<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
NOTE EXCHANGE OFFER
ON
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CELLNET DATA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4825 94-2951096
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
125 SHOREWAY ROAD SAN CARLOS, CA 94070
(650) 508-6000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------
JOHN M. SEIDL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CELLNET DATA SYSTEMS, INC.
125 SHOREWAY ROAD
SAN CARLOS, CA 94070
(650) 508-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
BARRY E. TAYLOR, ESQ.
MEREDITH S. JACKSON, ESQ.
CECILIA M. DE LEON, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
14% Senior Discount Notes due 2007, Series
B......................................... $654,133,000 100% $654,133,000 $198,223
</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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES EXCHANGE COMMISSION (THE
"SEC"), ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER 15, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
PROSPECTUS
CELLNET DATA SYSTEMS, INC.
OFFER TO EXCHANGE ITS
14% SENIOR DISCOUNT NOTES DUE OCTOBER 1, 2007, SERIES B
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ANY AND ALL OF ITS OUTSTANDING
14% SENIOR DISCOUNT NOTES DUE OCTOBER 1, 2007, SERIES A
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1997, UNLESS EXTENDED.
------------------------
CellNet Data Systems, Inc. ("CellNet" or the "Company") hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus (as the
same may be amended or supplemented from time to time, the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal" and together
with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal amount
of its 14% Senior Discount Notes due October 1, 2007, Series B (the "New Notes")
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined) of which
this Prospectus is a part, for each $1,000 principal amount of its outstanding
14% Senior Discount Notes due October 1, 2007, Series A (the "Old Notes," and
together with the New Notes, the "Notes"), of which $654,133,000 principal
amount at maturity is outstanding as of the date hereof.
The Company will accept for exchange any and all validly tendered Old Notes
prior to 5:00 P.M., New York City time, on , 1997, unless extended
(the "Expiration Date"). Old Notes may be tendered only in integral multiples of
$1,000. Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M.,
New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain customary
conditions. In the event the Company terminates the Exchange Offer and does not
accept for exchange any Old Notes, the Company will promptly return the Old
Notes to the holders thereof. The Company will not receive any proceeds from the
Exchange Offer. See "The Exchange Offer."
The terms of the New Notes will be identical to the terms of the Old Notes,
in all material respects, except that the New Notes (i) will have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Old Notes and (ii) will not be
entitled to registration or other rights under the Registration Rights Agreement
(as defined below) including the provision in the Registration Rights Agreement
for an increase of 0.50% per annum of the interest rate thereon upon failure by
the Company to consummate the Exchange Offer. The New Notes will be entitled to
the benefits of the Indenture (as defined) governing the Old Notes. See
"Description of the Old Notes" and "The Exchange Offer."
(CONTINUED ON FOLLOWING PAGE)
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS ON , 1997.
SEE "RISK FACTORS" ON PAGE 17 FOR INFORMATION THAT SHOULD BE CONSIDERED
IN CONNECTION WITH THIS OFFERING.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ADEQUACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1997
<PAGE>
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement dated
September 24, 1997, by and among the Company and the Placement Agents (as
defined herein) (the "Registration Rights Agreement"), a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The Exchange Offer is intended to satisfy the Company's obligations under
the Registration Rights Agreement to register the Old Notes under the Securities
Act. Once the Exchange Offer is consummated, the Company will have no further
obligations to register any of the Old Notes not tendered by the holders of the
Old Notes (together with the holders of the New Notes, the "Holders") for
exchange. See "Risk Factors--Consequences to Non-Tendering Holders of Old
Notes."
The Old Notes were initially represented (i) in the case of Old Notes
initially purchased by "qualified institutional buyers" (as such term is defined
in Rule 144A under the Securities Act), by six global Old Notes in fully
registered form, all registered in the name of a nominee of the DTC, and (ii) in
the case of Old Notes initially purchased by persons other than U.S. persons in
reliance upon Regulation S under the Securities Act, by six global Regulation S
Old Notes in fully registered form, all registered in the name of a nominee of
DTC for the accounts of Euroclear System ("Euroclear") and Cedel Bank, societe
anonyme ("Cedel Bank"). The New Notes exchanged for the Old Notes represented by
the global Old Notes and global Regulation S Old Notes will be represented (a)
in the case of "qualified institutional buyers", by four global New Notes in
fully registered form, registered in the name of the nominee of DTC, and (b) in
the case of persons outside of the United States, by four global Regulation S
New Notes in fully registered form, registered in the name of the nominee of DTC
for the accounts of Euroclear and Cedel Bank. The global New Notes and global
Regulation S New Notes will be exchangeable for definitive New Notes in
registered form, in denominations of $1,000 and integral multiples thereof. The
New Notes in global form will trade in The Depository Trust Company's Same-Day
Funds Settlement System, and secondary market trading activity in such New Notes
will therefore settle in immediately available funds. See "The Exchange
Offer--Book-Entry Transfer; Delivery and Form."
The New Notes will accrete at the rate of 14% per annum from the date of
issuance thereof until October 1, 2002. Thereafter, the New Notes will bear
interest at a rate equal to 14% per annum, payable semi-annually in arrears on
April 1 and October 1 of each year, commencing April 1, 2003. The Old Notes will
continue to accrete at the rate of 14% per annum to, but not including, the date
of issuance of the New Notes. Such accretion will become a part of the Accreted
Value (as defined) of the New Notes. Any Old Notes not tendered or accepted for
exchange will continue to accrete at the rate of 14% per annum in accordance
with its terms.
The New Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after October 1, 2002, at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the date of
redemption. On or prior to October 1, 2002, up to 25% of the aggregate principal
amount of the New Notes originally issued will be redeemable at the option of
the Company from the net proceeds of a Public Equity Offering (as defined), at
114% of the principal amount thereof, together with accrued and unpaid interest,
if any, to the date of redemption; PROVIDED, HOWEVER, in no event shall less
than 75% of the principal amount of the New Notes be outstanding after such
redemption. Upon the occurrence of a Change of Control (as defined), each Holder
of the New Notes may require the Company to repurchase all or a portion of such
Holder's New Notes at 101% of the Accreted Value thereof (if prior to October 1,
2002) or the principal amount thereof (if on or after October 1, 2002), together
with accrued and unpaid interest if any, to the date of repurchase. See
"Description of the Old Notes" and "Description of the New Notes."
The Company is making the Exchange Offer in reliance on the position of the
Staff of the Division of Corporation Finance of the SEC as set forth in the
Staff's Exxon Capital Holdings Corp. SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co., Inc. SEC No-Action Letter (available June 5, 1991),
Shearman & Sterling SEC No-Action Letter (available July 7, 1993), and other
interpretive letters addressed to third parties in other transactions. However,
the Company has not sought its own interpretive
2
<PAGE>
letter and there can be no assurance that the Staff of the Division of
Corporation Finance of the SEC would make a similar determination with respect
to the Exchange Offer as it has in such interpretive letters to third parties.
Based on these interpretations by the Staff of the Division of Corporation
Finance, and subject to the two immediately following sentences, the Company
believes that New Notes issued pursuant to this Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by a
Holder thereof (other than a Holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act; PROVIDED, that such New Notes are acquired in the ordinary
course of such Holder's business and that such Holder is not participating, and
has no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of such New Notes.
However, any Holder of Old Notes who is an "affiliate" of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing New
Notes, or any broker-dealer who purchased Old Notes from the Company to resell
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the Staff of the Division of Corporation Finance of the
SEC set forth in the above-mentioned interpretive letters, (b) will not be
permitted or entitled to tender such Old Notes in the Exchange Offer and (c)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Old Notes
unless such sale is made pursuant to an exemption from such requirements. See
"Risk Factors-- Consequences to Non-Tendering Holders of Old Notes." In
addition, as described below, if any broker-dealer holds Old Notes acquired for
its own account as a result of market-making or other trading activities and
exchanges such Old Notes for New Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Notes.
Each Holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such Holder is not
a broker-dealer, such Holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as a result of market-making activities or other trading activities and
must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the Staff of the
Division of Corporation Finance of the SEC in the interpretive letters referred
to above, the Company believes that broker-dealers who acquired Old Notes for
their own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus may be
used by a Participating Broker-Dealer during the period referred to below in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
has agreed that this Prospectus may be used by a Participating Broker-Dealer in
connection with resales of such New Notes for a period ending 180 days after the
Expiration Date (subject to extension under certain limited circumstances
described below) or, if earlier, when all such New Notes have been disposed of
by such Participating Broker-Dealer. See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of the Company may not rely on
such interpretive letters and must
3
<PAGE>
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until the Company has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the amended
or supplemented Prospectus necessary to permit resales of the New Notes or to
and including the date on which the Company has given notice that the sale of
New Notes may be resumed, as the case may be.
The New Notes will be senior unsecured indebtedness of the Company, will
rank PARI PASSU in right of payment with all existing and future unsubordinated
unsecured indebtedness of the Company and will be senior in right of payment to
all future subordinated indebtedness of the Company. After giving PRO FORMA
effect to the Exchange Offer, the Company would have had no indebtedness
outstanding other than any outstanding Old Notes, the New Notes and $0.6 million
of secured capital lease obligations. However, the Company is a holding company
and the New Notes will be effectively subordinated to all existing and future
indebtedness and liabilities (including trade payables and any subordinated
indebtedness) of the Company's Subsidiaries. As of June 30, 1997, the
Subsidiaries of the Company had approximately $1.0 million of liabilities
(excluding intercompany payables). See "Risk Factors--Substantial Leverage and
Ability to Service Debt; Substantial Future Capital Needs" and "--Holding
Company Structure; Dependence of Company on Subsidiaries for Repayment of the
New Notes; Effective Subordination of the New Notes to Liabilities of
Subsidiaries." The Indenture permits the Company and its Subsidiaries to incur
substantial additional indebtedness, including secured indebtedness. The Company
conducts its operations primarily through its Subsidiaries. These Subsidiaries
do not guarantee the Old Notes and will not be required to guarantee the New
Notes, and the Company is permitted to make substantial investments in these
Subsidiaries.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the Holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof and the Company will
have no further obligation to such Holders (other than to the Placement Agents
under certain limited circumstances) to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a Holder's ability to sell
untendered Old Notes could be adversely affected. See "Summary--Certain
Consequences of a Failure to Exchange Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
4
<PAGE>
Prior to this Exchange Offer, there has been no public market for the Old
Notes or New Notes. The Company does not intend to list the New Notes on a
national securities exchange or to seek approval for quotation through the
Nasdaq National Market. As the New Notes are being issued to a limited number of
institutions who typically hold similar securities for investments, the Company
does not expect that an active public market for the New Notes will develop. In
addition, resales by certain Holders of the New Notes of a substantial
percentage of the aggregate principal amount of the New Notes could constrain
the ability of any market maker to develop or maintain a market for the New
Notes. To the extent that a market for the New Notes should develop, the market
value of the New Notes will depend on prevailing interest rates, the market for
similar securities and other factors, including the financial condition,
performance and prospects of the Company. Such factors might cause the New Notes
to trade at a discount from face value. See "Risk Factors--Absence of Public
Market for the New Notes." The Company has agreed to pay the expenses of the
Exchange Offer.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with the
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information may be inspected and copied
at the public reference facilities maintained by the SEC: New York Regional
Office, Seven World Trade Center, New York, New York 10048, and Chicago Regional
Office, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the SEC, 450
Fifth Street, NW, Washington, D.C. 20549 upon payment of the prescribed fees.
The SEC maintains a Web site that contains reports, proxy statements and other
information regarding registrants that file electronically with the SEC. Copies
of such documents may be obtained from the SEC's Internet address at
http://www.sec.gov.
Statements made herein concerning the contents of any contract or other
documents are not necessarily complete. Requests for relevant documents or other
information should be submitted in writing to Investor Relations at the
Company's principal executive offices at 125 Shoreway Road, San Carlos,
California 94070 or by telephone at (650) 508-6000.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments thereto, the "Registration Statement") filed by
the Company with the SEC under the Securities Act. This Prospectus, which forms
a part of the Registration Statement, does not contain all the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the SEC. Reference is hereby made
to the Registration Statement and related exhibits and schedules filed therewith
for further information with respect to the Company and the New Notes offered
hereby. Statements contained herein concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed or incorporated by reference as an exhibit to the
Registration Statement or otherwise filed by the Company with the SEC and each
such statement is qualified in its entirety by such reference. The Registration
Statement and the related exhibits and schedules thereto may be inspected and
copied at the public reference facilities maintained by the SEC at the addresses
described above. Copies of the Registration Statement may be obtained from the
SEC's Internet address as set forth above.
5
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," THE CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO AND THE "DESCRIPTION OF THE NEW NOTES," APPEARING ELSEWHERE IN
THIS PROSPECTUS. REFERENCES HEREIN TO "CELLNET" REFER TO CELLNET DATA SYSTEMS,
INC. AND ITS SUBSIDIARIES. THE NEW NOTES OFFERED HEREBY ARE SUBJECT TO A HIGH
DEGREE OF RISK. SEE "RISK FACTORS." CERTAIN INFORMATION CONTAINED IN THIS
SUMMARY AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING INFORMATION WITH REGARD TO
THE COMPANY'S EXPECTED WIRELESS DATA COMMUNICATIONS NETWORK DEPLOYMENTS AND
OPERATIONS, ITS STRATEGY FOR MARKETING AND DEPLOYING SUCH NETWORKS AND RELATED
FINANCING ACTIVITIES, CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AND THE VARIATIONS MAY BE
MATERIAL. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
THE COMPANY
CellNet has designed, developed and is now commercially deploying in scale
innovative wireless data communications networks which provide high-volume,
low-cost, real-time data collection services, capable of monitoring up to
several million endpoints. The primary application of the Company's network is
the provision of commercial, industrial and residential network meter reading
("NMR") services to electric, gas and water suppliers. These services position
the Company to benefit from the deregulation of the electric utility industry.
As of June 30, 1997, the Company had approximately 2,265,000 meters under long-
term contracts, of which a total of approximately 580,000 meters were generating
revenues ("in revenue service") for the Company. CellNet also currently provides
certain network distribution automation services to electric utility customers
including monitoring and control of power distribution equipment. The CellNet
network uses radio devices fitted to existing utility meters to read and report
data from each meter every few minutes. Through extremely efficient use of radio
frequency spectrum, the CellNet network has substantial additional capacity to
service non-utility applications that require low-cost monitoring of fixed
endpoints, such as home security and remote status monitoring of vending
machines and office equipment.
CellNet believes it has a first-to-market opportunity to offer wireless data
communications services on a commercial scale for utility and selected
non-utility applications. CellNet's network is distinguished by the following
advantages:
- sufficiently low infrastructure and operating costs to permit
cost-effective meter reading and other fixed point monitoring
applications;
- highly efficient use of spectrum--the equivalent of approximately a single
voice channel is needed to operate a network;
- specifically designed proprietary software to manage real-time data
collection from up to several million endpoints; and
- open systems architecture designed to allow new applications to be added
to the CellNet system.
The electric utility industry is undergoing a fundamental and broad-based
transition. The traditional utility structure, consisting of a vertically
integrated system operating as a natural monopoly with rates set in relation to
cost, has historically presented utilities with little incentive to improve
service quality or operating efficiency. Similar to the regulatory evolution
that has already taken place in the transportation and telecommunications
industries, customer demands and regulatory mandates by federal and state
governments are opening the electric utility market to competition, thus forcing
electric utilities to transform themselves from regulated monopolies into
competitive enterprises. While regulatory initiatives vary from state to state,
many involve a shift from rate-of-return ratemaking, in which a utility's rates
are
6
<PAGE>
determined by its return on assets, to performance-based ratemaking, in which a
utility's rates and profitability are based upon its cost, efficiency and
service quality.
With deregulation of the electric utility industry underway, established
utilities are under increasing regulatory and competitive pressures. The
changing regulatory environment means that new power market participants (such
as power marketers, brokers and aggregators; system operators; power exchanges;
and scheduling coordinators) will be seeking viable strategies to enter a market
traditionally dominated by established utilities. The Company believes its NMR
services offer a state-of-the art solution to the demands created by the
increased regulatory and competitive pressures within the energy service
industry. CellNet's proven, efficient, low-cost, scaleable NMR service enables
both established electric and gas utilities and new power market participants
(collectively "energy service providers") to implement time-of-use pricing
plans, peak demand monitoring, load forecasting activities, real-time responses
to billing inquiries and power outage detection, on-demand meter reads,
customized billing functions, and customer access to consumption, rate and
billing information. CellNet's system allows energy service providers to respond
effectively to regulatory changes, reduce costs and enhance their operating
efficiencies, defer capital spending and implement customer retention plans for
established electric utilities and facilitate market entrance by new power
market participants. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "Business--Changes in the
Electric Utility Industry."
The Company is actively targeting the 60 largest Metropolitan Statistical
Areas ("MSAs"), which represent a majority of the approximately 230 million
electric, gas and water meters in the United States, and other areas of high
population density, state-by-state, as deregulation becomes effective. The
Company believes that energy service providers operating in or entering these
densely populated areas will be most affected by increasing competitive and
regulatory pressures. These pressures will likely prompt established utilities
to improve their efficiency and service levels, and the Company believes that
its network and services would facilitate this improvement. However, the utility
industry has generally been characterized by long purchasing cycles and cautious
decision making. Although the uncertainty surrounding proposed regulatory
changes in some states may have caused, and may continue to cause, additional
delays in purchasing decisions by established electric and gas utilities, the
Company believes that actual implementation of utility deregulation will
ultimately accelerate purchasing decisions by established utilities. See "Risk
Factors--Dependence on and Uncertainty of Market Acceptance." The Company is
evaluating new opportunities arising from deregulation. CellNet's open
architecture will lend itself readily to deployment strategies focused either on
established utilities or new power market participants, or both, without
requiring modifications to the network system. See "Business--Business
Strategy."
The Company's existing utility contracts rely on its "saturation deployment"
strategy, building out a network to reach every meter in a utility's service
territory. The strategy has proven effective because it covers all of the
regional power consumers. To implement this strategy, the Company builds out its
wide area network ("WAN") and local area network ("LAN") concurrently. The
network begins producing revenues as meters come on-line, and new customers can
be added incrementally. To date, the Company has completed the installation of a
network to provide NMR services to Kansas City Power & Light Company ("KCPL")
and had installed approximately 378,000 meters on the network as of the end of
June 1997. The Company expects to add an additional 37,000 meters to the KCPL
network in the second half of 1997 and in 1998. The Company is currently
building a network for Union Electric Company ("UE") in St. Louis covering a
total of approximately 800,000 meters, of which approximately 324,000 were
installed on the network as of the end of June 1997. The Company has also
successfully completed a demonstration project with Pacific Gas & Electric
Company ("PG&E") in San Francisco pursuant to which the Company has installed a
network that will cover approximately 30,000 electric and gas meters. PG&E has
acknowledged that the data collection, cost savings, customer service and other
objectives of the demonstration network have been met. In addition, the Company
has entered into separate services agreements (the "NSP Services Agreement," the
"Puget Initial Services Agreement" and the "IP&L Services Agreement",
7
<PAGE>
respectively) with Northern States Power Company ("NSP") in Minneapolis, Puget
Sound Energy, Inc. ("Puget") in Washington State and Indianapolis Power & Light
Company ("IP&L") in Indianapolis, pursuant to which it has contracted to build
wireless networks to provide NMR services covering an aggregate of approximately
1,430,000 additional meters, including 1,000,000 meters under the NSP Services
Agreement, an initial installation consisting of 15,000 meters under the Puget
Initial Services Agreement and 415,000 meters under the IP&L Services Agreement.
The Company has on-going discussions concerning additional contracts with other
utilities in the United States. The Company may also provide NMR services
pursuant to (i) contracts and deployments with non-regulated new power market
participants, (ii) broad, selective network deployments with utilities and
others aimed at serving the meter reading requirements of high-value commercial
and industrial customers (in addition to saturation network deployments aimed at
providing meter reading services for all meters within a utility's service
area), with other customers to be added over time, (iii) contracts of shorter
duration than those the Company has previously entered into, and (iv) joint
ventures or alliances with utilities and others to form own and/or operate
metering companies or to provide metering services.
By adapting its deployment strategy only slightly, the Company believes it
can offer an attractive alternative to both new power market participants and to
established utilities which are not prepared to commit the resources to a
long-term saturation deployment. New power market participants, lacking the
established utilities' designated geographical customer bases, are likely to
concentrate their marketing efforts on the areas of highest population density,
resulting in geographically fragmented customer bases. Anticipating this trend,
the Company has already initiated discussions with new power market participants
regarding an alternative "broad deployment" strategy. To service the electric
meter reading requirements of these new power market participants, the Company
may contract to deploy its WAN in service areas where the largest consumers of
electric power are concentrated and where the most attractive open market
opportunities are offered. The energy service provider could contract with the
Company to install its LAN to service existing customers or for advanced
coverage of certain areas. In either case, the Company would install its LAN as
necessary to service those customers and/or areas and would continue
installations in remaining areas as needed. Broad deployment would therefore
offer energy service providers the flexibility to build as they grow, or to
pursue particular market niches. The Company believes that broad deployment will
also provide an attractive option to established utilities which may be
reluctant to commit to the long-term, saturation deployment strategy. Under this
strategy, the Company could contract with an established utility to build out a
LAN covering a portion of that established utility's customers in connection
with an existing WAN. The utility could then continue to contract with the
Company in stages to increase the build-out of the LAN, potentially to cover all
of its meters. The end result in this case would be almost identical to the end
result in a saturation deployment.
The Company believes its spectrum-efficient networks will have substantial
excess capacity to service non-utility applications requiring low-cost
monitoring of fixed endpoints. Potential non-utility applications of the
Company's systems include home security, remote status monitoring of vending
machines, office equipment and parking meters and other equipment. The Company
is working with industry leaders such as Honeywell, Inc., Real Time Data, Inc.,
and Interactive Technologies, Inc. to develop such applications. The Company
believes that its networks will provide an excellent platform to position the
Company as a leading wholesale provider of wireless data communications services
for such non-utility applications.
The Company believes that a significant international market also exists for
its services with several hundred million electric, gas and water meters outside
of the United States and comparable opportunities for non-utility applications.
The Company's strategy is to pursue international markets through a joint
venture with Bechtel Enterprises, Inc. ("BEn"). The joint venture, BCN Data
Systems L.L.C., is concentrating its initial efforts on entering the market in
the United Kingdom and is also considering opportunities in Southeast Asia.
Canada and Australia have also been identified as prospective markets. See
"Business--Business Strategy--Pursue International Expansion."
8
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer................ $1,000 principal amount at maturity of the New Notes in
exchange for each $1,000 principal amount at maturity of
the Old Notes. As of October 15, 1997, $654,133,000 in
aggregate principal amount at maturity of Old Notes were
outstanding. The Company will issue the New Notes to
Holders on or promptly after the Expiration Date.
Based on an interpretation by the Staff of the SEC set
forth in the Staff's Exxon Capital Holdings Corp. SEC
No-Action Letter (available April 13, 1989), Morgan
Stanley & Co., Inc. SEC No-Action Letter (available June
5, 1991), Shearman & Sterling SEC No-Action Letter
(available July 7, 1993), and other no-action letters
issued to third parties, the Company believes that New
Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof without
compliance with the registration and prospectus delivery
provisions of the Securities Act. However, any Holder
who is an "affiliate" of the Company or who intends to
participate in the Exchange Offer for the purpose of
distributing the New Notes (i) cannot rely on the
interpretation by the Staff of the SEC set forth in the
above referenced no-action letters, (ii) cannot tender
its Old Notes in the Exchange Offer, and (iii) must
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with
any sale or transfer of the Old Notes, unless such sale
or transfer is made pursuant to an exemption from such
requirements. See "Risk Factors--Consequences to Non-
Tendering Holder of Old Notes."
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus may be used by a broker-
dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading activities and
not acquired directly from the Company. The Company has
agreed that for a period of 180 days after the
Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Expiration Date................... , 1997, unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest date
and time to which the Exchange Offer is extended.
Accretion of the New Notes
and the Old Notes............... No cash interest will accrue or be payable in respect of
the New Notes prior to October 1, 2002. Thereafter,
interest will accrue
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
at the rate of 14% per annum, payable semiannually in
arrears on each April 1 and October 1, commencing April
1, 2003. The Old Notes accepted for exchange will
continue to accrete at the rate of 14% per annum to, but
excluding, the issuance date of the New Notes and will
cease to accrete upon cancellation of the Old Notes and
issuance of the New Notes. Any Old Notes not tendered or
accepted for exchange will continue to accrete at the
rate of 14% per annum in accordance with its terms. The
Accreted Value of the New Notes upon issuance will equal
the Accreted Value of the Old Notes accepted for
exchange immediately prior to issuance of the New Notes.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to certain customary
conditions. The conditions are limited and relate in
general to proceedings which have been instituted or
laws which have been adopted that might impair the
ability of the Company to proceed with the Exchange
Offer. As of October 15, 1997, none of these events had
occurred, and the Company believes their occurrence to
be unlikely. If any such conditions do exist prior to
the Expiration Date, the Company may (i) refuse to
accept any Old Notes and return all previously tendered
Old Notes, (ii) extend the Exchange Offer or (iii) waive
such conditions. See "The Exchange Offer--Conditions."
Procedures for Tendering
Old Notes....................... Each Holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or such
facsimile, together with such Old Notes to be exchanged
and any other required documentation to The Bank of New
York, as Exchange Agent (the "Exchange Agent"), at the
address set forth herein and therein or effect a tender
of such Old Notes pursuant to the procedures for
book-entry transfer as provided for herein. By executing
the Letter of Transmittal, each Holder will represent to
the Company that, among other things, the New Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such
person is the Holder, that neither the Holder nor any
such other person has an arrangement or understanding
with any person to participate in the distribution of
such New Notes and that neither the Holder nor any such
person is an affiliate, as defined in Rule 405 under the
Securities Act, of the Company. Each broker-dealer that
receives New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or
other trading activities and not acquired directly from
the Company, must acknowledge that it will deliver a
prospectus in connection with any resale of such New
Notes. See "The
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Exchange Offer--Procedures for Tendering" and "Plan of
Distribution."
Special Procedures for
Beneficial Owners............... Any beneficial owner whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Old Notes in the Exchange Offer should contact such
registered Holder promptly and instruct such registered
Holder to tender such Old Notes on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such beneficial owner's own behalf, such owner
must, prior to completing and executing the Letter of
Transmittal and delivering its Old Notes, either make
appropriate arrangements to register ownership of the
Old Notes in such beneficial owner's name or obtain a
properly completed bond power from the registered
Holder. The transfer of registered ownership may take
considerable time and may not be able to be completed
prior to the Expiration Date. See "The Exchange Offer--
Procedures for Tendering."
Guaranteed Delivery Procedures.... Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent, or cannot
complete the procedure for book-entry transfer, prior to
the Expiration Date must tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights................. Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date by delivering
a written notice of such withdrawal to the Exchange
Agent in conformity with certain procedures set forth
below under "The Exchange Offer--Withdrawal of Tenders."
Acceptance of Old Notes
and Delivery of New Notes....... The Company will accept for exchange any and all Old
Notes which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the
Exchange Offer will be delivered on or promptly after
the Expiration Date. Any Old Notes not accepted for
exchange will be returned without expense to the
tendering Holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer. See "The Exchange Offer--Terms of the Exchange
Offer."
Certain Tax Considerations........ The exchange pursuant to the Exchange Offer will not be
a taxable event for federal income tax purposes. See
"Certain United States Federal Income Tax
Considerations."
Exchange Agent.................... The Bank of New York.
</TABLE>
11
<PAGE>
TERMS OF NEW NOTES
The Exchange Offer applies to up to $654,133,000 aggregate principal amount
at maturity of the Company's Old Notes. The New Notes will be obligations of the
Company evidencing the same debt as the Old Notes and will be entitled to the
benefits of the same Indenture. See "Description of the New Notes." The form and
terms of the New Notes are the same as the form and terms of the Old Notes in
all material respects except that the New Notes have been registered under the
Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to the
special interest payments applicable to the Old Notes. See "Description of the
New Notes."
<TABLE>
<S> <C>
New Notes Offered................. $654,133,000 aggregate principal amount at maturity of
14% Senior Discount Notes due 2007, Series B.
Maturity.......................... October 1, 2007.
Yield and Interest................ The New Notes will be sold at a substantial discount
from their principal amount at maturity, and there will
not be any payment of interest on the New Notes prior to
April 1, 2003. For a discussion of the federal income
tax treatment of the New Notes under the original issue
discount rules, see "Certain Federal Income Tax
Considerations." The New Notes will fully accrete to
face value on October 1, 2002. From and after October 1,
2002, the New Notes will bear interest, which will be
payable in cash, at a rate of 14% per annum each April 1
and October 1, commencing April 1, 2003.
Optional Redemption............... The New Notes will be redeemable, at the option of the
Company, in whole or in part, at any time on or after
October 1, 2002, initially at 107% of their principal
amount at maturity, plus accrued and unpaid interest, if
any, declining ratably to 100% of their principal amount
at maturity, plus accrued and unpaid interest, if any,
on or after October 1, 2004. In addition, at any time
prior to October 1, 2000, the Company may redeem up to
25% of the aggregate principal amount at maturity of the
New Notes with the net proceeds of one or more Public
Equity Offerings at 114% of their Accreted Value on the
redemption date; PROVIDED, HOWEVER, that after any such
redemption at least $490,599,750 aggregate principal
amount at maturity of the New Notes remains outstanding.
See "Description of the Old Notes--Optional Redemption
by the Company" and "--Optional Redemption Upon Public
Equity Offering."
Ranking........................... The New Notes will be senior unsecured indebtedness of
the Company, will rank PARI PASSU in right of payment
with all existing and future unsubordinated unsecured
indebtedness of the Company and will be senior in right
of payment to all future subordinated indebtedness of
the Company. After giving PRO FORMA effect to the
Exchange Offer and the Offering, the Company would have
had no indebtedness outstanding other than any
outstanding Old Notes, the New Notes and $0.6 million of
secured capital lease obligations. However, the Company
is a holding company and the New Notes will be
effectively subordinated to all existing and future
indebtedness and liabilities (including trade payables
and any subordinated
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
indebtedness) of the Company's Subsidiaries. As of June
30, 1997, the Subsidiaries of the Company had
approximately $1.0 million of liabilities (excluding
intercompany payables). See "Risk Factors--Substantial
Leverage and Ability to Service Debt; Substantial Future
Capital Needs" and "--Holding Company Structure;
Dependence of Company on Subsidiaries for Repayment of
the New Notes; Effective Subordination of the New Notes
to Liabilities of Subsidiaries."
Change of Control................. Upon a Change of Control, the Company will be required
to make an offer to repurchase the New Notes at a
purchase price equal to 101% of the Accreted Value or,
as the case may be, the outstanding principal amount
thereof, as of the date of repurchase, plus accrued and
unpaid interest, if any, to the date of repurchase. See
"Description of the Old Notes--Redemption or Repurchase
at the Option of the Holders--Change of Control."
Certain Covenants................. The Indenture contains certain covenants for the benefit
of the Holders of the New Notes which, among other
things, restrict the ability of the Company and each
Restricted Subsidiary (as defined) to incur additional
indebtedness, create liens, engage in sale-leaseback
transactions, pay dividends or make distributions in
respect of their capital stock, make investments or
certain other restricted payments, sell assets, issue or
sell stock of Restricted Subsidiaries, enter into
transactions with stockholders or affiliates or effect a
consolidation or merger. These limitations are, however,
subject to important qualifications and exceptions. See
"Description of the Old Notes--Certain Covenants."
Exchange Rights................... Holders of New Notes will not be entitled to any
exchange or registration rights with respect to the New
Notes. Holders of Old Notes are entitled to certain
exchange rights pursuant to the Registration Rights
Agreement. Under the Registration Rights Agreement, the
Company is required to offer to exchange the Old Notes
for new notes having substantially identical terms which
have been registered under the Securities Act. This
Exchange Offer is intended to satisfy such obligation.
Once the Exchange Offer is consummated, the Company will
have no further obligations to register any Old Notes
not tendered by the Holders thereof for exchange. See
"Risk Factors-- Consequences to Non-Tendering of Old
Notes."
Use of Proceeds................... The Company will not receive any proceeds from the
Exchange Offer.
</TABLE>
13
<PAGE>
CERTAIN CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The Old Notes have not been registered under the Securities Act or any state
securities laws and therefore may not be offered, sold or otherwise transferred
except in compliance with the registration requirements of the Securities Act
and any other applicable securities laws, or pursuant to an exemption therefrom
or in a transaction not subject thereto, and in each case in compliance with
certain other conditions and restrictions, including the Company's and the
Trustee's (as defined herein) right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any such
transfer. Old Notes which remain outstanding after consummation of the Exchange
Offer will continue to bear a legend reflecting such restrictions on transfer.
In addition, upon consummation of the Exchange Offer, Holders of Old Notes which
remain outstanding will not be entitled to any rights to have such Old Notes
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement (subject to certain limited exceptions applicable
solely to the Placement Agents). The Company currently does not intend to
register under the Securities Act any Old Notes which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable).
To the extent that Old Notes are tendered and accepted in the Exchange Offer
any trading market for Old Notes which remain outstanding after the Exchange
Offer could be adversely affected.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will vote together as a single class for purposes of
determining whether Holders of the requisite percentage in outstanding principal
amount thereof have taken certain actions or exercised certain rights under the
Indenture. See "Description of the New Notes."
The Registration Rights Agreement relating to Old Notes provides that, if
the Exchange Offer is not consummated by March 29, 1998, the interest rate borne
by the Old Notes will increase by 0.50% per annum following March 29, 1998,
until the Exchange Offer is consummated. See "Description of the Old Notes."
Following consummation of the Exchange Offer, neither the Old Notes nor the New
Notes will be entitled to any increase in the interest rate thereon.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included herein. The consolidated statement of
operations data for the years ended December 31, 1994, 1995 and 1996, and the
consolidated balance sheet data at December 31, 1995 and 1996 are derived from,
and are qualified by reference to, the audited Consolidated Financial Statements
included herein. The consolidated statement of operations data for the years
ended December 31, 1992 and 1993, and the consolidated balance sheet data at
December 31, 1992, 1993 and 1994 are derived from audited consolidated financial
statements not included herein. The consolidated statement of operations data
for the six months ended June 30, 1996 and 1997 and the consolidated balance
sheet data at June 30, 1997 are derived from unaudited consolidated financial
statements that include, in the opinion of management, all adjustments,
consisting of only normal, recurring adjustments, necessary for a fair
presentation of the information set forth therein. The consolidated results of
operations for the six months ended June 30, 1997 or any other period are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 3,148 $ 1,757 $ 1,651 $ 2,126 $ 1,669 $ 420 $ 2,493
Costs and expenses:
Cost of revenues............................... 2,401 1,741 1,109 4,965 8,429 3,029 7,835
Research & development......................... 6,604 4,979 9,091 20,883 25,394 11,820 13,048
Marketing and sales............................ 1,466 1,408 3,179 4,114 6,021 2,866 3,669
General and administrative..................... 585 1,206 2,353 6,258 12,036 4,930 9,069
Depreciation and amortization.................. 657 665 992 2,295 6,123 2,183 5,139
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses..................... 11,713 9,999 16,724 38,515 58,003 24,828 38,760
--------- --------- --------- --------- --------- --------- ---------
Loss from operations............................... (8,565) (8,242) (15,073) (36,389) (56,334) (24,408) (36,267)
Equity in loss of unconsolidated affiliate......... -- -- -- -- -- -- (1,339)
Other income (expense):
Interest income.................................. 36 66 555 4,590 7,372 3,458 4,238
Interest expense................................. (253) (198) (101) (9,320) (23,823) (11,264) (12,559)
Other-net........................................ (161) (16) (13) 166 96 (97) 2
--------- --------- --------- --------- --------- --------- ---------
Total other income (expense)................. (378) (148) 441 (4,564) (16,355) (7,903) (8,319)
--------- --------- --------- --------- --------- --------- ---------
Loss before income taxes........................... (8,943) (8,390) (14,632) (40,953) (72,689) (32,311) (45,925)
Provision for income taxes......................... -- 1 2 3 5 2 1
--------- --------- --------- --------- --------- --------- ---------
Net loss........................................... $ (8,943) $ (8,391) $ (14,634) $ (40,956) $ (72,694) $ (32,313) $ (45,926)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share(1).............................. $ (1.22) $ (2.19) $ (1.03) $ (1.16)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing net loss per share(1)..... 33,497 33,179 31,217 39,214
OTHER OPERATING DATA (UNAUDITED):
EBITDA(2).......................................... $ (7,977) $ (7,493) $ (13,539) $ (29,338) $ (42,743) $ (18,864) $ (28,227)
Capital Expenditures............................... 40 535 3,769 17,491 46,493 21,869 28,584
Deficit of earnings to fixed charges(3)............ 41,411 74,226 46,056
Pro forma deficit of earnings to fixed charges..... 98,496 61,250
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
------------------------------- ---------
1994 1995 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SELECTED OTHER DATA (UNAUDITED):
Meters under contract(4)........................................ -- 1,070,000 2,335,000 2,265,000
Meters in revenue service(4).................................... -- 18,000 363,000 580,000
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
(UNAUDITED)
AS OF DECEMBER 31, ----------------------
----------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(5)
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments..................................... $ 2,236 $ 8,884 $ 24,508 $ 143,797 $ 178,875 $ 117,933 $ 212,176
Total assets...................................... 4,123 11,510 31,809 184,306 259,551 229,838 327,576
Long-term obligations, including current portion.. 1,734 825 546 183,348 207,852 221,667 258,565
Series CC redeemable convertible preferred stock.. -- -- 29,486 29,486 -- -- --
Total stockholders' equity (deficit).............. (235) 8,011 (1,564) (38,103) 40,245 (5,010) 58,117
CASH FLOW DATA:
Used in operating activities.................... (7,227) (9,091) (14,638) (34,532) (40,707) (29,066) --
Used in investing activities.................... (3) (3,424) (12,817) (100,805) (3,809) (7,011) --
Provided by financing activities................ 8,796 16,201 34,036 170,852 120,730 478 --
</TABLE>
- --------------------------
(1) See Notes to Consolidated Financial Statements for an explanation of the
number of shares used in computing net loss per share.
(2) EBITDA consists of operating loss before interest plus taxes, depreciation
and amortization. EBITDA is provided because it is a measure commonly used
in the wireless communications industry. It is presented to enhance an
understanding of the Company's operating results and is not intended to
represent cash flow or results of operations in accordance with generally
accepted accounting principles for the periods indicated and may be
calculated differently than EBITDA for other companies. See the Company's
Consolidated Financial Statements and the related notes thereto contained
elsewhere in this Prospectus.
(3) Deficit of earnings to fixed charges is calculated as follows: earnings
(loss before taxes on income, equity in loss of affiliate and interest
expense, not including capitalized interest) plus fixed charges (interest
expense, including capitalized interest).
(4) "Meters under contract" refers to the aggregate number of meters for which
the Company has agreed to provide NMR services under services agreements
with utilities, and "Meters in revenue service" refers to the aggregate
number of meters under contract which have been installed on the Company's
networks and for which the Company is receiving NMR service revenues.
(5) Information with respect to the as adjusted capitalization of the Company
includes exchange of all of the Company's Series B 13% Senior Discount Note
Due 2005 (the "1995 Notes") for Units pursuant to an exchange offer letter
dated September 3, 1997, (the "1995 Notes Exchange Offer") including Units
payable as consent fees to the applicable 1995 Note holders, accretion of
the 1995 Note obligation, as described in the Offering Memorandum dated
September 24, 1997 with respect to the Company's offering of the Old Notes
(the "Offering Memorandum"), valuation of Warrants included in the Units and
adjustment of accumulated deficit to provide for the cost of extinguishing
the 1995 Notes. As adjusted, cash, cash equivalents, short-term investments
and total assets reflect the estimated cash payments of $6,101,000 for
consent fees, solicitation fees and other transaction expenses.
16
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE NEW NOTES BEING OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
BEFORE EXCHANGING THE OLD NOTES FOR THE NEW NOTES OFFERED HEREBY. CERTAIN
INFORMATION CONTAINED IN THIS SECTION AND ELSEWHERE IN THIS PROSPECTUS,
INCLUDING INFORMATION WITH REGARD TO THE COMPANY'S EXPECTED WIRELESS
COMMUNICATIONS NETWORK DEPLOYMENTS AND OPERATIONS, ITS STRATEGY FOR MARKETING
AND DEPLOYING SUCH NETWORKS AND RELATED FINANCING ACTIVITIES CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
DEPENDENCE ON AND UNCERTAINTY OF MARKET ACCEPTANCE
The Company's success will be almost entirely dependent on whether
established utilities and new power market participants sign services contracts
with CellNet or enter into other arrangements which allow CellNet to install NMR
networks servicing a substantial number of meters.
Because automation of utility meter reading and distribution is a relatively
new and evolving market and is likely to be significantly affected by
deregulation, it is difficult to predict the future growth rate and size of this
market. Utilities are testing products from various suppliers for various
applications, and no industry standard has been broadly adopted. The CellNet
system is one possible solution for automated meter reading and distribution.
There can be no assurance that the Company will be successful in achieving the
large-scale adoption of its system. In the event that the utilities or new power
market participants do not adopt the Company's technology, or does so less
rapidly than expected by the Company, the Company's future results, including
its ability to service its indebtedness and achieve positive cash flow or
profitability, will be materially and adversely affected. In recent competitive
bids, potential electric and gas utility customers have selected competing
systems to perform services offered by the Company, and energy service providers
may from time to time select competing services in the future. See
"Business--Competition."
The Company's only existing contracts are with established electric and gas
utilities. During 1996, approximately 90% of the Company's revenues were derived
from its contracts with KCPL and UE. Any decision by a utility or new power
market provider to utilize the Company's services will involve a significant
organizational, technological and financial commitment. The utility industry
historically is characterized by long purchasing cycles and cautious decision
making. Utilities typically go through numerous steps before making a final
purchase decision. These steps, which can take up to several years to complete,
may include the formation of a committee to evaluate the purchase, the review of
different technical options with vendors, performance and cost justifications,
regulatory review and the creation and issuance of requests for quotes and
proposals, as well as the utilities' normal budget approval process. Although
the uncertainty surrounding proposed regulatory changes in some states may have
caused, and may continue to cause, additional delays in purchasing decisions by
established utilities, the Company believes that implementation of utility
deregulation will ultimately accelerate the utility decision-making process.
Purchases of the Company's services are, to a substantial extent, deferrable in
the event that utilities seek to limit capital expenditures or decide to defer
such purchases for other reasons. Only a limited number of utilities have made a
commitment to purchase the Company's services to date, and there can be no
assurance as to when or if the Company will enter into additional services
contracts or that any such contracts would be on terms favorable to the Company.
See "Business."
With the advent of utility industry deregulation, the Company is seeking
opportunities to provide its NMR services to new power market participants. The
Company believes it is well positioned to offer competitive advantages to both
established utilities and new power market participants. However, the Company
has not yet entered into any contracts with new power market participants, and
there can be no
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assurance that the Company will be able to enter into any such contracts
covering a sufficient number of meters to recoup its costs of deployment, on
terms favorable to the Company, or at all. The Company's ability to enter into
contracts with new power market participants depends, in part, on the timing and
type of deregulation in each state. The Company also anticipates that, under
contracts with new power market participants, it would build out its networks,
at least in part, before the capacity was fully committed. See
"Business--Business Strategy." For these reasons, the Company's ability to
obtain financing for the capital expenditures associated with these contracts
may be limited. The Company believes, however, that it will be able to defer a
significant portion of the required capital expenditures by building out its
networks incrementally as needed, and that the new power market participants
would lease or acquire the endpoints from the Company, reducing the Company's
costs. The Company also anticipates that its contracts with new power market
participants will be shorter-term than those it has entered into with
established utilities, and the revenues may therefore not fully cover the costs
of network build-out and associated operating costs. The Company intends to
reduce this risk by marketing its services to a wide range of new power market
participants, but there can be no assurance that the Company will be successful
in such marketing efforts, or that the new power market participants will be
successful in capturing any significant share of the energy service market.
UNCERTAINTY OF FUTURE REVENUES; NEED FOR ADDITIONAL SERVICES CONTRACTS AND
FLUCTUATING OPERATING RESULTS
The timing and amount of future revenues will depend almost entirely upon
the Company's ability to obtain new services agreements with established
utilities and new power market participants and upon the successful deployment
and operation of the Company's wireless data communications networks. The
signing of any new services contracts is expected to occur on an irregular
basis, if at all. The Company expects that it will generally take two to four
years to complete the installation of each network after a services contract has
been signed. Service revenues from such networks are not expected to exceed the
Company's capital investments and expenses incurred to deploy and operate such
network for several years. The Company will not begin to receive recurring
revenues under a services contract until portions of the network become
operational, which is expected to occur no earlier than six months after the
execution of the applicable services contract. The Company's results of
operations may be adversely affected by delays or difficulties arising in the
network installation process. The cost of network deployments will be highly
variable and depend upon a wide variety of factors, including radio frequency
characteristics, the size of a service territory and density of endpoints within
such territory, the nature and sophistication of services being provided, the
cost of spectrum acquisition, local labor rates and other economic factors.
CellNet currently derives almost all of its revenues from long-term services
contracts with a limited number of established utilities. The Company will not
generate sufficient cash flow to service its indebtedness or achieve
profitability unless it enters into additional services contracts covering a
significant number of additional meters. There can be no assurance that the
Company will complete commercial deployments of the CellNet system under current
services contracts successfully or that it will obtain enough additional
services contracts on satisfactory terms for network deployments in a sufficient
number of locations to allow the Company to achieve adequate cash flow to
service its indebtedness or achieve positive cash flow or profitability. The
Company's operating results will fluctuate significantly in the future as a
result of a variety of factors, some of which are outside of the Company's
control, including the rate at which established utilities and new power market
participants enter into new services contracts, general economic conditions,
economic conditions in the utility industry, the effects of governmental
regulations and regulatory changes, capital expenditures and other costs
relating to the expansion of operations, the introduction of new services by the
Company or its competitors, the mix of services sold, pricing changes and new
service introductions by the Company and its competitors and prices charged by
suppliers. In response to a changing competitive environment, the Company may
elect from time to time to make certain pricing, service or marketing decisions
or enter into strategic alliances or investments that could
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result in a material adverse effect on the Company's business, operating
results, financial condition and cash flow. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
UNCERTAINTY OF ACCEPTANCE OF AND DEPENDENCE ON OTHER APPLICATIONS
The Company's long-term business plan contemplates the generation of a
significant percentage of future revenues from non-utility services. The Company
believes its future ability to service its indebtedness and to achieve
profitability will be affected by its success in generating substantial revenues
from such additional services. The Company currently has no services contracts
which provide for the implementation of such services, and the Company has not
yet deployed any such services on a commercial scale. In addition, unless the
Company is successful in deploying its wireless networks in targeted service
areas, the Company may not be able to offer any such services in such areas or
may be able to offer these services only on a limited basis.
DEPENDENCE ON BUSINESSES ALLIANCES
A key element of the Company's business strategy is the formation of
corporate alliances with leading companies. The Company is currently investing,
and plans to continue to invest, significant resources to develop these
relationships. The Company believes that its success in penetrating markets for
utility and non-utility applications of its network will depend in large part on
its ability to maintain these relationships and to cultivate additional or
alternative relationships. There can be no assurance that the Company will be
able to develop additional corporate alliances with such companies, that
existing relationships will continue or be successful in achieving their
purposes or that such companies will not form competing arrangements. See
"Business--Business Strategy--Form Strategic Alliances."
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT; SUBSTANTIAL FUTURE CAPITAL
NEEDS
Upon consummation of this Exchange Offer, the Company will have substantial
outstanding indebtedness, including $654,133,000 in aggregate principal amount
at maturity of Notes (including any Old Notes not exchanged for the New Notes
offered hereby and New Notes). The Company will be required to pay cash interest
on the New Notes (and any Old Notes not exchanged for New Notes) commencing
April 1, 2003 and repay the New Notes (and any Old Notes not exchanged for New
Notes) on October 1, 2007. CellNet intends to incur substantial additional
indebtedness, primarily in connection with installing future networks. As a
result, CellNet will have substantial debt service obligations. The Company's
capital expenditures will increase significantly if new services contracts are
signed, and the Company expects that its cash flow, taking into account capital
expenditures, will be increasingly negative over the next several years. The
ability of the Company to meet its debt service requirements will depend upon
achieving significant and sustained growth in the Company's cash flow, which
will be affected by its success in implementing its business strategy,
prevailing economic conditions and financial, business and other factors,
certain of which are beyond the Company's control. The Company's ability to
generate such cash flow is subject to a number of risks and contingencies.
Included among these risks are the possibilities that: (i) the Company may not
obtain sufficient additional services agreements or complete scheduled
installations on a timely basis, (ii) revenues may not be generated quickly
enough to meet the Company's operating costs and debt service obligations, (iii)
the operating and/or capital costs associated with the installation and
maintenance of the network could be higher than projected, (iv) the Company's
wireless systems could experience performance problems, or (v) adoption of the
Company's services within a network could be less widespread than anticipated.
Accordingly, there can be no assurance as to whether or when the Company's
operations will generate positive cash flow or become profitable or whether the
Company or its Subsidiaries will at any time have sufficient resources to meet
their debt service obligations. If the Company is unable to generate sufficient
cash flow or obtain alternate liquidity to service its indebtedness, it will
have to reduce or delay planned capital expenditures, sell assets, restructure
or refinance its indebtedness or seek additional equity capital. There can be no
assurance that any of these
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strategies could be effected on satisfactory terms, if at all, or that effecting
any of these strategies would yield sufficient proceeds to make the required
payments on the New Notes. In particular, there is a risk that the Company would
be unable, if needed, to refinance the New Notes prior to the date cash interest
payments become due and payable on such Notes or at their maturity date, given
uncertainty about prevailing capital market conditions, the Company's then
performance and financial position and the Company's projected high levels of
indebtedness. Such inability to refinance the New Notes could result in
cross-defaults under other indebtedness and limit the Company's ability to meet
its obligations on such Notes.
In addition, the degree to which the Company is leveraged could have
significant consequences, including, but not limited to, the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, research and development, acquisitions, and other
general corporate purposes may be materially limited or impaired, (ii) the
Company's cash flow, if any, cannot be used in the Company's business as a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of principal and interest on its indebtedness, and (iii) the
Company's high degree of leverage may make it more vulnerable to economic
downturns, may limit its ability to withstand competitive pressures and may
reduce its flexibility in responding to changing business and economic
conditions.
The Company will require substantial additional funds for the development,
commercial deployment and expansion of its networks, and for funding operating
losses. As of June 30, 1997, the Company had $117.9 million in cash, cash
equivalents and short-term investments. The Company believes the proceeds from
the offering of the Old Notes, its existing cash, cash equivalents and
short-term investments and anticipated interest income and other revenues will
be sufficient to meet its cash requirements for at least the next twelve months
based on management's best estimates. Thereafter, the Company expects that it
will require substantial additional capital. Depending upon the number and
timing of any new services agreements and upon the associated network deployment
costs and schedules, the Company may require additional equity or debt financing
earlier than estimated in order to fund its working capital and other
requirements. There can be no assurance that additional financing will be
available when required or, if available, that it will be on terms satisfactory
to the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
In the event that the Company is unable to generate sufficient cash flow and
is otherwise unable to obtain funds necessary to meet required payments on its
indebtedness, the Company could be in default under the terms of the agreements
governing its indebtedness, including the Old Notes and the New Notes. In the
event of such default, the holders of such indebtedness would have certain
enforcement rights, including the right to accelerate such debt and the right to
commence an involuntary bankruptcy proceeding against the Company.
HISTORY AND CONTINUATION OF OPERATING LOSSES
The Company has incurred substantial and increasing operating losses since
inception. As of June 30, 1997, the Company had an accumulated deficit of $213.6
million, primarily resulting from expenses incurred in the development of the
Company's wireless data communications system, marketing of the Company's NMR,
distribution automation and other services, the installation of its wireless
data communications networks and the payment of other normal operating costs.
The Company does not expect significant revenues relative to anticipated
operating costs during 1997 and 1998 and expects to incur substantial and
increasing operating losses and negative net cash flow after capital
expenditures for the foreseeable future. The Company expects that its receipt of
network service revenues will lag the signing of the related services agreements
by a minimum of six months and that it will generally take two to four years to
complete installation of a network after each services agreement has been
signed. The Company's network service revenues from a particular network are
expected to lag
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significantly behind network installation expenses until such network is
substantially complete. If the Company is able to deploy additional networks,
the losses created by this lag in revenues are expected to increase until the
revenues from the installed networks overtake the costs associated with the
deployment and operation of such additional networks. The Company does not
expect positive cash flow after capital expenditures from its NMR services
operations for several years. A large portion of the Company's limited revenues
to date has been attributable to miscellaneous equipment sales and development
and other contract revenues that are largely non-recurring and that the Company
expects to decrease and remain at relatively insignificant levels over the next
few years. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
SUBSTANTIAL AND INCREASING COMPETITION
The emerging market for utility NMR systems, the deregulation of the
electric utility industry and the potential market for other applications once a
common infrastructure is in place, have led electronics, communications and
utility product companies to begin developing various systems, some of which
currently compete, and others of which may in the future compete, with the
CellNet system. Deregulation will likely cause competition to increase. The
Company believes that its only significant direct competitor in the marketplace
at present is Itron, Inc. ("Itron"), an established manufacturer and seller of
hand-held and drive-by automated meter reading ("AMR") equipment for utilities.
Itron is currently providing to customers its Genesis-TM- system, a radio
network system similar to the Company's, for meter reading purposes.
There may be many potential alternative solutions to the Company's NMR
services including traditional wireless solutions. SkyTel, a subsidiary of Mtel,
and Motorola are examples of companies whose technology might be adapted for NMR
and who may become direct competitors of the Company in the future. Whisper
Communications (formerly, a part of Diablo Research) now offers its True 2
Way-TM- fixed-based radio frequency ("RF") architecture communications
technology for automated meter reading and other services and has several trials
underway. Metricom, a provider primarily of subscriber-based, wireless data
communications for users of portable and desktop computers, is currently
involved in the AMR market through trials with Whisper Communications.
Schlumberger Industries, Inc. ("Schlumberger") and Greenland are among the
companies that have conducted, or are in the process of conducting, pilot trials
of utility network automation systems. Several companies are offering
telephone-based network automated meter reading services or equipment. Among
these are International Teldata and American Innovations. Established suppliers
of equipment, services and technology to the utility industry such as Asea Brown
Boveri and General Electric could expand their current product and service
offerings so as to compete directly with the Company, although they have not yet
done so. Many of the Company's present and potential future competitors have
substantially greater financial, marketing, technical and manufacturing
resources, name recognition and experience than the Company. The Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products and services than the Company.
While CellNet believes its technology, including its software, is widely
regarded as competitive at the present time, there can be no assurance that the
Company's competitors will not succeed in developing products, technologies or
software that are better or more cost effective. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties that increase their ability
to address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. In addition, if the Company
achieves significant success it could draw additional competitors into the
market. Traditional providers of wireless services may in the future choose to
enter the Company's markets. Such existing and future competition could
materially adversely affect the pricing for the Company's services and the
Company's ability to sign new services contracts and maintain existing
agreements. Competition for services relating to non-utility applications may be
more intense than competition for NMR services, and additional competitors may
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emerge as the Company continues to develop non-utility applications. There can
be no assurance that the Company will be able to compete successfully against
current and future competitors, and any failure to do so would have a material
adverse effect on the Company's business, operating results, financial condition
and cash flow. See "Business--Competition."
TECHNOLOGICAL PERFORMANCE AND BUILD-OUT OF THE SYSTEM; RAPID TECHNOLOGICAL
CHANGE AND UNCERTAINTY
The Company's initial target market is the monitoring, control and
automation of utilities' electric, gas and water meters and distribution
networks. There can be no assurance that unforeseen problems will not develop
with respect to the Company's technology, products or services, or that the
Company will be successful in completing the development and commercial
implementation of its technology on a wider scale. The Company must continue to
expand and upgrade its capabilities in connection with such commercial
implementation, the success of which cannot be assured. There can be no
assurance that the Company will be able to develop successfully a full range of
endpoint devices. The Company must also continue to develop the hardware
enhancements necessary to utilize its system on a commercial basis with a
variety of different electric, gas and water meters. The Company's future
success will be materially adversely affected if it is not successful or is
significantly delayed in continuing technology development and enhancement
programs.
The Company's future success will also depend, in part, on its ability to
enhance its existing hardware, software and wireless communications technology.
The telecommunications industry has been characterized by rapid, significant
technological advances. The advent of computer-linked electronic networks, fiber
optic transmission, advanced data digitization technology, cellular and
satellite communications capabilities and personal communications systems
("PCS") have radically expanded communications capabilities and market
opportunities. Future advances may render the Company's technology obsolete or
less cost effective than competitive systems or erode the Company's market
position. Many companies from diverse industries are seeking solutions for the
transmission of data over traditional communications media, including radio and
paging, as well as more recently developed media such as cellular and PCS-based
networks. Competitors may be capable of offering significant cost savings or
other benefits to the Company's customers, and there can be no assurance that
the Company will maintain competitive services or obtain appropriate new
technologies on a timely basis or on satisfactory terms. The Company's future
performance will also depend significantly on its ability to respond to future
regulatory changes. See "Business--Wireless Communications Industry Overview."
The Company's necessary development efforts will require it to make
continued substantial investments. The Company has encountered product
development delays in the past affecting both software and hardware components
of its system. See "Business--Research and Development."
ACCESS TO RADIO FREQUENCY ("RF") SPECTRUM; REGULATION BY THE FEDERAL
COMMUNICATIONS COMMUNICATIONS (THE "FCC")
The Company will attempt to obtain exclusive usage of licensed bandwidth
and/or secure its own licenses. The Company has focused its spectrum acquisition
strategy on the top 60 MSAs in the United States. As of June 30, 1997, the
Company had acquired 58 spectrum licenses in 46 of the top 60 MSAs. However,
sufficient frequency spectrum may not be available to fully enable the delivery
of all or a part of the Company's wireless data communications services or the
Company may be required to find alternative frequencies. The cost of obtaining
such spectrum is currently difficult to estimate and may involve time delays
and/or increased cost to the Company. The Company could also be unable to obtain
frequency in certain areas. Any of these circumstances could have a material
adverse impact on the Company's future ability to provide its network services
and on the Company's business, operating results, financial condition and cash
flow. See "Business--Spectrum Regulation."
The Company's network equipment uses radio spectrum and, as such, is subject
to regulation by the FCC. The Company's network equipment uses both licensed RF
spectrum allocated for multiple address
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system ("MAS") operations in the 928/952 MHz band and unlicensed spectrum in the
902-928 MHz band. In order to obtain a license to operate the Company's network
equipment in the 928/952 MHz band, license applicants may need to obtain a
waiver of various sections of the FCC's rules. There can be no assurance that
the Company will be able to obtain such waivers on a timely basis or to obtain
them at all. In addition, as the amount of spectrum in the 928/952 MHz band is
limited, issuance of these licenses is contingent upon the availability of
spectrum in the area(s) for which the licenses are requested. The Company might
not be able to obtain licenses to the spectrum it needs in every area in which
it has prospective customers. The FCC's current rules, subject to a number of
limited exceptions, permit third parties such as CellNet to operate on spectrum
licensed to utilities to provide other services. The Company plans to use these
provisions of the FCC's rules to expand its network system.
The FCC requires that a minimum configuration of an MAS system be in
operation within eighteen months from the initial date of the grant of the
system authorization or risk forfeiture of the license for the MAS frequencies.
The eighteen-month deadline may be extended upon a showing of good cause, but
there is no assurance that the FCC will grant any such extension. The Company is
responding to this requirement by selectively building out transmission capacity
in some areas where it does not yet have utility telecommunications services
contracts and may return licenses to the FCC in certain areas.
No license is needed to operate the Company's equipment utilizing the
902-928 MHz band, although the equipment must be certified by the Company and
the FCC as being compliant with certain FCC restrictions on radio frequency
emissions designed to protect licensed services from objectionable interference.
While the Company believes it has obtained all required certifications for its
products, the FCC could modify the limits imposed on such products or otherwise
impose new authorization requirements, and in either case, such changes could
have a material adverse impact on the Company's business, operating results,
financial condition and cash flow. The FCC recently completed a rulemaking
proceeding designed to better accommodate the cohabitation in the 902-928 MHz
band of existing licensed services with newly authorized and expanded uses of
licensed systems, and existing and newly designed unlicensed devices like those
used by the Company. In this proceeding, the FCC expressly recognized the rights
of such unlicensed services to operate under certain delineated operating
parameters even if the potential for interference to the licensed operations
exists. The Company's systems will operate within those specified parameters.
The FCC is currently reviewing these rules in response to numerous petitions for
reconsideration and the agency could modify those rules or allow for other uses
of this spectrum that might create interference to the Company's systems, which
could, in either case, have a material adverse impact on the Company's business,
operating results, financial condition and cash flow.
While the Company intends to offer alternate market services over its
private, internal network, some of those services may include the use of the
Company's network for private carrier service offerings. The Company's offerings
would be structured to comply with FCC rules governing the offering of private
carrier services, and each such service offering would need to be reviewed
relative to these rules. The FCC's rules currently prohibit the use of the MAS
frequencies on which the Company is operating its systems for the provision of
common carrier service offerings. In the event that it is determined that a
particular service offering does not comply with the rules, the Company may be
required to restructure such offering or to utilize other frequencies for the
purpose of providing such service. There can be no assurances that the Company
will gain access to such other frequencies. Future interpretation of regulations
by the FCC or changes in the regulation of the Company's industry by the FCC or
other regulatory bodies or legislation by Congress could have a material adverse
effect on the Company's business, operating results, financial condition and
cash flow. See "Business--Spectrum Regulation."
In February 1997, the FCC published for public comment a Notice of Proposed
Rule Making in WT Docket No. 97-81 regarding the future licensing of frequencies
for use by Multiple Address Systems. The FCC has reached certain tentative
conclusions which, if adopted without any change, would result in (i) the
restriction on future licenses in the 928/952/956 MHz band (in which the Company
now operates its wide area network) for systems exclusively used for private
internal purposes, and the prohibition on future
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licensing in this band for systems which provide "subscriber-based" services,
(ii) the designation of the 932/941 and 928/959 MHz bands for licensees offering
subscriber-based services, (iii) the use of geographic licensing (using very
large licensed service areas) in lieu of site-by-site licensing for the bands
designated for subscriber-based services, (iv) the use of competitive bidding to
award licenses for subscriber-based services, (v) the grandfathering and
protection from interference of existing licensees, but only to the extent of
their current service areas, (vi) with respect to new geographic service area
licensees, liberalizing the time periods by which construction must be
completed, but imposing more burdensome construction requirements over the term
of the license, and (vii) for incumbent and new licensees, liberalizing some of
the technical and operational restrictions on the use of the licensed channels.
These proposals have engendered substantial public comment from a wide range
of industry sectors currently utilizing the MAS channels, including extensive
comments from the Company. The Company has urged, in particular, that there
should not be any restrictions imposed on the use of the 928/952 MHz bands in
which the Company has developed its network facilities that would unreasonably
limit the Company's ability to provide its current and anticipated utility and
non-utility service offerings. The Company has also urged that competitive
bidding and geographic licensing should not be the primary basis for awarding
licenses in this highly encumbered, heavily utilized band. The Company has also
supported many of the proposed changes that will make the use of the band more
technically efficient, although the Company has also opposed any use of the band
that would change its fundamental use for point-to-multipoint fixed operations,
and in particular, the use of the band for mobile operations. The Company's
positions have substantial support in the record, although the effort to retain
the status quo eligibility for the 928/952 MHz band has been opposed by
representatives of the utility and transportation industries who would prefer to
limit the use of this band solely to private internal networks and to prohibit
any private carrier or subscriber-based service offerings.
The Company is currently working with a coalition of interested parties,
including representatives of the utility and transportation industries, to
attempt to develop a compromise consensus proposal that would satisfy most of
the interested parties' concerns for presentation to the FCC in this proceeding.
However, the Company is unable to predict whether such a compromise can be
developed, or if it is developed, whether the FCC will view it favorably, and if
not, what form the final rules adopted in this proceeding will take. Given the
current proposal and the variety of comments submitted, it is possible that some
or all of the Company's uses of the MAS channels could be determined to be the
offering of private carrier or subscriber-based services, and that future
licenses for such offerings would be prohibited in the 928/952 MHz band in which
the Company currently operates, requiring the Company to develop equipment
capable of operating in one of the other MAS bands, and further requiring the
Company to obtain future licenses in a competitive bidding process. Although the
Company believes that additional licensed frequency will be generally available
to it as required, the cost associated with acquiring such licensed frequency as
well as the Company's operating costs could increase, perhaps substantially, and
the Company could experience substantial delays in adapting its networks if the
proposed rules were adopted. The adoption of new rules, depending upon the form
in which such rules are adopted, could have a material adverse effect upon the
Company's business, operating results, financial condition and cash flow.
In connection with the foregoing, the FCC has temporarily suspended
acceptance of MAS applications for new licenses, major amendments, or major
modifications for the 928/959 MHz bands and applications to provide
subscriber-based services in the 928/952/956 MHz bands. This temporary
suspension does not affect applications for MAS licenses for private internal
purposes in the 928/952/956 MHz bands or applications for assignment of licenses
or transfer of control. Subject to certain limitations, pending applications at
the time of the suspension will continue to be processed. All of the Company's
pending applications for licenses in the 928/952 MHz band have been or are being
processed in due course. In addition, the Company's applications for the
assignment of licenses held by others have been processed during the processing
suspension. However, the FCC has tentatively concluded that the Company's
applications for licenses involve the offering of subscriber-based services, and
have therefore returned any applications newly filed after the initiation of the
processing suspension, precluding the Company from
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obtaining any new licenses (other than through the assignment process) while the
processing suspension is in place. The Company has requested reconsideration of
this determination since the currently proposed uses of these licenses
constitutes, in the Company's view, a private, internal use network. If the FCC
does not change its tentative conclusion on this matter, the Company will not be
able to file any applications for new facilities until the suspension is lifted,
which is expected to occur when the proceedings in Docket 97-81 are concluded.
This may adversely affect the Company's ability to service areas where it has
not yet acquired adequate frequencies.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
The Company plans to expand into international markets and has begun initial
marketing efforts. The Company does not anticipate that it will have any
material international operations for at least the next twelve months. The
Company has incurred, and anticipates that it will continue to incur,
significant and increasing expenses in connection with the establishment of
international operations. If revenues generated by international activities are
not adequate to offset the expense of establishing and maintaining these
activities, the Company's business, operating results, financial condition and
cash flow could be materially adversely affected. International demand for the
Company's services and systems is expected to vary by country, based on such
factors as the regulatory environment, electric power generating capacity and
demand, labor costs, costs of spectrum acquisition and other political and
economic conditions. To date, the Company has no experience in developing a
localized version of its wireless data communications system for foreign
markets. The Company believes its ability to establish business alliances in
each international market will be critical to its success. There can be no
assurance that the Company will be able to successfully develop, market and
implement its system in international markets or establish successful business
alliances for these markets. In addition, there are certain risks inherent in
doing business internationally, such as unexpected changes in regulatory
requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates and potentially adverse tax consequences, any of
which could adversely impact the Company's potential international operations.
There can be no assurance that one or more of such factors will not have a
material adverse effect on the Company's future international operations and,
consequently, on its business, operating results, financial condition and cash
flow. See "Business--Business Strategy--Pursue International Expansion."
The Company's strategy is to pursue international markets through a joint
venture with BEn which could involve additional partners in local operating
project entities in particular countries. The Company may not have a majority
interest or control of the board of directors of any such local operating
project entity. In any such joint venture in which the Company may determine to
participate, there is a risk that the other joint venture partner may at any
time have economic, business or legal interests or goals that are inconsistent
with those of the joint venture or the Company or that such partner will not
impose the same or similar accounting and financial controls as the Company. The
risk is also present that a joint venture partner may be unable to meet its
economic or other obligations and that the Company may be required to fulfill
those obligations. In addition, in any joint venture in which the Company does
not have a majority interest, the Company may not have control over the
operations or assets of such joint venture. Furthermore, the joint venture
structure may limit the amount of funds that can be upstreamed to the Company.
See "Business--Business Strategy--Pursue International Expansion."
HOLDING COMPANY STRUCTURE; DEPENDENCE OF COMPANY ON SUBSIDIARIES FOR REPAYMENT
OF THE NEW NOTES; EFFECTIVE SUBORDINATION OF THE NEW NOTES TO LIABILITIES OF
SUBSIDIARIES
The New Notes will be obligations of the Company exclusively. Substantially
all of the operations of the Company are and will be conducted through direct
and indirect Subsidiaries. The Company's cash flow and, consequently, its
ability to service debt, including the New Notes, will depend upon the cash flow
of its Subsidiaries and the payment of funds by those Subsidiaries to the
Company in the form of loans,
25
<PAGE>
dividends or otherwise. The Subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the New Notes or to make any funds available therefor, whether in
the form of loans, dividends or otherwise. In addition, the Company's
Subsidiaries are likely to become parties to financing arrangements in
connection with the development of the wireless systems as the Company expects
that a substantial portion of its future financing will be at the subsidiary
level on a project basis, and such financing arrangements may contain
limitations on the ability of such Subsidiaries to pay dividends or to make
loans or advances to the Company. In the event of any insolvency, bankruptcy or
similar proceedings, creditors of the Subsidiaries would be entitled to receive
repayment of all of their claims against the affected Subsidiary before any
assets became available for distribution to the Company or its creditors
(including Holders of the New Notes). See "Description of the Old Notes--Certain
Covenants--Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries."
Because the Company is a holding company that conducts and will conduct its
business through its Subsidiaries, all existing and future liabilities of the
Company's Subsidiaries, including subordinated debt and trade payables, will be
effectively senior to the New Notes. The Indenture limits, but does not
prohibit, the incurrence of additional indebtedness by the Company and its
Subsidiaries. See "Description of the Old Notes--Certain Covenants--Limitation
on Indebtedness and Preferred Stock."
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL
The Company's recent growth has placed, and is expected to continue to
place, a significant strain on its managerial, operational and financial
resources. The Company's ability to manage growth effectively will require it to
continue to implement and improve its operational and financial systems and to
expand and manage its employee base. These demands are expected to require the
addition of new management personnel and the development of additional expertise
by existing management personnel. There can be no assurance that the Company
will be able to effectively manage the expansion of its operations, that its
systems, procedures or controls will be adequate to support the Company's
operations or that Company management will be able to exploit opportunities for
the Company's services. An inability to manage growth, if any, could have a
material adverse effect on the Company's business, results of operations,
financial condition and cash flow. See "Management."
The success of the Company is substantially dependent on its key management
and technical personnel, the loss of one or more of whom could adversely affect
the Company's business. All of the Company's employees and officers are employed
on an at-will basis. Presently, the Company does not maintain a "key man" life
insurance policy on any of its executives or employees. The Company's future
success also depends on its continuing ability to identify, hire, train and
retain other highly qualified technical and managerial personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to attract or retain highly qualified technical and managerial
personnel in the future. An inability to attract and retain the necessary
technical and managerial personnel could have a material adverse effect on the
Company's business, operating results, financial condition and cash flow. See
"Business--Employees" and "Management."
UNCERTAINTY OF PROTECTION OF COPYRIGHTS, PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of trade secret protection, copyright,
patent, trademark and confidentiality agreements and licensing arrangements to
establish and protect its proprietary rights. The Company's success will depend
in part on its ability to maintain copyright and patent protection for its
products, to preserve its trade secrets and to operate without infringing the
proprietary rights of third parties. While the Company has obtained and applied
for patents, and intends to file applications as appropriate for patents
covering its products and processes, there can be no assurance that additional
patents will be issued or, if issued, that the scope of any patent protection
will be significant, or that any
26
<PAGE>
patents issued to the Company or licensed by the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection to the Company.
Since United States patent applications are maintained in secrecy until
patents are issued, and since publication of inventions in the technical or
patent literature tend to lag behind such inventions by several months, CellNet
cannot be certain that it was the first creator of inventions covered by its
issued patents or pending patent applications, that it was the first to file
patent applications for such inventions or that no patent conflict will exist
with other products or processes which could compete with the Company's products
or approach. Despite the Company's efforts to safeguard and maintain these
proprietary rights, there can be no assurance that the Company will be
successful or that the Company's competitors will not independently develop and
patent technologies that are substantially equivalent or superior to the
Company's technologies. Participants in the wireless industry, including
competitors of the Company, typically seek to obtain patents which will provide
as broad a protection as possible for their products and processes. There is a
substantial backlog of patents at the United States Patent and Trademark Office.
It is uncertain whether any such third-party patents will require the Company to
alter its products or processes, obtain licenses or cease certain activities. An
adverse outcome with regard to a third-party patent infringement claim could
subject the Company to significant liabilities, require disputed rights to be
licensed or restrict the Company's ability to use such technology. The Company
also relies to a substantial degree upon unpatented trade secrets, and no
assurance can be given that others, including the Company's competitors, will
not independently develop or otherwise acquire substantially equivalent trade
secrets. In addition, whether or not additional patents are issued to the
Company, others may receive patents which contain claims applicable to products
or processes developed by the Company. If any such claims were to be upheld, the
Company would require licenses, and no assurance can be given that licenses
would be available on acceptable terms, if at all. In addition, the Company
could incur substantial costs in defending against suits brought against it by
others for infringement of intellectual property rights or in prosecuting suits
which the Company might bring against other parties to protect its intellectual
property rights. From time to time the Company receives inquiries with respect
to the coverage of its intellectual property rights, and there can be no
assurance that such inquiries will not develop into litigation. See "Business--
Proprietary Rights."
In October 1996, Itron, one of the Company's competitors, filed a complaint
against the Company in the Federal District Court in Minnesota, alleging that
the Company infringes an Itron patent which was issued in September 1996. Itron
is seeking a judgment for damages, attorneys' fees and injunctive relief. The
Company believes, based on information currently known, that the Company's
products do not infringe any valid claim in the Itron patent, and in the
Company's opinion, the ultimate outcome of the lawsuit is not expected to have a
material adverse effect on the Company's business, operating results, financial
condition and cash flow. See "Business--Legal Proceedings."
Although the Company has been granted federal registration of its "CellNet"
trademark, another company has filed a petition for cancellation in an attempt
to challenge such registration which, if successful, would mean the Company
could lose its registration and be required to adopt a new trademark and
possibly a new or modified corporate name. CellNet could encounter similar
challenges to its trademark and corporate name in the future. While the
requirement to adopt a new trademark or new or modified corporate name could
involve a significant expense and could result in the loss of any goodwill and
name recognition associated with the Company's current trademark and corporate
name, the Company does not believe this would have a long-term material adverse
impact on the Company's business, operating results, financial condition and
cash flow. See "Business--Legal Proceedings."
DEPENDENCE ON THIRD-PARTY MANUFACTURERS; EXPOSURE TO COMPONENT SHORTAGES
The Company relies and will continue to rely on outside parties to
manufacture a majority of its network equipment such as radio devices and
printed circuit boards. As the Company signs additional services contracts,
there will be a significant ramp-up in the amount of manufacturing by third
parties in
27
<PAGE>
order to enable the Company to meet its contractual commitments. There can be no
assurance that these manufacturers will be able to meet the Company's
manufacturing needs in a satisfactory and timely manner or that the Company can
obtain additional manufacturers when and if needed. Although the Company
believes alternative manufacturers are available, an inability of the Company to
develop alternative suppliers quickly or cost-effectively could materially
impair its ability to manufacture and install systems. The Company's reliance on
third-party manufacturers involves a number of additional risks, including the
absence of guaranteed capacity and reduced control over delivery schedules,
quality assurance, production yields and costs. Although the Company believes
that these manufacturers would have an economic incentive to perform such
manufacturing for the Company, the quality, amount and timing of resources to be
devoted to these activities is not within the control of the Company, and there
can be no assurance that manufacturing problems will not occur in the future. A
significant price increase, a quality control problem, an interruption in supply
from one or more of such manufacturers or the inability to obtain additional
manufacturers when and if needed could have a material adverse effect on the
Company's business, operating results, financial condition and cash flow. See
"Business--Manufacturing and Operations."
Certain of the Company's subassemblies, components and network equipment are
procured from single sources and others are procured only from a limited number
of sources. In addition, CellNet may be affected by general shortages of certain
components, such as surface mounted integrated circuits and memory chips. There
have been shortages of such materials generally in the marketplace from time to
time in the past. The Company's reliance on such components and on a limited
number of vendors and subcontractors involves certain risks, including the
possibility of shortages and reduced control over delivery schedules,
manufacturing capability, quality and cost. A significant price increase or
interruption in supply from one or more of such suppliers could have a material
adverse effect on the Company's business, operating results, financial condition
and cash flow. Although the Company believes alternative suppliers of
sub-assemblies, components and network equipment are available, the inability of
the Company to develop alternative sources quickly or cost-effectively could
materially impair its ability to manufacture and install systems. Lead times can
be as long as a year for certain components, which may require the Company to
use working capital to purchase inventory significantly in advance of receiving
any revenues. See "Business--Manufacturing and Operations."
A significant number of new electric meters are required to initiate meter
retrofit and replacement in connection with each network deployment and to
replace existing meters in the field which are found to be obsolete, worn out or
otherwise unsuitable for retrofit and redeployment. Any sudden or material
increase in the number of deployments would result in an increase in the number
of new electric meters ordered by electric utilities and new power market
participants over and above those ordered on account of normal growth and
replacement within their service areas. To the extent that electric meter
manufacturers are unable or unwilling to increase production in line with such
increase in demand, temporarily or over a longer term, deployments may be
delayed or postponed, with the result that revenues from such deployments will
be likewise delayed or postponed.
POSSIBLE TERMINATION OF CONTRACTS
The Company expects that a substantial portion of its future revenues will
be provided pursuant to services contracts. These contracts will generally be
subject to cancellation or termination in certain circumstances in the event of
a material and continuing failure on CellNet's part to meet agreed NMR
performance standards on a consistent basis over agreed time periods, subject to
certain rights to cure any such failure. Each of the Company's existing utility
services contracts provides for termination of such contracts by the respective
utility without cause in less than ten years, subject to certain reimbursement
provisions. Such contracts also provide that CellNet will be required to
compensate such utilities for the use of its system for non-utility
applications. Future services contracts with utilities and new power market
participants may contain similar provisions. In the event that such a services
contract is terminated, the Company would incur substantial losses. In addition,
the Company anticipates that any contracts with new
28
<PAGE>
power market participants will have shorter terms than the Company's existing
utility contracts. A network's service revenues are not expected to exceed the
Company's capital investments to deploy such network for several years.
Termination or cancellation of one or more services contracts would have a
material adverse effect on the Company's business, results of operations,
financial condition and cash flow. See "Business--Current Utility Services
Agreements."
SHAREHOLDERS' AGREEMENT
Under the terms of a Shareholders' Agreement among the Company and certain
stockholders of the Company (the "Shareholders' Agreement"), so long as certain
parties to the Shareholders' Agreement continue to hold not less than 700,000
shares of Common Stock (as such number is adjusted for stock splits,
consolidations or other similar events), the Company is obligated to nominate
for election representatives of certain stockholders as directors at each
meeting of the Company's stockholders at which a vote for directors will be
taken. The effect of the Shareholders' Agreement is to give certain stockholders
greater influence over the management of the Company than they would otherwise
have and to provide certain stockholders with, among other things, certain
registration, first refusal, co-sale and other rights. See "Management--Board of
Directors" and "Certain Transactions."
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are being offered to the Holders of the Old Notes. Prior to
this Exchange Offer, there was no public market for the Old Notes and there were
no existing New Notes. The Company does not intend to apply for listing of the
New Notes on any securities exchange or for quotation through the Nasdaq
National Market. In connection with the offering of the Old Notes, the Placement
Agents informed the Company that they intended to make a market for the Old
Notes. However, the Placement Agents have no obligation to do so and any such
market-making may be discontinued at any time without notice. Therefore, no
assurance can be given as to whether an active trading market will develop or be
maintained for the New Notes. If the New Notes are traded after their initial
issuance they may trade at a discount from their initial offering price,
depending on prevailing interest rates, the market for similar securities and
other factors, including the financial condition, performance and prospects of
the Company.
CONSEQUENCES TO NON-TENDERING HOLDERS OF OLD NOTES
Upon consummation of the Exchange Offer, the Company will have no further
obligation to register the Old Notes. Thereafter, any Holder of Old Notes who
does not tender its Old Notes in the Exchange Offer, including any Holder which
is an "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company which cannot tender its Old Notes in the Exchange Offer, will
continue to hold restricted securities which may not be offered, sold or
otherwise transferred, pledged or hypothecated except pursuant to Rule 144 and
Rule 144A under the Securities Act or pursuant to any other exemption from
registration under the Securities Act relating to the disposition of securities,
provided that an opinion of counsel is furnished to the Company that such an
exemption is available.
RANKING OF NEW NOTES
The New Notes will be unsubordinated indebtedness of the Company ranking
PARI PASSU in right of payment with all existing and future unsecured
unsubordinated indebtedness of the Company and senior in right to payment to all
future subordinated indebtedness of the Company, but are effectively
subordinated to all existing and future secured indebtedness of the Company.
Upon consummation of the Exchange Offer, the Company will have no indebtedness
outstanding that is subordinated to the New Notes, and no senior indebtedness,
other than any outstanding Old Notes, the New Notes and approximately $0.6
million of secured capital lease obligations. In addition, the New Notes will be
effectively subordinated to all existing and future indebtedness and liabilities
(including trade payables and any subordinated indebtedness), of the Company's
Subsidiaries. As of June 30, 1997, the Company's Subsidiaries had approximately
29
<PAGE>
$1.0 million of liabilities (excluding intercompany payables). The Company and
its Subsidiaries may incur substantial additional indebtedness, including
indebtedness which is secured by assets of the Company and its Subsidiaries. Any
holders of secured indebtedness of the Company would be entitled to payment of
their indebtedness out of the proceeds of their collateral prior to the holders
of any general unsecured obligations of the Company, including the New Notes,
and any creditors of Subsidiaries (including holders of subordinated
indebtedness and trade payables) of the Company would be entitled to repayment
of liabilities of the affected Subsidiaries from the assets of the affected
Subsidiaries before such assets were made available for distribution to the
Company. In the event of bankruptcy, liquidation or reorganization of the
Company, Holders will participate ratably with all holders of senior unsecured
indebtedness of the Company which is deemed to be of the same class as the New
Notes, and potentially with all other general creditors of the Company, based
upon the respective amounts owed to each holder or creditor, in the remaining
assets of the Company. See "Description of the Old Notes." In addition, to the
extent the assets securing indebtedness are not sufficient to satisfy such
indebtedness, the holders thereof would have claims that would be PARI PASSU
with the Holders. In any of the foregoing events, there can be no assurance that
there would be sufficient assets to pay amounts due on the New Notes.
FRAUDULENT TRANSFER AND PREFERENCE CONSIDERATIONS
Under applicable provisions of the federal bankruptcy law or comparable
provisions of state fraudulent transfer laws, if the Company, at the time of
issuance of, or making any payment in respect of, the New Notes, (a)(i) was or
was rendered insolvent thereby, was engaged or about to engage in a business or
transaction for which its assets constituted unreasonably small capital, or
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured and (ii) the Company received less than
reasonably equivalent value or fair consideration for such issuance, or (b) the
Company issued the New Notes or made any payment thereunder with intent to
hinder, defraud or delay any of its creditors, the obligations of the Company
under some or all of the New Notes could be avoided or held to be unenforceable
by a court, the obligations of the Company under the New Notes could be
subordinated to claims of other creditors or the Holders could be required to
return payments already received. In particular, if the Company were to cause a
Subsidiary to make a dividend in order to enable the Company to make payments in
respect of the New Notes, and such transfer constituted a fraudulent transfer,
the Holders could be required to return the payment. In any of the foregoing
cases, there could be no assurance that the Holders would ultimately recover the
amounts owing under the New Notes. In addition, under the preference law of the
State of New York, if the Company were to issue the New Notes or make any
payment in respect thereof in contemplation of insolvency, the New Notes could
be avoided or amounts paid to the Holders could be required to be returned.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law applied in any such case. Generally, however, the Company would be
considered insolvent if the sum of its debts, including contingent liabilities,
was greater than all of its assets at a fair valuation or if the present fair
saleable value of its assets was less than the amount that would be required to
pay the probable liability on its existing debts, including contingent
liabilities, as they become absolute and matured.
