Financing in which
this Note is converted into Securities, Sale Transaction or January 24, 2001,
the Company consummates a Public Offering (as defined below), the then
outstanding principal amount hereof shall be automatically and simultaneously
converted into that number of shares of Common Stock determined by dividing (a)
such principal amount by (b) the price per share for the Common Stock that is
derived by dividing $450,000,000 by the number of shares of Common Stock
determined on a fully diluted basis immediately before the effective date of
such Public Offering. Any accrued and unpaid interest as of such effective date
shall be paid in cash. As used in this Note, "Public Offering" means the
registration of the offering of any equity securities of the Company under the
Securities Act of 1933 pursuant to a registration on Form S-1 (or any analogous
form).
Notwithstanding the foregoing, if the actual valuation of the Company upon
which such Public Offering is based is $700,000,000 or more (immediately prior
to such offering, and based on the number of shares of Common Stock determined
on a fully diluted basis immediately before the effective date of such
offering), then Holder may, at its option and in lieu of such automatic and
simultaneous conversion of such principal amount, elect to receive payment of
such principal amount in cash together with all accrued and unpaid interest. To
facilitate such election, not later than five (5) days prior to the effective
date of such Public Offering the Company shall deliver a written notice to
Holder stating in reasonable detail the actual valuation upon which such public
offering is based. Any such election by Holder shall be subject to and
conditional upon delivery by Holder to the Company on or before such effective
date or within ten (10) days thereafter of Holder's written election to receive
such cash payment, which election shall be binding and irrevocable. In the event
of such election, the Company shall pay the outstanding principal and accrued
and unpaid interest of this Note via wire transfer to an account designated by
Holder or by check forwarded to the address of Holder within twenty (20) days
after such effective date of such Public Offering. If Holder does not give
notice of such election within ten (10) days after such effective date, the
Company shall have the right to prepay this Note in whole, or in part from time
to time, without penalty or premium at any time thereafter.
In the event the Company does not close any Strategic Financing, Financing
in which this Note is converted into Securities, Sale Transaction or Public
Offering by January 24, 2001, and
-3-
<PAGE>
subject to and conditional upon delivery by Holder to the Company on or before
that date of Holder's written election to convert this Note in accordance with
this paragraph, the then outstanding principal amount hereof may be converted at
Holder's option into that number of shares of Common Stock determined by
dividing (a) such principal amount by (b) the price per share for the Common
Stock that is derived by dividing $375,000,000 by the number of shares of Common
Stock determined on a fully diluted basis immediately before any conversion of
this Note pursuant to this paragraph. Any accrued and unpaid interest as of the
date of such conversion shall be paid in cash. In the event the Company
determines that the same is necessary to preserve the Company's status as a
Subchapter S corporation under the Internal Revenue Code, and the Company
desires to preserve such status, then before, and as a condition to, any
conversion pursuant to this paragraph, the Company may require Holder to
transfer this Note to the members of Holder so that the Common Stock to be
issued upon such conversion shall be held by the members of Holder. Any such
transfer shall be done upon assignment of the original Note, duly endorsed, and
accompanied by a duly executed written instrument of transfer in form and
substance satisfactory to the Company as evidenced by the Company's written
acknowledgment of such written instrument of transfer.
As soon as practicable after any conversion of this Note, the Company at
its expense will cause to be issued in the name of, or as directed by, and
delivered to or upon the order of, Holder or its transferees (as the case may
be), a certificate or certificates for the number of shares of Common Stock or
Securities to which Holder or such transferees shall be entitled upon such
conversion (bearing such legends as may be required by applicable state and
federal securities laws and/or otherwise advisable in the reasonable opinion of
legal counsel for the Company). Such conversion shall be deemed to have been
made upon the earlier of (a) in the event that a Strategic Financing, a
Financing in which this Note is converted into Securities or a Sale Transaction
is closed on or before January 24, 2001, on the closing of such financing or
transaction, (b) in the event that a Public Offering is closed on or before
January 24, 2001, on the effective date of such Public Offering or (c) in the
event that Holder shall have elected to convert this Note into shares of Common
Stock on or before January 24, 2001, immediately prior to the close of business
on the date (not later than January 24, 2001) that the Note shall have been
surrendered for conversion accompanied by written notice of election of such
conversion. No fractional shares will be issued upon any conversion of this
Note. If upon any conversion of this Note a fraction of a share results, the
Company at its option will pay the cash value of that fractional share or issue
a full share to Holder in lieu of such fractional share.
If this Note is not converted into Common Stock or Securities pursuant to
the foregoing paragraphs, the principal and interest of this Note shall be
payable via wire transfer to an account designated by Holder or by bank or
cashier's check forwarded to the address of Holder as Holder shall from time to
time designate. If this Note is converted into Common Stock or Securities
pursuant to the foregoing paragraphs, this Note shall be deemed to be paid in
full, canceled and extinguished upon such conversion; provided, however, that
notwithstanding the foregoing the provisions above relating to multiple closings
and the paragraph above entitled "Recalculation Right" shall survive and be
fully enforceable by Holder in accordance with the terms thereof .
The Company and all endorsers of this Note hereby waive notice,
presentment, protest and notice of dishonor. If, after maturity, this Note is
placed in the hands of an attorney for
-4-
<PAGE>
collection or if it is collected through judicial, probate, bankruptcy, or
receivership proceedings, an additional reasonable amount shall be paid by
Company to Holder for attorney's fees.
Except as set forth in the next succeeding sentence, this Note is not
assignable or transferable by Holder without the prior written consent of the
Company. Notwithstanding the aforementioned, Holder hereof may transfer all or a
portion of this Note (or the securities issuable on conversion hereof) to the
members of Holder upon delivery to the Company of an opinion of counsel for such
members to the effect that such transfer is pursuant to a valid exemption from
registration under the Securities Act of 1933, which opinion shall be reasonably
acceptable in form and substance to the Company. Any transfer of this Note shall
be done only upon assignment of the original Note, duly endorsed, and
accompanied by a duly executed written instrument of transfer in form and
substance satisfactory to the Company as evidenced by the Company's written
acknowledgment of such written instrument of transfer, which acknowledgment
shall not be unreasonably withheld or delayed. Interest and principal are
payable only to Holder or its permitted transferees. Holder and any permitted
transferees each agree to provide a Form W-9 to the Company promptly on request.
The terms and conditions of this Note shall be governed by New York law,
without reference to principles of conflicts or choice of law. This Note is
governed by a Note Purchase Agreement which is herein incorporated by reference.
All references to the Company herein shall be deemed to include its
successors and assigns, and all covenants, stipulations, promises and agreements
contained herein by or on behalf of the Company shall be binding upon its
successors and assigns, whether so expressed or not.
No modification or waiver of any provision of this Note or consent to
departure therefrom shall be effective unless in writing and signed by the
Company and Holder.
IN WITNESS WHEREOF, Real Time Strategies, Inc. d/b/a RTS Wireless has
caused this Note to be executed in its corporate name and this Note to be dated,
issued and delivered, all on the 24th day of January, 2000.
Real Time Strategies, Inc. d/b/a
RTS Wireless, a New York Corporation
By: /s/ Spencer Kravitz
---------------------------------
Title: Executive VP and COO
------------------------------
-5-
<PAGE>
Exhibit 10.9
THE SECURITY REPRESENTED BY THIS INSTRUMENT HAS BEEN, AND THE SECURITIES
ISSUABLE UPON CONVERSION, IF ANY, OF THIS INSTRUMENT IN ACCORDANCE WITH ITS
TERMS SHALL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
REAL TIME STRATEGIES, INC. d/b/a RTS WIRELESS
NON-NEGOTIABLE CONVERTIBLE PROMISSORY NOTE
January 31, 2000 $1,500,000
Plainview, New York
For value received, Real Time Strategies, Inc. d/b/a RTS Wireless, a New
York corporation (the "Company"), hereby promises to pay to Monsoon Ventures
LLC, a New York limited liability company ("Holder"), $1,500,000 at the times
and in the manner hereinafter provided.
This Note shall bear interest at a per annum rate equal to eight percent
(8%) compounded annually, and, subject to the conversion provisions set forth
below, shall be payable in full on January 31, 2001.
Upon any closing by the Company of an equity financing transaction (as
defined below) with a publicly traded strategic investor (such investor, the
"Strategic Investor" and such financing, the "Strategic Financing") in any
amount, after the date hereof but before the earlier of any Financing in which
this Note is converted into Securities (as such terms are defined below), Sale
Transaction (as defined below), Public Offering (as defined below) or January
31, 2001, the then outstanding principal amount hereof shall be automatically
and simultaneously converted into that number of shares of common stock of the
Company (the "Common Stock") determined by dividing such outstanding principal
amount by (a) if Common Stock is issued in the Strategic Financing, the price
per share at which such Common Stock is sold in such financing or (b) if
preferred stock or debentures that are convertible into Common Stock are issued
in such financing (a "Convertible Security"), the effective price per share of
Common Stock into which such Convertible Security is convertible; provided,
however, that notwithstanding the foregoing, such price per share of Common
Stock shall in no event be less than the price per share that is derived by
dividing $250,000,000 by the number of shares of Common Stock determined on a
fully diluted basis (as defined below) immediately before such Strategic
Financing. If reasonably practicable, the Company shall give Holder written
notice of the closing of any Strategic Financing at least three (3) days before
the occurrence thereof and, in all events, no later than the date of such
closing. Subject to the foregoing, if the Strategic Financing is effected
through multiple closings, Holder will be issued Common Stock at the average
price for all closings, to the extent the closings have different prices. Any
accrued and unpaid interest as of the date of any such conversion shall be paid
in cash. As used in this Note, (a) "fully diluted"
<PAGE>
means all of the issued and outstanding shares of Common Stock, together with
the number of shares of Common Stock subject to options and warrants issued
under any stock option plan of the Company or otherwise to the extent such
options are either vested at the time of such determination or will with the
passage of time become vested within six months thereafter and (b) "equity
financing transaction" means any transaction in which the Company issues Common
Stock, a Convertible Security or another equity security.
Subject to the paragraph immediately following this paragraph, upon any
closing by the Company of a non-public equity financing transaction of at least
$6,000,000 with a party other than a Strategic Investor after the date hereof
but before the earlier of any Strategic Financing, Sale Transaction, Public
Offering or January 31, 2001 (a "Financing"), the then outstanding principal
amount hereof shall be automatically and simultaneously converted into that
number of shares of stock of the class and series issued in the Financing, or
such other equity securities convertible into shares of stock as may be issued
in the Financing (in either case, the "Securities") determined by dividing (a)
such outstanding principal amount by (b) the price per security at which such
Securities are sold in the Financing; provided, however, that notwithstanding
the foregoing, if the actual valuation of the Company upon which such Financing
is based is $400,000,000 or more (immediately prior to such financing, and based
on the number of shares of Common Stock determined on a fully diluted basis
immediately before such Financing), then conversion of this Note shall not be
automatic but shall be at the option of Holder. If reasonably practicable, the
Company shall give Holder written notice of the closing of any Financing at
least five (5) days before the occurrence thereof and, in all events, no later
than the date of such closing. Any optional conversion of this Note in
connection with a valuation of more than $400,000,000 in accordance with this
paragraph shall be subject to and conditional upon delivery by Holder to the
Company on or before the date of such closing or within thirty (30) days
thereafter of Holder's written election to convert this Note. Subject to the
foregoing, if the Financing is effected through multiple closings, Holder will
be issued Securities at the average price for all closings, to the extent the
closings have different prices. Any accrued and unpaid interest as of the date
of any such conversion shall be paid in cash.
Recalculation Right. Notwithstanding the foregoing, in the event (x) a
Financing occurs before any Strategic Financing and, in connection with such
Financing, the outstanding principal amount hereof is converted into Securities
and (y) within sixty (60) days after the closing of such Financing a Strategic
Financing is closed that is based on a valuation of the Company that is lower
(the "Lower Valuation") than the valuation upon which such Financing was based,
then the number of Securities into which such principal amount is convertible
shall be re-calculated utilizing the greater of $250,000,000 or the Lower
Valuation. Within thirty (30) days after the closing of any such Strategic
Financing at a Lower Valuation, the Company shall (a) give notice thereof to
Holder, together with a statement in reasonable detail showing the Lower
Valuation and such re-calculation (based on $250,000,000 or such Lower
Valuation, as the case may be) and (b) issue to Holder such additional
Securities as are indicated by such re-calculation.
In the event that, prior to the earlier of any Strategic Financing,
Financing in which this Note is converted into Securities, Public Offering or
January 31, 2001, the Company closes a Sale Transaction (as defined below), the
then outstanding principal amount hereof shall be automatically and
simultaneously converted into that number of shares of Common Stock
-2-
<PAGE>
determined by dividing (a) such principal amount by (b) the price per share for
the Common Stock that is derived by dividing $500,000,000 by the number of
shares of Common Stock determined on a fully diluted basis immediately before
such closing. Any accrued and unpaid interest as of the date of such closing
shall be paid in cash. If reasonably practicable, the Company shall give Holder
written notice of the closing of any Sale Transaction at least thirty (30) days
before the occurrence thereof. As used in this Note, "Sale Transaction" means
any transaction or a series of related transactions that results, directly or
indirectly, in (i) any merger, consolidation, reorganization, recapitalization
or other business combination pursuant to which the business of the Company is
combined with that of another company and the Company is not the surviving
entity, or (ii) a sale or transfer of all or substantially all of the Company's
assets (including without limitation a lease of all or substantially all of the
assets of the Company with or without a purchase option) or (iii) the
acquisition of the Company by way of public or private offer, open market
purchase, negotiated purchase or otherwise; provided, however, that such term
shall not include any reincorporation of the Company in Delaware.
Subject to the paragraph immediately following this paragraph, in the
event that, prior to the earlier of any Strategic Financing, Financing in which
this Note is converted into Securities, Sale Transaction or January 31, 2001,
the Company consummates a Public Offering (as defined below), the then
outstanding principal amount hereof shall be automatically and simultaneously
converted into that number of shares of Common Stock determined by dividing (a)
such principal amount by (b) the price per share for the Common Stock that is
derived by dividing $450,000,000 by the number of shares of Common Stock
determined on a fully diluted basis immediately before the effective date of
such Public Offering. Any accrued and unpaid interest as of such effective date
shall be paid in cash. As used in this Note, "Public Offering" means the
registration of the offering of any equity securities of the Company under the
Securities Act of 1933 pursuant to a registration on Form S-1 (or any analogous
form).