The Company believes that it will not be insolvent at the time of or as a
result of the offerings made hereby, that it will not engage in a business or
transaction for which its assets constitute an unreasonably small capital, and
that it did not and does not intend to incur or believe that it will incur debts
beyond its ability to pay such debts as they mature. These beliefs are based on
internal cash flow projections and estimated value of assets and liabilities.
There can be no assurance, however, that a court passing on such questions would
agree with the Company's analysis.
ORIGINAL ISSUE DISCOUNT
The New Notes will be issued at a substantial discount from their principal
amount at maturity. Although cash interest will not accrue in respect of the New
Notes prior to October 1, 2002, original issue
30
<PAGE>
discount (the difference between the stated redemption price at maturity of the
New Notes and the issue price of the New Notes) will accrue from the issue date
of the New Notes and generally will be includable as interest income in the
Holder's gross income for United States federal income tax purposes in advance
of the cash payments to which the income is attributable.
Furthermore, the New Notes will be subject to the high yield discount
obligation rules which will defer and will in part eliminate the Company's
ability to deduct the original issue discount attributable to the New Notes.
Accordingly, the Company's after tax cash flow will be less than if the original
issue discount on the New Notes were fully deductible when it accrued. See
"Certain Federal Income Tax Considerations." Similar results may apply under
state tax laws.
If a bankruptcy case were commenced by or against the Company under the
federal Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"), after the
issuance of the New Notes, the claim of a Holder is the sum of: (i) the initial
offering price and (ii) that portion of the original issue discount that is not
deemed to constitute "unmatured interest" for purposes of the Bankruptcy Code.
Any original issue discount that was not accrued as of the date of any such
bankruptcy filing would constitute "unmatured interest."
LITIGATION
In October 1996, Itron, one of the Company's competitors, filed a complaint
against the Company in the Federal District Court in Minnesota alleging that the
Company infringes an Itron patent which was issued in September 1996. Itron is
seeking a judgment for damages, attorneys fees and injunctive relief. See
"Business--Legal Proceedings." Although the Company believes, based on its
current information, that the Company's products do not infringe any valid claim
in the Itron patent, there can be no assurance that a court would not find
otherwise. If an adverse judgment were rendered against the Company, there can
be no assurance that the Company would have sufficient assets to pay such
judgment or that there would be sufficient assets remaining to pay amounts due
on the Notes.
On October 31, 1996, a complaint, SETTLE V. SEIDL, ET AL. No. 398464, was
filed in the Superior Court of California for the County of San Mateo against
the Company, certain of its officers and directors and underwriters of the
Company's Initial Public Offering (as defined). The complaint, which is a
purported class action filed on behalf of those purchasing the Company's stock
from the period beginning on September 26, 1996 and ending on October 31, 1996,
seeks unspecified damages and rescission for alleged liability under various
provisions of the federal securities laws and California state law. Plaintiff
alleges that the Prospectus and Registration Statement dated September 26, 1996,
pursuant to which the Company issued 5,000,000 shares of Common Stock to the
public, contained materially misleading statements and/or omissions in that
defendants were obligated to disclose, but failed to disclose, that a patent
conflict with Itron, Inc. was likely to ensue. On November 8 and 13, 1996, two
additional complaints, KAREN ZULLY V. CELLNET DATA SYSTEMS, INC. ET AL. No.
398551 and HOWARD FIENMAN AND GERALD SAPSOWITZ V. CELLNET DATA SYSTEMS, INC. ET
AL. No. 398560, were filed in the Superior Court of California for the County of
San Mateo. These cases are essentially similar in nature to the SETTLE case. The
Court has ordered consolidation of the SETTLE and ZULLY actions. The Company
expects that the FIENMAN action will be consolidated with the SETTLE and ZULLY
actions before trial. The Company believes that the allegations in these
complaints are without merit and intends to defend these actions vigorously. The
Company has filed demurrers seeking dismissal of these complaints. The motions
are currently under submission before the Special Master assigned by the Court
to hear certain pre-trial matters. In the Company's opinion, the ultimate
outcome of these lawsuits is not expected to have a material adverse effect on
the Company's business, operating results, financial condition and cash flow.
31
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered in the
Exchange Offer. In consideration for issuing the New Notes as contemplated in
this Prospectus, the Company will receive in exchange therefor Old Notes in like
principal amount, the form and terms of which are the same in all material
respects as the form and terms of the New Notes except that the New Notes have
been registered under the Securities Act and hence do not include certain rights
to registration thereunder. The Old Notes surrendered in exchange for New Notes
will be retired and canceled and cannot be reissued. Accordingly, issuance of
the New Notes will not result in any increase in the indebtedness of the
Company.
Net proceeds from the sale of the Old Notes (after the deduction of
placement fees and other expenses of the offering of the Old Notes) were
approximately $100 million. The Company expects to use such net proceeds (i) to
fund continuing research and development activities related to its wireless data
communications systems, (ii) to expand opportunities for the use of its wireless
data communications systems through alternate market applications, (iii) to
enhance the performance and lower the component and operating cost of its
wireless data communications systems, (iv) to invest in an international joint
venture with BEn for the deployment of its wireless data communications systems
on a worldwide basis, (v) to fund the adaptation and migration of its technology
for use outside the United States, (vi) to support network deployment for both
utility and non-utility applications, (vii) to expand the Company's business
generally, and (viii) for working capital, general corporate and other purposes
permitted by the Indenture.
DIVIDEND POLICY
The Company has not declared or paid any dividends on its capital stock
since its inception. The Company currently anticipates that it will retain all
of its future earnings, if any, for use in the operation and expansion of its
business and does not anticipate paying any cash dividends in the foreseeable
future, and any changes in the Company's dividend policies will be determined by
its Board of Directors. The Company's existing financing arrangements also
restrict the payment of any dividends. The Company anticipates that it and its
Subsidiaries will incur substantial additional indebtedness, which is likely to
restrict the payment of dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
June 30, 1997 and (ii) the as adjusted capitalization of the Company to reflect
the issuance of Units in the private placement, the 1995 Notes Exchange Offer
and the consent solicitation.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
AS
ACTUAL ADJUSTED(1)
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations:
1995 Notes(2).......................................................................... $ 220,832 $ --
Notes.................................................................................. -- 257,730
Capital lease obligations(3)........................................................... 499 499
---------- -----------
Total long-term obligations........................................................ 221,331 258,229
---------- -----------
Stockholders' equity (deficit):
Preferred stock, $.001 par value; 15,000,000 shares authorized; no shares outstanding
actual and as adjusted............................................................... -- --
Common Stock, $.001 par value; 100,000,000 shares authorized and 41,541,384 shares
outstanding.......................................................................... 209,348 209,348
Notes receivable from sale of Common Stock............................................. (718) (718)
Warrants............................................................................... 1 74,546
Accumulated deficit.................................................................... (213,641) (225,059)
Net unrealized loss on short-term investments.......................................... -- --
---------- -----------
Total stockholders' equity (deficit)............................................... (5,010) 58,117
---------- -----------
Total capitalization............................................................. $ 216,321 $ 316,346
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Information with respect to the as adjusted capitalization of the Company
includes exchange of all of the Company's 1995 Notes for Units in the 1995
Notes Exchange Offer including Units payable as consent fees to the
applicable 1995 Note holders, accretion of the 1995 Note obligation, as
described in the Offering Memorandum, valuation of Warrants included in the
Units and adjustment of accumulated deficit to provide for the cost of
extinguishing the 1995 Notes.
(2) See Note 5 of Notes to Consolidated Financial Statements.
(3) Amounts given are for the Company and its Subsidiaries on a consolidated
basis. See Note 8 of Notes to Consolidated Financial Statements.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included herein. The consolidated statement of
operations data for the years ended December 31, 1994, 1995 and 1996, and the
consolidated balance sheet data at December 31, 1995 and 1996 are derived from,
and are qualified by reference to, the audited Consolidated Financial Statements
included herein. The consolidated statement of operations data for the years
ended December 31, 1992 and 1993, and the consolidated balance sheet data at
December 31, 1992, 1993 and 1994 are derived from audited consolidated financial
statements not included herein. The consolidated statement of operations data
for the six months ended June 30, 1996 and 1997 and the consolidated balance
sheet data at June 30, 1997 are derived from unaudited consolidated financial
statements that include, in the opinion of management, all adjustments,
consisting of only normal, recurring adjustments, necessary for a fair
presentation of the information set forth therein. The consolidated results of
operations for the six months ended June 30, 1997 or any other period are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30, (UNAUDITED)
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 3,148 $ 1,757 $ 1,651 $ 2,126 $ 1,669 $ 420 $ 2,493
Costs and expenses:
Cost of revenues........................ 2,401 1,741 1,109 4,965 8,429 3,029 7,835
Research & development.................. 6,604 4,979 9,091 20,883 25,394 11,820 13,048
Marketing and sales..................... 1,466 1,408 3,179 4,114 6,021 2,866 3,669
General and administrative.............. 585 1,206 2,353 6,258 12,036 4,930 9,069
Depreciation and amortization........... 657 665 992 2,295 6,123 2,183 5,139
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses.............. 11,713 9,999 16,724 38,515 58,003 24,828 38,760
--------- --------- --------- --------- --------- --------- ---------
Loss from operations........................ (8,565) (8,242) (15,073) (36,389) (56,334) (24,408) (36,267)
Equity in loss of unconsolidated
affiliate................................. -- -- -- -- -- -- (1,339)
Other income (expense):
Interest income........................... 36 66 555 4,590 7,372 3,458 4,238
Interest expense.......................... (253) (198) (101) (9,320) (23,823) (11,264) (12,559)
Other-net................................. (161) (16) (13) 166 96 (97) 2
--------- --------- --------- --------- --------- --------- ---------
Total other income (expense).......... (378) (148) 441 (4,564) (16,355) (7,903) (8,319)
--------- --------- --------- --------- --------- --------- ---------
Loss before income taxes.................... (8,943) (8,390) (14,632) (40,953) (72,689) (32,311) (45,925)
Provision for income taxes.................. -- 1 2 3 5 2 1
--------- --------- --------- --------- --------- --------- ---------
Net loss.................................... $ (8,943) $ (8,391) $ (14,634) $ (40,956) $ (72,694) $ (32,313) $ (45,926)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share(1)....................... $ (1.22) $ (2.19) $ (1.03) $ (1.16)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing net loss per
share(1).................................. 33,497 33,179 31,217 39,214
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30, (UNAUDITED)
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA (UNAUDITED):
EBITDA(2)................................... $ (7,977) $ (7,493) $ (13,539) $ (29,338) $ (42,743) $ (18,864) $ (28,227)
Capital Expenditures........................ 40 535 3,769 17,491 46,493 21,869 28,584
Deficit of earnings to fixed
charges(3)................................ 41,411 74,226 46,056
Pro forma deficit of earnings to
fixed charges............................. 98,496 61,250
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE
30,
AS OF DECEMBER 31, (UNAUDITED)
------------------------------------------------------ -----------
1992 1993 1994 1995 1996 1997
--------- --------- --------- ---------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................... $ 2,236 $ 8,884 $ 24,508 $ 143,797 $ 178,875 $ 117,933
Total assets................................ 4,123 11,510 31,809 184,306 259,551 229,838
Long-term obligations, including current
portion................................... 1,734 825 546 183,348 207,852 221,667
Series CC redeemable convertible preferred
stock..................................... -- -- 29,486 29,486 -- --
Total stockholders' equity (deficit)........ (235) 8,011 (1,564) (38,103) 40,245 (5,010)
CASH FLOW DATA:
Used in operating activities................ (7,227) (9,091) (14,638) (34,532) (40,707) (29,066)
Used in investing activities................ (3) (3,424) (12,817) (100,805) (3,809) (7,011)
Provided by financing activities............ 8,796 16,201 34,036 170,852 120,730 478
</TABLE>
- --------------------------
(1) See Notes to Consolidated Financial Statements for an explanation of the
number of shares used in computing net loss per share.
(2) EBITDA consists of operating loss before interest plus taxes, depreciation
and amortization. EBITDA is provided because it is a measure commonly used
in the wireless communications industry. It is presented to enhance an
understanding of the Company's operating results and is not intended to
represent cash flow or results of operations in accordance with generally
accepted accounting principles for the periods indicated and may be
calculated differently than EBITDA for other companies. See the Company's
Consolidated Financial Statements contained elsewhere in this Prospectus.
(3) Deficit of earnings to fixed charges is calculated as follows: earnings
(loss before taxes on income, equity in loss of affiliate and interest
expense, not including capitalized interest) plus fixed charges (interest
expense, including capitalized interest).
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS SECTION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS SET FORTH IN
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company intends to deploy and operate a series of wireless data
communications networks pursuant to services agreements with utilities and new
power market participants, to earn recurring revenues by providing NMR services,
and to use the networks to support a variety of non-utility applications. The
Company may also provide NMR services pursuant to (i) contracts and deployments
with new market participants, (ii) broad, selective network deployments with
utilities and others aimed at serving the meter reading requirements of
high-value commercial and industrial customers (in addition to saturation
network deployments aimed at providing meter reading services for all meters
within a utility's service area), with other customers to be added over time,
(iii) contracts of shorter duration than those the Company has previously
entered into, and (iv) joint ventures or alliances with utilities and others to
form, own and/or operate metering companies or to provide metering services. The
Company's business strategy has affected and will continue to affect its
financial condition and results of operations as follows:
COMPOSITION OF REVENUES. The Company derives substantially all of its
revenues from fees earned under services agreements related to its wireless
communications networks. Under the Company's existing services agreements with
KCPL, UE, NSP, PG&E, Puget and IP&L, the Company receives monthly NMR service
fees based on the number of endpoint devices that are in revenue service during
the applicable month.
UNEVEN REVENUE GROWTH. The timing and amount of the Company's future
revenues will depend upon its ability to obtain additional services agreements
with utilities and new power market participants and upon the Company's ability
to deploy and operate successfully its wireless communications networks for
utility and non-utility applications. New services agreements are expected to be
obtained on an irregular basis, and there may be prolonged periods during which
the Company does not enter into any additional services agreements or other
arrangements. As a result, the Company expects that its revenues will not grow
smoothly over time, but will increase unevenly as the Company enters into new
services agreements and other commercial relationships, and may decrease sharply
in the event that any of its existing services agreements are terminated or not
renewed. See "Risk Factors--Uncertainty of Future Revenues; Need for Additional
Services Contracts and Fluctuating Operating Results."
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's future revenues will depend
on the number of new services agreements with established utilities and new
power market participants and on the amount of NMR services to be provided
thereunder. The Company's only existing contracts are with established
utilities. During 1996, approximately 90% of the Company's revenues were derived
from its contracts with KCPL and UE. The utility industry is historically
characterized by long purchasing cycles and cautious decision making, and
purchases of the Company's services are, to a substantial extent, deferrable in
the event that utilities seek to limit capital expenditures or decide to defer
such purchases for other reasons. Only a limited number of utilities have made a
commitment to purchase the Company's services to date. Although the uncertainty
surrounding proposed regulatory changes in some states may have caused, and may
continue to cause, additional delays in purchasing decisions by established
utilities, the Company believes that implementation of utility deregulation will
ultimately accelerate the utility decision-making process. The Company believes
that it will enter into additional services contracts with other utilities and
new power market participants; however, if the Company's services do not gain
widespread industry
36
<PAGE>
acceptance, its revenues would not increase significantly after services
contracts for existing network systems have been fully installed.
With the advent of utility industry deregulation, the Company is seeking
opportunities to provide its NMR services to new power market participants. The
Company believes it is well positioned to offer competitive advantages to both
established utilities and new power market participants. However, the Company
has not yet entered into any contracts with new power market participants, and
there can be no assurance that the Company will be able to enter into any such
contracts covering a sufficient number of meters to recoup its costs of
deployment, on terms favorable to the Company, or at all. The Company also
anticipates that, under contracts with new power market participants, it would
build out its networks, at least in part, before the capacity was fully
committed. See "Business--Business Strategy." For these reasons, the Company's
ability to obtain financing for the capital expenditures associated with these
contracts may be limited, although the Company also believes that it will be
able to defer a significant portion of the capital expenditures by building out
its networks incrementally as needed, and that the new power market participants
would lease or acquire the endpoints from the Company, reducing the Company's
costs. The Company also anticipates that its contracts with new power market
participants will be shorter-term than those it has entered into with
established utilities, and may therefore not fully cover the costs of network
build-out and associated operating costs. The Company intends to reduce this
risk by marketing its services to a wide range of new power market participants,
but there can be no assurance that the Company will be successful in such
marketing efforts, or that the new power market participants will be successful
in capturing any significant share of the energy service market.
The Company's long-term business plan contemplates the generation of a
significant percentage of future revenues from non-utility services. The Company
believes its future ability to service its indebtedness and to achieve
profitability will be affected by its success in generating substantial revenues
from such additional services. The Company currently has no services contracts
which provide for the implementation of such services, and the Company has not
yet deployed such services on a commercial scale. In addition, unless the
Company is successful in deploying its wireless networks in targeted service
areas, the Company may not be able to offer any such services in such areas or
may be able to offer these services only on a limited basis.
REVENUES LAG NETWORK DEPLOYMENT. The Company expects to realize network
service revenue under a services agreement with a utility or new power market
participant only when a portion of the network is installed and they have begun
billing their customers based upon the NMR data obtained. The Company expects
that its receipt of network service revenue will lag the signing of the related
services agreements by a minimum of six months and that it will generally take
two to four years to complete installation of a network after each services
agreement has been signed. A network's service revenues are not expected to
exceed the Company's capital investments and expenses incurred to deploy such
network for several years. As of June 30, 1997, the Company had approximately
2,265,000 meters under long-term contracts, of which approximately 580,000
meters were in revenue service. The Company signed agreements with KCPL and UE
in August 1994 and August 1995, respectively, and did not receive its first
revenue under the KCPL and UE services agreements until September 1995 and May
1996, respectively. The Company has completed the installation of its NMR
network for KCPL and had installed approximately 378,000 meters on the network
by the end of June 1997. The Company expects to add an additional 37,000 meters
to the KCPL network in the second half of 1997 and in 1998 which would be added
to the total number of meters in revenue service upon acceptance by KCPL for
billing purposes. The remaining meters (approximately 5,000) under contract with
KCPL may be automated or read manually. As of the end of June 1997, the Company
completed the on-line deployment of approximately 324,000 meters to the UE
network. The Company began the installation of both the NSP and Puget networks
in August 1996 and began receiving revenue from Puget in January 1997. The
Company has also successfully completed a demonstration project with PG&E in San
Francisco pursuant to which the Company has installed a network that will cover
approximately 30,000 electric and gas meters. PG&E has acknowledged that the
data collection, cost
37
<PAGE>
savings, customer service and other objectives of the demonstration network have
been met. In September 1997, the Company entered into a services contract with
IP&L for the installation of its NMR network that will cover approximately
415,000 meters. Installation of the IP&L network is scheduled to begin in
November 1997. As additional segments of the Company's networks are installed
and used by its customers for billing purposes, the Company expects to realize a
corresponding increase in its network service revenues. However, if the Company
is able to deploy successfully an increasing number of networks over the next
few years, the operating losses created by this lag in revenues, and negative
cash flow resulting from such operating losses and the capital expenditures
expected to be required in connection with the installation of such networks,
are expected to widen for a period of time and will continue until the operating
cash flow from installed networks exceeds the costs of deploying and operating
additional networks.
IMPACT OF RAPID EXPANSION. CellNet will not typically invest the capital
necessary to deploy a wireless communications network prior to entering into a
services agreement with a utility or new power market participant. However,
during its expansion phase, the Company will be required to invest significant
amounts of capital in its networks and to incur substantial and increasing sales
and marketing expenses before receiving any return on such expenditures through
network service revenues. The Company has incurred substantial operating losses
since its inception and, as of June 30, 1997, had an accumulated deficit of
$213.6 million. The Company does not expect significant revenues relative to
anticipated operating costs during 1997 and 1998 and expects to incur
substantial and increasing operating losses and negative net cash flow after
capital expenditures for the foreseeable future as it expands its research and
development and marketing efforts and installs additional networks. The Company
does not expect positive cash flow after capital expenditures from its NMR
services operations for several years. The Company will require substantial
capital to fund cash flow deficits and capital expenditures for the foreseeable
future and expects to finance these requirements through significant additional
external financing. See "Risk Factors--History and Continuation of Operating
Losses" and "--Substantial Leverage and Ability to Service Debt; Substantial
Future Capital Needs."
INTEREST INCOME. The Company has earned substantial amounts of interest
income on short-term investments of the proceeds of its financing activities.
The Company expects to utilize substantially all of its cash, cash equivalents
and short-term investments in deploying its wireless communications networks, in
continuing research and development activities related thereto, in related
selling and marketing activities and for general and administrative purposes. As
such funds are expended, interest income is expected to decrease.
RESULTS OF OPERATIONS
REVENUES
Revenues for the three years ended December 31, 1994, 1995 and 1996 were
$1.7 million, $2.1 million and $1.7 million, respectively. Revenues for the six
months ended June 30, 1996 and 1997 were $0.4 million and $2.5 million,
respectively. The increase in revenues was principally due to the increase in
network service revenues. Revenues prior to 1996 were attributable primarily to
product sales and development and other contract revenues unrelated to the
Company's current focus of providing NMR services that were largely
non-recurring and that are expected to decline and remain at relatively
insignificant levels over the next few years. During 1994, NSP, Georgia Power
Company and PG&E accounted for 58%, 14% and 10% of the Company's revenues,
respectively. During 1995, NSP and KCPL accounted for 64% and 29% of the
Company's revenues, respectively. During 1996, KCPL and UE accounted for 69% and
21% of the Company's revenues, respectively. During the first six months of
1997, KCPL and UE accounted for 52% and 34% of the Company's revenues,
respectively. During the first six months of 1996, KCPL and UE accounted for 73%
and 4% of the Company's revenues, respectively. The Company's NMR service
revenues for the years ended December 31, 1995 and 1996 were $35,000 and $1.2
million, respectively. The Company's NMR service revenues for the six months
ended June 30, 1996 and 1997 were $0.2 million and
38
<PAGE>
$2.1 million, respectively. In September 1995, the Company began to receive
regular monthly revenue under its services agreement with KCPL based upon the
number of automated meters installed on the network that were being used by KCPL
to bill its customers and the agreed monthly NMR charge per meter. In May 1996,
the Company began to realize regular monthly revenue from its services agreement
with UE on a similar basis. In 1996 the Company signed an agreement with NSP but
will not recognize service revenues earned under it until the automated meters
installed on the network are used by NSP to bill its customers. The Company
began receiving revenues from Puget in January 1997. In connection with the
purchase of $15.0 million of restricted Common Stock by NSP concurrent with the
Company's Initial Public Offering, the Company placed shares in escrow (the
"Escrow Shares") which will be released if the Company enters into an NMR
services agreement with Wisconsin Electric Power Company ("WEPC") by December
1997. The fair value of these Escrow Shares will be expensed as a sales discount
over the term of the WEPC services agreement if such services agreement is
entered into.
The Company expects to realize network service revenues under its services
agreements with utilities and new power market participants only when its
networks or portions thereof are successfully installed and operating and they
commence billing their customers based upon the NMR data obtained. Revenues are
expected to increase as the Company continues to install its networks, the
networks or portions thereof become operational, and utilities and new power
market participants begin billing their customers based upon data obtained over
the CellNet system. Due primarily to the nature, amount and timing of revenues
received to date, no meaningful period-to-period comparisons can be made.
Revenues received during the years ended December 31, 1994, 1995 and 1996 and
for the six months ended June 30, 1996 and 1997 are not reliable indicators of
revenues that might be expected in the future.
COST OF REVENUES
Cost of revenues prior to 1995 consisted of the cost of product sales. For
the years ended December 31, 1995 and 1996, and for the six months ended June
30, 1996 and 1997, cost of revenues primarily consisted of network operations
costs. Cost of revenues were $1.1 million, $5.0 million and $8.4 million for the
years ended December 31, 1994, 1995 and 1996, respectively. Cost of revenues for
the six months ended June 30, 1996 and 1997 were $3.0 million and $7.8 million,
respectively. The increase in cost of revenues was driven by increasing costs of
providing network services, due primarily to growth in the number of employees
and associated costs necessary for network monitoring operations at customer
sites and at the Company's headquarters, network deployment management and
customer training. Costs of network services also include the increased
installation, applications and RF engineering staffing at the Company's
headquarters to support anticipated additional services contracts. Network
services do not currently generate a profit as the Company has not yet achieved
a scale of services sufficient to cover network costs. The Company will incur
significant and increasing costs primarily attributable to network operation and
depreciation. Once a network has been fully installed, costs associated with
generating network revenues will consist primarily of maintaining a monitoring
center for such network, network depreciation and miscellaneous maintenance and
operating expenses.
OPERATING EXPENSES
Operating expenses, consisting of research and development, marketing and
sales, general and administrative costs and depreciation and amortization
expenses, were $15.6 million, $33.6 million and $49.6 million for the years
ended December 31, 1994, 1995 and 1996, respectively. Operating expenses for the
six months ended June 30, 1996 and 1997 were $21.8 million and $30.9 million,
respectively. The increase in operating expenses on a period to period basis is
attributable to the Company's rapid growth and to increasing research and
development and marketing and sales expenditures. The Company expects to
continue to spend a significant portion of its resources on research and
development activities for the foreseeable future. Marketing and sales and
general and administrative costs are expected to increase in the future as the
Company seeks to sign new services agreements.
39
<PAGE>
RESEARCH & DEVELOPMENT
Research and development expenses are attributable largely to continuing
system software, firmware and equipment development costs, prototype
manufacturing, testing, personnel costs, consulting fees, and supplies. Research
and development costs are expensed as incurred. The Company's networks include
certain software applications which are integral to their operation. The costs
to develop such software have not been capitalized as the Company believes its
software development is essentially completed when technological feasibility of
the software is established and/or development of the related network hardware
is complete. Research and development expenses were $9.1 million, $20.9 million
and $25.4 million for the years ended December 31, 1994, 1995 and 1996,
respectively. Research and development expenses for the six months ended June
30, 1996 and 1997 were $11.8 million and $13.0 million, respectively. Research
and development spending increases for the six months ended June 30, 1997
reflect primarily additions to the Company's engineering staff. The Company
expects that research and development expenses will increase in the near term
for additional investments in research and development projects for the
principal purposes of increasing network functionality and performance and
lowering networking costs, and in connection with the establishment of
international operations.
MARKETING & SALES
Marketing and sales expenses consist principally of compensation, including
commissions paid to sales and marketing personnel, travel, advertising, trade
show and other promotional costs. Marketing and sales expenses were $3.2
million, $4.1 million and $6.0 million for the years ended December 31, 1994,
1995 and 1996, respectively. Marketing and sales expenses for the six months
ended June 30, 1996 and 1997 were $2.9 million and $3.7 million, respectively.
These expenses have increased due to the Company's accelerated efforts to sign
new services agreements. The Company expects marketing and sales expenses to
continue to increase in absolute dollars as the Company seeks to enter into new
services agreements and undertakes a significantly larger advertising program.
GENERAL & ADMINISTRATIVE
General and administrative expenses include compensation paid to general
management and administrative personnel, home office expense, communications
charges, recruiting costs, travel, and communications and other general
administrative expenses, including fees for professional services. General and
administrative expenses were $2.4 million, $6.3 million and $12.0 million for
the years ended December 31, 1994, 1995 and 1996, respectively. General and
administrative expenses for the six months ended June 30, 1996 and 1997 were
$4.9 million and $9.1 million, respectively. The Company expects general and
administrative expenses to continue to increase in absolute dollars as the
Company increases staffing and continues developing information systems to
support its planned growth. The Company will need to increase administrative
expenditures in the longer term to expand domestic and establish international
operations.
INTEREST INCOME AND EXPENSE
Prior to June 1995, the Company funded its liquidity needs primarily from
the issuance of equity securities. In June and November 1995, the Company issued
and sold a total of $325.0 million aggregate principal amount at maturity of the
Company's 1995 Notes and warrants (the "Note Warrants") for proceeds, net of
issuance costs, of $169.9 million. On October 2, 1996, the Company completed its
Initial Public Offering in which it sold 5,000,000 shares of its Common Stock at
an offering price of $20 per share for net proceeds of $92.2 million after
deducting underwriting discounts and commissions and offering expenses payable
by the Company. In connection with the Initial Public Offering, the Company also
received $1.2 million in proceeds from the cash exercise of warrants (the
"Warrant Exercise") to purchase securities converted into 495,918 shares of its
Common Stock. In addition, on October 2, 1996, the Company completed certain
direct placements (the "Direct Placements") in which it sold 1,579,404 shares
40
<PAGE>
of its Common Stock for proceeds of approximately $28.0 million. Accordingly,
the Company has earned interest income on the invested proceeds from the 1995
Notes, the Note Warrants, the Initial Public Offering, the Warrant Exercise and
the Direct Placements. The Company has also incurred significant interest
expense from the amortization of the original issue discount on the 1995 Notes.
Interest expense will increase significantly in future periods as a result of
this Offering.
Interest income has been and will continue to be received by the Company
from the short-term investment of proceeds from the issuance of equity and debt
securities pending the use of such proceeds by the Company for capital
expenditures and operating and other expenses. Interest income is expected to be
highly variable over time as proceeds from the issue and sale of additional
equity and debt securities are received and as funds are used by the Company in
its business. Interest income for the three years ended December 31, 1994, 1995
and 1996 was $555,000, $4.6 million and $7.4 million, respectively. Interest
income for the six months ended June 30, 1996 and 1997 was $3.5 million and $4.2
million, respectively.
Interest expense for periods prior to June 1995 was attributable primarily
to capital leases. Interest expense was $101,000, $9.3 million and $23.8 million
for the years ended December 31, 1994, 1995 and 1996, respectively. Interest
expense for the six months ended June 30, 1996 and 1997 was $11.3 million and
$12.6 million, respectively.
PROVISION FOR INCOME TAXES
The Company has not provided for or paid federal income taxes due to the
Company's net losses. A nominal provision has been recorded for various state
minimum income and franchise taxes.
As of December 31, 1996, the Company had net operating loss carryforwards of
approximately $127.9 million and $71.9 million available to offset future
federal and state taxable income, respectively. The extent to which the loss
carryforwards can be used to offset future taxable income may be limited,
depending on the extent of ownership changes within any three-year period as
provided in the Tax Reform Act of 1986 and the California Conformity Act of
1987. Such state carryforwards will expire between 1997 and 2011. Such federal
carryforwards will expire between 2001 and 2011. Equity issuances in April 1991
and the Initial Public Offering in 1996 triggered such limitations on loss
carryforwards. As of December 31, 1996, approximately $108.0 million of net
operating losses remain limited to an annual usage of approximately $36.4
million for federal tax purposes. Based upon the Company's history of operating
losses and the expiration dates of the loss carryforwards, the Company has
recorded a valuation allowance to the full extent of its net deferred tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant amounts of capital for research and
development in connection with the development of its proprietary wireless
communications network and related products and services, for investments in the
installation and testing of such networks and for related sales and marketing
and general and administrative expenses. Historically, the Company has satisfied
its liquidity requirements primarily through external financings, including
private placements of equity and debt securities and interest income derived
from the investment of the proceeds of its financing activities.
In 1994, 1995 and 1996, net cash used in the Company's operating activities
totaled $14.6 million, $34.5 million and $40.7 million, respectively. In the
first six months of 1996 and 1997, net cash used in the Company's operating
activities totaled $18.9 million and $29.1 million, respectively. Net cash used
in operating activities resulted primarily from cash used to fund net operating
losses.
In 1994, 1995 and 1996, net cash provided by the Company's financing
activities totaled $34.0 million, $170.9 million and $120.7 million,
respectively, including cash provided by the private sale of the Company's
equity securities of $34.0 million and $1.2 million in 1994 and 1995,
respectively. In June and November 1995, the Company received an aggregate of
$175.8 million of gross proceeds ($169.9 million in
41
<PAGE>
net proceeds) from the private sale of the 1995 Notes and Note Warrants. During
1996, the Company financed its operations primarily from the proceeds of the
offering of the 1995 Notes and Note Warrants, together with interest income of
$7.4 million. On October 2, 1996, the Company completed its Initial Public
Offering in which it sold 5,000,000 shares of its Common Stock at an offering
price of $20 per share for net proceeds of $92.2 million after deducting
underwriting discounts and commissions and offering expenses payable by the
Company. In addition, on October 2, 1996, the Company completed the Direct
Placements in which it sold 1,579,404 shares of its Common Stock for proceeds of
approximately $28.0 million. In the first six months of 1996 and 1997, net cash
(used for) provided by the Company's financing activities totaled $(0.1) and
$0.5, respectively. The Company's financing activities consisted primarily of
the collection of sales proceeds and notes receivable in connection with the
exercise of employee stock options.
As of June 30, 1997, the Company had cash, cash equivalents and short-term
investments totaling $117.9 million. As of December 31, 1996, the Company had
cash, cash equivalents, and short-term investments totaling $178.9 million. The
decline of $61.0 million from December 31, 1996 was due primarily to operating
costs and the development and construction of the Company's wireless
communications networks.
The Old Notes were, and the New Notes will be, issued at a substantial
discount from their aggregate principal amount at maturity. Although interest is
not payable on the Notes prior to April 1, 2003, the carrying amount of such
indebtedness will increase as the original issue discount is amortized through
maturity on October 1, 2007. Beginning October 1, 2002, the Notes will bear
interest, payable semi-annually in cash, at the rate of 14% per annum, with
payments commencing April 1, 2003. No principal payments on the Notes are due
prior to maturity on October 1, 2007. There is a risk that the Company would be
unable if needed to refinance the Notes prior to the date cash interest payments
become due and payable on such Notes or at their maturity date, given
uncertainty about prevailing capital market conditions, the Company's then
performance and financial position and the Company's projected high levels of
indebtedness and that any inability to so refinance such Notes would limit the
Company's ability to meet its obligations on such Notes.
In 1994, 1995 and 1996, net cash provided by (used for) investing activities
totaled $12.8 million, $100.8 million and $3.8 million, respectively. In the
first six months of 1996 and 1997, net cash provided by (used for) investing
activities was $41.8 million and $(7.0) million, respectively. The Company's
investing activities consisted primarily of purchases of network components and
inventory, the construction and installation of networks, purchases of property
and equipment, and purchases, sales and maturities of short-term investments.
The $41.8 million of net cash provided by investing activities in the first six
months of 1996 was largely attributable to proceeds from the sale of short-term
investments. These proceeds exceed investments in short-term instruments as the
Company used the proceeds of short-term investments to fund its operating
activities. The Company shortened the maturity of its portfolio of short-term
investments to less than 90 days, which are classified, accordingly, as cash
equivalents.
Deployments of the Company's wireless communications networks will require
substantial additional capital. In addition, funds will be required for further
enhancements to the system software, firmware, hardware and other equipment to
increase the speed, capacity and functionality of the system, to enhance system
productivity over time and to expand the scope of utility and other network
information services that may be offered on the CellNet system. The Company
currently estimates that funds required for such capital expenditures for the
construction of networks presently under contract will be approximately $21.3
million for the last six months in 1997. The Company expects that cash used for
the construction and installation of networks and for the purchase of property
and equipment will increase substantially as and when the Company obtains new
services agreements or enters into other arrangements for the installation of
its networks, and that the Company will require significant amounts of
additional capital from external sources. Sources of additional capital for the
Company and its Subsidiaries may include project or conventional bank financing,
public and private offerings of debt and equity securities and revenues
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generated from operating activities. To provide financing for installation of
the Company's network under its UE Services Agreement, the Company has received
a commitment from Toronto Dominion Bank for $25.0 million for a nine-year
secured revolving credit facility on conventional bank financing terms. The
commitment expires on October 15, 1997, and the Company is in the process of
negotiating loan documentation for this facility. This facility is expected to
require the Company's St. Louis operations to meet certain revenue requirements
and to limit the capital expenditures and indebtedness of such operations. The
Company expects that a substantial portion of its future financing will be at
the subsidiary level on a project basis. The Company expects to obtain third
party financing for the construction of wireless networks, based on the
projected cash flow expected to be generated from such projects. The Company
expects that the recurring revenue stream from services contracts and other
arrangements will support the amortization of debt raised for the project
involved. The Company does not anticipate deriving any significant cash from
such operations for several years.
The Company believes that the net proceeds from the offering of the Old
Notes, existing cash, cash equivalents and anticipated interest income and other
revenues, will be sufficient to meet its cash requirements for at least the next
twelve months using management's best estimates. Thereafter, the Company expects
that it will require substantial additional capital. The extent of additional
financing will depend on the success of the Company's business. The Company
expects to incur significant operating losses and to generate increasingly
negative net cash flow during the next several years while it develops and
installs its network communications systems. There can be no assurance that
additional financing will be available to the Company or, if available, that it
can be obtained on terms acceptable to the Company and within the limitations on
incurrence of indebtedness contained in the Indenture or that may be contained
in any additional financing arrangements. Failure to obtain such financing could
result in the delay or abandonment of some or all of the Company's development
and expansion plans and expenditures, which could limit the ability of the
Company to meet its debt service requirements and could have a material adverse
effect on the Company's business, operating results, financial condition and
cash flow and on the ability of the Company to meet its obligations, including
with respect to the Notes. See "Risk Factors--Substantial Leverage and Ability
to Service Debt; Substantial Future Capital Needs."
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BUSINESS
CellNet has designed, developed and is now commercially deploying in scale
innovative wireless data communications networks which provide high-volume,
low-cost, real-time data collection services, capable of monitoring up to
several million fixed endpoints. The primary application of the Company's
network is the provision of commercial, industrial and residential NMR services
to electric, gas and water suppliers. These services position the Company to
benefit from the deregulation of the electric utility industry. As of June 30,
1997, the Company had approximately 2,265,000 meters under long-term contracts,
of which a total of approximately 580,000 meters were in revenue service for the
Company. CellNet also currently provides certain network distribution automation
services to electric utility customers including monitoring and control of power
distribution equipment. The CellNet network uses radio devices fitted to
existing utility meters to read and report data from each meter every few
minutes. Through extremely efficient use of radio frequency spectrum, the
CellNet network has substantial additional capacity to service non-utility
applications that require low-cost monitoring of fixed endpoints, such as home
security and remote status monitoring of vending machines and office equipment.
CellNet believes it has a first-to-market opportunity to offer wireless data
communications services on a commercial scale for utility and selected
non-utility applications. CellNet's network is distinguished by the following
advantages:
- sufficiently low infrastructure and operating costs to permit
cost-effective meter reading and other fixed point monitoring
applications;
- highly efficient use of spectrum--the equivalent of approximately a single
voice channel is needed to operate a network;
- specifically designed proprietary software to manage real-time data
collection from up to several million endpoints; and
- open systems architecture designed to allow new applications to be added
to the CellNet system.
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
The electric utility industry is undergoing a fundamental and broad-based
transition. The traditional utility structure, consisting of a vertically
integrated system operating as a natural monopoly with rates set in relation to
cost, has historically presented utilities with little incentive to improve
service quality or operating efficiency. Similar to the regulatory evolution
that has already taken place in the transportation and telecommunications
industries, customer demands and regulatory mandates by federal and state
governments are opening the electric utility market to competition, thus forcing
electric utilities to transform themselves from regulated monopolies into
competitive enterprises. While regulatory initiatives vary from state to state,
many involve a shift from rate-of-return ratemaking, in which an electric
utility's rates are determined by its return on assets, to performance-based
ratemaking, in which an electric utility's rates and profitability are based
upon its cost, efficiency and service quality. The gas utility industry has
already been transformed. Today, commercial and industrial customers can
negotiate to purchase gas directly from producers or brokers, while utilities
are required to provide transportation of such gas to customers' facilities.
The restructuring of the electric utility industry is underway. In recent
months, several major electric utilities have entered into merger agreements and
other consolidation transactions in connection with this restructuring. The
restructuring has also focused on opening the electric power production
industry, in certain markets, to full competition in the next few years, and
ultimately providing customers access to multiple suppliers. Federal
legislation, such as the National Energy Policy Act of 1992 (the "EP Act"), has
opened utility transmission lines to independent power producers in an effort to
increase competition in the wholesale electric power generation market. As a
result, the construction of cogeneration facilities and independent power
production facilities has been increasing, creating lower cost alternatives for
large
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commercial and industrial customers. The EP Act authorized the Federal Energy
Regulatory Commission ("FERC") to mandate utilities to transport and deliver, or
"wheel" energy for the supply of bulk power to wholesale, but not retail,
customers. In order to facilitate the transition to increased competition in the
wholesale power markets made possible by the EP Act, in April 1996 FERC issued
its final rules that require utilities to (i) establish open access to all
wholesale sellers and buyers, (ii) offer power transmission service comparable
to what they provide themselves, and (iii) take power transmission service under
the same tariffs offered to other buyers and sellers.
Under the EP Act, individual states have the sole authority to mandate the
wheeling of electric power to retail customers. As a result, fourteen states
(Arizona, California, Maine, Massachusetts, Michigan, Montana, Nevada, New
Hampshire, New Jersey, New York, Oklahoma, Pennsylvania, Rhode Island and
Vermont) now have legislation or final commission orders to mandate retail
wheeling and nearly all of the other states are in various stages of considering
the implementation of retail wheeling and unbundling, both at legislative and
regulatory levels. Arizona, California, Maine and New Hampshire are also
requiring utilities to "unbundle," or offer as separate services, metering,
billing and collection, and three more states have announced their intention to
require unbundling. Unbundling implies that a third party, such as a new market
participant, would be free to own the electric meter that measures usage and
attaches to a commercial, industrial or residential customer's premises. The
traditional owner of the meter has been the electric utility which has also had
a monopoly in providing metering, billing, and collection services. In
California, the state which has to date advanced the farthest in the
deregulation process, the California Public Utility Commission (the "CPUC") has
mandated competitive retail wheeling and unbundling effective January 1, 1998
for large commercial and industrial customers and unbundling for all remaining
customers effective January 1, 1999. Competitive retail wheeling will involve
direct access, or the customer's ability to choose among energy service
providers. The CPUC has also mandated hourly time-of-use metering capability for
customers requiring more than 20 kW of power and customers choosing direct
access.
The changing regulatory environment means that new power market participants
will be entering into a market traditionally dominated by established utilities.
As of September 24, 1997, 114 energy service providers have registered with the
CPUC as registered electric service providers, to provide electric services in
California commencing January 1, 1998. The established utilities will each be
focusing on retaining and increasing its market share in the wake of
competition. Both new power market participants and established utilities will
be striving to optimize their offerings and to distinguish themselves in the
market. CellNet is well positioned to offer competitive advantages to all energy
service providers, whether established utilities or new power market
participants, using its existing technology. The CellNet network has
demonstrated capabilities in providing cost-efficient, reliable, real-time data
to established utilities. The same capabilities will enable energy service
providers to meet regulatory metering and forecasting requirements, offer
superior, competitively-priced services, collect customer information and
diversify by adding additional applications as available. CellNet's open
architecture will lend itself readily to deployment strategies focused either on
established utilities or new power market participants, or both, without
requiring modifications to the network system.
The Company believes that competition will require recordation of electric
power consumption data more frequently than is presently customary through a
much wider use of daily, hourly and possibly even more frequent meter readings.
In fact, hourly meter reading has already been mandated for certain classes of
customers in California when deregulation takes effect. Other deregulating
states are likely to follow. The Company believes that the Company's meter
reading technology, or meter reading technology similar to it, will be needed to
satisfy these requirements.
THE CELLNET SOLUTION
CellNet has designed, developed and is now commercially deploying in scale
the first wireless data communications network designed to provide high-volume
real-time status and event monitoring of up to
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several million endpoints. Since the primary application of the network is to
provide NMR services, the network has been designed to meet the energy service
industry's cost requirements, information needs and rigorous design
specifications. CellNet's network uses radio transmitters fitted to existing
meters to read and report data from each meter every few minutes. CellNet uses
inexpensive radio devices and proprietary software in its networks, deploys
certain network components on utility power poles or, where necessary, on
buildings or other structures, and requires minimal frequency spectrum to
operate its system.
CellNet's system enables energy service providers to better serve their
customers by offering enhanced services such as:
- time-of-use and demand energy rates;
- real-time response to billing inquiries;
- real-time power outage detection, location and notification;
- remote verification of "power on" and outage restoration;
- on-demand meter reads;
- customer-selected billing dates and consolidated, multi-location billing;
- automatic move in/move out meter reading;
- distribution automation; and
- access to consumption, rate and billing information via the Internet.
In light of the changing regulatory environment and resulting competition
for customers, many established utilities will be motivated to retain and
increase their market shares, while new power market participants will seek to
capture market share in the post-deregulation retail market. CellNet's system
will allow established utilities and new power market participants to respond
effectively to regulatory changes and enhance their performance in the
competitive markets. CellNet's system will facilitate accomplishment of
established utilities' and new power market participants' strategic objectives
as follows:
PROVIDE RETAIL MARKET INFORMATION. Established utilities and new power
market participants will seek to implement information systems capable of
supporting new functions, including collecting and exchanging data for billing,
load forecasting and retail settlements. One likely result will be a large
increase in the need for the retrieval and management of high volumes of
metering data, including hourly consumption measurement for retail settlement
(prices will be set hourly in regional power pools). Another likely result will
be the need for rapid retrieval of metering data--hourly or daily in contrast to
today's monthly schedule for meter reading--to support forecasting and
settlement.
ENHANCE INFORMATION SYSTEMS. To implement time-of-use pricing and other
customer-oriented pricing plans, real-time power outage detection and other
services that may be required by deregulation or necessary to maintain market
share, energy service providers will demand extremely accurate and timely data
regarding energy consumption by customers. For example, the CPUC has required at
least hourly meter-reading capacity for each customer requiring more than 20 kW
of power. The manual meter reading process, even as automated to a limited
degree through the use of hand-held and drive-by AMR equipment, does not meet
these criteria. The consumption data collected by AMR is typically transmitted
to the utility's information system not more frequently than monthly. Such
periodic meter readings do not provide the necessary data to implement these
regulatory and competitive initiatives.
RESPOND TO REGULATORY INITIATIVES. If retail wheeling is adopted, consumers
will contract to buy electricity from specific energy service providers, but all
such energy service providers will supply electricity to a designated local
electrical network, which will then distribute power to all local consumers. The
monthly meter reading historically used by traditional utilities may allow
energy service providers to
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determine aggregate usage, but not to determine time of use. Time-of-use data is
a critical requirement of retail wheeling, since the cost of power to energy
service providers will be determined by hourly spot prices. By providing
real-time data on each consumer's power usage, CellNet enables utilities to
implement retail wheeling without incurring costs of $150-$200 or more at each
service endpoint to install individual time-of-use meters across their
territories.
ACQUIRE AND RETAIN CUSTOMERS. In addition to price based competition,
energy service providers will seek to differentiate their services to the
market. The CellNet system's ability to integrate with customer service systems
and platforms will enable the addition of value-added services, enabling
non-price based competition through enhanced product offerings, including new
pricing options, selectable bill dates, outage monitoring, end-use energy
information through the Internet customized billing plans, remote move in/move
out meter reading, multi-location bill consolidation and other innovations. The
information available through the CellNet data collection services will also
allow its users to profile their customers, thus gaining valuable marketing
insights, which will facilitate development of promotions, service plans and
other programs designed to attract and retain customers.
ELIMINATE MANUAL METER READING. Many utilities have already focused on the
inefficiencies of the traditional once-a-month drive-by or walk-by meter reading
process. In addition to the direct expense of monthly meter reading, manual
processes create significant indirect expenses. These expenses include
responding to customer billing service inquiries and complaints, meter reading
errors, missed meter reads, special appointment meter reads to determine and
correct errors, and service calls to discontinue and to initiate service.
Through automation, CellNet's wireless data network helps utilities to reduce
both direct and indirect operating costs associated with meter reading.
OFFER LOWEST-COST NETWORK SYSTEM. The CellNet system offers the
lowest-cost, most frequency-efficient network available, which will enable
energy service providers to manage their energy trading costs better and pass
savings on to their customers. The CellNet system will provide time-of-use
metering in scale, even to small customers, at costs which the Company believes
to be the lowest available. A new power market participant's ability to
penetrate the energy supply market, and an established utility's ability to
maintain its market share, will depend in part on their ability to offer
competitively-priced services. By allowing CellNet to build and maintain the
wireless network, energy service providers also avoid both the technological
risk and capital outlay of developing and deploying NMR systems.
ENHANCE OPERATING EFFICIENCIES THROUGH AUTOMATION. CellNet's network
enables distribution automation capabilities which include monitoring and
control of power distribution equipment as well as meters. Using the CellNet
network, energy service providers can manage many aspects of the delivery of
electricity, including the ability to detect power outages, monitor and control
circuit breakers, monitor the load on transformers, control circuits to isolate
faults on feeder power lines, and switch automatically among capacitor banks to
produce constant voltage levels. As a result, problems may be detected earlier
and solved more quickly, operations may become more reliable and service fleets
may be more efficiently deployed and dispatched as outages can be more readily
pinpointed within the utility's service territory. Increased automation and
improved information processing will also aid in detection of energy theft,
which is currently estimated to cost utilities many millions of dollars each
year.
REDUCE PEAK DEMAND COSTS WITH TIME-OF-USE DATA. Established utilities have
historically built plant capacity to meet the anticipated peak demand for energy
on a daily and seasonal basis, requiring an excess capacity margin to respond to
extraordinary demand peaks caused by extreme weather conditions. Power plant
expansions are costly and investments in such capacity may not be fully
compensated by ratemaking authorities. Reducing peak demand would allow
utilities to defer or avoid additional plant construction or costly peak power
generation with standby power generating facilities. However, unlike phone
companies, which currently offer time-of-use rates to discourage consumption
during peak periods, energy service providers have generally been unable to
implement time-of-use plans for any but their largest customers due to
inadequate real-time information about customer power usage. CellNet's NMR
services will enable
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utilities to adopt time-of-use billing plans, which can be used to motivate
consumers to shift discretionary consumption to off-peak periods.
PROVIDE POST-DEREGULATION MARKET OPPORTUNITIES. With deregulation creating
new market opportunities, new power market participants will aggressively pursue
first-to-market opportunities, particularly in light of the perception that the
highest-value customers will be among the first to respond to the choices made
available by deregulation. CellNet offers an NMR system with demonstrated
capability of providing real-time data collection. As a result, CellNet's system
will enable new power market participants to offer prompt implementation of
state-of-the-art metering-based service rate plans.
For established utilities and new power market participants, CellNet alone
supports each of the basic objectives.
BUSINESS STRATEGY
The Company intends to deploy and operate a series of wireless data
communications networks and to earn recurring revenues by providing NMR services
to energy service providers and other customers by using the network to support
a variety of non-utility applications. Principal elements of CellNet's strategy
are (i) to focus on power supply markets, (ii) to promote development of
non-utility applications, (iii) to form strategic alliances, (iv) to pursue
international expansion, and (v) to outsource a substantial portion of its
manufacturing and installation activities. The Company is also focusing
increasingly on licensing its technology to leading manufacturers in key
industries, to ensure development of compatible products. See "--Form Strategic
Alliances."
FOCUS ON POWER SUPPLY MARKETS
The Company is initially targeting the 60 largest MSAs, which represent a
majority of the approximately 230 million electric, gas and water meters in the
United States and other areas of high population density, state-by-state, as
deregulation becomes effective. The Company believes that energy service
providers operating in or entering these densely populated areas will be the
most likely affected by increased competitive and regulatory pressures, and as
such, will have the greatest need to adopt NMR. These MSAs also offer the
greatest potential markets for non-utility applications. The Company is also
pursuing selected energy service providers outside of the top 60 MSAs.
The Company's existing utility contracts rely on its traditional saturation
deployment strategy, building out a network to reach every individual meter in a
territory. The strategy has proved effective because it covers all power
consumers in an established utility's specific geographical service area. To
implement this strategy, the Company builds out its WAN and LAN concurrently, to
reach every meter in an established utility's service area. The network begins
producing revenues as meters come on-line, and new customers can be added
incrementally.
By adapting its deployment strategy only slightly, the Company believes it
can offer an attractive alternative to both new power market participants and
established utilities which are not prepared to commit the resources to a
long-term saturation deployment. New power market participants, lacking the
established utilities' installed geographical customer bases, are likely to
concentrate their marketing efforts on the areas of highest population density,
resulting in geographically fragmented customer bases. Anticipating this trend,
the Company has already initiated discussions with new power market participants
regarding an alternative deployment strategy, broad deployment. To service the
electric meter reading requirements of these new power market participants, the
Company may contract to deploy its WAN in service areas where the largest
consumers of electric power are concentrated and where the most attractive open
market opportunities are offered. The energy service provider could contract
with the Company to install its LAN to service existing customers or for
advanced coverage of certain areas. In either case, the Company would install
its LAN as necessary to service those customers and/or areas and would continue
installations in remaining areas as needed. Broad deployment would therefore
offer energy service
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providers the flexibility to build as they grow, or to pursue particular market
niches. The Company believes that broad deployment will also provide an
attractive option to established utilities which may be reluctant to commit to
the long-term, saturation deployment strategy. Under this deployment strategy,
the Company could contract with an established utility to build out a LAN
covering a portion of that established utility's customers in connection with an
existing WAN. The utility could then continue to contract with the Company in
stages to increase the build-out of the LAN, potentially to cover all of its
meters. The end result in this case would be almost identical to the end result
in a saturation deployment.
To implement broad deployment, the Company may build out its WANs pursuant
to contracts before the network capacity is fully committed. Because the Company
anticipates that its contracts with new power market participants will be
shorter-term than its utility contracts, these new contracts may not fully cover
the build-out and associated operating costs. The Company intends to reduce this
risk by marketing its services to a wide range of energy service providers.
Broad deployment will also enable the Company to reach a significant percentage
of the meters in a covered territory, without the capacity demands of saturation
coverage. Lower capacity demands translates to fewer endpoints, fewer radio and
collection devices and therefore, more rapid build-out with substantially lower
capital expenditures. Capital expenditures arising from LAN build-out would also
be deferred. Further, under broad deployment, the Company expects that the
energy service provider would lease or acquire the endpoints from the Company,
again reducing the Company's costs. Broad deployment will also facilitate
relationships with later entrants into a particular geographical market by
providing ready access to an available network.
PROMOTE DEVELOPMENT OF NON-UTILITY APPLICATIONS
Through the efficient use of spectrum, each CellNet network will have the
capacity, after serving all of a utility's NMR and distribution automation
requirements, to support non-utility services that would benefit from the
availability of a low-cost wireless network. Under broad deployment, the Company
expects to have significantly enhanced opportunities to implement non-utility
applications, because the Company's networks will be available in a
substantially greater number of high population density centers. The Company is
working with leading manufacturers and application developers in order to
promote the development of products and services capable of using the CellNet
networks. Potential applications include the following:
- security services for home security, fire alarm and personal safety
devices;
- remote status monitoring for vending, postage, change and commercial
washing machines, office and factory equipment, and intelligent home
devices, such as remote control thermostats; and
- intelligent transportation monitoring systems for traffic lights, parking
meters and toll booths.
The Company believes that its low monthly network service prices will
substantially increase the likelihood of market acceptance of existing
applications and enable potential new applications.
Wireless home security systems are an example of an existing application
that might achieve greater market penetration if equipment and service costs
were reduced by using a CellNet network. CellNet is working with Interactive
Technologies, Inc. ("ITI"), a leading provider of wireless home security
systems, to develop an affordable security system that would communicate over a
CellNet network. A preliminary field trial is presently being conducted.
Remote monitoring of vending machines would substantially reduce the cost of
servicing those machines. Real Time Data, Inc. ("RTD") has developed a vending
machine monitoring device which tracks product sales and inventory. RTD and the
Company have been working together to integrate RTD's devices with the Company's
networks and have a commercial field trial currently underway.
Energy management and home automation services can be enabled by CellNet's
networks as well. CellNet and Honeywell, Inc. ("Honeywell") have jointly
designed a system consisting of a "thermostat-
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like" panel which allows consumers to use electricity more efficiently by
programming appliances, such as the heating, ventilation and air conditioning
(HVAC) system and hot water heater. Devices within the home would communicate
with one another over existing electrical wiring using power line carrier (PLC)
technology, CellNet's two-way wireless data network would provide the connection
between the home and a utility to deliver pricing signals, home management
services, and public information, and to send customer messages and device
status signals back to the utility. CellNet and Honeywell are undertaking a
pilot program to deploy this system in the first quarter of 1998 at residences
in St. Louis to help refine the system design and further gauge consumer demand.
FORM STRATEGIC ALLIANCES
The Company is forming strategic alliances with leading companies and
certain utilities to promote the development and joint marketing of
complementary products or services for utility applications and the development
of non-utility applications whose traffic would be carried on CellNet networks.
CellNet is currently working with the following leading companies:
BADGER METER, INC. ("BADGER"). The Company has entered into an agreement
with Badger, a leading marketer and manufacturer of products using flow
measurement and control technology to serve industrial and utility markets
worldwide, providing for incorporation of the Company's patented radio
technology into Badger's water meter reading technology product lines and to
provide technical assistance to Badger to build radio technology compatible with
the Company's NMR systems into future products.
BEN. The Company has entered into a joint venture with BEn to pursue
international opportunities. See "--Pursue International Expansion."
CONNEXT, INC. ("CONNEXT"). The Company has entered into a joint marketing
agreement with ConnexT, a subsidiary of Puget which provides network-based
application services to utility companies, whereby the parties agree to assist
each other in marketing their respective products and services to both
companies' existing and prospective utility customers.
GENERAL ELECTRIC ("GE"). GE and the Company have entered into a non-binding
memorandum of understanding ("MOU") to jointly market to utilities, on a
non-exclusive basis, automated NMR solutions that incorporate both parties'
products. GE has installed CellNet radio devices on new GE meters on a trial
basis.
HONEYWELL. Honeywell has entered into a non-binding MOU with the Company
relating to the creation of "smart communicating thermostats" that would serve
as the key elements in a home-based energy management system. The parties also
plan to collaborate on identifying other in-home automation products that could
leverage Honeywell's extensive line of environmental control products with
CellNet's wireless technology.
ITI. The Company has entered into an agreement with ITI, a leading provider
of wireless, in-home security systems, to develop moderately-priced security
systems based on ITI's existing security devices and CellNet's wireless
technology.
METRETEK, INC. ("METRETEK")/MARCUM NATURAL GAS SERVICES, INC. The Company
is working with Metretek, a subsidiary of Marcum Natural Gas Services, Inc., to
develop a combination of wireless and telephone-based services for the gas
utility industry. Metretek's telephone-based data collection and management
software is intended to be integrated into the Company's wireless data
communications system, enabling the Company to provide multi-technology NMR
services, allowing gas utilities to reach a larger percentage of their
customers. Additionally, the Company's wireless data communications technology
is intended to be incorporated into Metretek's new and existing products,
enabling data collected from industrial, commercial and residential gas meters,
volume correctors and other Metretek products to be communicated over CellNet's
wireless networks.
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PROCESS SYSTEMS ("PSI"), SIEMENS ENERGY AND AUTOMATION, INC. / SIEMENS
MEASUREMENTS LTD. The Company is working with PSI, a Siemens business unit, to
integrate PSI's Energy Analyzer Plus software for collecting data over the
public switched telephone network ("PSTN") from a variety of high-end electric
and gas meters with the CellNet system, so as to enable the Company to offer
multi-technology NMR services. A Subsidiary of the Company is also working with
Siemens Measurements in the United Kingdom to license CellNet's radio technology
for integration with Siemens' electric and gas metering products, allowing them
to communicate over CellNet's networks.
RTD. As described above, RTD, a developer of remote vending machine
monitoring systems, has entered into an agreement with the Company to integrate
its vending machine monitoring system with the Company's wireless network
technology.
SCHLUMBERGER. The Company has entered into an agreement with Schlumberger,
an international, worldwide leader in oil field services, measurement and
systems and telecommunications, to license to Schlumberger the Company's
proprietary radio technology for use in Schlumberger's electric, gas and water
meter product lines.
PURSUE INTERNATIONAL EXPANSION
With several hundred million utility meters located outside of the United
States and with comparable opportunities to use the CellNet system for utility
and non-utility applications, the international market offers significant
additional opportunities for the Company.
In September 1996, the Company entered into a letter of intent with BEn to
form an international joint venture (the "Joint Venture") that would have the
exclusive right to deploy and operate the Company's wireless data communications
system in countries outside of the United States. The Joint Venture would be 50%
owned by each party and would be operated independently. The Company would
license its technology to the Joint Venture and the Joint Venture would
sublicense that technology to individual local operating project entities in
which the Joint Venture would invest and generally maintain operating control.
The managing board of the Joint Venture would be composed of an equal number of
representatives from each party and would review and approve all major business
decisions. Formation of the Joint Venture remains subject to the negotiation and
execution of definitive agreements between the parties upon mutually acceptable
terms. The parties have formed BCN Data Systems L.L.C. for this purpose and have
commenced operations. The parties are in the process of negotiating the
definitive agreements but have not yet concluded such agreements. Although the
Company expects that the parties will conclude such agreements in the near term,
no assurance can be given that they will be able to do so on acceptable terms,
or at all. If such agreements are not entered into or the Joint Venture does not
continue, the Company's international strategy would be materially adversely
affected.
In considering international expansion opportunities for the CellNet system,
the Joint Venture intends to target markets characterized by (i) a
well-developed utility infrastructure, (ii) demand for low-cost monitoring,
(iii) a progressive regulatory climate favoring increased efficiency, customer
service and competitive access, and (iv) well-capitalized, established and
reliable local partners.
The Company considers the United Kingdom a particularly attractive market,
with approximately 22 million electric meters and deregulation already in
effect. The Joint Venture is currently concentrating its efforts primarily on
entering the market in the United Kingdom, and is also considering opportunities
in Southeast Asia, Canada and Australia have also been identified as prospective
markets.
OUTSOURCE SUBSTANTIAL MANUFACTURING AND INSTALLATION ACTIVITIES
The Company outsources a substantial portion of its manufacturing and
installation activities. As a result, CellNet leverages the size and
capabilities of key suppliers to take advantage of manufacturing economies of
scale, reduce component pricing through bulk purchasing, and have access to
manufacturing
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capacity and resources to meet highly variable production requirements. The
Company will retain overall network construction responsibility, but intends to
rely on local subcontractors for installation, primarily those who have
demonstrated their capabilities, experience and reliability and who have good
working relationships with CellNet's customers. The Company believes that
outsourcing installation activities will reduce the start-up time and the
Company's investment risk for each project.
WIRELESS COMMUNICATIONS INDUSTRY OVERVIEW
CellNet operates within the wireless communications industry, which includes
PCS, specialized mobile radio ("SMR"), microwave, cellular (including cellular
digital packet data ("CDPD")), paging and MAS radio segments, among others. The
two principal categories of commercial wireless applications are voice and data
transmission. Within those broad categories, service requirements for specific
applications vary substantially in terms of quality, speed, capacity, mobility,
two-way capability, geographical coverage and cost. In general, products which
provide for greater mobility and capacity are more expensive. As a consequence,
the market for wireless services is segmented, matching specific service
requirements with the most suitable wireless technology.
[LOGO]
CellNet's system is designed to utilize small amounts of spectrum and to
provide low-cost, high-volume, real-time monitoring of fixed endpoints. The
Company believes other telecommunications applications or market segments are
not as well suited for use in NMR and similar applications except in limited
cases such as high-use industrial metering, where the increased equipment and
service costs might be justified by high rates of power consumption, or in
certain rural applications, where the cost of installing and operating a fixed
network on a per meter basis might be higher. Competing service applications are
therefore expected to develop largely within the segment of the wireless
communications market in which CellNet now operates.
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CellNet's network architecture and the nature of the markets that it serves
differ significantly from traditional cellular companies, thereby resulting in
potential advantages for CellNet in providing NMR services which include:
POTENTIAL FOR LOWER MARKET ADOPTION RISK. To date, the Company has
constructed its large scale commercial networks after entering into a long-term
relationship with a utility. In such circumstances, the Company does not need to
finance construction of networks in anticipation of obtaining customers. Under
the Company's broad deployment strategy, the Company may build out its WANs
before the capacity is fully committed, thereby creating the risk that the
network will not be fully utilized, and the Company will not recoup its
investment in the build-out.
LOWER CHURN/PENETRATION RATE. Unlike the customer bases for other wireless,
voice and data service providers where customers can easily switch to a
competitive provider, CellNet's subscriber endpoints in a utility contract
saturation deployment have not experienced frequent change or "churn." The
marketing and administrative costs typically associated with churn, and the
capital risk associated with variable penetration rates, are thus eliminated.
Further, due to inflation escalation clauses in the Company's existing services
agreements, the Company believes that the value of its revenue per endpoint in
real terms will likely be maintained over time.
HIGHER CUSTOMER CREDIT QUALITY. CellNet receives its contract service
revenue directly from utilities and new power market participants rather than
from individual subscribers. As a result, the Company experiences less credit
risk and generally lower billing expenses than other wireless communication
providers.
MORE EFFICIENT DEPLOYMENT. Cellular and PCS cell sites are frequently
costly and can be difficult to obtain. The modularity of the CellNet system and
the efficient size of its components facilitate inexpensive deployment of
scalable networks. The Company's system components have been designed to fit on
utility power poles or, where necessary, on buildings or other structures. With
an electric utility as its primary customer, CellNet has access to utility
poles, transmission towers, and various properties for deployment. In
arrangements with other energy service providers, CellNet may need additional
arrangements for equipment space. Radio devices, which represent the bulk of
network components, are simply "plugged in" to replace an existing meter or
retrofitted to existing meters. The Company's MCCs (as defined) typically take
less than two hours to install and its CellMasters (as defined) less than a week
to install, providing a network which can be deployed swiftly and efficiently.
The system is also scalable, thereby allowing coverage regardless of the size of
the service area.
MORE EFFICIENT SYSTEM DESIGN. Cellular telephone networks are designed for
peak usage, with a large percentage of the network underutilized for much of the
day. The CellNet network gathers information from its endpoints consistently
around the clock and therefore does not encounter the peak usage problems
typically experienced by cellular phone service providers.
LOWER FREQUENCY COSTS. Cellular, PCS and other two-way wireless systems
typically require a large amount of spectrum which can be very costly to obtain.
Because the Company is able to utilize a small amount of frequency for a wide
metropolitan area (the equivalent of approximately a single cellular voice
channel), it is not subject to the substantial frequency costs associated with
wireless communications companies even if any additional frequency had to be
purchased at auction.
TECHNOLOGY
CellNet's NMR system has been developed specifically to offer real-time,
low-cost, high volume wireless data communications services. Such services
require (i) inexpensive endpoint devices, (ii) the ability to support a wide
range of applications, (iii) reliable, consistent service over a wide area, (iv)
the capacity to handle simultaneous transmission and processing of a large
volume of data, (v) integrated
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communications and applications support software, and (vi) efficient use of
bandwidth to minimize spectrum acquisition costs.
To meet these cost and data handling requirements, CellNet has designed a
system which uses a two-tiered wireless network hierarchy managed by a central
system control center which collects, concentrates, forwards and manages data
from many fixed endpoints. The elements of this communications hierarchy
include:
- endpoint devices which transmit data relating to the equipment they are
monitoring or controlling, such as utility meters;
- MicroCell Controllers ("MCCs") which manage the endpoint devices in their
local coverage area (as part of a LAN) and which collect and process data
transmissions from such endpoint devices;
- CellMasters which transport data from MCCs located in a wide coverage area
(as part of a WAN) and which communicate that data to a central System
Controller; and
- a System Controller which manages the entire network and operates the
application gateways for integration with the client's own data systems.
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[LOGO]
ENDPOINT DEVICES. The subscriber unit of the CellNet system is a relatively
inexpensive low-power radio device which is attached to a data source, such as a
utility meter, to collect and transmit information to an MCC and typically
includes a transceiver or transmitter. The Company has developed endpoint
devices for electric utility applications which may be retrofitted to each of
the major types of utility meters
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presently being used by electric utilities in the United States. These endpoint
devices currently collect customer demand and load profile data from an electric
meter and transmit such information to the local area MCC once every few
minutes. Electric meter endpoints are also able to transmit "distress signals"
indicating meter tampering or power outages. The Company began introducing its
commercial endpoint devices for gas meters in 1996 and expects to complete the
development of and to introduce additional models in 1997. The Company is
continuing its development of endpoint devices for water meters and expects to
introduce its first models by year end 1997. The Company is also working with
industry leaders to develop endpoint devices for non-utility applications. See
"--Business Strategy--Form Strategic Alliances."
MICROCELL CONTROLLERS. An MCC is a device which is mounted on a utility
pole or other fixed location in the center of a microcell and which routes data
from all of the endpoints in the microcell to the System Controller via the WAN.
The number of endpoint devices in each microcell depends on a number of factors,
including topography and population density. In addition to functioning as a
router, the MCC is an intelligent node in the distributed control system and has
a powerful microprocessor which enables it to perform data storage, packet
routing and voltage and power outage monitoring for endpoint devices in its
microcell area. Each MCC also has extensive network management capabilities
which permit new endpoint devices to be added automatically without interfering
with the handling of data from existing endpoints. This architecture allows
CellNet to significantly reduce the cost of the endpoint device itself and
increases the potential data throughput of an entire network, as the intelligent
processing is provided at the MCC level. The MCC communicates with the endpoint
devices in its microcell in the 902-928 mHz band, which is an unlicensed portion
of spectrum.
CELLMASTERS. A CellMaster generally communicates with anywhere from 50 to
200 MCCs and RTUs (as defined) over an area typically covering approximately
20-75 square miles (2.5-5-mile radius). Each CellMaster incorporates network
management software which manages traffic scheduling, radio frequency power
controls and signal monitoring. CellMasters are built with redundant hardware,
are ruggedly constructed for extreme weather, and can perform automatic
switchovers between system components in case of failure. The WANs covering
specific service areas are composed of a number of CellMaster units. A
CellMaster communicates with the MCCs using a radio link in the 928/952 mHz
band, which is a licensed portion of spectrum.
REMOTE TERMINAL UNITS. Remote Terminal Units ("RTUs") monitor and operate
equipment at specific points in an electric utility's distribution system.
CellNet integrates a two-way radio device into RTU equipment manufactured for a
utility by other parties, which enables remote operation of these RTUs. By
providing a means of remote monitoring and controlling of power distribution
equipment, CellNet's system enables utilities to monitor and control circuit
breakers, monitor the load on transformers, control circuits to isolate faults
on feeder power lines, and switch automatically among capacitor banks to provide
constant voltage levels.
SYSTEM CONTROLLERS. The System Controller provides the link to the client's
corporate data network and serves as the network management platform. The System
Controller consists of a cluster of UNIX-based workstations operating over a
network using standard TCP/IP protocols. Such a configuration is extremely
scaleable as it can be expanded to meet system requirements simply by adding
additional workstations. The System Controller supports a variety of radio-based
and leased line data links to each CellMaster in the network. These links are
redundant for added reliability. The System Controller enables CellNet's on-site
system operator, who manages the network for CellNet's clients, to manage
traffic, monitor performance and configure network devices. At the local systems
operations center, the System Controller provides customized gateways to
integrate with client data systems. As non-utility applications are deployed,
the Company may integrate additional server devices to manage such non-utility
applications at the System Controller level.
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CellNet's network equipment--MCCs, CellMasters and System Controllers--are
equipped with back-up batteries and continue to operate in the event of a power
outage.
The Company also operates the CellNet Central Operations Room at its San
Carlos, California facilities which monitors performance of all regional System
Controllers and is able to assume operations of the regional networks if the
local System Controller experiences a failure. The Company operates a private
national data network to link these regional sites using third-party carrier
services.
SYSTEM SOFTWARE. CellNet believes that one of its key enabling technologies
is the software which facilitates operation of a large-scale NMR system. While
certain "off-the-shelf" networking approaches work well on a limited scale in a
wireline environment with expensive computers and workstations, the ability to
operate in a wireless environment under extreme conditions at low cost has
required the development of a sophisticated network architecture. CellNet's
network solution is based on distributed computing and messaging technologies
which enable intelligence to be decentralized and ensure efficient use of
spectrum. The CellNet Network Operating System ("NOS") is a proprietary system
that provides sophisticated network communication services between the System
Controller and the CellMaster units, RTUs, MCCs and endpoint devices. It is a
scaleable system that has been specifically designed to ultimately handle
millions of endpoints in a single regional network. Extensive real-time
diagnostic and network management features manage traffic, monitor system
performance and enable network configuration as data is collected and delivered
to users. The CellNet NOS is able to maintain fast response times and system
capacity by distributing a significant portion of the network's computing power
at the MCC level.
The NOS offers the benefits of incrementally adding processing power as well
as supporting remote operations required for redundancy and backup operations.
As such, an entire regional system can be switched quickly from one System
Controller to another in the event of failure. The CellNet NOS is also able to
segregate network data from multiple non-utility applications and provide such
data to non-utility clients over additional database interfaces. Each CellNet
system is customized with application-specific gateways which enable the
interface between the System Controller and the client's existing corporate data
systems. CellNet has delivered gateways to support the data requirements for
billing automation, electric distribution automation, customer service call
center automation and load management programs. The flexibility provided by this
NOS architecture will enable the system to offer services for many new
applications unrelated to NMR services such as distribution automation and
non-utility applications. By building on a general network capability the
Company can extend its services to many other utility and non-utility services
without incurring significant costs of redesigning the underlying communications
architecture. Each new application is expected to be added with only incremental
development, which will be focused primarily on application-specific endpoint
devices and system gateways. Furthermore, since its design is independent of the
specific endpoint radio devices, the Company believes that this architecture can
evolve to incorporate future advances in wireline and wireless communications.
The Company has made a substantial commitment to establishing a strong
competitive position, having invested over 300 staff-years in the design,
development and testing of its system.
EFFICIENT SPECTRUM UTILIZATION. CellNet's network components utilize both
licensed and unlicensed radio frequency bands. The CellNet WAN operates in the
928/952 mHz frequencies which are licensed by the FCC in 25 or 12.5 kHz channel
bandwidths for full duplex operation and point-multipoint data services. CellNet
has developed a proprietary technology, subject to issued and pending patents,
which permits a narrowband radio system to derive up to 19 subchannels from a
single 25 kHz channel. By reusing subchannels in a manner similar to that used
by cellular phone systems, CellNet believes it can grow a system to cover a
large region and expand capacity incrementally as needed. As a result, CellNet
is able to operate its wide area networks in the spectral equivalent of
approximately a single voice channel. CellNet has obtained 58 spectrum licenses
in 46 of the top 60 MSAs and believes that it will be able to obtain additional
spectrum as required although it may not be able to do so at low cost,
particularly if such spectrum becomes subject to auction as has been recently
proposed by the FCC.
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MANUFACTURING AND OPERATIONS
The Company currently outsources the manufacture and assembly of its high
volume, low cost equipment such as endpoint radio devices. CellNet's supply
strategy is to leverage the size and production capabilities of key suppliers to
take advantage of manufacturing economies of scale, reduce component pricing
through bulk purchasing and obtain access to manufacturing capacity and
resources to meet highly variable production requirements.
CellNet presently focuses its limited internal manufacturing resources on
final assembly and testing of its lower volume, more complex equipment,
including CellMasters and MCCs. CellNet assembles these network components, then
custom configures and tests such components to meet stringent utility industry
field equipment standards. Samples of all products, whether internally or
externally built, are thermally and electrically stress-tested to measure
product quality and reliability. Test results are used both to monitor
production quality and to provide information to CellNet's development
organization for further design enhancements.
CellNet has developed and is continuing to improve a high-volume, low-cost
process to retrofit electric utility meters with endpoint radio devices. The
Company's proprietary system for retrofit information management analyzes
operating data, generates reports, and provides this information to customers
for inclusion in their databases. The Company installs its endpoint radios on
both new and previously installed electric meters at its retrofit facilities in
San Carlos, California and Kansas City, Missouri. The Company expects that
similar regional retrofit centers will be established as needed to meet the
network installation requirements under new services agreements with energy
service providers, although a retrofit center can support more than one network
deployment. In addition, certain electric meter manufacturers are installing
CellNet meter radios on new meters as a part of their meter manufacturing
process.
The Company's reliance on third-party manufacturers involves a number of
additional risks, including the absence of guaranteed capacity and reduced
control over delivery schedules, quality assurance, production yields and costs.
The Company relies on sole and limited source vendors and subcontractors for
certain subassemblies and components which involves certain risks, including the
possibility of shortages and reduced control over delivery schedules,
manufacturing capability, quality and cost. See "Risk Factors--Dependence on
Third-Party Manufacturers; Exposure to Component Shortages."
SYSTEM DEPLOYMENT AND OPERATION
For each of its network deployments, the Company provides full
implementation services to its clients, including system design, site selection,
frequency licensing, equipment installation, software modification, systems
integration and project management.
The modular design of the CellNet system and the efficient size of its
components facilitate inexpensive deployment of scaleable networks. Most of the
system components have been designed to fit on utility power poles or, where
necessary, on buildings or other structures. The majority of the network is
simply "plugged in" as the newly retrofitted meters replace existing meters.
Endpoint radio devices are installed on gas meters without interruption in
service by affixing the device (containing a radio, a long-life battery and new
register dials) at the meter register. The MCCs take typically less than two
hours each to install and the CellMasters less than a week to install, providing
a network which can be deployed swiftly and efficiently. The system is also
scalable because of its cellular design, thereby allowing adequate coverage
regardless of the size of the service area.
Field engineering teams are responsible for the installation and deployment
of all of the Company's networks. Once a services contract has been signed,
CellNet places a local project manager in charge of the installation. The
project manager hires local personnel, coordinates activities with various
departments within the utility, and draws on CellNet's corporate staff to
perform specialized services. CellNet's corporate staff is responsible for RF
network design, system software installation and integration, training of local
systems administration personnel, FCC licensing requirements, and remote systems
monitoring.
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CellNet's local personnel are responsible for RF engineering and site testing,
site selection, routine software administration and maintenance, selection and
training of subcontractors, coordination of meter retrofitting, materials
handling, and office administration. During the two to four-year installation
phase of each project, local personnel for the project employed by CellNet
typically number from twenty to fifty people (for deployments the size of KCPL
and UE), depending on the size and anticipated speed of each deployment. Meter
changeout and system equipment installations are generally carried out by
subcontractors and certain other system deployment tasks may be subcontracted
from time to time as well.
Following system deployment, a system management team of typically ten to
twenty CellNet personnel (for deployments the size of KCPL and UE) will remain
on site for the duration of the contract to handle day-to-day operations and
routine customer requests. This group will be supported by CellNet's
headquarters or regional offices, if any, that will provide 24-hour
troubleshooting support as well as additional technical expertise that can be
quickly dispatched if needed.
The Company also intends to provide substantial customer support, including
on-going field support and critical centralized network support functions
through regional network control centers. Currently, the Company is providing
sophisticated network monitoring from its headquarters in San Carlos,
California.
CURRENT UTILITY SERVICES AGREEMENTS
KANSAS CITY POWER & LIGHT COMPANY. In August 1994, CellNet entered into a
Utility Services Agreement with KCPL (the "KCPL Services Agreement") for the
provision of NMR and other data communications services over a network to be
built, installed and operated by CellNet. KCPL is paying CellNet for certain
installation costs based upon the number of meters retrofitted and installed and
monthly service fees based on the number of meters and RTUs in service being
used to bill customers. The KCPL Services Agreement presently covers
approximately 420,000 meters within KCPL's service territory of which
approximately 378,000 are installed and approximately 37,000 are expected to be
added to the network in the second half of 1997 and in 1998. The Company is in
the process of reviewing with KCPL the remaining meters (approximately 5,000)
under contract with KCPL in order to determine which of those meters should be
automated or read manually. CellNet is obligated to provide certain NMR
services, including basic meter reading, time-of-use, demand, connect/disconnect
(move in/move out), load profile and real-time reading, as well as outage and
tampering notification and certain other distribution automation services.
CellNet retains ownership of its network system and all related equipment. KCPL
retains ownership of its meters, RTUs and all metering and other data collected
from KCPL's equipment. Upon the third anniversary following complete deployment
of the system, KCPL will have the option to purchase from CellNet the radio
transmitters and transceivers attached to KCPL's meters and RTUs at prices
intended to allow CellNet to fully recover its then unamortized endpoint costs
(meter and RTU radio device), based upon agreed prices for such equipment.
The term of the KCPL Services Agreement is 20 years. KCPL has the right to
terminate the KCPL Services Agreement on its eighth, eleventh, fourteenth and
seventeenth anniversary, subject to six-months' prior written notice and to the
making of specified termination payments intended to allow CellNet to recover
its then unamortized endpoint costs (meter and radio RTU device), based upon
agreed prices for such equipment. KCPL can also terminate the KCPL Services
Agreement for cause in the event of a material and continuing failure on
CellNet's part to meet agreed NMR performance standards on a consistent basis
over agreed time periods, subject to certain rights to cure any such failure.
CellNet is entitled to install and operate its network equipment on KCPL's
property under joint use arrangements. The cost of obtaining any necessary third
party installation sites will be shared equally by the parties. CellNet may use
the network to provide services to third parties both during and after the term
of the KCPL Services Agreement.
UNION ELECTRIC COMPANY. In August 1995, CellNet entered into a Utility
Services Agreement with UE (the "UE Services Agreement") for the provision of
data communications services over the Company's
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network for all electric meters within defined limits of UE's service area in
the city of St. Louis and certain surrounding counties. UE is paying CellNet for
certain installation costs and monthly service fees based on the number of
installed meters and RTUs. The UE Services Agreement now covers approximately
800,000 electric meters within such territory. CellNet is obligated to provide
certain NMR services, including basic meter reading, demand, load profile,
connect/disconnect, time-of-use and real-time reading, as well as outage and
other notification services. During the term of the UE Services Agreement, UE
has the option to acquire certain gas NMR services from CellNet and receive an
expanded scope of electric NMR services. CellNet retains ownership of its
network system and all related equipment. UE retains ownership of its meters,
RTUs and all metering and other data collected from UE's equipment.
CellNet is entitled to install its network equipment on UE's property
without cost provided the use of such sites is exclusively for the provision of
services to UE. The cost of obtaining any necessary third party sites will be
shared equally by the parties. CellNet may use the network to provide services
to third parties for a period of 30 years subject to the payment to UE of
reasonable rental rates. The term of the UE Services Agreement is 20 years with
an option on UE's part to extend it for two additional periods of five years
each on substantially similar terms. UE has the right to terminate the UE
Services Agreement on its seventh, twelfth and seventeenth anniversary subject
to six-months' prior written notice and to the making of specified termination
payments intended to allow CellNet to recover its then unamortized endpoint
costs (meter and radio RTU devices) based upon agreed prices for such equipment.
UE can also terminate the UE Services Agreement for cause in the event of a
material and continuing failure on CellNet's part to meet agreed NMR performance
standards on a consistent basis over agreed time periods, subject to certain
rights to cure any such failure.
NORTHERN STATES POWER COMPANY. In August 1996, CellNet entered into the NSP
Services Agreement with NSP for the provision of data communications services
over a network to be built, installed and operated by CellNet. NSP will pay
CellNet a monthly service fee based on the number of meters and RTUs in service
then being used to bill customers. The NSP Services Agreement covers
approximately 1.0 million gas and electric meters within NSP's service territory
located in the Minneapolis-St. Paul metropolitan area. CellNet is obligated to
provide certain automated meter reading services, including basic meter reading,
time-of-use, demand, connect/disconnect (move in/move out), load profile and
real-time reading, as well as outage and tampering notification and certain
other distribution automation services. CellNet retains ownership of its network
system and all related equipment. NSP retains ownership of its RTUs, meters and
all metering and other data collected from NSP's equipment.
The term of the NSP Services Agreement is 15 years, with a five year option
to extend, exercisable by NSP. The NSP Services Agreement provides NSP with
certain rights to terminate the NSP Services Agreement prior to commercial
operation of the network and system (I.E. full deployment) if certain specific
conditions are not met, such as approval of the NSP Services Agreement by
governmental authorities to the extent such approval is required. In addition,
either party has the right to terminate the NSP Services Agreement upon the
occurrence of continuing events of default or if a governmental authority causes
the NSP Services Agreement to be rescinded. In addition, upon the failure of
either party to meet certain obligations, such as delays in installation or
integration schedules thereunder, such party must pay penalty fees to the other
party.
CellNet is entitled to install and operate its network equipment on NSP's
property, so long as it pays to NSP market-based rates for such rights. CellNet
bears the cost of obtaining any necessary third party installation sites.
PACIFIC GAS & ELECTRIC COMPANY. In October 1996, the Company entered into a
Master Agreement for Automated Meter Reading with PG&E and a Contract Work
Authorization issued thereunder (collectively, the "PG&E Services Agreement")
for the provision of electric and gas meter reading services initially to cover
approximately 100,000 PG&E meters in the San Francisco Bay Area. Upon the
installation of approximately 23,000 meters, PG&E acknowledged that the data
collection, cost savings,
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customer service and other objectives of the Company's demonstration network had
been met and agreed with the Company to build out the network to approximately
30,000 meters. Under the PG&E Services Agreement, the Company, using PG&E
frequencies, will provide basic electric and gas consumption meter reading
services as well as demand, time-of-use and load profile electric meter reading
services for a period of 10 years, with an option on PG&E's part to extend it
for two additional periods of five years each. In return, CellNet will receive
monthly service fees based upon the services provided. CellNet retains ownership
of its network system and all of its related equipment. PG&E retains ownership
of its meters and all metering data collected. PG&E is responsible for
retrofitting all electric and gas meters, with the option to require CellNet to
retrofit electric meters for an agreed fee.
CellNet is entitled to install its network equipment on PG&E's property,
subject to the payment of certain agreed fees. The network is intended for
PG&E's exclusive use and may not be used for the provision of services to third
parties without PG&E's consent. PG&E has the right to terminate the PG&E
Services Agreement at any time subject to the making of specified termination
payments intended to allow CellNet to recover its then unamortized network
equipment costs based upon agreed prices for such equipment. PG&E also has the
right to terminate the PG&E Services Agreement for cause, including a failure of
the Company to meet specified network installation schedules and agreed system
acceptance, economic and performance criteria, and under certain other limited
circumstances, without making any termination payments.
PUGET SOUND ENERGY, INC. In August 1996, CellNet entered into a letter of
intent (the "Puget Letter of Intent") and the Puget Initial Services Agreement
with ConnexT, a subsidiary of Puget for the provision of NMR and other data
services over a network to be operated by CellNet. The Puget Letter of Intent
provides that the parties will enter into good faith negotiations with respect
to a Services Agreement which would succeed the Puget Initial Services
Agreement.
The Puget Initial Services Agreement covers approximately 15,000 meters
within Puget's service territory. The Company seeks a long term services
agreement for additional electric and gas meters within Puget's service
territory. The term of the Puget Initial Services Agreement continues until 60
days after an evaluation period following installation and testing of the
network. CellNet is obligated to provide certain NMR services and to retrofit
certain quantities of electric and gas meters supplied by ConnexT. ConnexT has
agreed to arrange for Puget to undertake installation of retrofitted meters,
MCCs, CellMasters and other network related components in the agreed service
territory. CellNet will establish communication links and perform certain other
work necessary to complete installation. ConnexT is paying CellNet monthly
services fees based on the number of meters in service then being used to bill
customers. CellNet retains ownership of its network system, all related
equipment and radio meter modules. ConnexT retains ownership of its meters and
certain other equipment. Under the terms of the Puget Initial Services
Agreement, ConnexT may elect to continue using NMR services from CellNet for a
period of not less than five years, or may discontinue the arrangement upon
making a specified termination payment intended to allow CellNet to recover
certain of its invested costs.
INDIANAPOLIS POWER & LIGHT COMPANY. In September 1997, CellNet entered into
a Utility Services Agreement with IP&L for the provision of data communications
services over a network to be built, installed and operated by CellNet. IP&L
will pay CellNet monthly service fees based on the number of installed meters.
The IP&L Services Agreement covers approximately 415,000 electric meters within
IP&L's service territory located in the Indianapolis metropolitan area. CellNet
is obligated to provide certain automated meter reading services, including
basic meter reading, time-of-use, demand, connect/ disconnect (move in/move
out), load profile and real-time reading, as well as outage and tampering
notification. CellNet retains ownership of its network system and all related
equipment. IP&L retains ownership of its meters and all metering and other data
collected from IP&L's equipment.
CellNet is entitled to install its network equipment on IP&L's property
without cost provided the use of such sites is exclusively for the provision of
services to IP&L. The cost of obtaining any necessary third
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party sites will be shared equally by the parties. CellNet may use the network
to provide services to third parties, subject to the payment to IP&L of
reasonable and nondiscriminatory rental rates for IP&L property on which network
equipment is located and subject to certain restrictions for meter reading
services within and around IP&L's service territory. The term of the IP&L
Services Agreement is 20 years, with an option to extend for two additional
terms of four years, exercisable by IP&L, with pricing for services to be agreed
upon by the parties.
The IP&L Services Agreement provides IP&L with certain rights to terminate
the IP&L Services Agreement. IP&L may terminate the IP&L Services Agreement
immediately following the initial installation testing period without cause by
paying a fee to CellNet. IP&L has the right to terminate the IP&L Services
Agreement on each anniversary after the first operations date (i.e., complete
installation of the system) by providing six-months' prior written notice and
paying specified termination amounts to allow CellNet to recover its then
unamortized endpoint costs (meter devices) based upon agreed prices for such
equipment. IP&L may also terminate the IP&L Services Agreement if it has
received an offer from a third party to provide meter reading services similar
or superior to CellNet's at substantially similar or lower prices. IP&L may
exercise this right no more frequently than once every five years and no earlier
than seven years after the anniversary of the IP&L Services Agreement by giving
notice and paying a termination fee to CellNet. Finally, IP&L can terminate the
IP&L Services Agreement for cause in the event of a material continuing failure
by CellNet to meet agreed automated meter reading performance standards on a
consistent basis over agreed time periods, subject to certain rights to cure any
such failure or upon a finding by a court that the system equipment infringes a
valid patent and the use of the system equipment is enjoined.
SALES AND MARKETING
The Company has organized its sales and marketing efforts based on utility
and non-utility network applications. For its utility segment, the Company's
initial target market includes the 60 largest MSAs in the United States which
represent a large majority of the meters in the United States. The Company is
also pursuing selected utilities outside the top 60 MSAs. Given the strategic
nature of the Company's utility products, sales cycles typically extend up to 18
months or more and involve the solicitation, consultation and approval of
decision makers across key divisions within each potential utility customer. See
"Risk Factors--Dependence on and Uncertainty of Market Acceptance." The Company
has a sales and marketing organization of 44 persons, including six dedicated
sales and five customer service representatives with a mix of utility and
information technology sales backgrounds, several of whom have extensive
experience in the electric utility industry. Regional sales professionals are
supported by corporate specialists in the areas of metering, systems
integration, and deployment.
The Company intends to concentrate its marketing efforts for non-utility
applications on industry-leading providers of products and services that would
benefit from the Company's low-cost wireless network. The Company is working
with leading manufacturers and applications developers to promote and develop
products and services that utilize the Company's networks. See "--Business
Strategy--Promote Development of Non-Utility Applications." The Company expects
that the manufacturers and developers of such products and services would market
such products and services to end users.
The Company has established a team of market managers for the development of
new business opportunities. This team develops business concepts that are
enabled by CellNet's services, pursues market research to validate these
concepts and identifies potential alliances that will be required to create the
products and services. This team is composed of individuals with backgrounds in
cellular and wireless marketing, product management and consumer products. The
Company intends to seek local joint venture partners to pursue international
markets through the Joint Venture with BEn.
CellNet's sales approach addresses an energy service provider's need to
prepare for the future competitive environment by reducing costs, meeting
present and future regulatory requirements and enhancing customer service.
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PROPRIETARY RIGHTS
CellNet relies on a combination of trade secret protection, copyrights,
patents, trademarks and confidentiality and licensing agreements to establish
and protect its proprietary rights.
CellNet's WAN radio system has been developed using advanced digital signal
processing techniques and an RF system architecture that enables CellNet to
create a complete digital cellular system in approximately a single 25 kHz voice
channel. This technology is based on narrowband modulation and compression of
many subchannels into a single channel. Extremely stable frequency control is
required to preserve system performance. CellNet's system of frequency control
is the subject of several issued patents claims. In addition, the efficiency of
the frequency protocol utilized by the CellMaster is determined in part by its
ability to recover short burst transmissions from an RTU or MCC. The
CellMaster's burst data recovery process is also the subject of an issued
patents claim.
The spread spectrum radio technology utilized in the CellNet LAN has been
licensed to CellNet by Axonn Corporation and an affiliate of Axonn (together,
"Axonn"). The Axonn spread spectrum technology, which is subject to a number of
patents, is a low-cost radio system which offers the price/performance
relationships that the Company believes are required for a commercially-feasible
telemetry network. Under its licenses from Axonn, CellNet has acquired an
exclusive right to use Axonn spread spectrum technology in the utility
distribution and service market and an exclusive right to provide services for
other applications outside the utility market through the CellNet system
architecture. CellNet's right to provide fire and security applications based
upon Axonn's technology is not exclusive under these licenses. The Axonn
licenses do not expire by their terms until the last to expire of any of the
patent rights underlying such licenses which will occur not earlier than March
21, 2014. Up to that time, as each patent licensed under the Axonn licenses
expires, the technology underlying such patent will become freely available in
the public domain. In an action filed by an affiliate of Axonn against Cargill,
Inc. and other defendants in the U.S. District Court for the Northern District
of California for, among other matters, alleged infringement of certain patents
underlying Axonn's spread spectrum technology, the court on August 8, 1997
granted the Cargill defendants' motion for summary adjudication holding that
such patents were invalid and unenforceable because they had expired for failure
to pay the required amount of maintenance and issue fees. The Axonn affiliate is
appealing the decision. While such patents are included in CellNet's license of
the Axonn spread spectrum technology, the Company does not believe the
expiration of these patents will have a material adverse impact on the Company's
business, operating results, financial condition and cash flow.
CellNet has developed a proprietary, patent-pending approach to transmitting
metering information which allows the LAN to accumulate time of use, demand and
load profile data. CellNet's protocols and data transmission methods are
incorporated in its proprietary firmware. During the development and test
deployments of the CellNet WAN and LAN radio systems, the Company has
accumulated substantial information regarding cellular and microcellular radio
systems. This information is being used to develop modeling and planning tools
which assist CellNet in the deployment and operation of complex RF systems.
The Company's success will depend in part on its ability to maintain
copyright and patent protection for its products, to preserve its trade secrets
and to operate without infringing the proprietary rights of third parties. See
"Risk Factors--Uncertainty of Protection of Copyrights, Patents and Proprietary
Rights."
RESEARCH AND DEVELOPMENT
The Company has steadily increased its research and development efforts over
the past several years and expects to continue to spend a significant portion of
its resources on these activities for the foreseeable future. The Company spent
$9.1 million, $20.9 million and $25.4 million for research and development in
1994, 1995 and 1996, respectively. For the six months ended June 30, 1997, the
Company spent $13.0 million for research and development. The Company presently
employs more than 100 software and hardware engineers and other professional
staff in these efforts and contracts with a number of highly-specialized
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outside consultants for additional services as required. The focus of the
Company's research and development efforts in the past has been on the continued
development of the radio hardware, spread spectrum radio protocols, intelligent
base stations (CellMasters and MCCs), extensive software code, database capacity
and other elements required for a flexible, high-capacity wireless data
communications network capable of processing data from several million endpoints
on a real-time basis at a low cost. The Company expects that the focus of future
research and development will be to make further enhancements to the system
software, firmware, hardware and other equipment to increase the speed, capacity
and functionality of the system, to lower the cost of system equipment over time
and, working with other companies, to expand the scope of utility and
non-utility services that may be offered on the system. The Company's future
success will depend, in part, on the Company's success in these development
projects which will require continued substantial investments. See "Risk
Factors--Technological Performance and Buildout of the System; Rapid
Technological Change and Uncertainty."
As part of the Company's research and development efforts, the Company has
worked closely with current and potential customers in conducting pilot trials
for non-utility applications and jointly developing system specifications and
requirements.
COMPETITION
The emerging market for utility NMR systems, the deregulation of the
electric utility industry and the potential market for other applications
accessible once a common infrastructure is in place, have led electronics,
communications and utility product companies to begin development of various
systems, some of which currently compete, and others of which may in the future
compete, with the CellNet system. Deregulation will likely cause competition to
increase. The Company believes its only significant direct competitor in the
marketplace at the present time is Itron, an established manufacturer and seller
of hand-held and drive-by AMR equipment to utilities. Itron is currently
providing to customers its Genesis-TM- system, a radio network similar to the
Company's, for meter reading purposes.
SkyTel, a subsidiary of Mtel, and Motorola are examples of companies whose
technology might be adapted for NMR and who may become direct competitors of the
Company in the future. Whisper Communications (formerly, a part of Diablo
Research) now offers its True 2 Way-TM- fixed-based RF architecture
communications technology for AMR and other services, and has several trials
underway. Metricom, a provider primarily of subscriber-based, wireless data
communications for users of portable and desktop computers, is currently
involved in the AMR market through trials with Whisper Communications.
Schlumberger and Greenland are among the companies that have conducted, or are
in the process of conducting, pilot trials of utility network automation
systems. Several companies are offering telephone-based network automated meter
reading services or equipment. Among these are International Teldata and
American Innovations. Established suppliers of equipment, services and
technology to the utility industry such as Asea Brown Boveri and General
Electric could expand their current product and service offerings in the
marketplace so as to compete directly with the Company, although they have not
yet done so. Many of the Company's present and potential future competitors have
significantly greater financial, marketing, technical and manufacturing
resources, name recognition and experience than the Company. There may be many
potential alternative solutions to the Company's NMR services. The Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or devote greater resources to the
development, promotion and sale of their products and services than the Company.
While CellNet believes its technology is widely regarded as competitive at the
present time, there can be no assurance that the Company's competitors will not
succeed in developing products or technologies that are better or more cost
effective. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing their ability to address the needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. In addition, if the Company achieves
significant success it could draw additional competitors into the market.
Traditional providers of wireless
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services may in the future choose to enter the Company's markets. However, such
telecommunications applications are not well suited for use in NMR or similar
applications given certain technical challenges and economic costs such as high
embedded spectrum costs. Such existing and future competition could materially
adversely affect the pricing for the Company's services and the Company's
ability to sign services contracts and maintain existing agreements. Competition
for services relating to non-utility applications may be more intense than
competition for utility NMR services, and additional competitors may emerge as
the Company continues to develop non-utility applications. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, and any failure to do so would have a material adverse
effect on the Company's business, operating results, financial condition and
cash flow.
The Company believes the principal competitive factors for NMR services
include price, quality of service, system functionality and capacity for
readings as frequently as every 30 minutes, reliability, and ease of
installation. The Company believes it competes favorably in these areas. In
particular, the Company believes that it has developed the first commercially
deployed, large-scale network-based NMR system capable of simultaneously
collecting, processing, transporting and sharing data from millions of endpoints
on an efficient and timely basis.
SPECTRUM REGULATION
The Company's network equipment uses radio spectrum and as such, is subject
to regulation by the FCC. The Company's network equipment uses both licensed
radio spectrum allocated for MAS operations in the 928/952 MHz band, and
unlicensed spectrum in the 902-928 MHz band. In order to obtain a license to
operate the Company's network equipment in the 928/952 MHz band, license
applicants may need to obtain a waiver of various sections of the FCC's rules.
There can be no assurance that the Company will be able to obtain such waivers
on a timely basis or to obtain them at all. In addition, as the amount of
spectrum in the 928/952 MHz band is limited, issuance of these licenses is
contingent upon the availability of spectrum in the area(s) for which the
licenses are requested. The Company might not be able to obtain licenses to the
spectrum it needs in every area in which it has prospective customers. The FCC's
current rules, subject to a number of limited exceptions, permit third parties
such as CellNet to operate on spectrum licensed to utilities to provide other
services. The Company plans to use these provisions of the FCC's rules to expand
its CellNet system. The FCC has the authority to amend its rules at any time and
such changes could have a material adverse effect on the Company's spectrum
utilization strategy. See "Risk Factors--Access to RF Spectrum; Regulation by
the FCC."
EMPLOYEES
As of June 30, 1997, CellNet had 599 employees, including 120 in product
development, 269 in materials and manufacturing, 44 in sales and marketing, 131
in field service and support, and 35 in administration. None of the Company's
employees is currently represented by a labor union. The Company believes that
its relationship with its employees is good.
PROPERTIES
The Company's administrative, sales and marketing, product development and
production facilities are located in San Carlos, California, where the Company
leases approximately 104,000 square feet in three buildings under lease and
sublease agreements expiring as to portions of the space at various times
commencing February 1998 through December 2000. A Subsidiary of the Company
leases approximately 30,000 square feet of factory and warehouse space in Kansas
City, Missouri where meter retrofit operations are carried out. The Company
anticipates that it will be able to acquire additional space as required for its
operations on acceptable terms.
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LEGAL PROCEEDINGS
Although the Company has been granted federal registration of its "CellNet"
trademark, in January 1995, Century Telephone Enterprises, Inc. ("Century
Telephone") filed a petition for cancellation in an attempt to challenge such
registration. The matter is currently pending before the Trademark Trial and
Appeal Board of the U.S. Patent and Trademark Office. CellNet and Century
Telephone are the sole parties in the action. If such challenge were successful,
the Company could lose its registration and could be required to adopt a new
trademark and possibly a new or modified corporate name. CellNet could encounter
similar challenges in the future. See "Risk Factors--Uncertainty of Protection
of Copyrights, Patents and Proprietary Rights."
In October 1996, Itron, one of the Company's competitors, filed a complaint
against the Company in the Federal District Court in Minnesota alleging that the
Company infringes an Itron patent which was issued in September 1996. Itron is
seeking a judgment for damages, attorneys fees and injunctive relief. The
Company believes, based on its current information, that the Company's products
do not infringe any valid claim in the Itron patent, and in the Company's
opinion, the ultimate outcome of the lawsuit is not expected to have a material
adverse effect on the Company's business, operating results, financial condition
and cash flow.
On October 31, 1996, a complaint, SETTLE V. SEIDL, ET AL. No. 398464, was
filed in the Superior Court of California for the County of San Mateo against
the Company, certain of its officers and directors and underwriters of the
Company's Initial Public Offering. The complaint, which is a purported class
action filed on behalf of those purchasing the Company's stock from the period
beginning on September 26, 1996 and ending on October 31, 1996, seeks
unspecified damages and rescission for alleged liability under various
provisions of the federal securities laws and California state law. Plaintiff
alleges that the Prospectus and Registration Statement dated September 26, 1996,
pursuant to which the Company issued 5,000,000 shares of Common Stock to the
public, contained materially misleading statements and/or omissions in that
defendants were obligated to disclose, but failed to disclose, that a patent
conflict with Itron, Inc. was likely to ensue. On November 8 and 13, 1996, two
additional complaints, KAREN ZULLY V. CELLNET DATA SYSTEMS, INC. ET AL. No.
398551 and HOWARD FIENMAN AND GERALD SAPSOWITZ V. CELLNET DATA SYSTEMS, INC. ET
AL. No. 398560, were filed in the Superior Court of California for the County of
San Mateo. These cases are essentially similar in nature to the SETTLE case. The
Court has ordered consolidation of the SETTLE and ZULLY actions. The Company
expects that the FIENMAN action will be consolidated with the SETTLE and ZULLY
actions before trial. The Company believes that the allegations in these
complaints are without merit and intends to defend these actions vigorously. The
Company has filed demurrers seeking dismissal of these complaints. The motions
are currently under submission before the Special Master assigned by the Court
to hear certain pre-trial matters. In the Company's opinion, the ultimate
outcome of these lawsuits is not expected to have a material adverse effect on
the Company's business, operating results, financial condition and cash flow.
In April 1997, the Company filed a patent infringement suit against Itron in
the Federal District Court for the Northern District of California, claiming
that Itron's use of its electronic meter reading Encoder Receiver Transmitter
(ERT-Registered Trademark-) device infringes CellNet's U.S. Patent No.
4,783,623. The Company seeks an injunction, damages and other relief.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company as of June 30, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------
<S> <C> <C>
John M. Seidl................. 58 President, Chief Executive Officer and Director
Cree A. Edwards............... 40 Vice President, Business Development
Robert A. Hayes............... 45 Vice President, Development and Operations
James J. Jennings............. 50 Vice President, Sales and Marketing
Larsh M. Johnson.............. 39 Vice President and Chief Technology Officer
Paul G. Manca................. 38 Vice President and Chief Financial Officer
Philip H. Mallory............. 57 Vice President and General Manager, Services
David L. Perry................ 56 Vice President, General Counsel, Secretary and
Chief Administrative Officer
Paul M. Cook.................. 73 Chairman of the Board
E. Linn Draper, Jr.(1)........ 55 Director
Neal M. Douglas(1)(2)......... 38 Director
William C. Edwards(2)......... 68 Director
William Hart(2)............... 57 Director
Henry B. Sargent(1)........... 63 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
JOHN M. SEIDL became President, Chief Executive Officer and a director of
the Company in September 1994. From December 1992 to September 1994, Mr. Seidl
served as a director of St. Mary's Land & Exploration Company, CRSS, Inc., J.B.
Poindexter, Inc. and a privately-held company. From January 1989 through
December 1992, Mr. Seidl served as a director of MAXXAM, Inc., an aluminum,
forest products and real estate concern, and Chairman and Chief Executive
Officer of Kaiser Aluminum Corporation. From September 1990 through December
1992, Mr. Seidl also served as President of MAXXAM, Inc. Previously, Mr. Seidl
was Executive Vice President, from July 1985 to May 1986, and President and
Chief Operating Officer, from May 1986 to January 1989, of Enron Corp., an
energy company. Mr. Seidl currently is a director of St. Mary's Land &
Exploration Company and several privately-held companies and non-profit
organizations. He received a B.S. degree in Engineering from the United States
Military Academy, and M.P.A. and Ph.D. degrees in Political Economy from Harvard
University.
CREE A. EDWARDS is a co-founder of the Company, served as Vice President,
Business Development from January 1994 to January 1997 and has served as Vice
President, Marketing since that time. Mr. Edwards was President of the Company
from October 1984 to February 1990 and Executive Vice President of the Company
from February 1990 to January 1994. Prior to founding CellNet in 1984, Mr.
Edwards was an Area Sales Manager for Octel Communications Corporation, a voice
processing manufacturer, from September 1984 to September 1985, and a Major
Accounts Manager for the General Electric Information Services Company from
March 1983 to September 1984. He received a B.A. degree in Economics from the
University of California at Davis.
ROBERT A. HAYES joined the Company in January 1993 as Vice President,
Special Assistant to the President. He became Vice President, Software
Development in March 1994 and was named Vice President, Development in January
1995 and Vice President, Development and Operations in April 1997. From February
1991 to December 1992, Mr. Hayes held a number of positions with Everex Systems,
Inc., a computer hardware manufacturer, including Vice President of
Manufacturing, Vice President of Quality
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and Service, Manager of the Network Division and Group Manager of Service. Mr.
Hayes received B.S. and M.C.E. degrees in Civil Engineering from Rice
University.
JAMES J. JENNINGS joined the Company in August 1994 and has served as Vice
President, Sales and Marketing since that time. From April 1988 until July 1994,
Mr. Jennings was a Vice President of Octel Communications Corporation, a voice
processing manufacturer, where he served in a variety of domestic and
international sales, marketing and business development capacities. Mr. Jennings
served as an officer in the United States Army from 1968 to 1975. Mr. Jennings
holds a B.S. degree in Engineering from the United States Military Academy and
an M.B.A. degree from the University of San Francisco.
LARSH M. JOHNSON is a co-founder of the Company and has served in several
vice presidential positions from October 1984 to December 1994 and, since
January 1995, as Vice President and Chief Technology Officer. While at CellNet
and prior to co-founding the Company in 1984, he was a self-employed product
design consultant from May 1983 to June 1985 and Director of Product Development
at Interactive Communications Corporation, a video systems company, from
February 1984 to June 1985. Mr. Johnson was an Engineering Manager at Digital
Optics Corporation, a company specializing in electro-optical systems, from
March 1981 to April 1983 and an electrical engineer at Systems Control
Corporation, a computer hardware company, from June 1980 to April 1981. He
received B.S. and M.S. degrees in Mechanical Engineering from Stanford
University.
PAUL G. MANCA joined the Company in May 1995 as Vice President and Chief
Financial Officer. From March 1993 to May 1995, he was the Managing Director and
Group Head of the Communications Group at BZW/Barclays Bank. Mr. Manca joined
BZW/Barclays Bank as Vice President, Merchant Banking Division in February 1987.
From June 1980 to February 1987, Mr. Manca was employed in the corporate finance
group of the Canadian Imperial Bank of Commerce. He received a B.A. degree in
Economics from the University of California, Berkeley and an M.B.A. degree in
Finance from Golden Gate University.
PHILIP H. MALLORY joined the Company in January 1995 as Vice President and
General Manager, Services. From June 1996 until April 1997, he assumed the
additional duties of Vice President, Operations. From June 1992 to January 1995,
Mr. Mallory held various positions at CAE-Link Corporation, a defense
contractor, including Director of Strategic Planning, Director--Product
Management and Director-- Department of Defense Marketing. Mr. Mallory served as
a career officer in the United States Army from June 1961 to August 1991,
attaining the rank of Major General prior to his retirement. During his army
career he held a number of posts, including Commanding General of the 2nd
Armored Division, NATO Advisor to the Secretary of Defense, and the Commanding
General of the 7th Army Training Command. Mr. Mallory received a B.S. degree in
Engineering from the United States Military Academy and an M.S. degree in
Engineering--Applied Science from the University of California, Davis. Mr.
Mallory also attended the Industrial College of the Armed Forces in Washington,
D.C., where he attained the equivalent of a master's degree in Resource
Management.
DAVID L. PERRY joined the Company in November 1994 as Vice President,
General Counsel and Secretary, and was appointed Chief Administrative Officer in
February 1996. From January 1992 through November 1994, Mr. Perry was engaged as
an attorney in private practice. From January 1984 through December 1991, Mr.
Perry was Vice President and General Counsel of Kaiser Aluminum Corporation.
From August 1969 through December 1983, Mr. Perry served in a variety of
capacities in Kaiser Aluminum's Law Department. Mr. Perry received a B.A. degree
from Amherst College and a J.D. degree from the Boalt Hall School of Law,
University of California, Berkeley.
PAUL M. COOK has been a director of the Company continuously since August
1990. Mr. Cook became Chief Executive Officer of the Company in August 1990, and
assumed the additional title of President in 1992. He relinquished the positions
of President and Chief Executive Officer in September 1994. Since June 1995, Mr.
Cook has been the Chief Executive Officer and Chairman of the Board of DIVA
Systems Corp., a company developing video-on-demand products. Until his
retirement in April 1990, Mr. Cook was Chief Executive Officer of Raychem
Corporation, a plastics and insulation manufacturer, which he
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founded in 1957. Since September 1994, Mr. Cook has served as Chairman of the
Board of SRI International, Inc., and as a director of Raychem Corporation.
Currently, Mr. Cook is also a director of Chemfab Corporation. He received a
B.S. degree from the Massachusetts Institute of Technology.
NEAL M. DOUGLAS has been a director of the Company since October 1993. Since
January 1993 he has been a general partner of AT&T Ventures Company, L.P. ("AT&T
Ventures"), a venture capital firm. From May 1989 to January 1993, he was a
partner of New Enterprise Associates, another venture capital firm. Mr. Douglas
also serves as a director of two privately held companies.
E. LINN DRAPER, JR. has been a director of the Company since April 1997.
Since May 1993, he has been Chairman, President and Chief Executive Officer of
American Electric Power Company, Inc. ("AEP") and since March 1992, he has been
the President of AEP. Dr. Draper is also Chairman, President and Chief Executive
Officer of the American Electric Power Service Corporation, the management and
technology arm of the AEP system, President of Ohio Valley Electric Corporation
and its subsidiary, Indiana-Kentucky Electric Corporation and Chairman of the
Edison Electric Institute. From 1987 to 1992, Dr. Draper was Chairman, President
and Chief Executive Officer of Gulf States Utility Company. He is a member of
the National Academy of Engineering and serves as a director of Nuclear Energy
Institute, the Institute of Nuclear Power Operations, and the Greater Columbus
Chamber of Commerce.
WILLIAM C. EDWARDS has been a director of the Company from October 1985 to
April 1986 and has been a director continuously since March 1991. Since October
1968 he has been a general partner of Bryan & Edwards, an investment
partnership. Mr. Edwards also serves as a director of Western Atlas, Inc. and
two privately held companies.
WILLIAM HART has been a director of the Company since October 1992. He has
been a general partner of Technology Partners West Fund IV, L.P. ("Technology
Partners"), a venture capital firm, since its founding in 1979. Mr. Hart also
serves as a director of Trimble Navigation, Ltd., Silicon Gaming, Inc. and
several privately held corporations.
HENRY B. SARGENT has been a director of the Company since January 1996. Mr.
Sargent has been President, Chief Executive Officer and a director of El Dorado
Investment Company ("El Dorado"), a venture capital firm, for more than the past
five years. From May 1987 to June 1995, he was also Executive Vice President,
Chief Financial Officer and a director of Pinnacle West Capital Corp., an
electric utility holding company. Mr. Sargent also serves as a director of
Pinnacle West Capital Corp., Arizona Public Service Co., Megafood Stores, Inc.
and several privately held companies.
William C. Edwards is the father of Cree A. Edwards. There are no other
family relationships among the directors or executive officers of the Company.
BOARD OF DIRECTORS
The Company's Bylaws authorize a Board of Directors that can range in size
from six to eleven directors, with the number of directors presently set at ten.
All directors hold office until the next annual meeting of stockholders or until
their successors have been elected. Officers of the Company serve at the
discretion of the Board of Directors. Under the terms of the Shareholders'
Agreement among the Company and certain stockholders of the Company, so long as
certain parties to the Shareholders' Agreement continue to hold not less than
700,000 shares of Common Stock (as such number is adjusted for stock splits,
consolidations or other similar events), the Company is obligated to nominate
for election as directors the following persons: (i) one candidate selected by
H&Q, which position is currently vacant; (ii) one candidate selected by El
Dorado, currently Henry B. Sargent; (iii) Paul M. Cook; (iv) one candidate
selected by Banner Partners, currently William C. Edwards; (v) one candidate
selected by AT&T Ventures, currently Neal M. Douglas; (vi) one candidate
selected by Odyssey, which position is currently vacant; (vii) one candidate
selected by Providence Media Partners L.P., which position is currently vacant;
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(viii) one candidate selected by Kleiner, Perkins, Caufield & Byers, which
position is currently vacant; and (ix) the Chief Executive Officer of the
Company, currently John M. Seidl.
DIRECTORS' COMPENSATION
The Company has agreed to reimburse directors for expenses incurred in
attending board and committee meetings. The directors of the Company did not
receive any cash compensation for services provided as directors during fiscal
year 1996. The Company has granted Dr. Draper options for the purchase of up to
40,000 shares of the Company's Common Stock at $7.625 per share in partial
compensation for his services as a director. Options to purchase 10,000 of
shares vested immediately and the remaining 30,000 shares vest at the rate of
2,500 shares per quarter commencing July 24, 1998 such that all shares shall be
vested four years from date of grant, subject to his continuing service as a
director. The Company has also agreed to pay Dr. Draper a fee of $1,000 for each
meeting of the Board of Directors or committee thereof that he attends.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of three
non-employee directors, Mr. Edwards, Chairman, and Messrs. Douglas and Hart. The
Compensation Committee is primarily responsible for determining the salary and
benefits of the elected officers of the Company and for recommending stock
option grants for the Company's officers and other employees, subject to
approval by the Board of Directors. Mr. Edwards is the father of Cree A.
Edwards, an executive officer of the Company. No interlocking relationship
exists between the Company's Board of Directors or the Compensation Committee
and the Board of Directors or compensation committee of any other party, nor has
any such relationship existed in the past. Entities affiliated with Messrs.
Edwards, Douglas and Hart are stockholders of the Company and have entered into
financing arrangements with the Company from time to time. See "Certain
Transactions."
AUDIT COMMITTEE
The Audit Committee of the Board of Directors consists of three non-employee
directors, Mr. Douglas, Chairman, and Messrs. Draper and Sargent. The Audit
Committee reviews the nature, scope and results of the independent audit of the
Company, the Company's accounting principles and internal accounting controls
and other matters relating to the relationship of the independent auditors with
the Company.
70
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by CellNet during each
of the fiscal years ended December 31, 1995 and 1996, to the Chief Executive
Officer of CellNet and the four other most highly compensated executive officers
of CellNet during fiscal 1996 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------------------------------- STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARDS($) OPTIONS(#)
- -------------------------------------------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
John M. Seidl............................... 1996 $ 313,673 $ -- -- -- --
President and Chief Executive Officer 1995 300,000 135,000 -- -- --
James J. Jennings........................... 1996 180,062 75,000 -- -- --
Vice President, Sales and Marketing 1995 175,060 -- -- -- --
David L. Perry.............................. 1996 176,346 10,000 -- -- --
Vice President, General Counsel and 1995 135,000 -- -- -- --
Secretary
Paul G. Manca............................... 1996 175,501 10,000 -- -- --
Vice President and Chief Financial Officer 1995 110,173 -- -- -- --
Robert A. Hayes............................. 1996 176,346 -- -- -- --
Vice President, Development 1995 165,000 10,000 -- -- --
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION(1)
- -------------------------------------------- -----------------
<S> <C>
John M. Seidl............................... $ 1,522
President and Chief Executive Officer 1,846
James J. Jennings........................... 1,114
Vice President, Sales and Marketing 1,511
David L. Perry.............................. 1,101
Vice President, General Counsel and 1,261
Secretary
Paul G. Manca............................... 1,088
Vice President and Chief Financial Officer 862
Robert A. Hayes............................. 1,101
Vice President, Development 1,429
</TABLE>
- --------------------------
(1) Represents premium payments made by the Company for life insurance,
accidental death and dismemberment, and long-term disability policies.
OPTION GRANTS IN LAST YEAR. The following table sets forth each grant of
stock options during the fiscal year ended December 31, 1996 to the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL INDIVIDUAL GRANTS PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED TO ------------------------ FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN FISCAL EXERCISE EXPIRATION ---------------------
NAME GRANTED(1) YEAR PRICE DATE 5% 10%
- -------------------------------------- ----------- ------------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
John M. Seidl......................... -- -- $ -- -- $ -- $ --
James J. Jennings..................... 24,000 2.7 2.00 3/20/06 27,254 67,541
David L. Perry........................ 50,000 5.6 1.75 1/19/06 48,586 119,847
27,000 3.0 2.00 3/20/06 30,661 75,983
Paul G. Manca......................... 24,000 2.7 2.00 3/20/06 27,254 67,541
Robert A. Hayes....................... 25,000 2.8 2.00 3/20/06 28,390 70,355
</TABLE>
- ------------------------
(1) Options granted under CellNet's 1994 Stock Plan (as defined). The option
exercise price of all incentive stock options granted under the 1994 Plan is
equal to the fair market value of the shares of Common Stock on the date of
grant. The options have a term of ten years and vest at the rate of 10% of
the shares after six months from the date of grant and 5% of the shares
every three months thereafter; provided, that the optionee remains in
continuous status as an employee or consultant.
(2) Potential realizable value is based on the assumption that the Common Stock
of CellNet appreciates at the annual rate shown (compounded annually) from
the date of grant until the expiration of the option term. These numbers are
calculated based on the requirements promulgated by the SEC and do not
reflect CellNet's estimate of future stock price growth. The computation of
potential realizable value only includes the number of securities underlying
a grant at fiscal year end.
71
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES. The
following table provides information on option exercises in fiscal 1996 by the
Named Executive Officers and the value of such officers' unexercised options at
December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE(1) OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 12/31/96 AT 12/31/96
ACQUIRED ON VALUE(1) -------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- --------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John M. Seidl................... -- $ -- -- -- $ -- $ --
James J. Jennings............... -- -- 3,600 20,400 45,450 257,550
David L. Perry.................. 10,200 85,525 1,350 65,450 17,044 836,931
Paul G. Manca................... -- -- 3,600 20,400 45,450 257,550
Robert A. Hayes................. -- -- 152,750 102,250 2,196,719 1,428,156
</TABLE>
- ------------------------
(1) Market value of underlying securities at exercise or year-end 1996 as the
case may be, minus the exercise price, based on a closing price of $14.625.
INCENTIVE STOCK PLANS
1992 STOCK OPTION PLAN. The Company's 1992 Stock Option Plan (the "1992
Plan") was adopted by the Board of Directors and approved by the Company's
stockholders in September 1992. A total of 6,000,000 shares of Common Stock were
reserved for issuance under the 1992 Plan. As of June 30, 1997, 4,322,819 shares
of Common Stock had been issued upon exercise of stock options, and options to
purchase an aggregate of 1,417,518 shares were outstanding at a weighted average
exercise price of $0.2466 per share, of which 845,050 shares were vested. In
connection with the adoption of the 1994 Plan described below, the 1992 Plan
terminated and no additional options may be granted thereunder. Options
previously granted under the 1992 Plan will continue to be governed by the
provisions of such plan.
1994 STOCK PLAN. The Company's 1994 Stock Plan (the "1994 Plan") was
adopted by the Board of Directors in December 1994 and approved by the
stockholders in June 1995. Options granted under the 1994 Plan may be incentive
stock options, nonstatutory stock options or stock purchase rights. Employees
(including employee directors) and consultants (including non-employee
directors) are eligible for nonstatutory stock options and stock purchase
rights, and only employees are eligible for incentive stock options under the
1994 Plan. The 1994 Plan is administered by the Board of Directors or a
committee thereof. The plan administrator has the authority to determine the
fair market value of the shares, select the employees and consultants to whom
options and stock purchase rights may be granted, determine the number of shares
covered by each option and stock purchase right granted, and determine the term,
exercise price and vesting schedule of options granted under the 1994 Plan.
A total of 3,000,000 shares of Common Stock are reserved for issuance under
the 1994 Plan. As of June 30, 1997, 581,824 shares of Common Stock had been
issued upon exercise of stock options, options to purchase an aggregate of
1,529,689 shares were outstanding at a weighted average exercise price of
$3.1386 per share, of which 438,924 shares were vested, and 888,487 shares
remained available for future issuance under the 1994 Plan.
In the event of a merger of the Company with or into another corporation or
a sale of substantially all of the Company's assets, the 1992 Plan and the 1994
Plan each provides that options issued under such plans will be assumed, or an
equivalent option substituted, by the successor corporation. If the successor
corporation does not agree to such assumption or substitution, the option will
vest in full and become exercisable.
1996 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
July 1996 and was approved by the stockholders in September 1996. A total of
1,200,000 shares of Common Stock are reserved for issuance
72
<PAGE>
under the Purchase Plan. Under the Purchase Plan, the Company will withhold a
specified percentage of each salary payment to participating employees over
certain offering periods. Any employee who is then employed for at least 20
hours per week by the Company (or any majority-owned subsidiary designated by
the Board of Directors from time to time), and who does not own 5% or more of
the total combined voting power or value of all classes of the capital stock of
the Company or of any such subsidiary, is eligible to participate in the
Purchase Plan. Unless the Board of Directors shall determine otherwise, each
offering period will run for six months, from November 1 to April 30 and from
May 1 to October 31, except that the first offering period commenced on
September 26, 1996 and ended on April 30, 1997. The price at which Common Stock
may be purchased under the Purchase Plan is equal to 85% of the fair market
value of the Common Stock on the first or last day of the applicable offering
period, whichever is lower.
74,383 shares of Common Stock have been issued to employees under the
Purchase Plan as of June 30, 1997.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company entered into an employment agreement with Mr. Jennings in July
1994. The agreement provides for an annual base salary of $175,060 and certain
performance-based bonuses to be determined by the Company's President. As part
of the agreement, the Company granted to Mr. Jennings an option to purchase
180,000 shares of Common Stock at $.25 per share, with 10% vesting six months
from the date of hire and the remainder vesting at a rate of 5% per quarter. If
Mr. Jennings is terminated by the Company without cause at any time, he will
receive his annual base salary and benefits for an additional twelve months, and
40% of any unvested shares held by Mr. Jennings will become vested as of the
date of termination.
Each of the Named Executive Officers are parties to an Employee Severance
Agreement with the Company which provides for accelerated vesting of their
respective stock options and for the lapse of the Company's rights to repurchase
unvested stock under all restricted stock purchase agreements upon the
occurrence of certain events following a change of control of the Company. These
events will occur if: (i) the Named Executive Officer's stock option agreement
or restricted stock purchase agreement is terminated without such officer's
consent, or if the terms of such agreements are not assumed by any successor to
the Company; (ii) the Named Executive Officer does not receive identical
securities or consideration, upon such officer's exercise of options or
restricted stock purchases, as other shareholders are receiving as part of such
change of control; (iii) six months have elapsed following the change of
control, so long as the Named Executive Officer remains employed by the Company;
or (iv) the Named Executive Officer is terminated or constructively terminated
following the change of control.
There are no other employment contracts between CellNet and any of the Named
Executive Officers, and there are no other compensatory plans or arrangements
with respect to a Named Executive Officer which will result in payments upon
resignation, retirement, or any other termination of such executive officer's
employment or from a change of control of CellNet.
LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
The Company has adopted provisions in its Restated Certificate of
Incorporation that eliminate the personal liability of its directors for
monetary damages arising from breach of their fiduciary duties in certain
circumstances and authorize the Company to indemnify its directors and officers,
in each case to the fullest extent permitted by Delaware law. Such limitations
of liability do not apply to liabilities arising under the federal securities
laws and do not affect the availability of equitable remedies such as injunctive
relief or rescission.
The Company's Bylaws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by Delaware law, including under
circumstances in which indemnification is otherwise discretionary under Delaware
law. The Company has entered into indemnification agreements
73
<PAGE>
providing for the foregoing with its directors and executive officers. These
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors and to advance
their expenses (including expenses of counsel) incurred as a result of any
proceeding against them as to which they could be indemnified.
BONUS PLAN
The Board of Directors of the Company adopted a formal Bonus Plan in August
1997 (the "Bonus Plan"). Under the Bonus Plan, the Compensation Committee of the
Board of Directors (the "Committee") establishes a bonus "Pool" for each fiscal
year "Performance Period" and makes bonus "Target Awards" to "Participants"
selected by the Chief Executive Officer from among regular full- time exempt
employees of the Company and its wholly-owned Subsidiaries. The Committee also
establishes performance measures for the Company (a "Company Performance Level")
and management establishes goals and objectives for each Participant (a
"Participant Performance Level"). Actual awards are determined on the basis of
the achievement of both Company Performance and Participant Performance Levels
with each given a relative weighting (which may be different for different
Participants) as determined by the Committee. Awards are payable in cash within
60 days after the end of a Performance Period. Provision is made for the
elimination or reduction of actual awards for Company performance below a
"Minimum Company Performance Level" and/or for unsatisfactory Participant
performance. The Bonus Plan applies to the current fiscal year and will continue
until terminated by the Committee. The Committee has broad authority to alter or
amend the Bonus Plan, to construe and interpret its terms, to make adjustments
in certain circumstances to Target Awards, eligibility, and to the amount, time
and manner of payment of awards.
74
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1993, the Company has sold shares of Preferred Stock
convertible into an aggregate of 16,215,170 shares of Common Stock in a series
of private financings. In January 1993, shares of Series AA Preferred Stock
convertible into 1,510,284 shares of Common Stock were sold at an as-converted
price of $.50 per share. In October 1993 and December 1993, shares of Series BB
Preferred Stock convertible into 6,979,690 shares of Common Stock were sold at
an as-converted price of $2.375 per share. In connection with such sales, the
Company also issued warrants to acquire 766,888 shares of Series BB Preferred
Stock at an exercise price of $4.75 per share. In August 1994, shares of Series
CC Preferred Stock convertible into 6,431,536 shares of Common Stock were sold
at an as-converted price of $4.82 per share. In December 1994 and February 1995,
shares of Series DD Preferred Stock convertible into 1,293,660 shares of Common
Stock were sold at an as-converted price of $4.82 per share. The purchasers of
the Series AA Preferred Stock, Series BB Preferred Stock, Series CC Preferred
Stock and Series DD Preferred Stock included the following 5% or more
stockholders, directors and entities affiliated with directors.
<TABLE>
<CAPTION>
SHARES OF
SERIES BB
PREFERRED
SHARES OF PREFERRED STOCK(1) STOCK
------------------------------------------------ UNDERLYING
NAME SERIES AA SERIES BB SERIES CC SERIES DD WARRANTS(2)
- --------------------------------------------------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND ENTITIES AFFILIATED WITH DIRECTORS:
Paul and Marcia Cook Living Trust (Paul M.
Cook).......................................... -- 63,340 10,373 -- 19,002
AT&T Ventures (Neal M. Douglas).................. -- 631,580 48,842 -- 126,316
Entities affiliated with William C. Edwards...... 755,142 191,840 31,122 1,321 56,002
Technology Partners West Fund IV, L.P. (William
Hart).......................................... -- 44,730 10,373 417 13,419
Entities affiliated with Henry B. Sargent........ -- 161,245 -- -- 41,623
OTHER 5% OR MORE STOCKHOLDERS:
Odyssey Partners, L.P............................ -- 1,450,660 112,184 -- 290,132
</TABLE>
- ------------------------
(1) Each share of Preferred Stock automatically converted into two shares of
Common Stock upon the closing of the Company's Initial Public Offering.
(2) Each warrant to purchase Series BB Preferred Stock was exercisable at a
price of $4.75 per share and expired immediately prior to the closing of the
Company's Initial Public Offering.
Between April 28, 1993 and September 13, 1993, Acorn Ventures, Inc.
("Acorn") (a principal stockholder of the Company), Cree A. Edwards (an
executive officer of the Company), entities affiliated with William C. Edwards
("Edwards Entities") (a director of the Company; the Edwards Entities are
principal stockholders of the Company), the Paul and Marcia Cook Living Trust
("Cook Trust") (a principal stockholder of the Company and an affiliate of Paul
M. Cook, Chairman of the Board of Directors of the Company), and entities
affiliated with Henry B. Sargent ("Sargent Entities") (a director of the
Company; the Sargent Entities are principal stockholders of the Company) loaned
the Company $500,000, $133,230, $711,100, $297,355, and $579,490, respectively,
pursuant to promissory notes due on demand after October 1, 1993 and bearing
interest at the rate of 4% per annum. In connection with the sale of the Series
BB Preferred Stock, the outstanding balance of principal and accrued interest
under such promissory notes was converted into shares of Series BB Preferred
Stock at a conversion price of $4.75 per share and warrants to purchase .3
shares of Series BB Preferred Stock for each share of Series BB Preferred Stock
issued upon conversion of the promissory notes and accrued interest, such that
the Company issued and sold to Acorn, Cree A. Edwards, the Edwards Entities, the
Cook Trust and the Sargent Entities 105,540, 28,380, 151,480, 63,340, and
123,600 shares, respectively, of Series BB Preferred Stock and warrants to
purchase 31,662, 8,514, 45,444, 19,002, and 37,080 shares, respectively, of
Series BB
75
<PAGE>
Preferred Stock. The Company believes the terms of these loans were no less
favorable to the Company than loans negotiated by such persons with unaffiliated
third parties.
On September 29, 1993, the Company issued and sold 400,000 shares of Common
Stock to Acorn at a price per share of $.05. These shares were granted as part
of a transaction in which Acorn was required to perform consulting services for
the Company. These shares were subject to repurchase by the Company until such
rights lapsed in September 1995.
On December 27, 1994 and January 27, 1995, the Company issued and sold
400,000 shares and 800,000 shares, respectively, of Common Stock to Mr. Seidl,
its President and Chief Executive Officer, at a price of $.25 per share based on
the early exercise of previously-granted options with an equivalent exercise
price. In connection with the sale of such shares, the Company loaned Mr. Seidl
$300,000. The loans are full recourse, bear interest at the rate of 7.74% per
annum in the case of $100,000 of principal and at the rate of 7.92% per annum in
the case of $200,000 of principal, are due on the earlier of termination of Mr.
Seidl's employment or December 26, 1999 and January 25, 2000, respectively, and
are secured by the shares of Common Stock purchased with the proceeds of such
loans.
On June 14, 1995, the Company issued and sold 200,000 shares of Common Stock
to Acorn at a price per share of $.50. Acorn paid cash for the shares. These
shares are subject to repurchase by the Company, which right lapses over a
five-year period commencing in December 1994. On August 25, 1995, the terms of
the Company's agreement with Acorn were amended to provide for accelerated
release of such shares from the Company's repurchase option upon termination of
such agreement other than for cause. The transactions with Acorn were
unanimously approved by the Board of Directors of the Company and were on terms
the Company believes were no less favorable than would have been received from
unaffiliated third parties.
On July 21, 1995, the Company issued and sold 170,000 shares of Common Stock
to Mr. Mallory, an executive officer of the Company, at a price of $.50 per
share, based on the early exercise of a previously-granted option with an
equivalent exercise price. In connection with the sale of such shares, the
Company loaned Mr. Mallory $85,000. The loan is full recourse, bears interest at
the rate of 6.28% per annum, is due on the earlier of termination of Mr.
Mallory's employment or July 21, 2000 and is secured by the shares of Common
Stock purchased with the proceeds of such loan.
On July 31, 1995, the Company issued and sold 180,000 shares of Common Stock
to Mr. Manca, an executive officer of the Company at a price of $.50 per share
based on the early exercise of a previously-granted option with an equivalent
exercise price. In connection with the sale of such shares, the Company loaned
Mr. Manca $90,000. The loan is full recourse, bears interest at the rate of
6.28% per annum, is due on the earlier of termination of Mr. Manca's employment
or July 31, 2000 and is secured by the shares of Common Stock purchased with the
proceeds of such loan.
On August 1, 1995, the Company issued and sold 45,110 shares of Common Stock
to Ronald W. Goodall, a former executive officer of the Company who resigned in
1996, at a price of $.05 per share, based on the early exercise of a
previously-granted option with an equivalent exercise price. On August 1, 1995,
the Company also issued and sold 144,000, 110,000 and 40,000 shares of Common
Stock to Messrs. Jennings, Johnson and Goodall, respectively, each an executive
officer of the Company, at a price of $.25 per share based on the early exercise
of previously-granted options with equivalent exercise prices. On August 1,
1995, the Company also issued and sold 155,408, 50,000 and 110,658 shares of
Common Stock to Messrs. Edwards, Goodall and Johnson, respectively, each an
executive officer of the Company, at a price of $.50 per share, based on the
early exercise of previously-granted options with an equivalent exercise price.
In connection with the sale of shares, the Company loaned Messrs. Goodall,
Jennings, Johnson and Edwards $37,255, $36,000, $82,829 and $77,704,
respectively. The loans are full recourse, bear interest at the rate of 6.04%
per annum, are due on the earlier of termination of employment or August 1, 2000
and are secured by the shares of Common Stock purchased with the proceeds of
such loans. Notwithstanding the foregoing, the Company agreed to extend the
maturity date of the restricted stock
76
<PAGE>
purchase loan of Mr. Goodall until December 31, 1996, at which time the Company
repurchased 58,410 unvested shares in consideration of the forgiveness of
$20,020 of such indebtedness, and Mr. Goodall repaid the Company in cash the
remaining balance of $20,435 of such indebtedness.
The amounts of outstanding indebtedness, including interest, on the loans to
executive officers described above as of June 30, 1997, which were the largest
aggregate amount of indebtedness owed by each of the officers at any time, were
as follows: Mr. Seidl, $342,072, Mr. Mallory, $95,398, Mr. Manca, $100,855, Mr.
Jennings, $40,170, Mr. Johnson, $92,424, and Mr. Edwards, $86,705. The terms
(including the terms of the promissory notes) of the sale of shares of Common
Stock by the Company to Messrs. Seidl, Mallory, Manca, Jennings, Johnson,
Edwards and Goodall were unanimously approved by the Board of Directors of the
Company. The shares were issued upon the early exercise of unvested options and
are subject to repurchase by the Company at the original price paid per share
upon such executive officer's termination of employment prior to vesting in such
shares. The repurchase rights lapse and the shares vest at the same rate as the
prior vesting schedule of the exercised options. See "Management--Executive
Compensation." The sales price of each sale was the fair market value of the
Company's Common Stock on the original date of grant of each option to purchase
Common Stock, as determined by the Board of Directors of the Company.
77
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1997 by (i) each person
who is known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each of the Named Executive Officers, (iii) each of the Company's
directors and (iv) all current directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER SHARES
BENEFICIALLY PERCENT BENEFICIALLY
BENEFICIAL OWNER OWNED(1) OWNED(1)(2)
- ------------------------------------------------------------------------ -------------------- ---------------------
<S> <C> <C>
William C. Edwards (3) ................................................. 3,788,316 9.1%
3000 Sand Hill Road
Bldg. 1, Suite 190
Menlo Park, CA 94025
Odyssey Partners, L.P. ................................................. 3,637,045 8.8%
31 West 52nd Street
New York, NY 10019
Banner Partners (4) .................................................... 2,590,790 6.2%
3000 Sand Hill Road
Bldg. 1, Suite 190
Menlo Park, CA 94025
John M. Seidl (5) ...................................................... 1,135,200 2.7%
Robert A. Hayes (6) .................................................... 182,250 *
James J. Jennings (7) .................................................. 186,000 *
Paul G. Manca (8) ...................................................... 186,000 *
David L. Perry (9) ..................................................... 147,250 *
Paul M. Cook (10) ...................................................... 2,045,774 4.9%
Henry B. Sargent (11) .................................................. 1,782,052 4.3%
Neal M. Douglas (12) ................................................... 1,583,475 3.8%
William Hart (13) ...................................................... 995,586 2.4%
Linn E. Draper, Jr. (14) ............................................... 10,000 *
All directors and executive officers as a group (14 Persons) (15) . 14,190,467 34.6%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the SEC. In computing the number of shares beneficially owned
by a person and the percentage of ownership of that person, shares of Common
Stock subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days of June 30, 1997 are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. The
persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table.
(2) Percentage of beneficial ownership is based on 41,541,384 shares of Common
Stock outstanding.
(3) Includes 2,037,492 shares, 553,298 shares, and 159,326 shares beneficially
owned by Banner Partners, Banner Partners/Minaret, Carson, a partnership,
and certain members of Mr. Edwards's family and certain foundations and
trusts of which Mr. Edwards is a trustee, respectively. Mr. Edwards, a
director of the Company, may be deemed to be a beneficial owner of shares
held by such family members, foundations and trusts. Mr. Edwards and Alan R.
Brudos are the general partners of Banner Partners and exercise voting and
dispositive power over the shares held by Banner Partners and Banner
Partners/Minaret.
78
<PAGE>
(4) Includes 553,298 shares held by Banner Partners/Minaret which is wholly
owned by Banner Partners.
(5) 9,100 shares of which are held by Mr. Seidl as trustee of a trust for a
family member who is a minor and shares Mr. Seidl's household. Mr. Seidl
disclaims beneficial ownership of all securities held by such family member.
(6) Consists of 182,250 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997 held by Mr. Hayes.
(7) Includes 6,000 shares issuable upon exercise of options exercisable within
60 days of June 30, 1997 held by Mr. Jennings.
(8) Includes 6,000 shares issuable upon exercise of options exercisable within
60 days of June 30, 1997 held by Mr. Manca.
(9) Includes 11,550 shares issuable upon exercise of options exercisable within
60 days of June 30, 1997 held by Mr. Perry.
(10) Consists of 1,925,774 shares beneficially owned by the Paul and Marcia Cook
Living Trust, dated April 21, 1992, and 120,000 shares beneficially owned by
two trusts of which Mr. Cook is trustee.
(11) Consists of 9,052 shares beneficially owned by Mr. Sargent, 1,602,898
shares beneficially owned by El Dorado and 170,102 shares beneficially owned
by Sundance Capital Corporation. Mr. Sargent, a director of the Company, is
President of El Dorado and a principal of Anderson & Wells Investment
Companies, which manage Sundance Capital Corporation, and may be deemed to
be the beneficial owners of such shares. Mr. Sargent disclaims beneficial
ownership of the shares held by El Dorado and Sundance Capital Corporation.
(12) Consists of 1,583,475 shares beneficially owned by AT&T Ventures. Mr.
Douglas, a director of the Company, is a general partner of AT&T Ventures
and may be deemed to be the beneficial owner of such shares. Mr. Douglas
disclaims beneficial ownership of the shares except to the extent of his
proportionate partnership interest therein.
(13) Consists of 995,586 shares beneficially owned by Technology Partners. Mr.
Hart, a director of the Company, is a general partner of Technology Partners
and may be deemed to be the beneficial owner of such shares. Mr. Hart
disclaims beneficial ownership of the shares except to the extent of his
proportionate partnership interest therein.
(14) Consists of 10,000 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997 held by Mr. Draper.
(15) Includes 516,656 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997 held by all directors and executive officers
as a group.
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THE EXCHANGE OFFER
PURPOSES OF THE EXCHANGE OFFER
The Old Notes (i) were sold by the Company to Morgan Stanley & Co.
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation
(collectively, the "Placement Agents"), who subsequently resold the Old Notes to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) and a limited number of institutional "accredited investors" (within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act), (ii) were
issued to the holders of the Company's 1995 Notes pursuant to an Exchange Offer,
and (iii) were issued to certain 1995 Note holders as payment of a consent fee
in connection with a consent solicitation. In connection with the issuance of
the Old Notes, the Company agreed to use its reasonable best efforts to cause to
become effective within the time period specified in the Registration Rights
Agreement, a registration statement with respect to the Exchange Offer. However,
if (i) because of any change in law or in currently prevailing interpretations
of the Staff of the SEC, the Company is not permitted to effect an Exchange
Offer, (ii) the Exchange Offer is not consummated by March 29, 1998, (iii) in
certain circumstances, the Placement Agents so requests, or (iv) in the case of
any Holder that participates in the Exchange Offer, such Holder does not receive
New Notes on the date of the exchange that may be sold without restriction under
state and federal securities laws, then in the case of each of clauses (i) to
and including (iv) of this sentence, the Company has agreed to use its best
efforts to cause to become effective a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of the Old Notes and to keep
the Shelf Registration Statement effective until the earlier of two years after
its effective date or as such time as all of the applicable Old Notes have been
sold thereunder.
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement. Once the Exchange Offer is
consummated, the Company will have no further obligation to register any of the
Old Notes not tendered by the Holders thereof for exchange. See "Risk
Factors--Consequences to Non-Tendering Holders of Old Notes." A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Based on an interpretation by the Staff of the SEC set forth in the Staff's
Exxon Capital Holdings Corp. SEC No-Action Letter (available April 13, 1989),
Morgan Stanley & Co., Inc. SEC No-Action Letter (available June 5, 1991),
Shearman & Sterling SEC No-Action Letter (available July 7, 1993), and other
no-action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by Holders thereof without
compliance with the registration and prospectus delivery provisions of the
Securities Act. However, any Holder who is an "affiliate" of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing the
New Notes (i) cannot rely on the interpretation by the Staff of the SEC set
forth in the above referenced no-action letters, (ii) cannot tender its Old
Notes in the Exchange Offer, and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Old Notes, unless such sale or transfer is made pursuant
to an exemption from such requirements. See "Risk Factors--Consequences to Non-
Tendering Holders of Old Notes."
In addition, each broker-dealer that receives New Notes for its own account
in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities and not acquired directly from the Company, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
Except as aforesaid, this Prospectus may not be used for an offer to resell,
resale or other transfer of New Notes.
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TERMS OF THE EXCHANGE OFFER
GENERAL. Upon the terms and subject to the conditions of the Exchange Offer
set forth in this Prospectus and in the Letter of Transmittal, the Company will
accept any and all Old Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue $1,000
principal amount at maturity of New Notes in exchange for each $1,000 principal
amount at maturity of outstanding Old Notes accepted in the Exchange Offer.
Holders may tender some or all of their Old Notes pursuant to the Exchange
Offer; PROVIDED, that Old Notes may be tendered only in integral multiples of
$1,000.
As of October 8, 1997, there was $654,133,000 of aggregate principal amount
at maturity of the Old Notes outstanding and 17 registered Holders of Old Notes.
This Prospectus, together with the Letter of Transmittal, is being sent to such
registered Holders as of , 1997.
In connection with the issuance of the Old Notes, the Company arranged for
the Old Notes to be issued and transferable in book-entry form through the
facilities of DTC, acting as depositary. The New Notes will be issued and
transferable in book-entry form through DTC. See "--Book-Entry Transfer;
Delivery and Form."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Old Notes for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay the expenses, other than
certain applicable taxes, of the Exchange Offer. See "--Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS. The term "Expiration Date" shall
mean , 1997, unless the Company in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent and the record Holders of Old Notes of any extension by oral or written
notice, each prior to 9:00 a.m., New York City time, on the business day prior
to the previously scheduled Expiration Date. Such notice may state that the
Company is extending the Exchange Offer for a specified period of time or on a
daily basis until 5:00 p.m., New York City time, on the date on which a
specified percentage of Old Notes are tendered.
The Company reserves the right to delay accepting any Old Notes, to extend
the Exchange Offer, to amend the Exchange Offer or to terminate the Exchange
Offer and not accept Old Notes not previously
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accepted if any of the conditions set forth herein under "--Conditions" shall
have occurred and shall not have been waived by the Company by giving oral or
written notice of such delay, extension, amendment or termination to the
Exchange Agent. Any such delay in acceptance, extension, amendment or
termination will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the Holders of such
amendment and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders of the Old Notes, if the Exchange Offer would
otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
ACCRETION OF THE NEW NOTES AND THE OLD NOTES; INTEREST
The Old Notes will continue to accrete in principal amount through (but not
including) the date of issuance of the New Notes. Any Old Notes not tendered or
accepted for exchange will continue to accrete at the rate of 14% per annum in
accordance with its terms. From and after the date of issuance of the New Notes,
the New Notes shall accrete at the rate of 14% per annum, but no cash interest
will accrue or be payable in respect of the New Notes prior to October 1, 2002.
Thereafter, the New Notes will bear interest at a rate equal to 14% per annum.
Interest on the New Notes will be payable semiannually in arrears on April 1 and
October 1 of each year, commencing on April 1, 2003.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a Holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by Instruction 3 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such Holders.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "Holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered Holder.
Any beneficial holder whose Old Notes are registered in the name of its
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered Holder
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promptly and instruct such registered Holder to consent and/or tender on its
behalf. If such beneficial Holder wishes to tender on its own behalf, such
beneficial Holder must, prior to completing and executing the Letter of
Transmittal and delivering its Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such Holder's name or obtain a
properly completed bond power from the registered Holder. The transfer of record
ownership may take considerable time.
Signatures on a Letter of Transmittal or notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered Holder
who has not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office or correspondent in the
U.S. (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by appropriate bond powers signed as the name of the registered
Holder or Holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of Old Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders of Old Notes, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of such Holder's business, that such Holder has no
arrangement with any person to participate in the distribution of such New
Notes, and that such Holder is not an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company. If the Holder is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities and
not
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acquired directly from the Company, such Holder by tendering will acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER; DELIVERY AND FORM
The Old Notes were initially represented (i) in the case of Old Notes
initially purchased by "qualified institutional buyers" (as such term is defined
in Rule 144A under the Securities Act), by five global Old Notes in fully
registered form, all registered in the name of a nominee of DTC, and (ii) in the
case of Old Notes initially purchased by persons other than U.S. persons in
reliance upon Regulation S under the Securities Act, by five global Regulation S
Old Notes in fully registered form, all registered in the name of a nominee of
DTC for the accounts of Euroclear and Cedel Bank. The New Notes exchanged for
the Old Notes represented by the global Old Notes and global Regulation S Old
Notes will be represented (a) in the case of "qualified institutional buyers",
by four global New Notes in fully registered form, registered in the name of the
nominee of DTC, and (ii) in the case of persons outside of the United States, by
four global Regulation S New Notes in fully registered form, registered in the
name of the nominee of DTC for the accounts of Euroclear and Cedel Bank. The
global New Notes and global Regulation S New Notes will be exchangeable for
definitive New Notes in registered form, in denominations of $1,000 and integral
multiples thereof. The New Notes in global form will trade in The Depository
Trust Company's Same-Day Funds Settlement System, and secondary market trading
activity in such New Notes will therefore settle in immediately available funds.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish an account with respect to the
Old Notes at DTC for the purpose of facilitating the Exchange Offer, and subject
to the establishment thereof, any financial institution that is a participant in
DTC's system may make book-entry delivery of Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account with respect to the
Old Notes in accordance with DTC's Automated Tender Offer Program ("ATOP")
procedures for such book-entry transfers. Although delivery of the Old Notes may
be effected through book-entry transfer into the Exchange Agent's account at
DTC, the exchange for Old Notes so tendered will only be made after timely
confirmation (a "Book-Entry Confirmation") of such book-entry transfer of the
Old Notes into the Exchange Agent's account, and timely receipt by the Exchange
Agent of an Agent's Message (as defined herein) and any other documents required
by the Letter of Transmittal. The term "Agent's Message" means a message,
transmitted by DTC and received by the Exchange Agent and forming part of the
Book-Entry Confirmation, which states that DTC has received express
acknowledgment from a participant tendering Old Notes that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal, and
that such agreement may be enforced against such participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder of the Old Notes, the certificate number or
numbers of such Old Notes and the principal amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s) representing
the Old Notes to be tendered in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC of Old Notes
delivered electronically) and any other
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documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Old Notes in
proper form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of Old Notes delivered electronically) and all
other documents required by the Letter of Transmittal are received by the
Exchange Agent within five New York Stock Exchange trading days after the
Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the person withdrawing the tender, and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for payment will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may
be retendered by following one of the procedures, described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for, any Old Notes not
theretofore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes, if any of the
following conditions exist:
(a) the Exchange Offer, or the making of any exchange by a Holder, violates
applicable law or any applicable interpretation of the SEC;
(b) any action or proceeding instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer which, in the
sole judgment of the Company, might impair the ability of the Company to proceed
with the Exchange Offer;
(c) there shall have been adopted or enacted any law, statute, rule or
regulation which, in the sole judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer;
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(d) a banking moratorium shall have been declared by U.S. federal or
California or New York state authorities which, in the Company's judgment, would
reasonably be expected to impair the ability of the Company to proceed with the
Exchange Offer;
(e) trading on the New York Stock Exchange or generally in the U.S.
over-the-counter market shall have been suspended by order of the SEC or any
other governmental authority which, in the Company's judgment, would reasonably
be expected to impair the ability of the Company to proceed with the Exchange
Offer; or
(f) a stop order shall have been issued by the SEC or any state securities
authority suspending the effectiveness of the Registration Statement or
proceedings shall have been initiated or, to the knowledge of the Company,
threatened for that purpose.
If any such conditions exist, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to exchanging Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "--Withdrawal of Tenders") or (iii) waive certain of such conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn or revoked. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver in
a manner reasonably calculated to inform Holders of Old Notes of such waiver.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition to the foregoing conditions, if (i) because of any change in law
or in currently prevailing interpretations of the Staff of the SEC, the Company
is not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
consummated by March 29, 1998, (iii) in certain circumstances, the Placement
Agents so requests, or (iv) in the case of any Holder that participates in the
Exchange Offer, such Holder does not receive New Notes on the date of the
exchange that may be sold without restriction under state and federal securities
laws, then in the case of each of clauses (i) to and including (iv) of this
sentence, the Company shall file a Shelf Registration Statement with respect to
the resale of the Old Notes and use its best efforts to keep the Shelf
Registration Statement effective until the earlier of two years after its
effective date or such time as all of the applicable Old Notes have been sold
thereunder. Thereafter, the Company's obligation to consummate the Exchange
Offer shall be terminated.
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EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Letters of Transmittal and Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER:
Attention: Reorganization Section Attention: Reorganization Section
The Bank of New York The Bank of New York
101 Barclay Street, 21st floor 101 Barclay Street
New York, NY 10286 Corporate Trust Services Window
Ground Floor
New York, NY 10286
BY HAND: BY FACSIMILE:
Attention: Reorganization Section (212) 815-6333
The Bank of New York Attention: Reorganization Section
101 Barclay Street
Corporate Trust Services Window Confirm by telephone:
Ground Floor (212) 815-5084
New York, NY 10286
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this Prospectus and related documents to the beneficial owners of the
Old Notes, and in handling or forwarding tenders for exchange.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company, are estimated in the aggregate to be approximately
$210,000 and include fees and expenses of the Exchange Agent and the Trustee
under the Indenture and accounting and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exception therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value as reflected in the Company's accounting records on the date
of the Exchange Offer. Accordingly, no gain or loss for accounting purposes will
be recognized upon consummation of the Exchange Offer. The issuance costs
incurred in connection with the Exchange Offer will be capitalized and amortized
over the term of the New Notes.
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DESCRIPTION OF THE OLD NOTES
The Old Notes were issued under an indenture dated as of June 15, 1995, as
supplemented by the First Supplemental Indenture dated as of November 21, 1995,
the Second Supplemental Indenture dated as of August 30, 1996 the Third
Supplemental Indenture dated as of August 28, 1997 and the Fourth Supplemental
Indenture dated as of September 29, 1997 (as so supplemented, the "Indenture"),
each by and between the Company and The Bank of New York, as trustee (the
"Trustee"). A copy of the Indenture is available from the Company upon request.
The following summaries of certain provisions of the Old Notes and the Indenture
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Old Notes and the Indenture,
including the definitions therein of certain terms which are not otherwise
defined in this Prospectus. Wherever particular provisions or defined terms of
the Indenture (or of the form of Old Note which is a part thereof) are referred
to, such provisions or defined terms are incorporated herein by reference. As
used in this "Description of the Old Notes," the "Company" refers to CellNet
Data Systems, Inc. and does not, unless the context otherwise indicates, include
its Subsidiaries.
GENERAL
The Old Notes represent unsecured general obligations of the Company and
rank senior in right of payment to all future subordinated indebtedness of the
Company and PARI PASSU in right of payment with all existing and future
unsecured unsubordinated indebtedness of the Company but effectively
subordinated to all existing and future secured indebtedness of the Company and
all existing and future indebtedness and liabilities, including subordinated
indebtedness and trade payables, of Subsidiaries of the Company. The Old Notes
have a Maximum Issuance Amount of $381,951,105 in initial Accreted Value, were
issued in fully registered form only in denominations of $1,000 or any integral
multiple thereof and mature on October 1, 2007. The Indenture provides that
additional notes may be issued pursuant thereto from time to time; PROVIDED,
that the aggregate initial Accreted Value or principal amount of such additional
notes does not exceed the maximum amount permitted by the covenants limiting
Incurrence of Indebtedness by the Company, and any additional notes do not
mature prior to the scheduled maturity of any then-outstanding Old Notes. The
Old Notes and any other notes issued from time to time under the Indenture may
collectively be referred to in this "Description of the Old Notes" as "Notes".
All Notes issued pursuant to the Indenture will be in substantially the form of
a Form of Security, appropriately completed.
Interest on the Old Notes will not accrue prior to October 1, 2002.
Thereafter, interest will accrue at the rate of 14% per annum and will be
payable semi-annually in arrears in cash on each April 1 and October 1,
commencing April 1, 2003.
Unless other arrangements are made, interest will be paid by check mailed to
Holders entitled thereto. Principal will be payable, and the Old Notes may be
presented for conversion, registration of transfer and exchange, without service
charge, at the office of the Trustee in New York, New York.
OPTIONAL REDEMPTION BY THE COMPANY
The Old Notes will not be redeemable at the Company's option prior to
October 1, 2002 except as described below. At any time on or after that date the
Old Notes will be redeemable at the Company's option on at least 30 but not more
than 60 days' notice, in whole at any time or in part from time to time, at the
following respective prices (expressed in percentages of the principal amount at
maturity), together
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with accrued interest through the date of redemption, during the 12-month period
beginning October 1 of the years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 107.00%
2003.............................................................................. 103.50
2004 and thereafter............................................................... 100.00
</TABLE>
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING
The Indenture and the Old Notes provide that in the event the Company
consummates a Public Equity Offering, the Company will be permitted, at its
option, to redeem on or prior to October 1, 2000, from the proceeds of such
Public Equity Offering received by the Company, up to 25% of the aggregate
outstanding principal amount at maturity of the Old Notes originally issued at a
redemption price equal to 114% of the Accreted Value on the date of redemption;
PROVIDED, HOWEVER, that (1) such Public Equity Offering yields gross proceeds of
at least $25 million, (2) such redemption may only be effected to the extent
that immediately after such redemption not less than 75% in aggregate principal
amount at maturity of the Old Notes originally issued remain outstanding (for
purposes of determining whether this condition is satisfied, Old Notes owned
(beneficially or otherwise) by the Company or any of its Affiliates shall not be
deemed to be outstanding) and (3) such redemption is effected not more than 60
days after the consummation of such Public Equity Offering.
REDEMPTION OR REPURCHASE AT THE OPTION OF THE HOLDERS
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, the
Company shall be required to offer to repurchase (the "Change of Control Offer")
all or a portion of each Holder's Notes at a purchase price equal to 101% of the
Accreted Value thereof on the date of purchase (if prior to the Full Accretion
Date applicable to the relevant Note(s)), or 101% of the aggregate principal
amount thereof plus, in each case, accrued and unpaid interest, if any, to the
date of repurchase.
In the event of any Change of Control, the Company shall not, and shall not
cause or permit any of its Subsidiaries to purchase, redeem or otherwise acquire
or retire any Indebtedness of the Company ranking junior or subordinate to the
Notes pursuant to any analogous provisions relating to such Indebtedness until
after the 91st day after the Change of Control Payment Date (as such date may be
extended).
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment of the Notes or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the paying agent in accordance with
the Indenture U.S. legal tender sufficient to pay the purchase price plus
accrued interest, if any, of all Notes so tendered, and (iii) deliver to the
Trustee Notes so accepted together with an Officers' Certificate stating the
Notes or portions thereof being purchased by the Company.
Any amounts remaining after the purchase of Notes pursuant to a Change of
Control Offer shall be returned by the Trustee to the Company.
The definition of "Change of Control" will include a disposition of all or
substantially all of the property and assets of the Company. With respect to the
disposition of property or assets, the phrase "all or substantially all" as will
be used in the Indenture (including as set forth under "--Certain Covenants--
Merger, Consolidation and Sale of Assets" below) will vary according to the
facts and circumstances of the subject transaction, currently has no clearly
established meaning under New York law (which is the choice of law under the
Indenture) and will be subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
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be unclear as to whether a Change of Control has occurred and whether the
Company is required to make a Change of Control Offer.
None of the provisions relating to a repurchase upon a Change of Control
will be waivable by the Board of Directors of the Company. The Company could, in
the future, enter into certain transactions, including certain recapitalizations
of the Company, that would not constitute a Change of Control with respect to
the Change of Control repurchase feature of the Notes, but would increase the
amount of Indebtedness outstanding at such time. If a Change of Control were to
occur, there can be no assurance that the Company would have sufficient funds to
pay the repurchase price for all Notes that the Company is required to
repurchase. In the event that the Company were required to repurchase
outstanding Notes pursuant to a Change of Control Offer, the Company expects
that it would need to seek third-party financing to the extent it does not have
available funds to meet its repurchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
If an offer is made to repurchase the Notes pursuant to a Change of Control
Offer, the Company will be required to comply, and to cause its Subsidiaries to
comply with all tender offer rules under state and federal securities laws,
including, but not limited to, Section 14(e) under the Exchange Act and Rule
14e-1 thereunder, to the extent applicable to such offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Change of
Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
LIMITATION ON ASSET SALES
The Indenture provides that the Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, consummate an Asset
Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the fair market value of the assets sold or otherwise disposed of (as determined
in good faith by the Company's Board of Directors) and (ii) at least 85% of the
consideration received by the Company or such Restricted Subsidiary, as the case
may be, from such Asset Sale shall be any combination of cash, Cash Equivalents
and irrevocable and unconditional assumption of unsubordinated liabilities and
shall be received (or unconditionally released) at the time of the consummation
of any such Asset Sale; PROVIDED, HOWEVER, that the amount of (x) any
liabilities as shown on the Company's most recent balance sheet (or in the notes
thereto) of the Company or any Restricted Subsidiary (other than (i)
Indebtedness subordinate in right of payment to the Notes, (ii) contingent
liabilities, (iii) liabilities or Indebtedness to Affiliates of the Company and
(iv) non-recourse Indebtedness and other non-recourse liabilities that are
assumed by the transferee of any such assets) and (y) to the extent of the cash
received, any notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are converted by the Company or
such Restricted Subsidiary into cash within 60 days of receipt, shall be deemed
to be cash for purposes of this provision; PROVIDED, FURTHER, HOWEVER, that the
85% limitation referred to above shall not apply to any sale, transfer or other
disposition of assets in which the cash portion of the consideration received
therefor, determined in accordance with the foregoing provision, is equal to or
greater than what the after-tax net proceeds would have been had such
transaction complied with the aforementioned 85% limitation. Upon the
consummation of an Asset Sale, the Company shall apply, or cause such Restricted
Subsidiary to apply, the Net Cash Proceeds in excess of $5 million relating to
such Asset Sale within 360 days of receipt thereof either (A) to reinvest in
Productive Assets, or (B) to prepay or repay Senior Indebtedness of the Company
or to prepay or repay any Indebtedness of a Restricted Subsidiary of the Company
(other than non-recourse Indebtedness). On the 361st day after an Asset Sale or
such earlier date, if any, as the Board of Directors of the Company or of such
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (A) and (B) of the preceding sentence (each a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (A) and (B) of the
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preceding sentence (each a "Net Proceeds Offer Amount"), shall be applied by the
Company or such Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 60 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a PRO RATA basis that amount of Notes equal to the Net Proceeds
Offer Amount at a price in cash equal to 100% of the Accreted Value of the Notes
on the Net Proceeds Offer Payment Date (if prior to the Full Accretion Date
applicable to the relevant Note(s)) or 100% of the principal amount of the Notes
(if the Net Proceeds Offer Payment Date is on or after the Full Accretion Date
applicable to the relevant Note(s) to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER, that if at
any time any non-cash consideration received by the Company or any Subsidiary of
the Company, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash, then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant. To the
extent that the Accreted Value of Notes on the Net Proceeds Offer Payment Date
(if prior to the Full Accretion Date applicable to the relevant Note(s)) or the
aggregate principal amount of Notes (if the Net Proceeds Offer Payment Date is
on or after the Full Accretion Date applicable to the relevant Note(s)) tendered
pursuant to the Net Proceeds Offer is less than the Net Proceeds Offer Amount,
the Company may use any remaining proceeds of such Asset Sale for general
corporate purposes (but subject to the terms of the Indenture). Upon completion
of a Net Proceeds Offer, the Net Proceeds Offer Amount relating to such Net
Proceeds Offer shall be deemed to be zero for purposes of any subsequent Asset
Sale.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$5,000,000, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as
such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds
Offer Amounts arising subsequent to the Issue Date of the Notes from all Asset
Sales by the Company and its Subsidiaries in respect of which a Net Proceeds
Offer has not been made aggregates at least $5,000,000, at which time the
Company or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to make a
Net Proceeds Offer (each date on which the aggregate of all such deferred Net
Proceeds Offer Amounts is equal to $5,000,000 or more shall be deemed to be a
Net Proceeds Offer Trigger Date).
In connection with any Asset Sale with respect to assets having a book value
in excess of $5,000,000 or as to which it is expected that the aggregate
consideration therefor to be received by the Company or any Restricted
Subsidiary will exceed $5,000,000 in value, such transaction or series of
transactions shall be approved, prior to the consummation thereof, by the Board
of Directors of the Company.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under "--Certain Covenants-- Merger,
Consolidation, and Sale of Assets" the successor corporation shall be deemed to
have sold the properties and assets of the Company and its Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale;
PROVIDED, HOWEVER, that to the extent that the Company is required to make an
offer to repurchase the Notes pursuant to "--Change in Control," in connection
with any transaction that would otherwise be within the terms of this paragraph,
the Company will not need to comply with the provisions of this paragraph. In
addition, the fair market value of such properties and assets of the Company or
its Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
The Company shall and shall cause its Subsidiaries to comply with all tender
offer rules under state and federal securities laws, including, but not limited
to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the
extent applicable to such offer. To the extent that the provisions of any
securities laws or regulations conflict with the foregoing provisions of the
Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
foregoing provisions of the Indenture by virtue thereof.
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SELECTION AND NOTICE
The Indenture provides that if fewer than all of the Notes of any class are
to be redeemed, the Trustee shall select the Notes of such class to be redeemed
in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes of such class are listed or, if the Notes
of such class are not listed on a national securities exchange, by lot or by
such method as the Trustee shall deem fair and appropriate; PROVIDED, HOWEVER,
that if the Notes of such class are redeemed pursuant to the optional redemption
right of the Company arising upon a Public Equity Offering, the Notes of such
class shall be redeemed solely on a PRO RATA basis. If the Notes of such class
are listed on any national securities exchange, the Company shall notify the
Trustee of the requirements of such exchange in respect of any redemption. The
Trustee shall make the selection from the Notes of such class outstanding and
not previously called for redemption and shall promptly notify the Company in
writing of the Notes of such class selected for redemption and, in the case of
any Note of such class selected for partial redemption, the principal amount
thereof to be redeemed. Notes in denominations of $1,000 may be redeemed only in
whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Notes that have denominations
larger than $1,000. Provisions of the Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
ALLOCATION OF CERTAIN REDEMPTION PAYMENTS
The Indenture provides that upon the occurrence of any event, as a result of
which the Company is required by the terms and provisions hereof to offer to
repurchase all or a portion of the Notes, if either (a) less than all of the
Notes are required to be repurchased, or (b) all of the Notes are required to be
repurchased, but the Company fails to deposit sufficient funds to effect the
repurchase of all of the Notes in accordance with the terms of the Indenture,
the Trustee shall allocate the amounts available for repurchases among the
classes of outstanding Notes on a PRO RATA basis, with the amount allocable to
each such class determined by multiplying the amount available for repurchase by
a fraction, the numerator of which is aggregate Accreted Value of the Notes of
such class and the denominator of which is the aggregate Accreted Value of all
outstanding Notes. The Trustee shall allocate such available amounts among
Holders within any particular class in accordance with the terms of the
Indenture.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS
(a) The Indenture provides that the Company shall not, and shall not cause
or permit any Restricted Subsidiary to, directly or indirectly, (i) declare or
pay any dividend or make any distribution (other than dividends or distributions
payable solely in Qualified Capital Stock of the Company) on shares of the
Company's Capital Stock to holders of such Capital Stock, (ii) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or of
any direct or indirect parent or Affiliate of the Company, or any warrants,
rights or options to acquire shares of any class of such Capital Stock, other
than any such Capital Stock owned by the Company or by a Qualified Restricted
Subsidiary, (iii) make any principal payment on, or purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes (other than any such Indebtedness owing to a Qualified
Restricted Subsidiary to the extent such Indebtedness is not subject to any Lien
held by any Person other than the Company or a Qualified Restricted Subsidiary),
or (iv) make any Investment (other than Permitted Investments) (each of the
foregoing prohibited actions set forth in clauses (i), (ii), (iii) and (iv)
being referred to as a "Restricted Payment"), if at the time of such proposed
Restricted Payment or immediately after giving effect thereto, (I) a Default or
an Event of Default has occurred and is continuing or would result therefrom, or
(II) the Company is not, or would not be, able to Incur at least $1.00 of
additional Indebtedness under the Debt to Cash Flow Ratio test of paragraph (b)
of the section of the Indenture described under the heading "--Limitation on
Indebtedness
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and Preferred Stock" below, or (III) the aggregate amount of Restricted Payments
(including such proposed Restricted Payment) made subsequent to the Issue Date
of the 1997 Notes (the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined reasonably and in
good faith by the Board of Directors of the Company) exceeds or would exceed the
sum of:
(1) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company during the period (treating such period as a single accounting
period) beginning on October 1, 1997 and ending on the last day of the most
recent fiscal quarter of the Company ending immediately prior to the date of
the making of such Restricted Payment for which financial statements are
available ending not more than 135 days prior to the date of determination,
PLUS
(2) 100% of the aggregate net proceeds received by the Company from any
Person (other than from a Subsidiary of the Company) from the issuance and
sale of Qualified Capital Stock of the Company subsequent to the Issue Date
of the 1997 Notes and on or prior to the date of the making of such
Restricted Payment (excluding (A) any Qualified Capital Stock of the Company
paid as a dividend on any Capital Stock of the Company or of any of its
Subsidiaries and (B) any Qualified Capital Stock of the Company with respect
to which the purchase price thereof has been financed directly or indirectly
using funds (x) borrowed from the Company or from any of its Subsidiaries,
unless and until and to the extent such borrowing is repaid, or (y)
contributed, extended, guaranteed or advanced by the Company or by any of
its Subsidiaries (including, without limitation, in respect of any employee
stock ownership or benefit plan) and (C) any Net Equity Proceeds used by the
Company to provide a basis for the Incurrence of Indebtedness under clause
(xiv) of the definition of "Permitted Indebtedness"), PLUS
(3) an amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, repayments of loans or advances, or
other transfers of (including the fair market value of non-cash property
transferred), in each case to the Company or to any Qualified Restricted
Subsidiary from Unrestricted Subsidiaries (but without duplication of any
such amount included in calculating Consolidated Net Income of the Company),
or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (in each case valued as provided in "--Limitation on
Designation of Restricted and Unrestricted Subsidiaries" below), not to
exceed, in the case of any Unrestricted Subsidiary, the amount of
Investments previously made by the Company, or any Restricted Subsidiary in
such Unrestricted Subsidiary and which was treated as a Restricted Payment
hereunder, PLUS
(4) 100% of the aggregate cash received by the Company subsequent to the
Issue Date of the Notes and on or prior to the date of the making of such
Restricted Payment upon the exercise of options or warrants (whether issued
prior to or after the Issue Date of the Notes) to purchase Qualified Capital
Stock of the Company, PLUS
(5) without duplication of any amount included pursuant to clause (3)
above, an amount equal to the lesser of the cost or net cash proceeds
received by the Company upon the sale or other disposition of any Investment
made after the Issue Date of the Notes which had been treated as a
Restricted Payment (but without duplication of any amount included in
calculating Consolidated Net Income of the Company).