Notwithstanding the foregoing, if the actual valuation of the Company upon
which such Public Offering is based is $700,000,000 or more (immediately prior
to such offering, and based on the number of shares of Common Stock determined
on a fully diluted basis immediately before the effective date of such
offering), then Holder may, at its option and in lieu of such automatic and
simultaneous conversion of such principal amount, elect to receive payment of
such principal amount in cash together with all accrued and unpaid interest. To
facilitate such election, not later than five (5) days prior to the effective
date of such Public Offering the Company shall deliver a written notice to
Holder stating in reasonable detail the actual valuation upon which such public
offering is based. Any such election by Holder shall be subject to and
conditional upon delivery by Holder to the Company on or before such effective
date or within ten (10) days thereafter of Holder's written election to receive
such cash payment, which election shall be binding and irrevocable. In the event
of such election, the Company shall pay the outstanding principal and accrued
and unpaid interest of this Note via wire transfer to an account designated by
Holder or by check forwarded to the address of Holder within twenty (20) days
after such effective date of such Public Offering. If Holder does not give
notice of such election within ten (10) days after such effective date, the
Company shall have the right to prepay this Note in whole, or in part from time
to time, without penalty or premium at any time thereafter.
In the event the Company does not close any Strategic Financing, Financing
in which this Note is converted into Securities, Sale Transaction or Public
Offering by January 31, 2001, and
-3-
<PAGE>
subject to and conditional upon delivery by Holder to the Company on or before
that date of Holder's written election to convert this Note in accordance with
this paragraph, the then outstanding principal amount hereof may be converted at
Holder's option into that number of shares of Common Stock determined by
dividing (a) such principal amount by (b) the price per share for the Common
Stock that is derived by dividing $375,000,000 by the number of shares of Common
Stock determined on a fully diluted basis immediately before any conversion of
this Note pursuant to this paragraph. Any accrued and unpaid interest as of the
date of such conversion shall be paid in cash. In the event the Company
determines that the same is necessary to preserve the Company's status as a
Subchapter S corporation under the Internal Revenue Code, and the Company
desires to preserve such status, then before, and as a condition to, any
conversion pursuant to this paragraph, the Company may require Holder to
transfer this Note to the members of Holder so that the Common Stock to be
issued upon such conversion shall be held by the members of Holder. Any such
transfer shall be done upon assignment of the original Note, duly endorsed, and
accompanied by a duly executed written instrument of transfer in form and
substance satisfactory to the Company as evidenced by the Company's written
acknowledgment of such written instrument of transfer.
As soon as practicable after any conversion of this Note, the Company at
its expense will cause to be issued in the name of, or as directed by, and
delivered to or upon the order of, Holder or its transferees (as the case may
be), a certificate or certificates for the number of shares of Common Stock or
Securities to which Holder or such transferees shall be entitled upon such
conversion (bearing such legends as may be required by applicable state and
federal securities laws and/or otherwise advisable in the reasonable opinion of
legal counsel for the Company). Such conversion shall be deemed to have been
made upon the earlier of (a) in the event that a Strategic Financing, a
Financing in which this Note is converted into Securities or a Sale Transaction
is closed on or before January 31, 2001, on the closing of such financing or
transaction, (b) in the event that a Public Offering is closed on or before
January 31, 2001, on the effective date of such Public Offering or (c) in the
event that Holder shall have elected to convert this Note into shares of Common
Stock on or before January 31, 2001, immediately prior to the close of business
on the date (not later than January 31, 2001) that the Note shall have been
surrendered for conversion accompanied by written notice of election of such
conversion. No fractional shares will be issued upon any conversion of this
Note. If upon any conversion of this Note a fraction of a share results, the
Company at its option will pay the cash value of that fractional share or issue
a full share to Holder in lieu of such fractional share.
If this Note is not converted into Common Stock or Securities pursuant to
the foregoing paragraphs, the principal and interest of this Note shall be
payable via wire transfer to an account designated by Holder or by bank or
cashier's check forwarded to the address of Holder as Holder shall from time to
time designate. If this Note is converted into Common Stock or Securities
pursuant to the foregoing paragraphs, this Note shall be deemed to be paid in
full, canceled and extinguished upon such conversion; provided, however, that
notwithstanding the foregoing the provisions above relating to multiple closings
and the paragraph above entitled "Recalculation Right" shall survive and be
fully enforceable by Holder in accordance with the terms thereof .
The Company and all endorsers of this Note hereby waive notice,
presentment, protest and notice of dishonor. If, after maturity, this Note is
placed in the hands of an attorney for
-4-
<PAGE>
collection or if it is collected through judicial, probate, bankruptcy, or
receivership proceedings, an additional reasonable amount shall be paid by
Company to Holder for attorney's fees.
Except as set forth in the next succeeding sentence, this Note is not
assignable or transferable by Holder without the prior written consent of the
Company. Notwithstanding the aforementioned, Holder hereof may transfer all or a
portion of this Note (or the securities issuable on conversion hereof) to the
members of Holder upon delivery to the Company of an opinion of counsel for such
members to the effect that such transfer is pursuant to a valid exemption from
registration under the Securities Act of 1933, which opinion shall be reasonably
acceptable in form and substance to the Company. Any transfer of this Note shall
be done only upon assignment of the original Note, duly endorsed, and
accompanied by a duly executed written instrument of transfer in form and
substance satisfactory to the Company as evidenced by the Company's written
acknowledgment of such written instrument of transfer, which acknowledgment
shall not be unreasonably withheld or delayed. Interest and principal are
payable only to Holder or its permitted transferees. Holder and any permitted
transferees each agree to provide a Form W-9 to the Company promptly on request.
The terms and conditions of this Note shall be governed by New York law,
without reference to principles of conflicts or choice of law. This Note is
governed by a Note Purchase Agreement which is herein incorporated by reference.
All references to the Company herein shall be deemed to include its
successors and assigns, and all covenants, stipulations, promises and agreements
contained herein by or on behalf of the Company shall be binding upon its
successors and assigns, whether so expressed or not.
No modification or waiver of any provision of this Note or consent to
departure therefrom shall be effective unless in writing and signed by the
Company and Holder.
IN WITNESS WHEREOF, Real Time Strategies, Inc. d/b/a RTS Wireless has
caused this Note to be executed in its corporate name and this Note to be dated,
issued and delivered, all on the 31st day of January, 2000.
Real Time Strategies, Inc. d/b/a
RTS Wireless, a New York Corporation
By: /s/ Spencer Kravitz
---------------------------------
Title: Executive VP and COO
------------------------------
-5-
<PAGE>
Exhibit 10.10
[LOGO] CHASE THE CHASE MANHATTAN BANK
MASTER GRID NOTE
$2,000,000.00 Plainview N.Y.
July 1, 1999
On the due date for each Advance or on Demand (as recorded on the grid
attached hereto or on any additional pages thereof), but in any event on June
30, 2000 if outstanding on such date, for value received, the undersigned
hereby promises to pay to the order of THE CHASE MANHATTAN BANK (hereinafter
the "Bank") at its offices at 7600 Jericho Tpke., Woodbury, New York, the
principal sum of the aggregate unpaid principal amount of each Advance (as
recorded on the grid attached hereto or on any additional pages thereof) made
by the Bank to the undersigned. The undersigned further promises to pay
interest on the unpaid principal amount of each Advance (computed on the
basis of the actual number of days elapsed on the basis of a 360-day year) on
7/31 (specific date) and the last day of each month (insert "month", "third
month", "quarter", etc.) thereafter, and at maturity, at the per annum rate
of interest recorded for such Advance on the grid attached hereto or on any
additional page thereof, but in no event higher than the maximum interest
rate permitted under applicable law. Advances for which the designated rate
of interest is or includes "Prime Rate", "Prime", "P" or similar designations
(e.g., "P + 1%") shall be read to refer to a floating rate equaling or based
upon the Bank's Prime Rate, and shall be adjusted on the date of each change
thereof. Prime Rate shall be the rate of interest as is publicly announced at
the Bank's principal office from time to time as its prime rate. Interest on
any past due amount, whether at the due date thereof or by acceleration,
shall be paid at a rate of three percent (3%) per annum in excess of the
above stated rate, but in no event higher than the maximum permitted under
applicable law. Time for payment extended by law shall be included in the
computation of interest.
If any principal of any Advance hereunder which bears interest at a fixed
rate of interest is paid prior to the scheduled maturity date set forth on the
grid attached hereto or on any additional pages thereof (whether by
acceleration, prepayment or otherwise), the undersigned also agrees to pay to
the Bank, on demand, such amount as is reasonably determined by the Bank to
represent the aggregate losses, costs, and expenses incurred or suffered by the
Bank as a result of such payment (including losses, costs and expenses resulting
from not receiving the rate of interest set forth above for the entire loan
period and/or the liquidation or redeployment of funds). A certificate of the
Bank setting forth the foregoing amount shall, absent manifest error, be
conclusive and binding for all purposes.
The undersigned hereby grants to the Bank a lien on, security interest in
and right of set-off against all monies, securities and other property of the
undersigned and the proceeds thereof now or hereafter delivered to remain with
or in transit in any manner to the Bank, its correspondents or its agents from
or for the undersigned, whether for safekeeping, custody, pledge, transmission,
collection or for any other purpose, or coming into possession, control or
custody of the Bank, Chase Securities Inc., or any other affiliate of the Bank
in any way, and, also, any balance of any deposit account and credits of the
undersigned with, and any other claims of the undersigned against, the Bank,
Chase Securities Inc., or any other affiliate of the
<PAGE>
Bank at any time existing (all of which are hereinafter collectively called
"Collateral"), as collateral security for the payment of this note and all other
liabilities and obligations now or hereafter owed by the undersigned to the
Bank, contracted with or acquired by the Bank, whether joint, several, direct,
indirect, absolute, contingent, secured, unsecured, matured or unmatured (all of
which are hereafter collectively called "Liabilities"), hereby authorizing the
Bank at any time or times, without notice or demand, to apply any such
Collateral or any proceeds thereof to any of such Liabilities in such amounts as
it in its sole discretion may select, whether contingent, unmatured or otherwise
and whether any other collateral security therefor is deemed adequate or not.
The undersigned authorizes the Bank to deliver to others a copy of this note as
written notification of the undersigned's transfer of a security interest in the
Collateral. The Bank further is authorized at any time or times, without demand
or notice to the undersigned, to transfer to or register in the name of its
nominee or nominees all or any part of the Collateral and to exercise any and
all rights, power and privileges (except that prior to an Event of Default the
Bank shall not have the right to vote or to direct the voting of any
Collateral). The collateral security and other rights described herein shall be
in addition to any other collateral security described in any separate agreement
executed by the undersigned.
In the event of: default in the prompt payment of any Liabilities; default
in any other indebtedness of the undersigned (which, for the purposes of this
sentence, means the undersigned or any guarantor, surety or endorser of, or any
person or entity which has pledged any of its property to secure, any
Liabilities); complete or partial liquidation or suspension of any business of
the undersigned; dissolution, merger, consolidation or reorganization of the
undersigned; death of or loss of employment by an individual or any member of
any partnership (if the undersigned is an individual or a partnership); failure
to furnish any financial information or to permit inspection of any books or
records at the Bank's request; a representation, warranty or statement of the
undersigned proving false in any material respect when made or furnished;
general assignment for the benefit of creditors or insolvency of the
undersigned; commencement of any proceeding supplementary to any execution
relating to any judgment against the undersigned; attachment; distraint, levy,
execution or final judgment against the undersigned or against the property of
the undersigned; assignment by the undersigned of any equity in any of the
Collateral without the written consent of the Bank; appointment of a receiver,
conservator, rehabilitator or similar officer for the undersigned, or for any
property of the undersigned; tax assessment by the United States Government or
any state or political subdivision thereof against the undersigned; the taking
of possession of, or assumption of control over, all or any substantial part of
the property of the undersigned by the United States Government, or any state or
political subdivision thereof, foreign government (de facto or de jure)or any
agency of any thereof; calling of a meeting of creditors, assignment for the
benefit of creditors or bulk sale or notice thereof; any mortgage, pledge of or
creation of a security interest in any assets without the consent of the holder
of this note; filing of a petition in bankruptcy, commencement of any proceeding
under any bankruptcy or debtor's law (or similar law analogous in purpose or
effect) for the relief, reorganization, composition, extension, arrangement or
readjustment of any of the obligations by or against the undersigned; then, and
in any of those events (each, an "Event of Default"), all Liabilities, although
otherwise unmatured or contingent, shall forthwith become due and payable
without notice or demand and notwithstanding anything to the contrary contained
herein or in any other instrument. Further, acceptance of any payments shall not
waive or affect any prior demand or acceleration of these Liabilities, and each
such payment made shall be applied first to the payment of accrued interest,
then to the aggregate unpaid
2
<PAGE>
principal or otherwise as determined by the Bank in its sole discretion. The
undersigned hereby irrevocably consents to the in personam jurisdiction of the
federal and/or state courts located within the State of New York over
controversies arising from or relating to this note or the Liabilities and
irrevocably waives trial by jury and the right to interpose any counterclaim or
offset of any nature in any such litigation. The undersigned further irrevocably
waives presentment, demand, protest, notice of dishonor and all other notices or
demands of any kind in connection with this note or any Liabilities. The
undersigned shall be jointly and severally liable hereon.
The Bank may, at its option, at any time when in the judgment of the Bank
the Collateral is inadequate or the Bank deems itself insecure, or upon or at
any time after the occurrence of an Event of Default, proceed to enforce payment
of the same and exercise any of or all the rights and remedies afforded the Bank
by the Uniform Commercial Code (the "Code") or otherwise possessed by the Bank.
Any requirement of the Code for reasonable notice to the undersigned shall be
deemed to have been complied with if such notice is mailed, postage prepaid, to
the undersigned and such other persons entitled to notice, at the addresses
shown on the records of the Bank at least four (4) days prior to the time of
sale, disposition or other event requiring notice under the Code.