(b) Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph shall not prohibit:
(1) the payment of any dividend or the making of any distribution within
60 days after the date of declaration of such dividend or distribution if
the making thereof would have been permitted on the
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date of declaration; PROVIDED, HOWEVER, that such dividend shall be deemed
to have been made as of its date of declaration or the giving of such notice
for purposes of this clause (1);
(2) the acquisition of Capital Stock of the Company or warrants, rights
or options to acquire Capital Stock of the Company either (i) solely in
exchange for shares of Qualified Capital Stock of the Company or warrants,
rights or options to acquire Qualified Capital Stock of the Company, or (ii)
through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of shares of Qualified
Capital Stock of the Company or warrants, rights or options to acquire
Qualified Capital Stock of the Company; PROVIDED, HOWEVER, that no Default
or Event of Default shall have occurred and be continuing at the time of
such Restricted Payment pursuant to this clause (2) and would not result
therefrom;
(3) the acquisition of Indebtedness of the Company that is subordinate
or junior in right of payment to the Notes either (i) solely in exchange for
shares of Qualified Capital Stock of the Company or for Refinancing
Indebtedness, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) shares of Qualified Capital Stock of the Company or
warrants, rights or options to acquire Qualified Capital Stock of the
Company or (B) Refinancing Indebtedness; PROVIDED, HOWEVER, that no Default
or Event of Default shall have occurred and be continuing at the time of
such Restricted Payment pursuant to this clause (3) and would not result
therefrom;
(4) the repurchase, redemption, retirement or defeasance of Preferred
Stock issued in accordance with clause (xi) of the definition of Permitted
Indebtedness by the issuer thereof if and to the extent required by the
terms of such Preferred Stock;
(5) Permitted Stock Repurchases by the Company; PROVIDED, HOWEVER, that
the aggregate amount expended for all such Permitted Stock Repurchases by
the Company shall not exceed $1,000,000 in any fiscal year; PROVIDED,
FURTHER, HOWEVER, that no Default or Event of Default shall have occurred
and be continuing at the time of such Restricted Payment pursuant to this
clause (5) and would not result therefrom; and
(6) the payment of any amounts in respect of Capital Stock of any Person
organized as a partnership, limited liability company, or similar entity, to
the extent (A) of capital contributions made to such Person by holders of
its Capital Stock other than the Company or any Restricted Subsidiary and
(B) necessary to permit the holders of such Capital Stock to pay taxes in
respect thereof; PROVIDED, HOWEVER, that no Default or Event of Default
shall have occurred and be continuing at the time of any Restricted Payment
made pursuant to clause (A) of this clause (6) or would result therefrom.
(c) In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date of the Notes, amounts expended pursuant to clauses
(1), (2), (3) (other than with respect to Refinancing Indebtedness), and (5) of
paragraph (b) of this covenant shall, in each case, be included in such
calculation and, if such Restricted Payment is a Restricted Payment described in
clause (i) or (ii), then in addition, in determining the aggregate amount of
Restricted Payments made since the Issue Date of the Notes, amounts expended as
aforesaid, plus amounts expended pursuant to clauses (i) and (j) of the
definition of Permitted Investments shall, in each case, be included in such
calculation.
(d) Not later than the date of making any Restricted Payment in excess of
$2,000,000 individually or in the aggregate with all other Restricted Payments
made since the previous certification the Company shall deliver to the Trustee
an Officers' Certificate stating that such Restricted Payment complies with this
Indenture and setting forth in reasonable detail the basis upon which the
required calculations were computed (upon which the Trustee may conclusively
rely without any investigation whatsoever), which calculations may be based upon
the Company's latest available internal quarterly financial statements.
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LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK
(a) The Indenture provides that the Company shall not, and shall not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, Incur
any Indebtedness, including, without limitation, any Acquired Indebtedness, or
issue any Preferred Stock.
(b) Notwithstanding the foregoing limitations:
(I) the Company may (A) issue Qualified Capital Stock and (B) Incur (1)
Permitted Indebtedness, (2) Indebtedness (including, without limitation,
Acquired Indebtedness) if, in the case of this subclause (I)(B)(2), (i) no
Default or Event of Default shall have occurred and be continuing on the
date of the proposed Incurrence thereof or would result as a consequence of
such proposed Incurrence and (ii) immediately after giving pro forma effect
to such proposed Incurrence and the receipt and application of the net
proceeds therefrom, the Company's Debt to Cash Flow Ratio would not exceed
7.0 to 1.0, and (3) Refinancing Indebtedness Incurred to Refinance any such
Indebtedness Incurred pursuant to clause (I)(B)(2); and
(II) the Restricted Subsidiaries may Incur Indebtedness pursuant to
clauses (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi) and (xii) of
the definition of Permitted Indebtedness; PROVIDED, HOWEVER, that other than
as provided in clause (xi) of the definition of Permitted Indebtedness, such
Indebtedness shall not be Incurred pursuant to any assumption or guarantee
by any Restricted Subsidiary in respect of any other Restricted Subsidiary's
or the Company's Indebtedness.
(c) The Indenture provides that any Indebtedness of an entity existing at
the time it becomes a Restricted Subsidiary (whether by merger, consolidation,
acquisition of capital stock or otherwise) shall be deemed to be Incurred as of
the date such entity becomes a Restricted Subsidiary.
(d) The Indenture provides that the Company shall not, directly or
indirectly, in any event Incur any Indebtedness which by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated to any other
Indebtedness of the Company unless such Indebtedness is also by its terms (or by
the terms of any agreement governing such Indebtedness) made expressly
subordinated to the Notes to the same extent and in the same manner as such
Indebtedness is subordinated to such other Indebtedness of the Company.
(e) The Indenture provides that the Company shall not, and shall not permit
any Restricted Subsidiary to directly or indirectly, incur any Indebtedness
which provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary including any
right to take enforcement action against such Unrestricted Subsidiary.
LIMITATION ON CONSOLIDATION, MERGER, ETC. OF RESTRICTED SUBSIDIARIES
The Indenture provides that the Company shall not, directly or indirectly,
cause or permit any Restricted Subsidiary, directly or indirectly, to merge or
consolidate with or into, or sell, assign, transfer, lease or otherwise dispose
of all or substantially all of such Subsidiary's assets to, any other Restricted
Subsidiary unless, at the time of such merger or consolidation or sale,
assignment, transfer, lease or other disposition (and immediately after giving
effect thereto), (1) the Debt to Cash Flow Ratio of the Company is less than or
equal to 6.0 to 1.0 or (2) the resulting, surviving or transferee Restricted
Subsidiary is a Qualified Restricted Subsidiary or (3) the resulting, surviving
or transferee Restricted Subsidiary is a Restricted Subsidiary that is not a
Qualified Restricted Subsidiary and the total contribution to the Consolidated
EBITDA of the Company (such Consolidated EBITDA to be calculated for purposes of
this covenant without giving effect to clause (f) of the definition of
Consolidated Net Income) for the most recently ended fiscal quarter for which
financial information is available ending not more than 135 days prior to the
date of determination of such resulting, surviving or transferee Restricted
Subsidiary is not in
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excess of 25% of such Consolidated EBITDA. In addition, all transactions
permitted pursuant to this covenant would be required to comply with the
provisions described below under the heading "--Merger, Consolidation and Sale
of Assets."
LIMITATION ON LIENS
The Indenture provides that the Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume or permit or suffer to exist or remain in effect, any Liens upon any
properties or assets of the Company or of any Restricted Subsidiary whether
owned on the Issue Date of the Notes or acquired after the Issue Date of the
Notes, or on any income or profits therefrom, or assign or otherwise convey any
right to receive income or profits thereon, other than (A) Liens granted by the
Company on property or assets of the Company securing Indebtedness of the
Company that is permitted under the covenant described above under
"--Limitations on Indebtedness and Preferred Stock"; PROVIDED, HOWEVER, that the
Company makes or causes to be made effective provision whereby the Notes will be
secured equally and ratably with (or, in the case of any Indebtedness that is
subordinate or junior to the Notes, prior to) such Liens, (B) Permitted Liens
and (C) Liens on any Cash Equivalents constituting margin stock.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, enter into or
permit or suffer to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with or for the benefit of any of its
Affiliates (an "Affiliate Transaction"), other than any Affiliate Transaction
that is on terms that are fair and reasonable and no less favorable to the
Company or such Restricted Subsidiary than those that might reasonably have been
obtained at such time in a comparable transaction or series of related
transactions on an arms-length basis from a Person that is not such an
Affiliate; PROVIDED, HOWEVER, that for any Affiliate Transaction involving value
of $10,000,000 or more, a majority of the disinterested members of the Board of
Directors of the Company (and of such Restricted Subsidiary, as the case may be)
shall, prior to the consummation of such Affiliate Transaction, have reasonably
and in good faith determined, as evidenced by a Board Resolution, that such
Affiliate Transaction meets the requirements of the foregoing clause; PROVIDED,
FURTHER, HOWEVER, that for any Affiliate Transaction involving value of
$25,000,000 or more, the Board of Directors of the Company (and of such
Restricted Subsidiary, as the case may be) shall have received, prior to the
consummation thereof, a written opinion from an Independent Financial Advisor
that such Affiliate Transaction is on terms that are fair to the Company from a
financial point of view. The foregoing restrictions will not apply to (1)
reasonable fees and compensation paid to, and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors or
senior management, (2) any transaction solely between or among the Company and a
Wholly Owned Restricted Subsidiary of the Company or Wholly Owned Restricted
Subsidiaries of the Company to the extent any such transaction is otherwise in
compliance with, or not prohibited by, the Indenture, (3) any transaction solely
between or among Wholly Owned Restricted Subsidiaries of the Company to the
extent that any such transaction is otherwise in compliance with, or not
prohibited by, the Indenture, (4) any transaction otherwise permitted by the
terms of the section of the Indenture described above under "--Limitation on
Restricted Payments," (5) the execution and delivery of or payments made under
the Tax Sharing Agreement or in any amendment thereto or any replacement
agreement thereof; PROVIDED, HOWEVER, that such amendment or replacement is not
more disadvantageous to the Holders or the Company in any material respect than
such agreement in the form attached to the Indenture, (6) the licensing or
sublicensing of use of any FCC License or intellectual property by the Company
or any Restricted Subsidiary to any Subsidiary of the Company; PROVIDED,
HOWEVER, that the Company and its Restricted Subsidiaries continue to be able to
have access, on terms that are fair and reasonable, to such licenses or
intellectual property to the extent necessary for the conduct of their
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respective businesses, (7) the transfer or assignment of hardware or equipment
by the Company or any Restricted Subsidiary to any Subsidiary of the Company;
PROVIDED, HOWEVER, that the Company and its Restricted Subsidiaries continue to
be able to have access, on terms that are fair and reasonable, to such hardware
and equipment to the extent necessary for the conduct of their respective
businesses, (8) arrangements between the Company or any of its Restricted
Subsidiaries and any Subsidiary of the Company for the purposes of providing
services of employees to such Subsidiaries, (9) any transaction or series of
related transactions between the Company or any Wholly Owned Restricted
Subsidiary on the one hand and any Restricted Subsidiary on the other to the
extent fair and reasonable to the Company or such Wholly Owned Restricted
Subsidiary and to the extent on terms providing for fair value or reasonably
equivalent value to the Company or such Wholly Owned Restricted Subsidiary and
(10) the sale, conveyance, transfer, lease, assignment or other disposition to
any Restricted Subsidiary of contracts in respect of Qualified Projects entered
into by the Company (not previously entered into by any Restricted Subsidiary).
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Indenture provides that the Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or permit or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) pay dividends or
make any other distributions on its Capital Stock; (b) make loans or advances or
pay any Indebtedness or other obligation owed to the Company or to any
Restricted Subsidiary; or (c) transfer any of its property or assets to the
Company or to any Restricted Subsidiary (each such encumbrance or restriction in
clause (a), (b), or (c) a "Payment Restriction"), except for such encumbrances
or restrictions existing under or by reason of: (1) applicable law; (2) the
Indenture; (3) customary non-assignment provisions of any contract or lease of
any Restricted Subsidiary entered into in the ordinary course of business of
such Restricted Subsidiary; (4) any instrument governing Acquired Indebtedness
Incurred in accordance with the Indenture; PROVIDED, HOWEVER, that such
encumbrance or restriction is not, and will not be, applicable to any Person, or
the properties or assets of any Person, other than the Person or the property or
asset so acquired; (5) agreements existing on the Issue Date of the Notes to the
extent and in the manner such agreements are in effect on the Issue Date of the
Notes or in any amendment thereto or any replacement agreement thereof;
PROVIDED, HOWEVER, that such amendment or replacement is not more
disadvantageous to the Holders or the Company in any material respect than any
such agreement as in effect on the Issue Date of the Notes; (6) restrictions
imposed by Permitted Liens solely to the extent such Liens encumber the transfer
or other disposition of the assets subject to such Liens; (7) any restriction or
encumbrance contained in contracts for the sale of assets to be consummated in
accordance with the Indenture solely in respect of the assets to be sold
pursuant to such contract; (8) Indebtedness or Preferred Stock Incurred or
issued pursuant to clauses (x) and (xi) of the definition of Permitted
Indebtedness; or (9) any encumbrance or restriction contained in Refinancing
Indebtedness Incurred to Refinance the Indebtedness Incurred pursuant to an
agreement referred to in clauses (2), (4), (5) or (8) above; PROVIDED, HOWEVER,
that the provisions relating to such encumbrance or restriction contained in any
such Refinancing Indebtedness are no less favorable to the Company in any
material respect in the good faith judgment of the Board of Directors of the
Company than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4), (5) or (8).
LIMITATION ON DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
(a) The Indenture provides that the Board of Directors of the Company will
be permitted to designate any Unrestricted Subsidiary to be a Restricted
Subsidiary or any Restricted Subsidiary to be an Unrestricted Subsidiary;
PROVIDED, HOWEVER, that (i) immediately after giving effect to such designation
(treating such designation as an Incurrence of the outstanding Indebtedness of
any such Unrestricted Subsidiary), the Company could incur $1.00 of additional
Indebtedness pursuant to subclause (I)(B)(2) of paragraph (b) of "--Limitation
on Indebtedness and Preferred stock" above, (ii) no Default or Event of
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Default shall have occurred and be continuing or would arise therefrom and (iii)
in the case of designation of a Restricted Subsidiary to be an Unrestricted
Subsidiary, such designation is at that time permitted under the provisions
described in the section headed "--Limitation on Restricted Payments" above. The
Company shall deliver to the Trustee a certified copy of the Board Resolution of
its Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and setting forth in reasonable detail the underlying calculations.
The Board of Directors of the Company may not change the designation of a
Subsidiary of the Company more than twice in any period of five years.
(b) For purposes of determining compliance with the covenant "--Limitation
on Restricted Payments" described above, (i) an Investment shall be deemed to
have been made at the time any Restricted Subsidiary is designated as an
Unrestricted Subsidiary in an amount (proportionate to the Company's equity
interest in such Subsidiary) equal to the net worth of such Subsidiary of the
Company at the time that such Subsidiary is designated as an Unrestricted
Subsidiary; (ii) at any date the aggregate of all Restricted Payments made as
Investments since the Issue Date of the Notes shall exclude and be reduced by an
amount (proportionate to the Company's equity interest in such Subsidiary) equal
to the net worth of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary, not to exceed, in
the case of any such redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, the amount of Investments previously made by the Company and the
Restricted Subsidiaries in such Unrestricted Subsidiary (in each case (i) and
(ii) "net worth" to be calculated based upon the fair market value of the assets
of such Subsidiary as of any such date of designation); and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
(c) Notwithstanding the foregoing, the Board of Directors of the Company
will not be permitted to designate any Subsidiary of the Company to be an
Unrestricted Subsidiary unless such Subsidiary has been organized or acquired
after June 15, 1995 or if, after such designation, (x) the Company or any other
Restricted Subsidiary (i) provides credit support for, or a guarantee of, any
Indebtedness or any other obligation (contingent or otherwise) of such
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of
such Subsidiary (including by way of recourse only to properties or assets), (y)
a default with respect to any Indebtedness of such Subsidiary (including any
right which the holders thereof may have to take enforcement action against such
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of the Company or any Restricted Subsidiary to declare a
default on such other Indebtedness or cause payment thereof to be accelerated or
payable prior to its final scheduled maturity or (z) such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, any Restricted
Subsidiary which is not a Subsidiary of the Subsidiary to be so designated.
(d) Notwithstanding anything to the contrary herein, all Subsidiaries of a
Restricted Subsidiary will be Restricted Subsidiaries and all Subsidiaries of an
Unrestricted Subsidiary will be Unrestricted Subsidiaries.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The Indenture provides that the Company shall not cause or permit any
Restricted Subsidiary to issue any Preferred Stock (other than to the Company or
to a Qualified Restricted Subsidiary) or permit any Person (other than the
Company or a Qualified Restricted Subsidiary) to own or hold any Preferred Stock
of any Restricted Subsidiary; PROVIDED, HOWEVER, that (A) this covenant shall
not prohibit the issuance of any Preferred Stock by any Restricted Subsidiary
pursuant to clause (x) of the definition of Permitted Indebtedness and (B) if as
of any date any Person other than the Company or a Qualified Restricted
Subsidiary owns or holds any Preferred Stock of a Restricted Subsidiary or holds
any Lien in respect of any such Preferred Stock, such date shall be deemed the
date of an issuance of Preferred Stock by a Restricted Subsidiary that is not in
compliance with this covenant.
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LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, enter into any Sale
and Leaseback Transaction, except that the Company or any Restricted Subsidiary
may enter into a Sale and Leaseback Transaction if (i) immediately prior
thereto, and after giving effect to such Sale and Leaseback Transaction (the
Indebtedness thereunder being equivalent to the capitalized amount thereof that
would appear on the balance sheet of the Company or such Restricted Subsidiary
in accordance with GAAP), the Company could Incur at least $1.00 of additional
secured Indebtedness (other than Permitted Indebtedness) in compliance with the
covenant described above under the heading "--Limitations on Indebtedness and
Preferred Stock" and (ii) the transaction constitutes an Asset Sale effected in
accordance with the requirements of the section above headed "--Redemption or
Repurchase at the Option of the Holders--Limitation on Asset Sales."
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that Company shall not, in a single transaction or a
series of related transactions, consolidate or merge with or into any Person, or
sell, assign, transfer, lease, convey or otherwise dispose of (or cause or
permit any Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's and the
Company's Subsidiaries' properties and assets (determined on a consolidated
basis for the Company and the Company's Subsidiaries taken as a whole) whether
as an entirety or substantially as an entirety to any Person or adopt a Plan of
Liquidation unless:
(i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other
disposition of the properties and assets of the Company and of the Company's
Subsidiaries substantially as an entirety, or in the case of a Plan of
Liquidation, the Person to which assets of the Company and of the Company's
Subsidiaries have been transferred (x) shall be a corporation organized and
validly existing under the laws of the United States or any State thereof or
the District of Columbia and (y) shall expressly assume, by supplemental
indenture (in form and substance satisfactory to the Trustee), executed and
delivered to the Trustee, the due and punctual payment of the principal of,
and premium, if any, and interest on all of the Notes and the performance of
every covenant of the Notes, the Indenture and the Notes Registration Rights
Agreement on the part of the Company to be performed or observed;
(ii) immediately after giving effect to such transaction and the
assumption contemplated by clause(i)(2)(y) above (including giving effect to
any Indebtedness and Acquired Indebtedness Incurred or anticipated to be
Incurred in connection with or in respect of such transaction), the Company
(in the case of clause (1) of the foregoing clause (i)) or such Person (in
the case of clause (2) thereof) (1) shall not have a Debt to Cash Flow Ratio
greater than 110% of the Debt to Cash Flow Ratio of the Company immediately
prior to such transaction, determined on an annualized basis using the most
recent completed fiscal quarter for which financials are available and (2)
shall be able to Incur at least $1.00 of additional Indebtedness pursuant to
the Debt to Cash Flow Ratio test of subclause (I)(B)(2) of paragraph (b) of
the covenant described above under the heading "--Limitation on Indebtedness
and Preferred Stock;"
(iii) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness Incurred or anticipated to be Incurred and any Lien
granted in connection with or in respect of the transaction) no Default and
no Event of Default shall have occurred or be continuing; and
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(iv) the Company or such Person shall have delivered to the Trustee (A)
an Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance, other
disposition or Plan of Liquidation and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have been
satisfied and (B) a certificate from the Company's independent certified
public accountants stating that the Company has made the calculations
required by clause (ii) above in accordance with the terms of the Indenture
and the Notes after the consummation of such transaction.
Notwithstanding clause (ii) (2) above, (A) any Restricted Subsidiary of the
Company will be permitted to consolidate with, or merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its assets to the Company or to a Qualified Restricted Subsidiary and (B) the
Company or any of its Subsidiaries will be permitted to consolidate with or
merge with or into any Person that has conducted no business and incurred no
Indebtedness or other liabilities if such transaction is solely for the purpose
of effecting a change in the state of incorporation of the Company or such
Subsidiary.
(b) For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
(c) For all purposes of the Indenture and the Notes including the provisions
of this covenant and the covenants respectively described in "-- Limitations on
Restricted Payments," "--Limitation on Designation of Restricted and
Unrestricted Subsidiaries" and "--Limitation on Liens," Subsidiaries of the
Company or any surviving or transferee entity will, upon such transaction or
series of transactions, become Restricted Subsidiaries or Unrestricted
Subsidiaries as provided pursuant to "--Limitation on Designation of Restricted
and Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property
or assets, of the Company and the Restricted Subsidiaries immediately prior to
such transaction or series of transactions will be deemed to have been incurred
upon such transaction or series of transactions.
REPORTING REQUIREMENTS
The Indenture provides that whether or not required by the rules and
regulations of the SEC, so long as any of the Notes remain outstanding, the
Company shall cause copies of the reports required to be filed under Section
13(a) or 15(d) of the Exchange Act to be filed with the SEC and the Trustee and
mailed to the Holders at their addresses appearing in the register of Notes
maintained by the Trustee.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that an Event of Default shall occur upon the
happening of any of the following (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(i) the failure to pay interest on any Note for a period of 30 days or
more after such interest becomes due and payable; or the failure to pay any
additional interest under any applicable Registration Rights Agreement for a
period of 30 days or more after such additional interest becomes due and
payable; or
(ii) the failure to pay the principal or Accreted Value on any Note,
when such principal or Accreted Value becomes due and payable, at maturity,
upon redemption, pursuant to a Net Proceeds Offer, a Change of Control Offer
or otherwise; or
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(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture, which default continues for a period
of 45 days after the Company receives written notice specifying the default
(and requiring that such default be remedied) from the Trustee, with respect
to all Notes or Notes of any one or more classes, or from Holders of not
less than 25% in aggregate Accreted Value or principal amount of outstanding
Notes of the same class, with respect to Notes of the same class; or
(iv) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Material Subsidiary
(or the payment of which is guaranteed by the Company or any Material
Subsidiary), whether such Indebtedness or guarantee now exists, or is
created after the Issue Date, which default (a) is caused by a failure to
pay at final maturity or when due principal on such Indebtedness within the
grace period provided in such Indebtedness (which failure continues beyond
any applicable grace period) (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5,000,000 or more; or
(v) one or more judgments in an aggregate amount in excess of $5,000,000
(which are not paid or covered by third-party insurance by financially sound
insurers that have not finally disclaimed coverage) being rendered against
the Company or any of its Material Subsidiaries and such judgment or
judgments remain undischarged, or unstayed or unsatisfied for a period of 60
days after such judgment or judgments become final and non-appealable; or
(vi) as a consequence of the occurrence or continuation of any event or
condition (other than the passage of time), the Company or any Material
Subsidiary has become obligated to purchase or repay Indebtedness before its
regular maturity or before its regularly scheduled dates of payment in an
aggregate principal amount of at least $5,000,000 or one or more Persons
have the right to require the Company or any Material Subsidiary to purchase
or repay such Indebtedness; or
(vii) the Company or any Material Subsidiary (A) commences a voluntary
case or proceeding under any Bankruptcy Law with respect to itself, (B)
consents to the entry of a judgment, decree or order for relief against it
in an involuntary case or proceeding under any Bankruptcy Law, (C) consents
to the appointment of a custodian of it or for substantially all of its
property, (D) consents to or acquiesces in the institution of a bankruptcy
or an insolvency proceeding against it, (E) makes a general assignment for
the benefit of its creditors, or (F) takes any corporate action to authorize
or effect any of the foregoing; or
(viii) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any Material Subsidiary in an
involuntary case or proceeding under any Bankruptcy Law, which shall (A)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of the Company or any Material
Subsidiary, (B) appoint a custodian of the Company or any Material
Subsidiary or for substantially all of its property, or (C) order the
winding-up or liquidation of its affairs; and such judgment, decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or
(ix) any holder of at least $5,000,000 in aggregate principal amount of
Indebtedness of the Company or any Material Subsidiary shall commence
judicial proceedings to foreclose upon assets of the Company or any Material
Subsidiary having an aggregate fair market value, individually or in the
aggregate, of at least $5,000,000 or shall have exercised any right under
applicable law or applicable security documents to take ownership of any
such assets in lieu of foreclosure.
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The Company shall provide an Officers' Certificate to the Trustee promptly
upon any officer of the Company obtaining knowledge of any Default or Event of
Default (PROVIDED, HOWEVER, that pursuant to the reporting requirements of the
Indenture such officers shall provide such certification at least annually
whether or not they know of any Default or Event of Default) that has occurred
and, if applicable, describe such Default or Event of Default and the status
thereof.
If an Event of Default (other than an Event of Default specified in clauses
(vii) and (viii) above with respect to the Company) occurs and is continuing
with respect to any class of Notes, then and in every such case, the Trustee or
the Holders of not less than 25% in aggregate principal amount of the then
outstanding Notes of the same class may declare the Accreted Value (if prior to
the Full Accretion Date applicable to the relevant Note(s)), or all the unpaid
principal of, premium, if any, and accrued and unpaid interest on (if on or
after the Full Accretion Date applicable to the relevant Note(s)), all the Notes
of the same class then outstanding to be due and payable, by a notice in writing
to the Company (and to the Trustee, if given by Holders) specifying the Event of
Default and that it is a "notice of acceleration" (the "Acceleration Notice")
and upon such declaration the Accreted Value (if prior to the Full Accretion
Date applicable to the relevant Note(s)) or such principal amount, premium, if
any, and accrued and unpaid interest (if on or after the Full Accretion Date
applicable to the relevant Note(s)) on the Notes of the same class will become
immediately due and payable, notwithstanding anything contained in the Indenture
or the Notes of the same class to the contrary. If an Event of Default specified
in clauses (vii) or (viii) above with respect to the Company occurs, all unpaid
principal of, and premium, if any, and accrued and unpaid interest on, the Notes
of the same class then outstanding will IPSO FACTO become due and payable
without any declaration or other act on the part of the Trustee or any Holder.
After a declaration of acceleration, but before a judgment or decree of
money due in respect to the Notes of the same class has been obtained, the
Holders of not less than a majority in aggregate principal amount of the Notes
of the same class then outstanding by written notice to the Trustee may rescind
an acceleration and its consequences if all existing Events of Default (other
than the nonpayment of principal of and premium, if any, and interest on the
Notes of the same class which has become due solely by virtue of such
acceleration) have been cured or waived and if the rescission would not conflict
with any judgment or decree. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
Subject to certain provisions of the Indenture, prior to the declaration of
an acceleration of the Notes of the same class the Holders of not less than a
majority in principal amount of the Notes of the same class will be permitted to
waive any existing Default or Event of Default under the Indenture, and its
consequences, except a Default in the payment of the principal of or interest on
any Notes of the same class or a Default in respect of any term or provision of
the Notes of the same class or the Indenture that cannot be modified or amended
without the consent of all Holders.
The Holders will not be permitted to enforce the Indenture or the Notes
except as provided in the Indenture and under the TIA. Subject to the provisions
of the Indenture relating to the duties of the Trustee, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request, order or direction of any of the Holders, unless such Holders
have offered to the Trustee reasonable indemnity. Subject to all provisions of
the Indenture and applicable law, the Holders of a majority in aggregate
principal amount of the then outstanding Notes of the same class will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee. The Trustee will be permitted to withhold from Holders of Notes of
the same class notice of any continuing Default or Event of Default (except a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes of the same class or that resulted from the failure of
the Company to comply with "--Redemption or Repurchase at the Option of the
Holders-- Change of Control" or "--Certain Covenants--Merger, Consolidation and
Sale of Assets" above) if it determines that withholding notice is in their
interest.
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Under the Indenture, the Company will be required to provide an Officers'
Certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
DEFEASANCE
The Indenture provides that the Notes of any same class will cease to be of
further effect (except as to (i) rights of registration of transfer,
substitution and exchange of Notes of the same class, (ii) rights of Holders to
receive payments of principal of, premium, if any, and interest on the Notes of
the same class and any other rights of the Holders with respect to such amounts,
(iii) the rights, obligations and immunities of the Trustee under the Indenture
and (iv) certain other specified provisions in the Indenture (the foregoing
exceptions (i) through (iv) are collectively referred to as the "Reserved
Rights")) if: (1) the Company irrevocably deposits, or causes to be deposited,
with the Trustee, in trust for the benefit of the Holders pursuant to an
irrevocable trust and security agreement in form and substance reasonably
satisfactory to the Trustee (A) U.S. Legal Tender, (B) U.S. Government
Obligations or (C) a combination thereof, in an amount sufficient after payment
of all federal, state and local taxes or other charges or assessments in respect
thereof payable by the Trustee, which through the payment of interest and
principal will provide, not later than one day before the due date of payment in
respect of the Notes of the same class, U.S. Legal Tender in an amount which, in
the opinion of a nationally recognized firm of independent certified public
accountants expressed in a written certification thereof (in form and substance
reasonably satisfactory to the Trustee) delivered to the Trustee, is sufficient
to pay the principal of, premium, if any, and interest on the Notes of the same
class then outstanding on the dates on which any such payments are due and
payable in accordance with the terms of the Indenture and of the Notes of the
same class; PROVIDED, HOWEVER, that (I) the trustee of the irrevocable trust
shall have been irrevocably instructed to pay such money or the proceeds of such
U.S. Government Obligations to the Trustee; (II) the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of said principal and interest with
respect to the Notes of the same class; and (III) such money or the proceeds of
such U.S. Government Obligations shall have been on deposit with the Trustee for
a period of at least 90 days; (2) no Default or Event of Default shall have
occurred or be continuing on the date of such deposit and such deposit will not
result in a Default or Event of Default under the Indenture or a breach or
violation of, or constitute a default under, any other instrument to which the
Company or any Subsidiary of the Company is a party or by which it or its
property is bound; (3) the Company shall have delivered to the Trustee an
Opinion of Counsel from its independent counsel reasonably satisfactory to the
Trustee or a tax ruling from the Internal Revenue Service to the effect that the
Holders will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance and will be subject to federal income
tax in the same amounts and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred; (4) the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that after the 91st day following the deposit, such money or the proceeds of
such U.S. Government Obligations will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (5) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each in form and substance
reasonably satisfactory to the Trustee, each stating that all conditions
precedent relating to the satisfaction and discharge of the Indenture have been
complied with. In addition, the Company may terminate all of its obligations
under the Indenture (except as to certain of the Reserved Rights) when (a) all
outstanding Notes of the same class theretofore authenticated have been
delivered to the Trustee for cancellation and the Company has paid or caused to
be paid all sums payable under the Indenture by the Company or (b) the Company
has called for redemption pursuant to the Indenture all of the Notes of the same
class under arrangements satisfactory to the Trustee, the amounts described in
clause (1) above have been deposited as described therein, the
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conditions in clauses (I) and (II) of the provision to such clause (1) have been
satisfied and the certificate and opinion described in clause (5) above have
been delivered.
MODIFICATION OF THE INDENTURE
The Indenture provides that the Company, when authorized by a Board
Resolution, and the Trustee, together, will be permitted to amend or supplement
the Indenture or the Notes without notice to or consent of any Holder: (i) to
cure any ambiguity, defect or inconsistency; PROVIDED, HOWEVER, that such
amendment or supplement does not adversely affect the rights of any Holder; (ii)
to effect the assumption by a successor Person of all obligations of the Company
under the Notes, the Indenture and any Registration Rights Agreement in
connection with any transaction complying with "--Certain Covenants--Merger,
Consolidation and Sale of Assets" above; (iii) to provide for uncertificated
Notes in addition to or in place of certificated Notes; (iv) to comply with any
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA; (v) to make any change that would provide any
additional benefit or rights to the Holders; (vi) to provide for issuance of the
Exchange Notes (as defined) (which will have terms substantially identical in
all material respects to the Notes except that the transfer restrictions
contained in the Notes will be modified or eliminated, as appropriate), and
which will be treated together with any outstanding Notes, as a single issue of
securities; or (vii) to make any other change that does not adversely affect the
rights of any Holder under the Indenture; PROVIDED, HOWEVER, that the Company
has delivered to the Trustee an Opinion of Counsel stating that such amendment
or supplement complies with the provisions of the Indenture.
In addition, subject to certain exceptions, the Company, when authorized by
a Board Resolution, and the Trustee, together, may (a) with the written consent
of the Holders of not less than a majority in aggregate Accreted Value or
principal amount of the Notes of any class, amend or supplement the Indenture
with respect to such class, or (b) with the written consent of the Holders of
not less than a majority in aggregate Accreted Value or principal amount of the
Notes of any class, amend such Notes without notice to any other Holder. Any
such amendment or supplement affecting less than all classes of outstanding
Notes shall identify the classes to which it applies. Subject to certain
exceptions, the Holders of not less than a majority in Accreted Value or
aggregate principal amount of the Notes of any class may waive compliance by the
Company with any provision of the Indenture with respect to such class, and the
Holders of not less than a majority in Accreted Value or principal amount of the
Notes of any class may waive compliance by the Company with such Notes without
notice to any other Holder. However, no amendment, supplement or waiver, shall,
without the prior written consent of each Holder affected thereby: (i) reduce
the amount of Notes of the same class whose Holders must consent to an
amendment, supplement or waiver; (ii) reduce the rate of or change or have the
effect of changing the time for payment of interest, including defaulted
interest, on any Note; (iii) reduce the principal amount or Accreted Value (or
rate of accretion) of, or change or have the effect of changing the fixed
maturity of any Note, or change the date on which any Note may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Note payable in a currency other than that stated in the Note; (v)
make any change in provisions of the Indenture protecting the right of each
Holder to receive payment of principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment or permitting
Holders of not less than a majority in aggregate principal amount of the Notes
of the same class to waive Defaults or Events of Default, other than ones with
respect to the payment of principal of or interest on the Notes of the same
class, or relating to certain amendments of the Indenture; or (vi) amend, modify
or change the obligation of the Company to make or consummate any Change of
Control Offer in the event of a Change of Control or to make or consummate any
Net Proceeds Offer in respect of any Asset Sale that has been consummated, or
modify any of the provisions or definitions with respect thereto, or waive a
default in the performance of any obligation in respect of any such Change of
Control Offer or Net Proceeds Offer or consent to a departure from any of the
terms of such Change of Control Offer or Net Proceeds Offer.
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It shall not be necessary for the consent of the Holders under the Indenture
to approve the particular form of any proposed amendment, supplement or waiver,
but it shall be sufficient if such consent approves the substance thereof. After
an amendment, supplement or waiver under the Indenture becomes effective, the
Company shall mail to the Holders affected thereby a notice briefly describing
the amendment, supplement or waiver. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture. Every amendment, waiver or
supplement of the Indenture or the Notes shall comply with the TIA as then in
effect.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise of the rights and powers vested in it
under the Indenture as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions with the Company or
its Subsidiaries; PROVIDED, HOWEVER, that if the Trustee acquires any
conflicting interest as described in the TIA, it must eliminate such conflict or
resign.
CERTAIN DEFINITIONS
"Accreted Value" means with respect to any Note issued with original issue
discount, as of any date of determination prior to its Full Accretion Date, the
sum of (a) the Issue Price of such Note and (b) the portion of the excess of the
principal amount of such Note over the Issue Price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis at the rate of accretion per annum specified in such Note, compounded
semi-annually on each Interest Payment Date specified for such Note from its
Issue Date through the date of determination.
"Acquired Indebtedness" of any Person means Indebtedness of another Person
and any of such other Person's Subsidiaries existing at the time such other
Person becomes a Subsidiary of such Person or at the time it merges or
consolidates with such Person or any of such Person's Subsidiaries or is assumed
by such Person or any Subsidiary of such Person in connection with the
acquisition of assets from such other Person and in each case not Incurred by
such Person or any Subsidiary of such Person or such other Person in connection
with, or in anticipation or contemplation of, such other Person becoming a
Subsidiary of such Person or such acquisition, merger or consolidation.
"Affiliate" means, when used with reference to any Person, (i) any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, the referent Person or such other Person, as the
case may be, or (ii) any directors, officer or partner of such Person or any
Person specified in clause (i) above. For the purposes of this definition, the
term "control" when used with respect to any specified Person means the power to
direct or cause the direction of management or policies of such Person, directly
or indirectly, whether through the ownership of voting securities by contract or
otherwise; and the terms "affiliated," "controlling," and "controlled" have
meanings correlative of the foregoing. None of the Placement Agents nor any of
their respective Affiliates shall be deemed to be an Affiliate of
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the Company or of any of its Subsidiaries or Affiliates. No Wholly Owned
Restricted Subsidiary of the Company shall be deemed to be an Affiliate of the
Company or of any of its Wholly Owned Restricted Subsidiaries.
"Asset Acquisition" means (a) an Investment by the Company or any Subsidiary
of the Company in any other Person pursuant to which such Person shall become a
Subsidiary of the Company or shall be merged with or into the Company or any
Subsidiary of the Company, or (b) the acquisition by the Company or any
Subsidiary of the Company of assets of any Person comprising a division or line
of business of such Person or all or substantially all of the assets of such
Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other disposition for value (for purposes of this
definition, each a "disposition") by the Company or by any of its Restricted
Subsidiaries (including, without limitation, pursuant to any Sale and Leaseback
Transaction or any merger or consolidation of any Restricted Subsidiary of the
Company with or into another Person (other than the Company or any Qualified
Restricted Subsidiary) whereby such Restricted Subsidiary shall cease to be a
Restricted Subsidiary of the Company) to any Person of (i) any property or
assets of the Company or of any Restricted Subsidiary of the Company to the
extent that any such disposition is not in the ordinary course of business of
the Company or such Restricted Subsidiary or (ii) any Capital Stock of any
Restricted Subsidiary of the Company, in each case, which yields net cash
proceeds to the Company or any Restricted Subsidiary of at least $10 million
other than (1) any issuance and sale of Preferred Stock of a Restricted
Subsidiary pursuant to clause (xi) of the definition of Permitted Indebtedness,
(2) any disposition to the Company, (3) any disposition to any Qualified
Restricted Subsidiary, (4) any disposition made in accordance with the
Limitation on Restricted Payments, (5) any Lien to the extent that such Lien is
granted in compliance with the Limitation on Liens, (6) any transaction or
series of related transactions consummated in accordance with the section on
Merger, Consolidation and Sale of Assets (except as otherwise provided in the
last paragraph of subsection (a) of the Limitation on Asset Sales), (7) any
transaction or series of related transactions for fair market value resulting in
net cash proceeds to the Company or such Restricted Subsidiary of less than
$10,000,000 in any fiscal year of the Company, (8) the sale or discount, in each
case without recourse (direct or indirect), of accounts receivable arising in
the ordinary course of business of the Company or such Restricted Subsidiary, as
the case may be, but only in connection with the compromise or collection
thereof, (9) disposals or replacements of obsolete or worn out equipment in the
ordinary course of business of the Company or such Restricted Subsidiary, as the
case may be, (10) the factoring of accounts receivable arising in the ordinary
course of business of the Company or such Restricted Subsidiary, as the case may
be, pursuant to customary business terms, (11) the licensing in the ordinary
course of business of the Company or such Restricted Subsidiary, as the case may
be, of the use of the Company's or any of such Restricted Subsidiaries'
intellectual property or FCC Licenses, (12) any transfer of equipment in the
ordinary course of business from the Company or any Restricted Subsidiary to any
other Subsidiary of the Company or (13) the disposition of contracts in respect
of Qualified Projects entered into by the Company (not previously entered into
by any Restricted Subsidiary).
"BCN" means BCN Data Systems L.L.C., a limited liability company organized
under the laws of the State of Delaware, jointly owned and controlled by the
Company and BEn, and established for the purpose of deploying the Company's
wireless data communications systems in countries outside the United States. BCN
includes all other Persons jointly owned and controlled, directly or indirectly,
by the Company and BEn that are established or acquired and that are used for
the purpose of deploying the Company's wireless data communications systems
outside the United States.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person, and (ii) with respect to any
Person that is not a corporation, any and all partnership, membership or other
equity interests of such Person.
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"Capitalized Lease Obligation" means, as to any Person the discounted rental
stream payable by such Person that is required to be classified and accounted
for as a capital lease obligation under GAAP and, for purposes of this
definition, the amount of such obligation at any date shall be the capitalized
amount of such obligation at such date, determined in accordance with GAAP. The
final maturity of any such obligation shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without penalty.
"Cash Equivalents" mean (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the time
of acquisition, having one of the two highest ratings obtainable from either S&P
or Moody's; (iii) commercial paper maturing no more than one year from the date
of creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit,
Eurodollar deposits, or bankers' acceptances maturing within one year from the
date of acquisition thereof issued by any commercial bank organized under the
laws of the United States or any state thereof or the District of Columbia or
any United States branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $500,000,000; (v)
repurchase agreements and reverse repurchase agreements maturing within one year
from the date entered into with any bank meeting the qualifications specified in
clause (iv) above; and (vi) investments in mutual funds and money market
accounts investing at least 90% of the funds in Investments of the types
described in the foregoing clauses (i) through (v).
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors of the Company):
(i) the Company consolidates with or merges with or into another Person
or the Company or any of its Subsidiaries, directly or indirectly, sells,
assigns, conveys, transfers, leases or otherwise disposes of, in one
transaction or a series of related transactions, all or substantially all of
the property or assets of the Company and its Subsidiaries (determined on a
consolidated basis) to any Person or group of related Persons for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable
(a "Group of Persons"), or any Person consolidates with, or merges with or
into, the Company (whether or not in compliance with the terms of the
Indenture), in any such event pursuant to a transaction in which immediately
after the consummation thereof the Persons owning Voting Stock of the
Company having greater than 50% of the total voting power of the outstanding
Voting Stock of the Company immediately prior to the consummation of such
transaction shall cease to own, directly or indirectly, the Voting Stock of
the surviving or transferee entity or of the Company having greater than 50%
of the total voting power of the outstanding Voting Stock of such Person; or
(ii) the approval by the holders of Capital Stock of the Company of any
Plan of Liquidation (whether or not otherwise in compliance with the
provisions of the Indenture); or
(iii) any Person or Group of Persons either (1) is or becomes, by
purchase, tender offer, exchange offer, open market purchases, privately
negotiated purchases or otherwise, the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire at the time of
determination, whether such right is exercisable immediately or after the
passage at the time of determination of ninety (90) days or less), directly
or indirectly, of Voting Stock of the Company having greater than 50% of the
total voting power of the outstanding Voting Stock of the Company (for the
purpose of this clause (iii), such Person or Group of Persons will be deemed
to "beneficially own" (determined as aforesaid) any Voting Stock of a
corporation (the "specified corporation") held by any other corporation (the
"parent corporation") if such Person or Group of
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Persons "beneficially owns," directly or indirectly, Voting Stock of such
parent corporation having a majority of the voting power of the outstanding
Voting Stock of such parent corporation) or (2) otherwise has the ability to
elect, directly or indirectly, a majority of the members of the Board of
Directors of the Company; PROVIDED, HOWEVER, that for purposes of this
clause (iii), a Person shall not be deemed the beneficial owner of any
securities in respect of which beneficial ownership by such Person arises
solely as a result of a revocable proxy delivered in response to a proxy or
consent solicitation that is made pursuant to, and in accordance with
applicable law for a shareholder meeting, or, if the Company is at the time
required to file reports under Section 13 or 15 of the Exchange Act, and is
not then reportable on Schedule 13D (or any successor schedule, form or
report) under the Exchange Act; or
(iv) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors
or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the directors of the Company then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the Company
then in office.
For purposes of the foregoing definition of Change of Control, the transfer
(by lease, assignment, sale or otherwise, in a single transaction or series of
related transactions) of all or substantially all of the properties or assets of
one or more Subsidiaries of the Company, the Capital Stock of which constitutes
all or substantially all of the properties and assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
"class" means a group of Initial Notes issued on a single Issue Date or
specifically providing by their terms that they are to be treated as part of a
single class, including all Exchange Notes issued in exchange therefor.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income of such Person for such
period, PLUS, (ii) to the extent that any of the following shall have been taken
into account in determining such Consolidated Net Income, (A) all income taxes
of such Person and its Restricted Subsidiaries paid or accrued in accordance
with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions of assets outside the ordinary course of business), (B)
Consolidated Interest Expense for such Person for such period, (C) amortization
expense (including the amortization of deferred financing charges) and
depreciation expense for such Person and its Restricted Subsidiaries for such
period, and (D) other non-cash items (other than non-cash interest) reducing
Consolidated Net Income for such Person and its Restricted Subsidiaries for such
period, other than any non-cash item for such period that requires the accrual
of or a reserve for cash charges for any future period and other than any
non-cash charge for such period constituting an extraordinary item of loss, less
(iii)(A) all non-cash items increasing Consolidated Net Income for such Person
and its Restricted Subsidiaries for such period and (B) all cash payments during
such period relating to non-cash items that were added back in determining
Consolidated EBITDA in any prior period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, as determined in
accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the aggregate
net income (or loss) of such Person and its Restricted Subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP; PROVIDED,
HOWEVER, that there shall be excluded therefrom (a) net after-tax gains and
losses from all sales or other dispositions of assets outside the ordinary
course of business, (b) net after-tax extraordinary or nonrecurring gains or
losses, (c) the net income of any Person acquired in a
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"pooling of interests" transaction accrued prior to the date it becomes a
Restricted Subsidiary of such Person or is merged or consolidated with such
Person or any Restricted Subsidiary, (d) the cumulative effect of a change in
accounting principles, (e) any net income of any other Person if such other
Person is not a Restricted Subsidiary and is accounted for by the equity method
of accounting, except that such Person's equity in the net income of any such
other Person for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such other Person
during such period to such Person or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution to
a Restricted Subsidiary, to the limitation that such amount so paid to
Restricted Subsidiary shall be excluded to the extent that such amount could not
at that time be paid to the Company or Qualified Restricted Subsidiary due to
the restrictions set forth in clause (f) below (regardless of any waiver of such
conditions)), (f) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, by contract,
operation of law, pursuant to its charter or otherwise on the payment of
dividends or the making of distributions by such Restricted Subsidiary to such
Person, except that (A) such Person's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been paid or
distributed during such period to such Person or a Qualified Restricted
Subsidiary as a dividend or other distribution (provided that such ability is
not due to a waiver of such restriction) and (B) such Person's equity in a net
loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income, (g) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following the Issue Date
of the 1997 Notes, (h) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such period
whether or not such operations were classified as discontinued), and (i) in the
case of a successor to such Person by consolidation or merger or as a transferee
of such Person's assets, any net income or loss of the successor corporation
prior to such consolidation, merger or transfer of assets.
"Consolidated Total Indebtedness" means, with respect to any Person, on any
date, without duplication, the aggregate outstanding principal amount of
Indebtedness of such Person and its Restricted Subsidiaries.
"Debt to Cash Flow Ratio" means, as to any Person, the ratio of (i) the
Consolidated Total Indebtedness of such Person as of the date of calculation
(the "Determination Date") to (ii) the product of (A) the Consolidated EBITDA of
such Person for the full fiscal quarter for which financial information is
available ending not more than 135 days prior to the transaction or event giving
rise to the need to calculate the Debt to Cash Flow Ratio (such fiscal quarter,
the "Measurement Period") and (B) four.
For purposes of this definition, the Consolidated Total Indebtedness of the
Person as of the Determination Date shall be adjusted as if the Indebtedness
giving rise to the need to perform such calculation had been Incurred and the
proceeds therefrom had been applied on the Determination Date. For purposes of
calculating Consolidated EBITDA of the Company for the Measurement Period
immediately prior to the relevant Determination Date, (I) any Person that is a
Restricted Subsidiary on such Determination Date (or would become a Restricted
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of such ratio) will be deemed to have been a
Restricted Subsidiary at all times during such Measurement Period, (II) any
Person that is not a Restricted Subsidiary on such Determination Date (or would
cease to be a Restricted Subsidiary on such Determination Date in connection
with the transaction that requires the determination of such ratio) will be
deemed not to have been a Restricted Subsidiary at any time during such
Measurement Period, and (III) if the Company or any Restricted Subsidiary shall
have in any manner (x) acquired (including through an Asset Acquisition or the
commencement of activities constituting such operating business) or (y) disposed
of (including by way of an Asset Sale or the termination or discontinuance of
activities constituting such operating business) any operating business during
the Measurement Period or after the end of such Measurement Period and on or
prior to the Determination Date, such calculation will be made on a
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PRO FORMA basis in accordance with GAAP as if, in the case of an Asset
Acquisition or the commencement of activities constituting such operating
business, all such transactions had been consummated on the first day of such
Measurement Period and, in the case of an Asset Sale or termination or
discontinuance of activities constituting such operating business, all such
transactions had been consummated prior to the first day of such Measurement
Period; PROVIDED, HOWEVER, that such PRO FORMA adjustment shall not give effect
to the Consolidated EBITDA of any acquired Person to the extent that such
Person's net income would be excluded pursuant to clause (f) of the definition
of Consolidated Net Income.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Disqualified Capital Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, is required to be redeemed or
is redeemable (at the option of the holder thereof) at any time prior to the
earlier of the repayment of all Notes or the stated maturity of the Notes or is
exchangeable for Indebtedness at any time prior to the earlier of the repayment
of all Notes or the stated maturity of the Notes.
"Event of Default" has the meaning provided in "--Events of Default and
Remedies."
"Exchange Notes" means Notes issued in exchange for Initial Notes pursuant
to registration rights agreements.
"FCC License" means an authorization that has been duly granted by the FCC,
approving the control and use of specified frequencies by the licensed Person.
"fair market value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arms-length, free market
transaction, for cash, between an informed and willing seller and an informed
and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair market value shall be determined by
the Board of Directors of the Company acting in good faith and shall be
evidenced by a Board Resolution (certified by the Secretary or Assistant
Secretary of the Company) delivered to the Trustee; PROVIDED, HOWEVER, that if
(A) the aggregate non-cash consideration to be received by the Company or any of
its Subsidiaries from any Asset Sale shall reasonably be expected to exceed
$5,000,000 or (B) the net worth of any Restricted Subsidiary to be designated as
an Unrestricted Subsidiary shall reasonably be expected to exceed $10,000,000,
in each case, upon completion of the transaction occasioning such calculation,
then fair market value shall be determined by an Independent Financial Advisor.
"Form of Security" means, with respect to Initial Notes, the form of
security attached to the Indenture as Exhibit A, and with respect to Exchange
Notes, the form of security attached to the Indenture as Exhibit B.
"Full Accretion Date" means with respect to any Note issued with original
issue discount, the date designated as the Full Accretion Date in such Note, and
with respect to any other Note, its Issue Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date of the
1997 Notes.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well,
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to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term
"guarantee" shall not include (a) endorsements for collection or deposit in the
ordinary course of business, or (b) commitments to make Permitted Investments in
Restricted Subsidiaries. The term "guarantee" used as a verb has a corresponding
meaning.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing).
"Indebtedness" means with respect to any Person, without duplication,
whether contingent or otherwise, (i) any obligation for money borrowed, (ii) any
obligation evidenced by bonds, debentures, Notes, or other similar instruments,
(iii) reimbursement obligations in respect of letters of credit or other similar
instruments, (iv) any obligation to pay the deferred purchase price of property
or services including Capitalized Lease Obligations, (v) the maximum fixed
redemption or repurchase price of Disqualified Capital Stock, (vi) indebtedness
of others of the types described in clauses (i) through (v) above, secured by a
lien on the assets of such Person or its Restricted Subsidiaries, valued, in
such cases where the recourse thereof is limited to such assets, at the lesser
of the principal amount of such Indebtedness or the fair market value of the
subject assets, (vii) indebtedness of others of the types described in clauses
(i) through (v) above, guaranteed by such Person or its Restricted Subsidiaries
and (viii) all obligations of such Person under Interest Swap Obligations;
PROVIDED, HOWEVER, that the amount of any Indebtedness at any date shall be the
outstanding balance of all unconditional obligations and the maximum liability
supported by any contingent obligations at such date. Notwithstanding the
foregoing, "Indebtedness" shall not be construed to include trade payables,
credit on open account, accrued liabilities or daylight overdrafts. For purposes
hereof, the "maximum fixed redemption or repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock. The amount outstanding at any time of any Indebtedness issued with
Original Issue Discount is the full amount of such Indebtedness less the
remaining unamortized portion of the Original Issue Discount of such
Indebtedness at such time as determined in conformity with GAAP.
"Indenture" means the Indenture, as amended or supplemented from time to
time in accordance with the terms thereof.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking or consulting firm of nationally recognized standing that is, in the
reasonable and good faith judgment of the Board of Directors of the Company,
qualified to perform the task for which such firm has been engaged and
disinterested and independent with respect to the Company and its Affiliates.
"Initial Notes" means Notes issued from time to time in accordance with the
terms of the Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a) (1), (2), (3) or
(7) under the Securities Act.
"Interest Payment Date" means, for any Note, a semi-annual Interest Payment
Date so designated in such Note.
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"Interest Swap Obligations" means the obligations of any Person under any
interest rate protection agreement, interest rate future, interest rate option,
interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
to the date hereof and from time to time hereafter.
"Investment" by any Person means any direct or indirect (i) loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property or assets (valued at the fair market value thereof as of the
date of transfer) to other Persons or payments for property or services for the
account or use of other Persons, or otherwise); (ii) purchase or acquisition of
Capital Stock, bonds, Notes, debentures or other securities or evidences of
Indebtedness issued by any other Person (whether by merger, consolidation,
amalgamation or otherwise and whether or not purchased directly from the issuer
of such securities or evidences of Indebtedness); (iii) guarantee or assumption
of any Indebtedness or any other obligation of any other Person (except for an
assumption of Indebtedness for which the assuming Person receives consideration
at the time of such assumption in the form of property or assets with a fair
market value at least equal to the principal amount of the Indebtedness
assumed); (iv) the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or other beneficial ownership of any
Person; and (v) all other items that would be classified as investments
(including, without limitation, purchases of assets outside the ordinary course
of business) on a balance sheet of such Person prepared in accordance with GAAP.
Notwithstanding the foregoing, the purchase or acquisition of any securities of
any other Person solely with Qualified Capital Stock shall not be deemed to be
an Investment. Investments shall exclude extensions of trade credit and advances
to customers and suppliers to the extent made in the ordinary course of business
on ordinary business terms. The amount of any non-cash Investment shall be the
fair market value of such Investment, as determined conclusively in good faith
by management of the Company unless the fair market value of such Investment
exceeds $5,000,000, in which case the fair market value shall be determined
conclusively in good faith by the Board of Directors of the Company at the time
such Investment is made. The amount of any Investment shall not be adjusted for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Issue Date" means, with respect to any Initial Notes, the Issue Date so
designated in such Notes.
"Issue Price" means, with respect to any Initial Note, the purchase price
paid therefor on its Issue Date.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or other similar encumbrance (including without limitation,
any conditional sale or other title retention agreement or lease in the nature
thereof, any option or other agreement to sell, and any filing of or agreement
to give, any security interest).
"Material Subsidiary" means, at any date of determination, any Subsidiary of
the Company which together with its Subsidiaries and each Defaulting Subsidiary
(as defined below) either (A) had assets which, as of the date of the Company's
most recent quarterly consolidated balance sheet, constituted at least 25% of
the Company's total assets on a consolidated basis as of such date, in each case
determined in accordance with GAAP, or (B) had EBITDA for the 12-month period
ending on the date of the Company's most recent quarterly consolidated statement
of income which constituted at least 25% of the Company's Consolidated EBITDA
(such calculation of Consolidated EBITDA of the Company for the purposes of this
definition to be calculated without giving effect to clause (f) of the
definition of Consolidated Net Income) for such period. "Defaulting Subsidiary"
means any Subsidiary of the Company with respect to which an event described
under clause (iv), (v), (vii), (viii) or (ix) of Events of Default and Remedies
Section has occurred and is continuing, determined as if the references to the
words "Material Subsidiary" in each such clause were a reference to the words
"Subsidiary of the Company" therein.
"Maturity Date" means with respect to any Note, the Maturity Date so
designated in such Note.
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"Maximum Issuance Amount" means, with respect to Notes of any class, the
amount, if any, designated in such Notes as the Maximum Issuance Amount for such
class.
"Moody's" means Moody's Investor Service.
"Net Cash Proceeds" means with respect to any Asset Sale, the proceeds in
the form of any combination of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents received by the Company or any of its Restricted Subsidiaries
from such Asset Sale, net of (a) reasonable out-of-pocket expenses and fees
relating to such Asset Sale (including, without limitation, brokerage, legal,
accounting and investment banking fees and sales commissions), (b) taxes paid or
payable after taking into account any reduction in tax liability due to
available tax credits or deductions and any tax sharing arrangements, (c)
repayment of Indebtedness (other than any intercompany Indebtedness) that is
required by the terms thereof to be repaid or pledged as cash collateral, or the
holders of which otherwise have a contractual claim which is legally superior to
any claim of the Holders (including a restriction on transfer) to the proceeds
of the subject assets, in connection with such Asset Sale, and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary of the
Company, as the case may be, as a reserve, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary of the Company, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net proceeds received by
the Company, after payment of expenses, commissions and the like (including,
without limitation, brokerage, legal, accounting and investment banking fees and
commissions) incurred in connection therewith, and (b) in the case of any
exchange, exercise, conversion or surrender of any outstanding Indebtedness of
the Company or any Restricted Subsidiary of the Company for or into shares of
Qualified Capital Stock of the Company, the amount of such Indebtedness (or, if
such Indebtedness was issued at an amount less than the stated principal amount
thereof, the accrued amount thereof as determined in accordance with GAAP) as
reflected in the consolidated financial statements of the Company prepared in
accordance with GAAP as of the most recent date next preceding the date of such
exchange, exercise, conversion or surrender (plus any additional amount required
to be paid by the holder of such Indebtedness to the Company or to a Qualified
Restricted Subsidiary of the Company upon such exchange, exercise, conversion or
surrender and less any and all payments made to the holders of such
Indebtedness, and all other expenses incurred by the Company in connection
therewith), in the case of each of (a) and (b) above to the extent consummated
after the Issue Date; PROVIDED, HOWEVER, that Net Equity Proceeds shall not
include or be deemed to include (A) the exchange, exercise, conversion or
surrender of any Indebtedness outstanding or Incurred on the Issue Date of the
1997 Notes that is subordinated (whether pursuant to its terms or by operation
of law) to the Notes, and (B) any Net Equity Proceeds from a Public Equity
Offering to the extent utilized to redeem the Notes.
"Net Proceeds Offer" has the meaning provided in "--Redemption or Repurchase
at the Option of the Holders--Limitation of Asset Sales."
"Net Proceeds Offer Amount" has the meaning provided in "--Redemption or
Repurchase at the Option of the Holders--Limitations on Asset Sales."
"Net Proceeds Offer Payment Date" has the meaning provided in "--Redemption
or Repurchase at the Option of the Holders--Limitations on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning provided in "--Redemption
or Repurchase at the Option of the Holders--Limitations on Asset Sales."
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"Notes" means the Initial Notes (including the Old Notes) and the Exchange
Notes (including the New Notes) issued from time to time under the Indenture.
"Notes Registration Rights Agreement" means, with respect to any Initial
Notes to be exchanged for Exchange Notes, the Registration Rights Agreement
dated on or about the Issue Date of such Initial Notes and providing
registration rights with respect to such Initial Notes.
"Obligations" mean all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officers' Certificate" means, with respect to any person, a certificate
signed by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of such Person and otherwise complying with the requirements
of Sections 10.04 and 10.05 of the Indenture, as they relate to the making of an
Officers' Certificate.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of Sections
10.04 and 10.05 of the Indenture, as they relate to the giving of an Opinion of
Counsel.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness Incurred by the Company under its 1995 Notes, any
Refinancing Indebtedness Incurred to Refinance such Indebtedness, and any
Old Notes issued in exchange for the 1995 Notes;
(ii) Indebtedness Incurred by the Company under revolving credit and
letter of credit facilities and any Refinancing Indebtedness Incurred to
Refinance such Indebtedness to the extent that the aggregate principal
amount at any time outstanding of such Indebtedness and any such Refinancing
Indebtedness does not exceed $25,000,000;
(iii) Indebtedness of the Company and its Subsidiaries outstanding on the
Issue Date of the Notes and reflected in the financial statements set forth
in Offering Memorandum as in effect on the Issue Date of the Notes (it being
understood that such Prospectus may no longer accurately reflect existing
Indebtedness on any Issue Date other than the Issue Date of the Notes)
reduced by the amount of any scheduled amortization payments or mandatory
prepayments when actually paid or permanent reductions thereon and any
Refinancing Indebtedness Incurred to Refinance such Indebtedness;
(iv) Indebtedness of the Company or of any Restricted Subsidiary of the
Company under Interest Swap Obligations; PROVIDED, HOWEVER, that such
Interest Swap Obligations are entered into to protect the Company or such
Subsidiary from fluctuations in interest rates on Indebtedness Incurred in
accordance with the Indenture (as determined in good faith by a senior
financial officer of the Company), to the extent the notional principal
amount of such Interest Swap Obligation does not exceed the principal amount
of the Indebtedness to which such Interest Swap Obligation relates;
(v) additional Indebtedness Incurred by the Company or by any of the
Restricted Subsidiaries and any Refinancing Indebtedness Incurred to
Refinance such Indebtedness to the extent that the aggregate principal
amount at any time outstanding of such Indebtedness and any such Refinancing
Indebtedness does not exceed the greater of (x) $25,000,000 and (y) the
product of (I) Consolidated EBITDA of the Company for the most recently
ended fiscal quarter for which financial statements are available ending not
more than 135 days prior to the date of determination and (II) four;
(vi) Indebtedness of a direct or indirect Restricted Subsidiary to the
Company for so long as such Indebtedness is held by the Company or a direct
or indirect Qualified Restricted Subsidiary in each case subject to no Lien
held by any Person other than the Company or a Qualified Restricted
Subsidiary of the Company; PROVIDED, HOWEVER, that if as of any date any
Person other than the
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Company or a direct or indirect Qualified Restricted Subsidiary owns or
holds any such Indebtedness or holds a Lien in respect of such Indebtedness,
such date shall be deemed the Incurrence of Indebtedness not constituting
Permitted Indebtedness under this clause (vi) by the issuer of such
Indebtedness;
(vii) Indebtedness of the Company or of a direct or indirect Restricted
Subsidiary to any direct or indirect Restricted Subsidiary of the Company
for so long as such Indebtedness is held by the Company or by a direct or
indirect Qualified Restricted Subsidiary in each case subject to no Lien
held by any Person other than the Company or a Qualified Restricted
Subsidiary; PROVIDED, HOWEVER, that (a) any Indebtedness of the Company to
any direct or indirect Subsidiary of the Company is unsecured and evidenced
by an intercompany promissory Note that, other than in the case of a foreign
Restricted Subsidiary, is subordinated, to the Company's obligations under
the Indenture and the Notes, and (b) if as of any date any Person other than
the Company or a direct or indirect Qualified Restricted Subsidiary owns or
holds any such Indebtedness or holds a Lien in respect of such Indebtedness,
such date shall be deemed the Incurrence of Indebtedness not constituting
Permitted Indebtedness under this clause (vii) by the issuer of such
Indebtedness;
(viii) (A) Indebtedness of any corporation that becomes a Restricted
Subsidiary after the Issue Date of the 1997 Notes which Indebtedness existed
at the time such corporation becomes a Restricted Subsidiary; PROVIDED,
HOWEVER, that (a) such Indebtedness was not Incurred as a result of or in
connection with or anticipation of such corporation becoming a Restricted
Subsidiary, (b) immediately before and immediately after giving effect to
such corporation becoming a Restricted Subsidiary, the Company could Incur
at least $1.00 of additional Indebtedness in accordance with the Debt to
Cash Flow Ratio test described above in the section headed "--Limitation on
Indebtedness and Preferred Stock" and (c) such Indebtedness is without
recourse to the Company or to any of its Subsidiaries or to any of their
respective properties or assets other than the Person becoming a Restricted
Subsidiary or its properties and assets and (B) any Refinancing Indebtedness
Incurred to Refinance such Indebtedness;
(ix) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn
against insufficient funds in the ordinary course of business; PROVIDED,
HOWEVER, that such Indebtedness is extinguished within three Business Days
of its Incurrence;
(x) (A) Indebtedness Incurred or Preferred Stock issued by any
Restricted Subsidiary, the proceeds of which will be used to finance
Qualified Projects; PROVIDED, HOWEVER, that no such Indebtedness may, except
as permitted by clause (xi) of this definition and by the provisions
described under the heading "--Certain Covenants--Limitation on
Consolidation, Merger, etc. of Restricted Subsidiaries," be Incurred
directly or indirectly by any other Restricted Subsidiary in respect of such
Indebtedness pursuant to a guarantee, pledge of assets, assumption or
otherwise or as a result of or pursuant to the merger or consolidation of
any other Restricted Subsidiary with or into the Restricted Subsidiary
Incurring the Indebtedness pursuant to this clause (x) and (B) any
Refinancing Indebtedness Incurred to Refinance such Indebtedness;
(xi) Indebtedness Incurred by any one or more Restricted Subsidiaries
pursuant to a guarantee or assumption in respect of any Indebtedness
(including Refinancing Indebtedness Incurred pursuant to subclause (B)
thereof) of any other Restricted Subsidiary Incurred by such other
Restricted Subsidiary pursuant to clause (x) of this definition; PROVIDED,
HOWEVER, that no such Indebtedness of such other Restricted Subsidiary may
be guaranteed or otherwise assumed pursuant to this clause (xi) unless
either (1) at the time of such guarantee or assumption the Debt to Cash Flow
Ratio of the Company is less than or equal to 6.0 to 1.0 or (2) at the time
of such guarantee or assumption (after giving effect thereto) the total
contribution to the Consolidated EBITDA of the Company (such Consolidated
EBITDA to be calculated for purposes of this clause (xi) without giving
effect to clause
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(f) of the definition of Consolidated Net Income) for the most recently
ended fiscal quarter for which financial information is available ended not
more than 135 days prior to the date of determination of the Restricted
Subsidiaries which have Incurred Indebtedness or issued Preferred Stock
pursuant to clause (x) of this definition (which such Indebtedness or
Preferred Stock is outstanding at the time of determination) and of the
Restricted Subsidiaries which have guaranteed or otherwise assumed such
outstanding Indebtedness pursuant to this clause (xi) (which such guarantee
or assumption is in effect) is not in excess of 25% of such Consolidated
EBITDA;
(xii) Indebtedness in respect of Cash Equivalents pursuant to clause (v)
of the definition thereof;
(xiii) Indebtedness Incurred by the Company in connection with the
issuance in the high yield market of a single class of Notes not exceeding
$150,000,000 ($100,324,075 of which is represented by the 1997 Notes offered
hereby) in aggregate principal amount or initial Accreted Value (and not
less than $75,000,000 in initial aggregate principal amount or initial
Accreted Value); PROVIDED, that the Indebtedness Incurred pursuant to this
clause (xiii) shall rank PARI PASSU with or subordinate to any Notes
outstanding on the Issue Date thereof and shall neither mature nor provide
for any scheduled redemptions, installment payments of principal or sinking
fund payments, prior to the Maturity Date of any Notes outstanding on the
Issue Date thereof; and
(xiv) at any time after the Issue Date of the Indebtedness described in
clause (xiii) above, additional unsecured Indebtedness Incurred by the
Company in connection with the issuance of Notes solely for the purpose of
financing the development, manufacture, marketing, sale, delivery,
construction, integration, installation, deployment, maintenance, repair and
improvement of the Company's wireless data communications systems not
exceeding, in aggregate principal amount or initial Accreted Value, the
cumulative aggregate Net Equity Proceeds received in cash by the Company
after August 1, 1997, multiplied by two; PROVIDED, that (A) Indebtedness
Incurred pursuant to this clause (xiv) shall rank PARI PASSU with or
subordinate to any Notes outstanding on the Issue Date thereof and shall
neither mature nor provide for any scheduled redemptions, installment
payments of principal or sinking fund payments, prior to the Maturity Date
of any Notes outstanding on the Issue Date and (B) Net Equity Proceeds used
to provide a basis for the incurrence of Indebtedness under this clause
(xiv) may not be used to provide a basis for making Restricted Payments
under "--Certain Covenants-- Limitations on Restricted Payments."
"Permitted Investments" mean, without duplication, each of the following:
(a) Investments in cash (including deposit accounts with major commercial
banks) and Cash Equivalents;
(b) Investments by the Company or by any Restricted Subsidiary in any Person
that is or will become immediately after such Investment a direct or indirect
Wholly Owned Restricted Subsidiary; PROVIDED, HOWEVER, that (A) for purposes of
calculating at any date the aggregate amount of Investments made since the Issue
Date of the 1997 Notes under the section of the Indenture described under the
heading "--Certain Covenants--Limitation on Restricted Payments," such
Investment shall be a Permitted Investment only so long as any such Subsidiary
in which the Investment has been made meets the conditions set forth in this
clause (b), (B) no such Investment may be made in any Restricted Subsidiary by
the Company pursuant to a guarantee or other assumption of such Restricted
Subsidiary's Indebtedness, (C) no such Investment may be made in any Restricted
Subsidiary by another Restricted Subsidiary pursuant to a guarantee or other
assumption of such Restricted Subsidiary's Indebtedness unless permitted by
clause (xi) of the definition of Permitted Indebtedness and (D) no Investment of
properties, assets or contracts (other than capital contributions consisting of
cash, hardware and equipment) may be made in any Wholly Owned Restricted
Subsidiary that is not (or will not be as a result of, in contemplation of or in
connection with the transaction in question) a Qualified Restricted Subsidiary
unless at the time of such Investment either (x) the Debt to Cash Flow Ratio of
the Company is less than or equal to 6.0 to 1.0 or (y) the total contribution to
the Consolidated EBITDA of the Company (such Consolidated EBITDA to be
calculated
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for purposes of this subclause (D) of this clause (b) without giving effect to
clause (f) of the definition of Consolidated Net Income) for the most recently
ended fiscal quarter for which financial information is available, ended not
more than 135 days prior to the date of determination, of the Restricted
Subsidiaries which are not Qualified Restricted Subsidiaries is not in excess of
25% of such Consolidated EBITDA;
(c) any Investments in the Company by any Subsidiary of the Company;
PROVIDED, HOWEVER, that any Indebtedness evidencing such Investment is
subordinated, pursuant to a written agreement, to the Company's obligations
in respect of the Notes and the Indenture;
(d) Investments consisting of non-cash consideration made or held by the
Company or by its Subsidiaries as a result of an Asset Sale made in
compliance with "--Redemption or Repurchase at the Option of the Holders--
Limitations on Asset Sales";
(e) Investments existing on the Issue Date of the 1997 Notes;
(f) loans and advances to employees and officers of the Company and the
Restricted Subsidiaries made in the ordinary course of business in an
aggregate amount outstanding at any time not to exceed $1,000,000 for all
Investments pursuant to this clause (f);
(g) accounts receivable created or acquired in the ordinary course of
business of the Company or any Restricted Subsidiary and on ordinary
business terms;
(h) Investments arising from transactions by the Company or any
Restricted Subsidiary with trade creditors or customers in the ordinary
course of business (including any such Investment received pursuant to any
plan of reorganization or similar arrangement pursuant to the bankruptcy or
insolvency of such trade creditors or customers or otherwise in settlement
of a claim);
(i) additional Investments in an aggregate amount outstanding at any
time not to exceed $10,000,000 for all Investments pursuant to this clause
(i);
(j) Investments in joint ventures, partnerships, or other business
ventures in an aggregate amount outstanding at any time not to exceed
$15,000,000 for all Investments pursuant to this clause (j);
(k) loans in the ordinary course of business to employees of the Company
to purchase Capital Stock of the Company pursuant to the terms of employee
stock benefit plans;
(l) Investments consisting of (i) licensing or sublicensing of FCC
Licenses or intellectual property of the Company or any Restricted
Subsidiary in the ordinary course of business; PROVIDED, HOWEVER, that the
Company and its Restricted Subsidiaries continue to have access, on terms
that are fair and reasonable, to such licenses or intellectual property to
the extent necessary for the conduct of their respective businesses, (ii)
the transfer of equipment from the Company or any Restricted Subsidiary to
any other Subsidiary in the ordinary course of business; PROVIDED, HOWEVER,
that the Company and its Restricted Subsidiaries continue to have access, on
terms that are fair and reasonable, to such equipment to the extent
necessary for the conduct of their respective businesses, and (iii) the
sharing or contribution of services of employees among any one or more of
the Company and its Subsidiaries in the ordinary course of business;
(m) the sale, conveyance, transfer, lease, assignment or other
disposition to any Restricted Subsidiary of contracts in respect of
Qualified Projects entered into by the Company (not previously entered into
by any Restricted Subsidiary); and
(n) Investments by the Company or its Restricted Subsidiaries in BCN,
not to exceed $35 million in the aggregate at any time outstanding for all
such Investments made pursuant to this clause (n); PROVIDED, that at any
time any such Investment is made, an Investment of at least equivalent value
has been or is being made by or on behalf of BEn.
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"Permitted Liens" mean, without duplication, each of the following:
(i) pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation (other than the Employee
Retirement Income Security Act of 1974, as amended), or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to
secure public statutory obligations of such Person or deposits to secure
surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent;
(ii) Liens imposed by law, such as landlords', carriers', warehousemen's
and mechanics' Liens or bankers' Liens incurred in the ordinary course of
business for sums which are not yet due or are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted and
for which adequate provision has been made;
(iii) Liens for taxes not yet subject to penalties for non-payment or
which are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, if adequate reserve, as may be required
by generally accepted accounting principles, shall have been made therefor;
(iv) Liens in favor of issuers of surety bonds or appeal bonds issued
pursuant to the request of and for the account of such Person in the
ordinary course of its business;
(v) Liens to support trade letters of credit issued in the ordinary
course of business;
(vi) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions
on the use of real property;
(vii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
(viii) Liens in favor of the Company or any Qualified Restricted
Subsidiary;
(ix) Liens securing Acquired Indebtedness Incurred in accordance with
the provisions of the Indenture described above under the heading
"--Limitation on Indebtedness and Preferred Stock"; PROVIDED, HOWEVER, that
(A) such Liens secured such Acquired Indebtedness at the time of and prior
to the Incurrence of such Acquired Indebtedness by the Company and were not
granted as a result of, in connection with or in anticipation of, the
Incurrence of such Acquired Indebtedness by the Company and (B) such Liens
do not extend to or cover any property or assets of the Company or of any of
its Subsidiaries other than the property or assets that secured the Acquired
Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company and are no more favorable to the lienholders
than those securing the Acquired Indebtedness prior to the Incurrence of
such Acquired Indebtedness by the Company;
(x) Liens granted by the Company or by any Restricted Subsidiary to
secure Indebtedness Incurred in accordance with the Indenture which
Indebtedness represents all or part of the purchase price of assets or
property acquired or constructed in the ordinary course of business after
the Issue Date of the 1997 Notes from a Person that is not an Affiliate of
the Company; PROVIDED, HOWEVER, that (A) the aggregate amount of
Indebtedness secured by such Liens shall not exceed the fair market value
(or, if less, the cost) of the assets or property so acquired or constructed
and (B) such Liens shall not encumber any other assets or property of the
Company or of any Restricted Subsidiary (except proceeds, products,
attachments and accessions) and shall attach to such assets or property
within 120 days of the acquisition of such assets or property;
(xi) Liens on the assets or property of a Person that becomes a
Restricted Subsidiary after the Issue Date of the 1997 Notes to the extent
that such Liens are existing at the time such Person became
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a Restricted Subsidiary and were not granted as a result of, in connection
with or in anticipation of such Person becoming a Restricted Subsidiary;
PROVIDED, HOWEVER, that (A) the Indebtedness (if any) secured thereby is
Incurred in accordance with the Indenture and (B) such Liens do not extend
to or cover any assets or property of the Company or of any Restricted
Subsidiary, other than the assets or property so acquired (together with
proceeds and products thereof and attachments and accessions thereto);
(xii) Liens to secure Capitalized Lease Obligations, including in respect
of Sale and Leaseback Transactions of property or assets to the extent
consummated in compliance with the provisions of the Indenture described
above under "--Limitation on Indebtedness and Preferred Stock"; PROVIDED,
HOWEVER, that such Liens do not extend to or cover any property or assets of
the Company or of any Restricted Subsidiary, other than the property or
assets subject to such Capitalized Lease Obligations;
(xiii) Liens in respect of Refinancing Indebtedness Incurred to Refinance
any of the Indebtedness set forth in clauses (ix), (x), (xi), (xii) above
and clauses (xviii), (xx), (xxi) and (xxii) below; PROVIDED, HOWEVER, that
such Liens in respect of such Refinancing Indebtedness (A) are no less
favorable to the Holders in any material respect and are not more favorable
to the lienholders in any material respect with respect to such Liens than
the Liens in respect of the Indebtedness being Refinanced and (B) do not
extend to or cover any properties or assets of the Company or of any
Restricted Subsidiary, other than the property or assets that secured the
Indebtedness being Refinanced;
(xiv) Liens to the extent granted or existing in respect of specific
items of inventory or other goods and proceeds thereof of any Person
securing such Person's Obligations in respect of bankers' acceptances
arising in the ordinary course of business if and to the extent issued or
created for the account of such Person to facilitate the purchase, shipment,
or storage of such specific items of inventory or other goods;
(xv) Liens in favor of the Trustee for the benefit of the Holders arising
under the provisions in the Indenture section on Limitation on Liens and
Liens in favor of the Trustee to secure the Company's payment obligations to
the Trustee as contemplated by the Indenture section on Compensation and
Indemnity;
(xvi) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any Restricted Subsidiary if and to the extent arising in the ordinary
course of business, including rights of offset and set-off;
(xvii) Liens securing Interest Swap Obligations which Interest Swap
Obligations related to Indebtedness that is otherwise permitted under the
Indenture;
(xviii) Liens existing on the Issue Date of the 1997 Notes to the extent
and in the manner existing on such date;
(xix) Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases of real or personal
property that are otherwise permitted under the Indenture and under which
the Company or any Restricted Subsidiary is a lessee;
(xx) Liens on property or assets of a Restricted Subsidiary securing
Indebtedness Incurred by such Restricted Subsidiary in accordance with
clause (x) of the definition of Permitted Indebtedness; PROVIDED, HOWEVER,
that such Liens do not extend to or cover any property or assets of the
Company or of any Restricted Subsidiary other than the property or assets of
such Restricted Subsidiary;
(xxi) Liens on property or assets of any Restricted Subsidiary that has
Incurred Indebtedness pursuant to clause (xi) of the definition of Permitted
Indebtedness securing such Indebtedness; PROVIDED, HOWEVER, that such Liens
do not extend to or cover any other property or assets of the Company or any
other Restricted Subsidiary;
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(xxii) Liens on property or assets of the Company (other than the Capital
Stock of its Subsidiaries) securing Indebtedness Incurred under clause (ii)
of the definition of Permitted Indebtedness; PROVIDED, HOWEVER, that such
Liens do not extend to or cover any property or assets of any Subsidiary of
the Company; and
(xxiii) Liens consisting of pledges of the Capital Stock of Subsidiaries
of the Company securing Indebtedness Incurred pursuant to clauses (x) and
(xi) of the definition of Permitted Indebtedness.
"Permitted Stock Repurchase" means (1) the repurchase, redemption,
retirement or acquisition of Capital Stock, or warrants, options or rights to
acquire such Capital Stock, of the Company that is at the time of such
repurchase, redemption, retirement or acquisition held by an employee, officer
or director of the Company or any Subsidiary of the Company or a permitted
transferee or affiliate of such employee, officer or director pursuant to any
equity subscription agreement, stockholders' agreement, stock option agreement
or similar agreement, to the extent that such repurchase, redemption, retirement
or acquisition is effected upon the death, retirement or other termination of
such employee, officer or director and (2) the payment of any Indebtedness of
the Company issued to any such Person in connection with any such repurchase,
redemption, retirement or acquisition.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Placement Agents" means Morgan Stanley & Co. Incorporated and Donaldson,
Lufkin & Jenrette Securities Corporation.
"Plan of Liquidation" means, with respect to any Person, a plan (including
by operation of law) that provides for, contemplates or the effectuation of
which is preceded or accompanied by (whether or not substantially
contemporaneously) (i) the sale, lease, conveyance, of all or substantially all
of the assets of such Person otherwise than as an entirety or substantially as
an entirety and (ii) the distribution of all or substantially all of the
proceeds of such sale, lease, conveyance, or other disposition and all or
substantially all of the remaining assets of such Person to holders of Capital
Stock of such Person.
"Productive Assets" mean assets (including assets owned directly or
indirectly through Capital Stock) of a kind used or usable in the businesses of
the Company and the Restricted Subsidiaries as they are conducted on the date of
the Asset Sale.
"Public Equity Offering" means a primary public offering (whether or not
underwritten, but excluding any offering pursuant to Form S-4 or S-8 under the
Securities Act) of Capital Stock (other than Disqualified Capital Stock) of the
Company pursuant to an effective registration statement under the Securities
Act.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Intercompany Indebtedness" means any Indebtedness of a Restricted
Subsidiary Incurred and outstanding in accordance with clauses (vi) and (vii) of
the definition of Permitted Indebtedness (but only so long as such Indebtedness
would qualify as Permitted Indebtedness under such clause (vi) or (vii)).
"Qualified Intercompany Preferred Stock" means Preferred Stock of a
Subsidiary of the Company for so long as such Preferred Stock is owned and held
by the Company or a Qualified Restricted Subsidiary of the Company and in each
case not subject to any Lien held by any Person other than the Company or a
Qualified Restricted Subsidiary of the Company.
"Qualified Project" means project for the development, manufacturing,
installation, operation, ownership, servicing, management, or marketing of the
Company's wireless data communications systems, or activities reasonably related
or incidental thereto.
"Qualified Restricted Subsidiary" means any Wholly Owned Restricted
Subsidiary of the Company which has not, and will not in connection with the
transaction for which the relevant determination is being
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made, Incurred any Indebtedness other than Qualified Intercompany Indebtedness
or issued any Preferred Stock other than Qualified Intercompany Preferred Stock
and which Subsidiary is not, and will not in connection with the transaction for
which the relevant determination is being made become, subject to any Payment
Restriction.
"Record Date" means, for the Notes of any class, a Record Date specified in
such Notes; PROVIDED, HOWEVER, that if any such date is a Legal Holiday, the
Record Date shall be the first day immediately preceding such specified day that
is not a Legal Holiday.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means (A) any Indebtedness Incurred by the
Company to Refinance Indebtedness of the Company or of the Restricted
Subsidiaries or (B) any Indebtedness Incurred by any Restricted Subsidiary to
Refinance Indebtedness Incurred by such Restricted Subsidiary; PROVIDED,
HOWEVER, that such Indebtedness so Incurred to Refinance such other Indebtedness
(the "Existing Indebtedness") (1) is not in an aggregate principal amount as of
the date of the consummation of such proposed Refinancing in excess of (or if
such Indebtedness being Incurred to Refinance the Existing Indebtedness is
issued with Original Issue Discount, at an original issue price not in excess
of) the sum of (i) the aggregate principal amount outstanding of the Existing
Indebtedness (PROVIDED, HOWEVER, that (a) if such Existing Indebtedness was
issued with Original Issue Discount, in excess of the accreted amount of such
Existing Indebtedness (as determined in accordance with GAAP) as of the date of
such proposed Refinancing, (b) if such Existing Indebtedness was Incurred
pursuant to a revolving credit facility or any other agreement providing a
commitment for subsequent borrowings, with a maximum commitment under the
agreement governing the Indebtedness proposed to be Incurred not in excess of
the maximum commitment amount under such Existing Indebtedness and (c) any
amount of such Existing Indebtedness owned or held by the Company or any of its
Subsidiaries shall not be deemed to be outstanding for the purposes hereof) as
of the date of such proposed Refinancing, plus (ii) the amount of any premium
required to be paid under the terms of the instrument governing such Existing
Indebtedness, and plus (iii) the amount of reasonable expenses incurred by the
Company or such subsidiary in connection with such Refinancing and (2) does not
have (I) a Weighted Average Life to Maturity that is less than the Weighted
Average Life to Maturity of the Existing Indebtedness or (II) a final maturity
earlier than the final maturity if the Existing Indebtedness; PROVIDED, FURTHER,
HOWEVER, that (x) if such Existing Indebtedness is Indebtedness of the Company,
then such Indebtedness proposed to be Incurred to Refinance the Existing
Indebtedness shall be Indebtedness solely of the Company (it being understood
that if such Indebtedness is secured by a pledge of the Capital Stock of
Subsidiaries of the Company, such Indebtedness Incurred to Refinance the
Existing Indebtedness may likewise be secured), (y) if such Existing
Indebtedness is subordinate or junior to the Notes, then such Indebtedness
proposed to be Incurred to Refinance the Existing Indebtedness shall be
subordinate to the Notes at least to the same extent and in the same manner as
the Existing Indebtedness and (z) such Indebtedness proposed to be Incurred to
Refinance the Existing Indebtedness is not Incurred more than three months prior
to the complete retirement and defeasance of the Existing Indebtedness with the
proceeds thereof.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; PROVIDED, HOWEVER, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that is not
designated to be an Unrestricted Subsidiary pursuant to the provisions set forth
in "--Certain Covenants--Limitation on Designation of Restricted and
Unrestricted Subsidiaries."
"Rule 144A" means Rule 144A under the Securities Act.
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"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. and its successors.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party providing for the leasing
pursuant to a capitalized lease to the Company or a Subsidiary of any property,
whether owned by the Company or any Subsidiary at June 15, 1995 or later
acquired, which has been or is to be sold or transferred by the Company or such
Subsidiary to such Person or to any other Person by whom funds have been or are
to be advanced on the security of such Property.
"SEC" means the Securities and Exchange Commission.
"Subsidiary," with respect to any Person, means (i) any corporation, a
majority of whose voting stock (defined as any class or classes of capital stock
having voting power under ordinary circumstances to elect a majority of the
Board of Directors) is owned, directly or indirectly, by the Company, by one or
more Subsidiaries, or by the Company and one or more Subsidiaries and (ii) any
other Person (other than a corporation) in which the Company, one or more
Subsidiaries, or the Company and one or more Subsidiaries, directly or
indirectly, has at least a majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof.
"Tax Sharing Agreement" means the Tax Sharing Agreement to be entered into
among the Company and its Subsidiaries in the form attached to the Indenture.
"U.S. Government Obligations" mean direct obligations of, and obligations
guaranteed by, the United States of America for the payment of which the full
faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Unrestricted Subsidiary" means a Subsidiary of the Company created after
June 15, 1995 and so designated by a resolution of the Board of Directors of the
Company pursuant to the provisions set forth in "--Certain Covenants--Limitation
on Designation of Restricted and Unrestricted Subsidiaries."
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock of such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment or
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Wholly Owned Subsidiary of
the Company that is a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than directors' qualifying
shares) which normally have the right to vote in the election of directors are
owned by such Person or any wholly owned Subsidiary of such Person.
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DESCRIPTION OF THE NEW NOTES
The terms of the New Notes will be identical in all material respects to
those of the Old Notes, except that (i) the Old Notes have not been registered
under the Securities Act, are subject to certain restrictions on transfer and
are entitled to certain registration rights under the Registration Rights
Agreement (which rights will terminate upon consummation of the Exchange Offer,
except to the extent that the Placement Agents may have certain registration
rights under limited circumstances) and (ii) the Old Notes provide for an
increase in the interest rate thereon pursuant to the Registration Rights
Agreement. In that regard, the Old Notes provide that, in the event that the
Exchange Offer is not consummated or a shelf registration statement with respect
to the resale of the Old Notes is not declared effective on or prior to March
29, 1998, the interest rate on the Old Notes will increase by 0.50% per annum
following March 29, 1998. The New Notes are not entitled to any such increase in
the interest rate thereon.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will vote together as a single class for purposes of
determining whether Holders of the requisite percentage in outstanding principal
amount thereof have taken certain actions or exercised certain rights under the
Indenture. Holders of Old Notes should review the information set forth under
"Summary-- Certain Consequences of a Failure to Exchange Old Notes" and
"Summary--Terms of New Notes."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, based on current law, is a general summary of
certain United States federal income tax considerations relating to the Exchange
Offer and to the purchase, ownership and disposition of the New Notes. The tax
consequences of these transactions are uncertain. The discussion of the federal
income tax consequences set forth below is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), and judicial decisions and administrative
interpretations thereunder, as of the date hereof, and such authorities may be
repealed, revoked, modified or otherwise interpreted or applied so as to result
in federal income tax consequences different from those discussed below. There
can be no assurance that the Internal Revenue Service (the "IRS") will not
challenge one or more of the tax consequences described herein, and the Company
has not obtained, nor does it intend to obtain, a ruling from the IRS or an
opinion of counsel with respect to the U.S. federal income tax consequences of
acquiring or holding New Notes. The discussion below pertains only to Holders
that are (i) citizens or residents (within the meaning of Section 7701(b) of the
Code) of the United States, (ii) corporations, partnerships or other entities
created in or under the laws of the United States or any political subdivision
thereof, (iii) estates the income of which is subject to United States federal
income taxation regardless of its source, (iv) in general, trusts subject to the
primary supervision of a court within the United States and the control of a
United States person as described in Section 7701(a)(30) of the Code, and (v)
any other person whose income or gain is effectively connected with the conduct
of a U.S. trade or business.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that may be relevant to a particular holder in light of the
holder's circumstances (for example, persons subject to the alternative minimum
tax provisions of the Code). Also, it is not intended to be wholly applicable to
all categories of investors, some of which (such as dealers in securities,
banks, insurance companies, tax-exempt organizations, and persons holding New
Notes as part of a hedging or conversion transaction or straddle or persons
deemed to sell New Notes under the constructive sale provisions of the Code) may
be subject to special rules. The discussion below is premised upon the
assumption that the New Notes and Old Notes constitute indebtedness for U.S.
federal income tax purposes, and that the Old Notes and New Notes are held (or
would be held if acquired) as capital assets within the meaning of Section 1221
of the Code. This summary does not discuss the tax considerations applicable to
subsequent purchasers. The discussion also does not discuss any aspect of state,
local or foreign law, nor federal estate and gift tax law.
EACH HOLDER OR PROSPECTIVE HOLDER OF NEW NOTES IS STRONGLY URGED TO CONSULT
ITS OWN TAX ADVISOR INCLUDING WITH RESPECT TO ITS PARTICULAR TAX
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SITUATION THE TAX EFFECTS OF ANY STATE, LOCAL, FOREIGN, OR OTHER TAX LAWS AND
POSSIBLE CHANGES IN THE TAX LAWS.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be a taxable exchange for U.S. federal income tax purposes.
Accordingly, a Holder should have the same adjusted issue price, adjusted basis,
and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
TAX TREATMENT OF THE OWNERSHIP AND DISPOSITION OF NEW NOTES
ORIGINAL ISSUE DISCOUNT
The New Notes will be treated as issued with original issue discount, and
each Holder will be required to include in its gross income original issue
discount income as described below, because the "issue price" of the Old Notes
was less than their "stated redemption price at maturity" by more than a de
minimus amount.
A Holder must include original issue discount (to the extent there is not
offsetting acquisition premium) in income as ordinary interest income as it
accrues on the basis of a constant yield to maturity. Generally, original issue
discount must be included in income in advance of the receipt of cash
representing such income.
The stated redemption price at maturity of an Old Note equals the sum of all
payments other than any "qualified stated interest" payments. Qualified stated
interest is stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. Because interest on the Old Notes will not be payable prior
to April 1, 2003, none of the payments on the Old Notes constitutes qualified
stated interest. Accordingly, all payments on the Old Notes are treated as part
of their stated redemption price at maturity.
Because the Old Notes were issued as part of an investment unit, the issue
price of each investment unit was allocated between the Old Note and the warrant
constituting an investment unit based on their respective fair market values on
the issue date. The Company allocated an issue price of $394.01 to each Old
Note. The Company's allocation is binding on each Holder of an Old Note that
does not explicitly disclose that its allocation is different from the Company's
allocation. Such disclosure must be made on a statement attached to the Holder's
timely filed federal income tax return for the taxable year that includes the
acquisition date of the Unit.
A Holder must include in gross income, for all days during its taxable year
in which it holds a New Note, the sum of the "daily portions" of original issue
discount. The "daily portions" are determined by allocating to each day in an
"accrual period" (generally the period between interest payments or compounding
dates) a PRO RATA portion of the original issue discount that accrued during
such accrual period. The amount of original issue discount that will accrue
during an accrual period is the product of the "adjusted issue price" of the New
Note at the beginning of the accrual period and its yield to maturity
(determined on the basis of compounding at the end of each accrual period and
properly adjusted for the length of the particular accrual period). The adjusted
issue price of a New Note at the beginning of any accrual period will be the
issue price of an Old Note, plus prior accruals of original issue discount,
reduced by the total payments made with respect to such New Note in all prior
periods and on the first day of the current accrual period. Each payment on a
New Note will be treated as a payment of original issue discount to the extent
that original issue discount has accrued as of the date such payment is due and
has not been allocated to prior payments, and any excess will be treated as a
payment of principal.
There are several circumstances under which the Company could make a payment
on a New Note which would affect the yield to maturity of a New Note, including
the redemption of New Notes following
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a Public Equity Offering (as described under "Description of the Old
Notes--Optional Redemption Upon Public Equity Offering"), and the repurchase of
New Notes by the Company pursuant to a Change of Control (as described under
"Description of the Old Notes--Redemption or Repurchase at the Option of the
Holders"). According to Treasury Regulations, the possibility of a change in the
yield will not be treated as affecting the amount of interest income (including
original issue discount) recognized by a holder (or the timing of such
recognition) if the likelihood of the change, as of the date the debt
obligations are issued, is remote. The Company intends to report on the basis
that the likelihood of any change in the yield on the New Notes is remote.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT
A Holder may elect to treat all "interest" on any New Note as original issue
discount and calculate the amount includable in gross income under the method
described above. For this purpose, "interest" includes stated and unstated
interest, original issue discount, acquisition discount, market discount and de
minimis market discount, as adjusted by any acquisition premium. The election is
to be made for the taxable year in which the Holder acquired the New Note and
may not be revoked without the consent of the IRS.
ACQUISITION PREMIUM
To the extent a Holder had acquisition premium with respect to an Old Note,
the Holder generally will have acquisition premium with respect to a New Note. A
Holder will reduce the original issue discount otherwise includable for each
accrual period by an amount equal to the product of (i) the amount of such
original issue discount otherwise includable for such period, and (ii) a
fraction, the numerator of which is the acquisition premium and the denominator
of which is the excess of the amounts payable on the New Note after the purchase
date over the adjusted issue price.
MARKET DISCOUNT
To the extent a Holder had market discount with respect to an Old Note, the
Holder generally will have market discount with respect to a New Note.
Any principal payment or gain realized by a Holder on disposition or
retirement of a New Note will be treated as ordinary income to the extent that
there is accrued market discount on the New Note. Unless a Holder elects to
accrue under a constant-interest method, accrued market discount is the total
market discount multiplied by a fraction, the numerator of which is the number
of days the Holder has held the obligation and the denominator of which is the
number of days from the date the Holder acquired the obligation until its
maturity. A Holder may be required to defer a portion of its interest deductions
for the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a New Note purchased with market discount. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includable in income. If the Holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by the Holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
SALE, EXCHANGE OR RETIREMENT OF THE NEW NOTES
Upon the sale, exchange or retirement of a New Note, the Holder generally
will recognize gain or loss equal to the difference between the amount realized
on the sale, exchange or retirement (which does not include any amount
attributable to accrued but unpaid interest) and the Holder's adjusted tax basis
in the New Note. A Holder's adjusted tax basis in the New Note will generally
equal the Holder's cost for the Old Note exchanged therefor increased by any
original issue discount or market discount previously included in income by such
Holder with respect to such New Note and decreased by any payments received
thereon.
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Gain or loss realized on the sale, exchange or retirement of a New Note will
be capital (subject to the market discount rules, discussed above), and will be
long-term if at the time of sale, exchange or retirement the New Note has been
held for more than one year. On August 5, 1997, legislation was enacted which,
among other things, reduces to 20% the maximum rate of tax on long-term capital
gains on most capital assets held by an individual for more than 18 months, and
under which gain on most capital assets held by an individual more than one year
and up to 18 months is subject to tax at a maximum rate of 28%. Holders are
urged to consult their tax advisor with respect to the effects of the
legislation. The deductibility of capital losses is subject to limitations.
APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS
The New Notes will be subject to the "applicable high yield discount
obligation" provisions of the Code. Because the yield of the New Notes is at
least five percentage points above the applicable federal rate, the Company will
not be able to deduct any original issue discount accruing with respect thereto
until such interest is actually paid. In addition, because the yield of the New
Notes is more than six percentage points above the applicable federal rate, (i)
a portion of such interest corresponding to the yield in excess of six
percentage points above the applicable federal rate will not be deductible by
the Company at any time, and (ii) a corporate Holder may be entitled to treat
the portion of the interest that is not deductible by the Company as a dividend,
which may then qualify for the dividends received deduction provided for by the
Code. In such event, corporate Holders should consult with their own tax
advisors as to the applicability of the dividends received deduction.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal and interest on a New Note and payments on the proceeds of the sale of
a New Note to certain noncorporate Holders, and a 31% backup withholding tax may
apply to such payments if the Holder (i) fails to furnish or certify its correct
taxpayer identification number to the payor in the manner required, (ii) is
notified by the IRS that it has failed to report payments of interest and
dividends properly, or (iii) under certain circumstances, fails to certify that
it has not been notified by the IRS that it is subject to backup withholding for
failure to report interest and dividend payments. Certain Holders (including,
among others, all corporations) are not subject to the backup withholding and
reporting requirements. Any amounts withheld under the backup withholding rules
from a payment to a Holder will be allowed as a credit against such Holder's
U.S. federal income tax and may entitle the Holder to a refund, provided that
the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in connection
with the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of the New Notes received in exchange for Old Notes if such Old
Notes were acquired by such Participating Broker-Dealers for their own accounts
as a result of market-making activities or other trading activities. The Company
has agreed that this Prospectus may be used by a Participating Broker-Dealer in
connection with resales of such New Notes for a period ending 180 days after the
Expiration Date (subject to extension under certain limited circumstances
described herein) or, if earlier, when all such New Notes have been disposed of
by such Participating Broker-Dealer. See "The Exchange Offer--Terms of the
Exchange Offer."
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. New Notes received by broker-dealers for their own
accounts in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale,
126
<PAGE>
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account in
connection with the Exchange Offer and any broker or dealer that participates in
a distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any such resale of New Notes
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. As of
the date of this Prospectus, certain members of Wilson Sonsini Goodrich &
Rosati, P.C. beneficially own approximately 15,000 shares of the Company's
Common Stock.
EXPERTS
The consolidated financial statements as of December 31, 1995 and 1996 and
for each of the three years in the period ended December 31, 1996 included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
127
<PAGE>
CELLNET DATA SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1994, 1995 and
1996..................................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
Condensed Consolidated Balance Sheets as of December 31, 1996 and
June 30, 1997 (Unaudited)................................................................................ F-18
Condensed Consolidated Statement of Operations for the six months ended June 30, 1996 and 1997
(Unaudited).............................................................................................. F-19
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1997
(Unaudited).............................................................................................. F-20
Notes to Condensed Consolidated Financial Statements....................................................... F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
CellNet Data Systems, Inc.:
We have audited the accompanying consolidated balance sheets of CellNet Data
Systems, Inc. and subsidiaries (the Company) as of December 31, 1995 and 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CellNet Data Systems, Inc. and
subsidiaries at December 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Jose, California
February 3, 1997
F-2
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................................................. $ 48,018 $ 124,232
Short-term investments................................................................. 95,779 54,643
Accounts receivable--trade............................................................. 1,160 850
Accounts receivable--other............................................................. 958 1,264
Prepaid expenses and other............................................................. 940 1,124
---------- -----------
Total current assets................................................................. 146,855 182,113
Network components and inventory......................................................... 11,664 11,211
Networks in progress--net................................................................ 12,602 48,426
Property--net............................................................................ 7,539 12,236
Debt issuance costs and other--net....................................................... 5,646 5,565
---------- -----------
Total assets............................................................................. $ 184,306 $ 259,551
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................................................... $ 7,241 $ 8,133
Accrued compensation and related benefits.............................................. 1,353 2,371
Accrued liabilities.................................................................... 981 950
Current portion of capital lease obligations........................................... 280 308
---------- -----------
Total current liabilities............................................................ 9,855 11,762
Senior discount notes--13%............................................................... 182,528 207,178
Capital lease obligations................................................................ 540 366
Commitments and contingencies (Notes 8 and 9)
Series CC redeemable convertible preferred stock--$.001 par value; 3,215,768 shares
designated and outstanding in 1995; none in 1996....................................... 29,486 --
Stockholders' equity (deficit):
Convertible preferred stock--$.001 par value; 15,000,000 shares authorized; shares
outstanding, 1995: 9,136,675; 1996: none............................................. 27,195 --
Common stock--$.001 par value; 100,000,000 shares authorized; shares outstanding: 1995,
5,034,262; 1996, 38,537,517.......................................................... 27,608 205,793
Notes receivable from sale of common stock............................................. (866) (814)
Warrants............................................................................... 2,984 2,984
Accumulated deficit.................................................................... (95,021) (167,715)
Net unrealized loss on short-term investments.......................................... (3) (3)
---------- -----------
Total stockholders' equity (deficit)................................................. (38,103) 40,245
---------- -----------
Total liabilities and stockholders' equity (deficit)..................................... $ 184,306 $ 259,551
---------- -----------
---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Network service revenues.................................................... $ -- $ 35 $ 1,210
Product sales............................................................... 1,447 1,663 368
Other....................................................................... 204 428 91
---------- ---------- ----------
Total revenues............................................................ 1,651 2,126 1,669
---------- ---------- ----------
Costs and expenses:
Cost of network operations.................................................. -- 3,671 8,100
Cost of product sales....................................................... 1,109 1,294 329
Research and development.................................................... 9,091 20,883 25,394
Marketing and sales......................................................... 3,179 4,114 6,021
General and administrative.................................................. 2,353 6,258 12,036
Depreciation and amortization............................................... 992 2,295 6,123
---------- ---------- ----------
Total costs and expenses.................................................. 16,724 38,515 58,003
---------- ---------- ----------
Loss from operations.......................................................... (15,073) (36,389) (56,334)
Other income (expense):
Interest income............................................................. 555 4,590 7,372
Interest expense............................................................ (101) (9,320) (23,823)
Other--net.................................................................. (13) 166 96
---------- ---------- ----------
Total other income (expense).................................................. 441 (4,564) (16,355)
---------- ---------- ----------
Net loss before income taxes.................................................. (14,632) (40,953) (72,689)
Provision for income taxes.................................................... 2 3 5
---------- ---------- ----------
Net loss...................................................................... $ (14,634) $ (40,956) $ (72,694)
---------- ---------- ----------
---------- ---------- ----------
Net loss per share............................................................ $ (1.22) $ (2.19)
---------- ----------
---------- ----------
Shares used in computing net loss per share................................... 33,497 33,179
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
----------------------- ---------------------- FROM SALE OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT COMMON STOCK WARRANTS DEFICIT
------------ --------- ----------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1994........ 8,489,845 $ 21,001 2,182,510 $ 26,681 $ (250) $ 10 $ (39,431)
Exercise of stock options and
restricted stock purchase....... -- -- 533,656 109 (100) -- --
Sale of Series DD preferred stock
(net of issuance costs of
$10)............................ 518,673 4,989 -- -- -- -- --
Collection of notes receivable... -- -- -- -- 66 -- --
Net unrealized loss on short-term
investments..................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- (14,634)
------------ --------- ----------- --------- ----- ----------- -------------
BALANCES, DECEMBER 31, 1994...... 9,008,518 25,990 2,716,166 26,790 (284) 10 (54,065)
Sale of Series DD preferred stock
(net of issuance costs of
$31)............................ 128,157 1,205 -- -- -- -- --
Exercise of stock options and
restricted stock purchases...... -- -- 2,318,096 818 (628) -- --
Common stock warrants issued in
connection with senior discount
notes........................... -- -- -- -- -- 2,974 --
Collection of notes receivable... -- -- -- -- 46 -- --
Net unrealized gain on short-term
investments..................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- (40,956)
------------ --------- ----------- --------- ----- ----------- -------------
BALANCES, DECEMBER 31, 1995...... 9,136,675 27,195 5,034,262 27,608 (866) 2,984 (95,021)
Sale of common stock in public
offering (net of issuance costs
of $7,841)...................... -- -- 5,000,000 92,159 -- -- --
Exercise of Series BB warrants... 1,410,600 1,179 -- -- -- -- --
Conversion of Series CC
redeemable preferred stock upon
public offering................. -- -- 6,431,536 29,486 -- -- --
Conversion of Series AA, BB, and
DD preferred stock upon public
offering........................ (10,547,275) (28,374) 19,683,950 28,374 -- -- --
Exercise of stock options and
restricted stock purchases...... -- -- 866,775 186 -- -- --
Sale of common stock in private
placement....................... -- -- 1,579,404 28,000 -- -- --
Repurchase of common stock....... -- -- (58,410) (20) -- -- --
Collection of notes receivable... -- -- -- -- 52 -- --
Net loss......................... -- -- -- -- -- -- (72,694)
------------ --------- ----------- --------- ----- ----------- -------------
BALANCES, DECEMBER 31, 1996...... -- $ -- 38,537,517 $ 205,793 $ (814) $ 2,984 $ (167,715)
------------ --------- ----------- --------- ----- ----------- -------------
------------ --------- ----------- --------- ----- ----------- -------------
<CAPTION>
NET
UNREALIZED
LOSS ON
SHORT-TERM
INVESTMENTS TOTAL
------------- ---------
<S> <C> <C>
BALANCES, JANUARY 1, 1994........ $ -- $ 8,011
Exercise of stock options and
restricted stock purchase....... -- 9
Sale of Series DD preferred stock
(net of issuance costs of
$10)............................ -- 4,989
Collection of notes receivable... -- 66
Net unrealized loss on short-term
investments..................... (5) (5)
Net loss......................... -- (14,634)
----- ---------
BALANCES, DECEMBER 31, 1994...... (5) (1,564)
Sale of Series DD preferred stock
(net of issuance costs of
$31)............................ -- 1,205
Exercise of stock options and
restricted stock purchases...... -- 190
Common stock warrants issued in
connection with senior discount
notes........................... -- 2,974
Collection of notes receivable... -- 46
Net unrealized gain on short-term
investments..................... 2 2
Net loss......................... -- (40,956)
----- ---------
BALANCES, DECEMBER 31, 1995...... (3) (38,103)
Sale of common stock in public
offering (net of issuance costs
of $7,841)...................... -- 92,159
Exercise of Series BB warrants... -- 1,179
Conversion of Series CC
redeemable preferred stock upon
public offering................. -- 29,486
Conversion of Series AA, BB, and
DD preferred stock upon public
offering........................ -- --
Exercise of stock options and
restricted stock purchases...... -- 186
Sale of common stock in private
placement....................... -- 28,000
Repurchase of common stock....... -- (20)
Collection of notes receivable... -- 52
Net loss......................... -- (72,694)
----- ---------
BALANCES, DECEMBER 31, 1996...... $ (3) $ (40,245)
----- ---------
----- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................... $ (14,634) $ (40,956) $ (72,694)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization.............................................. 992 2,295 6,123
Accretion on 13% senior discount notes..................................... -- 9,207 23,113
Amortization of debt issuance costs........................................ -- 256 600
Loss (gain) on disposition of property..................................... 2 57 (1)
Changes in:
Accounts receivable--trade............................................... (282) (457) 310
Accounts receivable--other............................................... -- (958) (306)
Prepaid expenses and other............................................... (126) (692) (184)
Network components and inventory......................................... (1,260) (9,518) 453
Accounts payable......................................................... 1,389 5,191 892
Accrued compensation and related benefits................................ -- 951 1,018
Accrued liabilities...................................................... (719) 92 (31)
--------- ---------- ----------
Net cash used for operating activities................................. (14,638) (34,532) (40,707)
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property......................................................... (2,436) (6,222) (9,012)
Proceeds from sale of property............................................... -- -- 11
Networks in progress......................................................... (1,333) (10,811) (35,944)
Purchase of short-term investments........................................... (12,548) (285,802) (329,674)
Proceeds from sales and maturities of short-term investments................. 3,500 202,030 370,810
--------- ---------- ----------
Net cash used for investing activities................................. (12,817) (100,805) (3,809)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of senior discount notes and related stock warrants................. -- 175,837 --
Cash paid for debt issuance costs............................................ -- (5,902) (210)
Other assets................................................................. -- -- (309)
Subordinated debt borrowings................................................. 350 -- --
Repayment of capital lease obligations....................................... (426) (524) (307)
Repayment of long-term obligations........................................... (85) -- --
Proceeds from sale of preferred stock and warrants........................... 34,122 1,205 1,179
Proceeds from sale of common stock, net of repurchases....................... 9 190 120,325
Collection of note receivable from sale of common stock...................... 66 46 52
--------- ---------- ----------
Net cash provided by financing activities.............................. 34,036 170,852 120,730
--------- ---------- ----------
Increase in cash and cash equivalents.......................................... 6,581 35,515 76,214
Cash and cash equivalents, beginning of period................................. 5,922 12,503 48,018
--------- ---------- ----------
Cash and cash equivalents, end of period....................................... $ 12,503 $ 48,018 $ 124,232
--------- ---------- ----------
--------- ---------- ----------
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of subordinated debt and accrued interest into preferred stock.... $ 353 $ -- $ --
Acquisition of property under capital leases................................. 232 798 161
Sale of common stock for notes receivable.................................... 100 628 --
Conversion of preferred stock into common stock.............................. -- -- 57,860
Capitalized interest on networks in progress................................. -- 458 1,537
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest....................................... $ 101 $ 113 $ 110
Cash paid for income taxes................................................... 2 3 5
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES.
NATURE OF OPERATIONS. Since 1993, CellNet Data Systems, Inc. and
subsidiaries (the Company) has focused all of its resources and efforts on the
development and deployment of its CellNet wireless data communication system to
provide automated network meter reading and other services to the utility
industry and to providers of non-utility services. The Company's primary
activities since 1993 have included research and development, prototype product
development, field testing, commercial network installation, provision of
wireless data communication services, and raising the financing required to
support the development and deployment of its CellNet wireless data
communication system. In August 1996, the Company was reincorporated in the
State of Delaware.
The Company provides its services to utility companies pursuant to long-term
contracts. The contracts vary in length from 10 to 20 years. Utilities have up
to two 5-year renewal options in certain instances on substantially similar
terms. Utilities also have the option in certain instances to terminate their
contracts early at various times during the initial term, commencing as early as
the seventh contract year, upon payment of specified amounts which are intended
to allow the Company to recover its then unamortized network endpoint costs
based upon agreed prices for such equipment. No assurance can be given that any
such renewal and/or early termination options will or will not be exercised.
The Company completed the installation of a network to provide network meter
reading and other services to Kansas City Power & Light Company in 1996 and
expects to install additional meters on the network in 1997 and 1998. The
Company is currently building a similar network for Union Electric Company. The
Company has entered into separate services agreements with Northern States Power
Company, Pacific Gas & Electric Company and Puget Sound Energy, Inc. for the
construction of networks for those utilities as well.
The Company does not expect to receive significant revenues relative to
anticipated operating costs during 1997. Management plans to significantly
increase operations through the installation of additional networks for other
utility companies and other nonutility clients and intends to fund these
operations through additional debt and equity financing.
CONSOLIDATION. The accompanying consolidated financial statements include
the accounts of CellNet Data Systems, Inc. and its wholly-owned subsidiaries.
All material intercompany accounts and transactions are eliminated in
consolidation.
FINANCIAL STATEMENT ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting period. Such estimates
include the level of inventory reserves for obsolete, slow moving or nonsalable
network components and inventory, evaluation of network assets for impairment,
accrued liabilities and a valuation allowance against net deferred tax assets.
Actual results could differ from those estimates.
CASH EQUIVALENTS. Cash equivalents are highly liquid debt instruments
acquired with an original maturity of three months or less. The recorded
carrying amounts of the Company's cash equivalents approximate their fair market
value.
SHORT-TERM INVESTMENTS. Short-term investments represent debt and equity
securities which are stated at fair value. All short-term investments are
classified as available-for-sale. Any temporary difference
F-7
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
between an investment's amortized cost and its market value is recorded as a
separate component of stockholders' equity (deficit) until such gains or losses
are realized. Gains or losses on the sale of securities are computed using the
specific identification method.
STOCK-BASED COMPENSATION. The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
ACCOUNTING FOR STOCK ISSUED to Employees.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially
subject the Company to credit risk consist principally of cash and cash
equivalents, short-term investments and accounts receivable. The Company sells
its products and services and installs its networks primarily to utility
companies in the United States. To reduce credit risk related to accounts
receivable, the Company periodically evaluates its customers' financial
condition. Collateral is generally not required. Reserves are maintained for
credit losses, but the Company historically has not experienced any significant
losses related to individual customers or groups of customers in any particular
geographical area. Two customers accounted for 69% and 11% of trade accounts
receivable at December 31, 1995 and two customers accounted for 64% and 29% of
revenues for the year ended December 31, 1995. Two customers accounted for 33%
and 22% of trade accounts receivable at December 31, 1996 and two customers
accounted for 69% and 21% of revenues for the year ended December 31, 1996.
The Company invests in a variety of financial instruments such as commercial
paper, debt securities of the U.S. government, foreign debt securities and
preferred stock. The Company, by policy, limits the amount of credit exposure
with any one financial instrument or commercial issuer. All such instruments are
rated by Standard & Poor's as A- or higher. The Company also places its
investments for safekeeping with high-credit-quality financial institutions.
NETWORK COMPONENTS AND INVENTORY. Network components and inventory are
stated at the lower of cost (first-in, first-out method) or market. At December
31, 1996, network components and inventories consist primarily of purchased and
in-process materials to be included in the Company's installed networks. Once
the assembly process is complete, the inventory item is transferred to a
particular network location.
NETWORKS IN PROGRESS, NET. Networks in progress, which are stated at cost,
include both equipment assembled at the Company and systems partially installed
at customer sites. Interest is capitalized using the Company's cost of capital
until the point in the installation at which each network begins generating
revenue. (Accordingly, $458,000 and $1,537,000 of interest was capitalized
during 1995 and 1996, respectively.) Depreciation is computed on a straight-line
basis over the shorter of the estimated useful lives of the network assets or
the contract's life from initial revenue generation until contract termination.
Depreciation commences when the network begins generating significant revenue,
typically when network installation is approximately 50% complete. At December
31, 1996, accumulated depreciation was $1,657,000.
PROPERTY. Property and leasehold improvements are stated at cost.
Depreciation and amortization are computed on a straight-line basis over
estimated useful lives of three to five years or the capital lease term, if
shorter.
F-8
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
DEBT ISSUANCE COSTS AND OTHER. Includes debt issue costs associated with
the senior discount notes (see Note 5) and a prepaid royalty amount paid to one
of the Company's vendors. The debt issuance costs are capitalized and amortized
using the effective interest method over the lives of the related debt.
RECENTLY ISSUED ACCOUNTING STANDARD. In March 1995, the FASB issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of,"
which became effective January 1, 1996. This statement requires the Company to
review long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recovered. Implementation did not have a material impact on the Company's
financial statements.
REVENUE RECOGNITION. Network service revenue, associated with installed
networks, is recognized in the period of service. Product revenue is recognized
upon product shipment.
FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's U.K.
subsidiary is the U.S. dollar. Accordingly, all monetary assets and liabilities
are translated at the current exchange rate at the end of the period,
nonmonetary assets and liabilities are translated at historical rates and
operating expenses are translated at average exchange rates in effect during the
period. Transaction gains and losses, which are included in other income
(expense) in the accompanying consolidated statements of operations, have not
been significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The recorded carrying amounts of the
Company's financial instruments, namely cash and cash equivalents and short-term
investments, approximate their fair value. The estimated fair value of the
Company's Senior Discount Notes was $179,563,000 and $224,250,000 at December
31, 1995 and 1996, respectively. The fair values of cash equivalents and
short-term investments are based on quoted market prices, and the estimated fair
value of the Senior Discount Notes is based on information provided by the
initial purchaser of the original notes.
NET LOSS PER SHARE. Net loss per share is computed using the weighted
average number of common and common equivalent shares outstanding for 1996. For
1995, common equivalent shares include preferred stock and certain warrants
(using the "if converted" method) and stock options and the remaining warrants
(using the treasury stock method). Common equivalent shares are excluded from
the computation if their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission's Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares issued
within the 12 months preceding the initial filing date of the registration
statement for the Company's initial public offering of its common stock as if
they were outstanding for all periods prior to the initial filing date. In
addition, all outstanding preferred stock and warrants that were converted in
the initial public offering are included in the computation as common equivalent
shares even when the effect is anti-dilutive.
Effective September 26, 1996, the Board of Directors of the Company approved
a two-for-one split of all outstanding shares of common stock. All shares and
per-share amounts have been adjusted to reflect this split.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1994 and
1995 amounts to conform to the 1996 presentation.
F-9
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
2. SHORT-TERM INVESTMENTS
The fair value and the amortized cost of short-term investments at December
31, 1995 and 1996 are presented below. Fair values are based on quoted market
prices obtained from the Company's broker. All of the Company's short-term
investments are classified as available-for-sale, since the Company intends to
sell them as needed for operations. The tables present the unrealized holding
gains and losses related to each category of investment security (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
UNREALIZED UNREALIZED
AMORTIZED LOSS ON GAIN ON MARKET
COST INVESTMENT INVESTMENT VALUE
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Auction-rate preferred stock...................................... $ 19,803 $ (3) $ -- $ 19,800
Corporate debt securities......................................... 64,664 -- -- 64,664
Debt securities of states of the United States and political
subdivisions of the states...................................... 3,000 -- -- 3,000
Debt securities issued by United States government agencies....... 4,647 -- 2 4,649
Foreign debt securities........................................... 3,668 (2) -- 3,666
----------- ----------- ----------- ---------
Total......................................................... $ 95,782 $ (5) $ 2 $ 95,779
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
UNREALIZED UNREALIZED
AMORTIZED LOSS ON GAIN ON MARKET
COST INVESTMENT INVESTMENT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Certificates of deposit........................................ $ 2,002 $ -- $ -- $ 2,002
Auction-rate preferred stock................................... 33,550 -- -- 33,550
Corporate debt securities...................................... 141,107 (4) 1 141,104
----------- ----------- ----------- -----------
Total...................................................... 176,659 (4) 1 176,656
Less amounts included in cash and equivalents.................. (122,013) -- -- (122,013)
----------- ----------- ----------- -----------
$ 54,646 $ (4) $ 1 $ 54,643
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The final maturity periods of short-term investments at December 31,
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
MARKET VALUE OF MATURITIES
----------------------------------------------
GREATER
WITHIN ONE FIVE TO THAN 10
YEAR TEN YEARS YEARS TOTAL
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Certificates of deposit........................................... $ 2,002 $ -- $ -- $ 2,002
Auction-rate preferred stock...................................... -- 10,600 22,950 33,550
Corporate debt securities......................................... 139,104 -- 2,000 141,104
----------- --------- --------- -----------
Total......................................................... 141,106 10,600 24,950 176,656
Less amounts included in cash and cash equivalents................ (122,013) -- -- (122,013)
----------- --------- --------- -----------
$ 19,093 $ 10,600 $ 24,950 $ 54,643
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
F-10
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
2. SHORT-TERM INVESTMENTS (CONTINUED)
All short-term investments with final maturities exceeding one year have
provisions requiring their repurchase at par at the option of the holder and for
adjustment to market rates of interest on at least an annual basis. The Company
treats such investments as having a maturity of one year or less for purposes of
compliance with investment limitations provided in the Senior Discount Note
Indenture (see Note 5).
3. PROPERTY
Property consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Manufacturing equipment and tools........................................................... $ 4,870 $ 8,065
Office furniture and equipment.............................................................. 4,111 9,129
Engineering equipment....................................................................... 2,119 2,942
Vehicles.................................................................................... -- 204
--------- ---------
Total................................................................................... 11,100 20,340
Accumulated depreciation and amortization................................................... (3,561) (8,104)
--------- ---------
Total................................................................................... $ 7,539 $ 12,236
--------- ---------
--------- ---------
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Accrued contractual obligations............................................................. $ 273 $ 277
Professional services....................................................................... 232 276
Deferred revenue............................................................................ 190 150
Other....................................................................................... 286 247
--------- ---------
Total................................................................................... $ 981 $ 950
--------- ---------
--------- ---------
</TABLE>
5. SENIOR DISCOUNT NOTES
In 1995, the Company received $175,837,000 in gross proceeds from the
issuance of $325,000,000 aggregate principal amount at maturity of its 13%
Senior Discount Notes due June 15, 2005 and related warrants to purchase
2,600,000 shares of common stock at $0.005 per share (the Notes and Common Stock
Warrants). Aggregate proceeds of $2,974,000 have been attributed to the Common
Stock Warrants. Commencing December 15, 2000, interest will be payable on the
Notes semi-annually in arrears on each December 15 and June 15 at the rate of
13% per annum.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on and after June 15, 2000 at specified redemption prices for the
relevant year of redemption, plus accrued and unpaid interest to the date of
redemption. In addition, the Company may redeem in cash at its option at any
time
F-11
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
5. SENIOR DISCOUNT NOTES (CONTINUED)
prior to June 15, 1998 up to 25% of the aggregate principal amount of the Notes
at 113% of the accreted value thereof on the date of redemption plus accrued and
unpaid interest, if any, from the proceeds of a public equity offering (as
defined). There are no sinking fund requirements. In the event of a change of
control (as defined), each holder of the Notes has the option to require the
Company to repurchase such holder's Notes at 101% of the accreted value thereof
on the date of repurchase (if prior to June 15, 2000) or 101% of the aggregate
principal face amount thereof, plus accrued and unpaid interest, if any, to the
repurchase date (if on or after June 15, 2000).
The Notes rank senior in right of payment to all existing and future
subordinated indebtedness of the Company and PARI PASSU with all existing and
future senior indebtedness of the Company. The Indenture pursuant to which the
Notes were issued contains certain covenants that, among other things, limit the
ability of the Company to make dividend payments, make investments, repurchase
outstanding shares of stock, prepay other debt obligations, incur additional
indebtedness, effect asset dispositions, engage in sale and leaseback
transactions, consolidate, merge or sell all or substantially all of the
Company's assets, or engage in transactions with affiliates, or effect certain
transactions by its restricted subsidiaries (as defined). The Company was in
compliance with the financial covenants of the Indenture at December 31, 1996.
6. STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED STOCK. In conjunction with the initial public
offering of the Company's common stock, all outstanding shares of convertible
preferred stock were converted into common stock upon the closing of the
offering.
COMMON STOCK. At December 31, 1996, the Company had reserved shares of
common stock for issuance as follows:
<TABLE>
<S> <C>
Issuance under employee stock purchase plan............... 1,200,000
Issuance upon exercise of common stock warrants........... 2,650,000
Issuance under stock option plans......................... 4,394,855
Total................................................. 8,244,855
</TABLE>
RESTRICTED STOCK. Certain officers, employees and consultants exercised
stock options with cash or full recourse notes. The related shares of common
stock continue to vest in accordance with the terms of the stock option. The
related notes bear interest at rates ranging from 6.04% to 7.92% and are due in
1999 through 2000. At December 31, 1996, 1,275,841 outstanding shares of such
stock were subject to repurchase.
1996 EMPLOYEE STOCK PURCHASE PLAN. In 1996, the Company adopted an Employee
Stock Purchase Plan (the Plan). A total of 1,200,000 shares of common stock are
reserved for issuance under the Plan. Under the Plan, the Company will withhold
a specified percentage of each salary payment to participating employees over
certain offering periods. Unless the Board of Directors shall determine
otherwise, each offering period will run for six months, from November 1 to
April 30 and from May 1 to October 31, except that the first offering period
commenced on September 26, 1996 and will end on April 30, 1997. The price at
which common stock may be purchased under the Plan is equal to 85% of the fair
market value of the
F-12
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
6. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
common stock on the first or last day of the applicable offering period,
whichever is lower. No shares had been purchased under the Plan as of December
31, 1996.
WARRANTS. At December 31, 1996, the following warrants to purchase stock
were outstanding:
Warrants to purchase 50,000 shares of common stock at $2.00 per share become
exercisable over a five-year period at the rate of 20% per year commencing
August 21, 1992, subject to certain conditions. The warrants expire on February
24, 1999, or, with written notice from the Company, two days prior to (a) the
merger of the Company with or into a corporation as a result of which the
stockholders of the Company hold less than 50% of the equity securities of the
surviving corporation or its parent (unless the securities received are freely
tradable and listed on a national securities exchange or on the NASDAQ National
Market System), (b) the sale, conveyance or disposition of all or substantially
all of the assets of the Company, or (c) the liquidation, dissolution or winding
up of the Company.
Warrants to purchase 2,600,000 shares of common stock at $0.005 per share
were granted in connection with the issuance and sale in 1995 of the Company's
Senior Discount Notes (see Note 5). The warrants expire on the earliest to occur
of (a) 90 days after a change of control of the Company (as defined), and (b)
June 30, 1997.
STOCK OPTION PLANS. The Company has stock option plans (the Plans) under
which shares are reserved for issuance to officers, directors, employees and
consultants. Under the Plans, both incentive and nonstatutory stock options to
purchase common stock may be granted or restricted common stock may be sold at
prices not less than the fair market value of the common stock at the date of
grant. The terms of exercise are determined by the Board of Directors. Options
outstanding at December 31, 1996 generally become exercisable over five years,
commencing six months from the date of the individual's employment or the date
of grant and expire ten years from the date of grant. At December 31, 1996,
there were 971,299 shares available for future grant under the Plans.
F-13
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
6. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
A summary of stock option activity under the Plans on a combined basis is as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Balances, January 1, 1994................................. 1,618,434 $ 0.146
Granted................................................. 4,447,850 0.698
Exercised............................................... (533,656) 0.409
Canceled................................................ (292,000) 0.402
-----------
Balances, December 31, 1994............................... 5,240,628 0.574
Granted (weighted average fair value $.129 per share)... 514,600 1.182
Exercised............................................... (2,318,096) 0.706
Canceled................................................ (163,498) 0.784
-----------
Balances, December 31, 1995............................... 3,273,634 0.565
Granted (weighted average fair value $1.486 per
share)................................................ 889,910 3.827
Exercised............................................... (866,775) 0.214
Canceled................................................ (109,679) 0.683
-----------
Balances, December 31, 1996............................... 3,187,090 $ 1.278
-----------
-----------
</TABLE>
Additional information regarding options outstanding as of December 31, 1996
is as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-----------------------
OPTIONS OUTSTANDING WEIGHTED
----------------------------------------------- AVERAGE
RANGE OF EXERCISE NUMBER WEIGHTED AVERAGE REMAINING WEIGHTED AVERAGE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- ----------------- ----------- ----------------------------- ---------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$0.05 - $0.50 2,279,389 7.10 $ 0.294 1,123,528 $ 0.237
$1.00 - $2.00 723,176 9.15 $ 1.887 105,539 $ 1.843
$3.00 - $13.625 184,525 9.73 $ 11.038 5,370 $ 4.187
</TABLE>
ADDITIONAL STOCK PLAN INFORMATION
The Company accounts for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements.
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, (SFAS 123) requires the disclosure of pro forma net
loss and loss per share had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and estimated term. These
calculations were
F-14
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
6. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
made using the minimum value method prior to the Company's public offering and
the Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 21.3 months following vesting; stock volatility, 60%
in 1996, subsequent to the Company's initial filing for their IPO; risk free
interest rates, 6% in 1995 and 1996; and no dividends during the expected term.
The Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1995 and 1996 awards had been amortized to expense over the vesting period of
the awards, pro forma net loss would have been $40,986,376 ($1.22 per share) in
1995 and $73,314,109 ($2.21 per share) in 1996. However, the impact of
outstanding nonvested stock options granted prior to 1995 has been excluded from
the pro forma calculation; accordingly, the 1995 and 1996 pro forma adjustments
are not indicative of future period pro forma adjustments, when the calculation
will apply to all applicable stock options.
7. INCOME TAXES
No federal income taxes were provided in 1994, 1995 or 1996 due to the
Company's net losses. The provisions for income taxes for these periods
represent various state minimum income and franchise taxes. The provision for
income taxes differs from the amount computed by applying the federal statutory
income tax rate to income before taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Taxes computed at federal statutory rate.............................. $ (5,121) $ (14,334) $ (25,441)
State income taxes, net of federal effect............................. (658) (1,843) (2,544)
Research tax credits.................................................. (447) (399) 3,760
Change in valuation allowance......................................... 5,522 18,120 23,349
Other................................................................. 706 (1,541) 881
--------- ---------- ----------
Total provision................................................... $ 2 $ 3 $ 5
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The tax effects of temporary differences that give rise to deferred taxes
were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Tax net operating loss and credit carryforwards............................... $ 30,910 $ 48,778
Senior note original issue discount........................................... 3,817 13,263
Research and development expenses capitalized for tax purposes................ 3,645 1,138
Expenses not currently deductible for tax purposes............................ 2,182 724
---------- ----------
Total deferred tax assets................................................... 40,554 63,903
Valuation allowance on deferred tax assets.................................... (40,554) (63,903)
---------- ----------
Net deferred income taxes..................................................... $ -- $ --
---------- ----------
---------- ----------
</TABLE>
F-15
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
7. INCOME TAXES (CONTINUED)
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $127,900,000 and $71,900,000 available to offset future federal
and state taxable income, respectively. The extent to which the loss
carryforwards can be used to offset future taxable income may be limited,
depending on the extent of ownership changes within any three-year period as
provided in the Tax Reform Act of 1986 and the California Conformity Act of
1987. Such federal carryforwards expire in 2001 through 2011. Such state
carryforwards expire in 1997 through 2011. Equity issuances in April 1991 and
the initial public offering in 1996 triggered such limitations on loss
carryforwards. As of December 31, 1996, approximately $108,000,000 of net
operating losses remain limited to an annual usage of approximately $36,400,000
for federal income tax purposes.
The Company has capitalized approximately $82,200,000 of research and
development expenditures for California purposes which are available for
amortization in future years. Realization of the deferred tax assets associated
with these expenditures is contingent upon the amount of income or loss
apportioned to California during the subject amortization periods. Research and
development tax credit carryforwards of approximately $1,800,000 and $1,300,000
are also available to offset future federal and California income taxes payable,
respectively.
A valuation allowance has been recorded against tax assets for which
realization is uncertain. Based upon the Company's history of operating losses
and the expiration dates of the loss carryforwards, the Company has recorded a
valuation allowance to the full extent of its net deferred tax assets.
8. COMMITMENTS AND LEASES
At December 31, 1995 and 1996, equipment with a net book value of $854,000
and $878,000 (net of accumulated amortization of $372,000 and $708,000,
respectively), has been leased under capital leases.
The Company leases its principal manufacturing and office facilities under
noncancelable operating lease and sublease agreements expiring as to portions of
the space at various times commencing February 1996 through December 2000.
Future minimum annual rental payments under capital and operating leases are
as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
- ----------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1997........................................................................... $ 374 $ 1,662
1998........................................................................... 201 1,618
1999........................................................................... 121 1,283
2000........................................................................... 88 1,205
2001........................................................................... 10 194
Thereafter..................................................................... -- 1,287
----- -----------
Total minimum lease payments....................................................... $ 794 $ 7,249
Amount representing interest....................................................... (120)
-----
Present value of minimum lease payments............................................ 674
Current portion.................................................................... 308
-----
Long-term lease obligations........................................................ $ 366
-----
-----
</TABLE>
F-16
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
8. COMMITMENTS AND LEASES (CONTINUED)
Facilities rent expense was $421,000, $901,000, and $1,301,000 for 1994,
1995 and 1996, respectively. Rent expense is net of sublease income of $175,000
in 1994.
9. LITIGATION
The industry in which the Company operates is characterized by frequent
litigation regarding patent and other intellectual property rights. The Company
is party to two such claims of this nature.
Although the ultimate outcome of this matter is not presently determinable,
management believes that the resolution will not have a material effect on the
Company's financial position or results of operations. Although the Company has
been granted federal registration of its "CellNet" trademark, in January 1995,
Century Telephone Enterprises, Inc. (Century Telephone) filed a petition for
cancellation in an attempt to challenge such registration. The matter is
currently pending before the Trademark Trial and Appeal Board of the U.S. Patent
and Trademark Office. CellNet and Century Telephone are the sole parties in the
action. If such challenge were successful, the Company could lose its
registration and could be required to adopt a new trademark and possibly a new
or modified corporate name. CellNet could encounter similar challenges in the
future. While the requirement to adopt a new trademark or new or modified
corporate name could involve a significant expense and could result in the loss
of any goodwill and name recognition associated with the Company's current
trademark and corporate name, the Company does not believe this would have a
long-term material adverse impact on the Company's business, operating results,
financial condition and cash flow.
In October 1996, Itron, Inc., one of the Company's competitors, filed a
complaint against the Company in the Federal District Court in Minnesota
alleging that the Company infringes an Itron patent which was issued in
September 1996. Itron is seeking a judgment for damages, attorneys fees and
injunctive relief. The Company believes, based on its current information, that
the Company's products do not infringe any valid claim in the Itron patent, and
in the Company's opinion, the ultimate outcome of the lawsuit is not expected to
have a material adverse effect on the Company's business, operating results,
financial condition and cash flow.
On October 31, 1996, a complaint, SETTLE V. SEIDL, ET AL. No. 398464, was
filed in the Superior Court of California for the County of San Mateo against
the Company, certain of its officers and directors and underwriters of the
Company's Initial Public Offering. The complaint, which is a purported class
action filed on behalf of the Company's stockholders who purchased shares in the
Company's initial public offering, seeks unspecified damages and rescission for
alleged liability under various provisions of the federal securities laws and
California state law. Plaintiff alleges that the Prospectus and Registration
Statement dated September 26, 1996, pursuant to which the Company issued
5,000,000 shares of Common Stock to the public, contained materially misleading
statements and/or omissions in that defendants were obligated to disclose, but
failed to disclose, that a patent conflict with Itron, Inc. was likely to ensue.
On November 8 and 13, 1996, two additional complaints, KAREN ZULLY V. CELLNET
DATA SYSTEMS, INC. ET AL. No. 398551 and HOWARD FIENMAN AND GERALD SLAPSOWITZ V.
CELLNET DATA SYSTEMS, INC. ET AL. No. 398560, were filed in the Superior Court
of California for the County of San Mateo. These cases are essentially similar
in nature to the Settle case. The Court has ordered consolidation of the Settle
and Zully actions. The Company expects that the FIENMAN action will be
consolidated with the SETTLE AND ZULLY actions before trial. The Company
believes that the allegations in these complaints are without merit and intends
to defend these actions vigorously. In the Company's opinion, the ultimate
outcome of these lawsuits is not expected to have a material adverse effect on
the Company's business, operating results, financial conditions and cash flow.
F-17
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 124,232 $ 88,633
Short-term investments.............................................................. 54,643 29,300
Accounts receivable--trade.......................................................... 850 1,393
Accounts receivable--other.......................................................... 1,264 3,597
Prepaid expenses and other.......................................................... 1,124 2,087
------------ -----------
Total current assets.............................................................. 182,113 125,010
Network components and inventory...................................................... 11,211 15,095
Networks in progress--net............................................................. 48,426 70,184
Property--net......................................................................... 12,236 14,275
Investment in unconsolidated affiliate................................................ -- --
Debt issuance and other costs--net.................................................... 5,565 5,274
------------ -----------
Total assets...................................................................... $ 259,551 $ 229,838
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable.................................................................... $ 8,133 $ 9,750
Accrued compensation and related benefits........................................... 2,371 2,210
Accrued liabilities................................................................. 950 1,221
Current portion of capital lease obligations........................................ 308 336
------------ -----------
Total current liabilities......................................................... 11,762 13,517
Senior discount notes--13%.......................................................... 207,178 220,832
Capital lease obligations--net...................................................... 366 499
Commitments and contingencies (Notes 1 and 3)
Stockholders' (deficit) equity:
Preferred stock--$.001 par value; 15,000,000 shares authorized; shares outstanding,
1996: none; 1997: none............................................................ -- --
Common stock--$.001 par value; 100,000,000 shares authorized; shares outstanding,
1996: 38,537,517; 1997: 41,541,384................................................ 205,793 209,348
Notes receivable from sale of common stock.......................................... (814) (718)
Warrants............................................................................ 2,984 1
Accumulated deficit................................................................. (167,715) (213,641)
Net unrealized loss on short-term investments....................................... (3) 0
------------ -----------
Total stockholders' (deficit) equity.............................................. 40,245 (5,010)
------------ -----------
Total liabilities and stockholders' (deficit) equity.................................. $ 259,551 $ 229,838
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-18
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED JUNE
JUNE 30, 30,
---------------------- ----------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Network service revenues........................................ $ 170 $ 1,254 $ 244 $ 2,113
Product sales................................................... 57 235 127 299
Other revenues.................................................. 24 25 49 81
---------- ---------- ---------- ----------
Total revenues................................................ 251 1,514 420 2,493
---------- ---------- ---------- ----------
Costs and expenses:
Cost of network operations...................................... 1,668 3,933 2,920 7,498
Cost of product sales........................................... 44 259 109 337
Research and development........................................ 6,134 6,652 11,820 13,048
Marketing and sales............................................. 1,557 1,930 2,866 3,669
General and administrative...................................... 2,710 4,642 4,930 9,069
Depreciation and amortization................................... 1,292 2,674 2,183 5,139
---------- ---------- ---------- ----------
Total costs and expenses...................................... 13,405 20,090 24,828 38,760
---------- ---------- ---------- ----------
Loss from operations.............................................. (13,154) (18,576) (24,408) (36,267)
---------- ---------- ---------- ----------
Equity in (loss) of unconsolidated affiliate...................... -- (981) -- (1,339)
---------- ---------- ---------- ----------
Other income (expense):
Interest income................................................. 1,553 1,947 3,458 4,238
Interest expense................................................ (5,554) (6,248) (11,264) (12,559)
Other--net...................................................... (91) (64) (97) 2
---------- ---------- ---------- ----------
Total other income (expense)...................................... (4,092) (4,365) (7,903) (8,319)
---------- ---------- ---------- ----------
Net loss before income taxes...................................... (17,246) (23,922) (32,311) (45,925)
Provision for income taxes........................................ 1 2 1
---------- ---------- ---------- ----------
Net loss.......................................................... $ (17,247) $ (23,922) $ (32,313) $ (45,926)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per share................................................ $ (0.55) $ (0.60) $ (1.03) $ (1.16)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in computing per share amounts........................ 31,277 39,913 31,217 39,214
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-19
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................... $ (32,313) $ (45,926)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization........................................................ 2,183 5,139
Accretion on 13% senior discount notes............................................... 12,192 12,184
Amortization of debt issuance costs.................................................. 298 310
Loss of unconsolidated affiliate..................................................... -- 1,339
Loss (gain) on disposition of property................................................. (15)
Changes in:
Accounts receivable--trade......................................................... 214 (543)
Accounts receivable--other......................................................... -- (2,333)
Prepaid expenses and other......................................................... 54 (963)
Accounts payable................................................................... (912) 1,617
Accrued compensation and related benefits.......................................... (618) (161)
Accrued liabilities................................................................ 9 271
----------- ----------
Net cash used for operating activities........................................... (18,908) (29,066)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Network components and inventory....................................................... (905) (3,884)
Purchase of property................................................................... (3,404) (5,085)
Networks in progress................................................................... (17,482) (22,029)
Investment in unconsolidated affiliate................................................. -- (1,339)
Other assets........................................................................... -- (19)
Purchase of short-term investments..................................................... (263,980) (13,789)
Proceeds from sales and maturities of short-term investments........................... 327,522 39,134
----------- ----------
Net cash (used) for investing activities......................................... 41,751 (7,011)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for debt issuance costs...................................................... -- --
Repayment of capital lease obligations................................................. (160) (190)
Proceeds from sale of preferred stock.................................................. 1 --
Proceeds from sale of common stock..................................................... 28 572
Collection of note receivable from sale of common stock................................ -- 96
----------- ----------
Net cash (used) provided by financing activities................................. (131) 478
----------- ----------
Decrease in cash and cash equivalents.................................................... 22,712 (35,599)
Cash and cash equivalents, beginning of period........................................... 48,018 124,232
----------- ----------
Cash and cash equivalents, end of period................................................. $ 70,730 $ 88,633
----------- ----------
----------- ----------
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property under capital leases........................................... $ 133 $ 351
Capitalization of interest into networks in progress................................... $ -- $ 1,470
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest............................................... $ 56 $ 53
Cash paid for income taxes............................................................. $ 2 $ 1
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-20
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
In the opinion of management, these unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments and accruals the Company considers necessary for a fair
presentation of the Company's financial position as of June 30, 1997, and the
results of operations and cash flows for the six months ended June 30, 1996 and
1997. This unaudited interim information should be read in conjunction with the
audited consolidated financial statements of CellNet Data Systems, Inc. and the
notes thereto for the year ended December 31, 1996. Operating results for the
six months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997.
Investment in affiliate is accounted for using the equity method. Income or
loss of affiliate is based upon the Company's beneficial interest (50%).
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128). The
Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted. The Company has
determined that adoption of SFAS 128 will not have a material effect on losses
per share which have been previously reported.
In June 1997, the Financial Accounting Standards Board adopted Statements of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME, which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from nonowner sources; and No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which
establishes annual and interim reporting standards for an enterprise's business
segments and related disclosures about its products, services, geographic areas,
and major customers. Adoption of these statements will not impact the Company's
consolidated financial position, results or operations or cash flows. Both
statements are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
2. NET LOSS PER SHARE.
Net loss per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the six month period
ended June 30, 1996 and the year ended December 31, 1996. For the six months
ended June 30, 1996, common equivalent shares include all outstanding preferred
stock and warrants that were converted in connection with the initial public
offering completed October 2, 1996, even when the effect is anti-dilutive.
3. COMMITMENTS AND CONTINGENCIES.
The industry in which the Company operates is characterized by frequent
litigation regarding patent and other intellectual property rights. The Company
is a party to three such claims. Although the ultimate outcome of these matters
is not presently determinable, management believes that the resolution of these
matters will not have a material adverse effect on the Company's business,
operating results, financial position and cash flow.
Although the Company has been granted federal registration of its "CellNet"
trademark, in January 1995, Century Telephone Enterprises, Inc. (Century
Telephone) filed a petition for cancellation in an attempt to challenge such
registration. The matter is currently pending before the Trademark Trial and
Appeal Board of the U.S. Patent and Trademark Office. CellNet and Century
Telephone are the sole parties in the action. If such challenge were successful,
the Company could lose its registration and could
F-21
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES. (CONTINUED)
be required to adopt a new trademark and possibly a new or modified corporate
name. CellNet could encounter similar challenges in the future. While the
requirement to adopt a new trademark or new or modified corporate name could
involve a significant expense and could result in the loss of any goodwill and
name recognition associated with the Company's current trademark and corporate
name, the Company does not believe this would have a long-term material adverse
impact on the Company's business, operating results, financial condition and
cash flow.
In October 1996, Itron, Inc., one of the Company's competitors, filed a
complaint against the Company in the Federal District Court in Minnesota
alleging that the Company infringes an Itron patent which was issued in
September 1996. Itron is seeking a judgment for damages, attorneys' fees and
injunctive relief. The Company believes, based on its current information, that
the Company's products do not infringe any valid claim in the Itron patent, and
in the Company's opinion, the ultimate outcome of the lawsuit is not expected to
have a material adverse effect on the Company's business, operating results,
financial condition and cash flow.
On October 31, 1996, a complaint, SETTLE V. SEIDL, ET AL., No. 398464, was
filed in the Superior Court of California for the County of San Mateo against
the Company, certain of its officers and directors and underwriters of the
Company's Initial Public Offering. The complaint, which is a purported class
action filed on behalf of those purchasing the Company's stock from the period
beginning on September 26, 1996 and ending on October 31, 1996, seeks
unspecified damages and rescission for alleged liability under various
provisions of the federal securities laws and California state law. Plaintiff
alleges that the Prospectus and Registration statement dated September 26, 1996,
pursuant to which the Company issued 5,000,000 shares of Common Stock to the
public, contained materially misleading statements and/or omissions in that
defendants were obligated to disclose, but failed to disclose, that a patent
conflict with Itron, Inc. was likely to ensue. On November 8 and 13, 1996, two
additional complaints, KAREN ZULLY V. CELLNET DATA SYSTEMS, INC., ET AL., No.
398551 and HOWARD FIENMAN AND GERALD SAPSOWITZ V. CELLNET DATA SYSTEMS, INC., ET
AL., No. 398560, were filed in the Superior Court of California for the County
of San Mateo. These cases are essentially similar in nature to the SETTLE case.
The Court has ordered consolidation of the SETTLE AND ZULLY actions. The Company
expects that the FIENMAN action will be consolidated with the SETTLE and ZULLY
actions before trial. The Company believes that the allegations in these
complaints are without merit and intends to defend these actions vigorously. The
Company has filed demurrers seeking dismissal of these complaints. The motions
are currently under submission before the Special Master assigned by the Court
to hear certain pre-trial matters. In the Company's opinion, the ultimate
outcome of these lawsuits is not expected to have a material adverse effect on
the Company's business, operating results, financial condition and cash flow.
In April 1997, the Company filed a patent infringement suit against Itron,
Inc. in the Federal District Court for the Northern District of California
claiming that Itron's use of its electronic meter reading Encoder Receiver
Transmitter (ERT-Registered Trademark-) device infringes CellNet's U.S. Patent
No. 4,783,623. The Company seeks an injunction, damages and other relief.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 5
Additional Information.................................................... 5
Prospectus Summary........................................................ 6
Risk Factors.............................................................. 17
Use of Proceeds........................................................... 32
Dividend Policy........................................................... 32
Capitalization............................................................ 33
Selected Consolidated Financial Data...................................... 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 36
Business.................................................................. 44
Management................................................................ 67
Certain Transactions...................................................... 75
Principal Stockholders.................................................... 78
The Exchange Offer........................................................ 80
Description of the Old Notes.............................................. 88
Description of the New Notes.............................................. 123
Certain U.S. Federal Income Tax Considerations............................ 123
Plan of Distribution...................................................... 126
Legal Matters............................................................. 127
Experts................................................................... 127
Index to Consolidated Financial Statements................................ F-1
</TABLE>
$654,133,000
PRINCIPAL AMOUNT AT MATURITY CELLNET DATA
SYSTEMS, INC.
14% SENIOR DISCOUNT NOTES
DUE 2007
---------------------
PROSPECTUS
---------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 7 of the Registrant's Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.
Article 6 of the Registrant's Bylaws provides for the indemnification of
officers, directors, employees and agents of the corporation if such person
acted in good faith and in a manner reasonably believed to be in and not opposed
to the best interest of the corporation, and, with respect to any criminal
action or proceeding the indemnified party had no reason to believe his conduct
was unlawful.
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
The Registrant has entered into indemnification agreements with its
directors and executive officers, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
3.1* Amended and Restated Certificate of Incorporation filed on September 26, 1996.
3.2* Bylaws.
4.1* Specimen Common Stock Certificate.
4.2* Indenture between the Registrant and The Bank of New York dated June 15, 1995, including form of Senior
Discount Old Note.
4.3* First Supplemental Indenture between the Registrant and The Bank of New York dated November 21, 1995.
4.4* Warrant Agreement between the Registrant and Axonn Corporation dated August 12, 1992.
4.5* Form of Warrant Agreement between the Registrant and Diablo Research Corporation.
4.6* Stock Purchase Agreement dated September 6, 1996 between the Registrant and Northern States Power
Registrant.
4.7* Stock Purchase Agreement dated September 4, 1996 between the Registrant and Union Electric Development
Corporation.
4.8* Stock Purchase Agreement dated September 16, 1996 between the Registrant and Bechtel Enterprises, Inc.
4.9* Second Supplemental Indenture by and between the Registrant and The Bank of New York dated as of August
30, 1996.
4.10 Warrant Agreement between the Registrant and The Bank of New York dated as of September 29, 1997
4.11 Registration Rights Agreement among the Registrant and the Placement Agents dated as of September 24,
1997.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
4.12 Warrant Registration Rights Agreement among the Registrant and the Placement Agents dated as of
September 24, 1997.
4.13 Third Supplemental Indenture by and between the Registrant and The Bank of New York dated as of August
28, 1997.
4.14 Fourth Supplemental Indenture by and between the Registrant and The Bank of New York dated as of
September 29, 1997.
4.15 Specimen 14% Senior Discount Note Due 2007, Series B.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of current Indemnification Agreement for directors and officers.
10.2A* 1992 Stock Option Plan and forms of agreements thereunder.
10.2B* 1994 Stock Plan and forms of agreements thereunder.
10.3* 1996 Employee Stock Purchase Plan.
10.4* Shareholders's Agreement between the Registrant and certain shareholders dated August 15, 1994, as
amended by Amendment No. 1 on December 22, 1994, Amendment No. 2 on June 15, 1995 and Amendment No. 3
on November 21, 1995.
10.5* Lease between the Registrant and WDT Shoreway dated April 6, 1989 for the Registrant's San Carlos
headquarters.
10.6* Restricted Stock Purchase Agreement between the Registrant and John Seidl dated December 27, 1994.
10.7* Restricted Stock Purchase Agreement between the Registrant and James Jennings dated August 1, 1995.
10.8* Restricted Stock Purchase Agreement between the Registrant and Philip Mallory dated July 21, 1995.
10.9* Restricted Stock Purchase Agreement between the Registrant and Larsh Johnson dated August 1, 1995.
10.10+* License Agreement between the Registrant and Axonn Corporation dated August 21, 1992, as amended by an
Addendum and a Second Addendum, each dated November 8, 1993.
10.11+* License Agreement between the Registrant and Axonn Corporation dated March 25, 1996.
10.12+* License Agreement between the Registrant and Life Point Systems Limited Partnership dated August 12,
1994.
10.13* Agreement between the Registrant and James Jennings dated July 11, 1994.
10.14* Form of Employee Severance Agreement.
10.15* Form of Promissory Note between the Registrant and certain officers of the Registrant in connection
with the purchase of restricted stock.
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
23.3* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney (included on Page II-4).
25.1 Statement of Eligibility of Trustee.
27.1* Financial Data Schedule.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
99.1 Form of Letter of Transmittal with respect to Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- ------------------------
*Previously filed
+Confidential Treatment granted
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information to be
set forth therein is not applicable or is shown in the financial statements or
Notes thereto.
ITEM 22. UNDERTAKING
1. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement 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.
2. 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 SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
3. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
4. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Carlos, State of
California on October 15, 1997.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
By: /s/ PAUL G. MANCA
-----------------------------------------
Paul G. Manca,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John M. Seidl and Paul G. Manca and each of them
his attorneys-in-fact, each with the power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto in all documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ JOHN M. SEIDL Officer and Director
- ------------------------------ (Principal Executive October 15, 1997
(John M. Seidl) Officer)
Vice President and Chief
/s/ PAUL G. MANCA Financial Officer
- ------------------------------ (Principal Financial and October 15, 1997
(Paul G. Manca) Accounting Officer)
/s/ PAUL M. COOK
- ------------------------------ Chairman of the Board, October 15, 1997
(Paul M. Cook) Director
/s/ NEAL M. DOUGLAS
- ------------------------------ Director October 15, 1997
(Neal M. Douglas)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ E. LINN DRAPER, JR.
- ------------------------------ Director October 15, 1997
(E. Linn Draper, Jr.)
/s/ WILLIAM C. EDWARDS
- ------------------------------ Director October 15, 1997
(William C. Edwards)
/s/ WILLIAM HART
- ------------------------------ Director October 15, 1997
(William Hart)
/s/ HENRY B. SARGENT
- ------------------------------ Director October 15, 1997
(Henry B. Sargent)
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
3.1* Amended and Restated Certificate of Incorporation filed on September 26, 1996.
3.2* Bylaws.
4.1* Specimen Common Stock Certificate.
4.2* Indenture between the Registrant and The Bank of New York dated June 15, 1995, including form of Senior
Discount Old Note.
4.3* First Supplemental Indenture between the Registrant and The Bank of New York dated November 21, 1995.
4.4* Warrant Agreement between the Registrant and Axonn Corporation dated August 12, 1992.
4.5* Form of Warrant Agreement between the Registrant and Diablo Research Corporation.
4.6* Stock Purchase Agreement dated September 6, 1996 between the Registrant and Northern States Power
Registrant.
4.7* Stock Purchase Agreement dated September 4, 1996 between the Registrant and Union Electric Development
Corporation.
4.8* Stock Purchase Agreement dated September 16, 1996 between the Registrant and Bechtel Enterprises, Inc.
4.9* Second Supplemental Indenture by and between the Registrant and The Bank of New York datedas of August
30, 1996.
4.10 Warrant Agreement between the Registrant and The Bank of New York dated as of September 29, 1997
4.11 Registration Rights Agreement among the Registrant and the Placement Agents dated as of September 24,
1997.
4.12 Warrant Registration Rights Agreement among the Registrant and the Placement Agents dated as of
September 24, 1997.
4.13 Third Supplemental Indenture by and between the Registrant and The Bank of New York dated as of August
28, 1997.
4.14 Fourth Supplemental Indenture by and between the Registrant and The Bank of New York dated as of
September 29, 1997.
4.15 Specimen 14% Senior Discount Note Due 2007, Series B.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of current Indemnification Agreement for directors and officers.
10.2A* 1992 Stock Option Plan and forms of agreements thereunder.
10.2B* 1994 Stock Plan and forms of agreements thereunder.
10.3* 1996 Employee Stock Purchase Plan.
10.4* Shareholders's Agreement between the Registrant and certain shareholders dated August 15, 1994, as
amended by Amendment No. 1 on December 22, 1994, Amendment No. 2 on June 15, 1995 and Amendment No. 3
on November 21, 1995.
10.5* Lease between the Registrant and WDT Shoreway dated April 6, 1989 for the Registrant's San Carlos
headquarters.
10.6* Restricted Stock Purchase Agreement between the Registrant and John Seidl dated December 27, 1994.
10.7* Restricted Stock Purchase Agreement between the Registrant and James Jennings dated August 1, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.8* Restricted Stock Purchase Agreement between the Registrant and Philip Mallory dated July 21, 1995.
10.9* Restricted Stock Purchase Agreement between the Registrant and Larsh Johnson dated August 1, 1995.
10.10+* License Agreement between the Registrant and Axonn Corporation dated August 21, 1992, as amended by an
Addendum and a Second Addendum, each dated November 8, 1993.
10.11+* License Agreement between the Registrant and Axonn Corporation dated March 25, 1996.
10.12+* License Agreement between the Registrant and Life Point Systems Limited Partnership dated August 12,
1994.
10.13* Agreement between the Registrant and James Jennings dated July 11, 1994.
10.14* Form of Employee Severance Agreement.
10.15* Form of Promissory Note between the Registrant and certain officers of the Registrant in connection
with the purchase of restricted stock.
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
23.3* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney (included on Page II-4).
25.1 Statement of Eligibility of Trustee.
27.1* Financial Data Schedule.
99.1 Form of Letter of Transmittal with respect to Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- ------------------------
*Previously filed
+Confidential Treatment granted
<PAGE>
Exhibit 4.10
WARRANT AGREEMENT
DATED AS OF SEPTEMBER 29, 1997
BETWEEN
CELLNET DATA SYSTEMS, INC.
AND
THE BANK OF NEW YORK,
AS WARRANT AGENT
------------------------
654,133
WARRANTS TO PURCHASE COMMON STOCK
$.001 PAR VALUE PER SHARE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.1 Issuance of Warrants................................................................... 1
SECTION 1.2 Form of Warrant Certificates........................................................... 2
SECTION 1.3 Execution of Warrant Certificates...................................................... 2
SECTION 1.4 Authentication and Delivery............................................................ 2
SECTION 1.5 Temporary Warrant Certificates......................................................... 3
SECTION 1.6 Registration........................................................................... 3
SECTION 1.7 Registration of Transfers and Exchanges................................................ 3
SECTION 1.8 Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates..................... 7
SECTION 1.9 Offices for Exercise, etc.............................................................. 8
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.1 Duration of Warrants................................................................... 8
SECTION 2.2 Exercise, Exercise Price, Settlement and Delivery...................................... 9
SECTION 2.3 Cancellation of Warrant Certificates................................................... 10
ARTICLE III
OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.1 Enforcement of Rights.................................................................. 10
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.1 Payment of Taxes....................................................................... 11
SECTION 4.2 [Intentionally Omitted]................................................................ 11
SECTION 4.3 Rules 144 and 144A..................................................................... 11
ARTICLE V
ADJUSTMENTS
SECTION 5.1 Adjustment of Exercise Rate; Notices................................................... 11
SECTION 5.2 Fractional Shares...................................................................... 14
SECTION 5.3 Certain Distributions.................................................................. 15
ARTICLE VI
THE WARRANT AGENT
SECTION 6.1 Warrant Agent.......................................................................... 15
SECTION 6.2 Conditions of Warrant Agent's Obligations.............................................. 15
SECTION 6.3 Resignation and Appointment of Successor............................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Amendment.............................................................................. 19
SECTION 7.2 Notices and Demands to the Company and Warrant Agent................................... 19
SECTION 7.3 Addresses for Notices to Parties and Transmission of Documents......................... 20
SECTION 7.4 Notices to Holders..................................................................... 20
SECTION 7.5 APPLICABLE LAW......................................................................... 20
SECTION 7.6 Persons Having Rights Under Agreement.................................................. 20
SECTION 7.7 Headings............................................................................... 20
SECTION 7.8 Counterparts........................................................................... 20
SECTION 7.9 Inspection of Agreement................................................................ 21
</TABLE>
EXHIBIT A-- Form of Warrant Certificate
EXHIBIT B-- Certificate To Be Delivered Upon Exchange or Registration of
Transfer of Warrants
EXHIBIT C-- Transferee Letter of Representation
ii
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT ("AGREEMENT"), dated as of September 29, 1997 by and
between CELLNET DATA SYSTEMS, INC., a Delaware corporation (together with any
successor thereto, the "COMPANY"), and THE BANK OF NEW YORK, a New York banking
corporation, not in its individual capacity but solely as warrant agent (with
any successor Warrant Agent, the "WARRANT AGENT").
WHEREAS, the Company has entered into a placement agreement dated September
24, 1997 with Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation (collectively, the "PLACEMENT AGENTS") pursuant to which
the Company has agreed to sell to the Placement Agents (the "OFFERING") units
(the "UNITS") consisting in the aggregate of (i) $197,500,000 principal amount
at maturity of 14% Senior Discount Notes due 2007 (the "NOTES") of the Company
to be issued under an indenture dated as of June 15, 1995 (as heretofore
supplemented and as further supplemented from time to time, the "INDENTURE"),
between the Company and The Bank of New York, as trustee (in such capacity, the
"TRUSTEE"), and (ii) 197,500 Warrants (together with the Warrants issued
pursuant to the Consent Solicitation and the Exchange Offer Memorandum, each as
described below, the "WARRANTS" and the certificates evidencing the Warrants
being hereinafter referred to as "WARRANT CERTIFICATES") representing the right
to purchase initially 2,700,022 shares of Common Stock, $.001 par value per
share, of the Company (the "COMMON STOCK"), subject to adjustment in accordance
with the terms hereof;
WHEREAS, pursuant to a Consent Solicitation dated August 20, 1997, whereby
the holders of the Company's Series B 13% Senior Discount Notes due 2005 (the
"1995 Notes") consented to a Third Supplemental Indenture allowing, among other
things, the Company to issue the Units, the Company has agreed to issue,
concurrently with the Offering, additional 1,795 Units to certain 1995 Note
holders who elected payment of their consent fee in the form of Units;
WHEREAS, pursuant to an Exchange Offer Memorandum dated September 3, 1997,
the Company has agreed to issue, concurrently with the Offering, additional
454,838 Units in exchange for the valid tender and acceptance of its 1995 Notes;
WHEREAS, the Notes and the Warrants will be automatically separated upon the
earliest to occur of (i) March 29, 1998, (ii) the commencement of an exchange
offer for the Notes pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), (iii) the effective
date of a shelf registration statement with respect to the Notes, and (iv) the
commencement of an offer to repurchase the Notes pursuant to the terms of the
Indenture; and
WHEREAS, the Company desires the Warrant Agent to assist the Company in
connection with the issuance, exchange, cancellation, replacement and exercise
of the Warrants, and in this Agreement wishes to set forth, among other things,
the terms and conditions on which the Warrants may be issued, exchanged,
cancelled, replaced and exercised;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.1 ISSUANCE OF WARRANTS. Warrants comprising part of the Units
shall be originally issued in connection with the issuance of the Units.
Each Warrant Certificate shall evidence the number of Warrants specified
therein, and each Warrant evidenced thereby shall represent the right, subject
to the provisions contained herein and therein, to purchase from the Company
(and the Company shall issue and sell to the holder of such Warrant) 13.671
fully paid and non-assessable shares of the Company's Common Stock (the shares
purchasable upon exercise of a Warrant being hereinafter referred to as the
"SHARES" and, where appropriate, such term shall also mean the other securities
or property purchasable and deliverable upon exercise of a Warrant as
<PAGE>
provided in Article V) at the price specified herein and therein, in each case
subject to adjustment as provided herein and therein.
SECTION 1.2 FORM OF WARRANT CERTIFICATES. The Warrant Certificates will
initially be issued either in global form (the "GLOBAL WARRANTS"), each
substantially in the form of EXHIBIT A hereto (including footnote 1 thereto) or
in registered form as definitive Warrant Certificates (the "DEFINITIVE
WARRANTS"). The Warrant Certificates evidencing the Global Warrants or the
Definitive Warrants to be delivered pursuant to this Agreement shall each be
substantially in the form set forth in EXHIBIT A attached hereto. The Global
Warrants shall provide that it shall represent the aggregate number of
outstanding Warrants from time to time endorsed thereon and that the aggregate
number of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Global Warrant to
reflect the amount of any increase or decrease in the number of outstanding
Warrants represented thereby shall be made by the Warrant Agent and Depositary
(as defined below) in accordance with instructions given by the holder thereof.
The Depository Trust Company shall act as the Depositary with respect to the
Global Warrants until a successor shall be appointed by the Company and the
Warrant Agent. Upon written request, a Warrant holder may receive from the
Warrant Agent Definitive Warrants as set forth in Section 1.7 hereof.
SECTION 1.3 EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be executed on behalf of the Company by the chairman of its Board of
Directors, its president, chief financial officer or any vice president and
attested by its secretary or assistant secretary. Such signatures may be the
manual or facsimile signatures of the present or any future such officers.
Typographical and other minor errors or defects in any such reproduction of any
such signature shall not affect the validity or enforceability of any Warrant
Certificate that has been duly countersigned and delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any Warrant
Certificate shall cease to be such officer before any such Warrant Certificate
so signed shall be countersigned and delivered by the Warrant Agent or disposed
of by the Company, such Warrant Certificate nevertheless may be countersigned
and delivered or disposed of as though the person who signed such Warrant
Certificate had not ceased to be such officer of the Company; and any Warrant
Certificate may be signed on behalf of the Company by such persons as, at the
actual date of the execution of such Warrant Certificate, shall be the proper
officers of the Company, although at the date of the execution and delivery of
this Agreement any such person was not such an officer.
SECTION 1.4 AUTHENTICATION AND DELIVERY. Subject to the immediately
following paragraph, Warrant Certificates shall be authenticated by manual
signature and dated the date of authentication by the Warrant Agent and shall
not be valid for any purpose unless so authenticated and dated. The Warrant
Certificates shall be numbered and shall be registered in the Warrant Register
(as defined in Section 1.6 hereof).
Upon the receipt by the Warrant Agent of a written order of the Company,
which order shall be signed by the chairman of its Board of Directors, its
president, chief financial officer or any vice president and attested by its
secretary or assistant secretary, and shall specify the number of Warrants to be
authenticated, whether the Warrants are to be Global Warrants or Definitive
Warrants, the date of such Warrants and such other information as the Warrant
Agent may reasonably request, without any further action by the Company, the
Warrant Agent is authorized, upon receipt from the Company at any time and from
time to time of the Warrant Certificates, duly executed as provided in Section
1.3 hereof, to authenticate the Warrant Certificates and deliver them. Such
authentication shall be by a duly authorized signatory of the Warrant Agent
(although it shall not be necessary for the same signatory to sign all Warrant
Certificates).
In case any authorized signatory of the Warrant Agent who shall have
authenticated any of the Warrant Certificates shall cease to be such authorized
signatory before the Warrant Certificate shall be disposed of by the Company,
such Warrant Certificate nevertheless may be delivered or disposed of as
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though the person who authenticated such Warrant Certificate had not ceased to
be such authorized signatory of the Warrant Agent; and any Warrant Certificate
may be authenticated on behalf of the Warrant Agent by such persons as, at the
actual time of authentication of such Warrant Certificates, shall be the duly
authorized signatories of the Warrant Agent, although at the time of the
execution and delivery of this Agreement any such person is not such an
authorized signatory.
SECTION 1.5 TEMPORARY WARRANT CERTIFICATES. Pending the preparation of
definitive Warrant Certificates, the Company may execute, and the Warrant Agent
shall thereupon authenticate and deliver, temporary Warrant Certificates, which
are printed, lithographed, typewritten or otherwise produced, substantially of
the tenor of the definitive Warrant Certificates in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Warrant Certificates may determine, as
evidenced by their execution of such Warrant Certificates.
If temporary Warrant Certificates are issued, the Company will cause
definitive Warrant Certificates to be prepared without unreasonable delay. After
the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates at any Warrant Agent Office (as
defined) maintained by the Company for that purpose pursuant to Section 1.9
hereof. Subject to the provisions of Section 4.1 hereof, such exchange shall be
without charge to the holder. Upon surrender for cancellation of any one or more
temporary Warrant Certificates, the Company shall execute, and the Warrant Agent
shall authenticate and deliver in exchange therefor, one or more definitive
Warrant Certificates representing in the aggregate a like number of Warrants.
Until so exchanged, the holder of a temporary Warrant Certificate shall in all
respects be entitled to the same benefits under this Agreement as a holder of a
definitive Warrant Certificate.