The undersigned agrees to pay to the Bank, as soon as incurred, all costs
and expenses incidental to the care, preservation, processing, sale or
collection of or realization upon any of or all the Collateral or incurred in
connection with the enforcement or collection of this note, or in any way
relating to the rights of the Bank hereunder, including reasonable inside or
outside counsel fees and expenses. Each and every right and remedy hereby
granted to the Bank or allowed to it by law shall be cumulative and not
exclusive and each may be exercised by the Bank from time to time and as often
as may be necessary. The undersigned shall have the sole responsibility for
notifying the Bank in writing that the undersigned wishes to take advantage of
any redemption, conversion or other similar right with respect to any of the
Collateral. The Bank may release any party (including any partner of any
undersigned) without notice to any of the undersigned, whether as co-makers,
endorsers, guarantors, sureties, assigns or otherwise, without affecting the
liability of any of the undersigned hereof or any partner of any undersigned
hereof.
Upon any transfer of this note, the undersigned hereby waiving notice of
any such transfer, the Bank may deliver the Collateral or any part thereof to
the transferee who shall thereupon become vested with all the rights herein or
under applicable law given to the Bank with respect thereto and the Bank shall
thereafter forever be relieved and fully discharged from any liability or
responsibility in the matter; but the Bank shall retain all rights hereby given
to it with respect to any Liabilities and Collateral not so transferred. No
modification or waiver of any of the provisions of this note shall be effective
unless in writing, signed by the Bank, and only to the extent therein set forth;
nor shall any such waiver be applicable except in the specific instance for
which given. This agreement sets forth the entire understanding of the parties,
and the undersigned acknowledges that no oral or other agreements, conditions,
promises, understandings, representations or warranties exist in regard to the
obligations hereunder, except those specifically set forth herein.
If the undersigned is a partnership, the agreement herein contained shall
remain in force and applicable, notwithstanding any changes in the individuals
composing the partnership or any
3
<PAGE>
release of any partner or partners and their partners shall not thereby be
released from any liability. If this note is signed by more than one party, the
terms "undersigned", as used herein, shall include and mean the "undersigned and
each of them" and each undertaking herein contained shall be their joint and
several undertaking, provided, however, that in the phrases "of the
undersigned", "by the undersigned", "against the undersigned", "for the
undersigned", "to the undersigned", and "on the undersigned", the term
"undersigned" shall mean the "undersigned or any of them", and the Bank may
release or exchange any of the Collateral belonging to any of the parties hereto
and it may renew or extend any of the liabilities of any of them and may make
additional advances or extensions of credit to any of them or release or fail to
set off any deposit account or credit to any of them or grant other indulgences
to any of them, all from time to time, before or after maturity hereof, with or
without further notice to or assent from any of the other parties hereto. Each
reference herein to the Bank shall be deemed to include its successors,
endorsees, and assigns, in whose favor the provisions hereof shall also inure.
Each reference herein to the undersigned shall be deemed to include the heirs,
executors, administrators, legal representatives, successors and assigns of the
undersigned, all of whom shall be bound by the provisions hereof.
The provisions of this note shall be construed and interpreted and all
rights and obligations hereunder determined in accordance with the laws of the
State of New York, and, as to interest rates, applicable Federal Law.
Real Time Strategies, Inc. _________________________________________
Address: 51 E. Bethpage Road
Plainview, NY 11803
Address:__________________________________
/s/ Spencer Kravitz
- ------------------------------
Spencer Kravitz,
it's Executive VP & CFO
4
<PAGE>
GRID
<TABLE>
<CAPTION>
ADVANCES PAYMENTS
- ------------------------------------------------- --------------------------------------- -------------- ---------
Balance Due LN Clerk
Date Made Amount Rate Maturity Date Date Made Principal Interest on Principal Initials
- ----------- -------- ------ --------------- ----------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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</TABLE>
5
<PAGE>
EXHIBIT 10.11
CHASE
THE CHASE MANHATTAN BANK
John K. Budzynski
Assistant Vice President
7600 Jericho Turnpike
Woodbury, New York 11797
Telephone #(516) 677-4502
Fax #(516) 364-3307
July 12, 1999
Mr. Alvin Ring
President
Real Time Strategies, Inc.
51 East Bethpage Road
Plainview, New York 11803
Dear Al,
I am pleased to inform you that The Chase Manhattan Bank ("Chase") has approved
a $2,000,000 secured line of credit in favor of Real Time Strategies, Inc. (the
"Borrower") to be used for normal short term working capital needs, subject to
the terms set forth in this letter.
Any advances which Chase may extend will be on the terms and conditions as we
may require at the time the Borrower requests an advance and must be evidenced
by documents in form and substance satisfactory to Chase.
All outstanding borrowings under this arrangement will bear interest at Chase's
Prime Rate plus one percent (Prime +1%) in effect from time to time and shall be
evidenced by documentation in form and substance satisfactory to Chase.
To compensate Chase for the cost of its ongoing credit review, an annual fee of
2,500 per annum will be charged against the total line of credit.
This line of credit shall be further subject to the requirement that for 30
consecutive days during each twelve month period or during the term hereof,
whichever is shorter, there shall be no loans outstanding hereunder.
This line of credit shall expire on June 30, 2000, unless terminated earlier by
Chase in its sole discretion. This letter does not constitute a commitment or in
any way obligate Chase to lend. This letter constitutes the entire understanding
between Chase and the Borrower on this subject.
<PAGE>
Please acknowledge your understanding of the foregoing by signing and returning
the enclosed copy of this letter along with the pro-rated origination fee to the
undersigned no later than August 1, 1999.
We appreciate the opportunity to be of service to you.
Very truly yours,
THE CHASE MANHATTAN BANK
/s/ John K. Budzynski
- ---------------------------------
RECEIPT OF THE FOREGOlNG LETTER IS HEREBY ACKNOWLEDGED, TOGETHER WITH ASSENT TO
THE TERMS THEREOF.
Real Time Strategies, Inc.
By:/s/ Spencer Kravitz Date: 7/21/99
------------------------------------------ -------
Executive VP & CFO
<PAGE>
REAL TIME STRATEGIES, INC.
INCENTIVE STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to key employees (including directors and
officers who are key employees) and to consultants, advisors and directors who
are not employees of Real Time Strategies, Inc., a New York corporation (the
"Company"), and its present and future subsidiary corporations, as defined in
Paragraph 19 ("Subsidiaries"), and to offer an additional inducement in
obtaining the services of such individuals. The Board of Directors of the
Company (the "Board of Directors") believes that the granting of stock options
under the Plan will promote (i) continuity of management, directors and other
service providers and (ii) increased incentive and personal interest in the
welfare of the Company by those who are or may become primarily responsible for
shaping and carrying out the long range plans of the Company and securing its
continued growth and financial success. The Plan provides for the grant of
"incentive stock options" ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options ("NQSOs"), but the Company makes no warranty as to the qualification of
any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of Common Stock, $.01 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 1,500,000. Such shares of Common Stock may, in the
discretion of the Board of Directors, consist either in whole or in part of
authorized but unissued shares of Common Stock or shares of Common Stock held in
the treasury of the Company. The Company shall at all times during the term of
the Plan reserve and keep available such number of shares of Common Stock as
will be sufficient to satisfy the requirements of the Plan. Subject to the
provisions of Paragraph 13, any shares of Common Stock subject to an option
which for any reason expires, is canceled or is terminated unexercised or which
ceases for any reason to be exercisable shall again become available for the
granting of options under the Plan.
<PAGE>
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Board of Directors.
Subject to the express provisions of the Plan, the Board of Directors
shall have the authority, in its sole discretion, to determine the key
employees, consultants, advisors and directors who are not employees that shall
receive options; the times when they shall receive options; whether an option
granted to an employee shall be an ISO or a NQSO; the number of shares of Common
Stock to be subject to each option; the term of each option; the date each
option shall become exercisable; whether an option shall be exercisable in
whole, in part or in installments, and, if in installments, the number of shares
of Common Stock to be subject to each installment; whether the installments
shall be cumulative; the date each installment shall become exercisable and the
term of each installment; whether to accelerate the date of exercise of any
installment; whether shares of Common Stock may be issued on exercise of an
option as partly paid, and, if so, the dates when future installments of the
exercise price shall become due and the amounts of such installments; the
exercise price of each option; the form of payment of the exercise price;
whether to restrict the sale or other disposition of the shares of Common Stock
acquired upon the exercise of an option and to waive any such restriction;
whether to subject the exercise of all or any portion of an option to the
fulfillment of contingencies as specified in the contract referred to in
Paragraph 11 (the "Contract"), including without limitation, contingencies
relating to entering into a covenant not to compete with the Company and any
Parent (as defined in Paragraph 19) and Subsidiaries, to financial objectives
for the Company, a Subsidiary, a division, a product line or other category,
and/or the period of continued relationship of the optionee with the Company or
its Subsidiaries, and to determine whether such contingencies have been met; to
determine the amount, if any, necessary to satisfy the Company's obligation to
withhold taxes or other amounts; the fair market value of a share of Common
Stock; to construe the respective Contracts and the Plan; with the consent of
the optionee, to cancel or modify an option, provided such option as modified
would be permitted to be granted on such date under the terms of the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; and to
make all other determinations necessary or advisable for administering the Plan.
The determinations of the Board of Directors on the matters referred to in this
Paragraph 3 shall be conclusive.
No member or former member of the Board of Directors shall be liable
for any action, failure to act or determination made in good faith with respect
to the Plan or any option hereunder. In addition, the Company shall indemnify
and hold each member and former member of the Board of Directors harmless from
and against any liability, claim for damages and expenses in connection
therewith by reason of any action, failure to act or determination made in good
faith under or in connection with the Plan or any option hereunder to the
fullest extent permitted with respect to directors under the Company's
certificate of incorporation, by-laws or applicable law.
-2-
<PAGE>
4. ELIGIBILITY. The Board of Directors may from time to time,
consistent with the purposes of the Plan, grant options to key employees
(including officers and directors who are key employees) and to consultants of
the Company or any of its Subsidiaries, and to directors of the Company who at
the time of grant of the option are not employees or consultants of the Company;
PROVIDED, HOWEVER, that no person shall be granted an option unless he agrees in
the Contract that it is his intention to remain in the service of the Company
but at the pleasure of the Company. Such options granted shall cover such number
of shares of Common Stock as the Board of Directors may determine; provided,
however, that the aggregate market value (determined at the time the option is
granted) of the shares of Common Stock for which any eligible employee may be
granted ISOs under the Plan or any other plan of the Company, or of a Parent or
a Subsidiary of the Company, which are exercisable for the first time by such
optionee during any calendar year shall not exceed $100,000. The $100,000 ISO
limitation shall be applied by taking ISOs into account in the order in which
they were granted. Any option (or the portion thereof) granted in excess of such
amount shall be treated as a NQSO.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Board of Directors; provided,
however, that the exercise price of an ISO shall not be less than the fair
market value of the Common Stock subject to such option on the date of grant;
and further provided, that if, at the time an ISO is granted, the optionee owns
(or is deemed to own under Section 424(d) of the Code) stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, of any of its Subsidiaries or of a Parent, the exercise price of such
ISO shall not be less than 110% of the fair market value of the Common Stock
subject to such ISO on the date of grant.
The fair market value of a share of Common Stock on any day shall be
the book value of such share on such date as determined in accordance with
generally accepted accounting principles, consistently applied.
6. TERM. The term of each option granted pursuant to the Plan shall
be such term as is established by the Board of Directors, in its sole
discretion, at or before the time such option is granted; provided, however,
that the term of each ISO granted pursuant to the Plan shall be for a period not
exceeding 10 years from the date of grant thereof; and further, provided, that
if, at the time an ISO is granted, the optionee owns (or is deemed to own under
Section 424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, of any of its Subsidiaries
or of a Parent, the term of the ISO shall be for a period not exceeding five
years from the date of grant. All options shall be subject to earlier
termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to the
extent vested and then exercisable, shall be exercised by giving written notice
to the Company at its principal office stating which option is being exercised,
specifying the number of shares of Common
-3-
<PAGE>
Stock as to which such option is being exercised and accompanied by payment in
full of the aggregate exercise price therefor (or the amount due on exercise if
the Contract with respect to an Option permits installment payments) (a) in cash
or by certified check or (b) if the Board of Directors permits, with previously
acquired shares of Common Stock having an aggregate fair market value, on the
date of exercise, equal to the aggregate exercise price of all options being
exercised, or with any combination of cash, certified check or shares of Common
Stock. In such case, the fair market value of the Common Stock shall be
determined in accordance with Paragraph 5.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for such
shares; PROVIDED, HOWEVER, that until such stock certificate is issued, any
option holder using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, any optionee whose relationship
with the Company (and its Parent and Subsidiaries) has terminated for any reason
other than his death or Disability (as defined in Paragraph 19) may exercise
such option, to the extent vested on the date of such termination, at any time
within 30 days after the date such option becomes exercisable in accordance with
the terms of the Contract, but not thereafter and in no event after the date the
option would otherwise have expired. Except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not be
affected by any change in the relationship of the holder so long as he continues
to be an employee or a consultant or advisor of the Company, any Parent or any
of the Subsidiaries or as a director of the Company (regardless of having been
transferred from one corporation to another).
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
-4-
<PAGE>
Nothing in the Plan or in any option granted under the Plan shall
confer on any person any right to continue in the employ or as a consultant of
the Company, any Parent or any of its Subsidiaries, or as a director of the
Company, or interfere in any way with any right of the Company, any Parent or
any of its Subsidiaries to terminate the optionee's relationship at any time for
any reason whatsoever without liability to the Company, any Parent or any of its
Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise
be expressly provided in the applicable Contract, if an optionee dies (a)
while he is an employee, consultant or director of the Company, any Parent or
any of its Subsidiaries, his option shall become vested with respect to those
shares of Common Stock that would have become vested at the end of the year
in which the optionee's death occurs, and may be exercised, to the extent
exercisable in accordance with the terms of the Contract, by his executor,
administrator or other person at the time entitled by law to his rights under
such option, on or before the later of (i) the expiration of six months after
the date of the optionee's death and (ii) the 30th day following the date of
earliest exercisability provided in the Contract, but not thereafter and in
no event after the expiration date of the option.
Except as may otherwise be expressly provided in the applicable
Contract, if an Optionee's relationship with the Company terminates by reason
of Disability, his option shall become vested with respect to those shares of
Common Stock that would have become vested at the end of the year in which
the Optionee's Disability occurs, and may be exercised, to the extent
exercisable in accordance with the terms of the Contract, on or before the
later of (i) the expiration of 12 months after the date of termination due to
such Disability and (ii) the 30th day following the date of earliest
exercisability provided in the Contract, but not thereafter and in no event
after the expiration date of the option.