SECTION 1.6 REGISTRATION. The Company will keep, at the office or agency
maintained by the Company for such purpose, a register or registers in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of, and registration of transfer and exchange of,
Warrants as provided in this Article. Each person designated by the Company from
time to time as a person authorized to register the transfer and exchange of the
Warrants is hereinafter called, individually and collectively, the "REGISTRAR".
The Company hereby initially appoints the Warrant Agent as Registrar. Upon
written notice to the Warrant Agent and any acting Registrar, the Company may
appoint a successor Registrar for such purposes.
The Company will at all times designate one person (who may be the Company
and who need not be a Registrar) to act as such repository of a master list of
names and addresses of the holders of Warrants (the "WARRANT REGISTER"). The
Warrant Agent will act as such repository unless and until some other person is,
by written notice from the Company to the Warrant Agent and the Registrar,
designated by the Company to act as such. The Company shall cause each Registrar
to furnish to such repository, on a current basis, such information as to all
registrations of transfer and exchanges effected by such Registrar, as may be
necessary to enable such repository to maintain the Warrant Register on as
current a basis as is practicable.
SECTION 1.7 REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) TRANSFER AND EXCHANGE OF DEFINITIVE WARRANTS. When Definitive Warrants
are presented to the Warrant Agent with a request to register the transfer of
the Definitive Warrants, or to exchange such Definitive Warrants for an equal
number of Definitive Warrants of other authorized denominations, the Warrant
Agent shall register the transfer or make the exchange as requested if the
requirements under this Warrant Agreement as set forth in this Section 1.7 for
such transactions are met; PROVIDED, HOWEVER, that the Definitive Warrants
presented or surrendered for registration of transfer or exchange:
(A) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Company and the Warrant Agent, duly
executed by the holder thereof or by such holder's attorney, duly authorized
in writing; and
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<PAGE>
(B) in the case of Warrants the offer and sale of which have not been
registered under the Securities Act and are presented for transfer or
exchange prior to (I) the date which is two years after the later of the
date of original issue and the last date on which the Company or any
affiliate of the Company was the owner of such Warrant, or any predecessor
thereto and (II) such later date, if any, as may be required by any
subsequent change in applicable law (the "RESALE RESTRICTION TERMINATION
DATE"), such Warrants shall be accompanied, in the sole discretion of the
Company, by the following additional information and documents, as
applicable, however, it being understood that the Warrant Agent need not
determine which clause (1) through (4) below is applicable:
(1) if such Warrant is being delivered to the Warrant Agent by a
holder for registration in the name of such holder, without transfer, a
certification from such holder to that effect in substantially the form
of EXHIBIT B hereto; or
(2) if such Warrant is being transferred to a "qualified
institutional buyer" as defined in Rule 144A under the Securities Act (a
"QIB") in accordance with Rule 144A under the Securities Act or pursuant
to an exemption from registration in accordance with Rule 144 or
Regulation S under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a certification to that
effect in substantially the form of EXHIBIT B hereto; or
(3) if such Warrant is being transferred to an institutional
"accredited investor" within the meaning of subparagraphs (a)(1), (a)(2),
(a)(3) or (a)(7) of Rule 501 under the Securities Act, delivery of a
certificate of transfer in substantially the form of EXHIBIT C hereto and
an opinion of counsel and/or other information reasonably acceptable to
the Company to the effect that such transfer is in compliance with the
Securities Act; or
(4) if such Warrant is being transferred in reliance on another
exemption from the registration requirements of the Securities Act, a
certification to that effect in substantially the form of EXHIBIT B
hereto and an opinion of counsel and/ or other information reasonably
acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act.
(b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE WARRANT FOR A BENEFICIAL
INTEREST IN A GLOBAL WARRANT. A Definitive Warrant may not be exchanged for a
beneficial interest in a Global Warrant except upon satisfaction of the
requirements set forth below. Upon receipt by the Warrant Agent of a Definitive
Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Warrant Agent, together with (i) certification,
substantially in the form of EXHIBIT B hereto, that such Definitive Warrant is
being transferred to a QIB in accordance with Rule 144A under the Securities Act
or pursuant to an exemption from registration in accordance with Rule 144 or
Regulation S under the Securities Act or pursuant to an effective registration
statement under the Securities Act, and (ii) written instructions directing the
Warrant Agent to make, or to direct the Depositary to make, an endorsement on
the Global Warrant to reflect an increase in the aggregate amount of the
Warrants represented by the Global Warrant, then the Warrant Agent shall cancel
such Definitive Warrant and cause, or direct the Depositary to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Warrant Agent, the number of Warrants represented by the
Global Warrant to be increased accordingly. If no Global Warrant is then
outstanding, the Company shall issue and the Warrant Agent shall authenticate a
new Global Warrant in the appropriate amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL WARRANTS. The transfer and exchange of
Global Warrants or beneficial interests therein shall be effected through the
Depositary, in accordance with this Warrant Agreement (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL WARRANT FOR A DEFINITIVE
WARRANT.
(i) Any person having a beneficial interest in a Global Warrant may upon
request exchange such beneficial interest for a Definitive Warrant. Upon receipt
by the Warrant Agent of written instructions or
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<PAGE>
such other form of instructions as is customary for the Depositary from the
Depositary or its nominee on behalf of any person having a beneficial interest
in a Global Warrant and upon receipt by the Warrant Agent of a written order or
such other form of instructions as is customary for the Depositary or the person
designated by the Depositary as having such a beneficial interest containing
registration instructions and, in the case of any such transfer or exchange
prior to the Resale Restriction Termination Date, the following additional
information and documents, however, it being understood that the Warrant Agent
need not determine which clause (A) through (D) below is applicable:
(A) if such beneficial interest is being transferred to the person
designated by the Depositary as being the beneficial owner, a certification
from such person to that effect in substantially the form of EXHIBIT B
hereto; or
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 or Regulation S
under the Securities Act or pursuant to an effective registration statement
under the Securities Act, a certification to that effect from the transferee
or transferor in substantially the form of EXHIBIT B hereto; or
(C) if such beneficial interest is being transferred to an institutional
"accredited investor" within the meaning of subparagraphs (a)(1), (a)(2),
(a)(3) or (a)(7) of Rule 501 under the Securities Act, delivery of a
certificate of transfer in substantially the form of EXHIBIT C hereto and an
opinion of counsel and/or other information reasonably acceptable to the
Company to the effect that such transfer is in compliance with the
Securities Act;
then the Warrant Agent will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the Warrant
Agent, the aggregate amount of the Global Warrant to be reduced and,
following such reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate (as defined),
the Warrant Agent will authenticate and deliver to the transferee a
Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial interest in a
Global Warrant pursuant to this Section 1.7(d) shall be registered in such names
and in such authorized denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Warrant Agent in writing. The Warrant Agent shall deliver such Definitive
Warrants to the persons in whose names such Warrants are so registered.
(e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL
WARRANTS. Notwithstanding any other provisions of this Warrant Agreement (other
than the provisions set forth in subsection (f) of this Section 1.7), a Global
Warrant may not be transferred except as a whole by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) AUTHENTICATION OF DEFINITIVE WARRANTS IN ABSENCE OF DEPOSITARY. If at
any time the Depositary for the Warrants notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the Global
Warrant and a successor Depositary for the Global Warrant is not appointed by
the Company within 90 days after delivery of such notice, or the Company, at its
sole discretion, notifies the Warrant Agent in writing that it elects to cause
the issuance of Definitive Warrants under this Warrant Agreement, then the
Company will execute, and the Warrant Agent, upon receipt of an officers'
certificate signed by two officers of the Company (one of whom must be the
principal executive officer, principal financial officer or principal accounting
officer) (an "OFFICERS' CERTIFICATE") requesting the authentication and delivery
of Definitive Warrants, will authenticate and deliver Definitive Warrants, in an
aggregate number equal to the aggregate number of Warrants represented by the
Global Warrant, in exchange for such Global Warrant.
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<PAGE>
(g) LEGENDS.
(i) Except as permitted by the following paragraph (ii), each Warrant
Certificate evidencing the Global Warrants and the Definitive Warrants (and all
Warrants issued in exchange therefor or substitution thereof) shall bear a
legend substantially similar to the following effect:
THE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D
UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT
IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT; (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k),
RESELL OR OTHERWISE TRANSFER THE WARRANTS EXCEPT (A) TO CELLNET DATA
SYSTEMS, INC. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE WARRANTS (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE WARRANT AGENT) AND IF SUCH TRANSFER IS SUBSEQUENT TO THE
DATE ON WHICH THE WARRANTS BECOME SEPARATELY TRANSFERABLE, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHICH THE WARRANTS ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE WARRANTS WITHIN THE TIME
PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT. IF THE PROPOSED TRANSFEREE IS
AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO EACH OF THE WARRANT AGENT AND THE COMPANY SUCH
CERTIFICATION, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRED TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT. THE WARRANT AGREEMENT
CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO REGISTER ANY
TRANSFER OF THE WARRANTS IN VIOLATION OF THE FOREGOING RESTRICTIONS.
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(ii) Upon any sale or transfer of a Warrant pursuant to Rule 144 under the
Securities Act in accordance with Section 1.7 hereof or under an effective
registration statement under the Securities Act, in the case of any Warrant that
is a Definitive Warrant, the Warrant Agent shall permit the holder thereof to
exchange such Warrant for a Definitive Warrant that does not bear the legends
set forth above and rescind any related restriction on the transfer of such
Warrant, and any such Warrant represented by a Global Warrant shall not be
subject to the provisions set forth in clause (i) above (such sales or transfers
being subject only to the provisions of Section 1.7(c) hereof); PROVIDED,
HOWEVER, that with respect to any request for an exchange of a Warrant that is
represented by a Global Warrant for a Definitive Warrant that does not bear the
legends set forth above, which request is made in reliance upon Rule 144 under
the Securities Act, the holder thereof shall certify in writing to the Warrant
Agent that such request is being made pursuant to Rule 144 under the Securities
Act (such certification to be substantially in the form of EXHIBIT B hereto).
(h) CANCELLATION AND/OR ADJUSTMENT OF A GLOBAL WARRANT. At such time as
all beneficial interests in a Global Warrant have either been exchanged for
Definitive Warrants, redeemed, repurchased or cancelled, such Global Warrant
shall be returned to or retained and cancelled by the Warrant Agent. At any time
prior to such cancellation, if any beneficial interest in a Global Warrant is
exchanged for Definitive Warrants, redeemed, repurchased or cancelled, the
number of Warrants represented by such Global Warrant shall be reduced and an
endorsement shall be made on such Global Warrant, by the Warrant Agent to
reflect such reduction.
(i) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF DEFINITIVE
WARRANTS.
(i) To permit registrations of transfers and exchanges, the Company shall
execute, at the Warrant Agent's request, and the Warrant Agent shall
authenticate, Definitive Warrants and Global Warrants.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration, transfer or exchange of Definitive Warrants or Global Warrants
shall be the valid obligations of the Company, entitled to the same benefits
under this Warrant Agreement as the Definitive Warrants or Global Warrants
surrendered upon the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any Warrant,
the Warrant Agent and the Company may deem and treat the person in whose name
any Warrant is registered as the absolute owner of such Warrant, and neither the
Warrant Agent nor the Company shall be affected by notice to the contrary.
(j) PAYMENT OF TAXES. Subject to Section 4.1 hereof, the Company shall pay
all documentary stamp taxes attributable to the initial issuance of the Shares
upon the exercise of Warrants.
SECTION 1.8 LOST, STOLEN, DESTROYED, DEFACED OR MUTILATED WARRANT
CERTIFICATES. Upon receipt by the Company and the Warrant Agent (or any agent
of the Company or the Warrant Agent, if requested by the Company) of evidence
satisfactory to them of the loss, theft, destruction, defacement, or mutilation
of any Warrant Certificate and of indemnity satisfactory to them and, in the
case of mutilation or defacement, upon surrender thereof to the Warrant Agent
for cancellation, then, in the absence of notice to the Company or the Warrant
Agent that such Warrant Certificate has been acquired by a BONA FIDE purchaser
or holder in due course, the Company shall execute, and an authorized signatory
of the Warrant Agent shall manually authenticate and deliver, in exchange for or
in lieu of the lost, stolen, destroyed, defaced or mutilated Warrant
Certificate, a new Warrant Certificate representing a like number of Warrants,
bearing a number or other distinguishing symbol not contemporaneously
outstanding. Upon the issuance of any new Warrant Certificate under this Section
1.8, the Company may require the payment from the holder of such Warrant
Certificate of a sum sufficient to cover any tax, stamp tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the reasonable fees and expenses of the Warrant Agent and
the Registrar) in connection therewith. Every substitute Warrant Certificate
executed and delivered pursuant to this Section 1.8 in lieu of any lost, stolen
or destroyed Warrant Certificate shall
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constitute an additional contractual obligation of the Company, whether or not
the lost, stolen or destroyed Warrant Certificate shall be at any time
enforceable by anyone, and shall be entitled to the benefits of (but shall be
subject to all the limitations of rights set forth in) this Agreement equally
and proportionately with any and all other Warrant Certificates duly executed
and delivered hereunder. The provisions of this Section 1.8 are exclusive with
respect to the replacement of lost, stolen, destroyed, defaced or mutilated
Warrant Certificates and shall preclude (to the extent lawful) any and all other
rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Warrant Certificates.
The Warrant Agent is hereby authorized to authenticate, in accordance with
the provisions of this Agreement, and deliver any new Warrant Certificates from
time to time required pursuant to the provisions of this Section 1.8.
SECTION 1.9 OFFICES FOR EXERCISE, ETC. So long as any of the Warrants
remain outstanding, the Company will designate and maintain in the Borough of
Manhattan, The City of New York: (a) an office or agency where the Warrant
Certificates may be presented for exercise, (b) an office or agency where the
Warrant Certificates may be presented for registration of transfer and for
exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 1.5 hereof), and (c) an
office or agency where notices and demands to or upon the Company in respect of
the Warrants or of this Agreement may be served. The Company may from time to
time change or rescind such designation, as it may deem desirable or expedient;
PROVIDED, HOWEVER, that an office or agency shall at all times be maintained in
the Borough of Manhattan, The City of New York, as provided in the first
sentence of this Section 1.9. In addition to such office or offices or agency or
agencies, the Company may from time to time designate and maintain one or more
additional offices or agencies within or outside The City of New York, where
Warrant Certificates may be presented for exercise or for registration of
transfer or for exchange, and the Company may from time to time change or
rescind such designation, as it may deem desirable or expedient. The Company
will give to the Warrant Agent written notice of the location of any such office
or agency and of any change of location thereof. The Company hereby designates
the Warrant Agent at its principal corporate trust office in the Borough of
Manhattan, The City of New York (the "WARRANT AGENT OFFICE"), as the initial
agency maintained for each purpose described in the first sentence of this
Section 1.9. In case the Company shall fail to maintain any such office or
agency or shall fail to give such notice of the location or of any change in the
location thereof, presentations and demands may be made and notice may be served
at the Warrant Agent Office and the Company appoints the Warrant Agent as its
agent to receive all such presentations, surrenders, notices and demands.
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.1 DURATION OF WARRANTS. Subject to the terms and conditions
established herein, the Warrants shall expire at 5:00 p.m., New York City time,
on October 1, 2007 (the "EXPIRATION DATE"). Each Warrant may be exercised on any
Business Day (as defined below) on or after September 29, 1998 and on or prior
to the close of business on the Expiration Date (such period, the "EXERCISE
PERIOD"). Any Warrant not exercised before the close of business on the
Expiration Date shall become void, and all rights of the holder under the
Warrant Certificate evidencing such Warrant and under this Agreement shall
cease. For purposes of this Agreement, "BUSINESS DAY" shall mean any day on
which (i) banks in New York City, (ii) the principal national securities
exchange or market on which the Common Stock is listed or admitted to trading
and (iii) the principal national securities exchange or market, if any, on which
the Warrants are listed or admitted to trading, are open for business.
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<PAGE>
SECTION 2.2 EXERCISE, EXERCISE PRICE, SETTLEMENT AND DELIVERY.
(a) Subject to the provisions of this Agreement, a holder of Warrants shall
have the right to purchase from the Company on any Business Day during the
Exercise Period 13.671 fully paid, registered and nonassessable Shares for each
Warrant, subject to adjustment in accordance with Article V hereof, at the
purchase price of $14.30 per Share (the "EXERCISE PRICE"). The number and kind
of Shares for which a Warrant may be exercised (the "EXERCISE RATE") shall be
subject to adjustment from time to time as set forth in Article V hereof.
(b) Warrants may be exercised by (i) surrendering at any Warrant Agent
Office maintained for that purpose by the Company pursuant to Section 1.9 the
Warrant Certificate evidencing such Warrants with the form of election to
purchase Shares set forth on the reverse side of the Warrant Certificate (the
"ELECTION TO EXERCISE") duly completed and signed by the registered holder or
holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney, and in the case of a transfer, such signature shall be
guaranteed by an Eligible Guarantor Institution, and (ii) paying in full the
Exercise Price for each such Warrant exercised and any other amounts required to
be paid pursuant to Section 4.1 hereof. Each Warrant may be exercised only in
whole.
(c) Simultaneously with the exercise of each Warrant, payment in full of the
Exercise Price shall be made by wire transfer or certified or official bank
check to be delivered to the Warrant Agent Office where the Warrant Certificate
is being surrendered. Notwithstanding the foregoing sentence, a Warrant may also
be exercised solely by the surrender of the Warrant, and without the payment of
the Exercise Price in cash, for such number of Shares equal to the product of
(i) the number of Shares for which such Warrant is exercisable with payment of
the Exercise Price as of the date of exercise and (ii) the Cashless Exercise
Ratio. For purposes of this Agreement, the "CASHLESS EXERCISE RATIO" shall equal
a fraction, the numerator of which is the excess of the Current Market Value per
Share of the Common Stock on the date of exercise (calculated as set forth in
Section 5.1(n) hereof) over the Exercise Price Per Share (as defined below) as
of the date of exercise and the denominator of which is the Current Market Value
of the Common Stock on the date of exercise (calculated as set forth in Section
5.1(n) hereof). An exercise of a Warrant in accordance with the immediately
preceding sentences is herein called a "CASHLESS EXERCISE." Upon surrender of a
Warrant Certificate representing more than one Warrant in connection with the
holder's option to elect a Cashless Exercise, the number of Shares deliverable
upon a Cashless Exercise shall be equal to the number of Shares relating to the
Warrants that the holder specifies is to be exercised pursuant to a Cashless
Exercise multiplied by the Cashless Exercise Ratio. All provisions of this
Agreement shall be applicable with respect to an exercise of a Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
Warrants represented thereby. "EXERCISE PRICE PER SHARE" means the Exercise
Price divided by the number of Shares for which a Warrant is then exercisable
(without giving effect to the Cashless Exercise option). No payment or
adjustment shall be made on account of any dividends on the Shares issued upon
exercise of a Warrant. If, pursuant to the Securities Act, the Company is not
able to effect the registration of the offer and sale of the Warrant Shares by
the Company to the holders of the Warrants upon the exercise thereof as required
by Section 4.2 hereof, the holders of the Warrants agree to effect the exercise
of the Warrants solely pursuant to the Cashless Exercise option to the extent
that such Cashless Exercise is not adverse to the interests of the holders of
the Warrants.
(d) Upon such surrender of a Warrant Certificate and payment and collection
of the Exercise Price at any Warrant Agent Office other than any Warrant Agent
Office that also is an office of the Warrant Agent, such Warrant Certificate and
payment shall be promptly delivered to the Warrant Agent. The "EXERCISE DATE"
for a Warrant shall be the date when all of the items referred to in the first
sentences of Sections 2.2(b) and (c) are received by the Warrant Agent at or
prior to 11:00 a.m., New York City time, on a Business Day and the exercise of
the Warrants will be effective as of such Exercise Date. If any items referred
to in the first sentences of Sections 2.2(b) and (c) are received after 11:00
a.m., New York City time, on a Business Day, the exercise of the Warrants to
which such item relates will be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on the
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<PAGE>
Expiration Date, if all of the items referred to in the first sentence of
paragraphs (b) and (c) are received by the Warrant Agent at or prior to 5:00
p.m., New York City time, on such Expiration Date, the exercise of the Warrants
to which such items relate will be effective on the Expiration Date.
(e) Upon the exercise of a Warrant in accordance with the terms hereof, the
receipt of a Warrant Certificate and payment of the Exercise Price or, as the
case may be, election of the Cashless Exercise option, the Warrant Agent shall
(i) except to the extent exercise of the Warrant has been effected through a
Cashless Exercise, cause an amount equal to the Exercise Price to be paid to the
Company by crediting the same to the account designated by the Company in
writing to the Warrant Agent for that purpose, (ii) advise the Company
immediately by telephone of the amount so deposited to the Company's account and
promptly confirm such telephonic advice in writing, and (iii) as soon as
practicable, advise the Company in writing of the number of Warrants exercised
in accordance with the terms and conditions of this Agreement and the Warrant
Certificates, the instructions of each exercising holder of the Warrant
Certificates with respect to delivery of the Shares to which such holder is
entitled upon such exercise, and such other information as the Company shall
reasonably request.
(f) Subject to Section 5.2 hereof, as soon as practicable after the exercise
of any Warrant or Warrants in accordance with the terms hereof, the Company
shall issue or cause to be issued to or upon the written order of the registered
holder of the Warrant Certificate evidencing such exercised Warrant or Warrants,
a certificate or certificates evidencing the Shares to which such holder is
entitled, in fully registered form, registered in such name or names as may be
directed by such holder pursuant to the Election to Exercise. Such certificate
or certificates evidencing the Shares shall be deemed to have been issued and
any persons who are designated to be named therein shall be deemed to have
become the holder of record of such Shares as of the close of business on the
Exercise Date. After such exercise of any Warrant or Warrants, the Company shall
also issue or cause to be issued to or upon the written order of the registered
holder of such Warrant Certificate, a new Warrant Certificate, countersigned by
the Warrant Agent pursuant to written instruction, evidencing the number of
Warrants, if any, remaining unexercised unless such Warrants shall have expired.
SECTION 2.3 CANCELLATION OF WARRANT CERTIFICATES. In the event the Company
shall purchase or otherwise acquire Warrants, the Warrant Certificates
evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if
so delivered, shall at the Company's written instruction be cancelled by it and
retired. The Warrant Agent shall cancel all Warrant Certificates properly
surrendered for exchange, substitution, transfer or exercise. The Warrant Agent
shall deliver such cancelled Warrant Certificates to the Company.
ARTICLE III
OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.1. ENFORCEMENT OF RIGHTS.
(a) Notwithstanding any of the provisions of this Agreement, any holder of
any Warrant Certificate, without the consent of the Warrant Agent, the holder of
any Shares or the holder of any other Warrant Certificate, may, in and for such
holder's own behalf, enforce, institute and maintain any suit, action or
proceeding against the Company suitable to enforce, such holder's right to
exercise any Warrants evidenced by such holder's Warrant Certificate in the
manner provided in such Warrant Certificate and in this Agreement.
(b) Subject to Section 5.3 hereof, neither the Warrants nor any Warrant
Certificate shall entitle the holders thereof to any of the rights of a holder
of Shares, including, without limitation, the right to vote or to receive any
dividends or other payments or to consent or to receive notice as stockholders
in respect of the meetings of stockholders or for the election of directors of
the Company or any other matter, or any rights whatsoever as stockholders of the
Company.
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<PAGE>
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.1 PAYMENT OF TAXES. The Company shall pay all documentary stamp
taxes attributable to the initial issuance of Warrants and of the Shares upon
the exercise of Warrants; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax or other governmental charge which may be payable in
respect of any transfer or exchange of any Warrant Certificates or any
certificates for Shares in a name other than the registered holder of a Warrant
Certificate surrendered upon the exercise of a Warrant. In any such case, no
transfer or exchange shall be made unless or until the person or persons
requesting issuance thereof shall have paid to the Company the amount of such
tax or other governmental charge or shall have established to the satisfaction
of the Company that such tax or other governmental charge has been paid or an
exemption is available therefrom.
SECTION 4.2 [INTENTIONALLY OMITTED.]
SECTION 4.3 RULES 144 AND 144A. The Company covenants that it shall file
the reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and the rules
and regulations adopted by the Commission thereunder in a timely manner in
accordance with the requirements of the Securities Act and the Exchange Act and,
if at any time the Company is not required to file such reports, it shall, upon
the request of any holder or beneficial owner of Warrants, make available such
information necessary to permit sales pursuant to Rule 144A under the Securities
Act. The Company further covenants that it shall take such further action as any
holder or beneficial owner of Warrants may reasonably request, all to the extent
required from time to time to enable such holder or beneficial owner to sell
Warrants without registration under the Securities Act within the limitation of
the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities
Act, as such Rules may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission (it being expressly understood
that the foregoing shall not create any obligation on the part of the Company to
file periodic or other reports under the Exchange Act at any time that it is not
then required to file such reports pursuant to the Exchange Act or the
Indenture).
ARTICLE V
ADJUSTMENTS
SECTION 5.1 ADJUSTMENT OF EXERCISE RATE; NOTICES. The Exercise Rate is
subject to adjustment from time to time as provided in this Section.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If, after the date hereof, the
Company pays (i) a dividend or makes a distribution on its Common Stock in
shares of its Common Stock, (ii) subdivides its outstanding shares of Common
Stock into a greater number of shares, (iii) combines its outstanding shares of
Common Stock into a smaller number of shares, (iv) pays a dividend or makes a
distribution on its Common Stock in shares of its Capital Stock (as defined
below) (other than Common Stock or rights, warrants, or options for its Common
Stock to the extent such issuance or distribution is covered by Section 5.3), or
(v) issues by reclassification of its Common Stock any shares of its Capital
Stock (other than rights, warrants or options for its Common Stock), then the
Exercise Rate in effect immediately prior to such action shall be adjusted so
that the holder of a Warrant thereafter exercised may receive the number of
shares of Capital Stock of the Company which such holder would have owned
immediately following such action if such holder had exercised the Warrant
immediately prior to such action or immediately prior to the record date
applicable thereto, if any (regardless of whether the Warrants are then
exercisable and without giving effect to the Cashless Exercise option).
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or
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<PAGE>
reclassification. In the event that such dividend or distribution is not so paid
or made or such subdivision, combination or reclassification is not effected,
the Exercise Rate shall again be adjusted to be the Exercise Rate which would
then be in effect if such record date or effective date had not been so fixed.
If after an adjustment a holder of a Warrant upon exercise of such Warrant
may receive shares of two or more classes of Capital Stock of the Company, the
Exercise Rate shall thereafter be subject to adjustment upon the occurrence of
an action taken with respect to any such class of Capital Stock as is
contemplated by this Article V with respect to the Common Stock, on terms
comparable to those applicable to Common Stock in this Article V.
(b) ADJUSTMENT FOR SALE OF COMMON STOCK BELOW CURRENT MARKET VALUE. If,
after the date hereof, the Company sells any Common Stock or any securities
convertible into or exchangeable or exercisable for the Common Stock (other than
(i) pursuant to the exercise of the Warrants, (ii) any security convertible
into, or exchangeable or exercisable for, the Common Stock which was outstanding
as of the date of this Agreement or as to which the issuance thereof has
previously been the subject of any required adjustment pursuant to this Article
V, (iii) the issuance of Common Stock upon the conversion, exchange or exercise
of convertible, exchangeable or exercisable securities of the Company
outstanding on the date of this Agreement (to the extent in accordance with the
terms of such securities as in effect on the date of this Agreement) or (iv) any
security issued pursuant to any stock plan for employees, officers, directors or
consultants of the Company approved by the non-management members of the Board
of Directors of the Company) at a price per share less than the Current Market
Value, the Exercise Rate shall be adjusted in accordance with the formula:
<TABLE>
<S> <C>
E' = E x (O + N)
(O + (N x P/M))
</TABLE>
where:
<TABLE>
<C> <C> <S>
E' = the adjusted Exercise Rate;
E = the current Exercise Rate;
O = the number of shares of Common Stock outstanding on the date of sale of Common
Stock at a price per share less than the Current Market Value to which this
paragraph (b) applies;
N = the number of shares of Common Stock so sold or the maximum stated number of shares
of Common Stock issuable upon the conversion, exchange, or exercise of any such
convertible, exchangeable or exercisable securities, as the case may be;
P = the offering price per share pursuant to any such convertible, exchangeable or
exercisable securities so sold or the sale price of the shares so sold, as the case
may be; and
M = the Current Market Value as of the Time of Determination (as defined) or at the
time of sale, as the case may be.
</TABLE>
The adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive the rights, warrants or
options to which this paragraph (b) applies or upon consummation of the sale of
Common Stock, as the case may be. To the extent that shares of Common Stock are
not delivered after the expiration of such rights or warrants, the Exercise Rate
shall be readjusted to the Exercise Rate which would otherwise be in effect had
the adjustment made upon the issuance of such rights or warrants been made on
the basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued, the
Exercise Rate shall again be adjusted to be the Exercise Rate which would then
be in effect if such date fixed for determination of stockholders entitled to
receive such rights or warrants had not been so fixed.
No adjustment shall be made under this paragraph (b) if the application of
the formula stated above in this paragraph (b) would result in a value of E'
that is lower than the value of E.
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<PAGE>
(c) NOTICE OF ADJUSTMENT. Whenever the Exercise Rate is adjusted, the
Company shall promptly mail to holders of Warrants at the addresses appearing on
the Warrant Register a notice of the adjustment. The Company shall file with the
Warrant Agent and any other Registrar such notice and a certificate from the
Company's independent public accountants briefly stating the facts requiring the
adjustment and the manner of computing it. The certificate shall be conclusive
evidence that the adjustment is correct. Neither the Warrant Agent nor any such
Registrar shall be under any duty or responsibility with respect to any such
certificate except to exhibit the same during normal business hours to any
holder desiring inspection thereof.
(d) REORGANIZATION OF COMPANY; SPECIAL DISTRIBUTIONS. If the Company, in a
single transaction or through a series of related transactions, consolidates
with or merges with or into any other person or transfers (by lease, assignment,
sale or otherwise) all or substantially all of its properties and assets to
another person or group of affiliated persons (other than a sale of all or
substantially all of the assets of the Company in a transaction in which the
holders of Common Stock immediately prior to such transaction do not receive
securities, cash, or other assets of the Company or any other person) or is a
party to a merger or binding share exchange which reclassifies or changes its
outstanding Common Stock, the person obligated to deliver securities, cash or
other assets upon exercise of Warrants shall enter into a supplemental warrant
agreement. If the issuer of securities deliverable upon exercise of Warrants is
an affiliate of the successor Company, that issuer shall join in the
supplemental warrant agreement.
The supplemental warrant agreement shall provide that the holder of a
Warrant may exercise it for the kind and amount of securities, cash or other
assets which such holder would have received immediately after the
consolidation, merger, binding share exchange or transfer if such holder had
exercised the Warrant immediately before the effective date of the transaction
(whether or not the Warrants were then exercisable and without giving effect to
the Cashless Exercise option), assuming (to the extent applicable) that such
holder (i) was not a constituent person or an affiliate of a constituent person
to such transaction; (ii) made no election with respect thereto; and (iii) was
treated alike with the plurality of non-electing holders. The supplemental
warrant agreement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
V. The successor Company shall mail to holders of Warrants at the addresses
appearing on the Warrant Register a notice briefly describing the supplemental
warrant agreement.
If this Section 5.1(d) applies, Section 5.1(a) shall not apply.
(e) COMPANY DETERMINATION FINAL. Any determination that the Company or the
Board of Directors of the Company must make pursuant to this Article V is
conclusive.
(f) WARRANT AGENT'S ADJUSTMENT DISCLAIMER. The Warrant Agent has no duty
to determine when an adjustment under this Article V should be made, how it
should be made or what it should be. The Warrant Agent has no duty to determine
whether a supplemental warrant agreement under Section 5.1(d) hereof need be
entered into or whether any provisions of any supplemental warrant agreement are
correct. The Warrant Agent shall not be accountable for and makes no
representation as to the validity or value of any securities or assets issued
upon exercise of Warrants. The Warrant Agent shall not be responsible for the
Company's failure to comply with this Article V.
(g) ADJUSTMENT FOR TAX PURPOSES. The Company may make such increases in
the Exercise Rate, in addition to those otherwise required by this Section 5.1,
as it considers to be advisable in order that any event treated for federal
income tax purposes as a dividend of stock or stock rights shall not be taxable
to the recipients.
(h) UNDERLYING SHARES. The Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock or Common Stock held in the treasury of the Company, for the
purpose of effecting the exercise of Warrants, the full number of Shares
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<PAGE>
then deliverable upon the exercise of all Warrants then outstanding, and the
shares so deliverable shall be fully paid and non-assessable and free from all
liens and security interests.
(i) SPECIFICITY OF ADJUSTMENT. Irrespective of any adjustments in the
number or kind of Shares, Warrant Certificates theretofore or thereafter issued
may continue to express the same number and kind of Shares per Warrant as are
stated on the Warrant Certificates initially issuable pursuant to this
Agreement.
(j) ADJUSTMENTS TO PAR VALUE. The Company shall make such adjustments to
the par value of the Common Stock in order that, upon exercise of the Warrants,
the Shares will be fully paid and non-assessable.
(k) VOLUNTARY ADJUSTMENT. The Company from time to time may increase the
Exercise Rate by any number and for any period of time; provided, that such
period is not less than 20 Business Days. Whenever the Exercise Rate is so
increased, the Company shall mail to holders of Warrants at their respective
addresses appearing on the Warrant Register and file with the Warrant Agent a
notice of the increase. The Company shall give the notice at least 15 days
before the date the increased Exercise Rate takes effect. The notice shall state
the increased Exercise Rate and the period it will be in effect. A voluntary
increase in the Exercise Rate does not change or adjust the Exercise Rate
otherwise in effect as determined by this Section 5.1.
(l) NO OTHER ADJUSTMENT FOR DIVIDENDS. Except as provided in this Article
V, no payment or adjustment will be made for dividends on any Common Stock.
(m) MULTIPLE ADJUSTMENTS. After an adjustment to the Exercise Rate under
this Article V, any subsequent event requiring an adjustment under this Article
V shall cause an adjustment to the Exercise Rate as so adjusted.
(n) DEFINITIONS.
"CAPITAL STOCK" means, with respect to any corporation, any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests (however designated) in stock issued by that
corporation.
"CURRENT MARKET VALUE" per share of Common Stock or of any other security at
any date shall be (i) if the security is not registered under the Exchange Act,
the value of the security determined reasonably and in good faith by a
disinterested majority of the Board of Directors of the Company and certified in
a board resolution, or, if at the time there are not at least three
disinterested members of the Board of Directors, by a nationally recognized
investment banking firm or appraisal firm which is not an affiliate of the
Company, or (ii) if the security is registered under the Exchange Act, the
average of the daily closing bid prices for each Business Day during the period
commencing 15 Business Days before such date and ending on the date one day
prior to such date or, if the security has been registered under the Exchange
Act for less than 15 consecutive Business Days before such date, then the
average of the daily closing bid prices for all of the Business Days before such
date for which daily closing bid prices are available. If the closing bid is not
determinable for at least 10 Business Days in such period, the Current Market
Value of the security shall be determined as if the security were not registered
under the Exchange Act.
"TIME OF DETERMINATION" means the time and date of the determination of
stockholders entitled to receive rights, warrants, or options or a distribution,
in each case, to which Section 5.1(b) hereof applies.
SECTION 5.2 FRACTIONAL SHARES. The Company will not be required to issue
fractional Shares upon exercise of the Warrants or distribute Share certificates
that evidence fractional Shares. In lieu of fractional Shares, there shall be
paid to the registered holders of Warrant Certificates at the time Warrants
evidenced thereby are exercised as herein provided an amount in cash equal to
the same fraction of the Current Market Value, as defined in Section 5.1(n)
hereof, per Share on the Business Day preceding the date the Warrant
Certificates evidencing such Warrants are surrendered for exercise. Such
payments will be made by check or by transfer to an account maintained by such
registered holder with a bank in The City of New
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<PAGE>
York. If any holder surrenders for exercise more than one Warrant Certificate,
the number of Shares deliverable to such holder may, at the option of the
Company, be computed on the basis of the aggregate amount of all the Warrants
exercised by such holder.
SECTION 5.3 CERTAIN DISTRIBUTIONS. If at any time the Company grants,
issues or sells options, convertible securities, or rights to purchase Capital
Stock, warrants or other securities pro rata to the record holders of the Common
Stock (the "DISTRIBUTION RIGHTS") or, without duplication, makes any dividend or
otherwise makes any distribution ("DISTRIBUTION") on shares of Common Stock
(whether in cash, property, evidence of indebtedness or otherwise), then the
Company shall grant, issue, sell or make to each registered holder of Warrants
the aggregate Distribution Rights or Distribution, as the case may be, which
such holder would have acquired if such holder had held the maximum number of
Shares acquirable upon complete exercise of such holder's Warrants (regardless
of whether the Warrants are then exercisable and without giving effect to the
Cashless Exercise option) immediately before the record date for the grant,
issuance or sale of such Distribution Rights or Distribution, as the case may
be, or, if there is no such record date, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Distribution Rights or Distribution, as the case may be.
ARTICLE VI
THE WARRANT AGENT
SECTION 6.1 WARRANT AGENT. The Company hereby appoints The Bank of New
York as Warrant Agent of the Company in respect of the Warrants and the Warrant
Certificates upon the terms and subject to the conditions herein and in the
Warrant Certificates, and The Bank of New York hereby accepts such appointment.
The Warrant Agent shall have the powers and authority specifically granted to
and conferred upon it in the Warrant Certificates and hereby and such further
powers and authority to act on behalf of the Company as the Company may
hereafter grant to or confer upon it and it shall accept in writing. All of the
terms and provisions with respect to such powers and authority contained in the
Warrant Certificates are subject to and governed by the terms and provisions
hereof.
SECTION 6.2 CONDITIONS OF WARRANT AGENT'S OBLIGATIONS. The Warrant Agent
accepts its obligations herein set forth upon the terms and conditions hereof
and in the Warrant Certificates, including the following, to all of which the
Company agrees and to all of which the rights hereunder of the holders from time
to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be agreed
upon with the Company in writing for all services rendered by it and the
Company agrees promptly to pay such compensation and to reimburse the
Warrant Agent for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel) incurred without gross negligence
or willful misconduct on its part in connection with the services rendered
by it hereunder. The Company also agrees to indemnify the Warrant Agent and
any predecessor Warrant Agent, their directors, officers, affiliates, agents
and employees for, and to hold them and their directors, officers,
affiliates, agents and employees harmless against, any loss, liability or
expense of any nature whatsoever (including, without limitation, reasonable
fees and expenses of counsel) incurred without gross negligence or willful
misconduct on the part of the Warrant Agent, arising out of or in connection
with its acting as such Warrant Agent hereunder and its exercise of its
rights and performance of its obligations hereunder. The obligations of the
Company under this Section 6.2 shall survive the exercise and the expiration
of the Warrant Certificates and the resignation and removal of the Warrant
Agent.
(b) In acting under this Agreement and in connection with the Warrant
Certificates, the Warrant Agent is acting solely as agent of the Company and
does not assume any obligation or relationship of agency or trust for or
with any of the owners or holders of the Warrant Certificates.
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<PAGE>
(c) The Warrant Agent may consult with counsel of its selection and any
advice or written opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with such advice or
opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or
thing suffered by it in reliance upon any Warrant Certificate, notice,
direction, consent, certificate, affidavit, opinion of counsel, instruction,
statement or other paper or document reasonably believed by it to be genuine
and to have been presented or signed by the proper parties.
(e) The Warrant Agent, and its officers, directors, affiliates and
employees ("RELATED PARTIES"), may become the owners of, or acquire any
interest in, Warrant Certificates, shares or other obligations of the
Company with the same rights that it or they would have it if were not the
Warrant Agent hereunder and, to the extent permitted by applicable law, it
or they may engage or be interested in any financial or other transaction
with the Company and may act on, or as depositary, trustee or agent for, any
committee or body of holders of shares or other obligations of the Company
as freely as if it were not the Warrant Agent hereunder. Nothing in this
Agreement shall be deemed to prevent the Warrant Agent or such Related
Parties from acting in any other capacity for the Company.
(f) The Warrant Agent shall not be under any liability for interest on,
and shall not be required to invest, any monies at any time received by it
pursuant to any of the provisions of this Agreement or of the Warrant
Certificates.
(g) The Warrant Agent shall not be under any responsibility in respect
of the validity of this Agreement (or any term or provision hereof) or the
execution and delivery hereof (except the due execution and delivery hereof
by the Warrant Agent) or in respect of the validity or execution of any
Warrant Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication
thereon) shall be taken as the statements of the Company and the Warrant
Agent assumes no responsibility for the correctness of the same. The Warrant
Agent does not make any representation as to the validity or sufficiency of
this Agreement or the Warrant Certificates, except for its due execution and
delivery of this Agreement; PROVIDED, HOWEVER, that the Warrant Agent shall
not be relieved of its duty to authenticate the Warrant Certificates as
authorized by this Agreement. The Warrant Agent shall not be accountable for
the use or application by the Company of the proceeds of the exercise of any
Warrant.
(i) Before the Warrant Agent acts or refrains from acting with respect
to any matter contemplated by this Warrant Agreement, it may require (i) an
Officers' Certificate stating on behalf of the Company that, in the opinion
of the signers, all conditions precedent, if any, provided for in this
Warrant Agreement relating to the proposed action have been complied with,
and (ii) if reasonably necessary in the sole judgment of the Warrant Agent,
an opinion of counsel for the Company stating that, in the opinion of such
counsel, all such conditions precedent have been complied with provided that
such matter is one customarily opined on by counsel. Each Officers'
Certificate or, if requested, an opinion of counsel with respect to
compliance with a condition or covenant provided for in this Warrant
Agreement shall include a statement that the person making such certificate
or opinion has read such covenant or condition, a brief statement as to the
nature and scope of the examination or investigation upon which the
statements or opinions contained in such certificate or opinion are based, a
statement that, in the opinion of such person, he or she has made such
examination or investigation as is necessary to enable him or her to express
an informed opinion as to whether or not such covenant or condition has been
complied with, and a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
16
<PAGE>
(j) The Warrant Agent shall be obligated to perform such duties as are
herein and in the Warrant Certificates specifically set forth and no implied
duties or obligations shall be read into this Agreement or the Warrant
Certificates against the Warrant Agent. The Warrant Agent shall not be
accountable or under any duty or responsibility for the use by the Company
of any of the Warrant Certificates authenticated by the Warrant Agent and
delivered by it to the Company pursuant to this Agreement. The Warrant Agent
shall have no duty or responsibility in case of any default by the Company
in the performance of its covenants or agreements contained in the Warrant
Certificates or in the case of the receipt of any written demand from a
holder of a Warrant Certificate with respect to such default, including,
without limiting the generality of the foregoing, any duty or responsibility
to initiate or attempt to initiate any proceedings at law or otherwise or,
except as provided in Section 7.2 hereof, to make any demand upon the
Company.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the
Company made or given under any provision of this Agreement shall be
sufficient if signed by its chairman of the Board of Directors, its
president, its treasurer, its controller or any vice president or its
secretary or any assistant secretary.
(l) The Warrant Agent shall have no responsibility in respect of any
adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute, acknowledge and
deliver, or cause to be performed, executed, acknowledged and delivered, all
such further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing by the
Warrant Agent of the provisions of this Agreement.
(n) The Warrant Agent is hereby authorized and directed to accept
written instructions with respect to the performance of its duties hereunder
from any one of the chairman of the Board of Directors, the president, the
treasurer, the controller, any vice president or the secretary of the
Company or any other officer or official of the Company reasonably believed
to be authorized to give such instructions and to apply to such officers or
officials for advice or instructions in connection with its duties, and it
shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions with respect to any matter
arising in connection with the Warrant Agent's duties and obligations
arising under this Agreement. Such application by the Warrant Agent for
written instructions from the Company may, at the option of the Warrant
Agent, set forth in writing any action proposed to be taken or omitted by
the Warrant Agent with respect to its duties or obligations under this
Agreement and the date on or after which such action shall be taken and the
Warrant Agent shall not be liable for any action taken or omitted in
accordance with a proposal included in any such application on or after the
date specified therein (which date shall be not less than ten Business Days
after the Company receives such application unless the Company consents to a
shorter period); provided, that (i) such application includes a statement to
the effect that it is being made pursuant to this Section 6.2(n) and that
unless objected to prior to such date specified in the application, the
Warrant Agent will not be liable for any such action or omission to the
extent set forth in this Section 6.2(n), and (ii) prior to taking or
omitting any such action, the Warrant Agent has not received written
instructions objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this Agreement the
Warrant Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed on behalf of the Company by
any one of the chairman of the Board of Directors, the president, the
treasurer, the controller, any vice president or the secretary of the
Company or any other officer or official of the Company reasonably believed
to be authorized to give such instructions and delivered to the Warrant
Agent; and such certificate shall be full authorization to the Warrant
17
<PAGE>
Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend its own
funds in the performance of its obligations and duties hereunder.
SECTION 6.3 RESIGNATION AND APPOINTMENT OF SUCCESSOR.
(a) The Company agrees, for the benefit of the holders from time to time of
the Warrant Certificates, that there shall at all times be a Warrant Agent
hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent by giving
written notice to the Company of such intention on its part, specifying the date
on which its desired resignation shall become effective; provided, however, that
such date shall be at least 60 days after the date on which such notice is given
unless the Company agrees to accept less notice. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor Warrant Agent,
qualified as provided in Section 6.3(d) hereof, by written instrument in
duplicate signed on behalf of the Company, one copy of which shall be delivered
to the resigning Warrant Agent and one copy to the successor Warrant Agent. As
provided in Section 6.3(d) hereof, such resignation shall become effective upon
the earlier of (i) the acceptance of the appointment by the successor Warrant
Agent or (ii) 60 days after receipt by the Company of notice of such
resignation. The Company may, at any time and for any reason, and shall, upon
any event set forth in the next succeeding sentence, remove the Warrant Agent
and appoint a successor Warrant Agent by written instrument in duplicate,
specifying such removal and the date on which it is intended to become
effective, signed on behalf of the Company, one copy of which shall be delivered
to the Warrant Agent being removed and one copy to the successor Warrant Agent.
The Warrant Agent shall be removed as aforesaid if it shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the
Warrant Agent or of its property shall be appointed, or any public officer shall
take charge or control of it or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation. Any removal of the Warrant Agent
and any appointment of a successor Warrant Agent shall become effective upon
acceptance of appointment by the successor Warrant Agent as provided in Section
6.3(d). As soon as practicable after appointment of the successor Warrant Agent,
the Company shall cause written notice of the change in the Warrant Agent to be
given to each of the registered holder of the Warrants in the manner provided
for in Section 7.4 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the Company shall
fail to appoint a successor Warrant Agent within a period of 60 days after
receipt of such notice of resignation or removal, then the holder of any Warrant
Certificate or the retiring Warrant Agent may apply to a court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to the Warrant Agent, either by the Company or by
such a court, the duties of the Warrant Agent shall be carried out by the
Company.
(d) Any successor Warrant Agent, whether appointed by the Company or by a
court, shall be a bank or trust company in good standing, incorporated under the
laws of the United States of America or any State thereof and having, at the
time of its appointment, a combined capital surplus of at least $50,000,000.
Such successor Warrant Agent shall execute and deliver to its predecessor and to
the Company an instrument accepting such appointment hereunder and all the
provisions of this Agreement, and thereupon such successor Warrant Agent,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, duties and obligations of its predecessor hereunder, with like
effect as if originally named as Warrant Agent hereunder, and such predecessor
shall thereupon become obligated to (i) transfer and deliver, and such successor
Warrant Agent shall be entitled to receive, all securities, records or other
property on deposit with or held by such predecessor as Warrant Agent hereunder
and (ii) upon payment of the amounts then due it pursuant to Section 6.2(a)
hereof, pay over, and such successor Warrant Agent shall be entitled to receive,
all monies deposited with or held by any predecessor Warrant Agent hereunder.
18
<PAGE>
(e) Any corporation or bank into which the Warrant Agent hereunder may be
merged or converted, or any corporation or bank with which the Warrant Agent may
be consolidated, or any corporation or bank resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation or bank to which the Warrant Agent shall sell or otherwise transfer
all or substantially all of its corporate trust business, shall be the successor
to the Warrant Agent under this Agreement; provided, that such corporation or
bank shall be qualified as set forth in Section 6.3(d) hereof) without the
execution or filing of any document or any further act on the part of any of the
parties hereto.
(f) No Warrant Agent under this Warrant Agreement shall be personally liable
for any action or omission of any successor Warrant Agent.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 AMENDMENT. This Agreement and the terms of the Warrants may be
amended by the Company and the Warrant Agent, without the consent of the holder
of any Warrant Certificate, for the purpose of curing any ambiguity, or of
curing, correcting or supplementing any defective or inconsistent provision
contained herein or therein, or to effect any assumptions of the Company's
obligations hereunder and thereunder by a successor corporation under the
circumstances described in Section 5.1(d) hereof or in any other manner which
the Company may deem necessary or desirable and which shall not adversely affect
the interests of the holders of the Warrant Certificates.
The Company and the Warrant Agent may modify this Agreement and the terms of
the Warrants with the consent of not less than a majority in number of the then
outstanding Warrants for the purpose of adding any provision to or changing in
any manner or eliminating any of the provisions of this Agreement or modifying
in any manner the rights of the holders of the outstanding Warrants; PROVIDED,
HOWEVER, that no such modification that decreases the Exercise Rate, reduces the
period of time during which the Warrants are exercisable hereunder, otherwise
materially and adversely affects the exercise rights of the holders of the
Warrants, reduces the percentage required for modification, or effects any
change to this Section 7.1 may be made with respect to an outstanding Warrant
without the consent of the holder of such Warrant. Notwithstanding any other
provision of this Agreement, the Warrant Agent's consent must be obtained
regarding any supplement or amendment which alters the Warrant Agent's rights or
duties (it being expressly understood that the foregoing shall not be in
derogation of the right of the Company to remove the Warrant Agent in accordance
with Section 6.3(b) hereof).
Any modification or amendment made in accordance with this Agreement will be
conclusive and binding on all present and future holders of Warrant Certificates
whether or not they have consented to such modification or amendment or waiver
and whether or not notation of such modification or amendment is made upon such
Warrant Certificates. Any instrument given by or on behalf of any holder of a
Warrant Certificate in connection with any consent to any modification or
amendment will be conclusive and binding on all subsequent holders of such
Warrant Certificate.
SECTION 7.2 NOTICES AND DEMANDS TO THE COMPANY AND WARRANT AGENT. If the
Warrant Agent shall receive any notice or demand addressed to the Company by the
holder of a Warrant Certificate pursuant to the provisions hereof or of the
Warrant Certificates, the Warrant Agent shall promptly forward such notice or
demand to the Company.
19
<PAGE>
SECTION 7.3 ADDRESSES FOR NOTICES TO PARTIES AND TRANSMISSION OF
DOCUMENTS. All notices hereunder to the parties hereto shall be deemed to have
been given when sent by certified or registered mail, postage prepaid, or by
facsimile transmission, confirmed by first class mail, postage prepaid,
addressed to any party hereto as follows:
To the Company:
Cellnet Data Systems, Inc.
125 Shoreway Road
San Carlos, CA 94070
Facsimile No.: (650) 592-6858
Attention: General Counsel
with copies to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Facsimile No.: (650) 493-6811
Attention: Barry E. Taylor, Esq.
To the Warrant Agent:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
or at any other address of which either of the foregoing shall have notified the
other in writing.
SECTION 7.4 NOTICES TO HOLDERS. Notices to holders of Warrants shall be
mailed to such holders at the addresses of such holders as they appear in the
Warrant Register. Any such notice shall be sufficiently given if sent by first
class mail, postage prepaid.
SECTION 7.5 APPLICABLE LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE
OF THIS AGREEMENT AND EACH WARRANT CERTIFICATE ISSUED HEREUNDER AND OF THE
RESPECTIVE TERMS AND PROVISIONS THEREOF SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
SECTION 7.6 PERSONS HAVING RIGHTS UNDER AGREEMENT. Nothing in this
Agreement expressed or implied and nothing that may be inferred from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give
to, any person or corporation other than the Company, the Warrant Agent and the
holders of the Warrant Certificates any right, remedy or claim under or by
reason of this Agreement or of any covenant, condition, stipulation, promise or
agreement hereof; and all covenants, conditions, stipulations, promises and
agreements in this Agreement contained shall be for the sole and exclusive
benefit of the Company and the Warrant Agent and their successors and of the
holders of the Warrant Certificates.
SECTION 7.7 HEADINGS. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
SECTION 7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts shall together constitute but one and the same instrument.
20
<PAGE>
SECTION 7.9 INSPECTION OF AGREEMENT. A copy of this Agreement shall be
available during regular business hours at the principal corporate trust office
of the Warrant Agent, for inspection by the holder of any Warrant Certificate.
The Warrant Agent may require such holder to submit his Warrant Certificate for
inspection by it.
[Remainder of Page Intentionally Left Blank]
21
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
By: /s/ PAUL G. MANCA
-----------------------------------------
Name: Paul G. Manca
Title: VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
THE BANK OF NEW YORK,
as Warrant Agent
By: /s/ MARY BETH LEWICKIE
-----------------------------------------
Name: Mary Beth Lewickie
Title: ASSISTANT VICE PRESIDENT
</TABLE>
22
<PAGE>
EXHIBIT A
FORM OF WARRANT CERTIFICATE
[FACE]
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR WARRANTS IN
CERTIFICATED FORM, THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](1)
THE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER") (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION
S UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k), RESELL OR OTHERWISE TRANSFER THE WARRANTS EXCEPT (A)
TO CELLNET DATA SYSTEMS, INC. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO
A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE WARRANTS (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE WARRANT AGENT) AND IF SUCH TRANSFER IS SUBSEQUENT TO THE DATE
ON WHICH THE WARRANTS BECOME SEPARATELY TRANSFERABLE, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT;
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHICH THE WARRANTS ARE
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
- ------------------------
(1) This paragraph is to be included only if the Warrant is in global form.
A-1
<PAGE>
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE WARRANTS WITHIN
THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT
THIS CERTIFICATE TO THE WARRANT AGENT. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO EACH OF THE WARRANT AGENT AND THE COMPANY SUCH CERTIFICATION, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRED TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT. THE WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO
REFUSE TO REGISTER ANY TRANSFER OF THE WARRANTS IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
CUSIP #
No. Warrants
WARRANT CERTIFICATE
CELLNET DATA SYSTEMS, INC.
This Warrant Certificate certifies that , or registered
assigns, is the registered holder of Warrants (the "WARRANTS") to
purchase shares of Common Stock, $.001 par value per share (the "COMMON STOCK"),
of CELLNET DATA SYSTEMS, INC., a Delaware corporation (the "COMPANY"). Each
Warrant entitles the holder to purchase from the Company at any time from 9:00
a.m. New York City time on or after September 29, 1998 until 5:00 p.m., New York
City time on or prior to October 1, 2007 (the "EXPIRATION DATE"), 13.671 fully
paid and nonassessable shares of Common Stock (the "SHARES," which may also
include any other securities or property purchasable upon exercise of a Warrant,
such adjustment and inclusion each as provided in the Warrant Agreement (as
defined)) at the exercise price (the "EXERCISE PRICE") of $14.30 per Share upon
surrender of this Warrant Certificate and payment of the Exercise Price at any
office or agency (the "WARRANT AGENT OFFICE"), subject to the conditions set
forth herein and in the Warrant Agreement. Notwithstanding the foregoing, a
Warrant may also be exercised solely by the surrender of the Warrant, and
without the payment of the Exercise Price in cash, for such number of Shares
equal to the product of (1) the number of Shares for which such Warrant is
exercisable with payment of the Exercise Price as of the date of exercise and
(2) the Cashless Exercise Ratio. For purposes of this Warrant, the "CASHLESS
EXERCISE RATIO" shall equal a fraction, the numerator of which is the excess of
the Current Market Value per Share of the Common Stock on the date of exercise
(calculated as set forth in Section 5.1(n) of the Warrant Agreement) over the
Exercise Price Per Share as of the date of exercise and the denominator of which
is the Current Market Value of the Common Stock on the date of exercise
(calculated as set forth in Section 5.1(n) of the Warrant Agreement). An
exercise of a Warrant in accordance with the immediately preceding sentences is
herein called a "CASHLESS EXERCISE." Upon surrender of a Warrant Certificate
representing more than one Warrant in connection with the Holder's option to
elect a Cashless Exercise, the number of Shares deliverable upon a Cashless
Exercise shall be equal to the number of Shares relating to the Warrants that
the Holder specifies is to be exercised pursuant to a Cashless Exercise
multiplied by the Cashless Exercise Ratio. All provisions of this Warrant
Certificate shall be applicable with respect to an exercise of a Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
Warrants represented thereby.
The Exercise Price, in the case of any exercise other than a Cashless
Exercise, shall be payable by wire transfer or certified or official bank check
or by such other means as is acceptable to the Company in
A-2
<PAGE>
immediately available funds in the lawful currency of the United States of
America which as of the time of payment is legal tender for payment of public or
private debts. The Company has initially designated the principal corporate
trust office of the Warrant Agent in the Borough of Manhattan, The City of New
York, as the initial Warrant Agent Office. The number of Shares issuable upon
exercise of the Warrants ("EXERCISE RATE") is subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m. New York City time, on
the Expiration Date shall thereafter be void.
Reference is hereby made to the further provisions on the reverse hereof
which provisions shall for all purposes have the same effect as though fully set
forth at this place.
This Warrant Certificate shall not be valid unless authenticated by the
Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
manually or by facsimile by its duly authorized officers.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
By:
-----------------------------------------
Name:
Title:
</TABLE>
<TABLE>
<S> <C> <C>
Attest:
-------------------------------------------
Name:
Title:
By:
</TABLE>
Dated: September , 1997
Certificate of Authentication:
This is one of the Warrants referred
to in the within mentioned
Warrant Agreement:
<TABLE>
<S> <C> <C>
THE BANK OF NEW YORK,
as Warrant Agent
-------------------------------------------
Authorized Signatory
By:
</TABLE>
A-3
<PAGE>
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
CELLNET DATA SYSTEMS, INC.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring at 5:00 p.m., New York City time on or
prior to the Expiration Date representing the right to purchase on or prior to
such date 13.671 shares of Common Stock of the Company, subject to adjustment as
set forth in the Warrant Agreement. The Warrants are issued pursuant to a
Warrant Agreement dated as of September 29, 1997 (the "WARRANT AGREEMENT"), duly
executed and delivered by the Company and The Bank of New York, a New York
banking corporation, as Warrant Agent (the "WARRANT AGENT"), which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Warrant Agent,
the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants. Terms defined in the
Warrant Agreement, whether directly or indirectly by reference, and used herein
without other definition shall have the meaning herein ascribed thereto therein.
Warrants may be exercised by (i) surrendering at any Warrant Agent Office
this Warrant Certificate with the form of Election to Exercise set forth hereon
duly completed and executed and (ii) to the extent such exercise is not being
effected through a Cashless Exercise, paying in full the Warrant Exercise Price
for each such Warrant exercised and any other amounts required to be paid
pursuant to the Warrant Agreement.
If all of the items referred to in the preceding paragraph are received by
the Warrant Agent at or prior to 11:00 a.m., New York City time, on a Business
Day, the exercise of the Warrant to which such items relate will be effective on
such Business Day. If any items referred to in the last sentence of the
preceding paragraph are received after 11:00 a.m., New York City time, on a
Business Day, the exercise of the Warrants to which such item relates will be
deemed to be effective on the next succeeding Business Day. Notwithstanding the
foregoing, in the case of an exercise of Warrants on October 1, 2007, if all of
the items referred to in the last sentence of the preceding paragraph are
received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on
such Expiration Date, the exercise of the Warrants to which such items relate
will be effective on the Expiration Date.
As soon as practicable after the exercise of the Warrants represented by
this Warrant Certificate, the Company shall issue or cause to be issued to or
upon the written order of the registered holder of this Warrant Certificate, a
certificate or certificates evidencing the Share or Shares to which such holder
is entitled, in fully registered form, registered in such name or names as may
be directed by such holder pursuant to the Election to Exercise, as set forth on
the reverse of this Warrant Certificate. Such certificate or certificates
evidencing the Share or Shares shall be deemed to have been issued and any
persons who are designated to be named therein shall be deemed to have become
the holder of record of such Share or Shares as of the close of business on the
date upon which the exercise of this Warrant was deemed to be effective as
provided in the preceding paragraph.
The Company will not be required to issue fractional shares of Common Stock
upon exercise of the Warrants or distribute Share certificates that evidence
fractional shares of Common Stock. In lieu of fractional shares of Common Stock,
there shall be paid to the registered holder of this Warrant Certificate at the
time such Warrant Certificate is exercised an amount by check equal to the same
fraction of the Current Market Value (as defined in the Warrant Agreement) per
share on the Business Day preceding the date this Warrant Certificate is
surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency maintained by
the Company for that purpose by the registered holder thereof in person or by
legal representative or attorney duly authorized in writing, may be exchanged
for a new Warrant Certificate or new Warrant Certificates evidencing in the
A-4
<PAGE>
aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose of
any exercise hereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in New York
City, (ii) the principal national securities exchange or market on which the
Common Stock is listed or admitted to trading and (iii) the principal national
securities exchange or market on which the Warrants are listed or admitted to
trading, are open for business.
A-5
<PAGE>
[FORM OF ELECTION TO EXERCISE]
(TO BE EXECUTED UPON EXERCISE OF WARRANTS ON THE EXERCISE DATE)
The undersigned hereby irrevocably elects to exercise of the Warrants
represented by this Warrant Certificate and purchase the whole number of Shares
issuable upon the exercise of such Warrants and herewith tenders payment for
such Shares in the amount of $ by wire transfer or certified or official
bank check, in accordance with the terms hereof. In lieu of payment of the cash
exercise price, the holder hereof is electing to exercise Warrants
pursuant to a Cashless Exercise (as defined in the Warrant Agreement) for
Shares at the current Cashless Exercise Ratio. The undersigned requests that a
certificate representing such Shares be registered in the name of
whose address is and that such certificate
be delivered to whose address is . Any cash
payments to be paid in lieu of a fractional Share should be made to
whose address is and the check representing
payment thereof should be delivered to whose address is
.
Dated ___________, ____
Name of holder of
Warrant Certificate: _______________________________________________________
(Please Print)
Tax Identification or
Social Security Number: ____________________________________________________
<TABLE>
<S> <C> <C> <C>
Address: ----------------------------------------------------------------------------
----------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------------
The above signature must correspond with the name as written upon the
Note: face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatever and if the
certificate representing the Shares or any Warrant Certificate
representing Warrants not exercised is to be registered in a name
other than that in which this Warrant Certificate is registered, or if
any cash payment to be paid in lieu of a fractional share is to be
made to a person other than the registered holder of this Warrant
Certificate, the signature of the holder hereof must be guaranteed as
provided in the Warrant Agreement.
Dated ,
</TABLE>
<TABLE>
<S> <C> <C> <C>
Signature:
----------------------------------------------------------------------------
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatever.
Signature Guaranteed:
</TABLE>
A-6
<PAGE>
[FORM OF ASSIGNMENT]
For value received hereby sells, assigns and transfers
unto the within Warrant Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
attorney, to transfer said Warrant Certificate on the books of
the within-named Company, with full power of substitution in the premises.
Dated ___________, 19__
Signature: _________________________________________________________________
<TABLE>
<S> <C> <C> <C>
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatever.
Signature Guaranteed:
</TABLE>
A-7
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS(2)
The following exchanges of a part of this Global Warrant for Definitive
Warrants have been made:
<TABLE>
<CAPTION>
NUMBER OF
AMOUNT OF AMOUNT OF WARRANTS OF
DECREASE IN INCREASE IN THIS GLOBAL
NUMBER OF NUMBER OF WARRANT SIGNATURE OF
WARRANTS OF WARRANTS OF FOLLOWING AUTHORIZED
DATE OF THIS THIS SUCH DECREASE OFFICER OF
EXCHANGE GLOBAL WARRANT GLOBAL WARRANT (OR INCREASE) WARRANT AGENT
- ---------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
</TABLE>
- ------------------------
(2) This is to be included only if the Warrant is in global form.
A-8
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants")
of CELLNET DATA SYSTEMS, INC. (the "Company")
This Certificate relates to Warrants held in* book-entry or*
certificated form by (the "Transferor").
The Transferor:*
/ / has requested the Warrant Agent by written order to deliver in exchange
for its beneficial interest in the Global Warrant held by the Depositary a
Warrant or Warrants in definitive, registered form of authorized denominations
and an aggregate number equal to its beneficial interest in such Global Warrant
(or the portion thereof indicated above); or
/ / has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant, the
Transferor does hereby certify that Transferor is familiar with the Warrant
Agreement relating to the above captioned Warrants and the restrictions on
transfers thereof as provided in Section 1.7 of such Warrant Agreement, and that
the transfer of this Warrant does not require registration under the Securities
Act of 1933, as amended (the "ACT") because[*]:
/ / Such Warrant is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 1.7(a)(B)(1) or Section
1.7(d)(i)(A) of the Warrant Agreement).
/ / Such Warrant is being transferred to a qualified institutional buyer
(as defined in Rule 144A under the Act), in reliance on Rule 144A or in
accordance with Regulation S under the Act or pursuant to an effective
registration statement under the Act.
/ / Such Warrant is being transferred in accordance with Rule 144 under the
Act.
/ / Such Warrant is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Act, other than Rule 144A
or Rule 144 or Regulation S under the Act. An opinion of counsel and other
information reasonably acceptable to the Company to the effect that such
transfer does not require registration under the Act accompanies this
Certificate.
<TABLE>
<S> <C>
-----------------------------------------
[INSERT NAME OF TRANSFEROR]
By: --------------------------------------
Date: ------------------------------------
*Check applicable box.
</TABLE>
B-1
<PAGE>
EXHIBIT C
TRANSFEREE LETTER OF REPRESENTATION
, 1997
CELLNET DATA SYSTEMS, INC.
125 Shoreway Road
San Carlos, CA 94070
Ladies and Gentlemen:
In connection with our proposed purchase of warrants (the "SECURITIES") to
purchase Common Stock, par value $.001 per share, of Cellnet Data Systems, Inc.
(the "COMPANY") we confirm that:
1. We understand that any subsequent transfer of Securities is subject to
certain restrictions and conditions set forth in the Warrant Agreement (the
"WARRANT AGREEMENT") dated as of September 29, 1997 between the Company and The
Bank of New York, as warrant agent (the "WARRANT AGENT") relating to the
Securities and the undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Securities except in compliance with the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and all applicable state
securities laws.
2. We understand that the offer and sale of the Securities have not been
registered under the Securities Act or pursuant to any state securities laws,
and that the Securities may therefore not be offered or sold within the United
States or to, for the account or benefit of, U.S. persons except as permitted in
the following sentence. We agree, on our own behalf and on behalf of any
accounts for which we are acting as hereinafter stated, that if we should sell
any Securities, we will do so only (i) to the Company or any subsidiary thereof,
(ii) inside the United States in accordance with Rule 144A promulgated under the
Securities Act to a "qualified institutional buyer" (as defined therein), (iii)
to an "institutional accredited investor" (as defined below), that, prior to
such transfer, furnishes (or has furnished on its behalf by a United States
broker-dealer) to the Warrant Agent a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Securities (which form can be obtained from the Warrant Agent), (iv) outside the
United States in accordance with Rule 904 of Regulation S promulgated under the
Securities Act, (v) pursuant to the exemption from registration provided by Rule
144 promulgated under the Securities Act (if applicable), or (vi) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing any of the Securities from us a notice
advising such purchaser that any resale of the Securities are restricted as
stated herein.
3. We understand that, on any proposed resale of any Securities, we will be
required to furnish to the Company and the Warrant Agent such certification,
written legal opinions and other information as the Company and the Warrant
Agent may reasonably require to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Securities purchased by
us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act)
and have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able to
bear the economic risk of our or their investment, as the case may be.
5. We are acquiring the Securities purchased by us for our account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
C-1
<PAGE>
6. You and the Warrant Agent and your respective counsel are entitled to
rely upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
Very truly yours,
<TABLE>
<S> <C> <C>
By:
-----------------------------------------
Name:
Title:
Address:
</TABLE>
Upon transfer, the Securities would be registered in the name of the new
beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
C-2
<PAGE>
Exhibit 4.11
- ------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of September 24, 1997
between
CELLNET DATA SYSTEMS, INC.
and
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
- ------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of September 24, 1997, among CELLNET DATA SYSTEMS, INC., a
Delaware corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED
AND DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION (collectively, the
"Placement Agents").
This Agreement is made pursuant to the Placement Agreement dated
September 24, 1997, among the Company and the Placement Agents (the
"Placement Agreement"), which provides for the sale by the Company to the
Placement Agents of 197,500 Units. Each Unit consists of (i) one 14% Senior
Discount Note due 2007 of the Company (each, a "Note") to be issued pursuant
to the Indenture (as hereinafter defined) and (ii) one warrant (each, a
"Warrant"), entitling the holder thereof to purchase 13.671 shares of common
stock, par value $0.001 per share, of the Company, at an exercise price of
$14.30 per share, subject to adjustment. In addition, the Company has agreed
to issue, concurrently with the Offering (as defined below), (i) pursuant to
a Consent Solicitation dated August 20, 1997, to certain holders of the
Company's Series B 13% Senior Discount Notes (the "1995 Notes"), 1,795
additional Units and (ii) pursuant to an Exchange Offer Memorandum dated
September 3, 1997, to the holders of the 1995 Notes 454,838 additional Units.
In order to induce the Placement Agents to enter into the Placement
Agreement, the Company has agreed to provide to the Placement Agents and
their direct and indirect transferees the registration rights with respect to
the Notes set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
<PAGE>
2
"CLOSING DATE" shall mean the Closing Date as defined in the
Placement Agreement.
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.
"EXCHANGE DATES" shall have the meaning set forth in Section
2(a)(ii) hereof.
"EXCHANGE NOTES" shall mean securities issued by the Company under
the Indenture containing terms identical to the Notes (except that (i)
interest thereon shall accrue from the last date on which interest was
paid on the Notes, and (ii) the Exchange Notes will not contain terms
with respect to transfer restrictions and (iii) the Exchange Notes will
not contain terms providing for additional interest if the Company fails
to comply with its exchange obligations under this Agreement) and to be
offered to Holders of Notes in exchange for Notes pursuant to the
Exchange Offer.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange
offer registration statement on Form S-4 (or other appropriate form) and
all amendments and supplements to such registration statement, in each
case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"HOLDER" shall mean any Placement Agent, for so long as it owns any
Registrable Notes, any record holder of Notes and each of their
respective successors, assigns and direct and indirect transferees who
become registered owners of Registrable Notes under the Indenture;
PROVIDED that for purposes of Sections 4 and 5 of this Agreement, the
term "Holder" shall include Participating Broker-Dealers (as defined in
Section 4(a) hereof).
"INDENTURE" shall mean the Indenture relating to the Notes dated as
of June 15, 1995 (as supplemented from time to time), between the
Company and The Bank of New York, as trustee.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; PROVIDED
that whenever the consent
<PAGE>
3
or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or any of its
affiliates (as such term is defined in Rule 405 under the 1933 Act),
other than the Placement Agents or subsequent holders of Registrable
Notes if such subsequent holders are deemed to be such affiliates solely
by reason of their holding of such Registrable Notes, shall not be
counted in determining whether such consent or approval was given by the
Holders of such required percentage or amount.
"NOTES" shall have the meaning set forth in the preamble to this
Agreement.
"1995 NOTES" shall have the meaning set forth in the preamble to
this Agreement.
"OFFERING" shall mean the sale of the Units by the Company to the
Placement Agents pursuant to the Placement Agreement and the resale of
such Units by the Placement Agents.
"PARTICIPATING BROKER-DEALER" shall have the meaning set forth in
Section 4(a) hereof.
"PERSON" shall mean an individual, partnership, limited liability
company, limited liability partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
"PLACEMENT AGENTS" shall have the meaning set forth in the preamble
to this Agreement.
"PLACEMENT AGREEMENT" shall have the meaning set forth in the
preamble to this Agreement.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Notes covered by a Shelf Registration
Statement, and by all other amendments and supplements to such
prospectus, and in each case including all material incorporated by
reference therein.
"REGISTRABLE NOTES" shall mean the Notes; PROVIDED, HOWEVER, that
the Notes shall cease to be Registrable Notes (i) when a Registration
Statement with respect to such Notes shall have been declared effective
under the 1933 Act and such Notes shall have been disposed of pursuant
to such Registration Statement, (ii) when such Notes
<PAGE>
4
have been sold to the public pursuant to Rule 144(k) (or any similar
provision then in force, but not Rule 144A) under the 1933 Act, (iii)
when such Notes shall have ceased to be outstanding or (iv) when the
Exchange Offer is consummated (except in the case of Notes purchased
from the Company that continue to be held by a Placement Agent).
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement,
including without limitation: (i) all SEC, stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees,
(ii) all fees and expenses incurred in connection with compliance with
state securities or blue sky laws (including reasonable fees and
disbursements of counsel for any underwriters or Holders in connection
with blue sky qualification of any of the Exchange Notes or Registrable
Notes), (iii) all expenses of any Persons in preparing or assisting in
preparing, word processing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv)
all rating agency fees, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi)
the fees and disbursements of the Trustee and its counsel, (vii) the
fees and disbursements of counsel for the Company and, in the case of a
Shelf Registration Statement, the fees and disbursements of one counsel
for the Holders (which counsel shall be selected by the Majority Holders
and which counsel may also be counsel for the Placement Agents) and
(viii) the fees and disbursements of the independent public accountants
of the Company, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the
underwriters (other than reasonable fees and expenses set forth in
clause (ii) above) or the Holders and underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Notes by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of
the Company that covers any of the Exchange Notes or Registrable Notes
pursuant to the provisions of this Agreement and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2(b) hereof.
<PAGE>
5
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the Registrable Notes (but no other
securities unless approved by the Holders whose Registrable Notes are
covered by such Shelf Registration Statement) on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be
adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"TRUSTEE" shall mean the trustee with respect to the Notes under
the Indenture.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall mean a
registration in which Registrable Notes are sold to an underwriter for
reoffering to the public.
"WARRANTS" shall have the meaning set forth in the preamble to this
Agreement.
2. REGISTRATION UNDER THE 1933 ACT.
(a) To the extent not prohibited by any applicable law or
applicable interpretation of the Staff of the SEC, the Company shall use its
best efforts to file and cause to become effective an Exchange Offer
Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Notes for Exchange Notes, to have such
Registration Statement remain effective until the closing of the Exchange
Offer and to consummate the Exchange Offer on or prior to March 29, 1998.
The Company shall commence the Exchange Offer promptly after the Exchange
Offer Registration Statement has been declared effective by the SEC. The
Company shall commence the Exchange Offer by mailing the related exchange
offer Prospectus and accompanying documents to each Holder stating, in
addition to such other disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Agreement and that all Registrable Notes validly tendered, in accordance
with the terms and subject to the conditions, of the Exchange Offer,
will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period
of at least 30 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Note not validly tendered will remain
outstanding and continue to accrete in value until October 1, 2002 and
thereafter will accrue interest in accordance with the terms of the
Notes, but will not retain any rights under this Agreement;
<PAGE>
6
(iv) that each Holder electing to have a Registrable Note
exchanged pursuant to the Exchange Offer will be required to surrender
such Registrable Note, together with the letter of transmittal delivered
in the Exchange Offer, to the institution and at the address (located in
the Borough of Manhattan, The City of New York) specified in the notice
prior to the close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election,
not later than the close of business on the last Exchange Date, by
sending to the institution and at the address (located in the Borough of
Manhattan, The City of New York) specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Notes delivered for exchange
and a statement that such Holder is withdrawing its election to have
such Notes exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Notes or portions thereof duly
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes or portions thereof so accepted for
exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Note equal in accreted
value and face amount, respectively, to the accreted value and face
amount, respectively, of the Registrable Note surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection
with the Exchange Offer. The Exchange Offer shall not be subject to any
condition other than that the Exchange Offer not violate applicable law or
any applicable interpretation of the Staff of the SEC. The Company shall
inform the Placement Agents of the names and addresses of the Holders to whom
the Exchange Offer is made.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date
because it would violate applicable law or the applicable interpretations of
the Staff of the SEC, (ii) the Exchange Offer is not for any other reason
consummated by March 29, 1998, (iii) the Exchange Offer has been completed
and, in the opinion of counsel for the Placement Agents, a Registration
Statement must be filed and a Prospectus must be delivered by a Placement
Agent in connection with any offering or sale by such Placement Agent of
Registrable Notes that were a part of such Placement Agent's
<PAGE>
7
original unsold allotment or (iv) in the case of any Holder that participates
in the Exchange Offer, such Holder does not receive Exchange Notes on the
date of the exchange that may be sold without restriction under state and
federal securities laws, then in the case of each of the clauses (i) through
(iv), the Company shall use its best efforts to cause to be filed as soon as
practicable after such determination, date or notice of such opinion of
counsel is given to the Company, as the case may be, a Shelf Registration
Statement providing for the sale by the Holders of all of the Registrable
Notes and to have such Shelf Registration Statement declared effective by the
SEC within six months of the Closing Date. In the event the Company is
required to file a Shelf Registration Statement solely as a result of the
matters referred to in clause (iii) of the preceding sentence, in addition to
its obligations under the foregoing Section 2(a), the Company shall use its
best effort to file as soon as practicable after delivery of such opinion of
counsel and use its best efforts to have declared effective by the SEC,
within six months of the Closing Date, a Shelf Registration Statement (which
may be a combined Registration Statement with the Exchange Offer Registration
Statement) with respect to offers and sales of Registrable Notes held by such
Placement Agent as part of its original unsold allotment after completion of
the Exchange Offer. The Company agrees to use its best efforts to keep the
Shelf Registration Statement continuously effective until the expiration of
the time period referred to in Rule 144(k) under the 1933 Act with respect to
all Registrable Notes covered by the Shelf Registration Statement or such
shorter period that will terminate when all of the Registrable Notes covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement. The Company further agrees to supplement or amend
the Shelf Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the 1933 Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder, and to use its
best efforts to cause any such amendment to become effective and such Shelf
Registration Statement to become usable as soon as thereafter practicable.
The Company agrees to furnish to the Holders of Registrable Notes copies of
any such supplement or amendment promptly after its being used or filed with
the SEC.
(c) The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2(a) or Section 2(b). Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of such Holder's Registrable Notes
pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; PROVIDED, HOWEVER, that, if, after it has been declared
effective, any stop order, injunction or other order or requirement of the
SEC or any other governmental agency or court interferes with the offering of
Registered Notes pursuant to a Shelf Registration Statement, such
Registration Statement
<PAGE>
8
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Notes pursuant to such
Registration Statement may legally resume. As provided for in the Indenture,
in the event that the Exchange Offer is not consummated and, if a Shelf
Registration Statement is required hereby, the Shelf Registration Statement
is not declared effective on or prior to March 29, 1998, the interest rate
(in addition to the accrual of original issue discount during the period
ended October 1, 2002) on the Notes (and the Exchange Notes) will increase by
0.5% per annum until the Exchange Offer is consummated or a Shelf
Registration Statement is declared effective.
(e) Without limiting the remedies available to the Placement
Agents and the Holders, the Company acknowledges that any failure by the
Company to comply with its obligations under Section 2(a) and Section 2(b)
hereof may result in material irreparable injury to the Placement Agents or
the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the
event of any such failure, the Placement Agents or any Holder may obtain such
relief as may be required to specifically enforce the Company's obligations
under Section 2(a) and Section 2(b) hereof.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to
the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof,
the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Notes by the selling Holders
thereof and (z) shall comply as to form in all material respects with
the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith, and use its best
efforts to cause such Registration Statement to become effective and
remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
applicable period and cause each Prospectus to be supplemented by any
required prospectus supplement and, as so supplemented, to be filed
pursuant to Rule 424 under the 1933 Act; to keep each Prospectus current
during the period described under Section 4(3) and Rule 174 under the
1933 Act that is applicable to transactions by brokers or dealers with
respect to the Registrable Notes or Exchange Notes;
<PAGE>
9
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, to counsel for the Placement Agents, to counsel for
the Holders and to each underwriter of an Underwritten Offering of
Registrable Notes, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder, counsel or
underwriter may reasonably request, in order to facilitate the public
sale or other disposition of the Registrable Notes; and the Company
consents to the use of such Prospectus and any amendment or supplement
thereto in accordance with applicable law by each of the selling Holders
of Registrable Notes and any such underwriters in connection with the
offering and sale of the Registrable Notes covered by and in the manner
described in such Prospectus or any amendment or supplement thereto in
accordance with applicable law;
(d) use its reasonable efforts to register or qualify the Exchange
and Registrable Notes under all applicable state securities or "blue
sky" laws of such jurisdictions as any Holder of Registrable Notes
covered by a Registration Statement shall reasonably request in writing
by the time the applicable Registration Statement is declared effective
by the SEC, to cooperate with such Holders in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc. and to do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate
the disposition in each such jurisdiction of such Exchange and
Registrable Notes owned by such Holder; PROVIDED, HOWEVER, that the
Company shall not be required to (i) qualify as a foreign corporation or
as a dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (ii) file
any general consent to service of process or (iii) subject itself to
taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes, counsel for the Holders and counsel for the Placement
Agents promptly and, if requested by any such Holder or counsel, confirm
such advice in writing (i) when the Shelf Registration Statement has
become effective and when any post-effective amendment thereto has been
filed and becomes effective, (ii) of any request by the SEC or any state
securities authority for amendments and supplements to such Registration
Statement and Prospectus or for additional information after such
Registration Statement has become effective, (iii) of the issuance by
the SEC or any state securities authority of any stop order suspending
the effectiveness of such Registration Statement or the initiation of
any proceedings for that purpose, (iv) if, between the effective date of
such Registration Statement and the closing of any sale of Registrable
Notes covered thereby, the representations and warranties of the Company
contained in any underwriting agreement, securities sales agreement or
other similar agreement, if any, relating to the offering cease to be
true and correct in all material respects or if the
<PAGE>
10
Company receives any notification with respect to the suspension of the
qualification of the Registrable Notes for sale in any jurisdiction or
the initiation of any proceeding for such purpose, (v) of the happening
of any event during the period a Shelf Registration Statement is
effective such that such Registration Statement or the related
Prospectus contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading and (vi) of any determination by
the Company that a post-effective amendment to such Registration
Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest practicable moment after notice of such order and provide
immediate notice to each Holder of the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of the
Shelf Registration Statement and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits
thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Notes to facilitate the timely
preparation and delivery of certificates representing Registrable Notes
to be sold and not bearing any restrictive legends and enable such
Registrable Notes to be in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the selling
Holders may reasonably request at least two business days prior to the
closing of any sale of Registrable Notes;
(i) in the case of a Shelf Registration, upon the occurrence of
any event contemplated by Section 3(e)(v) or (vi) hereof, use its best
efforts to prepare and file with the SEC a supplement or post-effective
amendment to a Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Notes, such Prospectus will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading. The Company agrees to notify the Holders to
suspend use of the Prospectus as promptly as practicable after the
occurrence of such an event, and the Holders hereby agree to suspend use
of the Prospectus upon receipt of such notice until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission;
<PAGE>
11
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Placement Agents and their counsel (and, in the case of
a Shelf Registration Statement, the Holders and their counsel) and make
such of the representatives of the Company as shall be reasonably
requested by the Placement Agents or their counsel (and, in the case of
a Shelf Registration Statement, the Holders or their counsel) available
for discussion of such document, and shall not at any time file or make
any amendment to the Registration Statement, any Prospectus or any
amendment of or supplement to a Registration Statement or a Prospectus
or any document which is to be incorporated by reference into a
Registration Statement or a Prospectus, of which the Placement Agents
and their counsel (and, in the case of a Shelf Registration Statement,
the Holders and their counsel) shall not have previously been advised
and furnished a copy or to which the Placement Agents or their counsel
(and, in the case of a Shelf Registration Statement, the Holders or
their counsel) shall object;
(k) obtain a CUSIP number and, if applicable, a CINS number, for
all Exchange Notes or Registrable Notes, as the case may be, not later
than the effective date of a Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration
of the Exchange Notes or Registrable Notes, as the case may be,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its best
efforts to cause the Trustee to execute, all documents as may be
required to effect such changes and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable Notes,
any underwriter participating in any disposition pursuant to such Shelf
Registration Statement, and attorneys and accountants designated by the
Holders, at reasonable times and in a reasonable manner, all financial
and other records, pertinent documents and properties of the Company,
and cause the respective officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with a
Shelf Registration Statement; PROVIDED, HOWEVER, that such Persons shall
first agree in writing with the Company that any information that is
reasonably and in good faith designated by the Company in writing as
confidential at
<PAGE>
12
the time of delivery of such information shall be kept confidential by
such Persons, unless and to the extent that disclosure of such
information is required by law or such information becomes generally
available to the public other than as a result of a disclosure or
failure to safeguard such information by such Person;
(n) use its best efforts to cause the Exchange Notes or
Registrable Notes, as the case may be, to be rated by two nationally
recognized statistical rating organizations (as such term is defined in
Rule 436(g)(2) under the 1933 Act);
(o) if requested by any Holder of Registrable Notes covered by a
Registration Statement, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information with respect to
such Holder as such Holder reasonably requests to be included therein
and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as the Company has received
notification of the matters to be incorporated in such filing; and
(p) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority of the
Registrable Notes being sold) in order to expedite or facilitate the
disposition of such Registrable Notes including, but not limited to, an
Underwritten Offering, and in such connection, (i) to the extent
possible, make such representations and warranties to the Holders and
any underwriters of such Registrable Notes with respect to the business
of the Company and its Subsidiaries, the Registration Statement,
Prospectus and documents incorporated by reference or deemed
incorporated by reference, if any, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings (but in no event more onerous to the Company than those
contained in the Placement Agreement), and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company (which counsel
and opinions, in form, scope and substance, shall be reasonably
satisfactory to the Holders and such underwriters and their respective
counsel) addressed to each selling Holder and underwriter of Registrable
Notes, covering the matters customarily covered in opinions requested in
underwritten offerings (but in no event more onerous to the Company than
those opinions required in the Placement Agreement), (iii) obtain "cold
comfort" letters from the independent certified public accountants of
the Company (and, if necessary, any other certified public accountant of
any Subsidiary of the Company, or of any business acquired by the
Company for which financial statements and financial data are or are
required to be included in the Registration Statement) addressed to each
selling Holder and underwriter of Registrable Notes, such letters to be
in customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with underwritten offerings, and
(iv) deliver such documents and certificates as may be reasonably
<PAGE>
13
requested by the Holders of a majority in aggregate principal amount of
the Registrable Notes being sold or the underwriters, and which are
customarily delivered in underwritten offerings, to evidence the
continued validity of the representations and warranties of the Company
made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company may
require each Holder of Registrable Notes to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder
of such Registrable Notes as the Company may from time to time reasonably
request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e)(v) or (vi) hereof, such Holder
will forthwith discontinue disposition of Registrable Notes pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and,
if so directed by the Company, such Holder will deliver to the Company (at
its expense) all copies in its possession, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Registrable
Notes current at the time of receipt of such notice. The Company may suspend
the availability of any Shelf Registration Statement not more than two times
during any 365 day period and any such suspension may not exceed 30 days for
each suspension. If the Company shall give any such notice to suspend the
disposition of Registrable Notes pursuant to a Registration Statement, the
Company shall extend the period during which the Registration Statement shall
be maintained effective pursuant to this Agreement by the number of days
during the period from and including the date of the giving of such notice to
and including the date when the Holders shall have received copies of the
supplemented or amended Prospectus necessary to resume such dispositions.
The Holders of Registrable Notes covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Notes in an
Underwritten Offering. In the case of any Underwritten Offering, the Company
shall (x) provide written notice to the Holders of all Registrable Securities
of such Underwritten Offering at least 30 days prior to the filing of a
prospectus for such Underwritten Offering, (y) specify a date, which shall be
no earlier than 10 days following the date of such notice, by which each such
Holder must inform the Company of its intent to participate in such
Underwritten Offering and (z) include reasonable procedures that are
customary to underwritten offerings of the type contemplated herein that such
Holder must follow in order to participate in such Underwritten Offering. In
any such Underwritten Offering, the investment banker or investment bankers
and manager or managers (the "underwriters") that will administer the
offering will be selected by the Majority Holders of the Registrable Notes
included in such offering.
<PAGE>
14
4. PARTICIPATION OF BROKER-DEALERS IN EXCHANGE OFFER.
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Notes for its own account in the
Exchange Offer in exchange for Notes that were acquired by such broker-dealer
as a result of market-making or other trading activities (a "Participating
Broker-Dealer"), may be deemed to be an "underwriter" within the meaning of
the 1933 Act and must deliver a prospectus meeting the requirements of the
1933 Act in connection with any resale of such Exchange Notes.
The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means
by which Participating Broker-Dealers may resell the Exchange Notes, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Notes owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the 1933
Act in connection with resales of Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Notes) for their own accounts,
so long as the Prospectus otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company agrees that the provisions of this Agreement as
they relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such modifications thereto as may be
requested by the Placement Agents or by one or more Participating
Broker-Dealers, in each case as provided in clause (ii) below, in order to
expedite or facilitate the disposition of any Exchange Notes by Participating
Broker-Dealers consistent with the positions of the Staff recited in Section
4(a) above; PROVIDED that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as
would otherwise be contemplated by Section 3(i), for a period exceeding
180 days after the last Exchange Date (as such period may be extended
pursuant to the penultimate paragraph of Section 3 of this Agreement)
and Participating Broker-Dealers shall not be authorized by the Company
to deliver and shall not deliver such Prospectus after such period in
connection with the resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set
forth in Section 3 of this Agreement to an Exchange Offer Registration,
to the extent not required by the positions of the Staff of the SEC or
the 1933 Act and the rules and regulations thereunder, will be in
conformity with the request to the Company by the Placement Agents or
with the request in writing to the Company by one or more broker-dealers
who certify to the Placement Agents and the Company in writing that they
anticipate
<PAGE>
15
that they will be Participating Broker-Dealers; and PROVIDED FURTHER
that, in connection with such application of the Shelf Registration
procedures set forth in Section 3 to an Exchange Offer Registration, the
Company shall be obligated (x) to deal only with one entity representing
the Participating Broker-Dealers, which shall be Morgan Stanley & Co.
Incorporated, unless it advises the Company in writing that it elects
not to act as such representative, (y) to pay the reasonable fees and
expenses of only one counsel representing the Participating
Broker-Dealers, which shall be counsel to the Placement Agents unless
such counsel elects not to so act and (z) to cause to be delivered only
one, if any, "cold comfort" letter with respect to the Prospectus in the
form existing on the last Exchange Date and with respect to each
subsequent amendment or supplement, if any, effected during the period
specified in clause (i) above.
(c) The Placement Agents shall have no liability to the Company
or any Holder with respect to any request that it may make pursuant to
Section 4(b) above.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Placement Agent, each Holder and each Person, if any, who controls any
Placement Agent or any Holder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act, or is under common control with, or
is controlled by, any Placement Agent or any Holder, from and against all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by any Placement Agent, any
Holder or any such controlling or affiliated person in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which Exchange
Notes or Registrable Notes were registered under the 1933 Act, including all
documents incorporated therein by reference, or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or caused
by any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented, if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact necessary to
make the statements therein in light of the circumstances under which they
were made not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Placement
Agent or any Holder furnished to the Company in writing by such Placement
Agent or any selling Holder expressly for use therein. In connection with
any Underwritten Offering permitted by Section 3 hereof, the Company will
also indemnify the underwriters, if any, selling brokers, dealers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of the 1933 Act and
<PAGE>
16
the 1934 Act) to the same extent as provided above with respect to the
indemnification of the Holders, if requested in connection with any
Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify
and hold harmless the Company, each Placement Agent and the other selling
Holders, and each of their respective directors, officers who sign the
Registration Statement and each Person, if any, who controls the Company, any
Placement Agent and any other selling Holder within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent
as the foregoing indemnity from the Company to each Placement Agent and the
Holders, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b)
above, such Person (the "indemnified party") shall promptly notify the Person
against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the reasonable fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for (a) the
reasonable fees and expenses of more than one separate firm (in addition to
any local counsel) for the Placement Agents and all Persons, if any, who
control any Placement Agent within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act, (b) the reasonable fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and
each Person, if any, who controls the Company within the meaning of either
such Section and (c) the reasonable fees and expenses of more than one
separate firm (in addition to any local counsel) for all Holders and all
Persons, if any, who control any Holders within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In such case involving any Placement Agent and Persons who control
such Placement Agent, such firm shall be designated in writing by Morgan
Stanley & Co. Incorporated. In such case involving the Holders and such
Persons who control Holders, such firm shall be designated in
<PAGE>
17
writing by the Majority Holders. In all other cases, such firm shall be
designated by the Company. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but, if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for reasonable fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party for
such fees and expenses of counsel in accordance with such request prior to
the date of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which such indemnified party
is or could have been a party and indemnity could have been sought hereunder
by such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company, the Holders and the Placement Agents shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company, the
Holders or the Placement Agents and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Holders' respective obligations to contribute pursuant to this
Section 5(d) are several in proportion to the respective number of
Registrable Notes of such Holder that were registered pursuant to a
Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by PRO
RATA allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified party as a
<PAGE>
18
result of the losses, claims, damages and liabilities referred to in
paragraph (d) above shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5, no Holder
shall be required to indemnify or contribute any amount in excess of the
amount by which the total price at which Registrable Notes were sold by such
Holder exceeds the amount of any damages that such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 5
are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section
5 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Placement Agent, any Holder or any Person controlling any Placement Agent
or any Holder, or by or on behalf of the Company, their officers or directors
or any Person controlling the Company or the Company, (iii) acceptance of any
of the Exchange Notes and (iv) any sale of Registrable Notes pursuant to a
Shelf Registration Statement.
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not entered into,
and on or after the date of this Agreement will not enter into, any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Notes in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with
and are not inconsistent with the rights granted to the holders of the
Company's other issued and outstanding securities under any such agreements.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company has obtained the written consent
of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Notes affected by such amendment, modification,
supplement, waiver or consent; PROVIDED that the signatories hereto may make
any amendment hereto that does not, in the good faith opinion of the Board of
Directors of the Company (and evidenced by a resolution of such board)
materially adversely effect any Holder; PROVIDED, HOWEVER, that,
notwithstanding the foregoing, no amendment, modification, supplement, waiver
or consent to any departure from the provisions of Section 5 hereof shall be
effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder.
<PAGE>
19
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Company by means of a notice given in accordance with the provisions
of this Section 6(c), which address initially is, with respect to the
Placement Agents, the address set forth in the Placement Agreement; and (ii)
if to the Company, initially at the Company's address set forth in the
Placement Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next business day if timely delivered to an air courier
guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the Person giving the same to the Trustee, at
the address specified in the Indenture.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for
an express assignment, subsequent Holders; PROVIDED that nothing herein shall
be deemed to permit any assignment, transfer or other disposition of
Registrable Notes in violation of the terms of the Placement Agreement. If
any transferee of any Holder shall acquire Registrable Notes, in any manner,
whether by operation of law or otherwise, such Registrable Notes shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Notes such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof.
The Placement Agents (in their capacity as Placement Agents) shall have no
liability or obligation to the Company with respect to any failure by a
Holder to comply with, or any breach by any Holder of, any of the obligations
of such Holder under this Agreement.
(e) PURCHASES AND SALES OF NOTES. The Company shall not, and
shall use its best efforts to cause its affiliates (as defined in Rule 405
under the 1933 Act) not to, purchase and then resell or otherwise transfer
any Notes.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Placement Agents, on the other hand, and each Holder shall
have the right to enforce such agreements
<PAGE>
20
directly to the extent it deems such enforcement necessary or advisable to
protect its rights or the rights of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
<PAGE>
21
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
CELLNET DATA SYSTEMS, INC.
By /s/ PAUL G. MANCA
------------------------------------
Name: Paul G. Manca
Title: VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Confirmed and accepted on behalf
of the Placement Agents as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
By /s/ JOEL P. FELDMAN
----------------------------------
Name: Joel P. Feldman
Title: PRINCIPAL
<PAGE>
Exhibit 4.12
WARRANT REGISTRATION RIGHTS AGREEMENT
between
CELLNET DATA SYSTEMS, INC.
and
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
Dated as of September 24, 1997
<PAGE>
WARRANT REGISTRATION RIGHTS AGREEMENT
WARRANT REGISTRATION RIGHTS AGREEMENT, dated as of September 24,
1997 (this "AGREEMENT"), among CELLNET DATA SYSTEMS, INC., a Delaware
corporation (the "COMPANY"), and Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and Donaldson, Lufkin & Jenrette Securities Corporation
(collectively, the "Placement Agents").
Pursuant to the terms of a Placement Agreement dated September 24,
1997 (the "PLACEMENT AGREEMENT"), among the Company and Morgan Stanley, as
manager (the "MANAGER"), for itself and the other Placement Agent, the
Company has agreed to issue and sell to the Placement Agents an aggregate of
197,500 warrants (each, a "WARRANT"), each Warrant initially entitling the
holder thereof to purchase 13.671 shares of Common Stock (as defined below)
of the Company at an exercise price of $14.30 per Common Share (as defined
below), as part of 197,500 units (each, a "UNIT") offered pursuant to the
Placement Agreement, each Unit consisting of one 14% Senior Discount Note due
2007 of the Company (each a "NOTE" and collectively, the "NOTES") to be
issued pursuant to the provisions of an Indenture dated as of June 15, 1995
(as supplemented from time to time, the "INDENTURE") between the Company, as
issuer, and The Bank of New York, as trustee, and one Warrant. In addition,
the Company has agreed to issue, concurrently with the Offering (as defined
below), (i) pursuant to a Consent Solicitation dated August 20, 1997, to
certain holders of the current Series B 13% Senior Discount Notes (the "1995
Notes"), 1795 additional Units and (ii) pursuant to an Exchange Offer
Memorandum dated September 3, 1997, to the holders of the 1995 Notes 454,838
additional Units. The Note and the Warrant included in each Unit will be
automatically separated at the close of business upon the earliest to occur
of (i) the date that is six months after the Closing Date (as defined below),
(ii) the commencement of an exchange offer with respect to the Notes
undertaken pursuant to the Registration Rights Agreement (as defined below),
(iii) the effectiveness of a shelf registration statement with respect to
resales of the Notes or (iv) the commencement of an offer to purchase the
Notes pursuant to the Indenture.
In consideration of the foregoing and of the mutual agreements
contained herein and in the Placement Agreement, the Company and the
Placement Agents hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Auditors" means, at any time, the independent auditors of the
Company at such time.
<PAGE>
2
"Board" means the board of directors of the Company from time to
time.
"Closing Date" means September 29, 1997.
"Comfort Letter" has the meaning specified in Section 2 hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Shares" means the shares of the Common Stock of the Company.
"Common Stock" means the common stock, par value $.001 per share,
of the Company.
"Company" means CellNet Data Systems, Inc., a Delaware corporation.
"Expiration Date" means October 1, 2007.
"Holders" means the record holders of the Warrants and the record
holders of Common Shares (or other securities) received upon exercise
thereof.
"Indenture" has the meaning specified in the recitals to this
Agreement.
"Manager" has the meaning specified in the recitals to this
Agreement.
"Morgan Stanley" has the meaning specified in the recitals to this
Agreement.
"1995 Notes" has the meaning specified in the recitals to this
Agreement.
"Notes" has the meaning specified in the recitals to this Agreement.
"Offering" means the sale of the Units by the Company to the
Placement Agents pursuant to the Placement Agreement and the resale of
such Units by the Placement Agents.
"Opinion" has the meaning specified in Section 2 hereof.
"Placement Agents" has the meaning specified in the recitals to
this Agreement.
"Placement Agreement" has the meaning specified in the recitals to
this Agreement.
<PAGE>
3
"Registration Rights Agreement" means the Registration Rights
Agreement dated the date hereof among the Company and the Placement
Agents.
"Resale Shelf" has the meaning specified in Section 2 hereof.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Units" has the meaning specified in the recitals to this Agreement.
"Warrant" has the meaning specified in the recitals to this
Agreement.
"Warrant Agent" means The Bank of New York in its capacity as
warrant agent.
"Warrant Agreement" means the Warrant Agreement dated the Closing
Date between the Company and the Warrant Agent.
"Warrant Shares" means the Common Shares issuable upon exercise of
a Holder's Warrants or such other securities as shall be issuable upon
the exercise of the Warrants, pursuant to the Warrant Agreement.
"Warrant Registration Statement" has the meaning specified in
Section 2 hereof.
2. SHELF REGISTRATION.
(a) The Company shall use its best efforts to cause to be filed
pursuant to Rule 415 under the Securities Act a shelf registration statement
on the appropriate form (the "WARRANT REGISTRATION STATEMENT") covering the
issuance of the Warrant Shares upon exercise of the Warrants and shall use
its best efforts to cause the Warrant Registration Statement to become
effective under the Securities Act within one year after the Closing Date;
PROVIDED, HOWEVER, that if the Commission shall request that the Company
register the resale of the Warrant Shares instead of the issuance thereof,
the Warrant Registration Statement shall register such resale as opposed to
such issuance. The Company shall use reasonable efforts to keep the Warrant
Registration Statement continuously effective until such time as all Warrants
have been exercised or in the case of the proviso above, until such time as
all Warrant Shares have been resold. Prior to filing the Warrant
Registration Statement or any amendment thereto, the Company shall provide a
copy thereof to Morgan Stanley and its counsel and afford them a reasonable
time to comment thereon.
<PAGE>
4
(b) If the Warrant Registration Statement shall register the
resale of the Warrant Shares by Holders thereof (a "RESALE SHELF") as
provided in the proviso in Section 2(a) above, the Company agrees to:
(i) make available for inspection by a representative of the
Holders, any underwriter participating in any disposition pursuant to
such Resale Shelf and attorneys and accountants designated by the
Holders, at reasonable times and in a reasonable manner, financial and
other records, documents and properties of the Company that are
pertinent to the conduct of due diligence customary for an underwritten
offering, and cause the officers, directors and employees of the Company
to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with a
Resale Shelf; PROVIDED, HOWEVER, that such persons shall first agree in
writing with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential at the
time of delivery of such information shall be kept confidential by such
persons, unless and to the extent that disclosure of such information is
required by law or such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard
such information by such person;
(ii) use its best efforts to cause all Warrant Shares sold under a
Resale Shelf to be listed on any securities exchange or any automated
quotation system on which similar securities issued by the Company are
then listed if requested by the Holders of Warrant Shares representing a
majority of the Warrants originally issued, to the extent such Warrant
Shares satisfy applicable listing requirements;
(iii) provide a reasonable number of copies of the prospectus
included in such Resale Shelf to Holders that are selling Warrant Shares
pursuant to such Resale Shelf;
(iv) cause to be provided to the Warrant Agent, on behalf of the
Holders and beneficial owners of Warrant Shares, upon the effectiveness
of such Resale Shelf, a customary "10b-5" opinion of independent counsel
(an "OPINION") and a customary "cold comfort" letter of independent
auditors (a "COMFORT LETTER");
(v) cause to be provided to Holders and beneficial owners of
Warrant Shares an Opinion and Comfort Letter with respect to each Form
10-K and Form 10-Q, including any amendments thereto, that is
incorporated by reference in such Resale Shelf; and
(vi) deliver a written notice to the Warrant Agent, for
distribution to the Holders, (A) when the Resale Shelf has become
effective and when any post-effective amendment thereto has been filed
and becomes effective, (B) of any request by the
<PAGE>
5
Commission or any state securities authority for amendments and
supplements to the Resale Shelf or of any material request by the
Commission or any state securities authority for additional information
after the Resale Shelf has become effective, (C) of the issuance by the
Commission or any state securities authority of any stop order
suspending the effectiveness of the Resale Shelf or the initiation of
any proceedings for that purpose, (D) if, between the effective date of
the Resale Shelf and the closing of any sale of Warrant Shares covered
thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, including this Agreement, relating to the Warrant Shares
cease to be true and correct in all material respects or if the Company
receives any notification with respect to the suspension of the
qualification of the Warrant Shares for sale in any jurisdiction or the
initiation of any proceeding for such purpose, (E) of the happening of
any event during the period the Resale Shelf is effective such that such
Resale Shelf or the related prospectus contains an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make statements therein not misleading and (F)
of any determination by the Company that a post-effective amendment to a
registration statement would be appropriate. The Holders hereby agree
to suspend use of the prospectus contained in a Resale Shelf upon
receipt of such notice under clause (E) or (F) above until the Company
has amended or supplemented such prospectus to correct such misstatement
or omission.
3. SUSPENSION.
Notwithstanding the foregoing, during any consecutive 365-day
period, the Company shall have the privilege to suspend availability of the
Warrant Registration Statement and the related prospectus for up to two
30-consecutive-day periods, except for the 30 days immediately prior to the
Expiration Date, if the Board determines in good faith that there is a valid
purpose for such suspension and provides notice of such determination to the
Holders at their addresses appearing in the register of Warrants maintained
by the Warrant Agent. Notice of such suspension shall be given promptly to
the Warrant Agent.
4. BLUE SKY.
The Company shall use its reasonable best efforts to register or
qualify the Underlying Securities proposed to be sold or issued pursuant to
the Warrant Registration Statement under all applicable securities or "blue
sky" laws of all jurisdictions in the United States in which any Holder of
Warrants may or may be deemed to purchase Underlying Securities upon the
exercise of Warrants or resale of the Warrant Shares, as the case may be, and
shall use its reasonable best efforts to maintain such registration or
qualification through the earlier of (A) the date upon which all Warrants
have been exercised or all Warrant Shares have been resold, as the case may
be, under the Warrant Registration Statement and (B) the
<PAGE>
6
Expiration Date; PROVIDED, HOWEVER, that the Company shall not be required to
(i) qualify as a foreign corporation or as a broker or a dealer in securities
in any jurisdiction where it would not otherwise be required to qualify but
for this Section 4, (ii) file any general consent to service of process or
(iii) subject itself to taxation in any jurisdiction if it is not otherwise
so subject.
5. ACCURACY OF DISCLOSURE.
The Company (and its successors) represents and warrants to each
Holder (and each beneficial owner of a Warrant or Warrant Share) and agrees
for the benefit of each Holder (and each beneficial owner of a Warrant or
Warrant Share) that, except during any period in which the availability of
the Warrant Registration Statement has been suspended, (i) the Warrant
Registration Statement and the documents incorporated by reference therein
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading; and
(ii) the prospectus delivered to such Holder upon its exercise of Warrants or
pursuant to which such Holder sells its Warrant Shares, as the case may be,
and the documents incorporated by reference therein will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
6. INDEMNITY.
The Company hereby agrees to indemnify each beneficial owner of a
Warrant and each person, if any, who controls any beneficial owner of a
Warrant within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), or is
under common control with, or is controlled by, any beneficial owner of a
Warrant (whether or not it is, at the time the indemnity provided for in this
Section 6 is sought, such a beneficial owner), from and against all losses,
damages or liabilities which such beneficial owner or any such controlling or
affiliated person suffers as a result of any breach, on the date of any
exercise of a Warrant by such beneficial owner or the resale of any Warrant
Share by such Holder, in either case pursuant to the Warrant Registration
Statement, of the representations, warranties or agreements contained in
Section 5. Each beneficial owner of a Warrant Share sold pursuant to a
Resale Shelf, by accepting its beneficial ownership of a Warrant, hereby (i)
agrees to provide the Company with information with respect to it that the
Company reasonably requests in connection with any Resale Shelf and (ii)
agrees, severally and not jointly, to indemnify the Company, its directors
and officers and each person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act against any liability incurred by it or such controlling person
as a result of any misstatement of information provided by such beneficial
owner to the Company in writing expressly for inclusion in the Resale Shelf.
<PAGE>
7
7. EXPENSES.
All expenses incident to the Company's performance of or compliance
with its obligations under this Agreement will be borne by the Company,
regardless of whether a Warrant Registration Statement becomes effective,
including without limitation (i) all Commission or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all reasonable
fees and expenses incurred in connection with compliance with state
securities or "blue sky" laws, (iii) all reasonable expenses of any persons
incurred by or on behalf of the Company in preparing or assisting in
preparing, word processing, printing and distributing any registration
statement, any prospectus, any amendments or supplements thereto and other
documents relating to the performance of and compliance with this Agreement,
(iv) the reasonable fees (including legal fees and expenses) and
disbursements of the Warrant Agent, (v) the reasonable fees and disbursements
of counsel for the Company and (vi) the reasonable fees and disbursements, if
any, of the Auditors but excluding (x) fees and disbursements of counsel
retained by the participating Holders and (y) the Holder's share of
underwriting discounts and commissions.
8. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. Each of the Company and the
Warrant Agent represents to the other that it has not entered into, and
agrees that on or after the date of this Agreement it will not enter into,
any agreement which is inconsistent with the rights granted to the Holders of
Warrants or Warrant Shares in this Agreement or otherwise conflicts with the
provisions hereof. The Company represents that the rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the Company's other issued and
outstanding securities under any agreements.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company and the Warrant Agent have
obtained the written consent of Holders of at least a majority of the
outstanding Warrants affected by such amendment, modification, supplement,
waiver or consent; PROVIDED that any amendment, modification or supplement to
this Agreement which, in the good faith opinion of the Board of Directors of
the Company (and evidenced by a resolution of such board), does not adversely
affect any Holder, shall not be subject to such requirement for written
consent.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Company by means of a notice given in
<PAGE>
8
accordance with the provisions of this Section 8(c); (ii) if to the Company,
initially at the Company's address set forth in the Indenture and thereafter
at such other address, notice of which is given in accordance with the
provisions of this Section 8(c); and (iii) if to the Warrant Agent, initially
at the Warrant Agent address set forth in the Warrant Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 8(c).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next business day if timely delivered to an air courier
guaranteeing overnight delivery.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation, subsequent Holders;
PROVIDED that nothing herein shall be deemed to permit any assignment,
transfer or other disposition of Warrants in violation of the terms of the
Placement Agreement or the Warrant Agreement. If any transferee of any
Holder shall acquire Warrants, in any manner, whether by operation of law or
otherwise, such Warrants shall be held subject to all of the terms of this
Agreement and the Warrant Agreement, and by taking and holding such Warrants
such person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement or the Warrant
Agreement and such person shall be entitled to receive the benefits hereof.
(e) PURCHASES AND SALES OF WARRANTS. The Company shall not, and
shall use its best efforts to cause its affiliates (as defined in Rule 405
under the Securities Act) not to, purchase and then resell or otherwise
transfer any Warrants other than Warrants acquired and cancelled.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Placement Agents, and each Holder shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights or the rights of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
<PAGE>
9
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) WAIVER OF IMMUNITY. To the extent that the Company has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to
judgement, attachment in aid of execution, execution or otherwise) with
respect to itself or its property, it hereby irrevocably waives such immunity
in respect of their obligations under this Agreement to the fullest extent
permitted by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
CELLNET DATA SYSTEMS, INC.
By /s/ PAUL G. MANCA
----------------------------------
Name: Paul G. Manca
Title: VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
MORGAN STANLEY & CO. INCORPORATED
as Manager on behalf of itself and
the other Placement Agents
By /s/ JOEL P. FELDMAN
----------------------------------
Name: Joel P. Feldman
Title: PRINCIPAL
<PAGE>
Exhibit 4.13
CELLNET DATA SYSTEMS, INC.
AND
THE BANK OF NEW YORK, AS TRUSTEE
---------------------
THIRD SUPPLEMENTAL INDENTURE
DATED AS OF AUGUST 28, 1997
TO
INDENTURE
DATED AS OF JUNE 15, 1995
------------------------
RELATING TO
NOTES ISSUED BY
CELLNET DATA SYSTEMS, INC.
<PAGE>
THIRD SUPPLEMENTAL INDENTURE (this "Third Supplemental Indenture"), dated
as of August 28, 1997, between CellNet Data Systems, Inc., a Delaware
corporation (the "Company"), and The Bank of New York, a New York banking
corporation (the "Trustee").
RECITALS:
WHEREAS, the Company has duly issued its Series B 13% Senior Discount Notes
Due 2005 in the aggregate principal amount at maturity of $325,000,000 pursuant
to an Indenture, dated as of June 15, 1995, between the Company and the Trustee
and a First Supplemental Indenture dated as of November 21, 1995 between Company
and the Trustee (such Indenture, as modified by such First Supplemental
Indenture, and as further modified by a Second Supplemental Indenture dated as
of August 30, 1996, the "Indenture"); and
WHEREAS, the Company desires to issue additional notes pursuant to the
Indenture from time to time;
WHEREAS, Section 9.02 of the Indenture provides that the Company and the
Trustee may, with the written consent of the holders of not less than a majority
in aggregate principal amount of the outstanding Notes (the "Majority Holders"),
enter into supplemental indentures to amend the provisions of the Indenture
(with certain exceptions not relevant to the amendments contemplated hereby);
and
WHEREAS, the Company has obtained the written consents of the Majority
Holders;
WHEREAS, in accordance with Section 10.04 of the Indenture, the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
stating that the Third Supplemental Indenture complies with the applicable
provisions of the Indenture; and
WHEREAS, all acts and proceedings required by law and under the Indenture
to constitute this Third Supplemental Indenture, a valid and binding agreement
for the uses and purposes set forth herein, in accordance with its terms, have
been done and taken, and the execution and delivery of this Third Supplemental
Indenture have been in all respects duly authorized by the Company;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the Company
and the Trustee hereby agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Indenture, and the Rules of
Construction set forth in the Indenture shall likewise govern this Third
Supplemental Indenture.
2. GENERAL AMENDMENTS.
(a) The Indenture is hereby generally amended by deleting each and every
reference to the date "June 15, 2000" contained therein and substituting in each
such place the phrase "the Full Accretion Date applicable to the relevant
Note(s)."
(b) The Indenture is hereby further amended by substituting the phrase
"Notes of the same class" for the phrase "Notes" each and every time such phrase
appears in each of the following provisions: Section 1.01, definitions of
"Redemption Date" and "Redemption Price"; Sections 6.02 (Acceleration), 6.04
(Waiver of Past Defaults), 6.05 (Control By Majority), 6.06 (Limitation on
Suits), 6.08 (Collection Suit by Trustee), 6.11 (Undertaking for Costs), 8.01
(Termination of Company's Obligations), 8.02 (Application of Trust Money),
9.02(i) and (v) (With Consent of Holders), and 9.04 (Revocation and Effect of
Consents).
(c) The Indenture is hereby further amended by substituting the date "June
15, 1995" for the phrase "the Issue Date" each and every time such phrase
appears in each of the following sections:
(i) Section 1.01: definition of "Common Stock"; definition of
"Consolidated Net Income", clause (g); definition of "GAAP"; definition of
"Net Equity Proceeds", proviso clause (A); definition of "Permitted
Indebtedness", clauses (iii) and (viii); definition of "Permitted
Investments", proviso
<PAGE>
clause (A) to clause (b) and clause (e); definition of "Permitted Liens",
clauses (x), (xi) and (xviii); definition of "Sale and Leaseback
Transaction" and definition of "Unrestricted Subsidiary";
(ii) Section 4.08(c) (SEC Reports and other Information);
(iii) Sections 4.10(a)(III), 4.10(a)(1), 4.10(a)(2), 4.10(a)(4),
4.10(a)(5) and 4.10(c) (Limitation on Restricted Payments);
(iv) Section 4.13(5) (Limitation on Dividend and Other Restrictions
Affecting Restricted Subsidiaries);
(v) Sections 4.14(b)(ii) and 4.14(c) (Limitation on Designation of
Restricted and Unrestricted Subsidiaries);
(vi) Section 4.16(a) (Limitation on Asset Sales) and
(vii) Section 4.18 (Limitation on Liens).
3. AMENDMENT TO PREFATORY TEXT. The prefatory text to the Indenture is
hereby amended by deleting the second paragraph therefrom in its entirety, and
substituting in place thereof the following new paragraph:
The Company has duly authorized the issuance from time to time in
accordance with the terms hereof of notes ("INITIAL NOTES") and, if the
Initial Notes are Restricted Securities, notes to be issued in exchange for
such Initial Notes pursuant to registration rights agreements ("EXCHANGE
NOTES"), in such aggregate amounts, accreting in principal amount or bearing
interest at such rates and maturing at such times as are fixed as
hereinafter provided and, to provide therefor, the Company has duly
authorized the execution and delivery of this Indenture. All Initial Notes
issued on a single Issue Date, and Exchange Notes issued in exchange
therefor, shall for all purposes be treated as a single class of securities.
All things necessary to make this Indenture a valid and binding agreement of
the Company have been done.
4. AMENDMENTS TO SECTION 1.01. Section 1.01 of the Indenture is hereby
amended as follows:
(a) AMENDMENTS TO DEFINITION OF PERMITTED INDEBTEDNESS
The definition of Permitted Indebtedness is hereby amended by:
(i) inserting immediately after the date of "June 15, 1995" in the
second line of clause (iii) thereof, the words "(it being understood that
such Offering Memorandum may no longer accurately reflect existing
Indebtedness on any Issue Date, other than June 15, 1995)";
(ii) deleting the word "and" from the end of clause (xi) thereof; and
(ii) inserting, immediately before the period at the end of clause (xii)
thereof, a semicolon, and the following new clauses (xiii) and (xiv):
(xiii) unsecured Indebtedness Incurred by the Company in connection
with the issuance in the high yield market of a single class of Notes not
exceeding $150,000,000 in aggregate principal amount or initial accreted
value at any time outstanding (and not less than $75,000,000 in initial
aggregate principal amount or initial accreted value); PROVIDED that the
Indebtedness Incurred pursuant to this clause (xiii) shall rank pari
passu with or subordinate to any Notes outstanding on the Issue Date and
shall neither mature nor provide for any scheduled redemptions,
installment payments of principal or sinking fund payments, prior to the
Maturity Date of any Notes outstanding on the Issue Date thereof; and
(xiv) at any time after the Issue Date of the Indebtedness described
in clause (xiii) above, additional unsecured Indebtedness Incurred by the
Company in connection with the issuance of Notes solely for the purpose
of financing the development, manufacture, marketing, sale,
2
<PAGE>
delivery, construction, integration, installation, deployment,
maintenance, repair and improvement of the Company's wireless data
communications systems not exceeding, in aggregate principal amount or
initial accreted value, the cumulative aggregate Net Equity Proceeds
received in cash by the Company after August 1, 1997, multiplied by two
(2); PROVIDED that (A) Indebtedness Incurred pursuant to this clause
(xiv) shall rank pari passu with or subordinate to any Notes outstanding
on the Issue Date thereof and shall neither mature nor provide for any
scheduled redemptions, installment payments of principal or sinking fund
payments, prior to the Maturity Date of any Notes outstanding on the
Issue Date and (B) Net Equity Proceeds used to provide a basis for the
Incurrence of Indebtedness under this clause (xiv) may not be used to
provide a basis for making Restricted Payments under Section 4.10(a)(2)
hereof.
(b) AMENDMENTS TO DEFINITION OF PERMITTED INVESTMENTS
The definition of Permitted Investments is hereby amended by:
(i) deleting the word "and" from the end of clause (l) thereof and
(ii) inserting, immediately before the period at the end of clause (m)
thereof, a semicolon, the word "and" and the following new clause(n):
(n) Investments by the Company or its Restricted Subsidiaries in
BCN, not to exceed $35,000,000 in the aggregate at any time outstanding,
for all such Investments made pursuant to this clause (n); PROVIDED, that
at the time any such Investment is made, an Investment of at least
equivalent value has been or is being made by or on behalf of BEn.
(c) RESTATEMENT OF CERTAIN DEFINITIONS
The following definitions are respectively restated in their entirety to
provide as follows:
"ACCRETED VALUE" means, with respect to any Note issued with an original
issue discount, as of any date of determination prior to its Full Accretion
Date, the sum of (a) the Issue Price of such Note and (b) the portion of the
excess of the principal amount of such Note over the Issue Price which shall
have been accreted thereon through such date, such amount to be so accreted
on a daily basis at the rate of accretion per annum specified in such Note,
compounded semi-annually on each Interest Payment Date for such Note from
its Issue Date through the date of determination.
"INITIAL NOTES" has the meaning provided in the preamble to this
Indenture.
"INTEREST PAYMENT DATE" means, for any Note, a semiannual Interest
Payment Date so designated in such Note.
"ISSUE DATE" means with respect to any Initial Notes, the Issue Date so
designated in such Notes.
"MATURITY DATE" means, with respect to any Note, the Maturity Date so
designated in such Note.
"NOTES" means the Initial Notes and the Exchange Notes issued from time
to time hereunder.
"RECORD DATE" means, for the Notes of any class, a Record Date specified
in such Notes; provided, however, that if any such date is a Legal Holiday,
the Record Date shall be the first day immediately preceding such specified
day that is not a Legal Holiday.
"REGISTRATION RIGHTS AGREEMENT" means, with respect to any Initial Notes
to be exchanged for Exchange Notes, the Registration Rights Agreement dated
on or about the Issue Date of such Initial Notes and providing registration
rights with respect to such Initial Notes.
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<PAGE>
INSERTION OF NEW DEFINITIONS
The following new definitions are hereby inserted in the appropriate places
respectively designated by alphabetical order:
"BCN" means BCN Data Systems, L.L.C., a limited liability company
organized under the laws of the State of Delaware, jointly owned and
controlled by the Company and Bechtel Enterprises, Inc. ("BEn"), and
established for the purpose of deploying the Company's wireless data
communications systems in countries outside the United States. BCN includes
all other Persons jointly owned and controlled, directly or indirectly, by
the Company and BEn that are established or acquired and that are used for
the purpose of deploying the Company's wireless data communications systems
outside the United States.
"CLASS" means a group of Initial Notes issued on a single Issue Date or
specifically providing by their terms that they are to be treated as part of
a single class, including all Exchange Notes issued in exchange therefor.
"FORM OF SECURITY" means, with respect to Initial Notes, the form of
security attached hereto as EXHIBIT A, and with respect to Exchange Notes,
the form of security attached hereto as EXHIBIT B.
"FULL ACCRETION DATE" means with respect to any Note issued with an
original issue discount, the date designated as the Full Accretion Date in
such Note, and with respect to any other Note, its Issue Date.
"ISSUE PRICE" means, with respect to any Initial Note, the purchase
price paid therefor on its Issue Date.
"MAXIMUM ISSUANCE AMOUNT" means, with respect to Notes of any class, the
amount, if any, designated in such Notes as the Maximum Issuance Amount for
such class.
(e) DELETIONS OF CERTAIN DEFINITIONS
The Indenture is hereby amended by deleting from Section 1.01 thereof in
their entirety the definitions of "Initial Purchaser", "Second Issuance" and
"Second Issuance Issue Date".
5. RESTATEMENT OF SECTIONS 2.01 AND 2.02. Sections 2.01 and 2.02 of the
Indenture are hereby restated in their entirety to read as follows:
SECTION 2.01 FORM AND DATING.
The Initial Notes and the Trustee's certificate of authentication
relating thereto shall each be substantially in the form of EXHIBIT A
hereto, appropriately completed. The Exchange Notes and the Trustee's
certificate of authentication relating thereto shall each be substantially
in the form of EXHIBIT B hereto, appropriately completed. The Notes issued
in accordance with the terms of this Indenture shall be made a part hereof,
from and after the applicable Issue Date. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or depository
rule or usage. The Company and the Trustee shall approve the form of the
Notes and any notation, legend or endorsement on them. Each Note shall be
dated its Issue Date and shall show the date of its authentication, the
title of the class of which it is a part, its Maturity Date, its Full
Accretion Date, its Interest Payment Dates, its rate of accretion, if
applicable, prior to its Full Accretion Date, its rate of interest from and
after its Full Accretion Date, its Issue Price, the Maximum Issuance Amount
for its class and the terms and conditions on which such Note may be
redeemed at the option of the Company.
The terms and provisions contained in the Notes, substantially in the
form of EXHIBIT A, in the case of Initial Notes, or EXHIBIT B, in the case
of Exchange Notes, and in each case, appropriately completed, shall
constitute, and are hereby expressly made a part of this Indenture and, to
the extent
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<PAGE>
applicable, the Company and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered
form, substantially in the form set forth in EXHIBIT A hereto (the "GLOBAL
NOTE"), deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided and shall bear the legend set forth in Section 2.15. The aggregate
principal amount of the Global Note may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian
for the Depository, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued in the respective form of permanent
certificated Notes in registered form in substantially the form set forth in
EXHIBIT A hereto (the "OFFSHORE PHYSICAL NOTES"). Notes offered and sold to
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) shall be issued, and Notes offered and sold
in reliance on Rule 144A may be issued, in the form of permanent
certificated Notes in registered form, in substantially the form set forth
in EXHIBIT A (the "U.S. PHYSICAL NOTES"). The Offshore Physical Notes and
the U.S. Physical Notes are sometimes collectively herein referred to as the
"PHYSICAL NOTES."
SECTION 2.02 EXECUTION AND AUTHENTICATION; AGGREGATE PRINCIPAL AMOUNT;
TERMS TO BE FIXED.
(a) Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Notes for the Company by manual or facsimile
signature.
If an Officer or Assistant Secretary whose signature is on a Note was an
Officer or Assistant Secretary at the time of such execution but no longer
holds that office or position at the time the Trustee authenticates the
Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
(b) Prior to each Issue Date, there shall be established in or pursuant to a
Board Resolution and set forth, or determined in a manner provided, in an
Officers' Certificate, the following terms of the Initial Notes of the class to
be issued:
(i) the title of the Initial Notes to be issued on such Issue Date
(which shall distinguish such Notes from all other Notes);
(ii) the Maximum Issuance Amount, if any, of Notes of the same class
which may be authenticated and delivered under this Indenture (except for
Notes authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Notes pursuant to this Indenture or an
applicable Registration Rights Agreement);
(iii) the Maturity Date for such Notes, which shall not be prior to the
Maturity Date of any class of then-outstanding Notes;
(iv) the rate or rates, if any, at which such Notes shall accrete in
principal amount, if applicable, and bear interest, or the method by which
such rate or rates are determined, the date or dates, if any, from which
such Notes shall cease to accrete in principal amount and interest shall
begin to accrue and the Interest Payment Dates on which such interest shall
be payable on any Notes;
(v) the period or periods within which, the price or prices at which and
the terms and conditions upon which such Notes may be redeemed in whole or
in part, at the option of the Company;
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<PAGE>
(vi) if the amount of payments of principal of or any premium or
interest on such Notes are to be determined with reference to an index,
formula or other method, the manner in which such amounts shall be
determined;.
(vii) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Notes of such class shall be issuable;
(viii) the terms and conditions, if any, upon which any Notes of such
class may or shall be converted into other securities or property;
(ix) if and as applicable, that the Notes of such class shall be
issuable in whole or in part in the form of one or more Global Notes and, in
such case, the depositary or depositaries for such Global Note or Global
Notes, if other than the Depositary, and any circumstances other than those
set forth in Sections 2.16 and 2.17 in which any such Global Note may be
transferred to, and registered and exchanged for Securities registered in
the name of, a Person other than the depositary or depositaries designated
for such Global Note or a nominee thereof and in which such transfer may be
registered;
(x) the Person who shall act as the Registrar, if other than the
Trustee, and the Person who shall act as the Paying Agent, if other than the
Trustee;
(xi) if applicable, any Events of Default with respect to Notes of such
class, to the extent that such Events of Default are in addition to the
Events of Default herein contained; and
(xii) any other terms of the class (which terms shall not be inconsistent
with the provisions of this Indenture).
The Officers' Certificate shall also certify that the Maximum Issuance
Amount of Initial Notes does not exceed the maximum principal amount or
initial accreted value of Indebtedness permitted to be Incurred by the
Company under Section 4.12 hereof.
All Notes of the same class issued on a single Issue Date shall be
substantially identical except as to denomination.
(c) Notes may be issued under this Indenture only if the aggregate initial
Accreted Value or principal amount thereof, together with the initial Accreted
Value or principal amount of all other Indebtedness of the Company then
outstanding, does not exceed the aggregate initial Accreted Value or principal
amount of Indebtedness the Company is permitted to Incur under the Indenture on
the proposed Issue Date of such Notes. All Notes shall be issued in the form of
a Form of Security, appropriately completed. The Trustee shall authenticate (i)
Initial Notes for original issue in an aggregate principal amount at maturity
not to exceed the Maximum Issuance Amount specified in such Initial Notes for
the applicable class and (ii) Exchange Notes from time to time for issue only in
exchange for a like principal amount at maturity of Initial Notes, in each case
upon a written order of the Company. Such order shall specify the amount of
Notes to be authenticated and the date on which the Notes are to be
authenticated, whether the Notes are to be Initial Notes or Exchange Notes and
whether the Notes are to be issued as Physical Notes or a Global Note or such
other information as the Trustee may reasonably request. The aggregate principal
amount at maturity of Notes or if applicable, the aggregate principal amount, of
Notes of any class outstanding at any time, together with any Exchange Notes of
the same class, may not exceed the Maximum Issuance Amount, if any, specified
for such class, except as provided in Section 2.07.
(d) A copy of an appropriate record of the Board Resolution authorizing the
issue of Initial Notes on any Issue Date shall be certified by the Secretary or
an Assistant Secretary of the Company and delivered to the Trustee at or prior
to the delivery of the Officers' Certificate setting forth the terms of the such
Notes.
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<PAGE>
(e) The Trustee may appoint an authenticating agent (the "AUTHENTICATING
AGENT") reasonably acceptable to the Company to authenticate Notes. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with the
Company or with any Affiliate of the Company.
The Notes shall be issuable in fully registered form only, without coupons,
in denominations of $1,000 and any integral multiple thereof except to the
extent necessary to make interest payments on the Notes in additional Notes in
accordance with Section 4.01 hereof.
6. AMENDMENT TO SECTION 2.15. Section 2.15 of the Indenture is hereby
amended by deleting therefrom the text "(with respect to any Note not issued
pursuant to the Second Issuance) or the third anniversary of the Second Issuance
Date (with respect to any Note issued pursuant to the Second Issuance)" and
substituting in place thereof the text "of such Note".
7. AMENDMENT TO SECTION 2.18. Section 2.18 of the Indenture is hereby
amended by deleting therefrom the phrase "all as set forth in Section 4 of the"
and substituting in place thereof the phrase ",if any, all as set forth in the
applicable".
8. RESTATEMENT OF SECTION 3.02. Section 3.02 of the Indenture is hereby
restated in its entirety to read as follows:
SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED.
If fewer than all of the Notes of any class are to be redeemed, the Trustee
shall select the Notes of such class to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes of such class are listed or, if the Notes of such class are not listed on
a national securities exchange, by lot or by such method as the Trustee shall
deem fair and appropriate; PROVIDED, HOWEVER, that if the Notes of such class
are redeemed pursuant to subparagraph (b) of Paragraph 6 thereof, the Notes of
such class shall be redeemed solely on a PRO RATA basis. If the Notes of such
class are listed on any national securities exchange, the Company shall notify
the Trustee of the requirements of such exchange in respect of any redemption.
The Trustee shall make the selection from the Notes of such class outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Notes of such class selected for redemption and, in the case
of any Note of such class selected for partial redemption, the principal amount
thereof to be redeemed. Notes in denominations of $1,000 may be redeemed only in
whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Notes that have denominations
larger than $1,000. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
9. ADDITION OF NEW SECTION 3.07. The Indenture is hereby further
supplemented by the addition of the following new section 3.07 in the
appropriate place designated by numerical order:
SECTION 3.07 REDEMPTION OR REPURCHASE AT THE OPTION OF THE HOLDER OR FROM
NET EQUITY PROCEEDS.
Upon the occurrence of any event, as a result of which the Company is
required by the terms and provisions hereof to redeem or offer to repurchase all
or a portion of the Notes, if either (a) less than all of the Notes are required
to be redeemed or repurchased, or (b) all of the Notes are required to be
redeemed or repurchased, but the Company fails to deposit sufficient funds to
effect the redemption or repurchase of all of the Notes in accordance with
Section 3.05, the Trustee shall allocate the amounts available for redemptions
or repurchases among the classes of outstanding Notes on a pro rata basis, with
the amount allocable to each such class determined by multiplying the amount
available for redemption or repurchase by a fraction, the numerator of which is
aggregate Accreted Value of the Notes of such class and the denominator of which
is the aggregate Accreted Value of all outstanding Notes. The Trustee shall
allocate such available amounts among Holders within any particular class in
accordance with Section 3.02. In the
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<PAGE>
event that the Company seeks to redeem or repurchase any Notes of the class
issued pursuant to clause (xiii) of the definition of "Permitted Indebtedness"
out of the proceeds of equity offerings, asset sales, or change of control
events, the holders of any of the Company's Series B 13% Senior Discount Notes
due 2005 (the "1995 Notes") shall, prior to or on June 15, 1998, if any such
redemption or repurchase is sought as a result of an equity issuance and
otherwise so long as the 1995 Notes remain outstanding, have the right, but not
the obligation, to participate in such redemption or repurchase on a pro rata
basis with the class of Notes being so redeemed or repurchased and to receive
the same redemption or repurchase premium as the holders of the class of Notes
being so redeemed or repurchase in the event that the redemption or repurchase
premium for the class of Notes being so redeemed or repurchased is higher than
the corresponding redemption or repurchase premium for the 1995 Notes.
10. AMENDMENT TO SECTION 4.10(A)(2). Section 4.10(a)(2) of the Indenture
is hereby amended by inserting, between the two parantheses denoting the end of
the parenthetical text ending on the last line thereof, the following additional
parenthetical text: "and (C) any Net Equity Proceeds used by the Company to
provide a basis for the Incurrence of Indebtedness under clause (xiv) of the
definition of "Permitted Indebtedness".
11. AMENDMENT TO SECTION 4.16(A). Section 4.16(a) of the Indenture is
hereby amended by deleting from the sixth to seventh lines of the second
paragraph thereof the words "of the Notes."
12. RESTATEMENT OF SECTIONS 6.01(I) AND (III). Sections 6.01(i) and (iii)
of the Indenture are hereby restated in their entirety to read as follows:
(i) the failure to pay interest on any Note for a period of 30 days or
more after such interest becomes due and payable; or the failure to pay any
additional interest payable under any applicable Registration Rights
Agreement for a period of 30 days or more after such additional interest
becomes due and payable;
(iii) a default in the observance or performance of any other covenant or
agreement contained in this Indenture, which default continues for a period
of 45 days after the Company receives written notice specifying the default
(and requiring that such default be remedied) from the Trustee, with respect
to all Notes or Notes of any one or more classes, or from Holders of not
less than 25% in aggregate Accreted Value or principal amount of outstanding
Notes of the same class, with respect to the Notes of the same class;
13. AMENDMENTS TO SECTION 6.02(A). Section 6.02(a) of the Indenture is
hereby amended by (a) inserting, immediately after the words "and is continuing"
in the third line thereof, the words "with respect to any class of Notes" and
(b) inserting, immediately before the words "will become immediately" in the
fifteenth line thereof, the words "on the Notes of the same class."
14. AMENDMENT TO SECTION 6.03. The first paragraph of Section 6.03 of the
Indenture is hereby restated in its entirety to read as follows:
If an Event of Default with respect to any class of Notes has occurred and
is continuing, the Trustee may pursue any remedy by proceeding at law or in
equity to collect the Accreted Value of, principal of or interest on the Notes
of such class, or to enforce any provision of such Notes or this Indenture.
15. AMENDMENT TO SECTION 6.08. Section 6.08 of the Indenture is hereby
amended by (a) inserting, immediately after the phrase "occurs and is
continuing" in the third line thereof, the phrase "with respect to any class of
Notes" and (b) by substituting the word "such" for the word "the" immediately
before the word "Notes" on the fifth line thereof.
16. AMENDMENTS TO SECTION 8.01. Section 8.01 of the Indenture is hereby
amended by (a) substituting the phrase "The Notes of any class" for the phrase
"This Indenture" at the beginning of the first paragraph thereof and (b)
substituting the phrase "the Notes of such class" for the phrase "this
Indenture" on the last line of such first paragraph.
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<PAGE>
17. AMENDMENT TO SECTION 9.01(II). Section 9.01(ii) of the Indenture is
hereby amended by deleting the word "the" appearing immediately before the
phrase "Registration Rights Agreement" and substituting in place thereof the
word "any".
18. AMENDMENT TO SECTION 9.02. Section 9.02 of the Indenture is hereby
amended by restating the first two sentences thereof to read as follows:
Subject to Section 6.07, the Company, when authorized by a Board
Resolution, and the Trustee, together, may (a) with the written consent of
the Holders of not less than a majority in aggregate Accreted Value or
principal amount of the Notes of any class, amend or supplement this
Indenture with respect to such class, or, (b) with the written consent of
the Holders of not less than a majority in aggregate Accreted Value or
principal amount of the Notes of any class, amend such Notes without notice
to any other Holder. Any such amendment or supplement affecting less than
all classes of outstanding Notes shall identify the classes to which it
applies. Subject to Section 6.07, the Holders of not less than a majority in
aggregate Accreted Value or principal amount of the Notes of any class may
waive compliance by the Company with any provision of this Indenture with
respect to such class, and the Holders of not less than a majority in
aggregate Accreted Value or principal amount of the Notes of any class may
waive compliance by the Company with such Notes without notice to any other
Holder.
19. RESTATEMENT OF EXHIBITS A AND B. EXHIBITS A and B to the Indenture are
hereby restated in their entirety in the respective forms annexed hereto as
EXHIBITS A and B.
20. RESTATEMENT OF SERIES B 13% DISCOUNT NOTES DUE 2005. The Global Notes
representing the Series B 13% Senior Discount Notes due 2005 are hereby restated
in their entirety in the form annexed hereto as EXHIBIT C.
21. EFFECTIVENESS. Upon the execution and delivery of this Third
Supplemental Indenture by the Trustee and the Company, the proposed agreements
contained herein will become effective and operative. Thereafter, all references
to the Indenture shall, unless specifically referring to the Indenture as
originally executed, be deemed to be references to the Indenture as modified by
this Third Supplemental Indenture. The Indenture, as supplemented and amended by
this Third Supplemental Indenture, is in all respects hereby ratified and
confirmed.
22. RECITALS. The recitals contained herein shall be taken as the
statement of the Company, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representation as to the validity
of this Third Supplemental Indenture.
23. SUCCESSORS AND ASSIGNS. This Third Supplemental Indenture shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Except as amended herein, the terms, provisions and
covenants of the Indenture shall remain in full force and effect and continue to
govern the parties thereto.
24. COUNTERPARTS. This Third Supplemental Indenture may be executed in two
or more counterparts, each of which shall be deemed original and all of which
together will constitute the same agreement, whether or not all parties execute
each counterpart.
25. GOVERNING LAW. The laws of the State of New York, without regard to
principles of conflicts of law, shall govern this Third Supplemental Indenture
and the Notes.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Third Supplemental
Indenture to be duly executed, all as of the date first above written.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
By: /s/ PAUL G. MANCA
-----------------------------------------
Name: Paul G. Manca
Title: VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
THE BANK OF NEW YORK, as Trustee
By: /s/ VIVIAN GEORGES
-----------------------------------------
Name: Vivian Georges
Title: ASSISTANT VICE PRESIDENT
</TABLE>
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<PAGE>
EXHIBIT A
TO THIRD SUPPLEMENTAL
INDENTURE
[FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS SECURITY IS
BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF
THIS SECURITY, (1) THE ISSUE PRICE IS $ ; (2) THE AMOUNT OF ORIGINAL
ISSUE DISCOUNT IS $ ; (3) THE ISSUE DATE IS ; AND (4) THE
YIELD MATURITY (COMPOUNDED SEMI-ANNUALLY) IS %.]
[OTHER LEGENDS]
CUSIP No.:
CELLNET DATA SYSTEMS, INC.
No. $
CELLNET DATA SYSTEMS, INC., a Delaware corporation (the "Company", which
term includes any successor entity), for value received promises to pay to or
registered assigns, the principal sum of Dollars, on the Maturity Date.
Issue Date: .
Maturity Date: .
[Accretion Rate through Full Accretion Date: per annum]. [Interest
Rate after Full Accretion Date: % per annum.] [Index, Formula or Other
Method of Determining Interest Rate: ].
Full Accretion Date: .
Interest Payment Dates: and , commencing
, .
Record Dates: and .
This Note is one of a class of [title of Notes].
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect if set forth at this place.
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Dated: Title:
</TABLE>
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
<TABLE>
<S> <C> <C>
THE BANK OF NEW YORK,
as Trustee
By:
-----------------------------------------
Date of Authentication: Authorized Signatory
</TABLE>
A-2
<PAGE>
(REVERSE OF SECURITY)
[TITLE OF NOTE]
1. INTEREST. CELLNET DATA SYSTEMS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. [Cash interest on the Notes will neither accrue nor
be due and payable prior to .] Interest on the Notes will accrue
from the most recent date on which interest has been paid or, if no interest has
been paid, from . The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing . Interest will
be computed on the basis of a 360-day year of twelve 30-day months and, in the
case of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes plus [2% per annum], in the case of overdue installments of interest
(without regard to any applicable grace periods) to the extent lawful.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are canceled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes to Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by its check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. PAYING AGENT, AND REGISTRAR; DEPOSITARY. Initially, [The Bank of New
York (the "Trustee")] [ ] will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders. [The Depositary] [ ] will act as depositar[y][ies] for the
Notes (as defined below).
4. INDENTURE. The Company issued the Notes under an Indenture, dated as of
June 15, 1995 ([as heretofore amended,] the "Indenture"), between the Company
and the Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. This Note is one of a duly authorized issue of
Initial Notes of the Company, designated as the [title of Notes] (the
" Notes"). [The Maximum Issuance Amount of the Notes is
$ .] [There is no Maximum Issuance Amount for the Notes]. The
Notes include the Initial Notes and the Exchange Notes, as defined
below, issued in exchange for the Initial Notes pursuant to the Indenture. The
Initial Notes and the Exchange Notes are treated as a single class of securities
under the Indenture. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Section Section 77aaa-77bbbb) (the "TIA"),
as in effect on the date of the Indenture. Notwithstanding anything to the
contrary herein, the Notes are subject to all such terms, and Holders
of the Notes are referred to the Indenture and said Act for a
statement of them. The Notes are general unsecured obligations of the Company.
5. INDENTURE. Each Holder, by accepting a Note, agrees to be
bound by all of the terms and provisions of the Indenture, as the same may be
amended from time to time in accordance with its terms.
6. REDEMPTION.
(a) OPTIONAL REDEMPTION. The Notes will be redeemable, at the
Company's option, in whole at any time or in part from time to time, on and
after at the following redemption prices (expressed as
percentages of the aggregate principal amount) if redeemed during the
[twelve-month
A-3
<PAGE>
period][other] commencing on of the year set forth below,
plus, in each case, accrued and unpaid interest thereon, if any, to the date
of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
[ ]............................................................................ [ ]%
[ ]............................................................................ [ ]
[ ]............................................................................ [ ]
[ ] and thereafter............................................................. [ ]
</TABLE>
(b) OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING. In the event that
the Company consummates a Public Equity Offering after which there is a
Public Market, the Company may, at its option, redeem prior to
, from the proceeds of such Public Equity Offering received by
the Company, up to % of the aggregate principal amount of the Notes
originally issued at a redemption price equal to % of the [Accreted
Value] [principal amount] thereof plus accrued interest thereon, if any, to
the date of redemption[; provided, however, that (1) such redemption may
only be effected to the extent that immediately after such redemption not
less than % in aggregate principal amount of the Notes originally issued
remain outstanding (it being expressly agreed that, for purposes of
determining whether this condition is satisfied, Notes owned (beneficially
or otherwise) by the Company or any of its Affiliates shall not be deemed to
be outstanding) and (2) such redemption is effected not more than once and
not more than 60 days after the consummation of such Public Equity
Offering.]
The Notes are not entitled to the benefit of any sinking fund.
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of the
Notes called for redemption shall have been deposited with the Paying Agent for
redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest or accumulate Accreted Value, as the
case may be, from and after such Redemption Date and the only right of the
Holders of such Notes will be to receive payment of the Redemption Price plus
accrued interest, if any.
8. OFFERS TO PURCHASE. Sections 4.15 and 4.16 of the Indenture provide
that, after certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
[9. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement
among the Company and the Holders of the Initial Notes, the Company will be
obligated, within after the Issue Date of this Note, to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for the Company's Notes (the
"Exchange Notes"), which have been registered under the Securities Act, in like
principal amount and having terms identical in all material respects as the
Initial Notes. The Holders of the Initial Notes shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement.]
10. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in registered form,
without coupons, and (except Notes issued as payment of interest) in
denominations of [$1,000 and integral multiples of $1,000] [other denominations
not less than $1,000]. A Holder shall register the transfer or exchange of Notes
in accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay transfer taxes or similar governmental
A-4
<PAGE>
charges payable in connection therewith as permitted by the Indenture. The
Registrar need not register the transfer of or exchange of any Notes or portions
thereof selected for redemption.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
12. UNCLAIMED MONEY. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
13. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company at any time
deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to
redemption or maturity and complies with the other provisions of the Indenture
relating thereto, the Company will be discharged from certain provisions of the
Indenture and the Notes with respect to the Notes (including certain
covenants, but excluding its obligation to pay the principal of and interest on
the Notes).
14. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain exceptions set forth
in the Indenture, the Indenture may be amended or supplemented with respect to
any class of Notes with the written consent of the Holders of not less than a
majority in aggregate Accreted Value or, as the case may be, principal amount,
of all outstanding Notes of the same class and the Notes may be
amended or supplemented with the written consent of the Holders of not less than
a majority in [Accreted Value] [principal amount] of the Notes
then outstanding. Subject to certain exceptions set forth in the Indenture, any
Default or Event of Default or noncompliance with any provision of the Indenture
may be waived with respect to any class of Notes with the written consent of the
Holders of not less than a majority in aggregate Accreted Value or, as the case
may be, principal amount, of the Notes of such class then outstanding and any
Default or Event of Default with respect to the Notes, may be
waived with the written consent of not less than a majority in aggregate
[Accreted Value][principal amount] of the Notes then outstanding.
Without notice to or consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Notes in addition
to or in place of certificated Notes, or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
15. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on
the ability of the Company and the Restricted Subsidiaries to, among other
things, Incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, create dividend or other payment
restrictions affecting Restricted Subsidiaries, issue Preferred Stock of its
Restricted Subsidiaries, and on the ability of the Company and its Subsidiaries
to merge or consolidate with any other Person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the Company's and its
Subsidiaries' assets or adopt a plan of liquidation. Such limitations are
subject to a number of important qualifications and exceptions. Pursuant to
Section 4.06 of the Indenture, the Company must annually report to the Trustee
on compliance with such limitations.
16. SUCCESSORS. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
17. DEFAULTS AND REMEDIES. If an Event of Default with respect to the
Notes occurs and is continuing, the Trustee or the Holders of not
less than 25% in aggregate [Accreted Value] [principal amount] of the
Notes then outstanding may declare all the Notes to
be due and payable in the manner, at the time and with the effect provided in
the Indenture. Holders of Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee is not
A-5
<PAGE>
obligated to enforce the Indenture or the Notes unless it has received indemnity
reasonably satisfactory to it. The Indenture permits, subject to certain
limitations therein provided, Holders of a majority in aggregate [Accreted
Value] [principal amount] of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power with respect to the
Notes and the Holders of a majority in aggregate Accreted Value or, as the case
may be, principal amount, to direct the Trustee in its exercise of any trust or
power with respect to the Indenture. The Trustee may withhold from Holders of
Notes notice of any continuing Default or Event of Default (except a Default in
payment of principal or interest when due, for any reason or a Default in
compliance with Article Five of the Indenture) if it determines that withholding
notice is in their interest.
18. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, its Subsidiaries or their respective
Affiliates as if it were not the Trustee.
19. NO RECOURSE AGAINST OTHERS. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
20. AUTHENTICATION. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
21. GOVERNING LAW. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws.
22. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
23. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
[24. [CONVERSION] [EXCHANGES]. This Note is convertible or exchangeable on
the following terms: ].
[25. TRANSFER. In addition to transfer on the terms and subject to the
conditions of Sections 2.16 and 2.17 of the Indenture, this Note may be
transferred as follows: ].
[25. ADDITIONAL TERMS: ].
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture, which has the text of this Note in
larger type. Requests may be made to: CellNet Data Systems, Inc., 125 Shoreway
Road, San Carlos, California 94070, Attn: General Counsel.
A-6
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: ___________________________ Signed: ____________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee: _______________________________
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) June 15, 1998, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
A-8
<PAGE>
[CHECK ONE]
<TABLE>
<S> <C> <C>
(1) -- to the Company or a subsidiary thereof; or
(2) -- pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as
amended; or
(3) -- to an institutional "accredited investor" (as defined, in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act of 1933, as amended) that has furnished to the
Trustee a signed letter containing certain representations and agreements (the
form of which letter can be obtained from the Trustee); or
(4) -- outside the United States to a "foreign person" in compliance with Rule 904 of
Regulation S under the Securities Act of 1933, as amended; or
(5) -- pursuant to the exemption from registration provided by Rule 144 under the
Securities Act of 1933, as amended; or
(6) -- pursuant to an effective registration statement under the Securities Act of 1933,
as amended; or
(7) -- pursuant to another available exemption from the reg-istration requirements of the
Securities Act of 1933, as amended.
</TABLE>
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
/ / The transferee is an Affiliate of the
Company.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; PROVIDED, HOWEVER, that if box (3), (4), (5) or (7)
is checked, the Company or the Trustee may require, prior to registering any
such transfer of the Notes, in its sole discretion, such written legal opinions,
certifications (including an investment letter in the case of box (3) or (4))
and other information as the Trustee or the Company has reasonably requested to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
of 1933, as amended.
If none of the foregoing boxes is checked, the Trustee or Registrar shall
not be obligated to register this Note in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.17 of the Indenture shall have
been satisfied.
Dated: ___________________________ Signed: ____________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee: _______________________________
A-9
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933, as amended and
is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: ___________________________ ____________________________________________
NOTICE: To be executed by an executive officer
A-10
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.15 or Section 4.16 of the Indenture, check the appropriate box:
<TABLE>
<S> <C>
Section 4.15 [ ]
Section 4.16 [ ]
</TABLE>
If you want to elect to have only part of this Note purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you
elect to have purchased:
$ _____________________
Dated: ___________________________ ____________________________________________
NOTICE: The signature on this assignment
must correspond with the name as it
appears upon the face of the within
Note in every particular without
alteration or enlargement or any
change whatsoever and be guaranteed.
Signature Guarantee: ___________________________________________________________
A-11
<PAGE>
EXHIBIT B
TO THIRD SUPPLEMENTAL
INDENTURE
[FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS SECURITY IS
BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF
THIS SECURITY, (1) THE ISSUE PRICE IS $ ; (2) THE AMOUNT OF ORIGINAL ISSUE
DISCOUNT IS $ ; (3) THE ISSUE DATE IS ; AND (4) THE YIELD TO
MATURITY (COMPOUNDED SEMI-ANNUALLY) IS %.]
[OTHER LEGENDS]
CUSIP No.:
CELLNET DATA SYSTEMS, INC.
No. $
CELLNET DATA SYSTEMS, INC., a Delaware corporation (the "Company", which
term includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of Dollars,
on the Maturity Date.
Issue Date: __________.
Maturity Date: __________.
[Accretion Rate through Full Accretion Date: % per annum]. [Interest Rate
after Full Accretion Date: % per annum]. [Index, Formula or other Method of
Determining Interest Rate: ].
Full Accretion Date: __________.
Interest Payment Dates: __________ and __________, commencing __________,
_______.
Record Dates: __________ and __________.
This Note is one of a class of [title of Notes].
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
B-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and a facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
By: -----------------------------------------
Name:
Title:
By: -----------------------------------------
Name:
Dated: Title:
</TABLE>
B-2
<PAGE>
Certificate of Authentication
This is one of the Notes referred to in the within-mentioned Indenture.
<TABLE>
<S> <C> <C>
THE BANK OF NEW YORK,
as Trustee
By: -----------------------------------------
Date of Authentication: Authorized Signatory
</TABLE>
B-3
<PAGE>
(REVERSE OF SECURITY)
[TITLE OF NOTE]
1. INTEREST. CELLNET DATA SYSTEMS, INC., a California corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. [Cash interest on the Notes will neither accrue nor
be due and payable prior to .] Interest on the Notes will accrue
from the most recent date on which interest has been paid or, if no interest has
been paid, from . The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing . Interest will be
computed on the basis of a 360-day year of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes plus [2% per annum], in the case of overdue installments of interest
(without regard to any applicable grace periods) to the extent lawful.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are canceled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by its check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. PAYING AGENT, AND REGISTRAR; DEPOSITARY. Initially, [The Bank of New
York (the "Trustee")] [ ] will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders. [The Depositary] [ ] will act as depositar[y][ies] for the
Notes (as defined below).
4. INDENTURE. The Company issued the Notes under an Indenture, dated as of
June 15, 1995 ([as heretofore amended,] the "Indenture"), between the Company
and the Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. This Note is one of a duly authorized issue of
Exchange Notes of the Company, designated as [title of class] (the
"[ Notes]"). [The Maximum Issuance Amount of the Notes is
$ ]. [There is no Maximum Issuance Amount for the Notes].
The Notes include the 13% Senior Discount Notes due 2005 (the
"Initial Notes") and the Exchange Notes, issued in exchange for the Initial
Notes pursuant to the Indenture. The Initial Notes and the Exchange Notes are
treated as a single class of securities under the Indenture. The terms of the
Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
Section Section 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the
Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and said Act for a statement of them. The Notes are
general unsecured obligations of the Company.
5. INDENTURE. Each Holder, by accepting a Note, agrees to be
bound by all of the terms and provisions of the Indenture, as the same may be
amended from time to time in accordance with its terms.
6. REDEMPTION. (A) OPTIONAL REDEMPTION. The Notes will be redeemable, at
the Company's option, in whole at any time or in part from time to time, on and
after at the following redemption prices (expressed as percentages
of the aggregate principal amount) if redeemed during the
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<PAGE>
[twelve-month] [other] period commencing on of the year set forth
below, plus, in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ -------------
<S> <C>
[ ].................................................................... [ ]%
[ ].................................................................... [ ]
[ ].................................................................... [ ]
[ ] and thereafter..................................................... [ ]
</TABLE>
(b) OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING. In the event that the
Company consummates a Public Equity Offering after which there is a Public
Market, the Company may, at its option, redeem prior to , from the
proceeds of such Public Equity Offering received by the Company, up to % of
the aggregate principal amount of the Notes originally issued at a redemption
price equal to % of the [Accreted Value] [principal amount] thereof plus
accrued interest thereon, if any, to the date of redemption[; PROVIDED, HOWEVER,
that (1) such redemption may only be effected to the extent that immediately
after such redemption not less than % in aggregate principal amount of the
Notes originally issued remain outstanding (it being expressly agreed that, for
purposes of determining whether this condition is satisfied, Notes owned
(beneficially or otherwise) by the Company or any of its Affiliates shall not be
deemed to be outstanding) and (2) such redemption is effected not more than once
and not more than 60 days after the consummation of such Public Equity
Offering.]
The Notes are not entitled to the benefit of any sinking fund.
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed as such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of the
Notes called for redemption shall have been deposited with the Paying Agent for
redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest or accumulate Accreted Value, as the
case may be, from and after such Redemption Date and the only right of the
Holders of such Notes will be to receive payment of the Redemption Price plus
accrued interest, if any.
8. OFFERS TO PURCHASE. Sections 4.15 and 4.16 of the Indenture provide
that, after certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in registered form,
without coupons, and (except Notes issued as payment of interest) in
denominations of [$1,000 and integral multiples of $1,000] [other denominations
not less than $1,000]. A Holder shall register the transfer or exchange of Notes
in accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay certain transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange of any Notes or portions thereof selected for
redemption.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. UNCLAIMED MONEY. If money for te payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
paying Agent with respect to such money shall cease.
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<PAGE>
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company at any time
deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to
redemption or maturity and complies with the other provisions of the Indenture
relating thereto, the Company will be discharged from certain provisions of the
Indenture and the Notes with respect to the Notes
(including certain covenants, but excluding its obligation to pay the principal
of and interest on the Notes).
13. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain exceptions set forth
in the Indenture, the Indenture may be amended or supplemented with respect to
any class of Notes with the written consent of the Holders of not less than a
majority in aggregate Accreted Value or, as the case may be, principal amount,
of all outstanding Notes of the same class and the Notes may be
amended or supplemented with the written consent of the Holders of not less than
a majority in [Accreted Value][principal amount] of the Notes then
outstanding. Subject to certain exceptions set forth in the Indenture, any
Default or Event of Default or noncompliance with any provision of the Indenture
may be waived with respect to any class of Notes with the written consent of the
Holders of not less than a majority in aggregate Accreted Value or, as the case
may be, principal amount, of the Notes of such class then outstanding and any
Default or Event of Default with respect to the Notes may be waived
with the written consent of not less than a majority in aggregate [Accreted
Value][principal amount] of the Notes then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, or comply with Article Five of the Indenture or make any
other change that does not adversely affect the rights of any Holder of a Note.
14. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on
the ability of the Company and the Restricted Subsidiaries to, among other
things, Incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, create dividend or other payment
restrictions affecting Restricted Subsidiaries, issue Preferred Stock of its
Restricted Subsidiaries, and on the ability of the Company and its Subsidiaries
to merge or consolidate with any other Person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the Company's and its
Subsidiaries' assets or adopt a plan of liquidation. Such limitations are
subject to a number of important qualifications and exceptions. Pursuant to
Section 4.06 of the Indenture, the Company must annually report to the Trustee
on compliance with such limitations.
15. SUCCESSORS. When a successor assumes, in accordance with the Indenture
all the obligations of its predecessor under the Notes and the Indenture, the
predecessor, subject to certain exceptions, will be released from those
obligations.
16. DEFAULTS AND REMEDIES. If an Event of Default with respect to the
Notes occurs and is continuing, the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Notes then outstanding may
declare all the Notes to be due and payable in the manner, at the time
and with the effect provided in the Indenture. Holders of Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. The Trustee is
not obligated to enforce the Indenture or the Notes unless it has received
indemnity reasonably satisfactory to it. The Indenture permits, subject to
certain limitations therein provided, Holders of a majority in aggregate
[Accreted Value] [principal amount] of the Notes then outstanding to
direct the Trustee in its exercise of any trust or power with respect to the
Notes and the Holders of a majority in aggregate Accreted Value or, as
the case may be, principal amount, to direct the Trustee in its exercise of any
trust or power with respect to the Indenture. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest when due, for any reason or a
Default in compliance with Article Five of the Indenture) if it determines that
withholding notice is in their interest.
B-6
<PAGE>
17. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, its Subsidiaries or their respective
Affiliates as if it were not the Trustee.
18. NO RECOURSE AGAINST OTHERS. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
19. AUTHENTICATION. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
20. GOVERNING LAW. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws.
21. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
[23. CONVERSION OR EXCHANGE. This Note is convertible or exchangeable on
the following terms: ].
[24. TRANSFER. In addition to transfer on the terms and subject to the
conditions of Sections 2.16 and 2.17 of the Indenture, this Note may be
transferred as follows: ].
[25. ADDITIONAL TERMS: ].
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture, which has the text of this Note in
larger type. Requests may be made to: CellNet Data Systems, Inc., 125 Shoreway
Road, San Carlos, California 94070, Attn: General Counsel.
B-7
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
<TABLE>
<S> <C>
Dated: Signed:
(Sign exactly as your name appears on the other side
of this Note)
</TABLE>
Signature Guarantee: ____________________________________
B-8
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.15 or Section 4.16 of the Indenture, check the appropriate box:
<TABLE>
<S> <C>
Section
4.15 [ ]
Section
4.16 [ ]
</TABLE>
If you want to elect to have only part of this Note purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you
elect to have purchased:
$ _____________________
<TABLE>
<S> <C>
Dated:
NOTICE: The signature on this assignment must
correspond with the name as it appears upon the face
of the within Note in every particular without
alteration or enlargement or any change
whatsoever and be guaranteed.
</TABLE>
Signature Guarantee: ___________________________________________________________
B-9
<PAGE>
EXHIBIT C
TO THIRD SUPPLEMENTAL INDENTURE
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS SECURITY IS
BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF
THIS SECURITY, (1) THE ISSUE PRICE IS $450.398; (2) THE AMOUNT OF ORIGINAL ISSUE
DISCOUNT IS $1,199,602; (3) THE ISSUE DATE IS JUNE 15, 1995; AND (4) THE YIELD
TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS 15.04049098%.
CUSIP No.:
CELLNET DATA SYSTEMS, INC.
No. $
CELLNET DATA SYSTEMS, INC., a Delaware corporation (the "Company", which
term includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of Dollars, on the Maturity
Date.
Issue Date: June 15, 1995.
Maturity Date: June 15, 2005.
Accretion Rate through Full Accretion Date: 13% per annum.
Interest Rate after Full Accretion Date: 13% per annum.
Full Accretion Date: June 15, 2000.
Interest Payment Dates: December 15 and June 15, commencing December 15,
2000.
Record Dates: June 1 and December 1.
This Note is one of a class of Series B 13% Senior Discount Notes due 2005.
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
C-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers and a facsimile of its corporate
seal to be affixed hereto or imprinted hereon.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
</TABLE>
C-2
<PAGE>
Certificate of Authentication
This is one of the Notes referred to in the within-mentioned Indenture.
<TABLE>
<S> <C> <C>
THE BANK OF NEW YORK,
as Trustee
By:
----------------------------------------
Date of Authentication: Authorized Signatory
</TABLE>
C-3
<PAGE>
(REVERSE OF SECURITY)
SERIES B 13% SENIOR DISCOUNT NOTE DUE 2005
1. INTEREST. CELLNET DATA SYSTEMS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Cash interest on the Notes will neither accrue nor
be due and payable prior to June 15, 2000. Interest on the Notes will accrue
from the most recent date on which interest has been paid or, if no interest has
been paid, from June 15, 2000. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing December 15, 2000. Interest
will be computed on the basis of a 360-day year of twelve 30-day months and, in
the case of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes plus 2% per annum, in the case of overdue installments of interest
(without regard to any applicable grace periods) to the extent lawful.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Record Date immediately preceding the Interest Payment Date
even if the Notes are canceled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by its check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. PAYING AGENT, AND REGISTRAR; DEPOSITARY. Initially, The Bank of New
York (the "Trustee") will act as Paying Agent and Registrar. The Company may
change any Paying Agent, Registrar or co-Registrar without notice to the
Holders. The Depositary will act as depositary for the Series B 13% Senior
Discount Notes due 2005 (the "1995 Notes").
4. INDENTURE. The Company issued the Notes under an Indenture, dated as of
June 15, 1995 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. This Note is one of a duly authorized issue of Exchange Notes of
the Company. The Maximum Issuance Amount of Notes of this class is $325,000,000
in aggregate principal amount of maturity. The Notes of this class include the
13% Senior Discount Notes due 2005 (the "Initial Notes") and the Series B 13%
Senior Discount Notes due 2005 (the "Exchange Notes"), issued in exchange for
the Initial Notes pursuant to the Indenture. The Initial Notes and the Exchange
Notes are treated as a single class of securities under the Indenture. The terms
of the 1995 Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
Section Section 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the 1995 Notes are
subject to all such terms, and Holders of 1995 Notes are referred to the
Indenture and said Act for a statement of them. The Notes are general unsecured
obligations of the Company.
5. INDENTURE. Each Holder, by accepting a 1995 Note, agrees to be bound by
all of the terms and provisions of the Indenture, as the same may be amended
from time to time in accordance with its terms.
6. REDEMPTION.
(a) OPTIONAL REDEMPTION. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after June 15,
2000 at the following redemption prices (expressed
C-4
<PAGE>
as percentages of the aggregate principal amount) if redeemed during the
twelve-month period commencing on June 15 of the year set forth below, plus, in
each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2000.............................................................................. 106.500%
2001.............................................................................. 104.330
2002.............................................................................. 102.170
2003 and thereafter............................................................... 100.000
</TABLE>
(b) OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING. In the event that the
Company consummates a Public Equity Offering after which there is a Public
Market, the Company may, at its option, redeem prior to June 15, 1998, from the
proceeds of such Public Equity Offering received by the Company, up to 25% of
the aggregate principal amount of the Notes originally issued at a redemption
price equal to 113% of the Accreted Value plus accrued interest, if any, to the
date of redemption; PROVIDED, HOWEVER, that (1) such redemption may only be
effected to the extent that immediately after such redemption not less than 75%
in aggregate principal amount of the Notes originally issued remain outstanding
(it being expressly agreed that, for purposes of determining whether this
condition is satisfied, Notes owned (beneficially or otherwise) by the Company
or any of its Affiliates shall not be deemed to be outstanding) and (2) such
redemption is effected not more than once and not more than 60 days after the
consummation of such Public Equity Offering.
The Notes are not entitled to the benefit of any sinking fund.
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of the
Notes called for redemption shall have been deposited with the Paying Agent for
redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest or accumulate Accreted Value, as the
case may be, from and after such Redemption Date and the only right of the
Holders of such Notes will be to receive payment of the Redemption Price plus
accrued interest, if any.
8. OFFERS TO PURCHASE. Sections 4.15 and 4.16 of the Indenture provide
that, after certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in registered form,
without coupons, and (except Notes issued as payment of interest) in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer or exchange of Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Notes or portions thereof selected for redemption.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. UNCLAIMED MONEY. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
C-5
<PAGE>
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company at any time
deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the 1995 Notes to redemption
or maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the 1995 Notes with respect to the 1995 Notes (including certain covenants,
but excluding its obligation to pay the principal of and interest on the 1995
Notes).
13. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain exceptions set forth
in the Indenture, the Indenture may be amended or supplemented with respect to
any class of Notes with the written consent of the Holders of not less than a
majority in aggregate Accreted Value or, as the case may be, principal amount,
of all outstanding Notes of the same class and the 1995 Notes may be amended or
supplemented with the written consent of the Holders of not less than a majority
in Accreted Value of the 1995 Notes then outstanding. Subject to certain
exceptions set forth in the Indenture, any Default or Event of Default or
noncompliance with any provision of the Indenture may be waived with respect to
any class of Notes with the written consent of the Holders of not less than a
majority in aggregate Accreted Value or, as the case may be, principal amount,
of the outstanding Notes of such class and any Default or Event of Default with
respect to the 1995 Notes may be waived with respect to the 1995 Notes with the
written consent of not less than a majority in aggregate Accreted Value of the
1995 Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, or comply
with Article Five of the Indenture or make any other change that does not
adversely affect the rights of any Holder of a Note.
14. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on
the ability of the Company and the Restricted Subsidiaries to, among other
things, Incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, create dividend or other payment
restrictions affecting Restricted Subsidiaries, issue Preferred Stock of its
Restricted Subsidiaries, and on the ability of the Company and its Subsidiaries
to merge or consolidate with any other Person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the Company's and its
Subsidiaries' assets or adopt a plan of liquidation. Such limitations are
subject to a number of important qualifications and exceptions. Pursuant to
Section 4.06 of the Indenture, the Company must annually report to the Trustee
on compliance with such limitations.
15. SUCCESSORS. When a successor assumes, in accordance with the Indenture
all the obligations of its predecessor under the Notes and the Indenture, the
predecessor, subject to certain exceptions, will be released from those
obligations.
16. DEFAULTS AND REMEDIES. If an Event of Default with respect to the 1995
Notes occurs and is continuing, the Trustee or the Holders of not less than 25%
in aggregate principal amount of the 1995 Notes then outstanding may declare all
the 1995 Notes to be due and payable in the manner, at the time and with the
effect provided in the Indenture. Holders of Notes may not enforce the Indenture
or the Notes except as provided in the Indenture. The Trustee is not obligated
to enforce the Indenture or the Notes unless it has received indemnity
reasonably satisfactory to it. The Indenture permits, subject to certain
limitations therein provided, Holders of a majority in aggregate Accreted Value
of the 1995 Notes then outstanding to direct the Trustee in its exercise of any
trust or power with respect to the 1995 Notes and the Holders of a majority in
aggregate Accreted Value or, as the case may be, principal amount, to direct the
Trustee in its exercise of any trust or power with respect to the Indenture. The
Trustee may withhold from Holders of Notes notice of any continuing Default or
Event of Default (except a Default in payment of principal or interest when due,
for any reason or a Default in compliance with Article Five of the Indenture) if
it determines that withholding notice is in their interest.
C-6
<PAGE>
17. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, its Subsidiaries or their respective
Affiliates as if it were not the Trustee.
18. NO RECOURSE AGAINST OTHERS. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
19. AUTHENTICATION. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
20. GOVERNING LAW. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws.
21. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture, which has the text of this Note in
larger type. Requests may be made to: CellNet Data Systems, Inc., 125 Shoreway
Road, San Carlos, California 94070, Attn: General Counsel.