10. COMPLIANCE WITH SECURITIES LAWS. The Board of Directors may
require, in its discretion, as a condition to the exercise of any option that
either (a) a Registration Statement under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Common Stock to be issued
upon such exercise shall be effective and current at the time of exercise, or
(b) there is an exemption from registration under the Securities Act for the
issuance of shares of Common Stock upon such exercise. Nothing herein shall be
construed as requiring the Company to register under the Securities Act the
shares subject to any option.
The Board of Directors may require the optionee to execute and deliver
to the Company his representations and warranties, in form and substance
satisfactory to the Board of Directors, that (a) the shares of Common Stock to
be issued upon the exercise of the option are being acquired by the optionee for
his own account, for investment only and not with a view to the resale or
distribution thereof, and (b) any subsequent resale or distribution of shares of
Common Stock by such optionee will be made only pursuant to (i) a Registration
Statement under the Securities Act which is effective and current with respect
to the shares of Common
-5-
<PAGE>
Stock being sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption, the optionee
shall, prior to any offer of sale or sale of such shares of Common Stock,
provide the Company with a favorable written opinion of counsel, in form and
substance satisfactory to the Company, as to the applicability of such exemption
to the proposed sale or distribution.
In addition, if at any time the Board of Directors shall determine in
its discretion that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition to, or in connection with, the granting of an option or
the issue of shares of Common Stock thereunder, such option may not be exercised
in whole or in part unless such listing, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms and conditions not inconsistent herewith
as may be determined by the Board of Directors.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any
other provision of the Plan, in the event of any change in the outstanding
Common Stock by reason of a stock dividend, recapitalization, merger in which
the Company is the surviving corporation, split-up, combination or exchange of
shares or the like, the aggregate number and kind of shares subject to the Plan,
the aggregate number and kind of shares subject to each outstanding option and
the exercise price thereof, shall be appropriately adjusted by the Board of
Directors, whose determination shall be conclusive.
In the event that the outstanding shares of the Common Stock shall be
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Company or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of shares, sale of
assets, merger or consolidation, then, there shall be substituted for each share
of the Common Stock then subject to any option and for each share reserved for
issuance in accordance with the provisions of the Plan but not yet covered by an
option, the number and kind of shares of stock or other securities into which
each outstanding share of the Common Stock shall be so changed or for which each
such share shall be exchanged. In the event that there shall be any change,
other than as specified in this Paragraph 12, in the number or kind of
outstanding shares of the Common Stock, or of any stock or other securities into
which the Common Stock shall have been changed, or for which it shall have been
exchanged, then, if the Board of Directors shall, in its sole discretion,
determine that such change equitably requires an adjustment in the number or
kind of shares then subject to any option and the number or kind of shares
reserved for issuance in accordance with the provisions of the Plan but not yet
covered by an option, such adjustment shall be made by the Board of
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<PAGE>
Directors and shall be effective and binding for all purposes of the Plan and of
each Contract entered into in accordance with the provisions of the Plan.
Notwithstanding the foregoing, in the event that the Company is merged
or consolidated with another corporation and, whether or not the Company shall
be the surviving corporation, there shall be any change in the shares of Common
Stock by reason of such merger or consolidation, or in the event that all or
substantially all of the assets of the Company are acquired by another person,
or in the event of a reorganization or liquidation of the Company (each such
event being hereinafter referred to as a "Reorganization Event"), then the Board
of Directors may in its discretion, by written notice to the optionee, provide
that his options will be terminated unless exercised within 30 days (or such
longer period as the Board of Directors shall determine in its sole discretion)
after the date of such notice; PROVIDED, HOWEVER, that if the Board of Directors
takes such action the Board of Directors also shall accelerate the dates upon
which all outstanding options of such optionee shall be exercisable.
The grant of options under the Plan shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof or
dissolution or liquidation of the Company or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors and approved by the stockholders of the Company as of
December 30, 1997. No option may be granted under the Plan after December 29,
2007. The Board of Directors, without further approval of the Company's
stockholders, may at any time suspend or terminate the Plan, in whole or in
part, or amend it from time to time in such respects as it may deem advisable,
including, without limitation, in order that ISOs granted hereunder meet the
requirements for "incentive stock options" under the Code and to conform to any
change in applicable law or to regulations or rulings of administrative
agencies; provided, however, that no amendment shall be effective without the
requisite prior or subsequent stockholder approval which would (a) except as
contemplated in Paragraph 12, increase the maximum number of shares of Common
Stock for which options may be granted under the Plan, (b) materially increase
the benefits to participants under the Plan or (c) change the eligibility
requirements to receive options hereunder. No termination, suspension or
amendment of the Plan shall, without the consent of the holder of an existing
option affected thereby, adversely affect his rights under such option. The
power of the Board of Directors to construe and administer any options granted
under the Plan prior to the termination or suspension of the Plan nevertheless
shall continue after such termination or during such suspension.
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<PAGE>
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the holder
thereof, only by him or his legal representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process.
15. WITHHOLDING TAXES. The Company may withhold cash and/or shares of
Common Stock to be issued with respect thereto having an aggregate fair market
value equal to the amount which it determines is necessary to satisfy its
obligation to withhold Federal, state and local income taxes or other amounts
incurred by reason of the grant or exercise of an option, its disposition, or
the disposition of the underlying shares of Common Stock. Alternatively, the
Company may require the holder to pay to the Company such amount, in cash,
promptly upon demand. The Company shall not be required to issue any shares of
Common Stock pursuant to any such option until all required payments have been
made. Fair market value of the shares of Common Stock shall be determined in
accordance with Paragraph 5.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend
or legends upon the certificates for shares of Common Stock issued upon exercise
of an option under the Plan and may issue such "stop transfer" instructions to
its transfer agent in respect of such shares as it determines, in its
discretion, to be necessary or appropriate to (a) prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act,
(b) implement the provisions of the Plan or any agreement between the Company
and the optionee with respect to such shares of Common Stock, or (c) permit the
Company to determine the occurrence of a "disqualifying disposition," as
described in Section 421(b) of the Code, of the shares of Common Stock
transferred upon the exercise of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance
of shares of Common Stock upon the exercise of an option granted under the Plan,
as well as all fees and expenses incurred by the Company in connection with such
issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for corporate purposes.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
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<PAGE>
options for prior options of a Constituent Corporation (as defined in
Paragraph 19) or assume the prior options of such Constituent Corporation.
19. DEFINITIONS.
(a) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
(b) Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 424(e) of the Code.
(c) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, its
Parent or any Subsidiary in a transaction to which Section 424(a) of the Code
applies (or would apply if the option assumed or substituted were an ISO), or
any Parent or any Subsidiary of such corporation.
(d) Disability. The term "Disability" shall mean a permanent
and total disability within the meaning of Section 22(e)(3) of the Code.
20. GOVERNING LAW. The Plan, such options as may be granted hereunder
and all related matters shall be governed by, and construed in accordance with,
the laws of the State of New York, without regard to conflict of law provisions.
21. PARTIAL INVALIDITY. The invalidity or illegality of any provision
herein shall not affect the validity of any other provision.
22. NON-UNIFORM DETERMINATIONS. The Board of Directors'
determinations under the Plan (including, without limitation, determinations of
persons to receive awards, the form, amount and timing of such awards, the terms
and provisions of such awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, options under the Plan, whether or not such persons are
similarly situated.
The Board of Directors
Real Time Strategies, Inc.
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<PAGE>
INCENTIVE STOCK OPTION PLAN CONTRACT
THIS INCENTIVE STOCK OPTION CONTRACT entered into as of the [DATE] day
of [DATE], between Real Time Strategies, Inc., a New York corporation
(the "Company"), and [INSERT NAME OF OPTIONEE] (the "Optionee").
W I T N E S S E T H:
1. The Company, in accordance with the allotment made by the Board
of Directors of the Company (the "Board of Directors") and subject to the terms
and conditions of the 1997 Stock Option Plan of the Company (the "Plan"), grants
as of the date hereof to the Optionee an option to purchase an aggregate of
________ shares of the Common Stock, $.01 par value per share, of the Company
("Common Stock") at $ per share, being at least equal to the fair market
value of such shares of Common Stock on the date hereof. This option is intended
to constitute an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. The term of this option shall be ten (10) years from the date
hereof, subject to earlier termination as provided in the Plan.
3. This option shall become vested with respect to % of the
shares of Common Stock subject thereto on each of the [ANNIVERSARY DATES] of
the date of grant.
4. To the extent vested, an option shall become exercisable on the
later of (i) the two-year anniversary of the date the Optionee commenced
employment or service with the Company or (ii) December 30, 2002; PROVIDED,
HOWEVER, that such vested options shall become immediately exercisable in
full upon the later (a) the two-year anniversary of the date the Optionee
commenced employment or service with the Company or (b) the Company's
completion of an IPO or upon its otherwise becoming a public company. The
right to purchase shares of Common Stock under this option shall be
cumulative, so that if the full number of shares purchasable in a period
shall not be purchased, the balance may be purchased at any time or from time
to time thereafter, but not after the expiration of the option as provided in
the Plan. Notwithstanding the foregoing, in no event may a fraction of a
share of Common Stock be purchased under this option.
<PAGE>
5. This option shall be exercised by giving written notice to the
Company at its principal office, presently 51 Bethpage Road, Plainview, New
York, Attn.: Secretary of the Company, stating that the Optionee is exercising
this incentive stock option, specifying the number of shares being purchased and
accompanied by payment in full of the aggregate purchase price therefor (a) in
cash or by certified check, (b) if the Board of Directors permits, with
previously acquired shares of Common Stock which have been held by the Optionee
for at least six months, or (c) a combination of the foregoing. Such shares,
upon payment of the purchase price, shall be fully paid and nonassessable and
the holders of such shares will not be subject to personal liability by reason
of being such holders, except for personal liability, if any, imposed by Section
630 of the New York Business Corporation Law.
6. Notwithstanding the foregoing, this option shall not be
exercisable by the Optionee unless (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
shares of Common Stock to be received upon the exercise of the option shall be
effective and current at the time of exercise or (b) there is an exemption from
registration under the Securities Act for the issuance of the shares of Common
Stock upon exercise. The Optionee hereby represents and warrants to the Company,
that (i) the shares of Common Stock to be issued upon the exercise of this
option are being acquired by the Optionee for his own account, for investment
only and not with a view to the resale or distribution thereof, and (ii) any
subsequent resale or distribution of shares of Common Stock by him will be made
only pursuant to (x) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(y) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the Optionee shall, prior to any offer of
sale or sale of such shares of Common Stock, provide the Company with a
favorable written opinion of counsel, in form and substance satisfactory to the
Company, as to the applicability of such exemption to the proposed sale or
distribution. Such representations and warranties shall also be deemed to be
made by the Optionee upon each exercise of this option. Nothing herein shall be
construed as requiring the Company to register the shares subject to this option
under the Securities Act.
7. Notwithstanding anything herein to the contrary, if at any time
the Board of Directors shall determine in its discretion that the listing or
qualification of the shares of Common Stock subject to this option on any
securities exchange or under any applicable law, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a condition of,
or in connection with, the granting of an option, or the issue of shares of
Common Stock thereunder, this option may not be exercised in whole or in part
unless such listing, qualification, consent or approval shall have been effected
or obtained free of any conditions not acceptable to the Board of Directors.
8. The Optionee hereby represents that it is his intention to
remain in the employ or service of the Company; PROVIDED, HOWEVER, that nothing
in the Plan or herein shall confer upon the Optionee any right to continue in
the employ of the Company, any Parent or any of its Subsidiaries, or interfere
in any way with any right of the Company, any Parent or its Subsidiaries
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<PAGE>
to terminate such employment at any time for any reason whatsoever without
liability to the Company, any Parent or any of its Subsidiaries.
9. The Company may affix appropriate legends upon the certificates
for shares of Common Stock issued upon exercise of this option and may issue
such "stop transfer" instructions to its transfer agent in respect of such
shares as it determines, in its discretion, to be necessary or appropriate to
(a) prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act, (b) implement the provisions of the Plan or
any agreement between the Company and the Optionee with respect to such shares
of Common Stock, or (c) permit the Company to determine the occurrence of a
"disqualifying disposition," as described in section 421(b) of the Code, of the
shares of Common Stock transferred upon the exercise of this option. Such
legend, if required, shall be substantially in the form as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933. They may not be sold or transferred
in the absence of an effective registration statement for the shares
under the Securities Act of 1933, or an opinion of counsel for the
Corporation that registration is not required under said Act."
10. The Company may withhold cash and/or shares of Common Stock to
be issued to the Optionee in the amount which the Company determines is
necessary to satisfy its obligation to withhold taxes or other amounts incurred
by reason of the grant or exercise of this option, its disposition or the
disposition of the underlying shares of Common Stock. Alternatively, the Company
may require the Optionee to pay the Company such amount in cash promptly upon
demand.
11. In the event of any disposition of the shares of Common Stock
acquired pursuant to the exercise of this option within two years from the date
hereof or one year from the date of transfer of such shares to him, the Optionee
shall notify the Company thereof in writing within 30 days after such
disposition. In addition, the Optionee shall provide the Company on demand with
such information as the Company shall reasonably request in connection with
determining the amount and character of the Optionee's income, the Company's
deduction and its obligation to withhold taxes or other amount incurred by
reason of such disqualifying disposition, including the amount thereof. The
Optionee shall pay the Company in cash on demand the amount, if any, which the
Company determines is necessary to satisfy such withholding obligation.
12. The Company and the Optionee agree that they will both be
subject to and bound by all of the terms and conditions of the Plan, a copy of
which is attached hereto and made a part hereof. Any capitalized term not
defined herein shall have the meaning ascribed to it in the Plan. In the event
of a conflict between the terms of this Contract and the terms of the Plan, the
terms of the Plan shall govern. As a condition to the granting of this option,
the Optionee agrees, for himself and his personal representatives, that any
dispute or disagreement which may arise under or as a result of or pursuant to
this Contract shall be determined by the Board of Directors, in its sole
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<PAGE>
discretion, and that any interpretations by the Board of Directors of the terms
of this Contract shall be final, binding and conclusive.
13. The Optionee represents and agrees that he will enter into and
sign a non-compete covenant with the Company promising not to compete with
the Company and any Parent (as defined in Paragraph 19) and Subsidiaries.
14. The Optionee represents and agrees that he will comply with all
applicable laws relating to the Plan and the grant and exercise of the option
and the disposition of the shares of Common Stock acquired upon exercise of the
option, including without limitation, federal and state securities and "blue
sky" laws.
15. This option is not transferable otherwise than by will or the
laws of descent and distribution and may be exercised, during the lifetime of
the Optionee, only by him or his legal representatives. In the event of the
death of the Optionee, a condition of exercising this option shall be the
delivery to the Company of such tax waivers and other documents as the Board of
Directors shall determine.
16. This Contract shall be binding upon and inure to the benefit of
any successor or assign of the Company and to any heir, distributee, executor,
administrator or legal representative entitled by law to the Optionee's rights
hereunder.
17. This Contract shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York, without regard to the
conflicts of law rules thereof.
18. The invalidity or illegality of any provision herein shall not
affect the validity of any other provision.
19. The Optionee agrees that the Company may amend the Plan and the
options granted to the Optionee under the Plan, subject to the limitations
contained in the Plan.
20. This Contract is binding on the parties and their respective
successors, heirs, legal representatives and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Contract as
of the day and year first above written.
REAL TIME STRATEGIES, INC.
By:
----------------------------------
-------------------------------------
[INSERT NAME OF OPTIONEE]
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<PAGE>
------------------------
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(Address)
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<PAGE>
Exhibit 10.15
THIS LEASE made the ____ day of February 1997, between 51 EAST BETHPAGE
HOLDING CORPORATION WITH ITS PRINCIPAL PLACE OF BUSINESS AT ONE AMES COURT,
SUITE 201, PLAINVIEW, NEW YORK 11803 hereinafter referred to as LANDLORD, and
REAL TIME STRATEGIES, INC. WITH ITS PRINCIPAL PLACE OF BUSINESS AT 960 SOUTH
BROADWAY, SUITE 118C, HICKSVILLE, NEW YORK 11801 hereinafter jointly, severally
and collectively referred to as TENANT.
Witnesseth, that the Landlord hereby leases to the Tenant, and the Tenant
hereby hires and takes from the Landlord A PORTION OF THE BUILDING KNOWN AS 51
EAST BETHPAGE ROAD, PLAINVIEW, NEW YORK (outlined on Exhibit "A") to be used and
occupied by the Tenant AS GENERAL OFFICE SPACE
and for no other purpose, for a term to commence on APRIL 1 1997, and to end on
MARCH 31, 2002, unless sooner terminated as hereinafter provided, at the TOTAL
BASE RENT THREE HUNDRED SEVEN THOUSAND FIVE HUNDRED TWENTY FOUR DOLLARS NO CENTS
($307,524.00).
all payable in equal monthly installments in advance on the first day of each
and every calendar month during said term, AS PER PARAGRAPH 42ND OF RIDER
ATTACHED HERETO except the first installment, which shall be paid upon the
execution hereof.
THE TENANT JOINTLY AND SEVERALLY COVENANTS:
FIRST.--That the Tenant will pay the rent as above provided.
SECOND.--That, throughout said term the Tenant will take good care of the
demised premises, fixtures and appurtenances, and all alterations, additions and
improvements to either; make all repairs in and about the same necessary to
preserve them in good order and condition, which repairs shall be, in quality
and class, equal to the original work; promptly pay the expense of such repairs;
suffer no waste or injury; give prompt notice to the Landlord of any fire that
may occur; execute and comply with all laws, rules, orders, ordinances and
regulations at any time issued or in force (except those requiring structural
alterations), applicable to the demised premises or to the Tenant's occupation
thereof, of the Federal, State and Local Governments, and of each and every
department, bureau and official thereof, and of the New York Board of Fire
Underwriters; permit at all times during usual business hours, the Landlord and
representatives of the Landlord to enter the demised premises for the purpose of
inspection, and to exhibit them for purposes of sale or rental; suffer the
Landlord to make repairs and Improvements to all parts of the building, and to
comply with all orders and requirements of governmental authority applicable to
said building or to any occupation thereof; suffer the Landlord to erect, use,
maintain, repair and replace pipes and conduits in the demised premises and to
the floors above and below; forever indemnify and save harmless the Landlord for
and against any and all liability, penalties, damages, expenses and judgments
arising from injury during said term to person or property of any nature,
occasioned wholly or in part by any act or acts, omission or omissions of the
Tenant, or of the employees, guests, agents, assigns or undertenants of the
Tenant and also for any matter or thing growing out of the occupation of the
demised premises or of the streets, sidewalks, PARKING adjacent thereto; permit,
during the six months next prior to the expiration of the term of the usual
notice "To Let" to be placed and to remain unmolested in a conspicuous place
upon the exterior of the demised premises; repair, at or before the end of the
term, all injury done by the installation or removal of furniture and property;
and at the end of the term, to quit and surrender the demised premises with all
alterations, additions and improvements in good order and condition.
THIRD.--That the Tenant will not disfigure or deface any part of the
building, or suffer the same to be done, except so far as may be necessary to
affix such trade fixtures as are herein consented to by the Landlord; the Tenant
will not obstruct, or permit the obstruction of the street or the sidewalk
adjacent thereto; will not do anything, or suffer anything to be done upon the
demised premises which will increase the rate of fire insurance upon the
building or any of its contents, or be liable to cause structural injury to said
building; will not permit the accumulation of waste or refuse matter, and will
not, without the written consent of the Landlord first obtained in each case,
either sell, assign, mortgage or transfer this lease, underlet the demised
premises or any part thereof, permit
<PAGE>
the same or any part thereof to be occupied by anybody other than the Tenant and
the Tenant's employees, make any alterations in the demised premises, use the
demised premises or any part thereof for any purpose other than the one first
above stipulated, or for any purpose deemed extra hazardous on account of fire
risk, nor in violation of any law or ordinance. That the Tenant will not
obstruct or permit the obstruction of the light, halls, stairway or entrances to
the building, and will not erect or inscribe any sign, signals or advertisements
unless and until the style and location thereof have been approved by the
Landlord; and if any be erected or inscribed without such approval, the Landlord
may remove the same. No water cooler, air conditioning unit or system or other
apparatus shall be installed or used without the prior written consent of
Landlord.
IT IS MUTUALLY COVENANTED AND AGREED, THAT
FOURTH.--If the demised premises shall be partially damaged by fire or
other cause without the fault or neglect of Tenant, Tenant's servants,
employees, agents, visitors or licensees, the damages shall be repaired by and
at the expense of Landlord and the rent until such repairs shall be made shall
be apportioned according to the part of the demised premises which is usable
by Tenant. But if such partial damage is due to the fault or neglect of
Tenant, Tenant's servants, employees, agents, visitors or licensees, without
prejudice to any other rights and remedies of Landlord and without prejudice
to the rights of subrogation of Landlord's insurer, the damages shall be
repaired by Landlord but there shall be no apportionment or abatement of rent.
No penalty shall accrue for reasonable delay which may arise by reason of
adjustment of insurance on the part of Landlord and/or Tenant, and for
reasonable delay on account of "labor troubles", or any other cause beyond
Landlord's control. If the demised premises are totally damaged or are
rendered wholly untenantable by fire or other cause, and if Landlord shall
decide not to restore or not to rebuild the same, or if the building shall be
so damaged that Landlord shall decide to demolish it or to rebuild it, then or
in any of such events Landlord may, within ninety (90) days after such fire or
other cause, give Tenant a notice in writing of such decision, which notice
shall be given as in Paragraph Twelve hereof provided, and thereupon the term
of this lease shall expire by lapse of time upon the third day after such
notice is given, and Tenant shall vacate the demised premises and surrender
the same to Landlord. If Tenant shall not be in default under this lease then,
upon the termination of this lease under the conditions provided for in the
sentence immediately preceding. Tenant's liability for rent shall cease as of
the day following the casualty. Tenant hereby expressly waives the provisions
of Section 227 of the Real Property Law and agrees that the foregoing
provisions of this Article shall govern and control in lieu thereof. If the
damage or destruction be due to the fault or neglect of Tenant the debris
shall be removed by, and at the expense of, Tenant.
FIFTH.--If the whole or any part of the premises hereby demised shall be
taken or condemned by any competent authority for any public use or purpose then
the term hereby granted shall cease from the time when possession of the part so
taken shall be required for such public purpose and without apportionment of
award, the Tenant hereby assigning to the Landlord all right and claim to any
such award, the current rent, however, in such case to be apportioned.
SIXTH.--If, before the commencement of the term, the Tenant be adjudicated
a bankrupt, or make a "general assignment," or take the benefit of any insolvent
act, or if a Receiver or Trustee be appointed for the Tenant's property, or if
this lease or the estate of the Tenant hereunder be transferred or pass to or
devolve upon any other person or corporation, or if the Tenant shall default in
the performance of any agreement by the Tenant contained in any other lease to
the Tenant by the Landlord or by any corporation of which an officer of the
Landlord is a Director, this lease shall thereby, at the option of the Landlord,
be terminated and in that case, neither the Tenant nor anybody claiming under
the Tenant shall be entitled to go into possession of the demised premises. If
after the commencement of the term, any of the events mentioned above in this
subdivision shall occur, or if Tenant shall make default in fulfilling any of
the covenants of this lease including the covenants for the payment of rent or
"additional rent" or if the demised premises become vacant or deserted, the
Landlord may give to the Tenant ten days' notice of intention to end the term of
this lease, and thereupon at the expiration of said ten days' (if said condition
which was the basis of said notice shall continue to exist) the term under this
lease shall expire as fully and completely as if that day were the date herein
<PAGE>
definitely fixed for the expiration of the term and the Tenant will then quit
and surrender the demised premises to the Landlord, but the Tenant shall remain
liable as hereinafter provided.
If the Tenant shall make default in the payment of the rent reserved
hereunder, or any item of "additional rent" herein mentioned, or any part of
either or in making any other payment herein provided for, or if the notice
last above provided for shall have been given and if the condition which was
the basis of said notice shall exist at the expiration of said ten days'
period, the Landlord may immediately, or at any time thereafter, re-enter the
demised premises and remove all persons and all or any property therefrom,
either by summary dispossess proceedings, or by any suitable action or
proceeding at law, or by force or otherwise, without being liable to
indictment, prosecution or damages therefor, and re-possess and enjoy said
premises together with all additions, alterations and improvements. In any such
case or in the event that this lease be "terminated" before the commencement
of the term, as above provided, the Landlord may either re-let the demised
premises or any part or parts thereof for the Landlord's own account, or may,
at the Landlord's option re-let the demised premises or any part or parts
thereof as the agent of the Tenant, and receive the rents therefor, applying
the same first to the payment of such expenses as the Landlord may have
incurred, and then to the fulfillment of the covenants of the Tenant herein,
and the balance, if any, at the expiration of the term first above provided
for, shall be paid to the Tenant. Landlord may rent the premises for a term
extending beyond the term hereby granted without releasing Tenant from any
liability. In the event that the term of this lease shall expire as above in
this subdivision "Sixth" provided, or terminate by summary proceedings or
otherwise, and if the Landlord shall not re-let the demised premises for the
Landlord's own account, then, whether or not the premises be re-let, the
Tenant shall remain liable for, and the Tenant hereby agrees to pay to the
Landlord, until the time when this lease would have expired but for such
termination or expiration, the equivalent of the amount of all of the rent and
"additional rent" reserved herein, less the avails of reletting, if any, and
the same shall be due and payable by the Tenant shall pay to the Landlord the
amount of deficiency then existing. The Tenant hereby expressly waives any and
all right of redemption in case the Tenant shall be dispossessed by judgment
or warrant of any court or judge, and the Tenant in respect to the demised
premises. The words "re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning.
In the event of a breach or threatened breach by the Tenant of any of the
covenants or provisions hereof, the Landlord shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity, as if
re-entry, summary proceedings and other remedies were not herein provided for.
SEVENTH.--If the Tenant shall make default in the performance of any
covenant herein contained, the Landlord may immediately, or at any time
thereafter, without notice, perform the same for the account of the Tenant. If a
notice of mechanic's lien be filed against the demised premises or against
premises of which the demised premises are part , for, or purporting to be for,
labor or material alleged to have been furnished, or to be furnished to or for
the Tenant at the demised premises, and if the Tenant shall fail to take such
action as shall cause such lien to be discharged within fifteen days after the
filing of such notice, the Landlord may pay the amount of such lien or discharge
the same by deposit or by bonding proceedings, and in the event of such deposit
or bonding proceedings, the Landlord may require the lienor to prosecute an
appropriate action to enforce the lienor's claim. In such case, the Landlord may
pay any judgment recovered on such claim. Any amount paid or expense incurred by
the Landlord as in his subdivision of this lease provided, and any amount as to
which the Tenant shall at any time be in default for or in respect to the use of
water, electric current or sprinkler supervisory service, and any expense
incurred or sum of money paid by Landlord by reason of the failure of the Tenant
to comply with any provision hereof, or in defending any such action, shall be
deemed to be "additional rent" for the demised premises, and shall be due and
payable by the Tenant to the Landlord on the first day of the next following
month, or, at the option of the Landlord, on the first day of any succeeding
month. The receipt by the Landlord of any installment of the regular stipulated
rent hereunder or any of said "additional rent" shall not be a waiver of any
other "additional rent" then due.
EIGHTH.--The failure of the Landlord to insist, in any one or more
instances upon a strict performance of any of the covenants of this lease, or to
exercise any option herein contained, shall not be construed as a waiver or
relinquishment for the future of such covenant, or option, but the same shall
continue and remain in full force and effect. The receipt by the Landlord of
rent, with knowledge of the breach of any covenant hereof, shall not be deemed a
waiver of such breach and no waiver by the Landlord of any provision hereof
shall be deemed to have been made unless expressed in writing and signed by the
Landlord. Even though the Landlord shall consent to an assignment hereof no
further assignment shall be made without express consent in writing by the
Landlord.
NINTH.--If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than the Tenant the Landlord
may collect rent from the assignee, under-tenant or occupant, and apply the net
amount collected to the letting, or the acceptance of the assignee, under-tenant
or occupant as tenant, or a release
<PAGE>
of the Tenant from the further performance by the Tenant of the covenants herein
contained on the part of the Tenant.