C-7
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
<TABLE>
<S> <C>
Dated: Signed:
(Sign exactly as your name appears onthe other side of this Note)
</TABLE>
Signature Guarantee: ____________________________________
C-8
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.15 or Section 4.16 of the Indenture, check the appropriate box:
<TABLE>
<S> <C>
Section 4.15 [ ]
Section 4.16 [ ]
</TABLE>
If you want to elect to have only part of this Note purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you
elect to have purchased:
$ _____________________
<TABLE>
<S> <C>
Dated:
NOTICE: The signature on this assignment must
correspond with the name as it appears upon the face
of the within Note in every particular without
alteration or enlargement or any change
whatsoever and be guaranteed.
</TABLE>
Signature Guarantee: ___________________________________________________________
C-9
<PAGE>
Exhibit 4.14
CELLNET DATA SYSTEMS, INC.
AND
THE BANK OF NEW YORK, AS TRUSTEE
---------------------
FOURTH SUPPLEMENTAL INDENTURE
DATED AS OF SEPTEMBER 29, 1997
TO
INDENTURE
DATED AS OF JUNE 15, 1995
------------------------
RELATING TO
NOTES ISSUED BY
CELLNET DATA SYSTEMS, INC.
<PAGE>
FOURTH SUPPLEMENTAL INDENTURE (this "Fourth Supplemental Indenture"), dated
as of September 29, 1997, between CellNet Data Systems, Inc., a Delaware
corporation (the "Company"), and The Bank of New York, a New York banking
corporation (the "Trustee").
RECITALS:
WHEREAS, the Company has duly issued its Series B 13% Senior Discount Notes
Due 2005 in the aggregate principal amount at maturity of $325,000,000 pursuant
to an Indenture, dated as of June 15, 1995, between the Company and the Trustee
and a First Supplemental Indenture dated as of November 21, 1995 between the
Company and the Trustee (such Indenture, as modified by such First Supplemental
Indenture and a Second Supplemental Indenture dated as of August 30, 1996, and a
Third Supplemental Indenture dated as of August 28, 1997, the "Indenture"); and
WHEREAS, Section 9.01 of the Indenture provides that the Company and the
Trustee may, without the written consent of the holders, enter into supplemental
indentures to amend the provisions of the Indenture to, among other things, cure
any ambiguity, defect or inconsistency or make any other change that would not
adversely affect the rights of any holder; and
WHEREAS, in accordance with Section 10.04 of the Indenture, the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
stating that this Fourth Supplemental Indenture complies with the applicable
provisions of the Indenture; and
WHEREAS, all acts and proceedings required by law and under the Indenture to
constitute this Fourth Supplemental Indenture, a valid and binding agreement for
the uses and purposes set forth herein, in accordance with its terms, have been
done and taken, and the execution and delivery of this Fourth Supplemental
Indenture have been in all respects duly authorized by the Company;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the Company
and the Trustee hereby agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Indenture, and the Rules of
Construction set forth in the Indenture shall likewise govern this Fourth
Supplemental Indenture.
2. GENERAL AMENDMENTS. The Indenture is hereby further amended by
substituting the date "September 29, 1997" for the date "June 15, 1995" each and
every time (unless otherwise provided) such date appears in each of the
following sections:
(i) Section 1.01: definition of "Consolidated Net Income", clause (g);
definition of "GAAP"; definition of "Net Equity Proceeds", proviso
clause (A); definition of "Permitted Indebtedness", clauses (iii) and
(viii); definition of "Permitted Investments", proviso subclause (A) to
clause (b) and clause (e); and definition of "Permitted Liens", clauses
(x), (xi) and (xviii);
(ii) Section 4.08(c) (SEC Reports and Other Information);
(iii) Sections 4.10 (Limitation on Restricted Payments), except that the date
"October 1, 1997" shall be substituted for the date "June 15, 1995" in
clause (a)(1) of this Section;
(iv) Section 4.13(5) (Limitation on Dividend and Other Restrictions
Affecting Restricted Subsidiaries);
(v) Sections 4.14(b)(ii) (Limitation on Designation of Restricted and
Unrestricted Subsidiaries);
(vi) Section 4.16(a) (Limitation on Asset Sales); and
(vii) Section 4.18 (Limitation on Liens).
3. AMENDMENTS TO SECTION 1.01. Section 1.01 of the Indenture is hereby
amended as follows:
(a) AMENDMENT TO DEFINITION OF "ASSET SALE". The definition of "Asset
Sale" is hereby amended by inserting in clause (ii) thereof after the word
"Company," the following: "in each case, which yields net cash proceeds to
the Company or any Restricted Subsidiary of at least $10,000,000".
<PAGE>
(b) SUBSTITUTION OF DEFINITION OF "OFFERING MEMORANDUM". The
definition of "Offering Memorandum" is hereby deleted in its entirety, and
the following new definition is hereby substituted in place thereof:
"OFFERING MEMORANDUM" means the Company's Offering Memorandum dated
September 24, 1997, relating to the offering for sale of units,
consisting of the Company's 14% Senior Discount Notes due 2007 and
warrants to purchase Common Stock.
(c) AMENDMENTS TO DEFINITION OF "PERMITTED INVESTMENTS". The
definition of "Permitted Investments" is hereby amended by:
(i) inserting, immediately after the word "business" in clause (k)(i)
thereof, the following proviso: ";PROVIDED, HOWEVER, that the Company
and its Restricted Subsidiaries continue to have access, on terms that
are fair and reasonable, to such licenses or intellectual property to
the extent necessary for the conduct of their respective businesses";
and
(ii) inserting, immediately after the word "business" in clause (k)(ii)
thereof, the following proviso: ";PROVIDED, HOWEVER, that the Company
and its Restricted Subsidiaries continue to have access, on terms that
are fair and reasonable, to such equipment to the extent necessary for
the conduct of their respective businesses".
(d) AMENDMENT TO DEFINITION OF "PERMITTED LIENS." The definition of
"Permitted Liens" is hereby amended by inserting, immediately before the
semicolon at the end of clause (xv) thereof, the following additional text:
"and Liens in favor of the Trustee to secure the Company's payment
obligations to the Trustee as contemplated by Section 7.07 hereof".
4. AMENDMENT TO SECTION 2.01. Section 2.01 of the Indenture is hereby
amended by deleting in its entirety the first sentence of the fourth full
paragraph thereof and substituting in place thereof the following new paragraph:
Notes offered and sold in offshore transactions in reliance on Regulation S
shall be issued in the form of one or more permanent global Notes in registered
form, each substantially in the form set forth in EXHIBIT A hereto (the
"Offshore Global Notes"), deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and shall bear the legend set forth in Section 2.15 hereof.
The aggregate principal amount of the Offshore Global Notes may from time to
time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depository, as hereinafter provided.
5. AMENDMENT TO SECTION 2.15. Section 2.15 of the Indenture is hereby
amended by deleting the word "third" in the first sentence thereof and
substituting therefor the word "second" and the word "THREE" each and every time
it appears in the first legend set forth therein and substituting therefor the
word "TWO".
6. AMENDMENT TO SECTION 2.17. Section 2.17 of the Indenture is hereby
amended as follows:
(i) deleting, from clause (a)(i) thereof the word "third", each and every
time it appears in such clause and substituting therefor the word
"second";
(ii) deleting, from clause (c) thereof, the word "third" each and every time
it appears in such clause and substituting therefor the word "second"
(iii) deleting, from clause (e) thereof, the word "three" each and every time
it appears in such clause and substituting therefor the word "two", and
the word "THREE" each and every time it appears in the legend set forth
therein and substituting therefor the word "TWO".
7. AMENDMENT TO SECTION 4.08. Section 4.08 of the Indenture is hereby
amended by deleting the word "three" in the first sentence of clause (c) thereof
and substituting therefor the word "two".
8. AMENDMENT TO SECTION 4.16. Section 4.16 of the Indenture is hereby
amended as follows:
<PAGE>
(i) deleting after the phrase "Cash Equivalents" in subclause (ii) of the
first sentence of clause (a) the words "and is received" and
substituting therefor the following: "and irrevocable and unconditional
assumption of unsubordinated liabilities and shall be received (or
unconditionally released)"; and
(ii) inserting after the phrase "Net Cash Proceeds" in the second sentence
of clause (a) the words "in excess of $5,000,000".
9. AMENDMENT TO SECTION 5.01. Section 5.01 of the Indenture is hereby
amended by deleting the percentage "90%" from clause (a)(ii) thereof and
substituting therefor the percentage "110%".
10. AMENDMENT TO FORM OF SECURITY. The Form of Security attached as
Exhibit A to the Indenture is hereby amended by deleting from the first full
paragraph of the Assignment Form attached thereto the date "June 15, 1998" and
substituting in place thereof the phrase "[the date that is the second
anniversary of the Issue Date]".
11. EFFECTIVENESS. Upon the execution and delivery of this Fourth
Supplemental Indenture by the Trustee and the Company, the proposed agreements
contained herein will become effective and operative. Thereafter, all references
to the Indenture shall, unless specifically referring to the Indenture as
originally executed, be deemed to be references to the Indenture as modified by
this Fourth Supplemental Indenture. The Indenture, as supplemented and amended
by this Fourth Supplemental Indenture, is in all respects hereby ratified and
confirmed.
12. RECITALS. The recitals contained herein shall be taken as the
statement of the Company, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representation as to the validity
of this Fourth Supplemental Indenture.
13. SUCCESSORS AND ASSIGNS. This Fourth Supplemental Indenture shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Except as amended herein, the terms, provisions and
covenants of the Indenture shall remain in full force and effect and continue to
govern the parties thereto.
14. COUNTERPARTS. This Fourth Supplemental Indenture may be executed in
two or more counterparts, each of which shall be deemed original and all of
which together will constitute the same agreement, whether or not all parties
execute each counterpart.
15. GOVERNING LAW. The laws of the State of New York, without regard to
principles of conflicts of law, shall govern this Fourth Supplemental Indenture
and the Notes.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Fourth Supplemental
Indenture to be duly executed, all as of the date first above written.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
By: /s/ PAUL G. MANCA
-----------------------------------------
Name: Paul G. Manca
Title: VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
THE BANK OF NEW YORK,
as Trustee
By: /s/ MARY BETH LEWICKIE
-----------------------------------------
Name: Mary Beth Lewickie
Title: ASSISTANT VICE PRESIDENT
</TABLE>
<PAGE>
Exhibit 4.15
[FORM OF NOTE]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR 1997 NOTES IN
CERTIFICATED FORM, THIS 1997 NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE
DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.17 OF THE INDENTURE.](1)
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS 1997 NOTE IS
BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT AT
MATURITY OF THIS 1997 NOTE, (1) THE ISSUE PRICE IS $ ; (2) THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT IS $ ; (3) THE ISSUE DATE IS
; AND (4) THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY)
IS %.
- ------------------------
(1) These paragraphs are to be included only if the Note is in global form.
<PAGE>
CUSIP NO.:
CELLNET DATA SYSTEMS, INC.
% SENIOR DISCOUNT NOTES DUE 2007
NO. $ **
CELLNET DATA SYSTEMS, INC., a Delaware corporation (the "Company", which
term includes any successor entity), for value received promises to pay to Cede
& Co. or registered assigns, the principal sum of Dollars, on the
Maturity Date.
Issue Date: September , 1997.
Maturity Date: October 1, 2007.
Accretion Rate through Full Accretion Date: % per annum.
Interest Rate after Full Accretion Date: % per annum.
Full Accretion Date: October 1, 2002.
Interest Payment Dates: April 1 and October 1, commencing April 1, 2003.
Record Dates: March 15 and September 15.
This note is one of a class of % Senior Discount Notes due 2007 (the
"1997 Notes").
Reference is made to the further provisions of this 1997 Note contained
herein, which will for all purposes have the same effect if set forth at this
place.
- ------------------------
** To be increased and decreased in accordance with the Schedule of Exchanges
related hereto, but in no event to exceed, in combination with the Global
1997 Note identified by CUSIP No. [ ] [and all the Physical 1997 Notes
identified by CUSIP No. [ ]],, $ in aggregate principal amount at
maturity.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this 1997 Note to be signed
manually or by facsimile by its duly authorized officers.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
</TABLE>
Dated: September , 1997
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
<TABLE>
<S> <C> <C>
THE BANK OF NEW YORK,
as Trustee
By:
-----------------------------------------
Authorized Signatory
</TABLE>
Date of Authentication: September , 1997
<PAGE>
(REVERSE OF SECURITY)
% SENIOR DISCOUNT NOTES DUE 2007
1. INTEREST. CELLNET DATA SYSTEMS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this 1997
Note (as defined) at the rate per annum shown above. Cash interest on the
1997 Notes will neither accrue nor be due and payable prior to September 15,
2002. Interest on the 1997 Notes will accrue from the most recent date on
which interest has been paid or, if no interest has been paid, from
September 15, 2002. The Company will pay interest semi-annually in arrears
on each Interest Payment Date, commencing March 15, 2003. Interest will be
computed on the basis of a 360-day year of twelve 30-day months and, in the
case of a partial month, the actual number of days elapsed.
2. METHOD OF PAYMENT. The Company shall pay interest on the 1997 Notes
to the Persons who are the registered Holders at the close of business on
the Record Date immediately preceding the Interest Payment Date even if the
1997 Notes are canceled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender 1997 Notes to the
Paying Agent (as defined) to collect principal payments. The Company shall
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal and interest by its check
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. PAYING AGENT, AND REGISTRAR; DEPOSITARY. Initially, The Bank of New
York will act as Paying Agent and Registrar. The Company may change any
Paying Agent, Registrar or co-Registrar without notice to the Holders. The
Depository Trust Company will act as depository for the 1997 Notes.
4. INDENTURE. The Company issued the 1997 Notes under an Indenture,
dated as of June 15, 1995 (as heretofore supplemented, the "Indenture"),
between the Company and The Bank of New York, as trustee (the "Trustee").
Capitalized terms herein are used as defined in the Indenture (whether
directly or indirectly by reference) unless otherwise defined herein. This
1997 Note is one of a duly authorized issue of Initial Notes of the Company,
designated as the % Senior Discount Notes Due 2007 (the "1997 Notes"). The
Maximum Issuance Amount of the 1997 Notes is The 1997 Notes
include the 1997 Notes issued on the Issue Date (the "Initial Notes") and
the Exchange Notes (as defined below) issued in exchange for the Initial
Notes pursuant to the Indenture and the Registration Rights Agreement dated
as of September , 1997 among the Company and the initial Holders of the
1997 Notes. The Initial Notes and the Exchange Notes are treated as a single
class of securities under the Indenture. The terms of the 1997 Notes include
those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code Section Section
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the 1997 Notes are subject
to all such terms, and
Holders of the 1997 Notes are referred to the Indenture and the TIA for a
statement of them. The 1997 Notes are general unsecured obligations of the
Company.
5. INDENTURE. Each Holder, by accepting a 1997 Note, agrees to be bound
by all of the terms and provisions of the Indenture, as the same may be
amended from time to time in accordance with its terms.
6. REDEMPTION.
(a) OPTIONAL REDEMPTION. The 1997 Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after
September 15, 2002 at the following redemption prices (expressed in
percentages of the aggregate principal amount at maturity) if
1
<PAGE>
redeemed during the twelve-month period commencing on September 15 of the
year set forth below, plus, in each case, accrued and unpaid interest
thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- -----------
<S> <C>
2002.......................................................... [ ]%
2003.......................................................... [ ]
2004 and thereafter........................................... 100.00
</TABLE>
(b) OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING. In the event that the
Company consummates a Public Equity Offering, the Company may, at its
option, redeem prior to September 15, 2000, from the proceeds of such
Public Equity Offering received by the Company, up to 25% of the
aggregate principal amount at maturity of the 1997 Notes originally
issued at a redemption price equal to % of the Accreted Value thereof
plus accrued and unpaid interest thereon, if any, to the date of
redemption; PROVIDED, HOWEVER, that (1) such Public Equity Offering
yields gross proceeds of at least $25 million, (2) such redemption may
only be effected to the extent that immediately after such redemption not
less than 75% in aggregate principal amount of the 1997 Notes originally
issued remain outstanding (it being expressly agreed that, for purposes
of determining whether this condition is satisfied, 1997 Notes owned
(beneficially or otherwise) by the Company or any of its Affiliates shall
not be deemed to be outstanding) and (3) such redemption is effected not
more than 60 days after the consummation of such Public Equity Offering.
The 1997 Notes are not entitled to the benefit of any sinking fund.
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder
of 1997 Notes to be redeemed at such Holder's registered address. 1997 Notes
in denominations larger than $1,000 of principal amount at maturity may be
redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of the
1997 Notes called for redemption shall have been deposited with the Paying Agent
for redemption on the applicable Redemption Date, then, unless the Company
defaults in the payment of such Redemption Price plus accrued and unpaid
interest, if any, the 1997 Notes called for redemption will cease to bear
interest or accumulate Accreted Value, as the case may be, from and after such
Redemption Date and the only right of the Holders of such 1997 Notes will be to
receive payment of the Redemption Price plus accrued and unpaid interest, if
any.
8. OFFERS TO PURCHASE. Sections 4.15 and 4.16 of the Indenture provide
that, upon the occurrence of a Change of Control and after certain Asset
Sales, and subject to further limitations contained therein, the Company
will make an offer to purchase certain amounts of the 1997 Notes in
accordance with the procedures set forth in the Indenture.
9. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement,
the Company will be obligated, within 180 days after the Issue Date of this
1997 Note, to consummate an exchange offer pursuant to which the Holder of
this 1997 Note shall have the right to exchange this 1997 Note for the
Company's Exchange Notes (as defined in the Registration Rights Agreement),
which have been registered under the Securities Act, in like principal
amount at maturity and having terms identical in all material respects as
the Initial Notes. The Holders of the Initial Notes shall be entitled to
receive certain additional interest payments in the event such exchange
offer is not consummated and upon certain other conditions, all pursuant to
and in accordance with the terms of the Registration Rights Agreement.
10. DENOMINATIONS; TRANSFER; EXCHANGE. The 1997 Notes are in registered
form, without coupons, and (except 1997 Notes issued as payment of interest)
in denominations of $1,000 in principal amount
2
<PAGE>
at maturity and integral multiples of $1,000 in amounts in excess thereof. A
Holder shall register the transfer or exchange of 1997 Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents and to pay
transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange of any 1997 Notes or portions thereof selected for
redemption.
11. PERSONS DEEMED OWNERS. The registered Holder of a 1997 Note shall be
treated as the owner of it for all purposes.
12. UNCLAIMED MONEY. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay
the money back to the Company. Thereafter, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
13. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient to pay the principal of and interest on the 1997
Notes to redemption or maturity and complies with the other provisions of
the Indenture relating thereto, the Company will be discharged from certain
provisions of the Indenture and the 1997 Notes with respect to the 1997
Notes (including certain covenants, but excluding its obligation to pay the
principal of and interest on the 1997 Notes).
14. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain exceptions set
forth in the Indenture, the Indenture may be amended or supplemented with
respect to the 1997 Notes with the written consent of the Holders of not
less than a majority in aggregate Accreted Value or, as the case may be,
principal amount at maturity, of the 1997 Notes then outstanding and the
1997 Notes may be amended or supplemented with the written consent of the
Holders of not less than a majority in Accreted Value or, as the case may
be, principal amount at maturity, of the 1997 Notes then outstanding.
Subject to certain exceptions set forth in the Indenture, any Default or
Event of Default or noncompliance with any provision of the Indenture may be
waived with respect to the 1997 Notes with the written consent of the
Holders of not less than a majority in aggregate Accreted Value or, as the
case may be, principal amount at maturity, of the 1997 Notes then
outstanding and any Default or Event of Default with respect to the 1997
Notes may be waived with the written consent of not less than a majority in
aggregate Accreted Value or, as the case may be, principal amount at
maturity of the 1997 Notes then outstanding. Without notice to or consent of
any Holder, the parties thereto may amend or supplement the Indenture or the
1997 Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated 1997 Notes in addition to or in
place of certificated 1997 Notes, or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights
of any Holder of a 1997 Note.
15. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on
the ability of the Company and the Restricted Subsidiaries to, among other
things, Incur additional Indebtedness, make payments in respect of its
Capital Stock or certain Indebtedness, make certain Investments, create or
incur liens, enter into transactions with Affiliates, create dividend or
other payment restrictions affecting Restricted Subsidiaries, issue
Preferred Stock of its Restricted Subsidiaries, and on the ability of the
Company and its Subsidiaries to merge or consolidate with any other Person
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the Company's and its Subsidiaries' assets or adopt a
plan of liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture,
the Company must annually report to the Trustee on compliance with such
limitations.
16. SUCCESSORS. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the 1997 Notes and
the Indenture, the predecessor, subject to certain exceptions, will be
released from those obligations.
3
<PAGE>
17. DEFAULTS AND REMEDIES. If an Event of Default with respect to the
1997 Notes occurs and is continuing, the Trustee or the Holders of not less
than 25% in aggregate principal amount at maturity of the 1997 Notes then
outstanding may declare all the 1997 Notes to be due and payable in the
manner, at the time and with the effect provided in the Indenture. Holders
of 1997 Notes may not enforce the Indenture or the 1997 Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture or the 1997 Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate Accreted Value, or as
the case may be, principal amount at maturity of the 1997 Notes then
outstanding to direct the Trustee in its exercise of any trust or power with
respect to the Indenture or the 1997 Notes. The Trustee may withhold from
Holders of 1997 Notes notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest when due, for any
reason or a Default in compliance with Article Five of the Indenture) if it
determines that withholding notice is in their interest.
18. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of
1997 Notes and may otherwise deal with the Company, its Subsidiaries or
their respective Affiliates as if it were not the Trustee.
19. NO RECOURSE AGAINST OTHERS. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability
for any obligation of the Company under the 1997 Notes or the Indenture or
for any claim based on, in respect of or by reason of, such obligations or
their creation. Each Holder of a 1997 Note by accepting a 1997 Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the 1997 Notes.
20. AUTHENTICATION. This 1997 Note shall not be valid until the Trustee
or Authenticating Agent manually signs the certificate of authentication on
this 1997 Note.
21. GOVERNING LAW. This 1997 Note and the Indenture shall be governed by
and construed in accordance with the laws of the State of New York, as
applied to contracts made and performed within the State of New York,
without regard to principles of conflict of laws.
22. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations may be used
in the name of a Holder of a 1997 Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
23. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the 1997 Notes as a convenience to the
Holders of the 1997 Notes. No representation is made as to the accuracy of
such numbers as printed on the 1997 Notes and reliance may be placed only on
the other identification numbers printed hereon.
The Company will furnish to any Holder of a 1997 Note upon written request
and without charge a copy of the Indenture, which has the text of this 1997 Note
in larger type. Requests may be made to: CellNet Data Systems, Inc., 125
Shoreway Road, San Carlos, California 94070, Attn: General Counsel.
4
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this 1997 Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this 1997 Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint____________________________________________________
agent to transfer this 1997 Note on the books of the Company. The agent may
substitute another to act for him/her.
<TABLE>
<S> <C>
Dated:_________________________ Signed:_______________________________________________________________
(Sign exactly as your name appears on the other side of this 1997 Note)
Signature Guarantee: _________________________________________________
</TABLE>
In connection with any transfer of this 1997 Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act covering
resales of this 1997 Note (which effectiveness shall not have been suspended or
terminated at the date of the transfer) and (ii) March , 1998, the
under-signed confirms that it has not utilized any general solicitation or
general advertising in connection with the transfer:
5
<PAGE>
[CHECK ONE]
<TABLE>
<S> <C> <C>
(1) -- to the Company or a Subsidiary thereof; or
(2) -- pursuant to and in compliance with Rule 144A under the Securities Act; or
(3) -- to an institutional "accredited investor" (as defined, in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of which letter can be
obtained from the Trustee); or
(4) -- outside the United States to a "foreign person" in compliance with Rule 904 of
Regulation S under the Securities Act; or
(5) -- pursuant to the exemption from registration provided by Rule 144 under the
Securities Act; or
(6) -- pursuant to an effective registration statement under the Securities Act; or
(7) -- pursuant to another available exemption from the registration requirements of the
Securities Act.
</TABLE>
and unless the box below is checked, the undersigned confirms that such 1997
Note is not being transferred to an "affiliate" of the Company as defined in
Rule 144 under the Securities Act (an "Affiliate"):
/ / The transferee is an Affiliate of the Company.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the 1997 Notes evidenced by this certificate in the name of any Person other
than the registered Holder thereof; PROVIDED, HOWEVER, that if box (3), (4), (5)
or (7) is checked, the Company or the Trustee may require, prior to registering
any such transfer of the 1997 Notes, in its sole discretion, such written legal
opinions, certifications (including an investment letter in the case of box (3)
or (4)) and other information as the Trustee or the Company has reasonably
requested to confirm that such transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act.
6
<PAGE>
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this 1997 Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.17 of the Indenture shall have
been satisfied.
<TABLE>
<S> <C>
Dated:_________________________ Signed:_______________________________________________________________
(Sign exactly as your name appears on the other side of this 1997 Note)
Signature Guarantee: _________________________________________________
</TABLE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this 1997 Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
<TABLE>
<S> <C>
Dated:
------------------------------------ --------------------------------------------
NOTICE: To be executed by an executive
officer
</TABLE>
7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this 1997 Note purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this 1997 Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$___________________________
<TABLE>
<S> <C>
Dated:
NOTICE: The signature on this assignment must
correspond with the name as it appears upon the face
of the within 1997 Note in every particular
without alteration or enlargement or any
change whatsoever and be guaranteed.
</TABLE>
Signature Guarantee:___________________________________________________
8
<PAGE>
Exhibit 5.1
September 29, 1997
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
RE: ISSUANCE AND SALE OF 197,500 UNITS CONSISTING IN THE AGGREGATE OF
$197,500,000 PRINCIPAL AMOUNT AT MATURITY OF 14% SENIOR DISCOUNT
NOTES DUE 2007 AND 197,500 WARRANTS TO PURCHASE 2,700,022 SHARES OF
COMMON STOCK OF CELLNET DATA SYSTEMS, INC.
Ladies and Gentlemen:
We have acted as counsel to CellNet Data Systems, Inc., a Delaware
corporation (the "Company"), in connection with the negotiation, execution and
delivery of the Placement Agreement, dated September 24, 1997 (the "Placement
Agreement") among each of you and the Company, pursuant to which the Company has
agreed, subject to the terms and conditions set forth therein, to issue and sell
to you, and you have agreed, subject to the terms and conditions set forth
therein, to purchase from the Company, 197,500 units (the "Units") consisting in
the aggregate of $197,500,000 in principal amount at maturity of 14% Senior
Discount Notes due 2007 (the "Notes") to be issued pursuant to the provisions of
an Indenture dated as of June 15, 1995 (as heretofore supplemented, the
"Indenture") by and between the Company and The Bank of New York, as trustee
(the "Trustee"), and 197,500 warrants (the "Warrants") initially to purchase
2,700,022 shares of Common Stock of the Company, at an exercise price of $14.30
per share, issued pursuant to the Warrant Agreement dated as of September 29,
1997, by and between the Company and The Bank of New York, as warrant agent (the
"Warrant Agent"). This opinion is rendered pursuant to Section 4(c) of the
Placement Agreement.
Terms defined in the Placement Agreement (whether directly or indirectly by
reference) and used herein without other definition shall have the respective
meanings herein assigned to such terms in the Placement Agreement. The Placement
Agreement, Indenture, Warrant Agreement, Registration Rights Agreement and
Warrant Registration Rights Agreement may hereinafter be collectively referred
to as the "Transaction Documents". The Notes, Warrants and Units may hereinafter
be collectively referred to as the "Securities."
In this regard, we have examined originals or copies of the following:
(a) the Preliminary Memorandum and the Final Memorandum;
(b) the Placement Agreement;
(c) the Indenture;
(d) the Warrant Agreement;
(e) a specimen certificate of the Note;
(f) the Registration Rights Agreement;
(g) a specimen certificate of the Warrant;
(h) the Warrant Registration Rights Agreement;
(i) resolutions of the Board of Directors of the Company adopted on
September 23, 1997 authorizing and approving the transactions which are the
subject of this opinion;
<PAGE>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
September 29, 1997
Page 2
(j) the Amended and Restated Certificate of Incorporation and bylaws of
the Company, each as amended and in effect on the date hereof;
(k) the Amended and Restated Certificate of Incorporation and bylaws of
CellNet Data Services, Inc., a Delaware corporation ("CellNet Services"),
each in effect on the date hereof;
(l) the Amended and Restated Certificate of Incorporation and bylaws of
CellNet Data Services (KC), Inc., a Delaware corporation ("CellNet KC"),
each in effect on the date hereof;
(m) the Certificate of Incorporation and bylaws of CellNet Data Services
(MSP), Inc., a Delaware corporation ("CellNet MSP"), each in effect on the
date hereof;
(n) the Certificate of Incorporation and bylaws of CellNet Data Services
(SL), Inc., a Delaware corporation ("CellNet SL"), each in effect on the
date hereof;
(o) the Certificate of Incorporation and bylaws of CN Frequency (KC),
Inc., a Delaware corporation ("CN Frequency KC"), each in effect on the date
hereof;
(p) the Amended and Restated Certificate of Incorporation and bylaws of
CN Frequency (SL), Inc., a Delaware corporation ("CN Frequency SL"), each in
effect on the date hereof;
(q) the Amended and Restated Certificate of Incorporation and bylaws of
CN WAN Corp., a Delaware corporation ("CN WAN"), each in effect on the date
hereof;
(r) the instruments and agreements heretofore filed by the Company as
exhibits to its quarterly, annual and current reports filed with the
Commission on Forms 10-Q, 10-K and 8-K, respectively (the "Reviewed
Agreements");
(s) the Authentication and Delivery Order, dated the date hereof, of the
Company delivered to the Trustee pursuant to the Indenture, directing the
Trustee to authenticate and deliver the appropriate Notes;
(t) the Authentication and Delivery Order, dated the date hereof, of the
Company delivered to the Warrant Agent pursuant to the Warrant Agreement,
directing the Warrant Agent to authenticate and deliver the appropriate
Warrants;
(u) a certificate of legal existence, good standing and tax status of
the Company, dated as of a recent date, issued by the Secretary of State of
the State of Delaware;
(v) a facsimile confirming an oral report from the Office of the
Secretary of State of the State of Delaware dated September 26, 1997, as to
the legal existence and good standing of the Company;
(w) a certificate of authorization to do business as a foreign
corporation and good standing of the Company, dated as of a recent date,
issued by the Office of the Secretary of State of the State of California;
(x) a certificate of tax status of the Company, dated as of a recent
date, issued by the Franchise Tax Board of the State of California;
(z) a certificate of legal existence, good standing and tax status of
CellNet Services, issued by the Secretary of State of the State of Delaware;
(aa) a facsimile confirming an oral report from the Office of the
Secretary of State of the State of Delaware dated September 26, 1997, as to
the legal existence and good standing of CellNet Services;
<PAGE>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
September 29, 1997
Page 3
(bb) a certificate of authorization to do business as a foreign
corporation and good standing of CellNet Services, dated as of a recent
date, issued by the Office of the Secretary of State of the State of
Pennsylvania;
(cc) a certificate of legal existence, good standing and tax status of
CellNet KC, dated as of a recent date, issued by the Secretary of State of
the State of Delaware;
(dd) a facsimile confirming an oral report from the Secretary of State
of the State of Delaware dated September 29, 1997, as to the legal existence
and good standing of CellNet KC;
(ee) certificates of authorization to do business as a foreign
corporation and good standing of CellNet KC, dated as of a recent date,
issued by the office of the Secretary of States of the States of Kansas and
Missouri;
(ff) a certificate of legal existence, good standing and tax status of
CellNet MSP, dated as of a recent date, issued by the Office of the
Secretary of State of the State of Delaware;
(gg) a facsimile confirming an oral report from the Office of the
Secretary of State of the State of Delaware dated September 29, 1997, as to
legal existence and good standing of CellNet MSP;
(hh) a certificate of authorization to do business as a foreign
corporation and good standing of CellNet MSP, dated as of a recent date,
issued by the Office of the Secretary of State of the State of Minnesota;
(ii) a certificate of legal existence, good standing and tax status of
CellNet SL, dated as of a recent date, issued by the Office of the Secretary
of State of the State of Delaware;
(jj) a facsimile confirming an oral report from the Office of the
Secretary of State of the State of Delaware dated September 29, 1997, as to
legal existence and good standing of CellNet SL;
(kk) a certificate of authorization to do business as a foreign
corporation and good standing of CellNet SL, dated as of a recent date,
issued by the Office of the Secretary of State of the State of Missouri;
(ll) a certificate of legal existence, good standing and tax status of
CN Frequency KC, dated as of a recent date, issued by the Secretary of State
of the State of Delaware;
(mm)a facsimile confirming an oral report from the Office of the
Secretary of State of the State of Delaware dated September 29, 1997, as to
legal existence and good standing of CN Frequency KC;
(nn) a certificate of legal existence, good standing and tax status of
CN Frequency SL, dated as of a recent date, issued by the Secretary of State
of the State of Delaware;
(oo) a facsimile confirming an oral report from the office of the
Secretary of State of the State of Delaware dated September 26, 1997, as to
the legal existence and good standing of CN Frequency SL;
(pp) a certificate of legal existence, good standing and tax status of
CN WAN, dated as of a recent date, issued by the Secretary of State of the
State of Delaware;
(qq) a facsimile confirming an oral report from the office of the
Secretary of State of the State of Delaware dated September 29, 1997, as to
the legal existence and good standing of CN WAN;
(rr) the certificate of the Secretary of the Company, dated the date
hereof, delivered to the Placement Agents;
(ss) a cross-receipt, dated the date hereof, acknowledging receipt by
the Trustee of the Units and acknowledgment by the Company of such delivery;
<PAGE>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
September 29, 1997
Page 4
(tt) a cross-receipt, dated the date hereof, evidencing receipt by the
Placement Agents of the Units and receipt by the Company of payment
therefor;
<PAGE>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
September 29, 1997
Page 4
(uu) the certificate of the President and Chief Executive Officer and
Vice President and Chief Financial Officer of the Company, dated the date
hereof, delivered to the Placement Agents pursuant to Section 4(b) of the
Placement Agreement;
(vv) the certificate of the Trustee, dated the date hereof, regarding,
among other things, the appointment and authorization to act as trustee for
the Notes and the due execution and delivery of the Indenture;
(ww)the certificate of the Warrant Agent, dated the date hereof,
regarding, among other things, the appointment and authorization to act as
warrant agent for the Warrants and the due execution and delivery of the
Warrant Agreement;
(xx) the certificate, dated the date hereof, of the Vice President and
Chief Financial Officer and the Vice President and Chief Administrative
Officer of the Company regarding certain facts necessary to support the
opinions set forth herein; and
(yy) such other instruments, corporate records, certificates, and other
documents as we have deemed necessary to establish a basis for the opinions
hereinafter expressed.
In addition, we have discussed with officers of the Company the respective
proceedings at the August 7, 1997 and August 29, 1997, meetings of the Board of
Directors of the Company, at which the general terms transactions which are the
subject of this opinion were considered and approved, and certain officers of
the Company were authorized to proceed with such transactions.
With your permission we have assumed the following: (a) the authenticity of
original documents and the genuineness of all signatures; (b) the conformity to
the originals of all documents submitted to us as copies; (c) the truth,
accuracy and completeness of the information, factual matters, representations
and warranties contained in the records, documents, instruments and certificates
we have reviewed as of their stated dates and as of the date hereof; (d) except
as specifically covered in the opinions set forth below, the due authorization,
execution and delivery on behalf of the respective parties thereto of documents
referred to herein and the legal, valid and binding effect thereof on such
parties; and (e) the absence of any evidence extrinsic to the provisions of the
written agreements between the parties that the parties intended a meaning
contrary to that expressed by those provisions. With respect to our opinions set
forth in paragraphs 4 and 7 below, in passing on the form of such documents we
have necessarily assumed the correctness and completeness of the statements made
therein.
Whenever a statement herein is qualified by the phrases "known to us" or "to
our knowledge," it is intended to indicate that, during the course of our
representation of the Company, no information that would give the attorneys
actually involved in this transaction current actual knowledge of the inaccuracy
of such statement has come to the attention of those attorneys presently in this
firm who have rendered legal services in connection with the representation
described in the first paragraph of this opinion letter. However, we have not
undertaken any independent investigation or review to determine the accuracy of
any such statement, and any limited inquiry undertaken by us during the
preparation of this opinion letter should not be regarded as such an
investigation or review; no inference as to our knowledge of any matters bearing
on the accuracy of any such statement should be drawn from the fact of our
representation of the Company or its affiliates. Furthermore, this opinion
letter does not purport to encompass information which may have been
communicated to any attorney in our firm serving as an officer of the Company,
solely by reason of his or her serving in such capacity.
On the basis of the foregoing and in reliance thereon and having regard for
legal considerations which we deem relevant, and subject to the limitations and
qualifications set forth herein, we advise you that in our opinion:
<PAGE>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
September 29, 1997
Page 5
1. The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in each Memorandum and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and its Subsidiaries taken as a whole.
2. Each of CellNet Services, CellNet KC, CellNet MSP, CellNet SL, CN
Frequency KC, CN Frequency SL and CN WAN, has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in each Memorandum
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its Subsidiaries taken as a
whole.
3. The Placement Agreement has been duly authorized, executed and
delivered by the Company.
4. The Notes have been duly authorized and executed by the Company and,
when authenticated and delivered to and paid for in accordance with the
terms of the Placement Agreement, will (a) be valid and binding obligations
of the Company enforceable in accordance with their terms, except as the
enforceability thereof may be limited by (i) bankruptcy, insolvency or
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally and (ii) the application of equitable principles, whether
in a proceeding at law or in equity and (b) be entitled to the benefits of
the Indenture and the Registration Rights Agreement.
5. The Indenture has been duly authorized, executed and delivered by,
and is a valid and binding agreement of, the Company, enforceable in
accordance with its terms, except as the enforceability thereof may be
limited by (a) bankruptcy, insolvency or similar laws now or hereafter in
effect relating to or affecting creditors' rights generally, (b) the
application of equitable principles, whether in a proceeding at law or in
equity and (c) public policy.
6. The Registration Rights Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as the enforceability
thereof may be limited by (a) bankruptcy, insolvency or similar laws now or
hereafter in effect relating to or affecting creditors' rights generally,
(b) the application of equitable principles, whether in a proceeding at law
or in equity and (c) public policy.
7. The Warrants have been duly authorized and executed by the Company,
and when countersigned by the Warrant Agent as provided in the Warrant
Agreement, and delivered to and paid for by the Placement Agents in
accordance with the terms of the Placement Agreement, will (a) be valid and
binding obligations of the Company enforceable in accordance with their
terms, except as the enforceability thereof may be limited by (i)
bankruptcy, insolvency or similar laws now or hereafter in effect relating
to or affecting creditors' rights generally and (ii) the application of
equitable principles, whether in a proceeding at law or in equity and (b) be
entitled to the benefits of the Warrant Agreement and the Warrant
Registration Rights Agreement.
8. The Warrant Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms except as the enforceability
thereof may be limited by (a) bankruptcy, insolvency or similar laws now or
hereafter in
<PAGE>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
September 29, 1997
Page 6
effect relating to or affecting creditors' rights generally, (b) the
application of equitable principles, whether in a proceeding at law or in
equity and (c) public policy.
9. The Warrant Registration Rights Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by (a) bankruptcy, insolvency or
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally, (b) the application of equitable principles, whether in a
proceeding at law or in equity and (c) public policy.
10. The Warrant Shares have been duly authorized and reserved by the
Company and, when issued and delivered upon exercise of the Warrants in
accordance with the terms of the Warrants, will be validly issued, fully
paid and non-assessable and will not be subject to any preemptive or, to our
knowledge, similar rights.
11. The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in each Memorandum.
12. The shares of Common Stock outstanding prior to the issuance of the
Units have been duly authorized and are validly issued, fully paid and
non-assessable.
13. The execution and delivery by the Company of, and the performance by
the Company of its obligations under, the Transaction Documents and the
Securities will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or, to our knowledge,
any agreement or other instrument binding upon the Company or any of its
Subsidiaries that is material to the Company and its Subsidiaries, taken as
a whole, or, to our knowledge, any judgment, or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Company of its obligations under the Transaction
Documents, except such as may be required by the securities or Blue Sky laws
of the various states in connection with the offer and sale of the Units,
Notes or Warrants by the Placement Agents.
14. The statements in each Memorandum under the captions "Risk
Factors--Possible Termination of Contracts", "Business--Current Utility
Services Agreements", "Management--Incentive Stock Plans",
"Management--Employment Contracts and Change of Control Arrangements",
"Certain Transactions", "Descriptions of the Units", "Description of the
1997 Notes", "Description of the Warrants", "Description of Capital Stock",
"Certain Federal Income Tax Considerations", "Private Placement", "Transfer
Restrictions" and, to the extent that it summarizes the pending Axonn
Corporation proceedings, "Business--Proprietary Rights," in each case,
insofar as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein in all material respects.
15. To our knowledge, there is no legal or governmental proceeding
pending or threatened to which the Company or any of its Subsidiaries is a
party or to which any of the properties of the Company or any of its
Subsidiaries is subject other than proceedings fairly summarized in all
material respects in the Final Memorandum and proceedings which we believe
are not likely to have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, or on the power or ability of the Company to
perform its obligations under the Transaction Documents or to consummate the
offering contemplated by the Final Memorandum.
<PAGE>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
September 29, 1997
Page 7
16. The Company is not and, after giving effect to the offering and sale
of the Units and the application of the proceeds thereof as described in
each Memorandum, will not be an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
17. While we have not performed any independent check or verification of
the information contained in each Memorandum, we have participated in the
drafting and preparation of each Memorandum and in the course of such
participation, nothing has come to our attention that leads us to believe
that, except for financial statements, financial data and schedules as to
which we express no belief, either Memorandum contains any untrue statement
of a material fact or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
18. Based upon the representations, warranties, and agreements of the
Company in Sections 1(q), 1(w), 5(f), 5(g) and 5(i) of the Placement
Agreement and of the Placement Agents in Section 6 of the Placement
Agreement, it is not necessary in connection with the offer, sale and
delivery of the Units to the Placement Agents under the Placement Agreement
or in connection with the initial resale of such Units by the Placement
Agents in accordance with Section 6 of the Placement Agreement to register
the Units, the Notes or the Warrants under the Securities Act of 1933, as
amended, it being understood that no opinion is expressed as to any
subsequent resale of any security.
The foregoing opinions are subject to the following exceptions,
qualifications, limitations and assumptions:
A. We are admitted to practice in the State of California, and the
opinions expressed herein are limited in all respects to existing laws of
the State of California, the statutes comprising the General Corporations
Laws of the State of Delaware, applicable federal laws and to the limited
extent described below, the laws of the State of New York. Furthermore, we
have made no inquiry into, and express no opinion with respect to, any
federal or state statute, rule or regulation relating to any patent,
copyright, trademark or trade name matter, as to the statutes, regulations,
treaties or common laws of any other nation, state or jurisdiction, or the
effect on the transactions contemplated in any Transaction Document or the
Securities of non-compliance under any such statutes, regulations, treaties
or common laws. We observe that the Transaction Documents purport to be
governed by the laws of the State of New York. We have therefore made such
investigation of the laws of the State of New York as we have deemed
necessary to render this opinion. With respect to the opinion set forth in
paragraph 2 above, we have relied solely on an examination of the
certificates respectively described in clauses (u)-(qq) above, without an
investigation as to the standards for conduct of business as a foreign
corporation, good standing or any other matter pertinent thereto in any
jurisdiction other than the State of California and the State of Delaware.
B. We express no opinion as to the enforceability of rights to
indemnification and contribution, which may be limited by applicable law,
equitable principles or public policy.
C. We wish to point out that provisions of any Transaction Document
that purport to permit any party to take action or make determinations or
benefit from indemnities and similar undertakings may be subject to a
requirement that such action be taken or such determinations be made, or
that any action or inaction by any party that may give rise to request for
payments under such an undertaking be taken or not taken, as the case may
be, on a reasonable basis and in good faith.
D. We note that the enforceability of provisions in the Transaction
Documents to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
<PAGE>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
September 29, 1997
Page 8
E. We express no opinion as to (i) the effect of the laws of any
jurisdiction in which any holder of the Securities or the Trustee is located
(other than California) that limits the interest, fees or other charges it
may impose, (ii) Section 4.09 of the Indenture or Section 10.13 of the
Indenture or (iii) any choice of law provision contained in the Placement
Agreement, the Securities or any Transaction Document.
F. With respect to our opinions in paragraphs 4, 5 and 13, we have
assumed that each Placement Agent is an "exempt person" within the meaning
of Article I, Section 15 of the California Constitution.
G. For the purposes of the opinions in paragraphs 13 and 14 above, we
have reviewed only those laws which, in our experience, are customarily
applicable to transactions of this kind. In particular, we express no
opinion as to any regulatory matters arising under the jurisdiction of the
Federal Communications Commission.
H. In rendering the opinion set forth in paragraph 13 above with respect
to violation of orders, decrees or judgments, as to the existence and extent
of such orders, decrees or judgements, we have relied solely upon (i)
inquiries of certain officers of the Company, (ii) a certificate from an
officer of the Company and (iii) our review of the Reviewed Agreements.
I. In rendering the opinion set forth in paragraph 10 above with
respect to preemptive or similar rights, we have relied solely upon (i)
representations that we have obtained from officers of the Company with
respect to the nonexistence of any such rights, (ii) our review of the
Company's Certificate of Incorporation, as amended, and Bylaws, as amended,
and (iii) our review of the Reviewed Agreements.
This opinion letter is solely for your benefit in connection with the
issuance and sale by the Company of the Units pursuant to the Placement
Agreement and may not be relied upon or used by, circulated, quoted or referred
to, nor may copies hereof be delivered to, any other person or for any other
purpose without our prior written approval. We would expect any person to whose
receipt of a copy hereof we consented to be bound by this paragraph. We disclaim
any obligation to update this opinion letter to disclose to you facts, events or
changes of law occurring, arising or coming to our attention after the date
hereof.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI, P.C.
<PAGE>
Exhibit 21.1
CellNet Data Systems, Inc.
Subsidiaries
------------
Domestic Subsidiaries
- ---------------------
BCN Data Systems, L.L.C. (Delaware)
CellNet Data Services, Inc. (Delaware)
CellNet Data Services (IS), Inc. (Delaware)
CellNet Data Services (KC), Inc. (Delaware)
CellNet Data Services (MSP), Inc. (Delaware)
CellNet Data Services (SE), Inc. (Delaware)
CellNet Data Services (SF), Inc. (Delaware)
CellNet Data Services (SL), Inc. (Delaware)
CN Frequency (KC), Inc. (Delaware)
CN Frequency (MSP), Inc. (Delaware)
CN Frequency (SE), Inc. (Delaware)
CN Frequency (SF), Inc. (Delaware)
CN Frequency (SL), Inc. (Delaware)
CN Holdings, Inc. (Delaware)
CN WAN Corp. (Delaware)
Foreign Subsidiaries
- --------------------
DAC (UK), Limited (United Kingdom)
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CellNet Data Systems,
Inc. on Form S-4 of our report dated February 3, 1997, appearing in the
Prospectus, which is part of this Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
San Jose, California
October 13, 1997
<PAGE>
Exhibit 25.1
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
------------------
THE BANK OF NEW YORK
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-5160382
(STATE OF INCORPORATION (I.R.S. EMPLOYER
IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
48 WALL STREET, NEW YORK, N.Y. 10286
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
------------------
CELLNET DATA SYSTEMS, INC.
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2951096
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
125 SHOREWAY ROAD
SAN CARLOS, CALIFORNIA 94070
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
------------------
14% SENIOR DISCOUNT NOTES DUE 2007, SERIES B
(TITLE OF THE INDENTURE SECURITIES)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
NAME ADDRESS
- --------------------------------------------------------------------------------
SUPERINTENDENT OF BANKS OF THE STATE OF 2 RECTOR STREET, NEW YORK,
NEW YORK N.Y. 10006, AND ALBANY, N.Y.
12203
FEDERAL RESERVE BANK OF NEW YORK 33 LIBERTY PLAZA, NEW YORK,
N.Y. 10045
FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20429
NEW YORK CLEARING HOUSE ASSOCIATION NEW YORK, NEW YORK 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
YES.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
NONE.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(D).
1. A COPY OF THE ORGANIZATION CERTIFICATE OF THE BANK OF NEW YORK
(FORMERLY IRVING TRUST COMPANY) AS NOW IN EFFECT, WHICH CONTAINS THE
AUTHORITY TO COMMENCE BUSINESS AND A GRANT OF POWERS TO EXERCISE
CORPORATE TRUST POWERS. (EXHIBIT 1 TO AMENDMENT NO. 1 TO FORM T-1
FILED WITH REGISTRATION STATEMENT NO. 33-6215, EXHIBITS 1a AND 1b TO
FORM T-1 FILED WITH REGISTRATION STATEMENT NO. 33-21672 AND EXHIBIT 1
TO FORM T-1 FILED WITH REGISTRATION STATEMENT NO. 33-29637.)
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE. (EXHIBIT 4 TO FORM T-1
FILED WITH REGISTRATION STATEMENT NO. 33-31019.)
-2-
<PAGE>
6. THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT.
(EXHIBIT 6 TO FORM T-1 FILED WITH REGISTRATION STATEMENT NO.
33-44051.)
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR TO THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
-3-
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE ACT, THE TRUSTEE, THE BANK OF NEW YORK,
A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF NEW YORK,
HAS DULY CAUSED THIS STATEMENT OF ELIGIBILITY TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ALL IN THE CITY OF NEW YORK, AND STATE
OF NEW YORK, ON THE 14TH DAY OF OCTOBER, 1997.
THE BANK OF NEW YORK
BY: /s/ MARY JANE MORRISSEY
---------------------------
NAME: MARY JANE MORRISSEY
TITLE: VICE PRESIDENT
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the
close of business June 30, 1997, published in
accordance with a call made by the Federal
Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depository
institutions:
Noninterest-bearing balances and currency
and coin...................................... $ 7,769,502
Interest-bearing balances....................... 1,472,524
Securities:
Held-to-maturity securities..................... 1,080,234
Available-for-sale securities................... 3,046,199
Federal funds sold and Securities purchased under
agreements to resell............................ 3,193,800
Loans and lease financing receivables:
Loans and leases, net of unearned
income..............................35,352,045
LESS: Allowance for loan and lease
losses................................625,042-
LESS: Allocated transfer risk reserve.......429
Loans and leases, net of unearned income,
allowance, and reserve........................ 34,726,574
Assets held in trading accounts................... 1,611,096
Premises and fixed assets (including capitalized
leases)......................................... 676,729
Other real estate owned........................... 22,460
Investments in unconsolidated subsidiaries and
associated companies............................ 209,959
Customers' liability to this bank on acceptances
outstanding..................................... 1,357,731
Intangible assets................................. 720,883
Other assets...................................... 1,627,267
-----------
Total assets...................................... $57,514,958
-----------
-----------
LIABILITIES
Deposits:
In domestic offices............................. $26,875,596
Noninterest-bearing...................11,213,657
Interest-bearing......................15,661,939
In foreign offices, Edge and Agreement
subsidiaries, and IBFs........................ 16,334,270
Noninterest-bearing......................596,369
Interest-bearing......................15,737,901
Federal funds purchased and Securities sold under
agreements to repurchase........................ 1,583,157
Demand notes issued to the U.S. Treasury.......... 303,000
Trading liabilities............................... 1,308,173
Other borrowed money:
With remaining maturity of one year or less..... 2,383,570
With remaining maturity of more than one year
through three years........................... 0
With remaining maturity of more than three
years......................................... 20,679
Bank's liability on acceptances executed and
outstanding..................................... 1,377,244
Subordinated notes and debentures................. 1,018,940
Other liabilities................................. 1,732,792
-----------
Total liabilities................................. 52,937,421
-----------
EQUITY CAPITAL
Common stock...................................... 1,135,284
Surplus........................................... 731,319
Undivided profits and capital reserves............ 2,721,258
Net unrealized holding gains (losses) on
available-for-sale securities................... 1,948
Cumulative foreign currency transaction
adjustments..................................... (12,272)
-----------
Total equity capital.............................. 4,577,537
-----------
Total liabilities and equity capital.............. $57,514,958
-----------
-----------
I, Robert E. Keilman, Senior Vice President and
Comptroller of the above-named bank do hereby declare
that this Report of Condition has been prepared in
conformance with the instructions issued by the Board
of Governors of the Federal Reserve System and is true
to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors attest to the
correctness of this Report of Condition and declare that
it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance
with the instructions issued by the Board of Governors
of the Federal Reserve System and is true and correct.
Thomas A. Renyl
J. Carter Bacot } Directors
Alan R. Griffith
------------------------------
<PAGE>
Exhibit 99.1
[FORM OF LETTER OF TRANSMITTAL]
CELLNET DATA SYSTEMS, INC.
OFFER FOR ALL OUTSTANDING
14% SENIOR NOTES DUE 2007, SERIES A
IN EXCHANGE FOR
14% SENIOR NOTES DUE 2007, SERIES B
PURSUANT TO THE PROSPECTUS, DATED OCTOBER ___, 1997.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
__________________, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
BY REGISTERED OR CERTIFIED MAIL: FACSIMILE TRANSMISSION NUMBER: BY HAND/OVERNIGHT DELIVERY:
<S> <C> <C>
(For Eligible Institutions Only)
(212) 815-6333
The Bank of New York The Bank of New York
101 Barclay Street, 21st Floor 101 Barclay Street
New York, New York 10286 Confirm and/or information: Corporate Trust Services
Attn.: Reorganization Section (212) 815-5084 Window Ground Level
New York, New York 10286
Attn.: Reorganization Section
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received the Prospectus,
dated __________, 1997 (the "Prospectus") of CellNet Data Systems, Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal (this
"Letter of Transmittal"), which together constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate principal amount at maturity of up
to $654,133,000 14% Senior Notes due 2007, Series B (the "New Notes") of the
Company for a like principal amount at maturity of the issued and outstanding
14% Senior Notes due 2007, Series A (the "Old Notes") of the Company from the
holders thereof.
This Letter of Transmittal is to be used if certificates for the Old
Notes are to be forwarded herewith. If delivery of the Old Notes is to be
made through book-entry transfer into the Exchange Agent's account at the
Depository Trust Company ("DTC"), this Letter of Transmittal need not be
delivered; PROVIDED, HOWEVER, that tenders of the Old Notes must be effected
in accordance with
<PAGE>
DTC's Automated Tender Offer Program ("ATOP") procedures and the procedures
set forth in the Prospectus under the caption "The Exchange Offer--Procedures
for Tender" and "--Book Entry Transfer; Delivery and Form."
For each Old Note accepted for exchange, the holder of such Old Note
will receive a New Note having a principal amount at maturity equal to that
of the surrendered Old Note. Interest on the New Notes will accrue from the
last interest payment date on which interest was paid on the Old Notes
surrendered in exchange therefor or, if no interest has been paid on the Old
Notes, from the date of the original issue of the Old Notes. If by March 29,
1998, neither an Exchange Offer with respect to the Old Notes has been
consummated nor a shelf registration statement with respect to the Old Notes
has been declared effective, interest will accrue on each Old Note, from and
including the date of original issue of such Old Note until but excluding the
earlier of the date of consummation of an Exchange Offer and the effective
date of a shelf registration statement at a rate of 0.50% per annum in
addition to the interest rate set forth above. Holders of Old Notes accepted
for exchange will be deemed to have waived the right to receive any other
payments or accrued interest on the Old Notes. The Company reserves the
right, at any time or from time to time, to extend the Exchange Offer at its
discretion, in which event the term "Expiration Date" shall mean the latest
time and date to which the Exchange Offer is extended. The Company shall
notify the holders of the Old Notes of any extension by means of a press
release or other public announcement prior to 9:00 A.M., New York City time,
on the next business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be completed by a holder of Old Notes
either if certificates are to be forwarded herewith or if a tender of
certificates for Old Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in "The Exchange Offer Book-Entry Transfer; Delivery and Form"
section of the Prospectus. Holders of Old Notes whose certificates are not
immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents by this Letter to the Exchange Agent
on or prior to the Expiration Date, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
-2-
<PAGE>
List below the Old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the certificate numbers and
principal amount at maturity of Old Notes should be listed on a separate
signed schedule affixed hereto.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Principal Principal Amount at
Name(s) and Address(es) of Registered Holder(s) Certificate* Amount at Maturity of Maturity
(Please fill in, if blank) Number(s) Old Note(s) Tendered**
- -----------------------------------------------------------------------------------------------------------------------------------
--------------- --------------- ---------------
--------------- --------------- ---------------
--------------- --------------- ---------------
Total
- -----------------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have transferred ALL of the Old Notes represented by
the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered hereby must be in denominations of principal
amount at maturity of $1,000 and any integral multiple thereof. See Instruction 1.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution_____________________________________________
Account Number___________________ Transaction Code Number______________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)___________________________________________
Window Ticket Number (if any)_____________________________________________
Date of Execution of Notice of Guaranteed Delivery________________________
Name of Institution which guaranteed delivery_____________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number___________________ Transaction Code Number______________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:___________________________________________________________________________
Address: ____________________________________________________________________
____________________________________________________________________
-3-
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY AND FOLLOW THE INSTRUCTIONS
BEGINNING ON PAGE 6 HEREOF.
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount at
maturity of Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Old Notes as are being tendered
hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when the same are accepted by the
Company. The undersigned hereby further represents that any New Notes
acquired in exchange for Old Notes tendered hereby will have been acquired in
the ordinary course of business of the person receiving each New Note,
whether or not such person is the undersigned, that neither the holder of
such Old Notes nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes and that
neither the holder of such Old Notes nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made
in reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the New Notes issued in exchange for the Old
Notes pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holders' business and such holders
have no arrangements with any person to participate in the distribution of
such New Notes. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
it acknowledges that it will deliver a prospectus in connection with any
resale of such New Notes; however, by so acknowledging and delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter of Transmittal
-4-
<PAGE>
and every obligation of the undersigned hereunder shall be binding upon the
successors, assigns, heirs, executors, administrators, trustees in bankruptcy
and legal representatives of the undersigned and shall not be affected by,
and shall survive, the death or incapacity of the undersigned. This tender
may be withdrawn only in accordance with the procedures set forth in "The
Exchange Offer--Withdrawal of Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the account indicated above maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated
under the box entitled "Special Delivery Instructions" below, please send the
New Notes (and, if applicable, substitute certificates representing Old Notes
for any Old Notes not exchanged) to the undersigned at the address shown
above in the box entitled "Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX ABOVE.
-5-
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Notes; Guaranteed Delivery
Procedures.
This Letter of Transmittal is to be completed by noteholders either if
certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery of book-entry transfer set forth in
"The Exchange Offer--Book Entry Transfer; Delivery and Form" section of the
Prospectus. Certificates for all physically tendered Old Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile hereof) and any
other documents required by this Letter of Transmittal, must be received by
the Exchange Agent at the address set forth herein on or prior to the
Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount at maturity of $1,000 and any integral
multiple thereof.
Holders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to
the Exchange Agent on or prior to the Expiration Date, or who cannot complete
the procedure for book-entry transfer on a timely basis, may tender their Old
Notes pursuant to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent must
receive from such Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of
the holder of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within five New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Old Notes, or a
Book-Entry Confirmation, and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Old Notes, in
proper form for transfer, or Book-Entry Confirmation, as the case may be, and
all other documents required by this Letter of Transmittal, are received by
the Exchange Agent within five NYSE trading days after the date of execution
of the Notice of Guaranteed Delivery.
The method of delivery of this Letter of Transmittal, the Old Notes
and all other required documents is at the election and risk of the tendering
holders, but the delivery will be deemed made only when actually received or
confirmed by the Exchange Agent. If Old Notes are sent by mail, it is
suggested that the mailing be made sufficiently in advance of the Expiration
Date to permit the delivery to the Exchange Agent prior to 5:00 p.m., New
York City time, on the Expiration Date.
-6-
<PAGE>
See "The Exchange Offer" section in the Prospectus.
2. Partial Tenders (not applicable to holders who tender by book-entry
transfer).
If less than all of the Old Notes evidenced by a submitted certificate
are to be tendered, the tendering holder(s) should fill in the aggregate
principal amount at maturity of Old Notes to be tendered in the box above
entitled "Description of Old Notes--Principal Amount at Maturity Tendered."
A reissued certificate representing the balance of nontendered Old Notes will
be sent to such tendering holder, unless otherwise provided in the
appropriate box on this Letter of Transmittal, promptly after the Expiration
Date. All of the Old Notes delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
3. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered holder of the
Old Notes tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
When this Letter of Transmittal is signed by the registered holder or
holders of the Old Notes specified herein and tendered hereby, no
endorsements of certificates or separate bond powers are required. If,
however, the New Notes are to be issued, or any untendered Old Notes are to
be reissued, to a person other than the registered holder, then endorsements
of any certificates transmitted hereby or separate bond powers are required.
Signatures on such certificate(s) must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of any certificate(s) specified herein, such
certificate(s) must be endorsed or accompanied by appropriate bond powers, in
either case signed exactly as the name or names of the registered holder or
holders appear(s) on the certificate(s) and signatures on such certificate(s)
must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless
-7-
<PAGE>
waived by the Company, proper evidence satisfactory to the Company of their
authority to so act must be submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States or by such
other Eligible Institution within the meaning of Rule 17(A)(d)-15 under the
Securities Exchange Act of 1934, as amended (collectively "Eligible
Institutions").
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a
registered holder of Old Notes (which term, for purposes of the Exchange
Offer, includes any participant in the Book-Entry Transfer Facility system
whose name appears on a security position listing as the holder of such Old
Notes) tendered who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on this Letter of
Transmittal, or (ii) for the account of an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer
and/or substitute certificates evidencing Old Notes not exchanged are to be
issued or sent, if different from the name or address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
employer identification or social security number of the person named must
also be indicated. Noteholders tendering Old Notes by book-entry transfer
may request that Old Notes not exchanged be credited to such account
maintained at the Book-Entry Transfer Facility as such noteholder may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter of Transmittal.
5. Tax Identification Number.
Federal income tax law generally requires that a tendering holder whose
Old Notes are accepted for exchange must provide the Company (as payor) with
such holder's correct Taxpayer Identification Number ("TIN") on Substitute
Form W-9 below, which in the case of a tendering holder who is an individual,
is his or her social security number. If the Company is not provided with
the current TIN or an adequate basis for an exemption, such tendering holder
may be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, delivery to such tendering holder of New Notes may be subject to
backup withholding in an amount equal to 31% of all reportable payments made
after the exchange. If withholding results in an overpayment of taxes, a
refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and reporting requirements. See the
-8-
<PAGE>
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (the "W-9 Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth
below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, or
(ii) the holder has not been notified by the Internal Revenue Service that
such holder is subject to a backup withholding as a result of a failure to
report all interest or dividends or (iii)) the Internal Revenue Services has
notified the holder that such holder is no longer subject to backup
withholding. If the tendering holder of Old Note is a nonresident alien or
foreign entity not subject to backup withholding, such holder must give the
Company a completed Form W-8, Certificate of Foreign Status. These forms may
be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, such holder should consult
the W-9 Guidelines for information on which TIN to report. If such holder
does not have a TIN, such holder should consult the W-9 Guidelines for
instructions on applying for a TIN, check the box in Part 2 of the Substitute
Form W-9 and write "applied for" in lieu of its TIN. Note: Checking this box
and writing "applied for" on the form means that such holder has already
applied for a TIN or that such holder intends to apply for one in the near
future. If such holder does not provide its TIN to the Company within 60
days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason
other than the transfer of Old Notes to the Company or its order pursuant to
the Exchange Offer, the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will
be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
8. No Conditional Tenders.
-9-
<PAGE>
No alternative, conditional, irregular or contingent tenders will be
accepted . All tendering holders of Old Notes, by execution of this Letter,
shall waive any right to reserve notice of the acceptance of their Old Notes
for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above
for further instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may
be directed to the Exchange Agent, at the address and telephone number
indicated above.
-10-
<PAGE>
________________________________________________________________________________
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter of Transmittal
above, or if Old Notes delivered by book-entry transfer which are not
accepted for exchange are to be returned by credit to an account maintained
at the Book-Entry Transfer Facility other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Please Type or Print)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Please Type or Print)
Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Zip Code)
(Complete Substitute Form W-9)
Credit unexchanged Old Notes for "Debentures" delivered by book-entry
transfer to the Book-Entry Transfer Facility account set forth below.
________________________________________________________________________________
(Book-Entry Transfer Facility
Account Number, if applicable)
________________________________________________________________________________
________________________________________________________________________________
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter of Transmittal
above.
Mail: New Notes and/or Old Notes to:
Name(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Please Type or Print)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Please Type or Print)
Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Zip Code)
________________________________________________________________________________
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS
OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
-11-
<PAGE>
________________________________________________________________________________
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9 on reverse side)
Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 1997
x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 1997
x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 1997
Signature(s) of Owner(s) Date
Area Code and Telephone Number . . . . . . . . . . . . . . . . . . . . . .
If a holder is tendering any Old Notes this Letter of Transmittal must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) of the Old Notes by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set
forth full title. See Instruction 3.
Name(s): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Please Type or Print)
Capacity: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Address: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Including Zip Code)
SIGNATURE GUARANTEE
(if requested by Instruction 3)
Signature's Guaranteed by an Eligible Institution . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Title)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Name and Firm)
________________________________________________________________________________
<PAGE>
================================================================================
SUBSTITUTE FORM W-9
================================================================================
To Be Completed by All Tendering Securityholders
(See Instruction 5)
Sign this Substitute Form W-9 in Addition to the Signature(s) Required Above
PAYOR'S NAME: THE BANK OF NEW YORK
================================================================================
SUBSTITUTE
Form W-9
Department of the Treasury
Internal Revenue Service
Payor's Request for Taxpayer
Identification Number (TIN)
and Certification
Part 1-Please provide your TIN (either your social security TIN_____________
number or employer identification number) in the box to the
right and certify by signing and dating below.
Part 2-Awaiting TIN / /
SIGN THIS FORM and THE CERTIFICATION OF
AWAITING TAXPAYER IDENTIFICATION NUMBER BELOW.
Part 3-Exempt / /
See enclosed Guidelines for additional
information and SIGN THIS FORM.
================================================================================
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) the number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding because (i) I am exempt from backup
withholding, or (ii) I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (iii) the IRS has notified
me that I am no longer subject to backup withholding; and
(3) any other information provided on this form is true and correct.
CERTIFICATION INSTRUCTIONS--You must cross out item (iii) in Part (2) above
if you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax
return and you have not been notified by the IRS that you are no longer
subject to backup withholding.
================================================================================
SIGNATURE________________________________________ DATE____________________
================================================================================
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE
BOX IN PART 2 OF THE SUBSTITUTE FORM W-9
================================================================================
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me on account of the New Notes
shall be retained until I provide a taxpayer identification number to the
Exchange Agent and that, if I do not provide my taxpayer identification
number within 60 days, such retained amounts shall be remitted to the
Internal Revenue Service as backup withholding and 31% of all reportable
payments made to me thereafter will be withheld and remitted to the Internal
Revenue Service until I provide a taxpayer identification number.
SIGNATURE________________________________________ DATE____________________
================================================================================
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER FOR ADDITIONAL INFORMATION.
-13-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN - The Taxpayer Identification Number for most individuals is your social
security number. Refer to the following chart to determine the appropriate
number:
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________________________
Give the Give the
SOCIAL EMPLOYER
For this type of SECURITY For this type of IDENTIFICATION
account Number of account Number of
---------------- --------- --------------- --------------
<S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner(3)
2. Two or more The actual owner of the 7. A valid trust, Legal entity(4)
individuals (joint account or, if combined estate or pension
account) funds, the first individual trust
on the account(1)
3. Custodian account The minor(2) 8. Corporate The corporation
of a minor (Uniform
Gift to Minors Act) 9. Association, club, The organization
religious,
4. a. The usual The grantor-trustee(1) charitable,
revocable educational or
savings trust other tax-exempt
(grantor is also organization
trustee)
10. Partnership The partnership
b. So-called trust The actual owner(1)
account that is 11. A broker or The broker or nominee
not a legal or registered nominee
valid trust under
state law 12. Account with the The public entity
Department of
5. Sole proprietorship The owner(3) Agriculture
___________________________________________________________________________________________________________________________________
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or
"doing business as" name. You may use either your Social Security number
or your employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
B. Exempt Payees -- The following lists exempt payees. If you are exempt, you
must nonetheless complete the form and provide your TIN in order to
establish that you are exempt. Check the box in Part 3 of the form, sign
and date the form.
For this purpose, Exempt Payees include: (1) a corporation; (2) an
organization exempt from tax under section 501(a), or an individual
retirement plan (IRA) or a custodial account under section 403(b)(7); (3)
the United States or any of its agencies or instrumentalities; (4) a
state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities; (5) a foreign
government or any of its political subdivisions, agencies or
instrumentalities; (6) an international organization or any of its
agencies or instrumentalities; (7) a foreign central bank of issue; (8)
a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.; (9) a real estate investment trust; (10) an
entity registered at all times during the tax year under the Investment
Company Act of 1940; (11) a common trust fund operated by a bank under
section 584(a); (12) a financial institution.
C. OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, application for a Social Security Number, or
Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue
Service and apply for a number.
D. PRIVACY ACT NOTICE
Section 6109 requires most recipients of dividend, interest or other
payments to give taxpayer identification numbers to payors who must report
the payments to IRS. IRS uses the numbers for identification purposes.
Payors must be given the numbers whether or not recipients are required to
file tax returns. Payors must generally withhold 31% of taxable-interest,
dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number. Certain penalties may also apply.
E. PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If
you fail to furnish your taxpayer identification number to a payor, you are
subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you
fail to include any portion of an includible payment for interest,
dividends, or patronage dividends in gross income, such failure will be
treated as being due to negligence and will be subject to a penalty of 5%
on any portion of an under-payment attributable to that failure unless
there is clear and convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying
certifications or affirmations may subject you to criminal penalties
including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
-14-
<PAGE>
Exhibit 99.2
CELLNET DATA SYSTEMS, INC.
[FORM OF NOTICE OF GUARANTEED DELIVERY]
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer (as defined below) relating to the outstanding 14% Senior
Discount Notes due 2007, Series A (the "Old Notes") of CellNet Data Systems,
Inc. (the "Company") made pursuant to the prospectus, dated __________, 1997
(the "Prospectus") and the related letter of transmittal (the "Letter of
Transmittal"), if (i) certificates for Old Notes are not immediately
available; (ii) the Old Notes, the Letter of Transmittal and all other
required documents cannot be delivered or transmitted by facsimile
transmission, mail or hand delivery to The Bank of New York (the "Exchange
Agent") as set forth below on or prior to 5:00 P.M., New York City time, on
the Expiration Date; or (iii) the procedures of delivery for book-entry
transfer cannot be completed on a timely basis. See "The Exchange
Offer--Procedures for Tendering" section in the Prospectus. Capitalized terms
not defined herein are defined in the Prospectus.
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
BY REGISTERED OR CERTIFIED MAIL: FACSIMILE TRANSMISSION NUMBER: BY HAND/OVERNIGHT DELIVERY:
<S> <C> <C>
(For Eligible Institutions Only)
(212) 815-6333
The Bank of New York The Bank of New York
101 Barclay Street, 21st Floor 101 Barclay Street, 21st Floor
New York, New York 10286 Confirm and/or information: Corporate Trust Services Window
Attn: Reorganization Section (212) 815-5084 Ground Level
New York, New York 10286
Attn: Reorganization Section
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount (at maturity of Old Notes set forth below,
pursuant to the guaranteed delivery procedure described in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Principal Amount At Maturity of Old Notes
Tendered:(1)
$___________________________________
Certificate Nos. (if available):
____________________________________ If Old Notes will be delivered by
book-entry transfer to The Depository
Trust Company, provide account number.
Total Principal Amount at Maturity
Represented by Old Notes Certificate(s):
$___________________________________ Account Number______________________
________________________________________________________________________________
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
________________________________________________________________________________
_________________________
(1) Must be in denominations of principal amount at maturity of $1,000
and any integral multiple thereof.
-2-
<PAGE>
PLEASE SIGN HERE
X________________________________ __________________
X________________________________ __________________
Signature(s) of Owner(s) or Date
Authorized Signatory
Area Code and Telephone Number: ________________________
Must be signed by the holder(s) of the Old Notes as their name(s)
appear(s) on certificates for Old Notes or on a security position listing, or
by person(s) authorized to become registered holder(s) by endorsement and
documents transmitted with this Notice of Guaranteed Delivery. If signature
is by a trustee, executor, administrator, guardian, attorney-in-fact, officer
or other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below.
Please print name(s) and address(es)
Name(s): __________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Capacity: __________________________________________________________________
Address(es): __________________________________________________________________
__________________________________________________________________
__________________________________________________________________
-3-
<PAGE>
GUARANTEE
The undersigned, an Eligible Institution within the meaning of Rule
17(A)(d)-15 under the Securities Exchange Act of 1934, as amended, hereby
guarantees that the certificates representing the principal amount at
maturity of Old Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company pursuant to the procedures
set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of
the Prospectus, together with a properly completed and duly executed Letter
of Transmittal (or a manually signed facsimile thereof) with any required
signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than five New York Stock Exchange trading days after the date
of execution hereof.
___________________________________ ___________________________________
Name of Firm Authorized Signature
___________________________________ ___________________________________
Address Title
___________________________________ Name:______________________________
Zip Code (Please Type or Print)
Area Code & Telephone No.__________ Dated:_____________________________
NOTE: DO NOT SENT CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES
FOR OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
-4-
<PAGE>
Exhibit 99.3
[FORM OF EXCHANGE AGENT AGREEMENT]
As of __________, 1997
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street, 21st Floor
New York, New York 10286
Ladies and Gentlemen:
CellNet Data Systems, Inc. (the "Company") proposes to make an offer (the
"Exchange Offer") to exchange its 14% Senior Discount Notes due 2007, Series A
(the "Old Securities") for its 14% Senior Discount Notes due 2007, Series B (the
"New Securities"). The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a prospectus, dated __________, 1997 (the
"Prospectus"), proposed to be distributed to all record holders of the Old
Securities. The Old Securities and the New Securities are collectively referred
to herein as the "Securities."
The Company hereby appoints The Bank of New York to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company on or
promptly after the effective date of the Form S-4 Registration Statement filed
by the Company with the Securities Exchange Commission on October 15, 1997. The
Letter of Transmittal accompanying the Prospectus (or in the case of book-entry
securities, the ATOP system) is to be used by the holders of the Old Securities
to accept the Exchange Offer and contains instructions with respect to the
delivery of certificates for Old Securities tendered in connection therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on the
date specified in the Prospectus or on such later date or time to which the
Company may extend the Exchange Offer (the "Expiration Date"). Subject to the
terms and conditions set forth in the Prospectus, the Company expressly reserves
the right to extend the Exchange Offer from time to time and may extend the
Exchange Offer by giving oral (confirmed in writing) or written notice to you
before 9:00 A.M., New York City time, on the business day following the
previously scheduled Expiration Date.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any old Securities not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified in the Prospectus under the caption "The Exchange
Offer--Conditions." The Company will give oral (confirmed in writing) or
written notice of any amendment, termination or nonacceptance to you as promptly
as practicable.
<PAGE>
In carrying out your duties as Exchange Agent, you are to act in accordance
with the following instructions:
1. You will perform such duties and only such duties as are specifically
set forth in the section of the Prospectus captioned "The Exchange Offer", or as
specifically set forth herein; PROVIDED, HOWEVER, that in no way will your
general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old Securities at
The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes
of the Exchange Offer within two business days after the date of the Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Old Securities by causing
the Book-Entry Transfer Facility to transfer such Old Securities into your
account in accordance with the Book-Entry Transfer Facility's procedure for such
transfer.
3. You are to examine each of the Letters of Transmittal and certificates
for Old Securities (or confirmation of book-entry transfer into your account at
the Book-Entry Transfer Facility) and any other documents delivered or mailed to
you by or for holders of the Old Securities to ascertain whether: (i) the
Letters of Transmittal and any such other documents are duly executed and
properly completed in accordance with instructions set forth therein and
(ii) the Old Securities have otherwise been properly tendered. In each case
where the Letter of Transmittal or any other document has been improperly
completed or executed or any of the certificates for Old Securities are not in
proper form for transfer or some other irregularity in connection with the
acceptance of the Exchange Offer exists, you will endeavor to inform the
presenters of the need for fulfillment of all requirements and to take any other
action as may be necessary or advisable to cause such irregularity to be
corrected.
4. With the approval of the President, Senior Vice President, Executive
Vice President, or any Vice President of the Company (such approval, if given
orally, to be confirmed in writing) or any other party designated by such an
officer in writing, you are authorized to waive any irregularities in connection
with any tender of Old Securities pursuant to the Exchange Offer.
5. Tenders of Old Securities may be made only as set forth in the Letter
of Transmittal and in the section of the Prospectus captioned "The Exchange
Offer--Procedures for Tendering", and Old Securities shall be considered
properly tendered to you only when tendered in accordance with the procedures
set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Securities which
the President, Senior Vice President, Executive Vice President, or any Vice
President of the Company shall approve as having been properly tendered shall be
considered to be properly tendered (such approval, if given orally, shall be
confirmed in writing).
-2-
<PAGE>
6. You shall advise the Company with respect to any Old Securities
received subsequent to the Expiration Date and accept its instructions with
respect to disposition of such Old Securities.
7. You shall accept tenders:
(a) in cases where the Old Securities are registered in two or more
names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Securities
provided that customary transfer requirements, including any applicable transfer
taxes, are fulfilled.
You shall accept partial tenders of Old Securities where so indicated and
as permitted in the Letter of Transmittal and deliver certificates for Old
Securities to the transfer agent for split-up and return any untendered Old
Securities to the holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice if given orally, to be confirmed
in writing) of its acceptance, promptly after the Expiration Date, of all Old
Securities properly tendered and you, on behalf of the Company, will exchange
such Old Securities for New Securities and cause such Old Securities to be
canceled. Delivery of New Securities will be made on behalf of the Company by
you at the rate of $1,000 principal amount of New Securities for each $1,000
principal amount of the corresponding series of Old Securities tendered promptly
after notice (such notice if given orally, to be confirmed in writing) of
acceptance of said Old Securities by the Company; PROVIDED, HOWEVER, that in all
cases, Old Securities tendered pursuant to the Exchange Offer will be exchanged
only after timely receipt by you of certificates for such Old Securities (or
confirmation of book-entry transfer into your account at the Book-Entry Transfer
Facility), a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees and any other required
documents. You shall issue New Securities only in denominations of $1,000 or
any integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, Old Securities tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Old Securities
tendered if any of the conditions set forth in the Exchange Offer are not met.
Notice of any decision by the Company
-3-
<PAGE>
not to exchange any Old Securities tendered shall be given (and confirmed in
writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Securities tendered because of an invalid
tender, the occurrence of certain other events set forth in the Prospectus under
the caption "The Exchange Offer--Conditions" or otherwise, you shall as soon as
practicable after the expiration or termination of the Exchange Offer return
those certificates for unaccepted Old Securities (or effect appropriate book-
entry transfer), together with any related required documents and the Letters of
Transmittal relating thereto that are in your possession, to the persons who
deposited them.
12. All certificates for reissued Old Securities, unaccepted Old
Securities or for New Securities shall be forwarded by (a) first-class certified
mail, return receipt requested under a blanket surety bond protecting you and
the Company from loss or liability arising out of the non-receipt or non-
delivery of such certificates or (b) by registered mail insured separately for
the replacement value of each of such certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other person or
to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically
set forth herein or as may be subsequently agreed in writing by you and the
Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any of
the certificates or the Old Securities represented thereby deposited with you
pursuant to the Exchange Offer, and will not be required to and will make no
representation as to the validity, value or genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal action hereunder which
might in your reasonable judgment involve any expense or liability, unless you
shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you
-4-
<PAGE>
shall in good faith believe to be genuine or to have been signed or
represented by a proper person or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from any officer of the Company;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by you hereunder in good faith
and in accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering Old Securities pursuant to
the Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market, value of any Old Securities.
15. You shall take such action as may from time to time be requested by
the Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus) or such other forms
as may be approved from time to time by the Company, to all persons requesting
such documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for accepting (or withdrawing from) the Exchange Offer. The
Company will furnish you with copies of such documents at your request. All
other requests for information relating to the Exchange Offer shall be directed
to the Company, Attention: Chief Financial Officer.
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to the Chief Financial Officer of the Company and
such other person or persons as it may request, daily (and more frequently
during the week immediately preceding the Expiration Date and if otherwise
requested) up to and including the Expiration Date, as to the number of Old
Securities which have been tendered pursuant to the Exchange Offer and the items
received by you pursuant to this Agreement, separately reporting and giving
cumulative totals as to items properly received and items improperly received.
In addition, you will also inform, and cooperate in making available to, the
Company or any such other person or persons, upon oral request made from time to
time prior to the Expiration Date, such other information as it or he or she
reasonably requests. Such cooperation shall include, without limitation, the
grant by you to the Company, and such persons as the Company may request, of
access to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate principal amount of Old
Securities tendered, the aggregate principal amount of Old Securities accepted
and deliver said list to the Company.
-5-
<PAGE>
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you for the
payment of transfer taxes by reason of amounts, if any, borrowed by the Company,
or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent,
which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including reasonable attorneys' fees and expenses, arising out of or in
connection with any act, omission, delay or refusal made by you in reliance upon
any signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document reasonably believed by you to be
valid, genuine and sufficient and in accepting any tender or effecting any
transfer of Old Securities reasonably believed by you in good faith to be
authorized, and in delaying or refusing in good faith to accept any tenders or
effect any transfer of Old Securities; PROVIDED, HOWEVER, that the Company shall
not be liable for indemnification or otherwise for any loss, liability, cost or
expense to the extent arising out of your gross negligence or willful
misconduct. In no case shall the Company be liable under this indemnity with
respect to any claim against you unless the Company shall be notified by you, by
letter or by facsimile confirmed by letter, of the written assertion of a claim
against you or of any other action commenced against you, promptly after you
shall have received any such written assertion or notice of commencement of
action. The Company shall be entitled to participate at its own expense in the
defense of any such claim or other action, and, if the Company so elects, the
Company shall assume the defense of any suit brought to enforce any such claim.
In the event that the Company shall assume the defense of any such suit, the
Company shall not be liable for the fees and expenses of any additional counsel
thereafter retained by you so long as the Company shall retain counsel
satisfactory to you to defend such suit.
22. You shall arrange to comply with all requirements under the tax laws
of the United States, including those relating to missing Tax Identification
Numbers, and shall file any appropriate
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<PAGE>
reports with the Internal Revenue Service. The Company understands that you
are required to deduct 31% on payments to holders who have not supplied their
correct Taxpayer Identification Number or required certification. Such funds
will be turned over to the Internal Revenue Service in accordance with
applicable regulations.
23. You shall deliver or cause to be delivered, in a timely manner to each
governmental authority to which any transfer taxes are payable in respect of the
exchange of Old Securities, your check in the amount of all transfer taxes so
payable, and the Company shall reimburse you for the amount of any and all
transfer taxes payable in respect of the exchange of Old Securities; PROVIDED,
HOWEVER, that you shall reimburse the Company for amounts refunded to you in
respect of your payment of any such transfer taxes, at such time as such refund
is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such state,
and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company:
CellNet Data Systems, Inc.
125 Shoreway Road
San Carlos, California 94070
Facsimile: (415) 592-6858
Attention: Chief Financial Officer
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<PAGE>
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-6333
Attention: Corporate Trust Trustee Administration
29. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the foregoing,
paragraphs 19, 21 and 23 shall survive the termination of this Agreement. Upon
any termination of this Agreement, you shall promptly deliver to the Company any
certificates for Securities, funds or property then held by you as Exchange
Agent under this Agreement.
30. This Agreement shall be binding and effective as of the date hereof.
[Remainder of page intentionally left blank.]
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Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
CELLNET DATA SYSTEMS, INC.
By: ________________________________
Name:
Title:
Accepted as the date
first above written:
THE BANK OF NEW YORK,
as Exchange Agent
By: _______________________________
Name:
Title:
<PAGE>
SCHEDULE I
FEES