TENTH.--This lease shall be subject and subordinate at all times, to the
lien of the mortgages now on the demised premises, and to all advances made or
hereafter to be made upon the security thereof, and subject and subordinate to
the lien of any mortgage or mortgages which at any time may be made a lien upon
the premises. The Tenant will execute and deliver such further instrument or
instruments subordinating this lease to the lien of any such mortgage or
mortgages as shall be desired by any mortgagee or proposed mortgagee. The Tenant
hereby appoints the Landlord the attorney-in-fact of the Tenant, irrevocable, to
execute and deliver any such instrument or instruments for the Tenant.
ELEVENTH.--All improvements made by the Tenant to or upon the demised
premises, except said trade fixtures, shall when made, at once be deemed to be
attached to the freehold, and become the property of the Landlord, and at the
end or other expiration of the term, shall be surrendered to the Landlord in as
good order and condition as they were when installed, reasonable wear and
damages by the elements excepted.
TWELFTH.--Any notice or demand which under the terms of this lease or
under any statute must or may be given or made by parties hereto shall be in
writing and shall be given or made by mailing the same by certified or
registered mail addressed to the respective parties at the addresses set forth
in this lease.
THIRTEENTH.--The Landlord shall not be liable for any failure of water
supply or electrical current, sprinkler damage, or failure of sprinkler service,
nor for injury or damage to person or property caused by the elements or by
other tenants or persons in said building, or resulting from steam, gas,
electricity, water, rain or snow, which may leak or flow from any part of said
buildings, or from the pipes, appliances or plumbing works of the same, or from
the street or sub-surface, or from any other place, nor for interference with
light or other incorporeal hereditaments by anybody other than the Landlord, or
caused by operations by or for a governmental authority in construction of any
public or quasi-public work, neither shall the Landlord liable for any latent
defect in the building.
FOURTEENTH.--No diminution or abatement of rent, or other compensation
shall be claimed or allowed for inconvenience or discomfort arising from the
making of repairs or improvements to the building or to its appliances, nor for
any space taken to comply with any law, ordinance or order of a governmental
authority. In respect to the various "services," if any, herein expressly or
impliedley agreed to be furnished by the Landlord to the Tenant, it is agreed
that there shall be no diminution or abatement of the rent, or any other
compensation, for interruption or curtailment of such "service" when such
interruption or curtailment shall be due to accident, alterations or repairs
desirable or necessary to be made or to inability or difficulty in securing
supplies or labor or curtailment of any such "service" shall be deemed a
constructive eviction. The Landlord shall not be required to furnish, and the
Tenant shall not be entitled to receive, any of such "services" during any
period wherein the Tenant shall be in default in respect to the payment of rent.
Neither shall there be any abatement or diminution of rent because of making of
repairs, improvements or decorations to the demised premises after the date
above fixed for the commencement of the term, it being understood that rent
shall, in any event, commence to run at such date so above fixed.
FIFTEENTH.--The Landlord may prescribe and regulate the placing of safes,
machinery, quantities of merchandise and other things. The Landlord may also
prescribe and regulate which elevator and entrances shall be used by the
Tenant's employees, and for the Tenant's shipping. The Landlord may make such
other and further rules and regulations as, in the Landlord's judgment, may from
time to time by needful for the safety, care or cleanliness of the building, and
for the preservation of good order therein. The Tenant and the employees and
agents of the Tenant will observe and conform to all such rule and regulations.
SIXTEENTH.--In the event that an excavation shall be made for building or
other purposes upon land adjacent to the demised premises or shall be
contemplated to be
<PAGE>
made, the Tenant shall afford to the person or persons causing or to cause such
excavation, license to enter upon the demised premises for the purpose of doing
such work as said person or persons shall deem to be necessary to preserve the
wall or walls, structure or structures upon the demised premises from injury and
to support the same by proper foundations.
SEVENTEENTH.--No vaults or space not within the property line of the
buildings are leased hereunder. Landlord makes no representation as to the
location of the property line of the building. Such vaults or space as Tenant
may be permitted to use or occupy are to be used or occupied under a revocable
license and if such license be revoked by the Landlord as to the use of part or
all of the vaults or space Landlord shall not be subject to any liability;
Tenant shall not be entitled to any compensation or reduction in rent nor shall
this be deemed constructive or actual eviction. Any tax, fee or charge of
municipal or other authorities for such vaults or space shall be paid by the
Tenant for the period of the Tenant's use or occupancy thereof.
EIGHTEENTH.--That during seven months prior to the expiration of the term
hereby granted, applicants shall be admitted at all reasonable hours of the day
to view the premises until rented and the Landlord and the Landlord's agents
shall be permitted at any time during the term to visit and examine them at any
reasonable hour of the day, and workmen may enter at any time, when authorized
by the Landlord or the Landlord's agents, to make or facilitate repairs in any
part of the building; and if the said Tenant shall not be personally present
to open and permit an entry into said premises, at any time, when for any
reason an entry therein shall be necessary or permissible hereunder, the
Landlord or the Landlord's agents may forcibly enter the same without
rendering the Landlord or such agents liable to any claim or cause of action
for damages by reason thereof (if during such entry the Landlord shall accord
reasonable care to the Tenant's property) and without in any manner affecting
the obligations and covenants of this lease; it is, however, expressly
understood that the right and authority hereby reserved, does not impose, nor
does the Landlord assume, by reason thereof, any responsibility or liability
whatsoever for the care or supervision of said premises, or any of the pipes,
fixtures, appliances or appurtenances therein contained or therewith in any
manner connected.
NINETEENTH.--The Landlord has made no representations or promises in
respect to said building or to the demised premises except those contained
herein, and those, if any, contained in some written communication to the
Tenant, signed by the Landlord. This instrument may not be changed, modified,
discharged or terminated orally.
TWENTIETH.--If the Tenant shall at any time be in default hereunder, and
if the Landlord shall institute an action or summary proceeding against the
Tenant based upon such default, then the Tenant will reimburse the Landlord for
the expense of attorneys' fees and disbursements thereby incurred by the
Landlord, so far as the same are reasonable in amount. Also so long as the
Tenant shall be a tenant hereunder the amount of such expenses shall be deemed
to be "additional rent" hereunder and shall be due from the Tenant to the
Landlord on the first day of the month following the incurring of such
respective expenses.
TWENTY-FIRST.--Landlord shall not be liable for failure to give possession
of the premises upon commencement date by reason of the fact that premises are
not ready for occupancy, or due to a prior Tenant wrongfully holding over or any
other person wrongfully in possession or for any other reason: in such event the
rent shall not commence until possession is given or is available, but the term
herein shall not be extended.
The tenant further covenants:
TWENTY-SECOND.--If the demised premises or any part thereof consist of a
store, or of a first floor, or of any part thereof, the Tenant will keep the
sidewalk and curb in front thereof clean at all times and free from snow and
ice, and will keep insured in favor of the Landlord, all plate glass therein
and furnish the Landlord with policies of insurance covering the same.
TWENTY-THIRD.--If by reason of the conduct upon the demised premises of a
business not herein permitted, or if by reason of the improper or careless
conduct of any business upon or use of the demises premises, the fire insurance
rate shall at any time be higher than it otherwise would be, then the Tenant
will reimburse the Landlord, as
<PAGE>
additional rent hereunder, for that part of all fire insurance premiums
hereafter paid out by the Landlord which shall have been charged because of the
conduct of such business not so permitted, or because of the improper or
careless conduct of any business upon or use of the demised premises, and will
make such reimbursement upon the first day of the month following such outlay by
the Landlord; but this covenant shall not apply to a premium for any period
beyond the expiration date of this lease, first above specified. In any action
or proceeding wherein the Landlord and Tenant are parties, a schedule or "make
up" of rate for the building on the demised premises, purporting to have been
issued by New York Fire Insurance Exchange, or other body made making fire
insurance rates for the demised premises, shall be prima facie evidence of the
facts therein stated and of the several items and charges including the fire
insurance rate then applicable to the demised premises.
TWENTY-FOURTH.--If a separate water meter be installed for the demised
premises, or any part thereof, the Tenant will keep the same in repair and pay
the charges made by the municipality or water supply company for or in respect
to the consumption of water, as and when bills therefor are rendered. If the
demised premises, or any part thereof, be supplied with water through a meter
which supplies other premises, the Tenant will pay to the Landlord, as and when
bills are rendered therefor, the Tenant's proportionate part of all charges
which the municipality or water supply company shall make for all water consumed
through said meter, as indicated by said meter. Such proportionate part shall be
fixed by apportioning the respective charge according to floor area against all
of the rentable floor area in the building (exclusive of the basement) which
shall have been occupied during the period of the respective charges, taking
into account the period that each part of such area was occupied. Tenant agrees
to pay as additional rent the Tenant's proportionate part, determined as
aforesaid, of the sewer rent or charge imposed or assessed upon the building of
which the premises are a part.
TWENTY-FIFTH.--That the Tenant will purchase from the LONG ISLAND LIGHTING
CO. all electric current that the Tenant requires at the demised premises, and
will pay for the same, as the amount of consumption shall be indicated by the
meter furnished therefor. The price for said current shall be the same as that
charged for consumption similar to that of the Tenant by the company supplying
electricity in the same community. Payments shall be due as and when bills shall
be rendered. The Tenant shall comply with like rules, regulations and contract
provisions as those prescribed by said company for a consumption similar to that
of the Tenant.
TWENTY-SIXTH.--If there now is or shall be installed in said building a
"sprinkler system" the Tenant agrees to keep the appliances thereto in the
demised premises in repair and good working condition, and if the New York Board
of Fire Underwriters or the New York Fire Insurance Exchange or any bureau,
department or official of the State or local government requires or recommends
that any changes, modifications, alterations or additional sprinkler heads or
other equipment be made or supplied by reason of the Tenant's business, or the
location of partitions, trade fixtures, or other contents of the demised
premises, or if such changes, modifications, alterations, additional sprinkler
heads or other equipment in the demised premises are necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate as fixed by said Exchange, or by any Fire
Insurance Company the Tenant will at the Tenant's own expense, promptly make and
supply such changes, modifications, alterations, additional sprinkler heads or
other equipment. As additional rent hereunder the Tenant will pay to the
Landlord, annually in advance, throughout the term $_________________________,
toward the contract price for sprinkler supervisory service.
TWENTY-SEVENTH.--The sum of AS PER PARAGRAPH 61st Dollars is deposited by
the Tenant herein with the Landlord herein as security for the faithful
performance of all the covenants and conditions of the lease by the said
Tenant. If the Tenant faithfully performs all the covenants and conditions on
his part to be performed, then the sum deposited shall be returned to said
Tenant.
TWENTY-EIGHTH.--This lease is granted and accepted on the especially
understood and agreed condition that the Tenant will conduct his business in
such a manner, both as regards noise and kindred nuisances, as will in no wise
interfere with,
<PAGE>
annoy, or disturb any other tenants, in the conduct of their several businesses,
or the landlord in the management of the building; under penalty of forfeiture
of this lease and consequential damages.
TWENTY-NINTH.--The Landlord hereby recognizes as PER PARAGRAPH 57th as the
broker who negotiated and consummated this lease with the Tenant herein, and
agrees that if, as and when the Tenant exercises the option, if any, contained
herein to renew this lease, or fails to exercise the option, if any, contained
therein to cancel this lease, the Landlord will pay to said broker a further
commission in accordance with the rules and commission rates of the Real Estate
Board in the community. A sale, transfer, or other disposition of the Landlord's
interest in said lease shall not operate to defeat the Landlord's obligation to
pay the said commission to the said broker. The Tenant herein hereby represents
to the Landlord that the said broker is the sole and only broker who negotiated
and consummated this lease with the Tenant.
THIRTIETH.--The Tenant agrees that it will not require, permit, suffer,
nor allow the cleaning of any window, or windows, in the demised premises from
the outside (within the meaning of Section 202 of the Labor Law) unless the
equipment and safety devices required by law, ordinance, regulation or rule,
including, without limitation, Section 202 of the New York Labor Law, are
provided and used, and unless the rules, or any supplemental rules of the
Industrial Board of the State of New York are fully complied with; and the
Tenant hereby agrees to indemnify the Landlord, Owner, Agent, Manager and/or
Superintendent, as a result of the Tenant's requiring, permitting, suffering,
or allowing any window, or windows in the demised premises to be cleaned from
the outside in violation of the requirements of the aforesaid laws,
ordinances, regulations and/or rules.
THIRTY-FIRST.--The invalidity or unenforceability of any provision of this
lease shall in no way affect the validity or enforceability or any other
provision hereof.
THIRTY-SECOND.--In order to avoid delay, this lease has been prepared and
submitted to the Tenant for signature with the understanding that it shall not
bind the Landlord unless and until it is executed and delivered by the Landlord.
THIRTY-THIRD.--The Tenant will keep clean and polished all metal, trim,
marble and stonework which are a part of the exterior of the premises, using
such materials and methods as the Landlord may direct, and if the Tenant shall
fail to comply with the provisions of this paragraph, the Landlord may cause
such work to be done at the expense of the Tenant.
THIRTY-FOURTH.--The Landlord shall replace at the expense of the Tenant
any and all broken glass in the skylights, doors and walls in and about the
demised premises. The Landlord may insure and keep insured all plate glass in
the skylights, doors and walls in the demised premises, for and in the name of
the Landlord and bills for the premiums therefor shall be rendered by the
Landlord to the Tenant at such times as the Landlord may elect, and shall be due
from and payable by the Tenant when rendered, and the amount thereof shall be
deemed to be, and shall be paid as, additional rent.
THIRTY-FIFTH.--This lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in nowise be affected, impaired or excused
because Landlord is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repairs, additions, alterations or decorations or is unable to
supply or is delayed in supplying any equipment or fixtures if Landlord is
prevented or delayed from so doing by reason of governmental preemption in
connection with a National Emergency declared by the President of the United
States or in connection with any rule, order or regulation of any department
or subdivision thereof of any government agency or by reason of the conditions
of supply and demand which have been or are affected by war or other emergency.
THE LANDLORD COVENANTS
<PAGE>
FIRST.--That if and so long as the Tenant pays the rent and "additional
rent" reserved hereby, and performs and observes the covenants and provisions
hereof, the Tenant shall quietly enjoy the demised premises, subjects, however,
to the terms of this lease, and to the mortgages above mentioned, provided
however, that this covenant shall be conditioned upon the retention of title to
the premises by Landlord.
PLUS A RIDER OF 5 PAGES ATTACHED HERETO.
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
IN WITNESS WHEREOF, the Landlord and Tenant have respectively signed and
sealed these presents the day and year first above written.
/ S / [L.S.]
------------------------------------
51 EAST BETHPAGE HOLDING CORP. Landlord
IN PRESENCE OF:
/ S / [L.S.]
------------------------------------
REAL TIME STRATEGIES, INC. Tenant
<PAGE>
36TH IN THE CASE OF A CONFLICT BETWEEN THE PROVISIONS OF THIS RIDER AND
THE PROVISIONS OF THE WITHIN LEASE, THE PROVISIONS OF THIS RIDER SHALL PREVAIL.
37TH THE TENANT AGREES TO PAY FOR ALL UTILITIES, INCLUDING BUT NOT
LIMITED TO GAS, ELECTRIC AND TELEPHONE. TENANT WARRANTS THAT IT USES NO WATER IN
THE OPERATION OF ITS BUSINESS AND SHALL USE THE WATER FOR LAVATORY AND/OR
KITCHEN PURPOSES ONLY (NOTWITHSTANDING THE ABOVE, WATER AND SEWER CHARGES ARE TO
BE INCLUDED IN THE COMMON AREA MAINTENANCE CHARGE).
38TH ANY SUMS OF MONEY REQUIRED TO BE PAID BY THE TENANT TO THE
LANDLORD, IN ADDITION TO THE RENT HEREIN PROVIDED, SHALL BE DEEMED ADDITIONAL
RENT, AND IN THE EVENT TENANT FAILS TO PAY SUCH ADDITIONAL RENT, THE LANDLORD
SHALL BE ENTITLED TO DISPOSSESS THE TENANT BY SUMMARY DISPOSSESS PROCEEDINGS OR
ANY OTHER REMEDY AVAILABLE TO THE LANDLORD PURSUANT TO THE TERMS OF THIS LEASE
AND PURSUANT TO LAW.
39TH IN THE EVENT ANY ACTION FOR RENT OR ADDITIONAL RENT IS COMMENCED
BY THE LANDLORD, THE TENANT HEREIN SHALL NOT BE ENTITLED TO ASSERT ANY OFFSET OF
COUNTERCLAIM BUT MAY BRING A SEPARATE ACTION IN HIS OWN BEHALF.
40TH THE TENANT AGREES TO FURNISH THE LANDLORD UPON WRITTEN REQUEST
WITH PUBLIC/FINANCIAL STATEMENTS AS MAY BE AVAILABLE, WHICH MAY BE NECESSARY BY
LANDLORD FOR PURPOSES OF FINANCING THE PREMISES.
41ST THE TENANT AGREES TO MAKE IMMEDIATE APPLICATION TO THE LONG ISLAND
LIGHTING CO. FOR GAS AND ELECTRIC AND MAKE ANY REQUIRED DEPOSITS WITH THE
AFORESAID COMPANY.
42ND THE BASE RENTAL DURING THE TERM OF THIS LEASE SHALL BE PAID AS
FOLLOWS:
$4,790.00 PER MONTH 4/l/97 THROUGH 3/31/98 ($57,480.00 -YEAR)
$4,958.00 PER MONTH 4/l/98 THROUGH 3/31/99 ($59,496.00 -YEAR)
$5,125.00 PER MONTH 4/l/99 THROUGH 3/31/00 ($61.500.00 -YEAR)
$5,293.00 PER MONTH 4/l/00 THROUGH 3/31/01 ($63,516.00 -YEAR)
$5,461.00 PER MONTH 4/l/01 THROUGH 3/31/02 ($65,532.00 -YEAR)
43RD IN THE EVENT THE TENANT DOES NOT VACATE THE PREMISES UPON THE
EXPIRATION DATE OF THIS LEASE, OR UPON THE EXPIRATION OF ANY OPTION, THEN AND IN
THAT EVENT OR EVENTS THE TENANT SHALL REMAIN AS A MONTH TO MONTH TENANT AT A
MONTHLY RENTAL OF TWICE THE THEN CURRENT RENT, PRIOR TO THE HOLDOVER.
44TH IN THE EVENT LANDLORD HAS NOT RECEIVED THE MONTHLY PAYMENT OF RENT
OR ANY ADDITIONAL RENT DUE WITHIN FIVE (5) DAYS
1
<PAGE>
AFTER ITS DUE DATE, TENANT SHALL PAY A LATE CHARGE OF $500.00 FOR EACH SUCH
PAYMENT DUE FOR THE PURPOSE OF DEFRAYING THE EXPENSE INCIDENT TO HANDLING SUCH
DELINQUENT PAYMENT IF PAYMENT IS ACCEPTED BY THE LANDLORD. THIS PROVISION
SHALL NOT BE DEEMED TO ESTABLISH A GRACE PERIOD OR A WAIVER OF ANY OF THE
LANDLORDS RIGHTS AND SHALL IN NO WAY ALTER OR CHANGE ANY OF THE OTHER
COVENANTS OR CONDITIONS OF THIS LEASE AND SHALL BE DEEMED AN ADDITION TO ANY
OTHER REMEDY AVAILABLE TO THE LANDLORD UNDER THIS LEASE.
IN THE EVENT THE LANDLORD HAS NOT RECEIVED THE RENT BY THE 4TH OF THE
MONTH, THE LANDLORD WILL NOTIFY THE TENANT OF SAME AND THE TENANT SHALL BE GIVEN
TWO ADDITIONAL BUSINESS DAYS TO REMIT THE RENT TO THE LANDLORD BEFORE ANY LATE
CHARGE CAN BE LEVIED. LANDLORD AGREES TO WAIVE THE LATE FEE ONCE IN ANY LEASE
YEAR PROVIDED PAYMENT IS RECEIVED WITH FIFTEEN (15) DAYS OF LANDLORDS NOTICE TO
TENANT.
45TH NO ACT OF THE LANDLORD, ITS EMPLOYEES OR ANYONE ACTING ON BEHALF OF
THE LANDLORD, INCLUDING BUT NOT LIMITED TO THE ACCEPTANCE OF A KEY, SHALL BE
DEEMED AN ACCEPTANCE OF TENANTS SURRENDER OF THE PREMISES UNLESS SUCH ACCEPTANCE
OF TENANTS SURRENDER OF THE PREMISES IS IN WRITING AND SIGNED BY THE LANDLORD.
46TH IF THE LANDLORD, OR ANY SUCCESSOR IN INTEREST SHALL BE AN
INDIVIDUAL, JOINT VENTURE, TRUST TENANCY IN COMMON, FIRM OR PARTNERSHIP (GENERAL
OR LIMITED OR ANY OTHER ENTITY, IT IS SPECIFICALLY UNDERSTOOD AND AGREED THAT
THERE SHALL BE NO PERSONAL LIABILITY ON SUCH INDIVIDUAL, OR THE MEMBERS OF THAT
FIRM PARTNERSHIP, JOINT VENTURE, TRUST, OR ANY OTHER ENTITY IN RESPECT TO ANY OF
THE COVENANTS/OR CONDITIONS OF THIS LEASE AND THE PROPERTY SHALL BE THE SOLE
SOURCE FOR THE SATISFACTION OF THE REMEDIES OF THE TENANT IN THE EVENT OF A
BREACH BY THE LANDLORD OF ANY OF THE TERMS, COVENANTS OR CONDITIONS OF THE
LEASE TO BE PERFORMED BY THE LANDLORD.
47TH TENANT COVENANTS AND REPRESENTS THAT DURING THE ENTIRE TERM OF
THIS LEASE IT WILL PROVIDE AND KEEP IN FORCE, GENERAL ACCIDENT AND PUBLIC
LIABILITY OCCASIONED BY ACCIDENT, DISASTER OR INCIDENT OF NEGLIGENCE INSURANCE,
IN THE AMOUNT OF NOT LESS THAN ONE MILLION DOLLARS/TWO MILLION
($1,000,000.00/2,000,000.00) IN RESPECT TO ALL INJURIES IN ANY ONE ACCIDENT OR
DISASTER, AND IN THE AMOUNT OF NOT LESS THAN ONE HUNDRED THOUSAND DOLLARS
($100,000.00) IN THE EVENT OF ANY DAMAGE TO THE PROPERTY, SUCH INSURANCE SHALL
NAME THE LANDLORD AND OTHERS HEREAFTER NAMED BY THE LANDLORD FROM TIME TO TIME.
2
<PAGE>
48TH IT IS HEREBY AGREED THAT NOTWITHSTANDING ANYTHING HEREIN CONTAINED
TO THE CONTRARY, THAT THE TOTAL RENT FOR THE WHOLE TERM HEREBY DEMISED, IS
PAYABLE AT THE TIME OF MAKING OF THIS LEASE AND THAT THE PROVISIONS HEREIN
CONTAINED FOR THE PAYMENT OF THE RENT IN INSTALLMENTS HERETOFORE PROVIDED FOR IN
AN EARLIER CLAUSE OF THIS LEASE ARE FOR THE CONVENIENCE OF THE TENANT ONLY.
TENANT GRANTS LANDLORD THE RIGHT TO AMEND ANY COMPLAINT TO ACCELERATE (THE WHOLE
OF THE RENT RESERVED FOR THE WHOLE PERIOD THEN REMAINING UNPAID SHALL AT ONCE
BECOME DUE AND PAYABLE) THE RENT, IF TENANT IS THIRTY (30) DAYS IN ARREARS ON
ANY RENT OR REAL ESTATE TAX PAYMENT AND SIXTY (60) DAYS IN ARREARS ON ANY
ADDITIONAL RENT ITEM. SUBJECT TO THE PRECEDING SENTENCE, COLLECTION OF SAID
ENTIRE BALANCE FOR THE WHOLE OF THE PERIOD THEN REMAINING UNPAID MAY BE
ENFORCED BY MEANS OF SUMMARY PROCEEDINGS TO RECOVER POSSESSION, ACTION TO
RECOVER RENT OR OTHER PROCEEDING AND THE LANDLORD SHALL BE ENTITLED TO A
JUDGMENT FOR SAID ENTIRE BALANCE IN SUCH SUMMARY PROCEEDINGS ACTION TO RECOVER
RENT OR OTHER PROCEEDINGS.
49TH IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT IF THE SECURITY DEPOSIT
HEREUNDER BEAR INTEREST THAT SUCH INTEREST SHALL BE DEEMED AS ADDITIONAL RENT
COLLECTABLE IN THE SAME MANNER AS RENT, AND THAT THIS PROVISION HAS BEEN AGREED
UPON PRIOR TO THE MAKING OF THIS LEASE AND AGREE TO THE AMOUNT OF RENT AS
RESERVED.
50TH THE TENANT SHALL PAY AS ADDITIONAL RENT 23.5% OF THE REAL ESTATE
TAXES ON (WHICH INCLUDES BUT ARE NOT LIMITED TO SCHOOL AND TOWN TAXES),
ASSESSMENTS, LEVIES OR OTHER TAXES LEVIED AGAINST THE DEMISED PREMISES (BASED ON
THE CURRENT ASSESSED VALUE OF $90,400.00) BY ANY GOVERNMENTAL AUTHORITY HAVING
JURISDICTION, SUCH AMOUNT SHALL BE PAYABLE AS ADDITIONAL RENT WITHIN TEN (10)
DAYS OF BILLING. IN CALCULATING TENANTS REAL ESTATE TAXES, THE TAX RATE (THE
CURRENT RATE $78.005 PER $100.00), AS IT MAY BE INCREASED OR DECREASED, DURING
THE TERM OF THE LEASE SHALL BE APPLIED TO THE ASSESSED VALUE OF $90,400.00
CURRENTLY IN EFFECT. TENANT SHALL NOT BE LIABLE FOR OR BENEFIT FROM CHANGES IN
ASSESSED VALUE, UNLESS SUCH CHANGE RESULTS FROM THE WAY THE MUNICIPAL AGENCY
ASSESSES THE PROPERTY. IN THE EVENT TENANT DOES NOT PAY THE REAL ESTATE TAXES
WITHIN THE TIME PRESCRIBED, OR, IN THE EVENT ANY FUTURE MORTGAGEE REQUEST A TAX
ESCROW BE MAINTAINED, THEN IN EITHER SUCH EVENT, TENANT SHALL PAY TO THE
LANDLORD WITH EACH MONTH'S RENT A TAX ESCROW EQUAL TO 1/12TH OF ITS PRORATA
SHARE OF THE THEN CURRENT ANNUAL TAXES. IN THE EVENT THE AMOUNT ESCROWED IS
INSUFFICIENT TO PAY TENANTS PRORATA SHARE OF THE TAXES THE TENANT SHALL MAKE UP
THE SHORTAGE WITH TEN (10) DAYS OF BEING NOTIFIED OF SUCH SHORTAGE.
3
<PAGE>
51ST IF THE TENANT BECOMES INSOLVENT OR IS ADJUDICATED OR BANKRUPT OR
FILES A PETITION FOR ARRANGEMENT OR REORGANIZATION OR APPLIES FOR OR TAKES THE
BENEFIT OF ANY BANKRUPTCY OF INSOLVENCY ACT OR ACTS OR STATUTES OR PROVISIONS
FOR THE RELIEF OF DEBTORS, NOW, OR HEREAFTER ENACTED, OR MAKES A GENERAL
ASSIGNMENT OF THE BENEFIT OF THE CREDITOR, OR IF A RECEIVER OR TRUSTEE BE
APPOINTED FOR THE TENANTS PROPERTY, THEN, AND IN SUCH EVENT, THE SECURITY
DEPOSIT MENTIONED IN PARAGRAPH 27TH OF THE FOREGOING LEASE SHALL BE DEEMED TO BE
AND IS HEREBY ASSIGNED TO THE LANDLORD IN ANY SUCH EVENT, OR IN CASE OF DEFAULT
BY THE TENANT IN THE PERFORMANCE OF THE TERMS OF THIS LEASE BY THE REASON OF
WHICH THIS LEASE IS TERMINATED EITHER IN SUMMARY PROCEEDING OR BY NOTICE AS
HEREIN PROVIDED, SUCH SECURITY DEPOSIT SHALL BELONG TO THE LANDLORD AND SHALL BE
APPLIED BY THE LANDLORD TOWARDS DAMAGES AND THE RIGHT TO RETAIN SUCH SECURITY
DEPOSIT SHALL SURVIVE SUMMARY PROCEEDING FOR THE RECOVERY OF THE POSSESSION OF
THE PREMISES.
52ND THE TENANT SHALL HAVE THE RIGHT TO ASSIGN OR SUBLEASE ONLY WITH
THE LANDLORDS APPROVAL OF THE NEW SUBTENANT OR ASSIGNED. THIS APPROVAL SHALL NOT
BE UNREASONABLY WITHHELD. HOWEVER, THE ORIGINAL TENANT SHALL STILL REMAIN LIABLE
ON THIS LEASE FOR ALL TERMS AND CONDITIONS OF SAME, SUBJECT TO THE RIGHTS SET
FORTH IN THIS PARAGRAPH, THE LANDLORD HAS THE RIGHT AFTER THE TENANT SUBMITS THE
NEW ASSIGNEE OR SUBTENANT FOR LANDLORDS APPROVAL, TO TAKE BACK THE PREMISES FROM
THE TENANT AND VOID THE REMAINDER OF THIS LEASE. THIS ACTION MUST BE DONE BY
CERTIFIED MAIL AND THE LANDLORD HAS THIRTY DAYS TO RESPOND. IF THE LANDLORD
ELECTS TO CANCEL THIS LEASE, SUCH CANCELLATION SHALL BECOME EFFECTIVE SIXTY (60)
DAYS AFTER THE GIVING OF SUCH NOTICE OF CANCELLATION BY THE LANDLORD.
53RD IT IS AGREED BETWEEN THE PARTIES THAT THE TENANTS LIABILITY FOR
THE PAYMENT OF UTILITY CHARGES AND OTHER AMOUNTS REQUIRED TO BE PAID BY IT AS
RENT OR OTHERWISE, UNDER THIS LEASE SHALL BE PRORATED FOR ANY PERIOD FROM THE
COMMENCEMENT OF THE LEASE TO THE TERMINATION THEREOF.
54TH TENANT WARRANTS THAT IT IS A CORPORATION FORMED AND OPERATING
PURSUANT TO THE LAWS OF THE STATE OF NEW YORK THAT IT IS THE OWNER AND OPERATOR
OF THE BUSINESS GENERALLY KNOWN AS REAL TIME STRATEGIES, INC.
55TH AS AN INDUCEMENT TO THE LANDLORD TO ENTER INTO A LEASE, THE TENANT
AGREES THAT IN NO EVENT WILL THE SECURITY DEPOSITED WITH THE LANDLORD BE USED AS
RENT PAYMENT. IF ANY SUCH ATTEMPT IS MADE BY THE TENANT, WITHOUT THE EXPRESS
4
<PAGE>
WRITTEN CONSENT OF THE LANDLORD, THEN THE SECURITY SHALL BE DEEMED AS ADDITIONAL
RENT AND NOT RETURNED TO THE TENANT. THIS PROVISION HAS BEEN AGREED TO PRIOR TO
THE MAKING OF THIS LEASE.
56TH IN THE EVENT EITHER PARTY SHALL COMMENCE ANY ACTION AGAINST THE
OTHER IN ACCORDANCE WITH THIS PARAGRAPH AND SAID ACTION SHALL BE TERMINATED IN
THE FAVOR OF ONE PARTY, THE LOSING PARTY SHALL BE OBLIGATED TO PAY THE
PREVAILING PARTYS LEGAL FEES AND DISBURSEMENTS NECESSARY FOR THE INSTITUTION OF
SAID ACTION (NOT LESS THAN $2,500.00) AND SAID SUM SHALL BE DEEMED TO BE
ADDITIONAL RENT AFTER THE TERMINATION OF SAID ACTION. ALL ACTIONS COMMENCED ON
BEHALF OF THE TENANT OR LANDLORD SHALL BE BROUGHT IN NASSAU COUNTY.
57TH THE TENANT WARRANTS THAT NO REAL ESTATE BROKER BROUGHT ABOUT THIS
TRANSACTION, AND SHALL HOLD THE LANDLORD HARMLESS FROM THE CLAIM, LAWSUIT,
JUDGMENT (INCLUDING LEGAL FEES)WITH RESPECT TO ANY BROKERAGE COMMISSIONS OR
FINDERS FEES IN CONNECTION WITH THE LEASING OF THE DEMISES PREMISES.
58TH TENANT SHALL BE RESPONSIBLE FOR THE CLEANING OF ITS DEMISED PREMISES.
59TH LANDLORD AT TENANTS EXPENSE SHALL MAINTAIN THE BUILDING IN GOOD
REPAIR AND CONDITION FAIR WEAR AND TEAR ACCEPTED AS COMMON AREA MAINTENANCE.
SUCH COMMON AREA MAINTENANCE SHALL INCLUDE THE COST OF SITE MAINTENANCE, SNOW
REMOVAL, LANDSCAPING, HVAC MAINTENANCE, ALL RISK BUILDING INSURANCE POLICY,
WATER AND SEWER CHARGES, FIRE SPRINKLER LINES. LANDLORD SHALL BE RESPONSIBLE AT
ITS OWN COST AND EXPENSE FOR STRUCTURAL REPAIRS PROVIDED SAME ARE NOT CAUSED BY
THE ACTIONS OF THE TENANT, ITS EMPLOYEES OR ITS GUESTS. TENANT SHALL PAY AS
ADDITIONAL RENT, ITS PRORATA SHARE (23.5%)OF THESE EXPENSES WITHIN TEN (10) DAYS
OF BILLING. STRUCTURAL ITEMS SHALL BE DEFINED AS FOUNDATIONS, SLABS, STEEL
INCLUDING DECKING, ROOFING, AND PLUMBING. FOR THE PURPOSE OF INSURANCE THE
LANDLORD SHALL SECURE AND KEEP IN FULL FORCE AND EFFECT DURING THE TERM OF THE
LEASE, INSURANCE IN THE AMOUNT OF THE FULL BUILDING VALUE, FOR DAMAGE BY FIRE
AND CAUSES COVERED BY EXTENDED COVERAGE, LIABILITY INSURANCE IN THE AMOUNT OF
$1,000,000,000, PLUS A $1,000,000,000 UMBRELLA POLICY AND RENT INSURANCE FOR ONE
(1) YEAR RENT AND TAXES, IN GOOD AND SOLVENT COMPANIES LICENSED TO DO BUSINESS
IN NEW YORK STATE.
60TH LANDLORD SHALL CONSTRUCT, AT ITS OWN COST AND EXPENSE THE DEMISED
IN ACCORDANCE WITH THE LANDLORD'S WORK LETTER "EXHIBIT B" AND TENANT PLAN
EXHIBIT "B-1" ATTACHED HERETO.
5
<PAGE>
61ST TENANT SHALL DEPOSIT WITH LANDLORD TWO (2) MONTHS SECURITY DEPOSIT,
TO BE PAID UPON EXECUTION OF THIS LEASE.
62ND LANDLORD SHALL DELIVER THE POSSESSION OF TENANTS DEMISED PREMISES
SUBSTANTIALLY COMPLETE ON/OR BEFORE APRIL 1,1997, BUT NO LATER THAN MAY 1,1997.
IN THE EVENT POSSESSION IS DELIVERED AFTER APRIL 30,1997 TENANT SHALL BE
ENTITLED TO A RENT CONCESSION EQUAL TO TWO DAYS FOR EACH DAY BEYOND MAY 1,1997
TENANTS SPACE IS NOT SUBSTANTIALLY COMPLETE, FOR THE PURPOSES OF DETERMINING
SUBSTANTIALLY COMPLETE THE EXTERIOR COLOR COAT ON THE DRYVIT FACADE MAY BE
EXCLUDED. FURTHERMORE, IN THE EVENT LANDLORD HAS NOT SUBSTANTIALLY COMPLETED THE
STEEL STUDS AND SHEET ROCK IN TENANTS DEMISED PREMISES BY APRIL 1, 1997 TENANT
MAY CANCEL THIS LEASE OR LANDLORD HAS NOT DELIVERED THE SPACE SUBSTANTIALLY
COMPLETE BY JUNE 15, 1997 TENANT MAY CANCEL THIS LEASE. LANDLORD SHALL CONSTRUCT
TENANTS IMPROVEMENTS AND ALL WORK SET FORTH IN EXHIBIT "B" TO CODE AND WILL BE
RESPONSIBLE TO DEFEND OR CURE AT ITS OWN EXPENSE ANY VIOLATIONS ISSUED AGAINST
THE DEMISED PREMISES OR THE TENANT, EXCEPT VIOLATIONS ISSUED AS A RESULT OF
TENANTS CONSTRUCTION OF IMPROVEMENTS OR FAILURE TO MAINTAIN THE PREMISES AND
PARKING AREA FREE OF TENANTS DEBRIS. IN THE EVENT TENANT CANCELS THIS LEASE
PURSUANT TO THIS PARAGRAPH, LANDLORD SHALL HAVE SEVEN (7) ADDITIONAL DAYS TO
SUBSTANTIALLY COMPLETE THE WORK REQUIRED BEFORE TENANTS CANCELLATION CAN BE
EFFECTIVE. IN THE EVENT LANDLORD STILL HAS NOT SUBSTANTIALLY COMPLETED THE WORK
AFTER SAID SEVEN (7) DAYS LANDLORD SHALL RETURN TO TENANT ALL MONIES PAID BY
TENANT TO LANDLORD IN ACCORDANCE WITH THIS LEASE.
63RD TENANT SHALL BE GUARANTEED THIRTY (30) PARKING SPOTS, OF WHICH FIVE
(5) SHALL BE DESIGNATED BY THE TENANTS FRONT ENTRANCE. TENANT SHALL HAVE THE
RIGHT TO POST A SIGN IN FRONT OF EACH OF SAID SPACES STATING "RESERVED FOR REAL
TIME STRATEGIES." IN THE EVENT TENANT, ITS EMPLOYEES, OR GUESTS HAVE A PROBLEM
PARKING, TENANT MAY AT ITS OWN COST AND EXPENSE DESIGNATE THE REMAINDER OF ITS
PARKING SPOTS, IN THE AREA SHOWN ON EXHIBIT "A".
64TH TENANT SHALL BE ALLOWED, AT ITS OWN EXPENSE, SIGNAGE ON THE
BUILDING (WITHIN TENANTS DEMISED AREA), SUBJECT TO TOWN CODE AND THE LANDLORDS
APPROVAL, WHICH SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED. IN ADDITION
TENANT MAY AT ITS OWN COST AND EXPENSE ERECT A LAWN MONUMENT SIGN PROVIDED TOWN
CODE DOES NOT LIMIT THE NUMBER OF MONUMENT SIGNS PERMITTED, SUBJECT TO THE
LANDLORDS APPROVAL, WHICH SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED. IN THE
EVENT ONLY ONE MONUMENT SIGN IS ALLOWED TENANT SHALL SHARE SAME WITH THE OTHER
TENANTS IN THE BUILDING. EACH TENANT SHALL PAY ITS PRORATA SHARE OF THE COST OF
ANY SUCH SIGN.
6
<PAGE>
65TH PROVIDED TENANT IS NOT IN DEFAULT OF THIS LEASE TENANT SHALL HAVE
THE RIGHT TO EXTEND THE TERM OF THIS LEASE FOR ONE (1) ADDITIONAL FIVE (5) YEAR
TERM UNDER THE SAME TERMS AND CONDITIONS OF THIS LEASE EXCEPT FOR THE PAYMENT OF
BASE RENT BY GIVING THE LANDLORD NOTICE OF TENANTS INTENT TO EXTEND THE LEASE,
AT LEAST 180 DAYS PRIOR TO THE EXPIRATION OF THE FIXED TERM. THE TOTAL BASE RENT
DURING THE OPTION TERM IS FOUR HUNDRED SIXTEEN THOUSAND FOUR HUNDRED TWELVE
DOLLARS ($416,412.00) AND SHALL BE PAID AS FOLLOWS:
$6,471.00 PER MONTH 4/l/02 THROUGH 3/31/03 ($77,652.00 -YEAR)
$6,697.00 PER MONTH 4/l/03 THROUGH 3/31/04 ($80,364.00 -YEAR)
$6,932.00 PER MONTH 4/l/04 THROUGH 3/31/05 ($83,184.00 -YEAR)
$7,175.00 PER MONTH 4/l/05 THROUGH 3/31/06 ($86,100.00 -YEAR)
$7,426.00 PER MONTH 4/l/06 THROUGH 3/31/07 ($89,112.00 -YEAR)
66TH THE BUILDING WILL BE CONSTRUCTED SUBSTANTIALLY IN ACCORDANCE WITH
THE ARTISTS RENDERING, EXCEPT FOR DOOR LOCATIONS AND THE REVEAL ABOVE THE
WINDOWS.
LANDLORD - 51 EAST BETHPAGE HOLDING CORP.
/s/ Steven Getlan
------------------------------------------
BY: STEVEN GETLAN
TENANT - REAL TIME STRATEGIES, INC.
/s/ Spencer Kravitz
------------------------------------------
BY: SPENCER KRAVITZ
7
<PAGE>
Exhibit 21.1
Subsidiaries
Name Jurisdiction of Organization
---- ----------------------------
RTS Wireless International Limited United Kingdom
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports dated
March 28, 2000, in the Registration Statement (Form S-1) and related
Prospectus of RTS Wireless, Inc. dated March 29, 2000.
/s/ Ernst & Young LLP
Melville, New York
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RTS
WIRELESS, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 345
<SECURITIES> 0
<RECEIVABLES> 1,992
<ALLOWANCES> (298)
<INVENTORY> 0
<CURRENT-ASSETS> 2,567
<PP&E> 529
<DEPRECIATION> (161)
<TOTAL-ASSETS> 2,951
<CURRENT-LIABILITIES> 2,784
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 80
<TOTAL-LIABILITY-AND-EQUITY> 2,951
<SALES> 0
<TOTAL-REVENUES> 8,341
<CGS> 0
<TOTAL-COSTS> 1,013
<OTHER-EXPENSES> 10,783
<LOSS-PROVISION> 261
<INTEREST-EXPENSE> 595
<INCOME-PRETAX> (4,044)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,044)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,044)
<EPS-BASIC> (.47)
<EPS-DILUTED> (.47)
</TABLE>
